<PAGE>
As filed with the Securities and Exchange Commission on October 15, 1996
Registration No. 333-10307
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ARMOR HOLDINGS, INC.
(Name of small business issuer in its charter)
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Delaware 3842 59-3392443
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
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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.
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CALCULATION OF REGISTRATION FEE
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================================================================================================================================
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)(2) Fee(3)
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Common Stock,
$.01 par value 919,645 $6.94/$6.94 $6,382,336.20 $2,200.81
================================================================================================================================
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(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.
(2) Includes 560,931 shares to be registered hereunder at a proposed
maximum aggregate offering price of $6.94 per share, plus 358,714
shares to be registered hereunder at a proposed maximum aggregate
offering price of $6.94 per share.
(3) Includes $1,342.37 previously paid to the Commission and $858.44 being
paid to the Commission in connection with the additional registration
of 358,714 shares pursuant to this Amendment No. 1 to Form SB-2.
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
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Registration Statement Items and Headings Location in Prospectus
<S> <C>
1. Front of Registration Statement and Facing page of Registration Statement; second
Outside Front Cover of Prospectus page of Registration Statement; outside front
cover page; second page of Prospectus
2. Inside Front and Outside Back Second page of Prospectus; outside back cover
Cover Pages of Prospectus page of Prospectus; Available Information
3. Summary Information and Risk Prospectus Summary; Risk Factors; Comparative
Factors 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 Certain
Promoters and Control Persons Beneficial Owners and Management
11. Security Ownership of Certain Security Ownership of Certain Beneficial
Beneficial Owners and Management 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 Indemnification
on Indemnification for Securities of Directors and Officers
Act Liabilities
15. Organization Within Last 5 Years Risk Factors--Shares Eligible for Future Sale;
Certain Relationships and Related Transactions
16. Description of Business Business
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<PAGE>
<TABLE>
<S> <C>
17. Management's Discussion and Management's Discussion and Analysis of
Analysis of Financial Condition and Financial Condition and Results of Operations
Results of Operations
18. Description of Property Properties
19. Certain Relationships and Related Risk Factors--Shares Eligible for Future Sale;
Transactions Conflicts of Interest; Certain Relationships and
Related Transactions
20. Market for Common Equity and First page of Prospectus; Prospectus Summary;
Related Stockholder Matters 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 an "underwriter" 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, may be made
through customary brokerage channels either 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, on the
<PAGE>
American Stock Exchange or on such other market as the shares of the
Company's Common Stock may then be trading, and such broker-dealers
may receive compensation in the form of discounts, concessions or
commissions from the Company, the Selling Stockholders 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. 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 10, 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 ___, 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
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</TABLE>
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TABLE OF CONTENTS
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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 PRO FORMA 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............................................................... 48
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................... 49
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v
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MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.................. 50
EXECUTIVE COMPENSATION................................................... 52
LEGAL MATTERS............................................................ 61
EXPERTS.................................................................. 61
ADDITIONAL INFORMATION................................................... 61
FINANCIAL STATEMENTS..................................................... F-1
</TABLE>
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
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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 8, 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
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Securities Offered Up to 919,645 shares of Common Stock. See
"Description of Securities."
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4
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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
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(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-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
Company from bidding for orders for certain municipal customers since,
at present, many
7
<PAGE>
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
acquisition. 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
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.
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. 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 8, 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 8, 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 10 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 10 consecutive trading days after
December 31, 1997, upon written notice to Richmont given within 30
days of the conclusion of such 10 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 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. 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
13
<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
8, 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 8, 1996 to be Sold After Offering if
Selling Stockholder in this Maximum
Offering is Sold (1)
Amount Percent Amount Percent
(# of Shares) (# of (# of
Shares) 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-owned subsidiary of Ivers-Lee
(Ivers-Lee and LFC No. 46 Corp., collectively, the "NIK
15
<PAGE>
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
17
<PAGE>
Due") in accordance with the Key Bank Letter Agreement. Any amounts
paid to Key Bank on 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"), $1,987,5000, 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.
