<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER __, 1997
REGISTRATION NO. 333-_______
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
---------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------
ARMOR HOLDINGS, INC.
(Exact name of registrant as specified in charter)
DELAWARE 59-3392443
(State or other jurisdiction (I.R.S.Employer
of incorporation or organization) Identification No.)
ARMOR HOLDINGS, INC. WARREN B. KANDERS
13386 INTERNATIONAL PARKWAY CHAIRMAN OF THE BOARD OF DIRECTORS
JACKSONVILLE, FL 32218 ARMOR HOLDINGS, INC.
(904) 741-5400 13386 INTERNATIONAL PARKWAY
JACKSONVILLE, FL 32218
(904) 741-5400
(Address, including zip code, (Address, including zip code,
and telephone number, including and telephone number, including
area code, of registrant's area code, of registrant's
principal executive offices) principal executive offices)
with copies to:
ROBERT L. LAWRENCE, ESQ.
KANE KESSLER, P.C.
1350 AVENUE OF THE AMERICAS
NEW YORK, NY 10019
(212) 541-6222
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. |_|
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 REGISTERED PER SHARE(1) OFFERING PRICE(1) FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.01 par value 858,524 $12.53 $10,757,305 $3,259.79
================================================================================================================================
</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 October 23,
1997.
THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1997
PROSPECTUS
858,524 SHARES
ARMOR HOLDINGS, INC.
COMMON STOCK
The 858,524 shares of the common stock, par value $.01 per share (the
"Common Stock"), of Armor Holdings, Inc., (the "Company"), offered hereby are
being offered by Frist Capital Partners, LLC, Scottish Eastern Investment
Trust, Martin Brayshaw and Martin Currie North American Fund (collectively, the
"Selling Stockholders"). The Company will not receive any of the proceeds from
the sale of the shares of Common Stock to be sold by the Selling Stockholders.
See "Use of Proceeds and "Selling Stockholders."
The Common Stock is listed on the American Stock Exchange (the "AMEX")
under the symbol "ABE." On October 23, 1997 the closing sales price of the
Common Stock on the AMEX was $12 3/8 per share.
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF
COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 7 TO 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
The date of this Prospectus is _____________ __, 1997
<PAGE>
INCORPORATION BY REFERENCE
The Company hereby incorporates into this Prospectus by reference the
following documents and the exhibits thereto previously filed with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Securities Act") and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"):
1. The Company's description of the Common Stock contained in the
Company's Registration Statement on Form 8-A (Reg. No. 1-11667)
pursuant to Section 12 of the Exchange Act, including any amendment or
report filed for the purpose of updating such description;
2. Annual Report on Form 10-KSB, as amended on Form 10-KSB/A-1 on April
29, 1997, for the fiscal year ended December 28, 1996;
3. Current Report on Form 8-K, dated April 22, 1997, as amended on Form
8-K/A-1 on June 20, 1997;
4. Definitive Proxy Statement dated May 27, 1997, relating to the annual
meeting of stockholders held on June 12, 1997;
5. 1996 Annual Report to Stockholders, filed on May 28, 1997.
6. Current Report on Form 8-K, dated June 24, 1997, as amended on Form
8-K/A-1 on August 11, 1997;
7. Quarterly Report on Form 10-QSB for the quarterly period ended March
29, 1996, as amended on Form 10-QSB/A-1 filed May 15, 1997;
8. Financial Statements included on pages F-1 through F-82 in
Registration Statement No. 333-28879 on Form S-1, filed by the Company
with the Commission under the Securities Act;
9. Summary Historical, Supplemental and Pro Forma Financial Data included
on page 4 in Registration Statement No. 333-28879 on Form S-1, filed
by the Company with the Commission under the Securities Act;
10. Selected Consolidated Historical, Supplemental and Pro Forma Financial
Data included on pages 13-14 in Registration Statement No. 333-28879
on Form S-1, filed by the Company with the Commission under the
Securities Act;
11. Unaudited Pro Forma Consolidated Financial Statements included on
pages 15-22 in Registration Statement No. 333-28879 on Form S-1, filed
by the Company with the Commission under the Securities Act; and
12. Quarterly Report on Form 10-Q for the quarterly period ended June 28,
1997.
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
2
<PAGE>
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 Commission. Written
requests for such copies should be directed to the Company's Corporate
Secretary at c/o Armor Holdings, Inc., 13386 International Parkway,
Jacksonville, Florida 32218, (904) 741-5400.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and the Consolidated
Financial Statements (including the Notes thereto) included elsewhere in this
Prospectus. The historical Consolidated Financial Statements of Armor Holdings,
Inc. for the year ended December 28, 1996 and for the interim three month
period ended March 29, 1997 have been restated on a supplemental basis to give
effect to the Company's combination with DSL Group Limited ("DSL") on April 16,
1997 in a transaction accounted for as a pooling of interests. Accordingly,
such financial statements reflect the combined results of Armor Holdings, Inc.
and DSL since July 31, 1996, the effective date of the acquisition of DSL's
predecessor company by DSL. Certain other financial and operating data
contained herein are presented on a pro forma basis to give effect to the
acquisition of Gorandel Trading Limited ("GTL") on June 9, 1997, Supercraft
(Garments) Limited ("Supercraft") on April 7, 1997, and assets of Defense
Technology Corporation of America on September 30, 1996. Unless the context
otherwise requires (i) references to the Company mean Armor Holdings, Inc. and
its consolidated subsidiaries and (ii) the information contained herein gives
effect to the transfer on June 16, 1997, of the Company's operating assets and
liabilities to a subsidiary as a result of which the Company became a holding
company. References to the Company's fiscal year mean the 52-week fiscal year
ended on the last Saturday of that calendar year (e.g., fiscal 1996 means the
fiscal year ended December 28, 1996). References to the Company's first quarter
mean the 13-week period ended on the 13th Saturday of the first quarter of that
calendar year (e.g., first quarter 1997 means the 13-week period ended March
29, 1997). References to the Company's second quarter mean the 13-week period
ended on the 13th Saturday following the close of the first quarter of that
calendar year (e.g., second quarter 1997 means the 13-week period ended June
28, 1997). This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially
from the results discussed in such forward-looking statements as a result of
various factors, including those set forth under the caption "Risk Factors" and
elsewhere in this Prospectus.
THE COMPANY
Armor Holdings, Inc. is a leading provider of security solutions to
the increasing level of security problems encountered by domestic and foreign
law enforcement personnel, governmental agencies and multi-national
corporations. The Company's solutions include a broad range of high quality
branded manufactured products, such as ballistic resistant vests and tactical
armor, bomb disposal equipment, less-than-lethal munitions and anti-riot
products marketed under brand names such as American Body Armor(TM), Defense
Technology(TM) and First Defense(R). The Company distributes its manufactured
products through its network of approximately 500 distributors or agents
worldwide. The Company also provides sophisticated security planning, advisory
and management services to multi-national corporations and governmental and
non-governmental agencies, including the provision of highly trained,
multi-lingual and experienced security personnel in violent and unstable areas
of the world such as Angola, Colombia, Russia and the Democratic Republic of
Congo (the former Zaire).
Founded in 1969 as American Body Armor & Equipment, Inc., the Company
was until recently primarily a manufacturer of armored products. Since the
Company underwent a change of control in January 1996, the Company has pursued
a strategy of growth through acquisition of businesses and assets that
complement its existing operations. Since July 1996, the Company has acquired
or combined with five businesses in the security products and specialty
security services market including: (i) DSL, a leading provider of specialty
security services in high risk and volatile regions of the world; (ii) GTL, a
provider of specialized security services throughout Russia and Central Asia;
(iii) Supercraft, a European manufacturer of military apparel, high visibility
garments and ballistic resistant vests; (iv) assets of Defense Technology
Corporation of America, a manufacturer of less-than-lethal and anti-riot
products; and (v) assets of the NIK Public Safety Product Line, a product line
of portable narcotic identification kits used by law enforcement agencies. In
1996, the Company, on a pro forma basis giving effect to four of these
transactions as though they had occurred as of the beginning of such period,
generated approximately
4
<PAGE>
$68 million in revenues. The Company continues to seek to acquire businesses
that will either expand its portfolio of products and services, strengthen its
distribution network or expand its operations internationally.
The market for security products and services worldwide is large and
growing. Spending for police protection in the U.S. alone is estimated at $41
billion per year. The industry continues to be very fragmented, consisting of
many small manufacturers and service providers. The market is changing, driven
by the nature and perception of violent criminal activity both domestically and
internationally, as increases in gang, illegal drug and militant activities
have created more sophisticated, well-equipped and violent criminals. These
changes have created opportunities for consolidation among providers of
sophisticated products to the law enforcement and institutional corrections
markets. Internationally, greater political, economic and social tensions and
the proliferation of weapons due to deficient security and illegal arms sales
continue to fuel criminal activities in lesser-developed nations. As the
targets of many of these criminal activities, multi-national corporations and
governmental agencies operating in these volatile regions are increasingly
outsourcing their security services to reputable, experienced private
companies.
The Company believes these trends are increasing demand for its
products and services. To capitalize on these trends, the Company is
implementing its business and growth strategies. The principal elements of the
Company's business strategy are: (i) offer a comprehensive portfolio of
solutions to security threats; (ii) promote brand development through training
and sales support; (iii) capitalize on the Company's global distribution
network; (iv) capitalize on a diversified, global and institutional service
customer base; and (v) maximize profitability and operational efficiencies. The
principal elements of the Company's growth strategy are: (i) pursue strategic
acquisitions; (ii) leverage its distribution network; (iii) leverage its
service client base; and (iv) continue global expansion.
The Company's executive offices are located at 13386 International
Parkway, Jacksonville, Florida 32218. Its telephone number is (904) 741-5400.
THE OFFERING
Common Stock offered by the Company.................... 0 shares
Common Stock offered by the Selling Stockholders....... 858,524 shares
Common Stock to be outstanding after the offering (1).. 16,023,740 shares
Use of proceeds........................................ The Company will
receive no
proceeds from the
sale of the shares
of Common Stock
offered hereby.
All proceeds will
be received by the
Selling
Stockholders. See
"Use of Proceeds"
American Stock Exchange symbol......................... ABE
- ---------
(1) Excludes (i) 2,029,333 shares of Common Stock reserved for issuance upon
the exercise of outstanding options under the Company's 1994 Incentive
Stock Plan, Amended and Restated 1996 Stock Option Plan and
5
<PAGE>
Amended and Restated 1996 Non-Employee Directors Stock Option Plan, and (ii)
1,101,000 shares available for issuance, upon exercise of options that may be
granted under such plans.
RISK FACTORS
An investment in the shares of Common Stock offered hereby involves a
high degree of risk. For a discussion of certain risks of an investment in the
Common Stock offered hereby, see "Risk Factors" on pages 7 through 11.
6
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully the
following risk factors relating to the offering and the business of the
Company, together with the information and financial data set forth elsewhere
in this Prospectus, prior to making an investment decision. This Prospectus
contains forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Such statements are
indicated by words or phrases such as "anticipate," "estimate," "project,"
"management believes," "the Company believes" and similar words or phrases.
Such statements are based on current expectations and are subject to risks,
uncertainties and assumptions. Certain of these risks are described below.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated or projected.
RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
A key element of the Company's growth strategy is the acquisition of
businesses and assets that will complement its current businesses. There can be
no assurance that the Company will be able to identify attractive acquisition
opportunities, obtain financing for acquisitions on satisfactory terms or
successfully acquire identified targets. In addition, there can be no assurance
that the Company will be successful in integrating acquired businesses into its
existing operations or that such integration will not result in unanticipated
liabilities or unforeseen operational difficulties, which may be material, or
require a disproportionate amount of management's attention. Such acquisitions
may result in the Company incurring additional indebtedness or issuing
preferred stock or additional Common Stock. There can be no assurance that
competition for acquisition opportunities in the industry will not escalate,
thereby increasing the cost to the Company of making acquisitions or causing
the Company to refrain from making further acquisitions. In addition, the terms
and conditions of the Company's credit facility with Barnett Bank, N.A. (the
"Credit Facility") impose, and the terms and conditions of future debt
instruments may impose, restrictions on the Company that, among other things,
restrict the Company's ability to make acquisitions.
RISKS ASSOCIATED WITH MANAGING A GROWING BUSINESS
The Company has rapidly expanded its operations, and this growth has
placed significant demands on its management, administrative, operating and
financial resources. The continued growth of the Company's customer base, the
types of services offered and the geographic markets served can be expected to
continue to place a significant strain on the Company's resources. In addition,
personnel qualified both in the provision of the Company's security services
and the marketing of such services are difficult to identify and hire. The
Company's future performance and profitability will depend in large part on its
ability to attract and retain additional management and other key personnel,
its ability to implement successfully enhancements to its management systems
and its ability to adapt those systems, as necessary, to respond to growth in
its business. No assurance can be made that the Company will be able to hire
such qualified persons as and when required. See "Business--Growth Strategy."
INHERENT RISKS OF CERTAIN PRODUCTS SOLD BY THE COMPANY
The products manufactured by the Company are used in applications
where the failure of such products to perform as expected, or the failure to
use such products properly, could result in serious bodily injury or death.
These products include body armor designed to protect against ballistic and
sharp instrument penetration, and less-than-lethal and anti-riot products such
as pepper sprays, distraction devices, and flameless expulsion grenades. The
Company and DTC (as hereinafter defined), among other parties, have been named
as defendants in a product liability lawsuit claiming damages for wrongful
death resulting from the use by law enforcement officers of less-than-lethal
products sold by DTCoA (as hereinafter defined). The Company is aware of
claims, including claims
7
<PAGE>
against DTCoA, of permanent physical injury and death caused by self-defense
sprays and other munitions intended to be less-than-lethal. The Company is also
aware that the U.S. Justice Department is studying the role that self-defense
pepper sprays may have had in the deaths of suspects sprayed by law enforcement
personnel. In addition, the manufacture and sale of certain less-than-lethal
products may be the subject of product liability claims in the event that such
products do not perform in the manner in which they are intended to perform.
See "--Risks of Product Liability" and "Business--Litigation."
INHERENT RISKS OF SERVICES PROVIDED BY THE COMPANY
The Company provides security services through DSL. These services are
most in demand in areas of the world encountering high levels of violence,
unstable or chaotic political environments and little or no effective local law
enforcement authorities. As a result, DSL's management and employees are often
located in highly unsafe and unstable environments, such as Africa, South
America and Central Asia. Under certain circumstances, the Company supplements
its own personnel with local police or military who are not legally under the
control and supervision of the Company. This lack of direct control may limit
the Company's effectiveness without insulating the Company from liability
claims based on the actions of these personnel. In addition, murders,
kidnappings and attacks on facilities and installations are endemic in the
locations in which DSL operates. There can be no assurance that lawsuits
alleging negligence in the provision of security services and seeking
substantial amounts in damages will not be brought in the future, or that any
such lawsuit would not be successful and have a material adverse effect on the
Company's financial condition and results of operations. See
"Business--Products and Services."
RISKS OF PRODUCT LIABILITY
The failure of the Company's products to perform as intended could
result in serious injury or death and give rise to product liability claims
against the Company. There can be no assurance that the Company's product
liability insurance coverage will be sufficient to cover the payment of any
potential claim. In addition, there can be no assurance that 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 would have a material adverse
effect on the Company's financial condition. In addition, the lack of product
liability coverage would prohibit the Company from bidding for orders for
certain municipal customers which require such coverage. Any such lack of
coverage would have a material adverse effect on the Company's financial
condition and results of operations. See "Business--Litigation."
RISKS OF CONDUCTING INTERNATIONAL OPERATIONS
The Company has operations and assets in many parts of Africa, South
America, South East Asia, Central Asia, the Balkans and Russia. In addition,
the Company sells its products and services in other foreign countries and is
seeking to increase its level of international business activity. Accordingly,
the Company is subject to various risks, including U.S.-imposed embargoes of
sales to specific countries, foreign import controls and foreign currency
restrictions, which may be arbitrarily imposed and enforced, exchange rate
fluctuations, expropriation of assets, war, civil uprisings and riots,
government instability and legal systems of decrees, laws, regulations,
interpretations and court decisions that are not always fully developed and
that may be retroactively or arbitrarily applied. The Company may be subject to
unanticipated income taxes, excise duties, import taxes, export taxes or other
governmental assessments. There can be no assurance that such risks will not
result in a loss of business or other unexpected costs which could have a
material adverse effect on the Company's financial condition and results of
operations. Since DSL routinely operates in areas where local government
policies regarding foreign entities and the local tax and legal regimes are
often uncertain, poorly administered and in a state of flux, it is difficult to
assure that the Company is in compliance with all relevant local laws and taxes
at any given point in time. A subsequent
8
<PAGE>
determination that the Company failed to comply with relevant local laws and
taxes could have a material adverse effect on the Company's financial condition
and results of operations. See "Business--Products and Services."
GOVERNMENT REGULATION
The Company is subject to federal licensing requirements with respect
to the sale in foreign countries of certain of its products. In addition, the
Company is obligated to comply with a variety of federal, state and local
regulations governing certain aspects of its operations and the workplace,
including regulations promulgated by, among others, the U.S. Departments of
Commerce, State and Transportation, the U.S. Environmental Protection Agency
and the U.S. Bureau of Alcohol, Tobacco and Firearms.
The Company is subject to various federal, state and local
environmental laws, regulations and ordinances governing, among other things,
emissions to air, discharge to waters and the generation, handling, storage,
transportation, treatment and disposal of hazardous substances and wastes. The
Company uses a variety of hazardous chemicals in connection with the
manufacture of certain of its less-than-lethal products, including tear gas.
Current conditions and future events, such as changes in existing laws and
regulations, may give rise to additional compliance costs that could have a
material adverse effect on the Company's business, financial condition or
results of operations. Furthermore, if a release of hazardous substances occurs
on or from the Company's properties or any associated offsite disposal
location, or if contamination from prior activities is discovered at any of the
Company's properties, the Company may be held liable and the amount of such
liability could be material. See "Business--Environmental Matters."
The Company, like other companies operating internationally, is
subject to the Foreign Corrupt Practices Act and other laws which prohibit
improper payments to foreign governments and their officials by U.S. and other
business entities. DSL operates in countries known to experience endemic
corruption. The Company's extensive operations in such countries creates the
risk of an unauthorized payment by an employee or agent of the Company which
would be in violation of various laws including the Foreign Corrupt Practices
Act. Violations of the Foreign Corrupt Practices Act may result in severe
criminal penalties which could have an adverse effect on the Company's
financial condition and results of operations.
BUDGET CONSIDERATIONS
Customers for the Company's products include law enforcement and
governmental agencies. Budgetary allocations for law enforcement are dependent,
in part, upon government tax revenues and budgetary constraints, which
fluctuate from time to time. Many domestic and foreign government agencies have
experienced budget deficits that have led to decreased expenditures in certain
areas. The Company's results of operations may be subject to substantial
period-to-period fluctuations as a result of these and other factors affecting
capital spending. A reduction of funding for law enforcement could materially
and adversely affect the Company's business, financial condition and results of
operations. See "Industry Overview--Manufactured Security Products Market."
COMPETITION
The Company's business is highly competitive in all product and
service lines. Many of the Company's competitors have significantly greater
financial resources, larger facilities and operations and depth and experience
of personnel as well as more recognizable trademarks for products similar to
those sold by the Company. In addition, the Company's competitors may develop
or improve their products, in which event the Company's products may be
rendered obsolete or less marketable. The security services industry is
extremely competitive and highly fragmented. The Company expects that the level
of competition will increase in the future. There can be no assurance that the
Company will be able to continue to compete successfully. See
"Business--Competition."
9
<PAGE>
INFLUENCE OF SIGNIFICANT STOCKHOLDERS
Warren B. Kanders, in his capacity as the sole stockholder of Kanders
Florida Holdings, Inc. ("Kanders"), may be deemed to be the beneficial owner of
approximately 24.6% of the outstanding shares of Common Stock. In addition,
officers and directors of the Company, including Mr. Kanders, beneficially own
an aggregate of approximately 5,569,082 shares, or 33.4%, of the Common Stock.
Consequently, Mr. Kanders, as Chairman of the Board of Directors of the Company
and as the sole stockholder of Kanders, together with the Company's officers
and directors, will have the ability to significantly influence the election of
the Company's directors and on the outcome of corporate actions requiring
stockholder approval, including a change in control. See "Principal
Stockholders" and "Description of Capital Stock."
DEPENDENCE ON KEY PERSONNEL
The Company is substantially dependent upon the personal efforts and
abilities of Warren B. Kanders, Jonathan M. Spiller, Richard T. Bistrong,
Alastair G.A. Morrison and the Hon. Richard N. Bethell. Should any of these
members of the Company's senior management be unable or unwilling to continue
in their present roles, the Company's business could be materially adversely
affected. See "Management--Directors and Executive Officers."
EFFECT OF CERTAIN STATUTORY PROVISIONS
The Company is subject to the anti-takeover provisions of Section 203
of the Delaware General Corporation Law (the "DGCL"). In general, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed
manner. See "Description of Capital Stock--Certain Provisions of Delaware Law."
