** **

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

** **
| ** **                                                                                                                                                                                          | ** ** | ** **                                                                                         |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------|
| **x**                                                                                                                                                                                               | ** ** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**     |
| ** **                                                                                                                                                                                          | ** ** | ** **                                                                                         |
| ** **                                                                                                                                                                                          | ** ** | ** **                                                                                         |
| **for the  fiscal year ended December 31, 2007**                                                                                                                                               |
| ** **                                                                                                                                                                                          | ** ** | ** **                                                                                         |
| **OR**                                                                                                                                                                                              |
| ** **                                                                                                                                                                                          | ** ** | ** **                                                                                         |
| **o**                                                                                                                                                                                               | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                          | ** ** | ** **                                                                                         |
| ** **                                                                                                                                                                                          | ** ** | ** **                                                                                         |
| **for the  transition period  from             to             .** |

** **

**COMMISSION FILE NUMBER:  333-127781**

 

**SAFETY PRODUCTS HOLDINGS,INC.**

(Exact name ofregistrant 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 telephonenumber, including area code)

 

Securities registeredpursuant to Section 12(b) of the Act:

**None.**

** **

Securities registeredpursuant to Section 12(g) of the Act:

**None.**

 

Indicateby check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.Yes o  No x

 

Indicateby check mark if the Registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act.Yes x  No  o

 

Indicateby check mark whether the Registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

 

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See the definitions of "large acceleratedfiler," "accelerated filer" and "smaller reportingcompany" in Rule 12b-2 of the Exchange Act. 

 
| Large Accelerated Filer o |   | Accelerated Filer o |   | Smaller Reporting Company o |   | Non-accelerated Filer x |
|---------------------------|--------|---------------------|--------|-----------------------------|--------|------------------------------|

 

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

 

Noneof the Registrant’s units are held by non-affiliates of the Registrant.

 

Asof March 13, 2008, Safety Products Holdings, Inc. had 11,023,384common 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                                                                                            | 21     |
|           | ITEM 7.   | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                         | 23     |
|           | ITEM 7A.  | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                         | 39     |
|           | ITEM 8.   | CONSOLIDATED  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                           | 41     |
|           | ITEM 9.   | CHANGES IN AND  DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                               | 83     |
|           | ITEM 9A.  | CONTROLS AND  PROCEDURES                                                                                            | 83     |
|           | ITEM 9B.  | OTHER INFORMATION                                                                                                   | 85     |
|           |      |                                                                                                                |   |
| PART III  |      |                                                                                                                | 86     |
|           |      |                                                                                                                |   |
|           | ITEM 10.  | DIRECTORS,  EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                                             | 86     |
|           | ITEM 11.  | EXECUTIVE  COMPENSATION                                                                                             | 87     |
|           | ITEM 12.  | SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                    | 101    |
|           | ITEM 13.  | CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                                          | 103    |
|           | ITEM 14.  | PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                             | 104    |
|           |      |                                                                                                                |   |
| PART IV   |      | 106                                                                                                                 |
|           |      |                                                                                                                |   |
|           | ITEM 15.  | EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES                                                                         | 106    |
|           |      |                                                                                                                |   |
| EXHIBIT  INDEX |      | 108                                                                                                                 |
|                |           |                                                                                                                     |        |  |  |  |  |  |

 

 

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**PART I**

** **

**ITEM 1.****         ****BUSINESS**

 

**Company Overview**

 

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

 

We sell our products under trusted, long-standingand well-recognized brand names, including *North*, *KCL**,Fibre-Metal, NEOS, *MorningPride**, *Ranger*, *Servus*,*Pro-Warrington**,* American Firewear*,* Salisbury*and* Safety Line. We believe thesebrand names have a strong reputation for excellence in protecting workers fromhazardous and life-threatening environments, which is a key purchasing considerationfor personal protection equipment. We believe our brand names, reputation,history of developing innovative products and a comprehensive line ofhigh-quality, differentiated products and high levels of customer service haveenhanced our relationships with our distributors and end-users. These factorshave enabled us to achieve strong market share positions in key product lines.In addition, the non-discretionary and consumable nature of our productsprovides us with stable and recurring revenues.

 

We are one of the largest participants in thepersonal protection equipment industry with approximately 3,100 employees in 30primary facilities worldwide. We market and sell our products through threedistinct sales forces dedicated to our three target markets. Our salesrepresentatives work closely with third-party distributors, whilesimultaneously calling on end-users to generate “pull-through” demand for ourproducts. We manufacture or assemble the majority of the products we sell.Approximately 82% of our net sales in 2007 were to customers in North America,with the remainder to customers primarily in Europe. We generated net sales of$462.3 million, $537.7 million and $608.9 million for the combined year ended December 31,2005 and the years ended December 31, 2006 and 2007, respectively.

 

We classify our diverse product offerings into threeprimary operating segments:

 

*****General Safety and Preparedness*****. We offer a diverse portfolio of leading products for a wide variety ofindustries, including the manufacturing, agriculture, construction, foodprocessing, pharmaceutical and automotive industries and the military, underthe *North*, *Ranger*, *Servus*, *KCL**,**Fibre-Metal**and* NEOS brand names. Our productoffering is one of the broadest in the personal protection equipment industryand includes respiratory protection, protective footwear, hand protection, eye,head and face protection, first aid, hearing protection and fall protection. Wesell our general safety and preparedness products primarily through industrialdistributors. Our general safety and preparedness segment generated net salesof $313.7 million, $370.9 million and $411.0 million for the combined yearended December 31, 2005 and the years ended December 31, 2006 and2007, respectively.

 

*FireService*. We manufactureand market one of the broadest lines of personal protection equipment for thefire service market, offering firefighters head-to-toe protection. Our productsinclude turnout gear, fireboots, helmets, gloves and other accessories. We marketour products under our Total Fire Group umbrella, using the brand names of *Morning Pride*, *Ranger*, *Servus**,**Pro-Warrington**and* American Firewear. We arewidely known for developing innovative equipment; for example, our turnoutgear, which alone has more than 100 patented features, and our urban search andrescue products are certified by third-party testing labs as meeting all of therequirements of the National Fire Protection Agency (“NFPA”) and otherregulatory bodies. We are the vendor of choice for many of the largest firedepartments in North America. We sell our fire service products primarilythrough specialized fire service distributors. Our fire service segmentgenerated net sales of $87.9 million, $87.9 million and $100.6 million for thecombined year ended December 31, 2005 and the years ended December 31,2006 and 2007, respectively.

 

*ElectricalSafety*. We manufactureand market a broad line of personal protection equipment for the electricalsafety market under the *Salisbury**,* Safety Line *and* Servus brands. Our productsinclude linemen equipment, gloves, sleeves, footwear and arc flash protection.Our products either meet or exceed the applicable standards of the AmericanNational Standards Institute (“ANSI”), the American Society for Testing ofMaterials (“ASTM”) and the International Electrotechnical Commission (“IEC”).We sell our electrical safety products through specialized distributors, testlabs, utilities and electrical 

 

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contractors.Our electrical safety segment generated net sales of $60.6 million, $78.8million and $97.3 million for the combined year ended December 31,2005 and the years ended December 31, 2006 and 2007, respectively.

 

For income (loss) from continuing operations, interestexpense, income tax expense (benefit), depreciation and amortization andpurchase of property, plant and equipment for each of our segments for theperiod from January 1, 2005 through July 19, 2005, the period from July 20,2005 through December 31, 2005 and the years ended December 31, 2006and 2007 and total assets for each of our segments as of December 31, 2006and 2007, see Note 16 to our audited financial statements.

 

**Acquisitions**

 

In May 2005, Safety Products was formed toeffect the acquisition from NSP Holdings L.L.C. (“NSP Holdings”) of allthe issued and outstanding equity interests of Norcross Safety Products L.L.C.(“Norcross”) and NSP Holdings Capital Corp. (“NSP Capital”) in a transactionvalued at approximately $481.0 million. To execute this transaction, SafetyProducts, NSP Holdings and Norcross entered into a purchase and sale agreementwhereby Safety Products acquired all of the equity interests of Norcross andNSP Capital. As a result of the acquisition, Safety Products became the soleunit holder of Norcross. The acquisition was completed in July 2005 andwas funded with proceeds to Safety Products from the issuance and sale of $25.0million of senior pay in kind notes as well as an equity investment byaffiliates of Odyssey Investment Partners, LLC, or Odyssey, and GeneralElectric Pension Trust, or GEPT, and certain members of management of Norcross.Concurrently with the acquisition, Norcross also entered into a new seniorcredit facility consisting of an $88.0 million term loan and a$50.0 million revolving credit facility.

 

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

 

In February 2006, we completed the acquisitionof all of the issued and outstanding capital stock of American Firewear, Inc.(“American Firewear”). The purchase price consisted of $4.5 million in cash(including acquisition costs of $0.2 million and net of cash acquired of $0.2million) and a $1.0 million subordinated seller note. In addition, the purchaseprice may be increased by $0.8 million over a four year period from the date ofthe acquisition based on American Firewear achieving certain financial andoperating objectives. We financed the acquisition through cash on the balancesheet and the issuance of the $1.0 million subordinated seller note.

 

In June 2006, we completed the acquisition ofall of the issued and outstanding capital stock of The White Rubber Corporation(“White Rubber”). The purchase price of $22.2 million (including acquisitioncosts of $0.6 million and gross of outstanding checks of $0.8 million) wasfinanced through additional term borrowings under the senior credit facilityand cash on the balance sheet.

 

In September 2006, we completed the acquisitionof all of the issued and outstanding capital stock of The New England OvershoeCompany, Inc. (“NEOS”). The purchase price consisted of $3.6 million incash (including acquisition costs of $0.1 million and net of cash acquired) anda $0.8 million subordinated seller note. In addition, the purchase price may beincreased over a five year period from the date of the acquisition based onNEOS achieving certain net sales targets. We financed the acquisition throughcash on the balance sheet and the issuance of the $0.8 million subordinatedseller note.

 

We refer herein to the acquisition of Norcross asthe “Norcross Transaction”, the acquisition of Fibre-Metal as the “Fibre-MetalTransaction”, the acquisition of American Firewear as the “American FirewearTransaction”, the acquisition of White Rubber as the “White Rubber Transaction”and the acquisition of NEOS as the “NEOS Transaction.”

 

**Discontinued Operations**

 

In June 2007, we completed the sale of all ofthe issued and outstanding capital stock of North Safety Products (Africa)(Proprietary) Limited (“South Africa”), a subsidiary of the Company. Wereceived net cash proceeds of $3.2 million and recorded a net loss related tothe transaction of $3.0 million. In accordance with Financial AccountingStandards Board (“FASB”) Statement of Accounting Standards (“SFAS”) No. 144,*Accounting for the Impairment or Disposal ofLong-Lived Assets*, we have reflected South Africa’s results ofoperations through the date of the sale and transaction loss as discontinuedoperations for all periods presented. Assets and liabilities of South Africawere not material and as a result have not been reclassified as discontinuedoperations in our consolidated statement of financial position as of December 31,2006. We have 

 

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combinedcash flows from discontinued operations with cash flows from continuingoperations within each cash flow statement category as the cash flows fromdiscontinued operations are not material to our consolidated results.

 

**Industry Overview**

 

The worldwide personal protection equipmentindustry, which we estimate to be over $20 billion in size, is highlyfragmented with few market participants offering a broad line of products.Demand for personal protection equipment is relatively stable, as purchases ofthese products are generally non-discretionary due to their use in protectingworkers from bodily harm in hazardous and life-threatening work environmentsand as a result of government and industry regulations mandating their use.Furthermore, many of our products have limited life spans due to normal coursewear and tear or because they are one-time use products by design, whichresults in consistent replacement and recurring revenues for industryparticipants. Additionally, we sell products, such as our respiratory line,which has both a durable component, in this case the face-piece, and adisposable component, in this case the cartridge. Ordinary-course usage of thedisposable component of our equipment creates recurring revenues.

 

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

 

*HeightenedCompliance and Commitment to Worker Safety*. Demand 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.

 

*Focuson Domestic Preparedness*. In the aftermath of theterrorist attacks of September 11, 2001 and other incidences of terrorismworldwide, governments have significantly increased their focus and theirspending on preparedness for conventional and nuclear, biological and chemicalattacks. The U.S. government, for example, created a separate cabinet-levelDepartment of Homeland Security and allocated significant funding to furtherits mission. The 2008 budget for the Department of Homeland Security isapproximately $46.4 billion, including approximately $8.0 billion of fundsallocated to the Federal Emergency Management Agency and EmergencyPreparedness.

 

*IndustrialDistributor Trends*. The industrial distribution channel hasexperienced consolidation over the past several years as distributors haveattempted to realize economies of scale. In addition, product procurementtrends have shown that distributors are increasing their purchases from large,multi product vendors, thereby simplifying the management of their supplychain, reducing their procurement costs and improving their selling efficiency.Distributors, therefore, have an explicit preference for vendors with broadproduct offerings and comprehensive services, including consolidated shippingand invoicing, direct marketing to end-users and salesforce training.

 

**Operating Structure**

 

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

 

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The following table sets forth the percentage of ournet sales generated by each of our operating segments for the combined yearended December 31, 2005 and the years ended December 31, 2006 and2007. The data have been derived from our audited consolidated financialstatements.

 
| ** **                       | ** ** | **Combined  Year ended  December 31,** | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------------|------------|---------------------------------------|------------|
| **Segment**                      | ** ** | **2005**                                         | ** ** | **2006**                              | ** ** | **2007** | ** ** |
| General Safety and  Preparedness |       | 67.9                                             | %          | 69.0                                  | %          | 67.5 | % |
| Fire Service                     |       | 19.0                                             | %          | 16.3                                  | %          | 16.5 | % |
| Electrical Safety                |       | 13.1                                             | %          | 14.7                                  | %          | 16.0 | % |

 

**Principal Products**

 

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

 

****GeneralSafety and Preparedness****. Our general safety andpreparedness products include respiratory protection, protective footwear, handprotection, eye, head and face protection, first aid, fall protection andhearing protection.

 

*RespiratoryProtection*. Our respiratoryproduct offering is one of the broadest and deepest in the industry andincludes disposable and reusable masks and face-pieces, filtration cartridges,powered air purifying respirators, self-contained breathing apparatuses andairline respirators. We produce respirators for use in a variety ofapplications, including protection against dust, fumes, micro-organisms,fibers, odors, mists and gases. In addition, we offer respirators for nuclear,biological and chemical protection. Our traditional strength is in airpurifying systems, which utilize cartridges to filter ambient air as opposed toself-contained breathing apparatus which supply fresh air from a portablecylinder. Our 7700 Series half-mask face-piece is among the world’s bestselling face-pieces due to its superior fit and comfort.

 

*ProtectiveFootwear*. Protectivefootwear is required to protect workers’ feet from falling objects, objects piercingthe sole, electrical hazards, hazardous materials, chemicals and extremetemperatures. We produce rubber, injection molded and other footwear to protectagainst such threats, using a variety of techniques for diverse applications,including meat and food processing, chemical processing, commercial fishing,agricultural work, construction and cold storage. With our origins as afootwear company, we have long held dominant positions within the footwearsegments of the personal protection equipment industry through our *Ranger* and *Servus* brands. Webelieve we are the largest manufacturer of both neoprene safety and hand-laidrubber protective footwear for the industrial market in North America.

 

*HandProtection*. Hand protectionis required for workers exposed to hazardous substances, vulnerable to severecuts, abrasions or chemical burns, and exposed to extreme temperatures. Wemanufacture and source gloves designed to protect workers against each of thesethreats and for a variety of specific applications, including use in materialhandling, automotive, construction, meat and food processing and controlledenvironments. Our products range from basic protection provided by importedcotton gloves to highly-engineered, patented gloves designed to withstand dangerouschemicals present in many workplaces. We market a full range of gloves withperformance characteristics tailored to each user’s application or hazardoussituation.

 

*Eye,Head and Face Protection*.We offer a wide variety of protective eyewear and face shields thatthrough innovative design and state of the art materials provide what webelieve to be a high degree of optical quality, comfort and fit. Many of ourproducts are offered with coatings that provide anti-fog, anti-scratch, anti-UVor anti-static protection. Our hard hats and accessories provide comfortableand dependable 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.

 

*FirstAid*. We market awide range of products, including unitized and bulk first aid supplies,nonprescription medicinals, dermatologicals, eye wash and body flush kits.Regulations require that first aid products be available to workers throughoutthe workplace, thereby creating stable demand for first aid kits.

 

*FallProtection*. We manufactureand market harnesses, lanyards, confined space retrieval equipment,self-retracting lifeliners and engineered fall protection systems. This productcategory often requires customized solutions to meet end-user needs.

 

 

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*HearingProtection*. We provide abroad line of both disposable and reusable hearing protection products used ina variety of industries. All of our hearing protection products are designed tobe as comfortable 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.

 

****FireService****.Our fire service products include turnout gear, fireboots, helmets,gloves and other accessories.

 

*TurnoutGear*. Turnout gear isprotective clothing worn by firefighters that must meet the strict designspecifications set by the NFPA, including resistance to heat and fire,chemicals, viruses and tears. All of our turnout gear meets or exceeds the NFPA’sor other regulatory body specifications. Turnout gear is made-to-order, withcustom measurements for each firefighter. We sell turnout gear under the *Morning Pride* brandname, which has been in existence since 1921 and has high distributor andend-user loyalty. *MorningPride* products are made with proprietary designs, are protected bymore than 100 patents, and use state-of-the-art materials such as KevlarTM, W.L.Gore’s CrosstechTM, PBITM, PBOTM and P-84TM. Our sales force traditionally has beensuccessful in creating demand for critical safety features for which we have apatent. Our unique, patented and field-tested features, such as dead airpanels, liner inspection ports and heat channel knee technologies, combinedwith our awareness of end-users’ needs for function and comfort, differentiateour turnout gear from that of our competitors. These proprietary designs andspecialized materials have allowed us to improve the performance of turnoutgear products and have increased the growth rate of our sales of theseproducts.

 

*Fireboots*. Fireboots typically must meet the strict design specifications set bythe NFPA, including specifications for heat and flame resistance, compression,sole puncture resistance, electrical hazards and water protection. Leatherfireboots are generally lighter in weight and provide firefighters 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,Gloves and Other Accessories*.Helmets, gloves and other firefighting accessories typically must meetthe strict design specifications set by the NFPA or other regulatory bodies,including those noted above for turnout gear as well as impact resistance,force transmission dissipation and burst strength. Helmets are made usingstate-of-the-art specialized materials such as the Fyrglass fiberglass helmetshell, which offers improved strength while being lightweight. Unique features,such as bloodborne pathogen interface capable technologies, differentiate ourproducts from those of our competitors. Over the last decade, we have beenselected as the vendor of choice to supply helmets, gloves and otheraccessories to numerous major metropolitan fire departments in the U.S. Our2006 acquisition of American Firewear significantly expanded our glove and hoodproduct line offering.

 

****ElectricalSafety****.Our electrical safety products include linemen equipment, gloves,sleeves, footwear and arc flash protection. We also provide electrical safetyequipment for industrial applications.

 

*LinemenEquipment*. Linemenequipment encompasses an array of products that enable utility workers to workwith “live” energized or de-energized electrical equipment and power lines.Products include insulating blankets, grounding equipment, linehose and covers,and guards that protect the worker, valuable equipment and reduce outages. Ourproducts are required to meet ANSI and ASTM standards and OSHA regulations.

 

*Gloves,Sleeves and Footwear*.We manufacture insulating gloves, sleeves and dielectric footwear,which protect electrical workers against electrical hazards. These productsalso must meet ANSI and ASTM standards.

 

*ArcFlash Protection*. We offer a full line of protective gear andclothing to protect electrical workers against the hazards of arc flash. Thisproduct line meets ASTM standards and is designed to comply with NFPA Standard70E, “Standard for Electrical Safety in the Workplace.”

 

**Manufacturing Processes**

 

The majority of our net sales are from productsmanufactured or assembled by us, with the remainder sourced from a variety oflow-cost countries. The majority of our manufacturing occurs in North America,though many labor intensive or hand-fabricated products are assembled in China,Mexico and the Caribbean.

 

We manufacture our general safety and preparednessproducts using a variety of techniques. Respirators and 

 

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cartridgesare injection molded from silicone or plastics. Our protective footwearproducts serving the general safety and preparedness market are manufacturedusing a variety of methods, including hand-laid rubber, dipped neoprene latex,slush and injection molding. Other coated fabric gloves are manufactured withwater-based latex polymers. We use automated glove knitters as well ashand-sewn and dipped processes in our work glove product offering. Headprotection products are injection molded from high density polyethylene. Aportion of eye and ear protection products are molded and assembled by us.First aid products are bought and packaged. Certain fall protection productsare cut and sewn.

 

We manufacture turnout 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 turnoutgear 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 products usinga variety of techniques. We manufacture our electrical insulating gloves andsleeves using a multiple layering process of natural rubber and syntheticpolymers. These processes are relatively automated and operate in closelycontrolled environments. We manufacture utility linemen products, other thangloves, using injection, transfer or compression molding of natural rubber andsynthetic polymers. The manufacturing processes utilize extensive in-line andpost-manufacturing quality assurance because these products are designed toprotect workers from hazardous and life-threatening environments.

 

**Customers**

 

The majority of our sales are to industrial, fireservice and utility distributors. The balance of our products is 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 are utilitycompanies.

 

Set forth below is a summary of our net sales bygeographic region for the combined year-ended December 31, 2005 and theyear ended December 31, 2006 and 2007:

 
| ** **    | ** ** | **Combined  Year Ended  December 31,** | ** ** | **Year ended December 31,** | ** ** |
|---------------|------------|--------------------------------------------------|------------|---------------------------------------|------------|
| **Region**    | ** ** | **2005**                                         | ** ** | **2006**                              | ** ** | **2007** | ** ** |
|          |       |                                             |       |                                  |       |   |   |
| United States |       | 67.7                                             | %          | 66.7                                  | %          | 65.9 | % |
| Canada        |       | 15.7                                             |       | 16.9                                  |       | 15.9 |   |
| Europe        |       | 16.6                                             |       | 16.4                                  |       | 17.9 |   |
| Other         |       | —                                           |       | —                                |       | 0.3 |   |
| Total         |       | 100.0                                            | %          | 100.0                                 | %          | 100.0 | % |

 

For net sales by geographic region for the periodfrom January 1, 2005 through July 19, 2005, the period from July 20,2005 through December 31, 2005 and the years ended December 31, 2006and 2007 and total long-lived assets by geographic region as of December 31,2006 and 2007, see Note 18 to our audited financial statements.

 

In general, we do not experience a significantbacklog of customer orders. We do, however, have a backlog of orders fromcertain customers, 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, 2007, therewas approximately $45.7 million of such backlog that management believed to befirm, as compared to $34.6 million of backlog as of December 31, 2006. Themajority of this backlog will ship by the end of the first quarter of 2008.

 

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**Competition**

 

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

 

*GeneralSafety and Preparedness*. Sperian Protection; 3M;Mine Safety Appliances Company; Ansell Occupational Healthcare; LaCrosseFootwear, Inc.; Aearo Company; Pac-Kit Safety Equipment Co.; JacksonProducts, Inc.; and Scott Technologies.

 

*FireService*. Sperian Protection; Mine Safety AppliancesCompany; Globe Manufacturing Company; Lion Apparel, Inc.; LaCrosseFootwear, Inc.; and E.D. Bullard Co., Inc.

 

*ElectricalSafety*. Hubbell Inc.; Hastings Fiber Glass Products, Inc.;MacLean Fogg Co.; 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 and Marketing**

 

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 educating bothdistributors and end-users on the specific performance characteristics of ourproducts, which provides significant positive differentiation relative tocompeting products. Customer training and education are particularly importantwith respect to our fire service and electrical safety products, which tend tobe more technical in their design and use. Our product research and developmentteams work closely with our dedicated sales forces. By working closely with theend-users of our products, our sales forces gain valuable insight into ourcustomers’ preferences and needs and the ways in which we can furtherdifferentiate our products from those of our competitors.

 

**Distribution Channels**

 

Our products are sold through three distinctdistribution channels:

 

*GeneralSafety and Preparedness*.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, Inc., Airgas, Inc., Thermo FisherScientific 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.

 

*FireService*. The fireservice segment’s primary channel of distribution is through specialized fireservice distributors. As a result of the breadth of our product offering andour reputation for quality, we have long-standing relationships with thepremier fire service distributors in the U.S., many of whom carry our productsexclusively. Our average relationship with our largest ten fire servicedistributors is in excess of ten years.

 

*ElectricalSafety*. The electricalsafety segment primarily markets its products through specialized distributors,test labs, utilities and electrical contractors. Sales to utilities aretypically made pursuant to one-year contracts, while sales to distributors aretypically open-ended purchase contracts. As a result of the breadth of ourproduct offering and our reputation for quality, the electrical safety segmenthas long-standing relationships with many large utilities, contractors and thepremier utility distributors. Our average relationship with our largest tenelectrical safety customers is in excess of ten years.

 

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**Intellectual Property**

 

It is our policy to protect our intellectualproperty through a range of measures, including trademarks, patents andconfidentiality agreements. We own and use trademarks and brand names to identifyourselves as a proprietary source of certain goods. The following brand namesof certain of our products and product lines are registered in the U.S.: *North*, *Fibre-Metal*, *NEOS*, *Morning Pride*, *Ranger*, *Servus*, *Pro-Warrington*,*American Firewear*,*Safety Line*and *Salisbury*.Certain of our fire service products are marketed under the registeredtrademark Total Fire Group.

 

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

 

**Raw Materials and Suppliers**

 

The primary raw materials we use in manufacturingour products 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.

 

**Environmental Matters**

 

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

 

We were required by the South Carolina Department ofHealth and Environmental Control (“DHEC”) to conduct a RCRA FacilityInvestigation pursuant to the federal Resource Conservation and Recovery Act of1976 (“RCRA”) at our glove manufacturing plant in Charleston, South Carolina.Based upon soil and groundwater assessment work conducted in connection withsuch investigation, we have proposed to DHEC that conditions of soil andgroundwater contamination at the Charleston site be addressed through a “monitorednatural attenuation” approach. DHEC required additional soil and groundwaterinvestigation, which was concluded in 2007. We submitted a report and proposalto DHEC recommending that conditions of soil and groundwater contamination atthe Charleston site continue to be addressed through a “monitored naturalattenuation” approach. Invensys plc (“Invensys”), a successor to Siebe plc (“Siebe”),the former owner of North Safety Products L.L.C. (“North Safety Products”), haspaid for the investigation and remediation at the site. We do not currentlyexpect the 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 wasteshave historically been managed. Such investigation and cleanup has beenconducted by (and at the sole expense of) Invensys, a successor to Siebe, theformer owner of North Safety Products, pursuant to an Administrative Order fromthe United States Environmental Protective Agency (“EPA”) dated September 29,1998. 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 possible chromium-impacted soil beneath the concrete floor in the area ofthe form wash tank. 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 

 

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currentlyexpect to incur material liability in connection with this matter. In theunlikely event that Invensys does not continue to fulfill its contractualobligations, we could incur costs in connection with this matter. We do notcurrently expect such costs to be material.

 

We have been named as a potentially responsibleparty under 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 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, SouthCarolina, North Charleston, South Carolina and Rock Island, Illinoisfacilities. Compliance with wastewater categorical pre-treatment regulationsmay require the installation of additional treatment equipment.

 

Compliance with “maximum achievable controltechnology” air regulations may require our facilities at Clover, SouthCarolina, North Charleston, South Carolina and Rock Island, Illinois to installadditional air emissions control equipment.

 

**Employees**

 

As of December 31, 2007, we had 3,055 full-timeemployees throughout the world. The following sets forth the number ofemployees by operating segment:

 
| **Operating Segment**       | ** ** | **Number  of  Employees** | ** ** |
|----------------------------------|------------|---------------------------|------------|
| General Safety and  Preparedness |       | 2,192                     |       |
| Fire Service                     |       | 504                       |       |
| Electrical Safety                |       | 351                       |       |
| Corporate                        |       | 8                         |       |
| Total                            |       | 3,055                     |       |

 

Approximately 624 of our 2,615 North Americanemployees are represented by various unions, and the majority of our 440non-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.

 

**Available Information**

 

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

 

**ITEM 1A.       RISK FACTORS**

 

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

 

***If we are unable to retain seniorexecutives and other qualified professionals our growth may be hindered.***

 

Our success depends in part on our ability toattract, hire, train and retain qualified managerial, sales and marketing

 

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personnel.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 could materiallyand adversely affect our business, results of operations and financialcondition.***

 

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.”

 

***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 and marketingefforts have all the risks inherent in the development of new products and lineextensions, including development delays, the failure of new products and lineextensions to achieve anticipated levels of market acceptance and the cost offailed product introductions.

 

***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

 

 

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effectour business. A significant reduction of our international business due to anyof these risks would adversely affect our revenues. In 2007, approximately34.1% of our net sales were outside the U.S. These risks include:

 

·         unexpected changes in regulatoryrequirements;

 

·         currency exchange rate fluctuations;

 

·         changes in trade policy or tariffregulations;

 

·         customs matters;

 

·         longer payment cycles;

 

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

 

·         additional tax withholdingrequirements;

 

·         intellectual property protectiondifficulties;

 

·         difficulty in collecting accountsreceivable;

 

·         complications in complying with avariety of foreign laws and regulations, many of which conflict with U.S. laws;

 

·         costs and difficulties in integrating,staffing and managing international operations; and

 

·         strains on financial and other systemsto properly administer VAT and other taxes.

 

In addition, foreign operations involveuncertainties arising from local business practices, cultural considerationsand international 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 SFAS No. 142, *Goodwill andOther Intangible Assets*, requires us to perform an annualassessment for possible impairment. As of December 31, 2007, we hadgoodwill and other intangible assets of approximately $439.6 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 toselectively pursue acquisitions. Acquisitions involve a number of risksincluding:

 

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

 

·                          diversionof our management’s attention from operational matters;

 

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·                          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 toobtain and enforce patents, maintain trade secret protection and operatewithout infringing on the proprietary rights of third parties. We have beenissued patents and have registered trademarks with respect to many of ourproducts, but our competitors could independently develop similar or superiorproducts or technologies, duplicate any of our designs, trademarks, processesor other intellectual property or design around any processes or designs onwhich we have or may obtain patents or trademark protection. In addition,it is possible 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.

 

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

 

 

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releasesof hazardous materials. We could incur substantial costs as a result ofnoncompliance with or liability pursuant to these environmental laws and toattain and maintain compliance with evolving regulatory requirements underenvironmental laws. Environmental laws continue to evolve and we may besubject to more stringent environmental laws in the future. If more stringentenvironmental laws are enacted, these future laws could have a material adverseeffect on our results of operations. See “*Item 1.Business—Environmental Matters**.*”

 

***We have a significant amount of indebtedness, whichmakes us more vulnerable to adverse economic and competitive conditions.***

*** ***

We have a significant amount of indebtedness. As of December 31,2007, we had outstanding long-term indebtedness of $489.3 million(excluding original issue premium) and shareholders’ equity of $163.3 million.This amount of debt is substantial and 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; and

 

·                          limit,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 subjectto general economic, financial, competitive, legislative, regulatory and otherfactors that are beyond our control.

 

**ITEM 1B.       UNRESOLVED STAFF COMMENTS**

 

None.

 

**ITEM 2.          PROPERTIES**

 

We conduct our operations through 30 primaryfacilities, eight of which are owned as of December 31, 2007. We believewe have sufficient capacity in the majority of our facilities to support theprojected growth in our business for the next five years.

 

We manufacture respiratory, head and face andhearing products in Cranston, Rhode Island. In this facility, we haveimplemented lean manufacturing 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 fireboots and other protectivefootwear in our Rock Island, Illinois and Nashua, New Hampshire facilities. Our110,000 square foot distribution center for protective footwear products islocated in Davenport, Iowa, approximately five miles from the Rock Island,Illinois manufacturing plants, facilitating timely delivery of customer orders.

 

We perform injection molding and assemble our firstaid and various other products at our Mexicali, Mexico facility, utilizing lowercost labor. Products manufactured in Mexicali are distributed through our Reno,Nevada warehouse and our Cranston, Rhode Island distribution facility.

 

We operate hand protection facilities for thegeneral safety 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.

 

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In our Etobicoke, Canada facility, we manufactureour fall 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, Holland facility, we manufacturefall, eye and head and face protection products.

 

In Eichenzell, Germany, we manufacture anddistribute a variety of liquid-proof and cut-resistant gloves in an ownedfacility.

 

We manufacture turnout gear in a leased facility inDayton, Ohio. We have installed Gerber material cutters and a sophisticatedGerber mover, which automated the handling of turnout gear materials andimproved the productivity of the division. In addition, we manufacture glovesand other accessories in our Ohatchee, Alabama facility.

 

Linemen gloves and sleeves are manufactured at twoplants in Charleston, South Carolina. In addition, linemen sleeves arecurrently manufactured in our Addison, Illinois facility. We are in the processof closing the Addison, Illinois facility and moving manufacturing to existingfacilities. Other products serving the electrical safety market, includinglinemen equipment, are manufactured at our Chicago, Illinois facility.

 

Due to the nature of product use, quality systemsare of 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:***                    | *** *** | *** ***             | *** *** | *** ***            | *** *** | *** ***              | *** *** | *** ***       |
| Offices and  manufacturing facility                        |         | Footwear(1)              |         | Rock Island, IL         |         | 319,000                   |         | Leased             |
| Offices,  manufacturing facility and warehouse             |         | Various                  |         | Cranston, RI            |         | 240,000                   |         | Leased             |
| Offices,  manufacturing facility and warehouse             |         | Various                  |         | Montreal, Canada        |         | 128,000                   |         | Leased             |
| Warehouse                                                  |         | Footwear                 |         | Davenport, IA           |         | 110,000                   |         | Leased             |
| Offices,  manufacturing facility and warehouse             |         | Hand Protection          |         | Eichenzell, Germany     |         | 108,000                   |         | Owned              |
| Offices,  manufacturing facility and warehouse             |         | Various                  |         | Middelburg, Holland     |         | 86,000                    |         | Leased             |
| Warehouse                                                  |         | Footwear                 |         | Rock Island, IL         |         | 80,000                    |         | Leased             |
| Manufacturing  facility                                    |         | Hand Protection          |         | Clover, SC              |         | 63,000                    |         | Owned              |
| Manufacturing  facility and warehouse                      |         | Various                  |         | Mexicali, Mexico        |         | 57,000                    |         | Leased             |
| Manufacturing  facility                                    |         | Hand Protection          |         | Maiden, NC              |         | 51,000                    |         | Leased             |
| Manufacturing  facility                                    |         | Footwear                 |         | Rock Island, IL         |         | 45,000                    |         | Leased             |
| Manufacturing  facility                                    |         | Footwear                 |         | Nashua, NH              |         | 38,000                    |         | Leased             |
| Offices and  warehouse                                     |         | Various                  |         | Edmonton, Canada        |         | 37,000                    |         | Leased             |
| Offices,  manufacturing facility and warehouse             |         | Hearing, Head Protection |         | Rawdon, Canada          |         | 33,000                    |         | Owned              |
| Manufacturing  facility(2)                                 |         | 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,  manufacturing facility and warehouse             |         | Hand Protection          |         | Ostrava, Czech Republic |         | 20,000                    |         | Owned              |
| Offices,  manufacturing facility and warehouse             |         | Hand Protection          |         | Budapest, Hungary       |         | 20,000                    |         | Owned              |
| ***Fire  Service:***                                       | *** *** | *** ***             | *** *** | *** ***            | *** *** | *** ***              | *** *** | *** ***       |
| Offices,  manufacturing facility, laboratory and warehouse |         | Various                  |         | Dayton, OH              |         | 88,000                    |         | Leased             |
| Manufacturing  facility and warehouse                      |         | Various                  |         | Ohatchee, AL            |         | 36,000                    |         | Leased             |
| Warehouse                                                  |         | Various                  |         | Dayton, OH              |         | 26,000                    |         | Leased             |
| ***Electrical  Safety:***                                  | *** *** | *** ***             | *** *** | *** ***            | *** *** | *** ***              | *** *** | *** ***       |
| Offices,  manufacturing facility and warehouse             |         | Linemen Gloves           |         | Charleston, SC          |         | 105,000                   |         | Owned              |
| Manufacturing  facility                                    |         | Linemen Equipment        |         | Chicago, IL             |         | 79,000                    |         | Owned              |
| Offices,  manufacturing facility and warehouse             |         | Linemen Equipment        |         | Skokie, IL              |         | 44,000                    |         | Leased             |
| Manufacturing  facility                                    |         | Linemen Sleeves          |         | North Charleston, SC    |         | 43,000                    |         | Owned              |
| Manufacturing  facility(2)                                 |         | Linemen Sleeves          |         | Addison, IL             |         | 26,000                    |         | Leased             |
| Warehouse                                                  |         | Linemen Gloves           |         | Charleston, SC          |         | 24,000                    |         | Leased             |
| ***Other:***                                               | *** *** | *** ***             | *** *** | *** ***            | *** *** | *** ***              | *** *** | *** ***       |
| Executive Suite                                            |         | Not Applicable           |         | Oak Brook, IL           |         | 6,100                     |         | Leased             |

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

 

(2)          In process of transferringoperations to other existing facilities.

 

**ITEM 3.          LEGAL PROCEEDINGS**

 

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 31,2007, our North Safety Products subsidiary, along with its predecessors and/orthe former owners of such business were named as defendants in approximately629 lawsuits involving respirators allegedly manufactured and sold by it or itspredecessors. We are also monitoring an additional two lawsuits in which wefeel that North Safety Products, its predecessors and /or the former owners ofsuch businesses may be named as defendants. Collectively, these 631lawsuits represent approximately 8,396 (excluding spousal claims) plaintiffs.Approximately 85% of these lawsuits involve plaintiffs alleging injuryresulting from

 

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exposureto silica dust, with the remainder alleging injury from exposure to otherparticles, including asbestos. These lawsuits typically allege that thepurported injuries resulted in part from respirators that were negligentlydesigned and/or manufactured. The defendants in these lawsuits are oftennumerous, and include, in addition to respirator manufacturers, employers ofthe plaintiffs and manufacturers of sand (used in sand blasting) and asbestos.We acquired our North Safety Products subsidiary on October 2, 1998 fromSiebe plc. In connection with the acquisition, Siebe, which was subsequentlymerged with BTR plc (now known as “Invensys plc”), contractually agreed to indemnifyus for any losses, including costs of defending claims, resulting fromrespiratory products manufactured or sold prior to our acquisition of NorthSafety 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, Siebe Norton, Inc.,a newly formed wholly-owned subsidiary of Norton Company, acquired the assetsof Norton’s Safety Products Division and the stock of this company was in turnacquired by Siebe Gorman Holdings plc. Under the terms of the agreement, SiebeNorton, Inc. did not assume any liability for claims relating to productsshipped by Norton Company prior to the closing date. Moreover, Norton Companycovenanted in the agreement to indemnify Siebe Norton, Inc. and itssuccessors and assigns against any liability resulting from or arising out ofany state of facts, omissions or events existing or occurring on or before theclosing date, including, without limitation, any claims arising from productsshipped by Norton Company or any of its affiliates prior to the closing date.Siebe Norton, Inc., whose name was subsequently changed to Siebe NorthInc., was subsequently acquired by us as part of the 1998 acquisition ofthe North Safety Products business from Invensys.