18
<PAGE>
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 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 PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma income statements for the six month
period ended June 30, 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 the Note
offering had occurred as of January 1, 1996 and January 1, 1995, respectively.
The following unaudited pro forma balance sheet as of June 30, 1996 gives
effect to the issuance of the Notes and the acquisition of the NIK Assets and
the DTCoA Assets as if such transactions had occurred on June 30, 1996.
These unaudited pro forma 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 six months ended June 30, 1996
<TABLE>
<CAPTION>
Acquisition Issuance of
Historical of DTCoA Convertible
Armor Hldgs assets (3) Debt (4) Proforma
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
NET SALES $6,862,849 $4,913,530 $11,776,379
COST AND EXPENSES:
Cost of sales $4,368,251 $2,463,432 $6,831,683
Selling, general and administrative expenses $1,976,488 $1,462,135 $85,000 $3,523,623
Interest expense, net $102,459 $29,010 $287,500 $418,969
($123,046) ($123,046)
----------- ---------- ------------ -----------
OPERATING INCOME $415,651 $958,953 ($249,455) $1,125,150
Amortization of intangibles $28,114 $33,167 $61,281
Amortization of reorganization value in excess of
amounts allocable to identifiable assets $25,495 $25,495
----------- ---------- ------------ -----------
INCOME BEFORE INCOME TAXES $362,042 $925,786 ($249,455) $1,038,373
INCOME TAXES (5) $147,000 $361,056 ($91,948) $416,108
----------- ---------- ------------ -----------
NET INCOME $215,042 $564,729 ($157,507) $622,265
=========== ========== ============ ===========
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARES $0.03 $0.08
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES (6) 7,679,536 7,950,264
</TABLE>
See Notes to Unaudited Proforma Income 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 $66,334 $66,334
NON-OPERATING INCOME $227,500 $227,500
------------ ----------- ------------ -----------
INCOME BEFORE INCOME TAXES $823,803 $1,164,030 ($498,909) $1,488,924
INCOME TAXES (5) $303,650 $453,972 ($183,896) $573,726
------------ ----------- ------------ -----------
NET INCOME $520,153 $710,058 ($682,805) $915,198
============ =========== ============ ===========
EARNINGS PER COMMON SHARE AND COMMON
EQUIVALENT SHARES $0.08 $0.14
WEIGHTED AVERAGE COMMON SHARES AND
COMMON EQUIVALENT SHARES (6) 6,369,672 6,640,400
</TABLE>
See Notes to Unaudited Proforma Income Statements.
PF-3
<PAGE>
Armor Holdings, Inc.
Unaudited Proforma Balance Sheet
As of June 30, 1996
<TABLE>
<CAPTION>
Acquisition Acquisition
Historical of NIK of DTCoA
Armor Hldgs assets (1) assets (2) Proforma
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $9,004,168 ($1,200,000) ($2,047,399) $5,756,769
Accounts receivable $1,967,827 $300,000 $2,095,958 $4,363,785
Inventories $1,237,020 $500,000 $2,183,233 $3,920,253
Prepaid expenses and other current assets $804,096 $354,692 $1,158,788
----------- ----------- ----------- -----------
Total current assets $13,013,111 ($400,000) $2,586,484 $15,199,595
PROPERTY AND EQUIPMENT, net $466,746 $1,924,147 $2,390,893
REORGANIZATION VALUE IN EXCESS OF AMOUNTS
ALLOCABLE TO IDENTIFIABLE ASSETS, net $3,505,079 $3,505,079
PATENTS, TRADEMARKS, & OTHER INTANGIBLES $1,855,000 $1,658,364 $3,513,364
OTHER ASSETS $735,297 $735,297
----------- ----------- ----------- -----------
TOTAL ASSETS $17,720,233 $1,455,000 $6,168,995 $25,344,228
=========== =========== =========== ===========
</TABLE>
See Notes to Unaudited Proforma Income Statements
PF-4
<PAGE>
Armor Holdings, Inc.
