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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 1 0 - K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 27, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________
Commission File Number 0-18863
ARMOR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-3392443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13386 International Parkway
Jacksonville, Florida 32218
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (904) 741-5400
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Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which registered:
Common Stock, par value of $.01 per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 25, 1998 is $127,308,033
The number of shares outstanding of the registrant's Common Stock as of
March 25, 1998 is 16,042,259.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT FORM 10-K PART
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Proxy Statement for 1998 Annual Meeting III
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Armor Holdings, Inc., a Delaware corporation (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 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. In May 1992, the Company filed
for relief under Chapter 11 of the United States Bankruptcy Code. The
bankruptcy filing was the result of a general decline in the Company's
operations, which included significant operating losses in 1989 and 1991, and
the inability to collect a $1.5 million receivable related to the shipment of
vests to a Middle East customer in April 1991. The Company emerged from
bankruptcy protection effective September 20, 1993, upon confirmation by the
United States Bankruptcy Court for the Middle District of Florida, Jacksonville
Division, of the Company's Third Amended and Restated Plan of Reorganization.
On January 18, 1996, the Company underwent a change in
control in connection with the purchase by Kanders Florida Holdings, Inc., a
Delaware corporation ("Kanders") and certain other investors of all of the
capital stock of the Company owned by Clark Schwebel, Inc. and Hexcel
Corporation, both suppliers of raw materials to the Company. Since Kanders
acquired its interest in the Company, the Company has pursued a strategy of
growth through acquisition of businesses and assets within the security
industry. 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 manufactured 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 areas. See Item 13, "Certain Relationships and Related Transactions."
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 security products
and services to increase as these entities anticipate, mitigate and react to
perceived or actual security threats worldwide.
From January 18, 1996 through March 20, 1998, the Company has
consummated the six transactions discussed below, and is continuing to pursue
other acquisition opportunities. In addition, in 1997 the Company established a
holding company structure to facilitate management of its growth and completed
an underwritten public offering of 4,000,000 primary shares of its common
stock, $0.01 par value per share (the "Common Stock").
LOW VOLTAGE SYSTEMS TECHNOLOGY, INC.
On January 30, 1998, the Company acquired all of the issued
and outstanding shares of capital stock of Low Voltage Systems Technology,
Inc., a New Jersey corporation ("LST"). LST is a leading systems engineer
specializing in the supply, integration, maintenance and technical support of
sophisticated electronic and
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computer-driven security and fire alarm systems. The aggregate purchase price
of the transaction was approximately $750,000, consisting of $562,500 in cash
paid at closing and 18,519 unregistered shares of Common Stock valued at the
time at $187,500. The Company also assumed and subsequently repaid
approximately $200,000 to a stockholder of LST in full satisfaction of loans
previously made by such stockholder to LST.
DSL GROUP LIMITED
On April 16, 1997, the Company combined with DSL Group
Limited, a United Kingdom corporation ("DSL"), 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. The consolidated financial statements of the
Company for fiscal 1996 and 1997 include the results of DSL since its
inception. 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.
GORANDEL TRADING LIMITED
On June 9, 1997, the Company acquired the remaining 50% of
Gorandel Trading Limited, a Cyprus corporation ("GTL"), 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.
SUPERCRAFT (EUROPE) LIMITED
On April 7, 1997, the Company acquired Supercraft (Europe)
Limited, f/k/a Supercraft (Garments) Limited, a United Kingdom corporation
("Supercraft"). 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 an initial 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 (of which title has
now been properly transferred to the Company) and (iii) certain additional
consideration in an amount not to exceed (pound)250,000 (approximately
$410,000) based on 1997 operating results. The Company was not required to pay
this additional consideration.
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
On September 30, 1996, a wholly-owned subsidiary of the
Company, Defense Technology Corporation of America, a Delaware corporation
("DTC"), acquired substantially all of the assets (the "DTCoA Assets") of
Defense Technology Corporation of America, a Wyoming corporation ("DTCoA"). 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.
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NIK PUBLIC SAFETY PRODUCT LINE
Effective as of July 1, 1996, NIK Public Safety, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company ("NIK"),
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.
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. (now known as SBC Warburg
Dillon Read Inc.), Equitable Securities Corporation (now known as SunTrust
Equitable Securities) and Stephens Inc. Net of underwriting discounts and
commissions, the Company realized proceeds of $38,070,000, portions of which
the Company has used to repay all of the outstanding indebtedness on its Credit
Facility (as hereinafter defined) with Barnett Bank, N.A. ("Barnett Bank").
MANUFACTURED PRODUCTS AND SECURITY SERVICES DIVISIONS
The Company operates in the broadly defined security industry
through its two divisions: Manufactured Products and Security Services.
MANUFACTURED PRODUCTS DIVISION
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, gas masks, batons, holsters 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. See "--Government and Industry Regulations and Standards" and
"--Manufacturing and Raw Materials."
The Company's ballistic resistant armor is comprised of
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.
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.
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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 also manufactures a variety of hard armor
ballistic shields primarily for use in tactical clearance applications,
including tactical face masks and helmets, ballistic shields, barrier shields
and blankets. These manufactured products allow tactical police officers to
enter high threat environments with maximum ballistic 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.
Other EOD equipment manufactured by the Company includes bomb protection
blankets and letter bomb suppression pouches.
Less-Than-Lethal Products
The Company manufactures a complete line of less-than-lethal,
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 manufactured 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 and a wide range of
specialty impact munitions that can be used against either individual targets
or in anti-riot and crowd control situations. The Company's pepper spray
formula, which contains the active ingredient oleoresin capsicum, a cayenne
pepper extract, is patented and carries the trademark name of First Defense(R).
The First Defense(R) line of pepper sprays ranges from small "key-ring" and
hand-held units to large volume canisters for anti-riot and crowd control
applications. The specialty impact munitions manufactured by the Company 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. The Company also manufactures Distraction Device(R), a patented and
trademarked device that is used for dynamic entries by specially trained law
enforcement personnel. See "--Manufacturing and Raw Materials."
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.
SECURITY SERVICES DIVISION
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,
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instructors and liaison personnel. The Company also provides teams of
supervisors, many of whom are British Special Air Services veterans, who
frequently are employed as premium guards for government embassies. In
connection with its security services, the Company utilizes the services of
approximately 4,000 locally recruited guards. These guards are supervised,
managed and trained by the Company's professional security staff, but
approximately 2,500 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.
In connection with its Security Services Division, the
Company has invested substantial resources outside of the United States and
plans to continue to do so in the future. The Company's international
operations are subject to the risk of new and different legal and regulatory
requirements in local jurisdictions, tariffs and trade barriers, potential
difficulties in staffing and managing local operations, potential imposition of
restrictions on investments, potentially adverse tax consequences, including
imposition or increase of withholding and other taxes on remittances and other
payments by subsidiaries, and local economic, political and social conditions.
Governments of many developing countries have exercised and continue to
exercise substantial influence over many aspects of the private sector.
Government actions in the future could have a significant adverse effect on
economic conditions in a developing country or may otherwise have a material
adverse effect on the Company and its operating companies. The Company does not
have political risk insurance in the countries in which it currently conducts
business. Moreover, applicable agreements relating to the Company's interests
in its operating companies are frequently governed by foreign law. As a
result, in the event of a dispute, it may be difficult for the Company to
enforce its rights. Accordingly, the Company may have little or no recourse
upon the occurrence of any of these developments. See Note 17 to Consolidated
Financial Statements.
Electronic Security and Fire Alarm Systems
The Company is a leading systems engineer specializing in the
supply, integration, maintenance and technical support of sophisticated
electronic and computer-driven security and fire alarm systems. The Company
specializes in high-speed analog and digital transmission designs for life
safety, communication, alarm, access control, television and security systems
which are installed in airports, banks, government buildings, hospitals,
prisons, universities, mercantile and retail stores, office buildings, radio
and television stations, computer data centers and telephone exchanges.
CUSTOMERS
MANUFACTURED PRODUCTS DIVISION
The Company sells its manufactured products primarily through
a network of independent distributors who serve the law enforcement
communities. In 1997, the Company sold approximately 77% of its manufactured
products in the U.S., with the balance sold internationally. The primary
end-users of the Company's manufactured products are law enforcement agencies,
local police departments, state police agencies, state correctional facilities,
highway patrols and sheriffs' departments. The Company's largest distributor
accounted for approximately 6.3% of the Company's overall revenue from
manufactured product sales in 1997, and the Company's top ten customers
accounted for approximately 19.6% of overall revenue from manufactured product
sales in 1997.
SECURITY SERVICES DIVISION
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 38% of the Company's security business in
fiscal 1997, and mining
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and construction companies, who accounted for approximately 11% of the
Company's security business in fiscal 1997. 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.
MARKETING AND DISTRIBUTION
MANUFACTURED PRODUCTS DIVISION
The Company believes that it enjoys excellent name
recognition and a strong reputation in the manufacture of security products.
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, 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 security
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 security
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 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 manufactured product and security service
portfolio, the Company believes that it will maximize its distribution network
by offering additional security products and services. The Company's
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 products that
complement the security services provided.
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The Company's backlog of orders consists of orders received
but not yet manufactured. In the case of orders from new customers or
international customers, such backlog includes only orders where management
believes an acceptable assurance of payment has been received. As of December
27, 1997, the Company had an estimated backlog in the manufactured products
division of $1.9 million, as compared to $1.8 million as of December 28, 1996.
As of March 20, 1998, the Company had an estimated backlog of $5.0 million.
Management believes that a backlog of approximately four weeks production
provides for reasonable production scheduling. The Company may reduce or
increase production in the future as a result of changes in the level or mix of
backlog.
SECURITY SERVICES DIVISION
The Company's experience has been that its most successful
form of marketing for its security services is client referrals generated by
the professional abilities 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 security 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 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 security
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.
GOVERNMENT AND INDUSTRY REGULATIONS AND STANDARDS
The bullet, sharp instrument penetration and bomb resistant
garments and accessories manufactured and sold by the Company are not currently
subject to government regulations. However, law enforcement agencies and the
military publish invitations for bidding which specify certain standards of
performance which bidders' products must meet. The National Institute of
Justice ("NIJ"), under the auspices of the United States Department of Justice,
has issued a voluntary ballistic standard (NIJ 0101.03) for bullet resistant
vests. The Company regularly submits its vests to independent laboratories for
ballistic testing under this voluntary ballistic standard.
The Company's armor products utilize different "applications"
or combinations of material to produce equipment which provides protection
against fragments or gunshots fired from a variety of firearms at each "Threat
Level," as defined by the NIJ's Standard 0101.03 ("Threat Levels"). The NIJ
conducts a series of tests designed to verify that armor used by domestic law
enforcement officers meets a designated standard of protection.
Threat Levels are defined in recognition of the trade-off
between protection and wearability. The weight and bulk of body armor are
generally proportioned to the protection it provides. The Threat Level
protection that a police officer will desire in a vest is determined by the
types of threats he will face on the streets, including the officer's own
weapon, should it be used against the officer. As criminals continue to use
heavier weapons,
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officers will require protection at a higher Threat Level. The Company believes
that police departments and other purchasers will seek vests that provide an
adequate level of protection without being so heavy and uncomfortable that the
user is discouraged from wearing it.
The Company believes that it has created a competitive
advantage in the wearability of its vests. Wearability tests conducted by the
Company have convinced management that the Company's vests are more comfortable
to wear, fit better and can be worn for longer periods of time than similar
products from competitors. Management believes that the Company's armor
products offer higher protection at lower weight and bulk. The Company also
offers designs that provide greater vital-area coverage than other equipment on
the market. The Company custom manufactures each vest to specific measurements
of individual wearers. At least seven different body measurements are taken,
after which the basic design is then further modified by weight, height and
gender of the prospective wearer.
The less-than-lethal manufacturing operations of the Company
are subject to the regulation of several regulatory agencies. Within the State
of Wyoming, the Company operates under the guidelines of the Wyoming Department
of Employment Workers' Safety and Compensation Division. The Company has
enrolled in an Employer Voluntary Technical Assistance Program (EVTAP), which
monitors the manufacturing processes to ensure that the Company is free of any
adverse work conditions. Currently, the Company is in good standing within the
EVTAP program. Furthermore, the Company adheres to the guidelines for emissions
as regulated by the Wyoming Department of Environmental Quality. The Company's
operations are also regulated by the Bureau of Alcohol, Tobacco and Firearms.
The Company ships hazardous goods, and in doing so, is subject to the
regulations of the United States Department of Transportation for packaging and
labeling. Certain of the Company's international shipments are subject to the
regulations of the United States Departments of Commerce and State. See
"--Environmental Matters."
MANUFACTURING AND RAW MATERIALS
The Company manufactures 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 less-than-lethal products at its Casper, Wyoming
facilities. The Company manufactures military apparel, high visibility garments
and some ballistic resistant garments at its manufacturing facility in
Westhoughton, England. 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) is an aramid
fiber product of E.I. Du Pont de Nemours & Co., Inc. SpectraShield(R) is a high
strength polyethylene product of Allied Signal Corp. Twaron(R) is 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. See Item 13, "Certain
Relationships and Related 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
products on a built-to-order basis, the Company does maintain reasonable
inventories of 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 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
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Company 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.
RESEARCH AND DEVELOPMENT
The Company is committed to research and development of
manufactured security products. During fiscal 1997, the Company had
expenditures related to new product development and testing of approximately
$605,000, as compared with $513,760 during fiscal 1996. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operation."
COMPETITION
The markets for the Company's security products and services
are highly competitive and fragmented. In the body armor product industry, 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. In the less-than-lethal product industry, 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 manufactured products are price,
quality of engineering and design, production capability and capacity, ability
to meet delivery schedules and reputation in the security product 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 security services provided, ability to provide
national and international security services and range of security 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.
EMPLOYEES
As of March 25, 1998, the Company had a total of
approximately 1,830 employees, of which approximately 290 were employed in
product manufacturing and approximately 1,540 were employed in security
services. Approximately 35 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, 1998. Approximately three employees employed by LST are
represented by the Local Union No.3 of the International Brotherhood of
Electrical Workers. The collective bargaining agreement currently in effect for
these employees expires on June 30, 1999. 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. The Company also utilizes the services of approximately 2,500 independent
contractors in its security services business as guards. These independent
contractors are employed by local in-country companies that subcontract their
manpower to the Company in exchange for fees which are payable to the companies
from whom such manpower is contracted.
9
<PAGE>
PATENTS AND TRADEMARKS
The Company currently has numerous issued U.S. and foreign
patents and pending patent applications relating to its manufactured product
lines. The Company also has several registered trademarks concerning its
manufactured products. The trademarks include American Body Armor (Trademark),
Defense Technology (Trademark), 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 manufactured 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 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.
PURSUIT OF STRATEGIC ACQUISITIONS
The Company intends to diversify and expand its business
operations through the possible acquisition of one or more operating companies,
which may or may not be related to its current businesses. The Company believes
that there currently exists a large pool of attractive acquisition candidates
in the manufacturing and service sectors. 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 manufactured products and scope of security services
which the Company can provide. Other than as set forth below, the Company has
no binding commitments with respect to any acquisitions at the present time,
and it is uncertain as to when or if any acquisitions will be made.
On January 20, 1998, the Company executed a non-binding
letter of intent pursuant to which the Company has agreed to negotiate the
terms and conditions of an agreement pursuant to which the Company would
acquire all of the outstanding share capital of Asmara Limited, a London-based
provider of investigative services such as due diligence, asset tracing and
litigation intelligence. Consummation of the acquisition is subject to, among
other things, the completion of due diligence and other customary requirements.
10
<PAGE>
ITEM 2. 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 14 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 44,000 square feet
London, England Security services headquarters Leased (3) 6,500 square feet
</TABLE>
(1) The Company has the capacity to expand the building facility to
142,000 square feet. The Company purchased 7 of the 14 acres listed in
first quarter 1998.
(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 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) DSL leases three floors and pays annual rent thereon in an amount
equal to (pounds sterling) 130,000. 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 the April 30, 1999 expiration of
the lease. The annual rent for this property is $129,236 plus annual increases.
The sublease income was $35,000 in fiscal 1997 (October 1997 through December
1997). See Note 10 to 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.
ITEM 3. LEGAL PROCEEDINGS
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
11
<PAGE>
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. The Company was granted a
preliminary injunction enjoining the Defendants from the unauthorized use of
the "Defense Technology" name. In addition, the Company was subsequently
granted another preliminary injunction enforcing the restrictive covenants
contained in the Asset Purchase Agreement and the Authorized Distributor
Agreement prohibiting the Defendants from competing with the Company. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the last quarter of fiscal 1997.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $.01 per share (the
"Common Stock") has been traded on the American Stock Exchange (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 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 remainder of fiscal 1996 and
fiscal 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.