 

Despite these indemnification arrangements, we couldpotentially be liable for losses or claims relating to products manufacturedprior to the October 1998 acquisition date if Invensys fails to meet itsobligations to indemnify us and we could potentially be liable for losses andclaims relating to products sold prior to January 10, 1983 if bothInvensys and Norton Company fail to meet their obligations to indemnify us. Wecould also 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 theNorth Safety Products business (the “Joint Defense Agreement” or “JDA”). Underthe terms of the Joint Defense Agreement, we agreed to pay a weighted averagepercentage of defense costs (including legal fees, expert witnesses and out ofpocket expenses) associated with defending ourselves and the prior owners ofthe North Safety Products business subject to a cap of $525,000, $960,000 and$1.0 million for the period from July 1, 2006 through December 31,2006, the year ended December 31, 2007 and the year ended December 31,2008, respectively. The cap excludes settlement costs and other costs incurredexclusively by us (including trial costs and special requests of counsel),which we will be required to pay under the JDA. Separately, we agreed to payInvensys $200,000 related to settled cases through June 30, 2006 in whichInvensys claims that the period of alleged exposure included periods after October 1998.

 

Althoughthe JDA expires on December 31, 2008, we expect to incur additionaldefense 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 could include an extension of the JDA.

 

Basedupon information provided to the Company by Invensys, the Company believesactivity related to these lawsuits was as follows for the periods indicated:

 
| ** **           | ** ** | **2005**       | ** ** | **2006**  | ** ** | **2007**       | ** ** |
|----------------------|------------|----------------|------------|-----------|------------|----------------|------------|
| ** **           | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
| Beginning lawsuits   |       | 25,944         |       | 858       |       | 18,459         |       | 1,148 |   | 8,746 |   | 644 |   |
| New lawsuits         |       | 2,226          |       | 587       |       | 653            |       | 498 |   | 38 |   | 35 |   |
| Settlements          |       | 24             |       | (32       | )          | (5             | )          | (5 | ) | (6 | ) | (2 | ) |
| Dismissals and other |       | (9,735         | )          | (265      | )          | (10,361        | )          | (997 | ) | (382 | ) | (46 | ) |
| Ending lawsuits      |       | 18,459         |       | 1,148     |       | 8,746          |       | 644 |   | 8,396 |   | 631 |   |

 

Boththe rate of new filings and the number of existing claimants have declineddramatically since 2003 as courts and legislatures have tightened the rules onwhen and where the silica claims can be pursued in an effort to reduce thelarge number of unmeritorious claims. The new rules make bringing silicacases on a mass level much less attractive to the plaintiffs’ bar. Plaintiffs’attorneys in many jurisdictions can no longer (1) find a worker with somestated exposure to silica, (2) take an X-ray of his chest, (3) haveit interpreted as demonstrating lung shadows by a radiologist, (4) thenfile a single lawsuit in a dangerous venue with hundreds of other plaintiffsagainst hundreds of defendants with the pleading containing

 

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littlemore 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 legislation requires that each silica claimant betried individually, and not in the multiple plaintiff format in which thepotential for large verdicts resulted from increased plaintiffs and where a fewmeritorious claims could increase the value of unmeritorious ones. Further tortreform in Texas created a state-wide multi-district litigation (“MDL”) whereinone judge presides over the pretrial of all Texas-silica cases. In Mississippi,the Supreme Court changed the venue rules making it much more difficult tofile out-of-state plaintiffs there. The Mississippi court also changed thepleading requirements making the plaintiffs’ attorneys includeplaintiff-specific allegations against each defendant sued, instead of thevague allegations against hundreds of defendants.

 

Plaintiffshave asserted specific dollar claims in approximately 30% of the approximately629 cases pending as of December 31, 2007 in which North Safety Products,its predecessors 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, the amounts claimed are typicallynot meaningful as an indicator of a company’s potential liability. This isbecause (1) the amounts claimed typically bear no relation to the level ofthe plaintiff’s injury, (2) the complaints typically assert claims againstnumerous defendants, and (3) many cases are brought on behalf ofplaintiffs who have not suffered any medical injury, and ultimately areresolved without any payment or payment of a small fraction of the damagesinitially claimed. Of the 629 complaints maintained in our records, 439 do notspecify the amount of damages sought, 25 generally allege damages in excess of$50,000, one alleges compensatory damages in excess of $50,000 and anunspecified amount of punitive damages, 103 allege compensatory damages andpunitive damages, each in excess of $25,000, two generally allege damages inexcess of $100,000, two allege compensatory damages and punitive damages, eachin excess of $50,000, 20 generally allege damages in excess of $15.0 million,one generally alleges damages of $23.0 million, one alleges compensatorydamages and punitive damages, each in excess of $10,000, four allege generaldamages of $18.0 million and punitive damages of $10.0 million, two allegegeneral damages of $13.0 million and punitive damages of $10.0 million, onealleges compensatory and punitive damages, each in excess of $15,000, onealleges punitive damages in excess of $50,000, one generally alleges damages inexcess of $15,000, 12 generally allege damages in excess of $25,000, one allegescompensatory damages of $18.0 million and punitive damages of $10.0 million,one alleges punitive damages of $13.5 million and compensatory damages of $10.0million, one alleges punitive damages of $13.0 million and compensatory damagesof $10.0 million, eight allege compensatory damages of $13.0 million andpunitive damages of $10.0 million, one alleges compensatory and punitivedamages, each of $15,000 and two allege compensatory and punitive damages, eachin excess of $15.0 million. We currently do not have access to the complaintswith respect to the previously mentioned additional two monitored cases, andtherefore we do not know whether these cases allege specific damages, or if so,the amount of such damages, but are in the process of seeking to obtain suchinformation. Due to the reasons noted above and to the indemnificationarrangements benefiting us, we do not believe that the damage amounts specifiedin these complaints are a meaningful factor in any assessment of our potentialliability.

 

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

 

The Predecessor recorded a $1.25 million reserve forrespiratory claims during the year ended December 31, 2004. ThePredecessor re-evaluated this reserve in its first and second quarter 2005financial statements and concluded the $1.25 million recorded reserve continuedto be its best estimate of the probable loss for the respiratory contingency.

 

In the July 2005 acquisition purchaseaccounting (as first reported in the Form 10-Q for the third quarter of2005), we carried forward the $1.25 million liability for this pre-acquisitioncontingency. Although management concluded that it was likely their estimate ofthis pre-acquisition contingent liability would be increased during thepurchase accounting allocation period as the new ownership finalized theirstrategy for addressing the liability and gathered information (primarilyrelated to case information and the working relationship among the prior ownersof North Safety Products), it was unlikely the amount would be lower than the$1.25 million. Thus, the $1.25 million amount represented the low end of aprobable loss range, subject to further adjustment during the allocationperiod.

 

In December 2005, we began negotiations withthe former owners of the North Safety Products business to enter into the JDA.We determined that the liability should be increased to $5.0 million as of December 31,2005 as part of the purchase price 

 

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allocationprocess. The $5.0 million reserve as of December 31, 2005 representedmanagement’s best estimate of the liability based on the current status ofnegotiations. As of December 31, 2005, the estimate was still preliminaryas we were awaiting finalization of the JDA negotiation process.

 

As discussed above, we entered into the JDAeffective July 1, 2006 and completed our evaluation of the reserve. Afterall information was obtained, we adjusted the reserve to $7.0 million as partof the purchase price allocation process during the permitted “allocationperiod”.

 

The final estimated amount recorded in purchaseaccounting related entirely to losses incurred before the July 2005 acquisition.Our final estimate of the probable loss for the respiratory contingencyincorporated the new ownerships’ decision to enter into the JDA. The decisionrepresented a significantly different plan as new ownership agreed to assumelosses related to claims with unknown years of exposure. In addition, thedecision to enter into the JDA was being considered from the date of theacquisition and the ultimate decision was made during the allocation period.

 

In the fourth quarter 2007, we re-evaluated thereserve based on the favorable impact of the new rules and the significantdecline in new and existing claims (as discussed above) using a five-yearprojection of claims and related defense cost approach and concluded that thebest estimate of the probable loss for the respiratory contingency was $5.0million. The reserve was reduced by $1.8 million through a credit to operatingexpenses. As of December 31, 2007, the reserve balance is $5.0 million.

 

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-year projection of claims and related defensecosts is the most reasonable approach. This reserve will be re-evaluatedperiodically and additional charges or credits will be recorded to operatingexpenses as additional information becomes 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. Thecomplaint seeks a retraction of all statements alleged to have been made by usand unspecified damages, including legal fess. A bench trail on the issue ofliability was held in February 2006 and the matter is now awaiting rulingby the court. We intend to vigorously defend against these claims.

 

We historically have not been required to pay anymaterial liability claims. We maintain insurance against product liabilityclaims (with the exception of asbestosis and silicosis cases, for whichcoverage is not commercially available), but it is possible that insurancecoverage will not continue to be available on terms acceptable to us or thatsuch coverage will not 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.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

 

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**PART II**

 

**ITEM 5.**                              MARKETFOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES

** **

There is no public trading market for our units. Asof December 31, 2007, there were 14 holders of record of our units.

 

There were no sales made of the Company’s equitysecurities during the fourth quarter.

 

Safety Products has not paid any dividends on itscommon stock since its formation in 2005 in connection with the NorcrossTransaction. We do not anticipate paying any dividends on our common stock inthe foreseeable future. Our senior credit facility and the indentures governingour senior pay in kind notes and the Norcross senior subordinated notesrestrict our ability to declare or pay dividends on our common stock. We intendto retain future earnings to finance the ongoing operations and growth of ourbusiness. Any future determination relating to our dividend policy will be madeat the discretion of the board of directors and will depend on then existingconditions, including our financial condition, results of operations,contractual restrictions, capital requirements, business prospects and otherfactors the board of directors may deem relevant.

 

There were no repurchases made of the Company’sequity securities during the fourth quarter.

 

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

 

The following table presents selected historicalconsolidated statements of operations, balance sheet and other data for theperiods presented and should only be read in conjunction with our auditedconsolidated financial statements and the related notes thereto, and “Management’sDiscussion and Analysis of Financial Condition and Results of Operations,”which are included elsewhere in this Form 10-K. In the following table,Safety Products, following the Norcross Transaction, is referred to as the “Successor”and NSP Holdings, prior to the Norcross Transaction, is referred to as the “Predecessor.”The historical financial data for the period from January 1, 2005 through July 19,2005, the period from July 20, 2005 through December 31, 2005 and theyears ended December 31, 2006 and 2007 have been derived from ourhistorical audited consolidated financial statements included elsewhere in thisForm 10-K. The historical financial data for the two years ended December 31,2004 have been derived from our historical consolidated financial statements,which are not included in this Form 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,** | ** ** |
| ** **                                                                          | ** ** | **2003**                             | ** ** | **2004**                                         | ** ** | **2005** | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** |
| ** **                                                                          | ** ** | **(dollars in thousands)** | ** ** |
| **Statement of Operations Data:**                                                   | ** ** | ** **                           | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                                           |       | $                                    | 358,299    |                                             | $          | 421,477 |   | $ | 260,832 |   | $ | 201,439 |   | $ | 537,675 |   | $ | 608,897 |   |
| Cost of goods sold                                                                  |       | 231,274                              |       | 269,720                                          |       | 163,691 |   | 133,910 |   | 336,633 |   | 375,924 |   |
| Gross profit                                                                        |       | 127,025                              |       | 151,757                                          |       | 97,141 |   | 67,529 |   | 201,042 |   | 232,973 |   |
| Operating expenses:                                                                 |       |                                 |       |                                             |       |   |   |   |   |   |   |   |   |
| Selling                                                                             |       | 34,062                               |       | 38,535                                           |       | 24,469 |   | 18,405 |   | 49,974 |   | 55,250 |   |
| Distribution                                                                        |       | 18,008                               |       | 21,597                                           |       | 14,036 |   | 10,930 |   | 31,589 |   | 37,080 |   |
| General and administrative                                                          |       | 33,215                               |       | 40,654                                           |       | 40,653 |   | 19,417 |   | 46,505 |   | 55,068 |   |
| Amortization of  intangibles                                                        |       | 2,583                                |       | 517                                              |       | 329 |   | 7,216 |   | 11,508 |   | 11,485 |   |
| Seller transaction  expenses                                                        |       | —                               |       | —                                           |       | 4,646 |   | — |   | — |   | — |   |
| Strategic alternatives                                                              |       | —                               |       | 616                                              |       | — |   | — |   | — |   | — |   |
| Restructuring and  merger-related charges                                           |       | —                               |       | —                                           |       | — |   | — |   | 1,539 |   | 3,696 |   |
| Total operating expenses                                                            |       | 87,868                               |       | 101,919                                          |       | 84,133 |   | 55,968 |   | 141,115 |   | 162,579 |   |
| Income from operations                                                              |       | 39,157                               |       | 49,838                                           |       | 13,008 |   | 11,561 |   | 59,927 |   | 70,394 |   |
| Other expense (income):                                                             |       |                                 |       |                                             |       |   |   |   |   |   |   |   |   |
| Interest expense                                                                    |       | 33,447                               |       | 35,958                                           |       | 24,583 |   | 17,644 |   | 46,857 |   | 49,624 |   |
| Interest income                                                                     |       | (72                                  | )          | (160                                             | )          | (872 | ) | (132 | ) | (605 | ) | (1,549 | ) |
| Other, net                                                                          |       | (916                                 | )          | 1,771                                            |       | 748 |   | (48 | ) | (1,132 | ) | 639 |   |
| Income (loss) from continuing operations before income taxes and  minority interest |       | 6,698                                |       | 12,269                                           |       | (11,451 | ) | (5,903 | ) | 14,807 |   | 21,680 |   |
| Income tax expense  (benefit)                                                       |       | 1,843                                |       | 3,140                                            |       | 3,445 |   | (1,052 | ) | 6,140 |   | 6,064 |   |
| Minority interest                                                                   |       | (3                                   | )          | 25                                               |       | 13 |   | (2 | ) | 23 |   | 22 |   |
| Income (loss) from  continuing operations                                           |       | 4,858                                |       | 9,104                                            |       | (14,909 | ) | (4,849 | ) | 8,644 |   | 15,594 |   |
| (Income) loss from discontinued operations, net of income tax                       |       | (1,062                               | )          | (1,537                                           | )          | (446 | ) | (83 | ) | (220 | ) | 2,813 |   |
| Net income (loss)                                                                   |       | 5,920                                |       | $                                                | 10,641     |   | $ | (14,463 | ) | $ | (4,766 | ) | $ | 8,864 |   | $ | 12,781 |   |
| Preferred unit dividends                                                            |       | 12,973                               |       |                                             |       |   |   |   |   |   |   |   |   |
| Net loss attributable to  common unitholders                                        | ** ** | $                                    | (7,053     | )                                                |       |   |   |   |   |   |   |   |   |   |
| ** **                                                                          | ** ** | ** **                           | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Other Financial Data and  Ratios:**                                               | ** ** | ** **                           | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Depreciation and  amortization(1)                                                   |       | $                                    | 12,749     |                                             | $          | 12,371 |   | $ | 6,506 |   | $ | 12,361 |   | $ | 25,835 |   | $ | 26,598 |   |
| Capital expenditures                                                                |       | 7,432                                |       | 6,423                                            |       | 4,250 |   | 5,037 |   | 11,573 |   | 12,023 |   |
| Net cash provided by  operating activities                                          |       | 22,696                               |       | 29,911                                           |       | 19,564 |   | 26,691 |   | 35,005 |   | 57,227 |   |
| Net cash used in investing  activities                                              |       | (25,611                              | )          | (6,378                                           | )          | (4,903 | ) | (278,762 | ) | (42,818 | ) | (9,768 | ) |
| Net cash provided by (used in) financing activities                                 |       | 13,753                               |       | (8,621                                           | )          | 20,622 |   | 264,475 |   | 13,686 |   | (4,713 | ) |
|                                                                                |       |                                 |       |                                             |       |   |   |   |   |   |   |   |   |
| **Balance Sheet Data (at period  end):**                                            | ** ** | ** **                           | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and cash equivalents                                                           |       | $                                    | 16,341     |                                             | $          | 35,731 |   |   |   | $ | 20,819 |   | $ | 26,796 |   | $ | 70,811 |   |
| Working capital(2)                                                                  |       | 103,804                              |       | 120,526                                          |       |   |   | 131,791 |   | 146,832 |   | 188,133 |   |
| Total assets                                                                        |       | 362,718                              |       | 389,191                                          |       |   |   | 693,656 |   | 744,082 |   | 789,650 |   |
| Long-term obligations                                                               |       | 258,248                              |       | 253,566                                          |       |   |   | 443,239 |   | 474,960 |   | 488,713 |   |
| Mandatorily redeemable  preferred units                                             |       | 120,817                              |       | 134,310                                          |       |   |   | — |   | — |   | — |   |
| Total members’  deficit/shareholders’ equity                              |       | (89,241                              | )          | (75,097                                          | )          |   |   | 106,891 |   | 126,886 |   | 163,305 |   |
|                                                                                     |            |                                      |            |                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)             Depreciationincludes depreciation expense of $59, $74, $49, $45, $122 and $71 for the yearsended December 31, 2003 and 2004, the period from January 1, 2005through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007, respectively, relatedto discontinued operations.

 

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

 

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** **

**ITEM 7.**                              MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

** **

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

 

**Overview**

 

We are a leading designer, manufacturer and marketerof branded products in the fragmented personal protection equipment industry.We manufacture and market a full line of personal protection equipment forworkers in the general safety and preparedness, fire service and electricalsafety industries. We sell our products under trusted, long-standing andwell-recognized brand names, including *North*, *KCL*,*Fibre-Metal*,*NEOS*,**Morning Pride**,*Ranger*, *Servus*, *Pro-Warrington**,* American Firewear*,* Salisbury *and* Safety Line. Our broad productoffering includes, among other things, respiratory protection, protectivefootwear, hand protection, turnout gear and linemen equipment.

 

We classify our diverse product offerings into threeoperating segments:

 

*GeneralSafety and Preparedness*. We offer a diverseportfolio of leading products for a wide variety of industries, includingmanufacturing, agriculture, automotive, construction, food processing andpharmaceutical industries and the military, under the *North*,*KCL*,*Fibre-Metal*,*NEOS*,*Ranger*and*Servus* brand names. Our product offering is one of thebroadest in the personal protection equipment industry and includes respiratoryprotection, protective footwear, hand protection, eye, head and faceprotection, first aid, hearing protection and fall protection. We sell ourgeneral safety and preparedness products primarily through industrialdistributors.

 

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

 

*ElectricalSafety*. We manufacture and market a broad line of personalprotection equipment for the utility market under the *Salisbury*,*Safety Line*and *Servus* brands.Our products, including linemen equipment, gloves, sleeves, footwear and arcflash protection, are designed to protect workers from up to 36,000 volts ofelectricity. We distribute our electrical safety products through specializeddistributors, test labs, utilities and electrical contractors.

 

**Predecessor and Successor**

 

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

 

In accordance with the accounting principlesgenerally accepted in the United States (“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 andfinancial performance, our management has used combined results for the yearended December 31, 2005 as a single measurement period. Due to theNorcross Transaction, we believe that comparisons between the year ended December 31,2006 and either the Predecessor’s results for the period from January 1,2005 to July 19, 2005 or the Successor’s results for the period from July 20,2005 to December 31, 2005 may impede the ability of users of ourfinancial information to understand our operating and cash flow performance.

 

Consequently, in order to enhance an analysis of ouroperating results and cash flows, we have presented our operating results andcash flows on a combined basis for the year ended December 31, 2005. Thiscombined presentation for the year ended December 31, 2005 simplyrepresents the mathematical addition of the pre-acquisition results ofoperations of the Predecessor for the period from January 1, 2005 to July 19,2005 and the results of operations of the Successor for the period from July 20,2005 to December 31, 2005. We believe the combined presentation providesrelevant information for investors. These combined results, however, are not intendedto represent what our operating results would have been had the NorcrossTransaction occurred at the beginning of the period. A reconciliation showingthe mathematical combination of our operating results for such periods isincluded below under “—Results of Operations.”

 

**Acquisitions**

 

We made four acquisitions during the three yearperiod ended December 31, 2007. As a result, comparability of periods hasbeen affected by these acquisitions.

 

In November 2005, we completed the acquisitionof all of the issued and outstanding capital stock of Fibre-Metal. The purchaseprice of $68.7 million (including $0.7 million of acquisition costs) wasfinanced through $65.0 million of additional term borrowings under the seniorcredit facility and cash on the balance sheet.

 

In February 2006, we completed the acquisitionof all of the issued and outstanding capital stock of American Firewear. Thepurchase price consisted of $4.5 million in cash (including acquisition costsof $0.2 million and net of cash acquired of $0.2 million) and a $1.0 millionsubordinated seller note. In addition, the purchase price may be increased by$0.8 million over a four year period from the date of the acquisition based onAmerican Firewear achieving certain financial and operating objectives. Wefinanced the acquisition through cash on the balance sheet and the issuance ofthe $1.0 million subordinated seller note.

 

In June 2006, we completed the acquisition ofall of the issued and outstanding capital stock of White Rubber. The purchaseprice of $22.2 million (including $0.6 million of acquisition costs and grossof outstanding checks of $0.8 million) was financed through $15.0 million ofadditional term borrowings under the senior credit facility and cash on thebalance sheet.

 

In September 2006, we completed the acquisitionof all of the issued and outstanding capital stock 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. Inaddition, the purchase price may be increased over a five year period from thedate of the acquisition based on NEOS achieving certain net sales targets. Wefinanced the acquisition through cash on the balance sheet and the issuance ofthe $0.8 million subordinated seller note.

 

**Discontinued Operations**

 

In June 2007, we completed the sale of all ofthe issued and outstanding capital stock of South Africa. We received net cashproceeds of $3.2 million and recorded a net loss related to the transaction of$3.0 million. In accordance with SFAS No. 144, *Accountingfor the Impairment or Disposal of Long-Lived Assets*, we havereflected South Africa’s results of operations through the date of the sale andtransaction loss as discontinued operations for all periods presented. Assetsand liabilities of South Africa were not material and as a result have not beenreclassified as discontinued operations in our consolidated statement offinancial position as of December 31, 2006. We have combined cash flowsfrom discontinued operations with cash flows from continuing operations withineach cash flow statement category as the cash flows from discontinuedoperations are not material to our consolidated results.

 

**Restructuring Plans**

 

In conjunction with the Fibre-Metal Transaction, weinitiated and completed a restructuring plan to close the Fibre-Metalmanufacturing facility located in Concordville, Pennsylvania and moveproduction to our Cranston, Rhode Island and 

 

 

24

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Mexicali,Mexico facilities. In addition, we closed certain Fibre-Metal distributioncenters and integrated Fibre-Metal distribution into our existing distributionfacilities. We initiated this plan in order to increase profitability throughthe utilization of excess capacity at our existing plants and the movement ofmanufacturing to locations with favorable labor costs. As of the date of theFibre-Metal Transaction, we recorded an accrual for costs associated with theplan of $1.7 million, comprised of $1.4 million in severance costs and $0.3million in facility closure and other exit costs.

 

Inconjunction with the White Rubber Transaction, we initiated and completed arestructuring plan to move certain production and distribution functions locatedin Ohio and Washington to our Charleston, South Carolina, Skokie, Illinois andChicago, Illinois facilities. The Company initiated this plan in order toincrease profitability by utilizing excess capacity and consolidatingdistribution functions. As of the date of the White Rubber Transaction, theCompany recorded an accrual for severance costs associated with the plan of$1.0 million.

 

**Critical Accounting Policies**

 

Certain of our accounting policies as discussedbelow require the application of significant judgment by management inselecting the appropriate estimates and assumptions for calculating amounts torecord in our financial statements. Actual results could differ from thoseestimates and assumptions, impacting our reported results of operations andfinancial position. However, we do not believe the differences between theactual amounts and our estimates will be material to our financial statements.Our significant accounting policies are more fully described in the notes toour audited financial statements included elsewhere in this Form 10-K.Certain accounting policies, however, are considered to be critical in thatthey are most important to the depiction of our financial condition and resultsof operations and their application requires management’s most subjectivejudgment in making estimates about the effect of matters that are inherentlyuncertain.

 

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

 

*Inventory*. Weperform 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.

 

*Goodwilland Other Intangibles*. Purchaseaccounting requires extensive use of accounting estimates and judgments toallocate the purchase price to the fair market value of the assets purchasedand liabilities assumed. We have accounted for our acquisitions using thepurchase method of accounting.

 

Inaccordance with SFAS No. 142, *Goodwill and OtherIntangible Assets*, we performed a goodwill impairment test on thefirst day of the fourth quarter. We determined that SFAS No. 142 allowedus to carry forward the detailed determination of the fair value from the prioryear due to the following: a) the assets and liabilities of each reporting unithad not changed significantly from prior year, b) the carrying amount of eachreporting unit in the prior year significantly exceeded the fair value and c)the likelihood that the carrying value of each reporting unit this year wouldbe less than the fair value was remote.

 

Indetermining the fair value for the prior year, we utilized the discounted cashflow (“DCF”) approach that estimates the projected future cash flows to begenerated by each reporting unit (including an estimate of terminal cashflows), discounted to present value at our estimated cost of capital. Anabsolute 1% increase or decrease in cash flow projections would have producedan average 0.9% increase or 0.9% decrease, respectively, in the overall valueof our reporting units. An absolute 1% increase or decrease in the terminalcash flow growth rate would have produced an average 

 

25

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9.8%increase or 7.6% decrease, respectively, in the overall value of our reportingunits. An absolute 1% decrease or increase in the discount rate would haveproduced an average 12.7% increase or 9.9% decrease, respectively, in theoverall value of our reporting units.

 

Basedon the results of the first step of the annual goodwill impairment test, wedetermined that the fair value of each of the reporting units exceeded theircarrying amounts and, therefore, no goodwill impairment existed. As a result,the second step of the annual goodwill impairment test was not required to becompleted. We cannot predict the occurrence of certain future events that mightadversely affect the reported value of goodwill as of December 31, 2007.Such events include, but are not limited to, strategic decisions made inresponse to economic and competitive conditions, the impact of the economicenvironment on our customer base, or a material negative change in ourrelationships with significant customers.We will continue to performa goodwill impairment test on an annual basis and on an interim basis, ifcertain conditions exist.

 

Wealso performed an impairment test related to our indefinite life brand names onthe first day of 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 royalty rate. This method is based on theassumption that, in lieu of ownership, a firm would be willing to pay a royaltyin order to exploit the related benefits of the trade name and that theinherent economic value of each trade name is directly related to the cashflows (royalties saved) in the future. We did not combine our brand names intoa single “unit of accounting” with the exception of our footwear brands in ourgeneral safety and preparedness segment. An absolute 1% increase or decease, inthe 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 royaltyrates would produce an 1.0% increase or 1.0% decrease, respectively, across theportfolio of brand names. An absolute 1% decrease or increase in the discountrate would produce an average 12.3% increase or 9.8% decrease, respectively,across the portfolio of brand names.

 

Basedon the results of our annual indefinite life brand name impairment test, wedetermined that the fair value of each of the brand names exceeded theircarrying amounts and, therefore, no impairment existed. The Company cannotpredict the occurrence of certain future events that might adversely affect thereported value of its indefinite life brand names as of December 31, 2007.Such events include, but are not limited to, strategic decisions made inresponse to economic and competitive conditions, the impact of the economicenvironment on our customer base, or a material negative change in ourrelationships with significant customers. We will continue to perform anindefinite life brand name impairment test on an annual basis and on an interimbasis, if certain conditions exist.

 

*Long-LivedAssets*. We evaluate our long-lived assets on an ongoingbasis. Long-lived assets are reviewed for impairment whenever events or changesin circumstances indicate that the carrying amount of the related assetmay not be recoverable. Recoverability of assets to be held and used ismeasured by a comparison of the carrying amount of the asset to futureundiscounted cash flows expected to be generated by the asset. If the asset isdetermined to be impaired, the impairment recognized is measured by the amountby which the carrying value of the asset exceeds its fair value. Our estimatesof future cash flows could be impacted if we underperform relative to historicalor projected future operating results. However, due to our diverse productlines and end-user markets, we do not believe our estimates would be materiallyimpacted by changes in our assumptions.

 

*Defined BenefitPension Plans.*The costs and obligations of ourdefined benefit pension plans are dependent on actuarial assumptions. Threecritical assumptions used, which impact the net periodic pension expense andtwo of which impact the benefit obligation, are the discount rate, expectedreturn on plan assets and rate of compensation increase.

 

Wedetermined the discount rate by matching the projected benefit payments fromour pension plans with the Citigroup corporate pension discount rateindex. The discount rate for the period from January 1, 2005 through July 19,2005, the period from July 20, 2005 through December 31, 2005 and theyears ended December 31, 2006 and 2007 was 5.25%, 5.50%, 5.90% and 6.48%,respectively.

 

Thelong-term rate of return on plan assets assumption is reviewed annually. We usean investment model to determine an expected rate of return based on currentinvestment allocation. The investment model considers past performance andforward looking assumptions for each asset class based on current marketindices, key economic indicators and assumed long-term rate of inflation. Thelong-term rate of return assumption is adjusted, as needed, such that it fallsbetween the 25th and 75th percentile expected returngenerated from the model.

 

26

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Therate of compensation increase represents the long-term assumption for expectedincreases to salaries. We froze our U.S. defined benefit plans with pay-relatedbenefits as of December 31, 2006, and therefore assumptions related to therate of compensation increase no longer impact our obligation.

 

Changesin these assumptions can result in different expense and liability amounts. Theeffects of the indicated increase and decrease in selected assumptions for ourpension plans as of December 31, 2007 assuming no changes in benefitlevels and no amortization 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     | )                                               | $          | (456 | ) |
| Decrease 100 basis points        |       | 8,762                                  |       | (138                                            | )          |
|                             |       |                                   |       |                                            |       |
| Expected rate of return  change: |       |                                   |       |                                            |       |
| Increase 100 basis points        |       | N/A                                    |       | (552                                            | )          |
| Decrease 100 basis points        |       | N/A                                    |       | 552                                             |       |
|                                  |            |                                        |            |                                                 |            |  |  |

 

*Respiratory Liability.*As of December 31,2007, our North Safety Products subsidiary, along with its predecessors and/orthe former owners of such business were named as defendants in approximately629 lawsuits involving respirators allegedly manufactured and sold by it or itspredecessors. We are also monitoring an additional two lawsuits in which webelieve that North Safety Products, its predecessors and /or the former ownersof such businesses may be named as defendants.

 

We have recorded a $5.0 million reserve associatedwith the lawsuit as of December 31, 2007. This reserve will be re-evaluatedperiodically and additional charges or credits will be recorded to operatingexpenses as additional information becomes available. The calculation of thereserve involved several key assumptions including the following:

 

·                  We have used a five-yearprojection of claims to calculate the reserve. We believe a five-yearprojection of claims and related defense and settlement costs was the mostmeaningful as we could not estimate future activity beyond a five year perioddue to the uncertainty of future events, including future legislation regardingtort reform. Changes in the projection period could impact our estimate of thereserve.

 

·                  We have estimated futureclaim activity based on historical claim activity and expectations of futureactivity. Our estimate did not assume enactment of proposed legislationregarding tort reform at the federal or state level. Changes in legislationcould impact our estimate of future claim activity.

 

·                  We have estimated our shareof defense costs under the JDA based on the historical defense costs paid toour legal counsel and the historical portion of claims that allege use duringthe post-October 1998 exposure period. These estimates could change asmore information regarding case specifics becomes available.

 

·                  We have estimated our shareof settlement costs based on historical settlement amounts and the historicalportion of claims that allege use during the post-October 1998 exposureperiod. These estimates could change as more information regarding casespecifics becomes available.

 

·                  We have estimated our shareof future defense costs beyond the expiration of the JDA consistent with thecurrent JDA. These estimates could change if the manner in which we handle thedefense of cases beyond December 31, 2008 is not consistent with thecurrent JDA*.*

 

*OtherContingencies*. In the ordinary course of business, we areinvolved 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 

 

27

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exceedthe recorded liability. Estimating probable losses requires analysis ofmultiple factors, in some cases including judgments about the potential actionsof third-party claimants and courts. Therefore, actual losses in any futureperiod are inherently uncertain. Currently, we do not believe that any of ourpending legal proceedings or claims will have a material impact on ourfinancial position or results of operations. However, if actual or estimatedprobable future losses exceed our recorded liability for such claims, we wouldrecord additional charges as other operating expense during the period in whichthe actual loss or change in estimate occurred.

 

**Gross Profit**

 

                We calculate gross profit as thedifference between our net sales and cost of goods sold. We do not includecertain purchasing and distribution costs as a component of cost of goods sold.As a result, our gross profit may not be comparable to other entities who may presentall of purchasing and distribution costs as a component of cost of goods sold.

 

**Expense Classifications**

 

We include the following in each of the majorexpense categories:

 

*Costof Goods Sold*. Primarily includes all direct and indirect costsrelated to our products including the following: raw materials, direct andindirect labor, including related benefits, overhead costs, inbound freightcharges, receiving costs, inspection costs, purchasing costs, other internaltransfer costs and cost of resale products.

 

*Selling.* Primarily includes all payroll and related benefitsassociated with sales and marketing employees, internal and external salescommission payments, marketing costs, advertising expenses and othermiscellaneous selling expenses.

 

*Distribution.*Primarily includes all direct and indirectlabor associated with distribution and related benefits, warehousing andfreight-out costs and other miscellaneous distribution expenses.

 

*General and Administrative.*Primarily includes thefollowing: finance and accounting, certain purchasing costs, informationsystems, human resources, legal, corporate overhead expenses and othermiscellaneous administrative expenses.

 

**Results of Operations**

 

The following tables set forth our results ofoperations in dollars and as a percentage of net sales for the period from January 1,2005 through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007. The data for theperiod from January 1, 2005 through July 19, 2005, the period from July 20,2005 through December 31, 2005 and the years ended December 31, 2006and 2007 have been derived from our audited consolidated financial statements.Although the Predecessor and Successor results are not comparable by definitionin certain respects due to the Norcross Transaction and the resultingrevaluation, the 2005 information is presented on a combined basis forcomparative purposes. For the year ended December 31, 2005, thePredecessor (January 1, 2005 through July 19, 2005) and Successor (July 20,2005 through December 31, 2005) results of operations are combined.

 

28

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| ** **                                                                          | ** ** | **Predecessor**                                         | ** ** | **Successor**                                       | ** ** | ** **                                       | ** ** | **Successor**                    | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                          | ** ** | **January 1,   2005  through  July 19,** | ** ** | **July 20,  2005  through  December 31,** | ** ** | **Combined  Year ended  December 31,** | ** ** | **Year ended December 31,** | ** ** |
| ** **                                                                          | ** ** | **2005**                                                | ** ** | **2005**                                            | ** ** | **2005**                                         | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| ** **                                                                          | ** ** | **(dollars in thousands)**                    | ** ** |
| Net sales:                                                                          |       |                                                    |       |                                                |       |                                             |       |                             |       |   |   |
| General safety and preparedness                                                     |       | $                                                       | 175,572    |                                                | $          | 138,146                                          |       | $                                | 313,718    |   | $ | 370,931 |   | $ | 410,962 |   |
| Fire service                                                                        |       | 51,702                                                  |       | 36,213                                              |       | 87,915                                           |       | 87,902                           |       | 100,607 |   |
| Electrical safety                                                                   |       | 33,558                                                  |       | 27,080                                              |       | 60,638                                           |       | 78,842                           |       | 97,328 |   |
| Total net sales                                                                     |       | 260,832                                                 |       | 201,439                                             |       | 462,271                                          |       | 537,675                          |       | 608,897 |   |
| Cost of goods sold                                                                  |       | 163,691                                                 |       | 133,910                                             |       | 297,601                                          |       | 336,633                          |       | 375,924 |   |
| Gross profit                                                                        |       | 97,141                                                  |       | 67,529                                              |       | 164,670                                          |       | 201,042                          |       | 232,973 |   |
| Operating expenses                                                                  |       | 84,133                                                  |       | 55,968                                              |       | 140,101                                          |       | 141,115                          |       | 162,579 |   |
| Income from operations:                                                             |       |                                                    |       |                                                |       |                                             |       |                             |       |   |   |
| General safety and preparedness                                                     |       | 19,361                                                  |       | 7,511                                               |       | 26,872                                           |       | 45,702                           |       | 51,691 |   |
| Fire service                                                                        |       | 9,332                                                   |       | 2,574                                               |       | 11,906                                           |       | 8,364                            |       | 12,438 |   |
| Electrical safety                                                                   |       | 8,442                                                   |       | 4,352                                               |       | 12,794                                           |       | 14,853                           |       | 18,042 |   |
| Corporate                                                                           |       | (24,127                                                 | )          | (2,876                                              | )          | (27,003                                          | )          | (8,992                           | )          | (11,777 | ) |
| Total income from operations                                                        |       | 13,008                                                  |       | 11,561                                              |       | 24,569                                           |       | 59,927                           |       | 70,394 |   |
| Other expense (income):                                                             |       |                                                    |       |                                                |       |                                             |       |                             |       |   |   |
| Interest expense                                                                    |       | 24,583                                                  |       | 17,644                                              |       | 42,227                                           |       | 46,857                           |       | 49,624 |   |
| Interest income                                                                     |       | (872                                                    | )          | (132                                                | )          | (1,004                                           | )          | (605                             | )          | (1,549 | ) |
| Other, net                                                                          |       | 748                                                     |       | (48                                                 | )          | 700                                              |       | (1,132                           | )          | 639 |   |
| (Loss) income from continuing operations before income taxes and  minority interest |       | (11,451                                                 | )          | (5,903                                              | )          | (17,354                                          | )          | 14,807                           |       | 21,680 |   |
| Income tax expense  (benefit)                                                       |       | 3,445                                                   |       | (1,052                                              | )          | 2,393                                            |       | 6,140                            |       | 6,064 |   |
| Minority interest                                                                   |       | 13                                                      |       | (2                                                  | )          | 11                                               |       | 23                               |       | 22 |   |
| (Loss) income from  continuing operations                                           |       | (14,909                                                 | )          | (4,849                                              | )          | (19,758                                          | )          | 8,644                            |       | 15,594 |   |
| (Income) loss from discontinued operations, net of income tax                       |       | (446                                                    | )          | (83                                                 | )          | (529                                             | )          | (220                             | )          | 2,813 |   |
| Net (loss) income                                                                   |       | $                                                       | (14,463    | )                                                   | $          | (4,766                                           | )          | $                                | (19,229    | ) | $ | 8,864 |   | $ | 12,781 |   |

 

 

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| ** **                                                                          | ** ** | **Predecessor**                                         | ** ** | **Successor**                                       | ** ** | ** **                                       | ** ** | **Successor**                    | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|-----------------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                          | ** ** | **January 1,   2005  through  July 19,** | ** ** | **July 20,  2005  through  December 31,** | ** ** | **Combined  Year ended  December 31,** | ** ** | **Year ended December 31,** | ** ** |
| ** **                                                                          | ** ** | **2005**                                                | ** ** | **2005**                                            | ** ** | **2005**                                         | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| Net sales:                                                                          |       |                                                    |       |                                                |       |                                             |       |                             |       |   |   |
| General safety and preparedness                                                     |       | 67.3                                                    | %          | 68.6                                                | %          | 67.9                                             | %          | 69.0                             | %          | 67.5 | % |
| Fire service                                                                        |       | 19.8                                                    | %          | 18.0                                                | %          | 19.0                                             | %          | 16.3                             | %          | 16.5 | % |
| Electrical safety                                                                   |       | 12.9                                                    | %          | 13.4                                                | %          | 13.1                                             | %          | 14.7                             | %          | 16.0 | % |
| Total net sales                                                                     |       | 100.0                                                   | %          | 100.0                                               | %          | 100.0                                            | %          | 100.0                            | %          | 100.0 | % |
| Cost of goods sold                                                                  |       | 62.8                                                    | %          | 66.5                                                | %          | 64.4                                             | %          | 62.6                             | %          | 61.7 | % |
| Gross profit                                                                        |       | 37.2                                                    | %          | 33.5                                                | %          | 35.6                                             | %          | 37.4                             | %          | 38.3 | % |
| Operating expenses                                                                  |       | 32.2                                                    | %          | 27.7                                                | %          | 30.3                                             | %          | 26.2                             | %          | 26.7 | % |
| Income from operations:                                                             |       |                                                    |       |                                                |       |                                             |       |                             |       |   |   |
| General safety and preparedness                                                     |       | 7.4                                                     | %          | 3.7                                                 | %          | 5.8                                              | %          | 8.5                              | %          | 8.5 | % |
| Fire service                                                                        |       | 3.6                                                     | %          | 1.3                                                 | %          | 2.6                                              | %          | 1.6                              | %          | 2.0 | % |
| Electrical safety                                                                   |       | 3.2                                                     | %          | 2.2                                                 | %          | 2.8                                              | %          | 2.8                              | %          | 3.0 | % |
| Corporate                                                                           |       | (9.2                                                    | )%         | (1.4                                                | )%         | (5.9                                             | )%         | (1.7                             | )%         | (1.9 | )% |
| Total income from operations                                                        |       | 5.0                                                     | %          | 5.8                                                 | %          | 5.3                                              | %          | 11.2                             | %          | 11.6 | % |
| Other expense (income):                                                             |       |                                                    |       |                                                |       |                                             |       |                             |       |   |   |
| Interest expense                                                                    |       | 9.4                                                     | %          | 8.8                                                 | %          | 9.1                                              | %          | 8.7                              | %          | 8.2 | % |
| Interest income                                                                     |       | (0.3                                                    | )%         | (0.1                                                | )%         | (0.2                                             | )%         | (0.1                             | )%         | (0.3 | )% |
| Other, net                                                                          |       | 0.3                                                     | %          | (0.0                                                | )%         | 0.2                                              | %          | (0.2                             | )%         | 0.1 | % |
| (Loss) income from continuing operations before income taxes and  minority interest |       | (4.4                                                    | )%         | (2.9                                                | )%         | (3.8                                             | )%         | 2.8                              | %          | 3.6 | % |
| Income tax expense  (benefit)                                                       |       | 1.3                                                     | %          | (0.5                                                | )%         | 0.5                                              | %          | 1.2                              | %          | 1.0 | % |
| Minority interest                                                                   |       | 0.0                                                     | %          | (0.0                                                | )%         | 0.0                                              | %          | 0.0                              | %          | 0.0 | % |
| (Loss) income from  continuing operations                                           |       | (5.7                                                    | )%         | (2.4                                                | )%         | (4.3                                             | )%         | 1.6                              | %          | 2.6 | % |
| (Income) loss from discontinued operations, net of income tax                       |       | (0.2                                                    | )%         | (0.0                                                | )%         | (0.1                                             | )%         | (0.0                             | )%         | 0.5 | % |
| Net (loss) income                                                                   |       | (5.5                                                    | )%         | (2.4                                                | )%         | (4.2                                             | )%         | 1.6                              | %          | 2.1 | % |

 

***Year Ended December 31, 2007 as Compared to Year Ended December 31,2006***

 

*Net sales.*Netsales increased by $71.2 million, or 13.2%, from $537.7 million in 2006 to$608.9 million in 2007. In our general safety and preparedness segment, netsales increased by $40.0 million, or 10.8%, from $371.0 million in 2006 to$411.0 million in 2007. The increase reflects a combination of the following:overall organic growth in our North American non-government business of $17.0million, which offset a decrease in government contract shipments of $3.3million, combined organic growth in our international operations of $11.9million and favorable exchange rates, which had an impact of $14.4 million. Inour fire service segment, net sales increased by $12.7 million, or 14.5%, from$87.9 million in 2006 to $100.6 million in 2007, due in part to a morenormalized pattern of fire act grants when compared to 2006. In addition, theissuance of the new NFPA standard is creating increased demand for our patentedproducts. In our electrical safety segment, net sales increased by $18.5million, or 23.4%, from $78.8 million in 2006 to $97.3 million in 2007,primarily driven by strong market demand, new product penetration andincremental White Rubber net sales.