Unaudited Proforma Balance Sheet
As of June 30, 1996
<TABLE>
<CAPTION>
Acquisition Acquisition
Historical of NIK of DTCoA
Armor Hldgs assets (1) assets (2) Proforma
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Liability for Acquisition of Assets $1,455,000 $1,987,500 $3,442,500
Short term borrowings and current portion of long-term debt $31,751 $499,119 $530,870
Accounts payable, accrued expenses & other current liabilities $947,631 $1,570,459 $2,518,090
----------- ----------- ---------- -----------
Total current liabilities $979,382 $1,455,000 $4,057,078 $6,491,460
5% CONVERTIBLE SUBORDINATED NOTES:
Due to directors and affiliates $3,450,000 $3,450,000
Due to others $8,050,000 $8,050,000
----------- -----------
Total 5% convertible subordinated notes $11,500,000 $11,500,000
OTHER LONG-TERM DEBT AND CAPITALIZED LEASE
OBLIGATION, less current portion $24,479 $111,917 $136,396
----------- ----------- ---------- -----------
Total liabilities $12,503,861 $1,455,000 $4,168,995 $18,127,856
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $1 stated value, 1,700,000 shares
authorized, 0 shares issued and outstanding $0 $0
Common stock, $.03 par value, 15,000,000 shares
authorized, 6,919,816 shares issued and outstanding $207,594 $8,122 $215,716
Additional paid-in capital $3,829,058 $1,991,878 $5,820,936
Retained earnings $1,179,720 $1,179,720
----------- ----------- ---------- -----------
Total stockholders' equity $5,216,372 $0 $2,000,000 $7,216,372
----------- ----------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,720,233 $1,455,000 $6,168,995 $25,344,228
=========== =========== ========== ===========
</TABLE>
See Notes to Unaudited Proforma Financial Statements
PF-5
<PAGE>
ARMOR HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) Acquisition of NIK Assets
Effective July 1, 1996, the Company acquired certain assets
of the NIK Public Safety Product Line from Ivers-Lee
Corporation (the "NIK Assets"). The purchase price of the
acquisition was $2,400,000 in stock plus $255,000 in costs
related to the purchase. The Company acquired inventory,
receivables and certain intangibles. The total purchase price
was allocated to the NIK Assets 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. The Company advanced the seller $1,200,000 in
cash at the closing which will be reimbursed to the Company
if the Company is able to sell the stock, on behalf of the
sellers of the NIK Assets, in the open market. The company is
not reflecting the stock as outstanding until it is sold in
the open market.
(2) 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.
(3) Acquisition of DTCoA Assets
Income Statement information was prepared using DTCoA's
audited financial statements as of December 31, 1995 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.
PF-6
<PAGE>
(4) 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 pro formas also reflect the reduction of historical
interest expense of $246,091 and $141,622 for the year ended
December 31, 1995 and for the six months ended June 30, 1996,
respectively, relating to debt paid off from the proceeds of
the issuance of the convertible debt.
(5) Income Taxes
The pro forma 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 either acquisition, thus the federal
statutory rate of 39% has been applied in the pro forma.
(6) Earnings Per Share Calculation
No earnings per share calculations for each of the
acquisitions were performed because (1) there is no equity
interest in the NIK acquisition until the stock is sold into
the market and (2) 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. Miller, 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
21
<PAGE>
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. 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.
<TABLE>
<CAPTION>
Name Age Positions Director
and Office Since
<S> <C> <C>
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
</TABLE>
(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 until their successors
have been elected and qualified in accordance with the
22
<PAGE>
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 in the United Kingdom. He is also a former Treasurer
and Trustee of the Carnegie Council on
23
<PAGE>
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;
25
<PAGE>
(iv) been found by a court of competent jurisdiction (in a civil
action), the SEC or the 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."
<TABLE>
<CAPTION>
Executive
Officer
Name Age Position Since
<S> <C> <C> <C>
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
</TABLE>
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
26
<PAGE>
he was responsible for the domestic sales organization. Mr. Bistrong has a B.A.
degree in 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.