12
<PAGE>
<TABLE>
<CAPTION>
1996 HIGH LOW
- - ---- ---- ---
<S> <C> <C>
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 ............................................................................ 13 3/8 10 1/8
1998
1st Quarter (through March 25) ......................................................... 11 3/4 9 3/4
</TABLE>
HOLDERS
As of March 25, 1998, the Company had approximately 1,900
stockholders of record. Holders of shares held in "nominee" or street names are
included in this number.
DIVIDENDS
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, 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 with Barnett Bank. See Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operation--Liquidity and Capital
Resources."
RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to unregistered securities
sold by the Company during fiscal 1997 and the first quarter of 1998.
LOW VOLTAGE SYSTEMS TECHNOLOGY, INC.
On January 30, 1998, the Company acquired all of the issued
and outstanding shares of capital stock of LST. As part of the purchase price
therefor, the Company issued 18,519 unregistered shares of Common Stock valued
at the time at $187,500. The foregoing sale of securities was made in reliance
upon an exemption from the registration provisions of the Securities Act set
forth in Section 4(2) thereof as a transaction by an issuer not involving any
public offering.
DSL GROUP LIMITED
On April 16, 1997, the Company combined with DSL in a
transaction accounted for as a pooling of interests. As part of the
consideration paid therefor, the Company issued 1,274,217 unregistered shares
of Common Stock valued at the time at $10.9 million. The foregoing sale of
securities was made in reliance upon an exemption from the registration
provisions of the Securities Act set forth in Section 4(2) thereof as a
transaction by an issuer not involving any public offering.
13
<PAGE>
GORANDEL TRADING LIMITED
On June 9, 1997, the Company acquired the remaining 50% of
GTL that it did not previously own. As part of the purchase price therefor, the
Company issued 115,176 unregistered shares of Common Stock valued at the time
at $1.2 million. The foregoing sale of securities was made in reliance upon an
exemption from the registration provisions of the Securities Act set forth in
Section 4(2) thereof as a transaction by an issuer not involving any public
offering.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
On September 2, 1997, Jonathan M. Spiller, the President and
Chief Executive Officer of the Company, was granted options under the 1996
Option Plan to purchase 250,000 shares of Common Stock at exercise prices
ranging from $10.4375, the market price of the Common Stock on September 2,
1997, to $12.00 per share. Of these options, (i) 100,000 options vested and
became exercisable on September 2, 1997, (ii) 100,000 options vest and become
exercisable on December 31, 1998, and (iii) 50,000 options vest and become
exercisable on December 31, 1999. The vesting and exercisability of the options
may be accelerated upon the occurrence of certain events.
On September 2, 1997, pursuant to the terms of his employment
agreement with the Company, David W. Watson, the Vice President, Chief
Financial Officer, Treasurer and Secretary of the Company, was granted options
under the 1996 Option Plan to purchase 75,000 shares of Common Stock at an
exercise price per share of $10.4375, the market price of the Common Stock on
September 2, 1997, 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 September 2, 2000. The vesting and exercisability of the options
may be accelerated upon the occurrence of certain events.
On September 2, 1997, pursuant to the terms of his employment
agreement with the Company, J. Lawrence Battle, the President-Manufactured
Products Division of the Company, was granted options under the 1996 Option
Plan to purchase 75,000 shares of Common Stock at an exercise price per share
of $10.4375, the market price of the Common Stock on September 2, 1997, the
date of the grant. The options vest over a period of three years from the date
of grant, commencing July 21, 1998, and all of such options become exercisable
on July 21, 2000. The vesting and exercisability of the options may be
accelerated upon the occurrence of certain events.
On April 7, 1997, the Company granted to Robert Dwek options
under the 1996 Option Plan to purchase 10,000 shares of Common Stock at an
exercise price per share of $9.00, the market price of the Common Stock on
April 7, 1997, the date of the grant. These options, which are fully vested,
were granted to Mr. Dwek in connection with certain consulting services
rendered by Mr. Dwek to the Company relating to the Company's acquisition of
Supercraft.
On December 8, 1997, the Company granted options to purchase
an aggregate of 206,000 shares of Common Stock under the 1996 Option Plan at
exercise prices ranging from $11.00 to $14.83 per share, to certain employees
of DSL. These options were granted pursuant to the terms and provisions of the
Company's combination with DSL in April 1997. All of these options vest and
become exercisable on April 16, 2000, subject to certain conditions. The
vesting and exercisability of these options may be accelerated upon the
occurrence of certain events.
During fiscal 1997, the Company also granted options to
various employees to purchase an aggregate of 75,000 shares of Common Stock
under the 1996 Option Plan at exercise prices ranging from $7.8125 to $9.875
per share. These options vest equally over a period of three years from the
date of the grant. The vesting of the options may be accelerated upon the
occurrence of certain events.
14
<PAGE>
All of the foregoing sales of securities made pursuant to the
grant of options under the 1996 Option Plan were made in reliance upon an
exemption from the registration provisions of the Securities Act set forth in
Section 4(2) thereof as a transaction by an issuer not involving any public
offering. The shares of Common Stock underlying options granted under the 1996
Option Plan are not registered.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993(a)
<S> <C> <C> <C> <C> <C>
Total Revenues $ 78,314 $ 30,967 $ 11,741 $ 11,355 $ 2,953
Net Income 3,158 689 520 423 138
Basic Earnings Per Share(b) 0.23 0.09 0.11 0.07 0.02
Diluted Earnings Per Share(b) 0.21 0.08 0.08 0.07 0.02
Total Assets 75,487 49,530 8,161 7,470 6,725
Long-Term Obligations 11 5,780 28 61 27
Stockholders' Equity 64,598 24,875 4,947 4,427 4,046
</TABLE>
(a) As a result of emerging from Chapter 11 bankruptcy reorganization and
adopting fresh-start reporting, the financial information for the
period from September 20, 1993 through December 31, 1993 and
thereafter includes the operating results of the reorganized Company.
(b) The Company has adopted SFAS 128 as discussed in Note 12 to
Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
This analysis of the Company's results of operations should
be viewed in conjunction with the accompanying financial statements, including
notes thereto, contained in Item 8 of this Annual Report on Form 10-K. Certain
statements in this report may be forward-looking in nature, or "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are identified by such words and phrases as
"expects" and "could be."
Actual results may differ from those expressed or implied in
forward-looking statements. With respect to any forward-looking statements
contained in this report, the Company believes that it is subject to a number
of risk factors, including: the inherent unpredictablility of currency
fluctuations; competitive actions, including pricing; the ability to realize
cost reductions and operating efficiencies, including the ability to identify
and to realize other cost-reduction opportunities; and general economic and
business conditions. Any forward-looking statements in this report should be
evaluated in light of these important risk factors.
RESULTS OF OPERATIONS
FISCAL 1997 AS COMPARED TO FISCAL 1996
Revenues--manufactured products. Manufactured products
revenues increased $11.9 million, or 66%, to $29.9 million in fiscal 1997 from
$18.0 million in fiscal 1996. This increase in sales resulted primarily from
sales generated from the DTC and NIK operations in fiscal 1997, as well as
sales generated by Supercraft from the date of acquisition, April 7, 1997,
until December 27, 1997 and internal growth in the body armor business.
Revenues--security services. Security services revenues were
$48.4 million in fiscal 1997 compared to $13.0 million in fiscal 1996. The
increase is primarily due to only five months of operations being reflected in
fiscal 1996, as results of DSL operations have only been included from August
1, 1996, as previously stated. In addition, the security services business
generated substantial internal growth during fiscal 1997. Fiscal 1997
15
<PAGE>
revenues also included approximately $12.0 million related to Angolan
operations which were ceased on January 16, 1998. See Note 17 to Consolidated
Financial Statements.
Cost of sales. Cost of sales increased $36.3 million, or
172%, to $57.4 million in fiscal 1997 from $21.1 million in fiscal 1996. The
majority of the increase is due to the combination with DSL, which had a $28.8
million impact on direct operating costs in fiscal 1997. The remaining $7.5
million increase in cost of sales is attributed to the increased costs of the
manufactured products business (associated with a 66% increase in revenues). As
a percentage of total revenues, cost of sales increased to 73% in fiscal 1997
from 68% in fiscal 1996, reflecting the higher cost of sales associated with
the security services business. In fiscal 1997, the Company also recorded
reserves of approximately $500,000 related to the cessation of operations in
Angola. See Note 17 to Consolidated Financial Statements.
Operating expenses. Operating expenses increased $5.6 million
to $12.5 million (16% of total revenues) in fiscal 1997 from $6.9 million (22%
of total revenues) during fiscal 1996. The increase in the actual dollar amount
of operating expenses between the periods was primarily due to overhead costs
associated with DSL, DTC and NIK and approximately $800,000 of selling, general
and administrative costs at the Company's headquarters in Jacksonville,
Florida, primarily for the development of the infrastructure of the Company as
a holding company.
Depreciation and amortization. Depreciation and amortization
expense increased to $1.1 million in fiscal 1997 from $554,000 in fiscal 1996.
Of the $573,000 increase, approximately $260,000 was due to amortization of
intangible assets acquired during 1996, another approximate $250,000 was due to
amortization of acquired goodwill in the DSL Transaction, with the remaining
increase due to the amortization of goodwill acquired with the Supercraft and
GTL acquisitions.
Merger, integration and other non-recurring charges. Fees and
expenses associated with completing the DSL Transaction have all been expensed
in fiscal 1997. These non-recurring 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.
Equity in earnings of investees. Equity in earnings of
investees amounted to approximately $746,000 in fiscal 1997, compared to
$320,000 in 1996. The equity in earnings of investees relates to DSL's original
50% investment in GTL until June 9, 1997, the date the Company acquired the
remaining 50% interest not owned by DSL, at which point the 100% investment was
consolidated into the Company's results. The equity also relates to DSL's 20%
investment in Jardine Securicor Gurkha Services Limited ("JSGS"), a joint
venture company in Hong Kong. The 1996 period reflects only five months of
equity earnings, as results of DSL operations have only been included from
August 1, 1996, as previously stated.
Interest expense, net. Interest expense, net decreased
$320,000, or 62%, to $195,000 in fiscal 1997 from $515,000 in fiscal 1996. The
decrease in interest expense is primarily due to interest income earned on the
proceeds realized from the Public Offering, after the repayment of the balance
of approximately $18.6 million that was outstanding on the Credit Facility at
the time.
Operating income. Operating income increased $3.2 million,
or 152%, to $5.3 million in fiscal 1997 from $2.1 million in fiscal 1996.
Management believes that an additional measurement, "operating income before
merger, integration and other non-recurring charges," is useful and meaningful
to an understanding of the operating performance of the Company. However,
operating income before merger, integration and other non-recurring charges
should not be considered as an alternative either to operating income or net
income nor as an indicator of the Company's operating performance, cash flow
or as a measurement of liquidity. Operating income before the merger,
integration and other non-recurring charges of $2.5 million increased
$5.7 million, or 271%, to $7.8 million in fiscal 1997 from $2.1 million
in fiscal 1996. This increase is due to the combination with DSL and the
acquisitions of Supercraft, the DTCoA Assets and the NIK
16
<PAGE>
Assets, as well as internal growth within DSL and American Body Armor &
Equipment, Inc., a Delaware corporation ("ABA").
Other income. Other income increased $390,000 to $392,000 in
fiscal 1997 from $2,000 in fiscal 1996. The other income results primarily from
fees earned as agent relating to the sale of the Company's Common Stock on
behalf of a former employee.
Income taxes. As of January 1, 1996, the Company had an
income tax net operating loss carryforward ("NOL") of approximately $4.4
million. Effective with the change in control of the Company by Kanders on
January 18, 1996, the utilization of this NOL became restricted in the United
States to approximately $300,000 per year. However, as of December 27, 1997,
the Company's net operating losses increased to approximately $7.8 million and
expire in varying amounts in fiscal years 2006 to 2010. The increase in the net
operating losses is a result of the recording of DSL deferred tax assets that
related to fiscal 1997 losses generated in the United Kingdom which will be
offset against future income.
Income taxes totaled $2.4 million in fiscal 1997, as compared
to $1.2 million in fiscal 1996. The provision of 41.9% has been based on the
Company's U.S. federal and state statutory rates of approximately 35% for its
U.S.-based companies and a 38% blended effective tax rate for foreign
operations of the Company, and was increased by approximately $750,000 for
certain items, primarily merger-related, non-recurring charges which are not
tax deductible.
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. As of December 27, 1997, the gross amount of
this deferred tax asset was $3.1 million, of which $1.8 million has been offset
by a valuation allowance.
Dividends on preference shares. During fiscal 1997 and 1996,
DSL incurred $143,000 and $239,000, respectively, in preference share
dividends. These accrued dividends as well as the shares underlying the
dividends were acquired by the Company on April 16, 1997 in the
DSL Transaction.
Net income applicable to common stockholders. Net income
increased $2.5 million or 358%, to $3.2 million in fiscal 1997 from $689,000
in fiscal 1996. As noted previously, the increase is due to the effect of
acquisitions made during fiscal 1997 together with growth in the core
businesses, being partially offset by the non-recurring charge incurred by
the Company in fiscal 1997. Excluding the merger, integration and other
non-recurring charges discussed above, the Company would have earned $0.33 per
diluted share as compared to actual diluted earnings per share of $0.21.
Subsequent event. On January 16, 1998, DSL ceased operations
in the country of Angola. The cessation of operations by DSL in Angola was
dictated by that government's decision to deport all of DSL's expatriate
management and supervisors. As a result of this action, DSL believed that it
could no longer ensure the safety of its personnel or that of its clients.
While Angolan operations represented approximately $12.0 million of the
Company's revenues during fiscal 1997, the contribution was only $1.0 million
before allocation of DSL's central overheads. DSL's assets in Angola have been
substantially secured by DSL and DSL's clients have made temporary alternative
arrangements for the provision of their ongoing security needs. Included in
the fiscal 1997 results is a $0.5 million pretax reserve to provide for
potential losses associated with DSL's withdrawal from Angola. The Company is
currently reviewing all of its available alternatives in connection with the
cessation of DSL's operations in Angola, including various disputes with its
minority partner in a joint venture which managed certain of the Angolan
business.
17
<PAGE>
FISCAL 1996 AS COMPARED TO FISCAL 1995
Revenues--manufactured products. Manufactured 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--security services. Security services revenues were
$13.0 million in fiscal 1996 during the period from August 1, 1996 through
December 31, 1996. No security services revenues prior to August 1, 1996 have
been included in the Company's financial information.
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 security 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. Manufactured products business gross margin increased to 40% in
fiscal 1996 from 37% in fiscal 1995, due to the impact of higher margins earned
on manufactured products sold by both DTC and NIK.
Operating Expenses. Operating expenses increased $3.6
million, or 111%, to $6.9 million in fiscal 1996 from $3.3 million in fiscal
1995. As a percentage of net sales, operating expenses decreased to 22% in
fiscal 1996 from 28% in fiscal 1995. DSL's operating expenses as a percentage
of net sales amounted to 14% for fiscal 1996, whereas the manufactured products
division's operating expenses as a percentage of net sales amounted to 28% for
fiscal 1996. Of the $3.6 million increase, $1.8 million is attributable to DSL,
approximately $800,000 is due to increases in commissions resulting from
increased sales in the manufactured products division, and the remainder is due
to the additional operating costs associated with NIK and DTC.
Depreciation and amortization. Depreciation and amortization
increased $406,000 to $554,000 in fiscal 1996 from $148,000 in fiscal 1995. Of
the $406,000 increase, the majority was due to additional depreciation and
amortization related to the manufactured products business (i.e., the DTCoA
Assets purchased). In addition, approximately $159,000 of this expense relates
to the amortization of goodwill on the books of DSL at the time of the merger
and carried over onto the books of the Company.
Equity in earnings of investees. Equity in investments held
by DSL amounted to approximately $320,000 in fiscal 1996 compared to $0 in
fiscal 1995. These earnings relate to GTL and JSGS, as discussed previously.
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 its working capital loan. This loan has subsequently been repaid in
full. In addition, the Company incurred net interest expense of $253,000 on its
outstanding 5% Convertible Subordinated Notes (the "Convertible Notes"), which
were redeemed and converted to Common Stock in December 1996.
Other income. Other income decreased $226,000 to $2,000 in
fiscal 1996 from $228,000 in fiscal 1995. The other income in fiscal 1995
relates to the release 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 attributable to
the manufactured products division and approximately $700,000 to the security
services division.
18
<PAGE>
Income taxes. The Company's net operating loss carry forward
("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 $1.9 million, of which $1.8
million has been offset by a valuation allowance.
Dividends on preference shares. Preference share dividends
were approximately $239,000 in fiscal 1996. No dividends were paid in fiscal
1995. The preference shares on which dividends were accrued were acquired by
the Company on April 16, 1997 in the DSL Transaction.
