Donald Zilkha and John Rigas make Colt pistols, Army rifles and lots of money.

J.R. Sculley and William Glenn Yarborough Jr. make tank ammunition, industrial security systems and not much money.

The two teams of executives have been exchanging volleys in Securities and Exchange Commission filings for weeks and now are arming for a showdown June 9 at the annual stockholders meeting of Allied Research Corp. of Vienna.

Sculley is chairman and Yarborough is president of Allied Research. The company's executive offices are in Northern Vienna, but its principal business is a munitions factory in Belgium that supplies shells for the armies of Saudi Arabia and a handful of other small countries.

Zilkha and Rigas are co-managers of Zilkha Capital Partners, a New York buyout firm that is one of Allied's largest stockholders and also own's Colt's Manufacturing Co.

Dissatisfied with the performance of Allied's stock, which has managed to miss the entire bull market, they want to take over Allied's board of directors, then oust Sculley and Yarborough so they can set a new corporate course for the company.

If they succeed in electing themselves to the board of Allied Research, Rigas said last week, "we would manage it properly. We would fix the capital structure. We would bring in some more clients."

And they would probably sell the company or at least part of it. Both the munitions industry and Allied's secondary business, industrial security, are consolidating, Rigas said. "In these times of consolidation, if you have a decent asset, you could make a good play," he said.

Yarborough's response is, "Allied is not for sale." Company executives have taken the complaints raised by Zilkha seriously from the very beginning, he said. "Any time an investor talks, whether they have 200,000 shares or 10, we want to listen."

But he said Allied's management is aggressively resisting the raiders who he believes have targeted the company because they "saw an opportunity to get a good firm cheap."

Zilkha Capital first tried to buy its way in last year by offering to make a $9 million investment in Allied. After months of talks -- but never a meeting with Sculley or the board, Rigas laments -- the offer was rejected last month.

That's when Zilkha and Rigas launched a proxy fight to replace Allied Research's five-member board of directors with their own slate. In addition to Zilkha and Rigas, the insurgent candidates are retired Marine Corps general William M. Keys; John R. Torrell II, former president of Manufacturers Hanover Corp.; and Jean-Claude Roch, a Swiss business executive.

Proxy fights are rare to begin with and the one at Allied is rarer still because there appears to be a chance that the challengers can win.

The odds always favor the incumbents in corporate elections because, like political incumbents, they can use the power of their office to get themselves reelected.

Usually the incumbents also go into a proxy fight with the goodwill of the stockholders on their side. But it's hard to imagine that shareholders hold any great affection for Allied Research's management, considering the performance of the company's stock.

If you invested $100 in Allied Research in 1993, you would have had stock worth $98.52 at the end of last year, according to a stock performance chart in the proxy notice sent to shareholders in preparation for the annual meeting. The SEC requires companies to remind shareholders how their investment has done over the last five years and to show some benchmarks for comparison.

A $100 investment in a Standard & Poor's 500-stock index mutual fund in 1993 would have tripled by the end of last year. And $100 invested in the stocks of five other government contractors that Allied considers its peers would have grown to $216.90.

The long-term investment performance is particularly disappointing because in the summer of 1997 the stock broke out of its $7- to $9-a-share doldrums and hit $15. At the time, the company's military business was booming and its diversification into civilian work looked to be paying off.

But after floating at less than $15 a share for about a year, the stock began drifting down last summer and sank to almost $6 earlier this year. Since the takeover fight began, it has perked up a little bit. It closed Friday at $7.06 1/4.

In Allied's latest shareholders appeal, which was circulated last week, Sculley stressed that Allied's revenue grew 20 percent a year from 1994 to 1998 -- $69.8 million to $143.5 million -- and the company jumped to a $9.1 million profit last year from a $10.9 million annual loss in 1994.

But the business turned down sharply in the first quarter of this year. Revenue dropped to $27.5 million from $35.8 million and profit shrank to $1.3 million (27 cents a share) from $2.3 million (48 cents). Allied still has an unusually strong balance sheet, with $22.8 million in cash. That's equivalent to almost $5 a share for a stock that's selling for only a couple dollars more.

The Allied's financial performance has weakened because it is heavily dependent on orders from the Saudi government, which is cutting back military spending because of depressed oil prices. Allied does not sell ammunition to the Pentagon, which by law buys only from American factories.

Yarborough said the company has been doing exactly what Rigas suggests -- developing new customers, including Canada. Allied is "a gnat's eye away" from landing major new contracts, said the retired Army officer.

Regardless of the company's financial position, fending off the attack will be difficult because Allied is short of the ammunition used in corporate takeover fights -- voting shares.

Managements of small companies such as Allied usually also have the advantage of owning a lot more stock than outsiders, but Allied's officers and directors hold only about 5.7 percent of Allied or 285,000 shares. Zilkha Capital has 206,000 shares, a little less than 5 percent.

A couple of mutual funds have similar-size stakes and Rigas has been aggressively recruiting other investors as allies. He came to Washington last week to seek the support of Institutional Shareholder Services, a Rockville firm that advises professional investors on how to vote in contested corporate elections. So far Institutional Shareholder Services, which can be highly influential, has not taken a position on the Allied Research proxy fight.

Rigas said he and Zilkha became involved with Allied at the suggestion of some unhappy institutional investors. "They had been in the stock for some time, had supported management in the past and had become somewhat frustrated in management because no results were coming through."

Rigas complains that Allied "has no sales or marketing effort and has a CEO who never goes to Europe where the clients are. Why the chairman sits in the U.S., I don't know."

To Yarborough, the emphasis on Europe suggests Zilkha has a secondary agenda in seeking control of Allied: bolstering Colt's operations on the continent. Zilkha brought the most famous name in six guns after Colt's went bankrupt in 1994, paying $27 million for 85 percent of its stock.

Two years ago, the Connecticut-based gun maker tried to buy FN Herstal of Belgium, its chief competitor in the military small arms business. Herstal owns the Winchester and Browning brands and has plants in both the United States and Europe. The takeover floundered because of opposition from the Belgian government.

Allied's ammo-making operations, known as MECAR, are in Belgium. Yarborough said he believes Zilkha hopes to exploit MECAR's long relationship with the Belgian government to win political support for purchasing Herstal. Rigas replies that the Herstal merger is dead and has nothing to do with Zilkha's interest in Allied.

Yarborough doesn't buy that. There is no potential synergy at all between Colt's pistol and rifle business and Allied's ammunition manufacturing. Allied doesn't make bullets, he noted, only larger mortar and artillery shells.

But if Zilkha could use Allied's Belgian connections to acquire FN Herstal, he would become the world's largest maker of military small arms. Then he could unload Allied's industrial security operations for a few million dollars and pocket the $22.8 million cash in Allied's bank accounts.

A Look at

Allied Research Corp.

Business: The defense and electronic security firm develops and produces ammunitions and weapons systems.

Headquarters: Vienna

Founded: 1962

Chairman, chief executive:

J.R. Sculley

President: William Glenn Yarborough Jr.

Ticker symbol: ALR on the American Stock Exchange

Employees: 431

Local employees: Six

Allied Research stock price, monthly closes

SOURCE: Company reports