Zilkha Capital Sends Letter to Allied Research Board Criticizing Chairman's Misleading Statements.

NEW YORK--(BUSINESS WIRE)--June 4, 1999--

Shareholders Are Urged to Replace the Incumbent Board at June 9 Annual

Meeting

Zilkha Capital Partners, L.P. today announced that it has sent a letter to the Board of Directors of Allied Research Corporation (AMEX: ALR). The letter sharply criticizes as misleading and self-serving recent public statements about Allied and Zilkha Capital made by Allied Chairman, Chief Executive Officer and Chief Financial Officer Dr. John R. Sculley.

John P. Rigas, Managing Partner of Zilkha Capital, commented, "In a desperate attempt to win at all costs, Dr. Sculley paints a falsely rosy picture of Allied's future for shareholders. The facts are that Allied is a troubled company with little backlog, facing at a minimum three consecutive quarters of losses, which will result in significant declines for the full year. Why won't Dr. Sculley warn shareholders about the upcoming losses for the nearly completed second quarter and for the balance of the year?"

"Furthermore," Mr. Rigas continued, "how can Dr. Sculley possibly justify Allied's performance when its stock price has dropped nearly 40 percent in the last year, and severely lags all major small-cap stock indices, during one of the largest market increases in history? It's clearly time for new blood on the Allied Board and I urge all shareholders to support the Zilkha nominees."

Excerpts from the Zilkha letter follow. With respect to Allied's operating and financial results, Zilkha's letter states:

DR. SCULLEY REFERS TO ALLIED'S EXCELLENT OPERATING RESULTS DURING THE PAST FIVE YEARS. AT LAST COUNT THOSE WERE:

- A negative return on the Allied stock price during one of the

biggest stock market advances in history.

- A diminution of Mecar's backlog to $6 million, equivalent to less

than 5% of annual capacity. Backlog for the entire Company has

been reduced over Dr. Sculley's tenure from a peak of $252.5

million in April 1992, when Dr. Sculley assumed the position of

President, to $26 million as of March 31, 1999.

- Significant decreases in revenues and earnings for the first

quarter of 1999 compared with the first quarter of 1998 and a

forecast of a substantial net loss for the 1999.

The letter goes on to criticize the Board and management for failing to implement its strategic plan:

NOTWITHSTANDING DR. SCULLEY'S HOLLOW RHETORIC, MANAGEMENT HAS FAILED TO DEVELOP A COHERENT STRATEGIC PLAN FOR ALLIED.

- Dr. Sculley states that "Allied is implementing a diversification

strategy that has positioned the Company for profitable future

growth." In fact, as far back as the 1994 Allied annual report

Dr. Sculley stated that "a strategic plan was developed to

gradually shift emphasis from a non-diversified defense firm to a

more competitive firm with substantial commercial products."

- Why, in the five years that have elapsed since Dr. Sculley's

declaration, has there been a total failure on the part of Allied

to implement this strategic plan? At last count, Allied does not

appear to have changed in any form from the 1994 description of

the Company as a non-diversified defense firm, does not appear to

be more competitive and certainly does not appear to have

developed substantial commercial products.

- In fact, Allied is still largely dependent on the same "two

customers" it was dependent on in 1994 as Dr. Sculley stated in

the 1998 annual report.

The Zilkha letter also takes exception with Dr. Sculley's criticisms regarding Zilkha Capital's ownership of privately held Colt's Manufacturing Company:

LET US STATE THE FACTS CONCERNING COLT'S AND ZILKHA'S EXPERIENCE WITH THE DEFENSE INDUSTRY AS THEY REALLY EXIST:

- Colt's Manufacturing Company was purchased out of bankruptcy in

September 1994. Annual Revenues in fiscal 1995, the first full

year of Zilkha ownership were $93.2 million. In fiscal year 1998,

the latest full year for which financial results are available,

revenues were $136.2 million. We therefore strongly object to Dr.

Sculley's false statement that Colt's revenues have declined and

his erroneous reference to The Wall Street Journal as support for

such statement.

- Under our management, Colt's has re-established its preeminent 

position in military small arms worldwide, supplying its

proprietary products and standard weapons such as the M-16 rifle,

the M-4 Carbine, the MK-19 grenade launcher and the recently

introduced ALGL grenade launcher to a variety of NATO and

non-NATO countries as the standard weaponry for their armies.

- Zilkha understands the defense business very well as demonstrated

by its success in taking a bankrupt company and restoring it to

the premier position in the small arms industry. The United

States Defense Departments has validated this success by granting

Colt's sole source contracts on the M-4 Carbine until 2010 and

Saco Defense, Colt's sister company, sole source contracts on its

MK-19 until 2003 with possible extension to 2006.

- Do not allow Dr. Sculley to attempt to mislead the shareholders

by alluding to a "very favorable" relationship with the Belgian

government that Allied currently enjoys. In fact, the

relationship is one of lender and borrower as the Belgian

government acted as lender of last resort to Allied when Allied's

CFO could not obtain credit for the Company elsewhere. Is Dr.

Sculley suggesting that this lender of last resort relationship

will again become important to Allied. Is this an earnings and

liquidity forecast?

The Zilkha letter concludes:

IN LIGHT OF THE FOREGOING, WE ASK MEMBERS OF ALLIED'S BOARD OF DIRECTORS TO CONSIDER THE FOLLOWING:

- As a larger shareholder in the Company than any one of you, we

are most interested in realizing value for shareholders. Dr.

Sculley's desperate assertions that we would do otherwise defy

logic. In fact, it is this management which rejected a takeover

offer at share price level substantially higher than the current

levels and which entrenched itself behind the poison pill. With

its track record this is hardly a management to advocate

generating value for shareholders. Moreover, we find Dr.

Sculley's insinuation that any dismantling of Allied's takeover

defenses would negatively impact shareholder value to be an

insult to investors' intelligence. In recent years, shareholders

have, with increased frequency, taken steps to oppose a

unilateral adoption of rights plans by management. According to a

1999 report by the IRRC, shareholder proponents submitted 35

anti-pill proposals in 1999 alone.

- Have you adequately disclosed to shareholders Allied's projected

losses for the remaining 3 fiscal quarters of 1999?

- Aren't all these issues independently and in their entirety

materially adverse events that should have properly been

disclosed to shareholders? Shouldn't these disclosures be made

prior to the renewal of Dr. Sculley's $400,000 plus compensation

package? Shouldn't these disclosures have already been made in

the face of a contested board nomination?

As one of the largest shareholders of this Company we ask you: How did you allow the Company to find itself in this position? Isn't it time this management stopped temporizing with our money and assets? Aren't you willing to recognize that the Board of Allied ultimately has financial and legal responsibility for the actions of its Chairman and must hold itself accountable to Allied's shareholders?

Mr. Rigas concluded, "With the June 9 Allied Annual Meeting rapidly approaching shareholders are urged to vote their GOLD proxy cards in support of the Zilkha nominees promptly."

NOTE: For a complete copy of Zilkha Capital's letter to the Allied Board, please contact MacKenzie Partners, Inc. toll-free at [phone].