Net income applicable to common stockholders. 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 only included in fiscal
1995.
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 a revolving
working capital credit facility (the "Credit Facility") with Barnett Bank for
up to $10 million. The Credit Facility was amended as of March 26, 1997 to
increase the revolving line of credit to $20 million. In addition, the Credit
Facility provides for a separate sublimit of $5 million under an acceptance
facility. The Credit Facility also provides for the issuance of letters of
credit to the Company. As of the end of the fourth quarter of 1997, the Company
had no indebtedness to Barnett Bank. 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% over the LIBOR rate.
As of March 20, 1998, each of the Company's U.S. subsidiaries
(the "U.S. Subsidiaries"), other than ABA and U.S. Defense Systems, Inc., a
Delaware corporation ("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
19
<PAGE>
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 expires on March 1, 1999, subject to extension
under certain circumstances.
On July 25, 1997, the Company issued 4,000,000 new shares of
Common Stock at $10.125 per share through the Public Offering, which was
underwritten by Dillon, Read & Co. Inc. (now known as SBC Warburg Dillon Read
Inc.), Equitable Securities Corporation (now known as SunTrust Equitable
Securities) and Stephens Inc. Net of underwriting discounts and commissions,
the Company realized proceeds of $38,070,000, of which approximately $18.6
million was used to repay in full the Company's outstanding balance on the
Credit Facility. The remaining net proceeds were invested in short term
instruments.
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 LaSalle credit facility to zero) from the issuance of the Convertible
Notes as well as positive cash flow from operations. As of December 27, 1997,
the Company had working capital of $31.9 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 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's spending for its fiscal 1998 capital
expenditures will be approximately $1.0 million, of which the Company has
already spent approximately $150,000. Such expenditures include, among other
things, vehicles and communication equipment used in servicing DSL customers,
computer equipment and software, and manufacturing machinery and equipment.
YEAR 2000 COMPLIANCE
The financial impact to the Company of Year 2000 compliance
has not been and is not anticipated to be material to the Company's financial
position or results of operations in any given year. The Company has recently
purchased and installed information systems, consisting of hardware and software
supplied by third parties, which are Year 2000 compliant. However, because most
computer systems are, by their very nature, interdependent, it is possible that
non-compliant third party computers could "reinfect" the Company's computer
systems. The Company could be adversely affected by the Year 2000 problem if it
or unrelated parties fail to successfully address this problem. The Company
intends to develop a plan to communicate with the unrelated parties, including
its regulatory consultants with whom it deals, to coordinate Year 2000
compliance. The costs incurred in addressing Year 2000 compliance will be
expensed as incurred and are not expected to be material.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for pursuant to this Part III, Items
10, 11, 12 and 13, is incorporated by reference from the Company's definitive
proxy statement which the Company intends to file with the Securities and
Exchange Commission not later than 120 days after the end of the fiscal year
ended December 27, 1997.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM
8-K
(a) Exhibits
The following Exhibits are hereby filed as part of this
Annual Report on Form 10-K:
EXHIBIT NO. DESCRIPTION
- - ----------- -----------
2.1** Order confirming Debtor's Third Amended and Restated Plan of
Reorganization with the Third Amended and Restated Plan of
Reorganization attached thereto (incorporated by reference
from Exhibit 2 to Form 8-K, Current Report of the Company,
dated October 1, 1993).
2.2** Asset Purchase Agreement, dated as of August 23, 1996,
between the Company, DTC, Robert L. Oliver, Sandra A. Oliver
and DTCoA (filed as Exhibit 2.1 to Form 8-K, Current Report
of the Company, dated October 9, 1996 and incorporated herein
by reference).
2.3** Agreement and Plan of Merger, dated July 23, 1996, by and
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).
2.4** Agreement for the Sale and Purchase of the Whole of the
Issued Share Capital of DSL, dated April 16, 1997, between
the Company, Armor Holdings Limited, 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).
3.1** Certificate of Incorporation of the Company (filed as Exhibit
3.1 to Form 8-K, Current Report of the Company, dated
September 3, 1996 and incorporated herein by reference).
3.2** Certificate of Merger of American Body Armor & Equipment,
Inc., a Florida corporation, and the Company (filed as
Exhibit 3.2 to Form 8-K, Current Report of the Company, dated
September 3, 1996 and incorporated herein by reference).
3.3** Bylaws of the Company (filed as Exhibit 3.3 to Form 8-K,
Current Report of the Company, dated September 3, 1996 and
incorporated herein by reference).
22
<PAGE>
10.1** Amended and Restated Loan Agreement, dated March 26, 1997,
between the Company and Barnett Bank (filed as Exhibit 10.4
to Form 8-K, Current Report of the Company, dated April 22,
1997 and incorporated herein by reference).
10.2** Renewal Promissory Note, dated March 26, 1997, made by the
Company in favor of Barnett Bank (filed as Exhibit 10.5 to
Form 8-K, Current Report of the Company, dated April 22, 1997
and incorporated herein by reference).
10.3** Form of Amended and Restated Security Agreement, dated March
26, 1997, made by the Company and each of its U.S.
subsidiaries, in favor of Barnett Bank (filed as Exhibit 10.6
to Form 8-K, Current Report of the Company, dated April 22,
1997 and incorporated herein by reference).
10.4** Pledge Agreement, dated March 26, 1997, made by the Company
in favor of Barnett Bank (filed as Exhibit 10.7 to Form 8-K,
Current Report of the Company, dated April 22, 1997 and
incorporated herein by reference).
10.5** Form of Collateral Assignment, dated March 26, 1997, made by
DTC and NIK in favor of Barnett Bank (filed as Exhibit 10.8
to Form 8-K, Current Report of the Company, dated April 22,
1997 and incorporated herein by reference.
10.6** Amendment to Acceptance Credit Agreement, dated March 26,
1997, between the Company and Barnett Bank (filed as Exhibit
10.9 to Form 8-K, Current Report of the Company, dated April
22, 1997 and incorporated herein by reference).
10.7** Consent with respect to Guaranty of Payment, dated as of
March 26, 1997, of DTC, NIK and Armor Holdings Properties,
Inc. (filed as Exhibit 10.10 to Form 8-K, Current Report of
the Company, dated April 22, 1997 and incorporated herein by
reference.
10.8** Form of Guaranty of Payment, dated November 14, 1996 (filed
as Exhibit 10.11 to Form 8-K, Current Report of the Company,
dated April 22, 1997 and incorporated herein by reference).
10.9**@ Employment Agreement between Jonathan M. Spiller and the
Company, dated as of January 18, 1996 (filed as Exhibit 10.6
to Form 10-KSB for fiscal 1995 and incorporated herein by
reference).
10.10**@ Employment Agreement between Richard T. Bistrong and the
Company, dated as of January 18, 1996 (filed as Exhibit 10.8
to Form 10-KSB for fiscal 1995 and incorporated herein by
reference).
10.11**@ Employment Agreement between Robert R. Schiller and the
Company, dated as of July 24, 1996 (filed as Exhibit 10.13 to
Form 10-KSB for fiscal 1996, dated March 25, 1997 and
incorporated herein by reference).
10.12**@ Employment Agreement between J. Lawrence Battle and the
Company, dated as of October 29, 1997 (filed as Exhibit 10.1
to Form 10-Q for the quarterly period ended September 27,
1997, dated November 11, 1997 and incorporated herein by
reference).
23
<PAGE>
10.13**@ Employment Agreement between David W. Watson and the Company,
dated as of October 29, 1997 (filed as Exhibit 10.2 to Form
10-Q for the quarterly period ended September 27, 1997, dated
November 11, 1997 and incorporated herein by reference).
10.14**@ Service Agreement between Alastair G.A. Morrison, the Company
and DSL, dated April 16, 1997 (filed as Exhibit 10.16 to
Registration Statement No. 333-28879 on Form S-1 of the
Company and incorporated herein by reference).
10.15**@ Service Agreement between the Hon. Richard N. Bethell, the
Company and DSL, dated April 16, 1997 (filed as Exhibit 10.17
to Registration Statement No. 333-28879 on Form S-1 of the
Company and incorporated herein by reference).
10.16** Form of Escrow Agreement, dated April 16, 1997, between the
Company, the Warrantors of DSL and Ashurst Morris Crisp
(filed as Exhibit 10.2 to Form 8-K, Current Report of the
Company, dated April 22, 1997 and incorporated herein by
reference).
10.17** Form of Registration Rights Agreement, dated April 16, 1997,
between the Company and the Vendors of DSL (filed as Exhibit
10.3 to Form 8-K, Current Report of the Company, dated April
22, 1997 and incorporated herein by reference).
24
<PAGE>
10.18** Form of Option for 300,000 shares of Common Stock, dated May
15, 1996 granted to Richmont Capital Partners I, L.P. (filed
as Exhibit 10.34 to Registration Statement No. 333-28879 on
Form S-1 of the Company and incorporated herein by
reference).
10.19** Escrow Agreement, dated September 30, 1996, between the
Company, DTC, Robert L. Oliver, Sandra A. Oliver, DTCoA and
Union Bank of Switzerland, New York Branch (filed as Exhibit
10.4 to Form 8-K, Current Report of the Company, dated
October 9, 1996 and incorporated herein by reference).
10.20** Guaranty Agreement, dated August 26, 1996, by Robert L.
Oliver and Sandra A. Oliver for the benefit of the Company
(filed as Exhibit 10.5 to Form 8-K, Current Report of the
Company, dated October 9, 1996 and incorporated herein by
reference).
10.21** Lock-Up Agreement, dated August 23, 1996, by DTCoA for the
benefit of the Company (filed as Exhibit 10.6 to Form 8-K,
Current Report of the Company, dated October 9, 1996 and
incorporated herein by reference).
10.22** Authorized Distributor Agreement, dated September 30, 1996,
by and among DTC, XM Corporation, f/k/a DTCoA, a Wyoming
corporation, and Robert L. Oliver (filed as Exhibit 10.7 to
Form 8-K, Current Report of the Company, dated October 9,
1996 and incorporated herein by reference).
10.23** Form of Indemnification Agreement for Directors of the
Registrant, dated September 21, 1993 (filed as Exhibit 10.4
to Form 10-KSB, Annual Report of the Company for the fiscal
year ended December 31, 1993 and incorporated herein by
reference).
10.24** Form of Indemnification Agreement for Officers of the
Registrant, dated February 28, 1994 (filed as Exhibit 10.5 to
Form 10-KSB, Annual Report of the Company for the fiscal year
ended December 31, 1993 and incorporated herein by
reference).
10.26**# American Body Armor & Equipment, Inc. 1994 Incentive Stock
Plan (incorporated by reference from Form S-8 filed on
October 10, 1994, Reg. No. 33-018863).
10.27*# Armor Holdings, Inc. Amended and Restated 1996 Stock Option
Plan.
10.28**# Armor Holdings Inc. Amended and Restated 1996 Non-Employee
Directors Stock Option Plan (incorporated by reference from
the Company's 1997 Definitive Proxy Statement with respect to
the Company's 1997 Annual Meeting of Stockholders, held June
12, 1997, as filed with the Commission on May 27, 1997).
25
<PAGE>
20.1** 1998 Definitive Proxy Statement to be filed with the
Commission not later than 120 days after the end of the
fiscal year ended December 27, 1997 (incorporated by
reference).
21.1* Subsidiaries of the Company.
23.1* Consent of Deloitte & Touche LLP.
23.2* Consent of KPMG
27.1* Financial Data Schedule.
* Filed herewith.
** Incorporated herein by reference.
@ This Exhibit represents a management contract.
# This Exhibit represents a compensatory plan.
(b) Financial Statements and Schedules
(1) The following Financial Statements of the Company (which appear
beginning at sequential page number F-1) are included herein:
Independent Auditors' Report............................................F-1
Consolidated Balance Sheets.............................................F-3
Consolidated Income Statements..........................................F-5
Consolidated Statements of Stockholders' Equity.........................F-6
Consolidated Statements of Cash Flows...................................F-7
Notes to Consolidated Financial Statements..............................F-8
(2) Schedules for which provision is made in the applicable accounting
regulations of the Commission have been omitted because they are not applicable
or the required information is shown in the Financial Statements or the Notes
thereto.
(c) Reports on form 8-K
The Company did not file any current Reports on Form 8-K
during fourth quarter 1997.
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Armor Holdings, Inc.
Jacksonville, Florida
We have audited the consolidated balance sheets of Armor Holdings, Inc. and
subsidiaries (the "Company") as of December 27, 1997 and December 28, 1996 and
the related consolidated statements of income, stockholders' equity, and cash
flows for the three years ended December 27, 1997, December 28, 1996 and
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. These consolidated financial
statements give retroactive effect to the merger with DSL Group Limited
("DSL") on April 16, 1997, which has been accounted for as a pooling of
interests as described in Note 1. We did not audit the financial statements of
Defence Systems Colombia S.A. ("DSC") (a consolidated subsidiary), which
statements reflect total assets of $3,771,000 at December 27, 1997 and total
revenues of $10,766,000 for the year then ended. Also, we did not audit the
financial statements of DSL included in the December 28, 1996 consolidated
financial statements of the Company, which statements reflect total assets of
$20,799,000 as of December 28, 1996 and total revenues of $12,956,000 for the
period then ended. Those statements were audited by other auditors, whose
reports have been furnished to us, and our opinion, insofar as it relates to
the amounts included for DSC in the December 27, 1997 financial statements and
DSL in the December 28, 1996 financial statements, is based solely upon the
reports of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Armor Holdings, Inc. as of
December 27, 1997 and December 28, 1996 and the results of their operations and
their cash flows for the three years ended December 27, 1997, December 28, 1996
and December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche, LLP
New York, New York
March 19, 1998
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF DSL GROUP LIMITED
We have audited the consolidated balance sheet of DSL Group Limited
and subsidiaries at 31 December 1996 and the related consolidated profit and
loss account, consolidated statement of total recognised gains and losses,
reconciliation of movements in shareholders' funds and consolidated cash
flow statement for the period from 3 June 1996 (date of incorporation) to 31
December 1996 (none of which aforementioned financial statements are separately
presented herein). These consolidated financial statements are the
responsibility of the management of DSL Group Limited. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United Kingdom and in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of DSL
Group Limited and subsidiaries at 31 December 1996 and the results of their
operations and their cash flows for the period from 3 June 1996 to 31 December
1996, in conformity with generally accepted accounting principles in the United
Kingdom.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted in
the United States of America. Application of accounting principles generally
accepted in the United States would have affected profit attributable to
shareholders for the period from 3 June 1996 to 31 December 1996 and
shareholders' funds at 31 December 1996, to the extent summarised in Note 24 to
the consolidated financial statements.
/s/ KPMG
KPMG
Chartered Accountants
Registered Auditors
London, England
15 April 1997
F-2
<PAGE>
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 27, 1997 AND DECEMBER 28, 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
-------------------- --------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents...................................... $19,300 $ 8,045
Accounts receivable (net of allowance for
doubtful accounts of $845 and $458 )........................ 15,752 10,309
Inventories.................................................... 5,731 4,161
Prepaid expenses and other current assets...................... 1,816 3,139
-------------------- --------------------
Total current assets....................................... 42,599 25,654
Property, plant and equipment, net................................. 10,041 4,932
Goodwill (net of accumulated amortization of $659 and
$167) 13,701 9,784
Reorganization value in excess of amounts
allocable to indentifiable assets (net of
accumulated amortization of $757 and $651)....................... 3,318 3,424
Patents and trademarks (net of accumulated
amortization of $403 and $108)................................... 3,978 4,196
Investment in unconsolidated subsidiaries.......................... 329 1,268
Other assets....................................................... 1,521 272
-------------------- --------------------
Total assets....................................................... $75,487 $49,530
==================== ====================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 27, 1997 AND DECEMBER 28, 1996
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 27, December 28,
1997 1996
---------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term debt and
capitalized lease obligations.................................. $ 190 $ 2,423
Accounts payable, accrued expenses and other
current liabilities............................................ 8,743 8,209
Income taxes payable.............................................. 1,732 732
---------------- ---------------
Total current liabilities..................................... 10,665 11,364
Minority interest..................................................... 213 31
Long-term debt and capitalized lease obligations,
less current portion............................................... 11 5,780
---------------- ---------------
Total liabilities.................................................. 10,889 17,175
Commitments and contingencies (Notes 6, 10 and 11) ...................
