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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
AMERICAN BODY ARMOR & EQUIPMENT, INC.
(Exact name of registrant as specified in its charter)
Florida 3842 59-2044869
(State or other jurisdiction (Primary Standard Industrial (I.R.S.Employer
of Incorporation) Classification Code Number) Identification No.)
----------------------
191 Nassau Place Road
Yulee, Florida 32097
(904) 261-4035
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
----------------------
Warren B. Kanders
Chairman of the Board of Directors
American Body Armor & Equipment, Inc.
191 Nassau Place Road
Yulee, Florida 32097
(904) 261-4035
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------
with copies to:
Robert L. Lawrence, Esq.
Kane Kessler, P.C.
1350 Avenue of the Americas
New York, New York 10019
(212) 541-6222
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Approximate date of commencement of proposed sale to public: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|.......................................................................
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 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 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 statement 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. |_|
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities Amount Offering Price Aggregate Registration
to be Registered to be Registered Per Share(1) Offering Price(1) Fee
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.03 par value 4,510,217 $6.97 $31,436,212 $10,840.07
================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c), based upon the average of the high and low sale
prices for the Common Stock on the American Stock Exchange on July 17,
1996, as reported by The Wall Street Journal.
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 Section 8(a), may determine.
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Prospectus
4,510,217 Shares of Common Stock,
Par Value $.03 Per Share
AMERICAN BODY ARMOR & EQUIPMENT, INC.
This prospectus (the "Prospectus") relates to the offer and sale of a total
of 4,510,217 shares (the "Shares") of the common stock, par value $.03 per share
(the "Common Stock"), of American Body Armor & Equipment, Inc., a Florida
corporation (the "Company"), of which: (i) 2,300,000 shares are issuable upon
conversion of the Company's 5% Convertible Subordinated Notes due April 30, 2001
(the "Notes"); (ii) 1,980,217 shares are owned by Kanders Florida Holdings, Inc.
("KFH"); and (iii) an aggregate of 280,000 shares are owned by certain other
shareholders. The shares owned by KFH are deemed to be beneficially owned by
Warren B. Kanders, because Mr. Kanders is the sole director and sole shareholder
of KFH.
Each Note entitles the registered holder thereof to convert the unpaid
principal balance of the Note into shares of Common Stock at a conversion price
of $5.00 per share at any time prior to April 30, 2001. The conversion price is
subject to adjustment under certain circumstances. 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 of 1933, as
amended (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 that certain
Convertible Subordinated Note Purchase Agreement dated April 30, 1996, by and
among the Company and each Note holder (the "Convertible Subordinated Note
Purchase Agreement").
The Shares may be offered or sold by the holders of the Notes and the other
parties listed as selling shareholders under the caption "Selling Shareholders"
appearing hereinafter (the "Selling Shareholders"). The Company will not receive
any of the proceeds from the sale of the Shares. See "Selling Shareholders."
The Selling Shareholders may be deemed to be "underwriters" as that term is
defined in the Securities Act. The Selling Shareholders may offer their
respective Shares 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 shares on the
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
Selling Shareholders and/or the purchasers of 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
<PAGE>
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 Shares may occur over an extended
period of time. The Company has no interest in, and will receive no proceeds
from, any sales of the Shares. The Company will not pay or assume brokerage
commissions or discounts incurred in the sale of any of the Shares. See "Selling
Shareholders."
The Common Stock is traded on the American Stock Exchange under the symbol
"ABE". On July __, 1996, the closing price of the Common Stock on the American
Stock Exchange was $_____.
This offering involves a high degree of risk. For a discussion of certain
factors to be considered in evaluating an investment in the Shares, see "Risk
Factors", which begins on Page 4.
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 July __, 1996.
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AVAILABLE INFORMATION
This Prospectus is part of a Registration Statement on Form S-3, which has
been filed with the Securities and Exchange Commission (the "SEC"). This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the SEC. For further information pertaining to the securities
offered hereby and to the Company, reference is made to the Registration
Statement, including the exhibits filed as a part thereof and the documents
incorporated by reference therein. Statements contained herein concerning the
provisions of any documents are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety 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.
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.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates into this Prospectus by reference the
following documents and the exhibits thereto previously filed with the SEC
pursuant to the Exchange Act:
1. Annual Report on Form 10-KSB (as amended on Form 10-KSB/A-1 on April
29, 1996) for the fiscal year ended December 31, 1995;
2. Current Report on Form 8-K dated February 1, 1996;
3. Current Report on Form 8-K dated May 14, 1996;
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4. Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1996;
5. Registration Statement on Form 8-A, filed on March 13, 1996, pursuant
to which the Company's Common Stock was registered under the Exchange
Act; and
6. Definitive Proxy Statement dated July 1, 1996, relating to the Annual
Meeting of Shareholders held on July 16, 1996.
In addition, all reports and other documents filed by the Company pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the Shares
shall be deemed to be incorporated herein by reference and to be a part hereof
from the date of filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified, or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person who receives a
Prospectus, upon the written request of such person, a copy of any of the
aforementioned documents, and all exhibits and amendments thereto, including the
financial statements and schedules, as filed with the SEC. Written requests for
such copies should be directed to the Company's Corporate Secretary at c/o
American Body Armor & Equipment, Inc., 191 Nassau Place Road, Yulee, Florida
32097, (904) 261-4035.
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TABLE OF CONTENTS
AVAILABLE INFORMATION...................................................... iii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................iii
PROSPECTUS SUMMARY...........................................................1
RISK FACTORS.................................................................4
USE OF PROCEEDS.............................................................10
SELLING SHAREHOLDERS........................................................10
NIK ACQUISITION.............................................................15
UNAUDITED PRO FORMA FINANCIAL STATEMENTS....................................16
BUSINESS....................................................................21
PROPERTIES..................................................................33
PLAN OF DISTRIBUTION........................................................33
LEGAL MATTERS...............................................................34
EXPERTS.....................................................................34
ADDITIONAL INFORMATION......................................................34
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PROSPECTUS SUMMARY
The following is a summary of certain information contained in this
Prospectus and is qualified in its entirety by the more detailed information,
including the financial statements, appearing elsewhere in 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"). The Company was incorporated in October 1980,
under the laws of the State of Florida under the name of Armour of Fernandina
Beach, Inc. as a separate but affiliated company to the New York Corporation,
and commenced operating a manufacturing facility in Florida. In February 1983,
the New York Corporation moved its operations to Florida, and effective January
1, 1984, the two companies were merged with the Company surviving and changing
its name to its present form.
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 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 U.S. 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, including
tactical face masks and helmets, Comspec(Trademark) shields, barrier shields and
blankets
<PAGE>
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.
In addition, the Company has the exclusive rights in the United States to
distribute Gallet(Registered) helmets, and the non-exclusive rights to
distribute Scanna letter bomb detectors. The Company also manufactures specialty
armor applications for vehicles and aircraft, as well as armor for stationary
protection.
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, the
Company purchased certain assets of the NIK Public Safety Product Line ("NIK")
from Ivers-Lee Corporation. NIK is a producer and distributor of portable
narcotics identification products. See "Risk Factors-Rapid Growth Through
Acquisitions" and "NIK 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 the offer and sale of a total of 4,510,217
shares (the "Shares") of common stock, $.03 par value (the "Common Stock") of
American Body Armor & Equipment, Inc. (the "Company"), of which: (i) 2,300,000
shares are issuable upon conversion of the Company's 5% Convertible Subordinated
Notes due April 30, 2001 (the "Notes"); (ii) 1,980,217 shares are owned by KFH;
and (iii) an aggregate of 280,000 shares are owned by certain other shareholders
(collectively the "Selling Shareholders").
Each Note entitles the registered holder thereof to convert the unpaid
principal balance of the Note into shares of Common Stock at an exercise price
of $5.00 per share at any time prior to April 30, 2001. The Note exercise price
is subject to adjustment under certain circumstances, as more fully described
therein. The Notes are subject to full or partial redemption by the Company on a
pro rata basis on 15 days' prior written notice at any time prior to the
maturity of the Notes and after April 30, 1998 or, at any time whether prior to
or after April 30, 1998, if the closing price of the Common Stock on the
American Stock Exchange for 10 consecutive trading days is in excess of $7.50
per share. In the event of a redemption the holders of the Notes shall be
entitled to require the Company to convert the portion of the Note being
redeemed into registered shares of the Company's Common Stock.
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The Shares offered may be offered or sold by the Selling Shareholders. The
Company will not receive any of the proceeds from the sale of the Shares. See
"Selling Shareholders."
There are, as of July 15, 1996, 7,189,647 shares of Common Stock
outstanding (not including the 2,300,000 Shares issuable upon conversion of the
Notes), and options to purchase an additional 1,221,000 shares. In addition,
41,100 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. The Shares offered hereby constitute approximately 62.7%
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 Shares by the Selling Shareholders, if and when made, may be
made through customary brokerage channels either through broker-dealers acting
as agents or brokers for the Selling Shareholders, or through broker-dealers
acting as principals who may then resell the Shares on the American Stock
Exchange or such other market as the Shares 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 Shareholders and/or the
purchasers of 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 Shares may
occur over an extended period of time. The Company has no interest in, and will
receive no proceeds from, any sales of the Shares. The Company will not pay or
assume brokerage commissions or discounts incurred in the sale of any of the
Shares. See "Selling Shareholders."
3
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RISK FACTORS
The shares of Common Stock being offered hereby involve a high degree of
risk and prospective investors should consider carefully, together with the
other information contained in this Prospectus, the factors listed below.
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, 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, 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.
Products 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
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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 ballistic-resistant garment industry 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 threaten its solvency
and its ability to continue as a going concern.
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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 12, 1996, the Company acquired certain assets of the NIK Public Safety
Product Line ("NIK") from Ivers-Lee Corporation ("Ivers-Lee"). NIK is a producer
and distributor of portable narcotics identification products. See "NIK
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 assurance that any future
acquisitions will not have a material adverse effect on the Company's operating
results, particularly during the period immediately following such acquisitions.
See "Business."
Need For Additional Financing
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
acquisition program 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
shareholders. 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
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
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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.
Control By Certain Shareholders
KFH, a Selling Shareholder, 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 shareholder and sole director of KFH.
In addition, Mr. Kanders owns 29,141 shares individually. Mr. Kanders is the
Chairman of the Board of Directors of the Company. Such shares collectively
represent approximately 62.5% 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 Amended
and Restated Articles of Incorporation (the "Charter") do 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.
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
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executive may have a materially adverse effect upon the Company until a suitable
replacement can be found. See "Business."
Potential Antitakeover Effect of Certain Charter Provisions
The Company has 7,810,353 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 shareholders' 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 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
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 one percent 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 $2,400,000 worth of Common Stock to pay for the NIK
assets. The number of shares of Common Stock issued in connection therewith
totalled 310,931.
In addition, as of July 15, 1996, 1,221,000 shares of Common Stock were
reserved for issuance upon the exercise of all outstanding stock options. Of
this amount, 818,500 shares were reserved for issuance upon the exercise of
options granted pursuant to the Company's 1994 Incentive Stock Plan (the "1994
Incentive Plan"). The shares issuable upon exercise of these options have 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 9.7% 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, 41,100 shares of Common Stock are reserved for issuance
upon conversion of the Company's 3% Convertible, $1.00 stated
8
<PAGE>
value Preferred Stock (the "Old Preferred Stock") by holders who have not yet
submitted their shares of Old Preferred Stock for conversion. See "Plan of
Distribution."
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 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
shareholders. 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 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.
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 is no assurance that any dividends will
ever be paid on the Company's Common Stock.
9
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares covered by this Prospectus. All proceeds will be received by the Selling
Shareholders. See "Selling Shareholders."
SELLING SHAREHOLDERS
An aggregate of up to 4,510,217 Shares of Common Stock may be offered by
the Selling Shareholders. The Shares offered hereby constitute approximately
62.7% of all shares of the Company's outstanding Common Stock, without giving
effect to the possible exercise of outstanding options, except as noted. The
following table sets forth certain information with respect to persons for whom
the Company is registering for resale to the public shares of the Company's
Common Stock. The table reflects such persons' beneficial ownership of the
Common Stock as of July 17, 1996, without giving effect to the sales of any
shares under the other registration statements. The Company will not receive any
proceeds from the sale of the Shares. There are no material relationships
between any of the Selling Shareholders 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
July 17, 1996 to be Sold After Offering if
Selling Shareholder in this Maximum
Offering is Sold (11)
(# of
Shares)
Amount Percent Amount Percent
(# of Shares) (# of Shares)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Adrienne Partners, L.P. 10,000 * 10,000 0 --
- -------------------------------------------------------------------------------------------------
AmGuard Insurance Co., Inc. 50,000 * 50,000 0 --
- -------------------------------------------------------------------------------------------------
Banque Bruxelles Lambert 30,000 * 30,000 0 --
- -------------------------------------------------------------------------------------------------
Banque Wormser Freres 10,000 * 10,000 0 --
- -------------------------------------------------------------------------------------------------
Kurt Butenhoff 29,000 * 29,000 0 --
- -------------------------------------------------------------------------------------------------
Davos Partners, L.P. 67,000 * 67,000 0 --
- -------------------------------------------------------------------------------------------------
Matthew J. Diserio 10,000 * 10,000 0 --
- -------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================
Beneficial Ownership as of Maximum Beneficial Ownership
July 17, 1996 to be Sold After Offering if
Selling Shareholder in this Maximum
Offering is Sold (11)
(# of
Shares)
Amount Percent Amount Percent
(# of Shares) (# of Shares)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Burtt R. Ehrlich(1) 172,300 2.4% 150,000 22,300 *
- -------------------------------------------------------------------------------------------------
David Ehrlich(2) 5,000 * 5,000 0 --
- -------------------------------------------------------------------------------------------------
Julie Ehrlich(2) 5,000 * 5,000 0 --
- -------------------------------------------------------------------------------------------------
Dasha Epstein 15,000 * 15,000 0 --
- -------------------------------------------------------------------------------------------------
First Mutual Fund 100,000 1.4% 100,000 0 --
- -------------------------------------------------------------------------------------------------
Jonathan Foster 5,000 * 5,000 0 --
- -------------------------------------------------------------------------------------------------
Lawrence Flinn, Jr 100,000 1.4% 100,000 0 --
- -------------------------------------------------------------------------------------------------
Gerbsman Family 7,000 * 7,000 0 --
Revocable Trust
- -------------------------------------------------------------------------------------------------
Jay Goldberg 50,000 * 50,000 0 --
- -------------------------------------------------------------------------------------------------
Gary Heldman 30,000 * 30,000 0 --
- -------------------------------------------------------------------------------------------------
Jeffrey Laikind IRA 5,000 * 5,000 0 --
- -------------------------------------------------------------------------------------------------
Jortaircy, L.P. 40,000 * 40,000 0 --
- -------------------------------------------------------------------------------------------------
Kalb Voorhis & Co. 70,000 * 70,000 0 --
- -------------------------------------------------------------------------------------------------
Alan Kanders(3) 4,000 * 4,000 0 --
- -------------------------------------------------------------------------------------------------
Beatrice Kanders(4) 5,000 * 5,000 0 --
- -------------------------------------------------------------------------------------------------
Emily Kanders(4) 5,000 * 5,000 0 --
- -------------------------------------------------------------------------------------------------
Jeanne Kanders Revocable 30,000 * 30,000 0 --
Inter Vivos Trust(5)
- -------------------------------------------------------------------------------------------------
Ralph F. Kanders Revocable 20,000 * 20,000 0 --
Inter Vivos Trust(5)
- -------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================
Beneficial Ownership as of Maximum Beneficial Ownership
July 17, 1996 to be Sold After Offering if
Selling Shareholder in this Maximum
Offering is Sold (11)
(# of
Shares)
Amount Percent Amount Percent
(# of Shares) (# of Shares)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kanders Florida Holdings, 4,525,178 62.5% 1,980,217 2,544,961 26.8%
Inc.(3)(4)(5)(6)
- --------------------------------------------------------------------------------------------------
William Klingenstein 20,000 * 20,000 0 --
- --------------------------------------------------------------------------------------------------
Meespierson N.V 200,000 2.8% 200,000 0 --
- --------------------------------------------------------------------------------------------------
Mercury Bank 100,000 1.4% 100,000 0 --
- --------------------------------------------------------------------------------------------------
MH Capital Partners 20,000 * 20,000 0 --
- --------------------------------------------------------------------------------------------------
Charles Moore 100,000 1.4% 100,000 0 --
- --------------------------------------------------------------------------------------------------
NorGuard Insurance Co., Inc. 50,000 * 50,000 0 --
- --------------------------------------------------------------------------------------------------
Nelson Obus/Wynnefield 50,000 * 50,000 0 --
Partners Small Cap Value L.P.
- --------------------------------------------------------------------------------------------------
Parsenn Partners Limited 23,000 * 23,000 0 --
- --------------------------------------------------------------------------------------------------
Prism Partners I 100,000 1.4% 100,000 0 --
- --------------------------------------------------------------------------------------------------
Stanley Rumbough 20,000 * 20,000 0 --
- --------------------------------------------------------------------------------------------------
Rauch Investments 70,000 * 70,000 0 --
- --------------------------------------------------------------------------------------------------
Richmont Capital Partners 700,000 9.7% 600,000 100,000 1.0%
I, L.P.(7)
- --------------------------------------------------------------------------------------------------
Cornelius Ryan 10,000 * 10,000 0 --
- --------------------------------------------------------------------------------------------------
Stuart Shikiar 20,000 * 20,000 0 --
- --------------------------------------------------------------------------------------------------
Anastassia Sokolow(8) 5,000 * 5,000 0 --
- --------------------------------------------------------------------------------------------------
Dimitri Sokolow(8) 5,000 * 5,000 0 --
- --------------------------------------------------------------------------------------------------
Lydia Sokolow(8) 5,000 * 5,000 0 --
- --------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
==================================================================================================
Beneficial Ownership as of Maximum Beneficial Ownership
July 17, 1996 to be Sold After Offering if
Selling Shareholder in this Maximum
Offering is Sold (11)
(# of
Shares)
Amount Percent Amount Percent
(# of Shares) (# of Shares)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Kanders Florida Holdings, 4,525,178 62.5% 1,980,217 2,544,961 26.8%
- --------------------------------------------------------------------------------------------------
Marie Sokolow(8) 5,000 * 5,000 0 --
- --------------------------------------------------------------------------------------------------
S.T. Investors Fund, 100,000 1.4% 100,000 0 --
LLC(9)
- --------------------------------------------------------------------------------------------------
Richard Sonking 10,000 * 10,000 0 --
- --------------------------------------------------------------------------------------------------
Spirit Fund, Ltd. 25,000 * 25,000 0 --
- --------------------------------------------------------------------------------------------------
Thomas W. Strauss(10) 40,000 * 40,000 0 --
- --------------------------------------------------------------------------------------------------
Trinity Fund, Ltd. 100,000 1.4% 100,000 0 --
==================================================================================================
</TABLE>
* Less than 1%.