27
<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 8, 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>
<TABLE>
<CAPTION>
==========================================================================================================
Name and Address Common Stock No. of
of Beneficial Owner Shares Beneficially Owned % of Class
==========================================================================================================
<S> <C> <C>
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) 8.2%
4300 Westgrove Drive
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 as a Group 5,849,183 (1)(2)(4)(5)(6) 67.7%
(8 Individuals) (7)(8)(9)
==========================================================================================================
</TABLE>
(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 new employment agreement
executed on January 18, 1996, and 18,000 options granted to Mr.
Spiller pursuant to the
29
<PAGE>
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 18, 1997, 1998 and 1999. Of the 182,300 shares
listed, 100,000 shares are subject to a three year
lock-up agreement
30
<PAGE>
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 LockUp"). 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 Selling Stockholders, are validly issued,
fully paid and non-assessable. The holders of Common
31
<PAGE>
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 Company owned by
Clark Schwebel, Inc. ("Clark Schwebel"), a supplier of raw materials
to
32
<PAGE>
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 and related products;
(ii) portable narcotic identification kits, Flex-Cuf disposable
restraints,
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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 30, 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 September 30, 1996, the Company had approximately 188
employees, approximately 6 of whom were executive officers of the
Company. Of the remaining employees, approximately 9 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. 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
Convertible Subordinated Note Purchase Agreement. The following
description of the Note offering, the Convertible Subordinated Note
Purchase Agreement and the Notes is not intended
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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.
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
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purchases of raw material). In addition, the domestic market
experienced better margins and contributed a greater percentage to the
overall sales figures.
Selling, general and administrative expenses ("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.
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. 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.
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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 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. 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.
In conjunction with the Plan of Reorganization, the Company
retained or incurred administrative claims liabilities amounting to
$925,000. This amount included unsecured creditors electing cash
payments upon the effective date of the Plan of Reorganization,
professional fees awarded by the Bankruptcy Court for services
provided during the pendency of the proceeding, amounts set aside for
contingent or disputed claims and deferred claims payments required by
the Plan of Reorganization. As of December 31, 1995, $736,294 of these
liabilities had been paid and the remaining balance of $188,706 is
included in current liabilities as of December 31, 1995.
As of December 31, 1995, the Company had working capital of
$795,370, which reflects an improvement of $755,038 from December 31,
1994. This increase reflects the Company's continued profitability.
The Company had an income tax net operating loss
carryforward ("NOL") of approximately $4,700,000 as of December 31,
1995. Until January 18, 1996, this loss carryforward was relatively
unrestricted as to the amount which could have been utilized in any
year to offset future income tax liabilities of the Company. However,
due to the sale of all of the issued and outstanding shares of capital
stock owned by Clark Schwebel and Hexcel on January 18, 1996 to KFH,
which sale resulted in a change in control of the Company, the amount
of the NOL that can be utilized in any one year is restricted to
approximately $300,000.
The Company anticipates that continuing profitable
operations and utilization of the proceeds from the Notes will enable
the Company to meet its liquidity and working capital requirements
during the next year. Such requirements include generating sufficient
cash to make payments required under the Plan of Reorganization and
the purchase of capital equipment.
The Company is in the process of finalizing its capital
expenditure plan for the fiscal year ending December 31, 1996. Such
expenditures approximate $250,000, which will include,
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among other things, upgrading the Company's Management Information
Systems and miscellaneous capital equipment during the next twelve
month period.
Results of Operations
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
Sales for the six months ended June 30, 1996 were
$6,862,849 representing an increase of $1,386,715 compared to the same
period in 1995. The increase results primarily from the increase in
domestic sales of 28% over last year.
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Gross profit on sales for the six months ended June 30,
1996 increased by $454,886 compared to the same period in the prior
year, primarily due to the increase in gross sales. The gross profit
margin decreased by approximately 1%, primarily due to the impact of
price increases incurred on the Company's main raw material and the
mix of sales between the Company's major market segments. The effect
of the price increase on the Company's gross margin is expected to
yield an approximate one point decrease in margin percentage for the
full year of 1996, as compared to 1995.
