As filed with the Securities and Exchange Commission on October 31, 1996
Registration No. 333-10307
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
AMENDMENT NO. 2 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________
ARMOR HOLDINGS, INC.
(Name of small business issuer in its charter)
Delaware 3842 59-3392443
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
191 Nassau Place Road
Yulee, Florida 32097
(904) 261-4035
(Address and telephone number of principal executive
offices and principal place of business)
______________
Warren B. Kanders
Chairman of the Board of Directors
Armor Holdings, Inc.
191 Nassau Place Road
Yulee, Florida 32097
(904) 261-4035
(Name, address and telephone number of agent for service)
______________
Please send copies of all communications to:
Robert L. Lawrence, Esq.
Kane Kessler, P.C.
1350 Avenue of the Americas
New York, New York 10019
(212) 541-6222
______________
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
================================================================================
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================
Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities Amount Offering Price Aggregate Registration
to be Registered to be Registered Per Share(1) Offering Price(1) Fee
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.01 par value 919,645 $6.94 $6,382,336.20 $2,200.81
=======================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low sale
prices for the Common Stock on the American Stock Exchange on August 23,
1996, of $6.94 per share for 560,931 shares, and $6.94 per share for
358,714 shares, on October 10, 1996.
The Company hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Company
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), may determine.
<PAGE>
ARMOR HOLDINGS, INC.
Cross Reference Sheet Pursuant to Item 501 of Regulation S-B
Registration Statement Items and Headings Location in Prospectus
- ----------------------------------------- ----------------------
1. Front of Registration Statement and Facing page of Registration
Outside Front Cover of Prospectus Statement; second page of
Registration Statement; outside
front cover page; second page of
Prospectus
2. Inside Front and Outside Back Second page of Prospectus; outside
Cover Pages of Prospectus back cover page of Prospectus;
Available Information
3. Summary Information and Risk Prospectus Summary; Risk Factors;
Factors Comparative Rights of Shareholders
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Not Applicable
6. Dilution Risk Factors
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Outside and inside front cover
pages; Prospectus Summary--The
Offering; Plan of Distribution
9. Legal Proceedings Legal Proceedings
10. Directors, Executive Officers, Management; Security Ownership of
Promoters and Control Persons Certain Beneficial Owners and
Management
11. Security Ownership of Certain Security Ownership of Certain
Beneficial Owners and Management Beneficial Owners and Management
12. Description of Securities Description of Securities
13. Interest of Named Experts and Not Applicable
Counsel
14. Disclosure of Commission Position Business--Personal Liability and
on Indemnification for Securities Indemnification of Directors and
Act Liabilities Officers
15. Organization Within Last 5 Years Risk Factors--Shares Eligible for
Future Sale; Certain Relationships
and Related Transactions
16. Description of Business Business
<PAGE>
17. Management's Discussion and Management's Discussion and
Analysis of Financial Condition and Analysis of Financial Condition
Results of Operations and Results of Operations
18. Description of Property Properties
19. Certain Relationships and Related Risk Factors--Shares Eligible for
Transactions Future Sale; Conflicts of
Interest; Certain Relationships
and Related Transactions
20. Market for Common Equity and First page of Prospectus;
Related Stockholder Matters Prospectus Summary; Risk Factors;
Description of Securities; Market
for Common Stock and Related
Stockholder Matters
21. Executive Compensation Executive Compensation
22. Financial Statements Unaudited Pro Forma Financial
Statements; Financial Statements
23. Changes In and Disagreements Not Applicable
With Accountants on Accounting
and Financial Disclosure
<PAGE>
PROSPECTUS
ARMOR HOLDINGS, INC.
919,645 Shares of Common Stock
This Prospectus relates to 919,645 shares of common stock, $.01 par value,
(the "Common Stock") of Armor Holdings, Inc., a Delaware corporation (the
"Company"), of which: (i) 250,000 shares of Common Stock are being offered by
the Company (the "Company Shares"); (ii) 310,931 shares of Common Stock are
being offered by Ivers-Lee Corporation ("Ivers-Lee"); and (iii) 358,714 shares
are being offered by Key Bank of Wyoming ("Key Bank"). The Company issued to
Ivers-Lee 310,931 shares of Common Stock (the "NIK Shares") as consideration for
the purchase by the Company of certain assets of the NIK Public Safety Product
Line ("NIK Public Safety") from Ivers-Lee. NIK Public Safety is the leading
manufacturer and distributor of portable narcotic identification kits used for
the identification of narcotic substances by law enforcement agencies. In
addition, NIK Public Safety distributes the Flex-Cuf restraint, a patented
disposable restraint manufactured by Thomas & Betts, as well as specimen
collection kits, evidence collection kits and tamper guard evidence tape. In
connection with the Company's acquisition of substantially all of the assets of
Defense Technology Corporation of America, a Wyoming corporation, the Company,
among other things, issued to Key Bank 358,714 shares of Common Stock (the "Key
Bank Shares") as consideration for the release by Key Bank of its security
interest in substantially all of the assets of DTCoA. Key Bank held such
security interest pursuant to credit facilities previously made available to
DTCoA by Key Bank in the amounts of $3,000,000 (the "$3,000,000 Facility") and
$1,000,000 (the "1,000,000 Facility"). DTCoA is a leading manufacturer and
distributor of less-than-lethal products including pepper sprays, distraction
devices, flameless expulsion grenades, specialty impact munitions and dry
powdered oleoresin capsicum to law enforcement agencies and military services in
the United States and abroad. DTCoA, which is based in Casper, Wyoming, also
distributes other similar products including gas masks, riot helmets and gun
holsters.
The NIK Shares and the Key Bank Shares will be offered or sold for the
account of Ivers-Lee and Key Bank, respectively, (hereinafter, at times, the
"Selling Stockholders"). See "Selling Stockholders." The Company Shares will be
offered or sold for the account of the Company.
The Selling Stockholders and/or the Company may be deemed to be
"underwriters" as that term is defined in the Securities Act. The Selling
Stockholders and the Company may offer the NIK Shares, the Key Bank Shares and
the Company Shares, respectively, for sale from time to time, and, if and when
offers and/or sales are made, such offers and/or sales may be made through
customary brokerage channels through broker-dealers acting as principals who
may then resell the NIK Shares, the Key Bank Shares and the Company Shares, as
the case may be,
<PAGE>
on the American Stock Exchange or on such other market as the shares of the
Company's Common Stock may then be trading. Such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Company and the Selling Stockholders (which compensation as to any particular
broker-dealer may be in excess of customary commissions). Sales may be at fixed
prices which may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, or at negotiated prices, or by
a combination of such methods. The period of distribution of the NIK Shares, the
Key Bank Shares and the Company Shares may occur over an extended period of
time. The Selling Stockholders will pay or assume brokerage commissions or
discounts incurred in the sale of any of the NIK Shares and the Key Bank Shares.
The Company will pay or assume brokerage commissions or discounts incurred in
connection with the sale of the Company Shares. See "Selling Stockholders."
The Common Stock is traded on the American Stock Exchange under the symbol
"ABE." On October 28, 1996, the closing price of the Common Stock on the
American Stock Exchange was $6.94.
______________________________________
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND
IMMEDIATE SUBSTANTIAL DILUTION. SEE "RISK FACTORS."
______________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 31, 1996.
ii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form SB-2 (together with any amendments,
exhibits and schedules thereto, the "Registration Statement") under the
Securities Act, with respect to the securities offered hereby. This Prospectus,
which constitutes an integral part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
portions of which have been omitted in accordance with the rules and regulations
promulgated by the SEC. For further information with respect to the Company and
the securities offered hereby, reference is hereby made to the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract, agreement or any other document are not necessarily complete, and, in
each instance, reference is made to the copy of such contract, agreement or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. The Company is subject to the
informational reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith is required to file
periodic reports, proxy statements and other information with the SEC relating
to its business, financial statements and other matters. Such periodic reports,
proxy statements and other information filed with the SEC are available for
inspection and copying at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
Such periodic reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the SEC at the SEC's
regional offices located at Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661, 1376 Peachtree Street, N.E., Suite 788, Atlanta,
Georgia 30367 and Seven World Trade Center, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates.
The Company's Common Stock is traded on the American Stock Exchange under
the symbol "ABE." Periodic reports, proxy statements and other information filed
with the SEC can also be inspected at the American Stock Exchange, 86 Trinity
Place, New York, New York 10006.
REPORTS TO SECURITY HOLDERS
The Company intends to furnish its stockholders with annual reports for
each fiscal year ending December 31, containing audited financial statements and
the Company may also provide unaudited quarterly or other interim reports as it
deems appropriate.
INCORPORATION BY REFERENCE
The Company will provide, without charge, to each person who receives a
Prospectus, upon the written request of such person, a copy of any document
incorporated by reference into this Prospectus, and all exhibits and amendments
thereto, including the financial statements and
iii
<PAGE>
schedules, as filed with the SEC. Written requests for such copies should be
directed to the Company's Corporate Secretary at c/o Armor Holdings, Inc., 191
Nassau Place Road, Yulee, Florida 32097, (904) 261-4035.
iv
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION.................................................... iii
REPORTS TO SECURITY HOLDERS.............................................. iii
INCORPORATION BY REFERENCE............................................... iii
PROSPECTUS SUMMARY....................................................... 1
RISK FACTORS............................................................. 7
USE OF PROCEEDS.......................................................... 14
SELLING STOCKHOLDERS..................................................... 15
NIK ACQUISITION.......................................................... 15
DTCoA ACQUISITION........................................................ 17
UNAUDITED PROFORMA FINANCIAL STATEMENTS.................................. PF-1
PLAN OF DISTRIBUTION..................................................... 20
LEGAL PROCEEDINGS........................................................ 21
MANAGEMENT............................................................... 22
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT........................................................... 28
DESCRIPTION OF SECURITIES................................................ 31
BUSINESS................................................................. 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...................................... 44
PROPERTIES............................................................... 47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 48
v
<PAGE>
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.................. 49
EXECUTIVE COMPENSATION................................................... 51
LEGAL MATTERS............................................................ 60
EXPERTS.................................................................. 60
ADDITIONAL INFORMATION................................................... 60
FINANCIAL STATEMENTS..................................................... F-1
vi
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information, including the Company's financial statements
(including the notes thereto), appearing elsewhere in this Prospectus. Terms
used but not defined in this Prospectus Summary have the meanings ascribed to
them elsewhere in this Prospectus. Cross references in this Prospectus are to
the captions of sections of this Prospectus.
The Company
The Company's predecessor was incorporated in January 1969, under the
laws of the State of New York under the name American Body Armor & Equipment,
Inc. (the "New York Corporation"). In February 1983, the New York Corporation
moved its operation to Florida. Effective January 1, 1984, the New York
Corporation was merged with and into Armour of Fernandina Beach, Inc.
("Armour"), a Florida corporation incorporated in October 1980, which prior to
such merger (the "Armour Merger") had been a separate but affiliated entity of
the New York Corporation. Pursuant to the Armour Merger, Armour remained as the
surviving entity and subsequently changed its name to American Body Armor &
Equipment, Inc. ("ABA"). On August 21, 1996 (the "Effective Time"), in order to
effect a change in domicile from Florida to Delaware (the "Reincorporation"),
ABA was merged with and into Armor Holdings, Inc., a Delaware corporation. Prior
to the Effective Time, Armor Holdings, Inc. had been a wholly-owned subsidiary
corporation of ABA organized for the purpose of effecting the Reincorporation.
At the Effective Time, Armor Holdings, Inc. (the "Company") became the surviving
entity of the merger pursuant to which the Reincorporation was completed. The
merged entity is governed by the Delaware General Corporation Law ("DGCL") and
the certificate of incorporation (the "Charter") and bylaws of the Company.
Since its founding, the Company has been engaged in the development,
manufacture and distribution of bullet and projectile resistant garments,
including bullet resistant and sharp instrument penetration resistant vests,
bullet resistant blankets, bomb disposal suits and helmets, bomb protection and
disposal equipment and load bearing vests. In addition to these products, the
Company develops, manufactures and distributes other ballistic protection and
security equipment, including explosive ordnance device ("EOD") handling and
detection equipment, EOD suppression and disposal equipment, helmets, face
masks, shields, hard armor ballistic plates, customized armor for vehicles and
other custom
<PAGE>
armored products. The Company's products are used by, among others, police and
other law enforcement and security personnel as well as the military. The
Company's products are sold through a nationwide independent sales
representative and distributor network primarily to international and domestic
law enforcement agencies, the United States military, various federal government
agencies, federal and state correctional facilities, highway patrols and
sheriffs' departments.
The Company manufactures two basic types of body armor: (i) concealable
armor, which is generally intended to be worn beneath the user's clothing; and
(ii) tactical armor, which is worn externally and is designed to protect more
coverage area and defeat higher level ballistic threats incorporating ballistic
hard armor plates.
The Company manufactures and distributes a wide range of products,
including explosive ordnance disposal and handling equipment, bomb disposal
suits, bomb protection blankets and letter bomb suppression pouches; knife
resistant vests designed primarily for use by personnel in correctional
facilities and other law enforcement employees who are exposed to threats from
sharp instruments; and a variety of hard armor and ballistic shields, as well as
upgrade armor plates. The Company manufactures a variety of specialty products,
including non-ballistic load bearing vests, armored press vests, executive
vests, raincoats and fireman turnout coats. The Company also manufactures
specialty armor applications for vehicles and aircraft, as well as armor for
stationary protection. In addition, the Company has the exclusive rights in the
United States to distribute Gallet(R) helmets and the non-exclusive rights to
distribute Scanna(R) letter bomb and Madis(R) car bomb detectors.
The Company's business strategy is twofold: (i) to increase its
channels of distribution through internal growth and strategic acquisitions; and
(ii) to increase channel utilization by expanding the number of products and
services offered. The Company believes that internal growth and strategic
acquisitions will enable the Company to leverage its existing infrastructure and
operations to achieve improved operating margins.
As part of its acquisition strategy, on July 15, 1996, and September
30, 1996, respectively, the Company purchased certain assets of the NIK Public
Safety Product Line ("NIK Public Safety") from Ivers-Lee Corporation and
substantially all of the assets of Defense Technology Corporation of America, a
Wyoming corporation ("DTCoA").
NIK Public Safety is the leading manufacturer and distributor of
portable narcotic identification kits used for the identification of narcotic
substances by law enforcement agencies. In addition, NIK Public Safety
distributes the Flex-Cuf restraint, a patented disposable restraint manufactured
by Thomas & Betts, as well as specimen collection kits, evidence collection kits
and tamper guard evidence tape. See "Risk Factors-Rapid Growth Through
Acquisitions" and "NIK Acquisition."
2
<PAGE>
DTCoA is a leading manufacturer and distributor of less-than-lethal
products including pepper sprays, distraction devices, flameless expulsion
grenades, specialty impact munitions and dry powdered oleoresin capsicum to law
enforcement agencies and military services in the United States and abroad.
DTCoA, which is based in Casper, Wyoming, also distributes other similar
products including gas masks, riot helmets and gun holsters. See "Risk
Factors-Rapid Growth Through Acquisitions" and "DTCoA Acquisition."
The Company maintains its executive offices at 191 Nassau Place Road,
Yulee, Florida 32097. Its telephone number is (904) 261-4035.
The Offering
This Prospectus relates to 919,645 shares of common stock, $.01 par
value, (the "Common Stock") of Armor Holdings, Inc., a Delaware corporation (the
"Company"), of which: (i) 250,000 shares of Common Stock are being offered by
the Company (the "Company Shares"); (ii) 310,931 shares of Common Stock are
being offered by Ivers-Lee Corporation ("Ivers-Lee"); and (iii) 358,714 shares
are being offered by Key Bank of Wyoming ("Key Bank"). The Company issued to
Ivers-Lee 310,931 shares of Common Stock (the "NIK Shares") as consideration for
the purchase by the Company of certain assets of the NIK Public Safety Product
Line ("NIK Public Safety") from Ivers-Lee. NIK Public Safety is the leading
manufacturer and distributor of portable narcotic identification kits used for
the identification of narcotic substances by law enforcement agencies. In
addition, NIK Public Safety distributes the Flex-Cuf restraint, a patented
disposable restraint manufactured by Thomas & Betts, as well as specimen
collection kits, evidence collection kits and tamper guard evidence tape. In
connection with the Company's acquisition of substantially all of the assets of
Defense Technology Corporation of America a Wyoming corporation, the Company,
among other things, issued to Key Bank 358,714 shares of Common Stock (the "Key
Bank Shares") as consideration for the release by Key Bank of its security
interest in substantially all of the assets of DTCoA. Key Bank held such
security interest pursuant to credit facilities previously made available to
DTCoA by Key Bank in the amounts of $3,000,000 (the "$3,000,000 Facility") and
$1,000,000 (the "1,000,000 Facility"). DTCoA is a leading manufacturer and
distributor of less-than-lethal products including pepper spray, distraction
devices, flameless expulsion grenades, specialty impact munitions, and dry
powdered oleoresin capsicum to law enforcement agencies and military services in
the United States and abroad. DTCoA, which is based in Casper, Wyoming, also
distributes other similar products including gas masks, riot helmets and gun
holsters. See "Risk Factors-Rapid Growth Through Acquisition," "NIK Acquisition"
and "DTCoA Acquisition."
3
<PAGE>
The NIK Shares and the Key Bank Shares will be offered or sold for the
account of Ivers-Lee and Key Bank, respectively. See "Selling Stockholders." The
Company Shares will be offered or sold for the account of the Company.
There are, as the October 28, 1996, 7,827,129 shares of Common Stock
outstanding (including the 310,931 shares issued to Ivers-Lee and the 358,714
shares issued to Key Bank), outstanding options to purchase an additional
1,367,033 shares, and 39,886 shares of Common Stock are reserved for issuance
upon conversion of the Company's 3% Convertible, $1.00 stated value Preferred
Stock (the "Old Preferred Stock") by holders who have not yet submitted their
shares of Old Preferred Stock for conversion. In addition, 2,300,000 shares of
Common Stock are reserved for issuance upon conversion to Common Stock of the
Company's 5% Convertible Subordinated Notes due April 30, 2001. See "Risk
Factors-5% Convertible Notes." The NIK Shares, the Key Bank Shares and the
Company Shares constitute approximately 4%, 4.6% and 3.1%, respectively, of all
shares of the Company's outstanding Common Stock (without giving effect to the
exercise of outstanding options and the conversion of the Old Preferred Stock).
The sale of the NIK Shares, the Key Bank Shares and the Company Shares by the
Selling Stockholders and the Company, respectively, if and when made, may be
made through customary brokerage channels either through broker-dealers acting
as agents or brokers for the Selling Stockholders and/or the Company, or through
broker-dealers acting as principals who may then resell the NIK Shares, the Key
Bank Shares and the Company Shares on the American Stock Exchange or such other
market as the Company's Common Stock may then be trading on, or otherwise, and
such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders, the Company and/or the
purchasers of the NIK Shares, the Key Bank Shares or the Company Shares for whom
such broker-dealers may act as agent or to whom they sell as principal or both
(which compensation as to any particular broker-dealer may be in excess of
customary commissions); sales may be at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices, or by a combination of such
methods.
Offering Summary
Securities Offered Up to 919,645 shares of Common Stock. See
"Description of Securities."
4
<PAGE>
Securities Outstanding Prior to 7,827,129 shares of Common Stock(1)(2)(3)(4)
the Sale of the NIK Shares, the
Key Bank Shares and the Company
Shares
Securities Outstanding After the 8,077,129 shares of Common Stock(1)(2)(3)(4)
the Sale of the NIK Shares, the
Key Bank Shares and the Company
Shares
Use of Proceeds The net proceeds from the sale of the NIK
Shares will be received by Ivers-Lee as
consideration for the sale of the NIK Assets
by Ivers-Lee to the Company. The Company will
receive no proceeds from the sale of the NIK
Shares. However, Ivers-Lee has a contractual
obligation pursuant to the Asset Purchase
Agreement to pay certain amounts to the
Company if and when net proceeds realized by
Ivers-Lee from the sale of the NIK Shares
exceeds a threshold amount. Any such proceeds
paid by Ivers-Lee to the Company from the
sale of the NIK Shares will be used by the
Company for working capital purposes. The net
proceeds from the sale of the Key Bank Shares
will be received by Key Bank as consideration
for the release of its security interest in
substantially all of the assets of DTCoA. The
Company will receive no proceeds from the
sale of the Key Bank Shares. The net proceeds
realized by the Company from the sale of the
Company Shares will be used by the Company
for working capital purposes. See "Use of
Proceeds," "NIK Acquisition" and "DTCoA
Acquisition."
American Stock Exchange
Symbol-Common Stock ABE
(1) Excludes outstanding options to purchase 814,533 shares of Common Stock,
which shares are reserved for issuance, under the Company's 1994 Incentive
Stock Plan, and up to 1,500,000 and 300,000 shares of Common Stock reserved
for issuance under the Company's 1996 Stock Option Plan (the "1996 Plan")
and the Company's 1996 Non-Employee Directors Stock Option Plan (the "1996
Directors Plan"), respectively. To date, there are 150,000 outstanding
options to purchase shares under the 1996 Plan and 100,000 shares reserved
for issuance pursuant to options to be granted in the future under the 1996
Plan to certain employees of the Company and its subsidiary,
5
<PAGE>
Defense Technology Corporation of America, a Delaware corporation. There
are, to date, outstanding options to purchase 225,000 shares under the 1996
Directors Plan. Also excludes non-plan, non-qualified options to purchase a
total of 102,500 shares of Common Stock, which shares are reserved for
issuance.
(2) Does not give effect to 300,000 shares of Common Stock issuable upon
exercise of an option held by Richmont Capital Partners I, L.P. See "Risk
Factors - Exercise of Outstanding Options May Have Dilutive Effect on
Market."
(3) Does not give effect to 39,886 shares of Common Stock reserved for issuance
upon conversion of the Old Preferred Stock.
(4) Does not give effect to 2,300,000 shares of Common Stock reserved for
issuance upon conversion of the Company's 5% Convertible Subordinated Notes
due April 30, 2001.
Risk Factors
The securities offered hereby involve a high degree of risk. The
information presented under the caption "Risk Factors" in this Prospectus should
be carefully considered. Risk factors to be considered include, but are not
limited to, the following: (i) a reliance on governmental spending; (ii) risks
inherent in doing business internationally; (iii) products liability; (iv)
competition and technical obsolescence of the Company's products; (v) the
ability of the Company to protect its proprietary know-how and products
liability; (vi) competition and technical obsolescence of the Company's
products; (vii) the ability of the Company to protect its proprietary know-how
and trade secrets, as well as the development of other companies of more
effective technologies which render the Company's trade secrets obsolete; (viii)
negative economic factors which threaten the Company's solvency in light of its
prior bankruptcy; (ix) the ability of the Company to carry out its acquisition
strategy and integrate and manage businesses which it acquires; (x) the ability
of the Company to obtain additional financing; (xi) the ability of the Company
to redeem its 5% Convertible Subordinated Notes due 2001 (the "Notes") in the
event the holders thereof elect not to convert such Notes into shares of Common
Stock; (x) the control over the Company by certain shareholders; (xiii) the
Company's reliance upon certain key personnel; (xiv) the potential antitakeover
effect of certain provisions of the Company's Charter; (xv) the dilutive effect
on the Company's stockholders of sales of the NIK Shares, the Key Bank Shares,
the Company Shares and other shares of Common Stock held by the certain third
parties (including DTCoA), as well as the exercise of outstanding options to
purchase the Company's Common Stock and the conversion of the Notes into Common
Stock; (xvi) the lack of dividends paid on the Common Stock; (xvii) the
volatility of the market price for the Common Stock; (xviii) the reservation of
issuance of a substantial number of shares of Common Stock; and (xix) potential
sales pursuant to Rule 144. See "Risk Factors."
6
<PAGE>
RISK FACTORS
The securities offered in this Prospectus involved a high degree of risk
and should not be purchased by persons who cannot afford the loss of their
entire investment. Accordingly, prospective investors should consider carefully
the following factors, in addition to the other information concerning the
Company and its business contained in this Prospectus.
Concentration of Business Activities; Reliance Upon Governmental Spending
The Company's products are sold nationally and internationally, primarily
to law enforcement agencies and military services. Sales to domestic law
enforcement agencies, including government, security and intelligence agencies,
police departments, federal and state correctional facilities and highway patrol
and sheriffs' departments comprise the largest portion of the Company's
business. Accordingly, any substantial reduction in governmental spending or
change in emphasis in defense and law enforcement programs would have a material
adverse effect on the Company's business.
International Sales
The Company's expansion plans and its current sales are subject to certain
risks inherent in doing business on an international level, such as unexpected
changes in regulatory requirements, tariffs, customs, duties and other trade
restrictions, export licenses, difficulties in staffing and managing foreign
operations, political instability, insurrection and other political risks,
fluctuations in currency exchange rates, limitations on technology imports,
delays from custom brokers or government agencies and potentially adverse tax
consequences any or all of which could adversely impact the success of the
Company's planned international business expansion, as well as the current level
of sales the Company presently enjoys. There can be no assurances that these or
other factors will not have an adverse affect on the Company's business
generally.
Product Liability
The products manufactured by the Company are used in applications where
the failure of such products could result in serious personal injury and death.
The Company maintains product liability insurance in the amount of $15,000,000
per occurrence and $15,000,000 in the aggregate, excluding legal fees, which are
borne by the insurance carriers, less a deductible of $25,000. There is no
assurance that these amounts would be sufficient to cover the payment of any
potential claim. In addition, there is no assurance that this or any other
insurance coverage will continue to be available or, if available, that the
Company will be able to obtain it at a reasonable cost. Any substantial
uninsured loss would have to be paid out of the assets of the Company and may
have a material adverse effect on the Company's financial condition and
operations. In addition, the inability to obtain product liability coverage
would prohibit the
7
<PAGE>
Company from bidding for orders for certain municipal customers since, at
present, many municipal bids require such coverage, and any such inability would
have a material adverse effect on the Company's financial condition and results
of operations.
Competition/Technical Obsolescence
The industry in which the Company does business is highly competitive and
the Company competes with a number of companies that are as established as the
Company. In addition, the Company's competitors may develop and/or improve their
products in which event the Company's products may be rendered obsolete or less
marketable. Although the Company is not aware of any new materials or products
that have recently been or will soon be introduced into the market which might
render the Company's products obsolete and result in a loss of its market share,
no assurances can be given that such materials and products will not be
developed or introduced into the market in the future. In addition, as
manufacturing technology changes, there can be no assurance that the Company
will continue to be able to manufacture its products at competitive prices.
Patent Protection and Proprietary Information
Several of the products manufactured and sold by the Company are subject
to manufacturing processes for which the Company holds United States and foreign
patents. The Company also relies on trade secrets, proprietary know-how and
technological innovation to develop and maintain its competitive position. There
can be no assurance that the patents will protect the Company from competing
technology or that, insofar as it relies on trade secrets and unpatented
technology, others will not independently develop similar technology or that
secrecy will not be breached. See "Business-Patent Protection and Proprietary
Information."
Prior Bankruptcy of the Company and Other Legal Matters
In May 1992, the Company filed for relief under Chapter 11 of the United
States Bankruptcy Code. The bankruptcy filing was the result of a general
decline in the Company's operations, which included significant operating losses
in 1989 and 1991, and the inability to collect a $1.5 million receivable related
to the shipment of vests to a Middle East customer in April 1991. The Company
emerged from bankruptcy protection effective September 20, 1993, upon
confirmation by the United States Bankruptcy Court for the Middle District of
Florida, Jacksonville Division (the "Bankruptcy Court") of the Company's Third
Amended and Restated Plan of Reorganization (the "Plan of Reorganization").
Despite the Company's emergence from bankruptcy protection, there can be no
assurance that the Company will not experience further operating losses or be
susceptible to other negative economic factors which may adversely affect the
Company's future performance.
8
<PAGE>
Rapid Growth Through Acquisitions
The Company plans to grow largely through acquisition and is therefore
actively evaluating investments in operating businesses. The Company intends to
diversify through acquisition and expand its business operations through the
consolidation of one or more companies in the same or similar businesses,
including those that manufacture and/or supply products or services to law
enforcement, military and certain sectors of the security services industry.
On July 15, 1996, the Company, through its newly formed wholly-owned
subsidiary NIK Public Safety, Inc., a Delaware corporation ("NIK") acquired
certain assets (the "NIK Assets") of the NIK Public Safety Product Line ("NIK
Public Safety") from Ivers-Lee Corporation ("Ivers-Lee"). NIK Public Safety is
the leading manufacturer and distributor of portable narcotic identification
kits used for the identification of narcotic substances by law enforcement
agencies. In addition, NIK Public Safety distributes the Flex-Cuf restraint, a
patented disposable restraint manufactured by Thomas & Betts, as well as
specimen collection kits, evidence collection kits and tamper guard evidence
tape. See "NIK Acquisition."
On September 30, 1996, the Company, through its newly formed wholly-owned
subsidiary Defense Technology Corporation of America, a Delaware corporation
("DTC") acquired substantially all of the assets (the "DTCoA Assets") of Defense
Technology Corporation of America, a Wyoming corporation ("DTCoA"), based in
Casper, Wyoming. DTCoA is a leading manufacturer and distributor of
less-than-lethal products including pepper sprays, distraction devices,
flameless expulsion grenades, specialty impact munitions and dry powdered
oleoresin capsicum to law enforcement agencies and military services in the
United States and abroad. In addition, DTCoA distributes other similar products
including gas masks, riot helmets and gun holsters. See "DTCoA Acquisition."
While the Company intends to grow aggressively through acquisition, there
can be no assurances that the Company will: (i) be able to identify and/or
acquire other suitable acquisition candidates on acceptable terms; (ii) be
successful in managing the combined operations of the entities acquired; or
(iii) be able to effectively and profitably integrate acquired operations into
its business. Additionally, there can be no assurances that any future
acquisitions will not have a material adverse effect on the Company's operating
results, particularly during the period immediately following such acquisitions.
See "Business."
5% Convertible Subordinated Notes
On April 30, 1996, the Company completed a private placement of its 5%
Convertible Subordinated Notes due April 30, 2001 (the "Notes") pursuant to
which $11,500,000 aggregate principal amount of Notes were sold by the Company
under a Convertible Subordinated Note Purchase Agreement dated as of April 30,
1996 (the "Convertible Subordinated Note Purchase Agreement"). The following
description of the Note offering, the Convertible Subordinated
9
<PAGE>
Note Purchase Agreement and the Notes is not intended to be complete and is
qualified in its entirety by the complete texts of the form of Convertible
Subordinated Note Purchase Agreement and the form of Note.
The Notes bear interest at 5% per annum, mature five years from the date
of issuance, and are subordinated to all existing and future Senior Indebtedness
of the Company, as defined and as more fully set forth in the Convertible
Subordinated Note Purchase Agreement. In addition, the Notes may be convertible
into shares of Common Stock of the Company at the option of the holder thereof
at any time prior to the maturity date at a conversion price of $5.00 per share,
subject to adjustment as set forth in the Convertible Subordinated Note Purchase
Agreement.