(1) Burtt R. Ehrlich is a director of the Company. Of the 172,300 shares
listed, 20,600 are held in trust for the benefit of his children, of
which Mr. Ehrlich's spouse is trustee, and 400 shares are owned by Mr.
Ehrlich's spouse's individual retirement account, of which Mr. Ehrlich
disclaims beneficial ownership. Also includes the 50,000 shares which
are deemed to be beneficially owned by Mr. Ehrlich upon conversion of
the Notes. Excludes 75,000 stock options granted to Mr. Ehrlich under
the terms of the 1996 Non-Employee Directors Stock Option Plan (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 172,300 shares listed, 100,000 shares are
subject to a three year lock-up agreement by and among Mr. Ehrlich and
KFH (the "Ehrlich Lock-Up"). Pursuant to the Ehrlich Lock-Up, Mr.
Ehrlich agreed that he will not, directly or indirectly, without the
prior written consent of KFH, offer to sell, sell, grant any options
for the sale of, assign, transfer, pledge, hypothecate or otherwise
encumber or dispose of any shares of Common Stock of the Company or
securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common
Stock of the Company or dispose of any beneficial interest therein for
a period of three years from January 18, 1996, except as provided in
such agreement.
(2) David Ehrlich and Julie Ehrlich are the children of Burtt R. Ehrlich.
Each of David Ehrlich, Julie Ehrlich and Burtt R. Ehrlich disclaims
beneficial ownership of shares owned by the other.
13
<PAGE>
(3) Alan Kanders and Warren B. Kanders are brothers. Each disclaims
beneficial ownership in shares owned by the other and Alan Kanders
disclaims beneficial ownership of the shares owned by Beatrice
Kanders, Emily Kanders, the Jeanne Kanders Revocable Inter Vivos
Trust and the Ralph F. Kanders Revocable Inter Vivos Trust.
(4) Beatrice Kanders and Emily Kanders are sisters of Warren B. Kanders.
Each disclaims beneficial ownership in shares owned by the other and
Beatrice Kanders and Emily Kanders each disclaim beneficial ownership
of the shares owned by Alan Kanders, the Jeanne Kanders Revocable
Inter Vivos Trust and the Ralph F. Kanders Revocable Inter Vivos
Trust.
(5) Jeanne Kanders and Ralph F. Kanders are the parents of Warren B.
Kanders, and they disclaim beneficial ownership in shares owned by
Warren B. Kanders. Warren B. Kanders disclaims beneficial ownership of
the shares owned by the Jeanne Kanders Revocable Inter Vivos Trust and
the Ralph F. Kanders Inter Vivos Trust.
(6) Warren B. Kanders, the sole shareholder and sole director of Kanders
Florida Holdings, Inc. ("KFH"), is the Chairman of the Board of
Directors of the Company. The shares listed are deemed to be
beneficially owned by Mr. Kanders because he is the sole shareholder
and sole director of KFH. The shares listed include 29,141 shares
owned by Mr. Kanders individually.
(7) Richmont Capital Partners I, L.P. ("Richmont") is represented on the
Board of Directors of the Company by Richard C. Bartlett. Mr. Bartlett
is the Chairman of the Board of Directors of The Richmont Group, the
general partner of Richmont. Represents the number of shares deemed to
be beneficially owned by 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 (the "Richmont Option"), entitling Richmont to
purchase up to 300,000 shares of Common Stock. Of the 300,000 options
granted, 100,000 are fully vested but unexercised, and 100,000 become
fully vested on each of May 15, 1997 and May 15, 1998. The Richmont
Option expires after 5:00 P.M., Eastern Time, on May 15, 2006.
(8) Anastassia Sokolow, Dimitri Sokolow, Lydia Sokolow and Marie Sokolow
are the children of Nicholas Sokolow, a director of the Company. Mr.
Sokolow and each of his children disclaim beneficial ownership in
shares owned by the other.
(9) Nicholas Sokolow, a director of the Company, is also a member of S.T.
Investors Fund, LLC ("STI"). The shares listed exclude 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 1, 1997, 1998 and 1999. The
shares listed 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, 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.
14
<PAGE>
(10) Thomas W. Strauss is a director of the Company. The number of shares
listed are deemed to be beneficially owned by Mr. Strauss upon
conversion of the Notes. 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.
(11) Information contained in the table assumes that all securities offered
pursuant to this Prospectus will be sold.
NIK ACQUISITION
On May 13, 1996, the Board of Directors of the Company held a meeting at
which the Board of Directors authorized the purchase by the Company of certain
assets of NIK from Ivers- Lee (the "NIK Acquisition"). NIK is a producer and
distributor of narcotics testing products. The Company and NIK Public Safety,
Inc., a newly formed wholly-owned subsidiary of the Company (collectively, the
"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
"Seller"), certain assets of the NIK Public Safety Product Line of Ivers-Lee
pursuant to an asset purchase agreement (the "Asset Purchase Agreement"), dated
as of July 2, 1996, pursuant to which: (i) the Purchaser agreed to purchase
Inventory, Receivables, Intellectual Property, Contracts (each as defined in the
Asset Purchase Agreement) and other tangible and intangible properties and
related assets of NIK from the Seller (collectively, the "NIK Assets"); and (ii)
in consideration therefor, the Purchaser agreed to issue to the Seller
$2,400,000 worth of Common Stock of the Company, to be valued in accordance with
the Asset Purchase Agreement (the "NIK Shares"), subject to adjustment (the
"Purchase Price"). Such valuation amounted to 310,931 shares of Common Stock.
The acquisition of the NIK Assets is being accounted for by the Company
under the purchase method of accounting. Of the $2,400,000 Purchase Price, the
Inventory purchased by the Company is valued at $500,000, Receivables are valued
at $300,000, and the patents and trademarks are valued at $1,600,000.
In connection with the execution of the Asset Purchase Agreement, the
Purchaser agreed to register the NIK Shares for sale under the Securities Act.
On the closing date, the Purchaser advanced to the Seller $1,200,000 (the
"Advance"). Such 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 sales of the NIK Shares prior to
December 31, 1996, less any amounts paid to the Company on account of the
Advance, and the Advance are less than $2,400,000, the Company shall, on
December 31, 1996, pay to the Seller the difference between $2,400,000 and the
sum of the aggregate net proceeds realized by Seller from the sale of the NIK
Shares, less any amounts paid to the Company on account of the Advance, and the
Advance. In the event that the sum of the aggregate net proceeds realized by the
Seller
15
<PAGE>
from sales of the NIK Shares, less any amounts paid to the Company on account of
the Advance, and the Advance at any time exceeds $2,400,000, then Seller shall
pay to the Purchaser, an amount equal to the excess of such net proceeds, less
any amounts paid to the Company on account of the Advance, and the Advance over
$2,400,000. In order to secure the obligations of the Seller, the NIK Shares are
pledged to the Purchaser. The foregoing description of the 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 Asset
Purchase Agreement.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma income statements for the three month
period ended March 31, 1996 and for the year ended December 31, 1995 gives
effect to the issuance of the Notes by the Company on April 30, 1996 as if the
Note offering had occurred as of January 1, 1995. The following unaudited pro
forma balance sheet as of March 31, 1996 gives effect to the issuance of the
Notes and the acquisition of certain NIK Assets as if such transactions had
occurred on March 31, 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.
16
<PAGE>
American Body Armor & Equipment, Inc.
Unaudited Pro Forma Income Statements
for the three months ended March 31, 1996
<TABLE>
<CAPTION>
Issuance of
Historical Convertible
ABA Debt(2) Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $ 3,267,328 $ 3,267,328
COSTS AND EXPENSES
Cost of sales $ 2,110,413 $ 2,110,413
Selling, general and administrative expenses $ 968,417 $ 42,500 $ 1,010,917
Interest expense, net $ 72,011 $ 143,750
($ 70,811) $ 144,950
----------- ----------- -----------
INCOME BEFORE INCOME TAXES $ 116,487 ($ 115,439) $ 1,048
INCOME TAXES(3) $ 45,000 ($ 44,595) $ 405
----------- ----------- -----------
NET INCOME $ 71,487 ($ 70,844) $ 643
=========== =========== ===========
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARES(4) $ 0.01 $ 0
=========== ===========
WEIGHTED AVERAGE COMMON
SHARES AND COMMON EQUIVALENT
SHARES(4) 7,575,936 7,575,936
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
17
<PAGE>
American Body Armor & Equipment, Inc.
Unaudited Pro Forma Income Statements
for the year ended December 31, 1995
<TABLE>
<CAPTION>
Issuance of
Historical Convertible
ABA Debt(2) Pro Forma
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $ 11,741,367 $ 11,741,367
COSTS AND EXPENSES
Cost of sales $ 7,443,080 $ 7,443,080
Selling, general and administrative expenses $ 3,421,093 $ 170,000 $ 3,591,093
Interest expense, net $ 280,891 $ 575,000
($ 246,091) $ 609,800
------------ ------------ ------------
OPERATING INCOME $ 596,303 ($ 498,909) $ 97,394
NON-OPERATING INCOME $ 227,500 $ 227,500
------------ ------------ ------------
INCOME BEFORE INCOME TAXES $ 823,803 ($ 498,909) $ 324,894
INCOME TAXES(3) $ 303,650 ($ 183,896) $ 119,754
------------ ------------ ------------
NET INCOME $ 520,153 ($ 315,013) $ 205,140
============ ============ ============
EARNINGS PER COMMON SHARE AND
COMMON EQUIVALENT SHARES(4) $ 0.08 $ 0.03
WEIGHTED AVERAGE COMMON
SHARES AND COMMON EQUIVALENT
SHARES(4) 6,369,672 6,369,672
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements.
18
<PAGE>
American Body Armor & Equipment, Inc.
Unaudited Pro Forma Balance Sheet
as of March 31, 1996
<TABLE>
<CAPTION>
Acquisition Issuance of
Historical of NIK Convertible
ABA Assets(1) Sub-Total Debt (2) Pro Forma
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 41,649 ($1,200,000) ($1,158,351) $ 8,950,000 $ 7,791,649
Accounts receivable $ 1,910,348 $ 300,000 $ 2,210,348 $ 2,210,348
Inventories $ 1,198,565 $ 500,000 $ 1,698,565 $ 1,698,565
Prepaid expenses and other current assets $ 500,473 $ 500,473 $ 500,473
----------- ----------- ----------- ----------- -----------
Total current assets $ 3,651,035 $ 400,000 $ 3,251,035 $ 8,950,000 $12,201,035
PROPERTY AND EQUIPMENT, net $ 457,582 $ 457,582 $ 457,582
REORGANIZATION VALUE IN
EXCESS OF AMOUNTS
ALLOCABLE TO IDENTIFIABLE
ASSETS, net $ 3,541,574 $ 3,541,574 $ 3,541,574
PATENTS, TRADEMARKS and
OTHER INTANGIBLES $ 1,855,000 $ 1,855,000 $ 1,855,000
OTHER ASSETS $ 72,770 $ 72,770 $ 850,000 $ 922,770
----------- ----------- ----------- ----------- -----------
TOTAL ASSETS $ 7,722,961 $ 1,455,000 $ 9,177,961 $ 9,800,000 $18,977,961
=========== =========== =========== =========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Financial Statements
19
<PAGE>
American Body Armor & Equipment, Inc.
Unaudited Pro Forma Balance Sheet - continued
as of March 31, 1996
<TABLE>
<CAPTION>
Acquisition Issuance of
Historical of NIK Convertible
ABA Assets(1) Sub-Total Debt (2) Pro Forma
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Liability for acquisition of NIK Assets $ 1,455,000 $ 1,455,000 $ 1,455,000
Short term borrowings and current
portion of long-term debt $ 1,733,287 $ 1,733,287 ($1,700,000) $ 33,287
Accounts payable, accrued expenses and
other current liabilities $ 967,999 $ 967,999 $ 967,999
----------- ----------- ----------- ----------- -----------
Total current liabilities $ 2,701,286 $ 1,455,000 $ 4,156,286 ($1,700,000) $ 2,456,286
5% CONVERTIBLE DEBT $11,500,000 $11,500,000
OTHER LONG-TERM DEBT AND
CAPITALIZED LEASE OBLIGATION,
less current portion $ 25,723 $ 25,723 $ 25,723
----------- ----------- ----------- ----------- -----------
Total liabilities $ 2,727,009 $ 1,455,000 $ 4,182,009 $ 9,800,000 $13,982,009
STOCKHOLDERS' EQUITY
Convertible preferred stock, $1 stated
value, 1,700,000
shares authorized, 0
shares issued and outstanding $ 0 $ 0 $ 0
Common stock, $.03 par value,
15,000,000 shares authorized, 6,825,835
shares issued and outstanding $ 204,775 $ 204,775 $ 204,775
Additional paid-in capital $ 3,755,012 $ 3,755,012 $ 3,755,012
Retained earnings $ 1,036,165 $ 1,036,165 $ 1,036,165
----------- ----------- ----------- ----------- -----------
Total stockholders' equity $ 4,995,952 $ 0 $ 4,995,952 $ 0 $ 4,995,952
----------- ----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,722,961 $ 1,455,000 $ 9,177,961 $ 9,800,000 $18,977,961
=========== =========== =========== =========== ===========
</TABLE>
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) Acquisition of NIK Assets
On July 12, 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 incurred 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's agreement with the seller
provides that the Company will advance 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) Issuance of Convertible Debt
On April 30, 1996, the Company issued 5% convertible 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 note, which is five years. The pro formas also reflect the reduction of
historical interest expense of $246,091 and $70,811 for the year ended
December 31, 1995 and for the three months ended March 31, 1996,
respectively, relating to debt paid off from the proceeds of the issuance
of the convertible debt.
(3) Income Taxes
The pro forma tax expense reflects the historical effective tax rates
incurred by the Company for each respective period.
(4) Earnings Per Share Calculation
The convertible debt was determined not to be a common stock equivalent as
of its issuance date for purposes of inclusion in the earnings per share
calculations and is therefore not reflected as outstanding in the pro forma
earnings per share calculation.
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"). The Company was incorporated in October 1980,
under the laws of the State of Florida, with the name of Armour of Fernandina
Beach, Inc., as a separate but affiliated company to the New York Corporation,
and commenced operating a manufacturing facility in Florida. In February 1983,
the New York Corporation moved its operations to Florida, and effective January
1, 1984, the two companies were merged with the Company surviving and changing
its name to American Body Armor & Equipment, Inc.
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
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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 the Company, and Hexcel
Corporation 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 Nicholas Sokolow to the vacancies to be created by such
resignations. Mr. Kanders is the sole shareholder 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. Contemporaneously with
the Purchase by KFH, 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
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shares of Common Stock of the Company, which holdings constituted approximately
66.4% of the total outstanding shares of Common Stock of the Company.
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. See "Risk Factors- Products Liability."
The Company's products are marketed to municipal, state, federal and
foreign law enforcement agencies, private security entities, United States and
foreign military organizations, and private individuals with security needs.
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 plates made of metal, ceramic or
Comspec(Trademark), 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(Trademark), which provides additional protection against
rifle fire.
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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(Registered) 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(Trademark) shields, barrier shields and blankets as well as
upgrade armor plates. Upgrade armor plates are designed to fit into pockets
available on most ABA 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.
Other 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.
Other activities of the Company include the design and manufacture of
specialty armor applications for vehicles and aircraft. Such applications
include the manufacture of customized armored cars. In connection therewith, the
Company purchases standard, readily available vehicles, strips them and
reconstructs them with a bullet resistant steel plate, ballistic glass and other
protective features. The orders for these vehicles come primarily from
international
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customers. The Company custom manufactures patented, lightweight and removable,
soft armor panels for aircraft of any dimension or configuration. These panels
are designed to protect passengers in helicopters and fixed-wing aircraft from
weapons fire from the ground. This armor meets or exceeds the ballistic
requirements in NIJ Standard 0108.01 for Threat Level III- A. In addition, the
Company also 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. The
Company also has the exclusive rights in the United States to distribute
Gallet(Registered) helmets, as well as the non-exclusive rights to distribute
Scanna letter bomb detectors.
Manufacturing
The Company manufactures substantially all of its bullet, bomb and
projectile resistant garments and other ballistic protection devices. The
primary raw materials used by the Company in manufacturing its ballistic
resistant garments are Kevlar(Registered), a patented product of E.I. Du Pont de
Nemours Co., Inc. ("Du Pont"), Twaron(Registered), a patented product of
Akzo-Nobel, and SpectraShield(Registered), a patented product of Allied Signal,
Inc. ("Allied Signal"). The Company purchases cloth woven of Kevlar(Registered)
from a number of independent weaving companies located in the United States and
abroad. See "Business-Raw Materials, Sources and Availability." Ballistic
garment components, such as the front or back of a bullet-proof vest, are
designed using a computer-aided design system which creates over 500 cutting
patterns based upon size, shape and style. The woven fabric is then placed on
tables and cut using electric knives in accordance with the component
specifications set by the computer. The fabric is then stitched together with
high tenacity thread. The various components of the garment are then sewn
together to create the finished product.