SG&A Expenses for the first six months of 1996 were
$1,976,488 (29%) of sales) compared to $1,516,791 (28% of sales) in
the 1995 period. Increases in commissions due to increased sales plus
increased marketing efforts accounted for a majority of the overall
dollar increase between the periods.
Interest expense of $102,459 for the 1996 period was
approximately $27,000 lower than the prior year. As noted previously,
the decrease is due primarily to the paying down of the Company's
credit facility with LaSalle on May 1, 1996.
Income tax expense for the six month period ended June 30,
1996 represents a deferred tax expense amounting to 38% of pre-tax
income. The Company's operating loss carry forward at January 1, 1996
amounted to approximately $4,700,000. Due to the Company's change in
control in January 1996, this tax benefit became restricted to
approximately $300,000 per year. For the first six months of 1996,
pre-tax income and net income decreased to $362,042 and $215,042,
respectively, from $393,244 and $239,244 for the first half of 1995.
This change reflects the effect of amortization expenses as they
relate to the Company's current tax situation and the Note offering,
being partially offset by the increase in gross profit margin between
the periods.
Financial Condition
The Company backlog 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.
As of May 1, 1996, the Company paid down its credit
facility with LaSalle. 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.
As of June 30, 1996, the Company had working capital of
$12,033,729 which reflects the gross proceeds from the issuance of
convertible debt of $11,500,000 and the continued profitability of
operations. Working capital at March 31, 1996 was $949,749 and at June
30, 1995 was $154,379.
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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 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 5 buildings with 29,811 square feet of manufacturing and 25,200
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square feet of storage/warehousing within 2 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 8, 1996, principal in the amount of $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 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,
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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 information provided by a majority
of the market makers for the Company's Common Stock to the Bulletin
Board.
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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 9/30/96 $7.875 $6.00
As of September 30, 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.
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
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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.
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
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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.
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 10 years from the
date of grant except that options issued to a 10% Stockholder are
limited to five year terms. All options
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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.
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
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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 Shareholders 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 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."
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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
$50,000 or 10% of compensation for any named executive officer of the
Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
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Long Term
Compensation
Annual Compensation
------------------------
Awards
- -----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (g) (i)
- -----------------------------------------------------------------------------------------------------------------------------------
Securities All Other
Name and Underlying Compen-
Principal Salary Bonus Options/SARs sation
Position Year ($) ($) (#) ($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 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.
57
<PAGE>
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
<TABLE>
<CAPTION>
==========================================================================================================================
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
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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% $.97 3/28/2005
Vice President - Operations
==========================================================================================================================
</TABLE>
(1) Stock option grants consist of stock options granted
in Fiscal 1995, pursuant to the Company's 1994
Incentive Stock Plan, all of which are fully vested
but are not exercisable until the expiration of the
respective named executive's employment agreement.
58
<PAGE>
OPTION/SAR EXERCISES AND
FISCAL YEAR-END OPTION/SAR VALUE TABLE
The following table summarizes information concerning each
exercise of stock options (or tandem SARs) and freestanding SARs made
during Fiscal 1995, the Company's most recently completed fiscal year,
to each of the named executive officers, and the fiscal year-end value
of unexercised options and SARs. No options were exercised in Fiscal
1995.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
====================================================================================================================================
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs
FY-End (#) at FY-End ($)
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 Executive 126,000(U) -0-(U)
Officer
- ------------------------------------------------------------------------------------------------------------------------------------
Richard T. Bistrong -0- -0- -0- (E) -0-(E)
Vice President-Sales and 50,000(U) -0-(U)
Marketing
- ------------------------------------------------------------------------------------------------------------------------------------
J. Michael Elliott -0- -0- 103,500(E) -0-(E)
Vice President - Operations 64,500(U) -0-(U)
====================================================================================================================================
</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.
59
<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
60
<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.
61
<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
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.
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.