Preference shares..................................................... - 7,480
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
0 shares issued and outstanding................................. - -
Common stock, $.01 par value; 50,000,000 shares
authorized; 16,023,740 and 11,691,232 issued and
outstanding...................................................... 160 117
Additional paid-in capital........................................ 61,496 23,322
Foreign currency translation adjustment........................... (353) (229)
Retained Earnings................................................. 4,823 1,665
Treasury stock.................................................... (1,528) -
---------------- ---------------
Total stockholders' equity..................................... 64,598 24,875
---------------- ---------------
Total liabilities and stockholders' equity............................ $75,487 $49,530
================ ===============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------
DECEMBER 27, 1997 DECEMBER 28, 1996 DECEMBER 31, 1995
-------------------- ------------------- --------------------
Revenues:
<S> <C> <C> <C>
Products................................. $29,869 $18,011 $11,741
Services................................. 48,445 12,956 -
-------------------- ------------------- --------------------
Total Revenues............................. 78,314 30,967 11,741
-------------------- ------------------- --------------------
Costs and Expenses:
Cost of sales............................ 57,438 21,172 7,443
Operating expenses....................... 12,473 6,905 3,273
Depreciation and amortization 1,127 554 148
Merger, integration and other non-
recurring charges.................... 2,542 - -
Equity in earnings of investees......... (746) (320) -
Interest expense, net.................... 195 515 281
-------------------- ------------------- --------------------
Total costs and expenses............ 73,029 28,826 11,145
Operating income........................... 5,285 2,141 596
Other income............................... 392 2 228
-------------------- ------------------- --------------------
Income before provision for income taxes 5,677 2,143 824
Provision for income taxes................. 2,376 1,215 304
-------------------- ------------------- --------------------
Net Income ................................ 3,301 928 520
Dividends on preference shares............. 143 239 -
-------------------- ------------------- --------------------
Net income applicable to common
shareholders ............................ $ 3,158 $ 689 $ 520
==================== =================== ====================
Basic earnings per share $ 0.23 $ 0.09 $ 0.08
==================== =================== ====================
Diluted earnings per share $ 0.21 $ 0.08 $ 0.08
==================== =================== ====================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
-------------------- -----------------
ADDITIONAL FOREIGN
STATED PAR PAID-IN RETAINED CURRENCY
SHARES VALUE SHARES VALUE CAPITAL EARNINGS TRANSLATION
---------------------------------------------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994................. 1,457 $ 1,457 4,697 $ 141 $ 2,319 $ 510 $ -
Dividends on preferred stock.............. (43)
Conversion of preferred stock............. (243) (243) 347 10 233
Issuance of stock in lieu of directors
fees................................... 14 14
Issuance of stock granted
under stock plans...................... 33 1 28
Net income ............................... 520
------- ------- ------ ----- ------- ------ -------
Balance, December 31, 1995................. 1,214 1,214 5,091 152 2,594 987 -
Change in par value of common
stock.................................. (102) 102
Dividends on preferred stock.............. (11)
Conversion of preferred stock............. (1,214) (1,214) 1,735 17 1,197
Exercise of stock options................. 26 1 62
Exercise of stock grants.................. 72 1 54
Issuance of stock in lieu of
directors fees......................... 3 15
Conversion of convertible notes, net
of related debt issuance costs.......... 2,300 23 10,610
Issuance of stock for acquisitions ....... 2,214 22 7,121
Issuance of common stock.................. 250 3 1,567
Foreign currency translation
adjustment............................. (229)
Dividends on preference shares............ (239)
Net income ............................... 928
------- ------- ------ ----- ------- ------ -------
Balance, December 28, 1996................. - - 11,691 117 23,322 1,665 (229)
Exercise of stock options................. 217 2 539
Issuance of stock for acquisitions........ 115 1 1,200
Recovery of acquisition escrow
shares..................................
Issuance of common stock.................. 4,000 40 36,435
Foreign currency translation
adjustment............................. (124)
Dividends on preference shares............ (143)
Net income................................ 3,301
------- ------- ------ ----- ------- ------ -------
Balance, December 27, 1997................. - $ - 16,023 $ 160 $61,496 $4,823 $ (353)
======= ======= ====== ===== ======= ====== =======
</TABLE>
F-6
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TREASURY
STOCK Total
------------------------
<S> <C> <C>
Balance, December 31, 1994................. $ - $ 4,427
Dividends on preferred stock.............. (43)
Conversion of preferred stock............. -
Issuance of stock in lieu of directors
fees................................... 14
Issuance of stock granted
under stock plans...................... 29
Net income ............................... 520
------ -------
Balance, December 31, 1995................. - 4,947
Change in par value of common
stock.................................. -
Dividends on preferred stock.............. (11)
Conversion of preferred stock............. -
Exercise of stock options................. 63
Exercise of stock grants.................. 55
Issuance of stock in lieu of
directors fees......................... 15
Conversion of convertible notes, net
of related debt issuance costs.......... 10,633
Issuance of stock for acquisitions ....... 7,143
Issuance of common stock.................. 1,570
Foreign currency translation
adjustment............................. (229)
Dividends on preference shares............ (239)
Net income ............................... 689
------ -------
Balance, December 28, 1996................. - 24,875
Exercise of stock options................. 541
Issuance of stock for acquisitions........ 1,201
Recovery of acquisition escrow
shares.................................. (1,528) (1,528)
Issuance of common stock.................. 36,475
Foreign currency translation
adjustment............................. (124)
Dividends on preference shares............ (143)
Net income................................ 3,158
------ -------
Balance, December 27, 1997................. $(1,528) $ 64,598
====== =======
</TABLE>
See notes to consolidated financial statements.
F-6 (continued)
<PAGE>
ARMOR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------
DECEMBER 27, 1997 DECEMBER 28, 1996 DECEMBER 31, 1995
-------------------- ------------------- -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income..................................................... $ 3,301 $ 928 $ 520
Adjustments to reconcile net income to
cash (used in) provided by operating
activities:
Preferred Stock Dividends...................................... (143) (239)
Depreciation and amortization.................................. 1,976 818 148
Loss on sales and disposals of equipment....................... 166
Deferred income taxes.......................................... 1,203 2 300
Directors' fees................................................ - 15 14
Increase in accounts receivable............................... (3,468) (2,115) (745)
Increase in inventories........................................ (1,001) (423) (59)
(Increase) decrease in prepaid expenses and other assets....... (1,129) 870 (257)
(Decrease) increase in accounts payable, accrued
liabilities and other current liabilities................... (3,715) 1,783 (168)
Increase in income taxes payable............................... 1,072
Increase in minority interest.................................. 182
-------------------- ------------------- -------------------
Net cash (used in) provided by operating activities............ (1,556) 1,639 (247)
-------------------- ------------------- -------------------
INVESTING ACTIVITIES:
Purchase of property and equipment............................. (5,153) (1,860) (119)
Purchase of patents and trademarks............................. (76) (2,828)
Purchase of business, net of assets acquired................... (3,607) (11,740)
Dividends received from associated companies................... 939
Proceeds from the sale of equipment............................ 20
-------------------- ------------------- -------------------
Net cash used in investing activities.......................... (7,877) (16,428) (119)
-------------------- ------------------- -------------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock and preference
shares....................................................... 36,475 8,886
Preferred Stock dividends...................................... (382) (11) (43)
Repurchase of preference shares................................ (7,480)
Proceeds from the exercise of stock options.................... 201 26
Net borrowings (payments) under line of credit................. - (1,997) 329
Net repayments of long-term debt............................... (8,002) (500) (14)
Net borrowings (repayments) under capital
expenditure facility........................................ (52) 52
Net proceeds from issuance of other debt....................... 6,863
Net proceeds from issuance of 5% convertible
subordinated notes.......................................... 10,633
-------------------- ------------------- -------------------
Net cash provided by financing activities...................... 20,812 23,848 324
-------------------- ------------------- -------------------
Net effect of translation of foreign currencies................ (124) (184) -
-------------------- ------------------- -------------------
Net increase (decrease) in Cash and Cash equivalents........... 11,255 8,875 (42)
Cash and Cash Equivalents, Beginning of Period................. 8,045 (830) 315
-------------------- ------------------- -------------------
Cash and Cash Equivalents, End of Period....................... $ 19,300 $ 8,045 $ 273
==================== =================== ===================
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
ARMOR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 27, 1997, DECEMBER 28, 1996, AND DECEMBER 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements include
the accounts of Armor Holdings, Inc. (the "Company"), and its subsidiaries
American Body Armor & Equipment, Inc., a Delaware corporation ("ABA"), Armor
Holdings Properties, Inc., a Delaware corporation ("AHPI"), NIK Public Safety,
Inc., a Delaware corporation ("NIK"), Defense Technology Corporation of
America, a Delaware corporation ("DTC"), Armor Holdings Limited, a corporation
incorporated under the laws of England, Supercraft (Europe) Limited, a
corporation organized under the laws of England ("Supercraft"). All
material intercompany balances and transactions have been eliminated in
consolidation.
ORGANIZATION -- Armor Holdings, Inc. ("the Company") acquired the NIK Assets
effective as of July 1, 1996 and substantially all of the DTCOA assets as of
September 30, 1996. On April 7, 1997, the Company acquired the outstanding
share capital of Supercraft. On June 9, 1997, the Company acquired the
remaining 50% interest of GTL that it did not previously own. These
acquisitions were accounted for by the purchase method, and the purchase price
was assigned to assets acquired and liabilities assumed based on their fair
value at the date of acquisition.
POOLING OF INTERESTS -- On April 16, 1997, the Company issued 1,274,217
shares of its common stock in exchange for all of the outstanding ordinary
shares of DSL. DSL provides specialized security services in high risk and
volatile environments. On July 31, 1996 DSL acquired all of the share capital
of DSL Holdings Limited ("DSL Holdings"). As a result, DSL recorded the net
assets acquired on July 31, 1996 at fair value of approximately $2,800,000 and
also recorded approximately $9,600,000 of goodwill. The Company's combination
with DSL was accounted for as a pooling of interests and the accompanying
financial statements have been restated to give effect to the combined results
of AHI and DSL since inception.
In connection with the DSL combination, the Company paid $6,850,000 in
repayment of DSL's outstanding credit facility and approximately $7,480,000 for
all of the outstanding preference shares of DSL. (See Notes 6 and 7).
COMPANY'S BUSINESS -- The Company is a leading manufacturer of security
equipment, including body armor, less-lethal munitions, and anti-riot products.
The Company is also a leading provider of security planning, advisory and
management services to corporations and governmental agencies operating in
unstable areas of the world.
F-8
<PAGE>
CASH EQUIVALENTS -- The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
CONCENTRATION OF CREDIT RISK -- The Company's accounts receivable consist of
amounts due from customers and distributors located throughout the world.
International product sales generally require cash in advance or confirmed
letters of credit on U.S. banks.
INVENTORIES -- Inventories are stated at the lower of cost or market
determined on the first-in, first-out ("FIFO") basis.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying values of the Company's
various financial instruments reflected in the accompanying statements of
financial position approximate their estimated fair values at December 27, 1997
and December 28, 1996.
PROPERTY AND EQUIPMENT -- Property and equipment are carried at cost less
accumulated depreciation. Property and equipment acquired prior to September
21, 1993 were recorded at their estimated fair values as a result of the
emergence from bankruptcy. Depreciation is computed using the straight-line
method based on estimated lives of 3 to 31.5 years.
GOODWILL - Goodwill is amortized on a straight-line basis over twenty-five
years and is periodically reviewed for impairment by comparing carrying value
to undiscounted expected future cash flows.
REORGANIZATION VALUE IN EXCESS OF AMOUNTS ALLOCABLE TO IDENTIFIABLE
ASSETS -- is amortized or otherwise reduced in amounts not less than those
which would be recognized on a straight-line basis over twenty-five years.
PATENTS AND TRADEMARKS -- Patents and trademarks were acquired through
acquisitions accounted for by the purchase method of accounting. Such assets
are amortized on a straight line basis over their remaining lives of 10 to 15
years.
NEW ACCOUNTING STANDARDS -- In June 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Finance Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive
income includes net income and several other items that current accounting
standards require to be recognized outside of net income. This standard
requires enterprises to display comprehensive income and its components in
financial statements, to classify items of comprehensive income by their nature
in financial statements, and to display the accumulated balances of other
comprehensive income in stockholders' equity separately from retained earnings
and additional paid-in capital. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997, and the Company intends to adopt the
standard for its fiscal year beginning December 28, 1997. The Company has
determined that it will display comprehensive income in the Consolidated
Statement of Shareholders' Equity for the fiscal year 1998.
F-9
<PAGE>
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," replacing SFAS No. 14 and its
amendments. This standard requires enterprises to report certain information
about their operating segments in a complete set of financial statements to
shareholders; to report certain enterprise-wide information about products and
services, activities in different geographic areas, and reliance on major
customers; and to disclose certain segment information in their interim
financial statements. The basis for determining an enterprise's operating
segments is the manner in which financial information is used internally by the
enterprise's chief operating decision maker. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997, however early adoption is
encouraged. The Company has elected to adopt the standard for the
fiscal year 1997.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES -- In connection with the adoption of fresh-start reporting,
the Company adopted SFAS No. 109, "Accounting for Income Taxes". Under the
asset and liability method specified thereunder, deferred taxes are determined
based on the difference between the financial reporting and tax bases of assets
and liabilities. Deferred tax liabilities are offset by deferred tax assets
representing the tax-effected cumulative net operating loss carryforwards and
deductible temporary differences, subject to applicable limits and an asset
valuation allowance. Future benefits obtained from utilization of net operating
loss carryforwards or from the reduction in the income tax asset valuation
allowance existing on September 20, 1993 have been and will be applied to
reduce reorganization value in excess of amounts allocable to identifiable
assets. At December 27, 1997 the Company's consolidated foreign subsidiaries
have unremitted earnings of approximately $1.1 million on which the Company has
not recorded a provision for U.S. Federal income taxes since these earnings are
considered to be permanently invested. Such foreign earnings have been taxed
according to the regulations existing in the countries in which they were
earned.
REVENUE RECOGNITION -- The Company records sales at gross amounts to be
received, including amounts to be paid to agents as commissions. The Company
records service revenue as the service is provided on a contract by contract
basis. Other income for 1997 includes amounts received as agent for a former
employee in selling shares of the Company's stock. In 1995, other income
includes amounts received in settlement of a non-competition agreement.
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 existing 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 an approximate loss of
$353,000 and $229,200 for the years ended December 27, 1997 and December 28,
1996, respectively.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1995
and 1996 financial statements in order to conform to the presentation adopted
for 1997.
F-10
<PAGE>
2. BUSINESS COMBINATIONS
DSL GROUP LIMITED
On April 16, 1997, the Company combined with DSL Group Limited, a United
Kingdom corporation ("DSL"), 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. The consolidated financial statements of the
Company for fiscal 1997 and 1996 include the results of DSL since its
inception. 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.
<TABLE>
<CAPTION>
1996
--------------------------------------------
COMPANY DSL TOTAL
HISTORICAL HISTORICAL HISTORICAL
----------- ----------- -----------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues $18,011 $12,956 $30,967
Net Income $ 835 $ (146) $ 689
Net Inccome Per Common Share and Common
Equivalent Share $ .10 -- $ .08
</TABLE>
DEFENSE TECHNOLOGY CORPORATION OF AMERICA
On September 30, 1996, a wholly-owned subsidiary of the Company, Defense
Technology Corporation of America, a Delaware corporation ("DTC"), acquired
substantially all of the assets (the "DTCoA Assets") of Defense Technology
Corporation of America, a Wyoming corporation ("DTCoA"). 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 acquisition of DTCoA has been accounted for under the purchase method.
Accordingly, the results of its operations are included in the consolidated
financial statements from the date of acquisition.
F-11
<PAGE>
NIK PUBLIC SAFETY PRODUCT LINE
Effective as of July 1, 1996, NIK Public Safety, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Company ("NIK"), 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(Registered Trademark) 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.
GORANDEL TRADING LIMITED
On June 9, 1997, the Company acquired the remaining 50% of Gorandel
Trading Limited, a Cyprus corporation ("GTL"), 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.
SUPERCRAFT (EUROPE) LIMITED
On April 7, 1997, the Company acquired Supercraft (Europe) Limited,
f/k/a Supercraft (Garments) Limited, a United Kingdom corporation
("Supercraft"). 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 an initial 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 (of which title has
now been properly transferred to the Company) and (iii) certain additional
consideration in an amount not to exceed 250,000 pounds sterling (approximately
$410,000) based on 1997 operating results. The Company was not required to pay
this additional consideration.