The Company's manufacturing techniques are not environmentally hazardous,
and the Company believes it is currently in compliance with all applicable
material environmental regulations.
Research and Development
The Company continually develops new 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 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.
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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(Registered), Twaron(Registered) and
SpectraShield(Registered). Du Pont and a European licensee of Du Pont are
currently the only producers of Kevlar(Registered). The Company purchases cloth
woven out of aramid yarn from a number of independent weaving companies,
including Clark Schwebel, a former holder of 45.8% of the Company's capital
stock, each of which account for more than 10% of the Company's requirements of
Kevlar(Registered). The Company has begun to use SpectraShield(Registered), a
patented product of Allied Signal, as a new, alternative ballistic-resistant
fabric to reduce its dependence on Kevlar(Registered). SpectraShield(Registered)
has been used in combination with Kevlar(Registered) in approximately 20% of all
vests sold by the Company. SpectraShield(Registered) is not, however expected to
become a complete substitute for 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, including Clark Schwebel, Du Pont, Akzo-Nobel
and Allied Signal and would not experience significant delays in the delivery of
its products if Kevlar(Registered) cloth or any other raw material from any one
of these mills were to become unavailable. Kevlar(Registered), the Company's
most important raw material, is not a scarce resource and there are adequate
supplies of Kevlar(Registered) to meet the Company's needs. If, however, Du Pont
or its European licensee were to cease, for any reason, to manufacture and
distribute Kevlar(Registered), 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 would be severely
curtailed and the Company's financial condition and operations would be
adversely affected.
The ballistic materials and the fiber weaving services required by the
Company are readily available from a number of suppliers worldwide. There are
many suppliers available to the Company worldwide that ensure, in the opinion of
management, adequate supplies of the necessary ballistic and fiber materials to
meet the Company's needs.
The Company purchases other raw materials used in the manufacture of its
products, such as ceramic tile, ballistic steel and cover materials, from a
variety of sources. The Company believes additional sources of supply of these
materials are readily available.
Customers
The Company's products are sold nationally and internationally, primarily
to law enforcement agencies and the military. 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. See "Risk Factors-Concentration of Business
Activities; Reliance Upon Governmental Spending."
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Sales to international customers are made primarily to military and law
enforcement agencies. International sales are primarily made on terms requiring
ABA 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. See "Risk Factors-International
Sales".
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".
Marketing and Distribution
The Company's distribution network consists of independent domestic
distributors and independent international agents, who in turn re-sell 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'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.
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.
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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 May 5,
1996, the Company had an estimated backlog of $1,102,576. 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 National Institute of Justice (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. In addition, such
garments and enclosures are regularly submitted by the Company for rating by
independent laboratories in accordance with a test commonly referred to as V50.
This test involves exposing the tested item to projectiles at increasing
velocity until 50% of the fragments penetrate the tested item. The tested item
is then given a velocity rating which may be used by prospective purchasers in
assessing the suitability of the Company's products for a particular
application. See "Risk Factors-Products 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
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. The NIJ certification protocol requires,
among other things, that there be no projectile or fragment penetration through
an armored vest. In addition, the NIJ certification protocol limits the amount
of back face deformation, or blunt trauma, that can be inflicted upon the
armored vest wearer. NIJ Standard 0101.03 describes the procedure for ballistic
testing of body armor products and specifies seven Threat Levels for which body
armor products may be certified. The test consists of firing bullets at a
specimen vest or garment strapped to a block of clay with a density resembling
that of the human body. Six shots are required to be fired, four at a 90 degree
orientation, and two at opposing 30-degree orientations. Afterward, the vest is
inspected to determine whether any of the bullets pierced the armor. In
addition, the indentations in the clay backing are measured to determine the
likelihood of blunt trauma injury. The depth of the deformation in the clay may
not exceed 1.73 inches (44mm). The protocol also requires that vests be tested
under both wet and dry conditions.
The following are the seven Threat Levels defined by the NIJ.
1. Level I: Protects against .22 Long Rifle High Velocity Lead Bullets,
with nominal masses of 40 grains impacting at a velocity of 1,050 feet per
second or less and .38 special
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round nose lead bullets, with nominal masses of 158 grains impacting at a
velocity of 850 feet per second or less. In addition, Level I provides
protection against most handgun rounds in calibers of .25 and .32. The NIJ deems
Level I to be the minimum level of protection that should be afforded to law
enforcement officers.
2. Level II-A: Protects against .357 Magnum jacketed soft point bullets,
with nominal masses of 158 grains impacting at a velocity of 1,250 feet per
second or less, and 9mm full metal jacketed bullets, with nominal masses of 124
grains impacting at a velocity of 1,090 feet per second or less. Level II-A also
provides protection against threats such as .45 Automatic, .38 Special + P and
some other factory loads in caliber .357 Magnum and 9mm, as well as all Level I
threats.
3. Level II: Protects against .357 Magnum jacketed soft point bullets, with
nominal masses of 158 grains impacting at a velocity of 1,395 feet per second or
less, and 9mm full metal jacketed bullets, with nominal masses of 124 grains
impacting at a velocity of 1,175 feet per second or less. Level II also provides
protection against most other factory loads in caliber .357 Magnum and 9mm, as
well as against Levels I and II-A threats.
4. Level III-A: Protects against .44 Magnum, lead semi-wadcutter bullets
with gas check, nominal masses of 240 grains impacting at a velocity of 1,400
feet per second or less and 9mm full metal jacketed bullets, with nominal masses
of 124 grains impacting at a velocity of 1,400 feet per second or less. Level
III-A also provides protection against most handgun threats, as well as against
Levels I, II-A, and II threats. This is the highest level of protection
available in a soft body armor application. It is generally not used for routine
wear, unless a specific threat warrants it.
5. Level III: Protects against 7.62mm metal jacketed bullets (U.S. military
designation M80), with nominal masses of 150 grains impacting at a velocity of
2,750 feet per second or less. Level III also provides protection against such
threats as the .223 Remington (5.56 mm FMJ) 30 cal. Carbine FMJ and 12 gauge
rifled slug, as well as against the threats presented by Levels I, II-A, II and
III-A.
6. Level IV: Protects against .30 caliber armor-piercing bullets (U.S.
military designation APM2), with nominal masses of 166 grains impacting at a
velocity of 2,850 feet per second or less. Level IV also provides at least
single hit protection for threats described in Levels I, II-A, II, III-A and
III. Vests that provide Level III and Level IV protection are usually used only
in tactical situations.
7. Special Type: A purchaser having special requirements for protection
level other than those described above may specify the number of tests rounds
and minimum impact velocities to be used.
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
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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 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.
Patent Protection and Proprietary Information
The Company relies on trade secrets, proprietary know-how and continuing
technological innovation (collectively, the "Proprietary Information") to
develop and maintain its competitive position. There can be no assurance that
the Company's reliance on the 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 ballistic resistant garment business is highly competitive. In the
United States law enforcement, government and military markets, the Company has
three major competitors. Financial information on these competitors is
relatively scarce. The Company believes that the principal elements of
competition in the sale of ballistic resistant garments are price and quality.
In the law enforcement and military markets, the Company occasionally bids for
orders in response to invitations for bidding which set forth product
performance specifications. 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 ballistic capabilities. In the
international market, the Company's competition consists primarily of its larger
American competitors as well as two large 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."
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Employees
As of December 31, 1995, the Company had 131 employees, 4 of whom were
executive officers of the Company. Of the remaining employees, 9 were office
personnel, 104 were employed in manufacturing, quality assurance, research and
development, purchasing, shipping and warehousing and 14 were sales personnel.
As of December 31, 1994, the total number of employees of the Company was 114.
The increase of 17 employees between 1994 and 1995 was due primarily to an
increase in manufacturing personnel.
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, 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 Business Credit, Inc.
("LaSalle") and trade credit. As of June 30, 1996, the LaSalle credit facility
was reduced to a zero balance with the proceeds from the Notes and was
terminated.
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 solely to accredited investors pursuant to 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 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.
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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. As permitted under the Florida Business Corporation Act,
directors of the Company will not be liable to the Company or its shareholders
for monetary damages arising from a breach of their fiduciary duty of care as
directors, including such conduct during a merger or tender offer. Such
limitations will not, however, affect liability for any breach of a director's
duty of loyalty to the Company or its shareholders, including approval by the
director of any transaction from which he derives an improper personal benefit,
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, or for the payment of dividends in violation of
Florida law. Such limitation of liability also will not affect the availability
of equitable remedies such as injunctive relief or rescission, nor will it have
any effect on claims arising under the federal securities laws. These
limitations may limit the ability of shareholders of the Company to sustain a
cause of action against the Company's directors based on grossly negligent
business decisions, including those relating to attempts to change control of
the Company. The Company's Amended and Restated Bylaws (the "Bylaws") provide
for indemnification by the Company of its directors and officers to the fullest
extent permitted by Florida law. 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 Bylaws may require the Company to make
payments to its officers and directors sufficiently large to impair the
Company's financial condition or a shareholder's investment and/or reduce
stockholder's equity.
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
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by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
PROPERTIES
The Company occupies a 50,000 square foot office, sales, manufacturing and
warehouse facility in Nassau County, Florida. This 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.
PLAN OF DISTRIBUTION
The sale of the Shares by the Selling Shareholders may be effected from
time to time in transactions (which may include block transactions by or for the
account of the Selling Shareholders) 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.
Selling Shareholders may effect such transactions by selling their Shares
of Common Stock directly to purchasers, through broker-dealers acting as agents
for the Selling Shareholders, or to broker-dealers who may purchase shares as
principals and thereafter sell the 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 Shareholders 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).
The Selling Shareholders and broker-dealers, if any, acting in connection
with such sale 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.
33
<PAGE>
The Selling Shareholders, other than KFH, David Ehrlich, Julie Ehrlich,
S.T. Investors Fund, LLC, Anastassia Sokolow, Dimitri Sokolow, Lydia Sokolow and
Marie Sokolow, entered into the Convertible Subordinated Note Purchase Agreement
with the Company, which provides for the registration of the shares of Common
Stock under the Securities Act and the blue sky laws of the several states.
Pursuant to the Convertible Subordinated Note Purchase Agreement, the Company is
required to bear the cost of such registration and indemnify, among others, the
Selling Shareholders 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 agreements 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 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 incorporated in this prospectus by reference from
the Company's Annual Report on Form 10-KSB for the year ended December 31, 1995
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated 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 Securities and Exchange Commission,
Washington, D.C., its Registration Statement No. _____ under the Securities Act
of 1933, as amended, 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 Commission
at its principal office in Washington, D.C., upon payment of charges prescribed
by the Commission. 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.
34
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
Item Amount
---- ------
Securities and Exchange Commission filing fee...... $10,840.07
Blue Sky fees and expenses......................... *
Printing and engraving costs....................... *
Legal fees and expenses............................ $50,000.00
Accounting fees and expenses....................... $20,000.00
Transfer agent and registrar's fees ............... $2,500.00
Miscellaneous ..................................... $1,000.00
TOTAL..................................... *
- ------------------------
* To be provided by amendment.
Item 15. Indemnification of Directors and Officers.
The Company's Charter includes provisions that limit the liability of the
Company's directors. As permitted under the Florida Business Corporation Act,
directors of the Company will not be liable to the Company or its shareholders
for monetary damages arising from a breach of their fiduciary duty of care as
directors, including such conduct during a merger or tender offer. Such
limitations will not, however, affect liability for any breach of a director's
duty of loyalty to the Company or its shareholders, including approval by the
director of any transaction from which he derives an improper personal benefit,
for acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, or for the payment of dividends in violation of
Florida law. Such limitation of liability also will not affect the availability
of equitable remedies such as injunctive relief of rescission, nor will it have
any effect on claims arising under the federal securities laws. These
limitations may limit the ability of shareholders of the Company to sustain a
cause of action against the Company's directors based on grossly negligent
business decisions, including those relating to attempts to change control of
the Company. The Company's Bylaws provide for indemnification by the Company of
its directors and officers to the fullest extent permitted by Florida law. 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
Bylaws may require the Company to make payments to its officers
II-1
<PAGE>
and directors sufficiently large to impair the Company's financial condition or
a shareholder's investment and/or reduce stockholder's equity.
Item 16. 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 to be filed by amendment
to 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).
3.1** Articles of Restatement of Articles of Incorporation of American Body
Armor & Equipment, Inc. (with the Amended and Restated Articles of
Incorporation of American Body Armor & Equipment, Inc. attached
thereto) (filed as Exhibit 3 to Form 8-K, Current Report of the
Company, dated October 1, 1993 and incorporated herein by reference).
3.2** Amended and Restated Bylaws of American Body Armor & Equipment, Inc.,
as amended on May 13, 1996 (filed as Exhibit 3.1 to Form 8-K, Current
Report of the Company, dated May 14, 1996 and incorporated herein by
reference).
5.1*** Opinion of Kane Kessler, P.C., including consent.
13.1** Annual Report on Form 10-KSB (as amended on Form 10-KSB/A-1 on April
29, 1996) for the fiscal year ended December 31, 1995.
13.2** Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 1996.
20.1** 1996 Definitive Proxy Statement with respect to the Company's 1996
Annual Meeting of Shareholders, to be held July 16, 1996, (as filed
with the Securities and Exchange Commission on July 1, 1996 and
incorporated herein by reference).
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 (included on signature page).
99.1** Current Report on Form 8-K dated February 1, 1996.
99.2** Registration Statement on Form 8-A, filed on March 13, 1996.
II-2
<PAGE>
99.3** Current Report on Form 8-K dated May 14, 1996.
99.4* Asset Purchase Agreement, dated as of July 2, 1996, by and among
American Body Armor & Equipment, Inc., NIK Public Safety, Inc.,
Ivers-Lee Corporation and LFC No. 46 Corp.
* Filed herewith.
** Incorporated herein by reference.
*** To be filed by amendment to this Registration Statement.
Item 17. Undertakings
The Company hereby undertakes as follows:
1. The Company shall file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(a) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(b) Reflect in the prospectus any facts or events which individually or
together, represent fundamental change in the information in the registration
statement. Notwithstanding the 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.
4. (a) 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.
II-3
<PAGE>
(b) 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 of 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.
II-4
<PAGE>
SIGNATURES
Pursuant to 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 S-3 and has fully caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Yulee, State of Florida on the 19th day of July, 1996.
AMERICAN BODY ARMOR & EQUIPMENT, INC.
By:/s/ Jonathan M. Spiller
-------------------------------------
Jonathan M. Spiller
President and Chief Executive Officer
Each of the undersigned officers and directors of American Body Armor &
Equipment, Inc. hereby severally constitutes and appoints Warren B. Kanders and
Jonathan M. Spiller, and each of them, as attorneys-in-fact for the undersigned,
in any and all capacities, with full power of substitution, to sign any
amendments to this Registration Statement (including post-effective amendments),
and to file the same with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact, and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each said attorney-in-fact, or
any of them, may lawfully do or cause to be done by virtue hereof.
II-5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Warren B. Kanders Chairman of the Board of Directors July 19, 1996
- -----------------------
Warren B. Kanders
/s/Jonathan M. Spiller President, Chief Executive Officer and July 19, 1996
- ----------------------- Director (Principal Executive Officer)
Jonathan M. Spiller
/s/ Carol T. Burke Vice President, Finance and Secretary July 19, 1996
- ----------------------- (Principal Accounting Officer)
Carol T. Burke
/s/ Burtt R. Ehrlich Director July 19, 1996
- -----------------------
Burtt R. Ehrlich
/s/ Nicholas Sokolow Director July 19, 1996
- -----------------------
Nicholas Sokolow
/s/ Thomas W. Strauss Director July 19, 1996
- -----------------------
Thomas W. Strauss
/s/ Richard C. Bartlett Director July 19, 1996
- -----------------------
Richard C. Bartlett
II-6
<PAGE>
EXHIBIT INDEX
The following Exhibits are filed herewith:
Exhibit No. Description Page
----------- ----------- ----
23.2 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included on signature
page).
99.4 Asset Purchase Agreement, dated as of July
2, 1996, by and among American Body
Armor & Equipment, Inc., NIK Public
Safety, Inc., Ivers-Lee Corporation and LFC
No. 46 Corp.
<PAGE>
EXHIBIT 23.2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
American Body Armor & Equipment, Inc. on Form S-3 of our report dated February
23, 1996, appearing in the Annual Report on Form 10-KSB of American Body Armor &
Equipment, Inc. for the year ended December 31, 1995 and to the reference to us
under the heading "Experts" in the Prospectus, which is a part of this
Registration Statement.
DELOITTE & TOUCHE LLP
Jacksonville, Florida
July 19, 1996
<PAGE>
ASSET PURCHASE AGREEMENT
AMONG
AMERICAN BODY ARMOR & EQUIPMENT, INC.;
NIK PUBLIC SAFETY, INC.;
IVERS-LEE CORPORATION;
AND
LFC #46 CORP.
