Allied Research Corporation
May 27, 1999
SUPPORT YOUR CURRENT BOARD!
VOTE THE WHITE PROXY CARD TODAY!
Dear Fellow Shareholders:
Let me begin by thanking the many institutional and individual shareholders that
have expressed their support for your current Board of Directors and management
team during this blatant attempt by Zilkha Capital Partners L.P. to take control
of your company. Do not let Zilkha's misstatements, contradictions, lack of
understanding of Allied's businesses or "we can do it better" rhetoric divert
you from their real objective. We believe Zilkha's motives are clear - they are
self serving and detrimental to other shareholders. This proxy fight is an
attempt by Zilkha to take control of your company without offering any benefit
to all shareholders.
DO NOT BE MISLED!
ZILKHA HAS ATTEMPTED TO DISTORT THE EXCELLENT OPERATING RESULTS ACHIEVED BY OUR
MANAGEMENT DURING THE PAST FIVE YEARS. ALLIED HAS AN IMPRESSIVE RECORD OF
OPERATING RESULTS.
o During the period from 1994 to 1998, revenue has increased at an annual
compounded rate of 20%, from $69.8 million to $143.5 million, and net
earnings have improved from a loss of $10.9 million to a profit of $9.1
million.
o In 1998, Allied's return on assets of 11% and return on equity of 21%
exceeded the median performance of the companies in the S&P Small Cap
Aerospace/Defense Index which achieved a 10% return on assets and 13%
return on equity.
ALLIED IS IMPLEMENTING A DIVERSIFICATION STRATEGY THAT HAS POSITIONED THE
COMPANY FOR PROFITABLE FUTURE GROWTH.
o Mecar, our principal operating subsidiary, has teamed with major defense
contractors on new weapons systems that we expect will provide steady,
long-term revenues and profits. Furthermore, the company's BRI subsidiary
has successfully diversified its revenue base into foreign markets.
o Beginning in 1998, Allied engaged investment bankers to pursue acquisition
opportunities for its electronic security business in Europe and the United
States. The success of Allied's VSK Group, which accounted for 35% of the
company's 1998 pre-tax profit, supports management's decision to expand its
electronic security business. Allied will continue to be patient and
prudent acquirers.
I am asking you to support your current Board of Directors and allow existing
management to continue to pursue the strategic plan we have adopted, which is
already showing positive results.
ZILKHA HAS POORLY MANAGED THEIR EXISTING COLT'S MANUFACTURING CO. BUSINESS AND
ADMITS THEY HAVE NO SPECIFIC PLAN TO MANAGE ALLIED.
o Under Zilkha management, Colt's Manufacturing Co. provoked a customer
boycott of Colt's products resulting in an apparent decline in revenues, as
reported by The Wall Street Journal.
o With their statement, "...until we replace the Board and are able to
analyze the company from the inside, it is impossible to develop...specific
plans", Zilkha continues to demonstrate little current understanding of
Allied's business, and has therefore, offered no clear, specific, or
credible plan for the management of Allied's business.
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IF ZILKHA TAKES CONTROL OF THE BOARD, THEY WILL BE ABLE TO DISMANTLE ALLIED'S
ANTI-TAKEOVER DEFENSES AND DEPRIVE YOU OF A FAIR PRICE FOR YOUR COMPANY.
o A Zilkha-nominated Board of Directors could approve an acquisition of
Allied at an inadequate price and impose impediments to any other bidder
interested in acquiring the company at a higher price.
o Your Board of Directors has the power to reject any inadequate bids to
acquire Allied and to negotiate the highest and best bid for the company if
and when a sale/merger is appropriate.
ZILKHA HAS BEEN REJECTED BY A BELGIAN GOVERNMENT IN HIS ATTEMPT TO ACQUIRE
ANOTHER BELGIAN DEFENSE CONTRACTOR.
o Under Zilkha's ownership, Colt's recent attempt to acquire one of the
world's main suppliers of small arms was rejected by a regional Belgian
government. Rather than let Zilkha take control, the government bought the
company itself.
o In contrast, Allied currently enjoys a very favorable relationship with the
Belgian government that is essential to Mecar's continued success.
ANY DISTURBANCE OF ALLIED'S RELATIONSHIPS WITH ITS FOREIGN CUSTOMERS WOULD HAVE
A MATERIAL ADVERSE EFFECT ON ALLIED'S BUSINESS.
o Allied's management team has spent years developing and building personal
relationships with customers, many of which are foreign companies and
governmental organizations located principally in the Middle East, Europe
and Southeast Asia.
o Your management team is extremely concerned that these relationships would
suffer if the Board is replaced by the Zilkha nominees.
IF ZILKHA REDEPLOYS ALLIED'S CASH AS THEY SUGGEST IN THEIR PROXY MATERIALS, IT
COULD ADVERSELY IMPACT ALLIED'S CORE BUSINESS. ZILKHA SIMPLY DOES NOT UNDERSTAND
OUR BUSINESS.
o The large and profitable orders at Mecar and BRI in recent years have
required cash deposits to assure our customers, suppliers and banks that
they could perform as contractually required. Our cash serves as part of
the collateral necessary for our banks to assure our suppliers and
customers of timely payment and delivery.
o We are expecting orders to increase as a result of the recent increase in
oil prices. We believe our existing cash and credit facilities are at the
appropriate levels to finance the growth of our core business as well as
support our acquisition program in the electronic security field.
LET'S SUMMARIZE ZILKHA'S TRACK RECORD.
o Zilkha's poor management of Colt's has resulted in an apparent decline in
revenues.
o Zilkha's lack of understanding of Allied has rendered them unable to offer
a clear, specific, or credible plan for the management of Allied's
business.
o Zilkha's rejection by a Belgian government as an acquiror of a Belgian
defense company may make them unwelcome owners of Belgian-based Mecar.
o Zilkha's self serving, unnecessary and highly dilutive convertible note
financing proposal was determined by your Board to be detrimental to the
interests of shareholders.
WOULD THE ELECTION OF THE ZILKHA NOMINEES
REALLY BE IN THE BEST INTEREST OF ALLIED'S SHAREHOLDERS?
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When you look at the issues, the choice is clear. Support your current Board by
marking, signing and returning the WHITE PROXY CARD in the enclosed postage paid
envelope. Time is running short. It is very important that you vote today,
regardless of the number of shares you own.
Thank you for your continued support.
On behalf of your Board of Directors,
/s/ J. R. Sculley
J. R. Sculley,
Chairman and
Chief Executive Officer
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IMPORTANT
Regardless of the number of shares of Allied Research you own, your vote is
important. Please vote FOR the Board's nominees by signing, dating and mailing
the enclosed WHITE PROXY CARD.
Do not vote the opposition gold proxy card, even to oppose their nominees. If
you have done so by mistake already you may change your vote by signing and
returning the enclosed WHITE PROXY CARD. Only your latest dated, properly
executed card will count.
If you own your shares in the name of a brokerage firm, your shares will not be
voted unless you give your broker specific instructions. So please sign, date
and return the enclosed WHITE PROXY CARD in the postage-paid envelope that has
been provided.
If you have any questions as to how to vote your shares, please call our proxy
solicitor:
Corporate Investor Communications, Inc.
Toll free: (877) 460-4348
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MAKE THE RIGHT CHOICE - VOTE THE WHITE PROXY CARD