VOLATILITY OF MARKET PRICE FOR COMMON STOCK
The market price for the Common Stock may be highly volatile. The
Company believes that a variety of factors, including announcements by the
Company or its competitors, quarterly variations in financial results, trading
volume, general market trends and other factors, could cause the market price
of the Common Stock to fluctuate substantially. Due to the relatively small
size of the Company, a large contract awarded to or lost by the Company may
have the effect of distorting the Company's overall financial results. In
addition, the stock market has experienced extreme price and volume
fluctuations that are often unrelated to the operating performance of
particular companies. These market fluctuations may adversely affect the price
of the Common Stock. See "Price Range of Common Stock and Dividend Policy."
SUBSTANTIAL AMOUNT OF COMMON STOCK ELIGIBLE FOR FUTURE SALE
As of October 23, 1997, the Company had 16,023,740 shares of Common
Stock outstanding. Of these shares, 10,565,325 shares are freely tradable under
the Securities Act by persons who are not "affiliates" of the Company (in
general, an affiliate is any person who has a control relationship with the
Company). The remaining 5,458,415 outstanding shares of Common Stock are deemed
to be "restricted securities" as that term is defined in Rule 144, all of which
will become qualified for sale in the public market in compliance with Rule
144.
No prediction can be made as to the effect, if any, that market sales
of shares of Common Stock that are restricted securities, or the availability
of such shares for sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock, or
the perception that such sales could
10
<PAGE>
occur, could adversely affect prevailing market prices for the Common Stock and
could impair the Company's future ability to raise capital through an offering
of equity securities.
As part of the Company's acquisition strategy, the Company anticipates
issuing additional shares of its Common Stock. To the extent that the Company
is able to execute its acquisition strategy, the number of outstanding shares
of Common Stock that will be eligible for sale in the future is likely to
increase substantially. In addition, the potential issuance of additional
shares in connection with anticipated acquisitions could depress demand for the
Common Stock and result in a lower price than would otherwise be obtained. See
"Shares Eligible for Future Sale."
NO DIVIDENDS
The Company currently does not intend to pay any cash dividends on the
Common Stock. The Company currently intends to retain any earnings for working
capital, repayment of indebtedness, capital expenditures and general corporate
purposes. The Credit Facility contains restrictions on the Company's ability to
pay dividends or make other distributions. See "Price Range of Common Stock and
Dividend Policy."
FOR ALL OF THE FOREGOING REASONS AND OTHERS SET FORTH IN THIS PROSPECTUS, THE
SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY SHOULD BE AWARE OF THESE AND
OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE SECURITIES SHOULD BE PURCHASED
ONLY BY PERSONS WHO CAN AFFORD A TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY.
11
<PAGE>
SIGNIFICANT DEVELOPMENTS
Since Kanders acquired its interest in the Company in January 1996,
the Company has pursued a strategy of growth through acquisition of businesses
and assets that complement its existing businesses. Through October 23, 1997,
the Company has consummated the five transactions discussed below, and is
continuing to pursue other acquisition opportunities. In addition, the Company
recently established a holding company structure to facilitate management of
its growth and completed a public offering of 4,000,000 primary shares of its
Common Stock.
DSL GROUP LIMITED
On April 16, 1997, the Company combined with DSL Group Limited in a
transaction accounted for as a pooling of interests (the "DSL Transaction").
DSL is a leading provider of specialized security services in high risk and
volatile environments. DSL was formed on June 3, 1996 for the purpose of
acquiring DSL Holdings Limited ("DSL Holdings"), its predecessor corporation,
whose assets included an indirect 50% interest in Gorandel Trading Limited.
DSL's acquisition of DSL Holdings was completed on July 31, 1996. Supplemental
consolidated financial statements of the Company for fiscal 1996 and for first
quarter 1997 have been provided which give effect to the DSL Transaction on a
supplemental basis. In connection with the DSL Transaction, the Company issued
1,274,217 shares of Common Stock valued at the time at $10.9 million for all of
the outstanding ordinary share capital of DSL and paid $7.5 million in cash for
all of the outstanding preference shares. The Company also assumed and
subsequently repaid $6.9 million, plus interest, of DSL's outstanding credit
facility. In connection with the DSL Transaction, the Company recorded a
non-recurring charge to earnings in the second quarter of fiscal 1997 of
approximately $2.5 million. This charge consisted of transaction costs,
principally professional fees of approximately $1.1 million, and restructuring
costs of approximately $1.4 million incurred to consolidate the administrative
and accounting functions of DSL with those of the Company at its headquarters
in Jacksonville, Florida. The historical combined net revenues of DSL and its
predecessor for 1996 were approximately $31.1 million.
GORANDEL TRADING LIMITED
On June 9, 1997, the Company acquired the remaining 50% of Gorandel
Trading Limited that it did not previously own. GTL provides specialized
security services throughout Russia and Central Asia. The aggregate purchase
price of the transaction was approximately $2.4 million, consisting of $570,000
in cash paid at closing, $600,000 in cash to be paid upon the satisfaction of
certain conditions and 115,176 shares of Common Stock valued at the time at
$1.2 million. As part of this transaction, the Company agreed to make a loan
of $200,000 to a former stockholder of GTL, subject to certain conditions.
GTL's net revenues for 1996 were approximately $6.4 million.
SUPERCRAFT (GARMENTS) LIMITED
On April 7, 1997, the Company acquired Supercraft (Garments) Limited.
Supercraft is a European manufacturer of military apparel, high visibility
garments and ballistic resistant vests, which it distributes to law enforcement
and military agencies throughout Europe, the Middle East and Asia. The Company
acquired Supercraft for a total purchase price of approximately $2.6 million
consisting of (i) approximately $1.3 million in cash, subject to adjustments,
(ii) $875,000 in cash which was placed in escrow pending final disposition of
title to certain real property and (iii) certain additional consideration in an
amount not to exceed pounds sterling 250,000 (approximately $410,000) based on
1997 operating results. Supercraft's net revenues for 1996 were approximately
$5.7 million.
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
On September 30, 1996, a subsidiary of the Company, Defense Technology
Corporation of America, a Delaware corporation ("DTC"), acquired substantially
all of the assets (the "DTCoA Assets") of Defense
12
<PAGE>
Technology Corporation of America, a Wyoming corporation ("DTCoA"). DTC
manufactures less-than-lethal and anti-riot products, including pepper sprays,
tear gas, distraction devices, flameless expulsion grenades and specialty
impact munitions, which it distributes to U.S. and foreign law enforcement
agencies and the military. The Company acquired these assets by paying DTCoA a
purchase price consisting of approximately $838,000 in cash, 270,728 shares of
Common Stock valued at the time at $2.0 million, subject to reduction under
certain circumstances, and by issuing to Key Bank of Wyoming ("Key Bank"),
which made a credit facility available to DTCoA, 358,714 shares of Common Stock
valued at the time at $2.65 million in return for Key Bank's agreement to
release its liens on the assets of DTCoA. The Company also assumed certain
specified liabilities of DTCoA. The combined net revenues of DTC and DTCoA for
1996 were approximately $8.9 million.
NIK PUBLIC SAFETY PRODUCT LINE
Effective as of July 1, 1996, NIK Public Safety, Inc. ("NIK"), a
subsidiary of the Company, acquired the NIK Public Safety Product Line (the
"NIK Product Line"). NIK assembles and distributes portable narcotic
identification kits used for the identification of narcotic substances by law
enforcement agencies. In addition, NIK distributes the Flex-Cuf(R) restraint,
specimen collection kits, evidence collection kits and tamper guard evidence
tape. The Company acquired the NIK Product Line for a purchase price consisting
of 310,931 shares of Common Stock valued at the time at $2.4 million. NIK's net
revenues for 1996 were approximately $2.2 million.
CONVERSION TO A HOLDING COMPANY STRUCTURE
On June 12, 1997, at the annual meeting of stockholders, the
stockholders of the Company approved the creation of a holding company
structure for all of the Company's operations. As of June 16, 1997, the Company
transferred all of its operating assets and liabilities relating to its
American Body Armor(TM) business to a subsidiary and the Company became a
holding company. As a result, the Company owns directly or indirectly the
outstanding capital stock of its subsidiary corporations and no longer conducts
any manufacturing operations directly.
PUBLIC OFFERING OF COMMON STOCK
On July 25, 1997, the Company issued 4,000,000 new shares of Common
Stock at $10.125 per share through a public offering (the "Public Offering")
underwritten by Dillon, Read & Co. Inc., Equitable Securities Corporation and
Stephens Inc. After subtracting underwriting discounts and commissions, the
Company realized net proceeds of $38,070,000, portions of which the Company has
used to repay all of the outstanding indebtedness on its Credit Facility with
Barnett Bank.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
shares of Common Stock offered hereby. All proceeds will be received by the
Selling Stockholders. See "Selling Stockholders."
PLAN OF DISTRIBUTION
The sale of the shares of Common Stock by the Selling Stockholders may
be effected from time to time in transactions (which may include block
transactions by or for the account of the Selling Stockholders) on the AMEX 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.
13
<PAGE>
The Selling Stockholders may effect such transactions by selling their
shares of Common Stock directly to purchasers, through broker-dealers acting as
agents for the Selling Stockholders, or to broker-dealers who may purchase
shares as principals and thereafter sell the shares from time to time on the
AMEX or on such other market as the Company's Common Stock may then be trading,
in negotiated transactions, or otherwise. Such broker-dealers, if any, may
receive compensation in the form of discounts, concessions, or commissions from
the Selling Stockholders 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 Stockholders 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.
Each of the Selling Stockholders, other than Mr. Brayshaw (the
"Institutional Selling Stockholders"), entered into a registration rights
agreement with the Company which provides for the registration of the shares of
Common Stock offered hereby under the Securities Act and the blue sky laws of
the several states. Pursuant to the registration rights agreement, the Company
is required to bear the cost of such registration and indemnify, among others,
the Institutional Selling Stockholders against certain liabilities, including
those under the Securities Act.
14
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock has been traded on the AMEX under the symbol "ABE"
since March 18, 1996. Prior to March 18, 1996, the Common Stock was traded in
the over-the-counter market, and was listed in the bid and ask quotes of
brokers as reported by the National Quotation Bureau, Inc. (the "Bulletin
Board") under the symbol "ABOA."
The following table sets forth the range of reported high and low bid
quotations for the Common Stock as listed on the Bulletin Board for fiscal 1995
and for the period January 1, 1996 to March 17, 1996 and the range of high and
low sales prices for the Common Stock on the AMEX for the period from March 18,
1996 to October 23, 1997. The bid quotations represent inter-dealer prices, and
do not include mark-ups, mark-downs or commissions, and may not necessarily
represent actual transactions.
HIGH LOW
---- ---
1995
- ----
1st Quarter..................................... $ 1 1/4 $ 3/4
2nd Quarter..................................... 1 1/16
3rd Quarter..................................... 15/16 7/8
4th Quarter..................................... 3 1/4 1
1996
- ----
1st Quarter (through March 17).................. $ 5 3/4 $ 2 3/4
1st Quarter (from March 18)..................... 5 1/2 5 1/16
2nd Quarter..................................... 9 5 1/8
3rd Quarter..................................... 7 7/8 6
4th Quarter..................................... 8 6 1/2
1997
- ----
1st Quarter..................................... $ 9 1/2 $ 7 1/2
2nd Quarter..................................... 10 7/8 8 3/4
3rd Quarter .................................... 12 3/4 10 1/2
4th Quarter (through October 23)................ 13 3/8 12 3/8
On October 23, 1997, the last reported sales price of the Common Stock
on the AMEX was $12 3/8 per share. As of October 23, 1997, the Company had
approximately 1,871 stockholders of record.
The Company has not paid any cash dividends on its Common Stock for
the last three fiscal years, and does not intend to pay any cash dividends on
the Common Stock for the foreseeable future. The Company currently intends to
retain any earnings for working capital, repayment of indebtedness, capital
expenditures and general corporate purposes. In addition, except under certain
conditions, the Company is precluded from paying dividends on its Common Stock
pursuant to the Credit Facility. See "Description of Certain Indebtedness" and
Note 6 to the Consolidated Financial Statements.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Selected Consolidated Historical and Supplemental Financial Data," "Unaudited
Pro Forma Consolidated Financial Statements," the Consolidated Financial
Statements and the Supplemental Consolidated Financial Statements and the Notes
thereto included elsewhere in this Prospectus. This Prospectus contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Such statements are indicated by words
or phrases such as "anticipate," "estimate," "project," "management believes,"
"the Company believes" and similar words or phrases. Such statements are based
on current expectations and are subject to risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or projected.
GENERAL
Supplemental Consolidated Financial Statements. On April 16, 1997, the
Company consummated the DSL Transaction. Pursuant to the DSL Transaction, the
Company, among other things, issued 1,274,217 shares of Common Stock in
exchange for all the outstanding ordinary and deferred share capital of DSL,
and Armor Holdings Limited, a wholly owned subsidiary of the Company ("AHL"),
paid the sum of pounds sterling 4.6 million (approximately $7.5 million) in
cash for all of the outstanding preference share capital of DSL. The DSL
Transaction was accounted for as a pooling of interests. Accordingly, the
historical Consolidated Financial Statements for the Company as at and for
fiscal 1996 and for first quarter 1997 have been restated on a supplemental
basis to reflect the historical financial statements of the Company combined
with DSL since DSL's inception. DSL was incorporated on June 3, 1996 and,
through a management buy-out transaction on July 31, 1996, acquired all of the
outstanding share capital of DSL Holdings. The buy-out transaction resulted in
a step up in basis for accounting purposes which resulted in the recording of
approximately $9.6 million of goodwill.
The following discussion of the Company's results of operations and
analysis of financial condition for fiscal 1996 and first quarter 1997 reflects
results on this supplemental basis. The discussion of the Company's results of
operations for the prior periods are not affected by the DSL Transaction and
accordingly are presented on a historical basis. The results of operations for
the business combinations accounted for as purchase transactions are included
since their effective acquisition dates: as of September 30, 1996 for the DTCoA
Assets and July 1, 1996 for the NIK Product Line.
Product and Service Businesses. Historically, the Company was
primarily a manufacturer and distributor of security products. Cost of goods
sold for the Company historically consisted of the cost of raw materials and
overhead allocated to manufacturing operations. Operating expenses for the
Company historically consisted of sales and marketing expenses and corporate
overhead at the Company's headquarters.
As a result of the DSL Transaction, a significant portion of the
Company's business now involves the provision of security services. Cost of
goods sold for DSL consists principally of labor and related costs, including
corporate overhead at DSL's various security sites. Operating expenses for DSL
consisted primarily of corporate overhead at DSL's corporate headquarters.
Due to the differences between manufacturing and service operations,
the Company's supplemental gross margins are not comparable with gross margins
reported in historical periods.
16
<PAGE>
Fresh-Start Reporting. The Company emerged from Chapter 11 bankruptcy
reorganization on September 20, 1993. In connection with the confirmation of
its Plan of Reorganization, the Company adopted "fresh-start reporting" in
accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code." Accordingly, since September 20, 1993, the
Company's financial statements have been prepared as if it were a new reporting
entity.
Revenue Recognition. The Company records product revenues at gross
amounts to be received, including amounts to be paid to agents as commissions,
at the time the product is shipped to the distributor. Although product returns
are permitted within 30 days from the date of purchase, these returns are
minimal and usually consist of minor modifications to the ordered product. The
Company records service revenue as the service is provided on a contract by
contract basis.
Foreign Currency Translation. In accordance with Statement of
Financial Accounting Standard No. 52, "Foreign Currency Translation," assets
and liabilities denominated in a foreign currency are translated into U.S.
dollars at the current rate of exchange at year-end and revenues and expenses
are translated at the average monthly exchange rates. The cumulative
translation adjustment which represents the effect of translating assets and
liabilities of the Company's foreign operations was a loss of approximately
$229,000 for fiscal 1996.
Impact of Acquisitions. The results of operations for fiscal 1996 and
first quarter 1997, which are reported on a supplemental basis, reflect the
results of operations of the Company combined with DSL. Additionally the
results of operations for DTC and NIK are reflected since the acquisition dates
of the DTCoA Assets and the NIK Product Line, September 30, 1996 and July 1,
1996, respectively. Accordingly, period-to-period comparisons should be
considered in the context of the timing of the transactions.
Subsequent Events. On June 9, 1997, the Company acquired the remaining
50% interest of GTL that it did not previously own. The aggregate purchase
price of the transaction is approximately $2.4 million, consisting of $570,000
in cash paid at closing, $600,000 in cash paid on September 30, 1997, subject
to certain conditions, and 115,176 shares of Common Stock valued at $1.2
million. As part of this transaction, the Company agreed to make a $200,000
loan available to a former stockholder of GTL, subject to certain conditions.
On April 16, 1997, the Company completed its combination with DSL,
which was accounted for under the pooling method of accounting for business
combinations. In connection with the DSL Transaction, the Company issued
1,274,217 shares of Common Stock valued at $10.9 million for all of the
outstanding ordinary share capital of DSL and paid $7.5 million in cash for all
of the outstanding preference shares. The Company also assumed and subsequently
repaid $6.9 million, plus interest, of DSL's outstanding credit facility.
In connection with the DSL Transaction, the Company recorded a
non-recurring charge to earnings in the second quarter of fiscal 1997 of
approximately $2.5 million. The components of this charge relate to transaction
costs, principally professional fees of approximately $1.1 million, and
restructuring costs of approximately $1.4 million incurred to consolidate the
administrative and accounting functions of DSL with those of the Company at its
headquarters in Jacksonville, Florida.
On April 7, 1997, the Company completed the acquisition of Supercraft,
which has been accounted for under the purchase method of accounting for
business combinations. The Company acquired Supercraft for a total purchase
price of approximately $2.6 million consisting of (i) $1.3 million in cash,
subject to adjustments, (ii) $875,000 which was held in escrow pending final
disposition of title to certain real property and (iii) certain additional
consideration in an amount not to exceed (pound)250,000 (approximately
$410,000) based on 1997 operating results.
17
<PAGE>
RESULTS OF OPERATIONS
FIRST QUARTER 1997 AS COMPARED TO FIRST QUARTER 1996
Revenues--products. Products revenues increased $3.1 million, or 97%,
to $6.4 million in first quarter 1997 from $3.3 million in first quarter 1996.
This increase in sales resulted from $2.4 million in sales generated from the
DTC and NIK operations in first quarter 1997, and a 17% increase in the
Company's domestic products business.
Revenues--services. Services revenues were $8.3 million in first
quarter 1997. There were no such revenues in first quarter 1996.
Cost of sales. Cost of sales increased $8.3 million, or 395%, to $10.4
million in first quarter 1997 from $2.1 million in first quarter 1996. The
majority of the increase is due to the recent combination with DSL which had
$6.6 million in operating costs associated with DSL revenues in first quarter
1997. The remaining $1.7 million increase in cost of sales is attributed to the
increased manufacturing costs of the products business (associated with a 97%
increase in revenues). As a percentage of total revenues, cost of sales
increased to 70.8% in first quarter 1997 from 64.6% in first quarter 1996,
reflecting the higher cost of sales associated with the security services
business.
Operating expenses. Operating expenses increased $2.0 million to $2.9
million (20% of total revenues) in first quarter 1997 from $950,000 (29% of
total revenues) during first quarter 1996. The increase in the actual dollar
amount of operating expenses between the periods was primarily due to
approximately $1.2 million related to the overhead costs associated with DSL,
approximately $585,000 related to the additional revenues generated by DTC and
NIK and approximately $382,000 of additional costs related to commissions on
increased sales and corporate overhead costs for the development of the
infrastructure of the Company as a holding company. The decrease in operating
expenses as a percentage of total revenues reflects the inclusion of the
security services operations in first quarter 1997.
Depreciation and amortization. Depreciation and amortization expense
increased to $286,000 in first quarter 1997 from $18,000 in first quarter 1996.
Of the $268,000 increase, approximately $181,000 was due to amortization of
intangibles acquired during 1996, $64,000 represents existing depreciation and
amortization attributed to DSL at the time of the DSL Transaction and the
remainder was primarily due to depreciation on DTC purchased assets.
Interest expense, net. Interest expense, net decreased $3,000, or 4%,
to $69,000 in first quarter 1997 from $72,000 in first quarter 1996. Although
interest expense of $109,000 related to DSL's loan with Rothschild was incurred
in first quarter 1997, it was partially offset by the Company's reduction of
its credit facility with LaSalle Business Credit, Inc. ("LaSalle") to a zero
balance and investment of the proceeds from the Company's offering of its
Convertible Notes in April 1996.
Equity in earnings of unconsolidated subsidiaries. Equity in earnings
of unconsolidated subsidiaries amounted to approximately $272,000 in first
quarter 1997, compared to no such income in first quarter 1996. This equity
relates to DSL's original 50% investment in GTL, as well as a 20% investment in
Jardine Securicor Gurkha Services Limited ("JSGS"), a joint venture company.
Income before income taxes. Income before income taxes increased $1.1
million, or 957%, to $1.2 million in first quarter 1997 from $117,000 in first
quarter 1996. This increase was due primarily to the integration of DSL, DTC
and NIK into the Company.
18
<PAGE>
Income taxes. Income taxes totaled $554,000 in first quarter 1997, as
compared to $45,000 in first quarter 1996. The provision was based on the
Company's U.S. federal and state statutory rates of approximately 39% for its
U.S.-based company and 43% effective tax rate for DSL, excluding the U.S.
generally accepted accounting principles ("GAAP") adjustment for preferred
share dividends.
Dividends on preference shares. During first quarter 1997, DSL paid
$143,000 in preference share dividends. These dividends were paid out of after
tax earnings. The shares underlying the dividends were acquired by the Company
on April 16, 1997 in the DSL Transaction.