Dated as of July 2, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - Definitions........................................................... 2
ARTICLE II -Purchase of Assets; Consideration..................................... 4
Section 2.1 Terms of the Purchase................................. 4
Section 2.2 The Closing........................................... 12
Section 2.3 Transactions at the Closing........................... 12
Section 2.4 Right of Purchaser to Withhold Future Payments........ 13
Section 2.5 Management of Purchased Assets........................ 14
ARTICLE III - Representations and Warranties of the Seller........................ 16
Section 3.1 Organization.......................................... 16
Section 3.2 Authorization; Enforceability......................... 17
Section 3.3 No Violation or Conflict.............................. 17
Section 3.4 Consents of Governmental Authorities and Others....... 18
Section 3.5 Conduct of Business................................... 18
Section 3.6 Litigation............................................ 20
Section 3.7 Brokers............................................... 20
Section 3.8 Compliance............................................ 21
Section 3.9 Corporate Records..................................... 21
Section 3.10 Rights, Warrants, Options............................. 22
Section 3.11 Financial Statements.................................. 22
Section 3.12 Absence of Undisclosed Liabilities.................... 23
Section 3.13 Title to Personal Property............................ 23
Section 3.14 Licenses.............................................. 23
Section 3.15 Proprietary Rights.................................... 24
Section 3.16 Major Customers and Suppliers; Supplies............... 26
Section 3.17 Related Parties....................................... 27
Section 3.18 Absence of Certain Business Practices................. 28
Section 3.19 Labor Relations....................................... 29
Section 3.20 Tax Matters........................................... 30
Section 3.21 Material Agreements................................... 31
Section 3.22 Products.............................................. 33
Section 3.23 Environmental Matters................................. 34
Section 3.24 Solvency.............................................. 35
Section 3.25 Non-Distributive Intent............................... 36
Section 3.26 Inventories........................................... 36
Section 3.27 Accounts Receivable................................... 37
Section 3.28 Disclosure............................................ 37
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV - Representations and Warranties of ABA and the Purchaser.............. 38
Section 4.1 Organization; Standing and Power...................... 38
Section 4.2 Authorization; Enforceability......................... 39
Section 4.3 Validity of ABA Common Stock.......................... 39
Section 4.4 Brokers............................................... 39
Section 4.5 SEC Filings........................................... 40
Section 4.6 ABA's Unencumbered Cash............................... 40
ARTICLE V - Additional Agreements................................................. 41
Section 5.1 Survival.............................................. 41
Section 5.2 Investigation......................................... 41
Section 5.3 Indemnification....................................... 42
(a) By Seller......................................... 42
(b) By ABA and the Purchaser.......................... 43
(c) Indemnity Procedure............................... 44
(d) Limitations....................................... 47
Section 5.4 Registration of ABA Common Stock...................... 48
Section 5.5 Seller Not to Use Name................................ 48
Section 5.6 Adjustment to Valuation of Shares of
ABA Common Stock...................................... 48
Section 5.7 Additional Agreements................................. 50
ARTICLE VI - Conditions Precedent; Termination.................................... 51
Section 6.1 Conditions Precedent to the Obligations
of ABA and the Purchaser.............................. 51
(a) Representations and Warranties True............... 51
(b) Performance....................................... 52
(c) No Adverse Change................................. 52
(d) Seller's Certificate.............................. 52
(e) No Litigation..................................... 52
(f) Consents.......................................... 53
(g) Opinion of Counsel................................ 53
Section 6.2 Conditions Precedent to the Obligations
of Seller............................................. 53
(a) Representations and Warranties True............... 53
(b) Performance....................................... 54
(c) Officers' Certificate............................. 54
(d) No Litigation..................................... 54
(e) Receipt of Notice................................. 55
Section 6.3 Reasonable Efforts.................................... 55
Section 6.4 Termination........................................... 55
ARTICLE VII - Covenants........................................................... 57
Section 7.1 Interim Operations of the Company..................... 57
Section 7.2 Access................................................ 59
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.3 Confidentiality (through Closing Date)................ 60
Section 7.4 Notification.......................................... 61
Section 7.5 Exclusivity........................................... 61
Section 7.6 Non-Competition....................................... 62
Section 7.7 General Confidentiality............................... 64
Section 7.8 Continuing Obligations................................ 65
ARTICLE VIII - Miscellaneous...................................................... 66
Section 8.1 Notices............................................... 66
Section 8.2 Entire Agreement...................................... 67
Section 8.3 Binding Effect........................................ 67
Section 8.4 Knowledge of the Parties.............................. 68
Section 8.5 Assignment............................................ 68
Section 8.6 Waiver and Amendment.................................. 68
Section 8.7 No Third Party Beneficiary............................ 69
Section 8.8 Severability.......................................... 69
Section 8.9 Expenses.............................................. 69
Section 8.10 Headings.............................................. 70
Section 8.11 Counterparts.......................................... 70
Section 8.12 Time of the Essence................................... 70
Section 8.13 Injunctive Relief..................................... 70
Section 8.14 Remedies Cumulative................................... 71
Section 8.15 Governing Law; Jurisdiction........................... 71
Section 8.16 Participation of Parties.............................. 72
Section 8.17 Further Assurances.................................... 72
Section 8.18 Publicity............................................. 72
</TABLE>
iii
<PAGE>
ASSET PURCHASE AGREEMENT
Asset Purchase Agreement, dated as of July 2, 1996, among American Body
Armor & Equipment, Inc., a Florida corporation with offices at 191 Nassau Place
Road, Yulee, Florida 32097 ("ABA"); NIK Public Safety, Inc., a Delaware
corporation and a wholly-owned subsidiary of ABA with offices at 191 Nassau
Place Road, Yulee, Florida 32097 (the "Purchaser"); and Ivers-Lee Corporation, a
Delaware corporation with offices at 147 Clinton Road, West Caldwell, New Jersey
07006, and LFC #46 Corp., a Delaware corporation with offices at 204-D Weldin
Building, 3411 Silverside Road, Wilmington, Delaware 19810 (collectively
referred to herein as the "Seller").
W I T N E S S E T H :
WHEREAS, the Purchaser desires to acquire certain of the properties and
assets of the NIK Public Safety product line (the "NIK Product Line") of the
Seller in exchange for common stock, par value $.03 per share, of ABA ("ABA
Common Stock"), and the Seller desires to sell such assets and effect such
exchange.
NOW, THEREFORE, the parties hereto, in consideration of the mutual promises
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, hereby agree as follows:
<PAGE>
ARTICLE I
Definitions
In addition to terms defined elsewhere in this Agreement, the following
terms when used in this Agreement shall have the meanings indicated below:
"Affiliate" shall mean, with respect to any Person, any Person that
directly or indirectly controls, is controlled by or is under common
control with the Person in question.
"Agreement" shall mean this Asset Purchase Agreement, together with
all exhibits and schedules referred to herein.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall mean the common stock of ABA, par value $.03 per
share.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Financial Statements" shall mean the unaudited income statements of
the NIK Product Line for each of the fiscal years ended September 30, 1994
and September 30, 1995, in each case with detail cost back-up, the
unaudited income statement of the NIK Product Line for the four months
ended January 31, 1996 with detail cost back-up, and the unaudited income
statement of the NIK Product Line for each of the months ended February 29,
March 31 and April 30, 1996, without detail cost back-up, as more
particularly set forth on Schedule 3.11 attached hereto, in each case
including
2
<PAGE>
any related notes, each prepared in accordance with United States generally
accepted accounting principles, consistently applied with prior periods
(except for the inclusion of corporate general expenses and the treatment
of certain intra-company and inter-company items which were transferred
from Becton-Dickinson Company, Inc. to the Seller at cost prior to February
1, 1996); provided, however, that in the case of any conflicts between
generally accepted accounting principles and consistency with prior
periods, the provisions of generally accepted accounting principles shall
prevail.
"Guaranty" shall mean, as to any Person, all liabilities or
obligations of such Person in respect of any indebtedness or other
obligations of others guaranteed, directly or indirectly, in any manner by
such Person, or in effect guaranteed, directly or indirectly, by such
Person through an agreement, contingent or otherwise, to purchase such
indebtedness or obligation, or to purchase or sell property or services,
primarily for the purpose of enabling the debtor to make payment of such
indebtedness or obligation or to assure the owner of such indebtedness or
obligation against loss, or to supply funds to or in any manner invest in
the debtor, or otherwise.
"Person" shall mean any natural person, corporation, unincorporated
organization, limited liability company, partnership, limited liability
partnership, association, joint stock company, joint venture, trust or
government, or any agency or political subdivision of any government, or
any other entity.
3
<PAGE>
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Subsidiary" of any Person shall mean any Person, whether or not
capitalized, in which such Person owns, directly or indirectly, an equity
interest of more than 50%, or which may effectively be controlled, directly
or indirectly, by such Person.
ARTICLE II
Purchase of Assets; Consideration
Section 2.1 Terms of the Purchase
On the basis of the representations, warranties, covenants, and agreements
contained in this Agreement and subject to the terms and conditions of this
Agreement:
(a) The Seller shall sell, assign, transfer and convey to the
Purchaser at the Closing (as hereinafter defined) all of the following
tangible and intangible properties and assets owned by Seller and primarily
used in connection with the NIK Product Line and set forth on Schedule
2.1(a)(i), (ii), (iii), and (iv) hereto, but specifically excluding the
Excluded Assets (as hereinafter defined) (the "Purchased Assets"):
(i) all inventory, including parts, raw materials, work in process
and finished goods, as set forth on Schedule 2.1(a)(i) attached
hereto (the "Inventory");
(ii) all accounts receivable of the Seller relating to the NIK Product
Line as of July 1, 1996 (the "Receivables"), a list of which is
set forth on Schedule 2.1(a)(ii) attached hereto;
4
<PAGE>
(iii) all inventions, whether or not patented, know-how, domestic and
foreign letters patent, patent applications, patent licenses,
software licenses and know-how licenses, trade secrets
(including, but not limited to, all results of research and
development), tradenames, trademarks, service marks, copyrights,
trademark registrations and applications, service mark
registrations and applications, copyright registrations and
applications and rights-to-use (collectively, "Intellectual
Property"), as set forth on Schedule 2.1(a)(iii) attached hereto;
(iv) all right, title and interest in, to and under all purchase
orders, sales agreements, distribution agreements and other
contracts, agreements and commitments of Seller identified on
Schedule 2.1(a)(iv) hereto, subject in each case to the terms of
such contracts ("Contracts");
(v) copies of all books and records predominantly relating to the NIK
Product Line and the Purchased Assets (including, but not limited
to, such books and records as are contained in computerized
storage media), including all inventory, purchasing, sales,
export, import, manufacturing, marketing and shipping records and
all files, price lists, records, literature, correspondence and
marketing materials, and artworks and other set-ups, whether or
not in the possession of the Seller, relating to brochures and
other marketing materials of the NIK Product Line; and
(vi) all showbooths, tables, and goodwill primarily relating to or
used in connection with the NIK Product Line.
(b) Notwithstanding anything to the contrary in Section 2.1(a) of this
Agreement, the following rights, properties
5
<PAGE>
and assets shall not be included in the Purchased Assets (the "Excluded
Assets"):
(i) all cash and cash equivalents;
(ii) all machinery, vehicles, furniture, equipment and other personal
property not specifically set forth on Schedules 2.1(a)(i) to
(iv) hereof; and
(iii) all ownership, leasehold and other interests in real property,
in each case together with all buildings thereon.
(c) Subject to adjustment as provided in Section 5.6 below, the
aggregate purchase price for the Purchased Assets shall be $2,400,000 (the
"Purchased Price"), and shall be paid at the Closing by the issuance to the
Seller of such number of unregistered shares (the "Shares") of ABA Common
Stock as will have a value, as determined by the average closing price of
ABA's Common Stock on the American Stock Exchange (or such other exchange
or market on which ABA's Common Stock is principally traded) for the ten
consecutive trading day period ending two trading days prior to the Closing
date, of $2,400,000.
(d) On the Closing date, the Purchaser shall advance to the Seller, by
wire transfer of immediately available funds, $1,200,000 on account of the
proceeds from the sales of Shares referred to in subparagraph (e) below
(the "Advance"), which Advance shall not bear interest and shall be repaid
with the first $1,200,000 realized from the sales of the Shares as
hereinafter provided. Seller shall supply its broker-dealer with
irrevocable written instructions for such purpose. Thereafter, subject to
6
<PAGE>
subparagraph (e) below, all net proceeds from the sale of the Shares shall
be paid directly to the Seller.
(e) The Purchaser shall select a broker-dealer, who shall be
reasonably acceptable to Seller, on or before the Closing. All sales of
Shares shall be made only through such broker-dealer at such times and in
such amounts as the Purchaser shall have consented to in its sole
discretion and shall be made after the effectiveness of the Registration
Statement required to be filed by the Purchaser for such purpose pursuant
to the Registration Rights Agreement referred to in Section 5.4 below. In
the event that the sum of the aggregate net proceeds from sales of the
Shares prior to December 31, 1996, less any amounts paid to ABA on account
of the Advance, and the Advance are less than $2,400,000, ABA shall, by
wire transfer of immediately available funds on December 31, 1996, pay to
the Seller the difference between $2,400,000 and the sum of the aggregate
net proceeds realized by Seller from the sale of the Shares, less any
amounts paid to ABA on account of the Advance, and the Advance. In the
event that the sum of the aggregate net proceeds realized by the Seller
from sales of the Shares, less any amounts paid to ABA on account of the
Advance, and the Advance at any time exceeds $2,400,000 then Seller shall
pay to the Purchaser, within five (5) business days of receipt of such
excess
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amounts, in immediately available funds, an amount equal to the excess of
such net proceeds, less any amounts paid to ABA on account of the Advance,
and Advance over $2,400,000.
(f) In order to secure the Seller's obligations described in
subsections (d) and (e) above, the Shares shall be pledged to the
Purchaser, and Seller hereby grants to Purchaser a power of attorney, which
is coupled with an interest and is irrevocable, in order that the sales as
herein described are effected. Such pledge shall be terminated and the
certificates representing the Shares shall be returned to the Seller if
Seller has not received the entire Purchase Price on or before December 31,
1996 or if Purchaser or ABA is otherwise in default of its obligations to
Seller pursuant to this Agreement.
(g) ABA shall at all times prior to the receipt by Seller of the full
amount of the Purchase Price in cash, whether upon receipt of the Advance
or from the sale of the Shares, maintain unencumbered cash and cash
equivalents sufficient for the payment of all amounts potentially payable
to Seller pursuant to subsection (e) hereof.
(h) Neither the Purchaser nor ABA shall assume or be responsible for
any obligation or liability of the Seller of any nature, whether accrued,
contingent, absolute or otherwise, except pursuant to the terms of the
Contracts.
(i) The consideration paid by the Purchaser shall be allocated among
the Purchased Assets as set forth in Schedule
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2.1(c) in accordance with Section 160 of the Internal Revenue Code of 1986,
as amended.
(j) With respect to any properties or assets sold hereunder that
cannot be physically delivered to the Purchaser because they are in the
possession of third parties or otherwise, the Seller shall give irrevocable
instructions to the party in possession thereof, if such be the case, with
copies to the Purchaser, that all right, title, and interest therein have
been vested in the Purchaser and that the same are to be held for the
Purchaser's exclusive use and benefit.
(k) To the extent that the assignment by the Seller to the Purchaser
of any contract, agreement, instrument, lease, license, understanding, or
arrangement to be assigned to the Purchaser hereunder shall require the
consent of a party other than the Seller which has not been obtained by the
Closing and if ABA and the Purchaser shall nevertheless elect to consummate
the transactions contemplated by this Agreement, this Agreement shall not
constitute an agreement to assign the same if an attempted assignment
without such consent would constitute a breach thereof unless the Purchaser
before, at, or after the Closing elects in a writing delivered to the
Seller, specifically identifying such absent consent, to waive such
consent. Nothing in this Section 2.1(k) regarding such non-assignment or
such election shall limit any rights ABA or the Purchaser may have against
the Seller as a result of the failure to obtain such consent.
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(l) The Seller agrees that, from and after the Closing date, the
Purchaser shall have the right and authority to collect for its own account
the Receivables, subject to the provisions hereof, and to endorse with the
name of the Seller all checks received on account of the Receivables. The
Seller agrees that it will, within three business days of receipt,
transfer, assign and deliver to the Purchaser all cash or other property
which it may receive with respect to any Receivable from and after the date
thereof, and pending any such receipt by Seller and delivery to the
Purchaser of any such property, the Seller shall hold any such property in
trust for the benefit of the Purchaser. The Purchaser shall, after the
Closing date, use reasonable commercial efforts at least consistent with
its normal business practices at the Purchaser's expense to collect the
Receivables of the NIK Product Line incurred prior to the Closing date but
the Purchaser shall have no obligation to resort to legal action or other
third party collection methods. Any amounts received from the account
debtor of a Receivable shall be applied first to the oldest outstanding
Receivable, except for (i) amounts which the debtor has directed to be
applied to a particular debt or (ii) cases in which the debtor has disputed
a specific Receivable. To the extent that any Receivable remains
outstanding upon expiration of the 90-day period subsequent to the Closing
date, as referred to above, the Purchaser shall give prompt notice of the
non- collectibility of such Receivable to the Seller, and the Seller
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shall have the opportunity, during the ten business day period following
the expiration of such 90-day period, to consult with and advise the
Purchaser with respect to the manner in which such Receivable may be
collected, it being understood by the parties hereto that the Purchaser
shall have the sole right to implement any such collection methods and that
neither the Seller nor its Affiliates shall contact any account debtors in
respect of such collection without the express written consent of the
Purchaser in each instance. In the event that the Purchaser has received in
the aggregate more than $300,000 at any time on account of the Receivables,
the Purchaser shall remit to the Seller in cash any such excess over
$300,000 within 30 days of receipt of any such excess. In the event that
the Purchaser has received less than $300,000 on account of the Receivables
upon expiration of the ten business day period described above, the Seller
shall remit to the Purchaser in cash any such difference between $300,000
and the amounts so received by Purchaser within 30 days following
expiration of such ten business day period upon assignment by the Purchaser
to the Seller of all uncollected Receivables. Thereafter, the Seller shall
have the right to pursue the collection of outstanding Receivables for its
own account, provided that the Seller shall confer with the Purchaser prior
to taking such action and the Seller shall not injure any customer
relationships of the Purchaser by virtue of its collection practices.
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Section 2.2 The Closing
The closing of the transactions contemplated by this Agreement shall take
place at the offices of Kane Kessler, P.C., 1350 Avenue of the Americas, New
York, New York, at 10:00 A.M., New York time on July 12, 1996, or such other
date, time or place as the parties may agree. The closing of the transactions
contemplated by this Agreement is herein called the "Closing."