62
<PAGE>
ARMOR HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
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
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>
June 30, 1996 December 31
(Unaudited) --------------------
1995 1994
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,004,168 $ 272,972 $ 315,231
Accounts receivable, net of allowance for
doubtful accounts of $87,741 at June 30, 1996
and $100,000 in 1995 and 1994 1,967,827 2,319,754 1,574,990
Inventories 1,237,020 1,101,935 1,042,405
Prepaid expenses and other current assets 804,096 287,000 90,458
----------- ---------- ----------
Total current assets 13,013,111 3,981,661 3,023,084
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $348,576 at June 30, 1996 and
$270,450 and $122,379 in 1995 and 1994 466,746 474,359 502,935
REORGANIZATION VALUE IN EXCESS OF AMOUNTS
ALLOCABLE TO IDENTIFIABLE ASSETS, net 3,505,079 3,586,574 3,886,574
OTHER ASSETS 735,297 117,867 57,906
----------- ------------ ------------
TOTAL ASSETS $17,720,233 $ 8,160,461 $ 7,470,499
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and
capitalized lease obligation $ 31,751 $ 2,082,398 $ 1,681,544
Accounts payable, accrued expenses and other
current liabilities 947,631 1,103,893 1,301,208
----------- ----------- -----------
Total current liabilities 979,382 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 24,479 27,550 60,793
----------- ---------- -----------
Total liabilities 12,503,861 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
Common stock, $.03 par value, 15,000,000
shares authorized, 6,919,816, 5,091,133, and
4,697,255 shares issued and outstanding 207,594 152,734 140,918
Additional paid-in capital 3,829,058 2,592,761 2,318,890
Retained earnings 1,179,720 986,833 510,003
----------- ---------- -----------
Total stockholders' equity 5,216,372 4,946,620 4,426,954
----------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,720,233 $ 8,160,461 $ 7,470,499
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
INCOME STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
------------------------ --------------------------
1996 1995 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET SALES $6,862,849 $5,476,134 $11,741,367 $11,355,142
COST AND EXPENSES:
Cost of sales 4,368,251 3,436,422 7,443,080 7,740,803
Selling, general and administrative expenses 1,976,488 1,516,791 3,421,093 2,696,117
Interest expense - directors and affiliates 28,750
Interest expense - other, net 73,709 129,677 280,891 216,318
--------- --------- ---------- ----------
6,447,198 5,082,890 11,145,064 10,653,238
--------- --------- ---------- ----------
OPERATING INCOME 415,651 393,244 596,303 701,904
Amortization of deferred debt issue costs 28,114
Amortization of reorganization value in excess
of amounts allocable to identifiable assets 25,495
Non-operating income 227,500
--------- --------- ---------- ----------
INCOME BEFORE INCOME TAXES 362,042 393,244 823,803 701,904
INCOME TAXES 147,000 154,000 303,650 278,500
--------- --------- ---------- ----------
NET INCOME $ 215,042 $ 239,244 $ 520,153 $ 423,404
========= ========== =========== ===========
NET EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARE $ 0.03 $ 0.04 $ 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) 93,981 2,819 74,046 76,865
Net income (unaudited) 215,042 215,042
--------- ----------- ----------- --------- ----------- ---------- -----------
BALANCE, JUNE 30, 1996
(unaudited) - $ - 6,919,816 $207,594 $3,829,058 $l,179,720 $ 5,216,372
========= =========== =========== ========= =========== ========== ===========
</TABLE>
See notes to financial statements.