 

*Gross profit.*Grossprofit increased by $32.0 million, or 15.9%, from $201.0 million in 2006 to$233.0 million in 2007, primarily due to the $71.2 million, or 13.2%, increasein net sales. Our gross profit margin of 38.3% in 2007 was favorable to ourgross profit margin of 37.4% in 2006. In our general safety and preparednesssegment, gross profit increased by $20.3 million, or 14.0%, from $144.5 millionin 2006 to $164.8 million in 2007. This increase was primarily due to theoverall net sales increase of $40.0 million, or 10.8%, improved marginrealization and the favorable impact of $1.3 million of lower inventorypurchase accounting adjustments and LIFO adjustments in 2007 relative to 2006.In our fire service segment, gross profit increased by $5.7 million, or 21.6%,from $26.3 million in 2006 to $32.0 million in 2007, primarily due to theincrease in net sales of $12.7 million, or 14.5%, and favorable marginrealization. In our electrical safety segment, gross profit increased by $6.0million, or 19.9%, from $30.2 million in 2006 to $36.2 million in 2007, asresult of the increase in net sales of $18.5 million, or 23.4%, and thefavorable impact of $0.2 million of lower inventory purchase accountingadjustments and LIFO adjustments in 2007 relative to 2006, partially offset bylower margin realization primarily due to White Rubber product line integrationcosts and the impact of product mix.

 

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*Operating expenses.*Operatingexpenses increased by $21.5 million, or 15.2%, from $141.1 million in 2006 to$162.6 million in 2007. In our general safety and preparedness segment,operating expenses increased by $14.3 million, or 14.4%, from $98.8 million in2006 to $113.1 million in 2007, driven by increased variable selling anddistribution expenses associated with the $40.0 million, or 10.8%, increase innet sales, unfavorable exchange rates, which had an impact of $3.5 million,higher payroll expenses and an $1.1 million increase in restructuring andmerger-related charges, associated with plant relocations, personnelreorganization and acquisition integration activities. In addition, theincrease over prior year was driven by a $6.8 million non-recurring curtailmentgain recognized in 2006 as a result of freezing our U.S. defined benefit plans,which did not occur in 2007. These increases were partially offset by an $1.8million credit to operating expenses associated with reduction in the reservefor respiratory claims. In our fire service segment, operating expensesincreased by $1.6 million, or 8.9%, from $17.9 million in 2006 to $19.5 millionin 2007, primarily due to increased variable selling expenses related to the$12.7 million, or 14.5%, increase in net sales and higher administrativeexpenses. In our electrical safety segment, operating expenses increased by$2.8 million, or 18.3%, from $15.4 million in 2006 to $18.2 million in 2007,due to increased variable selling and distribution expenses related to the$18.5 million, or 23.4%, increase in net sales, higher amortization expense of$0.2 million associated with intangible assets recorded as part of purchaseaccounting, incremental White Rubber operating expenses and $0.9 millionincrease in restructuring and merger related charges, associated primarily withWhite Rubber integration costs. Corporate expenses in 2006 consisted of $7.4million of general and administrative expenses and $1.6 million of managementincentive compensation expense. Corporate expenses in 2007 consisted of $10.1million of general and administrative expenses and $1.7 million of managementincentive compensation expense. The increase in corporate general andadministrative expenses of $2.7 million was primarily due to higher payroll,administrative expenses and professional fees. The increase in professionalfees was partially due to $1.6 million of fees associated with the engagementof a supply-chain improvement consulting firm.

 

*Income from operations.*Incomefrom operations increased by $10.5 million, or 17.5%, from $59.9 million in2006 to $70.4 million in 2007. In our general safety and preparedness segment,income from operations increased by $6.0 million, or 13.1%, from $45.7 millionin 2006 to $51.7 million in 2007. In our fire service segment, income fromoperations increased by $4.1 million, or 48.7%, from $8.4 million in 2006 to$12.5 million in 2007. In our electrical safety segment, income from operationsincreased by $3.2 million, or 21.5%, from $14.8 million in 2006 to $18.0million in 2007. Corporate expenses in 2006 consisted of $7.4 million ofgeneral and administrative expenses and $1.6 million of management incentivecompensation expense. Corporate expenses in 2007 consisted of $10.1 million ofgeneral and administrative expenses and $1.7 million of management incentivecompensation expense. These segment variances were the result of the reasonsdiscussed above.

 

Included in income from operations for 2006 and 2007were depreciation and amortization expenses of $25.7 million and $26.5 million,respectively. Of these amounts, $16.7 million, $4.6 million and $4.4 millionwere attributable to the general safety and preparedness, fire service andelectrical safety segments, respectively, in 2006 and $16.7 million, $4.7million and $5.1 million were attributable to these segments in 2007.

 

*Interest expense.*Interestexpense increased by $2.7 million, or 5.9%, from $46.9 million in 2006 to $49.6million in 2007, primarily due to higher outstanding debt balances related thesenior pay in kind notes. Included in interest expenses in 2007 and 2006 werenon-cash interest charges associated with the senior pay in kind notes of $18.8million and $16.7 million, respectively.

 

*Interest income.*Interest incomeincreased by $0.9 million from $0.6 million in 2006 to $1.5 million in 2007,primarily due to interest earned on higher cash balances during 2007.

 

*Other, net.*Other, netincreased by $1.7 million from $(1.1) million in 2006 to $0.6 million in 2007,primarily due to unrealized foreign exchange rate losses.

 

*Income tax expense.*Incometax expense remained consistent at $6.1 million in 2006 and 2007, as higherincome taxes associated with improved operating performance were offset by thebenefit from a reduction in the German and Canadian statutory tax rates.

 

*(Income) loss from discontinued operations.*Loss from discontinuedoperations in 2007 included a $3.0 million loss related to the sale of SouthAfrica and $(0.2) million of income associated with South Africa discontinuedoperations. Income from discontinued operations in 2006 included $(0.2) millionof income associated with South Africa discontinued operations.

 

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*Net (loss) income.*Netincome increased by $3.9 million, or 44.2%, from $8.9 million in 2006 to $12.8million in 2007 as a result of the reasons discussed above.

 

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

 

*Net sales.*Netsales increased by $75.4 million, or 16.3%, from $462.3 million in 2005 to$537.7 million in 2006. In our general safety and preparedness segment, netsales increased by $57.2 million, or 18.2%, from $313.8 million in 2005 to$371.0 million in 2006. The increase reflects a combination of the following:incremental combined Fibre-Metal and NEOS net sales of $36.1 million, combinedorganic growth in our international operations of $10.9 million, overallorganic growth in our North American non-government business of $11.3 million,favorable exchange rates, which had an impact of $6.0 million, and a decreasein government contract shipments of $7.1 million. In our fire service segment,net sales were consistent at $87.9 million in 2005 and 2006 as incrementalAmerican Firewear net sales of $6.4 million were offset by postponed customerorders due in part to the combined impact of government grant holdups and thedelayed issuance of the new NFPA standard. In our electrical safety segment,net sales increased by $18.2 million, or 30.0%, from $60.6 million in 2005 to$78.8 million 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 $36.3 million, or 22.1%, from $164.7 million in 2005 to$201.0 million in 2006, primarily due to the $75.4 million, or 16.3%, increasein net sales. Our gross profit margin of 37.4% in 2006 was favorable to the35.6% gross profit margin in 2005. In our general safety and preparednesssegment, gross profit increased by $31.1 million, or 27.5%, from $113.4 millionin 2005 to $144.5 million in 2006. This increase was primarily due to theoverall net sales increase of $57.2 million, or 18.2%, improved marginrealization in our North American operations (in part due to the favorablecontribution of Fibre-Metal) and the favorable impact of lower inventorypurchase accounting adjustments and LIFO charges from $4.5 million in 2005 to$1.7 million in 2006. In our fire service segment, gross profit decreased $1.1million, or 4.0%, from $27.4 million in 2005 to $26.3 million in 2006 due tolower margin realization (in part due to the inherent lower margin of AmericanFirewear products and product line integration costs), which was partiallyoffset by the favorable impact of $1.3 million of lower inventory purchaseaccounting adjustments in 2006 relative to 2005. In our electrical safetysegment, gross profit increased by $6.3 million, or 26.6%, from$23.9 million in 2005 to $30.2 million in 2006, primarily due to the$18.2 million, or 30.0%, increase in net sales, which was partially offset bylower margin realization in part due to the White Rubber plant integration andthe unfavorable impact of $0.3 million of inventory purchase accountingadjustments in 2006.

 

*Operating expenses.*Operatingexpenses increased by $1.0 million, or 0.7%, from $140.1 million in2005 to $141.1 million in 2006. In our general safety and preparednesssegment, operating expenses increased by $12.3 million, or 14.2%, from$86.5 million in 2005 to $98.8 million in 2006, primarily due tohigher amortization expense of $1.9 million associated with the intangibleassets recorded as part of purchase accounting, incremental combinedFibre-Metal and NEOS operating expenses of $7.3 million, higher foreignexchange rates, which had an impact of $1.5 million, $1.4 million ofrestructuring charges related to plant relocations and acquisition integrationactivities, increased variable distribution and selling expenses associatedwith the $57.2 million, or 18.2%, increase in net sales and higher payroll andadministrative expenses. These increases were partially offset by a $6.8million non-cash curtailment gain recorded as a result of freezing 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 $6.1million of general and administrative expenses, $16.4 million of managementincentive compensation expense related to the Norcross Transaction and $4.6million in seller transaction expenses (primarily related to professionalservices) which were funded by the Predecessor from proceeds realized upon theconsummation of the Norcross Transaction. Corporate expenses in 2006 consistedof $7.4 million of general and administrative expenses and $1.6 million ofmanagement incentive compensation expense. The increase in corporate generaland administrative expenses of $1.3 million was primarily due to higherpayroll, administrative expenses and professional fees.

 

*Income from operations.*Incomefrom operations increased by $35.4 million, or 143.9%, from $24.5 million in2005 to $59.9 million in 2006. In our general safety and preparedness segment,income from operations increased by $18.8 

 

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million, or 70.1%, from $26.9 million in 2005 to $45.7million in 2006. In our fire service segment, income from operations decreasedby $3.5 million, or 29.7%, from $11.9 million in 2005 to $8.4 million in 2006.In our electrical safety segment, income from operations increased by $2.0million, or 16.1%, from $12.8 million in 2005 to $14.8 million in 2006.Corporate expenses in 2005 consisted of $6.1 million of general andadministrative expenses, $16.4 million of management incentive compensationexpense related to the Norcross Transaction and $4.6 million in sellertransaction expenses. Corporate expenses in 2006 consisted of $7.4 million ofgeneral and administrative expenses and $1.6 million of management incentivecompensation expense. These segment variances were the result of the reasonsdiscussed above.

 

Included in income from operations in 2005 and 2006were depreciation and amortization expenses of $18.8 million and $25.7 million,respectively. Of these amounts, $12.7 million, $3.0 million, and $3.1 millionwere attributable to the general safety and preparedness, fire service andelectrical safety segments, respectively, in 2005 and $16.7 million, $4.6million and $4.4 million were attributable to these segments in 2006.

 

*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 interestexpense in 2006 were non-cash interest charges associated with the senior payin kind notes of $16.7 million.

 

*Other, net.*Other,net decreased by $1.8 million from $0.7 million in 2005 to $(1.1) million in2006, primarily due to unrealized foreign exchange rate gains.

 

*Income tax expense.*Incometax expense increased by $3.7 million, from $2.4 million in 2005 to$6.1 million in 2006, primarily as a result of higher domestic income taxexpense.

 

*(Income) loss from discontinued operations.*Income from discontinuedoperations in 2006 decreased by $0.3 million from $(0.5) million in 2005 to$(0.2) million in 2006. This decrease was associated with South Africadiscontinued operations.

 

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

 

**Liquidity and Capital Resources**

 

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

 

In2007, net cash provided by operating activities was $57.2 million. Thefavorable contribution was driven primarily by income from operations of $70.4million, which was partially offset by the impact of working capital changesand pension contributions.

 

In2006, net cash provided by operating activities was $35.0 million. Thefavorable contribution was driven primarily by income from operations of $59.9million, which was partially offset by an increase in accounts receivables dueto higher net sales and higher inventory in part due to pending plantconsolidations.

 

In2005, net cash provided by operating activities was $46.3 million. Thefavorable contribution was driven primarily by income from operations of $24.5million and the impact of favorable changes in working capital.

 

Historically, our principal uses of cash have beencapital expenditures, acquisitions and working capital. Investing activitiesfor the year ended December 31, 2007 include: (1) $0.9 million ofroyalty payments to the sellers of Arbin, (2) $0.5 million for thepurchase of Hungarian subsidiary and (3) $3.2 million of cash proceedsfrom the sale of South Africa. In addition, we received cash proceeds of $0.4million related to the sale of property, plant and equipment.

 

Forthe year ended December 31, 2006, investing activities include: (1) $22.2million 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 

 

 

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million for royalty payments to the sellers of MuckBoot and Arbin. We received cash proceeds of $0.1 million related to the saleof property, plan and equipment.

 

Forthe Predecessor period from January 1, 2005 through July 19, 2005, wemade royalty payments to the sellers of Muck Boot and Arbin totaling $0.7million. Successor period investing activities for the period from July 20,2005 through December 31, 2005 include: (1) $204.5 million of cashpurchase price related to the Norcross Transaction; (2) $68.7 million ofcash purchase price related to the Fibre-Metal Transaction; and (3) $0.5million for royalty payments to the sellers of Muck Boot and Arbin.

 

Ourcapital expenditures were $12.0 million in 2007, $11.6 million in 2006 and $9.3million in 2005.

 

As of December 31,2007, we had working capital of $188.1 million and cash of $70.8 million. Wemaintain inventory levels sufficient to satisfy customer orders, with generallya three month supply on hand. Turnout gear is an exception and is generallymade to order. Our accounts receivable terms are generally 30 days, net.

 

Forthe year ended December 31, 2007, net cash used in financing activitieswas $4.7 million consisting of payments on long-term obligations (including anexcess cash flow sweep payment of $2.3 million under the terms of our seniorcredit facility).

 

Forthe 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.

 

Forthe 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 the113⁄4% 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 December 31,2005, net cash provided by financing activities was $264.5 million, including$153.0 million of borrowings under our New Credit Facility (as defined below)used to fund the Norcross and Fibre-Metal Transactions, $23.6 million ofproceeds from the issuance of senior pay in kind notes and $109.7 of capitalcontributions. Additionally, we paid $21.1 million in deferred financing costsconsisting of expenses associated with the New Credit Facility (includingincremental borrowings for the Fibre-Metal Transaction), the Norcross seniorsubordinated notes and the senior pay in kind notes which are further discussedbelow.

 

On January 7, 2005,NSP Holdings and NSP Capital issued the Existing Holdings Notes. The proceedswere used to: (i) make a payment in respect of preferred units of $60.0million, $58.0 million of which were payments in respect of accrued preferredyield and $2.0 million of which was the return of a portion of the originalcapital contribution made by holders of NSP Holdings’ preferred units, (ii) makedistributions in respect of the common units of certain members of managementof $2.5 million, and (iii) pay fees and expenses. The remainder ofthe net proceeds was used for general corporate purposes, including potentialacquisitions and/or distributions to NSP Holdings’ unit holders.

 

On July 19,2005, in conjunction with the Norcross Transaction, Norcross entered into a newSenior Credit Facility (the “New Credit Facility”) which provides for aggregateborrowings of $138.0 million, consisting of (a) a term loan in the amountof $88.0 million, payable in twenty-eight consecutive quarterly installmentswhich commenced on September 30, 2005 and (b) a revolving creditfacility in an aggregate principal amount of $50.0 million. The New CreditFacility is comprised of a U.S. revolving facility and a Canadian subfacility.The amount of the total U.S. revolving facility is an amount equal to $50.0million less the amount at such time outstanding under the Canadiansubfacility. The amount of the total Canadian subfacility is an amountdenominated in Canadian dollars having a U.S. dollar equivalent of $25.0million less the amount at such time outstanding under the U.S. revolvingfacility. At any time upon the request of us or the U.S. Subsidiary Borrowers(as defined in the New Credit Facility), one or more new term loan facilitiesmay be added in any aggregate amount of up to $100.0 million (and not less than$10.0 million for any such additional term loan), subject to certainconditions, 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 so acquired. TheNew Credit Facility is subject to certain mandatory prepayments upon theoccurrence of certain events, subject to certain exceptions set forth in the

 

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credit agreement. The proceeds of the New CreditFacility were used primarily to refinance the then existing senior creditfacility.

 

On November 1,2005, Norcross entered into the Incremental Facility Amendment to the NewCredit Facility (the “Amendment”) in order to complete the acquisition of allof the issued and outstanding capital stock of Fibre-Metal. Under the terms ofthe Amendment, Norcross, the U.S. borrowers and the lenders agreed to a totalincremental term commitment of $65.0 million. Additionally, the Amendmentrequired, among other things, that the proceeds of the incremental term loansbe used for permitted acquisitions and the consolidated senior leverage ratio,after giving effect to the use of the proceeds, 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 Facility Amendment to theNew Credit Facility (the “Second Amendment”) in order to complete theacquisition of all of the issued and outstanding capital stock of White Rubber.Under the terms of the Second Amendment, Norcross, the U.S. borrowers and thelenders agreed to a total incremental term commitment of $15.0 million.Additionally, the Second Amendment required, among other things, that theproceeds of the incremental term loans be used for permitted acquisitions andthe consolidated senior leverage ratio, after giving effect to the use of theproceeds, not exceed 3.25 to 1.00. Norcross financed the White Transaction withthese additional term borrowings and cash on the balance sheet.

 

As of December 31,2007, borrowings under the New Credit Facility bore interest at a weightedaverage rate of 7.3%. Prior to June 30, 2010, we may borrow, repay andre-borrow under the revolving facilities without payment of penalty or premium.The term loan is payable in quarterly installments totaling $1.7 million perannum, with the remainder due in four quarterly installments ending June 30,2012. As of December 31, 2007, there was approximately $161.7 million ofoutstanding indebtedness under the New Credit Facility and approximately $47.6million of available borrowings under the revolving credit facility.

 

Borrowingsunder the U.S. revolving facility and term loan portion of the New CreditFacility bear interest at a rate per annum equal to our choice of (a) analternate 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 anapplicable margin. Borrowings under the Canadian subfacility of the New CreditFacility bear interest at a rate per annum equal to the Canadian prime rate(which is the higher of (i) the rate of interest announced by CreditSuisse, Toronto Branch, as its reference rate then in effect for determininginterest rates on Canadian dollar denominated commercial loans in Canada or (ii) theCDOR rate plus 0.50% per annum), plus an applicable margin, or with respect tobanker’s acceptances or their equivalents, the discount rate (as defined in thecredit agreement) plus an applicable margin.

 

Initially,the applicable margin with respect to the revolving credit facility is (a) 1.25%in the case of alternate base rate loans and Canadian dollar prime loans and (b) 2.25%in the case of Eurodollar rate loans and bankers’ acceptance rate loans. Withrespect to the term loan, the applicable margin will be (a) 1.00% in thecase of alternate base rate loans and (b) 2.00% in the case of Eurodollarrate loans. After our fiscal quarter ended December 31, 2005, the marginsapplicable to the revolving credit facility and the U.S. swing line loansadjust on a sliding scale based on the total leverage ratio of Norcross and itssubsidiaries. In addition, we are required to pay to the lenders under therevolving credit facility an initial commitment fee in respect of the unusedcommitments thereunder at a per annum rate of 0.50%. After our fiscal quarterended December 31, 2005, the commitment fee rate adjusts on a slidingscale based on the total leverage ratio of Norcross and its subsidiaries.

 

Norcross’domestic subsidiaries (including any future or indirect subsidiaries that maybe created or acquired by us) and Safety Products guarantee the U.S. subsidiaryborrowers’ and Norcross’ obligations under the New Credit Facility. Theguarantees in respect of the New Credit Facility are secured by a perfectedfirst priority security interest in all of our equity securities, the equitysecurities of our direct and indirect domestic subsidiaries, substantially allof the guarantors’ tangible and intangible assets and 65% of the equitysecurities of, or equity interest in, certain of our foreign first-tiersubsidiaries, subject to certain exceptions. 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.

 

TheNew Credit Facility contains certain customary covenants, including among otherthings:

 

·                  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 

 

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material properties in good working order andcondition, provide certain notices to the Administrative Agent for distributionto its lenders, comply in all material respects with environmental laws andmaintain at all times ratings for the New Credit Facility;

 

·                  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 of defaults are subject to exceptions, materialityqualifiers and baskets.

 

On July 19, 2005, wesold $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, dated June 28,2005 (the “Purchase Agreement”), by and between us and Credit Suisse FirstBoston, LLC (the “Initial Purchaser”). The New Notes were issued pursuant tothe Indenture. Pursuant to the term of the Purchase Agreement, the New Noteswere sold to the Initial Purchaser and were resold to qualified institutionalbuyers in compliance with the exemption from registration.

 

In connection with theclosing of the Norcross Transaction, we entered into a second supplementalindenture dated as of July 19, 2005 (the “Second Supplemental Indenture”)among NSP Holdings, NSP Capital, us and Wilmington Trust Company, as trustee(the “Trustee”) under the indenture dated as of January 7, 2005 (the “Indenture”)by and among NSP Holdings, NSP Capital and the Trustee providing for theissuance of the New Notes and the assumption by us of all of the rights,powers, commitments, obligations and liabilities of NSP Holdings under theIndenture and the Existing Holdings Notes.

 

In connection with the closing of the NorcrossTransaction, Norcross entered into a supplemental indenture dated as of July 19,2005 (the “Supplemental Indenture”) by and among us, Norcross Capital Corp. (“Capital”),the guarantors listed on the signature pages thereto and Wilmington TrustCompany, as trustee (the “Trustee”) under the indenture dated as of August 13,2003 (the “Indenture”) providing for the issuance by Norcross and Capital of$152.5 million aggregate principal amount of 9 7/8% senior subordinatednotes due 2011. Pursuant to the terms of the Supplemental Indenture, the definitionof Permitted Holders was amended and the parties confirmed that the RequisiteConsents (as defined in the Supplemental Indenture) had been delivered in orderto waive our obligations under the Change in Control covenant of the Indenturein connection with the Norcross Transaction.

 

Safety Products is a holding company with no businessoperations or assets other than the equity interests it holds in itssubsidiaries. Its subsidiaries do not guarantee Safety Products’ obligationsunder the senior pay in kind notes and do not have any obligation with respectto 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 anddistinct legal entities, and they will have no obligation, contingent orotherwise, to pay the amounts due under the notes or to make any funds availableto pay those amounts, whether by dividend, distribution, loan or otherpayments.

 

The terms of Norcross’ senior credit facilitysignificantly restrict Norcross from paying dividends and otherwisetransferring assets to Safety Products. Further, the terms of the indenturegoverning the Norcross senior subordinated notes significantly restrictNorcross and Safety Products’ other subsidiaries from paying dividends andotherwise transferring assets to Safety Products, except for taxes and ordinarycourse corporate operating expenses. Safety Products cannot assure you that theagreements governing the current and future indebtedness of its subsidiarieswill permit its subsidiaries to provide Safety Products with sufficientdividends, distributions or loans to make the mandatory partial redemption ofthe senior pay in kind notes on July 1, 2010 or to fund the cash interestpayments on the notes that are required to begin thereafter. The ability of 

 

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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 in our debt instruments, wecurrently anticipate that, in order to pay the principal amount of the seniorpay in kind notes at maturity or to repurchase the notes upon a change ofcontrol as defined in the indentures governing the notes, we will be requiredto adopt one or more alternatives, such as refinancing our indebtedness at orbefore maturity, selling our equity securities or the equity securities orassets of Norcross, seeking capital contributions or loans from our affiliatesor reducing or delaying business activities and capital expenditures.  There can be no assurance that any of theforegoing actions could be effected on satisfactory terms, or at all, or thatany of the foregoing actions would enable us to refinance our indebtedness orpay the principal amount or interest of the notes or that any of such actionswould be permitted by the terms of the indentures governing the notes or anydebt instruments of our subsidiaries then in effect.

 

Webelieve that our internal cash flows and borrowings under the revolving portionsof the New Credit Facility will provide us with sufficient liquidity andcapital resources to meet our current and future financial obligations for theforeseeable future, including funding our operations, debt service and capitalexpenditures. Our future operating performance will be subject to futureeconomic conditions and to financial, business and other factors, many of whichare beyond our control. If our future cash flow from operations and othercapital resources are insufficient to pay our obligations as they mature or tofund our liquidity needs, we may be forced to reduce or delay our businessactivities and capital expenditures, sell assets, obtain additional debt orequity capital or restructure or refinance all or a portion of our debt, on orbefore maturity. We cannot assure you that we would be able to accomplish anyof these alternatives on a timely basis or on satisfactory terms, if at all. Inaddition, the terms of our existing and future indebtedness, including oursenior subordinated notes and the New Credit Facility, may limit our ability topursue any of these alternatives.

 

**Forward-LookingStatements**

** **

ThisManagement’s Discussion and Analysis of Financial Condition and Results ofOperations contains forward-looking information. These statements reflectmanagement’s expectations, estimates, and assumptions based on informationavailable at the time of the statement. Forward-looking statements include, butare 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 toidentify forward-looking statements. Forward-looking statements are notguarantees of future performance and involve risks, uncertainties, and otherfactors, including those set forth below, which may cause our actual results,performance, or achievements to be materially different from any futureresults, performance, or achievements expressed or implied by those statements.Important factors that could cause our actual results, performance, orachievements to be materially different from any future results, performance,or achievements expressed or implied by those statements include, but are notlimited to: (i) our high degree of leverage and significant debt serviceobligations; (ii) the impact of current and future laws and governmentalregulations affecting us or our product offerings; (iii) the impact ofgovernmental spending; (iv) our ability to retain existing customers,maintain key supplier status with those customers with which we have achievedsuch status, and obtain new customers; (v) the highly competitive natureof the personal protection equipment industry; (vi) any future changes inmanagement; (vii) acceptance by consumers of new products we develop oracquire; (viii) the importance and costs of product innovation; (ix) unforeseenproblems associated with international sales, including gains and losses fromforeign currency exchange and restrictions on the efficient repatriation ofearnings; (x) the unpredictability of patent protection and otherintellectual property issues; (xi) cancellation of current orders; (xii) theoutcome of pending product liability claims and the availability ofindemnification for those claims; (xiii) general risks associated with thepersonal protection equipment industry; and (xiv) the successful integration ofacquired companies on economically acceptable terms. We undertake no obligationto publicly update or revise any forward-looking statements to reflect changedassumptions, the occurrence of anticipated or unanticipated events, or changesto future results over time.

 

37

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**ContractualObligations**

** **

Thefollowing table summarizes our contractual obligations and commitments, as of December 31,2007 (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       |       | $                                        | 489,311    |   | $ | 11,569 |   | $ | 53,016 |   | $ | 424,726 |   | $ | — |   |
| Interest payments (1)            |       | 181,460                                  |       | 26,362 |   | 94,656 |   | 60,442 |   | — |   |
| Operating lease  obligations     |       | 35,099                                   |       | 7,759 |   | 11,713 |   | 5,921 |   | 9,706 |   |
| Purchase obligations (2)         |       | 54,536                                   |       | 54,536 |   | — |   | — |   | — |   |
| Other long-term  liabilities (3) |       | 2,154                                    |       | 2,154 |   | — |   | — |   | — |   |
| Total                            |       | $                                        | 762,560    |   | $ | 102,380 |   | $ | 159,385 |   | $ | 491,089 |   | $ | 9,706 |   |

----

| (1)    |   | Interest payments for variable rate obligations are  calculated using the interest rate as of December 31, 2007.                                                                                                                          |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                           |
| (2)    |   | Purchase obligations exclude our accounts payable of  $20.3 million and include open purchase orders of $53.0 million and all other  contractual obligations of $1.5 million pursuant to which we are obligated to  purchase good or services. |
|   |   |                                                                                                                                                                                                                                           |
| (3)    |   | Represents obligations under pension and other  post-retirement plans.                                                                                                                                                                         |

 

**The contractual obligations tableexcludes $6.4 million in unrecognized tax benefits because we cannot make areasonably reliable estimate of the period of cash settlement with therespective taxing authority. See Note 10 to the consolidated financialstatements.**

** **

**Off-balance SheetArrangements**

** **

As of December 31,2007, we did not have any off-balance sheet arrangements as defined in Item303(a)(4)(ii) of Regulation S-K.

 

**Effect ofInflation**

 

Inflationhas generally not been a material factor affecting our business. Our generaloperating expenses, such as wages and salaries, employee benefits and materialsand facilities costs, are subject to normal inflationary pressures.

 

**Recent AccountingPronouncements**

** **

InJune 2006, the FASB issued Interpretation No. 48 (“FIN 48”), *Accounting for Uncertainty in Income Taxes*, aninterpretation 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. The Company adopted FIN 48 at the beginning offiscal year 2007, as required. See Note 10 to the consolidated financial statementsfor related disclosures.

 

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*,which defines fair value, establishes a framework for measuring fair value andexpands disclosures about fair value measurements. The provisions of SFAS No. 157are effective for the Company as of the beginning of its fiscal year ending December 31,2008. The Company does not expect a material impact to its financial statementsas a result of the adoption of SFAS No. 157.

 

In September 2006, theFASB issued SFAS No. 158, Employers’ Accounting for Defined BenefitPension and Other Postretirement Plans,an amendment of FASB Statements No. 87, 88, 106, and 132 (R). SFAS No. 158requires an employer to recognize the funded status of defined benefit pensionand postretirement plans as an asset or liability in its consolidated balancesheets and to recognize changes in that funded status in the year in which thechanges occur through comprehensive income. SFAS No. 158 does not changethe amount of net periodic benefit cost included in net earnings. SFAS No. 158also requires the measurement of defined benefit plan assets and obligations asof the date of the employer’s fiscal year-end 

 

38

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consolidated balance sheets(with limited exceptions). The Company adopted the recognition and disclosureprovisions of SFAS No. 158 effective December 31, 2006 (see Note 11to the consolidated financial statements). The requirement to measure planassets and benefit obligations as of the date of the employer’s fiscal year-endconsolidated balance sheets will be effective in fiscal year 2008.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities — Including an amendment of FASBStatement No. 115*. This statement is intended to improvefinancial reporting by providing entities with the opportunity to mitigatevolatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. It also establishes presentation and disclosure requirementsdesigned to facilitate comparisons between entities that choose differentmeasurement attributes for similar types of assets and liabilities. The statementdoes not affect any existing accounting literature that requires certain assetsand liabilities to be carried at fair value and it does not establishrequirements for recognizing dividend income, interest income or interestexpense. It also does not eliminate disclosure requirements included in otheraccounting standards. The provisions of SFAS No. 159 are effective for theCompany as of the beginning of its fiscal year ending December 31, 2008.The Company does not expect a material impact to its financial statements as aresult of the adoption of SFAS No. 159.

 

In December 2007,the FASB issued SFAS No. 141(R), *Business Combinations*.SFAS No. 141(R) requires the acquiring entity in a businesscombination to recognize the full fair value of the assets acquired andliabilities assumed in the transaction at the acquisition date; the immediateexpense recognition of transaction costs; and accounting for restructuringplans separately from the business combination among others. SFAS No. 141(R) iseffective for the Company’s fiscal year beginning 2009 and the majority of theadoption is prospective only. SFAS No. 141(R) fundamentally changesmany aspects of existing accounting requirements for business combinations. Assuch, if the Company enters into any business combinations after the adoptionof SFAS No. 141(R), a transaction may significantly impact the Company’sfinancial position and earnings, but not cash flows, compared to the Company’srecent acquisitions, accounted for under existing GAAP requirements, due to thereasons described above.

 

SFAS No. 141(R) amendsSFAS No. 109 such that adjustments made to valuation allowances ondeferred taxes and acquired tax contingencies associated with acquisitions thatclosed prior to the effective date of SFAS No. 141(R) would alsoapply the provisions of SFAS No. 141(R), and therefore and changes indeferred tax asset valuation allowances and income tax uncertainties after theacquisition date generally will affect income tax expense. The Company is inthe process of determining the effects, if any, the adoption of SFAS No. 141(R) willhave on its financial statements.

 

InDecember 2007, the FASB issued SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB No. 51*.SFAS No. 160 requires entities to report noncontrolling (minority)interests as a component of shareholders’ equity on the balance sheet; includeall earnings of a consolidated subsidiary in consolidated results ofoperations; and treat all transactions between an entity and noncontrollinginterest as equity transactions between the parties. SFAS No. 160 iseffective for the Company’s fiscal year beginning 2009 and adoption isprospective only; however, presentation and disclosure requirements describedabove must be applied retrospectively. The Company does not expect a materialimpact to its financial statements upon the adoption of SFAS No. 160.

 

**ITEM 7A.       QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

** **

**Market Risk**

** **

We areexposed to various market risks, including changes in foreign currency exchangerates and interest rates. Market risk is the potential loss arising fromadverse changes in market rates and prices, such as foreign currency exchangeand interest rates. Our policy is to not enter into derivatives or otherfinancial instruments for trading or speculative purposes. We may enter intofinancial instruments to manage and reduce the impact of changes in interestrates.

 

Forfixed rate debt, interest rate changes affect the fair market value, but do notimpact earnings or cash flows. Conversely for floating rate debt, interest ratechanges generally do not affect the fair market value but do impact futureearnings and cash flows, assuming other factors are held constant.

 

At December 31,2007, we had total debt (excluding original issue premium) of $489.3 million.This debt is comprised of fixed rate debt of $327.6 million and floating ratedebt of $161.7 million. The pre-tax earnings and cash flow impact in 2007resulting from a one percentage point increase in interest rates on ourvariable rate debt would be approximately $1.6 million, holding other variablesconstant.

 

39

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Aportion of our net sales was derived from manufacturing operations in Canada,Europe, Mexico and the Caribbean. 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 currencyfluctuations in these countries are somewhat mitigated by the fact thatexpenses are generally incurred in the same currency in which revenues aregenerated. 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.

 

Aportion of our assets are based in our foreign operations and are translatedinto U.S. dollars at foreign currency exchange rates in effect as of the end ofeach period, with the effect of such translation reflected as a separatecomponent of shareholders’ equity. Accordingly, our consolidated shareholders’equity will fluctuate depending upon the weakening or strengthening of the U.S.dollar against the respective foreign currency.

 

Our strategy for management of currency risk reliesprimarily upon conducting our operations in a country’s respective currency andmay, from time to time, also involve hedging programs intended to reduce ourexposure to currency fluctuations. Management believes the effect of anabsolute 1% increase in the strength of the Canadian dollar and the Eurorelative to the U.S. dollar from December 31, 2006 to December 31,2007 would have resulted in an $192,000 and $145,000 increase in our incomefrom operations, respectively. During 2007, the Canadian dollar strengthenedapproximately 5.9% relative to the U.S. dollar and the Euro strengthenedapproximately 9.0% relative to the U.S. dollar.