Section 2.3 Transactions at the Closing
The following transactions shall take place at the Closing:
(a) The Seller shall deliver to the Purchaser all such bills of sale,
assignments, evidences of consent, and other instruments or documents as in
the opinion of counsel to the Purchaser may be necessary or desirable to
evidence or perfect the sale, assignment, transfer, and conveyance of good
title to all properties and assets to be sold to the Purchaser by the
Seller hereunder, in each case free and clear of all liens, mortgages,
security interests, pledges, charges, and encumbrances (except such as are
listed in Schedule 2.3). The Seller shall also deliver to the Purchaser all
books and records of the NIK Product Line of the Seller; provided, however,
that the Seller and its officers, employees, attorneys, and agents shall be
afforded access to the NIK Product Line's tax and accounting records
relating to periods prior to the Closing and shall be permitted to make
extracts from and copies of such records.
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(b) The Purchaser shall deliver or cause to be delivered to the Seller
a certificate registered in the Seller's name for unregistered shares of
ABA Common Stock, as set forth in Section 2.1(a), with appropriate
restrictive legends thereon.
(c) The Purchaser shall deliver to the Seller $1,200,000 in
immediately available funds.
Section 2.4 Right of Purchaser to Withhold Future Payments
Without limiting such other rights as ABA or the Purchaser may have, if,
prior to the time all shares of ABA Common Stock are delivered pursuant to
Section 2.1(c), the Purchaser has learned of a breach of any representation,
warranty, covenant, or agreement of the Seller contained in this Agreement, the
Purchaser in its discretion may by written notice to the Seller, sell, for the
account of the Purchaser, such number of shares of ABA Common Stock delivered by
the Purchaser at the Closing that will result in net proceeds from such sale
equal to the aggregate of (a) the amount necessary to cure or make whole such
breach and (b) the amount of losses, deficiencies, damages, and legal and other
expenses (including legal fees and expenses of attorneys chosen by ABA or the
Purchaser) incurred or demonstrably in prospect of being incurred by ABA or the
Purchaser in connection with claims, suits, actions, proceedings (formal or
informal), investigations, judgments, or settlements as a result of, or to
remedy a situation or circumstance caused by, such breach, and the Purchaser
shall be entitled to retain such net proceeds for its own account.
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Section 2.5 Management of Purchased Assets
From and after the execution of this Agreement, the parties hereto agree to
conduct the business of the NIK Product Line as follows:
(a) The Seller will continue to manufacture and fulfill orders of the
NIK Product Line on behalf of the Purchaser from July 1, 1996 through July
19, 1996 provided that the Closing has occurred on or before July 12, 1996.
Upon the Closing, all goods manufactured and fulfilled by the Seller
relating to the NIK Product Line from and after July 1, 1996 will be for
the account of the Purchaser and all goods received by the Seller relating
to the NIK Product Line will be for the account of the Purchaser. The
parties acknowledge that goods received after July 1, 1996 by the Seller
will include inventory not currently included in Schedule 3.26 and the
related accounts payable generated after July 1, 1996 in respect of such
inventory shall be the obligation of the Purchaser.
(b) The Seller will invoice the Purchaser for the cost of
manufacturing and fulfilling orders relating to the NIK Product Line on
behalf of the Purchaser from and after July 1, 1996 through July 19, 1996
(or July 26, 1996 if the Purchaser has given notice to the Seller by July
17, 1996 that it desires to extend such date to July 26, 1996). The costs
of manufacturing and fulfilling orders relating to the NIK Product Line
which will be invoiced by the Seller to the Purchaser shall be comprised of
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Direct Labor Costs (as hereinafter defined), plus Benefits and Overhead
(each as hereinafter defined). "Direct Labor Costs" shall mean the actual
cost of labor paid by the Seller for four laborers, one materials handler,
Mr. Anthony Manla and Ms. Jennifer Byrnes. "Benefits" shall equal 25% of
the Direct Labor Costs. "Overhead" shall equal 30% of the Direct Labor
Costs.
(c) The Seller shall continue to perform order entry and customer
service relating to the NIK Product Line on behalf of the Purchaser until
the Closing. Order entry and customer service shall commence at the
Purchaser's facility in Yulee, Florida on Monday, July 22, 1996 but not
later than July 26, 1996. From and after the Closing date and until
production of the NIK Product Line commences in Yulee, Florida, the
Purchaser will forward orders relating to the NIK Product Line to the
Seller via facsimile transmission daily for fulfillment on the next
business day.
(d) The Seller and the Purchaser will agree upon a production schedule
at the Closing for the time between the Closing date and the date on which
production at the Seller's facility in West Caldwell, New Jersey ceases.
(e) Inventory relating to the NIK Product Line will be delivered by
the Seller to the Purchaser at the Seller's facility in West Caldwell, New
Jersey (f.o.b. shipping point). The Purchaser will provide trucks for the
shipment of such inventory in accordance with the schedule attached hereto
as Schedule 2.5.
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(f) The Seller shall cause Mr. Anthony Manla to be available to the
Purchaser in Yulee, Florida for a two week period, beginning one week after
the Closing date.
(g) At the Closing, the Seller will transfer and assign to the
Purchaser the Seller's telephone and facsimile numbers relating to the NIK
Product Line to the extent practicable. From and after the Closing date,
the Seller will refer all incoming telephone calls and facsimile
transmissions relating to the NIK Product Line to the Purchaser.
ARTICLE III
Representations and Warranties of the Seller
In order to induce ABA and the Purchaser to enter into this Agreement and
to consummate the transactions contemplated hereby, the Seller makes the
representations and warranties set forth below to ABA and to the Purchaser.
Section 3.1 Organization
The Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Seller is duly qualified
to transact business as a foreign corporation in all jurisdictions where the
ownership or leasing of the properties of the NIK Product Line or the conduct of
the business of the NIK Product Line requires such qualification, except where
the failure to be so qualified would not have an adverse effect on the Seller.
Each jurisdiction in which the
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Seller is so qualified is listed on Schedule 3.1 hereto. The Seller has the
requisite power and authority to (a) own or lease and operate the properties,
and (b) conduct the business as presently conducted, in each case, of the NIK
Product Line.
Section 3.2 Authorization; Enforceability
The Seller has the corporate power and authority to execute, deliver and
perform this Agreement. This Agreement and all other documents to be executed
and delivered by the Seller pursuant to this Agreement have been and will be
duly authorized by all necessary corporate action, including, but not limited
to, board of director and shareholder approval to the extent necessary, executed
and delivered, and constitute the legal, valid and binding obligations of the
Seller, enforceable in accordance with their respective terms, except to the
extent that their enforcement is limited by bankruptcy, insolvency,
reorganization or other laws relating to or affecting the enforcement of
creditors' rights generally and by general principles of equity.
Section 3.3 No Violation or Conflict
The execution, delivery and performance of this Agreement by the Seller and
the consummation by the Seller of the transactions contemplated hereby: (a) do
not violate or conflict with any provision of law or regulation (whether
federal, state or local), or any writ, order or decree of any court or
governmental or regulatory authority, or any provision of the Seller's
Certificate of Incorporation or Bylaws; and (b) except as set forth
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on Schedule 3.3 hereto, do not, with or without the passage of time or the
giving of notice, or both, result in the breach of, or constitute a default,
cause the acceleration of performance or require any consent under, or result in
the creation of any lien, charge or encumbrance upon any property or assets of
the Seller relating to the NIK Product Line of the Seller pursuant to any
instrument or agreement to which the Seller is a party or by which the Seller or
its properties as they relate to the NIK Product Line may be bound or affected,
other than instruments or agreements as to which consent shall have been
obtained at or prior to the Closing (each of which instruments or agreements is
listed in Schedule 3.3 hereto).
Section 3.4 Consents of Governmental Authorities and Others
Except as set forth on Schedule 3.4, no material consent, approval or
authorization of, or registration, qualification or filing with, any federal,
state or local governmental or regulatory authority, or any other Person, is
required in connection with the execution, delivery or performance of this
Agreement by the Seller or the consummation by the Seller of the transactions
contemplated hereby.
Section 3.5 Conduct of Business
Except as disclosed on Schedule 3.5 hereto, since February 1, 1996, the NIK
Product Line of the Seller has conducted its businesses in the ordinary and
usual course and there has not occurred any material adverse change in the
condition (financial or
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otherwise), results of operations, properties, assets, liabilities, business or
prospects of the NIK Product Line of the Seller. Without limiting the generality
of the foregoing, except as disclosed on Schedule 3.5, since February 1, 1996,
the NIK Product Line has not: (a) suffered any damage, destruction or loss,
whether or not covered by insurance, which has had or could have an adverse
effect on any of its properties, assets, business or prospects; (b) granted or
made any mortgage or pledge or subjected itself or any of its properties or
assets to any lien, charge or encumbrance of any kind, except liens for taxes
not currently due; (c) made or committed to make any capital expenditures in
excess of $5,000; (d) become subject to any Guaranty; (e) granted any increase
in the compensation payable or to become payable to officers or employees
(including, without limitation, any such increase pursuant to any bonus,
pension, profit-sharing or other plan or commitment); (f) entered into any
agreement which would be a Material Agreement (as hereinafter defined), or
amended or terminated any existing Material Agreement or received notice of any
such amendment or termination; (g) experienced any strike, work stoppage or
slowdown; (h) received written notice of any material adverse change in its
relationship with any customer or supplier with which it currently does
business, nor is it aware of any circumstances that could reasonably lead to a
material adverse change to the NIK Product Line, nor does the Seller have any
knowledge of any of the foregoing; or (i) experienced any other
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event or condition of any character which has had an adverse effect on the
condition (financial or otherwise), results of operations, assets, liabilities,
properties, business or prospects of the NIK Product Line of the Seller, or on
its employee, customer or supplier relations.
Section 3.6 Litigation
Except as set forth on Schedule 3.6, there are no actions, suits,
investigations, claims or proceedings ("Litigation") pending or, to the
knowledge of the Seller, threatened before any court or by or before any
governmental or regulatory authority or arbitrator, (a) affecting the Seller (as
plaintiff or defendant) which could, individually or in the aggregate, have an
adverse effect on the condition (financial or otherwise), results of operations,
properties, assets, liabilities, business or prospects of the Seller or the NIK
Product Line or (b) against the Seller or the NIK Product Line relating to the
Purchased Assets or the transactions contemplated by this Agreement and there
exist no facts or circumstances known to Seller creating any reasonable basis
for the institution of any such action, suit, investigation, claim or proceeding
described above. Schedule 3.6 sets forth a list of any Litigation commenced in
the last five years relating to the Purchased Assets.
Section 3.7 Brokers
The Seller has not employed any financial advisor, broker or finder, and
has not incurred or will not incur any
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broker's, finder's, investment banking or similar fees, commissions or expenses
in connection with the transactions contemplated by this Agreement, except in
connection with the sale of ABA's Common Stock.
Section 3.8 Compliance
The Seller is in compliance with all federal, state, local and foreign
laws, ordinances, regulations, judgments, rulings, orders and other requirements
applicable to the NIK Product Line (except where the failure to be in such
compliance would not have a material adverse effect on the NIK Product Line)
including, without limitation, those relating to (a) the development,
manufacture, packaging, distribution and marketing of products, and (b)
employment, safety and health. The Seller is not subject to any judicial,
governmental or administrative order, judgment or decree. Purchaser has been
furnished with true and correct copies of all reports of inspections of the NIK
Product Line's business and properties through the date hereof, under all
applicable federal, state, foreign and local laws and regulations, all of which
are set forth on Schedule 3.8 hereto.
Section 3.9 Corporate Records
True and complete copies of the Seller's Certificate of Incorporation and
By-laws, as amended and in effect on the date hereof, have been previously
delivered to the Purchaser.
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Section 3.10 Rights, Warrants, Options
There are no outstanding (a) securities or instruments convertible into or
exercisable for any of the capital stock or other equity interests of the Seller
that relate to the NIK Product Line; (b) options, warrants, subscriptions or
other rights to acquire capital stock or other equity interests of the Seller
that relate to the NIK Product Line; or (c) commitments, agreements or
understandings of any kind, including employee benefit arrangements, relating to
the issuance or repurchase by the Seller of any capital stock or other equity
interests of the Seller that relate to the NIK Product Line, any such securities
or instruments convertible or exercisable for securities or any such options,
warrants or rights.
Section 3.11 Financial Statements
The Financial Statements attached hereto as Schedule 3.11 are true and
correct in all material respects, and are prepared in accordance with generally
accepted accounting principles ("GAAP") consistently applied, and fairly and
accurately present the financial position of the NIK Product Line as of the
dates thereof, and the results of the NIK Product Line's operations for the
respective periods indicated in all respects (except for the inclusion of
corporate general expenses and the treatment of certain intra-company and
inter-company items which were transferred from Becton-Dickinson Company, Inc.
to the Seller at cost prior to February 1, 1996).
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Section 3.12 Absence of Undisclosed Liabilities
Other than as set forth on Schedule 3.12 hereto, the Seller does not have
any material direct or contingent liabilities, commitments or obligations,
including, but not limited to, any Guaranty (other than nonmaterial liabilities,
commitments or obligations incurred since May 31, 1996, in the ordinary course
of business to Persons who are not Affiliates of the Seller) or any unrealized
or anticipated losses from any commitments of the Seller, in each case relating
to the NIK Product Line, and there is no basis for assertion against the Seller
of any such liability, commitment or obligation.
Section 3.13 Title to Personal Property
The Seller has good title to each Purchased Asset free and clear of any
security interests, liens, claims, charges or encumbrances whatsoever,
including, but not limited to, claims of landlords, warehousemen and other
creditors of Seller, except as set forth in Schedule 3.13 hereto. There are no
assets owned by any third party which are used in the operation of the business
of the NIK Product Line of the Seller, as presently conducted or proposed to be
conducted.
Section 3.14 Licenses
Schedule 3.14 lists all material authorizations, consents, approvals,
franchises, licenses and permits required under applicable law or regulation for
the operation of the business of the NIK Product Line of the Seller as presently
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operated (the "Governmental Authorizations"). All Governmental Authorizations
have been duly issued or obtained and are in full force and effect, and the
Seller is in material compliance with the terms of all Governmental
Authorizations. The Seller has no knowledge of any facts which could reasonably
be expected to cause it to believe that the Governmental Authorizations will not
be renewed by the appropriate governmental authorities in the ordinary course.
To the best of Seller's knowledge, neither the execution, delivery nor
performance of this Agreement shall adversely affect the status of any of the
Governmental Authorizations in any material respect.
Section 3.15 Proprietary Rights
Set forth on Schedule 3.15 is a list and description of all foreign and
domestic patents, patent rights, trademarks, service marks, trade names, brands
and copyrights (whether or not registered and, if applicable, including pending
applications for registration) owned, used or controlled by the Seller relating
to the NIK Product Line (collectively, the "Rights"). Except as set forth on
Schedule 3.15: (a) the Seller owns the Rights and each invention, software,
trade secret, technology, product, composition, formula, method or process used
by the NIK Product Line (together with the Rights, collectively referred to as
the "Intangible Property"), and has the exclusive right to use and license the
same, free and clear of any claim or conflict with the rights of others; (b) no
royalties or fees (license or otherwise)
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are payable by the Seller to any Person by reason of the ownership or use of any
of the Intangible Property; (c) there have been no written claims made against
the Seller asserting the invalidity, abuse, misuse, or unenforceability of any
of the Intangible Property, and Seller is not aware of any reasonable grounds
for any such claims; (d) the Seller has not made any claim of any violation or
infringement by others of its rights in the Intangible Property, and Seller is
not aware of any reasonable grounds for such claims; (e) the Seller has not
received any written notice or other type of overt notice that it is in conflict
with or infringing upon the asserted rights of others in connection with the
Intangible Property and neither the use of the Intangible Property by the
Seller, the operation of the business of the NIK Product Line, the manufacture
of the products of the NIK Product Line, nor any formula, method, process, part
or material employed by the Seller in connection therewith, is infringing or has
infringed upon any rights of others; (f) the Intangible Property includes all
rights necessary for the Seller to be legally entitled to conduct the business
of the NIK Product Line as presently being conducted; (g) the consummation of
the transactions contemplated hereby will not alter or impair any of the
Intangible Property; (h) no interest of the Seller's rights to any Intangible
Property has been assigned, transferred, licensed or sublicensed by the Seller
to third parties; (i) to the extent that any item constituting part of the
Intangible Property has been registered with, filed in or issued
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by, as the case may be, any governmental or other regulatory authority, such
registrations, filings or issuances are listed on Schedule 3.15, and were duly
made and remain in full force and effect; (j) there is no act or failure to act
by the Seller or any of its directors, officers, employees, attorneys or
authorized agents during the prosecution or registration of, or any other
proceeding relating to, any of the Intangible Property or of any other fact
which could render invalid or unenforceable, or negate the right to any of the
Intangible Property.
Section 3.16 Major Customers and Suppliers; Supplies
The Seller has provided Purchaser with a list of the ten (10) largest
customers (measured by dollar volume) of the NIK Product Line of the Seller and
all suppliers of significant goods or services to the NIK Product Line of the
Seller for the four month period ended May 31, 1996. Schedule 3.16 identifies
those suppliers of significant goods or services with respect to which
alternative sources of supply are not readily available. Except as indicated on
Schedule 3.16, to the best of Seller's knowledge, all supplies and services
necessary for the conduct of the business of the NIK Product Line of the Seller,
as presently conducted, may be obtained from alternate sources and no facts,
circumstances or conditions exist which create a reasonable basis for believing
that the Purchaser will be unable to continue to procure the supplies and
services necessary to conduct the business conducted by the NIK Product Line of
the Seller. All such supply and service agreements
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relating to the NIK Product Line with its suppliers are at arm's length. There
has not been any adverse change in the relations of the Seller with their
respective customers, suppliers, contractors, licensors and lessors relating to
the NIK Product Line, as a result of the announcement of the transactions
contemplated by this Agreement and the Seller has no knowledge that any of the
Seller's major customers or suppliers relating to the NIK Product Line has or is
contemplating terminating its relationship with the NIK Product Line. Except as
set forth on Schedule 3.16, to the Seller's knowledge, there are no pending
disputes or controversies between any major customer or supplier of the NIK
Product Line of the Seller, and there exist no facts which in the future would
impair the relationship of the Purchaser with such major customers or suppliers.