Net income. Net income increased $468,000, or 650%, to $540,000 in
first quarter 1997 from $72,000 in first quarter 1996. As noted previously, the
increase is due to the integration of DSL, DTC and NIK into the Company.
SIX MONTHS ENDED JUNE 28, 1997 AS COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues--products. Products revenues increased $7.3 million, or 106%,
to $14.2 million for the six months ended June 28, 1997 from $6.9 million for
the six months ended June 30, 1996. This increase in sales resulted primarily
from $6.5 million in sales generated from the DTC and NIK operations in the six
months ended June 28, 1997, as well as sales generated by Supercraft from the
date of acquisition, April 7, 1997, until June 28, 1997.
Revenues--services. Services revenues were $18.6 million in the six
months ended June 28, 1997. There were no such revenues in the six months ended
June 30, 1996.
Cost of sales. Cost of sales increased $19.3 million, or 442%, to
$23.7 million in the six months ended June 28, 1997 from $4.4 million in the
six months ended June 30, 1996. The majority of the increase is due to the
recent combination with DSL which had $15.3 million in direct operating costs
associated with DSL revenues in the six months ended June 28, 1997. The
remaining $4.0 million increase in cost of sales is attributed to the increased
manufacturing costs of the products business (associated with a 106% increase
in revenues). As a percentage of total revenues, cost of sales increased to
72.2% in the six months ended June 28, 1997 from 63.6% in the six months ended
June 30, 1996, reflecting the higher cost of sales associated with the security
services business.
Operating expenses. Operating expenses increased $3.8 million to $5.8
million (17.8% of total revenues) in the six months ended June 28, 1997 from
$2.0 million (29% of sales) during the six months ended June 30, 1996. The
increase in the actual dollar amount of operating expenses between the periods
was due to approximately $1.9 million related to the overhead costs associated
with DSL, approximately $1.2 million related to the additional revenues
generated by DTC and NIK and approximately $700,000 of corporate overhead costs
for the development of the infrastructure of the Company as a holding company.
Depreciation and amortization. Depreciation and amortization expense
increased to $484,000 in the six months ended June 28, 1997 from $33,000 in the
six months ended June 30, 1996. Of the $451,000 increase, approximately
$362,000 was due to amortization of intangibles acquired during the second half
of 1996 and the remainder is primarily due to existing depreciation and
amortization of acquired goodwill in the DSL Transaction.
Equity in earnings of unconsolidated subsidiaries. Equity in earnings
of unconsolidated subsidiaries amounted to approximately $564,000 in the six
months ended June 28, 1997, compared to no such income in the six months ended
June 30, 1996. The equity relates to DSL's original 50% investment in GTL until
June 9, 1997
19
<PAGE>
at which point the 100% investment was consolidated into the Company's results,
as well as a 20% investment in JSGS.
Operating income before non-recurring charges. Operating income before
non-recurring charges increased $2.9 million, or 624%, to $3.4 million in the
six months ended June 28, 1997 from $465,000 in the six months ended June 30,
1996. This increase was due primarily to the acquired businesses of DSL,
Supercraft, DTC and NIK.
Interest expense, net. Interest expense, net increased $308,000, or
299%, to $411,000 for the six months ended June 28, 1997 from $103,000 for the
six months ended June 30, 1996. The increase in interest expense is primarily
due to borrowings of approximately $15.4 million in April 1997 under the
Company's Credit Facility with Barnett Bank in connection with the DSL
Transaction to acquire DSL's preference shares and to repay DSL's outstanding
loan balance with Rothschild at the time of combination. Additional draws were
made on the Credit Facility so that a balance of $18.6 million was repaid with
proceeds realized from the Public Offering. In addition, interest expense of
$149,000 related to DSL's loan with Rothschild was incurred in the six months
ended June 28, 1997.
Merger, integration and other non-recurring charges. Fees and expenses
associated with completing the DSL Transaction (approximately $1.0 million)
have been expended. These expenses, in combination with certain other charges
relating to the financial and administrative restructuring and consolidation of
DSL into the Company, totaled approximately $2.5 million, or $0.13 per share,
and represent a one-time charge.
Income taxes. Income taxes totaled $417,000 in the six months ended
June 28, 1997, as compared to $147,000 in the six months ended June 30, 1996.
The provision was based on the Company's U.S. federal and state statutory rates
of approximately 39% for its U.S.-based companies and a 38% blended effective
tax rate for foreign operations of the Company, and was significantly increased
by certain non-recurring charges which are not tax deductible.
Dividends on preference shares. During the six months ended June 28,
1997, DSL incurred $143,000 in preference share dividends. These dividends were
paid out of after tax earnings. The shares underlying the dividends were
acquired by the Company on April 16, 1997 in the DSL Transaction.
Net income. Net income decreased $363,000 or 169%, to a loss of
$148,000 in the six months ended June 28, 1997 from income of $215,000 for the
six months ended June 30, 1996. As noted previously, the decrease is due to the
non-recurring charge incurred by the Company in the six months ended June 28,
1997.
SECOND QUARTER 1997 AS COMPARED TO SECOND QUARTER 1996
Revenues--products. Products revenues increased $4.2 million, or 115%,
to $7.8 million for second quarter 1997 from $3.6 million for second quarter
1996. This increase in sales resulted primarily from $4.0 million in sales
generated from the DTC, NIK and Supercraft operations in second quarter 1997.
Revenues--services. Services revenues were $10.3 million in second
quarter 1997. There were no such revenues in second quarter 1996.
Cost of sales. Cost of sales increased $11.0 million, or 486%, to
$13.2 million second quarter 1997 from $2.3 million in second quarter 1996. The
majority of the increase is due to the DSL Transaction which had $8.6 million
in direct operating costs associated with DSL revenues in second quarter 1997.
The remaining $2.4 million increase in cost of sales is attributed to the
increased manufacturing costs of the products business (associated with
20
<PAGE>
115% increase in revenues). As a percentage of total revenues, cost of sales
increased to 73.2% in second quarter 1997 from 62.8% in second quarter 1996,
reflecting the higher cost of sales associated with the security services
business.
Operating expenses. Operating expenses increased $1.8 million to $2.8
million (16% of total revenues) in second quarter 1997 from $1.0 million (29%
of sales) during second quarter 1996. The increase in the actual dollar amount
of operating expenses between the periods was due to approximately $765,000
related to the overhead costs associated with DSL, approximately $588,000
related to the additional revenues generated by DTC and NIK, and approximately
$400,000 of additional costs related to commissions on increased sales and
corporate overhead costs for the development of the infrastructure of the
Company as a holding company. The decrease in operating expenses as a
percentage of total revenues reflects the inclusion of the security services
operations in second quarter 1997.
Depreciation and amortization. Depreciation and amortization expense
increased to $259,000 in second quarter 1997 from $18,000 in second quarter
1996. Of the $241,000 increase, approximately $181,000 was due to amortization
of intangibles acquired during the second half of 1996 and the remainder is
primarily due to existing depreciation and amortization of acquired goodwill in
the DSL Transaction.
Equity in earnings of unconsolidated subsidiaries. Equity in earnings
of unconsolidated subsidiaries amounted to approximately $291,000 in second
quarter 1997, compared to no such income in second quarter 1996. The equity
relates to DSL's original 50% investment in GTL until June 9, 1997 at which
point the 100% investment was consolidated into the Company's results, as well
as a 20% investment in JSGS.
Operating income before non-recurring charges. Operating income before
non-recurring charges increased $1.8 million, or 645%, to $2.1 million in
second quarter 1997 from $276,000 in second quarter 1996. This increase was due
primarily to the acquired businesses of DSL, Supercraft, DTC and NIK.
Interest expense, net. Interest expense, net increased $312,000, or
1,040%, to $342,000 in second quarter 1997 from $30,000 for second quarter
1996. The Company incurred approximately $298,000 in interest expense during
second quarter 1997 related to the $15.4 million borrowing under its Credit
Facility with Barnett Bank to acquire DSL's preference shares and to repay
DSL's outstanding balance on its loan with Rothschild at the time of
combination. In addition, interest expense of $40,000 related to DSL's loan
with Rothschild was incurred in second quarter 1997.
Merger, integration and other non-recurring charges. Fees and expenses
associated with completing the transaction (approximately $1.0 million) have
been expended. These expenses in combination with certain other charges
relating to the financial and administrative restructuring and consolidation of
DSL into the Company totaled approximately $2.5 million, or $0.13 per share,
and represent a one-time charge.
Income taxes. Income taxes totaled a benefit of $132,000 in second
quarter 1997, as compared to $102,000 expense in second quarter 1996. The
benefit and provision are based on the Company's U.S. federal and state
statutory rates of approximately 39% for its U.S.-based companies and a 38%
blended effective tax rate for foreign operations of the Company, and was
significantly increased by certain non-recurring charges which are not tax
deductible.
Net income. Net income decreased $840,000 or 583%, to a loss of
$696,000 in second quarter 1997 from $144,000 for second quarter 1996. As noted
previously, the decrease is due to the non-recurring charge incurred by the
Company in second quarter 1997.
21
<PAGE>
FISCAL 1996 AS COMPARED TO FISCAL 1995
Revenues--products. Products revenues increased $6.3 million, or 54%,
to $18.0 million in fiscal 1996 from $11.7 million in fiscal 1995. This
increase resulted primarily from a 35% increase in domestic and international
products revenues, coupled with revenues generated by the DTC and NIK
operations for one and two quarters, respectively.
Revenues--services. Services revenues were $13.0 million in fiscal
1996 during the period from August 1, 1996 through December 31, 1996. There
were no services revenues prior to August 1, 1996.
Cost of sales. Cost of sales increased $13.7 million, or 184%, to
$21.1 million in fiscal 1996 from $7.4 million in fiscal 1995. Of such
increase, $10.1 million is due to increased services revenues generated in
fiscal 1996, as stated above. As a percentage of total revenues, cost of sales
increased to 68.4% in fiscal 1996 from 63.4% in fiscal 1995, reflecting the
higher cost of sales associated with the security services business. Products
business gross margin increased to 40% in fiscal 1996 from 37% in fiscal 1995,
due to the impact of higher margin products being sold by both DTC and NIK.
Operating Expenses. Operating expenses increased $3.5 million, or
103%, to $6.9 million in fiscal 1996 from $3.4 million in fiscal 1995. As a
percentage of net sales, operating expenses decreased to 22% in fiscal 1996
from 29% in fiscal 1995. DSL's operating expenses as a percentage of net sales
amounted to 14% for fiscal 1996, whereas the products businesses' percentage
amounted to 28% for fiscal 1996. Of the $3.5 million increase, $1.8 million is
attributable to DSL, approximately $800,000 is due to increases in commissions
resulting from increased sales in the products business and the remainder is
due to the additional operating costs associated with NIK and DTC.
Depreciation and amortization. Depreciation and amortization increased
$501,000 to $554,000 in fiscal 1996 from $53,000 in fiscal 1995. Of the
$501,000 increase, the majority was due to additional depreciation and
amortization related to the products business, including the DTCoA Assets
purchased. In addition, approximately $159,000 of this expense relates to the
amortization of intangibles incurred by DSL and carried over onto the books of
the Company.
Interest expense, net. Interest expense, net increased $234,000, or
83%, to $515,000 in fiscal 1996 from $281,000 in fiscal 1995. This increase
resulted primarily from $261,000 of interest expense incurred by DSL relating
to a $6.8 million working capital loan. This loan has subsequently been paid
off. In addition, the Company incurred net interest expense of $253,000
relating to the Convertible Notes.
Equity in earnings of unconsolidated subsidiaries. Equity in
investments held by DSL amounted to approximately $320,000 in fiscal 1996
compared to no such income in fiscal 1995. This equity relates to GTL and JSGS,
as discussed previously.
Non-operating income. Non-operating income decreased $226,000 to
$2,000 in fiscal 1996 from $228,000 in fiscal 1995. The non-operating income in
fiscal 1995 relates to the termination of a non-compete agreement entered into
in 1990 between the Company and a competitor.
Income before income taxes. Income before income taxes increased $1.3
million to $2.1 million in fiscal 1996 from $824,000 in fiscal 1995. Of the
$1.3 million increase, approximately $600,000 was due to the products business
and approximately $700,000 was due to the services business.
22
<PAGE>
Income taxes. The Company's net operating loss carryforward ("NOL") at
December 28, 1996 decreased to approximately $4.4 million from approximately
$4.7 million at January 1, 1996. Due to the Company's change in control
resulting from the Kanders investment in January 1996, the allowed annual usage
of this tax benefit became restricted to approximately $300,000 per year.
The Company's effective tax rate was 37% in fiscal 1995 compared to
57% in fiscal 1996 (excluding the U.S. GAAP adjustment of the preference share
dividends). This increase in rate was incurred due to an unusual and
extraordinary tax penalty of approximately $320,000 relating to DSL's operation
in Kazakhstan. Had this charge not been incurred, DSL's effective tax rate
would have been 45%.
In accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("SFAS 109"), the Company has recorded a
deferred tax asset, representing its cumulative net operating loss carryforward
and deductible temporary differences, subject to applicable limits and an asset
valuation allowance. Any future benefit obtained from the realization of this
asset will be applied to reduce the reorganization value in excess of amounts
allocable to identifiable assets. As of December 28, 1996, the gross amount of
this deferred tax asset was $1.8 million, the entire amount of which has been
offset by a valuation allowance.
Dividends on preference shares. Preference share dividends were
approximately $239,000 in fiscal 1996 compared to no dividends in fiscal 1995.
These preference shares were acquired by the Company on April 16, 1997 in the
DSL Transaction.
Net income. Net income increased $169,000, or 33%, to $689,000 in
fiscal 1996 from $520,000 in fiscal 1995. This increase reflects the effect of
increased sales in fiscal 1996 as well as the positive effects on net income
from the NIK and DTC operations, partially offset by non-recurring
non-operating income received in fiscal 1995 and no such income being received
in fiscal 1996.
FISCAL 1995 AS COMPARED TO FISCAL 1994
Revenues--products. Products revenues increased $386,000, or 3.4%, to
$11.7 million in fiscal 1995 from $11.3 million in fiscal 1994. This increase
resulted primarily from an increase in sales in the domestic body armor
products business.
Cost of sales. Cost of sales decreased $298,000, or 4%, to $7.4
million in fiscal 1995 from $7.7 million in fiscal 1994. The decrease was due
to positive manufacturing variances (better utilization of labor and purchases
of raw material). In addition, the domestic market experienced better margins
and contributed a greater percentage to the overall sales figures as the
products business gross margin increased from 31.8% to 36.6%.
Operating expenses. Operating expenses increased $715,000, or 27%, to
$3.4 million in fiscal 1995 from $2.7 million in fiscal 1994. Increases in
salaries for additional personnel in the sales and marketing areas of the
Company and domestic commissions (due to the increase in domestic sales)
comprised the majority of the overall increase in operating expenses. In
addition, increased domestic travel costs and certain costs associated with the
investment by Kanders in the Company are included in operating expenses for
fiscal 1995. Increases in research and development expenses were also incurred
due to new vest certification and testing costs, as well as in connection with
the ISO 9002 certification of the Company's quality control standards. The
Company received the ISO 9002 certification in October 1995. See
"Business--Manufacturing and Raw Materials."
Depreciation and amortization. Depreciation and amortization increased
$10,000, or 23%, to $53,000 in fiscal 1995 from $43,000 in fiscal 1994. The
increase was due to increasing capital expenditures during the year.
23
<PAGE>
Interest expense. Interest expense increased $65,000, or 30%, to
$281,000 in fiscal 1995 from $216,000 in fiscal 1994. This increase resulted
primarily from higher borrowings under the Company's LaSalle credit facility.
Non-operating income. Non-operating income amounted to $228,000 in
fiscal 1995, compared to no such income in fiscal 1994. This income is
non-recurring and relates to the termination of a non-compete agreement entered
into in 1990 between the Company and a competitor.
Income before income taxes. Income before income taxes increased
$122,000, or 17%, to $824,000 in fiscal 1995 from $702,000 in fiscal 1994. The
increase is primarily due to the non-operating income incurred in 1995 being
partially offset by the increases in selling, general, and administrative
expenses.
Income taxes. In accordance with SFAS 109, the Company has recorded a
deferred tax asset, representing its cumulative net operating loss carryforward
and deductible temporary differences, subject to applicable limits and an asset
valuation allowance. Any future benefit obtained from the realization of this
asset will be applied to reduce the reorganization value in excess of amounts
allocable to identifiable assets. As of December 31, 1995, the gross amount of
this deferred tax asset was $2.0 million the entire amount of which has been
offset by a valuation allowance.
Net income. Net income increased $97,000, or 23%, to $520,000 in
fiscal 1995 from $423,000 in fiscal 1994. This increase in profit reflects the
improved margins and non-recurring, non-operating income received in fiscal
1995, partially offset by the increase in selling, general and administrative
expenses.
LIQUIDITY AND CAPITAL RESOURCES
Prior to April 30, 1996, the Company's principal source of working
capital was its credit facility with LaSalle. On April 30, 1996, the Company
sold $11.5 million principal amount of its Convertible Notes and used a portion
of the proceeds thereof to repay all amounts outstanding under the LaSalle
credit facility. Thereafter, the Company terminated the LaSalle credit
facility. In December 1996, the holders of all of the Convertible Notes
converted their Convertible Notes into an aggregate of 2,300,000 shares of
Common Stock.
On November 14, 1996, the Company entered into the Credit Facility
with Barnett Bank, N.A. ("Barnett Bank") for a revolving credit facility of up
to $10 million for working capital purposes. The Credit Facility was amended as
of March 26, 1997 to increase the revolving line of credit to $20 million. As
of August 11, 1997, the Company had no indebtedness to Barnett Bank. The Credit
Facility is secured by, among other things, the inventory, accounts receivable,
equipment, patents, trademarks and other intellectual property of the Company
and certain of its U.S. subsidiaries, and is guaranteed by certain of its U.S.
subsidiaries. In addition, the Company has pledged to Barnett Bank all of the
outstanding shares of common stock owned by the Company in DTC, NIK and Armor
Holdings Properties, Inc. See "Description of Certain Indebtedness" and Note 6
to the Consolidated Financial Statements.
As of December 28, 1996, the Company had working capital of $14.3
million, which reflects the net proceeds of $8.6 million (after paying down the
La Salle credit facility to a zero balance) from the issuance of the
Convertible Notes as well as positive cash flow from operations. At the end of
second quarter 1997, working capital was $11.6 million.
The Company anticipates that cash generated from the Public Offering,
operations and borrowings under the Credit Facility will enable the Company to
meet its liquidity, working capital and capital expenditure requirements during
the next 12 months. The Company, however, may require additional financing to
pursue its strategy of growth through acquisitions. If such financing is
required, there are no assurances that it will be
24
<PAGE>
available, or if available, that it can be obtained on terms favorable to the
Company or on a basis that is not dilutive to stockholders.
The Company anticipates spending approximately $4.0 million in
connection with its capital expenditure plan for fiscal 1997. Such expenditures
include, among other things, construction and other costs related to the
Company's new office and manufacturing facility at the Jacksonville
International Tradeport as well as upgrading the Company's management
information systems.
QUARTERLY RESULTS--HISTORICAL
The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 1995 and 1996. The Company believes all
necessary adjustments have been included in the amounts stated below to present
fairly the following selected information when read in conjunction with the
Consolidated Financial Statements and Notes thereto. Future quarterly operating
results may fluctuate depending on a number of factors. Results of operations
for any particular quarter are not necessarily indicative of results of
operations for a full year or any other quarter.
<TABLE>
<CAPTION>
FISCAL 1995
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales....................................................... $2,537 $2,939 $2,930 $3,335
Gross Profit................................................ 951 1,089 1,106 1,152
Net income.................................................. 112 128 226 54
Net income per common share and common share
equivalent................................................ $0.02 $0.02 $0.03 $0.01
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales....................................................... $3,267 $3,596 $4,452 $6,696
Gross Profit................................................ 1,157 1,338 1,808 2,829
Net income.................................................. 72 114 239 380
Net income per common share and common share
equivalent................................................ $0.01 $0.02 $0.03 $0.04
</TABLE>
25
<PAGE>
QUARTERLY RESULTS--SUPPLEMENTAL
The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 1995 and 1996, giving retroactive effect
to the DSL Transaction. The Company believes all necessary adjustments have
been included in the amounts stated below to present fairly the following
selected information when read in conjunction with the Supplemental
Consolidated Financial Statements and Notes thereto. Future quarterly operating
results may fluctuate depending on a number of factors. Results of operations
for any particular quarter are not necessarily indicative of results of
operations for a full year or any other quarter.
<TABLE>
<CAPTION>
FISCAL 1995
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales....................................................... $2,537 $2,939 $2,930 $3,335
Gross Profit................................................ 951 1,089 1,106 1,152
Net income.................................................. 112 128 226 54
Net income per common share and common share
equivalent................................................ $0.02 $0.02 $0.03 $0.01
</TABLE>
<TABLE>
<CAPTION>
FISCAL 1996
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Sales....................................................... $3,267 $3,596 $12,746 $11,358
Gross Profit................................................ 1,157 1,338 2,387 4,913
Net income.................................................. 72 114 62 411
Net income per common share and common share
equivalent................................................ $0.01 $0.02 $0.01 $0.04
</TABLE>
26
<PAGE>
INDUSTRY OVERVIEW
The Company participates in the global security industry through the
manufacture of security products marketed to law enforcement and correctional
personnel and the provision of specialized security services to multi-national
corporations and governmental agencies. The industry information described
below illustrates certain trends which management believes will contribute to
increasing demand for the Company's products and services. Due to the
fragmented nature of the security industry, however, specific statistical data
directly relating to the market segments in which the Company operates are
generally unavailable.