 

40

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

 

**Index to Consolidated Financial Statements**

** **

**Safety Products Holdings, Inc.**

** **

**Audited Consolidated Financial Statements for the period from January 1,2005 through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007**

 
| 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 |

 

 

41

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**Report ofIndependent Registered Public Accounting Firm**

 

Shareholders

SafetyProducts Holdings, Inc.

 

Wehave audited the accompanying consolidated balance sheets as of December 31,2007 and 2006, of Safety Products Holdings, Inc., (Company), a Delaware corporation,and the related consolidated statements of operations, changes in shareholders’equity, and cash flows for the years ended December 31, 2007 and 2006 andthe period from July 20, 2005 to December 31, 2005 (Successor), andthe related consolidated statements of operations, changes in member’s deficit,and cash flows for the period from January 1, 2005 to July 19, 2005of NSP Holdings L.LC. (Predecessor). Our audits also included the financialstatement schedule listed in the index at Item 15(a). These financialstatements and schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements andschedule based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged to performan audit of the 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 theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

 

Inour opinion, the financial statements and schedule referred to above presentfairly, in all material respects, the consolidated balance sheets of SafetyProducts Holdings, Inc. as of December 31, 2007 and 2006, and theconsolidated results of its operations and cash flows for the years ended December 31,2007 and 2006 and the period from July 20, 2005 to December 31, 2005(Successor), and the consolidated results of NSP Holdings L.L.C. (Predecessor)operations and cash flows for the period from January 1, 2005 to July 19,2005, in conformity with U.S. generally accepted accounting principles.

 

Asdiscussed in Notes 5 and 10 to the consolidated financial statements, theCompany adopted Financial Accounting Standards Board Interpretation No. 48,*Accounting for Uncertainty in Income Taxes*,as of January 1, 2007. As discussed in Notes 5 and 11, the Company adoptedthe recognition and disclosure provisions of Statement of Financial AccountingStandards No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans — an Amendment of FASBStatements Nos. 87, 88, 106 and 132(R)*, as of December 31,2006. The Company also adopted the recognition and disclosure provisions ofStatement of Financial Accounting Standards No. 123(R), *Share-based Payment*, as of January 1, 2006.

 
| /s/ Ernst & Young LLP |   |   |
|--------------------------------|--------|--------|
|                           |   |   |
| Chicago, Illinois              |   |   |
| March 13, 2008            |   |   |

 

42

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**SAFETYPRODUCTS HOLDINGS, INC.**

**CONSOLIDATEDBALANCE SHEETS**

**(Amounts inThousands)**

 
| ** **                                                                               | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                               | ** ** | **2006**              | ** ** | **2007** | ** ** |
| **Assets**                                                                               | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current assets:                                                                          |       |                  |       |   |   |
| Cash and cash equivalents                                                                |       | $                     | 26,796     |   | $ | 70,811 |   |
| Accounts receivable, less allowance of $2,323 and $2,332 in 2006 and  2007, respectively |       | 73,306                |       | 76,359 |   |
| Inventories                                                                              |       | 108,270               |       | 108,415 |   |
| Deferred income taxes                                                                    |       | 2,143                 |       | 1,762 |   |
| Prepaid expenses and other current assets                                                |       | 3,624                 |       | 3,665 |   |
| Total current assets                                                                     |       | 214,139               |       | 261,012 |   |
| Property, plant and  equipment, net                                                      |       | 69,627                |       | 68,676 |   |
| Deferred financing costs,  net                                                           |       | 16,517                |       | 13,149 |   |
| Goodwill                                                                                 |       | 157,242               |       | 164,254 |   |
| Other intangible assets,  net                                                            |       | 281,438               |       | 275,325 |   |
| Other noncurrent assets                                                                  |       | 5,119                 |       | 7,234 |   |
| Total assets                                                                             |       | $                     | 744,082    |   | $ | 789,650 |   |
|                                                                                     |       |                  |       |   |   |
| **Liabilities and shareholders’  equity**                                           | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current liabilities:                                                                     |       |                  |       |   |   |
| Accounts payable                                                                         |       | $                     | 21,891     |   | $ | 20,283 |   |
| Accrued expenses                                                                         |       | 40,596                |       | 40,942 |   |
| Current maturities of  long-term obligations                                             |       | 4,820                 |       | 11,654 |   |
| Total current liabilities                                                                |       | 67,307                |       | 72,879 |   |
| Long-term liabilities:                                                                   |       |                  |       |   |   |
| Pension, postretirement and deferred compensation                                        |       | 17,082                |       | 13,792 |   |
| Long-term obligations                                                                    |       | 470,140               |       | 477,059 |   |
| Other noncurrent liabilities                                                             |       | 7,008                 |       | 12,163 |   |
| Deferred income taxes                                                                    |       | 55,460                |       | 50,231 |   |
| Total long-term  liabilities                                                             |       | 549,690               |       | 553,245 |   |
|                                                                                     |       |                  |       |   |   |
| Minority interest                                                                        |       | 199                   |       | 221 |   |
|                                                                                     |       |                  |       |   |   |
| Shareholders’ equity:                                                               |       |                  |       |   |   |
| Common shares                                                                            |       | 110                   |       | 110 |   |
| Contributed capital                                                                      |       | 111,883               |       | 113,527 |   |
| Retained earnings                                                                        |       | 4,098                 |       | 16,503 |   |
| Accumulated other comprehensive income                                                   |       | 10,795                |       | 33,165 |   |
| Total shareholders’ equity                                                          |       | 126,886               |       | 163,305 |   |
| Total liabilities and  shareholders’ equity                                         |       | $                     | 744,082    |   | $ | 789,650 |   |

 

*See notes to consolidated financial statements.*

 

43

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**SAFETYPRODUCTS HOLDINGS, INC.**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Amounts inThousands)**

 
| ** **                                                                                                                           | ** ** | **Predecessor**                                   | ** ** | **Successor**                                       | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                                           | ** ** | **January 1,  2005  through  July 19,** | ** ** | **July 20,  2005  through  December 31,** | ** ** | **Year ended December 31,** | ** ** |
| ** **                                                                                                                           | ** ** | **2005**                                          | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2007** | ** ** |
| ** **                                                                                                                           | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                                                                                                            |       | $                                                 | 260,832    |                                                | $          | 201,439 |   | $ | 537,675 |   | $ | 608,897 |   |
| Cost of goods sold                                                                                                                   |       | 163,691                                           |       | 133,910                                             |       | 336,633 |   | 375,924 |   |
| Gross profit                                                                                                                         |       | 97,141                                            |       | 67,529                                              |       | 201,042 |   | 232,973 |   |
| Operating expenses:                                                                                                                  |       |                                              |       |                                                |       |   |   |   |   |
| Selling                                                                                                                              |       | 24,469                                            |       | 18,405                                              |       | 49,974 |   | 55,250 |   |
| Distribution                                                                                                                         |       | 14,036                                            |       | 10,930                                              |       | 31,589 |   | 37,080 |   |
| General and administrative (1)                                                                                                       |       | 40,653                                            |       | 19,417                                              |       | 46,505 |   | 55,068 |   |
| Amortization of intangibles                                                                                                          |       | 329                                               |       | 7,216                                               |       | 11,508 |   | 11,485 |   |
| Seller transaction expenses                                                                                                          |       | 4,646                                             |       | —                                              |       | — |   | — |   |
| Restructuring and merger-related charges                                                                                             |       | —                                            |       | —                                              |       | 1,539 |   | 3,696 |   |
| Total operating expenses                                                                                                             |       | 84,133                                            |       | 55,968                                              |       | 141,115 |   | 162,579 |   |
| Income from operations                                                                                                               |       | 13,008                                            |       | 11,561                                              |       | 59,927 |   | 70,394 |   |
| Other expense (income):                                                                                                              |       |                                              |       |                                                |       |   |   |   |   |
| Interest expense                                                                                                                     |       | 24,583                                            |       | 17,644                                              |       | 46,857 |   | 49,624 |   |
| Interest income                                                                                                                      |       | (872                                              | )          | (132                                                | )          | (605 | ) | (1,549 | ) |
| Other, net                                                                                                                           |       | 748                                               |       | (48                                                 | )          | (1,132 | ) | 639 |   |
| (Loss) income from continuing operations before income taxes and  minority interest                                                  |       | (11,451                                           | )          | (5,903                                              | )          | 14,807 |   | 21,680 |   |
| Income tax expense (benefit)                                                                                                         |       | 3,445                                             |       | (1,052                                              | )          | 6,140 |   | 6,064 |   |
| Minority interest                                                                                                                    |       | 13                                                |       | (2                                                  | )          | 23 |   | 22 |   |
| (Loss) income from continuing operations                                                                                             |       | (14,909                                           | )          | (4,849                                              | )          | 8,644 |   | 15,594 |   |
| (Income) loss from discontinued operations (including loss on  disposal of subsidiary of $3,022 in 2007), net of income tax (Note 3) |       | (446                                              | )          | (83                                                 | )          | (220 | ) | 2,813 |   |
| Net (loss) income                                                                                                                    |       | $                                                 | (14,463    | )                                                   | $          | (4,766 | ) | $ | 8,864 |   | $ | 12,781 |   |

 

----

(1)      General and administrative expenses exclude amortization ofintangibles and include $16,388, $1,610 and $1,679 of management incentivecompensation for the period from January 1, 2005 through July 19,2005 and for the years ended December 31, 2006 and 2007, respectively.

 

*See notes to consolidated financial statements.*

 

44

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**SAFETYPRODUCTS HOLDINGS, INC.**

**CONSOLIDATEDSTATEMENTS OF CHANGES INMEMBERS’ DEFICIT/SHAREHOLDERS’ EQUITY**

**(Amounts inThousands, 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, 2005          |       | 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 | ) |

 

 
| ** **                                                            | ** ** | **Share**  | ** ** | **Amount** | ** ** | **Contributed  Capital** | ** ** | **(Accumulated  Deficit)  Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income** | ** ** | **Total**  | ** ** |
|-----------------------------------------------------------------------|------------|------------|------------|------------|------------|--------------------------|------------|------------------------------------------------|------------|-----------------------------------------------|------------|------------|------------|
| **Successor Company**                                                 | ** ** | ** ** | ** ** | ** ** | ** ** | ** **               | ** ** | ** **                                     | ** ** | ** **                                    | ** ** | ** ** | ** ** |
| Capital contribution                                                  |       | 10,967,000 |       | $          | 110        |                     | $          | 109,560                                        |       | $                                             | —     |       | $          | — |   | $ | 109,670 |   |
| Foreign currency translation adjustments                              |       | —     |       | —     |       | —                   |       | —                                         |       | 1,987                                         |       | 1,987      |       |
| Net loss                                                              |       | —     |       | —     |       | —                   |       | (4,766                                         | )          | —                                        |       | (4,766     | )          |
| Comprehensive loss                                                    |       |       |       |       |       |                     |       |                                           |       |                                          |       | (2,779     | )          |
| Balance at December 31, 2005                                     |       | 10,967,000 |       | 110        |       | 109,560                  |       | (4,766                                         | )          | 1,987                                         |       | 106,891    |       |
| 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    |       |
| Management incentive compensation                                     |       | —     |       | —     |       | 1,644                    |       | —                                         |       | —                                        |       | 1,644      |       |
| Pension and postemployment benefits liability, net of tax of $464     |       | —     |       | —     |       | —                   |       | —                                         |       | (726                                          | )          | (726       | )          |
| Foreign currency translation adjustments                              |       | —     |       | —     |       | —                   |       | —                                         |       | 23,096                                        |       | 23,096     |       |
| Net income                                                            |       | —     |       | —     |       | —                   |       | 12,781                                         |       | —                                        |       | 12,781     |       |
| Comprehensive income                                                  |       |       |       |       |       |                     |       |                                           |       |                                          |       | 35,151     |       |
| Adjustment to initially apply FIN No. 48                         |       | —     |       | —     |       | —                   |       | (376                                           | )          | —                                        |       | (376       | )          |
| Balance at December 31, 2007                                     |       | 11,030,884 |       | $          | 110        |                     | $          | 113,527                                        |       | $                                             | 16,503     |       | $          | 33,165 |   | $ | 163,305 |   |

 

*See notes to consolidated financial statements.*

 

45

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**SAFETYPRODUCTS HOLDINGS, INC.**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Amounts inThousands)**

 
| ** **                                                                                | ** ** | **Predecessor**                                   | ** ** | **Successor**                                       | ** ** |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                | ** ** | **January 1,  2005  through  July 19,** | ** ** | **July 20,  2005  through  December 31,** | ** ** | **Year ended December 31,** | ** ** |
| ** **                                                                                | ** ** | **2005**                                          | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2007** | ** ** |
| **Operating activities**                                                                  | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net (loss) income                                                                         |       | $                                                 | (14,463    | )                                                   | $          | (4,766 | ) | $ | 8,864 |   | $ | 12,781 |   |
| Adjustments to reconcile net (loss) income to net cash provided by  operating activities: |       |                                              |       |                                                |       |   |   |   |   |
| Depreciation(1)                                                                           |       | 6,177                                             |       | 5,145                                               |       | 14,327 |   | 15,113 |   |
| Amortization of intangibles                                                               |       | 329                                               |       | 7,216                                               |       | 11,508 |   | 11,485 |   |
| Amortization of deferred financing costs                                                  |       | 1,311                                             |       | 1,441                                               |       | 3,353 |   | 3,368 |   |
| Amortization of original issue discount (premium)                                         |       | 58                                                |       | (76                                                 | )          | (147 | ) | (120 | ) |
| Loss on sale of property, plant and equipment                                             |       | —                                            |       | —                                              |       | 131 |   | 522 |   |
| Deferred income taxes                                                                     |       | (86                                               | )          | (2,416                                              | )          | 920 |   | (2,827 | ) |
| Minority interest                                                                         |       | 13                                                |       | (2                                                  | )          | 23 |   | 22 |   |
| Noncash interest                                                                          |       | 11,167                                            |       | 6,877                                               |       | 16,733 |   | 18,760 |   |
| Noncash management incentive compensation                                                 |       | —                                            |       | —                                              |       | 1,610 |   | 1,644 |   |
| Noncash pension curtailment gain                                                          |       | —                                            |       | —                                              |       | (6,751 | ) | — |   |
| Loss on sale of subsidiary                                                                |       | —                                            |       | —                                              |       | — |   | 3,022 |   |
| Changes in operating assets and liabilities:                                              |       |                                              |       |                                                |       |   |   |   |   |
| Accounts receivable                                                                       |       | (2,607                                            | )          | 1,259                                               |       | (2,206 | ) | (1,804 | ) |
| Inventories                                                                               |       | (1,515                                            | )          | 7,208                                               |       | (10,855 | ) | 2,595 |   |
| Prepaid expenses and other current assets                                                 |       | 467                                               |       | (233                                                | )          | (116 | ) | 616 |   |
| Other noncurrent assets                                                                   |       | (477                                              | )          | 412                                                 |       | (559 | ) | (1,757 | ) |
| Accounts payable                                                                          |       | (492                                              | )          | 2,170                                               |       | (1,317 | ) | (554 | ) |
| Accrued expenses                                                                          |       | 20,902                                            |       | 3,883                                               |       | 3,851 |   | (1,458 | ) |
| Pension, postretirement and deferred compensation                                         |       | (1,210                                            | )          | (1,431                                              | )          | (4,002 | ) | (4,513 | ) |
| Other noncurrent liabilities                                                              |       | (10                                               | )          | 4                                                   |       | (362 | ) | 332 |   |
| Net cash provided by operating activities                                                 |       | 19,564                                            |       | 26,691                                              |       | 35,005 |   | 57,227 |   |
| **Investing activities**                                                                  | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Purchase of businesses, net of cash acquired                                              |       | (653                                              | )          | (273,725                                            | )          | (31,358 | ) | (1,367 | ) |
| Proceeds from sale of subsidiary, net of cash disposed                                    |       | —                                            |       | —                                              |       | — |   | 3,223 |   |
| Purchases of property plant and equipment                                                 |       | (4,250                                            | )          | (5,037                                              | )          | (11,573 | ) | (12,023 | ) |
| Proceeds from sale of property, plant and equipment                                       |       | —                                            |       | —                                              |       | 113 |   | 399 |   |
| Net cash used in investing activities                                                     |       | (4,903                                            | )          | (278,762                                            | )          | (42,818 | ) | (9,768 | ) |
| **Financing activities**                                                                  | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Payments for deferred financing costs                                                     |       | (3,246                                            | )          | (21,110                                             | )          | (201 | ) | — |   |
| Proceeds from borrowings                                                                  |       | 100,000                                           |       | 176,646                                             |       | 15,000 |   | — |   |
| Payments of debt                                                                          |       | (13,623                                           | )          | (731                                                | )          | (1,826 | ) | (4,713 | ) |
| Capital contribution                                                                      |       | —                                            |       | 109,670                                             |       | 713 |   | — |   |
| Distributions on preferred units                                                          |       | (60,000                                           | )          | —                                              |       | — |   | — |   |
| Distributions on common units                                                             |       | (2,509                                            | )          | —                                              |       | — |   | — |   |
| Net cash provided by (used in) financing activities                                       |       | 20,622                                            |       | 264,475                                             |       | 13,686 |   | (4,713 | ) |
| Effect of exchange rate changes on cash                                                   |       | (2,725                                            | )          | 1,271                                               |       | 104 |   | 1,269 |   |
| Net increase in cash and cash equivalents                                                 |       | 32,558                                            |       | 13,675                                              |       | 5,977 |   | 44,015 |   |
| Cash and cash equivalents at beginning of period                                          |       | 35,731                                            |       | 7,144                                               |       | 20,819 |   | 26,796 |   |
| Cash and cash equivalents at end of period                                                |       | $                                                 | 68,289     |                                                | $          | 20,819 |   | $ | 26,796 |   | $ | 70,811 |   |

 

----

(1)             Depreciation includesdepreciation expense of $49, $45, $122 and $71 for the period from January 1,2005 through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007, respectively, relatedto discontinued operations.

 

*See notes to consolidated financial statements.*

 

46

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**SAFETY PRODUCTS HOLDINGS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**THE PERIOD FROM JANUARY 1, 2005 THROUGH JULY 19, 2005,**

**THE PERIOD FROM JULY 20, 2005 THROUGH DECEMBER 31,2005 AND**

**THE YEARS ENDED DECEMBER 31, 2006 AND 2007**

 

**(Amounts in Thousands, Except Units and 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 ofDelaware. The Company is a leading designer, manufacturer and marketer ofbranded products 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**

 

On July 19,2005, the Norcross Safety Products L.L.C. (“Norcross”) announced the closing ofthe transaction under which it was acquired by Safety Products, a new holdingcompany formed by Odyssey Investment Partners, LLC (“Odyssey”) for the purposeof completing the acquisition. Pursuant to the terms of the purchase agreement,Safety Products purchased all of the outstanding membership units of Norcrossand all of the outstanding common stock of NSP Holdings Capital Corp. (“NSPCapital”), a wholly-owned subsidiary of NSP Holdings L.L.C. (“NSP Holdings”),and pursuant to which Safety Products assumed all of the outstandingindebtedness of the Norcross and NSP Holdings, in exchange for a base purchaseprice to NSP Holdings of $472,000, plus the cash in the Norcross as of April 2,2005 in the amount of approximately $16,900, less (1) the indebtedness ofthe Norcross and its subsidiaries as of April 2, 2005 and (2) certaintransaction fees and expenses. The cash purchase price was $204,488 includingdirect costs of acquisition of $2,346, and excluding assumed debt of $260,523.

 

On November 1,2005, the Company completed the acquisition of all of the issued andoutstanding capital stock of The Fibre-Metal Products Company (“Fibre-Metal”).The purchase price was $68,723, including acquisition costs of $723. TheCompany financed the acquisition through additional term borrowings under theNew Credit Facility and cash on the balance sheet. The results of operations ofFibre-Metal are included in the Company’s consolidated statement of operationsfrom the date of acquisition.

 

On February 2, 2006, the Company completed theacquisition of all of the issued and outstanding capital stock of AmericanFirewear, 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 pricemay be increased by $750 over a four year period from the date of theacquisition based on American Firewear achieving certain financial andoperating objectives. The Company financed the acquisition through cash on thebalance sheet 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 of operations of American Firewear are included inthe Company’s consolidated statement of operations from the date ofacquisition.

 

On June 9, 2006, the Company completed theacquisition of all of the issued and outstanding capital stock of The WhiteRubber Corporation (“White Rubber”). The purchase price was $22,182 (includingacquisition costs of $636 and gross of outstanding checks of $773). The Companyfinanced the acquisition through additional term borrowings under the seniorcredit facility and cash on the balance sheet. The Company believes the acquisition of White Rubber will strengthen itsproduct line offering in the electrical safety segment. The results ofoperations of White Rubber are included in the Company’s consolidated statementof operations from the date of acquisition.

 

On September 19, 2006, the Company completedthe acquisition of all of the issued and outstanding capital stock of The NewEngland Overshoe Company, Inc. (“NEOS”). The purchase price consisted of$3,639 in cash (including acquisition costs of $139 and net of cash acquired of$6) and a $750 subordinated seller note. In addition, the purchase price may beincreased over a five year period from the date of the acquisition based onNEOS achieving certain net sales targets. The Company financed the acquisitionthrough cash on the balance sheet and the issuance of a $750 subordinated sellernote. The Company believes the acquisitionof NEOS will broaden its footwear product portfolio in the general safety andpreparedness segment. The results of NEOS are included in the Company’sconsolidated statement of operations from the date of 

 

47

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acquisition.

 

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 Norcross Transaction, the Fibre-MetalTransaction, the American Firewear Transaction, the White Rubber Transactionand the NEOS Transaction are referred to as the “Transactions”.

 

Assumingthe American Firewear Transaction, the White Rubber Transaction and the NEOSTransaction had occurred on January 1, 2006, the pro forma net sales,income from operations and net income for the Company would have been $547,541,$60,873 and $8,198, respectively, for the year ended December 31, 2006.

 

**3. Discontinued Operations**

 

On June 29, 2007, the Company completed thesale of all of the issued and outstanding capital stock of North SafetyProducts (Africa) (Proprietary) Limited (“South Africa”), a subsidiary of theCompany within the general safety and preparedness segment. The Companyreceived net cash proceeds of $3,223 and recorded a net loss on disposalrelated to the transaction of $3,022 ($3,022 net of income tax). In accordancewith Financial Accounting Standards Board (“FASB”) Statement of AccountingStandards (“SFAS”) No. 144, *Accounting for theImpairment or Disposal of Long-Lived**Assets*,the Company has reflected South Africa’s results of operations through the dateof the sale and transaction loss as discontinued operations for all periodspresented. Assets and liabilities of South Africa were not material and as aresult have not been reclassified as discontinued operations in the Company’sconsolidated statement of financial position as of December 31, 2006. Thecash flows from discontinued operations have been combined with cash flows fromcontinuing operations within each cash flow statement category as the cashflows from discontinued operations are not material to the Company’sconsolidated results.

 

The following table sets forth the net sales, netincome from discontinued operations and net loss on disposal of subsidiary forSouth Africa for the periods presented:

 
| ** **                               | ** ** | **Predecessor**                                   | ** ** | **Successor**                                       | ** ** |
|------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                               | ** ** | **January 1,  2005  through  July 19,** | ** ** | **July 20,  2005  through  December 31,** | ** ** | **Year ended December 31,** | ** ** |
| ** **                               | ** ** | **2005**                                          | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2007** | ** ** |
|                                     |       |                                              |       |                                                |       |   |   |   |   |
| Net sales                                |       | $                                                 | 10,862     |                                                | $          | 7,957 |   | $ | 20,390 |   | $ | 8,152 |   |
| Net income from  discontinued operations |       | 446                                               |       | 83                                                  |       | 220 |   | 209 |   |
| Net loss on disposal of  subsidiary      |       | —                                            |       | —                                              |       | — |   | (3,022 | ) |
|                                          |            |                                                   |            |                                                     |            |  |  |  |  |  |  |  |  |

 

Included in net income from discontinued operationsfor the period from January 1, 2005 through July 19, 2005, the periodfrom July 20, 2005 through December 31, 2005 and the years ended December 31,2006 and 2007 is income tax expense of $174, $57, $69 and $87, respectively.

 

**4.  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 SFAS No. 141,*Business Combinations*.

 

48

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The Company has allocatedthe purchase price related to the Norcross Transaction on the basis of itsestimate of the fair value of the underlying assets acquired and liabilitiesassumed 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    |   |

 

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     |   |

 

49

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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     |   |

 

TheCompany determined the fair values of property, plant and equipment,inventories, and other intangible assets, including customer relationships,brand names, developed technology, favorable leaseholds and backlog. These fairvalues have been included in the above tables.

 

Approximately$108,456 of goodwill was recorded related to the Norcross Transaction (of whichapproximately $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.

 

Of the $242,459 of acquired other intangible assets related to theNorcross Transaction, $89,579 was assigned to brand names that are not subjectto amortization. The remaining $152,880 of acquired intangible assets have aweighted-average useful life of approximately 18.6 years. The intangible assetsthat make up this amount include customer relationships of $134,340 (20-yearweighted-average useful life), technology of $15,180 (10-year weighted averageuseful life) and backlog of $3,360 (1-month weighted-average useful life).

 

50

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Approximately$32,178 of goodwill was recorded related to the Fibre-Metal Transaction (noneof 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.

 

Of the $41,130 of acquired other intangible assets related to theFibre-Metal Transaction, $10,740 was assigned to brand names that are notsubject to amortization. The remaining $30,390 of acquired intangible assetshave a weighted-average useful life of approximately 13.8 years. The intangibleassets that make up this amount include customer relationships of $24,150(15-year weighted-average useful life), technology of $5,730 (10-year weightedaverage useful life) and favorable leaseholds of $510 (18-monthweighted-average useful life).

 

Approximately $10,677 of goodwill was recorded relatedto the White Rubber Transaction (none of which was tax deductible). The primaryfactor that contributed to a purchase price that resulted in recognition ofgoodwill was the expected cost savings associated with integrating White Rubbermanufacturing and distribution facilities into the Company’s existingfacilities. The other consideration affecting the value of goodwill was theapplication to purchase accounting, particularly for deferred tax liabilitiesfor which significant liability balances were recorded with no correspondingsignificant short-term cash outflows.

 

Of the $9,530 of acquired other intangible assets related to theWhite-Rubber Transaction, $120 was assigned to brand names that are not subjectto amortization. The remaining $9,410 of acquired intangible assets have aweighted-average useful life of approximately 15.7 years. The intangible assetsthat make up this amount include customer relationships of $9,200 (16-yearweighted-average useful life) and brand names of $210 (1-year weighted-averageuseful life).

 

**5.  SignificantAccounting Policies**

 

**Principles ofConsolidation**

** **

Theconsolidated financial statements include the accounts of Safety ProductsHoldings, Inc. and its majority-owned subsidiaries. All significantintercompany accounts and transactions have been eliminated.

 

**Cash Equivalents**

** **

TheCompany considers all highly liquid investments with original maturities ofthree months or less to be cash equivalents.

 

**Concentration ofCredit Risk**

** **

Financialinstruments, which potentially subject the Company to concentration of creditrisk, consist principally of trade receivables. Credit risk with respect totrade receivables is limited due to the diversity of customers comprising theCompany’s customer base. The Company performs ongoing credit evaluations of itscustomers and maintains sufficient allowances for potential credit losses. TheCompany evaluates the collectibility of its accounts receivable based on thelength of time the receivable is past due and the anticipated future write-offsbased on historical experience. The Company’s policy is to not charge intereston trade receivables after the invoice becomes past due and to not requirecollateral. A receivable is considered past due if payments have not beenreceived within agreed-upon invoice terms.

 

51

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**RevenueRecognition**

** **

**Revenue from sales and relatedcosts of sales of products is recognized at the time: (1) persuasiveevidence of an arrangement exists, (2) ownership and all risks of losshave been transferred to the buyer, which is generally upon shipment, (3) theprice is fixed and determinable, and (4) collectibility is reasonablyassured.**

** **

**Sales Rebates**

** **

**The Company considers all discountsor other consideration provided to customers as a result of purchase volumes assales rebates. The charges related to sales rebates are recognized as areduction to sales. Sales rebates amounted to $3,223, $2,640, $6,747 and $9,876for the**period from January 1,2005 through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007, respectively.

** **

**Freight-Out Costs**

** **

TheCompany records freight-out costs in distribution expenses. Such amounts were$6,579, $5,164, $15,248 and $18,572 for the period from January 1, 2005through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007, respectively.

 

**Purchasing**

** **

TheCompany records certain purchasing costs in operating expenses. Such amountswere $552, $381, $1,014 and $1,223 for the period from January 1, 2005through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007, respectively.

 

**Inventories**

** **

Inventoriesare stated at the lower of cost or market. The Company’s North Safety Products L.L.C.and Salisbury Electrical Safety L.L.C. legal entities account for its inventory under the last in, first out(“LIFO”) method. This was the method inplace when these entities were acquired by the Company in October 1998 andwas also the method adopted in connection with the Norcross Transaction. TheCompany has continued to use the LIFO method for these legal entities for taxpurposes and accordingly, is required to use LIFO for financial reportingpurposes. All of the other legal entities of the Company account for their inventoryunder the first in, first out (“FIFO”)method. Inventories valued at FIFO accounted for approximately 63% and64% of the Company’s inventories at December 31, 2006 and 2007,respectively.

 

**Property, Plantand Equipment**

** **

Property,plant and equipment are recorded at cost. Depreciation is determined by usingthe straight-line method over the estimated useful lives of the assets.Leasehold improvements are amortized using the straight-line method over theshorter of the lease term or estimated useful life of the asset, with therelated amortization expense included in depreciation expense.

 

Theuseful lives of plant and equipment for the purpose of computing bookdepreciation 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  |   |

 

52

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**Intangible Assets**

** **

Theamortizable 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 FinancingCosts**

** **

Deferredfinancing costs represent capitalized fees and expenses associated withobtaining financing. The costs are being amortized and recorded to interestexpense using the straight-line method, which approximates the effectiveinterest method, over the period of the related financing. Accumulatedamortization of deferred financing costs at December 31, 2006 and 2007 was$4,794 and $8,162, respectively.

 

**Goodwill and OtherIntangibles**

** **

Goodwillis recorded when the purchase price paid for an acquisition exceeds theestimated fair value of the net identified tangible and intangible assetsacquired. The goodwill is allocated to the segments based on the result of thevaluation completed upon completion of an acquisition. The Company performs an annualreview on the first day of the fourth quarter of each year, or more frequentlyif indicators of potential impairment exist, to determine if the carrying valueof the recorded goodwill is impaired. The impairment review process forgoodwill compares the fair value (calculated with the discounted cash flowapproach) of the reporting unit in which goodwill resides to its carryingvalue. Based on the results of the first step of the annual impairment test,the Company determined that the fair value of each of the reporting unitsexceeded their carrying amounts and, therefore, the second step of the annualimpairment test was not required to be completed and no goodwill impairmentexisted.

 

Thefollowing table summarizes goodwill by segment:

 
| ** **                                                            | ** ** | **General  Safety and  Preparedness** | ** ** | **Fire  Service** | ** ** | **Electrical  Safety** | ** ** | **Total** | ** ** |
|-----------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------|------------|------------------------|------------|-----------|------------|
| Balance as of January 1, 2006                                    |       | $                                          | 104,300    |              | $          | 19,413                 |       | $         | 12,005     |   | $ | 135,718 |   |
| Goodwill acquired and other adjustments to purchase 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   |       |
| Goodwill acquired and other adjustments to purchase price allocation  |       | (3                                         | )          | —            |       | —                 |       | (3        | )          |
| Goodwill disposed as a result of the sale of South African subsidiary |       | (255                                       | )          | —            |       | —                 |       | (255      | )          |
| Effect of foreign currency translation                                |       | 7,270                                      |       | —            |       | —                 |       | 7,270     |       |
| Balance as of December 31, 2007                                  |       | $                                          | 120,071    |              | $          | 21,502                 |       | $         | 22,681     |   | $ | 164,254 |   |

 

TheCompany’s other intangible assets with indefinite lives consist of $100,906 and$103,101 related to brand names as of December 31, 2006 and 2007,respectively. The Company determined that these brand names had indefinitelives due to their strongreputation for excellence in protecting workers from hazardous andlife-threatening environments, their history of developing innovative anddifferentiated products and their strong market share positions in key productlines. In addition, these brand names have been in existence for multiple yearsand the Company has the ability and intent to continue supporting these brands.The impairment review for indefinite lived intangibles compares the fair value(calculated using a relief from royalty discounted cash flow approach) of eachintangible to its carrying value. Based on the impairment test, the Companydetermined that no impairment of indefinite lived intangibles existed.

 

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TheCompany’s other intangible assets with finite lives consist of brand names,customer relationships, technology and favorable leaseholds. The followingtable summarizes other intangible assets with finite lives:

 
| ** **             | ** ** | **December 31, 2006** | ** ** | **December 31, 2007** | ** ** |
|------------------------|------------|---------------------------------|------------|---------------------------------|------------|
| ** **             | ** ** | **Gross  Amount**               | ** ** | **Accumulated  Amortization**   | ** ** | **Net  Carrying  Amount** | ** ** | **Gross  Amount** | ** ** | **Accumulated  Amortization** | ** ** | **Net  Carrying  Amount** | ** ** |
| Brand names            |       | $                               | 210        |                            | $          | (123 | ) | $ | 87 |   | $ | 210 |   | $ | (210 | ) | $ | — |   |
| Customer relationships |       | 174,296                         |       | (12,050                         | )          | 162,246 |   | 178,039 |   | (21,808 | ) | 156,231 |   |
| Technology             |       | 20,910                          |       | (2,823                          | )          | 18,087 |   | 20,910 |   | (4,917 | ) | 15,993 |   |
| Favorable Leaseholds   |       | 510                             |       | (398                            | )          | 112 |   | 510 |   | (510 | ) | — |   |
| Total                  |       | $                               | 195,926    |                            | $          | (15,394 | ) | $ | 180,532 |   | $ | 199,669 |   | $ | (27,445 | ) | $ | 172,224 |   |

 

Futureamortization expense for other finite lived intangible assets held as of December 31,2007, is as follows:

 
| 2008       |   |   | $       | 11,533  |
|------------|--------|--------|---------|---------|
| 2009       |   |   | 11,533  |
| 2010       |   |   | 11,533  |
| 2011       |   |   | 11,533  |
| 2012       |   |   | 11,533  |
| Thereafter |   |   | 114,559 |
|       |   |   | $       | 172,224 |

 

**Income Taxes**

** **

TheCompany is a corporation. The Predecessor income is allocated to, and includedin the individual returns of the unitholders of NSP Holdings which is treatedas a partnership under federal tax law. The Successor income is included aspart of the U.S. federal consolidated return of Safety Products. Certain of theCompany’s subsidiaries are corporations which are subject to U.S. federal,state and local income taxes. For the Predecessor period the tax liability forthese entities is calculated on a stand alone basis. For the Successor period,these entities are treated as filing as part of a consolidated group with theCompany. Additionally, the Company’s foreign subsidiaries are subject to theirrespective foreign income tax reporting requirements.

 

Deferredincome taxes are recognized for the difference in reporting of certain assetsand liabilities for financial reporting and tax purposes. These temporarydifferences are determined by applying enacted statutory rates applicable tofuture years to differences between the financial statement carrying amountsand the tax bases of existing assets and liabilities. Valuation allowances areprovided against deferred tax assets which are not more likely than not to berealized. Deferred income taxes are not provided on the unremitted earnings offoreign subsidiaries because it has been the practice, and it is the intention,of the Company to continue to reinvest these earnings in the businesses outsidethe United States. The effect of a change in tax rates is recognized in theperiod that includes the enactment date. The Company records liabilities forincome tax uncertainties in accordance with the recognition and measurementcriteria described in Interpretation No. 48 (“FIN 48”), *Accounting for Uncertainty in Income Taxes*, aninterpretation of SFAS No. 109, *Accounting for IncomeTaxes*. The tax benefits and related reserves are measured throughoutthe year, taking into account new legislation, regulations, case law and auditresults. The Company recognizes income tax-related interest and penaltieswithin the income tax provision.

 

**Advertising**

 

TheCompany expenses advertising costs as incurred. Advertising expense wasapproximately $2,748, $1,609, $5,238 and $5,569 for the period from January 1,2005 through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007, respectively.

 

**Cooperative Advertising Programs**

 

TheCompany takes part in cooperative programs with certain customers. Thecustomers guarantee certain advertising based on the agreement between theCompany and the customer in exchange for consideration from the Company. Theexpenses related to cooperative advertising programs are included withinselling expenses. Cooperative advertising expense amounted to $1,419, $881,$2,468 and $3,068 for the period from January 1, 2005 through July 19,2005, the period from July 20, 2005 through December 31, 2005 and theyears ended December 31, 2006 and 2007, respectively.

 

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**Foreign CurrencyTranslation**

** **

Theaccounts of foreign operations are measured using local currency as thefunctional currency. For those operations, assets and liabilities aretranslated into U.S. dollars at the end of period exchange rates and income andexpenses are translated at average exchange rates for the period. Netadjustments resulting from such translation are accumulated as a separatecomponent of other comprehensive income included in shareholders’ equity. Theaccumulated balance of the foreign currency translation adjustments included asa component of the accumulated other comprehensive income amounted to $7,331and $30,427 as of December 31, 2006 and 2007, respectively.

 

**Long-Lived Assets**

 

TheCompany evaluates its long-lived assets on an ongoing basis. Long-lived assetsare reviewed for impairment whenever events or changes in circumstancesindicate that the carrying amount of the related asset may not be recoverable. 

 

Recoverabilityof assets to be held and used is measured by a comparison of the carryingamount of the asset to future undiscounted cash flows expected to be generatedby the asset. If the asset is determined to be impaired, the impairmentrecognized is measured by the amount by which the carrying value of the assetexceeds its fair value.

 

**Fair Value ofFinancial Instruments**

** **

TheCompany’s financial instruments include cash and cash equivalents, the NewSenior Credit Facility, notes payable, the New Senior Subordinated Notes andthe Senior Pay In Kind Notes (see Note 9). The fair values of the Company’sfinancial instruments were not materially different from their carrying valuesat December 31, 2006 and 2007, with the exception of the Senior Pay InKind Notes which had a carrying value of $168,234 and a fair value of $182,977as of December 31, 2007. The Company estimates the fair value of itsobligations using the discounted cash flow method with interest rates currentlyavailable for similar obligations.

 

**Insurance**

** **

U.S.employee medical costs are self-funded up to a specified individual claimlimit. The Company purchases specific stop loss insurance to insure the excessclaim risk over $150 per claimant per year. Insurance claim reserves foremployee medical costs represent the estimated amounts necessary to settleoutstanding claims, including claims that are incurred but not reported, basedon the facts in each case and the Company’s experience with similar cases.These estimates are continually reviewed and updated, and any resultingadjustments are reflected in income from operations.

 

Theliability related to medical self-insurance was $2,505 and $ 2,517 as of December 31,2006 and 2007, respectively. Medical self-insurance expense was approximately$4,800, $3,109, $7,621 and $7,672 for the period from January 1, 2005through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007, respectively.