F-5
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year Ended December 31,
--------------------------- ---------------------------
1996 1995 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
OPERATING ACTIVlTIES:
Net income $ 215,042 $ 239,244 $ 520,153 $ 423,404
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 131,735 65,909 148,071 118,116
Gain on disposal of property and equipment (750)
Deferred income taxes 56,000 154,000 300,000 263,500
Directors' fees 14,000 9,035
Decrease (increase) in accounts receivable 351,927 (135,544) (744,764) (558,509)
Increase in inventories (135,085) (107,294) (59,530) (107,832)
(Increase) decrease in prepaid expenses
and other assets (319,206) (87,210) (256,503) 95,628
Decrease in accounts payable, accrued liabilities
and other current liabilities (156,262) (88,805) (168,479) (370,733)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities 144,151 40,300 (247,802) (127,391)
------------ ------------ ------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (70,513) (51,619) (128,495) (117,897)
Proceeds from disposal of property and equipment 9,750
------------ ------------ ------------ ------------
Net cash used in investing activities (70,513) (51,619) (118,745) (117,897)
------------ ------------ ------------ ------------
FINANCING ACTIVITIES:
Preferred stock dividends (22,155) (21,662) (43,323) (51,000)
Exercise of stock grants and options 76,865
Borrowings under capital expenditures facility 52,000
Repayments of long-term debt and capitalized
lease obligation (3,071) (13,388) (4,391)
Net (repayments) borrowings under line of credit (2,050,647) (187,646) 328,999 595,817
Net proceeds from issuance of 5% convertible
subordinated notes 10,656,566
----------- ------------ ------------ ------------
Net cash provided by (used in) financing activities 8,657,558 (209,308) 324,288 540,426
----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,731,196 (220,627) (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 $ 9,004,168 $ 94,604 $ 272,972 $ 315,231
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 3,400 $ 15,000
============ ============
Interest paid $ 6,626 $ 137,030 $ 273,538 $ 213,798
============ ============ ============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITlES:
Capitalized lease obligation entered into for equipment $ 43,451
============
Issuance of stock granted under stock plan $ 76,865 $ 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.
F-7
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
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.
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 June
30, 1996 and for the six months ended June 30, 1996 and 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
Mortgage loan payable in monthly installments
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.
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.
F-17
<PAGE>
AMERICAN BODY ARMOR & EQUIPMENT, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994 (Continued)
- --------------------------------------------------------------------------------
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
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.
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.
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-18
<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:
<TABLE>
<S> <C>
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
</TABLE>
II-1
<PAGE>
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.
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,
II-2
<PAGE>
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."
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 10 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 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 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. 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.
II-3
<PAGE>
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 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
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 Shareholders at the Annual Meeting
of Shareholders 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
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<PAGE>
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) 6 months or 36 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 Shareholder
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 Shareholder 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 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. See
"Executive Compensation-Stock Option Plans." 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.
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 Section 4(6) thereof as sales to
accredited investors not exceeding, on an aggregate basis per issuance
of such securities, $5,000,000. The
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<PAGE>
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.
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).
II-6
<PAGE>
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).
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.
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;
II-7
<PAGE>
(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
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 15th day of October, 1996.
ARMOR HOLDINGS, INC.
By:/s/ Jonathan M. Spiller
-------------------------------------
Jonathan M. Spiller
President and Chief Executive Officer
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<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.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* Chairman of the Board of Directors October 15, 1996
- --------------------------------
Warren B. Kanders
/s/ Jonathan M. Spiller President, Chief Executive Officer and October 15, 1996
- -------------------------------- Director (Principal Executive Officer)
Jonathan M. Spiller
* Vice President, Finance and Secretary October 15, 1996
- -----------------------------------
Carol T. Burke (Principal Accounting Officer)
* Director October 15, 1996
- -----------------------------------
Burtt R. Ehrlich
* Director October 15, 1996
- -----------------------------------
Nicolas Sokolow
* Director October 15, 1996
- -----------------------------------
Thomas W. Strauss
* Director October 15, 1996
- -----------------------------------
Richard Bartlett
* By:/s/ Jonathan M. Spiller
- -----------------------------------
Jonathan M. Spiller
As attorney-in-fact for each
of the persons indicated
</TABLE>
<PAGE>
EXHIBIT INDEX
The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Description Page
<S> <C> <C>
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.
</TABLE>
<PAGE>
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 15, 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 15, 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
<PAGE>
EXHIBIT 21.1
<PAGE>
SUBSIDIARIES OF THE COMPANY
Name of Subsidiary State of Incorporation
Defense Technology Corporation
of America Delaware
NIK Public Safety, Inc. Delaware
<PAGE>
EXHIBIT 23.1
<PAGE>
CONSENT OF KANE KESSLER, P.C.
INCLUDED IN EXHIBIT 5.1
<PAGE>
EXHIBIT 23.2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 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.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
October 14, 1996