The Company may redeem the Notes at par at any time two years after
issuance, or at any time after their issuance if the closing price of the Common
Stock is equal to or exceeds $7.50 per share for ten consecutive trading days
and the shares of Common Stock underlying the Notes have been registered under
the Securities Act. In the event the Company elects to redeem the Notes, the
holders of the Notes will have the option to convert the Notes into shares of
the Company's Common Stock at a conversion price of $5.00 per share prior to
such redemption, subject to adjustment as set forth in the Convertible
Subordinated Note Purchase Agreement.
The Company presently expects that the Notes will be converted to Common
Stock (dilutive to common stockholders). In the event that the Notes are not
converted, the Company will require additional financing to repay the Notes upon
their maturity on April 30, 2001. There can be no assurances that the Company
will be able to obtain adequate replacement financing on terms acceptable to it
or at all.
Need For Additional Financing
As of May 1, 1996, the Company reduced its credit facility with LaSalle
Business Credit, Inc. ("LaSalle") to a zero balance. Effective June 30, 1996,
the financing agreement with LaSalle expired and was not renewed. The Company
believes that income from operations and the proceeds from the Notes will be
sufficient to finance its business in the normal course. The Company may require
additional financing to pursue its growth through acquisitions and if such
financing is required, there are no assurances that financing will be available,
or if available, that it can be obtained on terms favorable to the Company, or
that such financing will not be dilutive to stockholders. The Company has a
commitment letter dated October 3, 1996 from Barnett Bank for making available
to the Company a revolving credit facility of up to $10,000,000 for working
capital purposes. As of October 28, 1996, the Company is engaged in discussions
with Barnett Bank regarding the terms of such loan facility. It is currently
contemplated that the loan facility will be secured by the Company's and its
subsidiaries' inventory and accounts receivable and guaranteed by the Company's
subsidiaries. See "Business."
10
<PAGE>
Control By Certain Stockholders
Kanders Florida Holdings, Inc. ("KFH") owns in the aggregate 4,496,037
shares of the Company's Common Stock. Such shares are deemed to be beneficially
owned by Warren B. Kanders because he is the sole stockholder and sole director
of KFH. In addition, Mr. Kanders, who is the Chairman of the Board of Directors
of the Company, owns 29,141 shares individually. Such shares collectively
represent approximately 57.8% of the Company's outstanding shares of Common
Stock. KFH has the practical ability to control the election of all of the
members of the Company's Board of Directors and to otherwise exercise control
over the business, policies and affairs of the Company. The Company's
Certificate of Incorporation (the "Charter") does not provide for cumulative
voting rights with respect to the election of directors. The board members
appointed by KFH would have the ability to veto any proposed action, control any
matter presented at a special meeting and resolve any conflict of interest. See
"Security Ownership of Certain Beneficial Owners and Management."
Reliance Upon Key Personnel
The Company is substantially dependent upon the personal efforts and
abilities of Warren B. Kanders, Chairman of the Board of Directors, and Jonathan
M. Spiller, the President and Chief Executive Officer of the Company. Should
either of these two members of the Company's senior management be unable or
unwilling to continue in their present roles, or should such persons determine
to enter into competition with the Company, the Company's business could be
adversely affected. Because of the relatively small size of the Company, the
loss of a senior executive may have a materially adverse effect upon the Company
until a suitable replacement can be found. See "Management" and "Business."
Potential Antitakeover Effect of Certain Charter Provisions
The Company has 42,172,871 shares of authorized and unissued Common Stock
which could be issued to a third party selected by current management or used as
the basis for a stockholders' rights plan, which could have the effect of
deterring a potential acquiror. The ability of the Company's Board of Directors
to establish the terms and provisions of different series of preferred stock may
discourage unsolicited takeover bids from third parties.
Shares Eligible for Future Sale
Sales of substantial numbers of shares of Common Stock in the public
market in the future could adversely affect the market price of the Common Stock
and could impair the Company's ability to raise additional capital through the
sale of its equity securities. The Company intends to register under the
Securities Act 250,000 shares of its Common Stock, which it plans to offer to
the public to raise additional working capital. The 5,849,183 shares of Common
Stock owned by officers and directors as a group may be sold from time to time
subject to the restrictions contained in Rule 144 under the Securities Act or
pursuant to a
11
<PAGE>
separate registration statement. Ordinarily, under Rule 144, a person having
held restricted securities for a period of two years may, every three months,
sell in ordinary brokerage transactions or in transactions directly with a
market maker, an amount equal to the greater of 1% of the Company's then
outstanding Common Stock or the average weekly trading volume during the four
calendar weeks prior to such sale.
As part of the Company's acquisition strategy, the Company anticipates
issuing and registering under the Securities Act shares of its Common Stock.
Since the Company's acquisition strategy contemplates the issuance of shares of
Common Stock, the number of outstanding shares of Common Stock that are likely
to be eligible for sale in the future is likely to increase substantially. The
Company issued to Ivers-Lee 310,931 shares of Common Stock to pay for the NIK
Assets. The Company issued to DTCoA 270,728 shares of Common Stock, delivered
$1,000,000 in cash and assumed certain liabilities as payment for the DTCoA
Assets. In connection with the acquisition of the DTCoA Assets, the Company
entered into the Key Bank Letter Agreement (as hereinafter defined) pursuant to
which, among other things, it issued to Key Bank of Wyoming ("Key Bank") the Key
Bank Shares (as hereinafter defined) as consideration for the release by Key
Bank of its security interest in substantially all of the assets of DTCoA.
In addition, as of October 28, 1996, 1,467,033 shares of Common Stock
were reserved for issuance upon the exercise of all stock options. Of this
amount, 1,367,033 stock options were outstanding as of October 28, 1996. Of
the outstanding stock options, 814,533 shares were reserved for issuance upon
the exercise of options granted pursuant to the Company's 1994 Incentive Stock
Plan (the "1994 Incentive Stock Plan"). The shares issuable upon exercise of
these options have been registered under the Securities Act. In addition,
150,000 shares of Common Stock were reserved for issuance upon the exercise of
options granted pursuant to the Company's 1996 Stock Option Plan (the "1996
Plan"). The shares issuable upon exercise of these options have not been
registered under the Securities Act. In addition, 402,500 shares of Common Stock
were reserved for issuance upon the exercise of non-qualified stock options
issued to Richmont Capital Partners I, L.P., the beneficial holder of 8.2% of
the Company's Common Stock ("Richmont"), and certain employees of the Company,
including Jonathan M. Spiller, the President and Chief Executive Officer of the
Company. In addition, 39,886 shares of Common Stock are reserved for issuance
upon conversion of the Company's 3% Convertible, $1.00 stated value Preferred
Stock (the "Old Preferred Stock") by holders who have not yet submitted their
shares of Old Preferred Stock for conversion and 2,300,000 shares of Common
Stock are reserved for issuance upon conversion of the Notes. See "Risk
Factors-5% Convertible Subordinated Notes," "Plan of Distribution" and "Certain
Relationships and Related Transactions."
Exercise of Outstanding Options May Have Dilutive Effect on Market
There are presently outstanding options to purchase up to 300,000 shares
of the Company's Common Stock, at a price of $7.50 per share, subject to
adjustment, for a term of
12
<PAGE>
up to ten years, which are held by Richmont (the "Richmont Options"). The
Richmont Options provide an opportunity for Richmont to profit from a rise in
the market price of the Common Stock, with resulting dilution in the ownership
interest in the Company held by the then present stockholders. Richmont would
most likely exercise them and purchase the underlying Common Stock at a time
when the Company may be able to obtain capital by a new offering of securities
on terms more favorable than those provided by the Richmont Options, in which
event the terms on which the Company may be able to obtain additional capital
would be adversely affected. At the present time, neither the Richmont Options
nor the shares underlying the Richmont Options are registered under the
Securities Act, but the Company reserves the right to register such shares at
any time.
The Richmont Options and the underlying shares, whether vested or
unvested, are callable by the Company in the event that the closing price per
share of the Company's Common Stock is equal to or greater than $10 for a period
of ten consecutive trading days after December 31, 1997, upon written notice
to Richmont given within 30 days of the conclusion of such ten consecutive
trading days during which the closing price per share of the Company's Common
Stock was equal to or greater than $10. In such event, the Company may require
Richmont to exercise the Richmont Options in whole with respect to all such
shares within ten days of such notice to Richmont. In the event that Richmont
does not exercise the Richmont Options, the Richmont Options will lapse and be
of no further force or effect. See "Certain Relationships and Related
Transactions."
Dividends
The Company has paid no cash dividends on its Common Stock in the last
three fiscal years and for the foreseeable future intends to retain any earnings
to finance the development and expansion of its business. The declaration of
dividends in the future will be at the election of the Board of Directors, and
will depend upon the earnings, capital requirements and financial position of
the Company, plans for expansion, general economic conditions and other
pertinent factors. Accordingly, there are no assurances that any dividends will
ever be paid on the Company's Common Stock.
Volatility of Market Price for Common Stock
The securities markets have experienced significant price and volume
fluctuations from time to time in recent years that have often been unrelated or
disproportionate to the operating performance of particular companies. These
broad fluctuations may adversely affect the market price of the Common Stock.
See "Market for Common Stock and Related Stockholder Matters."
Substantial Shares Reserved for Issuance
The Company has an aggregate of 5,317,033 shares of Common Stock reserved
for issuance upon the exercise of options to purchase Common Stock and the
conversion of the
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<PAGE>
Notes. These include: (i) 2,300,000 shares of Common Stock issuable upon the
conversion of the Notes; (ii) 300,000 shares issuable upon the exercise of the
Richmont Options; (iii) 814,533 shares issuable upon the exercise of options
granted under the 1994 Incentive Stock Plan; (iv) 102,500 shares issuable upon
the exercise of non-qualified stock options issued to certain employees of the
Company; (v) 1,500,000 shares issuable upon the exercise of options (150,000
options are outstanding to date, and 100,000 shares are reserved for issuance
pursuant to options to be granted in the future to certain employees of the
Company and its subsidiary, DTC) under the 1996 Plan; and (vi) 300,000 shares
issuable upon the exercise of options (225,000 options are outstanding to date)
under the Company's 1996 Non-Employee Directors Stock Option Plan (the "1996
Directors Plan"). The conversion of the Notes and the exercise of the options
may dilute the net tangible book value of the Common Stock. Further, the holders
of the Notes and options, respectively, may be able to convert and exercise the
Notes and options, as the case may be, at a time when the Company would
otherwise be able to obtain additional equity capital on terms more favorable to
the Company. See "Security Ownership of Certain Beneficial Owners and
Management," "Management," "Certain Relationships and Related Transactions" and
"Executive Compensation-Stock Option Plans."
FOR ALL OF THE FOREGOING REASONS AND OTHERS SET FORTH IN THIS PROSPECTUS, THE
SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF THESE AND
OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE SECURITIES SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY.
USE OF PROCEEDS
The net proceeds from the sale of the NIK Shares and the Key Bank Shares
will be received by Ivers-Lee and Key Bank, respectively, (hereinafter, at
times, the "Selling Stockholders") as consideration for the sale of the NIK
Assets by Ivers-Lee to the Company and for the release by Key Bank of a security
interest held by Key Bank in substantially all of the assets of DTCoA,
respectively. No proceeds will be realized by the Company as a result of the
sale of the NIK Shares and the Key Bank Shares. Ivers-Lee has a contractual
obligation, however, pursuant to the NIK Asset Purchase Agreement, to pay
certain amounts to the Company if and when net proceeds realized by Ivers-Lee
from the sale of the NIK Shares exceeds a threshold amount. See "NIK
Acquisition" and "DTCoA Acquisition." The proceeds paid by Ivers-Lee to the
Company and from the sale of the Company Shares will be used by the Company for
working capital purposes.
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<PAGE>
SELLING STOCKHOLDERS
A total of 669,645 shares of Common Stock may be offered by the Selling
Stockholders. The NIK Shares and the Key Bank Shares offered hereby constitute
approximately 4% and 4.6% respectively of all shares of the Company's
outstanding Common Stock, without giving effect to the possible exercise of
outstanding options and the conversion of the Notes, except as noted. The
following table sets forth certain information with respect to the Selling
Stockholders, for whom the Company is registering for resale to the public
shares of the Company's Common Stock. The table reflects the Selling
Stockholders' beneficial ownership of the Common Stock as of October 28, 1996.
The Company will not receive any proceeds from the sale of the NIK Shares or the
Key Bank Shares. Ivers-Lee has a contractual obligation, however, pursuant to
the NIK Asset Purchase Agreement to pay certain amounts to the Company if and
when net proceeds realized by the Ivers-Lee from the sale of the NIK Shares
exceeds a threshold amount. See "Use of Proceeds," "NIK Acquisition" and DTCoA
Acquisition." There are no material relationships between the Selling
Stockholders and the Company or any of its predecessors or affiliates, nor have
any such material relationships existed within the past three years, except as
noted.
<TABLE>
<CAPTION>
============================================================================================
Beneficial Ownership as of Maximum Beneficial Ownership
October 28, 1996 to be Sold After Offering if
Selling Stockholder in this Maximum
Offering is Sold (1)
(# of
Shares)
Amount Percent Amount Percent
(# of Shares) (# of
Shares)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Ivers-Lee Corporation 310,931 4% 310,931 0 --
============================================================================================
Key Bank of Wyoming 358,714 4.6% 358,714 0 --
============================================================================================
</TABLE>
(1) Information contained in the table assumes that all securities offered
pursuant to this Prospectus will be sold.
NIK ACQUISITION
On July 15, 1996, the Company, through its subsidiary NIK, acquired
certain assets of NIK Public Safety from Ivers-Lee. NIK Public Safety is the
leading manufacturer and distributor of portable narcotic identification kits
used for the identification of narcotic substances by law enforcement agencies.
In addition, NIK Public Safety distributes the Flex-Cuf restraint, a patented
disposable restraint manufactured by Thomas & Betts, as well as specimen
collection kits, evidence collection kits and tamper guard evidence tape. The
Company and NIK (collectively, the "NIK Purchaser"), acquired from Ivers-Lee and
LFC No. 46 Corp., a wholly-
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<PAGE>
owned subsidiary of Ivers-Lee (Ivers-Lee and LFC No. 46 Corp., collectively, the
"NIK Seller"), certain assets of NIK Public Safety from Ivers-Lee pursuant to an
asset purchase agreement dated as of July 2, 1996 (the "NIK Asset Purchase
Agreement"), pursuant to which: (i) the NIK Purchaser agreed to purchase
inventory, receivables, intellectual property, contracts and other tangible and
intangible properties and related assets of NIK Public Safety from the NIK
Seller (collectively, the "NIK Assets"); and (ii) in consideration therefor, the
NIK Purchaser agreed to issue to the NIK Seller 310,931 shares of Common Stock
of the Company, valued at $2,400,000 in accordance with the NIK Asset Purchase
Agreement (the "NIK Shares").
In connection with the execution of the NIK Asset Purchase Agreement, the
NIK Purchaser agreed to register the NIK Shares for sale under the Securities
Act. On the closing date, the NIK Purchaser advanced to the NIK Seller
$1,200,000 (the "Advance"). Such Advance will not bear interest and must be
repaid by the NIK Seller with the first $1,200,000 realized by the NIK Seller
from the sales of the NIK Shares. In the event that the sum of the aggregate net
proceeds from sales of the NIK Shares prior to December 31, 1996, less any
amounts paid to the Company on account of the Advance (the "NIK Seller's
Balance"), and the Advance are less than $2,400,000, the Company has agreed to
pay to the NIK Seller, on December 31, 1996, the difference between $2,400,000
and the sum of NIK Seller's Balance and the Advance. In the event that the sum
of the NIK Seller's Balance and the Advance at any time exceeds $2,400,000, then
the NIK Seller has agreed to pay to the NIK Purchaser an amount equal to the
excess of such NIK Seller's Balance and the Advance over $2,400,000.
Pursuant to the provisions of the NIK Asset Purchase Agreement, Ivers-Lee
irrevocably delivered to Union Bank of Switzerland, New York Branch ("UBS") the
stock certificate of the Company issued in the name of Ivers-Lee representing
the NIK Shares to be held by UBS (the "UBS/Ivers-Lee Account"). UBS is
authorized to hold the NIK Shares in its possession and to effect any sales of
NIK Shares as the Company, pursuant to an Irrevocable Power of Attorney granted
by Ivers-Lee in favor of Jonathan M. Spiller, President and Chief Executive
Officer of the Company, may from time to time direct (the "Ivers-Lee Power of
Attorney"). Under the Ivers-Lee Power of Attorney, Mr. Spiller has the power to
effect, in the name of, for and on behalf of Ivers-Lee, any and all sales of the
NIK Shares.
The terms of the UBS/Ivers-Lee Account are irrevocable, and pursuant to
the UBS/Ivers-Lee Account and the Ivers-Lee Power of Attorney, the Company has
the right to direct the sales of the NIK Shares; provided, however, that in the
event that Ivers-Lee has not received an aggregate of $2,400,000 (including net
sales proceeds from sales of the NIK Shares and the Advance) on or before
December 31, 1996, or in the event that the NIK Purchaser is otherwise in
default of its obligations to Ivers-Lee pursuant to the NIK Asset Purchase
Agreement, then the provisions of the UBS/Ivers-Lee Account and the Ivers-Lee
Power of Attorney will terminate, and the NIK Shares will be delivered to
Ivers-Lee. The UBS/Ivers-Lee Account and the Ivers-Lee Power of Attorney will
also terminate upon the sale of all of the NIK Shares and the disposition of the
proceeds therefrom.
The foregoing description of the NIK Asset Purchase Agreement and the
transactions contemplated thereby is not intended to be complete and is
qualified in its entirety by the complete text of the NIK Asset Purchase
Agreement.
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<PAGE>
DTCoA ACQUISITION
On September 30, 1996, the Company, through its subsidiary DTC, acquired
substantially all of the assets of DTCoA (such acquisition, the "DTCoA
Acquisition"). DTCoA is a leading manufacturer and distributor of
less-than-lethal and anti-riot products including pepper sprays, distraction
devices, flameless expulsion grenades, specialty impact munitions and dry
powdered oleoresin capsicum to law enforcement agencies and military services in
the United States and abroad. In addition, DTCoA distributes other similar
products including gas masks, riot helmets and gun holsters. The Company and DTC
(collectively, the "DTCoA Purchaser"), acquired from DTCoA, Robert Oliver, and
Sandra Oliver (DTCoA, Robert Oliver, and Sandra Oliver, collectively, the "DTCoA
Seller"), substantially all of the assets of DTCoA (the "DTCoA Assets") pursuant
to an asset purchase agreement dated as of August 23, 1996 (the "DTCoA Asset
Purchase Agreement"), pursuant to which: (i) the DTCoA Purchaser agreed to
purchase the DTCoA Assets from the DTCoA Seller; and (ii) in consideration
therefor, the DTCoA Purchaser (x) delivered $1,000,000 in cash to the DTCoA
Seller, (y) issued to the DTCoA Seller 270,728 shares of Common Stock of the
Company, valued at $2,000,000 in accordance with the DTCoA Asset Purchase
Agreement (the "DTCoA Shares"), and (z) assumed certain liabilities of DTCoA,
all as more fully set forth in the DTCoA Asset Purchase Agreement.
In connection with the execution of the DTCoA Asset Purchase Agreement,
the DTCoA Purchaser agreed to register the DTCoA Shares for sale under the
Securities Act of 1933, as amended, by December 15, 1997.
In order to secure the obligations of the DTCoA Seller under the DTCoA
Asset Purchase Agreement, the DTCoA Seller delivered to UBS, as escrow agent
(the "Escrow Agent") pursuant to an escrow agreement (the "Escrow Agreement"),
the DTCoA Shares, together with any additional shares as may be required by the
DTCoA Asset Purchase Agreement. One-half of the DTCoA Shares will be held in
escrow (the "Escrow Fund") until March 15, 1998, and the remainder will be held
in escrow until June 30, 1999 (each, a "Release Date"). The DTCoA Seller shall
be entitled to vote the DTCoA Shares in the Escrow Fund and to receive dividends
thereon, when, as and if declared by the Board of Directors of the Company.
In connection with the DTCoA Acquisition, the Company issued to Key Bank
of Wyoming ("Key Bank") the Key Bank Shares (as hereinafter defined) as
consideration for the release by Key Bank of its security interest in
substantially all of the assets of DTCoA. Key Bank held such security interest
pursuant to credit facilities previously made available to DTCoA in the amounts
of $3,000,000 (the "$3,000,000 Facility") and $1,000,000 (the "$1,000,000
Facility").
Subject to the terms and conditions of a letter agreement dated August 16,
1996 by and among the Company, Key Bank, DTCoA, Robert Oliver and Sandra Oliver
(the "Key Bank Letter Agreement"), the Company delivered to Key Bank on
September 30, 1996 (the "Closing"), as payment in full of the $3,000,000
Facility and in complete satisfaction and discharge thereof, a certificate
registered in the name of Key Bank for 358,714 shares of Common Stock of the
Company (the "Key Bank Shares"), valued at $2,650,000 (the "Amount Due") in
accordance with the Key Bank Letter Agreement. Any amounts paid to Key Bank on
17
<PAGE>
account of the Amount Due, including the Initial Amount (as hereinafter
defined), will result in a reduction of the then outstanding balance of the
Amount Due by a like amount. Pursuant to the Key Bank Letter Agreement, Key Bank
agreed that upon the registration of the Key Bank Shares, the Key Bank Shares
would be sold, provided that the Company would control, in its sole discretion,
the timing, manner and amount of Key Bank Shares to be sold; and in connection
therewith, the Company agreed to ensure that (a) Key Bank realizes net proceeds
from such sales (the "Net Sale Proceeds"), which, together with any advances
from the Deposit Account and the Initial Amount (each as hereinafter defined)
will, in the aggregate, equal the Amount Due, on or before September 30, 1997;
(b) all sales are arranged through UBS in accordance with all applicable laws,
rules, and regulations; and (c) none of the events of default described in the
Key Bank Letter Agreement have occurred. So long as Key Bank is not in default
of its obligations under the Key Bank Letter Agreement, Key Bank will have all
voting and dividend rights with respect to the Key Bank Shares. The Company
agreed to indemnify Key Bank against any capital gains taxes that may be
incurred by Key Bank resulting from the sale of the Key Bank Shares.
On the Closing date, the Company advanced to Key Bank by wire transfer
$662,500 (the "Initial Amount"). Provided none of the events of default
described in the Key Bank Letter Agreement have occurred, the Company will
thereafter be entitled to receive, before any Net Sales Proceeds are paid to Key
Bank, an amount equal to the Initial Amount plus all advances from the Deposit
Account previously paid by the Company to Key Bank and not so recouped. Key Bank
has provided UBS with irrevocable written instructions to such effect. Upon the
occurrence of any of the events of default described in the Key Bank Letter
Agreement, the Company is entitled to receive any portion of the Initial Amount
or advances from the Deposit Account not previously recouped after Key Bank has
received any unpaid balance of the Amount Due.
Pursuant to the provisions of the Key Bank Letter Agreement, Key Bank
irrevocably delivered to UBS the stock certificate of the Company issued in the
name of Key Bank representing the Key Bank Shares to be held by UBS (the
"UBS/Key Bank Account"). UBS is authorized to hold the Key Bank Shares in its
possession and to effect any sales of the Key Bank Shares as the Company,
pursuant to an Irrevocable Power of Attorney granted by Key Bank in favor of
Jonathan M. Spiller, the President and Chief Executive Officer of the Company,
may from time to time direct (the "Key Bank Power of Attorney"). Under the Key
Bank Power of Attorney, Mr. Spiller has the irrevocable power to effect, in the
name of, for and on behalf of Key Bank, all sales of the Key Bank Shares.
In order to secure the Company's obligations to Key Bank on the Closing
date, the Company deposited with Key Bank (the "Deposit Account"), $1,987,500,
which will be invested by Key Bank in 30-day certificates of deposit of Key Bank
which will bear interest at a rate per annum equal to the highest rate made
available by Key Bank to its customers for similar deposits (the "CD Rate"), and
will be automatically renewable for successive 30-day periods, subject to the
provisions of the Key Bank Letter Agreement.
The Deposit Account will be held in the name of the Company and the
principal amount of the Deposit Account will be subject to a perfected security
interest and right of set-off in favor of Key Bank. Upon payment in full of the
Amount Due, Key Bank may retain any interest
18
<PAGE>
earned on the Deposit Account that has not been previously paid to the Company
and apply it against the Interest Equivalent Amount (as hereinafter defined)
owed by the Company and DTCoA to Key Bank.
The Amount Due from time to time outstanding will accrue an effective
annual rate of interest equal to two thirds of the sum of the CD Rate plus 1%
(the "Interest Equivalent Amount"). Each of the Company and DTCoA agreed to pay
to Key Bank on the earlier of the Maturity Date or the date on which the Amount
Due has been paid in full one-half of the Interest Equivalent Amount.
The Company will pay to Key Bank the remaining balance of the Amount Due
in accordance with the following schedule, subject to adjustment:
Date: Payment Amount:
----- ---------------
December 15, 1996 $300,000
January 31, 1997 $300,000
April 30, 1997 $350,000
July 31, 1997 $350,000
provided, however, that the Company will have the right, at its option, to
prepay all or a portion of the Amount Due without penalty or premium at any time
prior to the Maturity Date. All Net Sales Proceeds received by Key Bank will be
applied as a prepayment against the next Payment Amount(s) due. The Company will
have the right to use funds in the Deposit Account to make the payments
described above.
Upon receipt by Key Bank of the Amount Due, plus the entire Interest
Equivalent Amount, whether from the Initial Amount, the Net Sales Proceeds, the
Deposit Account, or any combination thereof, UBS will be instructed to deliver
to the Company for cancellation any remaining Key Bank Shares held by UBS for
Key Bank and any excess Net Sales Proceeds up to $20,000.
The foregoing description of the DTCoA Asset Purchase Agreement and the
Key Bank Letter Agreement and the transactions contemplated thereby are not
intended to be complete and are qualified in their entirety by the complete text
of the DTCoA Asset Purchase Agreement, the Key Bank Letter Agreement, the
instruction letter from Key Bank to UBS and the Key Bank Power of Attorney.
19
<PAGE>
UNAUDITED PROFORMA FINANCIAL STATEMENTS
The following unaudited proforma income statements for the nine month
period ended September 28, 1996 and for the year ended December 31, 1995 gives
effect to the DTCoA Acquisition on September 30, 1996 and the issuance of the
Notes by the Company on April 30, 1996 as if the DTCoA Acquisition and Note
offering had occurred as of January 1, 1996 and January 1, 1995, respectively.
The following unaudited proforma balance sheet as of September 28, 1996 gives
effect to the issuance of the Notes and the acquisition of the DTCoA Assets as
if such transactions had occurred on September 28, 1996.
These unaudited proforma financial statements may not be indicative of
the results that actually would have occurred if the transactions referred to
above had been in effect on the dates indicated or the results that may be
obtained in the future.
PF-1
<PAGE>
Armor Holdings, Inc.
Unaudited Proforma Income Statements
for the nine months ended September 28, 1996
<TABLE>
<CAPTION>
Acquisition Issuance of
Historical of DTCoA Convertible
Armor Hldgs assets (2) Debt (4) Proforma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 11,314,656 $ 6,772,483 $ 18,087,139
COST AND EXPENSES:
Cost of sales $ 7,012,219 $ 3,643,911 $ 10,656,130
Selling, general and
administrative expenses $ 3,268,901 $ 2,071,187 $ 64,667 $ 5,404,755
Interest expense, net $ 154,570 $ 30,721 $ 191,667 $ 376,958
($ 82,030) ($ 82,030)
------------ ------------ ------------ -------------
OPERATING INCOME $ 878,966 $ 1,026,664 ($ 174,303) $ 1,731,327
Amortization of intangibles $ 76,949 $ 49,751 $ 126,700
Amortization of
reorganization value
in excess of amounts
allocable to identifiable assets $ 38,245 $ 38,245
------------ ------------ ------------ -------------
INCOME BEFORE INCOME TAXES $ 763,772 $ 976,913 ($ 174,303) $ 1,566,382
INCOME TAXES (2) $ 310,000 $ 380,996 ($ 64,492) $ 626,504
------------ ------------ ------------ -------------
NET INCOME $ 453,772 $ 595,917 ($ 109,811) $ 939,878
============ ============ ============ =============
EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARES $ 0.06 $ 0.12
WEIGHTED AVERAGE COMMON SHARES
AND COMMON EQUIVALENT SHARES 7,646,024 7,916,752
</TABLE>
See Notes to Unaudited Proforma Financial Statements.
PF-2
<PAGE>
Armor Holdings, Inc.
Unaudited Proforma Income Statements
for the year ended December 31, 1995
<TABLE>
<CAPTION>
Acquisition Issuance of
Historical of DTCoA Convertible
Armor Hldgs assets (2) Debt (4) Proforma
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 11,741,367 $ 10,352,701 $22,094,068
COST AND EXPENSES:
Cost of sales $ 7,443,080 $ 5,705,885 $13,148,965
Selling, general and
administrative expenses $ 3,421,093 $ 3,339,023 $ 170,000 $ 6,930,116
Interest expense, net $ 280,891 $ 77,429 $ 575,000 $ 933,320
($ 246,091) ($ 246,091)
------------ ------------ ------------ ------------
OPERATING INCOME $ 596,303 $ 1,230,364 ($ 498,909) $ 1,327,758
Amortization of intangibles $ 99,502 $ 99,502
NON-OPERATING INCOME $ 227,500 $ 227,500
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES $ 823,803 $ 1,130,862 ($ 498,909) $ 1,455,756
INCOME TAXES (3) $ 303,650 $ 441,036 ($ 183,896) $ 560,790
------------ ------------ ------------ ------------
NET INCOME $ 520,153 $ 689,826 ($ 315,013) $ 894,966
============ ============ ============ ============
EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARES $ 0.08 $ 0.13
WEIGHTED AVERAGE COMMON SHARES
AND COMMON EQUIVALENT SHARES 6,369,672 6,640,400
</TABLE>
See Notes to Unaudited Proforma Financial Statements.
PF-3
<PAGE>
Armor Holdings, Inc.
Unaudited Proforma Balance Sheet
As of September 28, 1996
Acquisition
Historical of DTCoA
Armor Hldgs assets (1) Proforma
----------- ------------ -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,515,553 ($2,047,399) $ 6,468,154
Accounts receivable $ 2,760,551 $ 2,095,958 $ 4,856,509
Inventories $ 1,486,444 $ 2,183,233 $ 3,669,677
Prepaid expenses and other
current assets $ 759,297 $ 354,692 $ 1,113,989
----------- ----------- -----------
Total current assets $13,521,845 $ 2,586,484 $16,108,329
PROPERTY AND EQUIPMENT, net $ 514,540 $ 1,924,147 $ 2,438,687
REORGANIZATION VALUE IN
EXCESS OF AMOUNTS ALLOCABLE
TO IDENTIFIABLE ASSETS, net $ 3,464,329 $ 3,464,329
PATENTS, TRADEMARKS, & OTHER
INTANGIBLES $ 1,855,000 $ 1,658,364 $ 3,513,364
OTHER ASSETS $ 1,000,785 $ 1,000,785
----------- ----------- -----------
TOTAL ASSETS $20,356,499 $ 6,168,995 $26,525,494
=========== =========== ===========
See Notes to Unaudited Proforma Financial Statements.