 

**Use of Estimatesin the Consolidated Financial Statements**

** **

Thepreparation of consolidated financial statements in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the amounts reported in the consolidatedfinancial statements and accompanying notes. Actual results could differ fromthose estimates.

 

**Reclassifications**

 

Certainprior period amounts have been reclassified to conform to current yearpresentation, including reclassifying results and amounts from South Africa todiscontinued operations. The reclassifications did not have an impact on net(loss) income for the periods presented within the statement of operations.

 

**Employee Benefit Plans**

 

InSeptember 2006, the FASB issued SFAS No. 158, *Employers’ Accounting for Defined Benefit Pension andOther Postretirement Plans — an amendment of FASB Statements No. 87, 88,106 and 132(R*). SFAS No. 158 requires an employer to recognizein its statement of financial position an asset for a plan’s overfunded statusor a liability 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,

 

55

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andrecognize changes in the funded status of a defined benefit postretirement planin the year in which the changes occur. Those changes are reported incomprehensive income and as a separate component of shareholders’ equity. SFAS No. 158does not change the amount of net periodic benefit cost included in netearnings. The requirement to recognize the funded status of defined benefitpostretirement 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 and recognized $3,464 of accumulated comprehensive income, net of tax.This represented the net impact of a $5,672 decrease to pension,post-retirement and deferred compensation and a $2,208 decrease to deferred taxassets (see Note 11). The Company’s measurement date for its definedbenefit and post-retirement benefit plans was December 31, 2006 amd 2007.

 

**ManagementIncentive 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*, as permitted by SFAS No. 123, *Accounting for Stock-Based**Compensation*. Effective January 1, 2006, the Companyadopted the fair value recognition provisions of SFAS No. 123(R), *Share-Based Payments*. As a result of adoptingSFAS No. 123(R) on January 1, 2006, income from continuingoperations before income taxes and net income for the year ended December 31,2006 are $1,610 and $984 lower, respectively, than if the Company had continuedto account for share-based compensation under APB No. 25. Income fromcontinuing operations before income taxes and net income for the year ended December 31,2007 are $1,679 and $1,111 lower, respectively, than if the Company hadcontinued to account for share-based compensation under APB No. 25. Theapplication of the fair value provisions of SFAS No. 123(R) would nothave had an impact on the Company’s results in 2005 (See Note 22).

 

**Recent Accounting Pronouncements**

 

InJune 2006, the FASB issued FIN 48. The interpretation clarifies theaccounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements by prescribing a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return. FIN 48 also providesguidance on derecognition, classification, interest and penalties, accountingin interim periods, disclosure, and transition. The Company adopted FIN 48 atthe beginning of fiscal year 2007, as required (See Note 10).

 

In September 2006,the FASB issued SFAS No. 157, *Fair Value Measurements*,which defines fair value, establishes a framework for measuring fair value andexpands disclosures about fair value measurements. The provisions of SFAS No. 157are effective for the Company as of the beginning of its fiscal year ending December 31,2008. The Company does not expect a material impact to its financialsstatements as a result of the adoption of SFAS No. 157.

 

In September 2006, theFASB issued SFAS No. 158, *Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87,88, 106, and 132 (R)*. SFAS No. 158 requires an employer torecognize the funded status of defined benefit pension and postretirement plansas an asset or liability in its consolidated balance sheets and to recognizechanges in that funded status in the year in which the changes occur throughcomprehensive income. SFAS No. 158 does not change the amount of netperiodic benefit cost included in net earnings. SFAS No. 158 also requiresthe measurement of defined benefit plan assets and obligations as of the dateof the employer’s fiscal year-end consolidated balance sheets (with limitedexceptions). The Company adopted the recognition and disclosure provisions ofSFAS No. 158 effective December 31, 2006 (see Note 11). Therequirement to measure plan assets and benefit obligations as of the date ofthe employer’s fiscal year-end consolidated balance sheets will be effective infiscal year 2008.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities — Including an amendment of FASBStatement No. 115*. This statement is intended to improvefinancial reporting by providing entities with the opportunity to mitigatevolatility in reported earnings caused by measuring related assets andliabilities differently without having to apply complex hedge accountingprovisions. It also establishes presentation and disclosure requirementsdesigned to facilitate comparisons between entities that choose differentmeasurement attributes for similar types of assets and liabilities. Thestatement 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 provisions of SFAS No. 159 are effectivefor the Company as of the beginning of its fiscal year ending December 31,2008. The Company does not expect a material impact to its financial statementsas a result of the adoption of SFAS No. 159.

 

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In December 2007,the FASB issued SFAS No. 141(R), *Business Combinations*.SFAS No. 141(R) requires the acquiring entity in a businesscombination to recognize the full fair value of the assets acquired andliabilities assumed in the transaction at the acquisition date; the immediateexpense recognition of transaction costs; and accounting for restructuringplans separately from the business combination among others. SFAS No. 141(R) iseffective for the Company’s fiscal year beginning 2009 and the majority of theadoption is prospective only. SFAS No. 141(R) fundamentally changesmany aspects of existing accounting requirements for business combinations. Assuch, if the Company enters into any business combinations after the adoptionof SFAS No. 141(R), a transaction may significantly impact the Company’sfinancial position and earnings, but not cash flows, compared to the Company’srecent acquisitions, accounted for under existing GAAP requirements, due to thereasons described above.

 

SFAS No. 141(R) amendsSFAS No. 109 such that adjustments made to valuation allowances ondeferred taxes and acquired tax contingencies associated with acquisitions thatclosed prior to the effective date of SFAS No. 141(R) would alsoapply the provisions of SFAS No. 141(R), and therefore and changes indeferred tax asset valuation allowances and income tax uncertainties after theacquisition date generally will affect income tax expense. The Company is inthe process of determining the effects, if any, the adoption of SFAS No. 141(R) willhave on its financial statements.

 

InDecember 2007, the FASB issued SFAS No. 160, *NoncontrollingInterests in Consolidated Financial Statements — an amendment of ARB No. 51*.SFAS No. 160 requires entities to report noncontrolling (minority) interestsas a component of member’s equity on the balance sheet; include all earnings ofa consolidated subsidiary in consolidated results of operations; and treat alltransactions between an entity and noncontrolling interest as equitytransactions between the parties. SFAS No. 160 is effective for theCompany’s fiscal year beginning 2009 and adoption is prospective only; however,presentation and disclosure requirements described above must be appliedretrospectively. The Company does not expect a material impact to its financialstatements upon the adoption of SFAS No. 160.

 

**6. Property, Plant and Equipment**

 

Property,plant and equipment consist of the following:

 
| ** **                      | ** ** | **December 31, 2006** | ** ** | **December 31,  2007** | ** ** |
|---------------------------------|------------|----------------------------|------------|-----------------------------|------------|
| Land                            |       | $                          | 8,656      |                        | $          | 8,648 |   |
| Buildings and improvements      |       | 18,264                     |       | 22,429                      |       |
| Machinery and equipment         |       | 41,695                     |       | 47,630                      |       |
| Dies and tooling                |       | 7,276                      |       | 8,880                       |       |
| Furniture and fixtures          |       | 3,138                      |       | 3,561                       |       |
| Computers and office  equipment |       | 6,878                      |       | 8,745                       |       |
| Construction in progress        |       | 1,995                      |       | 1,768                       |       |
|                            |       | 87,902                     |       | 101,661                     |       |
| Less: Accumulated  depreciation |       | (18,275                    | )          | (32,985                     | )          |
|                            |       | $                          | 69,627     |                        | $          | 68,676 |   |

 

**7.  Inventories**

** **

Inventoriesconsist of the following:

 
| ** **              | ** ** | **December 31,  2006** | ** ** | **December 31,  2007** | ** ** |
|-------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| At FIFO cost:           |       |                        |       |                        |       |
| Raw materials           |       | $                           | 24,823     |                        | $          | 26,967 |   |
| Work in process         |       | 13,756                      |       | 10,527                      |       |
| Finished goods          |       | 70,799                      |       | 72,542                      |       |
|                    |       | 109,378                     |       | 110,036                     |       |
| Adjustment to LIFO cost |       | (1,108                      | )          | (1,621                      | )          |
|                    |       | $                           | 108,270    |                        | $          | 108,415 |   |

 

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**8.  Accrued Expenses**

** **

Accruedexpenses consist of the following:

 
| ** **                    | ** ** | **December 31,  2006** | ** ** | **December 31,  2007** | ** ** |
|-------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
|                          |       |                        |       |                        |       |
| Accrued payroll and  benefits |       | $                           | 14,500     |                        | $          | 14,504 |   |
| Accrued selling incentives    |       | 5,288                       |       | 7,515                       |       |
| Accrued interest              |       | 7,762                       |       | 7,516                       |       |
| Accrued income taxes          |       | 3,119                       |       | 1,998                       |       |
| Accrued restructuring         |       | 3,108                       |       | 3,138                       |       |
| Other accruals                |       | 6,819                       |       | 6,271                       |       |
|                          |       | $                           | 40,596     |                        | $          | 40,942 |   |

** **

**9. Debt**

** **

TheCompany’s debt consists of the following:

 
| ** **                                         | ** ** | **December 31,  2006** | ** ** | **December 31,  2007** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| Revolving credit  facilities                       |       | $                           | —     |                        | $          | — |   |
| Term loan                                          |       | 165,720                     |       | 161,711                     |       |
| Senior pay in kind notes                           |       | 155,090                     |       | 173,850                     |       |
| Senior subordinated notes                          |       | 152,500                     |       | 152,500                     |       |
| European term loans                                |       | 173                         |       | —                      |       |
| Subordinated seller notes                          |       | 1,750                       |       | 1,250                       |       |
| Capital lease obligations                          |       | 205                         |       | —                      |       |
| Unamortized discount on  senior pay in kind notes  |       | (6,626                      | )          | (5,616                      | )          |
| Unamortized premium on  senior subordinated notes  |       | 6,148                       |       | 5,018                       |       |
|                                               |       | 474,960                     |       | 488,713                     |       |
| Less: Current maturities  of long-term obligations |       | 4,820                       |       | 11,654                      |       |
|                                               |       | $                           | 470,140    |                        | $          | 477,059 |   |

 

On July 19,2005, in conjunction with the Norcross Transaction, Norcross entered into a newSenior Credit Facility (the “New Credit Facility”) which provides for aggregateborrowings of $138,000, consisting of (a) a term loan in the amount of$88,000, payable in twenty-eight consecutive quarterly installments whichcommenced on September 30, 2005 and (b) a revolving credit facilityin an aggregate principal amount of $50,000. The New Credit Facility iscomprised of a U.S. revolving facility and a Canadian subfacility. The amountof the total U.S. revolving facility is an amount equal to $50,000 less theamount at such time outstanding under the Canadian subfacility. The amount ofthe total Canadian subfacility is an amount denominated in Canadian dollarshaving 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 ofthe Company or the U.S. Subsidiary Borrowers (as defined in the New CreditFacility), one or more new term loan facilities may be added in any aggregateamount of up to $100,000 (and not less than $10,000 for any such additionalterm loan), subject to certain conditions, the proceeds of which shall be usedto finance permitted acquisitions, pay fees and related expenses thereto and torefinance indebtedness of the entity or associated with the assets to be soacquired. The New Credit Facility is subject to certain mandatory prepaymentsupon the occurrence of certain events, subject to certain exceptions set forthin the credit agreement.

 

Borrowings under the U.S. revolving facility and termloan bear interest at a rate per annum equal to Norcross’ choice of (a) analternate 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 anapplicable margin. Borrowings under the Canadian subfacility bear interest at arate per annum equal to the Canadian prime rate (which is the higher of (i) therate of interest announced by Credit Suisse, Toronto Branch, as its referencerate then in effect for determining interest rates on Canadian dollardenominated commercial loans in Canada and (ii) the CDOR rate plus 0.50%per annum), plus an applicable margin, or with respect to banker’s acceptancesor their equivalents, the discount rate (as defined in the credit agreement)plus an applicable margin.

 

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Initially,the applicable margin with respect to the revolving credit facility was (a) 1.25%in the case of alternate base rate loans and Canadian dollar prime loans and (b) 2.25%in the case of Eurodollar rate loans and bankers’ acceptance rate loans. Withrespect to the term loan, the applicable margin will be (a) 1.00% in thecase of alternate base rate loans and (b) 2.00% in the case of Eurodollarrate loans. After December 31, 2005, the margins applicable to therevolving credit facility and the U.S. swing line loans adjusted on a slidingscale based on the total leverage ratio of Norcross and its subsidiaries. Inaddition, the Company is required to pay to the lenders under the revolvingcredit facility an initial commitment fee in respect of the unused commitmentsthereunder at a per annum rate of 0.50%. After December 31, 2005, thecommitment fee rate adjusted on a sliding scale based on the total leverageratio of Norcross and its subsidiaries. As of December 31, 2007, theinterest rate was 7.3% for the term loan.

 

TheU.S. revolver also provides for the issuance of letters of credit of up to$5,000 or in an amount which, when added to the aggregate outstanding amountunder the U.S. and Canadian revolvers, will not exceed $50,000. The Canadianrevolver provides for the issuance of letters of credit of up to Canadian$1,000 or in an amount which, when added to the aggregate outstanding principalamount under the Canadian revolver, will not exceed the U.S. equivalent of$25,000. At December 31, 2007, total letters of credit outstanding were$2,446 under the U.S. revolver and the Company had aggregate unused creditavailable of $47,554 under the U.S. and Canadian revolver.

 

On November 1,2005, Norcross entered into the Incremental Facility Amendment to the NewCredit 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 Amendmentrequired, among other things, that the proceeds of the incremental term loansbe used for permitted acquisitions and the consolidated senior leverage ratio,after giving effect to the use of the proceeds, not exceed 3.25 to 1.00.

 

On June 9,2006, Norcross entered into the Second Incremental Facility Amendment to theNew Credit Facility (the “Second Amendment”). Under the terms of the SecondAmendment, Norcross, the U.S. Borrowers and the Lenders agreed to a totalincremental term commitment from the Increasing Lenders of $15,000.Additionally, the Second Amendment required, among other things, that theproceeds of the incremental term loans be used for permitted acquisitions andthe consolidated senior leverage ratio, after giving effect to the use of theproceeds, not exceed 3.25 to 1.00.

 

On August 13,2003, Norcross and Norcross Capital Corp. (“Capital”) issued $152,500 of 9.875%Senior Subordinated Notes due 2011 (the “New Senior Subordinated Notes”). Inconnection with the Norcross Transaction, Norcross entered into a supplementalindenture dated as of July 19, 2005 (the “Supplemental Indenture”) by andamong Norcross, Capital, the guarantors listed on the signature pages theretoand Wilmington Trust Company, as trustee (the “Trustee”) under the indenturedated as of August 13, 2003 (the “Indenture”) providing for the issuanceof 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 the Norcross’ obligations underthe Change in Control covenant of the Indenture in connection with the NorcrossTransaction.

 

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

 

In connection with theclosing of the Norcross Transaction, the Company entered into a secondsupplemental indenture dated as of July 19, 2005 (the “Second SupplementalIndenture”) among NSP Holdings, NSP Capital, the Company and Wilmington TrustCompany, as trustee (the “Trustee”) under the indenture dated as of January 7,2005 (the “Indenture”) by and among NSP Holdings, NSP Capital and the Trusteeproviding for the issuance of the Senior Notes. Pursuant to the terms of theSecond Supplemental Indenture, the Company assumed all of the rights, powers,commitments, obligations and liabilities of NSP Holdings under the Indentureand the Senior Notes.

 

On July 19, 2005,the Company sold $25,000 in principal amount of 113⁄4% senior pay in kind notesdue 2012 (the “New Notes”). The New Notes were sold pursuant to a purchaseagreement, dated June 28, 2005 (the “Purchase Agreement”), by and betweenthe Company and Credit Suisse First Boston, LLC (the “Initial Purchaser”). TheNew Notes were issued pursuant to the Indenture. Pursuant to the term of thePurchase Agreement, the New Notes were sold to the Initial Purchaser and wereresold to qualified institutional buyers in compliance with the exemption fromregistration.

 

59

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

 

TheNew Credit Facility is secured by a first priority lien on substantially all ofthe Company’s property and assets. The New Senior Subordinated Notes aregeneral unsecured obligations of the Company that are subordinate to borrowingsunder the New Credit Facility and European term loans. The New Credit Facilityand the New Senior Subordinated Notes are guaranteed by the Company’s domesticsubsidiaries and by Safety Products. In addition, borrowings under the Canadianrevolver are guaranteed by the Canadian subsidiaries.

 

Revolvingcredit facilities in Europe permit borrowings of up to €2,128, of which €2,128was available at December 31, 2007.

 

Aggregatematurities of long-term debt at December 31, 2007 are as follows:

 
| 2008   |   | $       | 11,654  |   |
|--------|--------|---------|---------|--------|
| 2009   |   | 2,497   |    |
| 2010   |   | 50,541  |    |
| 2011   |   | 231,665 |    |
| 2012   |   | 192,356 |    |
|   |   | $       | 488,713 |   |

 

Interestpaid during the period from January 1, 2005 through July 19, 2005,the period from July 20, 2005 through December 31, 2005 and the yearsended December 31, 2006 and 2007 was $12,047, $9,406, $26,935 and $27,863,respectively.

 

**10.  Income Taxes**

** **

Forthe Predecessor, certain of the Company’s subsidiaries are subject to foreignand U.S. federal, state and local income taxes. The components of “Income fromcontinuing operations before income taxes and minority interest,” for the Ccorporations subject to foreign and U.S. federal, state and local income taxesconsist of U.S. income of $12,516 and foreign income of $4,624 for the periodfrom January 1, 2005 through July 19, 2005.

 

Forthe Successor, Safety Products and its U.S. subsidiaries file a consolidatedU.S. corporate income tax return. The income and losses attributable to allother subsidiaries and the U.S. and foreign income taxes attributable to suchincome or losses are reported in full. The components of “(Loss) income fromcontinuing operations before income taxes and minority interest,” for thesubsidiaries subject to foreign and U.S. federal, state and local income taxesconsist of U.S. (loss) income of ($5,739), $2,889 and $3,280 and foreign (loss)income of $(164), $11,918 and $18,400 for the period from July 20, 2005through December 31, 2005 and years ended December 31, 2006 and 2007,respectively.

 

 

60

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Theincome tax expense (benefit) on (loss) income from continuing operations beforeincome taxes and minority interest consists of the following:

 
| ** **                        | ** ** | **Predecessor**                                   | ** ** | **Successor**                                       | ** ** |
|-----------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                        | ** ** | **January 1,  2005  through  July 19,** | ** ** | **July 20,  2005  through  December 31,** | ** ** | **Year ended December 31,** | ** ** |
| ** **                        | ** ** | **2005**                                          | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2007** | ** ** |
| Current:                          |       |                                              |       |                                                |       |   |   |   |   |
| Federal                           |       | $                                                 | 185        |                                                | $          | 33 |   | $ | (93 | ) | $ | 203 |   |
| State and local                   |       | 165                                               |       | 232                                                 |       | 1,838 |   | 1,414 |   |
| Foreign                           |       | 2,712                                             |       | 1,262                                               |       | 4,774 |   | 7,162 |   |
| Total current provision           |       | 3,062                                             |       | 1,527                                               |       | 6,519 |   | 8,779 |   |
| Deferred:                         |       |                                              |       |                                                |       |   |   |   |   |
| Federal                           |       | —                                            |       | (1,223                                              | )          | 723 |   | 495 |   |
| State and local                   |       | —                                            |       | (210                                                | )          | 304 |   | 156 |   |
| Foreign                           |       | 383                                               |       | (1,146                                              | )          | (1,406 | ) | (3,366 | ) |
| Total deferred expense  (benefit) |       | 383                                               |       | (2,579                                              | )          | (379 | ) | (2,715 | ) |
| Income tax expense  (benefit)     |       | $                                                 | 3,445      |                                                | $          | (1,052 | ) | $ | 6,140 |   | $ | 6,064 |   |

 

Theincome tax expense (benefit) differs from the amount of income tax (benefit)expense computed by applying the U.S. federal income tax rate to (loss) incomefrom continuing operations before income taxes and minority interest. Areconciliation of the difference is as follows:

 
| ** **                                                                                                  | ** ** | **Predecessor**                                   | ** ** | **Successor**                                       | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                                                                  | ** ** | **January 1,  2005  through  July 19,** | ** ** | **July 20,  2005  through  December 31,** | ** ** | **Year ended December 31,** | ** ** |
| ** **                                                                                                  | ** ** | **2005**                                          | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2007** | ** ** |
|                                                                                                        |       |                                              |       |                                                |       |   |   |   |   |
| Income tax (benefit) expense at statutory federal tax rate                                                  |       | $                                                 | (4,008     | )                                                   | $          | (2,066 | ) | $ | 5,182 |   | $ | 7,588 |   |
| Adjustment for limited liability company income included in the  return of the unit holders of NSP Holdings |       | 9,852                                             |       | —                                              |       | — |   | — |   |
| C corporation income tax expense at statutory federal tax rate                                              |       | 5,844                                             |       | (2,066                                              | )          | 5,182 |   | 7,588 |   |
| Increase (decrease) resulting from:                                                                         |       |                                              |       |                                                |       |   |   |   |   |
| State and local taxes, net of federal benefit                                                               |       | 33                                                |       | (60                                                 | )          | 1,179 |   | 750 |   |
| Foreign subsidiaries’ tax rate differences                                                             |       | 1,262                                             |       | 146                                                 |       | (151 | ) | (300 | ) |
| Change in valuation allowance—U.S.                                                                     |       | (4,407                                            | )          | —                                              |       | — |   | — |   |
| Change in valuation allowance—Foreign                                                                  |       | —                                            |       | (6                                                  | )          | — |   | — |   |
| Change in deferred tax rate                                                                                 |       | —                                            |       | —                                              |       | (1,314 | ) | (2,548 | ) |
| Nondeductible depreciation, amortization and other expenses                                                 |       | 46                                                |       | 68                                                  |       | — |   | — |   |
| Other                                                                                                       |       | 667                                               |       | 866                                                 |       | 1,244 |   | 574 |   |
| Income tax expense (benefit)                                                                                |       | $                                                 | 3,445      |                                                | $          | (1,052 | ) | $ | 6,140 |   | $ | 6,064 |   |

 

61

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Thetax effect of temporary differences that gave rise to deferred tax assets andliabilities consist of the following:

 
| ** **                                           | ** ** | **December 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **2006**              | ** ** | **2007**              | ** ** |
| Deferred tax assets:                                 |       |                  |       |                  |       |
| United States net operating loss carryforwards       |       | $                     | 8,937      |                  | $          | 13,506 |   |
| United States capital loss carryforwards             |       | —                |       | 948                   |       |
| Inventories—Principally obsolescence reserves   |       | 3,000                 |       | 3,657                 |       |
| Intangibles—Principally covenant not to compete |       | 1,086                 |       | 1,103                 |       |
| Pensions and deferred compensation                   |       | 5,232                 |       | 4,526                 |       |
| Allowance for doubtful accounts                      |       | 279                   |       | 441                   |       |
| Other—Principally accruals                      |       | 7,066                 |       | 5,945                 |       |
| Total deferred tax asset                             |       | 25,600                |       | 30,126                |       |
| Less: Valuation allowance                            |       | 1,026                 |       | 2,283                 |       |
| Net deferred tax asset                               |       | 24,574                |       | 27,843                |       |
| Deferred tax liabilities:                            |       |                  |       |                  |       |
| Property, plant, and equipment                       |       | 11,712                |       | 10,005                |       |
| LIFO reserve                                         |       | 2,824                 |       | 2,873                 |       |
| Intangible assets                                    |       | 62,203                |       | 62,281                |       |
| Other—Principally inventory step-up             |       | 1,152                 |       | 1,153                 |       |
| Total deferred tax  liabilities                      |       | 77,891                |       | 76,312                |       |
| Net deferred tax liability                           |       | $                     | (53,317    | )                     | $          | (48,469 | ) |

 

TheU.S. net operating losses expire beginning in 2020. In assessing therealizability of deferred tax assets, management considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which those temporarydifferences become deductible. Management considers the scheduled reversal ofdeferred tax liabilities, projected future taxable income and tax planningstrategies in making this assessment. For the period January 1, 2005through July 19, 2005, the Predecessor generated taxable income andutilized a portion of its net operating loss carryforward; which resulted in adecrease in the valuation allowance. For the Successor, no valuation reserve isrecorded, except related to a capital loss generated as a result of the sale ofSouth Africa, due primarily to two factors: 1) the change in the Company’s tax structure which allows all U.S.subsidiaries to file a consolidated federal return and 2) the creation ofsignificant deferred tax liabilities in purchase accounting which can be offsetby the Company’s deferred tax assets, allowing full recognition of the assets.

 

Undistributedearnings of the Company’s foreign subsidiaries amounted to approximately$39,294 at December 31, 2007. These earnings are considered to beindefinitely reinvested and, accordingly, no provision for U.S. federal andstate income taxes has been provided thereon. Determination of the amount ofunrecognized deferred U.S. income tax liability is not practicable because ofthe complexities associated with its hypothetical calculation.

 

Theincome tax expense for the Predecessor differs from the amount of income taxexpense computed by applying the U.S. federal income tax rate to (loss) incomefrom continuing operations before income taxes and minority interest primarilydue to: 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.

 

Theincome tax expense for the Successor differs from the amount of income taxexpense computed by applying the U.S. federal income tax rate to (loss) incomefrom continuing operations before income taxes and minority interest primarilydue to state income taxes and changes in enacted future tax rates in certainforeign jurisdictions which impacted our deferred tax assets and liabilities.

 

Incometaxes paid during the period from January 1, 2005 through July 19,2005, the period from July 20, 2005 through December 31, 2005 and theyears ended December 31, 2006 and 2007 were $2,548, $3,895, $5,677 and$8,644, respectively.

 

EffectiveJanuary 1, 2007, the Company adopted FIN 48, *Accounting for Uncertainty in Income Taxes*,which requires that the Company recognize in the financial statements, theimpact of a tax position, if that position is more 

 

62

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likely than not of being sustained on audit, based onthe technical merits of the position. In addition, FIN 48 provides guidance onthe derecognition, classification, accounting in interim periods and disclosurerequirements for uncertain tax positions.

 

As aresult of the implementation of FIN 48, the Company recorded at the date ofadoption an additional liability of $5,961 for unrecognized tax benefits relatingto uncertain tax positions. Of this amount, approximately $376 was accountedfor as a reduction to the January 1, 2007 balance of retained earnings.

 

At January 1,2007, the Company had recorded total reserves under FIN 48 of $7,024 thatincluded $6,558 for unrecognized tax benefits, $210 for underpayment interestand $256 for underpayment penalties. Future recognition of the unrecognized taxbenefits recorded at January 1, 2007 would have an effect of $776 on theeffective tax rate. At December 31, 2007, the Company had $6,396 inunrecognized tax benefits, the recognition of which would have an effect of$1,047 on the effective tax rate. In addition, $4,010 of unrecognized taxbenefits would, if realized, reduce goodwill.

 

TheCompany cannot state with a reasonable degree of certainty that any amountincluded in the December 31, 2007 balance of unrecognized tax benefits islikely to change significantly during the next twelve months.

 

TheCompany recognizes interest and penalties related to unrecognized tax benefitsas a component of income tax expense. At January 1, 2007, the Company hadaccrued $210 and $256 for the potential payment of interest and penaltiesrelated to unrecognized tax benefits, respectively. At December 31, 2007,the Company had accrued $357 and $287 for the potential payment of interest andpenalties related to unrecognized tax benefits, respectively.

 

TheCompany and its subsidiaries are subject to U.S. federal income tax as well asincome tax of multiple state and international jurisdictions. As of December 31,2007, the Company is subject to U.S. federal income tax examinations for thetax years 1998 through 2000 and 2002 through 2006 and to non-U.S. income taxexaminations for the tax years of 2003 through 2006. In addition, the Companyis subject to state and local income tax examinations for the tax years 1998through 2006.

 

Areconciliation of the beginning and ending amount of unrecognized tax benefitsis as follows:

 
| Balance at January 1,  2007                        |   | $    | 6,558  |   |
|---------------------------------------------------------|--------|------|--------|--------|
| Additions for tax positions related to the current year |   | 492  |   |
| Additions for tax positions of prior years              |   | 272  |   |
| Reductions for tax positions of prior years             |   | (452 | )      |
| Settlements                                             |   | (474 | )      |
| Balance at  December 31, 2007                      |   | $    | 6,396  |   |

 

**11. Employee Benefit Plans**

 

TheCompany sponsors a tax-qualified, defined-benefit pension plan covering certainU.S.-based employees. Effective December 31, 2006, the Company froze theplan and therefore, employees will no longer accrue benefits under the plan.Through December 31, 2006, the pension plan’s benefits were based on yearsof service, employment with the Company, retirement date, and compensation orstated amounts for each year of service. The Company’s funding policy is toannually contribute amounts sufficient to meet the minimum funding requirementsunder the Employee Retirement Income Security Act of 1974.

 

Additionally,the Company has a nonqualified defined-benefit pension plan covering certainemployees who were highly compensated. Effective December 31, 2006, theCompany froze this plan and therefore, employees will no longer accrue benefitsunder this plan.

 

Certainof the Company’s U.S.-based employees are covered by postretirement healthinsurance benefit plans. Effective December 31, 2006, participation in theplan was limited to employees over the age of 55 with ten years of service. Theexpected cost of these benefits is recognized during the years that employeesrender services. Retiree contributions are required depending on the year ofretirement and the number of years of service at the time of retirement.

 

63

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As aresult of the amendments to the tax-qualified and nonqualified pension plansand postretirement health insurance benefit plans as discussed above, theCompany recorded a non-cash curtailment gain of $6,751 in 2006, which isreflected in general and administrative expenses.

 

Thefollowing table sets forth the details of the funded status of the pension andpost-retirement plans, the amounts recognized in the consolidated statements offinancial position, the components of net periodic benefit cost, and theweighted-average assumptions used in determining these amounts:

 
| ** **                                                               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                               | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| ** **                                                               | ** ** | **Pension  Benefits**            | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** |
| ** **                                                               | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Change in benefit obligation:                                            |       |                             |       |   |   |   |   |   |   |
| Benefit obligation at beginning of period                                |       | $                                | 73,309     |   | $ | 1,404 |   | $ | 67,508 |   | $ | 1,147 |   |
| Service cost                                                             |       | 2,170                            |       | 25 |   | 23 |   | 11 |   |
| Interest cost                                                            |       | 4,018                            |       | 72 |   | 3,942 |   | 59 |   |
| Benefits paid                                                            |       | (2,950                           | )          | (192 | ) | (3,048 | ) | (197 | ) |
| Actuarial gain                                                           |       | (2,413                           | )          | (37 | ) | (1,031 | ) | — |   |
| Curtailment gain                                                         |       | (6,626                           | )          | (125 | ) | — |   | — |   |
| Benefit obligation at end of period                                      |       | $                                | 67,508     |   | $ | 1,147 |   | $ | 67,394 |   | $ | 1,020 |   |
| Change in plan assets:                                                   |       |                             |       |   |   |   |   |   |   |
| Fair value of plan assets at beginning of period                         |       | $                                | 44,870     |   | $ | — |   | $ | 52,863 |   | $ | — |   |
| Actual return on plan assets                                             |       | 5,709                            |       | — |   | 2,054 |   | — |   |
| Employer contribution                                                    |       | 5,234                            |       | 192 |   | 3,985 |   | 197 |   |
| Benefits paid                                                            |       | (2,950                           | )          | (192 | ) | (3,048 | ) | (197 | ) |
| Fair value of plan assets at end of period                               |       | $                                | 52,863     |   | $ | — |   | $ | 55,854 |   | $ | — |   |
| Reconciliation of amount recognized in the consolidated balance  sheets: |       |                             |       |   |   |   |   |   |   |
| Accumulated benefit obligation                                           |       | $                                | (67,508    | ) | $ | (1,147 | ) | $ | (67,394 | ) | $ | (1,020 | ) |
| Effect of salary projection                                              |       | —                           |       | — |   | — |   | — |   |
| Projected benefit obligation                                             |       | (67,508                          | )          | (1,147 | ) | (67,394 | ) | (1,020 | ) |
| Market value of assets                                                   |       | 52,863                           |       | — |   | 55,854 |   | — |   |
| Funded status                                                            |       | (14,645                          | )          | (1,147 | ) | (11,540 | ) | (1,020 | ) |
| Unrecognized actuarial gain                                              |       | (5,672                           | )          | — |   | (4,482 | ) | — |   |
| Unrecognized prior service cost                                          |       | —                           |       | — |   | — |   | — |   |
| Amount recognized at end of period                                       |       | $                                | (20,317    | ) | $ | (1,147 | ) | $ | (16,022 | ) | $ | (1,020 | ) |
| Net amount recognized in the consolidated balance sheets:                |       |                             |       |   |   |   |   |   |   |
| Accrued benefit liability                                                |       | $                                | (20,317    | ) | $ | (1,147 | ) | $ | (16,022 | ) | $ | (1,020 | ) |
| Intangible asset                                                         |       | —                           |       | — |   | — |   | — |   |
| Accumulated other comprehensive income                                   |       | (5,672                           | )          | — |   | (4,482 | ) | — |   |
| Net amount recognized at end of period                                   |       | $                                | (14,645    | ) | $ | (1,147 | ) | $ | (11,540 | ) | $ | (1,020 | ) |

 

64

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| ** **                                                                   | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                   | ** ** | **2006**                         | ** ** | **2007** | ** ** |
| ** **                                                                   | ** ** | **Pension  Benefits**            | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** |
| ** **                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Change in accrued benefit cost:                                              |       |                             |       |   |   |   |   |   |   |
| Accrued benefit cost at beginning of year                                    |       | $                                | 29,662     |   | $ | 1,367 |   | $ | 20,317 |   | $ | 1,147 |   |
| Net periodic benefit cost (income)                                           |       | 2,515                            |       | 97 |   | (310 | ) | 70 |   |
| Contributions                                                                |       | (5,234                           | )          | (192 | ) | (3,985 | ) | (197 | ) |
| Curtailment gain                                                             |       | (6,626                           | )          | (125 | ) | — |   | — |   |
| Accrued benefit cost at December 31                                     |       | $                                | 20,317     |   | $ | 1,147 |   | $ | 16,022 |   | $ | 1,020 |   |
| Weighted average assumptions used to determine year end benefit  obligation: |       |                             |       |   |   |   |   |   |   |
| Discount rate                                                                |       | 5.90                             | %          | 5.90 | % | 6.48 | % | 6.48 | % |
| Rate of compensation increase                                                |       | 4.00                             | %          | — |   | — |   | — |   |

 

 
| ** **                                                                                | ** ** | **Predecessor**                                       | ** ** | **Successor**                                           | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                | ** ** | **January 1, 2005  through  July 19,** | ** ** | **July 20, 2005  through  December 31,** | ** ** | **Year ended December 31,** | ** ** |
| ** **                                                                                | ** ** | **2005**                                              | ** ** | **2005**                                                | ** ** | **2006** | ** ** | **2007** | ** ** |
| ** **                                                                                | ** ** | **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                                                                              |       | $                                                     | 903        |                                                    | $          | 14 |   | $ | 855 |   | $ | 12 |   | $ | 2,170 |   | $ | 25 |   | $ | 23 |   | $ | 11 |   |
| Interest cost                                                                             |       | 1,961                                                 |       | 43                                                      |       | 1,692 |   | 34 |   | 4,018 |   | 72 |   | 3,942 |   | 59 |   |
| Expected return on plan assets                                                            |       | (1,780                                                | )          | —                                                  |       | (1,633 | ) | — |   | (3,673 | ) | — |   | (4,275 | ) | — |   |
| Amortization of prior service cost                                                        |       | 3                                                     |       | 9                                                       |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Amortization of actuarial loss                                                            |       | 527                                                   |       | 48                                                      |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Net periodic expense (income)                                                             |       | 1,614                                                 |       | 114                                                     |       | 914 |   | 46 |   | 2,515 |   | 97 |   | (310 | ) | 70 |   |
| Curtailment gain                                                                          |       | —                                                |       | —                                                  |       | — |   | — |   | (6,626 | ) | (125 | ) | — |   | — |   |
| Net expense (income)                                                                      |       | $                                                     | 1,614      |                                                    | $          | 114 |   | $ | 914 |   | $ | 46 |   | $ | (4,111 | ) | $ | (28 | ) | $ | (310 | ) | $ | 70 |   |
| Weighted-average assumptions used to determine net periodic benefit  cost are as follows: |       |                                                  |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Discount rate                                                                             |       | 5.75                                                  | %          | 5.75                                                    | %          | 5.25 | % | 5.25 | % | 5.50 | % | 5.50 | % | 5.90 | % | 5.90 | % |
| Expected return on plan assets                                                            |       | 8.50                                                  | %          | —                                                  |       | 8.50 | % | — |   | 8.00 | % | — |   | 8.00 | % | — |   |
| Rate of compensation increase                                                             |       | 4.00                                                  | %          | —                                                  |       | 4.00 | % | — |   | 4.00 | % | — |   | — |   | — |   |

 

Thelong-term rate of return on plan assets assumption is reviewed annually. Aninvestment model is used to determine an expected rate of return based oncurrent investment allocation. The investment model considers past performanceand forward looking assumptions for each asset class based on current marketindices, key economic indicators and assumed long-term rate of inflation. Thelong-term rate of return assumption is adjusted, as needed, such that it fallsbetween the 25th and 75th percentile expected returngenerated from the model.

 

TheCompany’s investment philosophy is to diversify the pension assets subject to aspecified asset allocation policy. The Company rebalances the asset classes tostay within an acceptable range around the targeted allocation. The philosophyrecognizes that the primary objective for the management of the assets is tomaximize return commensurate with

 

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the level of risk undertaken. With the understandingthat investment returns are largely uncertain from year to year, the basicreturn objective is to be achieved over an averaging period no greater thanthree to five years in duration. The assets are invested in both indexed fundsand actively managed funds, depending on the asset class.

 

TheCompany’s plan asset allocation at December 31, 2006 and 2007, and targetallocation for 2008, by asset category are as follows:

 
| ** **        | ** ** | ** **            | ** ** | ** **                      | ** ** | ** **            | ** ** | ** **                      | ** ** | **Target**            | ** ** |
|-------------------|------------|-----------------------|------------|---------------------------------|------------|-----------------------|------------|---------------------------------|------------|-----------------------|------------|
| ** **        | ** ** | **Actual**            | ** ** | **Allocation**                  | ** ** |
| ** **        | ** ** | **2006**              | ** ** | **2007**                        | ** ** | **2008**              | ** ** |
| ** **        | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** | **Pension  Benefits** | ** ** | **Post-  Retirement  Benefits** | ** ** |
| Equity securities |       | 60                    | %          | —                          | %          | 59                    | %          | —                          | %          | 60                    | %          | — | % |
| Debt securities   |       | 40                    | %          | —                          | %          | 41                    | %          | —                          | %          | 40                    | %          | — | % |

 

Future expected benefit payments as of December 31, 2007, is asfollows:

 
| 2008       |   | $      | 3,516  |   |
|------------|--------|--------|--------|--------|
| 2009       |   | 3,688  |   |
| 2010       |   | 3,890  |   |
| 2011       |   | 4,159  |   |
| 2012       |   | 4,341  |   |
| Thereafter |   | 24,726 |   |
|       |   | $      | 44,320 |   |

 

TheCompany expects 2008 contributions for pension and post-retirement benefits tobe approximately $2,154. The Company does not expect any amounts included inaccumulated other comprehensive income as of December 31, 2007 to berecognized for the year ended December 31, 2008.