Section 3.17 Related Parties
Except as set forth on Schedule 3.17, none of the Seller, nor any current
or former (within the past five (5) years) director or officer of the Seller
(individually a "Related Party" and collectively the "Related Parties") or any
Affiliate of any of the Seller or any Related Party: (a) owns, directly or
indirectly, any interest in any person which is a competitor of the NIK Product
Line of the Seller, or of a supplier or customer of the NIK Product Line of the
Seller; (b) except for the real property housing the business of the NIK Product
Line, owns, directly or indirectly, in whole or in part, any property, asset or
right, real, personal or
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mixed, tangible or intangible (including, but not limited to, any of the
Intangible Property) which is utilized in the operation of the business of the
NIK Product Line and not included in the Purchased Assets; or (c) has an
interest in or is, directly or indirectly, a party to any contract, agreement,
lease or arrangement pertaining or relating to the NIK Product Line, except for
employment, consulting or other personal service agreements that may be in
effect and which are listed on Schedule 3.17 hereto.
Section 3.18 Absence of Certain Business Practices
None of the Seller, any Related Parties, any Affiliate of the Seller, or
any Related Party, any agent of the Seller, any other Person acting on behalf of
or associated with the Seller or any individual related to any of the foregoing
Persons, acting alone or together, has: (a) received, directly or indirectly,
any rebates, payments, commissions, promotional allowances or any other economic
benefits, regardless of their nature or type, from any customer, supplier,
trading company, shipping company, governmental employee or other Person with
whom the NIK Product Line of the Seller has done business directly or
indirectly; or (b) directly or indirectly, given or agreed to give any gift or
similar benefit to any customer, supplier, trading company, shipping company,
governmental employee or other Person who is or may be in a position to help or
hinder the business of the NIK Product Line of the Seller (or assist the NIK
Product Line of the Seller in connection with any actual or proposed
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transaction) which (i) may subject the Seller to any damage or penalty in any
civil, criminal or governmental litigation or proceeding, (ii) if not given in
the past, may have had an adverse effect on the assets, business, operations or
prospects of the NIK Product Line of the Seller as reflected in the Financial
Statements or (iii) if not continued in the future, may adversely affect the
assets, business, operations or prospects of the NIK Product Line of the Seller
or subject the Seller to suit or penalty in any private or governmental
litigation or proceeding.
Section 3.19 Labor Relations
There is no strike, work stoppage or slowdown or labor disturbance pending
or, to the best of the Seller's knowledge, threatened that involves any
employees of the NIK Product Line of the Seller. Except as set forth on Schedule
3.19 attached hereto, the Seller is not a party to, otherwise bound by or
threatened with any labor or collective bargaining agreement and there have been
no attempts to organize a labor union or to seek recognition as a collective
bargaining unit by or with respect to any employees of the NIK Product Line of
the Seller. Without limiting the generality of Section 3.6, except as identified
on Schedule 3.19, (a) (i) no unfair labor practice complaints have been filed
against the Seller relating to the NIK Product Line with any governmental or
regulatory agency, which either the Seller has received notice, (ii) the Seller
has not received any written notice or communication reflecting an intention or
threat to file
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any such complaint, and (iii) no Person has made any claim, and there is no
basis for any claim, against the Seller relating to the NIK Product Line under
any statute, regulation or ordinance relating to discrimination with respect to
employees or employment practices, and (b) no claim is pending or, to the best
knowledge of the Seller, threatened against the Seller relating to the NIK
Product Line in connection with the United States Wage and Hour Law, the
Americans with Disabilities Act, or the Occupational Safety and Health Act.
Section 3.20 Tax Matters
All tax returns and tax reports required to be filed with respect to the
business and assets of the NIK Product Line of the Seller have been timely filed
(or appropriate extensions have been obtained) with the appropriate governmental
agencies in all jurisdictions in which such returns and reports are required to
be filed, all of the foregoing as filed are true, correct and complete and, in
all respects, reflect accurately all liability for taxes of the Seller for the
periods to which such returns relate, and all amounts shown as owing thereon
have been paid. All income, profits, franchise, sales, use, value added,
occupancy, property, excise, payroll, FICA, FUTA and other taxes (including
interest and penalties), if any, collectible or payable by the NIK Product Line
of the Seller or relating to or chargeable against any of its assets, revenues
or income through September 30, 1995, and through the Closing date, were fully
collected and paid by such date or
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provided for by adequate reserves in the September 30, 1995 Financial Statements
and all similar items due through the Closing date will have been fully paid by
that date or provided for by adequate reserves. No taxation authority has sought
to audit the records of the NIK Product Line for the purpose of verifying or
disputing any tax returns, reports or related information and disclosures
provided to such taxation authority. No claims or deficiencies have been
asserted against the Seller relating to the NIK Product Line with respect to any
taxes or other governmental charges or levies which have not been paid or
otherwise satisfied or for which accruals or reserves have not been made in the
September 30, 1995 Financial Statements, and there exists no reasonable basis
for the making of any such claims. The Seller has not waived any restrictions on
assessment or collection of taxes or consented to the extension of any statute
of limitations relating to taxation, in each case, relating to the business of
the NIK Product Line.
Section 3.21 Material Agreements
(a) Schedule 3.21 sets forth a list of all material written contracts or
agreements relating to the NIK Product Line of the Seller, including without
limitation any: (i) contract resulting in a commitment for expenditure or other
obligation, or which provides for the receipt, involving in excess of $25,000 in
any instance, or series of related contracts that in the aggregate give rise to
rights or obligations exceeding such amount including,
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but not limited to, employment agreements, employee benefit plans, stock option
plans, health and medical plans, pension or retirement plans, bonus plans or any
other similar plans or arrangements; (ii) agreement which restricts the NIK
Product Line of the Seller from engaging in any line of business or from
competing with any other Person; (iii) warranties made with respect to products
manufactured, packaged, distributed or sold by the NIK Product Line of the
Seller; or (iv) any other contract, agreement, instrument, arrangement or
commitment that is material to the condition (financial or otherwise), results
of operation, assets, properties, liabilities, business or prospects of the NIK
Product Line of the Seller (collectively, and together with all other agreements
required to be disclosed on any Schedule to this Agreement, the "Material
Agreements"). The Seller has previously furnished to Purchaser true, complete
and correct copies of all written agreements, as amended, required to be listed
on Schedule 3.21.
(b) Except as set forth on Schedule 3.21, none of the Material Agreements
was entered into outside the ordinary course of business of the Seller.
(c) The Material Agreements are each in full force and effect and are the
valid and legally binding obligations of the Seller, enforceable in accordance
with their respective terms, subject only to bankruptcy, insolvency or similar
laws affecting the rights of creditors generally and to general equitable
principles. The Seller has not received notice of default by the
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Seller under any of the Material Agreements and no event has occurred which,
with the passage of time or the giving of notice or both, would constitute a
default by the Seller thereunder. To the best of Seller's knowledge, none of the
other parties to any of the Material Agreements is in default thereunder, nor
has an event occurred which, with the passage of time or the giving of notice or
both would constitute a default by such other party thereunder. The Seller has
not received written notice of the pending or threatened cancellation,
revocation or termination of any of the Material Agreements, nor is it aware of
any facts or circumstances which could reasonably be expected to lead to any
such cancellation, revocation or termination.
(d) Except as otherwise indicated on Schedule 3.21, the continuation,
validity and effectiveness of the Material Agreements included in the Purchased
Assets under the current terms thereof will not be materially adversely affected
by the consummation of the transactions contemplated by this Agreement.
Section 3.22 Products
(a) Except as set forth on Schedule 3.22, there exists no set of facts that
would impose liability on the Purchaser with respect to products distributed or
sold by the NIK Product Line prior to the Closing date (i) which could furnish a
basis for the recall, withdrawal or suspension of any product, governmental
license, approval or consent of any governmental or regulatory agency with
respect to any product distributed or sold by the NIK
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Product Line of the Seller (a "Product") prior to the Closing date, (ii) which
could furnish a basis for the recall, withdrawal or suspension by order of any
state, federal or foreign court of law of any Product sold prior to the Closing
date, or (iii) which could otherwise cause the Seller to recall, withdraw or
suspend any such Product from the market or to change the marketing
classification of any such Product.
(b) True, correct and complete copies of all correspondence received or
sent by or on behalf of the Seller relating to the NIK Product Line since
February 1, 1996 and, to the extent available, during the past five (5) years,
from or to any governmental regulatory agency have been previously delivered or
made available to Purchaser.
Section 3.23 Environmental Matters
Except as described on Schedule 3.23, the business of the NIK Product Line
has been operated in material compliance with all laws, regulations and other
federal, state or local governmental requirements, and all applicable judgments,
orders, writs, notices, decrees, permits, licenses, approvals, consents or
injunctions relating to the generation, management, handling, transportation,
treatment, disposal, storage, delivery, discharge, release or emission of any
waste, pollutant or toxic or hazardous substance (including, without limitation,
asbestos, radioactive material and pesticides) utilized by the NIK Product Line
of the Seller in its business or to any other actions, omissions or
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conditions affecting the environment applicable to the NIK Product Line of the
Seller or its business as a result of any hazardous substance utilized by the
NIK Product Line of the Seller in its business or otherwise placed at any of the
facilities owned or operated by the NIK Product Line of the Seller (the
"Environmental Laws"). Except as described on Schedule 3.23, neither the Seller,
nor its directors or officers, has received any complaint, notice, order, or
citation of any actual, threatened or alleged noncompliance by the NIK Product
Line of the Seller with any of the Environmental Laws, and there is no
proceeding, suit or investigation pending or, to the best of Seller's knowledge,
threatened against any of the Seller, any of its directors or officers with
respect to any violation or alleged violation of the Environmental Laws relating
to the NIK Product Line, and to the best of Seller's knowledge, there is no
reasonable basis for the institution of any such proceeding, suit or
investigation.
Section 3.24 Solvency
The Seller is and will be able to pay its debts as they mature for a period
of one year from the date hereof and the transfer of the Purchased Assets by the
Seller to Purchaser in accordance with the terms of this Agreement shall not
constitute a voidable preference or transfer in fraud by any creditor under
applicable federal or state insolvency law.
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Section 3.25 Non-Distributive Intent
The Seller is acquiring the shares of ABA Common Stock to be issued
hereunder for its own account (and not for the account of others). The Seller
will not sell or otherwise dispose of such shares (whether pursuant to a
liquidating dividend or otherwise) without registration under the Securities Act
or an exemption therefrom, and the certificate or certificates representing such
shares may contain a legend to the foregoing effect. The Seller understands that
it may not sell or otherwise dispose of such shares in the absence of either a
registration statement under the Securities Act or an exemption from the
registration provisions of the Securities Act.
Section 3.26 Inventories
Schedule 3.26 sets forth the inventories of the NIK Product Line of the
Seller (raw materials, work-in-process and finished goods) included in the
Purchased Assets. The net inventory as will be finally determined in accordance
with Section 5.6 purchased by the Purchaser has been and/or will be written down
and/or reserved for and does not or will not include any items below standard
quality, damaged or spoiled, obsolete or of a quality or quantity not useable or
saleable in the ordinary course of the business of the NIK Product Line of the
Seller as currently conducted or any items whose expiration date has passed or
will pass within twelve months of the date hereof. The NIK Product Line of the
Seller has and will continue to have through the Closing
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date adequate quantities and types of inventory to enable it to conduct its
business as presently conducted.
Section 3.27 Accounts Receivable
Schedule 3.27 attached hereto sets forth a true and complete aged list of
Receivables owing to the Seller as of July 1, 1996, setting forth the due dates
thereof, that are a part of the Purchased Assets. All of such Receivables
constitute only bona fide, valid and binding claims arising in the ordinary
course of the NIK Product Line business, subject to no valid counterclaims or
setoffs, at the aggregate recorded amount thereof subject to normal reserves for
doubtful accounts and normal discounts. All sales underlying such Receivables
are final sales, with no right of return, and except as set forth on Schedule
3.27 attached hereto, were made under normal sales terms in the ordinary course
of business and all related warranties have been adequately reserved. All
products that have been shipped by the NIK Product Line to customers had a
useful life as of the date of such shipment of at least six months.
Section 3.28 Disclosure
No representation or warranty of the Seller contained in this Agreement,
and no statement of fact, report, or certificate furnished by or on behalf of
the Seller to Purchaser or its agents pursuant hereto or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact or intentionally omits or will omit to state a
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material fact necessary in order to make the statements contained herein or
therein not misleading or intentionally omits or will omit to state a material
fact necessary in order to provide a prospective purchaser of the Purchased
Assets with full and proper information as to the business, financial condition,
assets, results of operation or prospects of the NIK Product Line of the Seller
and the value of its properties.
ARTICLE IV
Representations and Warranties of ABA and the Purchaser
In order to induce the Seller to enter into this Agreement and to
consummate the transactions contemplated hereby, ABA and the Purchaser make the
representations and warranties set forth below to the Seller.
Section 4.1 Organization; Standing and Power
Each of ABA and the Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation.
Each of ABA and the Purchaser is duly qualified to transact business as a
foreign corporation in all jurisdictions where the ownership or leasing of its
respective properties or the conduct of its respective businesses requires such
qualification, except where the failure to be so qualified would not have an
adverse effect on the business, operations or properties of ABA or the
Purchaser, as the case may be. Each of ABA and the Purchaser has all requisite
right, power and authority
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to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby.
Section 4.2 Authorization; Enforceability
The execution, delivery and performance of this Agreement by ABA and the
Purchaser and the consummation by ABA and the Purchaser of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of ABA and the Purchaser. This Agreement has been duly executed and
delivered by ABA and the Purchaser, and constitutes the legal, valid and binding
obligation of ABA and the Purchaser, enforceable in accordance with its terms,
except to the extent that its enforcement is limited by bankruptcy, insolvency,
reorganization or other laws relating to or affecting the enforcement of
creditors' rights generally and by general principles of equity.
Section 4.3 Validity of ABA Common Stock
The shares of ABA Common Stock to be delivered to Seller pursuant to this
Agreement, when issued in accordance with the terms and provisions of this
Agreement, will be validly authorized, validly issued, fully paid and
nonassessable.
Section 4.4 Brokers
Neither ABA nor the Purchaser has employed any financial advisor, broker or
finder and has not incurred and will not incur any broker's, finder's,
investment banking or similar fees, commissions or expenses, in connection with
the transactions contemplated by this Agreement.
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Section 4.5 SEC Filings
ABA has heretofore made available to the Seller true and complete copies of
all reports, registration statements, definitive proxy statements and other
documents (in each case together with all amendments and supplements thereto)
filed by the Company with the Commission since September 20, 1993 (such reports,
registration statements, definitive proxy statements and other documents,
together with any amendments and supplements thereto, are sometimes collectively
referred to as the "SEC Filings"). The SEC Filings constitute all of the
documents (other than preliminary materials) that ABA was required to file with
the Commission since such date. As of their respective dates, each of the SEC
Filings complied in all material respects with the applicable requirements of
the Securities Act and the Exchange Act, as applicable, and the rules and
regulations under each such Act. None of the SEC Filings contained as of such
date any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Section 4.6 ABA's Unencumbered Cash
ABA currently has and will maintain until the earlier of December 31, 1996
or such time as the Seller has received $2,400,000 pursuant to Section 2.1(e)
unencumbered cash and cash equivalents sufficient for the payment of all amounts
potentially payable to the Seller pursuant to Section 2.1(e) hereof.
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ARTICLE V
Additional Agreements
Section 5.1 Survival
The representations, warranties, covenants and agreements of ABA, the
Purchaser, and the Seller set forth in this Agreement shall survive the Closing
date; provided, however, that the representations and warranties of the Seller
contained in Article III and the representations and warranties of ABA and the
Purchaser contained in Article IV shall survive the Closing date until March 31,
1998; and provided, further, that none of the limitations of the immediately
preceding proviso shall apply with respect to indemnification obligations of a
party arising in connection with the breach of any representation or warranty
set forth in Sections 3.7, 3.18, 3.20, 3.22 or 3.23 of this Agreement, and none
of such limitations shall apply with respect to any action based upon
intentional or fraudulent actions, misrepresentations or breaches of any party.
Section 5.2 Investigation
The representations, warranties, covenants and agreements set forth in this
Agreement shall not be affected or diminished in any way by any investigation
(or failure to investigate) at any time by or on behalf of the party for whose
benefit such representations, warranties, covenants and agreements were made.
All statements contained herein or in any schedule,
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certificate, exhibit, list or other document delivered pursuant hereto, shall be
deemed to be representations and warranties for purposes of this Agreement.
Section 5.3 Indemnification
(a) By Seller. Subject to the limitations set forth in Section 5.1, the
Seller agrees to indemnify and hold harmless ABA, the Purchaser and their
respective directors, officers, employees and agents from, against and in
respect of, the full amount of any and all liabilities, damages, claims,
deficiencies, fines, assessments, losses, taxes, penalties, interest, costs and
expenses, including, without limitation, reasonable fees and disbursements of
counsel, arising from, in connection with, or incident to (i) any breach or
violation of any of the representations, warranties, covenants or agreements of
the Seller contained in this Agreement; (ii) any and all claims arising out of,
relating to, resulting from or caused (whether in whole or in part) by any
transaction, event, condition, occurrence or situation in any way relating to
the NIK Product Line of the Seller or the conduct of its business arising or
occurring on or prior to the Closing date without regard to whether such claim
exists on the Closing date or arises at any time thereafter; (iii) any
obligation or liability of the NIK Product Line of the Seller of any nature,
whether accrued, contingent, absolute or otherwise, not expressly assumed by ABA
or the Purchaser in accordance with this Agreement; and (iv) any and all
actions, suits, proceedings, demands,
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assessments or judgments, costs and expenses incidental to any of the foregoing.