The unaudited consolidated results of operations of the Company on a pro
forma basis as if the Company had consummated the above acquisitions on
January 1, 1996, are as follows (in 000's, except per share amounts):
PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Years Ended
----------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) DECEMBER 27, 1997 December 28, 1996
------------------- -------------------
<S> <C> <C>
Revenues $ 82,927 $ 68,030
Net income $ 5,385 $ 2,300
Diluted earnings per share $ .36 $ .23
Weighted average shares 14,764 9,997
</TABLE>
F-12
<PAGE>
3. INVENTORIES
Inventories are summarized as follows for the years ended December 27, 1997
and December 28, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
------------------------ -------------------------
<S> <C> <C>
Raw materials $2,958 $1,738
Work-in-process 770 859
Finished goods 2,003 1,564
------------------------ -------------------------
$5,731 $4,161
======================== =========================
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 27, 1997 and December 28, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
------------------------ -------------------------
<S> <C> <C>
Land and improvements $ 716 $ 582
Buildings and improvements 6,106 1,372
Machinery and equipment 5,736 4,111
Construction in progress - 586
------------------------ -------------------------
Total 12,558 6,651
Accumulated depreciation (2,517) (1,719)
------------------------ -------------------------
$ 10,041 $ 4,932
======================== =========================
</TABLE>
Depreciation expense for 1997, 1996 and 1995 was approximately $1,079,000,
$388,000 and $148,000, respectively.
5. ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accounts payable, accrued expenses and other current liabilities are
summarized as follows for the years ended December 27, 1997 and December 28,
1996:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
------------------- ----------------
<S> <C> <C>
Trade and other payables $ 3,940 $ 4,828
Accrued expenses 4,287 2,260
Deferred consideration for acquisitions 300 680
Other current liabilities 216 441
------------------- ----------------
$ 8,743 $ 8,209
=================== ================
</TABLE>
F-13
<PAGE>
6. INDEBTEDNESS
Debt:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1996
----------------------
<S> <C>
Note payable to Finoff & Associates, payable in monthly installments of $10,000
including interest at 8% through October 5, 1998 $ 200
Mortgage loan payable in monthly installments of $1,296 at 9% through April 1,
1997, with a balloon installment of $127,739 due on May 1, 1997, collateralized
by a first mortgage on a building 129
DSL credit facility, payable in semi-annually installments including interest
at LIBOR plus 2%, through June 28, 2002 (1) 6,850
DSL bank overdraft facility with monthly interest payments 590
Other installment loans 43
----------------------
7,812
Less current portion (2,233)
----------------------
$ 5,579
======================
</TABLE>
(1) Proceeds were used to acquire the outstanding shares of DSL Holdings as
discussed in Note 1. These borrowings were paid in full subsequent to the
Company's combination with DSL.
Capitalized lease obligation:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
------------------- ----------------
<S> <C> <C>
Equipment lease bearing interest at 10.88%, expiring November, 1999,
collateralized by equipment with an amortized cost of
approximately $42 at December 27, 1997 $ 20 $ 28
Equipment lease bearing interest at 12%, expiring June, 1998,
collateralized by equipment with an amortized cost of
approximately $241 at December 27, 1997 181 363
------------------- ----------------
201 391
Less current portion (190) (190)
------------------- ----------------
$ 11 $ 201
=================== ================
</TABLE>
The Company entered into a revolving working capital credit facility and
Bankers Acceptance Facility (the "Credit Facility") on November 14, 1996 with
Barnett Bank, N.A., which provides for total borrowings up to $10,000,000
with maximum availability based upon 50% of eligible inventories (with a cap of
$1,000,000 for work in process inventory and $6,000,000 for inventory in total)
and 85% of eligible accounts receivable. The Credit Facility was amended as of
March 26, 1997 to increase the revolving line of credit to $20,000,000. The
Credit Facility has various covenants which, among other things, require the
Company to maintain certain financial ratios, tangible net worth and working
capital, as defined; and limit the Company's ability to pay dividends on its
common stock, encumber and transfer assets, incur indebtedness or merge into
another corporation. The Company had no borrowings outstanding under the
Credit Facility at December 27, 1997. The Credit Facility expires March 1, 1999.
F-14
<PAGE>
7. PREFERENCE SHARES
DSL had $7,480,000, (4,400,000 shares) of preference shares with a par value
of pounds sterling 0.01. Such shares carried an 8% dividend, were cumulative and
redeemable and had a liquidation value of par. The preference shares had no
voting rights. The Company paid cash of $7,480,000, including accrued interest
of approximately $382,000, to purchase such shares on April 16, 1997.
8. NON-RECURRING ITEMS
Approximately $2.5 million of fees and expenses associated with the DSL
Transaction have been expensed in fiscal 1997. These expenses include
approximately $1.1 million in professional fees and approximately $1.4 million
in costs incurred to consolidate the financial and administrative functions at
the Company's headquarters in Jacksonville, Florida. These costs have been
substantially paid as of December 27, 1997.
F-15
<PAGE>
9. INCOME TAXES
Income tax expense (benefit) for the years ended December 27, 1997, December
28, 1996, and December 31, 1995 consisted of the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
---------------- ---------------- --------------
<S> <C> <C> <C>
Current
Domestic $ 1,329 $ 480 $ 4
Foreign 2,250 734 -
---------------- ---------------- --------------
Total Current $ 3,579 $ 1,214 $ 4
Deferred
Domestic $ 68 $ 112 $ 300
Foreign (1,271) (111) -
---------------- ---------------- --------------
Total Deferred $ (1,203) $ 1 $ 300
Total Provision for Income Taxes $ 2,376 $ 1,215 $ 304
================ ================ ==============
</TABLE>
Significant components of the Company's net deferred tax asset as of
December 27, 1997 and December 28, 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------- ---------------------
<S> <C> <C>
Deferred tax assets:
Reserves not currently deductible $ 289 $ 255
Operating loss carryforwards 2,676 1,507
Other 154 154
------------------- ---------------------
3,119 1,916
Deferred tax asset valuation allowance (1,800) (1,800)
------------------- ---------------------
Net deferred tax asset $ 1,319 $ 116
=================== =====================
</TABLE>
The Company provided a valuation allowance of $1,800,000 against deferred
tax assets recorded as of December 27, 1997 and December 28, 1996 in view of,
among other things, the expiration dates and other limitations on usage of the
net operating loss carryforwards. These deferred tax assets are included in
other assets on the balance sheet for the years ended December 27, 1997 and
December 28, 1996.
The following reconciles the income tax expense computed at the Federal
statutory income tax rate to the provision for income taxes recorded in the
income statement:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- -------
<S> <C> <C> <C>
Provision for income taxes at statutory Federal rate 34% 34 % 34%
State and local income taxes, net of Federal benefit .4% 3 % -
Foreign income taxes .1% 32 % -
Other non-deductible items 7.4% (5)% 3%
---------- --------- -------
41.9% 64 % 37%
========== ========= =======
</TABLE>
F-16
<PAGE>
As of January 1, 1996, the Company had an income tax net operating loss
carryforward ("NOL") of approximately $4,400,000. Effective with the change in
control of the Company by Kanders Florida Holdings, Inc. on January 18, 1996,
the utilization of this NOL became restricted in the United States to
approximately $300,000 per year. However, as of December 27, 1997 the Company's
net operating losses increased to approximately $7,800,000 and expire in
varying amounts in fiscal years 2006 to 2010. The increase in the net operating
losses is a result of the recording of DSL deferred tax assets that related to
fiscal 1997 losses generated in the United Kingdom which will be offset against
future income.
10. OPERATING LEASES
The Company leases its previous manufacturing facilities under a six year
operating lease expiring in 1999, with an option to renew. The Company is also
party to various other equipment and vehicle leases. DSL leases its London
office under an operating lease expiring in 2002. Approximate total future
minimum annual lease payments under all such arrangements are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
- - -----------
<S> <C>
1998 $ 502,000
1999 360,000
2000 273,000
2001 260,000
2002 85,000
Thereafter 10,000
---------------------
$ 1,490,000
=====================
</TABLE>
The Company incurred rent expense of approximately $454,000 (net of sublease
income of $35,000), $330,000, and $161,000 during the years ended December 27,
1997, December 28, 1996 and December 31, 1995, respectively.
11. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT CONTRACTS -- The Company is party to several employment contracts
with its management. Such contracts are for varying periods and include
restrictions on competition after termination. These agreements provide for
salaries, bonuses and other benefits and also specify and delineate the
granting of various stock options.
F-17
<PAGE>
LEGAL/LITIGATION MATTERS -- 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. The Company was granted a preliminary injuction enjoining
the Defendants from the unauthorized use of the "Defense Technology" name.
In addition, the Company was subsequently granted another preliminary
injunction enforcing the restrictive covenants contained in the Asset Purchase
Agreement and the Authorized Distributor Agreement prohibiting the Defendants
from competing with the Company. 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 wil have a material adverse effect on the Company.
12. STOCKHOLDERS' EQUITY AND PREFERRED STOCK
CONVERTIBLE PREFERRED STOCK -- The Plan of Reorganization provided for the
filing by the Company of its Restated Articles of Incorporation which
authorized the issuance of 1,700,000 shares of $1 stated value, 3% convertible
preferred stock ("preferred stock"). Pursuant to the Plan of Reorganization,
the Company issued 1,700,000 shares of preferred stock.
In 1995 and 1996, the Company elected to convert 242,851 and 1,214,292
shares, respectively, of preferred stock to common stock at $0.77 per
share under conversion provisions calling for the issuance of common stock,
the fair market value of which represents 110% of the aggregate stated value of
the preferred stock then subject to redemption.
The Company has authorized a series of preferred stock with such rights,
privileges and preferences as the Board of Directors shall from time to time
determine.
ISSUANCE AND CONVERSION OF CONVERTIBLE DEBT -- On April 30, 1996, the
Company completed a private placement of its 5% Convertible Subordinated Notes
due April 30, 2001 (the "Notes") pursuant to which $11,500,000 aggregate
principal amounts of Notes were sold by the Company.
F-18
<PAGE>
On December 18, 1996, the Notes were converted into 2,300,000 shares of
common stock at a conversion price of $5.00 per share.
STOCK OPTIONS AND GRANTS -- In 1994, the Company implemented an incentive
stock plan and an outside directors' stock plan, which plans collectively
provide for the granting to certain key employees of options to acquire the
Company's common stock as well as providing for the grant of common stock to
outside directors and to all full time employees. Pursuant to such plans,
1,050,000 shares of common stock were reserved and made available for
distribution. The option prices of stock which may be purchased under the
incentive stock plan are not less than the fair market value of common stock on
the dates of the grants.
Effective January 19, 1996, all stock grants awarded under the 1994
Incentive Stock Plan were accelerated and considered fully vested.
During 1996, the Company implemented a new incentive stock plan and a new
outside directors' stock plan. Pursuant to the new plans, 1,800,000 shares of
common stock were reserved and made available for distribution.
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS 123 establishes a fair value based method of
accounting for stock-based employee compensation plans; however, it also allows
an entity to continue to measure compensation cost for those plans using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Under
the fair value based method, compensation cost is measured at the grant date
based on the value of the award and is recognized over the service period,
which is usually the vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the
stock at the grant date or other measurement date over the amount an employee
must pay to acquire the stock. The Company has elected to continue to account
for its employee stock compensation plans under APB Opinion No. 25 with pro
forma disclosures of net earnings and earnings per share, as if the fair value
based method of accounting defined in SFAS No. 123 had been applied.
If compensation cost for stock option grants had been determined based on the
fair value on the grant dates for 1997, 1996 and 1995 consistent with the
method prescribed by SFAS No. 123, the Company's net earnings and diluted
earnings per share would have been adjusted to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995
-------- -------- --------
<S> <C> <C> <C> <C>
Net earnings As reported $3,158 $689 $520
Pro forma $2,653 $477 $520
Diluted earnings per share As reported $0.21 $0.08 $0.08
Pro forma $0.18 $0.05 $0.08
</TABLE>
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997, 1996 and 1995: dividend
yield of 0%, expected volatility of 22%, 33% and 33%, respectively, risk-free
interest rates of 6.00%, 5.93% and 5.46%, respectively, and expected lives of
3 years.
F-19
<PAGE>
Outstanding options, consisting of ten-year incentive and non-qualified stock
options, vest and become exercisable over a three year period from the date of
grant. The outstanding options expire ten years from the date of grant or upon
retirement from the Company, and are contingent upon continued employment
during the applicable ten-year period.
A summary of the status of stock option grants as of December 27, 1997
changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
---------------------------
<S> <C> <C>
Outstanding at December 31, 1994 658,500 $0.92
Granted 136,000 0.97
Forfeited (11,000) 0.97
-------------
Outstanding at December 31, 1995 783,500 0.93
Granted 1,068,000 5.97
Exercised (26,467) 0.97
-------------
Outstanding at December 28, 1996 1,825,033 3.88
Granted 485,000 10.36
Exercised (217,332) 0.97
Forfeited (51,701) 4.37
-------------
Outstanding at December 27, 1997 2,041,000 5.69
Options exercisable at December 27, 1997 995,001 $3.32
Weighted-average fair value of options granted
during 1997 $634,960
</TABLE>
The following table summarizes information about stock options outstanding
at December 27, 1997:
<TABLE>
<CAPTION>
EXERCISE OPTIONS OPTIONS REMAINING
PRICE OUTSTANDING EXERCISABLE LIFE
- - ---------------------------------------- -------------- --------------- ------------
<S> <C> <C> <C>
$ 0.79 226,000 226,000 6.50
0.97 191,000 191,000 6.70
1.00 24,000 24,000 8.06
1.05 206,000 206,000 6.50
3.75 150,000 50,000 8.05
6.06 150,000 - 8.60
6.75 20,000 6,667 8.82
7.19 74,000 13,000 8.75
7.25 60,000 20,000 8.69
7.38 15,000 5,000 8.71
7.50 375,000 125,000 8.35
7.81 10,000 - 9.07
7.88 5,000 - 9.01
8.00 85,000 28,334 8.95
8.50 10,000 - 9.22
9.00 10,000 - 9.28
9.13 10,000 - 9.26
9.88 20,000 - 9.30
10.44 250,000 100,000 9.68
11.00 100,000 - 9.68
12.00 50,000 - 9.68
-------------- -----------------
Total 2,041,000 995,001
================ =================
</TABLE>
F-20
<PAGE>
Remaining non-exercisable options as of December 27, 1997 become exercisable as
follows:
1998 319,671
1999 504,665
2000 221,663
EARNINGS PER SHARE -- In March 1997, the FASB issued SFAS No. 128, "Earnings
per Share". This Statement establishes standards for computing and presenting
earnings per share ("EPS") and applies to all entities with publicly held
common stock or potential common stock. This Statement replaces the
presentation of primary EPS and fully diluted EPS with a presentation of basic
EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed
by dividing earnings available to common stockholders by the weighted average
number of common shares outstanding for the period. Similar to fully diluted
EPS, diluted EPS reflects the potential dilution of securities that could share
in the earnings. This Statement is effective for the Company's financial
statements for the year ended December 27, 1997.
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share computations for net income and net
income available to common stockholders:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995
------------ -------- --------
<S> <C> <C> <C>
Numerator for basic and diluted earnings per share:
Net income available to common stockholders $ 3,158 $ 689 $ 520
------------ -------- --------
Denominator:
Denominator for basic earnings per share weighted
average shares....................................... 13,638 7,966 4,754
Effect of dilutive securities:
Effect of shares issuable under stock option
and stock grant plans, based on the
treasury stock method............................... 1,074 819 325
Effect of shares issuable under conversion of
preferred stock..................................... 91 1,290
------------ -------- --------
Dilutive potential common shares 1,074 910 1,615
------------ -------- --------
Denominator for diluted earnings per share --
adjusted weighted-average shares...................... 14,712 8,876 6,369
------------ -------- --------
Basic earnings per share.................................. $ .23 $ .09 $ .11
============ ======== ========
Diluted earnings per share................................ $ .21 $ .08 $ .08
============ ======== ========
</TABLE>
F-21
<PAGE>
13. SUPPLEMENTAL CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
------------ ---------- ------------
<S> <C> <C> <C>
Cash paid (received) during the year for:
Interest $ 673 $ 521 $ 274
Income taxes 1,506 (15) 3
Noncash investing and financing activities:
Issuance of stock under stock plan $ 201 118 29
Conversion of preferred stock to common stock - 1,214 243
Conversion of convertible debt to common stock - 10,633
Acquisitions (businesses, patents and trademarks):
Fair value of assets acquired $5,294 $25,573 $ -
Goodwill recorded 4,731 - -
Liabilites assumed (5,218) (6,535) -
Stock issued (1,200) (6,460) -
------------ ---------- ------------
Total cash paid $3,607 $12,578 $ -
============ ========== ============
</TABLE>
14. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
At December 27, 1997 and December 28, 1996, the Company has investments in
the following companies which it accounts for under the equity method of
accounting for investments:
<TABLE>
<CAPTION>
1997 1996
------------------ --------------------
<S> <C> <C>
Jardine Securicor Gurkha Services Limited 20% 20%
Gorandel Trading Limited - 50%
</TABLE>
The following summarizes significant financial information of these
unconsolidated subsidiaries as of and for the twelve months ended December 27,
1997 and the nine months ended December 28, 1996.