 

TheCompany also sponsors defined-contribution plans covering substantially all ofits U.S.-based employees. The Company’s contribution to these plans ranges from0% to 4% of a participant’s salary. In addition, the Company may elect to makediscretionary contributions to some of the plans. The amount expensed forvarious match provisions of the plans was $558, $406, $1,104 and $1,641 for theperiod from January 1, 2005 through July 19, 2005, the period from July 20,2005 through December 31, 2005 and the years ended December 31, 2006and 2007, respectively.

 

**12.  Lease Commitments**

** **

TheCompany leases certain facilities under various noncancelable operating leaseagreements. Future minimum lease payments under capital and noncancelableoperating leases as of December 31, 2007, are as follows:

 
| ** **                    | ** ** | **Operating  Leases** | ** ** |
|-------------------------------|------------|-----------------------|------------|
| 2008                          |       | $                     | 7,759      |   |
| 2009                          |       | 6,569                 |       |
| 2010                          |       | 5,144                 |       |
| 2011                          |       | 3,498                 |       |
| 2012                          |       | 2,423                 |       |
| Thereafter                    |       | 9,706                 |       |
| Total minimum lease  payments |       | $                     | 35,099     |   |

 

Rentexpense was $3,314, $2,544, $6,987 and $7,956 for the period from January 1,2005 through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007, respectively.

 

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**13.  LegalProceedings**

 

TheCompany is subject to various claims arising in the ordinary course ofbusiness. Most of these lawsuits and claims are product liability matters thatarise out of the use of respiratory product lines manufactured by the Company’sNorth Safety Products subsidiary. As of December 31, 2007, the Company’sNorth Safety Products subsidiary, along with its predecessors and/or the formerowners of such business were named as defendants in approximately 629 lawsuitsinvolving respirators allegedly manufactured and sold by it or itspredecessors. The Company is also monitoring an additional two lawsuits inwhich it feels that North Safety Products, its predecessors and/or the formerowners of such businesses may be named as defendants. Collectively, these 631lawsuits represent a total of approximately 8,396 plaintiffs. Approximately 85%of these lawsuits involve plaintiffs alleging injury resulting from exposure tosilica dust, with the remainder alleging injury resulting from exposure toother dust particles, including asbestos. These lawsuits typically allege thatthe purported 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.

 

Inaddition, the Company’s North Safety Products subsidiary is contractuallyentitled to indemnification from Norton Company, an affiliate of Saint-Gobain,which owned the North Safety Products business prior to Invensys. Pursuant to aDecember 14, 1982 asset purchase agreement, Siebe Norton, Inc., anewly formed wholly-owned subsidiary of Norton Company, acquired the assets ofNorton’s Safety Products Division and the stock of this company was in turnacquired by Siebe Gorman Holdings plc. Under the terms of the agreement, SiebeNorton, Inc. did not assume any liability for claims relating to productsshipped by Norton Company prior to the closing date. Moreover, Norton Companycovenanted in the agreement to indemnify Siebe Norton, Inc. and itssuccessors and assigns against any liability resulting from or arising out ofany state of facts, omissions or events existing or occurring on or before theclosing date, including, without limitation, any claims arising from productsshipped by Norton Company or any of its affiliates prior to the closing date.Siebe Norton, Inc., whose name was subsequently changed to Siebe NorthInc., was subsequently acquired by the Company as part of the 1998 acquisitionof the North Safety Products business from Invensys.

 

Despitethese indemnification arrangements, the Company could potentially be liable forlosses or claims relating to products manufactured prior to the October 1998acquisition date if Invensys fails to meet its obligations to indemnify theCompany and the Company could potentially be liable for losses and claimsrelating to products sold prior to January 10, 1983 if both Invensys andNorton fail to meet their obligations to indemnify the Company. The Companybelieves that Invensys has the ability to pay these claims based on its currentfinancial position, as publicly disclosed by Invensys. The Company could alsobe liable if the alleged exposure involved the use of a product manufactured bythe Company after the October 1998 acquisition of the North SafetyProducts business.

 

EffectiveJuly 1, 2006, the Company entered into a joint defense agreement through December 31,2008 with the former owners of the North Safety Products business (the “JointDefense Agreement” or “JDA”). Under the terms of the Joint Defense Agreement,the Company agreed to pay a weighted average percentage of defense costs(including legal fees, expert witnesses and out of pocket expenses) associatedwith defending the Company 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 andthe year ended December 31, 2008, respectively. The cap excludessettlement costs and other costs incurred exclusively by the Company (includingtrial costs and special requests of counsel), which it will be required to payunder the JDA. Separately, the Company agreed to pay Invensys $200 related tosettled cases through June 30, 2006 in which Invensys claimed that theperiod of alleged exposure included periods after October 1998.

 

Althoughthe JDA expires on December 31, 2008, the Company expects to incur additionaldefense and 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 could include an extension of the JDA.

 

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Basedupon information provided to the Company by Invensys, the Company believesactivity related to these lawsuits was as follows for the year ended December 31,2007:

 
| ** **           | ** ** | **2005**       | ** ** | **2006**  | ** ** | **2007**       | ** ** |
|----------------------|------------|----------------|------------|-----------|------------|----------------|------------|
| ** **           | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** | **Plaintiffs** | ** ** | **Cases** | ** ** |
| Beginning lawsuits   |       | 25,944         |       | 858       |       | 18,459         |       | 1,148 |   | 8,746 |   | 644 |   |
| New lawsuits         |       | 2,226          |       | 587       |       | 653            |       | 498 |   | 38 |   | 35 |   |
| Settlements          |       | 24             |       | (32       | )          | (5             | )          | (5 | ) | (6 | ) | (2 | ) |
| Dismissals and other |       | (9,735         | )          | (265      | )          | (10,361        | )          | (997 | ) | (382 | ) | (46 | ) |
| Ending lawsuits      |       | 18,459         |       | 1,148     |       | 8,746          |       | 644 |   | 8,396 |   | 631 |   |

 

Boththe rate of new filings and the number of existing claimants have declineddramatically since 2003 as courts and legislatures have tightened the rules onwhen and where the silica claims can be pursued in an effort to reduce thelarge number of unmeritorious claims. The new rules make bringing silicacases on a mass level much less attractive to the plaintiffs’ bar. Plaintiffs’attorneys in many jurisdictions can no longer (1) find a worker with somestated exposure to silica, (2) take an X-ray of his chest, (3) haveit interpreted as demonstrating lung shadows by a radiologist, (4) thenfile a single lawsuit in a dangerous venue with hundreds of other plaintiffsagainst hundreds of defendants with the pleading containing little more thanthe parties’ names and some standard pleading language. More specifically, thelegislatures of at least seven states — including former hotbeds of silicalitigation such as Texas, Florida and Ohio — passed impairment-criterialegislation that redefined injury. These acts force plaintiffs to proveimpairment as a result of their exposure to qualify for judicial treatment. Thesame legislation requires that each silica claimant be tried individually, andnot in the multiple plaintiff format in which the potential for large verdictsresulted from increased plaintiffs and where a few meritorious claims couldincrease the value of unmeritorious ones. Further tort reform in Texas createda state-wide multi-district litigation (“MDL”) wherein one judge presides overthe pretrial of all Texas-silica cases. In Mississippi, the Supreme Courtchanged the venue rules making it much more difficult to file out-of-stateplaintiffs there. The Mississippi court also changed the pleading requirementsmaking the plaintiffs’ attorneys include plaintiff-specific allegations againsteach defendant sued, instead of the vague allegations against hundreds ofdefendants.

 

Plaintiffshave asserted specific dollar claims in approximately 30% of the approximately629 cases pending as of December 31, 2007 in which North Safety Products,its predecessors 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, the amounts claimed are typicallynot meaningful as an indicator of a company’s potential liability. This isbecause (1) the amounts claimed typically bear no relation to the level ofthe plaintiff’s injury, (2) the complaints typically assert claims againstnumerous defendants and (3) many cases are brought on behalf of plaintiffswho have not suffered any medical injury, and ultimately are resolved withoutany payment or payment of a small fraction of the damages initially claimed. Ofthe 629 complaints maintained in the Company’s records, 439 do not specify theamount of damages sought, 25 generally allege damages in excess of $50, onealleges compensatory damages in excess of $50 and an unspecified amount ofpunitive damages, 103 allege compensatory damages and punitive damages, each inexcess of $25, two generally allege damages in excess of $100, two allegecompensatory damages and punitive damages, each in excess of $50, 20 generallyallege damages in excess of $15,000, one generally alleges damages of $23,000,one alleges compensatory damages and punitive damages, each in excess of $10,four allege general damages of $18,000 and punitive damages of $10,000, twoallege general damages of $13,000 and punitive damages of $10,000, one allegescompensatory and punitive damages, each in excess of $15, one alleges punitivedamages in excess of $50, one generally alleges damages in excess of $15, 12generally allege damages in excess of $25, one alleges compensatory damages of$18,000 and punitive damages of $10,000, one alleges punitive damages of$13,500 and compensatory damages of $10,000, one alleges punitive damages of$13,000 and compensatory damages of $10,000, eight allege compensatory damagesof $13,000 and punitive damages of $10,000, one alleges compensatory andpunitive damages, each of $15 and two allege compensatory and punitive damages,each in excess of $15,000. The Company currently does not have access to thecomplaints with respect to the previously mentioned additional two monitoredcases, and therefore it does not know whether these cases allege specific damages,or if so, the amount of such damages, but is in the process of seeking toobtain such information. Due to the reasons noted above and to theindemnification arrangements benefiting the Company, it does not believe thatthe damage amounts specified in these complaints are a meaningful factor in anyassessment of the Company’s potential liability.

 

The Predecessor recorded a $1,250 reserve forrespiratory claims during the year ended December 31, 2004. ThePredecessor re-evaluated this reserve in its first and second quarter 2005financial statements and concluded the $1,250 recorded reserve continued to beits best estimate of the probable loss for the respiratory contingency.

 

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In the July 2005 acquisition purchaseaccounting (as first reported in the Form 10-Q for the third quarter of2005), the Company carried forward the $1,250 liability for thispre-acquisition contingency. Although management concluded that it was likelytheir estimate of this pre-acquisition contingent liability would be increasedduring the purchase accounting allocation period as the new ownership finalizedtheir strategy for addressing the liability and gathered information (primarilyrelated to case information and the working relationship among the prior ownersof North Safety Products), it was unlikely the amount would be lower than the$1,250. 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 begannegotiations with the former owners of the North Safety Products business toenter into the JDA. The Company determined that the liability should beincreased to $5,000 as of December 31, 2005 as part of the purchase price allocationprocess. The $5,000 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 the Companywas awaiting finalization of the JDA negotiation process.

 

As discussed above, the Company entered into the JDAeffective July 1, 2006 and completed its evaluation of the reserve. Afterall information was obtained, the Company adjusted the reserve to $7,000 aspart of the purchase price allocation process during the permitted allocationperiod.

 

The final estimated amount recorded in purchaseaccounting related entirely to losses incurred before the July 2005acquisition. The Company’s final estimate of the probable loss for therespiratory contingency incorporated the new ownerships’ decision to enter intothe JDA. The decision represented a significantly different plan as newownership agreed to assume losses related to claims with unknown years ofexposure. In addition, the decision to enter into the JDA was being consideredfrom the date of the acquisition and the ultimate decision was made during theallocation period.

 

In the fourth quarter 2007, the Company re-evaluatedthe reserve based on the favorable impact of the new rules and thesignificant decline in new and existing claims (as discussed above) using afive-year projection of claims and related defense cost approach and concludedthat the best estimate of the probable loss for the respiratory contingency was$5.0 million. The reserve was reduced by $1.8 million through a credit tooperating expenses. As of December 31, 2007, the reserve balance was $5.0million.

 

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. This reservewill be re-evaluated periodically and additional charges or credits will berecorded to operating expenses as additional information becomes available.

 

It ispossible that the Company may incur liabilities in an amount in excess ofamounts currently reserved. However, taking into account currently availableinformation, historical experience, and the Company’s indemnification fromInvensys, but recognizing the inherent uncertainties in the projection of anyfuture events, the Company believes that these suits or claims should notresult in final judgments or settlements in excess of its reserve.

 

In connection with an ongoing dispute, one of theCompany’s competitors has filed a complaint against it alleging that theCompany have made a series of misrepresentations concerning this competitor andits products. The complaint seeks a retraction of all statements alleged tohave been made by the Company and unspecified damages, including legal fess. Abench trail on the issue of liability was held in February 2006 and thematter is now awaiting ruling by the court. The Company intends to vigorouslydefend against these claims.

 

**The Company historically has notbeen required to pay any material liability claims. The Company maintainsinsurance against product liability claims (with the exception of asbestosisand silicosis cases, for which coverage is not commercially available), but itis possible that its insurance coverage will not continue to be available onterms acceptable to the Company or that such coverage will not be adequate forliabilities actually incurred.**

** **

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

** **

Inconjunction with the Fibre-Metal Transaction, the Company initiated arestructuring plan to close the Fibre-Metal manufacturing facility located inConcordville, Pennsylvania and move production to its Cranston, Rhode Islandand Mexicali, Mexico facilities. In addition, the Company closed certainFibre-Metal distribution centers and integrated Fibre-

 

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Metal distribution into its existing distributionfacilities. The Company implemented this plan in order to increaseprofitability through utilizing excess capacity at its existing plants andmoving manufacturing to locations with favorable labor costs. The restructuringwas completed in 2007. As of the date of the Fibre-Metal Transaction, theCompany recorded an accrual for costs associated with the plan of $1,716,comprised of $1,383 in severance costs and $333 in facility closure and otherexit costs. The restructuring liability was classified within the accruedexpenses caption on the consolidated balance sheet.

 

Inconjunction with the White Rubber Transaction, the Company initiated arestructuring plan to move certain production and distribution functionslocated in Ohio and Washington to its Charleston, South Carolina, Skokie,Illinois and Chicago, Illinois facilities. The Company initiated this plan inorder to increase profitability by utilizing excess capacity and consolidatingdistribution functions. The restructuring was completed in 2007. As of the dateof the White Rubber Transaction, the Company recorded an accrual for costsassociated with the plan of $1,018, comprised of severance and severancerelated costs. The restructuring liability is classified within the accruedexpenses caption on the consolidated balance sheet.

 

A rollforward of the restructuring liability associated with theFibre-Metal Transaction and White Rubber Transaction is as follows:

 
| ** **                              | ** ** | **Severance  and  severance  related  costs** | ** ** | **Facility  closure and  other exit  costs** | ** ** | **Total** | ** ** |
|-----------------------------------------|------------|-----------------------------------------------|------------|--------------------------------------------------------|------------|-----------|------------|
| Balance at January 1,  2006        |       | $                                             | 1,383      |                                                   | $          | 333       |       | $ | 1,716 |   |
| White Rubber additions                  |       | 1,018                                         |       | —                                                 |       | 1,018     |       |
| Payments                                |       | (522                                          | )          | (163                                                   | )          | (685      | )          |
| Effect of foreign currency  translation |       | 1                                             |       | 3                                                      |       | 4         |       |
| Balance as of  December 31, 2006   |       | 1,880                                         |       | 173                                                    |       | 2,053     |       |
| Payments                                |       | (1,757                                        | )          | (174                                                   | )          | (1,931    | )          |
| Effect of foreign currency  translation |       | —                                        |       | 1                                                      |       | 1         |       |
| Balance as of  December 31, 2007   |       | $                                             | 123        |                                                   | $          | —    |       | $ | 123 |   |

 

Forthe years ended December 31, 2006 and 2007, the Company also recorded$1,539 and $3,696, respectively, of restructuring and merger-related chargesrelated to plant relocations, personnel reorganization and acquisitionintegration activities. As of December 31, 2007, the restructuringliability associated with these restructuring and merger-related charges was$3,015 and is classified within the accrued expense caption on the consolidatedbalance sheet. The majority of this balance relates to severance and severancerelated costs which will be paid during the next twelve months period.

 

**15.  Related Party Transactions**

** **

TheCompany leases a facility in Dayton, Ohio from American FirefightersCooperative, Inc., a corporation controlled by William L. Grilliot,President—Fire Service. The initial term of the lease ended on February 28,2005, and was extended through April 30, 2009. The base rent is $348 peryear, payable in monthly installments. In addition, the Company must also payAmerican Firefighters Cooperative, Inc. all general and specialassessments of every kind, as additional rent during the term of the lease. Therent paid was $218, $155, $382 and $382 for the period from January 1,2005 through July 19, 2005, the period from July 20, 2005 through December 31,2005 and the years ended December 31, 2006 and 2007, respectively. In December 2007,an amendment to the lease was entered related to the expansion of the facility.The base rent under the amended lease is $587 per year, payable in monthlyinstallments and begins upon the completion of the expansion. In addition, thelease is extended five years from the date of completion.

 

The Company leases a facility in Ohatchee, Alabama from WKDG Properties,LLC, a limited liability company controlled by Ernest Paffumi, our VicePresident and General Manager-American Firewear and Robert Morgan, our VicePresident of Production and Purchasing-American Firewear. The lease began February 2,2006 and has a six year term with the option to renew the lease for two periodsof three years. The base rent is $146 per year, payable in monthlyinstallments. In addition, the Company must also pay WKDG Properties, LLC theactual amount of all real estate taxes and operating expenses of every kind, asadditional rent during the term of the lease. The rent paid for the years endedDecember 31, 2006 and 2007 was $134 and $149, respectively.

 

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**16.  Segment Data**

** **

TheCompany has three reporting segments (each of which are operatingsegments):  general safety andpreparedness, fire service, and electrical safety. General safety andpreparedness offers products to a wide variety of industries, includingmanufacturing, agriculture, automotive, construction, food processing andpharmaceutical industries and the military, under the *North*, *Ranger**,* Servus*,* KCL*,* Fibre-Metal *and* NEOS *brand names*. Theproduct offering includes respiratory protection, protective footwear, handprotection, eye, head and face protection, first aid, hearing protection andfall protection. The Company sells its general safety and preparedness productsprimarily through industrial distributors. Fire service offers personalprotection equipment for the fire service market, providing firefightershead-to-toe protection. The product offering includes turnout gear, fireboots,helmets, gloves and other accessories. The Company markets its products underthe Total Fire Group umbrella,using the brand names of *Morning Pride*,*Ranger*, *Servus*,*American Firewear*and *Pro-Warrington*. The Companysells its fire service products primarily through specialized fire servicedistributors. Electrical safety offers personal protection equipment for theutility market under the *Salisbury*,*Servus*and*Safety Line*brands. The product offering includes linemen equipment, gloves, sleeves,footwear and arc flash protection. The Company distributes its electricalsafety products through specialized distributors, test labs, utilities, andelectrical contractors.

 

Corporateexpenses include general and administrative expense such as administrative,finance, human resources and legal, which are not directly associated with oneof the reporting segments. In addition, the interest expense associated withthe 113⁄4% senior pay in kind notes due 2012 is included within corporateexpenses. Corporate assets primarily include the deferred financing costsassociated with the 113⁄4% senior pay in kind notes due 2012 and Safety Productsinvestment in Norcross.

 

Theelimination column includes the elimination of intercompany net sales among thethree reporting segments and the elimination of investment in subsidiariesamong Safety Products, Norcross and the various subsidiaries.

 

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Thefollowing table presents information about the Company by segment:

 
| ** **                                                         | ** ** | **General  Safety and  Preparedness** | ** ** | **Fire  Service** | ** ** | **Electrical  Safety** | ** ** | **Corporate** | ** ** | **Eliminations** | ** ** | **Total**  | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------|------------|------------------------|------------|---------------|------------|------------------|------------|------------|------------|
| **Predecessor Company**                                            | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| **Period from January 1, 2005 through  July 19, 2005**   | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net sales—third parties                                       |       | $                                          | 175,572    |              | $          | 51,702                 |       | $             | 33,558     |             | $          | —     |       | $ | — |   | $ | 260,832 |   |
| Net sales—intersegment                                        |       | 5,548                                      |       | —            |       | —                 |       | —        |       | (5,548           | )          | —     |       |
| Income (loss) from continuing operations                           |       | 19,361                                     |       | 9,332             |       | 8,442                  |       | (24,127       | )          | —           |       | 13,008     |       |
| Interest expense                                                   |       | 13,111                                     |       | 14                |       | —                 |       | 11,458        |       | —           |       | 24,583     |       |
| Income tax expense                                                 |       | 3,199                                      |       | 146               |       | —                 |       | 100           |       | —           |       | 3,445      |       |
| 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                                       |       | 138,146                                    |       | 36,213            |       | 27,080                 |       | —        |       | —           |       | 201,439    |       |
| Net sales—intersegment                                        |       | 3,750                                      |       | —            |       | —                 |       | —        |       | (3,750           | )          | —     |       |
| Income (loss) from continuing operations                           |       | 7,511                                      |       | 2,574             |       | 4,352                  |       | (2,876        | )          | —           |       | 11,561     |       |
| Interest expense                                                   |       | 9,495                                      |       | 3                 |       | —                 |       | 8,146         |       | —           |       | 17,644     |       |
| Income tax expense (benefit)                                       |       | 753                                        |       | 1,086             |       | —                 |       | (2,891        | )          | —           |       | (1,052     | )          |
| Depreciation and amortization                                      |       | 7,448                                      |       | 2,731             |       | 2,180                  |       | 2             |       | —           |       | 12,361     |       |
| Purchase of plant, property and equipment                          |       | 4,215                                      |       | 175               |       | 647                    |       | —        |       | —           |       | 5,037      |       |
| **Year ended December 31, 2006**                              | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net sales—third parties                                       |       | 370,931                                    |       | 87,902            |       | 78,842                 |       | —        |       | —           |       | 537,675    |       |
| Net sales—intersegment                                        |       | 9,307                                      |       | —            |       | —                 |       | —        |       | (9,307           | )          | —     |       |
| Restructuring and merger-related charges                           |       | 1,417                                      |       | —            |       | 122                    |       | —        |       | —           |       | 1,539      |       |
| Income (loss) from continuing operations                           |       | 45,702                                     |       | 8,364             |       | 14,853                 |       | (8,992        | )          | —           |       | 59,927     |       |
| Interest expense                                                   |       | 27,136                                     |       | 71                |       | —                 |       | 19,650        |       | —           |       | 46,857     |       |
| Income tax expense (benefit)                                       |       | 10,251                                     |       | 3,190             |       | (357                   | )          | (6,944        | )          | —           |       | 6,140      |       |
| 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    |       |
| **Year ended December 31, 2007**                              | ** ** | ** **                                 | ** ** | ** **        | ** ** | ** **             | ** ** | ** **    | ** ** | ** **       | ** ** | ** ** | ** ** |
| Net sales—third parties                                       |       | 410,962                                    |       | 100,607           |       | 97,328                 |       | —        |       | —           |       | 608,897    |       |
| Net sales—intersegment                                        |       | 8,252                                      |       | —            |       | 375                    |       | —        |       | (8,627           | )          | —     |       |
| Restructuring and merger-related charges                           |       | 2,526                                      |       | 119               |       | 1,051                  |       | —        |       | —           |       | 3,696      |       |
| Income (loss) from continuing operations                           |       | 51,691                                     |       | 12,438            |       | 18,042                 |       | (11,777       | )          | —           |       | 70,394     |       |
| Interest expense                                                   |       | 27,770                                     |       | 59                |       | —                 |       | 21,795        |       | —           |       | 49,624     |       |
| Income tax expense (benefit)                                       |       | 2,749                                      |       | 4,616             |       | 6,322                  |       | (7,623        | )          | —           |       | 6,064      |       |
| Depreciation and amortization                                      |       | 16,719                                     |       | 4,629             |       | 5,138                  |       | 112           |       | —           |       | 26,598     |       |
| Purchase of plant, property and equipment                          |       | 7,786                                      |       | 615               |       | 3,622                  |       | —        |       | —           |       | 12,023     |       |
| Total assets                                                       |       | 781,771                                    |       | 140,444           |       | 121,160                |       | 230,103       |       | (483,828         | )          | 789,650    |       |
|                                                                    |            |                                            |            |                   |            |                        |            |               |            |                  |            |            |            |  |  |  |  |  |  |

 

72

----

 

**17.  Product Line Data**

 

Thefollowing table presents net sales of the Company by product line:

 
| ** **          | ** ** | **Predecessor**                                             | ** ** | **Successor**                                                 | ** ** |
|---------------------|------------|-------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **          | ** ** | **January 1,  2005  through  July 19,**

**2005** | ** ** | **July 20,  2005  through  December 31,**

**2005** | ** ** | **Year ended December 31,** | ** ** |
| ** **          | ** ** | ** **                                                  | ** ** | **2006**                                                      | ** ** | **2007** | ** ** |
| Protective footwear |       | $                                                           | 51,191     |                                                          | $          | 44,256 |   | $ | 93,550 |   | $ | 100,198 |   |
| Hand protection     |       | 66,606                                                      |       | 46,328                                                        |       | 127,941 |   | 148,447 |   |
| Eye, head and face  |       | 22,540                                                      |       | 20,379                                                        |       | 82,881 |   | 89,567 |   |
| Respiratory         |       | 33,591                                                      |       | 25,622                                                        |       | 66,954 |   | 71,938 |   |
| Protective garments |       | 37,672                                                      |       | 28,251                                                        |       | 61,830 |   | 73,936 |   |
| First aid           |       | 8,655                                                       |       | 5,893                                                         |       | 15,553 |   | 16,652 |   |
| Hearing protection  |       | 4,095                                                       |       | 2,802                                                         |       | 7,209 |   | 7,414 |   |
| Fall protection     |       | 9,283                                                       |       | 6,934                                                         |       | 18,978 |   | 22,879 |   |
| Linemen equipment   |       | 17,613                                                      |       | 14,418                                                        |       | 42,999 |   | 55,273 |   |
| Other               |       | 9,586                                                       |       | 6,556                                                         |       | 19,780 |   | 22,593 |   |
|                |       | $                                                           | 260,832    |                                                          | $          | 201,439 |   | $ | 537,675 |   | $ | 608,897 |   |

 

**18.  Geographic Data**

** **

Thefollowing table presents information about the Company by geographic area:

 
| ** **                                                         | ** ** | **United  States** | ** ** | **Europe** | ** ** | **Canada** | ** ** | **Other**  | ** ** | **Total  Foreign** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------------|------------|--------------------|------------|------------|------------|------------|------------|------------|------------|--------------------|------------|------------------|------------|
| **Predecessor Company**                                            | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **       | ** ** |
| **Period from January 1, 2005 through  July 19, 2005**   | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **       | ** ** |
| Net sales                                                          |       | $                  | 173,711    |       | $          | 46,204     |       | $          | 40,917     |               | $          | —           |       | $ | 87,121 |   | $ | 260,832 |   |
| **Successor Company**                                              | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **       | ** ** |
| **Period from July 20, 2005 through  December 31, 2005** | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **       | ** ** |
| Net sales                                                          |       | 139,405            |       | 30,380     |       | 31,654     |       | —     |       | 62,034             |       | 201,439          |       |
| **Year ended December 31,  2006**                             | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **       | ** ** |
| Net sales                                                          |       | 358,496            |       | 88,332     |       | 90,607     |       | 240        |       | 179,179            |       | 537,675          |       |
| Long-lived assets                                                  |       | 296,102            |       | 34,365     |       | 24,643     |       | 1,074      |       | 60,082             |       | 356,184          |       |
| **Year ended December 31,  2007**                             | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **       | ** ** |
| Net sales                                                          |       | 401,077            |       | 109,254    |       | 96,707     |       | 1,859      |       | 207,820            |       | 608,897          |       |
| Long-lived assets                                                  |       | 286,210            |       | 38,025     |       | 26,913     |       | 87         |       | 65,025             |       | 351,235          |       |
|                                                                    |            |                    |            |            |            |            |            |            |            |                    |            |                  |            |  |  |  |  |  |  |

 

**19.  Subsidiary Guarantors**

** **

Safety Products and NSP Capital are co-issuers ofthe 113⁄4% senior pay in kind notes due 2012. Both Safety Products and NSP Capitalhave no independent assets or operations. NSP Capital is a 100% owned financesubsidiary of Safety Products. The 113⁄4% senior pay in kind notes due 2012 arenot guaranteed by any subsidiary of the Company. The terms of the New CreditFacility significantly restrict Norcross from paying dividends and otherwisetransferring assets to the Company. Further, the terms of the indenturegoverning its 9 7/8 % senior subordinated notes due 2011 significantly restrictNorcross and the Company’s other subsidiaries from paying dividends andotherwise transferring assets to the Company, except for ordinary courseoperating expenses.

 

73

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**20.  Quarterly Results (Unaudited)**

 

The following tables contain selected unauditedconsolidated statements of operations information for each quarter of 2006 and2007. The Company believes that the following information reflects all normalrecurring adjustments (except as noted) necessary for a fair presentation ofthe information for the periods presented. The operating results for anyquarter are not necessarily indicative of results for any future period.

 
| ** **   | ** ** | ** ** | ** ** | **Year ended December 31, 2006** | ** ** |
|--------------|------------|------------|------------|------------------------------------------------------|------------|
| ** **   | ** ** | ** ** | ** ** | **Quarter  ended  December 31**                 | ** ** | **Quarter  ended  September 30** | ** ** | **Quarter  ended  July 1** | ** ** | **Quarter  ended  April 1** | ** ** |
| Net sales    |       |       |       | $                                                    | 133,264    |   | $ | 136,777 |   | $ | 131,275 |   | $ | 136,359 |   |
| Gross profit |       |       |       | 47,051                                               |       | 49,616 |   | 52,118 |   | 52,257 |   |
| Net income   |       |       |       | 819                                                  | (1)        | 889 |   | 3,469 |   | 3,687 |   |
|              |            |            |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **   | ** ** | ** ** | ** ** | **Year ended December 31, 2007** | ** ** |
|--------------|------------|------------|------------|------------------------------------------------------|------------|
| ** **   | ** ** | ** ** | ** ** | **Quarter  ended  December 31**                 | ** ** | **Quarter  ended  September 29** | ** ** | **Quarter  ended  June 30** | ** ** | **Quarter  ended  March 31** | ** ** |
| Net sales    |       |       |       | $                                                    | 152,934    |   | $ | 151,406 |   | $ | 156,406 |   | $ | 148,151 |   |
| Gross profit |       |       |       | 55,259                                               |       | 58,245 |   | 62,027 |   | 57,442 |   |
| Net income   |       |       |       | 2,095                                                | (2)        | 4,514 |   | 2,389 |   | 3,783 |   |
|              |            |            |            |                                                      |            |  |  |  |  |  |  |  |  |  |  |

----

| (1)    |   | Includes  $6,751 of income associated with a non-cash curtailment gain recorded as a  result of freezing the Company’s U.S. defined benefit plans (See Note 11).                                                                                   |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                    |
| (2)    |   | Includes  $1,800 of income associated with the reduction in the reserve for respiratory  claims (See Note 13) and $2,966 of expense associated with plant relocations,  personnel reorganization and acquisition integration activities (See Note  14). |

 

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

 

**Unit Options**

** **

As of January 1,2002, the Predecessor had granted an aggregate of 21,124 options to purchase Class Aunits at $2.10 per unit, 31,239 options to purchase Class A units at $5.89per unit, 313,640 options to purchase Class C units at $5.89 per unit, and21,124 options to purchase preferred units at $3.90 per unit. Each issuanceapproximated fair market value at date of grant. As part of the NorcrossTransaction, all outstanding options were exercised with a realized value of$1,580.

 

**Unit AppreciationRights Plan**

** **

The Predecessor had aunit appreciation rights plan (Rights Plan), whereby the Board of Managers ortheir designee may issue to key employees up to 476,700 of unit appreciationrights. As of the date of the Norcross Transaction, 441,264 appreciation rightswere outstanding. Individuals vested in appreciated rights over four years (firstyear: 10%; second year: 20%; third year: 30%; and fourth year: 40%). Vestingaccelerated upon certain events, including a participant’s death and the saleof the NSP Holdings or an initial public offering. All appreciation rights wereissued at fair market value at the date of grant. As part of the NorcrossTransaction, all outstanding unit appreciation rights were exercised with arealized value of $2,720. This amount was recognized as management incentivecompensation by the Company in the period from January 1, 2005 through July 19,2005.

 

**RedeemablePreferred 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.

 

74

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In connection with an acquisition, the Predecessorissued additional mandatorily redeemable preferred units for $1,950,respectively. These preferred units also accrued dividends at a semiannualcompound rate of 10%, and were mandatorily redeemable by the Predecessor on September 30,2013.

 

For the period from January 1, 2005 through July 19,2005, the Predecessor classified $4,833 of preferred unit dividends as interestexpense.

 

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 thereturn of a portion of the original capital contribution made by holders of NSPHoldings preferred units (See Note 8). As part of the Norcross Transaction, alloutstanding accrued preferred yield and capital was funded to the preferredunit holders.

 

**Class E Units**

** **

The Predecessor authorized the issuance of 1,000 Class EUnits, which vest 6.25% quarterly. As of the date of the Norcross Transaction,986 Class E Units were issued to senior management of the Company for $1.The holders of Class E Units were entitled to distributions on the Company’sunits as defined in the Company’s Second Amended and Restated Limited LiabilityCompany Agreement. As part of the Norcross Transaction, the Predecessor funded$7,698 to the holders of Class E Units.

 

**CommonUnits**

** **

In addition to the preferred units and Class EUnites, 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.

 

**CommonShares**

** **

As of December 31, 2007, 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 the Class Aand Class C common and all preferred units of the borrowers, and wereclassified as reductions to members’ deficit.

 

In connection with an acquisition, certain membersof management 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 of December 31,2016, the sale of the Predecessor, or the occurrence of certain events, all asdefined in the notes. The promissory notes are collateralized by Class Acommon and preferred units of the borrowers and have been classified asreductions to members’ deficit.

 

The management loans were repaid as part of theNorcross Transaction.

 

**22.  ManagementIncentive Compensation**

** **

SafetyProducts’ Option Plan (as amended, the “Plan”) was adopted and approved by theBoard of Directors in December 2005, and provides for the issuance of upto 1,436,631 shares of common stock of Safety Products in connection with thegranting of non-qualified or incentive stock options. The principal purposes ofthe Plan are: 1) to further the growth, development and financial success ofSafety Products and its subsidiaries, by providing additional incentives toemployees, consultants and independent directors (as defined) of SafetyProducts and its subsidiaries and 2) to enable Safety Products and itssubsidiaries to obtain and retain the services of the type of professional,technical and managerial employees, consultants and independent directorsconsidered essential to the long-range success of Safety Products.

 

75

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Inthe first quarter of 2006, Safety Products granted a total of 1,213,559non-qualified options in connection with the Plan (the “Initial Grant”).Outstanding non-qualified stock options under the Initial Grant have anexpiration date ten years from the date of grant and have an exercise price of$10 per share. In the fourth quarter of 2006, Safety Products granted a totalof 132,000 non-qualified options in connection with the Plan (the “Second Grant”).Outstanding non-qualified stock options under the Second Grant have anexpiration date ten years from the date of grant and have an exercise price of$19.67 per share. In the second quarter of 2007, Safety Products granted atotal of 86,000 non-qualified options in connection with the Plan (the “ThirdGrant”). Outstanding non-qualified stock operation under the Third Grant havean expiration date ten years from the date of grant and have an exercise priceof $19.78 per share.

 

Allnon-qualified stock options were granted with an exercise price equal to thefair market value on the date of grant. The fair market value for the InitialGrant was consistent with the price paid by Odyssey as part of the NorcrossTransaction. The fair market values for the Second Grant and Third Grant weredetermined using a discounting cash flow analysis.

 

Duringthe year ended December 31, 2007, no options expired or were exercised.The Company did enter into a cancellation agreement in which the Company paid$35 to cancel 10,000 non-qualified options (vested and non-vested) grantedwithin the Initial Grant. This additional expense was reflected within $1,679of management incentive compensation for the year ended December 31, 2007.

 

Thenon-qualified stock options under the Initial Grant, Second Grant and ThirdGrant are scheduled to vest over an approximate eight year period. In addition,a portion of the non-qualified stock options are subject to accelerated vestingprovisions when certain performance targets are met. Through December 31,2007, all performance targets within the Initial Grant, Second Grant and ThirdGrant have been or are expected to be met. The non-qualified stock options aresubject to further acceleration clauses based on change in control provisions.As of December 31, 2007, 676,035 shares of non-qualified stock optionswere vested under Initial Grant, 43,996 shares of non-qualified stock optionswere vested under the Second Grant and 9,824 shares of non-qualified stockoptions were vested under the Third Grant.

 

Asof December 31, 2007, there was approximately $2,127, $650 and $651 ofunrecognized management incentive compensation related to nonvestednon-qualified stock options under the Initial Grant, Second Grant and ThirdGrant, respectively. The Company expects to recognize this management incentivecompensation over a weighted average period of 4.0 years under the InitialGrant, 3.0 years under the Second Grant and 4.5 years under the Third Grant.

 

TheCompany used the Black-Scholes option-pricing model to estimate the fair valueof each option grant as of the date of grant. Expected volatilities are basedon historical volatility of the common stock of comparable public companies.The Company estimated the expected life of the options based on the likelihoodof the achievement of performance targets, change in control provisions, andhistoric employee termination data. The risk-free interest rate is based onU.S. Treasury yields in effect at the time of grant. The estimatedweighted-average fair values of and related assumptions for options grantedwere as follows:

 
| ** **                                       | ** ** | **Initial  Grant** | ** ** | **Second  Grant** | ** ** | **Third  Grant** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-------------------|------------|------------------|------------|
| Weighted-average fair  value of options granted: |       |               |       |              |       |             |       |
| At fair value                                    |       | $                  | 3.95       |              | $          | 7.39             |       | $ | 8.55 |   |
|                                             |       |               |       |              |       |             |       |
| Assumptions:                                     |       |               |       |              |       |             |       |
| Dividend yield                                   |       | 0.0                | %          | 0.0               | %          | 0.0              | %          |
| Expected volatility                              |       | 40.0               | %          | 40.0              | %          | 40.0             | %          |
| Risk-free interest rate                          |       | 5.0                | %          | 4.6               | %          | 5.1              | %          |
| Expected life of option (years)                  |       | 5.0                |       | 4.0               |       | 5.5              |       |
|                                                  |            |                    |            |                   |            |                  |            |  |  |  |

 

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 Predecessor from proceeds realized upon theconsummation of the Norcross Transaction.

** **

76

----

 

**23.  SellerTransaction Expenses**

** **

NSP Holdings incurred $4,646 in transaction expensesrelated to professional services during the January 1, 2005 through July 19,2005 predecessor period. The expenses were funded by the Predecessor fromproceeds realized upon the consummation of the Norcross Transaction. Thesecosts are reflected within operating expenses as seller transaction expenses.