(b) By ABA and the Purchaser. Subject to the limitations set forth in
Section 5.1, ABA and the Purchaser agree, jointly and severally, to indemnify
and hold harmless the Seller and its officers, directors, employees and agents,
from, against and in respect of, the full amount of any and all liabilities,
damages, claims, deficiencies, fines, assessments, losses, taxes, penalties,
interest, costs and expenses, including, without limitation, reasonable fees and
disbursements of counsel, arising from, in connection with, or incident to (i)
any breach or violation of any of the representations, warranties, covenants or
agreements of ABA or the Purchaser contained in this Agreement or any agreement
referred to herein and delivered at or prior to the Closing; (ii) any and all
claims arising out of, relating to, resulting from or caused (whether in whole
or in part) by any transaction, event, condition, occurrence or situation in any
way relating to the NIK Product Line of the Seller or the conduct of its
business arising or occurring after the Closing date; (iii) any obligation or
liability of the NIK Product Line of the Seller of any nature, whether accrued,
contingent, absolute or otherwise, expressly assumed by ABA or the Purchaser in
accordance with this Agreement; (iv) any tax liability incurred by the Seller
arising out of or based upon the sale of the shares of ABA Common Stock issued
to the Seller in accordance with the terms of this
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Agreement; and (v) any and all actions, suits, proceedings, demands, assessments
or judgments, costs and expenses incidental to any of the foregoing.
(c) Indemnity Procedure. A party or parties hereto agreeing to be
responsible for or to indemnify against any matter pursuant to this Agreement is
referred to herein as the "Indemnifying Party" and the other party or parties
claiming indemnity is referred to as the "Indemnified Party".
An Indemnified Party under this Agreement shall, with respect to claims
asserted against such party by any third party, give written notice to the
Indemnifying Party of any liability which might give rise to a claim for
indemnity under this Agreement within 30 business days of (i) the receipt of any
written claim from any such third party, but not later than 15 days prior to the
date any answer or responsive pleading is due, and with respect to other matters
for which the Indemnified Party may seek indemnification, or (ii) any other
liability which might give rise to a claim for indemnity; provided, however,
that any failure to give such notice will not waive any rights of the
Indemnified Party except to the extent the rights of the Indemnifying Party are
prejudiced.
The Indemnifying Party shall have the right, at its election, to take over
the defense or settlement of such claim by giving written notice to the
Indemnified Party at least 10 days prior to the time when an answer or other
responsive pleading or
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notice with respect thereto is required. If the Indemnifying Party makes such
election, it may conduct the defense of such claim through counsel of its
choosing (subject to the Indemnified Party's approval of such counsel, which
approval shall not be unreasonably withheld), shall be solely responsible for
the expenses of such defense and shall be bound by the results of its defense or
settlement of the claim. The Indemnifying Party shall not settle any such claim
without prior notice to and consultation with the Indemnified Party, and no such
settlement involving any equitable relief may be agreed to without the written
consent of the Indemnified Party (which consent shall not be unreasonably
withheld). So long as the Indemnifying Party is diligently contesting any such
claim in good faith, the Indemnified Party may pay or settle such claim only at
its own expense and the Indemnifying Party will not be responsible for the fees
of separate legal counsel to the Indemnified Party, unless the named parties to
any proceeding include both parties and representation of both parties by the
same counsel would be inappropriate. If the Indemnifying Party does not make
such election, or having made such election does not, in the reasonable opinion
of the Indemnified Party proceed diligently to defend such claim, then the
Indemnified Party may (after written notice to the Indemnifying Party), at the
expense of the Indemnifying Party, elect to take over the defense of and proceed
to handle such claim in its discretion and the Indemnifying Party shall be bound
by any defense or settlement that
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the Indemnified Party may make in good faith with respect to such claim. In
connection therewith, the Indemnifying Party will fully cooperate with the
Indemnified Party should the Indemnified Party elect to take over the defense of
any such claim.
The parties agree to cooperate in defending such third party claims and the
Indemnified Party shall provide such cooperation and such access to its books,
records and properties as the Indemnifying Party shall reasonably request with
respect to any matter for which indemnification is sought hereunder; and the
parties hereto agree to cooperate with each other in order to ensure the proper
and adequate defense thereof.
With regard to claims of third parties for which indemnification is payable
hereunder, such indemnification shall be paid by the Indemnifying Party upon the
earlier to occur of: (i) the entry of a judgment against the Indemnified Party
and the expiration of any applicable appeal period, or if earlier, five (5) days
prior to the date that the judgment creditor has the right to execute the
judgment; (ii) the entry of an unappealable judgment or final appellate decision
against the Indemnified Party; or (iii) a settlement of the claim.
Notwithstanding the foregoing, provided that there is no dispute as to the
entitlement to indemnification, the reasonable legal fees and expenses of
counsel to the Indemnified Party shall be reimbursed on a current basis by the
Indemnifying Party if such legal fees and expenses are a liability of the
Indemnifying Party. With regard to other claims for which
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indemnification is payable hereunder, such indemnification shall be paid
promptly by the Indemnifying Party upon demand by the Indemnified Party.
(d) Limitations. The indemnification obligations of the parties hereto
pursuant to Sections 5.3(a) and (b) shall be subject to the following
limitations. No Indemnifying Party shall be required to indemnify an Indemnified
Party unless the aggregate of all claims of such Indemnified Party has first
reached $25,000 (the "Threshold Amount"), at which time all claims of an
Indemnified Party, including the Threshold Amount, shall be subject to the
Indemnifying Party's indemnification obligations; provided, however, that (i)
any liabilities, costs, or expenses inurred by the Purchaser arising out of or
relating to any matter described in Schedule 3.6 attached hereto, and (ii) the
obligation of the Purchaser and the Seller, as the case may be, to remit amounts
to the other pursuant to Section 2.1(l) hereof shall not be subject to or
counted towards the Threshold Amount, and any such (i) liability, cost or
expense or (ii) Receivable that is not collected by the Purchaser or the Seller,
as the case may be, within the time periods set forth in this Agreement, in
accordance with Section 2.1(l), shall be an indemnifiable claim, dollar for
dollar, against the Seller, regardless of whether the Threshold Amount has been
reached. Notwithstanding the foregoing, (i) the obligations of the Seller, on
the one hand, and of the Purchaser and ABA, on the other hand, shall not exceed
$2,400,000, and (ii) the limitations contained in this Section 5.3(d) shall not
apply with respect to
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(A) any action based upon intentional or fraudulent actions, misrepresentations
or breaches of any party, (B) any liabilities, costs or expenses incurred by the
Purchaser arising out of or relating to any matter described in Schedule 3.6
attached hereto, and (C) any liabilities arising out of a breach of Sections
3.20, 3.26 and 3.27.
Section 5.4 Registration of ABA Common Stock
ABA will use its commercially reasonable efforts to include the shares of
ABA Common Stock issued to the Seller in a registration statement of ABA to be
filed with the Commission on or about July 31, 1996 pursuant to the terms of a
Registration Rights Agreement set forth on Schedule 5.4 attached hereto. Such
registration statement shall also register the shares of ABA's Common Stock
underlying the 5% Convertible Subordinated Notes issued by ABA, and such other
securities as ABA may determine. All costs relating to such registration
statement shall be borne by ABA.
Section 5.5 Seller Not to Use Name
From and after the Closing date, the Seller will not use, directly or
indirectly, the name "NIK Public Safety" or any combination or derivation
thereof.
Section 5.6 Adjustment to Valuation of Shares of ABA Common Stock
To the extent that the book value of inventory of the NIK Product Line of
the Seller differs from $500,000 as of the date of Closing, all as more fully
described hereinafter, the
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Purchaser shall remit to the Seller, in the event such book value exceeds
$500,000, and the Seller shall remit to the Purchaser, in the event such book
value is less than $500,000, the amount of any such difference within 30 days
after such book value is calculated. Seller's book value of inventory as of the
date of Closing shall be determined in accordance with GAAP, consistently
applied with prior periods in accordance with the methodology set forth on
Schedule 3.26. Within seven days after the Closing date, the Purchaser or its
independent accountants shall determine the book value of inventory of the NIK
Product Line in accordance with Schedule 2.1(a)(i) as of July 1, 1996 and submit
its calculation to the Seller for review. The Seller shall be provided access to
the work papers and all of Purchaser's or its independent accountants' records
used to arrive at such calculation. The Seller shall accept or reject the
calculation within 15 days of its presentation to the Seller. Failure to reject
the calculation within such 15- day period shall be deemed conclusive acceptance
of the calculation. If Seller disputes the calculation, the parties will attempt
to resolve their differences jointly, but if no resolution is reached within ten
business days, then the parties agree to submit the disputed items to Arthur
Andersen LLP or, if Arthur Andersen LLP is unable to serve in such capacity, to
such other Big 6 accounting firm as may be mutually agreed upon, for
determination within 15 business days, which determination shall be conclusive
for all purposes. Such accountants' sole assignment shall be to
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determine whether the book value of inventory of the NIK Product Line as of July
1, 1996 has been computed in accordance with the terms of this Section 5.6. The
cost of such accountants' determination shall be borne equally by the parties.
Section 5.7 Additional Agreements
(a) All supply and distribution agreements and similar business
relationships to which the NIK Product Line is currently a party shall remain in
full force and effect in accordance with their respective terms as of the
Closing date, and neither the NIK Product Line nor the Seller shall take any
action that will have the effect of terminating any such agreement or
jeopardizing any such relationship.
(b) The Seller will use its reasonable efforts to have the exclusive
distribution agreement with Thomas & Betts for the "Flex-Cuff" products renewed
for a term of three years on substantially the same terms and conditions, and
such agreement shall expressly be assignable to the Purchaser without any
further action by any party thereto.
(c) In the event that Mr. Anthony Manla is not employed by the Purchaser
subsequent to the Closing, then the Seller shall provide the services of Mr.
Anthony Manla to the Purchaser commencing from the Closing date and continuing
for three weeks thereafter, of which the last two weeks shall be at the
Purchaser's facility in Yulee, Florida, to train replacement
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personnel for assembly and customer service/order entry staff, and the Purchaser
shall pay Mr. Manla's salary during such period.
(d) Purchaser shall offer employment to Joseph Flaherty on substantially
the same terms and conditions as Mr. Flaherty is currently employed by Seller,
such employment to commence on the Closing date. Prior to the Closing date and
subsequent to June 30, 1996, the Purchaser shall reimburse the Seller for all of
the salary and benefits payable to Mr. Flaherty during such period, as well as
reasonable business expenses incurred during such period.
ARTICLE VI
Conditions Precedent; Termination
Section 6.1 Conditions Precedent to the Obligations of ABA and the
Purchaser
Each and every obligation of ABA and the Purchaser to consummate the
transactions described in this Agreement and any and all liability of ABA and
the Purchaser to the Seller shall be subject to the fulfillment on or before the
Closing date of the following conditions precedent:
(a) Representations and Warranties True. Each of the representations
and warranties of the Seller contained herein or in any certificate or
other document delivered pursuant to this Agreement or in connection with
the transactions contemplated hereby shall be true and correct in all
material respects as of the Closing date with the same force and effect as
though made on and
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as of such date (except for changes specifically permitted by this
Agreement, including, without limitation, Section 7.1 hereof).
(b) Performance. The Seller shall have performed and complied in all
material respects with all of the agreements, covenants and obligations
required under this Agreement to be performed or complied with by it on or
prior to the Closing date, including, but not limited to, the obligations
set forth in Section 5.7(b) hereof.
(c) No Adverse Change. Except as expressly permitted or contemplated
by this Agreement, no event or condition shall have occurred which has
materially adversely affected or may materially adversely affect in any
respect the condition (financial or otherwise) of the NIK Product Line of
the Seller or of its assets, liabilities (whether accrued, absolute,
contingent or otherwise), earnings, book value, business, operations or
prospects, and the NIK Product Line shall have operated its business in the
ordinary course, consistent with past practices from the date hereof
through the Closing date.
(d) Seller's Certificate. The Seller shall have delivered to Purchaser
a certificate dated the Closing date, certifying that the conditions
specified in Section 6.1(a), (b) and (c) above have been fulfilled.
(e) No Litigation. No litigation, arbitration or other legal or
administrative proceeding shall have been commenced, be pending or
threatened by or before any court, arbitration panel
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or governmental authority or official, and no statute, rule or regulation
of any foreign or domestic, national or local government or agency thereof
shall have been enacted after the date of this Agreement, and no judicial
or administrative decision shall have been rendered which enjoins or
prohibits, or seeks to enjoin or prohibit, the consummation of all or any
of the transactions contemplated by this Agreement.
(f) Consents. The Seller shall have obtained all authorizations,
consents, waivers and approvals and given all notices as may be required or
advisable to consummate the transactions contemplated by this Agreement
including, but not limited to, consents with respect to any Material
Agreement and notices to creditors of the Seller in respect of bulk
transfer laws, if applicable, or otherwise.
(g) Opinion of Counsel. An opinion letter from counsel to the Seller
addressed to ABA and the Purchaser, in form and substance reasonably
satisfactory to ABA and the Purchaser, shall have been delivered to ABA and
the Purchaser at the Closing.
Section 6.2 Conditions Precedent to the Obligations of Seller
Each and every obligation of Seller to consummate the transactions
described in this Agreement and any and all liability of Seller to ABA and the
Purchaser shall be subject to
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the fulfillment on or before the Closing date of the following conditions
precedent:
(a) Representations and Warranties True. Each of the representations
and warranties of ABA and the Purchaser contained herein or in any
certificate or other document delivered pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be true and
correct in all material respects as of the Closing date with the same force
and effect as though made on and as of such date.
(b) Performance. ABA and the Purchaser have performed and complied in
all material respects with all of the agreements, covenants and obligations
required under this Agreement to be performed or complied with by them on
or prior to the Closing date.
(c) Officers' Certificate. Purchaser shall have delivered to the
Seller a certificate addressed to Seller executed by Purchaser's President
and Chief Executive Officer, dated the Closing date, certifying that the
conditions specified in Sections 6.2(a) and (b) above have been fulfilled.
(d) No Litigation. No litigation, arbitration or other legal or
administrative proceeding shall have been commenced or be pending by or
before any court, arbitration panel or governmental authority or official,
and no statute, rule or regulation of any foreign or domestic, national or
local government or agency thereof shall have been enacted after the date
of this Agreement,
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and no judicial or administrative decision shall have been rendered which
enjoins or prohibits, or seeks to enjoin or prohibit, the consummation of
all or any of the transactions contemplated by this Agreement.
(e) Receipt of Notice. The Seller shall not have received the written
notice described in Section 2.4 hereof.
Section 6.3 Reasonable Efforts
Subject to the terms and conditions provided in this Agreement, each of the
parties shall use their respective reasonable efforts in good faith to take or
cause to be taken as promptly as practicable all reasonable actions that are
within its power to cause to be fulfilled each of the conditions precedent to
its obligations or the obligations of the other parties to consummate the
transactions contemplated by this Agreement that are dependent upon its actions,
including obtaining all necessary consents, authorizations, orders, approvals
and waivers.
Section 6.4 Termination
This Agreement and the transactions contemplated hereby may be terminated
(i) at any time by the mutual consent of the parties hereto; (ii) by Seller or
by ABA and the Purchaser, jointly, if the Closing has not occurred on or prior
to July 22, 1996 (such date of termination being referred to herein as the
"Termination Date"), provided the failure of the Closing to occur by such date
is not the result of the failure of the party seeking to terminate this
Agreement to perform or fulfill any of its
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obligations hereunder; (iii) by Purchaser at any time at or prior to Closing in
its sole discretion if (1) any of the representations or warranties of the
Seller in this Agreement are not in all material respects true, accurate and
complete or if the Seller breaches in any material respect any covenant
contained in this Agreement, provided that such misrepresentation or breach is
not cured within ten (10) business days after notice thereof, but in any event
prior to the Termination Date or (2) any of the conditions precedent to ABA's or
the Purchaser's obligations to conduct the Closing have not been satisfied by
the date required thereof; (iv) by Seller at any time at or prior to Closing in
their sole discretion if (1) any of the representations or warranties of ABA or
the Purchaser in this Agreement are not in all material respects true, accurate
and complete or if ABA or the Purchaser breaches in any material respect any
covenant contained in this Agreement, provided that such misrepresentation or
breach is not cured within ten (10) business days after notice thereof, but in
any event prior to the Termination Date or (2) any of the conditions precedent
to Seller's obligations to conduct the Closing have not been satisfied by the
date required thereof. If this Agreement is terminated pursuant to this Section
6.4, written notice thereof shall promptly be given by the party electing such
termination to the other party and, subject to the expiration of the cure
periods provided in clauses (iii) and (iv) above, if any, this Agreement shall
terminate without further actions by the
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parties and no party shall have any further obligations under this Agreement.
Notwithstanding the preceding sentence, the respective obligations of the
parties under Sections 7.3, 7.5(b), 7.7, 8.9 and 8.15 shall survive the
termination of this Agreement. Notwithstanding anything to the contrary
contained herein, if the termination of this Agreement is a result of the
willful misrepresentation, willful inaccuracy or omission in a representation,
willful breach of warranty, fraud or any willful failure to perform or comply
with any covenant or agreement contained herein, the aggrieved party shall be
entitled to recover from the non-performing party all out-of-pocket expenses
which such aggrieved party has incurred and the termination of this Agreement
shall not be deemed or construed as limiting or denying any other legal or
equitable right or remedy of such party.
