Two major investors and the founder of a Chandler company that makes armor for U.S. soldiers are in a four-year legal battle for control that has led to a disputed Bankruptcy Court filing.

William Perciballi, ArmorWorks Enterprise LLC founder and manager, filed June 17 for a Chapter 11 reorganization of the company in U.S. Bankruptcy Court. Investors Eric and Timothy Crown of C Squared Capital Partners LLC responded June 20 with a emergency motion to dismiss the bankruptcy filing. Their attorneys argued that Perciballi was not authorized to file for bankruptcy without the consent of Anchor Management LLC, which represents C Squared as a manager of ArmorWorks. Perciballi offered to buy out the Crowns out for $6.1 million or have them buy him out for $15 million.

“These bankruptcy cases are not about reorganizing creditor-debtor relationships,” the Crowns’ motion said. “Rather, they appear to be another attempt by Perciballi to take ownership and control of (ArmorWorks) from the C Squared parties.”

ArmorWorks benefited from the U.S. military’s involvement in Iraq and Afghanistan, supplying high-tech ceramic body armor to American troops and armor for Humvees, helicopters and Navy landing craft to protect against
land mines and improvised explosive devices. The company grew from a dozen employees in September 2001 to 350 in December 2009.

ArmorWorks reported $733 million in sales over the past four years, but the military contractor lost $10 million on sales of $100 million in 2012. ArmorWorks Enterprises was formed in 2001 with Perciballi as the
majority partner with a 60 percent stake in the company. C Squared invested $1 million for a 40 percent stake, according to Perciballi’s Chapter 11 filing.

ArmorWorks paid a return of $21.6 million to C Squared on that investment, Perciballi said in a declaration filing.
Morrie Aaron, president of MCA Financial Group, who is representing Perciballi, said a hearing is set for July 12 on the motion to dismiss and on debtor-in-possession financing of $3.5 million for ArmorWorks from a private lender.
ArmorWorks’ sales peaked at $313 million in 2011 after the company landed a $236 million contract to upgrade armor for U.S.Humvees.

The company briefly ran into trouble in September 2008 when its body armor failed more stringent military standards, but, 15 months later, it won a contract worth as much as $21.6 million. Despite the company’s growth and lucrative military contracts, ArmorWorks could not protect itself from an internal battle that surfaced in the summer of 2009 involving the C Squared investors.

Eric and Timothy Crown were founders of Insight Enterprises Inc., a Tempe-based technology company they started in 1986.Within 20 years it was one of Arizona’s largest companies with $5 billion in annual revenue.
Timothy Crown is chairman of the board of Insight. Eric Crown resigned from the board of directors in 2007 at the time of a federal investigation of Insight that involved stock-option awards.

The Crowns are represented on the bankruptcy filing over ArmorWorks by Steven Jerome of Snell & Wilmer.
Jerome did not respond to attempts to reach him for comment.

The Crown’s dispute with Perciballi centers on a 2001 operating agreement that was not fully executed. The Crowns signed the document that they say established Perciballi and Anchor Management as managers of
ArmorWorks. Perciballi signed the operating agreement as manager of ArmorWorks but left the document blank where he was supposed to sign as president of the company, according to the Crowns’ filing.

Perciballi said in his bankruptcy filing that it was always understood that he would have sole authority as day-to-day manager of manager of ArmorWorks, the Crowns would be passive investors and Anchor Management would be a passive manager.

In August 2008, Perciballi and the Crowns agreed to raise Perciballi’s salary from $150,000 to $500,000 and pay Anchor Management $200,000 in a consulting agreement that would allow it to “assist the company is
nalyzing potential strategic alternatives.”

Perciballi filed amended corporate documents 11 months later to remove Anchor as a manager of ArmorWorks when the Crowns said they were out of the country. Anchor responded with a letter calling Perciballi’s action
illegal. In May 2011, the Crowns filed suit in Maricopa County Superior Court to reinstate Anchor as a manager of ArmorWorks. The court ruled in favor of C Squared to reinstate Anchor as an ArmorWorks manager in April and denied Perciballi’s request for a stay when he appealed in May. His attorneys followed with a Chapter 11 bankruptcy filing June  17. The document lists ArmorWorks assets at $30.9 million, including $959,000 in
cash, $8.6 million in inventory and $3.67 million in accounts receivable. The companies liabilities are listed as $12 million.