GENERAL
In recent years, the nature and perception of violent criminal
activity have changed in the U.S. and internationally. The proliferation of
advanced weaponry and related technologies has made the criminal and terrorist
element a more serious and unpredictable threat to the safety of citizens and
law enforcement personnel. Legal gun ownership has reached over 65 million
people in the U.S., and 31 U.S. states now permit the carrying of concealed
weapons, thereby increasing the risk of gun-related incidents. Such diverse
trends as increases in gang, illegal drug and militant activities have created
more sophisticated, well-equipped and violent criminals. For example, studies
by the U.S. Department of Justice indicate that the incidence of bombings in
the U.S. has grown over 200% from 1985 to 1995. Crime is viewed as a leading
public concern by the U.S. population, according to a recent Gallup poll.
Internationally, greater political, economic and social tensions and
the proliferation of weapons due to deficient security and illegal arms sales
continue to fuel criminal activities in lesser-developed nations. For example,
industry sources estimate that the crime rate in Russia has doubled in the last
five years. As multi-national corporations have increased their presence in
these lesser-developed nations to take advantage of new markets and natural
resources, they are frequently the targets of violent activity, including
kidnapping, terrorism and vandalism. A study by the U.S. Department of State
indicates that approximately two-thirds of all international terrorist
incidents in 1996 were targeted at private business concerns. Some 20% to 30%
of multi-national corporations operating in Russia have been faced with demands
for protection money. Kidnappings for ransom have been on the rise for the past
few years and, increasingly, the targets are local and foreign business
executives. According to industry sources, over 7,900 kidnappings of business
executives or their family members took place worldwide in 1995.
MANUFACTURED SECURITY PRODUCTS MARKET
Certain industry studies estimate that U.S. spending for private
security equipment will increase from $14 billion in 1990 to over $24 billion
in 2000 and worldwide expenditures for private security equipment will grow by
9.2% per year from approximately $26 billion in 1994 to approximately $44
billion in 2000. Although these statistics do not correlate directly to the
Company's product lines, the Company believes that the increasing spending in
the private security sector is indicative of a greater demand for the Company's
products in the law enforcement, correctional and governmental sectors.
Partially in response to increased awareness of crime, the number of
police officers has increased by approximately 23% in the period from 1985 to
1994. Expenditures on police protection in the U.S. have increased at a
compounded annual rate of 8% from 1980 to 1992 to a total of approximately $41
billion annually. In 1993, a U.S. Department of Justice survey of local police
departments indicated that 65% of such organizations have purchased body armor
for all of their officers, 60% supply their officers with pepper spray, 35%
supply their officers with tear gas and 10% maintain inventories of stun
grenades and less-than-lethal projectiles. In addition, the Company believes
the rise in the prison population has spurred demand from institutional
correctional facilities
27
<PAGE>
for manufactured security products. In the U.S., the prison population has
grown at a compounded annual rate of 8% from 1980 to approximately 1.6 million
inmates in 1995.
SPECIALIZED SECURITY SERVICES MARKET
Many multi-national corporations, such as petrochemical and mining
companies, have significant manpower and money invested in large projects in
poor, lesser-developed nations that are often beset by political instability,
ineffective and corrupt police forces and judicial systems, terrorism, high
crime rates and a general breakdown or lack of political, economic and social
infrastructures. Recent developments such as the fall of Communism in Europe
and the former Soviet Union and reduced interest of world superpowers in the
stabilization of many third world governments have resulted in numerous changes
in government and, in certain cases, great political instability in such
countries. Providing security for personnel and assets in such volatile and
dangerous areas is a primary factor considered by companies and governmental
agencies making decisions to invest in and send personnel to unstable areas.
In response to such security problems, corporations are increasingly
contracting experienced private companies to perform their security services.
Industry studies demonstrate that the security services market in the U.S.,
which does not contend with the same level of security threats as most
lesser-developed nations, is expected to increase at a rate of 7.9% annually
from approximately $17 billion in 1994 to approximately $26 billion by the year
2000. Management believes that demand by multi-national corporations and
governmental agencies operating in lesser-developed nations for specialized
security services, such as risk assessment, crisis management, guard force
management, security force organization and executive protection, is likely to
increase as such entities continue to establish operations and manufacturing
facilities in foreign and developing countries.
28
<PAGE>
BUSINESS
GENERAL
The Company is a leading provider of effective security solutions to
the increasing level of security threats encountered by domestic and foreign
law enforcement personnel, governmental agencies and multi-national
corporations. These solutions include a broad range of high quality branded
manufactured products such as ballistic resistant vests and tactical armor,
bomb disposal equipment, less-than-lethal munitions and anti-riot products
marketed under brand names such as American Body Armor(TM), Defense
Technology(TM) and First Defense(R), and sophisticated security planning,
advisory and management services, including the provision of highly trained,
multi-lingual and experienced security personnel in violent and unstable areas
of the world.
Founded in 1969 as American Body Armor & Equipment, Inc., the Company
until recently was primarily a manufacturer of armored products such as
ballistic resistant vests and tactical armor. Since Kanders acquired its
interest in the Company in January 1996, the Company has pursued a strategy of
growth through acquisition of businesses and assets that complement its
existing businesses. Through such acquisitions and the expansion of its
existing businesses, the Company seeks to: (i) offer superior customer service
through a comprehensive portfolio of security products and services; (ii)
capitalize on its growing, diversified, global and institutional client base;
(iii) promote brand development through the quality of its products, superior
training and customer service; and (iv) maximize profitability and operational
efficiencies. The Company believes that further growth will be generated by the
leverage of its distribution network and client base as well as expansion into
new territories.
Because the Company's customers require the highest level of
reliability from the Company's products and services the Company focuses on
quality, testing, training and support. To demonstrate its commitment to
quality, the Company became the first domestic manufacturer of body armor to
qualify for ISO 9002 certification by successfully completing an audit
certifying its compliance with a comprehensive series of quality management and
quality control standards. The Company routinely tests its products before
releasing them to customers and tests each layout of its ballistic resistant
vests. Recognizing the importance of safe and proper use of its products, the
Company offers comprehensive training to end-users and provides extensive
customer service support to its distributor network and end users. All security
personnel furnished by the Company undergo extensive and on-going training.
The Company believes that governmental and international agencies and
multi-national corporations will continue to face significant threats of
violent criminal and hostile activity, terrorism and civil disturbances. The
Company therefore expects demand for its products and services to increase as
these entities anticipate, mitigate and react to perceived or actual security
threats worldwide.
BUSINESS STRATEGY
The Company approaches its markets by focusing on customer service,
providing customized security solutions and offering branded, differentiated
products. The Company is pursuing the following business strategy in order to
increase its scale and profitability:
Offer a Comprehensive Portfolio of Solutions to Security Threats. The
Company has established a comprehensive portfolio of security solutions that
respond to a wide array of customer needs. Historically, the Company
manufactured, marketed and sold body armor and related products to law
enforcement agencies. Since July 1996, however, the Company has significantly
increased the scope of its product offerings through acquisitions of
complementary business lines, including less-than-lethal munitions and
anti-riot products, military apparel and narcotic identification kits. Through
the Company's combination with DSL, the Company has become a leading provider
of specialized security solutions that are designed to ensure the safety and
security of personnel and fixed
29
<PAGE>
assets in remote and hostile areas of the world. The Company intends to
continue to diversify its product and service portfolio through internal
development and acquisitions of complementary business and product lines.
Promote Brand Development through Training and Sales Support. The
Company's products are sold under established, highly-regarded brand names such
as American Body Armor(TM), Defense Technology(TM), First Defense(R) and
NIK(R). To maintain the value of these brands, the Company employs strict
quality control measures by conducting thorough product testing and providing
extensive customer support through a domestic and international network of
factory-direct sales representatives. These representatives offer comprehensive
customer training and dedicated customer service. DSL is one of the world's
oldest and most respected providers of sophisticated security services and
protects its reputation through rigorous selection, training and management of
personnel.
Capitalize on the Company's Broad Distribution Network. To sell its
portfolio of manufactured products, the Company has developed a broad network
of approximately 345 domestic independent distributors and approximately 150
international agents through whom it markets its products to end-users,
including domestic and international law enforcement agencies and governmental
authorities. The distributors benefit from their association with the Company
due to the quality of the Company's manufactured products, the scope of its
product line, the high degree of service provided by the Company and the
distributors' opportunity to participate profitably in the sale of the
Company's products. The wide range of products provided by the Company create
efficiencies in distribution which help to lower the Company's selling cost per
unit.
Capitalize on a Diversified, Global and Institutional Service Client
Base. DSL's client base includes international law enforcement agencies,
governmental authorities, the United Nations, the U.S. State Department and
multi-national corporations including petrochemical companies, mineral
extraction companies and financial services institutions operating in remote
and hostile environments. Once established in a particular region, the Company
is often selected by other multi-national organizations currently operating in
or expanding operations into that region. Through its service client base, the
Company believes it can expand its global presence through additional
referrals, enhance its reputation as the provider of choice within certain
geographic regions and reinforce its image as an innovative and worldwide
provider of specialized security services.
Maximize Profitability and Operational Efficiencies-Products. The
Company manufactures superior quality, high-end products which it sells for
premium prices. Because margins are an important consideration, the Company
generally has avoided highly-competitive bids for its manufactured products. In
addition, the Company maintains production efficiency through its close
attention to raw materials purchasing and flexible production planning.
Maximize Profitability and Operational Efficiencies-Services. The
Company provides value-added security services in unstable, high risk areas of
the world through highly qualified specialists with extensive international
security training and in most cases, military experience. Such services require
an in-depth understanding of foreign, political, economic and cultural norms.
In certain regions of the world, DSL has opened offices to establish a strong
local presence and efficiently gather local intelligence. DSL attempts to
absorb these fixed costs across a number of contracts in a particular
geographic region to enhance operating margins.
GROWTH STRATEGY
The Company expects the demand for defensive security products and
services to continue to grow in the foreseeable future. The Company seeks to
capitalize on this growth through the pursuit of strategic acquisitions,
leveraging of existing distribution network and geographic operating presence
with new products and services and continued global expansion.
30
<PAGE>
Pursue Strategic Acquisitions. The Company believes that there
currently exists a large pool of attractive acquisition candidates in the
manufacturing and service sectors potentially available for purchase. The
Company intends to continue to pursue selective acquisitions to enhance its
position in its current markets, to acquire operations in new markets and to
acquire operations that will broaden the range of products and scope of
services which the Company can provide.
Leverage Distribution Network. The Company plans to leverage its
distribution network by expanding its range of branded and differentiated
security products through the acquisition of niche defensive security products
manufacturers and investment in the development of new and enhanced products
which complement the Company's existing offerings. The Company believes that a
broader product line will enable it to provide more comprehensive security
solutions, thereby strengthening the relationship between the Company and its
distributors.
Leverage Service Client Base. The Company intends to grow with its
service clients, particularly those involved in the petrochemical and mineral
extraction industries, as they expand their commercial activities in remote and
hostile areas. In addition, satisfied clients historically have provided
significant growth opportunities for the Company in the form of client
referrals, providing additional growth to the Company with little associated
marketing expense.
Continue Global Expansion. The Company seeks to expand the geographic
scope of its security product and service offerings through acquisitions,
through the extension of its distribution network into new territories and by
providing security products and services to existing customers who are
expanding geographically. The Company anticipates targeting those regions which
contain substantial supplies of natural resources, such as Africa, South
America and Russia, and those countries which represent significant
opportunities for economic growth, such as India. In addition, many of the
Company's existing clients are pursuing rapid global expansion strategies which
may provide the Company with access to new territories and prospective new
client relationships.
PRODUCTS AND SERVICES
LAW ENFORCEMENT AND SECURITY PRODUCTS
Armor Products
The Company manufactures a wide array of armor products under the
brand name American Body Armor(TM) which are designed to protect against bodily
injury caused by bullets, knives and explosive shrapnel. The Company's
principal armor products are ballistic resistant vests, sharp instrument
penetration armor and bomb protective gear. In addition to body armor, the
Company also markets an assortment of other personal armor products, including
helmets, shields and upgrade armor plates. The Company's lines of ballistic
protective vests provide varying levels of protection depending upon the
configuration of ballistic materials and the standards (domestic or
international) to which the armor is built. The Company's body armor products
manufactured in the United States are certified under guidelines established by
the National Institute of Justice where applicable.
The Company offers two types of ballistic resistant armor: concealable
armor and tactical armor. Concealable armor, which generally is worn beneath
the user's clothing, is the Company's basic line of body armor. These vests are
often sold with a shock plate, which is an insert designed to improve the
protection of vital organs from sharp instrument attack and to provide enhanced
blunt trauma protection.
Tactical armor is worn externally and is designed to provide
protection over a wider area of a user's body and defeat higher levels of
ballistic threats. These vests, which are usually manufactured with hard armor
ballistic plates that provide additional protection against rifle fire, are
designed to afford the user maximum protection.
31
<PAGE>
Tactical armor may also provide enhanced protection against neck, shoulder and
kidney injuries. Tactical armor is offered in a variety of styles, including
tactical assault vests, tactical police jackets, floatation vests,
high-coverage armor and flak jackets.
The sharp instrument penetration armor manufactured by the Company is
designed primarily for use by personnel in correctional facilities and by other
law enforcement employees who are primarily exposed to threats from knives and
other sharp instruments. These vests are constructed with special metallic
blends and are available in both concealable and tactical models. In addition,
these vests can be combined with ballistic armor configurations to provide both
ballistic and sharp instrument penetration resistant protection.
The Company manufactures a wide range of bomb protective gear. This
equipment, known as Explosive Ordnance Disposal (EOD) equipment, includes bomb
disposal suits, which are primarily constructed of an aramid ballistic fabric
that is sheathed in a Nomex(R) brand fire-retardant cover. These suits cover
the user's entire body (except the 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.
The Company also distributes Scanna(R) letter bomb detection equipment.
The Company manufactures a variety of hard armor ballistic shields
primarily for use in tactical clearance applications. These shields are
manufactured using Spectra(R) ballistic fibers, polyethylene ballistic
materials, ballistic steel, ceramic tiles, ballistic glass or a combination of
any one or more of these materials. Other hard armor products include tactical
face masks and helmets, ballistic shields, barrier shields and blankets. These
products allow tactical police officers to enter high threat environments with
maximum ballistic protection.
Other specialty products manufactured by the Company include armored
press vests, executive vests, raincoats and fireman turnout coats. These
specialty products can be custom designed to provide various levels of
ballistic protection. The Company also manufactures specialty armor
applications for vehicles and aircraft, including the construction of
customized armored cars. The Company has the exclusive rights in the United
States to distribute Gallet(R) helmets to the law enforcement community. The
Company also distributes a variety of items manufactured by others, including
gas masks, batons and holsters.
Less-Than-Lethal Products
The Company manufactures a complete line of less-than-lethal and
anti-riot and crowd control products designed to assist law enforcement and
military personnel in handling situations that do not require the use of deadly
force. These products, which generally are available for use only by authorized
public safety agencies, include pepper sprays, tear gas, specialty impact
munitions and distraction devices.
The Company manufactures pepper sprays containing the active
ingredient oleoresin capsicum, a cayenne pepper extract. The Company's pepper
spray formula is patented and carries the trademark name of First Defense(R).
The products range from small "key-ring" and hand-held units to large volume
canisters for anti-riot and crowd control applications.
The Company's tear gases are manufactured using
Orthochlorobenzalmalononitrile (CS) and Chloroacetophenone (CN). These products
are packaged in hand-held or launchable grenades, both pyrotechnic and
non-pyrotechnic, as well as in 37 mm, 40 mm and 12 gauge munitions. The
munitions include barricade rounds, blast dispersions and pyrotechnic
canisters. The Company holds a patented design covering two of its
non-pyrotechnic grenades.
32
<PAGE>
The Company manufactures a wide range of specialty impact munitions
that can be used against either individual targets or in anti-riot and crowd
control situations. These products, which range from single projectiles such as
bean bags, rubber balls, wood batons and rubber batons to multiple projectile
products containing rubber pellets, rubber balls or foam, can be fired from
standard 12 gauge shotguns, 37 mm gas guns and 40 mm launchers.
The Company also manufactures a patented and trademarked device that
is used for dynamic entries by specially trained forces where it is necessary
to divert the attention of individuals away from an entry area. This product,
which carries the trademark name of Distraction Device(R), emits a loud bang
and brilliant flash of light when used.
Narcotic Identification and Evidence Equipment
The Company assembles and markets portable narcotic identification
kits under the NIK(R) brand name which are used by law enforcement personnel to
identify a variety of controlled substances, including cocaine, marijuana,
heroin and LSD. The Company also assembles and markets evidence collection kits
and evidence tape, and has the exclusive rights to distribute Flex-Cuf(R) and
Key-Cuff(TM) disposable restraints.
SPECIALIZED SECURITY SERVICES
The Company is the world's leading provider of specialized security
services in high risk and hostile environments, including Africa, South
America, Central Asia, Russia and the Balkans. The core of the Company's
security service business is the creation and implementation of solutions to
complex security problems in high risk areas through detailed and targeted
analysis of potential threats to security, assistance in the secure design of
facilities, the provision of highly qualified specialists with extensive
international experience in practical security applications and on-going
training of security personnel and client personnel with respect to preventive
security measures. The Company also provides humanitarian mine clearance and
ordnance disposal, maintenance of the security of lines of communication,
including airlines and airports, and high risk insurance services.
The security solutions offered by the Company generally involve
security consultation services and the provision of very experienced security
personnel who act as planners, trainers, managers, advisors, instructors and
liaison personnel. The Company also provides teams of supervisors, many of whom
are British Special Air Services ("SAS") veterans, who frequently are employed
as premium guards for government embassies. In connection with its security
services, the Company utilizes the services of approximately 5,200 locally
recruited guards. These guards are supervised, managed and trained by the
Company's professional security staff, but approximately 3,000 are employed by
local companies that subcontract their manpower to the Company. Other security
services provided by the Company include risk assessment, project organization
and management, equipping, training and management of existing guard forces,
system design, procurement, installation, crisis management, VIP protection,
specialist instruction and training and evacuation planning.
CUSTOMERS
LAW ENFORCEMENT AND SECURITY PRODUCTS
The Company sells its products through a network of independent
distributors who serve the law enforcement communities. In 1996, the Company
sold approximately 75% of its products in the U.S., with the balance sold
internationally. The primary end-users of the Company's products are law
enforcement agencies, local police departments such as the Philadelphia Police
Department, state police agencies such as the Georgia State Patrol, state
correctional facilities, highway patrols and sheriffs' departments. The
Company's largest distributor
33
<PAGE>
accounted for approximately 6.1% of the Company's overall revenue from product
sales in 1996, and the Company's top ten customers accounted for approximately
21.6% of overall revenue from product sales in 1996.
SPECIALIZED SECURITY SERVICES
The Company's principal security services clients include large
multi-national corporations that have significant investments in remote and
hostile areas of the world. These clients include petrochemical companies, who
accounted for approximately 35% of the Company's security business in fiscal
1996, and mining and construction companies, who accounted for approximately
24% of the Company's security business in fiscal 1996. Other significant
clients include the United Nations, governmental embassies, including those
belonging to the United States, projects funded by the World Bank and the
European Commission and a variety of banking, finance, aid and humanitarian
organizations and companies engaged in international trade and commerce. The
following table sets forth certain information regarding selected current and
recent clients, the nature of the security services provided to such clients,
and the countries in which such services are being or have been performed.
<TABLE>
<CAPTION>
CLIENT COUNTRY FACILITY SERVICES PROVIDED
- ------ ------- -------- -----------------
<S> <C> <C> <C>
Anadarko Petroleum Algeria Major oil fields Expatriate security managers and
Corporation supervisors (1994 to date)
British Petroleum Colombia Exploration rigs Security coordination management
and liaison (1992 to date)
Continental Airlines Colombia Airline Passenger/baggage search; aircraft
guarding (1993 to date)
DeBeers Congo (former Zaire) Diamond mine Expatriate security supervisors (1984
to date)
European Commission Bosnia-Herzegovina -- Mine clearance training program for
the government of
Bosnia-Herzegovina (1997 to 1998)
Price Waterhouse Russia Offices Guards/investigations (1994 to date)
U.S. Department of Bahrain, Uganda, Embassies Expatriate-managed guard forces
State Congo, Ecuador, (1985 to date)
Angola
United Nations Former Republic of U.N. facilities Logistics, manpower and support to
Yugoslavia UNPROFOR (1992 to 1996)
</TABLE>
MARKETING AND DISTRIBUTION
LAW ENFORCEMENT AND SECURITY PRODUCTS
The Company believes that, as a result of its history of providing
high quality and reliable armor, less-than-lethal products and narcotic
identification and evidence equipment, it enjoys excellent name recognition and
a strong reputation in the security industry. The central element of the
Company's marketing strategy is to leverage its name recognition and reputation
by positioning the Company as a global provider of many of the security
products and services that the Company's customers may need. The Company
believes that, by positioning itself in this manner, it can capitalize on its
existing customer base and its extensive global distribution network,
34
<PAGE>
maximize the benefits of its long history of supplying security-related
products around the world and leverage its leadership position in the security
product and services markets. When entering a foreign market, the Company seeks
to penetrate the market by offering the most comprehensive range of products
and services available in the security industry. The Company tailors its
marketing strategy to each geographic area of the world and will often tailor
its product offering by country. The Company believes that there are
opportunities for cross-marketing of military and law enforcement products
which could strengthen the image of each product group. The Company believes
that its ability to cross-market its security products and services will
enhance the Company's position as an integrated provider of an extensive
assortment of security products and services.