ARTICLE VII
Covenants
Section 7.1 Interim Operations of the Company
During the period from the date of this Agreement to the Closing date,
except with Purchaser's prior specific written consent or as expressly
contemplated by this Agreement, the Seller shall operate the business of the NIK
Product Line only in the ordinary and usual course and to preserve intact its
business organization and good will in all respects. Additionally, during the
period from the date of this Agreement to the Closing date, the
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Seller shall not do any of the following with respect to the NIK Product Line
(unless expressly permitted in writing by Purchaser):
(i) voluntarily sell, transfer, surrender, abandon or dispose of any of
its assets or property rights (tangible or intangible), other than in
the ordinary course of business;
(ii) grant or make any mortgage or pledge or subject itself or any of its
properties or assets to any lien, charge or encumbrance of any kind,
except liens for taxes not currently due;
(iii) create, incur or assume any liability or indebtedness, except in the
ordinary course of business;
(iv) make or commit to make any capital expenditures exceeding in the
aggregate One Thousand Dollars ($1,000.00);
(v) become subject to any Guaranty;
(vi) apply any of its assets to the direct or indirect payment, discharge,
satisfaction or reduction of any amount payable directly or indirectly
to or for the benefit of the Seller or any Affiliate of the Seller or
any Related Party or to the prepayment of any such amounts, other than
compensation benefits, and expenses payable in the ordinary course of
business to Seller;
(vii) grant any increase in the compensation payable or to become payable
to employees of the NIK Product Line (including, without limitation,
any such increase pursuant to any bonus, pension, profit-sharing or
other plan or commitment);
(viii) enter into any agreement which would be a Material Agreement, or
amend or terminate any existing Material Agreement, which is outside
the ordinary course of business;
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(ix) alter the manner of keeping its books, accounts or records, or change
in any manner the accounting practices therein reflected;
(x) enter into any commitment or transaction other than in the ordinary
course of business including, but not limited to, the making of any
loan to any Person;
(xi) do any act, or omit to do any act, or permit to the extent within the
Company's or the Seller's control, any act or omission to act which
would cause a violation or breach of any of the representations,
warranties or covenants of the Seller set forth in this Agreement; or
(xii) agree, whether in writing or otherwise, to do any of the foregoing.
Section 7.2 Access
The Seller shall afford to Purchaser and its agents and representatives,
access throughout the period prior to the Closing date to the properties, books,
records and contracts of the Seller relating to the NIK Product Line, for the
purpose of permitting Purchaser to fully investigate and perform a due diligence
review of the NIK Product Line of the Seller, its businesses, assets and
properties, and financial condition, provided that such access shall be granted
during normal business hours in such a manner as to not unreasonably interfere
with the Seller's normal business operations. During such period the Seller
shall furnish promptly to Purchaser copies of (i) all correspondence received or
sent by or on behalf of the Seller from or to any governmental authority
relating to the NIK Product Line
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and (ii) all other information and documents concerning the business, assets,
liabilities, properties and personnel of the NIK Product Line as Purchaser may
reasonably request.
Section 7.3 Confidentiality (through Closing Date)
Except as otherwise required in the performance of obligations under this
Agreement and except as otherwise required by law, any non-public information
received by a party or its advisors from the other party shall be kept
confidential and shall not be used or disclosed for any purpose other than in
furtherance of the transactions contemplated by this Agreement. Purchaser shall
not use (or permit to be used) through the Closing date any confidential
information in any manner to compete against the NIK Product Line of the Seller,
whether with respect to corporate acquisitions, sales, financing, development,
management, investment, or otherwise. The obligation of confidentiality shall
not extend to information (a) which is or shall become generally available to
the public other than as a result of an unauthorized disclosure by a party to
this Agreement or a person to whom a party has provided such information, (b)
which was available to a party to this Agreement on a nonconfidential basis
prior to its disclosure by one party to the other pursuant to this Agreement or
(c) which is disclosed by Purchaser in any legal proceeding requiring any such
disclosure. Upon termination of this Agreement, each party shall promptly return
any confidential information received from the other party and, upon request,
shall destroy any
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copies of such information in its possession. The covenants of the parties
contained in this Section 7.3 shall survive any termination of this Agreement.
Section 7.4 Notification
Each party to this Agreement shall promptly notify the other party in
writing of the occurrence, or pending or threatened occurrence, of any event
that would constitute a breach or violation of this Agreement by any party or
that would cause any representation or warranty made by the notifying party in
this Agreement to be false or misleading in any material respect (including
without limitation, any event or circumstance which would have been required to
be disclosed on any schedule to this Agreement had such event or circumstance
occurred or existed on or prior to the date of this Agreement). Any such
notification shall not limit or alter any of the representations, warranties or
covenants of the parties set forth in this Agreement nor any rights or remedies
a party may have with respect to a breach of any representation, warranty or
covenant.
Section 7.5 Exclusivity
(a) The Seller agrees that unless this Agreement has been terminated in
accordance with Section 6.4 hereof, neither the Seller, nor its Affiliates,
representatives, employees or agents (collectively, "Agents") will, commencing
on the date of this Agreement and continuing through July 15, 1996 (the
"Exclusive Period"), directly or indirectly, (i) solicit, encourage or
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negotiate any proposal (whether solicited or unsolicited) for, or execute any
agreement relating to, a sale of all or any part of the NIK Product Line of the
Seller or its assets or a sale of any equity or debt security of the Seller
relating to the NIK Product Line or any merger, consolidation, recapitalization
or similar transaction involving the NIK Product Line with any other party (any
of the foregoing is referred to as an "Acquisition Proposal"), or (ii) provide
any information regarding the NIK Product Line to any third party for the
purpose of soliciting, encouraging or negotiating an Acquisition Proposal (it
being understood that nothing contained in clauses (i) or (ii) above shall
restrict the Seller or any of its Agents from providing information as required
by legal process).
(b) In the event that the Seller does not consummate the transactions
contemplated by this Agreement as a result of the Seller's breach of Section
7.5(a) hereof, the Seller shall be liable to ABA for all costs and expenses
actually incurred by ABA in pursuit of the transaction, together with the
payment of liquidated damages to ABA in the agreed upon amount of $200,000.
Section 7.6 Non-Competition
The Seller acknowledges that in order to assure Purchaser that Purchaser
will retain the value of the Purchased Assets, the Seller agrees, on the terms
set forth in this Section 7.6, not to utilize its special knowledge of the
business of the NIK Product Line of the Seller and their relationships with
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customers, suppliers and others to compete with ABA or the Purchaser. For a
period of five (5) years beginning on the Closing date, each of the Seller and
their respective Affiliates at the time of determination, shall not engage or
have an interest, anywhere in the United States of America or any other
geographic area where the business of the NIK Product Line is conducted at the
date hereof or in which its products are marketed at the date hereof (in each
case after giving effect to the purchase of the Purchased Assets), alone or in
association with others, as principal, officer, agent, employee, director,
partner, lender or stockholder (except as an employee or consultant of Purchaser
or any of its Affiliates or as an owner of two percent (2%) or less of the stock
of any company listed on a national securities exchange or traded in the
over-the-counter market), or through the investment of capital, lending of money
or property, rendering of services or capital, or otherwise, in the business of
assembly, packaging, and marketing of disposable products for the law
enforcement, industrial security and forensic laboratory markets. The Seller
shall not at any time, directly or indirectly, use or purport to authorize any
Person to use any name, mark, logo, trade dress or other identifying words or
images which are the same as or similar to those used currently or in the past
by the NIK Product Line of the Seller in connection with any product or service,
whether or not such use would be in a business competitive with that of the NIK
Product Line of the Seller, ABA or the Purchaser.
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The Seller acknowledges that compliance with the restrictions set forth in this
Section 7.6 will not prevent it from conducting its businesses. As used herein,
the phrase "competitive business" means any business competitive with the type
of business engaged in by the NIK Product Line of the Seller, ABA, the Purchaser
or any of their Subsidiaries or Affiliates at the date hereof.
Section 7.7 General Confidentiality
The Seller acknowledges that the Intangible Property and all other
confidential or proprietary information with respect to the business and
operations of the NIK Product Line of the Seller are valuable, special and
unique assets of the Seller and are an integral part of the Purchased Assets.
The Seller shall not, at any time after the Closing date, disclose, directly or
indirectly, to any Person, or use or purport to authorize any Person to use any
confidential or proprietary information with respect to the NIK Product Line of
the Seller, ABA, or the Purchaser whether or not for Seller's own benefit,
without the prior written consent of Purchaser or unless required by law,
including without limitation, information as to the financial condition, results
of operations, customers, suppliers, products, products under development,
inventions, sources, leads or methods of obtaining new products or business,
Intangible Property, pricing methods or formulas, cost of supplies, marketing
strategies or any other information relating to the NIK Product Line of the
Seller, ABA or the Purchaser, which could reasonably be regarded as
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confidential. The Seller acknowledges that Purchaser would not enter into this
Agreement without the assurance that all such confidential and proprietary
information will be used for the exclusive benefit of ABA and the Purchaser.
Section 7.8 Continuing Obligations
The restrictions set forth in Sections 7.6 and 7.7 are considered by the
parties to be reasonable for the purposes of protecting the value of the
Purchased Assets acquired by the Purchaser. ABA, the Purchaser, and the Seller
acknowledge that ABA and the Purchaser would be irreparably harmed and that
monetary damages would not provide an adequate remedy to ABA and the Purchaser
in the event the covenants contained in Sections 7.6 and 7.7 were not complied
with in accordance with their terms. Accordingly, Seller agrees that any breach
or threatened breach by it of any provision of Sections 7.6 or 7.7 shall entitle
ABA and the Purchaser to injunctive and other equitable relief to secure the
enforcement of these provisions, in addition to any other remedies (including
damages) which may be available to ABA and the Purchaser. If the Seller breaches
the covenant set forth in Section 7.6, the running of the five (5) year
non-compete period described therein shall be tolled for so long as such breach
continues. It is the desire and intent of the parties that the provisions of
Sections 7.6 and 7.7 be enforced to the fullest extent permissible under the
laws and public policies of each jurisdiction in which enforcement is sought. If
any provisions of
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Sections 7.6 and 7.7 relating to the time period, scope of activities or
geographic area of restrictions is declared by a court of competent jurisdiction
to exceed the maximum permissible time period, scope of activities or geographic
area, as the case may be, the time period, scope of activities or geographic
area shall be reduced to the maximum which such court deems enforceable. If any
provisions of Section 7.6 or 7.7 other than those described in the preceding
sentence are adjudicated to be invalid or unenforceable, the invalid or
unenforceable provisions shall be deemed amended (with respect only to the
jurisdiction in which such adjudication is made) in such manner as to render
them enforceable and to effectuate as nearly as possible the original intentions
and agreement of the parties. In addition, if any party brings an action to
enforce Sections 7.3, 7.6 or 7.7 hereof or to obtain damages for a breach
thereof, the prevailing party in such action shall be entitled to recover from
the non-prevailing party all attorney's fees and expenses incurred by the
prevailing party in such action.
ARTICLE VIII
Miscellaneous
Section 8.1 Notices
Any notice, demand, claim or other communication under this Agreement shall
be in writing and shall be deemed to have been given upon the delivery, mailing
or transmission thereof, as the case may be, if delivered personally or sent by
certified
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mail, return receipt requested, postage prepaid, or sent by facsimile or prepaid
overnight courier to the parties at the addresses set forth herein (or at such
other addresses as shall be specified by the parties by like notice). A copy of
any notices delivered to ABA or the Purchaser shall also be sent to Kane
Kessler, P.C., 1350 Avenue of the Americas, New York, New York 10019, Attention:
Robert L. Lawrence, Esq., Fax No. (212) 245-3009. A copy of any notices
delivered to the Seller shall also be sent to Drinker Biddle & Reath, 1000
Westlakes Drive, Suite 300, Berwyn, Pennsylvania 19312, Attention: Walter
Mostek, Jr., Esq., Fax No. (610) 993-8585.
Section 8.2 Entire Agreement
This Agreement contains every obligation and understanding between the
parties relating to the subject matter hereof and merges all prior discussions,
negotiations and agreements, if any, between them, and none of the parties shall
be bound by any conditions, definitions, understandings, warranties or
representations other than as expressly provided or referred to herein.
Section 8.3 Binding Effect
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs, personal representatives,
legal representatives, and permitted assigns.
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Section 8.4 Knowledge of the Parties
Where any representation or warranty contained in this Agreement is
expressly qualified by reference to the best knowledge or to the knowledge of
any of the parties hereto, each of the parties hereto acknowledges and confirms
that it has made due and diligent inquiry as to the matters that are the subject
of such representations and warranties.
Section 8.5 Assignment
This Agreement may not be assigned by any party without the written consent
of the other party.
Section 8.6 Waiver and Amendment
Any representation, warranty, covenant, term or condition of this Agreement
which may legally be waived, may be waived, or the time of performance thereof
extended, at any time by the party hereto entitled to the benefit thereof, and
any term, condition or covenant hereof (including, without limitation, the
period during which any condition is to be satisfied or any obligation
performed) may be amended by the parties thereto at any time. Any such waiver,
extension or amendment shall be evidenced by an instrument in writing executed
on behalf of the appropriate party by its President or any Vice President or
other person, who has been authorized by its Board of Directors to execute
waivers, extensions or amendments on its behalf. No waiver by any party hereto,
whether express or implied, of its rights under any provision of this Agreement
shall constitute a waiver of such
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party's rights under such provisions at any other time or a waiver of such
party's rights under any other provision of this Agreement. No failure by any
party thereof to take any action against any breach of this Agreement or default
by another party shall constitute a waiver of the former party's right to
enforce any provision of this Agreement or to take action against such breach or
default or any subsequent breach or default by such other party.
Section 8.7 No Third Party Beneficiary
Nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any Person other than the parties hereto and
their respective heirs, personal representatives, legal representatives,
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.
Section 8.8 Severability
In the event that any one or more of the provisions contained in this
Agreement shall be declared invalid, void or unenforceable, the remainder of the
provisions of this Agreement shall remain in full force and effect, and such
invalid, void or unenforceable provision shall be interpreted as closely as
possible to the manner in which it was written.
Section 8.9 Expenses
Except as otherwise set forth herein or in the Registration Rights
Agreement, each party agrees to pay, without right of reimbursement from the
other party, the costs incurred by
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it incident to the performance of its obligations under this Agreement and the
consummation of the transactions contemplated hereby, including, without
limitation, costs incident to the preparation of this Agreement, and the fees
and disbursements of counsel, accountants and consultants employed by such party
in connection herewith.
Section 8.10 Headings
The section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
any provisions of this Agreement.
Section 8.11 Counterparts
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
Section 8.12 Time of the Essence
Wherever time is specified for the doing or performance of any act or the
payment of any funds, time shall be considered of the essence.
Section 8.13 Injunctive Relief
It is possible that remedies at law may be inadequate and, therefore, the
parties hereto shall be entitled to equitable relief including, without
limitation, injunctive relief, specific performance or other equitable remedies
in addition to all other remedies provided hereunder or available to the parties
hereto at law or in equity, and any party hereto seeking such
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injunctive relief shall not be required to post any bond in connection
therewith.
Section 8.14 Remedies Cumulative
No remedy made available by any of the provisions of this Agreement is
intended to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity.
Section 8.15 Governing Law; Jurisdiction
This Agreement has been entered into and shall be construed and enforced in
accordance with the laws of the State of New York without reference to the
choice of law principles thereof. Any action or proceeding seeking to enforce
any provision of, or based on any right arising out of, this Agreement and the
transactions contemplated hereby may be brought against any of the parties in
the courts of the State of New York, County of New York, or, if it has or can
acquire jurisdiction, in the United States District Court for the Southern
District of New York, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
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Section 8.16 Participation of Parties
The parties hereto acknowledge that this Agreement and all matters
contemplated herein, have been negotiated among all parties hereto and their
respective legal counsel and that all such paries have participated in the
drafting and preparation of this Agreement from the commencement of negotiations
at all times through the execution hereof.
Section 8.17 Further Assurances
The parties hereto shall deliver any and all other instruments or documents
required to be delivered pursuant to, or necessary or proper in order to give
effect to, all of the terms and provisions of this Agreement including, without
limitation, all necessary instruments of assignment and transfer and such other
documents as may be necessary or desirable to transfer ownership of the
Purchased Assets.
Section 8.18 Publicity
No public announcement or other publicity regarding this Agreement or the
transactions contemplated hereby shall be made prior to or after the date hereof
without the prior written consent of both ABA and the Seller as to form,
content, timing and manner of distribution. Notwithstanding the foregoing,
nothing in this Agreement shall preclude ABA or its Affiliates from making any
public announcement or filing required by federal or state securities laws or
stock exchange rules.
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Section 8.19 LFC #46 Corp.
The parties hereto hereby acknowledge that as of the date hereof, it is the
intent of Ivers-Lee Corporation to transfer certain of the Purchased Assets to
LFC #46 Corp. prior to the Closing date, and to have LFC #46 Corp. transfer the
same to the Purchaser on the Closing date. However, to the extent that Ivers-Lee
Corporation does not transfer such Purchased Assets to LFC #46 Corp. by the
Closing date, then Ivers-Lee Corporation will transfer all of the Purchased
Assets to the Purchaser, and this Agreement shall remain in full force and
effect as against all parties hereto.
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IN WITNESS WHEREOF, the parties hereto have each executed and delivered
this Agreement as of the day and year first above written.
IVERS-LEE CORPORATION
By:
---------------------------------------
Name:
-------------------------------
Title:
------------------------------
LFC #46 CORP.
By:
---------------------------------------
Name:
-------------------------------
Title:
------------------------------
NIK PUBLIC SAFETY, INC.
By:
---------------------------------------
Name:
-------------------------------
Title:
------------------------------
AMERICAN BODY ARMOR &
EQUIPMENT, INC.
By:
---------------------------------------
Name:
-------------------------------
Title:
------------------------------
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