<TABLE>
<CAPTION>
1997 1996
------------------ -------------------
<S> <C> <C>
Total Assets $3,303,000 $ 6,582,100
Retained Earnings $ 903,000 $ 2,938,800
Total Revenues $4,950,000 $20,720,300
Net Income $ 482,000 $ 3,235,500
</TABLE>
15. INFORMATION CONCERNING BUSINESS SEGMENTS AND GEOGRAPHICAL SALES
Prior to its combinations with DSL, the Company operated in one business
segment - Manufactured Products. This segment includes the development,
manufacture and distribution of ballistic protective equipment,
less-than-lethal products and narcotic identification and evidence equipment.
These products are sold through an international network of distributors who
serve law enforcement communities. Since the DSL combination, the Company
operates in a second business segment - Security Services. This segment
includes devising and implementing solutions to complex security problems in
high risk areas. DSL's services encompass the provision of detailed threat
assessments, security planning, security training, the provision, training and
supervision of specialist manpower and other services up to the implementation
and management of fully integrated security systems.
F-22
<PAGE>
The Company has invested substantial resources outside of the United States
and plans to continue to do so in the future. Substantially all of the
operations of the services segment is conducted in emerging markets in Africa,
Asia and South America. These operations are subject to the risk of new and
different legal and regulatory requirements in local jurisdictions, tariffs and
trade barriers, potential difficulties in staffing and managing local
operations, potential imposition of restrictions on investments, potentially
adverse tax consequences, including imposition or increase of withholding and
other taxes on remittances and other payments by subsidiaries, and local
economic, political and social conditions. Governments of many developing
countries have exercised and continue to exercise substantial influence over
many aspects of the private sector. Government actions in the future could have
a significant adverse effect on economic conditions in a developing country or
may otherwise have a material adverse effect on the Company and its operating
companies. The Company does not have political risk insurance in the countries
in which it currently conducts business. Moreover, applicable agreements
relating to the Company's interests in its operating companies are frequently
governed by foreign law. As a result, in the event of a dispute, it may be
difficult for the Company to enforce its rights. Accordingly, the Company may
have little or no recourse upon the occurrence of any of these developments.
See Note 17.
Revenues, income from continuing operations and identifiable assets for each of
the Company's segments for the years ended December 27, 1997 and December 28,
1996, were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996
----------------------- -----------------------
<S> <C> <C>
Revenues:
Products $ 29,869 $ 18,011
Services 48,445 12,956
----------------------- -----------------------
Total revenues $ 78,314 $ 30,967
Income from operations:
Products $ 3,651 $ 1,680
Services 4,581 658
----------------------- -----------------------
Total income from operations $ 8,232 $ 2,338
Total assets:
Products $ 29,418 $ 21,669
Services 29,363 20,799
Corporate 16,706 7,062
----------------------- -----------------------
$ 75,487 $ 49,530
</TABLE>
F-23
<PAGE>
The following unaudited information with respect to sales to principal
geographic areas for the years ended December 27, 1997, December 28, 1996 and
December 31, 1995 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1997 1996 1995
<S> <C> <C> <C>
Sales to unaffiliated customers:
North America $ 23,574 $ 15,838 $ 10,371
South America 12,082 4,197 625
Africa 25,499 8,587 745
Europe/Asia 16,079 2,345 -
Other
Miscellaneous foreign 1,080 - -
------------------- ----------------- -----------------
Total revenues $ 78,314 $ 30,967 $ 11,741
Operating profit:
North America $ 2,212 $ 1,223 $ 775
South America 738 67 47
Africa 2,823 605 -
Europe/Asis 1,206 (74) 56
Other 101 - -
Identifiable assets:
North America $40,964 $28,731 $8,161
South America 2,847 1,560 -
Africa 7,944 6,068 -
Europe/Asia 23,732 13,171 -
Other - - -
</TABLE>
16. QUARTERLY RESULTS
The following table presents summarized unaudited quarterly results of
operations for the Company for fiscal 1997 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 included elsewhere herein.
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.
F-24
<PAGE>
<TABLE>
<CAPTION>
Fiscal 1997
------------------------------------------------------
Amounts in thousands, except per share data First Second Third Fourth
Quarter Quarter Quarter Quarter
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 14,750 $ 18,063 $ 22,124 $ 23,377
Gross Profit 4,297 4,834 5,796 5,949
Net income 540 (696) 1,618 1,696
Basic earnings per share $ 0.05 $ (0.05) $ 0.11 $ 0.11
Diluted earnings per share $ 0.04 $ (0.05) $ 0.10 $ 0.10
- - ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996
------------------------------------------------------
Amounts in thousands, except per share data First Second Third Fourth
Quarter Quarter Quarter Quarter
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 3,267 $ 3,596 $ 9,715 $ 14,389
Gross Profit 1,157 1,338 2,677 4,623
Net income 72 144 346 127
Basic earnings per share $ 0.01 $0.02 $ 0.05 $ 0.02
Diluted earnings per share $ 0.01 $0.02 $ 0.04 $ 0.02
- - ----------------------------------------------------------------------------------------------------
</TABLE>
17. SUBSEQUENT EVENTS
On January 16, 1998, DSL ceased operations in the country of Angola. The
cessation of operations by DSL in Angola was dictated by that government's
decision to deport all of DSL's expatriate management and supervisors. As a
result of this action, DSL believed that it could no longer ensure the safety
of its personnel or that of its clients. While Angolan operations represented
approximately $12.0 million of the Company's revenues during 1997, the
contribution was only $1.0 million before allocation of DSL's corporate
overhead charges. DSL's assets in Angola of approximately $900,000 have been
substantially secured by DSL and DSL's clients have made temporary alternative
arrangements for the provision of their ongoing security needs. The Company
has recorded a reserve of approximately $500,000 for potential losses
associated with DSL's withdrawal from Angola. The Company is currently
reviewing all of its available alternatives in connection with the cessation
of DSL's operations in Angola, including various disputes with its minority
partner in a joint venture which managed certain of the Angolan business.
Management does not believe that the outcome of these matters will have a
material impact on the financial statements of the Company.
On January 30, 1998, the Company acquired all of the issued and outstanding
shares of capital stock of Low Voltage Systems Technology, Inc., a New Jersey
corporation ("LST"). LST is a leading engineered systems distributor
specializing in the supply, integration, maintenance and technical support of
sophisticated electronic and computer-driven security and fire alarm systems.
The aggregate purchase price of the transaction was approximately $750,000,
consisting of $562,500 in cash paid at closing and 18,519 unregistered shares
of Common Stock valued at the time at $187,500. The Company also assumed and
subsequently repaid approximately $204,340 to a stockholder of LST in full
satisfaction of loans previously made by such stockholder to LST.
18. EMPLOYEE BENEFIT PLANS
In October 1997, the Company implemented a 401(k) plan, (the "401(k) Plan")
which provides for voluntary contributions by employees and allows for a
discretionary contribution by the Company in the form of cash or stock. The
Company did not make a discretionary contribution to the 401(k) Plan in 1997.
DSL operates a defined contribution plan for its United Kingdom employees. The
assets of the plan are held separately by an independently administered fund.
The Company contributed approximately 94,000 pounds sterling (or approximately
$154,000) for fiscal 1997 and 73,000 pounds sterling (or approximately
$119,000) for fiscal 1996.
F-25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARMOR HOLDINGS, INC.
/s/ Jonathan M. Spiller
----------------------------------
Jonathan M. Spiller
President, Chief Executive Officer
and Director
Dated: March 26, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C>
/s/ Jonathan M. Spiller /s/ Warren B. Kanders
- - ------------------------------------- ----------------------------------
Jonathan M. Spiller Warren B. Kanders
President and Chief Executive Officer Chairman of the Board of Directors
and Director March 26, 1998
Principal Executive Officer
March 26, 1998
/s/ Carol T. Burke /s/ Nicholas Sokolow
- - ------------------------------------- ----------------------------------
Carol T. Burke Nicholas Sokolow
Vice President--Finance Director
Principal Financial Officer March 26, 1998
March 26, 1998
/s/ Burtt R. Ehrlich /s/ Thomas W. Strauss
- - ------------------------------------- ----------------------------------
Burtt R. Ehrlich Thomas W. Strauss
Director Director
March 26, 1998 March 26, 1998
/s/ Richard C. Bartlett /s/ Alair A. Townsend
- - ------------------------------------- ----------------------------------
Richard C. Bartlett Alair A. Townsend
Director Director
March 27, 1998 March 26, 1998
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
The following Exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION
- - ----------- -----------
10.27 Armor Holdings, Inc. Amended and Restated 1996 Stock Option
Plan.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of KPMG
27.1 Financial Data Schedule.
<PAGE>
EXHIBIT 10.27
ARMOR HOLDINGS, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
I. PURPOSE
ARMOR HOLDINGS, INC. (the "Company") desires to afford
certain of its key employees and consultants and the key employees and
consultants of any subsidiary corporation or parent corporation of the Company
now existing or hereafter formed or acquired who are responsible for the
continued growth of the Company an opportunity to acquire a proprietary
interest in the Company, and thus to create in such key employees and
consultants an increased interest in and a greater concern for the welfare of
the Company and its subsidiaries.
The Company, by means of this Amended and Restated 1996 Stock
Option Plan (the "Plan"), seeks to retain the services of key employees and
consultants and to enable the Company to attract and retain persons of
competence.
The stock options ("Options") offered pursuant to the Plan
are a matter of separate inducement and are not in lieu of any salary or other
compensation for the services of any key employee or consultant.
The Options granted under the Plan are intended to be either
incentive stock options ("Incentive Options") within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended (the "Code"), or options that
do not meet the requirements for Incentive Options ("Non-Qualified Options"),
but the Company makes no warranty as to the qualification of any Option as an
Incentive Option.
II. AMOUNT OF STOCK SUBJECT TO THE PLAN
AND OTHER LIMITATIONS
(a) The total number of shares of common stock of the Company
which may be purchased or acquired pursuant to the exercise of Options granted
under the Plan shall not exceed, in the aggregate, 1,750,000 shares of the
authorized common stock, $.01 par value per share (the "Common Stock"), of the
Company (the "Shares"), such number subject to adjustment as provided in
Article XI hereof. Shares of Common Stock that are the subject of Options shall
be counted only once in determining whether the maximum number of Shares of
Common Stock that may be purchased or awarded under the Plan has been exceeded.
(b) Shares of Common Stock acquired under the Plan may be
either authorized but unissued Shares or Shares of issued stock held in the
Company's treasury, or both, at the
<PAGE>
discretion of the Company. If and to the extent that Options granted under the
Plan expire or terminate without having been exercised, the Shares of Common
Stock covered by such expired or terminated Options shall again become
available for award under the Plan.
Except as provided in Articles XVIII and XXI, the Company
may, from time to time during the period beginning on the date of the adoption
of the Plan by the Company (the "Effective Date") and ending on the date which
is ten (10) years from the Effective Date (the "Termination Date"), grant to
Participants (as defined in Article IV), Incentive Options and/or Non-Qualified
Options under the terms hereinafter set forth.
As used in the Plan, the terms "subsidiary corporation" and
"parent corporation" shall mean, respectively, a corporation coming within the
definition of such terms contained in Sections 424(f) and 424(e) of the Code.
III. ADMINISTRATION
The board of directors of the Company (the "Board of
Directors") shall designate from among its members an option committee (the
"Committee") to administer the Plan. The Committee shall consist of not less
than two (2) members of the Board who meet the definition of "outside director"
under the provisions of Section 162(m) of the Code and the definition of
"non-employee director" under the provisions of Rule 16b-3 (or any successor
rule or regulation ("Rule 16b-3") promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). No member of the Committee shall have
been within one year prior to appointment to, or while serving on, the
Committee granted or awarded equity securities of the Company pursuant to this
or any other plan of the Company except to the extent that participation in any
such plan or receipt of any such grant or award would not adversely affect the
Committee member's status as a "non-employee director" or as an "outside
director." A majority of the members of the Committee shall constitute a
quorum, and the act of a majority of the members of the Committee shall be the
act of the Committee. Any member of the Committee may be removed at any time,
either with or without cause, by resolution adopted by the Board of Directors,
and any vacancy on the Committee at any time may be filled by resolution
adopted by the Board of Directors.
Any or all powers and functions of the Committee may be
exercised at any time and from time to time by the Board of Directors.
Subject to the express provisions of the Plan, the Board of
Directors or the Committee, as the case may be, shall have authority, in its
discretion, to determine the Participants (as defined in Article IV) to whom
Options shall be granted, the time when such Options shall be granted, the
number of Shares of Common Stock which shall be subject to each Option, the
exercise price of each Option, the period(s) during which such Options shall be
exercisable (whether in whole or in part) and the other terms and provisions
thereof (which need not be identical).
2
<PAGE>
Subject to the express provisions of the Plan, the Board of
Directors or the Committee, as the case may be, also shall have authority to
construe the Plan and the Options granted thereunder, to amend the Plan and the
Options thereunder, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of the Options
(which need not be identical) granted thereunder and to make all other
determinations necessary or advisable for administering the Plan. The Board of
Directors or the Committee, as the case may be, also shall have the authority
to require, in its discretion, as a condition of the granting of any such
Option, that the Participants (as defined in Article IV) agree (i) not to sell
or otherwise dispose of Shares of Common Stock acquired pursuant to the
exercise of such Option for a period of six (6) months following the date of
the acquisition of such Option and (ii) that in the event of termination of
employment of such employee or the engagement of such consultant, as the case
may be, other than as a result of dismissal without cause, such Participant (as
defined in Article IV) will not, for a period to be fixed at the time of the
grant of the Option, enter into any other employment or consulting arrangement
or participate directly or indirectly in any other business or enterprise which
is competitive with the business of the Company or any subsidiary corporation
or parent corporation of the Company, or enter into any employment in which
such employee or consultant, as the case may be, will be called upon to utilize
special knowledge obtained through employment with or retention by the Company
or any subsidiary corporation or parent corporation thereof. In no event will a
Participant (as defined in Article IV) who is subject to the reporting
requirements of Section 16(a) of the Exchange Act be entitled to sell or
otherwise dispose of any Shares of Common Stock acquired pursuant to exercise
of any such Options for a period of six (6) months from the date of the
acquisition of such Options.
The determination of the Board of Directors or the Committee,
as the case may be, on matters referred to in this Article III shall be
conclusive.
The Board of Directors or the Committee, as the case may be,
may employ such legal counsel, consultants and agents as it may deem desirable
for the administration of the Plan and may rely upon any opinion or computation
received from any such legal counsel, consultant or agent. Expenses incurred by
the Board of Directors or the Committee, as the case may be, in the engagement
of such counsel, consultant or agent shall be paid by the Company. No member or
former member of the Board of Directors or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
award of Options granted hereunder.
IV. ELIGIBILITY
Options may be granted only to persons employed and
consultants engaged by the Company or of any subsidiary corporation or parent
corporation of the Company (such employees and consultants hereinafter at times
collectively referred to as the "Participants"), except as hereinafter
provided, and shall not be granted to any director who is not also an employee
of the Company.
Incentive Options shall not be granted to consultants.
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The Plan does not create a right in any employee or
consultant to participate in the Plan, to become or remain an employee of the
Company, nor does it create a right in any Participant to have any Options
granted to him or her.
V. OPTION PRICE AND PAYMENT
The exercise price for each Share of Common Stock purchasable
under any NonQualified Option granted hereunder shall be such amount as the
Board of Directors or the Committee, as the case may be, shall deem
appropriate, but in no event less than the par value of a Share of Common
Stock.
The price for each Share of Common Stock purchasable under
any Incentive Option granted hereunder shall be such amount as the Board of
Directors or the Committee, as the case may be, shall, in its best judgment,
determine to be not less than one hundred per cent (100%) of the fair market
value per Share at the date the Option is granted; provided, however, that in
the case of an Incentive Option granted to a person who, at the time such
Option is granted, owns shares of the Company or any subsidiary corporation or
parent corporation of the Company which possess more than ten percent (10%) of
the total combined voting power of all classes of shares of the Company or of
any subsidiary corporation or parent corporation of the Company, the purchase
price for each Share of Common Stock shall be such amount as the Board of
Directors or the Committee, as the case may be, in its best judgment, shall
determine to be not less than one hundred ten percent (110%) of the fair market
value per Share at the date the Option is granted. In determining stock
ownership of a Participant for any purposes under the Plan, the rules of
Section 424(d) of the Code shall be applied, and the Board of Directors or the
Committee, as the case may be, may rely on representations of fact made to it
by the Participant and believed by it to be true.