In addition, the Company has designed comprehensive training programs
to provide initial and continuing training to its customers in the proper use
of its various product lines. These training programs are typically conducted
by trained law enforcement and military personnel hired by the Company for such
purpose. The training programs may potentially reduce the Company's liability
for damages that the Company may incur from the use of its products. Certain of
the Company's training programs also contribute to the Company's revenues. The
Company's training programs are an integral part of the Company's customer
service offerings. Not only do the training programs enhance customer
satisfaction, but they also breed customer loyalty and brand awareness, thereby
enabling the Company to sell additional products to the same customer.The
Company's marketing effort is further augmented by its involvement with and
support of several important law enforcement associations, including the
National Tactical Officer's Association, the International Law Enforcement
Firearms Instructors, the American Society of Law Enforcement Trainers and the
International Association of Chiefs of Police.
The Company's distribution strategy involves the utilization of a
worldwide distribution network of approximately 345 domestic distributors and
150 international agents, as well as 15 regional domestic sales managers who
promote the Company's products but refer customers to a local distributor for
purchasing. The Company further reinforces distributor loyalty by offering
price discounts to high volume distributors. The Company believes its
relationships with its distributors are strong. The distributors benefit from
their association with the Company due to the quality of the Company's
manufactured products, the scope of its product line, the high degree of
service provided by the Company and the distributor's opportunity to
participate profitably in the sale of the Company's products.
The Company is continually looking for ways to expand its distribution
network. As the Company identifies and acquires businesses that fit
strategically into its existing product and service portfolio, the Company
believes that it will maximize its distribution network by offering additional
products and services. The Company's recent acquisition of Supercraft has
opened new channels of global distribution to parts of the world not previously
penetrated by the Company. The Company believes that its combination with DSL
will allow the Company to take advantage of DSL's extensive access to
multi-national corporations, whose security service needs in unstable countries
may in the future require security products that complement the services
provided. The Company also believes that the addition of these new distribution
channels will allow the Company and its subsidiaries to take advantage of each
other's distribution networks by offering the products of the other, thereby
increasing operating efficiencies.
SPECIALIZED SECURITY SERVICES
The Company's experience has been that its most successful form of
marketing for its security services is client referrals generated by the
professional ability of its personnel. As a result, the Company spends minimal
amounts on direct unsolicited marketing for its security service business. The
Company does not, however, rely upon client referrals as its only strategy of
growth. While the Company will rarely enter a country without a substantial
contract for services already in place, the Company regularly seeks out new
areas which offer potential investment opportunities for multi-national
corporations and present serious security problems which make such
35
<PAGE>
investment opportunities risky. In such cases, the Company will make contact
with organizations that are either currently investing or considering an
investment in such areas. Once established in a new country, the Company
employs qualified country project managers, who often speak the language native
to that country, to develop additional business.
The Company also seeks contracts with high visibility customers for
security services in the countries in which it operates. Examples of such
customers include United States embassies, the United Nations and its related
organizations, projects funded by the World Bank and the European Commission,
the International Committee for the Red Cross, the International Federation of
Red Cross and Red Crescent Societies and large multi-national corporations. The
Company may accept a lower profit margin on these contracts because the
referral and advertising value of these contracts outweighs any reduced profit
that may result from such contracts. By providing services to such high
visibility customers, the Company believes that it will be able to increase its
market share of the security services required by large multi-national
companies operating in those countries.
MANUFACTURING AND RAW MATERIALS
The Company manufactures substantially all of its bullet, bomb and
projectile resistant garments and other ballistic protection devices and
assembles its portable narcotic identification kits at its Jacksonville,
Florida facility. The Company manufactures virtually all of its
less-than-lethal products, other than piece parts which are assembled and used
in the finished goods, at its Casper, Wyoming facilities. The Company
manufactures most of its military apparel, high visibility garments and some
ballistic resistant garments at its manufacturing facility in Westhoughton,
England, near Manchester, where Supercraft is located. The primary raw
materials used by Company in manufacturing ballistic resistance garments are
various ballistic fibers, including Kevlar(R), Twaron(R) and SpectraShield(R).
Kevlar(R), an aramid fiber, is a patented product of E.I. Du Pont de Nemours &
Co., Inc. ("Du Pont") and is only available from Du Pont and its European
licensee. The Company has begun to use SpectraShield(R), a high strength
polyethylene product of Allied Signal Corp., as an alternative ballistic
resistant fabric to reduce its dependence on Kevlar(R). SpectraShield(R) has
been used in combination with Kevlar(R) in approximately 20% of all vests sold
by the Company. SpectraShield(R) is not, however, expected to become a complete
substitute for Kevlar(R) in the near future due to the fabric's physical
characteristics. The Company also uses Twaron(R), an aramid fiber product of
Akzo-Nobel Fibers B.V. The Company does not purchase these fibers directly from
the manufacturers, but rather purchases fiber from weaving companies who
convert the raw fibers into cloth. In the opinion of management, the Company
enjoys a good relationship with these weaving companies and believes that, if
necessary, it could readily find replacement weavers. See "Certain
Transactions."
The raw materials used by the Company in the production of chemical
agents are supplied by several sources. The raw chemicals used in the
production of CS tear gas are readily obtainable with the exception of
Malononitrile, for which sources are limited. If the Company were unable to
obtain Malononitrile, its production of CS tear gas could be severely
curtailed. The remainder of the chemicals and piece parts used by the Company
are readily available from other suppliers. While it manufactures its armor on
a built-to-order basis, the Company does maintain reasonable inventories on its
less-than-lethal and anti-riot products.
The Company purchases other raw materials used in the manufacture of
its various products from a variety of sources, and it believes additional
sources of supply of these materials are readily available. The Company also
owns several molds which are used throughout its less-than-lethal product line.
The Company adheres to strict quality control standards and conducts
extensive product testing throughout its manufacturing process. Raw materials
supplied to the Company are also tested to ensure quality. The body armor
manufactured by the Company is ISO 9002 certified. ISO 9002 standards are
promulgated by the International Organization of Standardization and have been
adopted by more than 100 countries worldwide. The Company
36
<PAGE>
obtained ISO 9002 certification by successfully completing an audit certifying
its compliance with a comprehensive series of quality management and quality
control standards. The Company is one of only two corporations in the industry
who have earned this prestigious certification. The Company is in the process
of seeking ISO 9002 certification for its less-than-lethal products.
COMPETITION
The markets for the Company's products and services are highly
competitive. In the body armor business, the Company competes by attempting to
provide superior design and engineering and production expertise with respect
to its line of fully-integrated ballistic and blast protective wear. The
less-than-lethal product industry has become increasingly competitive and the
Company is one of many major manufacturers of such products. The Company
believes there are approximately 40 companies marketing less-than-lethal
products. The Company competes by attempting to provide a broad variety of
less-than-lethal products with unique features and formulations. There can be
no assurance, however, that the Company will be able to compete successfully in
the future. The principal competitive factors for all of the Company's products
are price, quality of engineering and design, production capability and
capacity, ability to meet delivery schedules and reputation in the industry.
The security services industry is extremely competitive and highly
fragmented. Companies within the security services industry compete on the
basis of the quality of services provided, ability to provide national and
international services and range of services offered, as well as price and
reputation. The Company's security services also face a wide variety of
competition in different areas, although there is no single organization that
competes directly with DSL globally. The main competition in supplying security
services to the petrochemical and mining industries comes from local security
companies, in-house security programs and small consultancy companies. In the
embassy and international agency protection business, the competition comes
from local companies and from the largest manned guarding companies including
the Wackenhut Corporation, Pinkerton's, Inc., Group 4 and ICTS International,
N.V. As the countries within which DSL operates become more mature and stable,
competition is likely to increase.
PROPERTIES
The Company's principal facilities consist of the following:
<TABLE>
<CAPTION>
LOCATION PRINCIPAL USE OWNED/LEASED APPROXIMATE SIZE
- -------- ------------- ------------ ----------------
<S> <C> <C> <C>
Jacksonville, Florida Manufacturing, distribution, Owned 7 acres 70,000 square
corporate headquarters feet(1)
Casper, Wyoming Manufacturing, Warehouse, Office Owned/Leased (2) 60 acres 61,700 square
feet
Westhoughton, England Sales, Manufacturing, Warehouse Owned (3) 44,000 square feet
London, England Sales, Office Leased (4) 6,500 square feet
</TABLE>
- ---------
(1) The Company has the capacity to expand the building facility to
142,000 square feet.
(2) Of the four properties at this location, three are owned by DTC. The
fourth property occupied by DTC consists of two buildings. DTC owns
one building and leases the other. The real property upon which these
37
<PAGE>
two buildings are situated is also leased. The leased building and the
real property carry an annual rental of $26,400. The lease for this
property expires on September 1, 1998.
(3) AHL acquired the property from Bodycote International plc ("Bodycote")
as part of the Company's acquisition of Supercraft. Bodycote was
determined to have imperfect title to the property. If title to the
property is not resolved by December 31, 1997, AHL will receive
(pound)536,500, which was placed in escrow at closing.
(4) DSL leases three floors and pays annual rent thereon in an amount
equal to(pound)96,000. The lease for this property expires in
March 2002.
In addition, the Company also leases a 50,000 square foot facility in
Yulee, Florida, the Company's former manufacturing facility, which it has
subleased at full rental value until April 30, 1999, the expiration of the
lease. The annual rent for this property is $130,960 plus annual increases. See
Note 9 to the Consolidated Financial Statements.
The Company believes its manufacturing, warehouse and office
facilities are suitable, adequate and have sufficient manufacturing capacity
for its current and anticipated requirements. The Company believes that it has
adequate insurance coverage for all of its properties and their contents.
EMPLOYEES
As of October 23, 1997, the Company had a total of approximately 3,500
employees, of which approximately 250 were employed in product manufacturing
and approximately 3,250 were employed in security services. Approximately 45
employees employed by Supercraft are represented by the General Municipal
Boilermaker and Allied Trade Union. The collective bargaining agreement
currently in effect for these employees expires on December 31, 1997. None of
the Company's remaining employees are represented by unions or covered by any
collective bargaining agreements. The Company has not experienced any work
stoppages or employee related slowdowns and believes that its relationship with
its employees is good.
PATENTS AND TRADEMARKS
The Company currently has numerous issued U.S. and foreign patents and
pending patent applications relating to its product lines. The Company also has
several registered trademarks concerning its products. The trademarks include
Gold Series GSX(R), Def-Tec Products(R), Distraction Device(R), NIK(R) and
Identidrug(R). Although the Company does not believe that its ability to
compete in any of its product markets is dependent solely on its patents and
trademarks, the Company does believe that the protection afforded by its
intellectual property provides the Company with important technological and
marketing advantages over its competitors. Although the Company has protected
its technologies to the extent that it believes appropriate, there can be no
assurance that the Company's measures to protect its proprietary rights will
deter or prevent unauthorized use of the Company's technologies. In other
countries, the Company's proprietary rights may not be protected to the same
extent as in the United States.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to a number of federal,
state and local environmental laws, regulations and ordinances that govern
activities or operations that may have adverse environmental effects. Such
activities or operations include discharges to air and water, as well as
handling, storage and disposal practices regarding solid and hazardous
materials. Such laws and regulations may impose liability for the cost of
remediating sites of, and certain damages resulting from, past releases of
hazardous materials. Environmental laws continue to
38
<PAGE>
change rapidly, and it is likely that the Company will be subject to
increasingly stringent environmental standards in the future. The Company uses
CS and CN chemical agents in connection with its production of tear gas. The
chemicals are hazardous, and if not handled and disposed of properly could
cause environmental damage. The Company believes that it currently conducts its
activities and operations in substantial compliance with applicable
environmental laws. The Company believes that its potential liability under the
environmental laws, if any, would not have a material adverse effect,
individually or in the aggregate, on its results of operations or financial
condition. There can be no assurance in this regard, however, nor can there be
any assurance that environmental laws will not become more stringent in the
future or that the Company will not incur significant costs in the future to
comply with such environmental laws.
LITIGATION
In November 1989, the Federal Trade Commission (the "FTC") conducted
an investigation into the accuracy of the Company's claims that body armor it
sold between 1988 and 1990 complied with testing and certification procedures
promulgated by the National Institute of Justice. On November 2, 1994, the
Company entered into a consent order voluntarily settling the FTC's charges
that the Company engaged in false advertising. Under the consent order, the
Company admitted no violations of law but agreed to establish a body armor
replacement program under which persons who had purchased body armor between
1988 and 1990 would be identified and offered the chance to buy new replacement
body armor at a reduced price. The consent order sets forth many detailed
requirements governing the conduct of the replacement program, the retention of
records and the avoidance of false or misleading advertising. Failure to comply
with the requirements could make the Company liable for civil penalties. On
January 4, 1995, the Company filed with the FTC a comprehensive compliance
report detailing the manner in which it was performing the obligations imposed
upon it by the consent order. In February 1997, the FTC asked for additional
information, which the Company believes will be the FTC's final request for
information before closing the case.
On January 30, 1997, the Company commenced an action in the Supreme
Court of the State of New York, New York County, against DTCoA, the sole
stockholder of DTCoA and the President and Chief Executive Officer of DTCoA
(collectively, the "Defendants") claiming that the Defendants breached their
agreements relating to the sale of the DTCoA Assets to the Company. The relief
sought by the Company includes monetary damages of approximately $515,000, plus
accruals, and punitive damages. On April 3, 1997, the Defendants filed with the
court an answer and counterclaims to the Company's complaint. The Defendants
have denied each of the Company's allegations and have asserted several
affirmative defenses. Defendants have counterclaimed for, among other things,
breach of the terms of the asset purchase agreement and the authorized
distributor agreement entered into in connection with the Company's acquisition
of the DTCoA Assets. The Company believes that the counterclaims asserted
against it are without merit, and intends to vigorously defend such
counterclaims.
The Company and DTC, among other parties, have been named as
defendants in a product liability lawsuit claiming damages for wrongful death
resulting from the use by law enforcement officers of less-than-lethal products
sold by DTCoA. The Company's insurance carrier has assumed the defense of this
lawsuit, and the Company does not believe at this time that the outcome of this
lawsuit will have a material adverse effect on the Company.
In addition to the above, the Company, in the normal course of its
business, is subject to claims and litigation in the areas of product and
general liability. The Company believes that it has adequate insurance coverage
for most claims that are incurred in the normal course of business. In such
cases, the effect on the Company's financial statements is generally limited to
the amount of its insurance deductibles. Management does not believe at this
time that any such claims have a material impact on the Company's financial
position, operations and liquidity.
39
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of
the directors, executive officers and significant employees of the Company as
of October 23, 1997. Each director of the Company will hold office until the
next annual meeting of stockholders of the Company or until his or her
successor has been elected and qualified. The executive officers of the Company
are appointed by the Board of Directors of the Company and serve at the
discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Warren B. Kanders.................................. 39 Chairman of the Board of Directors
Jonathan M. Spiller................................ 46 Director, President and Chief Executive
Officer
Burtt R. Ehrlich................................... 58 Director
Nicholas Sokolow................................... 47 Director
Thomas W. Strauss.................................. 55 Director
Richard C. Bartlett................................ 62 Director
Alair A. Townsend.................................. 55 Director
Richard T. Bistrong................................ 35 Vice President--Sales and Marketing
Carol T. Burke..................................... 36 Vice President--Finance and Secretary
Robert R. Schiller................................. 34 Vice President--Corporate Development
J. Lawrence Battle................................. 46 President--Manufactured Products Division
David W. Watson.................................... 45 Vice President--Chief Financial Officer
SIGNIFICANT EMPLOYEES:
Alastair G. A. Morrison............................ 54 Chairman, DSL Holdings
Hon. Richard N. Bethell............................ 46 Chief Executive Officer, DSL Holdings
</TABLE>
Warren B. Kanders has served as Chairman of the Board of the Company
since January 1996. From October 1992 to May 1996, Mr. Kanders served as Vice
Chairman of the Board of Directors of Benson Eyecare Corporation. From June
1992 to March 1993, Mr. Kanders was the President and a Director of Pembridge
Holdings, Inc.
Jonathan M. Spiller has served as President and as a Director of the
Company since July 1991 and as Chief Executive Officer since September 1993.
From June 1991 to September 1993, Mr. Spiller served as the Company's Chief
Operating Officer. Mr. Spiller is a chartered and certified public accountant
and was previously a partner in the international accounting firm of Deloitte &
Touche LLP, where he served for 18 years.
Burtt R. Ehrlich has served as a Director of the Company since January
1996. Mr. Ehrlich served as Chairman and Chief Executive Officer of Ehrlich
Bober Financial Corp. from December 1986 until October 1992 and as a Director
of Benson Eyecare Corporation from October 1992 until November 1995.
Nicholas Sokolow has served as a Director of the Company since January
1996. Mr. Sokolow is a partner in the law firm of Sokolow, Dunaud, Mercadier &
Carreras. From June 1973 until October 1994, Mr. Sokolow was an associate and
partner in the law firm of Coudert Brothers. Mr. Sokolow is a Director of
Rexel, Inc.
40
<PAGE>
Thomas W. Strauss has served as a Director of the Company since May
1996. Since 1995, Mr. Strauss has been a Principal with Ramius Capital Group, a
privately held investment management firm. From June 1993 until July 1995, Mr.
Strauss was Co-Chairman of Granite Capital International Group. From 1963 to
1991, Mr. Strauss served in various capacities with Salomon Brothers Inc
("Salomon"), including President and Vice-Chairman.
Richard C. Bartlett has served as a Director of the Company since May
1996. Mr. Bartlett has served as Vice Chairman of Mary Kay Holding Corporation
since January 1993 and served as President, Chief Operating Officer and
Director of Mary Kay Inc. from 1987 through 1992. Mr. Bartlett has served as
Chairman of the Board of Directors since 1995 and Chief Executive Officer from
1994 to 1995 of The Richmont Group, a holding company with portfolio businesses
including financial services, apparel, sporting goods and restaurant chains.
Alair A. Townsend has served as a Director of the Company since
December 1996. Since February 1989, Ms. Townsend has been Publisher of Crain's
New York Business. Ms. Townsend currently serves as a Governor of the American
Stock Exchange. Ms. Townsend served as New York City's Deputy Mayor for Finance
and Economic Development from February 1985 to January 1989.
Richard T. Bistrong has served as Vice President of Sales and
Marketing of the Company since February 1995. From 1993 to February 1995, Mr.
Bistrong held the position of Director of Retail Operations for Fechheimer
Brothers Company, a wholly owned subsidiary of Berkshire Hathaway. From 1986 to
1992, Mr. Bistrong was an Executive Vice President of Point Blank Body Armor.
Carol T. Burke has served as Vice President of Finance of the Company
since January 1996 and as Secretary since March 1996. Ms. Burke joined the
Company as Controller in January 1995. From 1990 to January 1995, Ms. Burke was
a Senior Finance Manager at the Walt Disney Company.
Robert R. Schiller has served as Vice President of Corporate
Development of the Company since July 1996. From 1994 to July 1996, Mr.
Schiller was a Principal in the merchant banking firm of Circadian Capital
Corporation and from 1993 to 1995 he was a Director of Corporate Finance for
Jonathan Foster & Co. L.P. From January 1995 to September 1995, Mr. Schiller
served as Chief Financial Officer of Troma, Inc., an independent film studio.
From 1991 to 1992, Mr. Schiller served as Vice President of the Special
Situation Investment Fund, an investment fund controlled by the Brooke Group.
J. Lawrence Battle joined the Company on July 22, 1997 as President of
its Manufactured Products Division. From September 1996 until April 1997, Mr.
Battle served as Chief Development Officer of Physician Solutions, Inc. From
August 1994 to September 1996, Mr. Battle served as President and Chief
Operating Officer of Dayton Parts, Inc. From August 1992 to August 1994, Mr.
Battle served as President of Nutritional Support Services, L.P. From 1987 to
1991, Mr. Battle was Vice President and General Manager of the Automotive
Products Division of Ferodo America Inc., a subsidiary of T&N, plc.
David W. Watson joined the Company on August 25, 1997 as its Vice
President and Chief Financial Officer. From May 1994 until August 1997, Mr.
Watson served as Vice President of Finance of TT Group Industries, Inc., a $150
million subsidiary of a United Kingdom conglomerate. From June 1986 to
September 1993, Mr. Watson was with Monsanto Company, most recently serving as
Division Controller--Performance Products. Mr. Watson previously served in
various financial capacities with ITT Corporation and Westinghouse Electric
Corporation.
Alastair G. A. Morrison, OBE MC was one of four partners who founded
DSL Holdings in 1981. He served as Chief Executive of DSL Holdings from 1981 to
1995 and has served as a Director of DSL Holdings since 1981. Since 1995, Mr.
Morrison has served as Chairman of DSL Holdings. From 1961 to 1981, Mr.
Morrison was
41
<PAGE>
an officer in the Special Air Services of the British Army, achieving the rank
of Second in Command, 22 SAS Regiment.