PF-4
<PAGE>
Armor Holdings, Inc.
Unaudited Proforma Balance Sheet
As of September 28, 1996
Acquisition
Historical of DTCoA
Armor Hldgs assets (1) Proforma
----------- ------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Liability for Acquisition
of Assets $ 1,232,493 $ 1,987,500 $ 3,219,993
Short term borrowings and
current portion of
long-term debt $ 7,613 $ 499,119 $ 506,732
Accounts payable, accrued
expenses & other current
liabilities $ 1,894,525 $ 1,570,459 $ 3,464,984
Taxes currently payable $ 226,000 $ 226,000
----------- ----------- -----------
Total current liabilities $ 3,360,631 $ 4,057,078 $ 7,417,709
5% CONVERTIBLE SUBORDINATED NOTES: $11,500,000 $11,500,000
OTHER LONG-TERM DEBT AND
CAPITALIZED LEASE
OBLIGATION, less
current portion $ 21,907 $ 111,917 $ 133,824
----------- ----------- -----------
Total liabilities $14,882,538 $ 4,168,995 $19,051,533
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares authorized,
0 shares issued and outstanding $ 0 $ 0
Common stock, $.01 par value,
50,000,000 shares authorized,
6,926,642 shares issued and
outstanding $ 69,266 $ 8,122 $ 77,388
Additional paid -incapital $ 3,986,245 $ 1,991,878 $ 5,978,123
Retained earnings $ 1,418,450 $ 1,418,450
----------- ----------- -----------
Total stockholders' equity $ 5,473,961 $ 2,000,000 $ 7,473,961
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $20,356,499 $ 6,168,995 $26,525,494
=========== =========== ===========
See Notes to Unaudited Proforma Financial Statements.
PF-5
<PAGE>
ARMOR HOLDINGS, INC.
NOTES TO UNAUDITED PROFORMA FINANCIAL STATEMENTS
(1) Acquisition of DTCoA Assets
On September 30, 1996, the Company acquired substantially all of the
assets of Defense Technology Corporation of America, a Wyoming corporation
(the "DTCoA Assets"). The purchase consideration was $838,025 in cash,
approximately 630,000 shares of common stock, and the assumption of
approximately $2,250,000 in liabilities, of which $550,000 was paid at
closing. The purchase price was allocated based on relative fair market
values. Patents, trademarks, and other intangibles will be amortized over
their respective useful lives, which range from 5-25 years. As part of the
acquisition, the Company agreed to pay off the seller's main credit
facility of $3,000,000 for a total price of $2,650,000 in cash and stock.
In addition to the seller accepting an international distributorship
agreement with the Company (the "International Distributorship
Agreement"), the Company's agreement with the seller provides that the
Company will pay the seller an additional $1,000,000 in stock if the
Company attains certain international sales goals over the next three
years.
(2) Acquisition of DTCoA Assets
Income Statement information was prepared using DTCoA's audited financial
statements as of December 31, 1995 and unaudited interim financial
statements for the nine month period ended September 28, 1996, with the
following adjustments:
- Sales were reduced for the new pricing which has been reduced
pursuant to the International Distribution Agreement.
- Cost of sales were reduced in order to reclassify product liability
insurance to a selling expense.
- Selling, general, and administrative expenses were reduced to
eliminate the international office located in Miami, Florida and
certain expenses incurred relating to the previous owner of DTCoA,
including an airplane. In addition, these expenses were increased to
reflect new guaranteed commission and life insurance premium costs
incurred by the Company in connection with the International
Distribution Agreement.
- Interest expense was reduced to reflect only the interest relating
to debt that was not paid off at the closing of the acquisition.
- Amortization of intangibles reflect the Company's policy of
amortizing all patents, trademarks and other intangibles over a life
of 5-25 years.
(3) Issuance of Convertible Debt
On April 30, 1996, the Company issued 5% Convertible Subordinated Notes
due April 30, 2001 (the "Notes") whereby the Company received cash of
$11,500,000. The cash was reduced by paying down the Company's credit
facility by approximately $1,700,000, and paying debt-related costs of
$850,000. The Notes have an interest rate of 5% which equates to an
interest cost of $575,000 annually, or $143,750 quarterly. In addition,
deferred debt issue costs are being amortized over the term of the Notes,
which is five years. The proformas also reflect the reduction of
historical interest expense of
PF-6
<PAGE>
$246,091 and $141,622 for the year ended December 31, 1995 and for the
nine months ended September 28, 1996, respectively, relating to debt paid
off from the proceeds of the issuance of the Notes.
(4) Income Taxes
The proforma tax expense reflects the historical effective tax rates
incurred by the Company for each respective period. In addition, no
significant permanent differences are associated with the DTCoA
acquisition, thus the federal statutory rate of 39% has been applied in
the proforma.
(5) Earnings Per Share Calculation
No earnings per share calculation for the DTCoA acquisition was
performed because calculating earnings per share on the DTCoA acquisition
on a stand alone basis is misleading and distorts the consolidated
earnings per share.
PF-7
<PAGE>
PLAN OF DISTRIBUTION
The sales of the NIK Shares and the Key Bank Shares by the Selling
Stockholders and the sales of the Company Shares by the Company may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Stockholders) on the American Stock Exchange or
on such other market as the Company's Common Stock may then be trading, in
negotiated transactions, a combination of such methods of sale, or otherwise.
Sales may be made at fixed prices which may be changed, at market prices
prevailing at the time of sale, or at negotiated prices.
The Selling Stockholders and the Company may effect such transactions by
selling the NIK Shares, the Key Bank Shares and the Company Shares,
respectively, directly to purchasers, through broker-dealers acting as agents
for the Selling Stockholders and the Company, as the case may be, or to
broker-dealers who may purchase shares as principals and thereafter sell the NIK
Shares, the Key Bank Shares and/or the Company Shares from time to time on the
American Stock Exchange or on such other market as the Company's Common Stock
may then be trading, in negotiated transactions, or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions, or commissions from the Selling Stockholders, the Company and/or
the purchasers for whom such broker-dealers may act as agents or to whom they
may sell as principals, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions).
Pursuant to the provisions of the NIK Asset Purchase Agreement, Ivers-Lee
irrevocably delivered to UBS the stock certificate of the Company issued in the
name of Ivers-Lee representing the NIK Shares to be held by UBS in the
UBS/Ivers-Lee Account. UBS is authorized to hold the NIK Shares in its
possession and to effect any sales of NIK Shares as the Company, pursuant to the
Ivers-Lee Power of Attorney, may direct. Under the Ivers-Lee Power of Attorney,
Jonathan M. Spiller, the President and Chief Executive Officer of the Company,
has the power to effect, in the name of, for and on behalf of Ivers-Lee, any and
all sales of the NIK Shares.
The terms of the UBS/Ivers-Lee Account are irrevocable, and pursuant to
the UBS/Ivers-Lee Account and the Ivers-Lee Power of Attorney, the Company has
the right to direct the sales of the NIK Shares; provided, however, that in the
event that Ivers-Lee has not received an aggregate of $2,400,000 (including net
sales proceeds from sales of the NIK Shares and the Advance) on or before
December 31, 1996, or in the event that the NIK Purchaser is otherwise in
default of its obligations to Ivers-Lee pursuant to the NIK Asset Purchase
Agreement, then the provisions of the UBS/Ivers-Lee Account and the Ivers-Lee
Power of Attorney will terminate, and the NIK Shares will be delivered to
Ivers-Lee. The UBS/Ivers-Lee Account and the Ivers-Lee Power of Attorney will
also terminate upon the sale of all of the NIK Shares and the disposition of the
proceeds therefrom. "See NIK Acquisition."
Pursuant to the provisions of the Key Bank Letter Agreement, Key Bank
irrevocably delivered to UBS the stock certificate of the Company issued in the
name of the Key Bank
20
<PAGE>
representing the Key Bank Shares to be held by UBS in the UBS/Key Bank Account.
UBS is authorized to hold the Key Bank Shares in its possession and to effect
any sales of the Key Bank Shares as the Company, pursuant to the Key Bank Power
of Attorney, may direct. Under the Key Bank Power of Attorney, Jonathan M.
Spiller, the President and Chief Executive Officer of the Company, has the power
to effect, in the name of, for and on behalf of Key Bank, any and all sales of
the Key Bank Shares. See "DTCoA Acquisition."
The Selling Stockholders, the Company and broker-dealers, if any, acting
in connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
Ivers-Lee and Key Bank entered into the NIK Asset Purchase Agreement and
the Key Bank Letter Agreement, respectively, with the Company, which provide for
the registration of the NIK Shares and the Key Bank Shares, as the case may be,
under the Securities Act and the blue sky laws of the several states. Pursuant
to those agreements, the Company is required to bear the cost of such
registration and indemnify, among others, the Selling Stockholders against
certain liabilities, including those under the Securities Act. Insofar as
indemnification for liabilities under the Securities Act may be permitted
pursuant to the above-described agreement or otherwise to directors, officers
and controlling persons of the Company, the Company has been advised that, in
the opinion of the SEC, such indemnification is against public policy expressed
in the Securities Act and is therefore unenforceable.
LEGAL PROCEEDINGS
In May 1992, the Company filed for relief under Chapter 11 of the United
States Bankruptcy Code. The bankruptcy filing was the result of a general
decline in the Company's operations, which included significant operating losses
in 1989 and 1991, and the inability to collect a $1.5 million receivable related
to the shipment of vests to a Middle East customer in April 1991. The Company
emerged from bankruptcy protection effective September 20, 1993, upon
confirmation by the Bankruptcy Court of the Company's Plan of Reorganization.
In November 1989, the Federal Trade Commission (the "FTC") conducted an
investigation into the accuracy of the Company's claims that body armor it sold
between 1988 and 1990 complied with testing sand certification procedures
promulgated by the National Institute of Justice (the "NIJ").
On November 2, 1994, the FTC issued a consent order embodying a voluntary
settlement of the FTC's charges that the Company engaged in false advertising.
Under the consent order, the Company admitted no violations of law but agreed to
establish a Body Armor Replacement Program (the "Program") under which persons
who had purchased body armor covered by the Program would be identified and
offered the chance to buy new, replacement body armor at a reduced price. The
consent order sets forth many detailed requirements governing the conduct
21
<PAGE>
of the Program, the retention of records and the avoidance of false or
misleading advertising. Failure to comply with the requirements could make the
Company liable for civil penalties.
On January 4, 1995, the Company filed with the FTC a comprehensive
Compliance Report detailing the manner in which it was performing the
obligations imposed upon it by the consent order. As of March 18, 1996, the FTC
had not asked for additional information or questioned the Company's compliance
with the consent order.
In addition to the above, the Company, in the normal course of its
business, is subject to claims and litigation in the areas of product and
general liability. The Company believes that it has adequate insurance coverage
for most claims that are incurred in the normal course of business. In such
cases, the effect on the Company's financial statements is generally limited to
the amount of its insurance deductibles. Management does not believe at this
time that any such claims have a material impact on the Company's financial
position, operations and liquidity.
MANAGEMENT
Directors
Each of the persons identified below has served as a director of the
Company since the date set forth opposite their respective name, and will
continue to serve in such capacity for one year or until their respective
successors are duly elected and qualified.
Positions Director
Name Age and Office Since
- ---- --- ---------- -----
Warren B. Kanders (1)(2)(3)(4) 38 Chairman of the Board of 1996
Directors
Jonathan M. Spiller 45 Director, Chief Executive 1991
Officer and President
Burtt R. Ehrlich (1)(2) 56 Director 1996
Nicolas Sokolow (2)(3) 46 Director 1996
Thomas W. Strauss(1) 53 Director 1996
Richard C. Bartlett(3)(4) 61 Director 1996
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Nominating Committee
(4) Member of Option Committee
Directors of the Company are elected annually at the annual meeting of
stockholders. Their respective terms of office continue until the next annual
meeting of stockholders and
22
<PAGE>
until their successors have been elected and qualified in accordance with the
Company's bylaws (the "Bylaws"). There are no family relationships among any of
the directors or executive officers of the Company.
Warren B. Kanders
Warren B. Kanders was elected Chairman of the Board of Directors on
January 18, 1996. Mr. Kanders also served as Vice Chairman of the Board of
Directors of Benson Eyecare Corporation, a New York Stock Exchange listed
company, from October 1992 to May 3, 1996. Mr. Kanders was the President and a
Director of Pembridge Holdings, Inc. from June 1992 to March 1993. Mr. Kanders
is also a Director of Eyecare Products plc, a United Kingdom public company
listed on the London Stock Exchange. Since 1990, Mr. Kanders has been President
of Kanders and Company, Inc., an investment management company. From 1987 to
1990, Mr. Kanders was the founder and Managing Director of Great Pacific
Capital, Inc., which provided investment management advice to the Jim Pattison
Group, one of Canada's largest privately- owned companies. From 1983 to 1987,
Mr. Kanders was Vice President and Director of U.S. Mergers and Acquisitions for
Orion Royal Bank Limited, a merchant bank wholly-owned by the Royal Bank of
Canada. Mr. Kanders also serves as Trustee and Chairman of the Investment
Committee of Choate Rosemary Hall School, Wallingford, Connecticut. Mr. Kanders
received a B.A. degree in Economics from Brown University.
Jonathan M. Spiller
Jonathan M. Spiller has been a Director of the Company since July 1991 and
is the Company's President and Chief Executive Officer. Mr. Spiller became
President of the Company in June 1991, and has served as its Chief Executive
Officer since September 21, 1993. Mr. Spiller formerly served as the Company's
Chief Operating Officer from June 1991 to September 1993, when he was named
Chief Executive Officer. Mr. Spiller is a certified public accountant and was
previously a partner in the international accounting firm of Deloitte & Touche
LLP, where he spent a total of eighteen years, most recently as a partner in the
Capital Markets Group, where he was responsible for international transactions.
From March 1988 to July 1989, Mr. Spiller was the Senior Vice President and
Chief Financial Officer of Hunter Environmental Services, Inc., a large publicly
held company in the environmental field. Mr. Spiller received a B.S. degree in
Economics from the University of Wales and is a Fellow of the Institute of
Chartered Accountants in England and Wales. For additional information
concerning Mr. Spiller, See "Management-Executive Officers-Involvement in
Certain Legal Proceedings."
Burtt R. Ehrlich
Burtt R. Ehrlich was elected a Director of the Company on January 18,
1996. Mr. Ehrlich previously served as a Director of Benson Eyecare Corporation,
a New York Stock Exchange listed company, from its inception in 1986 to 1995,
and as its Chairman and Chief Operating Officer from 1986 until October 1992.
Mr. Ehrlich is a Trustee of the Reserve Private Equity Series of mutual funds
and a Director of the Cater Allen family of mutual funds
23
<PAGE>
in the United Kingdom. He is also a former Treasurer and Trustee of the Carnegie
Council on Ethics and International Affairs, and a former Trustee of the
Buckingham Browne and Nichols School. Mr. Ehrlich received a B.A. degree from
Columbia College and an M.B.A. from Columbia University Graduate School of
Business.
Nicolas Sokolow
Nicolas Sokolow was elected a Director of the Company on January 18, 1996.
Mr. Sokolow is a senior partner in the law firm of Sokolow, Dunaud, Mercadier &
Carreras. From June 1973 until October 1994, Mr. Sokolow was an associate and
partner with the international law firm of Coudert Brothers. Mr. Sokolow is also
a Director of Rexel, Inc., a New York Stock Exchange listed company. Mr.
Sokolow, who is a member of the Paris Bar, received his education from the Paris
School of Law, Institute of Political Sciences-Business Administration and the
University of Michigan.
Thomas W. Strauss
Thomas W. Strauss was elected a Director of the Company on May 13, 1996.
Mr. Strauss is a Principal with Ramius Capital Group, a privately held
investment management firm. Prior to joining Ramius Capital, Mr. Strauss was
Co-Chairman of Granite Capital International Group.
From 1963 to 1991, Mr. Strauss was with Salomon Brothers Inc. He was
admitted as a General Partner in 1972 and was appointed to the Executive
Committee in 1981. In 1986, Mr. Strauss became President of Salomon Brothers Inc
("Salomon") and a Vice Chairman and member of the Board of Directors of Salomon
Inc., the holding company of Salomon Brothers Inc, and Phibro Energy, Inc. As
President of Salomon, he had a special focus on the International Investment
Banking and High Yield activities of the firm. Prior to becoming President of
Salomon, he was responsible for the U.S. Government, Money Market and Foreign
Exchange Departments.
Mr. Strauss is a former member of the Boards of Governors of the American
Stock Exchange, the Chicago Mercantile Exchange, the Public Securities
Association, the Securities Industry Association and a former member of the U.S.
Japan Business-Council. He is a past President of the Association of Primary
Dealers in U.S. Government Securities.
Mr. Strauss currently serves as a member of the Boards of Trustees of The
Mount Sinai Medical Center, Riverdale Country School, the Board of Overseers of
the School of Arts & Sciences of the University of Pennsylvania, the Advisory
Board of Randall's Island Sports Foundation and The Corporation of the Hurricane
Island Outward Bound School. Mr. Strauss received a B.A. degree in Economics
from the University of Pennsylvania. For additional information concerning Mr.
Strauss, See "Management-Directors-Involvement in Certain Legal Proceedings."
24
<PAGE>
Richard C. Bartlett
Richard C. Bartlett was elected a Director of the Company on May 13, 1996.
Mr. Bartlett is the Vice Chairman of Mary Kay Holding Corporation and the
Chairman of The Richmont Group. Prior to being named Vice Chairman of Mary Kay
Holding Corporation in January 1993, Mr. Bartlett served as President and Chief
Operating Officer of Mary Kay Inc. from 1987 through 1992. Mr. Bartlett joined
Mary Kay in 1973 and became an officer in 1976. He has served on the Board of
Directors of Mary Kay Inc. from 1979 to 1995.
Prior to being named Chairman of the Board of The Richmont Group in 1995,
Mr. Bartlett served as Chief Executive Officer from 1994 to 1995. The Richmont
Group is a holding company comprised of six companies doing business in seven
countries. The Richmont companies' portfolio businesses includes, but is not
limited to, financial services, apparel, sporting goods and restaurant chains.
Mr. Bartlett is a former Chairman of the U.S. Direct Selling Education
Foundation ("US DSEF") and the U.S. Direct Selling Association. He currently
serves on the Boards of Directors of both organizations, as well as on the
executive committee of the US DSEF. Mr. Bartlett is Chairman and a Trustee of
The Nature Conservancy of Texas. He also serves on the Board of the Better
Business Bureau of Metropolitan Dallas, Inc., and is a member of the World
Economic Forum, the National Center for Policy Analysis, The Conference Board
and the Academy of Marketing Science. He also serves on the advisory boards of
the Positive Employee Practices Institute, the Center for Retailing Studies at
Texas A&M University, the Center for Retailing Education and Research at the
College of Business Administration at the University of Florida, the Department
of Range, Wildlife, and Fisheries Management at Texas Tech University, the
advisory council of the University of Texas Press and the global board of
advisors for The Economist Group's Crossborder Monitor.
Mr. Bartlett received a B.S. degree in Communications from the University
of Florida, Gainesville.
Involvement in Certain Legal Proceedings
Except as hereinafter provided with respect to Mr. Strauss, and as
hereinafter provided in "Management-Executive Officers-Involvement in Certain
Legal Proceedings," with respect to Mr. Spiller and J. Michael Elliott, the Vice
President-Operations of the Company, no director, director nominee, executive
officer, promoter or control person has, within the last five years: (i) had a
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time; (ii) been convicted in a criminal
proceeding or is currently subject to a pending criminal proceeding (excluding
traffic violations or similar misdemeanors); (iii) been subject to any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business,
securities or banking activities; (iv) been found by a court of competent
jurisdiction (in a civil action), the SEC or the
25
<PAGE>
Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated.
On December 3, 1992, without admitting or denying any liability, Mr.
Strauss, a director, consented to an order of the SEC under which he was
suspended from associating with any broker, dealer, municipal securities dealer,
investment company or investment advisor for a period of six (6) months, and
paid a civil penalty of $75,000. The central claim in these proceedings was that
as President of Salomon, Mr. Strauss delayed in reporting an unauthorized bid by
the head of Salomon's Government Trading Desk who reported to one of Mr.
Strauss' subordinates. Mr. Strauss has maintained that he reported the
unauthorized bid both to Salomon's Chief Executive Officer and General Counsel
immediately upon learning of the unauthorized bid.
Executive Officers
Set forth below is certain information concerning the Company's executive
officers. Each of the persons identified below will continue to serve in such
capacity until the next meeting of the Board of Directors appointing officers
and until a successor is duly elected and qualified. For biographical
information concerning Mr. Spiller, see "Management -Directors."
Executive
Officer
Name Age Position Since
- ---- --- -------- -----
Jonathan M. Spiller 45 President and Chief Executive 1991
Officer
Richard T. Bistrong 33 Vice President - 1995
Sales and Marketing
Carol T. Burke 35 Vice President - Finance and 1995
Secretary
J. Michael Elliott 44 Vice President-Operations 1993
Robert R. Schiller 33 Vice President-Corporate 1996
Development
Richard T. Bistrong
Mr. Bistrong has been the Company's Vice President of Sales and Marketing
since February 1995, when he joined the Company. He is responsible for managing
and directing all efforts and activities of the Company's domestic sales staff.
Mr. Bistrong is also responsible for the development and support of all
distributor relationships. Prior to joining the Company, Mr. Bistrong held the
position of Director of Retail Operations for Fechheimer Brothers Company, a
wholly-owned subsidiary of Berkshire Hathaway, for a period of two years. From
1986 to 1992, Mr. Bistrong was the Executive Vice President of Point Blank Body
Armor where he was responsible for the domestic sales organization. Mr. Bistrong
has a B.A. degree in
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Political Science from the University of Rochester and a Masters of Arts degree
in Foreign Affairs from the University of Virginia.
Carol T. Burke
Ms. Burke has been the Vice President of Finance of the Company since
January 1996 and its Secretary since March 4, 1996. Ms. Burke joined the Company
as Controller in January 1995. She oversees and directs all treasury, budgeting
and accounting activities for the Company. Ms. Burke is also responsible for the
analysis of general economic, business and financial conditions and their impact
on the Company's policies and operations. Ms. Burke, who is a certified public
accountant, previously spent over five years with the Walt Disney organization
as a Senior Finance Manager where she worked in both Orlando and at the Euro
Disney operation in France. Prior to that time, Ms. Burke served as a Senior
Auditor for Arthur Andersen & Co. Ms. Burke has a B.S. degree in both Accounting
and Management Science from the University of South Carolina.
J. Michael Elliott
Mr. Elliott has been a Vice President of the Company since October 1991.
Mr. Elliott also previously served as the Secretary of the Company. He is
responsible for manufacturing (including quality control) and all of the
technical aspects of product development. Mr. Elliott is actively involved in
the marketing of the Company's Explosive Ordnance Disposal products (EOD) and in
sales to the United States military. Mr. Elliott has a B.S. degree in Industrial
Technology from California State University and has significant background in
the industry. Mr. Elliott previously served as Executive Vice-President at
O'Gara Coachworks, Vice President of Operations of Protective Materials Company
from 1986 to 1990, and from 1990 until October 1991 when he joined the Company,
Mr. Elliott was Vice President and Chief Operating Officer of Wes-Pine
Woodworking, Inc., a window manufacturing company located in Massachusetts.
Robert R. Schiller
Mr. Schiller became the Company's Vice President of Corporate Development
in July 1996. He is responsible for assisting in the management of the Company's
acquisition program, related financing activities, and other corporate projects.
From 1992 to 1996, Mr.Schiller was a Principal in the merchant banking firm of
Circadian Capital Corporation and Director of Corporate Finance for its
affiliate, Jonathan Foster & Co. L.P., an NASD registered broker-dealer. From
1991 to 1992, Mr. Schiller served as Vice President of the Special Situation
Investment Fund, an investment fund controlled by the Brooke Group. From 1987 to
1989, Mr. Schiller was with Canadian Imperial Bank of Commerce, most recently as
Vice President, Acquisition Finance. Mr. Schiller has a B.A. in Economics from
Emory University and an MBA from Harvard Business School.
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<PAGE>
Involvement in Certain Legal Proceedings
Messrs. Spiller and Elliott were employed by and served in similar
positions with the Company at the time the Company filed for Chapter 11
bankruptcy protection in May 1992 through the confirmation on September 20, 1993
of the Company's Plan of Reorganization, by the Bankruptcy Court.
SECURITY OWNERSHIP
OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of October 28,
1996, to the knowledge of the Company, regarding the beneficial ownership of
Common Stock, which is the Company's only class of outstanding voting
securities, by: (i) each Stockholder who owns more than 5% of the outstanding
Common Stock of the Company; (ii) each director; (iii) each of the named
executive officers of the Company; and (iv) all directors and executive officers
of the Company as a group. The information set forth in the table and
accompanying footnotes has been furnished by the named beneficial owners. Since
the table and accompanying footnotes reflect beneficial ownership determined
pursuant to the applicable rules of the SEC, the information is not necessarily
indicative of beneficial ownership for any other purpose.
28
<PAGE>
================================================================================
Name and Address Common Stock No. of
of Beneficial Owner Shares Beneficially Owned % of Class
================================================================================
Warren B. Kanders (1) and
Kanders Florida Holdings, Inc. 4,525,178 (1) 57.8%
c/o Armor Holdings, Inc.
191 Nassau Place Road
Yulee, FL 32097
- --------------------------------------------------------------------------------
Jonathan M. Spiller
c/o Armor Holdings, Inc. 740,205 (2) 8.9%
191 Nassau Place Road
Yulee, FL 32097
- --------------------------------------------------------------------------------
Richmont Capital Partners I, L.P. 700,000 (3)
4300 Westgrove Drive 8.2%
Dallas, TX 75248
- --------------------------------------------------------------------------------
J. Michael Elliott
c/o Armor Holdings, Inc. 189,000 (4) 2.4%
191 Nassau Place Road
Yulee, FL 32097
- --------------------------------------------------------------------------------
Burtt R. Ehrlich
c/o Armor Holdings, Inc. 182,300 (5) 2.3%
191 Nassau Place Road
Yulee, FL 32097
- --------------------------------------------------------------------------------
Nicolas Sokolow
c/o Armor Holdings, Inc. 122,500 (6) 1.6%
191 Nassau Place Road
Yulee, FL 32097
- --------------------------------------------------------------------------------
Richard T. Bistrong
c/o Armor Holding, Inc. 50,000 (7) .63%
191 Nassau Place Road
Yulee, FL 32097
- --------------------------------------------------------------------------------
Thomas W. Strauss
c/o Armor Holdings, Inc. 40,000 (8) .51%
191 Nassau Place Road
Yulee, FL 32097
- --------------------------------------------------------------------------------
Richard C. Bartlett
c/o Armor Holdings, Inc. 0 (9) 0%
191 Nassau Place Road
Yulee, FL 32097
- --------------------------------------------------------------------------------
Executive Officers and Directors 5,849,183 (1)(2)(4)(5)(6) 67.7%
as a Group (8 Individuals) (7)(8)(9)
================================================================================
(1) Represents 4,496,037 shares owned by Kanders Florida Holdings, Inc.
("KFH"), which are deemed to be beneficially owned by Warren B. Kanders
because he is the sole shareholder and sole director of KFH, and 29,141
shares which are owned by Mr. Kanders individually.
(2) Includes 432,000 stock options granted to Mr. Spiller under the terms of
his previous employment agreement, which was executed on January 1, 1994
but which was mutually terminated by Mr. Spiller and the Company and
superseded by a
29
<PAGE>
new employment agreement executed on January 18, 1996, and 18,000 options
granted to Mr. Spiller pursuant to the Company's 1994 Incentive Stock
Plan. Such options are fully vested but unexercised. Also includes a
maximum of 50,000 stock options, subject to reduction, awarded to Mr.
Spiller on January 19, 1996. These options are fully vested but
unexercised. Of the 740,205 shares listed, 690,105 are subject to a three
year lock-up agreement by and among Mr. Spiller and KFH. Pursuant to the
terms of a letter agreement, dated January 18, 1996 (the "Letter
Agreement"), Mr. Spiller agreed that he will not, directly or indirectly,
without the prior written consent of KFH, offer to sell, sell, grant any
options for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of such shares of Common Stock of the
Company or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for, such shares of Common
Stock of the Company or dispose of any beneficial interest therein for a
period of three years from January 18, 1996, except as provided in such
Letter Agreement. KFH and Mr. Spiller entered into an agreement, dated as
of January 18, 1996, pursuant to which KFH granted a beneficial ownership
interest in 316,823 shares of Common Stock of the Company owned by KFH.
Such agreement provides that, in the event that KFH sells at least 452,604
shares of Common Stock of the Company in a single transaction, then Mr.
Spiller shall have the option to either (i) pay to KFH an amount equal to
the Spiller Acquisition Cost (as defined in such agreement), in which
event Mr. Spiller will be entitled to receive stock certificates
representing such 316,823 shares of Common Stock, or (ii) receive the net
proceeds relating to 316,823 shares of Common Stock that are the subject
of the sale by KFH, reduced by the Spiller Acquisition Cost relating to
such shares of Common Stock so sold by KFH. In the event that KFH does not
sell at least 452,604 shares of Common Stock as described above, then Mr.
Spiller's rights to the 316,823 shares of Common Stock shall vest on
January 18, 1999; provided, however, that, at such time, Mr. Spiller is
the President and Chief Executive Officer of the Company and his
Employment Agreement with the Company, dated as of January 18, 1996, is in
full force and effect and Mr. Spiller is not in breach thereof; and,
provided, further, that if Mr. Spiller's Employment Agreement with the
Company is terminated due to his death or disability, or without cause,
prior to January 18, 1999, then a pro-rata portion of such 316,823 shares
of Common Stock, based upon the number of months elapsed from January 18,
1996 in relation to 36 months, shall vest to Mr. Spiller. Unless sooner
acquired by Mr. Spiller as hereinabove described, Mr. Spiller shall have
the right to acquire any such vested shares of Common Stock pursuant to
such agreement on January 18, 2001 upon payment by Mr. Spiller to KFH of
the Spiller Acquisition Cost relating to such shares. Excludes the NIK
Shares, which Mr. Spiller has the power to direct the sale of pursuant to
the Power of Attorney but over which Mr. Spiller exercises no voting
power. Mr. Spiller disclaims beneficial ownership of the NIK Shares.