If the Common Stock is listed on a national securities
exchange in the United States on any date on which the fair market value per
Share is to be determined, the fair market value per Share shall be deemed to
be the average of the high and low quotations at which such Shares are sold on
such national securities exchange on the date such Option is granted. If the
Common Stock is listed on a national securities exchange in the United States
on such date, but is not traded on such date, or such national securities
exchange is not open for business on such date, the fair market value per Share
shall be determined as of the closest preceding date on which such exchange
shall have been open for business and the Common Stock was traded. If the
Common Stock is listed on more than one national securities exchange in the
United States on the date on which the fair market value per Share is to be
determined, the Board of Directors or the Committee, as the case may be, shall
determine which national securities exchange shall be used for the purpose of
determining the fair market value per Share.
For purposes of this Plan, the determination by the Board of
Directors or the Committee, as the case may be, of the fair market value of a
Share shall be conclusive.
Upon the exercise of an Option granted hereunder, the Company
shall cause the purchased Shares of Common Stock to be issued only when it
shall have received the full purchase price for the Shares in cash or by
certified check or such other arrangement for the
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satisfaction of the full purchase price as the Committee may determine to the
extent permitted by applicable law, including but not limited to, by delivering
to the Company shares of Common Stock of the Company (in proper form for
transfer and accompanied by all requisite stock transfer tax stamps or cash in
lieu thereof) owned by such holder free and clear of all liens and encumbrances
having a fair market value equal to the exercise price applicable to that
portion of the Option being exercised by the delivery of such Shares. The fair
market value of the stock so delivered shall be determined by the Committee, in
its sole discretion, as of the date immediately preceding the date on which the
Option is exercised, or as may be required in order to comply with or to
conform to the requirements of any applicable laws or regulations.
VI. USE OF PROCEEDS
The cash proceeds of the sale of Shares of Common Stock
pursuant to the Plan are to be added to the general funds of the Company and
used for its general corporate purposes as the Board of Directors shall
determine.
VII. TERM OF OPTIONS AND LIMITATIONS ON THE RIGHT OF EXERCISE
Any Option shall be exercisable at such times, in such
amounts and during such period or periods as the Board of Directors or the
Committee, as the case may be, shall determine at the date of the grant of such
Option; provided, however, that an Incentive Option shall not be exercisable
after the expiration of ten (10) years from the date such Option is granted;
and provided further that, in the case of an Incentive Option granted to a
person who, at the time such Option is granted, owns stock of the Company or
any subsidiary corporation or parent corporation of the Company possessing more
than ten per cent (10%) of the total combined voting power of all classes of
stock of the Company or of any subsidiary corporation or parent corporation of
the Company, such Option shall not be exercisable after the expiration of five
(5) years from the date such Option is granted.
Except to the extent otherwise provided under the Code, to
the extent that the aggregate fair market value of Common Stock for which
Incentive Options are exercisable for the first time by a Participant during
any calendar year (under all stock option plans of the Company or of any parent
corporation or subsidiary corporation of the Company) exceeds one hundred
thousand dollars ($100,000), such Options shall be treated as Non-Qualified
Options. For purposes of this limitation, (i) the fair market value of Common
Stock is determined as of the time the Option is granted, and (ii) the
limitation will be applied by taking into account Options in the order in which
they were granted.
Subject to the provisions of Article XVII, the Board of
Directors or the Committee, as the case may be, shall have the right to
accelerate, in whole or in part, from time to time, conditionally or
unconditionally, rights to exercise any Option granted hereunder.
To the extent that an Option is not exercised within the
period of exercisability specified therein, it shall expire as to the then
unexercised part.
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In no event shall an Option granted hereunder be exercised
for a fraction of a Share.
The Committee may at any time on behalf of the Company offer
to buy out an Option previously granted, based on such terms and conditions as
the Committee shall establish and communicate to the Participant at the time
that such offer is made.
VIII. EXERCISE OF OPTIONS
Options granted under the Plan shall be exercised by the
optionee as to all or part of the Shares covered thereby by the giving of
written notice of the exercise thereof to the Corporate Secretary of the
Company at the principal business office of the Company, specifying the number
of shares to be purchased and specifying a business day not more than fifteen
(15) days from the date such notice is given for the payment of the purchase
price against delivery of the Shares of Common Stock being purchased. Subject
to the terms of Articles XIII, XV, and XVI, the Company shall cause
certificates for the Shares of Common Stock so purchased to be delivered to the
optionee at the principal business office of the Company, against payment of
the full purchase price, on the date specified in the notice of exercise.
IX. NON-TRANSFERABILITY OF OPTIONS
No option granted hereunder shall be transferable otherwise
than by will or by the laws of descent and distribution, and such option shall
be exercisable, during the Participant's lifetime, only by the Participant.
Notwithstanding the foregoing, the Committee may set forth in a stock option
agreement at the time of grant or thereafter, that the options (other than
Incentive Options) may be transferred to members of the Participant's immediate
family, to trusts solely for the benefit of such immediate family members and
to partnerships in which such family members and/or trusts are the only
partners. For this purpose, immediate family means the Participant's spouse,
parents, children, stepchildren, grandchildren and legal dependents. Any
transfer of options made under this provision will not be effective until
notice of such transfer is delivered to the Company.
X. TERMINATION OF EMPLOYMENT
Upon termination of the employment of any Participant with
the Company and all subsidiary corporations and parent corporations of the
Company, an Option previously granted to the Participant, unless otherwise
specified by the Board of Directors or the Committee, as the case may be,
shall, to the extent not theretofore exercised, terminate and become null and
void, provided that:
(a) if the Participant shall die while in the employ of
such corporation or during either the three (3)
month or one (1) year period, whichever is
applicable, specified in clause (b) below and at a
time when such Participant was entitled to exercise
an Option as herein provided, the legal
representative of such Participant, or such person
who acquired such
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Option by bequest or inheritance or by reason of the
death of the Participant, may, not later than one
(1) year from the date of death, but in no event
later than the expiration of the stated term of such
Option, exercise such Option, to the extent not
theretofore exercised, in respect of any or all of
such number of Shares of Common Stock as specified
by the Board of Directors or the Committee, as the
case may be, in such Option; and
(b) if the employment of any Participant to whom such
Option shall have been granted shall terminate by
reason of the Participant's retirement (at such age
or upon such conditions as shall be specified by the
Board of Directors), disability (as defined in
Section 22(e)(3) of the Code) or dismissal by the
employer other than for "cause" (as defined below),
and while such Participant is entitled to exercise
such Option as herein provided, such Participant
shall have the right to exercise such Option so
granted, to the extent not theretofore exercised, in
respect of any or all of such number of Shares of
Common Stock as specified by the Board of Directors
or the Committee, as the case may be, in such
Option, at any time up to and including (i) three
(3) months after the date of such termination of
employment in the case of termination by reason of
dismissal other than for cause, and (ii) one (1)
year after the date of termination of employment in
the case of termination by reason of retirement or
disability. Notwithstanding anything to the
foregoing to the contrary contained herein, upon the
termination without cause of any Participant who has
been granted Non-Qualified Options pursuant to the
Plan, the Board of Directors or the Committee, as
the case may be, shall have the right, in their sole
discretion (only with respect to Non-Qualified
Options granted pursuant to the Plan), to either (i)
accelerate the time period during which a
Participant may exercise all or a part of any such
Option previously granted and/or (ii) extend the
time period in which such Participant may exercise
such Option, to a period of up to one (1) year after
the date of such Participant's termination without
cause.
In no event, however, shall any person be entitled to
exercise any Option after the expiration of the period of exercisability of
such Option as specified therein.
If the Participant voluntarily terminates his or her
employment, other than by reason of his/her retirement, or is discharged for
cause, any Option granted hereunder shall, unless otherwise specified by the
Board of Directors or the Committee, as the case may be, forthwith terminate
with respect to any unexercised portion thereof.
If an Option granted hereunder shall be exercised by the
legal representative of a deceased or disabled Participant or former
Participant, or by a person who acquired an Option granted hereunder by bequest
or inheritance or by reason of death of any Participant or former Participant,
written notice of such exercise shall be accompanied by a certified copy of
letters
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testamentary or equivalent proof of the right of such legal representative or
other person to exercise such Option.
For the purposes of the Plan, the term "for cause" shall mean
(i) with respect to a Participant who is party to a written agreement with, or,
alternatively, participates in a compensation or benefit plan of the Company or
a subsidiary corporation or parent corporation of the Company, which agreement
or plan contains a definition of "for cause" or "cause" (or words of like
import) for purposes of termination of employment thereunder by the Company or
such subsidiary corporation or parent corporation of the Company, "for cause"
or "cause" as defined in the most recent of such agreements or plans, or (ii)
in all other cases, as determined by the Board of Directors or the Committee,
as the case may be, in its sole discretion, (a) the willful commission by a
Participant of a criminal or other act that causes or probably will cause
substantial economic damage to the Company or a subsidiary corporation or
parent corporation of the Company or substantial injury to the business
reputation of the Company or a subsidiary corporation or parent corporation of
the Company; (b) the commission by a Participant of an act of fraud in the
performance of such Participant's duties on behalf of the Company or a
subsidiary corporation or parent corporation of the Company; or (c) the
continuing willful failure of a Participant to perform the duties of such
Participant to the Company or a subsidiary corporation or parent corporation of
the Company (other than such failure resulting from the Participant's
incapacity due to physical or mental illness) after written notice thereof
(specifying the particulars thereof in reasonable detail) and a reasonable
opportunity to be heard and cure such failure are given to the Participant by
the Board of Directors. For purposes of the Plan, no act, or failure to act, on
the Participant's part shall be considered "willful" unless done or omitted to
be done by the Participant not in good faith and without reasonable belief that
the Participant's action or omission was in the best interest of the Company or
a subsidiary corporation or parent corporation of the Company.
For the purposes of the Plan, an employment relationship
shall be deemed to exist between an individual and a corporation if, at the
time of the determination, the individual was an "employee" of such corporation
for purposes of Section 422(a) of the Code. If an individual is on military,
sick leave or other bona fide leave of absence, such individual shall be
considered an "employee" for purposes of the exercise of an Option and shall be
entitled to exercise such Option during such leave if the period of such leave
does not exceed ninety (90) days, or, if longer, so long as the individual's
right to reemployment with the corporation granting the option (or a related
corporation) is guaranteed either by statute or by contract. If the period of
leave exceeds ninety (90) days, the employment relationship shall be deemed to
have terminated on the ninety-first (91st) day of such leave, unless the
individual's right to reemployment is guaranteed by statute or contract.
A termination of employment shall not be deemed to occur by
reason of (i) the transfer of a Participant from employment by the Company to
employment by a subsidiary corporation or a parent corporation of the Company,
or (ii) the transfer of a Participant from employment by a subsidiary
corporation or a parent corporation of the Company to employment by the Company
or by another subsidiary corporation or parent corporation of the Company.
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In the event of the complete liquidation or dissolution of a
subsidiary corporation, or in the event that such corporation ceases to be a
subsidiary corporation, any unexercised Options theretofore granted to any
person employed by such subsidiary corporation will be deemed cancelled unless
such person is employed by the Company or by any parent corporation or another
subsidiary corporation after the occurrence of such event. In the event an
Option is to be cancelled pursuant to the provisions of the previous sentence,
notice of such cancellation will be given to each Participant holding
unexercised Options and such holder will have the right to exercise such
Options in full (without regard to any limitation set forth or imposed pursuant
to Article VII) during the thirty (30) day period following notice of such
cancellation.
XI. ADJUSTMENT OF SHARES; EFFECT OF CERTAIN TRANSACTIONS
In the event of any change in the outstanding Shares of
Common Stock through merger, consolidation, reorganization, recapitalization,
stock dividend, stock split, split-up, split- off, spin-off, combination of
shares, exchange of shares, or other like change in capital structure of the
Company, the Board of Directors or the Committee, as the case may be, shall
make such adjustment to each outstanding Option that it, in its sole
discretion, deems appropriate. The term "Shares" after any such change shall
refer to the securities, cash and/or property then receivable upon exercise of
an Option. In addition, in the event of any such change, the Board of Directors
or the Committee, as the case may be, shall make any further adjustment as may
be appropriate to the maximum number of Shares which may be acquired under the
Plan pursuant to the exercise of Options, the maximum number of Shares which
may be so acquired by one Participant and the number of Shares and price per
Share subject to outstanding Options as shall be equitable to prevent dilution
or enlargement of rights under such Options, and the determination of the Board
of Directors as to these matters shall be conclusive. Notwithstanding the
foregoing, (i) each such adjustment with respect to an Incentive Option shall
comply with the rules of Section 424(a) of the Code, and (ii) in no event shall
any adjustment be made which would render any Incentive Option granted
hereunder to be other than an "incentive stock option" for purposes of Section
422 of the Code.
XII. RIGHT TO TERMINATE EMPLOYMENT
The Plan shall not impose any obligation on the Company or on
any subsidiary corporation or parent corporation thereof to continue the
employment of any holder of Options and it shall not impose any obligation on
the part of any holder of Options to remain in the employ of the Company or of
any subsidiary corporation or parent corporation thereof.
XIII. PURCHASE FOR INVESTMENT
Except as hereinafter provided, the Board of Directors or the
Committee, as the case may be, may require a Participant, as a condition upon
exercise of any Option granted hereunder, to execute and deliver to the Company
(a) stock powers with respect to Shares underlying a particular Option and
required to be held by a custodian, and (b) a written statement, in form
satisfactory to the Board of Directors or the Committee, as the case may be, in
which the Participant represents and warrants that Shares are being acquired
for such person's
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own account for investment only and not with a view to the resale or
distribution thereof. The Participant shall, at the request of the Board of
Directors or the Committee, as the case may be, be required to represent and
warrant in writing that any subsequent resale or distribution of Shares by the
Participant shall be made only pursuant to either (i) a Registration Statement
on an appropriate form under the Securities Act of 1933, as amended (the
"Securities Act"), which Registration Statement has become effective and is
current with regard to the Shares being sold, or (ii) a specific exemption from
the registration requirements of the Securities Act, but in claiming such
exemption the Participant shall, prior to any offer of sale or sale of such
Shares, obtain a prior favorable written opinion of counsel, in form and
substance satisfactory to counsel for the Company, as to the application of
such exemption thereto. The foregoing restriction shall not apply to (i)
issuances by the Company so long as the Shares being issued are registered
under the Securities Act and a prospectus in respect thereof is current, or
(ii) re-offerings of Shares by affiliates of the Company (as defined in Rule
405 or any successor rule or regulation promulgated under the Securities Act)
if the Shares being re-offered are registered under the Securities Act and a
prospectus in respect thereof is current.
XIV. ISSUE OF CERTIFICATES, LEGENDS, PAYMENT OF EXPENSES
Upon any exercise of an Option which may be granted hereunder
and, in the case of an Option, payment of the purchase price, a certificate or
certificates for the Shares shall be issued by the Company in the name of the
person exercising the Option and shall be delivered to or upon the order of
such person.
The Company may endorse such legend or legends upon the
certificates for Shares issued pursuant to the Plan and may issue such "stop
transfer" instructions to its transfer agent in respect of such Shares as, in
its discretion, it determines to be necessary or appropriate to (i) prevent a
violation of, or to perfect an exemption from, the registration requirements of
the Securities Act, (ii) implement the provisions of the Plan and any agreement
between the Company and the optionee or grantee with respect to such Shares, or
(iii) permit the Company to determine the occurrence of a disqualifying
disposition, as described in Section 421(b) of the Code, of Shares transferred
upon exercise of an Incentive Option granted under the Plan.
The Company shall pay all issue or transfer taxes with
respect to the issuance or transfer of Shares, as well as all fees and expenses
necessarily incurred by the Company in connection with such issuance or
transfer, except fees and expenses which may be necessitated by the filing or
amending of a Registration Statement under the Securities Act, which fees and
expenses shall be borne by the recipient of the Shares, unless such
Registration Statement under the Securities Act has been filed by the Company
for its own corporate purposes (and the Company so states) in which event the
recipient of the Shares shall bear only such fees and expenses as are
attributable solely to the inclusion of the Shares he or she receives in the
Registration Statement.
All Shares issued as provided herein shall be fully paid and
non-assessable to the extent permitted by law.
