Investor Alert

July 5, 2005, 12:01 a.m. EDT

U.S. Sues Maker Of Body Armor, Its Fiber Supplier

By Kara Scannell

The U.S. Justice Department sued a bulletproof-vest maker and a ballistic-fiber supplier, alleging they sold body armor knowing it was defective.

The complaint filed last week in federal court in Washington was brought on behalf of several federal agencies that bought thousands of vests made with Zylon, a bullet-resistant fiber. The civil suit named Second Chance Body Armor Inc. of Central Lake, Mich., and its fiber supplier, Japan's Toyobo (TKS:JP:3101) Co., and related entities.

The suit alleges that from 1998 until 2001 Toyobo and Second Chance "kept silent as to the ever-mounting information in their possession that the Zylon fabric degraded substantially faster than expected" when exposed to certain light, temperature and humidity conditions.

The vests were the subject of a Wall Street Journal article on Nov. 15, 2004.

Both companies already have been sued by law-enforcement groups, state attorneys general, a wounded police officer, and the widow of an officer who was killed while wearing a vest.

"We think it will go a long way toward resolving the issue as to who's responsible for the issue," said Kevin Dougherty, a lawyer for Second Chance. He added the company believes Toyobo "is responsible for the problem of Zylon being defective."

Kent Jarrell, a spokesman for Toyobo, said: "We don't understand why we are a defendant in this lawsuit. This lawsuit is really all about Second Chance and the allegations made by a former employee about what Second Chance knew, when it knew it, and when it decided not to share critical information about the failure of its vests with Toyobo, the public and with investigating authorities. Second Chance was the bad actor, not Toyobo."

The complaint is based largely on information from Second Chance's former research director, Aaron Westrick, who filed a whistle-blower suit last year and testified as a witness in other suits about the company's knowledge of the test results. The company said he was laid off in a cost-cutting move. Mr. Westrick's lawyer has said his termination was retaliatory.

Second Chance marketed its Zylon vests under the brand names Ultima and Ultimax as the "world's thinnest, lightest, and strongest armor," and they were popular with law-enforcement officials. In 1998, federal employees bought more than 40,000 vests with some Zylon fiber.

The Justice Department alleges in the complaint that test results as early as 1998 showed that the Zylon fiber deteriorated "rapidly" when exposed to visible and fluorescent light. Quoting a document, the complaint says Second Chance told Toyobo that they both "must avoid even the perception of a possible problem" with Zylon. Additional testing in 2001 showed the vest's resistance broke down when exposed to high temperatures and humidity, making it less effective before the warranty expired.

"Despite this mounting evidence," Second Chance and Toyobo continued to sell them "knowing that these vests were defective," the complaint alleges. In September 2003, Second Chance said it would upgrade and replace potentially defective vests. The company filed for protection last October under Chapter 11 of the U.S. Bankruptcy Code, citing the costs of replacing vests and legal fees.

Last week, Second Chance recommended an additional 98,000 vests made with Zylon be replaced citing new research that showed they "may fail to perform and result in serious injury or death."

Write to Kara Scannell at kara.scannell@wsj.com

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