(3) Represents the number of shares deemed to be beneficially owned by
Richmont Capital Partners I, L.P. ("Richmont"), upon conversion of
$3,000,000 principal amount of convertible subordinated notes into Common
Stock at a conversion rate of $5.00 per share. Also includes 100,000 stock
options granted to Richmont which are fully vested but unexercised
pursuant to that certain option granted by the Company to Richmont dated
May 15, 1996, entitling Richmont to purchase up to 300,000 shares of
Common Stock (the "Richmont Options"). Of the remaining 200,000 Richmont
Options granted, 100,000 become fully vested on each of May 15, 1997 and
May 15, 1998. The Richmont Options expire after 5:00 P.M., Eastern Time,
on May 15, 2006.
(4) Includes 138,000 stock options granted to Mr. Elliott under the terms of
his previous employment agreement, which was executed on January 1, 1994
but which was mutually terminated by Mr. Elliott and the Company and
superseded by a new employment agreement executed on January 18, 1996, and
30,000 stock options granted to Mr. Elliott pursuant to the Company's 1994
Incentive Stock Plan. Such options are fully vested but unexercised. All
of the shares listed are subject to a lock-up agreement, by and among Mr.
Elliott and KFH, of up to three years (the "Elliott Lock-Up"). Pursuant to
the Elliott Lock-Up, Mr. Elliott agreed that he will not, directly or
indirectly, without the prior written consent of KFH, offer to sell, sell,
grant any options for the sale of, assign, transfer, pledge, hypothecate
or otherwise encumber or dispose of any shares of Common Stock of the
Company or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common
Stock of the Company or dispose of any beneficial interest therein for a
period of three years from January 18, 1996, except as provided in such
agreement.
(5) Includes 10,000 shares owned by Mr. Ehrlich's children and 20,600 held in
trust for the benefit of his children, of which Mr. Ehrlich's spouse is
trustee, of which he disclaims beneficial ownership. Also includes 400
shares owned by Mr. Ehrlich's spouse's individual retirement account, of
which Mr. Ehrlich disclaims beneficial ownership. Also includes 50,000
shares which are deemed to be beneficially owned by Mr. Ehrlich upon
conversion of $250,000 principal amount of convertible subordinated notes
into Common Stock at a conversion rate of $5.00 per share. Excludes 75,000
stock options granted to Mr. Ehrlich under the terms of the 1996 Directors
Plan. Such options were granted to Mr. Ehrlich upon his initial election
to the Board of Directors on January 18, 1996, at an exercise price of
$3.75 per share, the closing trading price of the Company's Common Stock
on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), on January 18, 1996. Such options vest in three equal
annual installments on January
30
<PAGE>
18, 1997, 1998 and 1999. Of the 182,300 shares listed, 100,000 shares are
subject to a three year lock-up agreement by and among Mr. Ehrlich and KFH
(the "Ehrlich Lock-Up"). Pursuant to the Ehrlich Lock-Up, Mr. Ehrlich
agreed that he will not, directly or indirectly, without the prior written
consent of KFH, offer to sell, sell, grant any options for the sale of,
assign, transfer, pledge, hypothecate or otherwise encumber or dispose of
any shares of Common Stock of the Company or securities convertible into,
exercisable or exchangeable for or evidencing any right to purchase or
subscribe for any shares of Common Stock of the Company or dispose of any
beneficial interest therein for a period of three years from January 18,
1996, except as provided in such agreement.
(6) Represents 100,000 shares owned by S.T. Investors Fund, LLC ("STI"), a
limited liability company of which Mr. Sokolow is a member and 20,000
shares owned by Mr. Sokolow's children, of which he disclaims beneficial
ownership. Excludes 75,000 stock options granted to Mr. Sokolow under the
terms of the 1996 Directors Plan. Such options were granted to Mr. Sokolow
upon his initial election to the Board of Directors on January 18, 1996,
at an exercise price of $3.75 per share, the closing trading price of the
Company's Common Stock on NASDAQ, on January 18, 1996. Such options vest
in three equal annual installments on January 18, 1997, 1998 and 1999. Of
the 122,500 shares listed, 100,000 shares are subject to a three year
lock-up agreement, by and among STI and KFH (the "STI Lock-Up"). Pursuant
to the STI Lock-Up, STI agreed that it will not, directly or indirectly,
without the prior written consent of KFH, offer to sell, sell, grant any
options for the sale of, assign, transfer, pledge, hypothecate or
otherwise encumber or dispose of any shares of Common Stock of the Company
or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common
Stock of the Company or dispose of any beneficial interest therein for a
period of three years from January 18, 1996, except as provided in such
agreement.
(7) Includes 50,000 stock options granted to Mr. Bistrong under the terms of
his previous employment agreement, which was executed on February 5, 1995
but which was mutually terminated by Mr. Bistrong and the Company and
superseded by a new employment agreement executed on January 18, 1996.
Such options are fully vested but unexercised. All of the shares listed
are subject to a three year lock-up agreement, by and among Mr. Bistrong
and KFH (the "Bistrong Lock Up"). Pursuant to the Bistrong Lock-Up, Mr.
Bistrong agreed that he will not, directly or indirectly, without the
prior written consent of KFH, offer to sell, sell, grant any options for
the sale of, assign, transfer, pledge, hypothecate or otherwise encumber
or dispose of any shares of Common Stock of the Company or securities
convertible into, exercisable or exchangeable for or evidencing any right
to purchase or subscribe for any shares of Common Stock of the Company or
dispose of any beneficial interest therein for a period of three years
from January 18, 1996, except as provided in such agreement.
(8) Represents the number of shares deemed to be beneficially owned by Mr.
Strauss, upon conversion of $200,000 principal amount of convertible
subordinated notes into Common Stock at a conversion rate of $5.00 per
share. Excludes 75,000 stock options granted to Mr. Strauss under the
terms of the 1996 Directors Plan. Such options were granted to Mr. Strauss
upon his initial election to the Board of Directors on May 13, 1996, at an
exercise price of $7.50 per share, the closing trading price of the
Company's Common Stock on the American Stock Exchange on May 13, 1996.
Such options vest in three equal annual installments on May 13, 1997, 1998
and 1999.
(9) Mr. Bartlett does not own any shares individually. Mr. Bartlett is
Chairman of the Board of Directors of The Richmont Group, whose
subsidiary, Richmont, is the beneficial owner of 700,000 shares of Common
Stock. Mr. Bartlett disclaims beneficial ownership of the shares owned by
Richmont.
DESCRIPTION OF SECURITIES
The Company's Charter authorizes the issuance of 50,000,000 shares of
Common Stock, par value $.01 per share, and creates a series of preferred stock
in the amount of 5,000,000 shares, with a corresponding right conferred upon the
Board of Directors to set the dividend, voting, conversion and liquidation
rights as well as such redemption or sinking fund provisions of such preferred
stock as the Board may from time to time determine. The Common Stock is the only
class of equity securities being registered hereunder. All of the issued and
outstanding shares of Common Stock, including the shares of Common Stock offered
by the
31
<PAGE>
Selling Stockholders, are validly issued, fully paid and non-assessable. The
holders of Common Stock are entitled to one vote for each share on all matters
submitted to a vote of stockholders. Accordingly, holders of a majority of the
Common Stock entitled to vote in any election of directors may elect all of the
directors standing for election. The holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of assets of the Company which are legally available therefor.
Dividends may be payable either in cash, in property or in shares of Common
Stock. Upon liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably in all assets of the Company which
are legally available for distribution, after payment of all debts and other
liabilities of the Company. The holders of Common Stock have no preemptive,
subscription, redemption or conversion rights, and no sinking fund provisions
are applicable to holders of Common Stock of the Company. The rights,
preferences, and privileges of the holders of Common Stock are subject to the
laws of the State of Delaware, the Company's Charter and Bylaws.
BUSINESS
History
The Company's predecessor was incorporated in January 1969, under the laws
of the State of New York under the name American Body Armor & Equipment, Inc.
(the "New York Corporation"). In February 1983, the New York Corporation moved
its operation to Florida. Effective January 1, 1984, the New York Corporation
was merged with and into Armour of Fernandina Beach, Inc. ("Armour"), a Florida
corporation incorporated in October 1980, which prior to such merger (the
"Armour Merger") had been a separate but affiliated entity of the New York
Corporation. Pursuant to the Armour Merger, Armour remained as the surviving
entity and subsequently changed its name to American Body Armor & Equipment,
Inc. ("ABA"). On August 21, 1996 (the "Effective Time"), in order to effect a
change in domicile from Florida to Delaware (the "Reincorporation"), ABA was
merged with and into Armor Holdings, Inc., a Delaware corporation. Prior to the
Effective Time, Armor Holdings, Inc. had been a wholly-owned subsidiary
corporation of ABA organized for the purpose of effecting the Reincorporation.
At the Effective Time, Armor Holdings, Inc. (the "Company") became the surviving
entity of the merger pursuant to which the Reincorporation was completed. The
merged entity is governed by the Delaware General Corporation Law ("DGCL") and
the Charter and bylaws of the Company.
In May 1992, the Company filed for relief under Chapter 11 of the United
States Bankruptcy Code. The bankruptcy filing was the result of a general
decline in the Company's operations, which included significant operating losses
in 1989 and 1991, and the inability to collect a $1.5 million receivable related
to the shipment of vests to a Middle East customer in April 1991. The Company
emerged from Chapter 11 protection effective September 20, 1993, upon
confirmation by the Bankruptcy Court of the Company's Plan of Reorganization.
In January, 1996, the Company underwent a change in control in connection
with the purchase by KFH and certain other investors (the "Investors") of all of
the capital stock of the
32
<PAGE>
Company owned by Clark Schwebel, Inc. ("Clark Schwebel"), a supplier of raw
materials to the Company, and Hexcel Corporation ("Hexcel") as of January 18,
1996 (the "Purchase"). Prior to the closing of the Purchase (the "Closing"), at
a meeting held on January 18, 1996, the then existing Board of Directors, which
consisted of Jonathan M. Spiller, Julius Lasnick, Gardner F. Davis, John Innes
and Robert Sullivan, authorized the officers of the Company to take such actions
as the officers deemed necessary, prudent and appropriate to facilitate the
Purchase by KFH and the Investors. Following such action, Messrs. Lasnick,
Davis, Innes and Sullivan conditionally resigned from the Board of Directors,
effective upon the Closing. Such resignations were conditioned upon the
occurrence of the Closing. Contemporaneously with the tendering by Messrs.
Lasnick, Davis, Innes and Sullivan of their conditional resignations, the Board
of Directors appointed Warren B. Kanders, who was elected Chairman of the Board
of Directors, Burtt R. Ehrlich and Nicolas Sokolow to the vacancies to be
created by such resignations. Mr. Kanders is the sole stockholder and sole
director of KFH. Upon assuming office, Messrs. Kanders, Ehrlich and Sokolow
constituted a majority of the Board of Directors. Subsequent to the acquisition
of shares in the Company by KFH and the private placement of the Notes, Thomas
W. Strauss and Richard C. Bartlett were appointed to the Board of Directors.
The shares of Common Stock of the Company acquired by KFH were paid for
out of KFH's working capital funds. KFH acquired an aggregate of 2,880,217
shares of the Company's Common Stock and an aggregate of 1,131,075 shares of the
Company's Old Preferred Stock, for an aggregate purchase price of $3,190,000, of
which an aggregate of $2,340,000 was paid in cash. The remaining $850,000 of the
purchase price was paid by promissory notes. To secure the payment of the
promissory notes, KFH pledged to Springs Industries, Inc., the parent
corporation of Clark Schwebel, 900,000 shares of the Company's Common Stock. In
addition, Mr. Kanders individually acquired 28,141 shares of the Company's
Common Stock. Mr. Kanders acquired an additional 1,000 shares of Common Stock
upon the listing of the Company's Common Stock on the American Stock Exchange on
March 18, 1996.
Upon assuming their positions, the newly constituted Board of Directors of
the Company elected to require the holders of the Company's Old Preferred Stock
to convert such shares to Common Stock at 110% of the aggregate stated value of
the Old Preferred Stock, at a conversion price of $.77 per share (fair market
value as determined by an independent valuation firm), as required by the
Company's Charter. All shares of the Company's Old Preferred Stock were deemed
to have been converted upon such election by the Board of Directors.
Following the Closing, and assuming the conversion of the shares of Old
Preferred Stock owned by KFH, KFH and Mr. Kanders collectively owned 4,524,178
of the total outstanding shares of Common Stock of the Company, which holdings
constituted approximately 66.4% of the total outstanding shares of Common Stock
of the Company.
Subsequently, on July 15, 1996, the Company, through its subsidiary NIK,
acquired certain assets of NIK Public Safety from Ivers-Lee, and on September
30, 1996, the Company, through its subsidiary DTC, acquired substantially all of
the assets of DTCoA. Upon completion of these acquisitions, the Company
currently is engaged in three product areas: (i) body armor
33
<PAGE>
and related products; (ii) portable narcotic identification kits, Flex-Cuf
disposable restraints, specimen and evidence collection kits and evidence tape;
and (iii) less-than-lethal and anti-riot products.
General
Since its founding, the Company has been engaged in the development,
manufacture and distribution of ballistic protective equipment. Such equipment
includes bullet resistant and sharp instrument penetration resistant vests,
bullet resistant blankets, bomb disposal suits and helmets, bomb protection and
disposal equipment and load bearing vests. In addition to these products, the
Company develops, manufactures and distributes other ballistic protection and
security equipment, including explosive ordnance device ("EOD") handling and
detection equipment, EOD suppression and disposal equipment, helmets, face
masks, shields, hard armor ballistic plates, customized armor for vehicles and
other custom armored products. Through its recent acquisitions, the Company is
also engaged in the packaging, mixing and distribution of portable narcotic
identification kits, the distribution of Flex-Cuf disposable restraints,
specimen and evidence collection kits and evidence tape, and the manufacture and
distribution of less-than-lethal and anti-riot products including defensive
aerosol sprays, distraction devices, chemical agents, flameless expulsion
grenades, specialty impact munitions and other similar products including the
distribution of gas guns, gas masks, batons, shields, riot helmets and gun
holsters. The scope of these latter products involve a less-than-lethal approach
for crowd and riot control. See "Risk Factors-Product Liability."
The Company's products are marketed to municipal, state, federal and
foreign law enforcement agencies, private security entities, United States and
foreign military and correctional services, and private individuals with
security needs.
Armor Products
Body Armor
The Company manufactures two basic types of body armor: (i) concealable
armor, which is generally intended to be worn beneath the user's clothing, and
(ii) tactical armor, which is worn externally and is designed to protect more
coverage area and defeat higher level ballistic threats incorporating ballistic
hard armor plates. Both types of armor are manufactured using multiple layers of
an aramid or polyethylene ballistic fabric, stitched for integrity, covered and
finally enclosed in an outer carrier. The Company's lines of ballistic
protective vests each provide varying degrees of protection and are certified
under federal guidelines established by the National Institute of Justice (the
"NIJ"). All of the Company's body armor products sold in the United States are
certified under the NIJ's Body Armor Standard 0101.03.
The Company's concealable vests are contoured to closely fit the user's
body shape. Most of the Company's concealable vests are sold with a shock plate,
which is an insert designed to improve the protection of vital organs against
sharp instrument attack and to provide enhanced blunt trauma protection. These
vests may be supplemented with additional armor
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plates made of metal, ceramic or Comspec(TM), to withstand increased ballistic
threat levels than the vest is otherwise designed to deter.
The Company's tactical vests are designed to give maximum all around
protection and incorporate additional coverage around the neck, shoulders and
kidneys than that provided by the Company's concealable vests. A groin protector
is often supplied as an accessory. These vests usually contain pockets to
incorporate panels constructed from small high-alumina ceramic tiles or pressed
polycarbonate Comspec(TM), which provides additional protection against rifle
fire. The Company's tactical vests are offered in a variety of styles, including
tactical assault vests, tactical police jackets, floatation vests, high-coverage
armor and flak jackets, each of which is manufactured to protect against varying
degrees of ballistic threats.
Sharp Instrument Penetration Armor
The Company manufactures knife resistant vests designed primarily for use
by personnel in correctional facilities and other law enforcement employees who
are exposed to threats from sharp instruments. These vests are constructed using
an aramid ballistic fiber and titanium foil and are available in both
concealable and tactical versions. In addition, these vests can be combined with
ballistic armor configurations to provide combined ballistic resistant and sharp
instrument penetration resistant protection.
Explosive Ordnance Disposal Equipment ("EOD")
The Company manufactures and distributes a wide range of EOD disposal and
handling equipment as well as distributing EOD detection equipment manufactured
by a third party. This equipment includes bomb disposal suits, which are
primarily constructed of an aramid ballistic fabric covered by a Nomex(R) brand
fire-retardant cover. These suits cover the user's entire body (except hands)
and include a fitted helmet that provides protection and communication
capabilities. Other EOD equipment manufactured by the Company includes bomb
protection blankets and letter bomb suppression pouches.
Hard Armor and Shields
The Company manufactures a variety of hard armor and ballistic shields,
which are manufactured using aramid ballistic fibers, polyethylene ballistic
material, ballistic steel, ceramic tiles, ballistic glass or a combination of
any one or more of these materials. These products include tactical face masks
and helmets, Comspec(TM) shields, barrier shields and blankets as well as
upgrade armor plates. Upgrade armor plates are designed to fit into pockets
available on most of the Company's tactical vests. When used in conjunction with
the ballistic vests, these plates provide additional ballistic protection
against increased ballistic threats, including assault rifle ballistic
protection.
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Other Armor-Related Products
Other specialty products manufactured by the Company include armored press
vests, executive vests, raincoats and fireman turnout coats designed to provide
various levels of ballistic protection. The Company also designs and
manufactures specialty armor applications for vehicles and aircraft. Such
applications include the manufacture of customized armored cars. The Company
also custom manufactures patented, lightweight and removable, soft armor panels
for aircraft of any dimension or configuration. In addition, the Company designs
and manufactures armor used in stationary protection applications. Such armor
can be custom designed for each individual application or provided as a "kit"
that can be installed on-site anywhere in the world.
Less-than-Lethal Products
The Company manufactures four distinct categories of less-than-lethal and
anti-riot products. These categories are aerosol sprays, chemical agents,
specialty impact munitions, and distraction devices.
Aerosol Sprays
The Company manufactures several sizes of aerosol sprays containing the
active ingredient oleoresin capsicum. The formulation used is patented and
carries the trademark name of First Defense(R). The products range from small
"key-ring" and hand-held units available for both civilian and law enforcement
use, to large volume canisters for crowd and riot control, which is not
available to the general public.
Chemical Agents
The Company manufactures chemical agents containing tear producing active
ingredients available for use only by authorized public safety agencies. These
agents consist of the traditional tear gases Orthochlorobenzalmalonontirle (CS)
and Chloroacetophenone (CN), as well as oleoresin capsicum. These products are
packaged in hand-held or launchable grenades, both pyrotechnic and
non-pyrotechnic, as well as 37 mm, 40 mm, and 12 gauge munitions. The munitions
include barricade rounds, blast dispersions, and pyrotechnic canisters. The
Company holds a patented design covering two of its non-pyrotechnic grenades.
Specialty Impact Munitions
The Company manufactures a wide range of munitions also referred to as
Kinetic Energy Rounds. These munitions can be fired from standard 12 gauge
shotguns, 37 mm gas guns, and 40 mm launchers. These products are used for
individual target acquisitions or multiple target acquisitions, as in riot and
crowd control situations. The products range from single projectiles such as
bean bags, rubber balls, wood batons, and rubber sabots, to products containing
multiple projectiles. The multiple projectile products include rounds containing
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several rubber pellets or rubber balls, to foam and wood batons. All of these
munitions are designed to be used in a less-than-lethal approach, where it is
not necessary to use deadly force.
Distraction Devices
The Company manufactures a patented device that is used for dynamic
entries by specially trained forces where it is necessary to draw the attention
of individuals away from an entry area. This trademark product is referred to as
a Distraction Device(R), which emits a loud bang and brilliant flash of light.
Narcotic Identification Products
The Company packages, mixes and distributes portable narcotic
identification kits used for the identification of narcotic substances by law
enforcement agencies.
Other Products
The Company has the exclusive rights in the United States to distribute
Gallet(R) helmets, protective ballistic helmets used by law enforcement agencies
and military services. The Company also has the non-exclusive rights to
distribute Scanna(R) letter bomb and Madis(R) car bomb detectors and the
exclusive rights to distribute the Flex-Cuf restraint, a patented restraint
manufactured by Thomas & Betts. The Company manufactures and distributes other
specialty products including: gas guns, gas pistols, gun locks, specimen
collection kits, evidence collection kits and tamper guard evidence tape. In
addition, the Company also distributes certain items manufactured by others such
as gas masks, batons and holsters.
Manufacturing
The Company manufactures substantially all of its bullet, bomb and
projectile resistant garments and other ballistic protection devices. The
Company also manufactures virtually all of its less-than-lethal products, other
than piece parts which are assembled and used in finished goods. In addition,
the Company packages, mixes and distributes its portable narcotic identification
kits.
The Company's manufacturing processes and techniques are in accordance
with guidelines established by various regulatory agencies, and the Company
believes it is currently in compliance with all applicable material
environmental regulations.
Research and Development
The Company continually develops new armor-related products to meet the
demands of the marketplace. Customer needs, including specific use requirements
and cost, drive the development process. The Company's product development
process involves combining state-of-the-art ballistic fibers, cover materials
and unique weaves with improved design and manufacturing processes to produce
competitively priced products which provide the maximum
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comfort at the lowest possible weight, while meeting the customer's ballistic
threat requirements. During the fiscal year ended December 31, 1995, the Company
had expenditures related to new product development and testing of $444,118, as
compared with $263,596 during the fiscal year ended December 31, 1994.
The Company is also committed to research and development of
less-than-lethal products. The combination of end user feedback and tactical use
applications enhance the development process. The Company's research combines
current technology in evaluating its products as well as utilizing quality
manufacturing processes that underscore product safety and reliability. During
1995, DTCoA added over 15 newly developed items to its product line. In
addition, the Company is constantly looking for ways to improve its current
product lines as well as manufacturing techniques. Over the last two years,
DTCoA has invested over $350,000 in product development and testing.
Raw Materials, Sources and Availability
The primary raw materials used by the Company in manufacturing ballistic
resistant garments are aramid ballistic fibers and polyethylene ballistic
materials, including Kevlar(R), Twaron(R) and SpectraShield(R). The Company
purchases cloth woven out of aramid yarn from a number of independent weaving
companies. The Company has begun to use SpectraShield(R) as a new, alternative
ballistic-resistant fabric to reduce its dependence on Kevlar(R).
SpectraShield(R) has been used in combination with Kevlar(R) in approximately
20% of all vests sold by the Company. SpectraShield(R) is not, however expected
to become a complete substitute for Kevlar(R) in the near future due to the
fabric's physical characteristics. In the opinion of management, the Company
enjoys a good relationship with its suppliers and would not experience
significant delays in the delivery of its products if Kevlar(R) cloth or any
other raw material from any one of the mills the Company does business with were
to become unavailable. Kevlar(R), the Company's most important raw material, is
not a scarce resource and there are adequate supplies of Kevlar(R) to meet the
Company's needs. If, however, for any reason, the Company were unable to obtain
Kevlar(R), the Company would be required to utilize other fabrics, which
although readily available, may require the Company to modify the specifications
of its products. Until the Company selected an alternative fabric and such
specifications were modified, its operations could be severely curtailed and the
Company's financial condition and operations could be adversely affected.
The raw materials used in the production of chemical agents are supplied
by several sources. The raw chemicals used in the production of CS tear gas are
obtained readily with the exception of Malononitrile. It is the understanding of
the Company that this material is limited in sources, and until an alternate
source could be located, the production of CS tear gas could be severely
curtailed. The remainder of the chemicals and piece parts used by the Company
for chemical agents are readily available from other suppliers.
The Company purchases other raw materials used in the manufacture of its
various products from a variety of sources. The Company believes additional
sources of supply of these
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materials are readily available. The Company also owns several molds which are
used throughout the less-than-lethal product line.
Customers
The Company's products are sold nationally and internationally, primarily
to law enforcement agencies and military and correctional services. Sales to
domestic law enforcement agencies, including police departments, state
correctional facilities, highway patrols and sheriffs' departments, comprise the
largest portion of the Company's business. Sales to the United States federal
law enforcement and military branches, including federal correctional
facilities, also comprise a significant portion of the Company's business. Sales
to international customers are made primarily to military and law enforcement
agencies. International sales are primarily made on terms requiring the Company
to receive payment in advance of shipment or payment through a letter of credit
confirmed by a major United States bank. All sales are made under terms
requiring payment in United States currency. During 1995, the Company had no
sales to individual customers which exceeded 10% of total sales. See "Risk
Factors-Concentration of Business Activities; Reliance Upon Governmental
Spending-International Sales."
Marketing and Distribution
The Company's distribution network consists of independent domestic
distributors and independent international agents, who in turn resell the
products to the end user. In certain rare situations, the Company sells directly
to end users. The Company has many independent domestic distributor locations as
well as many independent international agent representatives.
The Company employs regional sales managers who are responsible for
marketing the Company's products to domestic distributors and law enforcement
agencies in the United States. These regional sales managers are responsible for
calling upon the individuals within the distributor organization or agency who
are responsible for making purchasing decisions in order to provide product
demonstrations and information, including specifications, concerning the
Company's products. These regional sales managers employed by the Company are
compensated on a salary plus commission basis with commission amounts subject to
review based upon the profitability of the contract. The Company also employs
the services of agents in various other countries to support international
sales.
The Company's primary marketing emphasis is on the development of
relationships with key distributors and agents in order to improve the quality
of the distribution network. In conjunction with this effort, the Company may
work on joint marketing efforts with distributors for special promotions and
direct mailings. The Company's national advertising is generally targeted toward
increased name recognition and new product introduction, primarily for domestic
law enforcement agencies. This form of advertising consists of advertisements in
law enforcement trade magazines and attendance at trade shows. During the fiscal
years ended December 31, 1995 and 1994, advertising and marketing expenditures
were approximately $240,000 and $200,000, respectively.
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The Company has a comprehensive Training Division to support the necessary
education of its customer base in the proper use of its various product lines.
The Company also contractually employs police officers for technical support and
as instructors.
The Company is involved with and supports several significant law
enforcement associations, including the National Tactical Officer's Association,
the International Law Enforcement Firearms Instructors, the American Society of
Law Enforcement Trainers, and the International Association of Chiefs of Police.
Backlog
The Company's backlog of orders consists of orders received but not yet
manufactured. In the case of orders from new customers or international
customers, such backlog includes only orders where management believes an
acceptable assurance of payment has been received. Such assurance is normally in
the form of a substantial prepayment prior to placing the order into production
along with payment of the remaining balance prior to shipment, or a confirmed
letter of credit or other acceptable form of bank guarantee of payment.
As of December 31, 1995, the Company had an estimated backlog of
$3,058,000, as compared to $1,205,000 as of December 31, 1994. As of September
28, 1996, the Company had an estimated backlog of $2,126,000. Management
believes that a backlog of approximately four weeks production provides for
reasonable production scheduling. The Company may reduce or increase production
in the future as a result of changes in the level or mix of backlog.
Government and Industry Regulations and Standards
The bullet, sharp instrument penetration and bomb resistant garments and
accessories manufactured and sold by the Company are not currently subject to
government regulations. However, law enforcement agencies and the military
publish invitations for bidding which specify certain standards of performance
which bidders' products must meet. The NIJ, under the auspices of the United
States Department of Justice, has issued a voluntary ballistic standard (NIJ
0101.03) for bullet resistant vests. The Company regularly submits its vests to
independent laboratories for ballistic testing under this voluntary ballistic
standard. See "Risk Factors-Product Liability."
The Company's products utilize different "applications" or combinations of
material to produce equipment which provides protection against fragments or
gunshots fired from a variety of firearms at each "Threat Level," as defined by
the NIJ's Standard 0101.03 ("Threat Levels"). The NIJ conducts a series of tests
designed to verify that armor used by domestic law enforcement officers meets a
designated standard of protection.
Threat Levels are defined in recognition of the trade-off between
protection and wearability. The weight and bulk of body armor are generally
proportioned to the protection it provides. The Threat Level protection that a
police officer will desire in a vest is determined by the types of threats he
will face on the streets, including the officer's own weapon, should
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it be used against the officer. As criminals continue to use heavier weapons,
officers will require protection at a higher Threat Level. The Company believes
that police department or other purchasers will seek vests that provide an
adequate level of protection without being so heavy and uncomfortable that the
user is discouraged from wearing it.
The Company's management believes that it has created a competitive
advantage in "wearability." Wearability tests conducted by the Company have
convinced management that the Company's vests are more comfortable to wear, fit
better and can be worn for longer periods of time than similar products from
competitors. Management believes that the Company's products offer higher
protection at lower weight and bulk. The Company also offers designs that
provide greater vital-area coverage than other equipment on the market. The
Company custom manufactures each vest to specific measurements of individual
wearers. At least seven different body measurements are taken, after which the
basic design is then further modified by weight, height and sex of the
prospective wearer.
The less-than-lethal product area of the Company operates and manufactures
subject to the regulation of several regulatory agencies. Within the State of
Wyoming, the Company operates under the guidelines of the Wyoming Department of
Employment Workers' Safety and Compensation Division. The Company has enrolled
in an Employer Voluntary Technical Assistance Program (EVTAP), which monitors
the manufacturing processes to ensure that the Company is free of any adverse
work conditions. Currently, the Company is in good standing within the EVTAP
program. Also within the State of Wyoming, the Company adheres to the guidelines
for emissions as regulated by the Wyoming Department of Environmental Quality.
The less-than-lethal product area of the Company is also regulated by the
Bureau of Alcohol, Tobacco, and Firearms because the Company manufactures
Destructive Devices and because it uses ethyl alcohol in the formulation of
First Defense(R). The Company also ships hazardous goods, and in doing so, is
subject to the regulations of the Department of Transportation for packaging and
labeling.
Patent Protection and Proprietary Information
The Company relies on trade secrets, proprietary know-how and continuing
technological innovation (collectively, "Proprietary Information") to develop
and maintain its competitive position. There can be no assurance that the
Company's reliance on its Proprietary Information will protect the Company from
competing technology or that, insofar as it relies on trade secrets and
unpatented know-how, others will not independently develop similar technology or
secrecy will not be breached. See "Risk Factors-Patent Protection and
Proprietary Information."
Competition
The Company's business across its product lines is highly competitive. In
the United States law enforcement, government, military and correctional
markets, the Company has several competitors. The Company believes that the
principal elements of competition are price and
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quality. The Company believes that its products are priced competitively and
that the quality of its products is competitive with products manufactured by
other companies having similar capabilities. In the international market, the
Company's competition consists primarily of its larger American competitors as
well as certain international companies and, depending upon the market, smaller
local manufacturers. In certain international markets, the Company's ability to
be competitive is adversely affected by import duties imposed on its products.
See "Risk Factors-Competition/Technical Obsolescence."