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XV. WITHHOLDING TAXES
The Company may require a Participant, if applicable,
exercising a Non-Qualified Option granted hereunder, or disposing of Shares
acquired pursuant to the exercise of an Incentive Option in a disqualifying
disposition (within the meaning of Section 421(b) of the Code), to reimburse
the corporation that employs such Participant for any taxes required by any
government to be withheld or otherwise deducted and paid by such corporation in
respect of the issuance or disposition of such Shares. In lieu thereof, the
corporation that employs such Participant shall have the right to withhold the
amount of such taxes from any other sums due or to become due from such
corporation to the Participant upon such terms and conditions as the Board of
Directors shall prescribe. The corporation that employs such Participant may,
in its discretion, hold the stock certificate to which such Participant is
entitled upon the exercise of an Option as security for the payment of such
withholding tax liability, until cash sufficient to pay that liability has been
accumulated. In addition, at any time that the Company becomes subject to a
withholding obligation under applicable law with respect to the exercise of a
NonQualified Option (the "Tax Date"), except as set forth below, a holder of a
Non-Qualified Option may elect to satisfy, in whole or in part, the holder's
related personal tax liabilities (an "Election") by (i) directing the Company
to withhold from Shares of Common Stock issuable in the related exercises
either a specified number of Shares or Shares having a specified value (in each
case not in excess of the related personal tax liabilities), (ii) tendering
Shares previously issued pursuant to the exercise of an Option or other Shares
of the Company's Common Stock owned by the holder, or (iii) combining any or
all of the foregoing options in any fashion. An Election shall be irrevocable.
The withheld Shares and other Shares tendered in payment shall be valued at
their fair market value (determined in accordance with the principles set forth
in Article V of the Plan) on the Tax Date. The Board of Directors or the
Committee, as the case may be, may disapprove of any Election, suspend or
terminate the right to make Elections or provide that the right to make
Elections shall not apply to particular Shares of Common Stock or exercises.
The Board of Directors or the Committee, as the case may be, may impose any
additional conditions or restrictions on the right to make an Election as it
shall deem appropriate.
XVI. LISTING OF SHARES AND RELATED MATTERS
The Board of Directors or the Committee, as the case may be,
may delay any award, issuance or delivery of Shares of Common Stock if it
determines that listing, registration or qualification of Shares of Common
Stock or the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the sale or
purchase of Shares under the Plan, until such listing, registration,
qualification, consent or approval shall have been effected or obtained, or
otherwise provided for, free of any conditions not acceptable to the Board of
Directors or the Committee, as the case may be.
XVII. AMENDMENT OF THE PLAN
The Board of Directors or the Committee, as the case may be,
may, from time to time, amend the Plan, provided that no amendment shall be
made, without the approval of the stockholders of the Company, to the extent
required by Rule 16b-3 or for the exception for
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performance-based compensation under Section 162(m) of the Code, that will (i)
increase the total number of Shares reserved for Options under the Plan (other
than an increase resulting from an adjustment provided for in Article XI), (ii)
reduce the exercise price of any Option granted hereunder, (iii) modify the
provisions of the Plan relating to eligibility, or (iv) materially increase the
benefits accruing to Participants under the Plan or extend the maximum option
period under Section VII. The Board of Directors or the Committee, as the case
may be, shall be authorized to amend the Plan and the Options granted hereunder
to permit the Incentive Options granted hereunder to qualify as incentive stock
options within the meaning of Section 422 of the Code. The rights and
obligations under any Option granted before amendment of the Plan or any
unexercised portion of such Option shall not be adversely affected by amendment
of the Plan or Option without the consent of the holder of such Option.
XVIII. TERMINATION OR SUSPENSION OF THE PLAN
The Board of Directors or the Committee, as the case may be,
may at any time suspend or terminate the Plan. The Plan, unless sooner
terminated under Article XXI or by action of the Board of Directors, shall
terminate at the close of business on the Termination Date. Options may not be
granted while the Plan is suspended or after it is terminated. Rights and
obligations under any Option granted while the Plan is in effect shall not be
altered or impaired by suspension or termination of the Plan, except upon the
consent of the person to whom the Option was granted. The power of the Board of
Directors to construe and administer any Options granted prior to the
termination or suspension of the Plan under Article III nevertheless shall
continue after such termination or during such suspension.
XIX. GOVERNING LAW
The Plan and such Options as may be granted thereunder and
all related matters shall be governed by, and construed and enforced in
accordance with, the laws of the State of Delaware from time to time obtaining
or such other jurisdiction as the Company may become reincorporated under.
XX. PARTIAL INVALIDITY
The invalidity or illegibility of any provision hereof shall
not be deemed to affect the validity of any other provision.
XXI. EFFECTIVE DATE
The Plan shall become effective upon its approval by the
stockholders of the Company.
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(NO.1) SCHEDULE (INLAND REVENUE APPROVED)
TO
ARMOR HOLDINGS, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
ALTERATION AND AMENDMENTS TO THE PLAN IN RESPECT OF ITS
OPERATION IN RELATION TO UNITED KINGDOM EMPLOYEES
1. In this Schedule, "Plan" refers to the Armor Holdings, Inc. Amended
and Restated 1996 Stock Option Plan and words and expressions defined
therein shall have the same meaning when used in this Schedule. The
provisions of the Plan shall apply to the provisions of this Schedule
except where expressly varied herein.
2. It is intended that Options granted by the Company pursuant to this
Schedule to persons ("UK Participants") employed by the Company and/or
its subsidiary corporations in the UK and subject to UK Income Tax of
such employment will be granted pursuant to an approved share option
scheme within the provisions of Section 185 of and Schedule 9 to the
United Kingdom Income and Corporation Taxes Act 1988 ("ICTA 1988").
3. Article II shall be amended in relation to Options granted pursuant to
this Schedule so that: (i) "Share" shall mean "an ordinary share in
the capital of the Company which complies with the conditions of
paragraphs 10-14 Schedule 9 ICTA 1988"; (ii) "subsidiary corporation"
shall mean "any company of which the Company has control", and (iii)
"parent corporation" shall mean "any company which has control of the
Company", in each case within the meaning of Section 416 of ICTA 1988.
4. Article III (apart from the third paragraph thereof) shall not apply
and the following clause shall be added to that paragraph: "Options
may be granted so that their exercise shall be subject to such
objective conditions (not inconsistent with the provisions of this
Schedule) as the Directors may, in their discretion, think fit. In
addition, the Board may designate any Option as a "Special Executive
Option" at the date of grant, in which case the proviso in Rule 8(b)
of this Schedule shall apply."
5. Options may only be granted pursuant to this Schedule to UK
Participants who are employees of the Company or any subsidiary
corporation and who are (i) not excluded by paragraph 8 of Schedule 9
ICTA 1988; and (ii) required to devote substantially the whole of
his/her working time to the affairs of the Company and/or any
subsidiary corporation, and the provisions of Article IV shall be
amended accordingly. No employee shall be eligible to participate in
the Plan pursuant to this Schedule unless required in that capacity to
work for the Company and/or any subsidiary corporation for
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at least 20 hours per week excluding meal breaks (or, in the case of
directors, at least 25 hours per week excluding meal breaks).
No option may be granted pursuant to this Schedule to any UK
Participant to this Schedule which would result in the aggregate
purchase price of Shares comprised in outstanding Options granted to
him or her under the Plan together with the aggregate purchase price
of shares in subsisting options granted to him or her under any other
scheme, (not being a savings related share option scheme), approved
under Schedule 9 ICTA 1988 and established by the Company or any
associated company (within the meaning of Section 416 ICTA 1988)
exceeding the limit from time to time specified in paragraph 28(1) of
Schedule 9 ICTA 1988.
6. The first two paragraphs of Article V shall not apply in relation to
Options granted pursuant to this Schedule, but the following
provisions shall apply instead:
a) the price for each Share under Option shall be determined by
the Board of Directors or the Committee and be denominated in
dollars, but shall not be less than the greater of:
(i) while the Shares are listed on the
American Stock Exchange (or the New
York Stock Exchange), the average
of the high and low quotations at
which the Shares are sold on the
American Stock Exchange (or such
other stock exchange) on the date
of grant. If the Shares are not
traded on such date, the closest
preceding date on which Shares were
traded shall be taken;
(ii) if the Shares are not so listed,
the market value of a Share on the
date of the grant of the Option or
on the business day immediately
preceding that date determined in
accordance with Part VII of the
United Kingdom Taxation of
Chargeable Gains Act 1992 and
agreed in advance for the purpose
of the Plan with the United Kingdom
Inland Revenue Shares Valuation
Division; and
(iii) the nominal value of the Share.
b) the price for each Share purchasable under such Option shall
be payable in cash in full on the exercise of the Option.
7. Article VII shall not apply in relation to Options granted pursuant to
this Schedule and the following provisions shall apply instead:
14
<PAGE>
"An Option shall be exercisable at such times, in such
amounts and during such periods as the Board of Directors or
the Committee, as the case may be, shall determine at the
date of the grant of such Option but shall not be exercisable
in any event after the expiration of ten years from the date
of grant;"
No Option may be exercised by any UK Participant at any time when he
or she is precluded by paragraph 8 of Schedule 9 ICTA 1988 from
participating in the Plan.
8. The following shall apply in place of Article X:
"On the occurrence of any of the circumstances described in
the following paragraphs and subject to the fulfillment of
any performance condition(s), an Option shall become, if it
is not already, exercisable and shall remain exercisable
until the expiry of the relevant period specified:-
(a) the death of the Participant
-12 months commencing on the date of the
Participant's death, not to exceed the
expiration of the period of exercisability
of such Option;
(b) the Participant ceasing to hold Employment by reason of:
(i) -disability, as defined in the Plan, or
injury
-12 months commencing on the date of the
occurrence of such disability or injury not
to exceed the expiration of the term of
such Option
(ii) -retirement of the Participant whether at
contractual retirement age or (with the
consent of the Board of Directors) at an
earlier age
-12 months commencing on the date of such
retirement, not to exceed the expiration of
the term of such Option
(iii) -redundancy
-three months commencing on the date of
such cessation, not to exceed the
expiration of the period of exercisability
of such Option
(iv) -any other circumstances which the Board of
Directors or the Committee may in its
discretion determine (such determination to
take place within two months of such
cessation) to fall within this Rule
15
<PAGE>
12 months commencing on the date of such
cessation, not to exceed the expiration of
the period of exercisability of such Option
PROVIDED THAT in the case of an Option designated as
a "Special Executive Option", sub clauses (b)(ii)
and (iv) shall not apply.
An Option shall lapse and cease to be exercisable
upon the earliest to happen of the following:-
(i) the expiry of the period of exercisability
specified by the Board of Directors or the
Committee under Article VII;
(ii) the first anniversary of the date of death
of the Participant;
(iii) the date upon which the Participant ceases
to hold employment by reason of "cause" as
defined in the Plan;
(iv) the date upon which the Participant is
adjudicated bankrupt;
(v) any breach or purported breach of Article
IX by the Participant;
(vi) the expiry of any of the periods mentioned
in this Rule;
(vii) the date on which the Participant ceases to
hold Employment for any reason other than
any of the matters referred to in (b) and
the Board of Directors or the Committee
does not within two months determine that
his or her options may be exercised."
9. Article XI shall, in the case of any Option granted pursuant to this
Schedule, be amended to exclude references to "split-up, split-off and
spin-off" and any adjustment made under that Article shall be subject
to:
a) confirmation from the auditors of the Company that such
adjustment is fair and reasonable;
b) prior approval of the United Kingdom Inland Revenue ("Inland
Revenue");
c) the Shares continuing to satisfy the conditions specified in
paragraphs 10 to 14 inclusive of Schedule 9 of ICTA 1988.
10. Article XVII shall apply with the additional requirement that no
amendment shall have effect until approved by the Inland Revenue.
16
<PAGE>
(NO. 2) SCHEDULE (UNAPPROVED)
TO
ARMOR HOLDINGS, INC.
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
In this Schedule 2 "Plan" refers to the Armor Holdings, Inc. Amended and
Restated 1996 Stock Option Plan together with the (No. 1) Schedule and words
and expressions defined therein shall have the same meaning when used in this
(No. 2) Schedule. The provisions of the Plan shall apply to the provisions of
this (No. 2) Schedule except where expressly varied herein.
1. Options may be granted by the Company pursuant to this (No. 2)
Schedule to UK Participants. It is intended that the (No. 2) Schedule
to the Plan will not be approved by the Inland Revenue pursuant to
Schedule 9 to ICTA 1988.
2. The limit on the aggregate exercise price of options that may be held
by an individual set out in clause 5 of the (No. 1) Schedule, shall
not apply to Options granted under this (No. 2) Schedule.
3. All requirements in the Plan for the approval, consent or agreement of
the Inland Revenue shall not apply.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARY INCORPORATION
- - ---------- ---------------
The following are direct wholly-owned (except as otherwise noted) subsidiaries
of the Company:
<S> <C>
American Body Armor & Equipment, Inc. Delaware
Armor Holdings Limited England
Armor Holdings Properties, Inc. Delaware
Defense Technology Corporation of America Delaware
NIK Public Safety, Inc. Delaware
Low Voltage Systems Technology, Inc. New Jersey
Armor Holdings Venezuela S.A.@ Venezuela
The following are indirect wholly-owned (except as otherwise noted)
subsidiaries of the Company:
Defence Technology Europe Limited England
Supercraft (Europe) Limited England
DSL Group Limited England
DSL Holdings Limited England
Defence Systems International Limited England
Defence Systems Limited England
Container Recovery Limited England
Defence Systems Eurasia Limited England
Gorandel Trading (UK) Limited England
Defence Systems (Jersey) Limited Isle of Jersey
US Defense Systems, Inc. Delaware
USDS Congo SPRL Congo (former Zaire)
Defencetse Systems Ecuador USDSE SA Ecuador
DSL (Overseas) Limited* Cyprus
Gorandel Trading Limited Cyprus
DSL Security (Asia) Pte Limited Singapore
Defense Systems (South Africa) (Pty) Ltd. South Africa
Defence Systems Colombia SA** Colombia
DSL Sesegeur Peru SA Peru
Jardine Securicor Gurkha Services Limited+ Hong Kong
DSL Security (PNG) Pty Limited++ Papua New Guinea
Sapelli SARL Congo (former Zaire)
USDS (Med) Limited# Cyprus
Maximum Security Indochina Limited Hong Kong
Defence Systems France SA France
Defence Systems International Africa SARL## France
</TABLE>
- - ----------
@ 99.8% owned subsidiary
* 99% owned subsidiary
** 94.5% owned subsidiary
+ 20% owned subsidiary
++ 50% owned subsidiary
# 40% owned subsidiary
## 66.5% owned subsidiary
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendments No. 1 to
Registration Statements No. 333-8533 and No. 333-38765 on Form S-3, and No.
333-38759 on Form S-4 of Armor Holdings, Inc. of our report dated March 19,
1998, appearing in this Annual Report on Form 10-K of Armor Holdings, Inc., for
the year ended December 27, 1997 and to the reference to us under the heading
"Experts" in the Prospectuses which are part of these Registration Statements.
We additionally consent to the incorporation by reference in Registration
Statement No. 33-018863 of American Body Armor & Equipment, Inc., now known as
Armor Holdings, Inc., on Form S-8, of our report dated March 19, 1998,
appearing in this Annual Report on Form 10-K of Armor Holdings, Inc., for the
year ended December 27, 1997.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
March 26, 1998
<PAGE>
EXHIBIT 23.2
The Board of Directors
DSL Group Limited:
We consent to the incorporation by reference in the registration statements
(No 333-8533 and No 333-38765) on Form S-3 and registration statement
(No 333-38759) on Form S-4 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 from 3 June 1996 to 31
December 1996, which report appears in this Annual Report on Form 10-K of
Armor Holdings, Inc filed on 27 March 1998.
/s/ KPMG
KPMG
London, England
27 March 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Financial Data Schedule
EXHIBIT 27.1
This schedule contains summary financial information extracted from the 1997
Form 10-K of Armor Holdings, Inc., and is qualified in its entirety by
reference to such financial statements.
Armor Holdings
Currency U.S. Dollars
</LEGEND>
<CIK> 0000845752
<NAME> Armor Holdings
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-27-1997
<CASH> 19,300,000
<SECURITIES> 0
<RECEIVABLES> 16,597,000
<ALLOWANCES> 845,000
<INVENTORY> 5,731,000
<CURRENT-ASSETS> 42,599,000
<PP&E> 12,558,000
<DEPRECIATION> 2,517,000
<TOTAL-ASSETS> 75,487,000
<CURRENT-LIABILITIES> 10,665,000
<BONDS> 0
0
0
<COMMON> 160,000
<OTHER-SE> 64,438,000
<TOTAL-LIABILITY-AND-EQUITY> 75,487,000
<SALES> 78,314,000
<TOTAL-REVENUES> 78,314,000
<CGS> 57,438,000
<TOTAL-COSTS> 57,438,000
<OTHER-EXPENSES> 14,587,000
<LOSS-PROVISION> 418,000
<INTEREST-EXPENSE> 195,000
<INCOME-PRETAX> 5,676,000
<INCOME-TAX> 2,376,000
<INCOME-CONTINUING> 3,157,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,157,000
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.21
</TABLE>