Perciballi explained in the filing that with reorganization of the company he expects to “weather the storm.”
Aaron, Perciballi’s financial adviser, said the Chapter 11 filing allows ArmorWorks to shed some leases, obtain working capital and work out a plan to pay its creditors over five years with interest.

If all goes well, ArmorWorks could work through the reorganization in four to six months, he said.
“The ongoing litigation with C Squared has made it impossible for ArmorWorks to obtain capital financing to replace the $40 million line of credit paid off in 2012,” he said. The reorganization plan indicates that ArmorWorks will pay all of its creditors in full.

The plan also provides for Perciballi to buy out C Squared or sell his interest to the Crowns

Vestguard UK Shaun Ward founder and CEO of Vestguard said " ArmorWorks were making some big claims over having the lightest plates in the world so we purchased some and tested them independently in the UK however they did not meet the standards they claimed, so we stayed well away from ArmorWorks. I was surprised to hear that they won the body armour contract, but these thing happen I hope that they are able to sort their problems out.
Ottawa police are very strict about replacing bulletproof vests
for all officers after five years of use, when they can no longer be sure the armour will stop bullets. That’s when they give them away to a police force in a less fortunate country. Shaun Ward founder of VestGuard UK said they could be recycled by Vestguard UK into other products such as brake pads and fire proofing fibre sprays, but what a great way to help another police force who don’t have the budget to protect offices.

At least, that’s what they are doing this year with 120 of the vests, which the force is planning to donate to their colleagues in the Turks and Caicos Islands.

The body armour costs the Ottawa Police Service almost $700 a piece, but after only five years it becomes useless to the force because the manufacturers won’t guarantee its effectiveness beyond that span.

Inspector Uday Jaswal, of the material management section, says there isn’t much doubt that many of the vests the force has to get rid of after five years are still in very good condition. Yet, since Ottawa police can’t independently test the effectiveness of the vests or establish criteria to distinguish which vests may have been exposed to moisture or other adverse conditions which could degrade the materials, they are all disposed of after five years — even if they spent almost all of their time hung up in the closet of a senior officer like Jaswal himself.

“I sit behind a desk and I send email,” the 20-year veteran said of his current assignment. “If I got issued body armour today and I stayed in the same job, my body armour would probably last until the end of my career. But that’s not the way we do it. With a force nearing 1,400 officers, replacing everyone’s vest every five years is
“an enormous cost,” but for now there is no choice, Jaswal says. “It’s a liability issue. I can’t issue body armour that the manufacturer no longer guarantees to have ballistic integrity. The chief of police can’t say that he’s
comfortable issuing that body armour to a front-line member.”

The result is an annual bill approaching $200,000 for replacement vests at a time when the police budget is under a lot of pressure. Jaswal says he isn’t thrilled about that and is trying to do something about it. He
says Ottawa police are in the process of challenging the manufacturer to find out “what the real life cycle of body armour is.”

In the meantime, he says donating the vests, along with 50 used batons (each costs $92.33 new, with a roughly 10-year lifespan) and 59 old pairs of handcuffs (originally $25.75, good for 15 years or more), is a “win-win,” since they no longer meet the force’s high standards, but no doubt still have some life in them. (They can’t be sold to potential customers like security guards, either, Jaswal explains, because that would open the Ottawa police up to liability issues if they should fail on the customer, whereas the donation is a no-liability, “as-is” gift).

The Royal Turks and Caicos Islands Police Force may seem a fairly random choice of recipient, but there is an Ottawa connection to the British protectorate.

In the summer 2009, after reported wide corruption the British foreign and Commonwealth office suspended the TCI’s government and imposed direct rule by the governor. The measure was supposed to last two years or less, but took longer, with the suspension lifted only late last year.

During the suspension period, the governor appointed two RCMP officers, Colin Farquhar and Brad Sullivan, to be, respectively, the police commissioner and deputy police commissioner of the country’s 225-member force. According to an RCMP spokesman, both officers are now retired from Canada’s national police force.

Farquhar, who knows Ottawa police Chief Charles Bordeleau, asked for the second-hand gear. (Bordeleau confirmed he knows Farquhar “professionally” from Farquhar’s time with the Mounties.)

“Our Islands Police Force is most appreciative of the Ottawa Police donations and Chief Bordeleau,” Farquhar said in an Ottawa police news release. “Ensuring officers’ safety and giving them the tools they need is always top of mind. These ‘gently used’ items will help us do that.”