Employees
As of October 28, 1996 the Company had approximately 188 employees,
approximately six of whom were executive officers of the Company. Of the
remaining employees, approximately nine were office personnel, approximately
150 were employed in manufacturing, quality assurance, research and development,
purchasing, shipping and warehousing and approximately 20 were sales personnel.
As of December 31, 1995, the total number of employees of the Company was
approximately 131. The increase of employees was due primarily to the
acquisition of NIK Public Safety and DTCoA.
Possible Future Acquisitions and Investments
The Company intends to diversify and expand its business operations
through the possible acquisition of one or more operating companies, which may
or may not be related to its current businesses, and is actively seeking to
acquire additional operating companies or interests therein. In furtherance of
this strategy, the Company may consider a public offering of its shares or an
acquisition or merger with a company that has a public trading market for its
securities. Other than the NIK Acquisition and the DTCoA Acquisition, the
Company has no specific plans, arrangements, understandings or commitments with
respect to any such acquisition at the present time, and it is uncertain as to
when or if any acquisition will be made. See "Risk Factors-Rapid Growth Through
Acquisitions."
Liquidity and Capital Resources
The Company's principal sources of working capital during the fiscal year
ended December 31, 1995 were bank borrowings from LaSalle and trade credit. As
of May 1, 1996, the Company reduced its credit facility with LaSalle to a zero
balance. Effective June 30, 1996, the financing agreement with LaSalle expired
and was not renewed. The Company has a commitment letter dated October 3, 1996
from Barnett Bank for making available to the Company a revolving credit
facility of up to $10,000,000 for working capital purposes. As of October 28,
1996, the Company is engaged in discussions with Barnett Bank regarding the
terms of such loan facility. It is currently contemplated that the loan facility
will be secured by the Company's and its subsidiaries' inventory and accounts
receivable and guaranteed by the Company's subsidiaries.
On April 30, 1996, the Company completed a private placement of the Notes
pursuant to which $11,500,000 aggregate principal amount of Notes were sold by
the Company under the
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Convertible Subordinated Note Purchase Agreement. The following description of
the Note offering, the Convertible Subordinated Note Purchase Agreement and the
Notes is not intended to be complete and is qualified in its entirety by the
complete texts of the form of Convertible Subordinated Note Purchase Agreement
and the form of Note.
The Notes bear interest at 5% per annum, mature on April 30, 2001, and are
subordinated to all existing and future Senior Indebtedness of the Company, as
defined and as more fully set forth in the Convertible Subordinated Note
Purchase Agreement. In addition, the Notes may be convertible into shares of
Common Stock of the Company at the option of the holder thereof at any time
prior to the maturity date at a conversion price of $5.00 per share, subject to
adjustment as set forth in the Convertible Subordinated Note Purchase Agreement.
The Shares being registered hereunder include the shares underlying the Notes.
The Company may redeem the Notes at par at any time two years after
issuance, or at any time after their issuance if the closing price of the Common
Stock exceeds $7.50 per share for 10 consecutive trading days and the shares of
Common Stock underlying the Notes have been registered under the Securities Act.
In the event the Company elects to redeem the Notes, the Holders of the Notes
will have the option to convert the Notes into shares of the Company's Common
Stock at a conversion price of $5.00 per share prior to such redemption, subject
to adjustment as set forth in the Convertible Subordinated Note Purchase
Agreement.
Personal Liability and Indemnification of Directors and Officers
The Company's Charter includes provisions that limit the liability of the
Company's directors. The Delaware General Corporation (the "DGCL") permits a
Delaware corporation to include in its certificate of incorporation a provision
which eliminates or limits the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duties as a director; provided, however, that no such provision may eliminate or
limit the liability of a director: (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; (iii) for declaration of unlawful dividends or illegal redemptions or stock
repurchases; or (iv) for any transaction from which the director derived an
improper personal benefit. The Company's Charter includes such a provision.
Under the DGCL, a director or officer may, in general, be indemnified by the
corporation if he or she has acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. No indemnification
is permitted if the person is adjudged liable to the corporation in a derivative
suit unless the court determines that indemnification would be appropriate.
The Company has obtained directors' and officers' insurance for the
Company's directors and officers. In cases of large damage awards and
nonexistent or inadequate insurance, the indemnification provisions contained in
the Company's Charter may require the Company to make payments to its officers
and directors sufficiently large to impair the Company's financial condition or
a stockholder's investment and/or reduce stockholder's equity.
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Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Company of expenses incurred or paid by a
director, officer or controlling person of the Company in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and notes thereto included herein and the financial statements and
management's discussion and analysis or plan of operation included in the
Company's annual report on Form 10-KSB for the fiscal year ended December 31,
1995.
Results of Operations
Fresh-Start Reporting
The Company emerged from Chapter 11 bankruptcy reorganization on September
20, 1993 as a result of the confirmation of the Company's Plan of Reorganization
by the Bankruptcy Court. In connection with the confirmation of the Plan of
Reorganization, the Company adopted "fresh-start reporting" in accordance with
the American Institute of Certified Public Accountants Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code." Accordingly, since September 20, 1993, the Company's financial statements
have been prepared as if it were a new reporting entity.
Nine Months Ended September 28, 1996 Compared to
Nine Months Ended September 30, 1995
Sales for the nine months ended September 28, 1996 were $11,314,656
representing an increase of $2,908,716 (or 35%) compared to the same period in
1995. The increase results primarily from the increase in domestic sales of 32%
over last year.
The gross profit margin on sales for the nine months ended September 28,
1996 increased by $1,157,023 compared to the same period in the prior year,
primarily due to the increase in gross sales.
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Selling, general and administrative expenses ("SG&A Expenses") for the
first nine months of 1996 were $3,268,901 (29% of sales) compared to $2,409,202
(29% of sales) in the 1995 period. Increases in commissions paid as a result of
higher sales accounted for a majority of the overall dollar increase between the
periods.
Interest expense of $154,570 for the 1996 period was approximately $46,804
lower than the prior year. The decrease is due primarily to the reduction of the
Company's credit facility with LaSalle to a zero balance on May 1, 1996, offset
to some degree by the interest accrued on the Notes.
Income tax expense for the nine month period ended September 28, 1996
represents the federal and state statutory rates. The Company's operating loss
carry forward at January 1, 1996 amounted to approximately $5,000,000. Due to
the Company's change in control in January 1996, the allowed annual usage of
this tax benefit became restricted to approximately $300,000 per year. For the
first nine months of 1996, pre-tax income and net income increased to $763,772
and $453,772, respectively, from $762,338 and $465,338 for the same period in
1995. This change reflects the effect of increased sales in 1996 being partially
offset by non-recurring non-operating income received in 1995 and no such income
being received in 1996.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales for the fiscal year ended December 31, 1995 ("Fiscal 1995")
amounted to $11,741,367, as compared to $11,355,142 for the fiscal year ended
December 31, 1994 ("Fiscal 1994"). This increase of $386,225 (3.4%) between
periods results primarily from an increase in sales in the domestic market.
The Company's gross profit amounted to $4,298,287 (37% of sales) in Fiscal
1995, as compared to $3,614,339 (32% of sales) in Fiscal 1994. The increase of
$683,948 in gross profit in Fiscal 1995 is due to positive manufacturing
variances (better utilization of labor and purchases of raw material). In
addition, the domestic market experienced better margins and contributed a
greater percentage to the overall sales figures.
SG&A Expenses amounted to $3,421,093 (29.1% of sales) in Fiscal 1995, as
compared to $2,696,117 (26.1% of sales) in Fiscal 1994. The increase in SG&A
Expenses amounted to $544,454 or 22.3%. Increases in salaries for additional
personnel in the sales and marketing areas of the Company and domestic
commissions (due to the increase in domestic sales) comprised the majority of
the overall increase in SG&A Expenses. In addition, increased domestic travel
costs were incurred and certain costs associated with the acquisition by KFH of
shares of the Company's capital stock are included in the Fiscal 1995 expenses.
Increases in research and development expenses were incurred due to new
vest certification and testing costs, as well as in connection with the ISO 9002
certification of the Company's quality control standards. The Company received
the ISO 9002 certification in October 1995.
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Non-operating income amounted to $227,500 in Fiscal 1995. This income is
non-recurring and relates to the termination of a non-compete agreement entered
into in 1990 between the Company and a competitor.
Interest expense of $280,891 in Fiscal 1995 represents an increase of
$64,573 (or 30%), as compared to Fiscal 1994. This increase resulted primarily
from higher borrowings under the Company's financing agreement with LaSalle. As
of May 1, 1996, the Company reduced its credit facility with LaSalle to a zero
balance and effective June 30, 1996, the financing agreement with LaSalle
expired and was not renewed. The Company has a commitment letter dated October
3, 1996 from Barnett Bank for making available to the Company a revolving credit
facility of up to $10,000,000 for working capital purposes. As of October 28,
1996, the Company is engaged in discussions with Barnett Bank regarding the
terms of such loan facility. It is currently contemplated that the loan facility
will be secured by the Company's and its subsidiaries' inventory and accounts
receivable and guaranteed by the Company's subsidiaries.
Income before income taxes for Fiscal 1995 amounted to $823,803, as
compared to $701,904 for Fiscal 1994. This increase in pre-tax profit reflects
the improved margins and non-recurring, non-operating income received in Fiscal
1995, being partially offset by the increase in SG&A Expenses.
Effective September 20, 1993 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). In accordance with this standard, the Company recorded a
deferred tax asset, representing its cumulative net operating loss carryforward
and deductible temporary differences, subject to applicable limits and an asset
valuation allowance. Any future benefit obtained from the realization of this
asset will be applied to reduce the reorganization value in excess of amounts
allocable to identifiable assets. As of December 31, 1995, the gross amount of
this deferred tax asset was $2,037,000, of which the entire amount has been
offset by a valuation allowance.
The Company's backlog of orders consists of orders received but not yet
manufactured. As of September 30, 1996, the Company had a backlog of orders of
approximately $2,126,000. Management believes that a backlog of approximately
four weeks production provides for reasonable production scheduling.
Liquidity and Capital Resources
The Company's backlog consists of orders received but not yet
manufactured. As of September 28, 1996, the Company had an estimated backlog of
orders of approximately $2,126,000. As of May 1, 1996, the Company reduced its
credit facility with LaSalle to a zero balance. Effective June 30, 1996 the
financing agreement with LaSalle expired and was not renewed. The Company has a
commitment letter dated October 3, 1996 from Barnett Bank for making available
to the Company a revolving credit facility of up to $10,000,000 for working
capital purposes. As of October 28, 1996, the Company is engaged in discussions
with Barnett Bank regarding the terms of such loan facility. It is currently
contemplated that the loan
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<PAGE>
facility will be secured by the Company's and its subsidiaries inventory and
accounts receivable and guaranteed by the Company's subsidiaries.
As of September 28, 1996, the Company had working capital of $10,161,214
which reflects the $11,500,000 gross proceeds from the issuance of the Notes and
the continued profitability of operations. Working capital at June 30, 1996 was
$12,033,729 and at September 30, 1995 was $766,714.
The Company anticipates that continuing operations will enable the Company
to meet its liquidity, working capital requirements, and capital expenditure
requirements during the next year.
Effect of Inflation and Changing Prices
The Company is effected by changes in the cost of its raw materials,
primarily fabric woven from Kevlar(R) yarn and SpectraShield(R), which costs
have not increased substantially over the past year. Such increases can normally
be passed on to customers in the normal course of business. The Company does not
expect inflation to have a material impact on either the Company's ability to
obtain raw materials or its results of operations.
PROPERTIES
The Company occupies a 50,000 square foot office, sales, manufacturing and
warehouse facility in Nassau County, Florida (the "Yulee Facility"). The Yulee
Facility has been utilized as the Company's primary manufacturing facility and
headquarters since 1987. As a result of a sale leaseback transaction, the
Company has leased this facility since July 1989. The Company's current lease is
for a six year term ending April 30, 1999, at an annual base rental of $110,000
(plus annual inflationary escalations). The lease provides the Company with
options to extend the lease for two additional five year terms at prevailing
market rental rates; however, to the extent the Company makes certain
improvements to the facility, the Company may elect to extend the lease at the
present rental rate. In addition, the lease requires the Company to pay all
utilities and maintenance expenses incurred in connection with the premises, as
well as all real estate taxes, insurance, water and sewer charges. The Company
believes that it has adequate insurance coverage for this property and its
contents.
The Company presently intends to relocate its operations to the
Jacksonville, International Tradeport, located in Jacksonville, Florida, on or
about April 1997. The Company plans to build a 70,000 square foot facility, with
the ability to expand to 142,000 square feet. The new facility will be utilized
as the Company's primary manufacturing and distribution center, as well as its
corporate headquarters. The Company plans to sublease the Yulee Facility until
the expiration of the current lease on April 30, 1999.
To help defray the approximately $3,500,000 cost of construction and the
purchase of new equipment, the City of Jacksonville is negotiating a $651,350
federal loan for the Company. Under such loan, the incremental tax revenues
generated by the project will be used to repay the
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<PAGE>
loan. The loan requires the approval of the Jacksonville International Airport
Community Redevelopment Authority and the Jacksonville City Council. To qualify
for the loan, the Company has pledged that 51% of the new jobs generated over a
specified period of time will be held by low-to moderate-income employees.
The Company's less-than-lethal operations currently occupy four locations
in Casper, Wyoming consisting of over 60 acres and seven buildings with a
combined square footage of 61,686. The Company has five buildings with 29,811
square feet of manufacturing and 25,200 square feet of storage/warehousing
within two buildings. The remaining 6,675 square feet is office space. Of
these four properties, two are owned by the Company. The third property occupied
by the Company is encumbered by a $144,000 mortgage carrying interest at a rate
of 9% on the outstanding principal amount. The Company is required to make
repayments of principal and interest amortized over a period of 20 years, with a
balloon payment due on May 1, 1997, at which time the balance of the unpaid
principal and interest are due in full. As of October 28, 1996, principal in
the amount of approximately $130,000 remained to be paid on the mortgage. The
fourth property occupied by the Company consists of two buildings, of which one
is owned by and the other leased by the Company. The real property upon which
these two buildings are situated is also leased. The leased building and the
real property carry an annual rental of $26,400. The Company holds an option to
purchase the leased building and real property at this location at an exercise
price of $350,000. The option must be exercised on or before December 31, 1996.
The Company believes that it has adequate insurance coverage for all of its
Wyoming properties.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Management And Others
The Company has historically purchased substantially all of the ballistic
resistant fabric used in the manufacture of its products from Clark Schwebel, a
subsidiary of Springs and a former holder of 45.7% of the Company's outstanding
capital stock. KFH purchased all of the capital stock of the Company owned by
Clark Schwebel on January 18, 1996. The Company's purchases from Clark Schwebel
totalled approximately $5.1 million, $3.4 million and $3.2 million in fiscal
years 1995, 1994 and 1993, respectively, and were made in the normal course of
business at prices which the Company believes were competitive with other
available sources for such materials.
On May 15, 1996, the Company issued options to purchase 300,000 shares of
the Company's Common Stock to Richmont at an exercise price of $7.50 per share,
subject to adjustment (the "Richmont Options"). The Richmont Options and the
underlying shares, whether vested or unvested, are callable by the Company in
the event that the closing price per share of the Company's Common Stock is
equal to or greater than $10 for a period of 10 consecutive trading days after
December 31, 1997, upon written notice to Richmont given within 30 days of the
conclusion of such ten consecutive trading days during which the closing price
per share of the Company's Common Stock was equal to or greater than $10. In
such event, the Company may require Richmont to exercise the Richmont Options in
whole with respect to
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<PAGE>
all such shares within 10 days of such notice to Richmont. In the event that
Richmont does not exercise the Richmont Options, the Richmont Options will lapse
and be of no further force or effect.
Richmont is also the holder of $3,000,000 worth of Notes. Richmont may
convert such Notes into 600,000 shares of Common Stock pursuant to the terms of
the Convertible Subordinated Note Purchase Agreement. Taking the 100,000
Richmont Options which have fully vested and the shares into which the Notes are
convertible into account, Richmont is the beneficial owner of 9.7% of the
Company's outstanding Common Stock. Richard C. Bartlett, a director of the
Company, is the Chairman of the Board of Directors of the Richmont Group, the
parent corporation of Richmont. Mr. Bartlett disclaims beneficial ownership of
any shares of Common Stock beneficially owned by Richmont. See "Risk Factors"
and "Security Ownership of Certain Beneficial Owners."
Burtt Ehrlich, a director of the Company, is the holder of $250,000 worth
of Notes. Mr. Ehrlich may convert such Notes into 50,000 shares of Common Stock
pursuant to the terms of the Convertible Subordinated Note Purchase Agreement.
Thomas W. Strauss, a director of the Company, is the holder of $200,000
worth of Notes. Mr. Strauss may convert such Notes into 40,000 shares of Common
Stock pursuant to the terms of the Convertible Subordinated Note Purchase
Agreement.
Other than as described above, there have not been, nor are there any
currently proposed transactions, or any series of similar transactions, since
the beginning of Fiscal 1995, to which the Company was or is to be a party, in
which the amount involved exceeds $60,000 and in which any director, executive
officer, security holder or any member of the immediate family of any of the
foregoing persons had, or will have, a direct or indirect material interest.
Since the beginning of Fiscal 1995, no director or executive officer of
the Company, nor any member of their immediate family or any affiliate thereof
is, has become or was indebted to the Company in an amount in excess of $60,000.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Effective March 18, 1996, the Company's Common Stock began trading on the
American Stock Exchange under the symbol "ABE". The closing price of the
Company's Common Stock on its first day of trading on the American Stock
Exchange was $5.375. Prior to March 18, 1996, the Company's Common Stock was
traded in the over-the-counter market, and was listed in the bid and ask quotes
of brokers as reported by the National Quotation Bureau, Inc. (the "Bulletin
Board") under the symbol "ABOA."
The following tables set forth the range of reported high and low bid
quotations for the Company's Common Stock as listed on the Bulletin Board for
the last two fiscal years. Such quotations reflect inter-dealer prices without
retail mark-up, mark-down or commission, and may not necessarily represent
actual transactions. The bid quotations were determined from
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<PAGE>
information provided by a majority of the market makers for the Company's Common
Stock to the Bulletin Board.
High Low
---- ---
Fiscal Year 1994
----------------
Quarter Ended 3/31/94 $2.50 $0.75
Quarter Ended 6/30/94 $2.50 $1.00
Quarter Ended 9/30/94 $2.25 $1.25
Quarter Ended 12/31/94 $2.00 $1.00
Fiscal Year 1995
----------------
Quarter Ended 3/31/95 $1.25 $0.75
Quarter Ended 7/1/95 $1.00 $0.625
Quarter Ended 9/30/95 $0.9375 $0.875
Quarter Ended 12/31/95 $3.25 $1.00
The following table sets forth the range of reported high and low bid
quotations for the Common Stock on the Bulletin Board for the period January 1,
1996 to March 17, 1996, and range of high and low sales prices on the American
Stock Exchange for the period March 13, 1996 to March 31, 1996, and for the
fiscal quarters ended June 30, 1996 and September 30, 1996.
High Low
---- ---
Fiscal Year 1996
----------------
1/1/96 to 3/17/96 $5.75 $2.75
3/18/96 to 3/31/96 $5.50 $5.0625
Quarter Ended 6/30/96 $9.00 $5.125
Quarter Ended 9/28/96 $7.875 $6.00
As of October 28, 1996, the number of holders of record of the Company's
Common Stock was approximately 500. Holders of shares held in "nominee" or
street names are included in this number.
The Company did not declare any cash dividends on its Common Stock during
the last three fiscal years, and does not anticipate paying cash dividends on
its Common Stock in the foreseeable future. Any earnings in the near future will
be utilized to fund the growth of the Company's business.
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<PAGE>
In late 1995, the Company elected to convert 242,851 shares of the
Company's Old Preferred Stock to Common Stock at 110% of the aggregate stated
value of the Old Preferred Stock at a conversion price equal to the fair market
value of the Common Stock. The fair market value of the Common Stock was
determined by an independent valuation firm as of the conversion date.
On January 19, 1996, the Board of Directors of the Company elected to
require the holders of the Company's Old Preferred Stock to convert such shares
to shares of the Company's Common Stock at 110% of the aggregate stated value of
the Old Preferred Stock, at a conversion price of $.77 per share (fair market
value, as determined by an independent valuation firm), as required by the
Company's Charter. All shares of the Company's Old Preferred Stock were deemed
to have been converted upon such election by the Board of Directors.
EXECUTIVE COMPENSATION
Compensation of Directors
During Fiscal 1995, each non-management director (a "Non-Employee
Director") was entitled to receive, pursuant to the terms of the Company's 1994
Outside Directors' Stock Plan (the "1994 Outside Directors Stock Plan"), which
was implemented in 1994 following the approval of the stockholders at the 1994
annual meeting, an annual retainer of $5,000 plus $1,000 for attendance at each
special meeting of the Board of Directors. Additionally, the Chairman of the
Audit Committee of the Board of Directors was entitled to $1,000 for each
Committee meeting. Under the terms of the 1994 Outside Directors' Stock Plan,
Non-Employee Directors' fees may be paid either in cash or stock. The 1994
Outside Directors Stock Plan was discontinued, and no additional awards will be
granted under said plan. At the Company's annual meeting of stockholders held
on July 16, 1996, the Company's stockholders approved the 1996 Non-Employee
Directors Stock Option Plan (the "1996 Directors Plan").
Under the 1996 Directors Plan, each Non-Employee Director is automatically
granted non-qualified options to acquire 75,000 shares of the Company's Common
Stock upon the date of his or her initial election or appointment to the Board
of Directors in consideration for service as a Director. Under the 1996
Directors Plan, the exercise price for all 75,000 options granted to each
Director is the closing price on the date of the grant of the Company's Common
Stock as quoted on the composite tape of American Stock Exchange, or on such
exchange as the Company's Common Stock may then be trading. Of the 75,000
options granted to each Non-Employee Director, options to acquire 25,000 shares
become exercisable upon each of the first three anniversary dates following the
date of the grant and all 75,000 options granted to each Non-Employee Director
shall expire ten years from the date of grant. There are an aggregate of 300,000
shares of Common Stock reserved for issuance under the 1996 Directors Plan.
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<PAGE>
Stock Option Plans
The 1994 Incentive Stock Plan, which was approved by the stockholders on
June 10, 1994, provides for the award of stock options and stock grants. The
1994 Incentive Stock Plan was terminated to the extent that no further stock
options or stock grants will be awarded thereunder, on July 16, 1996, upon the
approval by the stockholders of the 1996 Plan at the annual meeting of
stockholders held on such date.
The purpose of the 1994 Incentive Stock Plan was to enhance the ability of
the Company to attract and retain key employees and to stimulate the efforts of
these employees by providing an opportunity for capital appreciation and
recognition of outstanding service to the Company, all of which management
believes contributes to the long term growth and profitability of the Company.
The 1994 Incentive Stock Plan is administered by the Option Committee of
the Board of Directors. Members of the Option Committee are not eligible for
awards. The Option Committee has full power to select, from among employees
eligible for awards, the individuals to whom awards will be granted, to make any
combination of awards to any participants, and to determine the specific terms
of each grant, subject to the provisions of the 1994 Incentive Stock Plan. For
awards made to employees other than the Chief Executive Officer, such selections
were made after consideration of the recommendations of the Chief Executive
Officer.
Persons eligible to participate in the stock portion of the 1994 Incentive
Stock Plan were those officers and other key employees of the Company who were
responsible for, or contributed to, the management, growth or profitability of
the business of the Company. All full time employees of the Company were
eligible to participate in the stock grant portion of the 1994 Incentive Stock
Plan.
The per share exercise price of the Common Stock underlying the options
may not be less than the fair market value of the Common Stock on the date the
option is granted. No person who owns, directly or indirectly, at the time of
the granting of an incentive stock option to him, 10% or more of the total
combined voting power of all classes of stock of the Company (a "10%
Stockholder") was eligible to receive any incentive stock options under the 1994
Incentive Stock Plan unless the option price was at least 110% of the fair
market value of the Common Stock subject to the option, determined on the date
of grant.
No stock option may be transferred by an optionee other than by will or
the laws of descent and distribution, and, during the lifetime of an optionee,
the option will be exercisable only by him or by his legal guardian or legal
representative. In the event of termination of employment other than by death or
for cause, the optionee will have, in the case of an incentive stock option,
three months after such termination during which he can exercise the option, and
in the case of a non-qualified option, one year from the date of such
termination during which he can exercise the option. Upon termination of
employment of an optionee by reason of death, his option remains exercisable for
one year thereafter to the extent it was exercisable on the date of such
termination.
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<PAGE>
No options under the 1994 Incentive Stock Plan are permitted to be granted
after the tenth anniversary of the effective date of the 1994 Incentive Stock
Plan. All options granted under the 1994 Incentive Stock Plan cannot be
exercised more than ten years from the date of grant except that options
issued to a 10% Stockholder are limited to five year terms. All options granted
under the 1994 Incentive Stock Plan provide for the payment of the exercise
price in cash or, with the approval of the Board of Directors of the Company, by
delivery to the Company of shares of Common Stock already owned by the optionee
having a fair market value equal to the exercise price of the options being
exercised, or by a combination of those methods of payment. Therefore, an
optionee may be able to tender shares of Common Stock to purchase additional
shares of Common Stock and may theoretically exercise all of his stock options
with no additional investment other than his original shares.
Any unexercised option that terminated, is canceled or expires for any
reason without being exercised in full may again become available for issuance
under the 1994 Incentive Stock Plan.
The Board of Directors may amend or discontinue the 1994 Incentive Stock
Plan at any time, but except in accordance with certain provisions of the 1994
Incentive Stock Plan relating to certain adjustments made if there is a
reclassification or change of the share structure of the Company, no change
shall be made which will have a material adverse effect upon any option
previously granted unless the consent of the optionee is obtained; provided,
however, that the Board may not, without further approval of the Shareholders,
(a) increase the maximum number of shares for which options may be granted under
the 1994 Incentive Stock Plan, or (b) change the class of persons eligible to
receive options.
At the annual meeting of stockholders held on July 16, 1996, the
stockholders approved the 1996 Plan.
The Board of Directors believes that stock options and other stock-based
awards are desirable (1) as an effective incentive for participating key
employees, consultants and Directors (collectively, "Participants") to use their
judgment, initiative and efforts to ensure the successful conduct of the
Company's business, (2) to further align such Participants' interests with those
of the Company's Stockholders by providing an opportunity to increase their
stock ownership and (3) to encourage such Participants to remain in the service
of the Company. Pursuant to the 1996 Plan, Participants may be granted stock
options ("Options"), which may be incentive stock options ("Incentive Options")
or non-qualified stock options ("Non-Qualified Options").
The total number of Options authorized under the 1996 Plan will be
1,500,000 shares (which number is subject to adjustment in the event of stock
dividends, stock splits and other similar events) of the Company's Common Stock.
To the extent that Options granted under the 1996 Plan expire or terminate
without having been exercised, the shares of the Company's Common Stock covered
by such Options will again become available for award. There are currently no
outstanding Options under the 1996 Plan.
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<PAGE>
The Option Committee of the Board of Directors has the authority to
administer the 1996 Plan although, under certain conditions, the Board of
Directors shall have the power to administer the 1996 Plan. The Option Committee
must consist of no fewer than two members, each of whom is a "disinterested
person" within the meaning of Rule 16b-3 of the Exchange Act. The Option
Committee will have the authority to determine the employees to whom Options
will be granted, the time when such Options shall be granted, the number of
shares which shall be subject to each Option (subject to certain limitations in
the case of Incentive Options), the purchase price or exercise price of each
Option (no less than 100% of fair market value for Incentive Options), the
period(s) during which such Options shall be exercisable (whether in whole or in
part) (no more than ten years for Incentive Options) and the other terms and
provisions thereof. Generally, Options may be granted only to employees employed
and consultants engaged by the Company or of any subsidiary corporation or
parent corporation of the Company. Directors who are also employees of the
Company are also eligible to participate. Consultants are eligible to receive
awards of Non-Qualified Options, but are not eligible to receive Incentive
Options. No person who owns, directly or indirectly, at the time of the granting
of an Incentive Option to him, 10% or more of the total combined voting power of
all classes of stock of the Company will be eligible to receive any Incentive
Options under the 1996 Plan unless the option price is at least 110% of the fair
market value of the Common Stock subject to the option, determined on the date
of grant.
Common Stock purchased on the exercise of Options may be paid for in cash
or by certified check, or with shares of the Company's Common Stock (if
permitted by the terms of the Option and by applicable law) or by payment on
such terms as the Option Committee shall determine.
The Option Committee shall have the option at any time to suspend or
terminate the 1996 Plan, provided that rights and obligations under any Option
granted while the 1996 Plan was in effect may not be altered or impaired by
suspension or termination of the 1996 Plan, except with the consent of the
holder thereof.
The Board of Directors or the Option Committee, as the case may be, shall
have the right, from time to time, to amend the 1996 Plan, provided that no
amendment shall be made without the approval of the stockholders to the extent
required by Rule 16b-3 or for the exception for performance-based compensation
under Section 162(m) of the Code that will: (i) increase the total number of
shares reserved for Options under the 1996 Plan (other than an increase
resulting from certain adjustments); (ii) reduce the exercise price of any
Option granted thereunder; (iii) modify the provisions of the 1996 Plan relating
to eligibility; or (iv) materially increase the benefits accruing to
participants under the 1996 Plan or extend the maximum option period thereunder.
The Board of Directors or the Option Committee, as the case may be, shall be
authorized to amend the 1996 Plan and the Options granted thereunder to permit
the Incentive Options granted thereunder to qualify as incentive stock options
within the meaning of Section 422 of the Code.
In the event of any change in the outstanding shares of the Company's
Common Stock (through events such as a stock split, stock dividend,
recapitalization of the Company or other
54
<PAGE>
like change in its capital structure), the Option Committee will make such
adjustment to each outstanding Option that it, in its sole discretion, deems
appropriate, subject to the provisions of Section 424(a) of the Code as to
Incentive Options. It is intended that Incentive Options granted under the 1996
Plan will meet the definitional requirements of Section 422(b) of the Code for
"incentive stock options."
Compensation of Executive Officers
The following table sets forth all compensation, in excess of $100,000,
paid to the Company's Chief Executive Officer and the four other most highly
compensated executive officers of the Company for the fiscal years 1995, 1994
and 1993. The Company paid no compensation to its executive officers under any
long term compensation or retirement plans during the last three years. The
incremental cost of certain incidental personal benefits does not exceed the
lesser of $50,000 or 10% of compensation for any named executive officer of the
Company.