The Hon. Richard N. Bethell, MBE has served as the Chief Executive
Officer of DSL Holdings since 1995. Mr. Bethell previously served as a Director
of DSL Holdings from 1991 to 1995. From 1988 to 1991, Mr. Bethell was Director
and Deputy Chief Executive of Leadership Trust, a leadership training company
for senior executives. From 1968 to 1988, Mr. Bethell served as a Senior
Officer in the Special Air Services of the British Army.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
On December 3, 1992, without admitting or denying any liability, Mr.
Strauss consented to an order of the Commission under which he was suspended
from associating with any broker, dealer, municipal securities dealer,
investment company or investment advisor for a period of six months, and paid a
civil penalty of $75,000. The central claim in these proceedings was that, as
President of Salomon, Mr. Strauss delayed in reporting an unauthorized bid by
the head of Salomon's Government Trading Desk who reported to one of Mr.
Strauss' subordinates. Mr. Strauss has maintained that he reported the
unauthorized bid both to Salomon's Chief Executive Officer and General Counsel
immediately upon learning of the unauthorized bid.
Mr. Spiller was the President and Chief Executive Officer of the
Company at the time the Company filed for Chapter 11 bankruptcy protection in
May 1992 through the confirmation on September 20, 1993 of the Company's Plan
of Reorganization.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has standing Audit, Compensation, Nominating
and Option Committees. The purpose of the Compensation Committee is to
recommend to the Board of Directors the compensation and benefits of the
Company's executive officers and other key management. During fiscal 1996, the
Compensation Committee consisted of Messrs. Sokolow (Chairman), Kanders and
Ehrlich.
DIRECTOR COMPENSATION
The non-employee directors of the Company participate in the Amended
and Restated 1996 Non-Employee Directors Stock Option Plan (the "1996 Directors
Plan"). See "Option Plans." Messrs. Kanders, Ehrlich, Sokolow, Strauss and
Bartlett and Ms. Townsend are all non-employee directors of the Company. During
1996 each non-employee director, except for Messrs. Kanders and Bartlett, was
granted options to purchase 75,000 shares of Common Stock at an exercise price
per share equal to the closing trading price of the Common Stock on the date of
the grant. No other compensation was paid to directors in 1996.
42
<PAGE>
EXECUTIVE COMPENSATION
The following summary compensation table sets forth information
concerning the annual and long-term compensation earned by the Company's chief
executive officer and each of the other most highly compensated executive
officers of the Company whose annual salary and bonus during fiscal 1996
exceeded $100,000 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION (1) COMPENSATION
-------------------------------------- ----------------
SECURITIES
FISCAL ANNUAL UNDERLYING ALL OTHER
Name and Principal Position YEAR SALARY BONUS OPTIONS(#) COMPENSATION
- --------------------------- ---- ------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C>
Jonathan M. Spiller............................. 1996 $160,000 $ 60,000 24,000 $ 5,775(2)
Chief Executive Officer and President 1995 160,000 21,000 18,000 --
1994 140,000 62,000 432,000 --
Richard T. Bistrong............................. 1996 120,000 107,000 50,000 --
Vice President--Sales and Marketing 1995 120,000 105,000 50,000 --
1994 -- -- -- --
Robert R. Schiller.............................. 1996 44,201(3) 45,000 150,000 17,500(4)
Vice President--Corporate Development 1995 -- -- -- --
1994 -- -- -- --
</TABLE>
- ---------
(1) The Company has no long-term incentive compensation plan other than
the 1994 Incentive Stock Option Plan and the Amended and Restated 1996
Stock Option Plan and various individually granted options. The
Company does not award stock appreciation rights, restricted stock
awards or long term incentive plan pay- outs.
(2) Represents the dollar value of 7,500 stock award grants awarded to Mr.
Spiller in December 1995, which options became fully vested on January
19, 1996. Does not include any amounts that Mr. Spiller may receive
with respect to 91,823 shares of Common Stock upon the earlier to
occur of (i) the sale by Kanders of at least 452,604 shares of Common
Stock or (ii) January 18, 1999. See "Certain Transactions."
(3) Mr. Schiller became an employee of the Company on July 24, 1996. He
was paid at an annual rate of salary of $120,000.
(4) Represents compensation earned by Mr. Schiller in his capacity as a
consultant to the Company prior to the execution of his employment
agreement.
43
<PAGE>
OPTIONS GRANTED IN FISCAL 1996
The following information is furnished for fiscal 1996 with respect to
the Company's Named Executive Officers for stock options granted during such
fiscal year. Stock options were granted without tandem stock appreciation
rights.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS EXERCISE OPTION TERM
UNDERLYING GRANTED TO PRICE MARKET PRICE ------------------------------------
OPTIONS EMPLOYEES IN PER PER SHARE ON EXPIRATION
NAME GRANTED(#)(1) FISCAL YEAR SHARE DATE OF GRANT(2) DATE 0%($) 5%($) 10%($)
- ---- ------------- ------------ --------- ---------------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jonathan M. Spiller.. 24,000 5.1 $ 1.00 $4.125 1/19/2006 $ 75,000 $137,261 $ 232,781
Richard T. Bistrong.. 50,000 10.7 .97 3.8125 1/18/2006 142,125 262,008 445,932
Robert R. Schiller... 150,000 32.1 6.06 6.06 7/24/2006 0 571,665 1,448,712
</TABLE>
- ---------
(1) All options granted to such officers (except those granted to Mr.
Schiller) have a term of ten years and were granted under the
Company's 1994 Incentive Stock Plan. The options granted to Mr.
Schiller have a term of ten years and were granted under the Company's
Amended and Restated 1996 Stock Option Plan.
(2) The market price on the date of grant shown for January 18, 1996 and
January 19, 1996 is the bid price of the Common Stock as listed on the
Bulletin Board on such date. The bid quotations represent inter-dealer
prices, and do not include mark-ups, mark-downs or commissions, and
may not necessarily represent actual transactions. For this reason,
and because of the low trading volume of the Common Stock at that
time, such bid quotations may not be an accurate reflection of the
fair value of the Common Stock on such dates. Therefore, at the
direction of the Board of Directors, the Company obtained an
independent valuation of the Common Stock during fourth quarter 1995
which valued the Common Stock at $0.77 per share, and the Company used
this value in determining the exercise price per share of the options
granted on such dates. The market price on the date of grant shown for
July 24, 1996 for options granted to Mr. Schiller is the average of
the high and low sales prices of the Common Stock on the AMEX on such
date.
44
<PAGE>
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR END OPTION VALUES
The following table contains certain information regarding options to
purchase Common Stock held as of December 28, 1996 by each of the Named
Executive Officers. None of the Named Executive Officers exercised any options
during fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END (1)
--------------------------------- ----------------------------------
Name Exercisable Unexercisable Exercisable UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jonathan M. Spiller........... 474,000 0 $3,296,450 $ 0
Richard T. Bistrong........... 50,000 50,000 345,250 345,250
Robert R. Schiller............ 0 150,000 0 272,250
</TABLE>
- ---------
(1) Calculated on the basis of $7.875 per share, the last reported sale
price of the Common Stock on the AMEX on December 28, 1996, less the
exercise price payable for such shares.
AGREEMENTS WITH KEY EMPLOYEES
The Company has entered into an employment agreement with Jonathan M.
Spiller which provides that he will serve as the President and Chief Executive
Officer of the Company for an initial term expiring January 17, 1999. The
agreement provides for a base salary of $200,000 effective January 1, 1997,
subject to increase by the Board of Directors, and for yearly bonuses based
upon the Company's net income. Mr. Spiller will also be entitled, at the
discretion of the Option Committee of the Board of Directors, to participate in
the Amended and Restated 1996 Stock Option Plan (the "1996 Option Plan") and
other bonus plans adopted by the Company based on his performance and the
Company's performance. Mr. Spiller's employment with the Company will continue,
unless earlier terminated by Mr. Spiller or by the Company or due to Mr.
Spiller's death or disability, for successive one year periods, on terms to be
mutually agreed upon by the Company and Mr. Spiller. See "Certain Transactions"
for a description of an agreement between Mr. Spiller and Kanders pursuant to
which Mr. Spiller, under certain circumstances, may either purchase 91,823
shares of Common Stock from Kanders for $0.9302 per share or receive the net
proceeds of the sale by Kanders of 91,823 shares of Common Stock reduced by
$0.9302 per share.
The Company has entered into an employment agreement with Richard T.
Bistrong which agreement provides that he will serve as Vice President--Sales
and Marketing of the Company for an initial term expiring January 17, 1999. The
agreement provides for a base salary of $120,000 and for yearly bonuses. In
addition to his base salary and bonus, Mr. Bistrong received non-qualified
stock options to purchase 21,250 shares of Common Stock and incentive stock
options to purchase 28,750 shares of Common Stock, in each case at an exercise
price of $0.97 per share of Common Stock. These options are exercisable for a
period of eight years from the date of the grant, and all of such options vest
on January 18, 1999. The vesting of the options may be accelerated on a pro
rata basis upon the occurrence of certain events. Pursuant to his employment
agreement, Mr. Bistrong will be entitled, at the discretion of the Option
Committee of the Board of Directors, to participate in the 1996 Option Plan and
other bonus plans adopted by the Company based on his performance and the
Company's performance. Mr. Bistrong's employment with the Company will
continue, unless earlier terminated by Mr. Bistrong or by the Company or due to
Mr. Bistrong's death or disability, for successive one year periods, on terms
to be mutually agreed upon by the Company and Mr. Bistrong.
45
<PAGE>
The Company has entered into an employment agreement with Robert R.
Schiller which provides that he will serve as Vice President--Corporate
Development of the Company for an initial term expiring July 23, 1999, at a
base salary of $120,000 per year. Effective January 1, 1997, Mr. Schiller's
base salary was increased by the Company to $130,000 per year. Mr. Schiller
also received a one-time relocation bonus of $45,000. In addition to his base
salary, Mr. Schiller received options under the 1996 Option Plan to purchase
150,000 shares of Common Stock at an exercise price per share equal to $6.06,
the market price of the Common Stock on July 24, 1996, the date of the grant.
These options vest over a period of three years from the date of the grant, and
all of such options become exercisable on July 24, 1999. The vesting of the
options may be accelerated on a pro rata basis upon the occurrence of certain
events. Pursuant to his employment agreement, Mr. Schiller will be entitled, at
the discretion of the Option Committee of the Board of Directors, to
participate in the 1996 Option Plan and other bonus plans adopted by the
Company based on his performance and the Company's performance. Mr. Schiller's
employment with the Company will continue, unless earlier terminated by Mr.
Schiller or by the Company or due to Mr. Schiller's death or disability, for
successive one year periods, on terms to be mutually agreed upon by the Company
and Mr. Schiller.
OPTION PLANS
1994 Incentive Stock Plan
The purpose of the Armor Holdings, Inc. 1994 Incentive Stock Plan (the
"1994 Incentive Plan") is to attract, retain and motivate selected employees
and officers and to encourage such persons to devote their best efforts to the
business and financial success of the Company. The 1994 Incentive Plan was
discontinued for the purpose of further stock option grants on January 19,
1996.
The 1994 Incentive Plan was administered by the Option Committee of
the Board of Directors. The Option Committee determined which employees and
officers were granted awards pursuant to the 1994 Incentive Plan. The 1994
Incentive Plan provided for grants of stock options and for grants of stock
grant awards. The maximum number of shares of the Common Stock reserved and
available for grant pursuant to the 1994 Incentive Plan was 1,000,000 shares.
Stock options granted under the 1994 Incentive Plan are incentive stock options
or non-qualified stock options and have an exercise price equal to the fair
market value of the Common Stock at the date of the grant. Options granted
under the 1994 Incentive Plan are exercisable no more than ten years from the
date of grant at any time after the first six months after the date of grant.
Options are not transferable other than by will or by the laws of descent or
distribution. Full payment for shares purchased upon exercise of an option must
be made at the time of exercise. Stock grant awards entitle the recipient to
acquire shares of the Common Stock without payment at dates and upon conditions
determined by the Option Committee. Stock grant awards are not transferable.
The 1994 Incentive Plan also provided for the grant of loans to recipients of
awards under such plan at the discretion of the Option Committee.
Amended and Restated 1996 Stock Option Plan
The purpose of the 1996 Option Plan is to afford key employees and
consultants of the Company and its subsidiaries who are responsible for the
continued growth of the Company an opportunity to acquire an ownership interest
in the Company, and thus create in such persons an increased interest in and a
greater concern for the welfare of the Company and its subsidiaries.
The 1996 Option Plan is administered by the Option Committee of the
Board of Directors. The Option Committee determines those individuals who will
receive options, the time period during which the options may be partially or
fully exercised and the number of shares of Common Stock that may be purchased
under each option. Options granted under the 1996 Option Plan may be incentive
options or non-qualified options. The Option
46
<PAGE>
Committee may determine the option exercise price of options granted under the
1996 Option Plan, provided that incentive options granted under the 1996 Option
Plan may not have an exercise price of an amount less than the fair market
value of the Common Stock on the date of the grant. Under certain conditions,
the Board of Directors as a whole has the power to grant options under the 1996
Option Plan.
Generally, options may be granted only to employees employed and
consultants engaged by the Company or of any subsidiary corporation or parent
corporation of the Company. Directors who are also employees of the Company are
also eligible to participate. Consultants are eligible to receive awards of
non-qualified options, but are not eligible to receive incentive stock options.
No person who owns, directly or indirectly, at the time of the granting of an
incentive stock option to him, 10% or more of the total combined voting power
of all classes of stock of the Company will be eligible to receive any
incentive stock options under the 1996 Option Plan unless the exercise price is
at least 110% of the fair market value of the Common Stock on the date of
grant. Options granted under the 1996 Option Plan are not transferable. Except
under certain circumstances such as death, disability or retirement and unless
otherwise specified by the Board of Directors, options granted under the 1996
Option Plan become null and void upon the termination of an option holder's
employment with the Company. Subject to certain limits, the Board of Directors
or the Option Committee may amend the 1996 Option Plan.
At the annual meeting of stockholders held on June 12, 1997, the
stockholders of the Company approved the following four amendments to the 1996
Option Plan: (i) the number of shares of Common Stock available for option
grants under the 1996 Option Plan was increased by 250,000 shares to 1,750,000
shares; (ii) the governing law of the 1996 Option Plan was changed from Florida
to Delaware; (iii) the 1996 Option Plan was restated to comport with recent
amendments to Rule 16b-3 promulgated under the Exchange Act; and (iv) a
schedule was adopted to permit the grant of options to employees of the
Company's United Kingdom subsidiaries.
Amended and Restated 1996 Non-Employee Directors Stock Option Plan
The purpose of the 1996 Directors Plan is to attract, retain and
compensate for service as directors of the Company highly qualified individuals
who are not current or former employees of the Company, by permitting such
directors to have a greater personal financial stake in the Company through the
ownership of Common Stock, in addition to underscoring their common interest
with stockholders in increasing the value of the Common Stock in the long term.
The 1996 Directors Plan is a formula plan pursuant to which
non-qualified options to acquire 75,000 shares of Common Stock will
automatically be granted to each Non-Employee Director on the date of his or
her initial election or appointment to the Board of Directors in consideration
for service as a Director. There are 450,000 shares of Common Stock reserved
for issuance under the 1996 Directors Plan. Under the 1996 Directors Plan
formula, the exercise price for all 75,000 options granted to each Non-Employee
Director under the 1996 Director Plan will be the closing price on the date of
the grant of the Common Stock as quoted on the composite tape of the American
Stock Exchange, or on such exchange as the Common Stock may then be trading. Of
the 75,000 options granted to each Non-Employee Director, options to acquire
25,000 shares become exercisable upon each of the first three anniversary dates
following the date of the grant and all 75,000 options granted to each
Non-Employee Director shall expire ten years from the date of grant. The
exercise price must be paid in cash. If, on the day of the grant, counsel for
the Company determines, in its sole discretion, that the Company is in
possession of material, undisclosed information that would prevent it from
issuing securities, then the grant of options to Non-Employee Directors will be
suspended until the second day after public dissemination of the information
(or the first trading day thereafter). The amount, pricing and other terms of
the grant will remain as set forth in the 1996 Directors Plan, with the
exercise price of the option to be determined in accordance with the formula on
the date the option is finally granted.
47
<PAGE>
Upon retirement, a Non-Employee Director's options will continue to
become exercisable and must be exercised by the earlier of (i) 36 months
following the date of retirement or (ii) the expiration of the applicable
option period, or such options shall be forfeited. Upon a Non-Employee
Director's disability or death, those options held by the Non-Employee Director
for at least one year prior to the date of death or the date of cessation of
service following disability shall become immediately exercisable. The
Non-Employee Director or his/her legal representatives or heirs must exercise
such options by the earlier of (i) six months or 36 months from the date of
cessation of service due to disability or death, respectively, as the case may
be, or (ii) the expiration of the applicable option period, or such options
shall be forfeited. Should an individual cease to serve as a Non-Employee
Director for any reason other than retirement, disability, death or cause,
he/she will have 90 days within which to exercise only those options which were
exercisable as of the date he/she ceased to serve as a director.
At the annual meeting of stockholders held on June 12, 1997, the
stockholders of the Company approved two amendments to the 1996 Directors Plan.
As a result, the number of shares of Common Stock available for issuance under
the 1996 Directors Plan was increased by 150,000 shares to a total of 450,000
shares and certain adjustments were made to the 1996 Directors Plan to comport
with recent amendments to Rule 16b-3 promulgated under the Exchange Act.
48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock (a) as of October 23, 1997, and (b) as
adjusted to reflect the sale by the Selling Stockholders of the shares offered
hereby, assuming all of the shares offered hereby are sold, by (i) each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of the Common Stock; (ii) each director and Named Executive Officer and
(iii) all executive officers and directors as a group. An aggregate of up to
858,524 shares of Common Stock may be offered by the Selling Stockholders. The
shares of Common Stock offered hereby constitute approximately 5.4% of all
shares of the Company's outstanding Common Stock, without giving effect to the
possible exercise of outstanding options, except as noted. Unless otherwise
indicated, each of the stockholders shown in the table below has sole voting
and investment power with respect to the shares beneficially owned. Unless
otherwise indicated, the address of each person named in the table below is c/o
Armor Holdings, Inc., 13386 International Parkway, Jacksonville, Florida 32218.
<TABLE>
<CAPTION>
AMOUNT AND SHARES BENEFICIALLY OWNED
NATURE OF BENEFICIAL AFTER THE
OWNERSHIP(1) OFFERING
NAMED EXECUTIVE OFFICERS, ------------------------ -------------------------
DIRECTORS OR 5% STOCKHOLDERS NUMBER PERCENT NUMBER PERCENT
- ----------------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Warren B. Kanders and Kanders
Florida Holdings, Inc.(2).................................. 3,937,178 24.6% 3,937,178 24.6%
Nevis Capital Management, Inc.(3)........................... 1,268,600 7.9 1,268,600 7.9
Richmont Capital Partners I, L.P.(4)........................ 725,000 4.5 725,000 4.5
Jonathan M. Spiller(5)...................................... 690,205 4.2 690,205 4.2
Frist Capital Partners, LLC(6).............................. 520,911 3.2 0 *
Burtt R. Ehrlich(7)......................................... 239,100 1.5 239,100 1.5
Alastair G.A. Morrison(8)................................... 210,257 1.3 122,644 *
Scottish Eastern Investment Trust(9)........................ 200,000 1.2 0 *
Nicholas Sokolow(10)........................................ 155,000 * 155,000 *
Hon. Richard N. Bethell(11)................................. 140,159 * 140,159 *
Martin Brayshaw(12)......................................... 87,613 * 0 *
Thomas W. Strauss(13)....................................... 75,000 * 75,000 *
Richard T. Bistrong(14)..................................... 66,667 * 66,667 *
Martin Currie North American Fund(15)....................... 50,000 * 0 *
Alair A. Townsend(16)....................................... 30,516 * 30,516 *
Carol T. Burke(17).......................................... 25,000 * 25,000 *
Richard C. Bartlett(18)..................................... 0 * 0 *
Robert R. Schiller(19)...................................... 0 * 0 *
J. Lawrence Battle.......................................... 0 * 0 *
David W. Watson............................................. 0 * 0 *
All executive officers and directors as a group
(14 persons)(20).......................................... 5,569,082 33.4% 5,481,46 32.9%
</TABLE>
- ---------
* Less than 1%
49
<PAGE>
(1) As used in this table, a beneficial owner of a security includes any
person who, directly or indirectly, through contract, arrangement,
understanding, relationship or otherwise has or shares (i) the power to
vote, or direct the voting of, such security or (ii) investment power
which includes the power to dispose, or to direct the disposition of, such
security. In addition, a person is deemed to be the beneficial owner of a
security if that person has the right to acquire beneficial ownership of
such security within 60 days.
(2) Of such shares, 3,637,178 shares are owned by Kanders Florida Holdings,
Inc., of which Mr. Kanders is the sole stockholder and sole director, and
300,000 shares are owned by the Kanders Florida Holdings, Inc. 1996
Charitable Remainder Unitrust, of which Mr. Kanders is trustee. Mr.
Kanders disclaims beneficial ownership of the shares owned by the trust.
(3) All such shares are owned by Snowden Limited partnership of which Nevis
Capital Management, Inc. is the general partner. The address of Nevis
Capital Management, Inc. is 1119 St. Paul Street, Baltimore, Maryland
21202.