 

 

 

 

 

 

77

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

**(NSPHoldings L.L.C. as predecessor)**

**SCHEDULE I—CONDENSEDFINANCIAL INFORMATION**

**BALANCESHEETS**

**(Amounts inThousands)**

 
| ** **                                       | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2006**              | ** ** | **2007** | ** ** |
| **Assets**                                       | ** ** | ** **            | ** ** | ** ** | ** ** |
| Cash                                             |       | $                     | 700        |   | $ | 718 |   |
| Prepaid expenses and other  current assets       |       | 69                    |       | 63 |   |
| Total current assets                             |       | 769                   |       | 781 |   |
| Deferred financing costs,  net                   |       | 10,130                |       | 8,104 |   |
| Investment in subsidiary                         |       | 260,502               |       | 317,597 |   |
| Deferred income taxes                            |       | 4,002                 |       | 5,176 |   |
| Total assets                                     |       | $                     | 275,403    |   | $ | 331,658 |   |
|                                             |       |                  |       |   |   |
| **Liabilities and shareholders’  equity**   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Current liabilities:                             |       |                  |       |   |   |
| Accrued expenses                                 |       | $                     | 53         |   | $ | 119 |   |
| Current maturities of  long-term obligations     |       | (1,010                | )          | (1,148 | ) |
| Total current liabilities                        |       | (957                  | )          | (1,029 | ) |
| Long-term obligations                            |       | 149,474               |       | 169,382 |   |
| Shareholders’ equity:                       |       |                  |       |   |   |
| Common shares                                    |       | 110                   |       | 110 |   |
| Contributed capital                              |       | 111,883               |       | 113,527 |   |
| Retained earnings                                |       | 4,098                 |       | 16,503 |   |
| Accumulated other  comprehensive income          |       | 10,795                |       | 33,165 |   |
| Total shareholders’ equity                  |       | 126,886               |       | 163,305 |   |
| Total liabilities and  shareholders’ equity |       | $                     | 275,403    |   | $ | 331,658 |   |

 

*See notes to condensed financial statements.*

 

 

78

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

**(NSPHoldings L.L.C. as predecessor)**

**SCHEDULE I—CONDENSEDFINANCIAL INFORMATION**

**STATEMENTSOF OPERATIONS**

**(Amounts inThousands)**

 
| ** **                        | ** ** | **Predecessor**                                   | ** ** | **Successor**                                       | ** ** |
|-----------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                        | ** ** | **January 1,  2005  through  July 19,** | ** ** | **July 20,  2005  through  December 31,** | ** ** | **Year ended December 31,** | ** ** |
| ** **                        | ** ** | **2005**                                          | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2007** | ** ** |
| General and administrative        |       | $                                                 | (3,094     | )                                                   | $          | (113 | ) | $ | (326 | ) | $ | (185 | ) |
| Seller transaction expense        |       | (4,646                                            | )          | —                                              |       | — |   | — |   |
| Interest expense                  |       | (11,458                                           | )          | (8,156                                              | )          | (19,650 | ) | (21,795 | ) |
| Interest income                   |       | 450                                               |       | —                                              |       | — |   | 19 |   |
| Income tax (expense)  benefit     |       | (100                                              | )          | 2,457                                               |       | 6,944 |   | 7,623 |   |
| Equity in earnings of  subsidiary |       | 4,385                                             |       | 1,046                                               |       | 21,896 |   | 27,119 |   |
| Net (loss) income                 |       | $                                                 | (14,463    | )                                                   | $          | (4,766 | ) | $ | 8,864 |   | $ | 12,781 |   |

 

*See notes to consolidated financial statements.*

 

 

79

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**SAFETYPRODUCTS HOLDINGS, INC. (PARENT COMPANY ONLY)**

**(NSPHoldings L.L.C. as predecessor)**

**SCHEDULE I—CONDENSEDFINANCIAL INFORMATION**

**CONDENSEDSTATEMENTS OF CASH FLOWS**

**(Amounts inThousands)**

 
| ** **                                           | ** ** | **Predecessor**                                   | ** ** | **Successor**                                       | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **January 1,  2005  through  July 19,** | ** ** | **July 20,  2005  through  December 31,** | ** ** | **Year ended December 31,** | ** ** |
| ** **                                           | ** ** | **2005**                                          | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2007** | ** ** |
| **Operating activities**                             | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net cash (used in)  provided by operating activities |       | $                                                 | (667       | )                                                   | $          | 268 |   | $ | 2,315 |   | $ | 6,356 |   |
| **Investing activities**                             | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Investment in subsidiary                             |       | —                                            |       | (121,114                                            | )          | — |   | — |   |
| Advances from (to)  subsidiary                       |       | 567                                               |       | 728                                                 |       | (2,464 | ) | (6,338 | ) |
| Net cash provided by (used  in) investing activities |       | 567                                               |       | (120,386                                            | )          | (2,464 | ) | (6,338 | ) |
| **Financing activities**                             | ** ** | ** **                                        | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Payments for deferred  financing costs               |       | (3,246                                            | )          | (13,062                                             | )          | — |   | — |   |
| Payments from borrowings                             |       | 100,000                                           |       | 23,646                                              |       | — |   | — |   |
| Proceeds from capital  contribution                  |       | —                                            |       | 109,670                                             |       | 713 |   | — |   |
| Distribution of preferred  units                     |       | (60,000                                           | )          | —                                              |       | — |   | — |   |
| Distribution of common  units                        |       | (2,509                                            | )          | —                                              |       | — |   | — |   |
| Net cash provided by  financing activities           |       | 34,245                                            |       | 120,254                                             |       | 713 |   | — |   |
| Effect of exchange rate  changes on cash             |       | —                                            |       | —                                              |       | — |   | — |   |
| Net increase in cash and  cash equivalents           |       | 34,145                                            |       | 136                                                 |       | 564 |   | 18 |   |
| Cash and cash equivalents  at beginning of period    |       | —                                            |       | —                                              |       | 136 |   | 700 |   |
| Cash and cash equivalents  at end of period          |       | $                                                 | 34,145     |                                                | 136        |   | $ | 700 |   | $ | 718 |   |
|                                                      |            |                                                   |            |                                                     |            |  |  |  |  |  |  |  |  |

 

*See notes to consolidated financial statements.*

 

 

80

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**SAFETYPRODUCTS HOLDINGS, INC. (PARENT COMPANY ONLY)**

**(NSPHoldings L.L.C. as predecessor)**

**SCHEDULE I—CONDENSEDFINANCIAL INFORMATION**

**NOTES TOFINANCIAL STATEMENTS**

**THE PERIOD FROM JANUARY 1, 2005 THROUGH JULY 19, 2005,**

**THE PERIOD FROM July 20, 2005 THROUGH DECEMBER31, 2005 AND**

** THE YEARS ENDED DECEMBER 31, 2006 AND 2007**

 

**(Amounts inThousands, Except Units and Per Unit Data)**

 

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

 

On July 19, 2005, Norcross Safety Products L.L.C.(“Norcross”) announced the closing of the transaction under which it wasacquired by Safety Products Holdings, Inc. (the “Company” or “SafetyProducts”) a new holding company formed by Odyssey Investment Partners, LLC forthe purpose of completing the acquisition. Pursuant to the terms of thepurchase agreement, Safety Products purchased all of the outstanding membershipunits of Norcross and all of the outstanding common stock of NSP HoldingsCapital Corp. (“NSP Capital”), a wholly-owned subsidiary of NSP Holdings L.L.C.(“NSP Holdings”), and pursuant to which Safety Products assumed all of theoutstanding indebtedness of Norcross and NSP Holdings, in exchange for a basepurchase price to NSP Holdings of $472,000, plus the cash in Norcross as of April 2,2005 in the amount of approximately $16,900, less (1) the indebtedness ofNorcross and its subsidiaries as of April 2, 2005 and (2) certaintransaction fees and expenses.  The cashpurchase price was $204,488 including direct costs of acquisition of $2,346,and excluding assumed debt of $260,523. The acquisition of Norcross is referredto as the “Norcross Transaction”.

 

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

 

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

 

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

 

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

 

Safety Products accounts for its investment inNorcross under the equity method of accounting. Advances to or from Norcrossare included within the investment in subsidiary.

 

**4.**** Debt**

 

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

 

In connection with theclosing of the Norcross Transaction, the Company entered into a secondsupplemental indenture dated as of July 19, 2005 (the “Second SupplementalIndenture”) among NSP Holdings, NSP Capital, the Company and Wilmington TrustCompany, as trustee (the “Trustee”) under the indenture dated as of January 7,2005 (the “Indenture”) by and among NSP Holdings, NSP Capital and the Trusteeproviding for the issuance of the Senior Notes. Pursuant to the terms of theSecond Supplemental Indenture, the Company assumed all of the rights, powers,commitments, obligations and liabilities of NSP Holdings under the Indentureand the Senior Notes.

 

On July 19, 2005,the Company sold $25,000 in principal amount of 113⁄4% senior pay in kind notesdue 2012 (the “New Notes”). The New Notes were sold pursuant to a purchaseagreement, dated June 28, 2005 (the “Purchase Agreement”), by and betweenthe Company and Credit Suisse First Boston, LLC (the “Initial Purchaser”). TheNew Notes were issued pursuant to the Indenture. Pursuant to the term of thePurchase Agreement, the New Notes were sold to the Initial 

 

81

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Purchaser and were resoldto qualified institutional buyers in compliance with the exemption fromregistration.

 

**5.**** Redeemable PreferredUnits**

 

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. On January 7,2005, the Predecessor made a payment in respect of the preferred units of$60,000, $58,000 of which were payments in respect of accrued preferred yieldand $2,000 of which was the return of a portion of the original capitalcontribution made by holders of NSP Holdings preferred units (See Note 4). Aspart of the Norcross Transaction, all outstanding accrued preferred yield andcapital was funded to the preferred unit holders.

 

For the period from January 1, 2005 through July 19,2005, the Predecessor classified $4,833 of preferred unit dividends as interestexpense.

 

**6.**** Commitments andContingencies**

 

**Safety Products along with Norcross has guaranteed Norcross’obligations under Norcross’ senior credit facility, which consists of a termloan and revolving credit facilities, and secures its guarantee withsubstantially all of the Company’s assets, including the stock of Norcross. Asof December 31, 2007, there was $161,711 outstanding under the term loanat an interest rate of 7.3%. Norcross also had $2,446 of letters of creditoutstanding, in addition to $47,554 available for borrowings under therevolving credit facilities as of December 31, 2007.**

** **

 

 

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**SCHEDULE II — VALUATION ANDQUALIFYINGACCOUNTS 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 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 |   |
|                                                                                                      |       |                                           |       |                                                |       |                                       |       |                             |       |   |   |
| Reserve for inventory obsolescence for the year ended  December 31, 2007                             |       | 10,580                                         |       | 2,425                                               |       | 568                                        |       | (3,922                           | )          | 9,651 |   |
|                                                                                                           |            |                                                |            |                                                     |            |                                            |            |                                  |            |  |  |  |  |  |  |  |

 
| ** **                                                                                                   | ** ** | ** **                                                 | ** ** | **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 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 |   |
|                                                                                                         |       |                                                       |       |                                                      |       |                                             |       |                                 |       |   |   |
| Allowances for uncollectible accounts for the year ended  December 31, 2007                             |       | 2,323                                                      |       | 608                                                       |       | 146                                              |       | (745                                 | )          | 2,332 |   |
|                                                                                                              |            |                                                            |            |                                                           |            |                                                  |            |                                      |            |  |  |  |  |  |  |  |

 

**ITEM 9.**                             CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE

** **

None.

 

**ITEM 9A.**                    CONTROLS ANDPROCEDURES

** **

As of the end of the period covered by this report, weperformed an evaluation under the supervision and with the participation of ourmanagement including the chief executive officer and the chief financialofficer, of the effectiveness of our disclosure controls and procedures. Basedon that evaluation, our management, including the chief executive officer andchief financial officer, concluded that our disclosure controls and procedureswere effective. There have been no changes in internal control over financialreporting during our fourth fiscal quarter that have materially affected, orare reasonably likely to materially affect, our internal control over financialreporting.

 

 

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**Management’sReport on Internal Controls Over Financial Reporting**

 

Management isresponsible for the preparation, integrity and fair presentation of theconsolidated financial statements and notes to the consolidated financialstatements. The financial statements were prepared in accordance with theaccounting principles generally accepted in the United States and includecertain amounts based on management’s judgment and best estimates. Otherfinancial information presented is consistent with the financial statements.

 

Management is also responsiblefor establishing and maintaining adequate internal control over financialreporting. The Company’s internal control over financial reporting is designedunder the supervision of the Company’s principal executive and financialofficers in order to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles in theUnited States.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

Management assessed theeffectiveness of the Company’s internal control over financial reporting as of December 31,2007. In making this assessment, management used the criteria established in *Internal Control—Integrated Framework* issued by theCommittee of Sponsoring Organizations of the Treadway Commission.

 

Based on our assessmentand those criteria, management believes that the Company maintained effectiveinternal control over financial reporting as of December 31, 2007.

 

Thisannual report does not include an attestation report of Ernst & Young LLP,the Company’s registered public accounting firm, regarding internal controlover financial reporting. Management’s report was not subject to attestation byErnst & Young LLP pursuant to temporary rules of the SEC that permit the Companyto provide only management’s report in this annual report. 

 
| /s/ Safety Products Holdings, Inc. |   |   |
|-----------------------------------------|--------|--------|
|                                    |   |   |
| Oak Brook, Illinois                     |   |   |
| March 13, 2008                     |   |   |

** **

** **

** **

**84**

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** **

**ITEM 9B.       OTHER INFORMATION**

** **

None.

** **

 

 

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**PART III**

** **

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

** **

Our executive officers and the members of our board ofdirectors are as follows:

 
| **Name**                 | ** ** | **Age** | ** ** | **Position(s) held**                                                  |
|--------------------------|------------|---------|------------|----------------------------------------------------------------------------|
| Robert A. Peterson       |       | 51      |       | President and Chief Executive Officer, Director                            |
| David F. Myers, Jr. |       | 45      |       | Executive Vice President, Chief Financial Officer  and Secretary, Director |
| William J. Hayes         |       | 48      |       | President—General Safety and Preparedness                             |
| Charles S. Ellis         |       | 59      |       | President—North Worldwide                                             |
| Kenneth R. Martell       |       | 59      |       | Vice President and General Manager—Electrical Safety                  |
| Brian Kwait              |       | 46      |       | Director                                                                   |
| Craig P. Staub           |       | 36      |       | Director                                                                   |
| Matthew A. Satnick       |       | 28      |       | Director                                                                   |

 

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

 

*Robert A. Peterson*. Mr. Petersonhas served as our President and Chief Executive Officer since our formation in June 1995,and he also has served as a member of the board of directors since July 2005.Previously, from 1984 to 1991, Mr. Peterson held various senior positionsat Farley Industries, a diversified group of manufacturing companies with salesin excess of $2.5 billion and, from 1992 to 1993, was President of Wright Line,a technical furniture company. From 1994 to 1995, Mr. Peterson wasinvolved in strategic planning consulting for Farley Industries and MerchantPartners. He is also a CPA and a former manager of Ernst & Young. Mr. Petersonalso is a director of Actuant Corporation.

 

*David F. Myers, Jr.* Mr. Myers hasserved as our Executive Vice President, Chief Financial Officer and Secretarysince our formation in June 1995, and he also has served as a member ofthe board of directors since July 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 startedhis career at Ernst & Young in the corporate finance/restructuringconsulting practice. Mr. Myers is a CPA.

 

*WilliamJ. Hayes.* Mr. Hayeshas served as our President-General Safety and Preparedness since October 2006.Mr. Hayes was previously with Nitto Denko Corporation, where he served asPresident and Chief Executive Officer of Nitto Americas (Nitto Denko’s$350 million portfolio of U.S.—based manufacturing companies) and alsoserved as Corporate Vice President of Nitto Denko, a multi-billion dollarglobal business. Prior to joining Nitto Denko in 1994, Mr. Hayes served asGeneral Manager of Brady Coated Products Co., a unit of Brady Corp. Priorto joining Brady in 1987, Mr. Hayes worked for Johnson & Johnsonand Avery Dennison in a variety of positions.

* *

*Charles S. Ellis*. Mr. Ellis hasserved as our President-North Worldwide since December 2004 withresponsibility for the U.S., Canadian and European divisions of North SafetyProducts (except for KCL, which reports directly to our President-GeneralSafety and Preparedness). From June 2001 until December 2004, Mr. Ellisserved as our President—U.S. General Safety and Preparedness. Mr. Elliswas previously at Thomas and Betts Corporation, where he served as presidentfor the Lighting and Utility Division, a $320 million global business. Prior tojoining Thomas and Betts in 1996, Mr. Ellis was President and COO ofElastimold, a division of Eagle Corp. He also worked for WestinghouseElectrical Corporation in a variety of positions over 17 years.

 

*Kenneth R. Martell*. Mr. Martell hasserved as our Vice President and General Manager—Electrical Safety since August 1999.Mr. Martell has more than 30 years of manufacturing expertise. Prior tojoining us, he was an executive vice president and general manager of thePlews/Eddelman division of Stant Corporation. He has held executive positionsat Epicor Industries, Parker Hannifin and American Can Corporation.

 

*Brian Kwait*. Mr. Kwait hasserved as a member of the board of directors since July 2005. He is aManaging Principal at Odyssey Investment Partners, LLC and was a principal inthe private equity investing group of Odyssey Partners, L.P. from 1989 to1997. He also currently serves on the Board of Directors of Ranpak Holdings,Pro Mach, Inc. and Wastequip, Inc. Prior to joining Odyssey Partners,Mr. Kwait was a corporate finance associate at Bear, Stearns &Co., Inc. Prior to joining Bear Stearns, he was a senior accountant atErnst & Whinney. Mr. Kwait is a CPA.

 

 

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*Craig P. Staub**.**Mr. Staub has served as a member of the board ofdirectors since April 2006. Mr. Staub joined Odyssey InvestmentPartners, LLC in 2003 and also currently serves on the Board of Directors ofRanpak Holdings and Pro Mach, Inc. Prior to joining Odyssey, Mr. Staubwas a vice president at Westbury Equity Partners where he was responsible forexecuting and monitoring private equity investments. Previously, he was a vicepresident for The Shattan Group, a boutique investment bank and MarakonAssociates, a strategic consulting firm.*

 

*Matthew A. Satnick.*Mr. Satnick has servedas a member of the board of directors since March 2007. Mr. Satnickhas been an Associate at Odyssey Investment Partners, LLC since 2004. Prior tojoining Odyssey, Mr. Satnick was an Associate at Saunders Karp &Megrue, where he actively managed middle-market private equity investments.Prior to SKM, he was an Analyst at Lazard Fréres in the Restructuring Group,where he focused on advising financially distressed companies.

 

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

 

**Board Composition**

** **

Odyssey Investment Partners Fund III, LP (“OdysseyFund”) owns approximately 75% of the capital stock of Safety Products. See “Item12. Security Ownership of Certain Beneficial Owners and Management and RelatedStockholder Matters.” Thestockholders agreement among Safety Products, Odyssey Fund and Safety Products,LLC (“SPL”), which was entered into in July 2005, provides that the boardof directors of Safety Products will consist of five members or such othernumber as may be agreed upon by Odyssey Fund 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. The board ofdirectors of Safety Products and our board of directors have the same members. Threeof our five directors, Messrs. Kwait, Satnick and Staub, are members ofOdyssey, the general partner of Odyssey Fund. For more information, see “Item 13. Certain Relationships and RelatedTransactions, and Director Independence—Stockholders Agreement.”

 

**Committees of Our Board of Directors**

** **

Our board of directors has an audit committee. The auditcommittee consists of Messrs. Kwait and Staub, neither of whom qualifiesas an audit committee financial expert. However, the board believes that eachmember of the audit committee has demonstrated that he is capable of analyzingand evaluating our financial statements and understanding internal controls andprocedures for financial reporting. As the board believes that the currentmembers of the audit committee are qualified to carry out all of the duties andresponsibilities of the audit committee, the board does not believe that it isnecessary at this time to actively search for an outside person to serve on theboard of directors who would qualify as an audit committee financial expert. Inthe future, our board may establish other committees, as it deems appropriate,to assist it with its responsibilities.

 

**Code of Ethics**

** **

We have adopted a written code of ethics applicable toour principal executive officer, principal financial officer, principalaccounting officer and persons performing similar functions. The text of thiscode may be found on our Internet website, www.nspusa.com. We intend to postnotice of any waiver from, or amendment to, any provision of our code of ethicson our web site.

 

**ITEM 11.       EXECUTIVE COMPENSATION**

** **

**CompensationDiscussion 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, our board of directors does not have acompensation committee but may determine to form one in the future, which wouldlikely be comprised of certain of its non-employee directors and Mr. Peterson.

 

 

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Inconnection with the Norcross Transaction, affiliates of Odyssey negotiatedcompensation arrangements with certain of our named executive officers, and thecompensation paid to these executive officers, including the base salaries andperformance targets on which incentive compensation is based, reflects theresults of such negotiations. Additionally, certain of our named executiveofficers negotiated the terms of the 2005 Option Plan of Safety Products Holdings, Inc.(the “Option Plan”). The option grants and vesting schedule, as morespecifically set forth in the discussion entitled “Option Grants” under theGrants of Plan-Based Awards Table, are a result of such negotiations. Followingthe Norcross Transaction, decisions with respect to Mr. Peterson’s and Mr. Myers’compensation are made by our non-employee directors, and decisions regardingthe compensation of our remaining executive officers are made by ournon-employee directors, in consultation with our Chief Executive Officer.

 

Throughout this analysis, the individuals who servedas our Chief Executive Officer and Chief Financial Officer during 2007, as wellas other individuals included in the Summary Compensation Table, are referredto as the “named executive officers.”

 

**Compensation Objectives and Program Structure**. Ourcompensation determinations are made by our board of directors. The board isresponsible for determining the compensation elements and amounts paid to eachof the named executive officers. The primary objectives of our executivecompensation program are to:

 

·                  Attract andretain the best possible executive talent;

 

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

 

·                  Further thegrowth, development and financial success of the Company and its subsidiariesby aligning executives’ incentives with stockholder value creation.

 

**Elements of Compensation**. We have sought to createvalue for our stockholders 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 executivecompensation combines foundational elements such as base salary and benefits,an annual bonus and equity incentives such as participation in our Option Plan.Our executive compensation consists of the following components:

 

·                  Base salary

 

·                  Annual cash bonus; and

 

·                  Stock options.

 

**Base Salary**. Base salary is establishedbased on the experience, skills, knowledge and responsibilities required of theexecutive officers in their roles. We seek to maintain base salaries that arecompetitive with the marketplace, to allow us to attract and retain executivetalent. 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 arebased on evaluation of factors such as merit, the individual’s level ofresponsibility, performance level of compensation compared to comparablecompanies, and cost of living.

 

**Annual Cash Bonus**. The objective of theannual cash bonus incentive is to reward executive officers for the performanceof the Company and its subsidiaries as well as for individual performance. Theannual cash bonus is based on performance metrics, which vary among the namedexecutive officers and are set based on the annual budget. The bonus for Messrs. Petersonand Myers is based solely on a budget consolidated EBITDA. The bonus for Mr. Hayesis based on budget EBITDA of our general safety and preparedness segment. Thebonus for Mr. Ellis is based on the following budget performance targetswith respect to certain divisions of the general safety and preparednesssegment: EBITDA and net working capital. The bonus for Mr. Martell isbased on the following budget performance targets with respect to ourelectrical safety segment: EBITDA, net sales, inventory turns and fill rate. In2007, the bonus for Messrs. Hayes, Ellis and Martell also included adiscretionary payment based on their contributions to integration, processimprovement initiatives and other activities. For a more detailed descriptionof the annual cash bonus payments, please see the discussion entitled “Summaryof Grants of Plan-Based Awards.”

 

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**Option Plan**. All of our named executive officers have receivedequity compensation awards in the form of 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 to align the interests of our executiveofficers with our stockholders’ long-term interests by providing them withequity-based awards that vest over a period of time, with a portion subject toacceleration upon the satisfaction of performance conditions, and to rewardexecutive officers for performance. In connection with the NorcrossTransaction, the board adopted the Option Plan. Stock options granted by ushave an exercise price equal to the fair market value of our common stock onthe date of grant. Future grants of stock options will be at the discretion ofour board of directors. Because all of the options are non-qualified stockoptions, we will be entitled to a tax deduction in the year in which thenon-qualified stock option is exercised in an amount equal to the amount bywhich the fair market value of the shares underlying the option on the date ofexercise exceeds the option exercise price.

 

TheOption Plan is currently administered by the board of directors unless thatboard delegates administration to its compensation committee. The board has theauthority to determine to whom options will be granted, and to establish theterms and conditions of those grants. However, in no event may the exerciseprice of any option granted under the plan be less than the fair market valueof the shares underlying that option on the date the option is granted and nooption may have a term that exceeds 10 years. Additionally, neither the boardnor the compensation committee may exercise its discretion in a way that wouldprevent an incentive stock option from qualifying as such under Section 422of the Internal Revenue Code. The Option Plan and the underlying agreementsprovide, and will provide, that unless determined otherwise at the time theoption is granted, following termination of employment, options that have notpreviously become exercisable will not become exercisable and that the exerciseperiod of a vested (exercisable) option will generally be limited, providedthat vested options will be cancelled immediately upon a termination for cause.

 

Withthe exception of options granted to Messrs. Peterson and Myers, optionsgranted under the Option Plan may not be transferred other than by will orapplicable inheritance laws. Messrs. Peterson and Myers are permitted totransfer non-qualified options to children, grandchildren, spouse, siblings orparents (collectively, “Immediate Family Members”), or to bona fide trusts,partnerships or other entities controlled by and of which the onlybeneficiaries are Immediate Family Members. Shares of common stock of SafetyProducts acquired upon exercise of options are subject to the terms of theManagement Stockholders Agreement and, as a consequence, are generally nottransferable other than in accordance with that agreement.

 

Upona change in control all options that have previously become exercisable may beexercised in connection with that change in control. In addition, upon a changein control, previously unexercisable options will, or in the board’s discretionmay, become exercisable if a certain internal rate of return and a multiple ofinvestment dollars is achieved by Odyssey.

 

**Retirement Benefits**. Messrs. Ellisand 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 Ellis are participants in the NorthSafety Products, Inc. Benefit Restoration Plan (“Restoration Plan”), whichis a non-qualified unfunded defined benefit plan. Eligibility for this planincludes North Safety Products employees whose benefits are limited by theInternal Revenue Code or those employees selected by our board of directors.The NSP Pension Plan and the Restoration Plan were frozen for future benefitaccruals as of December 31, 2006. Prior to 2006, Messrs. Myers andPeterson were not participants in the Restoration Plan. In connection withentering into new employment agreements with Mr. Peterson and Mr. Myersas part of the Norcross Transaction, Safety Products agreed that it wouldextend to them the opportunity to participate in the Restoration Plan. Benefitsunder these plans are described in the Pension Benefits Table.

 

**Other Programs**. We also provide our named executive officers with life and medicalinsurance, 401(k) matching, a car allowance program and, in the case of Mr. Martell,contribution to W.H. Salisbury’s profit sharing plan in 2006.

 

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**Compensation Committee Report**

 

As we do not presently have a separately designatedCompensation Committee, our full board of directors has reviewed and discussedthe Compensation Discussion and Analysis as required by Item 402(b) ofRegulation S-K with management, and based on such review and discussions, haverecommended that the Compensation Discussion and Analysis be included in thisannual report.

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

 

 

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**Summary Compensation Table**

 

Thefollowing table summarizes the total compensation earned in 2007 and 2006 byour named executive officers:

 
| **Name and   Principal**                                                   | ** ** | ** ** | ** ** | **Salary**       | ** ** | **Bonus**      | ** ** | **Stock  Awards** | ** ** | **Option  Awards  ($)** | ** ** | **Non-Equity  Incentive Plan Compen-sation** | ** ** | **Change in  Pension Value and Nonqualified Deferred Compensation Earnings  ($)** | ** ** | **All  Other Compen-sation  ($)** | ** ** | **Total  ($)**       | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|------------------|------------|----------------|------------|-------------------|------------|-------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|----------------------|------------|
| **Position**                                                                    | ** ** | **Year**   | ** ** | **($)**          | ** ** | **($)**        | ** ** | **($)**           | ** ** | **(f)**                 | ** ** | **($)**                                      | ** ** | **(h)**                                                                                     | ** ** | **(i)**                           | ** ** | **(j)**              | ** ** |
| **(a)**                                                                         | ** ** | **(b)**    | ** ** | **(c)**          | ** ** | **(d)**        | ** ** | **(e)**           | ** ** | **(6)**                 | ** ** | **(g)**                                      | ** ** | **(11)**                                                                                    | ** ** | **(12)**                          | ** ** | **(13)**             | ** ** |
| ** **                                                                      | ** ** | ** ** | ** ** | ** **       | ** ** | ** **     | ** ** | ** **        | ** ** | ** **              | ** ** | ** **                                   | ** ** | ** **                                                                                  | ** ** | ** **                        | ** ** | ** **           | ** ** |
| Robert A. Peterson,  President and Chief Executive Officer                      |       | 2007  2006 |       | 625,000  570,000 |       | —  — |       | —  —    |       | 494,566  749,721        |       | 622,125  499,662                             | (7)  (7)   | 26,388  621,216                                                                             |       | 18,048  16,548                    |       | 1,786,127  2,457,147 |       |
| David F.  Myers, Jr., Executive Vice President and Chief Financial Officer |       | 2007  2006 |       | 435,000  395,000 |       | —  — |       | —  —    |       | 320,013  485,113        |       | 433,000  346,257                             | (7)  (7)   | 4,080  307,620                                                                              |       | 18,048  16,548                    |       | 1,210,141  1,550,538 |       |
| William J. Hayes,  President-General Safety and Preparedness                    |       | 2007  2006 |       | 390,000  72,115  |       | 16,575  88,000 | (3)  (3)   | —  —    |       | 295,597  —         |       | 351,390  71,320                              | (8)  (8)   | —  —                                                                              |       | 18,048  2,048                     |       | 1,071,610  233,483   |       |
| Charles S. Ellis,  President - North Worldwide                                  |       | 2007  2006 |       | 316,582  299,457 | (1)  (1)   | 24,001  40,800 | (4)  (4)   | —  —    |       | 61,742  93,596          |       | 159,364  190,402                             | (9)  (9)   | 23,196  74,052                                                                              |       | 16,848  14,448                    |       | 601,733   712,755    |       |
| Kenneth R.  Martell, Vice President and General Manager-Electrical Safety       |       | 2007  2006 |       | 209,612  197,753 | (2)  (2)   | 10,430  33,500 | (5)  (5)   | —  —    |       | 61,102  35,999          |       | 89,570  91,500                               | (10)  (10) | 12,060  22,428                                                                              |       | 16,848  22,848                    |       | 399,622  404,028     |       |

 

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(1)                  Mr. Ellis’base salary was increased on March 1, 2006 from $287,834 to $302,225 andincreased on March 1, 2007 from $302,225 to $320,008. The salaries setforth above represent the amounts earned by Mr. Ellis in 2006 and 2007.

 

(2)                  Mr. Martell’sbase salary was increased on March 1, 2006 from $190,077 to $199,577 andincreased on March 1, 2007 from $199,577 to $212,000. The salaries setforth above represent the amounts earned by Mr. Martell in 2006 and 2007.

 

(3)                  The2007 amount represents a discretionary bonus paid to Mr. Hayes for theimplementation of process improvement initiatives. The 2006 amount represents asign-on bonus paid to Mr. Hayes as part of his employment contract.

 

(4)                  Representsdiscretionary bonus payments paid to Mr. Ellis. See Summary of Grants ofPlan-Based Awards for further information.

 

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(5)                  The2006 and 2007 amounts represent discretionary bonuses paid to Mr. Martellfor acquisition integration initiatives.

 

(6)                  Thiscolumn represents the dollar amount recognized for financial statementreporting purposes with respect to the specified year for the fair value ofstock options granted to each of the named executives in such year as well asprior years, in accordance with SFAS 123R, except that, in accordance with theSEC’s rules the amounts shown exclude the impact of estimated forfeituresrelated to service-based vesting conditions. For additional information, referto Note 22 of the consolidated financial statements for the year ended December 31,2007. See the Grants of Plan-Based Awards Table for information on awards madein a given year. These amounts reflect our accounting expense for these awards,and do not correspond to the actual value that will be recognized by the namedexecutive officers.

 

(7)                  Representsbonus payments paid based on the achievement of budget consolidated EBITDA. See“Summary of Grants of Plan-Based Awards” for further information.

 

(8)                  Representsbonus payments paid based on the achievement of budget targets with respect to EBITDAof our general safety and preparedness segment. See “Summary of Grants ofPlan-Based Awards” for further information.

 

(9)                  Representsbonus payments paid based on the achievement of budget targets with respect toEBITDA and net working capital of certain divisions of the general safety andpreparedness segment. See “Summary of Grants of Plan-Based Awards” for furtherinformation.

 

(10)            Representsbonus payments paid based on the achievement of budget targets with respect to:EBITDA, net sales, inventory turns, and fill rate of our electrical safetysegment. See “Summary of Grants of Plan-Based Awards” for further information.

 

(11)            Representsthe change in actuarial present value of the named executive’s accumulatedbenefit under the Norcross Safety Products L.L.C. Employees’ Pension Plan andthe 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 theRestoration Plan prior to 2006. Amounts for Messrs. Peterson and Myerstherefore reflect the full amount of the pension benefits to which they becameentitled in connection with the negotiation of their employment agreements inconnection with the Norcross Transaction.

 

(12)            Thedollar value of the amounts shown in this column includes the following for2007:

 
| **Named Executive  Officer** | ** ** | **Car Allowance  ($)** | ** ** | **Matching  Contributions  Under  401(k) Plan  ($)** | ** ** | **Life Insurance  and AD&D  Premiums  ($)** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Robert A. Peterson                |       | 8,400                       |       | 9,000                                                     |       | 648                                                       |       |
| David F. Myers, Jr.          |       | 8,400                       |       | 9,000                                                     |       | 648                                                       |       |
| William J. Hayes                  |       | 8,400                       |       | 9,000                                                     |       | 648                                                       |       |
| Charles S. Ellis                  |       | 7,200                       |       | 9,000                                                     |       | 648                                                       |       |
| Kenneth R. Martell                |       | 7,200                       |       | 9,000                                                     |       | 648                                                       |       |

 

(13)            Thesalary and bonus received and reported in the Summary Compensation Table for2007 represents the following percentages of the total compensation receivedand reported for each named executive officer: Mr. Peterson - 70%, Mr. Myers- 72%, Mr. Hayes - 71%, Mr. Ellis - 83% and Mr. Martell - 77%.

 

**Summary of 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 Executive Officer for aperiod of five years. Under the terms of this agreement Mr. Peterson isentitled to receive a base salary, as adjusted on January 1, 2007, of $625,000,a $700 per month automobile allowance, reimbursement for reasonable expenses,participation in the benefit programs (including participation in theRestoration Plan) Norcross has in place for its employees who are not membersof a collective bargaining unit (on a basis 

 

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commensuratewith his position), and four calendar weeks of vacation per year. Pursuant tothe terms of his agreement, for a period of eighteen months following thetermination of Mr. Peterson’s employment, he shall be subject to anon-competition provision which states that Mr. Peterson cannot, withoutthe prior written consent of Norcross, directly or indirectly participate inany line of business that is competitive with Norcross. For purposes of thenon-competition provision, “participate” means direct or indirect ownership orassistance to any enterprise, excluding ownership of less than 2% of a class ofsecurities on a national securities exchange or NASDAQ. The non-competitionprovision is limited in geographic scope to the United States and any othercounty in which Norcross does business. Upon termination, Mr. Peterson isalso subject to an eighteen-month non-solicitation provision, which isapplicable to customers, suppliers, business relations and employees ofNorcross. Notwithstanding the foregoing, in the event Mr. Peterson’semployment with Norcross is terminated, he is permitted to solicit theemployment of his personal assistant and Mr. Myers. In connection with theNorcross Transaction, in addition to the capital stock purchased by Mr. Peterson,Safety Products agreed to issue to Mr. Peterson options to purchase sharesof capital stock of Safety Products equal to 4.25% of its fully diluted equity,which grants were made on January 2, 2006.

 

***David F. Myers, Jr.***Norcross entered an employment agreement, dated asof May 20, 2005, with Mr. Myers, pursuant to which he serves as ourExecutive Vice President and Chief Financial Officer on substantially the sameterms as those contained in Mr. Peterson’s employment agreement, exceptthat (1) his base salary, as adjusted on January 1, 2007, is $435,000, (2) thenon-solicitation provision contained in Mr. Myers’ agreement provides anexception 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,Safety Products agreed to issue to Mr. Myers options to purchase shares ofcapital stock of Safety Products equal to 2.75% of its fully diluted equity,which grants were made on January 2, 2006.

 

**William J. Hayes**. Norcrossentered into an employment agreement, dated as of September 8, 2006, with Mr. Hayes,pursuant to which he serves as President-General Safety and Preparedness. Underthe terms of this agreement, Mr. Hayes is entitled to receive a basesalary, as adjusted on January 1, 2007, of $390,000, a $700 per monthautomobile allowance, participation in all employee benefits plans for whichsenior executives are eligible, and four calendar weeks of vacation per year.

 

***Charles S. Ellis***.Our subsidiary, North Safety, entered into anemployment agreement, dated as of May 20, 2005, with Mr. Ellis,pursuant to which he serves as President-North Worldwide for an initial term ofthree years. Under the terms of this agreement, Mr. Ellis is entitled to receivea base salary, as adjusted on March 1, 2007, of $320,008, a $600 per monthautomobile allowance, participate in all employee benefits plans for whichsenior executives of North Safety are eligible, and three calendar weeks ofvacation per year. Pursuant to the terms of his agreement, for a period ofeighteen months following the termination of Mr. Ellis’ employment, heshall be subject to (1) a non-competition provision, which has no limit ingeographic scope and (2) a non-solicitation provision, which is applicableto customers, suppliers and employees of North Safety.

 

**Kenneth R. Martell**. Ourelectrical safety segment entered into an employment agreement in August 1999with Mr. Martell pursuant to which he serves as Vice President and GeneralManager. Under the terms of this agreement, Mr. Martell is entitled toreceive a base salary, as adjusted on March 1, 2007, of $212,000. Mr. Martellis also entitled to participate in all employee benefits plans for which seniorexecutives are eligible, a $600 per month automobile allowance and threecalendar weeks of vacation per year.

 

OnJune 30, 2007, Safety Products entered into an agreement with ourelectrical safety segment and Mr. Martell regarding Mr. Martell’sfuture retirement from his position as Vice President and General Manager ofour electrical safety segment, and any other offices, positions and titles heholds with the Company or any of its affiliates. The effective date of Mr. Martell’sretirement will be March 31, 2008 (the “Resignation Date”). Assuming Mr. Martellretires on the Resignation Date, he shall be entitled to receive, through theclose of business on December 31, 2008, health care benefits and anautomobile allowance as currently provided in his employment agreement, andpayments totaling $166,500. Further, assuming Mr. Martell retires on theResignation Date, his then outstanding options shall be eligible to continue tovest, subject to the satisfaction of certain conditions, during the periodbeginning on the Resignation Date and ending on December 31, 2008, as ifhe was still an employee of the Company during such period. The terms of Mr. Martell’sretirement agreement were conditioned upon his execution and delivery of ageneral release in favor of Norcross and Safety Products, concurrently with hisexecution of the retirement agreement.