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------
Long Term
Compensation
----------------
Annual Compensation
Awards
- --------------------------------------------------------------------------------
(a) (b) (c) (d) (g) (i)
- --------------------------------------------------------------------------------
Securities All Other
Name and Underlying Compen-
Principal Salary Bonus Options/SARs sation
Position Year ($) ($) (#) ($)
- --------------------------------------------------------------------------------
Jonathan M. Spiller 1995 $160,000 $ 21,000 18,000 $5,775(1)
President and Chief 1994 $140,000 $ 62,000 432,000 --
Executive Officer 1993 $137,801 -- -- --
- --------------------------------------------------------------------------------
Richard T. Bistrong 1995 $120,000 $105,000 50,000 --
Vice President-Sales 1994 -- -- -- --
and Marketing 1993 -- -- -- --
- --------------------------------------------------------------------------------
J. Michael Elliott 1995 $100,000 $ 7,000 30,000 $9,660(2)
Vice President- 1994 $ 90,010 $ 27,000 138,000 --
Operations 1993 $ 85,020 -- -- --
- --------------------------------------------------------------------------------
(1) Represents the dollar value of 7,500 Common Stock grants awarded to Mr.
Spiller in December 1995. They became fully vested on January 19, 1996.
(2) Represents the dollar value of 12,000 Common Stock grants awarded to Mr.
Elliott pursuant to the terms of his previous employment agreement, which
was executed on January 1, 1994 but which was mutually terminated by Mr.
Elliott and the Company and superseded by a new employment
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<PAGE>
agreement executed on January 18, 1996. 4,000 of such grants became fully
vested in June 1995, and the additional 8,000 grants became fully vested
on January 19, 1996.
OPTION/SAR GRANTS TABLE
The following table summarizes individual grants of stock options (whether
or not in tandem with stock appreciation rights ("SARs")), and freestanding SARs
made during Fiscal 1995, the Company's most recently completed fiscal year, to
each of the named executive officers.
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
================================================================================
Number of % of Total
Securities Options/SARs Exercise or Expiration
Underlying Granted to Base Price Date
Options/SARs Employees in ($/share)
Name Granted (#) Fiscal Year
- --------------------------------------------------------------------------------
Jonathan M. Spiller 18,000 12.5% $.97 3/28/2005
President and Chief
Executive Officer
- --------------------------------------------------------------------------------
Richard T. Bistrong 50,000 34.8% $.97 2/6/2005
Vice President-Sales
and Marketing
- --------------------------------------------------------------------------------
J. Michael Elliott 30,000 20.9% $.97 3/28/2005
Vice President - Operations
================================================================================
(1) Stock option grants consist of stock options granted in Fiscal 1995,
pursuant to the Company's 1994 Incentive Stock Plan, all of which are
fully vested but are not exercisable until the expiration of the
respective named executive's employment agreement.
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<PAGE>
OPTION/SAR EXERCISES AND
FISCAL YEAR-END OPTION/SAR VALUE TABLE
The following table summarizes information concerning each exercise of
stock options (or tandem SARs) and freestanding SARs made during Fiscal 1995,
the Company's most recently completed fiscal year, to each of the named
executive officers, and the fiscal year-end value of unexercised options and
SARs. No options were exercised in Fiscal 1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
============================================================================================
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
FY-End (#) at FY-End ($)
Shares Acquired Exercisable (E)/ Exercisable
Name on Exercise (#) Value Realized Unexercisable (U) (E)/
($) Unexercisable
(U)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jonathan M. Spiller -0- -0- 324,000(E) -0-(E)
President and Chief 126,000(U) -0-(U)
Executive Officer
- --------------------------------------------------------------------------------------------
Richard T. Bistrong -0- -0- -0- (E) -0-(E)
Vice President-Sales 50,000(U) -0-(U)
and Marketing
- --------------------------------------------------------------------------------------------
J. Michael Elliott -0- -0- 103,500(E) -0-(E)
Vice President - 64,500(U) -0-(U)
Operations
============================================================================================
</TABLE>
Pension/Long-Term Compensation Arrangements
The Company has no pension arrangements or other long-term compensation
plans for its executive officers or other employees.
Employment Agreements
Set forth below are descriptions of the Company's employment agreements
with Messrs. Spiller, Elliott and Bistrong. No employment agreement has been
entered into between Ms. Burke and the Company.
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<PAGE>
Jonathan M. Spiller
Mr. Spiller's employment agreement, dated as of January 18, 1996, provides
that he will serve as the President and Chief Executive Officer of the Company
for an initial term expiring January 17, 1999, at a base salary of $160,000 per
annum. In addition to his base salary, Mr. Spiller shall also be entitled to a
yearly bonus during the term of his employment agreement. The bonus shall be
based upon the Company's earnings before interest and taxes. Mr. Spiller will
also be entitled, at the sole and absolute discretion of the Option Committee of
the Board of Directors, to participate in the Company's incentive stock plan and
other bonus plans adopted by the Company. Eligibility to participate in the
Company's incentive stock plan shall be based upon, among other things, the
performance of Mr. Spiller and the Company. As part of his compensation package,
the Company provides Mr. Spiller with other benefits commensurate with his
position, as more fully set forth in his employment agreement. Mr. Spiller's
employment with the Company shall continue, unless earlier terminated by Mr.
Spiller or due to Mr. Spiller's death or disability or by the Company, for
successive one year periods, on terms to be mutually agreed upon by the Company
and Mr. Spiller.
Richard T. Bistrong
Mr. Bistrong's employment agreement, dated as of January 18, 1996,
provides that he will serve as Vice President-Sales and Marketing of the Company
for an initial term expiring January 17, 1999, at a base salary of $120,000 per
annum. Mr. Bistrong shall also be entitled to a yearly bonus during the term of
his employment agreement. The bonus shall be based upon the Company's earnings
before interest and taxes. In addition to his base salary and bonus, Mr.
Bistrong is entitled to receive non-qualified options to purchase 21,250 shares
of the Company's Common Stock and incentive stock options to purchase 28,750
shares of the Company's Common Stock, in each case at an exercise price of $.97
per share of Common Stock. These options are exercisable for a period of eight
years from the date of the grant, and all of such options vest on January 18,
1999. The vesting of the options may be accelerated on a pro rata basis in the
event of the occurrence of certain events. Pursuant to his employment agreement,
Mr. Bistrong will also be entitled, at the sole and absolute discretion of the
Option Committee of the Board of Directors, to participate in the Company's
incentive stock plan and other bonus plans adopted by the Company. Eligibility
to participate in the Company's incentive stock plan shall be based upon, among
other things, the performance of Mr. Bistrong and the Company. As part of his
compensation package, the Company provides Mr. Bistrong other benefits
commensurate with his position, as more fully set forth in his employment
agreement. Mr. Bistrong's employment with the Company shall continue, unless
earlier terminated by Mr. Bistrong or due to Mr. Bistrong's death or disability
or by the Company, for successive one year periods, on terms to be mutually
agreed upon by the Company and Mr. Bistrong.
J. Michael Elliott
Mr. Elliott's employment agreement, dated as of January 18, 1996, provides
that he will serve as Vice President-Operations of the Company for an initial
term expiring January 17, 1997, at a base salary of $100,000 per annum. Mr.
Elliott shall also be entitled to
58
<PAGE>
a yearly bonus during the term of his employment agreement. The bonus shall be
based upon the Company's earnings before interest and taxes. In addition to his
base salary and bonus, Mr. Elliott is entitled to receive non-qualified options
to purchase 8,500 shares of the Company's Common Stock and incentive stock
options to purchase 11,500 shares of the Company's Common Stock, in each case at
an exercise price of $.97 per share of Common Stock. These options are
exercisable for a period of eight years from the date of the grant, and all of
such options vest on January 18, 1999. The vesting of the options may be
accelerated on a pro rata basis in the event of the occurrence of certain
events. Pursuant to his employment agreement, Mr. Elliott will also be entitled,
at the sole and absolute discretion of the Option Committee of the Board of
Directors, to participate in the Company's incentive stock plan and other bonus
plans adopted by the Company. Eligibility to participate in the Company's
incentive stock plan shall be based upon, among other things, the performance of
Mr. Elliott and the Company. As part of his compensation package, the Company
provides Mr. Elliott with other benefits commensurate with his position, as more
fully set forth in his employment agreement. At the Company's option, Mr.
Elliott's employment with the Company shall continue, unless earlier terminated
by Mr. Elliott or due to Mr. Elliott's death or disability or by the Company,
for one two year period, on the same terms and conditions. Following the two
year renewal, the employment of Mr. Elliott shall automatically continue for
successive one year periods on terms to be mutually agreed upon by the Company
and Mr. Elliott.
Robert R. Schiller
Mr. Schiller's employment agreement, dated as of July 24, 1996, provides
that he will serve as Vice President-Corporate Development of the Company for an
initial term expiring July 23, 1999, at a base salary of $120,000 per annum. Mr.
Schiller is also entitled to a one-time relocation bonus of $45,000. In addition
to his base salary, Mr. Schiller is entitled to receive incentive stock options
to purchase 150,000 shares of the Company's Common Stock, in each case at an
exercise price per share equal to $6.06, the market price of the Common Stock on
July 24, 1996, the date of the grant. These options vest equally over a period
of three years from the date of the grant, and all of such options become
exercisable on July 24, 1999. The vesting of the options may be accelerated on a
pro rata basis in the event of the occurrence of certain events. Pursuant to his
employment agreement, Mr. Schiller will also be entitled, at the sole and
absolute discretion of the Option Committee of the Board of Directors, to
participate in the Company's incentive stock plan and other bonus plans adopted
by the Company. Eligibility to participate in the Company's incentive stock plan
shall be based upon, among other things, the performance of Mr. Schiller and the
Company. As part of his compensation package, the Company provides Mr.
Schiller's other benefits commensurate with his position, as more fully set
forth in his employment agreement. Mr. Schiller's employment with the Company
shall continue, unless earlier terminated by Mr. Schiller or due to Mr.
Schiller's death or disability or by the Company, for successive one year
periods, on terms to be mutually agreed upon by the Company and Mr. Schiller.
59
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Company by Kane Kessler, P.C., 1350 Avenue of the Americas, New York, New York
10019.
EXPERTS
The financial statements included in this prospectus related to the
Company have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing. The financial statements included in this prospectus with respect to
DTCoA for the years ended December 31, 1995 and 1994 have been audited by Macy,
Mason & Schwartzkopf, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the SEC, Washington, D.C., its Registration
Statement No. 333-10307 under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in such Registration Statement and the exhibits thereto.
For further information with respect to the Company and the shares offered
hereby, reference is made to such Registration Statement and exhibits, which may
be obtained from the SEC at its principal office in Washington, D.C., upon
payment of charges prescribed by the SEC. Statements contained in this
Prospectus as to the contents of any contract or other documents referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified all respects by such reference.
60
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Armor Holdings, Inc.
Page
----
Report of Deloitte & Touche LLP..................................... F-2
Balance Sheets...................................................... F-3
Income Statements................................................... F-4
Statements of Stockholders' Equity.................................. F-5
Statement of Cash Flows............................................. F-6
Notes to Financial Statements....................................... F-7
Defense Technology Corporation of America
Independent Auditor's Report........................................ F-21
Balance Sheets - December 31, 1995 and December 31, 1994............ F-22
Statements of Income and Retained Earnings - December 31, 1995
and December 31, 1994......................................... F-24
Statements of Cash Flows - December 31, 1995
and December 31, 1994......................................... F-25
Notes to Financial Statements....................................... F-27
Unaudited Balance Sheet - September 28, 1996........................ F-33
Unaudited Statements of Income and Retained Earnings- Nine
months ended September 28, 1996 and September 30, 1995........ F-35
Unaudited Statements of Cash Flows - Nine months ended
September 28, 1996 and September 30, 1995..................... F-36
Note to Unaudited Interim Financial Statements...................... F-37
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
American Body Armor & Equipment, Inc.
Fernandina Beach, Florida
We have audited the accompanying balance sheets of American Body Armor &
Equipment, Inc. (the "Company") as of December 31, 1995 and 1994 and the related
statements of income, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1995 and
1994, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Jacksonville, Florida
February 23, 1996
F-2
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 28,
1996 December 31,
-------------------------
(Unaudited) 1995 1994
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,515,553 $ 272,972 $ 315,231
Accounts receivable, net of allowance for
doubtful accounts of $87,741 at September 28, 1996
and $100,000 in 1995 and 1994 2,760,551 2,319,754 1,574,990
Inventories 1,486,444 1,101,935 1,042,405
Prepaid expenses and other current assets 759,297 287,000 90,458
----------- ----------- -----------
Total current assets 13,521,845 3,981,661 3,023,084
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $390,669 at September 28, 1996 and
$270,450 and $122,379 in 1995 and 1994 514,540 474,359 502,935
REORGANIZATION VALUE IN EXCESS OF AMOUNTS
ALLOCABLE TO IDENTIFIABLE ASSETS, net 3,464,329 3,586,574 3,886,574
PATENTS AND TRADEMARKS 1,855,000
OTHER ASSETS 1,000,785 117,867 57,906
----------- ----------- -----------
TOTAL ASSETS $20,356,499 $ 8,160,461 $ 7,470,499
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capitalized lease obligation $ 7,613 $ 2,082,398 $ 1,681,544
Accounts payable, accrued expenses and other current liabilities 3,353,018 1,103,893 1,301,208
----------- ----------- -----------
Total current liabilities 3,360,631 3,186,291 2,982,752
5% CONVERTIBLE SUBORDINATED NOTES:
Due to directors and affiliates 3,450,000
Due to others 8,050,000
-----------
Total 5% convertible subordinated notes 11,500,000
OTHER LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATION, less current portion 21,907 27,550 60,793
----------- ----------- -----------
Total liabilities 14,882,538 3,213,841 3,043,545
----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 7, 8, 9 and 10)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $1 stated value, 1,700,000 shares
authorized, 0, 1,214,292, and 1,457,143 shares issued and outstanding 1,214,292 1,457,143
Preferred stock $.01 par value, 5,000,000 shares authorized, 0 shares
issued and outstanding (unaudited)
Common stock, $.01 par value at September 28, 1996, $.03 par value
at December 31, 1995 and 1994, 50,000,000 shares authorized,
6,926,642, 5,091,133, and 4,697,255 shares issued and outstanding 69,266 152,734 140,918
Additional paid-in capital 3,986,245 2,592,761 2,318,890
Retained earnings 1,418,450 986,833 510,003
----------- ----------- -----------
Total stockholders' equity 5,473,961 4,946,620 4,426,954
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $20,356,499 $ 8,160,461 $ 7,470,499
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
INCOME STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
September 28, September 30,
1996 1995 Year Ended December 31,
-------------------------
(Unaudited) (Unaudited) 1995 1994
<S> <C> <C> <C> <C>
NET SALES $11,314,656 $ 8,405,940 $11,741,367 $11,355,142
COST AND EXPENSES:
Cost of sales 7,012,219 5,260,526 7,443,080 7,740,803
Selling, general and administrative expenses 3,268,901 2,409,202 3,421,093 2,696,117
Interest expense - directors and affiliates 71,875
Interest expense - other, net 82,695 201,374 280,891 216,318
----------- ----------- ----------- -----------
10,435,690 7,871,102 11,145,064 10,653,238
----------- ----------- ----------- -----------
OPERATING INCOME 878,966 534,838 596,303 701,904
Amortization of deferred debt issue costs 76,949
Amortization of reorganization value in excess
of amounts allocable to identifiable assets 38,245
Non-operating income 227,500 227,500
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 763,772 762,338 823,803 701,904
INCOME TAXES 310,000 297,000 303,650 278,500
----------- ----------- ----------- -----------
NET INCOME $ 453,772 $ 465,338 $ 520,153 $ 423,404
=========== =========== =========== ===========
NET EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE $ 0.06 $ 0.07 $ 0.08 $ 0.07
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
----------------------- ------------------------- Additional
Stated Par Paid-in Retained
Shares Value Shares Value Capital Earnings Total
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 1,700,000 $ 1,700,000 4,415,833 $ 132,475 $ 2,075,441 $ 137,599 $ 4,045,515
Dividends on preferred stock (51,000) (51,000)
Conversion of preferred stock (242,857) (242,857) 275,400 8,262 234,595
Issuance of stock in lieu of
directors' fees 6,022 181 8,854 9,035
Net income 423,404 423,404
--------- ----------- --------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 1,457,143 1,457,143 4,697,255 140,918 2,318,890 510,003 4,426,954
Dividends on preferred stock (43,323) (43,323)
Conversion of preferred stock (242,851) (242,851) 346,922 10,408 232,443
Issuance of stock in lieu of
directors' fees 14,000 420 13,580 14,000
Issuance of stock granted under
stock plans 32,956 988 27,848 28,836
Net income 520,153 520,153
--------- ----------- --------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 1,214,292 1,214,292 5,091,133 152,734 2,592,761 986,833 4,946,620
Conversion of preferred
stock (unaudited) (1,214,292) (1,214,292) 1,734,702 52,041 1,162,251
Dividends on preferred
stock (unaudited) (22,155) (22,155)
Issuance of stock granted
under stock plans (unaudited) 97,948 2,939 77,775 80,714
Issuance of stock in lieu of
directors' fees (unaudited) 2,859 86 14,924 15,010
Reduction in par value of
common shares (unaudited) (138,534) 138,534
Net income (unaudited) 453,772 453,772
--------- ----------- --------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 28, 1996
(unaudited) - $ - 6,926,642 $ 69,266 $ 3,986,245 $ 1,418,450 $ 5,473,961
========= =========== ========= =========== =========== =========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September 28, September 30, Year Ended December 31,
----------------------------
1996 1995 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 453,772 $ 465,338 $ 520,153 $ 423,404
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 235,414 103,687 148,071 118,116
Gain on disposal of property and equipment (750)
Deferred income taxes 84,000 297,000 300,000 263,500
Directors' fees 14,000 9,035
Increase in accounts receivable (440,797) (108,409) (744,764) (558,509)
Increase in inventories (384,509) (273,955) (59,530) (107,832)
(Increase) decrease in prepaid expenses and other assets (2,314,911) (60,741) (256,503) 95,628
Increase (decrease) in accounts payable, accrued
liabilities and other current liabilities 2,249,125 (476,282) (168,479) (370,733)
------------ ------------ ------------ ------------
Net cash used in operating activities (117,906) (53,362) (247,802) (127,391)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (160,401) (68,527) (128,495) (117,897)
Proceeds from disposal of property and equipment 9,750
------------ ------------ ------------ ------------
Net cash used in investing activities (160,401) (68,527) (118,745) (117,897)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Preferred stock dividends (22,155) (43,323) (43,323) (51,000)
Exercise of stock grants and options 95,724
Borrowings under capital expenditures facility 52,000
Repayments of long-term debt and capitalized lease
obligation (29,781) (13,388) (4,391)
Net (repayments) borrowings under line of credit (2,050,647) (130,129) 328,999 595,817
Net proceeds from issuance of 5% convertible
subordinated notes 10,527,747
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 8,520,888 (173,452) 324,288 540,426
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 8,242,581 (295,341) (42,259) 295,138
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 272,972 315,231 315,231 20,093
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,515,553 $ 19,890 $ 272,972 $ 315,231
------------ ------------ ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 3,400 $ 15,000
------------ ------------
Interest paid $ 83,292 $ 180,632 $ 273,538 $ 213,798
------------ ------------ ------------ ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Capitalized lease obligation entered into for equipment $ 43,451
------------
Issuance of stock granted under stock plan $ 91,876 $ 28,836
------------ ------------
</TABLE>
See notes to financial statements.
F-6
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - American Body Armor & Equipment, Inc. is a
manufacturer of ballistic and stab resistant armor and bomb disposal
equipment. The Company's products are sold domestically and
internationally, primarily to law enforcement agencies and the military.
The Company has no foreign manufacturing operations.
Basis of Presentation - On September 20, 1993, the Company emerged from
Chapter 11 bankruptcy reorganization and adopted the recommended
fresh-start reporting treatment for such entities, as set forth in the
American Institute of Certified Public Accountants' Statement of Position
90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"). As such, the Company's 1995 and 1994
financial statements have been prepared as if the Company were a new
reporting entity and are not comparable to financial statements of previous
periods.
The Company's Plan of Reorganization under Chapter 11 bankruptcy became
effective on September 20, 1993 (the "Effective Date"). The Plan of
Reorganization was designed to repay secured claims in full with interest
without impairment, to repay over time unsecured claims related to an FTC
Replacement Vest Consent Agreement (see Note 8) via replacement of vests,
and to repay general unsecured, tort and lease claims in cash or a
combination of preferred and common stock.
In connection with the adoption of fresh-start reporting, the Company was
required to determine its reorganization value by consideration of several
factors and reliance on various valuation methods, including discounted
estimated future cash flows, market comparables and price/earnings ratios.
All such valuations depended in large part upon the Company's projected
future operating results and cash flows, with such projections including
assumptions as to anticipated sales and margins, marketing plans, operating
expense levels and capital expenditure programs.
Cash Equivalents - The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
Concentration of Credit Risk - The Company's accounts receivable consist of
amounts due from customers, including amounts due from distributors,
located throughout the United States. International sales generally require
cash in advance or confirmed letters of credit on U.S. banks.
Inventories - Inventories are stated at the lower of cost or market
determined on the first-in, first-out ("FIFO") basis.
Property and Equipment - In accordance with SOP 90-7, property and
equipment consisting primarily of manufacturing equipment and office
furniture and fixtures were recorded at their estimated fair values upon
emergence from bankruptcy. Subsequent additions of property and equipment
have been recorded at cost. Property and equipment are depreciated over
their estimated useful lives of 3 to 10 years on a straight-line basis.
F-7
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
- Reorganization value in excess of amounts allocable to identifiable
assets is amortized or otherwise reduced in amounts not less than those
which would be recognized on a straight-line basis over twenty-five years.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Income Taxes - In connection with the adoption of fresh-start reporting,
the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). Under the asset and liability
method specified thereunder, deferred taxes are determined based on the
difference between the financial reporting and tax bases of assets and
liabilities. Deferred tax liabilities are offset by deferred tax assets
representing the tax-effected cumulative net operating loss carryforwards
and deductible temporary differences, subject to applicable limits and an
asset valuation allowance. Future benefits obtained from utilization of net
operating loss carryforwards or from the reduction in the income tax asset
valuation allowance existing on September 20, 1993 have been and will be
applied to reduce reorganization value in excess of amounts allocable to
identifiable assets.
Revenue Recognition - The Company records sales at gross amounts to be
received, including amounts to be paid to agents as commissions.
Non-operating income includes amounts received in settlement of a
non-competition agreement.
New Accounting Standards - Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation", establishes
financial accounting and reporting requirements for stock-based employee
compensation plans. The Company intends to adopt the reporting requirements
of SFAS 123 in 1996 and does not expect implementation of the new standard
to have a significant impact on its financial position or results of
operations. The Company will also be required to adopt the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of"
for the year ending December 31, 1996. The impact of such adoption is not
presently known.
Interim financial information - Interim financial information as of
September 28, 1996 and for the nine months ended September 28, 1996 and
September 30, 1995 is unaudited. The unaudited interim financial statements
reflect all adjustments, consisting of normal recurring adjustments which
are, in the opinion of management, necessary to a fair statement of the
results for the interim periods. Information for the interim periods is not
necessarily indicative of results to be achieved for the full year.
F-8
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
2. INVENTORIES
Inventories are summarized as follows:
December 31,
-------------------------------
1995 1994
Raw materials $ 546,707 $ 651,479
Work-in-process 382,680 273,838
Finished goods 172,548 117,088
---------- ----------
$1,101,935 $1,042,405
========== ==========
3. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities are
summarized as follows:
December 31,
----------------------------
1995 1994
Trade and other payables $ 466,441 $ 524,769
Accrued expenses:
Payroll and related taxes 143,721 146,675
Unresolved bankruptcy claims 188,706 279,082
Other 240,470 70,227
Other current liabilities 64,555 280,455
---------- ----------
$1,103,893 $1,301,208
========== ==========
F-9
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
4. INDEBTEDNESS
<TABLE>
<CAPTION>
December 31,
--------------------------
Debt: 1995 1994
<S> <C> <C>
Line-of-credit under revolving credit and
security agreement expiring June 30, 1996 $ 1,997,060 $ 1,668,061
Capital expenditure facility under revolving credit
and security agreement expiring June 30, 1996 52,000
Mortgage loan payable in monthly installments
of $310 including interest at 8.5 percent through
August 1996, with a balloon installment of $23,684
due September 1996, collateralized by a first
mortgage on a condominium apartment 24,886 26,301
Other installment loan 839 4,524
---------- ----------
2,074,785 1,698,886
Less current portion (2,074,785) (1,673,256)
---------- ----------
$ - $ 25,630
---------- ----------
Capitalized lease obligation:
Equipment lease bearing interest at 10.88%,
expiring November, 1999, collateralized by equipment
with an amortized cost of approximately $35,000
at December 31, 1995 $ 35,163 $ 43,451
Less current portion (7,613) (8,288)
---------- ----------
$ 27,550 $ 35,163
========== ==========
</TABLE>
Effective with the emergence from Chapter 11 bankruptcy reorganization, the
Company entered into a revolving credit facility replacing the Company's
previous pre-petition and "debtor-in-possession" facility. The revolving
credit facility, as renewed July 1, 1994, provides for the borrowing in the
aggregate of up to $3,000,000, with maximum availability based upon 50% of
eligible inventories (with a cap of $850,000) and 85% of eligible accounts
receivable. Interest is payable at the Bank's Reference Rate plus 2% (10.5%
at December 31, 1995). Additional borrowings of approximately $230,000 were
available under the revolving credit facility at December 31, 1995. The
Company also has a related capital expenditures facility which provides for
borrowings up to $250,000. The facility contains certain restrictive
covenants including limitations on the encumbrance and transfer of assets
and the creation of indebtedness and the maintenance of certain levels of
tangible net worth and working capital. In addition, the facility restricts
the payment of dividends other than those dividends on preferred stock. The
agreement is collateralized by substantially all of the Company's assets
other than those assets collateralizing the mortgage and installment loan.
F-10
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
Aggregate principal maturities on indebtedness are as follows:
Obligation
Under
Capitalized
Year ending December 31, Debt Lease
1996 $ 2,074,785 $ 11,065
1997 11,065
1998 11,065
1999 10,143
----------- ---------
$ 2,074,785 43,338
-----------
Less amount representing interest on
obligation under capitalized lease (8,175)
---------
$ 35,163
=========
5. SALES INFORMATION AND SIGNIFICANT CUSTOMERS
Information with respect to sales to principal geographic areas for the
years ended December 31, 1995 and 1994 is as follows:
1995 1994
Foreign $ 1,370,003 $ 1,594,831
Domestic 10,371,364 9,760,311
-------------- --------------
$ 11,741,367 $ 11,355,142
============== ==============
Approximately 32% of the Company's sales during the year ended December 31,
1994 were derived from two significant customers, the United States
government, including various agencies, and the government of Puerto Rico.
F-11
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
6. INCOME TAXES
Income tax expense for the years ended December 31, 1995 and 1994 consisted
of the following components:
1995 1994
Current $ 3,650 $ 15,000
Deferred 300,000 263,500
--------------- ---------------
Total provision for income taxes $ 303,650 $ 278,500
=============== ===============
Significant components of the Company's net deferred tax asset are as
follows:
1995 1994
Deferred tax assets:
Reserves not currently deductible $ 206,000 $ 217,500
Operating loss carryforwards 1,783,000 1,755,000
Other 48,000 133,000
--------------- ---------------
2,037,000 2,105,500
Deferred tax asset valuation allowance (2,037,000) (2,105,500)
--------------- ---------------
Net deferred tax asset $ - $ -
=============== ===============
The Company provided a valuation allowance of $2,037,000 and $2,105,500
against deferred tax assets recorded as of December 31, 1995 and 1994 in
view of, among other things, historical operating losses and the expiration
dates and other limitations on usage of the net operating loss
carryforwards.
The Plan of Reorganization resulted in an ownership change since a
substantial portion of the new stock was issued to the creditors of the
Company. However, since the ownership change occurred pursuant to Chapter
11 proceedings and because more than 50% of the new stock was issued to
qualifying creditors and shareholders, the Company has taken advantage of
certain favorable rules contained in Section 382(1)(5) relating to usage of
net operating losses. After an ownership change, Section 382(1)(5) requires
a reduction in the amount of net operating loss carryforwards and other tax
attributes. As of emergence from bankruptcy, the net operating loss
carryforward was estimated to have been reduced to approximately $5,200,000
as a result of the adjustments required by Section 382. As of December 31,
1995 the Company's net operating losses approximate $4,700,000 and expire
in varying amounts in fiscal years 2003 to 2008. See also Note 12.
F-12
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
7. OPERATING LEASES
The Company leases its manufacturing facilities under a six year operating
lease expiring in 1999, with an option to renew. The Company is also party
to various other equipment and vehicle leases. Approximate total future
minimum annual lease payments under all such arrangements are as follows:
Year ending December 31
1996 $ 174,000
1997 165,000
1998 141,000
1999 132,000
2000 47,000
----------
$ 659,000
==========
The Company incurred rent expense of approximately $161,000 and $167,000
during the years ended December 31, 1995 and 1994.
8. COMMITMENTS AND CONTINGENCIES
Chapter 11 Proceedings - The Company has provided for payment of certain
classes of bankruptcy related claims. Such amounts include amounts with
respect to claims that have been allowed by the Bankruptcy Court, as well
as amounts with respect to claims that are still being disputed by the
Company. Among the disputed claims is one in which an unsecured creditor
did not originally exercise its opportunity to elect to receive stock in
satisfaction of its claim, but has since asserted that it is so entitled.
While there can be no assurance that the actual amounts of any such claims
that are ultimately allowed by the Bankruptcy Court will not exceed the
amounts reserved, the Company does not expect that any variance between
such actual and reserved amounts will have a material adverse effect on the
Company's financial position.
Employment Contracts - The Company is party to several employment contracts
with its management. Such contracts are for varying periods and include
restrictions on competition after termination. These agreements provide for
salaries, bonuses and other benefits and also specify and delineate the
granting of various stock options, as further described in Note 9.
F-13
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
Legal/Litigation Matters - In November 1989, the Federal Trade Commission
("FTC") conducted an investigation into the accuracy of the Company's
claims that body armor sold by the Company between 1988 and 1990 complied
with testing and certification procedures promulgated by the National
Institute of Justice ("NIJ"). On November 2, 1994, the FTC issued a consent
order embodying a voluntary settlement of the FTC's charges that the
Company engaged in false advertising. Under the consent order, the Company
admitted no violations of law but agreed to establish a Body Armor
Replacement Program (the "Program") under which persons who had purchased
body armor covered by the Program would be identified and offered the
chance to buy new, replacement body armor at a reduced price. The consent
order sets forth many detailed requirements governing the conduct of the
Program, the retention of records and the avoidance of false or misleading
advertising. Failure to comply with the requirements could make the Company
liable for civil penalties. On January 4, 1995, the Company filed with the
FTC a comprehensive Compliance Report detailing the manner in which it was
performing the obligations imposed upon it by the consent order. The FTC
has not asked for additional information or questioned the Company's
compliance with the consent order. Management has established reserves to
cover the estimated cost of the above program.
In addition to the above, the Company, in the normal course of business, is
subjected to claims and litigation in the areas of product and general
liability. Management does not believe any of such claims will have a
material impact on the Company's financial position.
9. STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
Convertible Preferred Stock - The Plan of Reorganization provided for the
filing by the Company of its Restated Articles of Incorporation which
authorized the issuance of 15,000,000 shares of common stock, $.03 par
value ("common stock") and 1,700,000 shares of $1 stated value, 3%
convertible preferred stock ("preferred stock"). Pursuant to the Plan of
Reorganization, the Company issued 4,415,833 shares of its new common stock
and 1,700,000 shares of preferred stock.
In 1995 and 1994, the Company elected to convert 242,851 shares of
preferred stock to common stock at $.77 per share and 242,857 shares of
preferred stock to common stock at $.97 per share, respectively, under
conversion provisions calling for the issuance of common stock, the fair
market value of which represents 110% of the aggregate stated value of the
preferred stock then subject to redemption.
Stock Options and Grants - In 1994, the Company implemented an incentive
stock plan and an outside directors' stock plan, which plans collectively
provide for the granting to certain key employees of options to acquire the
Company's common stock as well as providing for the grant of common stock
to outside directors and to all full time employees. Pursuant to such
plans, 1,050,000 shares of common stock were reserved and made available
for distribution. The option prices of stock which may be purchased under
the incentive stock plan are not less than the fair market value of common
stock on the dates of the grants. Stock granted under the plans results in
the recognition of compensation expense in the Company's financial
statements.
F-14
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- -------------------------------------------------------------------------------
The following is a summary of stock option activity in 1995 and 1994:
Number of
Option Price Shares
Shares Per Share Exercisable
Granted 727,500 $.79-$1.05 384,000
Forfeited (69,000) $.79-$1.05
-------
Outstanding at December 31, 1994 658,500 384,000
Granted 136,000 $.97
Forfeited (11,000) $.79-$1.05
-------
Outstanding at December 31, 1995 783,500 461,667
=======
The following is a summary of employee stock grant activity in 1995 and
1994:
Shares
Granted 128,500
Forfeited (9,877)
-------
Outstanding at December 31, 1994 118,623
Exercised (32,956)
Forfeited (14,186)
-------
Outstanding at December 31, 1995 71,481
-------
Under this plan, 14,000 and 6,022 shares were issued to directors in 1995
and 1994, respectively.
F-15
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
Earnings Per Share - The following table details the number of shares used
in computing primary and fully diluted earnings per share:
1995 1994
Primary:
Weighted average common shares outstanding 4,753,999 4,625,394
Effect of shares issuable under stock option
and stock grant plans, based on the treasury
stock method 325,290 254,498
Effect of shares issuable under conversion of
preferred stock 1,290,383 922,507
--------- ---------
6,369,672 5,802,399
--------- ---------
Fully diluted:
Weighted average common shares outstanding 4,753,999 4,625,394
Effect of shares issuable under stock option
and stock grant plans, based on the treasury
stock method 598,191 284,319
Effect of shares issuable under conversion of
preferred stock 1,290,383 922,507
--------- ---------
6,642,573 5,832,220
--------- ---------
Primary and fully diluted earnings per share are the same amounts.
10. RELATED PARTY TRANSACTIONS
The Company purchases a primary raw material for the manufacture of its
products from a significant stockholder. During the years ended December
31, 1995 and 1994 approximately $5,040,000 and $3,428,000 of such materials
were purchased. No amounts were payable to such stockholder as of December
31, 1995 and 1994. See also Note 12.
F-16
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1995 and 1994, the Company's financial instruments
consisted of cash and cash equivalents, receivables, payables and other
evidences of indebtedness. Because the cash equivalents and receivables and
payables have short maturities, their market value approximates their
carrying value as presented in the balance sheets. Effective September 20,
1993, the Company restructured the terms of its liabilities in accordance
with the Plan of Reorganization, which resulted in the issuance of
indebtedness at then fair market values. The Company later renewed its bank
credit facility on then market terms in June, 1994. Because the interest
rates on the Company's indebtedness are generally variable and the debts
are of relatively short maturities, management believes the carrying values
of debt as of December 31, 1995 and 1994 approximate fair value.
12. SUPPLEMENTAL INTERIM INFORMATION (UNAUDITED)
Change in Control - On January 18, 1996, Kanders Florida Holdings, Inc.
("KFH") purchased a majority interest in the Company by acquiring all of
the Company's preferred stock and common stock owned by the Company's two
largest shareholders, Clark Schwebel, Inc. and Hexcel Corporation. Upon
such transaction, the Company elected to convert all outstanding preferred
stock to common shares. After this conversion, KFH owned approximately 66%
of the Company.
This change in control of the Company resulted in the imposition of an
annual limitation on the use of the Company's net operating loss
carryforwards in future years.
Issuance of Convertible Debt - On April 30, 1996, the Company completed a
private placement of its 5% Convertible Subordinated Notes due April 30,
2001 (the "Notes") pursuant to which $11,500,000 aggregate principal
amounts of Notes were sold by the Company. Of the $11,500,000 Notes,
$3,450,000 are held by directors and affiliates of the Company.
The Notes bear interest at 5% per annum, due semi-annually beginning
December 31, 1996 and mature April 30, 2001. In addition, the Notes may be
convertible into shares of common stock of the Company (the "Common Stock")
at the option of the holder thereof at any time prior to the maturity date
at a conversion price of $5.00 per share, subject to adjustment as set
forth in the Convertible Subordinated Note Purchase Agreement. The Company
may redeem the Notes at par at any time two years after issuance, or at any
time after their issuance if the closing price of the Common Stock exceeds
$7.50 per share for 10 consecutive trading days and the shares of Common
Stock underlying the Notes have been registered under the Securities Act of
1933, as amended.
On July 19, 1996 the Company filed with the Securities and Exchange
Commission a registration statement on Form S-3 for the shares of Common
Stock into which the Notes are convertible.
F-17
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- -------------------------------------------------------------------------------
Commitment Letter - As of May 1, 1996, the Company reduced its credit
facility with LaSalle Business Credit, Inc. to a zero balance. Effective
June 30, 1996, the financing agreement with LaSalle expired and was not
renewed. The Company has a commitment letter dated October 3, 1996 from
Barnett Bank for making available to the Company a revolving credit
facility of up to $10,000,000 for working capital purposes. It is currently
contemplated that the loan facility will be secured by the Company's and
its subsidiaries' inventory and accounts receivable and guaranteed by the
Company's subsidiaries.
Acquisition of NIK Assets - On July 15, 1996, the Company acquired,
effective as of July 1, 1996, certain assets of the NIK Public Safety
Product Line from Ives-Lee Corporation (the "NIK Assets"). The purchase
price of the acquisition was 310,931 shares (the "NIK Shares") of the
Company's Common Stock valued at $2,400,000, plus $255,000 in costs
incurred related to the purchase. The Company acquired inventory,
receivables and certain intangibles. The total purchase price was allocated
to the NIK Assets based upon their respective relative fair market values.
Patents, trademarks and other intangibles will be amortized over their
respective useful lives, which range from 5-25 years. On the closing date,
the Company advanced to the seller $1,200,000 (the "Advance"). The Advance
will not bear interest and must be repaid with the first $1,200,000
realized from the sales of the NIK Shares. In the event that the sum of the
aggregate net proceeds from the sales of the NIK Shares and the Advance are
less than $2,400,000 by December 31, 1996, the Company has agreed to pay
the difference to the seller. Alternatively, if the sum of the aggregate
net proceeds from the sales of the NIK Shares and the Advance are greater
than $2,400,000 at any time, the seller has agreed to pay the difference to
the Company.
Acquisition of DTCoA Assets - On September 30, 1996, the Company acquired
through its newly formed wholly-owned subsidiary, Defense Technology
Corporation of America, a Delaware corporation ("DTC"), substantially all
of the assets of Defense Technology Corporation of America, a Wyoming
corporation (the "DTCoA"). The purchase price was $1,000,000 cash, 629,422
shares of the Company's common stock, having a value of $4,650,000, in the
assumption of certain liabilities totaling approximately $2,300,000 and
$500,000 of costs associated with completing the transaction.
The total purchase price was allocated to the acquired assets based upon
their respective relative fair market values. Patents, trademarks and other
intangibles will be amortized over their respective useful lives, which
range from 5-25 years.
In order to secure the obligations of DTCoA and its seller in connection
with the transaction 270,728 shares were delivered to Union Bank of
Switzerland, New York Branch ("UBS"), as escrow agent pursuant to an escrow
agreement dated September 30, 1996. One half of the shares held in escrow
will be released March 15, 1998 and the remainder will be held in escrow
until June 30, 1999.
F-18
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
Subject to a letter agreement dated August 16, 1996 (the "Key Bank Letter
Agreement") and in connection with the DTC transaction, 358,714 of the
shares (the "Key Bank Shares") issued at closing, having a value of
$2,650,000 (the "Amount Due"), were issued to Key Bank of Wyoming ("Key
Bank") in consideration for the release by Key Bank of its security
interest in substantially all of the assets of DTCoA. On the closing date,
the Company advanced to Key Bank $662,500 cash (the "Initial Amount") as an
advance against the Amount Due. Also on the closing date, the Company
deposited $1,987,500 in an interest bearing Certificate of Deposit ("CD")
account at Key Bank (the "Deposit Account"). Subsequent to closing, any
amounts paid to Key Bank on account of the Amount Due, including the
Initial Amount, or advances from the Deposit Account will result in a
reduction of the then outstanding balance of the Amount Due by a like
amount.
Pursuant to the Key Bank Letter Agreement, Key Bank agreed that upon the
registration of the Key Bank Shares, the Key Bank Shares would be sold,
provided that the Company would control, in its sole discretion, the
timing, manner and amount of Key Bank Shares to be sold; and in connection
therewith, the Company agreed to ensure that Key Bank realizes net proceeds
from such sales (the "Net Sale Proceeds"), which, together with any
advances from the Deposit Account and the Initial Amount will, in the
aggregate, equal the Amount Due, on or before September 30, 1997 (the
"Maturity Date").
The Company will pay to Key Bank the remaining balance of the Amount Due in
accordance with the following schedule. The Company may at its option,
however, elect to prepay all or a portion of the Amount Due without penalty
prior to the Maturity Date:
Date Payment Amount
December 15, 1996 $300,000
January 31, 1997 $300,000
April 30, 1997 $350,000
July 31, 1997 $350,000
The Amount Due from time to time outstanding will accrue an effective
annual rate of interest equal to two thirds of the sum of the CD rate plus
1%. This interest amount will be paid equally by DTCoA and the Company.
Income Taxes - As of January 1, 1996, the Company had an income tax net
operating loss carryforward ("NOL") of approximately $5 million. Effective
with the change in control of the Company by Kanders Florida Holdings, Inc.
on January 18, 1996, the utilization of the NOL became restricted to
approximately $300,000 per year. As a result, the Company has income taxes
currently payable. In previous years, the future benefits obtained by the
Company from utilization of the NOL had been applied to reduce the
reorganization value in excess of amounts allocable to identifiable assets.
Beginning in 1996, and for future years, amortization expenses related to
this intangible will be a minimum of approximately $51,000 and a maximum of
approximately $160,000 per year which is non-deductible for income tax
purposes.
F-19
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
Submission of Matters to a Vote of Security Holders - The Company held its
Annual Meeting of Shareholders on July 16, 1996. Of the 6,812,490 shares of
Common Stock entitled to vote at the meeting, 5,426,401 shares of Common
Stock were present in person or by proxy and entitled to vote. Such number
of shares represented approximately 80% of the Company's outstanding shares
of Common Stock.
At the meeting, the Company's shareholders approved: (i) an amendment to
the Company's Amended and Restated Articles of Incorporation changing the
name of the Company to "Armor Holdings, Inc."; (ii) the reincorporation of
the Company under the laws of the State of Delaware by means of a merger of
the Company with and into a newly formed wholly-owned subsidiary
incorporated in the State of Delaware for such purpose; (iii) an amendment
to the Company's Amended and Restated Articles of Incorporation, increasing
the number of authorized shares of the Company's Common Stock from
15,000,000 shares to 50,000,000 shares; (iv) an amendment to the Company's
Amended and Restated Articles of Incorporation, creating a series of
preferred stock, with the right conferred upon the Board of Directors to
set the dividend, voting, conversion, liquidation and other rights, as well
as such redemption or sinking fund provisions and the qualifications,
limitations and restrictions with respect thereto, as the Board may from
time to time determine; (v) the adoption of the Company's 1996 Stock Option
Plan of which 1,500,000 shares of Common Stock are reserved for issuance;
and (vi) the adoption of the Company's 1996 Non-Employee Directors Stock
Option Plan of which 300,000 shares of Common Stock are reserved for
issuance.
F-20
<PAGE>
[LETTERHEAD OF MACY, MASON & SCHWARTZKOPF]
CERTIFIED PUBLIC ACCOUNTANTS
225 SOUTH DAVID
CASPER, WYOMING 82601
TELEPHONE (307) 266-1760 FAX (307) 234-5414
August 27, 1996
INDEPENDENT AUDITOR'S REPORT
To the Stockholder
Defense Technology Corporation of America
We have audited the accompanying balance sheets of Defense Technology
Corporation of America (an S corporation) as of December 31, 1995 and 1994, and
the related statements of income and retained earnings and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Defense Technology Corporation
of America as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
As discussed in Note 16 to the financial statements, on August 23, 1996 the
Company entered into a definitive purchase agreement to sell a substantial
portion of its assets in consideration for cash, securities, and assumption of
liabilities. The sale will represent a significant portion of the Company's
total assets and operations.
/s/ MACY, MASON & SCHWARTZKOPF
MACY, MASON & SCHWARTZKOPF
CERTIFIED PUBLIC ACCOUNTANTS
F-21
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
BALANCE SHEETS
DECEMBER 31, 1995 & 1994
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash & Cash Equivalents
(Notes 6 & 14) 149,089 13,537
Accounts Receivable - Net of
Allowance for Doubtful Accounts
of $75,000 in 1995 and $25,000
in 1994 (Notes 6, 9, & 14) 2,115,492 1,522,498
Available for Sale Securities
(Note 2) 106,875 200,000
Notes Receivable (Notes 3, 6,
& 14) 13,055 77,176
Inventories (Notes 1 & 6)
Raw Materials 829,423 615,251
Work In Progress 411,811 494,524
Finished Goods 2,722,820 2,293,994
Consigned -- 3,964,054 103,284 3,507,053
---------- ----------
Other Current Assets 139,435 194,398
---------- ----------
TOTAL CURRENT ASSETS 6,488,000 5,514,662
OTHER ASSETS
Investments 94,785 96,847
Intangible Assets - Net of
Accumulated Amortization
(Note 1) 64,950 62,113
Other Assets 20,305 180,040 -- 158,960
---------- ----------
PROPERTY, PLANT, & EQUIPMENT
(Notes 1, 4, 6, & 7)
Cost 7,060,370 6,932,993
Less Accumulated Depreciation 979,637 6,080,733 988,065 5,944,928
---------- ---------- ---------- ----------
12,748,773 11,618,550
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-22
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
BALANCE SHEETS
DECEMBER 31, 1995 & 1994
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Cash Overdraft 88,668 87,371
Accounts Payable 1,965,803 897,330
Accrued Taxes & Expenses 178,928 195,668
Litigation Settlement Payable
(Note 5) 410,000 --
Customer Deposits 46,415 --
Unearned Income 42,862 --
Notes Payable (Note 6) 4,562,288 3,270,994
Obligation Under Capital Lease
(Note 7) 5,262 14,483
----------- -----------
TOTAL CURRENT LIABILITIES 7,300,226 4,465,846
LONG TERM LIABILITIES
Notes Payable (Note 6) 4,995,410 4,379,430
Obligation Under Capital Lease
(Note 7) -- 5,262
Unearned Income 158,924 5,154,334 235,485 4,620,177
----------- -----------
STOCKHOLDER'S EQUITY (Note 8)
Common Stock, no par value,
5,625 shares authorized,
4,613 shares issued and out-
standing at amount paid in 789,271 789,271
Retained Earnings (Accumulated
Deficit) (273,279) 1,886,910
Less - Cost of 113 Shares of
Treasury Stock (43,654) (43,654)
Unrealized Loss on Available
for Sale Securities (Note 2) (178,125) 294,213 (100,000) 2,532,527
----------- ----------- ----------- -----------
12,748,773 11,618,550
=========== ===========
Subsequent Events (Notes 6, 10, & 16)
Contingencies (Note 15)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF INCOME & RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 & 1994
<TABLE>
<CAPTION>
1995 1994
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net Sales (Note 14) 10,705,899 11,524,262
Cost of Goods Sold (Note 9) 5,705,885 5,451,815
----------- -----------
Gross Profit 46.7% 5,000,014 52.7% 6,072,447
Selling, General, &
Administrative Expenses
(Notes 1, 10, & 11) 5,587,276 5,059,535
----------- -----------
Net Operating Income (Loss) (587,262) 1,012,912
OTHER INCOME (EXPENSE)
Interest Income 1,868 9,127
Interest Expense (Note 6) (648,024) (479,945)
License Agreement 42,862 43,111
Loss on Disposition of
Equipment (28,253) (166,879)
Loss on Disposition of
Investments (9,066) --
Miscellaneous 8,513 --
Litigation Settlement
(Note 5) (410,000) (1,042,100) -- (594,586)
----------- ----------- ----------- -----------
NET INCOME (LOSS) (Note 12) (1,629,362) 418,326
Retained Earnings, January 1 1,886,910 1,986,121
----------- -----------
257,548 2,404,447
Less: Dividends Paid 530,827 517,537
----------- -----------
RETAINED EARNINGS (ACCUMULATED
DEFICIT), DECEMBER 31 (273,279) 1,886,910
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 & 1994
<TABLE>
<CAPTION>
1995 1994
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities:
Net Income (1,629,362) 418,326
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Used in Operating Activities:
Depreciation & Amortization 713,894 741,409
Loss on Disposition of
Equipment 28,253 166,879
Loss on Sale of Investments 9,066 --
Write-Off of Notes Receivable 87,714 35,000
Increase in Accounts
Receivable (643,624) (743,817)
Increase in Inventory (457,001) (788,201)
Decrease in Other Current
Assets 54,963 61,584
Increase in Other Assets (20,305) --
Increase (Decrease) in
Accounts Payable 1,068,473 (506,431)
Increase (Decrease) in
Accrued Taxes & Expenses 81,992 (102,265)
Decrease in Accrued Income
Tax -- (197,923)
Decrease in Accounts
Payable - Def-Tec of Ohio -- (5,452)
Increase in Customer Deposits 46,415 --
Decrease in Unearned Income (33,699) (105,144)
Increase in Litigation
Settlement Payable 410,000 --
Other Adjustments -- 6,295
---------- ----------
Total Adjustments 1,346,141 (1,438,066)
---------- ----------
Net Cash Used in Operating
Activities (283,221) (1,019,740)
Cash Flows from Investing
Activities:
Proceeds from Sale of
Investments 5,934 --
Payments Received on Notes
Receivable 26,971 24,655
Note Receivable Issued -- (7,907)
Proceeds from Sale of
Equipment 7,577 50,489
Purchases of Property,
Plant, Equipment, &
Intangibles
Total Cost (956,180) (566,727)
Less Amounts Financed 140,005 171,598
---------- ----------
Net Cash Used in Investing
Activities (775,693) (327,892)
---------- ----------
Subtotal (1,058,914) (1,347,632)
</TABLE>
(CONTINUED)
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 & 1994
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Subtotal (Carried Forward) (1,058,914) (1,347,632)
Cash Flows from Financing
Activities:
Increase in Cash Overdraft 1,297 87,371
Dividends Paid (499,835) (377,547)
Borrowings Under Line of
Credit 3,810,000 5,520,600
Principal Payments on
Line of Credit (2,437,000) (3,586,100)
Proceeds from Issuance of
Notes 881,942 262,666
Principal Payments on
Notes & Lease Obligation (561,938) (805,420)
---------- ----------
Net Cash Provided by
Financing Activities 1,194,466 1,101,570
---------- ----------
NET INCREASE (DECREASE) IN CASH 135,552 (246,062)
Cash & Cash Equivalents,
January 1 (Note 1) 13,537 259,599
---------- ----------
CASH & CASH EQUIVALENTS,
DECEMBER 31 (Note 1) 149,089 13,537
========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash Paid During the Year
for:
Interest (Net of Amount
Capitalized) 566,268 449,435
Taxes -- 197,923
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING & FINANCING ACTIVITIES:
During the years ended December 31, 1995 and 1994, the Company had the
following noncash transactions:
113 shares of treasury stock were purchased in exchange for an account
receivable from the stockholder in the amount of $43,654 in 1994.
Accounts receivable in the amounts of $50,630 and $93,924 were converted into
notes receivable in 1995 and 1994, respectively.
In 1995, a vehicle and other assets owned by the Company were transferred to
the stockholder and recorded as a dividend in the amount of $30,992. Dividends
in the amount of $139,990 represent a prior year receivable from the
stockholder that was declared a dividend in 1994.
The Company incurred expense of $38,950 in 1994 for a manufacturing mold which
became obsolete in 1995 before it was paid for, and, therefore, the mold and
the accrued expense were written off.
Accrued interest payable of $59,783 at December 31, 1995 was added to the face
value of a note payable as a result of the modification of its terms.
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The operations of Defense Technology Corporation of America (DTCOA) consist of
the manufacturing and sales of nonlethal crowd control devices. The Company
grants credit to its customers located throughout the United States and
selected customers abroad. Credit policies with some international customers
include letter of credit arrangements and prepayments, and all transactions are
in United States dollars. Outlined below are the Company's significant
accounting policies.
Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories - Inventories are stated at the lower of average cost (first-in,
first-out) or market based upon a physical count. Cost of work in process
inventories include related materials, labor, and applied overhead costs.
Amortization of Intangibles - Intangible assets are being amortized over their
useful lives using the straight-line method.
Property, Plant, and Equipment - The cost of property, plant, and equipment is
being depreciated over the estimated useful lives of the related assets.
Depreciation is computed on the straight-line method for financial reporting
purposes and on the accelerated and straight-line methods for income tax
purposes.
Cash and Cash Equivalents - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments with a maturity of three
months or less to be cash equivalents.
Advertising Costs - Advertising costs are expensed as incurred. Total amounts
charged to expense for the years ended December 31, 1995 and 1994 were $267,504
and $173,670, respectively.
NOTE 2 - AVAILABLE FOR SALE SECURITIES
The investment is in a publicly traded stock. Realized losses are determined by
using the specific identification method of valuation. The following is a
summary of the investment at December 31, 1995 and 1994:
1995 1994
--------- ---------
Fair Market Value 106,875 200,000
Historical Cost (285,000) (300,000)
--------- ---------
Gross Unrealized Holding Loss (178,125) (100,000)
========= =========
NOTE 3 - NOTES RECEIVABLE
At December 31, 1995 and 1994, the Company had various notes receivable with
varying terms. All of the notes were unsecured and were due within one year.
F-27
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 4 - PROPERTY, PLANT, AND EQUIPMENT
A summary of property, plant, and equipment is as follows:
1995 1994
--------- ---------
Computer Equipment 213,553 227,119
Office Furniture & Fixtures 232,776 219,042
Manufacturing Equipment 672,770 642,315
Manufacturing Molds 123,089 123,029
Vehicles 145,435 139,960
Airplane 4,127,389 4,702,604
Leasehold Improvements 147,543 131,503
Buildings 1,275,357 624,963
Land 122,458 122,458
--------- ---------
Total 7,060,370 6,932,993
Less Accumulated Depreciation 979,637 988,065
--------- ---------
6,080,733 5,944,928
========= =========
NOTE 5 - LITIGATION SETTLEMENT PAYABLE
The Company has entered into an agreement to settle a claim against the Company
which requires payment of $410,000. This amount is expected to be satisfied on
or prior to September 30, 1996 in connection with the transaction described in
Note 16.
<TABLE>
<CAPTION>
NOTE 6 - NOTES PAYABLE
1995 1994
------------------------ -------------------------
Due Within Due After Due Within Due After
One Year One Year One Year One Year
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
City of Casper-Natrona County Economic
Development Joint Powers Board; 5%
interest; payable $3,300 per month,
including interest, through April 1998
at which time the payments increase to
$8,546 per month, including interest;
secured by real property, equipment,
and personal guarantees of the
stockholder and a corporate officer; due
April 2003 15,442 474,683 -- 150,000
City of Casper-Natrona County Economic
Development Joint Powers Board, 5-1/4%
interest, payable $1,503 per month,
including interest, secured by
equipment, due November 1996 16,104 -- 16,712 16,102
Raytheon Aircraft Credit Corporation,
interest rate is the Bank of America
prime interest rate, interest and
principal payable monthly in payments
of approximately $57,300, secured by
equipment and personal guarantee of
a corporate officer, due May 2005 (D) 246,864 4,060,454 262,524 3,939,716
Finnoff & Associates, 8% interest,
payable $10,000 per month, including
interest, unsecured, due October
1998 (C) 99,599 200,401 265,557 --
Ford Motor Credit, various installment
loans, varying interest rates, payable
$4,927 per month, including interest,
secured by equipment, due
December 1996 through April 1999 51,081 60,563 41,637 63,069
</TABLE>
F-28
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
<TABLE>
<CAPTION>
NOTE 6 - NOTES PAYABLE (CONTINUED)
1995 1994
------------------------ -------------------------
Due Within Due After Due Within Due After
One Year One Year One Year One Year
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
An individual, 9.25% interest, payable
$1,200 per month, including interest,
secured by real property, due April
1997 7,549 69,920 6,887 77,436
Rawlins National Bank, interest payable
monthly, due June 1995 (B) -- -- 2,627,000 --
Rawlins National Bank, 9.25% interest,
payable $320 per month, including
interest, secured by equipment, due
February 1995 -- -- 633 --
Rawlins National Bank, 1% over Norwest
Bank prime rate, secured by certificate
of deposit and personal guarantee of
the stockholder, due May 1996 70,000 -- -- --
An individual, 9% interest, payable
$1,296 per month, including interest,
secured by a first mortgage on real
estate, due May 1997 3,718 129,389 3,400 133,107
Key Bank of Wyoming, interest payable
monthly, due May 1996 (A) 4,000,000 -- -- --
Insurance financing contracts, various
installment loans, various interest
rates and payment terms which include
interest, due September 1996 51,931 -- 46,644 --
--------- --------- --------- ---------
4,562,288 4,995,410 3,270,994 4,379,430
========= ========= ========= =========
</TABLE>
(A) The Company had a revolving line of credit with Key Bank of Wyoming
which provided a $4,000,000 open line of credit.
In March 1996, the Company modified the terms of the line of credit
with Key Bank. The modified agreement bifurcated the line of credit
into two obligations; a $3,000,000 line of credit and $1,000,000 term
loan. The $3,000,000 open line of credit is at 1.5% over the Key Bank
of Wyoming prime rate with interest payable monthly and is secured by
substantially all of the Company's assets, a second mortgage on real
property of the stockholder, and the personal guarantees of the
stockholder and a corporate officer. The line of credit is due
September 1996. The agreement contains various restrictive covenants.
The Company is not in compliance with several of those covenants.
The term loan is at 1.5% over the Key Bank of Wyoming prime rate and
is secured by real property of the stockholder and personal guarantees
of the stockholder and a corporate officer. Interest is payable
monthly and the loan is due September 1996. The term loan includes an
option to extend the due date until March 1997 if the real property
collateral has not been sold.
(B) The Company had a revolving line of credit with Rawlins National Bank
which provided a $3,000,000 open line of credit at 2% over the Norwest
Bank of Denver prime rate. Borrowings under this line of credit were
secured by inventory, equipment, accounts, contract rights, general
intangibles, fixtures, real property, and personal guarantee of the
stockholder. During 1995, the Company paid off the line by refinancing
with Key Bank of Wyoming.
(C) On January 4, 1996, the Company modified the terms of its note with
Finnoff & Associates based on the settlement of a legal suit filed by
the creditor. The note was originally due on March 4, 1994. Finnoff &
Associates has agreed to accept $300,000 due in monthly installments
of $10,000, including 8% interest, through October 1998.
F-29
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 6 - NOTES PAYABLE (CONTINUED)
(D) On February 12, 1996, the terms of the note were modified to include
accrued interest in the note balance. No payments have been made on
this obligation in 1996 and the Company is negotiating for additional
revised terms.
For the years ended December 31, 1995 and 1994, total interest expense incurred
was $663,589 and $479,945, respectively. Capitalized interest for 1995 and 1994
was $15,565 and $0, respectively.
Maturities on notes payable for each of the subsequent five years ending
December 31 are as follows:
1996 4,562,288
1997 711,250
1998 550,901
1999 505,670
2000 540,739
NOTE 7 - OBLIGATION UNDER CAPITAL LEASE
The Company leases equipment under a noncancellable agreement which requires a
monthly payment of $1,352. The lease is a capital lease with the cost of the
assets of $42,400 reflected in property, plant, and equipment. The assets are
amortized over their estimated useful lives and that expense is included in
depreciation expense.
The following is a schedule by years of future minimum lease payments under the
lease together with the present value of the net minimum lease payments as of
December 31, 1995:
Year Ending December 31:
1996 5,406
------
Total Minimum Lease Payments 5,406
Less: Amount Representing
Interest 144
Present Value of Net Minimum ------
Lease Payments 5,262
======
Present value of net minimum lease payments is reflected in the balance sheets
as current and noncurrent obligations under capital leases of $5,262 and $0 for
1995 and $14,483 and $5,262 for 1994, respectively.
NOTE 8 - STOCKHOLDER'S EQUITY
The declaration of dividends is restricted to the total stockholder's equity
less the cost of the treasury shares held.
NOTE 9 - RELATED PARTIES
The Company has, at various times, purchased inventory, supplies, and fixed
assets; rented equipment; and made payments on behalf of Def-Tec of Ohio. At
one time, both of these companies were wholly owned subsidiaries of a common
parent. Def-Tec of Ohio ceased operations in November of 1994.
Following is a summary of transactions:
1995 1994
------- ----
Purchases & Other Acquisitions - 494,549
======= =======
Payments Made for Def-Tec of Ohio - 500,002
======= =======
During 1995, the Company had sales to Defense Technology GmbH, a German
corporation, of $63,081. $63,857 was due from the Company at December 31, 1995.
An officer of the corporation owns a 50% interest in Defense Technology GmbH.
F-30
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 10 - RENTALS UNDER OPERATING LEASES
The Company has four buildings, three automobiles, and various equipment leased
under the operating lease method with the leases expiring in various years
through 2000. The following is a schedule by years of minimum future rentals on
the noncancellable operating leases as of December 31, 1995:
1996 147,567
1997 111,589
1998 97,269
1999 59,045
2000 23,946
-------
Total Minimum Future Rentals 439,416
=======
Rent expense for the years ended December 31, 1995 and 1994 was $178,608 and
$161,881, respectively.
Three of the building leases provide for purchase options. The purchase options
are at prices representing the expected fair value of the property at the
expiration of the lease term or the date the purchase option expires, if
earlier. Two of these buildings were vacated subsequent to December 31, 1995.
The fourth building lease provides for a 5% increase each year in the minimum
rental payments.