(4) Includes options to purchase 200,000 shares of Common Stock. The address
of Richmont Capital Partners I, L.P. ("Richmont") is 4300 Westgrove Drive,
Dallas, Texas 75248.
(5) Includes options to purchase 474,000 shares of Common Stock. Also includes
43,541 shares owned by Mr. Spiller's children, of which Mr. Spiller
disclaims beneficial ownership. Does not include 91,823 shares of which
Mr. Spiller may be deemed to have a beneficial ownership interest pursuant
to an agreement with Kanders. See "Certain Transactions."
(6) The address of Frist Capital Partners, LLC is 25 West 68th Street, New
York, New York 10023.
(7) Includes options to purchase 25,000 shares of Common Stock. Also includes
13,400 shares owned by Mr. Ehrlich's children and 25,600 held in trust for
the benefit of his children, of which Mr. Ehrlich's spouse is trustee, of
which he disclaims beneficial ownership. Also includes 400 shares owned by
Mr. Ehrlich's spouse's individual retirement account, of which Mr Ehrlich
disclaims beneficial ownership.
(8) Mr. Morrison's address is 21 Embankment Gardens, Flat 6, London, SW3 4LW,
United Kingdom. Includes 87,613 shares of Common Stock over which Mr.
Morrison granted a beneficial ownership interest in to Martin Brayshaw, a
former employee of DSL Holdings, pursuant to that certain Option Deed
dated April 14, 1997, between Messrs. Morrison and Brayshaw. Such shares
are being registered for resale hereunder. It is expected that Mr.
Brayshaw will exercise the option and sell the shares received by him
following their registration hereunder. Mr. Morrison will not be selling
any shares of Common Stock under this registration statement. Upon the
exercise of the option by Mr. Brayshaw, Mr. Morrison will beneficially own
122,644 shares of Common Stock.
(9) The address of Scottish Eastern Investment Trust is Saltire Court,
Edinburgh, EH1 2ES, Scotland.
(10 Includes options to purchase 25,000 shares of Common Stock. Also includes
100,000 shares owned by S.T. Investors Fund, LLC ("STIF"), a limited
liability company of which Mr. Sokolow is a member and 20,000 shares owned
by Mr. Sokolow's children, of which he disclaims beneficial ownership.
Also includes 10,000 shares owned by Mr. Sokolow's profit sharing plan.
(11) Mr. Bethell's address is 60 Bromfelde Road, London, SW4 6PR, United
Kingdom.
50
<PAGE>
(12) Mr. Brayshaw's address is Redhall, 87 Main Street, Lyddington, Near
Uppingham, Rutland, LE15 9LS, United Kingdom.
(13) Includes options to purchase 25,000 shares of Common Stock.
(14) Includes options to purchase 36,667 shares of Common Stock.
(15) The address of Martin Currie North American Fund is Saltire Court,
Edinburgh, EH1 2ES, Scotland.
(16) Includes 5,516 shares of Common Stock and options to purchase 25,000
shares of Common Stock.
(17) Includes options to purchase 25,000 shares of Common Stock.
(18) Mr. Bartlett does not own any shares individually. Mr. Bartlett is
Chairman of The Richmont Group, whose affiliate, Richmont, is the
beneficial owner of 725,000 shares of Common Stock. Mr. Bartlett disclaims
beneficial ownership of the shares owned by Richmont.
(19) Mr. Schiller does not own any shares of Common Stock. Pursuant to the
terms of his employment agreement, Mr. Schiller was granted options to
purchase 150,000 shares of Common Stock on July 24, 1996 under the 1996
Option Plan at an exercise price of $6.06 per share, the market price of
the Common Stock on the date of the grant. The options vest over a period
of three years from the date of the grant, and all options become
exercisable on July 24, 1999.
(20) See footnotes (2) and (5), (7-8), (10-11) and (13-19).
Effective September 5, 1997, the Company, DSL and Martin Brayshaw
mutually agreed to terminate Mr. Brayshaw's employment with DSL and its
subsidiary, DSL Holdings. Mr. Brayshaw was a Director and the Commercial
Director of DSL Holdings.
Pursuant to the terms of a letter agreement dated October 1, 1997 between
the Company, DSL and Mr. Brayshaw (the "Agreement"), the Company is required to
use its best efforts to register for sale under the Securities Act 87,613
shares owned by Alastair Morrison, Chairman of DSL Holdings, that are subject
to an option granted by Mr. Morrison to Mr. Brayshaw (the "Brayshaw Shares").
Also pursuant to the terms of the Agreement, the Company advanced to Mr.
Brayshaw $50,000 (the "Advance").
Pursuant to the provisions of the Agreement and an Irrevocable Power of
Attorney (the "Power of Attorney") granted by Mr. Brayshaw in favor of Jonathan
M. Spiller, the President and Chief Executive Officer of the Company (the
"Attorney"), and following the effectiveness of this Registration Statement,
the Brayshaw Shares will be sold by Mr. Brayshaw in one or more transactions.
Upon the sale of the Brayshaw Shares, Mr. Brayshaw is required to pay to the
Company, or direct the Attorney to pay to the Company, the initial $50,000 of
net proceeds received from the sale of the Brayshaw Shares in repayment of the
Advance. Thereafter, the next $520,000 received from the sale of the Brayshaw
Shares shall be retained by Mr. Brayshaw. As consideration for the obligations
of the Company under the Agreement and of the release by the Company of Mr.
Brayshaw from liability under certain warranties given by Mr. Brayshaw in
connection with the Company's combination with DSL on April 16, 1997, Mr.
Brayshaw agreed to pay to the Company, or direct the Attorney to pay to the
Company, an amount equal to the net proceeds of the sale of the Brayshaw Shares
in excess of $520,000 (including the Advance).
The foregoing description of the agreement and the transactions
contemplated thereby are not intended to be complete and are qualified in their
entirety by the complete text of the agreement and the Power of Attorney.
51
<PAGE>
CERTAIN TRANSACTIONS
On May 15, 1996, the Company issued options to purchase 300,000 shares
of Common Stock to Richmont Capital Partners I, L.P. ("Richmont"), at an
exercise price of $7.50 per share, subject to adjustment (the "Richmont
Options"). The Richmont Options and the underlying shares, whether vested or
unvested, are callable by the Company in the event that the closing price per
share of the Common Stock is equal to or greater than $10.00 for a period of
ten consecutive trading days after December 31, 1997, upon written notice to
Richmont given within 30 days of the conclusion of such ten consecutive trading
days during which the closing price per share of the Common Stock was equal to
or greater than $10.00. In such event, the Company may require Richmont to
exercise the Richmont Options in whole with respect to all such shares within
ten days of such notice to Richmont. In the event that Richmont does not
exercise the Richmont Options, the Richmont Options will lapse.
Richmont was also the holder of a Convertible Note in the principal
amount of $3.0 million. Richmont converted its Convertible Note into 600,000
shares of Common Stock pursuant to the terms of the Convertible Subordinated
Note Purchase Agreement on December 18, 1996. Including the 200,000 Richmont
Options which have fully vested and the shares into which Richmont's
Convertible Note were converted, Richmont is the beneficial owner of 6.6% of
the Company's outstanding Common Stock. Richard C. Bartlett, a Director of the
Company, is the Chairman of the Board of Directors of The Richmont Group, the
parent corporation of Richmont. Mr. Bartlett disclaims beneficial ownership of
any shares of Common Stock beneficially owned by Richmont.
Kanders and Mr. Spiller entered into an agreement, dated as of January
18, 1996, pursuant to which Kanders granted to Mr. Spiller a beneficial
ownership interest in 316,823 shares of Common Stock owned by Kanders. On July
25, 1997, such number of shares were reduced to 91,823 in connection with the
Company's public offering of 4,000,000 shares of its Common Stock. As part of
such offering, Kanders sold an aggregate of 525,000 shares of Common Stock as
part of the underwriters' overallotment option, of which Mr. Spiller received
the net proceeds of 225,000 shares. Such agreement provides that, in the event
that Kanders sells at least 452,604 shares of Common Stock in a single
transaction, then Mr. Spiller will have the option to either (i) pay to Kanders
an amount equal to $0.9302 per share, in which event Mr. Spiller will be
entitled to receive stock certificates representing such 91,823 shares of
Common Stock, or (ii) receive the net proceeds relating to 91,823 shares of
Common Stock that are the subject of the sale by Kanders, reduced by $0.9302
per share. In the event that Kanders does not sell at least 452,604 shares of
Common Stock as described above, Mr. Spiller's rights to the 91,823 shares of
Common Stock will vest on January 18, 1999 so long as, at such time, Mr.
Spiller is the President and Chief Executive Officer of the Company and his
employment agreement with the Company is in full force and effect and Mr.
Spiller is not in breach thereof. If Mr. Spiller's employment agreement with
the Company is terminated due to his death or disability, or without cause,
prior to January 18, 1999, however, a pro-rata portion of such 91,823 shares of
Common Stock, based upon the number of months elapsed from January 18, 1996 in
relation to 36 months, will vest to Mr. Spiller. Unless sooner acquired by Mr.
Spiller, Mr. Spiller shall have the right to acquire any such vested shares of
Common Stock on January 18, 2001 upon payment by Mr. Spiller to Kanders of
$0.9302 per share relating to such shares.
Burtt R. Ehrlich, a Director of the Company, was the holder of a
Convertible Note in the principal amount of $250,000. Mr. Ehrlich converted his
Convertible Note into 50,000 shares of Common Stock pursuant to the terms of
the Convertible Subordinated Note Purchase Agreement on December 18, 1996.
Thomas W. Strauss, a Director of the Company, was the holder of a
Convertible Note in the principal amount of $200,000. Mr. Strauss converted his
Convertible Note into 40,000 shares of Common Stock pursuant to the terms of
the Convertible Subordinated Note Purchase Agreement on December 18, 1996.
52
<PAGE>
The Jeanne Kanders Revocable Inter Vivos Trust and the Ralph F.
Kanders Revocable Inter Vivos Trust, named for the parents of Warren B.
Kanders, the Chairman of the Board of Directors of the Company, were holders of
Convertible Notes in the principal amounts of $150,000 and $100,000,
respectively. The trusts converted their Convertible Notes into 30,000 and
20,000 shares of Common Stock, respectively, pursuant to the terms of the
Convertible Subordinated Note Purchase Agreement on December 18, 1996.
The Company historically has purchased substantially all of the
ballistic resistant fabric used in the manufacture of its products from Clark
Schwebel, Inc. ("Schwebel"), a subsidiary of Springs Industries, Inc. and a
former holder of 45.7% of the outstanding Common Stock. Kanders purchased all
of the capital stock of the Company owned by Schwebel on January 18, 1996. The
Company's purchases from Schwebel totaled approximately $3.4 million, $5.1
million and $5.0 million in fiscal 1994, fiscal 1995 and fiscal 1996,
respectively, and were made in the normal course of business at prices which
the Company believes were competitive with other available sources for such
materials.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 50 million shares
of Common Stock, $0.01 par value per share, and 5 million shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"). As of October 23,
1997, the Company had 16,023,740 shares of Common Stock issued and outstanding.
The material terms of the Company's certificate of incorporation (the
"Charter") and bylaws (the "Bylaws") are discussed below.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in the
election of directors and on all other matters on which stockholders are
entitled or permitted to vote. Holders of Common Stock are not entitled to vote
cumulatively for the election of directors. Holders of Common Stock have no
redemption, conversion, preemptive or other subscription rights. There are no
sinking fund provisions relating to the Common Stock. Holders of Common Stock
are entitled to receive dividends when and as declared by the Board of
Directors of the Company out of funds legally available therefor. The Company
does not anticipate paying cash dividends on the Common Stock in the
foreseeable future. See "Price Range of Common Stock and Dividend Policy." In
the event of the liquidation, dissolution or winding up of the Company, the
holders of Common Stock will be entitled to share ratably in all of the assets
of the Company, if any, remaining after satisfaction of the debts and
liabilities of the Company. The outstanding shares of Common Stock are, and the
shares of Common Stock offered hereby by the Company will be, upon payment
therefor as contemplated herein, validly issued, fully paid and nonassessable.
PREFERRED STOCK
Under the Company's Charter, the Board of Directors is authorized,
subject to certain limitations prescribed by law, to issue the Preferred Stock
in one or more classes or series and to fix the designations, powers,
preferences and relative participation, option or other special rights and
qualifications, limitations or restrictions thereof, including the dividend
rate, conversion or exchange rights, redemption price and liquidation
preference, of any such class or series. In addition, the Board of Directors
may fix the number of shares constituting any such class or series, and
increase or decrease the number of shares of any such class or series, but not
below the number of outstanding shares of any such class or series. The rights
of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
53
<PAGE>
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is incorporated under the DGCL. The Company is subject to
Section 203 of the DGCL, which restricts certain transactions and "business
combinations" between a Delaware corporation and an "interested stockholder"
(in general, a stockholder owning 15% or more of the corporation's outstanding
voting stock) or an affiliate or associate of an interested stockholder, for a
period of three years from the date the stockholder becomes an interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the interested stockholder.
Subject to certain exceptions, unless the transaction is approved by the Board
of Directors and the holders of at least 66 2/3% of the outstanding voting
stock of the corporation (excluding shares held by the interested stockholder),
Section 203 prohibits significant business transactions such as a merger with,
disposition of assets to or receipt of disproportionate financial benefits by
the interested stockholder, or any other transaction that would increase the
interested stockholder's proportionate ownership of any class or series of the
corporation's stock. The statutory ban does not apply if, upon consummation of
the transaction in which any person becomes an interested stockholder, the
interested stockholder owns at least 85% of the outstanding voting stock of the
corporation (excluding shares held by persons who are both directors and
officers or by certain employee stock plans). See "Risk Factors--Effect of
Certain Statutory Provisions."
The Charter contains certain provisions permitted under the DGCL
relating to the liability of directors. The Charter provides that, to the
fullest extent permitted by the DGCL, no director of the Company will be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director. The Charter and Bylaws of the Company
also contain provisions indemnifying the directors, officers and employees of
the Company or individuals serving at the request of the Company as directors,
officers, employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, to the fullest extent permitted by the
DGCL.
Section 203 and certain provisions of the Charter and Bylaws described
above may make it more difficult for a third party to acquire, or discourage
acquisition bids for, the Company. Section 203 and these provisions could have
the effect of inhibiting attempts to change the membership of the Board of
Directors of the Company. In addition, the limited liability provisions in the
Charter and the indemnification provisions in the Charter and Bylaws may
discourage stockholders from bringing a lawsuit against directors for breach of
their fiduciary duty (including breaches resulting from grossly negligent
conduct) and may have the effect of reducing the likelihood of derivative
litigation against directors and officers, even though such an action, if
successful, might otherwise have benefited the Company and its stockholders.
Furthermore, a stockholder's investment in the Company may be adversely
affected to the extent the Company pays the costs of settlement and damage
awards against directors and officers of the Company pursuant to the
indemnification provisions in the Bylaws. The limited liability provisions in
the Charter will not limit the liability of directors under federal securities
laws.
SHARES RESERVED FOR ISSUANCE
As of October 23, 1997, the Company had 358,000 shares of Common Stock
reserved for issuance upon the exercise of outstanding non-qualified options
and 589,666 shares of Common Stock issuable upon the exercise of outstanding
options under the 1994 Incentive Plan, 782,333 shares of Common Stock reserved
for the exercise of options issued pursuant to the 1996 Option Plan and 300,000
shares of Common Stock reserved for the exercise of options issued pursuant to
the 1996 Directors Plan. As of October 23, 1997, options for the purchase of
1,017,999 shares of Common Stock will be fully vested.
54
<PAGE>
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is American
Stock Transfer & Trust Company.
LISTING
The Common Stock is listed on the AMEX under the trading symbol "ABE."
DESCRIPTION OF CERTAIN INDEBTEDNESS
On March 26, 1997, the Company entered into the Credit Facility with
Barnett Bank. The Credit Facility provides for a $20 million revolving line of
credit. In addition, the Credit Facility provides for a separate sublimit of $5
million under an acceptance facility. The Credit Facility also provides for
issuance of letters of credit to the Company.
The Company's indebtedness under the Credit Facility bears interest,
at the Company's option, at a rate of either (i) Barnett Bank's prime rate less
.25% or (ii) an adjusted LIBOR rate equal to 2.25% per year over the LIBOR
rate.
As of October 23, 1997 each of the Company's U.S. subsidiaries (the
"U.S. Subsidiaries"), other than American Body Armor & Equipment, Inc. ("ABA")
and U.S. Defense Systems, Inc. ("USDS"), is a guarantor of the Company's
obligations under the Credit Facility. The Credit Facility is secured by a
security interest in, among other things, inventory, accounts receivable,
equipment and general intangibles of the Company and each of the U.S.
Subsidiaries. In addition, as further collateral for the Credit Facility (i)
the Company entered into a Pledge Agreement with Barnett Bank pursuant to which
the Company pledged as further collateral for the Credit Facility, all of the
issued and outstanding capital stock of each of the U.S. Subsidiaries, other
than ABA and USDS, and (ii) NIK and DTC entered into a Collateral Assignment
with Barnett Bank (the "Collateral Assignment") pursuant to which they each
granted a security interest in the trademarks, patents and other intellectual
property owned by each entity. The Company agreed to cause any newly formed or
acquired subsidiaries to guarantee the Company's obligations under the Credit
Facility.
The Credit Facility contains certain restrictive covenants, including
limitations on the encumbrance and transfer of assets, the creation of
indebtedness and the maintenance of certain levels of tangible net worth and
working capital. In addition, the Credit Facility restricts the payment of
dividends. The Credit Facility matures on March 1, 1999, subject to extension
under certain circumstances.
SHARES ELIGIBLE FOR FUTURE SALE
As of October 23, 1997, the Company had 16,023,740 shares of Common
Stock outstanding. Of these shares, 10,565,325 shares will be freely tradable
under the Securities Act, by persons who are not "affiliates" of the Company
(in general, an "affiliate" is any person who has a control relationship with
the Company). The remaining 5,458,415 outstanding shares of Common Stock are
deemed to be "restricted securities" as that term is defined in Rule 144, all
of which are eligible for sale in the public market in compliance with Rule
144. The Company, its officers and directors and certain existing stockholders
of the Company (who in the aggregate beneficially own 7,258,516 shares of
Common Stock) have agreed, subject to certain exceptions, that they will not
offer, sell or otherwise dispose of any of the shares of Common Stock, or any
securities convertible into or exercisable for Common Stock, owned by them
until January 19, 1998 (the "180 Day Period") without the prior written consent
of Dillon, Read & Co. Inc., as representative of the underwriters used by the
Company in connection with the Public Offering of 4,000,000 shares of Common
Stock in July 1997. Of such shares,
55
<PAGE>
approximately 4,304,000 are pledged as security for loan obligations of certain
stockholders. If such stockholders were to default in their obligations and the
bank were to foreclose on such pledged shares, such shares could be subject to
sale during the 180 Day Period. Additionally, the Company has agreed that,
during the 180 Day Period, subject to certain exceptions, it will not issue,
sell, offer or agree to sell, grant any options for the sale of (other than
employee stock options) or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable for
Common Stock, other than pursuant to the Public Offering or in connection with
future acquisitions.
In general, under Rule 144 as currently in effect any person (or
persons whose shares are aggregated) who has beneficially owned restricted
securities for at least one year is entitled to sell, within any three-month
period, a number of shares of Common Stock which does not exceed the greater of
1% of the number of then-outstanding shares of the Common Stock (16,023,740 as
of October 23, 1997) shares outstanding immediately after the Offering) or the
average weekly trading volume of the Common Stock during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 also may be subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the three months preceding a sale, and who has beneficially owned
shares within the definition of "restricted securities" under Rule 144 for at
least two years, is entitled to sell such shares under Rule 144(k) without
regard to the volume limitation, manner of sale provisions, public information
requirements or notice requirements.
In connection with the DSL Transaction, the Company agreed to register
the shares of Common Stock issued by the Company in connection with such
transaction for sale under the Securities Act, pursuant to the terms of a
registration rights agreement between the Company and each of the holders of
such shares. Pursuant to the terms of the registration rights agreement, the
holders are entitled to one demand registration right. Such stockholders have
agreed, subject to certain exceptions, that they will not offer, sell, contract
to sell, transfer or otherwise encumber or dispose of any shares of Common
Stock, or securities convertible or exchangeable for shares of Common Stock
during the 180 Day Period without the prior written consent of Dillon, Read &
Co. Inc.
The shares of Common Stock received by Richmont upon conversion of the
Convertible Notes have previously been registered. In addition, Richmont also
has certain piggyback registration rights with respect to such shares.
Shares held by certain of the Company's executive officers and
directors are subject to a three year lock-up agreement (each a "Kanders
Lockup") between such executives and Kanders. Pursuant to the terms of a letter
agreement, dated January 18, 1996, each of such executives agreed that he or
she will not, directly or indirectly, without the prior written consent of
Kanders, offer to sell, sell, grant any options for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber or dispose of certain of
his or her shares of Common Stock or securities convertible into, exercisable
or exchangeable for or evidencing any right to purchase or subscribe for, such
shares of Common Stock or dispose of any beneficial interest therein for a
period of three years from January 18, 1996, except as provided in such letter
agreement. Mr. Spiller, Mr. Ehrlich and S.T. Investors Fund, LLC have 646,664,
100,000 and 100,000 shares, respectively, subject to a Kanders Lockup. Mr.