 

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**Grants of Plan-Based Awards**

 

Thefollowing table summarizes information regarding awards granted under theCompany’s equity and non-equity incentive plans during 2007:

 
| ** **               | ** ** | ** ** | ** ** | ** **                                        | ** ** | ** **                 | ** ** | ** **                     | ** ** | **All Other  Option** | ** ** | ** ** | ** ** | ** **     | ** ** |
|--------------------------|------------|------------|------------|---------------------------------------------------|------------|----------------------------|------------|--------------------------------|------------|----------------------------|------------|------------|------------|----------------|------------|
| ** **               | ** ** | ** ** | ** ** | **Estimated Possible Payouts**          | ** ** | **Awards:  Number of**     | ** ** | **Exercise or**           | ** ** | **Grant Date**             | ** ** |
| ** **               | ** ** | ** ** | ** ** | **Under Non-Equity Incentive  Plan(1)** | ** ** | **Securities  Underlying** | ** ** | **Base Price  of Option** | ** ** | **Fair Value  of Stock**   | ** ** |
| ** **               | ** ** | **Grant**  | ** ** | **Threshold**                                     | ** ** | **Target**                 | ** ** | **Maximum**                    | ** ** | **Options**                | ** ** | **Awards** | ** ** | **and Option** | ** ** |
| **Name**                 | ** ** | **Date**   | ** ** | **($)**                                           | ** ** | **($)**                    | ** ** | **($)**                        | ** ** | **(#)**                    | ** ** | **($/Sh)** | ** ** | **Awards**     | ** ** |
| **(a)**                  | ** ** | **(b)**    | ** ** | **(c)**                                           | ** ** | **(d)**                    | ** ** | **(e)**                        | ** ** | **(j)**                    | ** ** | **(k)**    | ** ** | **(l)**        | ** ** |
| Robert A. Peterson       |       | 1/1/07     |       | —                                            |       | 562,500                    |       | 703,125                        |       | —                     |       | —     |       | —         |       |
| David F. Myers, Jr. |       | 1/1/07     |       | —                                            |       | 391,500                    |       | 489,375                        |       | —                     |       | —     |       | —         |       |
| William J. Hayes         |       | 1/1/07     |       | —                                            |       | 331,500                    |       | 414,375                        |       | —                     |       | —     |       | —         |       |
| Charles S. Ellis         |       | 1/1/07     |       | —                                            |       | 192,005                    |       | 240,006                        |       | —                     |       | —     |       | —         |       |
| Kenneth R. Martell       |       | 1/1/07     |       | —                                            |       | 106,000                    |       | 132,500                        |       | —                     |       | —     |       | —         |       |

 

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(1)                  Suchamounts represent the target and maximum amounts possible under the annual cashbonuses for 2007. For a more detailed description of the bonus targets andmaximums, please see the discussion entitled “Summary of Grants of Plan-BasedAwards” below.

 

**Summary of Grants of Plan-Based Awards**

 

**Bonus Payments for Messrs Peterson and Myers**. The targetbonus for each of Mr. Peterson and Mr. Myers was based on theachievement of a budget consolidated EBITDA of $97,873,000. The target bonuspayable to each of Messrs. Peterson and Myers was equal to 90% of suchexecutive’s base salary. The maximum amount of bonus available to Messrs. Petersonand Myers was equal to 125% of such executive’s target bonus in the event110%-120% of the target EBITDA was achieved, declining ratably to 100% of thetarget bonus if 100% of the target EBITDA was achieved, and declining to 0% ofthe target bonus if less than 90% of the target EBITDA was achieved. For 2007,these targets were 105.2% achieved and Mr. Peterson and Mr. Myersreceived the bonuses set forth in the Summary Compensation Table.

 

**Bonus Payments for Mr. Hayes**.****The targetbonus for Mr. Hayes was based on the achievement of a budget EBITDA of ourgeneral safety and preparedness segment of $67,548,000. The target bonus for Mr. Hayeswas equal to 85% of his base salary. The maximum amount of bonus available to Mr. Hayeswas equal to 125% of such executive’s target bonus in the event 110%-120% ofthe target EBITDA was achieved, declining ratably to 100% of the target bonusif 100% of the target EBITDA was achieved, and declining to 0% of the targetbonus if less than 90% of the target EBITDA was achieved. For 2007, thesetargets were 103.0% achieved and Mr. Hayes received the bonus set forth inthe Summary Compensation Table.

 

**Bonus Payments for Mr. Ellis**. The targetbonus for Mr. Ellis was equal to 60% of his base salary and was based onthe achievement of the following budget performance targets with respect tocertain divisions of the general safety and preparedness segment: target EBITDAof $61,754,000 and net working capital of 28.8% of net sales, with the EBITDAcomponent comprising 60% of the target bonus and the net working capitalcomponent comprising 40% of the target bonus. Mr. Ellis was eligible toreceive up to an additional 15% of his base salary as a discretionary bonus.The maximum amount of bonus available to Mr. Ellis was equal to 125% ofhis target bonus in the event 110%-120% of the performance targets wereachieved, declining ratably to 100% of the target bonus if 100% of theperformance targets were achieved, and declining to 0% of the target bonus ifless than 90% of the performance targets were achieved. For 2007, 96.2% of theEBITDA and net working capital targets were achieved and Mr. Ellisreceived the bonus set forth in the Summary Compensation Table. In addition, Mr. Elliswas paid the discretionary bonus set forth in the Summary Compensation Tablefor launching process improvement initiatives and integration activities.

 

**Bonus Payments for Mr. Martell**. The targetbonus for Mr. Martell was equal to 40% of his base salary and was based onthe achievement of the following budget performance targets with respect to ourelectrical safety segment: EBITDA of $26,445,000, net sales of $91,410,000 andthe achievement of inventory turns and fill rate, with the EBITDA component 

 

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comprising70% of the target bonus, the net sales component comprising 10% of the targetbonus, the inventory turns component comprising 15% of the target bonus and thefill rate component comprising 5% of the target bonus. The maximum amount ofbonus available to Mr. Martell was equal to 125% of his target bonus inthe event 110%-120% of the performance targets were achieved, declining ratablyto 100% of the target bonus if 100% of the performance targets were achieved,and declining to 0% of the target bonus if less than 90% of the performancetargets were achieved. For 2007, 96.7% of these targets were achieved and Mr. Martellreceived the bonus set forth in the Summary Compensation Table.

 

**Option Grants for Messrs. Peterson, Myers, Ellis andMartell**. Options are subject to time vesting and are conditioned uponcontinual employment in active service. For Messrs. Peterson, Myers, Ellisand Martell, one-third of the options covered by the grant vest in five installments,with 4.1333% of the grant amount vesting on the grant date and an additional7.29925% vesting in each of the four fiscal years from 2006 through 2009 (witheach such annual installment vesting quarterly on the last day of each calendarquarter). The remaining two-thirds of the options covered by the grant becomeexercisable on the day immediately preceding the eighth anniversary of thegrant date; however the vesting on this portion of the option award is subjectto acceleration if the EBITDA-based targets set forth in the grant agreementare 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 became 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 anycalendar year 2006 through 2009, the portion of the option that was subject toacceleration will become exercisable on, or within 120 days following, thefirst December 31 on which the EBITDA-based target for such year is metand the cumulative EBITDA-based target is met.

 

**Option Grants for Mr. Hayes**.****ForMr. Hayes, one-third of the options covered by the grant vest in threeinstallments, with 11.11% vesting in each of the three fiscal years from 2007through 2009 (with each such annual installment vesting quarterly on the lastday of each calendar quarter). The remaining two-thirds of the options coveredby the grant become exercisable on the day immediately preceding the eighthanniversary of the grant date; however the vesting on this portion of theoption award is subject to acceleration if the EBITDA-based targets set forthin the grant agreement are met. With respect to the two-thirds for whichvesting is subject to acceleration, the grant agreement provides that aninstallment consisting of 22.22% would become exercisable on or within 120 daysfollowing December 31 of each calendar year 2007 through 2009, if theEBITDA-based target for the year was met. If the targets are not met for anycalendar year 2007 through 2009, the portion of the option that was subject toacceleration will become exercisable on, or within 120 days following, thefirst December 31 on which the EBITDA-based target for such year is metand the cumulative EBITDA-based target is met.

 

Forpurposes of our option vesting schedule and the bonus payment calculations,EBITDA means the sum of (a) the sum of (i) Adjusted EBITDA (whichrepresents EBITDA adjusted for management incentive compensation; (gain) losson sale of property, plant and equipment; inventory purchase accountingadjustments; non-cash pension curtailment gain and seller transactionexpenses), plus (ii) any LIFO reserve adjustment (whether positive ornegative), plus (iii) unrealized foreign exchange gains or losses, plus (iv) othernon-recurring or extraordinary gains or losses, plus (b) any management orsimilar fees charged to the Company by any principal stockholder (but only tothe extent that such fees are deducted from the earnings described in clause (a) abovebut excluding reimbursement of any reasonable out of pocket fees andexpenses).  EBITDA may be adjusted toreflect the impact of acquisitions.

 

Thespecific EBITDA and Cumulative 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 Awards at Fiscal Year-End**

 

Thefollowing table summarizes the outstanding equity awards held by our named executiveofficers for 2007:

 
| ** **               | ** ** | **Option Awards** | ** ** |
|--------------------------|------------|------------------------|------------|
| ** **               | ** ** | ** **             | ** ** | ** ** | ** ** | **Equity** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | ** **             | ** ** | ** ** | ** ** | **Incentive** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | ** **             | ** ** | ** ** | ** ** | **Plan** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | ** **             | ** ** | ** ** | ** ** | **Awards:** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Number**             | ** ** | **Number** | ** ** | **Number** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **of**                 | ** ** | **of** | ** ** | **of** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Securities**         | ** ** | **Securities** | ** ** | **Securities** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Underlying**         | ** ** | **Underlying** | ** ** | **Underlying** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Unexercised**        | ** ** | **Unexercised** | ** ** | **Unexercised** | ** ** | **Option** | ** ** | ** ** | ** ** |
| ** **               | ** ** | **Options**            | ** ** | **Options** | ** ** | **Unearned** | ** ** | **Exercise** | ** ** | **Option** | ** ** |
| ** **               | ** ** | **(#)**                | ** ** | **(#)** | ** ** | **Options** | ** ** | **Price** | ** ** | **Expiration** | ** ** |
| **Name**                 | ** ** | **Exercisable**        | ** ** | **Unexercisable** | ** ** | **(#)** | ** ** | **($)** | ** ** | **Date** | ** ** |
| **(a)**                  | ** ** | **(b)**                | ** ** | **(c)** | ** ** | **(d)** | ** ** | **(e)** | ** ** | **(f)** | ** ** |
| ** **               | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Robert A. Peterson       |       | 290,044                | (1)(2)     | 230,617 | (3) | — |   | 10.00 |   | 1/2/16 |   |
| David F. Myers, Jr. |       | 187,675                | (1)        | 149,223 | (3) | — |   | 10.00 |   | 1/2/16 |   |
| William J. Hayes         |       | 40,000                 | (4)        | 80,000 | (5) | — |   | 19.67 |   | 10/16/16 |   |
| Charles S. Ellis         |       | 36,209                 | (1)        | 28,791 | (3) | — |   | 10.00 |   | 1/2/16 |   |
| Kenneth R. Martell       |       | 13,927                 | (1)        | 11,073 | (6) | — |   | 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 theshares covered by the option grant, which vested as of December 31, 2006,plus (iii) 7.29000% of the shares covered by the option grant, which weresubject to accelerated vesting as of March 31, 2006 based on theachievement of the applicable EBITDA target as set by the board, plus (iv) 14.8425%of the shares covered by the option grant, which were subject to acceleratedvesting as of December 31, 2006 based on the achievement the applicableEBITDA target as set by the board, plus (v) 7.29925% of the shares coveredby the option grant, which vested as of December 31, 2007, plus (vi) 14.8425%of the shares covered by the option grant, which were subject to acceleratedvesting as of December 31, 2007 based on the achievement the applicableEBITDA target as set by the board.

 

(2)                  OnDecember 31, 2007, Mr. Peterson transferred a portion of his vested optionsrepresenting the right to acquire 50,000 shares of the Company’s common stockto various trusts held for the benefit of his children.

 

(3)                  Unexercisableoptions will vest as follows: (i) an installment consisting of 7.29925% ofthe shares covered by the option grant shall become exercisable at the rate of25% of the installment on the last day of each calendar quarter for each yearending December 31, 2008 and 2009; (ii) 29.685% of the shares subjectto the option grant shall become fully exercisable on January 1, 2014,provided that the optionee remains continuously employed through such date,provided further that an installment consisting of 14.8425% of the sharescovered by the option grant shall be subject to accelerated vesting on orwithin 120 days following December 31 of each calendar year 2008 and 2009,if the EBITDA as of such December 31 equals or exceeds the applicableEBITDA target for such year as set by the board.

 

(4)                  Exercisableoptions are comprised of (i) 11.11% of the shares, which vested as of December 31,2007, plus (ii) 22.22% of the shares covered by the option grant, whichwere subject to accelerated vesting as of December 31, 2007 based on theachievement the applicable EBITDA target as set by the board.

 

(5)                  Unexercisableoptions will vest as follows: (i) an installment consisting of 11.11% ofthe shares covered by the option grant shall become exercisable at the rate of25% of the installment on the last day of each calendar quarter for each yearending December 31, 2008 and 2009; (ii) 44.44% of the shares subjectto the option grant shall become fully exercisable on January 1, 2015,provided that the optionee remains continuously employed through such date,provided further that an installment consisting of 22.22% of the shares coveredby the option grant shall be subject to accelerated vesting on or within 120days following December 31 of each calendar year 2008 and 2009, if theEBITDA as of such December 31 equals or exceeds the applicable EBITDAtarget for such year as set by the board.

 

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(6)                  Unexercisableoptions will vest as follows: (i) an installment consisting of 7.29925% ofthe shares covered by the option grant shall become exercisable at the rate of25% of the installment on the last day of each calendar quarter for the yearending December 31, 2008; (ii) 14.8425% of the shares covered by theoption grant shall be subject to accelerated vesting on or within 120 daysfollowing December 31 of the calendar year 2008, if the EBITDA as of such December 31equals or exceeds the applicable EBITDA target for such year as set by theboard. The remaining unvested options will be cancelled as of December 31,2008. See Summary of Employment Agreements.

 

**Option Exercises and Stock Vested**

 

Therewere no options exercised in 2007.

 

**PENSION BENEFITS TABLE**

 
| ** **               | ** ** | ** **                                                                                                 | ** ** | **Number of  Years of** | ** ** | **Present Value of** | ** ** | **Payments During**   | ** ** |
|--------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|--------------------------------|------------|----------------------------|------------|
| ** **               | ** ** | ** **                                                                                                 | ** ** | **Credited  Service**             | ** ** | **Accumulated  Benefit**       | ** ** | **Last  Fiscal Year** | ** ** |
| **Name**                 | ** ** | **Plan Name**                                                                                         | ** ** | **(#)**                           | ** ** | **($)**                        | ** ** | **($)**                    | ** ** |
| **(a)**                  | ** ** | **(b)**                                                                                                    | ** ** | **(c)**                           | ** ** | **(d)**                        | ** ** | **(e)**                    | ** ** |
| Robert A. Peterson       |       | North  Safety Products   Benefit Restoration Plan                                                          |       | 11.7                              |       | 647,604                        |       | —                     |       |
| David F. Myers, Jr. |       | North  Safety Products   Benefit Restoration Plan                                                          |       | 11.5                              |       | 311,700                        |       | —                     |       |
| William J. Hayes         |       | 3⁄4                                                                                                     |       | 3⁄4                            |       | 3⁄4                         |       | 3⁄4                     |       |
| Charles S. Ellis         |       | Norcross  Safety Products   L.L.C. Employees Pension Plan  North Safety Products  Benefit Restoration Plan |       | 5.5  5.5                          |       | 117,912  158,628               |       | —                     |       |
| Kenneth R. Martell       |       | W.H.  Salisbury & Co.  Employees Pesion Plan                                                      |       | 7.4                               |       | 168,156                        |       | —                     |       |

 

**Norcross Safety Products L.L.C.Employees’ Pension Plan***.*****Messrs. Ellisand Martell participate in the Norcross Safety Products L.L.C. Employees’Pension Plan (the “NSP Pension Plan”), which is a tax-qualified defined benefitplan. Mr. Ellis’ benefits are determined by the North Safety Benefitformula and Mr. Martell’s benefits are determined by the W.H. SalisburyBenefit formula as described below. Under the terms of the NSP Pension Plan,eligibility for Normal Retirement is age 65. Eligibility for Early Retirementfor employees of North Safety Products is age 55 with ten years of service.Eligibility for Early Retirement for employees of W. H. Salisbury is age 62with twenty years of service. As of December 31, 2007 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 earnedafter December 31, 2006.

 

NorthSafety Benefits under the NSP Pension Plan are calculated based on (1) theemployee’s average monthly compensation for the five consecutive calendar yearsfor which the participant’s aggregate compensation was greatest and (2) theemployee’s years of credited service. Compensation includes total cashcompensation required to be reported on Form W-2, plus any compensation deferredunder Section 401(k) of the Internal Revenue Code, plus anycompensation reductions under a plan pursuant to Section 125 of theInternal Revenue Code, but excluding reimbursements, other expense allowances,fringe benefits, deferred compensation and welfare benefits. Compensation issubject to Internal Revenue Code limitations. The monthly benefits calculatedfor Mr. Ellis under the North Safety formula equals:

 

·                  1.0% of the participant’saverage final monthly compensation, plus 0.5% of the participant’s averagefinal monthly compensation in excess of covered compensation, multiplied byyears and partial years of credited service limited to 35 years on the excessportion.

 

W.H.Salisbury Benefits under the NSP Pension Plan are calculated based on (1) theemployee’s average monthly compensation for the three consecutive years out ofthe last 10 years which yields the highest average and (2) the employee’syears of credited service. Compensation includes all amounts paid for servicesrendered in the course of employment 

 

97

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excludingcertain amounts which receive special tax benefits defined under the plan.Compensation is subject to Internal Revenue Code limitations. The monthlybenefits calculated for Mr. Martell under the W.H. Salisbury formulaequals:

 

·                  1.63% of the participant’saverage final monthly compensation, plus 0.65% of the participant’s averagefinal monthly compensation in excess of covered compensation, multiplied byyears and partial years of credited service limited to 20 years; less

 

·                  profit sharing accountbalance which could be received as a straight life annuity provided to theparticipant under W.H. Salisbury & Co.’s defined contribution plan.

 

**North Safety Products BenefitRestoration Plan**.******Messrs. Ellis,Myers and Peterson participate in a non-qualified, unfunded defined benefitplan (the “Restoration Plan”). Eligibility for this plan includes North SafetyProducts employees whose benefits are limited by the Internal Revenue Code orthose employees selected by Safety Products board of directors. The RestorationPlan provides a supplemental benefit equal to the maximum benefit amount thatthe participant would have received under the NSP Pension Plan if (1) therewere no limitations on the maximum benefits payable under the NSP Pension Plan,and (2) if certain Internal Revenue Code limitations did not apply, and (3) ifthe prior plan formula under the NSP Pension Plan continued to be effective forall years of credited service. Eligibility for payment of benefits under theRestoration Plan is the same as provided in the NSP Pension Plan. No additionalbenefits will be earned after December 31, 2006. The monthly benefitscalculated under the Restoration Plan equal the greater of the formula belowoffset by the monthly benefits provided under the NSP Pension Plan.

 

·                  1.0% of the participant’saverage final monthly compensation, plus 0.5% of the participant’s averagefinal monthly compensation in excess of “covered compensation,” multiplied byyears and partial years of credited service limited to 35 years on the excessportion; or

 

·                  1.67% of the participant’saverage final monthly compensation multiplied by years and partial years ofcredited service, less 1.67% of the participants primary social securitybenefit multiplied by his years of service and full months of credited service,not to exceed 30 years.

 

Themonthly benefits payable to Messrs. Peterson and Myers under theRestoration Plan will be equal to the above formula multiplied by 37%.

 

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**Termination and Change in Control Arrangements**

 

Assumingeach executive officer’s employment was terminated under each of thecircumstances set forth below on December 31, 2007, 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** | ** ** | **Termination in  the  Event of  Disability  or Death** | ** ** |
|--------------------------|------------|----------------------------|------------|---------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|-----------------------------|------------|------------------------------------------------------------------------|------------|
| Robert A. Peterson       |       | Salary                     |       | $                                                                   | 3⁄4     |                                                           | $          | 1,250,000                   |       | $                                                                      | 1,164,984  |   | $ | 1,250,000 |   |
|                     |       | Bonus(1)                   |       | 3⁄4                                                              |       | 622,125                                                        |       | 622,125                     |       | 622,125                                                                |       |
|                     |       | Medical  Benefits          |       | 3⁄4                                                              |       | 22,616                                                         |       | 22,616                      |       | 22,616                                                                 |       |
|                     |       | All  Other Compensation(2) |       | 3⁄4                                                              |       | 18,096                                                         |       | 18,096                      |       | —                                                                 |       |
|                     |       | Option  Vesting(3)         |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 5,901,500                   |       | 3⁄4                                                                 |       |
| David F. Myers, Jr. |       | Salary                     |       | 3⁄4                                                              |       | 870,000                                                        |       | 810,839                     |       | 870,000                                                                |       |
|                     |       | Bonus(1)                   |       | 3⁄4                                                              |       | 433,000                                                        |       | 433,000                     |       | 433,000                                                                |       |
|                     |       | Medical  Benefits          |       | 3⁄4                                                              |       | 22,616                                                         |       | 22,616                      |       | 22,616                                                                 |       |
|                     |       | All  Other Compensation(2) |       | 3⁄4                                                              |       | 18,096                                                         |       | 18,096                      |       | —                                                                 |       |
|                     |       | Option  Vesting(3)         |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 3,818,614                   |       | 3⁄4                                                                 |       |
| William J. Hayes         |       | Salary                     |       | 3⁄4                                                              |       | 780,000                                                        |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | Bonus(1)                   |       | —                                                              |       | 367,965                                                        |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | Medical  Benefits          |       | 3⁄4                                                              |       | 22,674                                                         |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | All  Other Compensation    |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | Option  Vesting(3)         |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 1,273,606                   |       | 3⁄4                                                                 |       |
| Charles S. Ellis         |       | Salary                     |       | 3⁄4                                                              |       | 480,012                                                        |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | Bonus(1)                   |       | 3⁄4                                                              |       | 183,365                                                        |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | Medical  Benefits          |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | All  Other Compensation    |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | Option  Vesting(3)         |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 736,751                     |       | 3⁄4                                                                 |       |
| Kenneth R. Martell       |       | Salary                     |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | Bonus                      |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | Medical  Benefits          |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | All  Other Compensation    |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 3⁄4                      |       | 3⁄4                                                                 |       |
|                     |       | Option  Vesting(3)         |       | 3⁄4                                                              |       | 3⁄4                                                         |       | 283,366                     |       | 3⁄4                                                                 |       |
|                          |            |                            |            |                                                                     |            |                                                                |            |                             |            |                                                                        |            |  |  |  |  |

 

----

(1)                  Includes bonus payments withrespect to fiscal 2007 that are reflected in column (d) and column (g) ofthe Summary Compensation Table.

 

(2)                  The dollar value of theamounts shown in this column includes the following, which amounts representthe two-year total of such benefits based on the value for fiscal 2007:

 

| **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                                                         |       |

 

(3)                  At the discretion of theboard of directors, unexercisable options may become exercised in connectionwith a change of control if a certain internal rate of return is achieved byOdyssey. Odyssey’s target internal rate of return would have been achieved if achange in control had occurred on December 31, 2007. Amounts representvalue of unvest options as of December 31, 2007 that would vest upon achange in control.

 

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

 

**Messrs. Peterson and Myers**.****In the event employment of Messrs. Petersonand Myers is terminated by Norcross for cause or by the executive without goodreason, the executive will be entitled to his base salary and benefits for theperiod ending on the date of such termination and any unpaid bonus for anycalendar year ending prior to the year 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 ordisability, or (4) due to Norcross not offering, at least 90 days prior tothe end of the term of employment, to continue the executive’s employment for aperiod of at least two years, the executive (or his estate) will be entitled tohis base salary and benefits for the period ending on the date of termination,any unpaid 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 hisbase salary and benefits for a period of 2 years if, within 30 days oftermination, the executive signs and delivers to Norcross a general releasefrom claims arising from facts and circumstances existing before the date ofsuch release.  In the event suchexecutive’s employment terminated because Norcross elected not to continue hisemployment after the expiration of the initial term, the severance payment asdescribed above will be offset by any payments or benefits received by theexecutive in the second year following such termination as a result of hishaving obtained new employment. Any amounts due to the executive shall be paidas if he had not been terminated, except that in the event the executiveterminated his employment due to a change in control, such amounts shall bepaid in a lump sum within 10 days of his resignation, in an amount discountedto present value at a rate of 7% per year. In the event that employment isterminated (1) by Norcross with cause or (2) by the executive withoutgood reason, the executive shall be entitled to (i) receive base salaryand benefits for the period ending on the termination date; and (ii) receiveany unpaid bonus for any calendar year ending prior to the year in which thetermination 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 afelony involving moral turpitude; (3) commission of a material act ofdishonesty; (4) fraud or deceit; (5) breach of any material provisionof the employment agreement or other agreement with Norcross, Safety Productsor any subsidiary thereof; (6) habitual or willful neglect of duties; (7) breachof fiduciary duty; or (8) material violation of any other duty toNorcross, Safety Products or any subsidiary thereof.

 

·                  “good reason” means: (1) material breachby Norcross of its obligations to the executive if not cured within twenty daysafter written notice by executive to Norcross; (2) Norcross requiringexecutive to move his principal place of employment by more than 25 miles ifsuch move increases executive’s commute; (3) the failure of any successorto Norcross to assume executive’s employment agreement; (4) a change of control.

 

***Mr. Hayes****.*In the event employment isterminated by us or Norcross without cause or by Mr. Hayes because hisbase salary has been reduced, Norcross shall, (1) for a period oftwenty-four months following such termination or resignation, pay Mr. Hayeshis base salary as of such termination date, (2) pay Mr. Hayes anyaccrued annual bonus earned but not yet paid, for the fiscal year prior to theyear of such termination date and (3) pay Mr. Hayes a prorated annualbonus for the fiscal year which includes such termination date.  Additionally, Mr. Hayes shall beentitled to receive medical insurance from the termination date through thesecond anniversary of such termination date.

 

For purposes of Mr. Hayes’ employmentagreement, the term “cause” has the same meaning as defined in the employmentagreements for Messrs. Peterson and Myers.

 

***Mr. Ellis****.*In the event employment is terminated by North Safety without cause or byMr. Ellis with good reason, North Safety shall, for a period of eighteenmonths following such termination or resignation, pay Mr. Ellis his basesalary as of such termination date. As a condition of such severance payment, Mr. Ellisshall 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. Ellisis terminated (1) by North Safety for cause, (2) by Mr. Elliswithout good reason or (3) due to his death or disability, Mr. Elliswill be 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.

 

100

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For purposes of Mr. Ellis’ employmentagreement, the terms “cause” and “good reason” are defined as follows:

 

·                  “cause” has thesame meaning as defined in the employment agreements for Messrs. Petersonand Myers, except that the definition for Mr. Ellis also includes: (1) failureto correct insubordination; (2) failure to comply with instructions; or (3) otheracts or omissions that adversely affect operations.

 

·                  “good reason” meansMr. Ellis’ resignation as a result of: (1) a substantial diminutionof responsibilities, duties or authorities; (2) a reduction of his perquisites,including office facilities and support staff; (iii) a relocation to anarea more than fifty miles from the current location; or (4) a materialbreach of his employment agreement by North Safety, which is not cured within30 days after written notice by Mr. Ellis to North Safety.

 

**Option Plan**. As described in the Compensation Discussion andAnalysis, upon a change in control, previously unvested options would becomeexercisable if specified internal rate of return and a multiple of investmentdollars had been achieved by Odyssey. As of December 31, 2007, such targetinternal rates of return and multiple of investment dollars were achieved andoptions would accelerate upon a change in control at the discretion of theboard of directors.

** **

**Director Compensation**

 

None of our employees are entitled to any compensationfor serving on our board of directors.

 

**ITEM 12.**                       SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS

** **

**Principal Equityholders**

** **

The following table sets forth certain informationwith respect to the beneficial ownership of the common stock of Safety Productsas of February 29, 2008, 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 is determined in accordance withthe rule of the SEC. Shares of common stock subject to options currentlyexercisable or exercisable within 60 days of February 29, 2008, are deemedoutstanding for calculating the percentage of outstanding share of the personholding these options, but are not deemed outstanding for the percentage of anyother person. Percentage of beneficial ownership is based upon 11,023,384shares of common stock outstanding as of February 29, 2008. To ourknowledge, except as set forth in the footnotes to this table and subject toapplicable community property laws, each person named in the table has solevoting and investment power with respect to the shares set forth opposite suchperson’s name. Except as otherwise indicated, the address of each of thepersons in this table is as follows:  c/oSafety Products Holdings, Inc., 2001 Spring Road, Suite 425, OakBrook, Illinois 60523.

 

101

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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)          | — |   | 74.9 | % |
| Safety Products, LLC    c/o GE Asset Management       Incorporated 3001 Summer Street  Stamford, CT 06905                             |       | 2,500,000                                  |         | — |   | 22.7 | % |
| Robert A. Peterson                                                                                                                                             |       | 409,545                                    |         | 299,545 |   | 3.6 | % |
| David F. Myers, Jr.                                                                                                                                       |       | 243,823                                    |         | 193,823 |   | 2.2 | % |
| William J. Hayes                                                                                                                                               |       | 50,955                                     |         | 43,329 |   | * |   |
| Charles S. Ellis                                                                                                                                               |       | 50,396                                     |         | 37,396 |   | * |   |
| Kenneth R. Martell                                                                                                                                             |       | 17,883                                     |         | 14,383 |   | * |   |
| Brian Kwait                                                                                                                                                    |       | 8,301,258                                  | (2)(3)(4)(5) | — |   | 75.3 | % |
| Craig P. Staub                                                                                                                                                 |       | —                                     |         | — |   | * |   |
| Matthew A. Satnick                                                                                                                                             |       | —                                     |         | — |   | * |   |
| All directors and executive officers as a group (9 persons)                                                                                                    |       | 9,105,057                                  |         | 607,173 |   | 78.3 | % |

 

----

*                 Represents beneficial ownership of lessthan one percent.

 

(1)          Odyssey Capital Partners III, LLC,or Odyssey Capital, is the general partner of Odyssey Investment Partners FundIII, LP, or Odyssey Fund, and by virtue of such status may be deemed to be thebeneficial owner of the shares held by Odyssey Fund. Mr. Kwait is aManaging Member of Odyssey Capital and does not have the power individually todirect or veto the voting or disposition of shares held by Odyssey Fund.Odyssey Capital expressly disclaims beneficial ownership of the shares held byOdyssey Fund.

 

(2)          Includes 8,260,000 shares of common stockowned by Odyssey Fund.

 

(3)          Mr. Kwait may be deemed to sharebeneficial ownership of the shares held by Odyssey Fund by virtue of his statusas a Managing Member of Odyssey Capital. Mr. Kwait expressly disclaimsbeneficial ownership of any shares held by Odyssey Fund that exceed his pecuniaryinterest therein. The members and managers of Odyssey Capital share investmentand voting power with respect to securities owned by Odyssey Fund, but noindividual controls such investment or voting power.

 

(4)          Includes 41,258 shares of common stockowned by Safety Products Coinvestment LLC, or Coinvestment LLC. OdysseyInvestment 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 aManaging Member of Odyssey and does not have the power individually to director veto the voting or disposition of shares held by Coinvestment LLC. Odysseyexpressly disclaims beneficial ownership of the shares held by CoinvestmentLLC.

 

(5)          Mr. Kwait may be deemed to sharebeneficial ownership of the shares held by Coinvestment LLC by virtue of hisstatus as a Managing Member of Odyssey. Mr. Kwait expressly disclaimsbeneficial ownership of any shares held by Coinvestment LLC that exceed hispecuniary interest therein.

 

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**Equity Compensation Plan Information**

 

The following table providesinformation as of December 31, 2007 about the common stock thatmay be issued under all of the existing equity compensation plans,including the 2005 Option Plan of Safety Products. The 2005 Option Plan hasbeen approved by the 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     |       | 1,421,559                                                                                                                                            |       | $                                                                                                           | 11.49      |                                                                                                                                                                                                     | 15,072     |   |
|                                                       |       |                                                                                                                                                 |       |                                                                                                        |       |                                                                                                                                                                                                     |       |
| Equity compensation plans not approved by security holders |       | —                                                                                                                                               |       | —                                                                                                      |       | —                                                                                                                                                                                                   |       |
| Total                                                      |       | 1,421,559                                                                                                                                            |       | $                                                                                                           | 11.49      |                                                                                                                                                                                                     | 15,072     |   |

 

**ITEM 13.**                      CERTAINRELATIONSHIPS AND RELATEDTRANSACTIONS, AND DIRECTOR INDEPENDENCE

** **

**Stockholders Agreement**

** **

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

 

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

 

**Management Stockholders Agreement**

** **

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

 

Safety Products and Odyssey Fund have a right of firstrefusal under the management stockholders agreement with respect to sales ofshares of common stock held by management investors. Under certaincircumstances, the stockholders have “tag-along” rights to sell their shares ona *pro rata*basis with the selling stockholder in certain sales to third parties. If 

 

103

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Odyssey Fund approves a sale of shares of commonstock, Odyssey Fund has the right to require the management stockholders tosell their shares on the same terms. The agreement also contains a provisionthat gives Safety Products the right to repurchase a management investor’sshares upon termination of that management investor’s employment and gives themanagement stockholder the right to require Safety Products to repurchase suchstockholder’s shares upon termination of that management investor’s employment.In addition, subject to certain exceptions, including issuance pursuant to aninitial public offering, the management stockholders agreement grants holdersof common stock party thereto preemptive rights with respect to issuances ofcommon stock by Safety Products to Odyssey Fund.

 

**Family Relationships**

** **

William L. Grilliot, our President—Fire Service, isthe husband of Mary I. Grilliot, the Vice President of our subsidiary, MorningPride Manufacturing L.L.C. Mr. and Mrs. Grilliot were each paid anaggregate salary and bonus of $300,835 and $233,086 for their services duringthe years ended December 31, 2007 and 2006, respectively.

 

**Real Property Leases**

** **

Morning Pride Manufacturing L.L.C. leases a facilityin Dayton, Ohio from American Firefighters Cooperative, Inc., acorporation controlled by William L. Grilliot, our President—Fire Service. Theinitial term of the lease ended on February 28, 2005 and was extendedthrough April 30, 2009. The base rent is $347,816 per year, payable inmonthly installments. In addition, we must also pay American FirefightersCooperative, Inc. the actual amount of all real estate taxes, and allgeneral and special assessments of every kind, as additional rent during theterm of the lease. The annual rent paid in each of 2007, 2006 and 2005 was$382,193, $382,111 and $373,181, 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. In December 2007, anamendment to the lease was entered related to the expansion of the facility.The base rent under the amended lease is $587,647 per year, payable in monthlyinstallments and began upon completion of the expansion, which was January 2008.The lease was extended five years from the date of completion.

 

**Related Party Policy**

** **

We do not have a formal related party approval policyfor review and approval of transactions required to be disclosed pursuant toItem 404(a) of Regulation S-K. However, it is our policy tocomply with the covenant related to transactions with affiliates that iscontained in the indenture governing our notes.

 

**Director Independence**

** **

The Company has no securities listed for trading on anational securities exchange or in an automated inter-dealer quotation systemof a national securities association which has requirements that a majority ofits board of directors be independent. For purposes of complying with thedisclosure requirements of the Securities and Exchange Commission, the Companyhas adopted the definition of independence used by The Nasdaq Stock Market LLC(“Nasdaq”).  Our board of directorsbelieves that each of our three non-employee directors, Messrs. Kwait, Satnickand Staub, qualifies as an independent director based on the definition ofindependent director set forth in Rule 4200(a)(15) of the Nasdaq Marketplacerules.  In this regard, we note that wedo not believe that the payments we have made to Odyssey in our last threefiscal years have exceeded 5% of Odyssey’s consolidated gross revenues in anyof those years. Our audit committee is comprised of Messrs. Kwait and Staub,each of whom our board of directors believes qualifies as an independentdirector under Nasdaq’s definition of independent director. Note that underRule 4350(c)(5) of the Nasdaq Marketplace Rules, we would be considered a“controlled company” because more than 50% of our voting power is held by anothercompany. Accordingly, even if we were a listed company on Nasdaq, we would notbe required to maintain a majority of independent directors on our board.

 

**ITEM 14.****        PRINCIPALACCOUNTANT FEES AND SERVICES**

 

The following table presents fees for services providedby Ernst & Young LLP (“E&Y”) for fiscal year 2006 and 2007. AllAudit Fees, Audit-Related Fees, Tax Fees and Other Fees were pre-approved bythe Audit Committee in accordance with its established procedures.

 

| **(In thousands)** | ** ** | **2006**  | ** ** | **2007** | ** ** |
|-------------------------|------------|-----------|------------|----------|------------|
| Audit Fees (a)          |       | $         | 1,103,342  |     | $          | 1,143,046 |   |
| Audit-Related Fees (b)  |       | 125,000   |       | 47,000   |       |
| Tax Fees (c)            |       | 1,133,350 |       | 922,642  |       |
| All Other Fees          |       | 12,823    |       | —   |       |
| Total                   |       | $         | 2,374,515  |     | $          | 2,112,688 |   |

 

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(a)          Fees for professional services providedfor the audit of the Company’s annual financial statements as well as reviewsof the Company’s quarterly reports on Form 10-Q, accounting consultationson matters addressed during the audit or interim reviews, SEC filings andoffering memorandums including comfort letters and consents and assistance withSEC comment letters.

 

104

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(b)         Fees for professional services whichprincipally include services in connection with internal control matters.

 

(c)          Fees for professional services for taxrelated advice and compliance.

 

**Pre-Approval Policy**

** **

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

 

105

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** **

**PART IV**

** **

**ITEM 15.**                      EXHIBITS ANDFINANCIAL STATEMENT SCHEDULES

** **

(a)(1) Financial Statements

 

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

 

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

 

Schedule II—Valuation and Qualifying Accounts andReserves

 

(a)(3) Exhibits

 

Seeattached Exhibit Index.

 

 

106

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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 13, 2008 |   | Its:                                | President, Chief Executive Officer and Director |
|                           |        |                                     |  |  |

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, this report has been signed below by the followingpersons on behalf of the Registrant in the capacities indicated on March 13,2008.

 
| **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           |       |                                               |

 

 

 

107

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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.  (incorporated herein by reference to Exhibit 3.2 of the Annual Report on  Form 10-K of Safety Products Holdings, Inc. for the fiscal year  ended December 31, 2006).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| 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).                                                                                                                                                                                                                                                                                       |

 

 

108

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| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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 (incorporated herein by reference  to Exhibit 10.5 of the Annual Report on Form 10-K of Safety  Products Holdings, Inc. for the fiscal year ended December 31,  2006). |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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                 |       | Retirement Agreement, dated June 30, 2007, by and between  Kenneth R. Martell and Salisbury Electrical Safety L.L.C. and Safety Products  Holdings, Inc. (incorporated herein by reference to Exhibit 10.1 to  our Form 8-K, filed on July 20, 2007).                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 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)).                                                                                                                                                                                           |

 

 

109

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| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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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| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                       |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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. (incorporated herein by reference to Exhibit 10.27  of the Annual Report on Form 10-K of Safety Products Holdings, Inc.  for the fiscal year ended December 31, 2006).        |
|                 |       |                                                                                                                                                                                                                                                                                  |
| 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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