NOTE 11 - PENSION PLAN
During the year ended December 31, 1995, the Company established a cash or
deferral plan under Internal Revenue Code Section 401(k) that covers all
employees. The Company has the option of making contributions to the plan as
well as matching employee contributions. Contributions to the plan for the year
ended December 31, 1995 were $2,117.
NOTE 12 - INCOME TAX MATTERS
The Company and its stockholder have elected to have the federal income tax on
the corporate earnings paid directly by its stockholder as provided by
Subchapter S of the Internal Revenue Code. As a result, no income tax provision
has been made on the statements of income or the balance sheets, as this is a
personal obligation of the stockholder. The accumulated losses at December 31,
1995 for the stockholder were $1,080,166.
NOTE 13 - FINANCIAL INSTRUMENTS
The Company's financial instruments consist of notes receivable and notes
payable. The fair value of the notes receivable approximates carrying amounts
as does the fair value of notes payable based on the borrowing rates currently
available to the Company.
NOTE 14 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
Financial instruments that are exposed to concentrations of credit risk consist
primarily of cash, cash equivalents, trade accounts receivable, and notes
receivable. The Company places its cash and temporary cash investments with
financial institutions. Included in cash at December 31, 1994 was $10,400 which
was invested in uninsured cash reserve funds whose underlying assets are short
term investments in United States government securities. At December 31, 1995,
the Company had cash deposits at a foreign financial institution in the amount
of $109,431. This deposit is not covered by FDIC insurance but is afforded
protection under the New York banking laws.
The Company routinely assesses the financial strength of their customers and,
as a consequence, believe that their trade accounts receivable credit risk
exposure is limited.
F-31
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 & 1994
NOTE 14 - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK (CONTINUED)
For the year ended December 31, 1995, approximately 13% of the Company's sales
were derived from sales to one major customer. The balance reflected in
accounts receivable at December 31, 1995 includes $790,832, or 37%, of accounts
receivable from that same major customer.
In addition, international sales were approximately 25% and 21% of the total
sales for the years ended December 31, 1995 and 1994, respectively. At December
31, 1995, accounts receivable included $419,012, or 20%, of accounts receivable
due from foreign entities.
NOTE 15 - CONTINGENCIES
The Company provides health insurance to its employees through a self-insured
plan. Under the plan, the Company has acquired stop-loss insurance to limit its
exposure to $25,000 per year for each employee. In addition, there is a maximum
amount the Company must pay for claims each month which is based upon an
experience factor and the number of employees covered by the plan. Claims which
exceed the maximum monthly payment are paid by the plan administrator. These
excess amounts, if any, accumulate and in future months when actual claims are
less than the maximum amount, cause the Company to have to pay an amount up to
the maximum monthly amount. There were no excess amounts at December 31, 1995.
The Company is involved in legal actions arising in the ordinary course of
business. Management believes the Company has adequate legal defenses or
insurance coverage with respect to these actions and does not believe they will
materially affect the Company's financial position and results of operations.
NOTE 16 - GOING CONCERN
These statements are presented on the basis that the Company is a going
concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
length of time. The accompanying financial statements show a loss from
operations of $587,262 for the year ended December 31, 1995 and a total overall
loss of $1,629,362. As of December 31, 1995, current liabilities exceed current
assets by $812,226. Those factors, as well as uncertainties regarding the
Company's ability to retain or replace existing financing, create an
uncertainty about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
On August 23, 1996, management entered into a definitive purchase agreement
with Armor Holdings, Inc. for the sale of a substantial portion of its assets
in consideration for cash, securities, and the assumption of liabilities. The
transaction is expected to close on or prior to September 30, 1996. Management
believes the completion of this transaction will provide the opportunity for
the Company to continue as a going concern. Its activities then will be as a
sales company including international sales of products manufactured by Armor
Holdings, Inc. and its subsidiaries.
NOTE 17 - RECLASSIFICATIONS
The financial statements as of and for the year ended December 31, 1994 reflect
reclassifications between accounts with no resulting effect on net income or
retained earnings.
F-32
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
BALANCE SHEET
9/28/96
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 196,914
Accounts Receivable-Net of
Allowance for Doubtful Accounts
of $119,420 2,221,942
Available for Sale Securities
Notes Receivable 4,290
Inventories
Raw Materials 532,639
Work in Progress 274,841
Finished Goods 1,879,675 2,687,155
Prepaid Expenses and Other Current Assets 375,429
-----------
TOTAL CURRENT ASSETS 5,485,730
OTHER ASSETS
Investments 45,785
Intangible Assets-Net of
Accumulated Amortization of $39,690 59,443
Receivable From Shareholder 165,878
Other Assets 64,261 338,367
-----------
PROPERTY, PLANT & EQUIPMENT
Cost 6,974,873
Less Accumulated Depreciation 1,418,318 5,556,555
----------- -----------
$11,378,652
===========
</TABLE>
See Note to Unaudited Interim Financial Statements
F-33
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
BALANCE SHEET
9/28/96
UNAUDITED
<TABLE>
<CAPTION>
<S> <C> <C>
LIABILITIES & STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Cash Overdraft $ 14,678
Accounts Payable 920,360
Accrued Expenses 578,838
Litigation Settlement Payable
Customer Deposits
Unearned Income 18,053
Notes Payable 3,230,886
Obligation Under Capital Lease
-----------
TOTAL CURRENT LIABILITIES 4,762,815
LONG TERM LIABILITIES
Notes Payable 5,420,973
Unearned Income 169,647 5,590,620
----------
STOCKHOLDER'S EQUITY
Common Stock, no par value,
5,625 shares authorized
4,613 shares issued and out-
standing at amount paid in 1,789,271
Retained Earnings (Accumulated Deficit) (871,400)
Less-Cost of 113 Shares of
Treasury Stock (43,654)
Unrealized Loss on Available
for Sale Securities (49,000) 1,025,217
---------- -----------
$11,378,652
===========
</TABLE>
See Note to Unaudited Interim Financial Statements
F-34
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
UNAUDITED
<TABLE>
<CAPTION>
1996 1995
----------------------- ------------------------
<S> <C> <C> <C> <C>
Net Sales $ 8,983,879 $ 10,687,040
Cost of Goods Sold 3,894,502 5,245,396
----------- ------------
Gross Profit 3,089,377 5,441,644
Selling, General &
Administrative Expenses 2,619,821 4,251,300
----------- ------------
Net Operating Income 469,556 1,190,344
OTHER INCOME (EXPENSE)
Interest Income 811 1,332
Interest Expense (576,500) (305,546)
License Agreement 32,139 32,594
Loss on Disposition of
Equipment (198,208)
Miscellaneous (125,831) (867,677) (185,130) (546,750)
--------- ----------- --------- ------------
NET INCOME (LOSS) (398,121) 643,594
Retained Earnings (Accumulated
Deficit), Beginning (273,279) 1,887,911
----------- ------------
RETAINED EARNINGS (ACCUMULATED
DEFICIT), ENDING $ (871,400) $ 2,531,505
=========== ============
</TABLE>
See Note to Unaudited Interim Financial Statements
F-35
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
9/28/96 9/30/95
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $ (398,129) $ 643,594
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by (Used in)
Operating Activities:
Depreciation & amortization 507,942 552,580
Loss on disposal of assets 231,491 (61,338)
Increase in accounts receivable (337,589) (2,866,916)
Decrease in inventories 1,276,899 865,966
Increase in prepaid expenses and
other current assets (215,419) (152,809)
Increase in other assets (34,453) (22,477)
Increase (decrease) in accounts payable (1,045,443) 409,976
Increase in accrued expenses 10,090 243,072
Decrease in customer deposits (46,415) 0
Decrease in unearned income (14,083) (28,717)
Decrease in obligation under capital lease (5,262) (10,684)
----------- -----------
Net cash used in operating activities (70,371) (427,753)
----------- -----------
Cash Flows From Investing Activities:
Proceeds from sale of investments 77,935 0
Payments received on notes receivable 8,756 21,745
Notes receivable issued 0 (46,322)
Net proceeds from sale of equipment 29,276 20,782
Purchase of property, plant, equipment
& intangibles (17,951) (831,791)
----------- -----------
Net cash provided by (used in) investing
activities 98,025 (835,586)
----------- -----------
Cash Flows From Financing Activities:
Decrease in cash overdraft (73,990) (87,371)
Borrowings under notes 178,955 1,800,240
Payments on notes & lease obligation (84,794) (195,061)
----------- -----------
Net cash provided by financing activities 20,171 1,517,908
----------- -----------
INCREASE IN CASH & CASH EQUIVALENTS 47,825 254,569
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 149,089 13,537
----------- -----------
CASH & CASH EQUIVALENTS, END OF PERIOD $ 196,914 $ 268,106
=========== ===========
</TABLE>
See Note to Unaudited Interim Financial Statements
F-36
<PAGE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
NOTE TO UNAUDITED INTERIM FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying condensed financial statements of Defense Technology
Corporation of America ("DTCoA") are unaudited for the interim periods, but
include all adjustments, consisting only of normal recurring accruals,
which management considers necessary for the fair presentation of results
as of September 28, 1996 and September 30, 1995 and for the nine month
periods then ended.
Moreover, these condensed financial statements should be read in
conjunction with the audited financial statements for DTCoA inlcuded herein
for the years ended December 31, 1995 and 1994.
F-37
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Company's Charter includes provisions that limit the liability of the
Company's directors. The DGCL permits a Delaware corporation to include in its
certificate of incorporation a provision which eliminates or limits the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duties as a director; provided, however, that no
such provision may eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders;
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) for declaration of unlawful
dividends or illegal redemptions or stock repurchases; or (iv) for any
transaction from which the director derived an improper personal benefit. The
Company's Charter includes such a provision. Under the DGCL, a director or
officer may, in general, be indemnified by the corporation if he or she has
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. No indemnification is permitted if the person is adjudged
liable to the corporation in a derivative suit unless the court determines that
indemnification would be appropriate.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the Company's estimates of the expenses to
be incurred by it in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and commissions:
Securities and Exchange Commission registration fee............... $ 2,177.31
Printing registration statement and other documents............... $ 1,000.00
Fees and expenses of the Company's counsel........................ $ 50,000.00
Accounting fees and expenses...................................... $ 20,000.00
Blue Sky fees and expenses ....................................... $ 1,500.00
Transfer agent, registrar fees and................................ $ 2,500.00
Miscellaneous..................................................... $ 1,000.00
------------
Total....................................................... $ 78,177.31
============
Item 26. Recent Sales Of Unregistered Securities
The following information consists of information relating to unregistered
securities sold by the Company during the past three years.
II-1
<PAGE>
5% Convertible Subordinated Notes
On April 30, 1996, the Company completed a private placement the of its 5%
Convertible Subordinated Notes due April 30, 2001 (the "Notes") pursuant to
which $11,500,000 aggregate principal amount of Notes were sold by the Company
solely to accredited investors pursuant to a Convertible Subordinated Note
Purchase Agreement dated as of April 30, 1996 (the "Convertible Subordinated
Note Purchase Agreement"). The following description of the Note offering, the
Convertible Subordinated Note Purchase Agreement and the Notes is not intended
to be complete and is qualified in its entirety by the complete texts of the
form of Convertible Subordinated Note Purchase Agreement and the form of Note.
The Notes bear interest at 5% per annum, mature five years from the date
of issuance, and are subordinated to all existing and future Senior Indebtedness
of the Company, as defined and as more fully set forth in the Convertible
Subordinated Note Purchase Agreement. In addition, the Notes may be convertible
into shares of Common Stock of the Company at the option of the holder thereof
at any time prior to the maturity date at a conversion price of $5.00 per share,
subject to adjustment as set forth in the Convertible Subordinated Note Purchase
Agreement.
The Company may redeem the Notes at par at any time two years after
issuance, or at any time after their issuance if the closing price of the Common
Stock exceeds $7.50 per share for 10 consecutive trading days and the shares of
Common Stock underlying the Notes have been registered under the Securities Act,
as amended. In the event the Company elects to redeem the Notes, the holders of
the Notes will have the option to convert the Notes into shares of the Company's
Common Stock at a conversion price of $5.00 per share prior to such redemption,
subject to adjustment as set forth in the Convertible Subordinated Note Purchase
Agreement.
The Company has filed with the SEC a Registration Statement on Form S-3
registering the shares of Common Stock into which the Notes are convertible.
The Notes were sold for the Company by placement agents. The placement
agents received an aggregate of $576,000 in commissions on the placement of the
Notes. The Note offering was deemed to be exempt from registration pursuant to
Section 4(2) of the Securities Act.
NIK Acquisition
Pursuant to the terms of the NIK Asset Purchase Agreement, the Company,
through its subsidiary NIK, acquired certain assets of the NIK Public Safety
Line of Ivers-Lee on July 15, 1996 in exchange for 310,931 unregistered shares
of the Company's Common Stock. Such shares were deemed exempt from registration
pursuant to Sections 4(2) and/or 4(6) of the Securities Act. Such shares are
being registered pursuant to this Registration Statement. See "NIK Acquisition."
II-2
<PAGE>
DTCoA Acquisition
Pursuant to the terms of the DTCoA Asset Purchase Agreement, the Company,
through its subsidiary DTC, acquired substantially all of the assets of DTCoA on
September 30, 1996 in exchange for $1,000,000 in cash, 270,728 unregistered
shares of the Company's Common Stock and the agreement by the Company to assume
certain liabilities of DTCoA. Such shares, which are not being registered under
this Registration Statement, were deemed exempt from registration pursuant to
Sections 4(2) and/or 4(6) of the Securities Act. See "DTCoA Acquisition."
Key Bank Shares
Pursuant to the terms of the Key Bank Letter Agreement, and in connection
with the DTCoA Acquisition, the Company issued to Key Bank 358,714 unregistered
shares of the Company's Common Stock and delivered $662,500 in cash in exchange
for Key Bank's agreement to release its security interest in substantially all
of the assets of DTCoA. Such shares were deemed exempt from registration
pursuant to Sections 4(2) and/or 4(6) of the Securities Act. Such shares are
being registered pursuant to this Registration Statement. See "DTCoA
Acquisition."
Options Granted to Richmont Capital Partners, I, L.P.
On May 15, 1996, the Company granted to Richmont an option to purchase
300,000 shares of the Company's Common Stock, at a price of $7.50 per share,
subject to adjustment, for a term of up to ten years (the "Richmont Options").
At the present time, neither the Richmont Options nor the shares underlying the
Richmont Options are registered under the Securities Act, but the Company
reserves the right to register such shares at any time.
The Richmont Options and the underlying shares, whether vested or
unvested, are callable by the Company in the event that the closing price per
share of the Company's Common Stock is equal to or greater than $10 for a period
of ten consecutive trading days after December 31, 1997, upon written notice
to Richmont given within 30 days of the conclusion of such ten consecutive
trading days during which the closing price per share of the Company's Common
Stock was equal to or greater than $10. In such event, the Company may require
Richmont to exercise the Richmont Options in whole with respect to all such
shares within ten days of such notice to Richmont. In the event that Richmont
does not exercise the Richmont Options, the Richmont Options will lapse and be
of no further force or effect. The foregoing sale of securities made pursuant to
the sale by the Company of the Richmont Options was made in reliance upon an
exemption from the registration provisions of the Securities Act set forth in
Section 4(2) thereof as a transaction by an issuer not involving any public
offering.
1996 Stock Option Plan
On July 24, 1996, pursuant to the 1996 Plan, the Company granted to Robert
R. Schiller, the Vice President-Corporate Development of the Company, an option
to purchase 150,000
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<PAGE>
shares of the Company's Common Stock at an exercise price of $6.06 per share,
the market price of the Common Stock on the date of the grant. These options
vest equally over a period of three years from the date of the grant, and all of
such options become exercisable on July 24, 1999. The vesting of the options may
be accelerated on a pro rata basis in the event of the occurrence of certain
events. The foregoing sale of securities made pursuant to the grant of options
under the 1996 Plan were made in reliance upon an exemption from the
registration provisions of the Securities Act set forth in Section 4(2) thereof
as a transaction by an issuer not involving any public offering and/or Section
4(6) thereof as a sale to an accredited investor not exceeding on an aggregate
basis per issuance of such securities, $5,000,000.
1996 Non-Employee Directors Stock Option Plan
The Company has granted option to purchase 75,000 shares of Common Stock
to each of Messrs. Ehrlich, Sokolow and Strauss, each a director of the Company,
pursuant to the Company's 1996 Non-Employee Directors Stock Option Plan (the
"1996 Directors Plan"). The 1996 Directors Plan was approved by the
stockholders at the annual meeting of stockholders held on July 16, 1996.
The 1996 Directors Plan is a formula plan pursuant to which non-qualified
options to acquire 75,000 shares of the Company's Common Stock will be
automatically granted to each Non-Employee Director upon the date of his or her
initial election or appointment to the Board of Directors in consideration for
service as a Director. There are 300,000 shares of Common Stock reserved for
issuance under the 1996 Directors Plan. Under the 1996 Directors Plan's formula,
the exercise price for all 75,000 options granted to each Non-Employee Director
under the 1996 Directors Plan will be the closing price on the date of the grant
of the Company's Common Stock as quoted on the composite tape of the American
Stock Exchange, or on such exchange as the Company's Common Stock may then be
trading. Of the 75,000 options granted to each Non-Employee Director, options to
acquire 25,000 shares become exercisable upon each of the first three
anniversary dates following the date of the grant and all 75,000 options granted
to each Non-Employee Director shall expire ten years from the date of grant. The
exercise price must be paid in cash. If, on the day of the grant, counsel for
the Company determines, in her/his sole discretion, that the Company is in
possession of material, undisclosed information that would prevent it from
issuing securities, then the grant of options to Non-Employee Directors will be
suspended until the second day after public dissemination of the information (or
the first trading day thereafter). The amount, pricing and other terms of the
grant will remain as set forth in the 1996 Directors Plan, with the exercise
price of the option to be determined in accordance with the formula on the date
the option is finally granted.
Upon retirement, a Non-Employee Director's options will continue to become
exercisable and must be exercised by the earlier of (i) 36 months following the
date of retirement or (ii) the expiration of the applicable option period, or
such options shall be forfeited. Upon a Non-Employee Director's disability or
death, those options held by the Non-Employee Director for at least one year
prior to the date of death or the date of cessation of service following
disability shall become immediately exercisable; the Non-Employee Director or
his/her legal representatives or heirs must exercise such options by the earlier
of (i) six months or 36
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<PAGE>
months from the date of cessation of service due to disability or death,
respectively, as the case may be, or (ii) the expiration of the applicable
option period, or such options shall be forfeited. Should an individual cease to
serve as a Non-Employee Director for any reason other than retirement,
disability, death or cause, he/she will have 90 days within which to exercise
only those options which were exercisable as of the date he/she ceased to serve
as a director.
Upon their initial election to the Board of Directors on January 18, 1996,
each of Messrs. Ehrlich and Sokolow, both of whom are Non-Employee Directors,
were granted 75,000 stock options pursuant to the terms of the 1996 Directors
Plan, subject to stockholder approval of such plan. Such options vest in three
equal annual installments on January 18, 1997, 1998 and 1999, at an exercise
price of $3.75 per share, the closing trading price of the Company's Common
Stock on the National Association of Securities Dealers Automated Quotation
System on January 18, 1996.
Upon his initial election to the Board of Directors on May 13, 1996, Mr.
Strauss, a Non- Employee Director, was granted 75,000 stock options pursuant to
the terms of the 1996 Directors Plan, subject to stockholder approval of such
plan. Such options vest in three equal annual installments on May 13, 1997,
1998, and 1999, at an exercise price of $7.50 per share, the closing trading
price of the Company's Common Stock on American Stock Exchange on May 13, 1996.
The sale of securities made pursuant to the grant of options under the
1996 Directors Plan were made in reliance upon an exemption from the
registration provisions of the Securities Act set forth in Section 4(2) thereof
as transactions by an issuer not involving any public offering and/or Section
4(6) thereof as sales to accredited investors not exceeding, on an aggregate
basis per issuance of such securities, $5,000,000.
Other Stock Option Grants
Since August 1993, the Company has issued options to purchase 102,500
shares of Common Stock outside of the 1994 Incentive Stock Plan and the 1996
Plan and exclusive of the Richmont Options and those options granted under the
1996 Directors Plan. Such options were awarded at exercise prices ranging from
$0.79 to $1.05 per share. The shares of Common Stock underlying the options
are restricted from further sale, transfer or disposition unless registered or
an exemption is available from the registration requirements of the Securities
Act. See "Executive Compensation-Stock Option Plans."
The foregoing sales of securities and were made in reliance upon an
exemption from the registration provisions of the Securities Act set forth in
Section 4(2) thereof as transactions by an issuer not involving any public
offering and/or Section 4(6) thereof as sales to accredited investors not
exceeding, on an aggregate basis per issuance of such securities, $5,000,000.
The Company has reason to believe that all the foregoing purchasers were
familiar with or have access to information concerning the operations and
financial condition of the Company.
II-5
<PAGE>
Item 27. Exhibits.
The following table lists all exhibits to the Registration Statement as
amended hereby. Substantially all such exhibits are incorporated herein by
reference to registration statements, reports, and amendments thereof previously
filed by the Registrant, as more fully set forth below. Documents filed
herewith, if any, are marked with an asterisk (*). Documents incorporated by
reference are marked with two asterisks (**). Documents previously filed in
connection with this Registration Statement, if any, are marked with three
asterisks (***).
Exhibit
No. Description
- ------- -----------
2.1** Order confirming Debtor's Third Amended and Restated Plan of
Reorganization with the Third Amended and Restated Plan of
Reorganization attached thereto (filed as Exhibit 2 to Form 8-K,
Current Report of the Company, dated October 1, 1993 and
incorporated herein by reference).
2.2** Agreement and Plan of Merger, dated July 23, 1996, by and between
ABA and the Company (filed as Exhibit 2.1 to Form 8-K, Current
Report of the Company, dated September 3, 1996 and incorporated
herein by reference).
2.3** Asset Purchase Agreement, dated as of July 2, 1996, by and among the
Company, NIK Public Safety, Ivers-Lee and LFC No. 46 Corp. (filed as
Exhibit 2.1 to Form 8-K, Current Report of the Company, dated July
30, 1996 and incorporated herein by reference).
2.4** Asset Purchase Agreement, dated as of August 23, 1996 by and among
the Company, DTC, Robert Oliver, Sandra Oliver and DTCoA (filed as
Exhibit 2.1 to Form 8-K, Current Report of the Company, dated
October 9, 1996 and incorporated herein by reference).
3.1** Certificate of Incorporation of the Company (filed as Exhibit 3.3 to
Form 8-K, Current Report of the Company, dated September 3, 1996 and
incorporated herein by reference).
3.2** Certificate of Merger of ABA and the Company (filed as Exhibit 3.2
to Form 8-K, Current Report of the Company, dated September 3, 1996
and incorporated herein by reference).
3.3** Bylaws of the Company; (filed as Exhibit 3.3 to Form 8-K, Current
Report of the Company, dated September 3, 1996 and incorporated
herein by reference).
5.1* Opinion of Kane Kessler, P.C., including consent.
10.1*** Letter Agreement, dated July 12, 1996, by and among Ivers-Lee and
UBS.
10.2*** Irrevocable Power of Attorney, dated July 12, 1996, granted by
Ivers-Lee in favor of Jonathan M. Spiller.
10.3** Letter Agreement, dated August 16, 1996, by and among the Company,
Key Bank, DTCoA, Robert Oliver and Sandra Oliver (filed as Exhibit
10.6 to Form 8-K, Current Report of the Company, dated October 9,
1996 and incorporated herein by reference).
10.4** Letter Agreement, dated September 30, 1996, by and among Key Bank
and UBS (filed as Exhibit 10.2 to Form 8-K, Current Report of the
Company, dated October 9, 1996 and incorporated herein by
reference).
II-6
<PAGE>
10.5** Irrevocable Power of Attorney, dated September 30, 1996, granted by
Key Bank in favor of Jonathan M. Spiller (filed as Exhibit 10.3 to
Form 8-K, Current Report of the Company, dated October 9, 1996 and
incorporated herein by reference).
10.6** Escrow Agreement, dated September 30, 1996, by and among the
Company, DTC, Robert Oliver, Sandra Oliver, DTCoA and UBS (filed as
Exhibit 10.4 to Form 8-K, Current Report of the Company, dated
October 9, 1996 and incorporated herein by reference).
10.7** Guaranty Agreement, dated August 26, 1996, by Robert Oliver and
Sandra Oliver to the Company (filed as Exhibit 10.5 to Form 8-K,
Current Report of the Company, dated October 9, 1996 and
incorporated herein by reference).
10.8** Lock-Up Agreement, dated August 23, 1996, by DTCoA to the Company
(filed as Exhibit 10.6 to Form 8-K, Current Report of the Company,
dated October 9, 1996 and incorporated herein by reference).
10.9** Authorized Distributor Agreement, dated September 30, 1996, by and
among DTC, XM Corporation, a Wyoming corporation, and Robert Oliver
(filed as Exhibit 10.7 to Form 8-K, Current Report of the Company,
dated October 9, 1996 and incorporated herein by reference).
11.1*** Statement regarding computation of per share earnings.
20.1** 1996 Definitive Proxy Statement with respect to the Company's 1996
Annual Meeting of Stockholders, held July 16, 1996, (as filed with
the SEC on July 1, 1996 and incorporated herein by reference).
21.1* Subsidiaries of the Company.
23.1* Consent of Kane Kessler, P.C. (included in Exhibit 5.1).
23.2* Consent of Deloitte & Touche LLP.
23.3* Consent of Macy, Mason & Schwartzkopf
24.1*** Power of Attorney.
27.1*** Financial Data Schedule.
* Filed herewith.
** Incorporated herein by reference.
*** Previously filed.
Item 28. Undertakings
The Company hereby undertakes as follows:
1. The Company shall file, during any period in which it offers or sells
securities, a post-effective amendment to this Registration Statement to:
(a) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(b) Reflect in the prospectus any facts or events which individually or
together, represent fundamental change in the information in the Registration
Statement. Notwithstanding the
II-7
<PAGE>
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the SEC
pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of the Registration Fee" table in the
effective Registration Statement; and
(c) Include any additional or changed material information on the plan of
distribution.
2. The Company shall, for determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
3. The Company shall file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
II-8
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Yulee, State of Florida on the 31st day of October,
1996.
ARMOR HOLDINGS, INC.
By:/s/ Jonathan M. Spiller
-----------------------
Jonathan M. Spiller
President and Chief Executive Officer
II-9
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
* Chairman of the Board October 31, 1996
- --------------------------- of Directors
Warren B. Kanders
/s/ Jonathan M. Spiller President, Chief October 31, 1996
- --------------------------- Executive Officer
Jonathan M. Spiller and Director (Principal
Executive Officer)
* Vice President, Finance and October 31, 1996
- ---------------------------
Carol T. Burke Secretary
(Principal Accounting
Officer)
* Director October 31, 1996
- ---------------------------
Burtt R. Ehrlich
* Director October 31, 1996
- ---------------------------
Nicolas Sokolow
* Director October 31, 1996
- ---------------------------
Thomas W. Strauss
* Director October 31, 1996
- ---------------------------
Richard Bartlett
* By:/s/ Jonathan M. Spiller October 31, 1996
----------------------------
Jonathan M. Spiller
As attorney-in-fact for
each of the persons
indicated
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<PAGE>
EXHIBIT INDEX
The following Exhibits are filed herewith:
Exhibit No. Description Page
----------- ----------- ----
5.1 Opinion of Kane Kessler, P.C., including
consent.
21.1 Subsidiaries of the Company.
23.1 Consent of Kane Kessler, P.C. (included in
Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of Macy, Mason & Schwartzkopf
II-11
EXHIBIT 5.1
<PAGE>
KANE KESSLER, P.C.
1350 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-4896
(212) 541-6222
FAX (212) 245-3009
October 31, 1996
Armor Holdings, Inc.
191 Nassau Place Road
Yulee, Florida 32097
Gentlemen:
We have acted as counsel for Armor Holdings, Inc., a Delaware corporation
(the "Company") in connection with the Registration Statement on Form SB-2 (No.
333-10307), as amended (the "Registration Statement"), under the Securities Act
of 1933, as amended (the "Act") filed by the Company with the Securities and
Exchange Commission. The Registration Statement relates to the offer and sale of
up to a maximum of 919,645 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company, proposed to be sold by the Company and certain
selling stockholders.
We have examined copies of the Certificate of Incorporation, as amended,
and Bylaws of the Company, the Registration Statement, records of certain of the
Company's corporate proceedings as reflected in the Company's minute books and
other records and documents that we have deemed necessary for purposes of this
opinion. We have also examined such other documents, papers, authorities and
statutes as we have deemed necessary to form the basis of the opinion
hereinafter set forth.
In our examination, we have assumed the genuineness of all signatures and
the conformity to original documents of all copies submitted to us. As to
various questions of fact
<PAGE>
Armor Holdings, Inc.
October 31, 1996
Page 2.
material to our opinion, we have relied on statements and certificates of
officers and representatives of the Company and public officials.
Based upon the foregoing and the statements contained herein, it is our
opinion that (i) the Common Stock proposed to be sold by the Company, when duly
sold, issued and paid for pursuant to, and in the manner contemplated by, the
Prospectus included as part of the Registration Statement, will be validly
issued, fully paid and non-assessable and (ii) the Common Stock proposed to be
sold by the selling stockholders in accordance with the terms of the Prospectus
included as part of the Registration Statement have been validly issued and are
fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to us under the heading "Legal
Matters" in the Prospectus which forms a part thereof. In giving this consent,
we do not admit that we are in the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Securities and
Exchange Commission promulgated thereunder.
We are qualified to practice law in the State of New York and do not
purport to be experts on, or to express any opinion herein concerning any law,
other than the laws of the State of New York and the General Corporation Law of
the State of Delaware.
Very truly yours,
KANE KESSLER, P.C.
By:/s/ Robert L. Lawrence
----------------------
EXHIBIT 21.1
<PAGE>
SUBSIDIARIES OF THE COMPANY
Name of Subsidiary State of Incorporation
- ------------------ ----------------------
Armor Holdings Properties, Inc. Delaware
Defense Technology Corporation of America Delaware
NIK Public Safety, Inc. Delaware
EXHIBIT 23.1
<PAGE>
CONSENT OF KANE KESSLER, P.C.
INCLUDED IN EXHIBIT 5.1
EXHIBIT 23.2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-10307 of Armor Holdings, Inc. of our report dated February 23, 1996,
appearing in the Prospectus, which is part of such Registration Statement and to
the reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Jacksonville, Florida
October 30, 1996
EXHIBIT 23.3
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-10307 of Armor Holdings, Inc. of our report dated August 27, 1996, appearing
in the Prospectus, which is part of such Registration Statement and to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Macy, Mason & Schwartzkopf
MACY, MASON & SCHWARTZKOPF
CERTIFIED PUBLIC ACCOUNTANTS
Casper, Wyoming
October 30, 1996