Bistrong has 100,000 options subject to a Kanders Lockup and Ms. Burke has
45,000 options subject to a Kanders Lockup.
No prediction can be made as to the effect, if any, that market sales
of shares of Common Stock that are restricted securities, or the availability
of such shares, will have on the market price of the Common Stock prevailing
from time to time. Sales of substantial amounts of Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Common Stock and could impair the Company's future
ability to raise capital through an offering of equity securities.
56
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been
passed upon for the Company by Kane Kessler, P.C., 1350 Avenue of the Americas,
New York, New York 10019. Robert L. Lawrence, a member of Kane Kessler, P.C.,
owns 5,000 shares of Common Stock.
EXPERTS
The Consolidated Financial Statements of the Company incorporated in
this prospectus by reference from the Company's Annual Report on Form 10-KSB
for the year ended December 28, 1996 and from the Company's Registration
Statement No. 333-28879 on Form S-1 and the Supplemental Consolidated Financial
Statements of the Company incorporated in this prospectus by reference from the
Company's Registration Statement No. 333-28879 on Form S-1 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing thereon and have been so incorporated in reliance upon such reports
given upon their authority as experts in accounting and auditing.
The Consolidated Financial Statements of DSL Group Limited and
Subsidiaries incorporated in this prospectus by reference from the Company's
Registration Statement No. 333-28879 on Form S-1 as of December 31, 1996 and
for the period from June 3, 1996 (date of incorporation) to December 31, 1996
and of DSL Holdings Limited and Subsidiaries as of March 31, 1996 and 1995 and
for the two years then ended have been audited by KPMG, as set forth in their
reports thereon, which are incorporated herein by reference and have been so
incorporated in reliance upon such reports, given on the authority of that firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and in accordance therewith files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information filed by the Company can be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at 450
Fifth Street , N.W., Judiciary Plaza, Washington, D.C. 20549 and at the
Commission's regional offices located at 7 World Trade Center, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The Commission maintains a Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Reports, proxy and information
statements and other information regarding the Company may also be inspected at
the offices of the AMEX, 86 Trinity Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on
Form S-3 under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain
portions having been omitted in accordance with the rules and regulations of
the Commission. For further information with respect to the Company and the
Common Stock, reference is hereby made to such Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document are not necessarily complete,
although the material terms thereof are described in this Prospectus, and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement. Each such statement is qualified
by such reference to such exhibits. A copy of the Registration Statement may be
inspected by anyone without charge at the Commission's principal office in
Washington D.C., at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and through the Commission's internet site at
http://www.sec.gov. Copies of all or any part of the Registration Statement may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W. Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission.
57
<PAGE>
===============================================================================
No dealer, sales person or other person has been authorized to give
any information or to make any representation in connection with this offering
other than those contained in this Prospectus in connection with the offer
contained herein, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or any
Underwriter. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy the shares of Common Stock in any jurisdiction
to any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction or in which the person making such offer or solicitation is not
qualified to do so. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
been no change in the affairs of the Company since the date hereof.
------------------------
TABLE OF CONTENTS
Page
----
Incorporation by Reference................................................. 2
Prospectus Summary......................................................... 4
Risk Factors............................................................... 7
Significant Developments................................................... 12
Use of Proceeds............................................................ 13
Plan of Distribution....................................................... 13
Price Range of Common Stock and
Dividend Policy.......................................................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................................... 16
Industry Overview.......................................................... 27
Business................................................................... 29
Management................................................................. 40
Principal and Selling Stockholders......................................... 49
Certain Transactions....................................................... 52
Description of Capital Stock............................................... 53
Description of Certain Indebtedness........................................ 55
Shares Eligible for Future Sale............................................ 55
Legal Matters.............................................................. 57
Experts.................................................................... 57
Additional Information..................................................... 57
===============================================================================
===============================================================================
[LOGO]
ARMOR HOLDINGS, INC.
---------------
858,524 Shares
Common Stock
PROSPECTUS
___________ ___, 1997
---------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company's expenses in connection with the offering of the shares
of Common Stock described in this registration statement are set forth below.
No expenses will be borne by the Selling Stockholders. All amounts except the
Securities and Exchange Commission registration fee are estimated.
Securities and Exchange Commission registration fee............ $3,259.79
Blue Sky fees and expenses..................................... $ *
Printing and engraving expenses................................ $ *
Legal fees and expenses........................................ $ *
Accounting fees and expenses................................... $ *
Transfer agent fees and expenses............................... $ *
Miscellaneous.................................................. $ *
---------
Total.......................................................... $ *
=========
*To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the DGCL makes provision for the indemnification of
officers and directors of corporations in terms sufficiently broad to indemnify
the officers and directors of the Company under certain circumstances from
liabilities (including reimbursement of expenses incurred) arising under the
Securities Act.
As permitted by the DGCL, the Company's Charter provides that, to the
fullest extent permitted by the DGCL, no director shall be liable to the
Company or to its stockholders for monetary damages for breach of his fiduciary
duty as a director. Delaware law does not permit the elimination of liability
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases or (iv)
for any transaction from which the director derives an improper personal
benefit. The effect of this provision in the Charter is to eliminate the rights
of the Company and its stockholders (through stockholders' derivative suits on
behalf to the Company) to recover monetary damages against a director for
breach of fiduciary duty as a director thereof (including breaches resulting
from negligent or grossly negligent behavior) except in the situations
described in clauses (i)-(iv), inclusive, above. These provisions will not
alter the liability of directors under federal securities laws.
The Company's Bylaws provide that the Company may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that he is or was a director, officer, employee
or agent of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection
with such action, suit or proceeding if such person acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful.
II-1
<PAGE>
The Bylaws also provide that the Company may indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Company to
procure a judgment in its favor by reason of the fact that such person acted in
any of the capacities set forth above, against expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit if such person acted under similar
standards, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
to the Company unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
The Bylaws also provide that to the extent a director or officer of
the Company has been successful in the defense of any action, suit or
proceeding referred to in the previous paragraphs or in the defense of any
claim, issue, or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for in the Bylaws shall not
be deemed exclusive of any other rights to which the indemnified party may be
entitled; and that the Company may purchase and maintain insurance on behalf of
a director or officer of the Company against any liability asserted against him
or incurred by him in any such capacity or arising out of his status as such
whether or not the Company would have the power to indemnify him against such
liabilities under such Bylaws.
ITEM 16. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger, dated July 23, 1996, between American
Body Armor & Equipment, Inc., a Florida corporation, and the Company
(filed as Exhibit 2.1 to Form 8-K, Current Report of the Company,
dated September 3, 1996 and incorporated herein by reference).
2.2 Share Acquisition Agreement, dated as of April 7, 1997, between
Bodycote, AHL and the Company (filed as Exhibit 2.1 to Form 8-K,
Current Report of the Company, dated April 22, 1997 and incorporated
herein by reference).
2.3 Agreement for the Sale and Purchase of the Whole of the Issued Share
Capital of DSL, dated April 16, 1997, between the Company, AHL,
NatWest Ventures Nominees Limited and Others and Martin Brayshaw
(filed as Exhibit 2.2 to Form 8-K, Current Report of the Company,
dated April 22, 1997 and incorporated herein by reference).
2.4 Share Acquisition Agreement, dated as of June 9, 1997, between the
Company, Stontian Holdings Limited, Alpha-A Limited and Others (filed
as Exhibit 2.1 to Form 8-K, Current Report of the Company, dated June
24, 1997 and incorporated herein by reference).
5.1 Opinion of Kane Kessler, P.C., including consent.*
10.1 Agreement dated October 1, 1997, between the Company, DSL and Martin
Brayshaw.
10.2 Form of Irrevocable Power of Attorney granted by Martin Brayshaw in
favor of Jonathan M. Spiller.
23.1 Consent of Kane Kessler, P.C. (included in Exhibit 5.1).*
II-2
<PAGE>
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of KPMG.
23.4 Consent of KPMG.
24.1 Power of Attorney (included in signature page to registration
statement).
*To be filed by amendment.
ITEM 17. UNDERTAKINGS
The Company hereby undertakes
1. To file, during any period in which it offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth 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 Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in 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
(iii) To include any material information to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time to be the initial bona fide offering.
3. To remove from registration by means of a post-effective amendment
the securities which remain unsold at the termination of the offering.
4. The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the Company's annual report
pursuant to Section 13(a) or 15(d) of the Exchange Act that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
5. The Company hereby undertakes to deliver or cause to be delivered
with the prospectus, to each person to whom the prospectus is sent or given,
the latest annual report to security holders that is incorporated by reference
in the prospectus and furnished pursuant to and meeting the requirements of
Rule 14a-3 or Rule 14c-3 under the Exchange Act; and, where interim financial
information required to be presented by Article 3 of Regulation S-X are not set
forth in the prospectus, to deliver, or cause to be delivered to each person to
whom the prospectus is
II-3
<PAGE>
sent or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
6. 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 Commission 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 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.
7. (i) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(ii) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Company 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 City of Jacksonville, State of Florida, on October 23,
1997.
ARMOR HOLDINGS, INC.
By:/s/ Jonathan M. Spiller
-------------------------------------
Jonathan M. Spiller
President and Chief Executive Officer
October 24, 1997
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints each of Warren B. Kanders and Jonathan
M. Spiller, jointly and severally, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
and all documents relating thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent 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 said attorney-in-fact and agent or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/Warren B. Kanders Chairman of the Board of Directors October 24, 1997
- -------------------------------
Warren B. Kanders
/s/ Jonathan M. Spiller President, Chief Executive Officer and
- ------------------------------- Director (Principal Executive Officer) October 24, 1997
Jonathan M. Spiller
/s/ Carol T. Burke Vice President, Finance and Secretary
- ------------------------------- (Principal Accounting Officer) October 24, 1997
Carol T. Burke
/s/ Burtt R. Ehrlich Director October 24, 1997
- -------------------------------
Burtt R. Ehrlich
/s/ Nicholas Sokolow Director October 24, 1997
- -------------------------------
Nicholas Sokolow
Director October , 1997
- -------------------------------
Thomas W. Strauss
/s/ Richard C. Bartlett Director October 24, 1997
- -------------------------------
Richard C. Bartlett
/s/ Alair A. Townsend Director October 24, 1997
- -------------------------------
Alair A. Townsend
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
The following Exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit No. Description Page
----------- ----------- ----
<S> <C> <C>
10.1 Agreement dated October 1, 1997, between the
Company, DSL andMartin Brayshaw.
10.2 Form of Irrevocable Power of Attorney granted by
Martin Brayshaw in favor of Jonathan M. Spiller.
23.2 Consent of Deloitte & Touche LLP.
23.3 Consent of KPMG.
23.4 Consent of KPMG.
24.1 Power of Attorney (included in signature page to
registration statement).
</TABLE>
<PAGE>
EXHIBIT 10.1
DSL GROUP LIMITED
EGGINGTON HOUSE
25-28 BUCKINGHAM GATE
LONDON SW1E 6LD
30th September 1997
Martin Brayshaw, Esq.
Redhall
87 Main Street
Lyddington
Near Uppingham
Rutland LE15 9LS
Dear Martin,
I am writing to confirm the terms and conditions which have been agreed between
us concerning your departure from DSL Group Limited ("the Company"). We have
agreed the following:
1. Your employment by the Company terminated by mutual consent with effect
from 5th September 1997 ("the Termination Date").
2. After signing this letter of agreement, you will resign as a Director of
the Company and all its subsidiary companies and as a Trustee of the DSL
Group 1995 Pension Fund by signing the letters attached marked A and B.
3.1 The provision of this clause apply to the 87,613 shares of Common Stock of
AHI in the name of Alastair Morrison over which you have an option
pursuant to the Option Deed ("the Brayshaw shares").
3.2 On signing this letter of agreement, you will execute and delivery to AHI
a power of attorney in the form attached marked C (the "Power of
Attorney").
3.3 AHI will advance to you the sum of US$50,000:
(a) On the signing of this letter agreement; and
(b) On 31st December 1997, unless the Brayshaw shares have been sold before
that date;
each and any which sums are referred to in this letter as "the Advance".
<PAGE>
3.4 Unless the Brayshaw shares have been previously sold in whole or in part
in sufficient amount so that pursuant to clause 3.5 below Brayshaw shall
have received US $520,000 as soon as practicable following the date hereof
and in any event no later than 31 December 1997, AHI agrees to file with
and use its best efforts on or before 5th April 1998 to cause to be
declared effective by the U.S. Securities and Exchange Commission an
appropriate registration statement under the Securities Act of 1933, as
amended (the "Registration Statement"), which Registration Statement shall
include the Brayshaw shares.
3.5 As and when the Brayshaw shares are sold, you shall pay to AHI, or direct
the Attorney (as defined in the Power of Attorney) to pay to AHI, out of
the net proceeds received from such sales such amounts as shall be
sufficient to repay in full the Advance. After the repayment by you of the
Advance to AHI, you shall retain out of the sum received from the sales of
the Brayshaw shares the sum of US $520,000, or, if less, the net proceeds
of sale thereof. As consideration for the obligations of AHI under this
clause 3 and of the release contained in clause 4 below, you agree to pay
to AHI, or direct the Attorney (as defined in the Power of Attorney), to
pay to AHI, a fee equal to the net proceeds of the sale of the Brayshaw
shares that are in excess of US $520,000.
3.6 If the Brayshaw shares have not been sold on or before 5th April 1998,
then on that date you will repay the Advance to AHI.
4. In consideration of the fee payable by you under clause 3.5, AHI hereby
releases you from all your obligations under clause 5 of the Acquisition
Agreement in respect of the Warranties contained in that Agreement.
5. You hereby acknowledge, warrant and represent to AHI and to the Company
(for itself and as trustee for AHI) that to the best of your knowledge and
belief there are no subsisting facts or matters which would permit AHI to
make a claim against any of the Warrantors for breach of any Warranty.
6. You acknowledge and confirm that it is expressly agreed between us that
the provisions of clauses 12 and 13 and Schedule 2 to the Service
Agreement remain in full force and effect and undertake that you will
comply with those provisions in all respects.
7. In consideration of the obligations of the Company and AHI under this
letter agreement, you undertake to the Company for itself and as trustee
for AHI:
(a) not in make, publish or otherwise communicate any misleading,
disparaging or derogatory statement, whether in writing or otherwise
concerning any group Company, or its respective officers or employees
which is calculated to damage the reputation of any Group Company, its
officers or senior employees or which you are aware or ought reasonably
to be aware is likely to cause material damage to or damage or lower the
reputation of any Group Company or its officers or employees.
(b) not to have any contact with or make any statement to the media relating
to your involvement with any Group Company or your departure from the
Company and to refer any enquires you may receive from the media in
relation to such matters to the Chief Executive Officer of AHI.
(c) to keep the terms of this letter strictly private and confidential and
not to disclose, communicate or otherwise make public the same to anyone
save, in confidence, to your professional advisers or the relevant tax
authorities and otherwise as may be required to be disclosed by law.
8. You undertake that at the cost and expense of the Company and at a rate of
recompense of (pound)500 plus VAT per day or part thereof and in addition
appropriate travel/accommodation expenses you will provide each Group
Company with such information and assistance as the respective officers or
employees may reasonably request from time to time relating to matters
within your knowledge of
<PAGE>
their business and affairs including if necessary giving evidence as a
witness in any legal proceedings relating to matters which occurred while
you were employed by the Company.
9. You undertake to the Company to return forthwith all property and
documents which you have belonging to the Company and not to retain any
copies thereof whether in hard copy form or otherwise.
10. You accept the arrangements obligations undertaken by the Company and AHI
in this letter agreement in full and final settlement of any claims you
have or may have arising out of your employment, its termination or
otherwise including any claims under statute of E.C. law save for any
accrued pension right or industrial injury claim (you however hereby
acknowledge that you are not aware of any claims which you may have
against the Company, its shareholders, officers and employees in relation
to industrial injury claims) which you may have against the Company and
its shareholders, officers and employees (as to which no admission is
made).
11. You undertake that you have not presented or posted to the offices of the
Industrial Tribunal an Originating Application or Issued a High Court Writ
or County Court Summons in respect of any claim whatsoever arising out of
your employment or its termination and that you will not do any of those
things.
12. You acknowledge that the Company and AHI have entered into this agreement
in reliance on the undertakings and warranties given by you and that
without prejudice to any other right or remedy of the Company and/or AHI
herein the event of any material breach of such undertakings or warranties
the Advance shall be repaid by you to the Company forthwith and in the
event of default shall be recoverable by the Company as a bet.
13. In this Agreement:
(a) the "Service Agreement" means and agreement dated 16th April 1997 made
between the Company (1) and you (2) and Armor Holdings, Inc. (3);
(b) the "Option Deed" means a deed dated 14th April 1997 made between
Alastair Morrison (1) you (2) and the Company (3);
(c) terms and expressions used in this letter agreement have the same
meaning as in the Service Agreement and (where applicable) in the
Acquisition Agreement.
14. To indicate your agreement to the matters mentioned above, please sign,
date and return to me the enclosed copy of this letter agreement whereupon
it shall constitute a legally binding agreement subject to English law
between the Company, AHI and yourself. Any dispute relating to this letter
agreement shall be subject to the non-exclusive jurisdiction of the Courts
of England.
<PAGE>
Yours faithfully,
Duly authorized for and on behalf of DSL Group Limited
/s/ Richard Bethell
- --------------------------------
Richard Bethell
Director
Accepted and Agreed on
behalf of Armor Holdings, Inc.
/s/ Jonathan M. Spiller Dated October 1, 1997
- --------------------------------
Director, President & CEO
Accepted and agreed
/s/ Martin Brayshaw Dated October 1, 1997
- --------------------------------
Martin Brayshaw
<PAGE>
EXHIBIT 10.2
IRREVOCABLE POWER OF ATTORNEY
-----------------------------
The undersigned, Martin John Brayshaw ("Brayshaw"), hereby irrevocably
constitutes and appoints Jonathan M. Spiller with full power of substitution,
the true and lawful attorney-in-fact (the "Attorney") of Brayshaw with the full
power in the name of, for and on behalf of Brayshaw to exercise that certain
option for 87,613 shares of common stock (the "Shares") of Armor Holdings, Inc.
("AHI") granted to Brayshaw by Alastair Morrison ("Morrison") pursuant to that
certain Option Deed dated April 14, 1997, between Morrison, Brayshaw and DSL
Group Limited ("DSL"), and to effect any and all sales of Shares pursuant to
that certain Agreement (the "Agreement"), dated as of 1 October 1997, between
Brayshaw, DSL and AHI and to make the payments referenced in clause 3.5 of the
Agreement.
The power and authority granted to the Attorney hereunder shall include, but
not be limited to, the power and authority to instruct all appropriate persons
to sell and deliver the Shares in accordance with the instructions of the
Attorney, all in conformity with the terms and provisions of the Agreement.
This power of attorney is an agency coupled with an interest and all authority
conferred hereby shall be irrevocable.
-----------------------------
Martin John Brayshaw
On the day of October 1997, before me personally came Martin John Brayshaw, to
me known to be the individual described in and who executed the foregoing
instrument and acknowledged to me that he executed the same.
-----------------------------
Notary Public
------------------------------
American Counsel
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
To the Board of Directors and Shareholders of Armor Holdings, Inc.:
We consent to the incorporation by reference in this Registration Statement of
Armor Holdings, Inc. on Form S-3 of our report dated February 21, 1997 as to
the Company's consolidated financial statements appearing in both the
Annual Report on Form 10-KSB of Armor Holdings, Inc., for the year ended
December 28, 1996 and in the Company's Registration Statement on Form S-1
(Number 333-28879), and our report dated February 21, 1997 (except for
the pooling of interests with DSL as described in Note 1, for which the
date is April 16, 1997) as to the Company's supplemental consolidated
financial statements appearing in the Company's Registration Statement on
Form S-1 (Number 333-28879), and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
October 23, 1997
<PAGE>
EXHIBIT 23.3
The Board of Directors
DSL Group Limited:
We consent to the incorporation by reference in the registration statement on
Form S-3 of Armor Holdings, Inc. of our report dated 15 April 1997, with
respect to the consolidated balance sheet of DSL Group Limited and subsidiaries
as of 31 December 1996 and the related consolidated profit and loss account and
consolidated cash flow statement for the period from 3 June 1996 to 31 December
1996, and of our report dated 29 July 1996, with respect to the consolidated
balance sheets of DSL Holdings Limited and subsidiaries as of 31 March 1996 and
1995 and the related consolidated profit and loss accounts and consolidated
cash flow statements for each of the years then ended, which reports appear in
the Form 8- K/A-1 of Armor Holdings, Inc. dated 20 June 1997, and to the
reference to our firm under the heading "Experts".
/s/KPMG
KPMG
London, England
23 October 1997
<PAGE>
EXHIBIT 23.4
The Board of Directors
Gorandel Trading Limited:
We consent to the incorporation by reference in the registration statement on
Form S-3 of Armor Holdings, Inc. of our report dated 15 April 1997, with
respect to the balance sheet of Gorandel Trading Limited as of 31 December 1996
and the related profit and loss account and cash flow statement for the period
from 1 April 1996 to 31 December 1996, and of our report dated 29 July 1996,
with respect to the balance sheets of Gorandel Trading Limited as of 31 March
1996 and 1995 and the related profit and loss accounts and cash flow statements
for each of the years then ended, which reports appear in the Form 8-K/A-1 of
Armor Holdings, Inc. dated 11 August 1997.
/s/KPMG
KPMG
London, England
23 October 1997
