SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File Number 1-155
THE LEHIGH GROUP INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 13-1920670
- -------------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
810 SEVENTH AVENUE, NEW YORK, N.Y. 10019
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(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (212) 333-2620
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
Common Stock $.001 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
- --------------------------------------------------------------------------------
(Title of Class)
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 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. [ ]
Approximate aggregate market value of the voting stock held by "nonaffiliates"
of the Registrant on March 20, 1996: $2,301,420*
Number of shares of Common Stock outstanding of the Registrant as of March 20,
1996: 10,339,250
- ----------------
* Registrant's sole class of voting stock is its Common Stock $.001 par value,
which is listed on the New York Stock Exchange. The determination of market
value of such Common Stock has been based solely on the closing price per share
of such stock on the New York Stock Exchange on the date indicated. In making
this computation, all shares known to be owned by directors and executive
officers of the Registrant and all shares known to be owned by persons holding
in excess of 5% of the Registrant's Common Stock have been deemed held by
"affiliates" of the Registrant. Nothing herein shall affect the right of the
Registrant to deny that any such directors, executive officers or more than 5%
stockholder is an "affiliate."
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PART I
ITEM 1. BUSINESS
GENERAL
The Lehigh Group Inc., a Delaware corporation (formerly The LVI Group
Inc.) (the "Company"), through its wholly owned subsidiary, HallMark Electrical
Supplies Corp. ("HallMark"), is engaged in the distribution of electrical
supplies for the construction industry both domestically (primarily in the New
York Metropolitan area) and for export.
Prior to 1994, the Company, through its wholly owned subsidiaries, had been
engaged in the following other businesses: (i) through certain of its operating
subsidiaries ("NICO Construction"), interior construction; (ii) through its
wholly owned subsidiary, LVI Environmental Services Group Inc. ("LVI
Environmental") and subsidiaries thereof, asbestos abatement; (iii) through
Riverside Mfg., Inc. ("Riverside"), the design, production and sale of
electrical products; (iv) through Mobile Pulley and Machine Works, Inc. ("Mobile
Pulley"), the manufacture and sale of dredging equipment and precision machined
castings; and (v) through LVI Energy Recovery Corporation ("LVI Energy"), energy
recovery and power generation and landfill closure services. All of such other
businesses were transferred or sold prior to 1994.
Riverside and Mobile Pulley were transferred to a liquidating trust in
connection with the Company's financial restructuring of its outstanding debt
and preferred stock on March 15, 1991 (the "1991 Restructuring"). During the
third quarter of 1991, the Company discontinued its interior construction
business operated through its NICO Construction subsidiaries due to the general
economic slowdown, particularly as it related to the real estate market. In the
third quarter of 1990, the Company discontinued its LVI Energy business which
was prompted by technical problems at the LVI Energy power plant facility. Both
the NICO Construction and LVI Energy subsidiaries were sold on December 31,
1991.
The Company consummated a restructuring on May 5, 1993 (the "1993
Restructuring"). Pursuant to the 1993 Restructuring, the Company, through NICO
Inc., a wholly owned subsidiary ("NICO"), sold LVI Environmental to LVI Holding
Corporation ("LVI Holding"), a newly formed company organized by the management
of LVI Environmental, which had a minority interest in LVI Holding. The owners
of LVI Holding were certain holders of the 9.5% Class A Senior Secured
Redeemable Notes due March 15, 1997 and the 8% Class B Senior Secured Redeemable
Notes due March 15, 1999 issued by NICO and guaranteed by the Company (the
"Class A Notes" and "Class B Notes," respectively) and members of the management
of LVI Environmental. As a result of the 1993 Restructuring, 100% of the Class A
Notes and over 97% of the Class B Notes (together, the "Notes"), of NICO were
surrendered to the Company, together with 3,000,000 shares of its Common Stock,
par value $.001 per share ("Common Stock") (27% of all Common Stock then
outstanding), and, in exchange therefor, participating holders of the Notes
acquired, through LVI Holding, all of the stock of LVI Environmental. The
Company's consolidated indebtedness was thereby reduced from approximately $45.9
million to approximately $3.6 million (excluding approximately $431,217 of
indebtedness under Class B Notes that LVI Holding agreed to pay in connection
with the 1993 Restructuring, but for which the Company remains liable). LVI
Holding paid $1.5 million to the Company during 1993 and 1994 in connection with
the 1993 Restructuring to fund operating expenses and working capital
requirements.
The Company is currently investigating the feasibility of acquiring or
investing in one or more other businesses that management of the Company
believes may have a potential for growth and profit. The Company would need to
obtain additional financing to effect any such acquisition or investment (except
to the extent Common Stock or other securities of the Company were used to
effect such acquisition or
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investment, which would likely result in dilution to the existing holders of
Common Stock). No assurance can be given that the Company will be able to (i)
identify any satisfactory business to be acquired or in which to invest, (ii)
obtain the requisite financing for any such acquisition or investment, (iii)
acquire or invest in any such business on terms favorable or otherwise
satisfactory to the Company, or (iv) profitably operate any such business.
On December 21, 1995, The Company and Consolidated Technology Group Ltd
("Consolidated") signed a letter of intent whereby Consolidated agreed in
principle to merge with the Company in a merger in which the shareholders of
Consolidated would own approximately 75 percent of the combined company after
the merger. However, there can be no assurance at this time that the Company
will be able to consummate this transaction.
The Company was incorporated under the laws of the State of Delaware in
1928. The Company's principal executive offices are located at 810 Seventh
Avenue, New York, NY 10019 and its telephone number at that address is (212)
333-2620.
ELECTRICAL SUPPLIES
HallMark was acquired by the Company in December 1988. HallMark's sales
include electrical conduit, armored cable, switches, outlets, fittings, panels
and wire which are purchased by HallMark from electrical equipment manufacturers
in the United States. Approximately 60% of HallMark's sales are domestic and 40%
are export.
Domestic sales are made by HallMark employees. Nine customers accounted
for approximately 61%, 72% and 44% (including one customer which accounted for
approximately 25%, 18% and 12%) of HallMark's total domestic sales in 1995, 1994
and 1993, respectively. The loss of any of these customers could have a material
adverse effect on its business. Export sales are made by sales agents retained
by HallMark. Distribution is made in approximately 26 countries. Since November
1, 1992, HallMark's export business has been conducted primarily from Miami,
Florida.
Management believes that many companies (certain of which are
substantially larger and have greater financial resources than HallMark) are in
competition with HallMark. Management believes that the primary factors for
effective competition between HallMark with its competitors are price, in-stock
merchandise and a reliable delivery service. As a result, orders for merchandise
are received daily and shipped daily; hence, backlog is insignificant.
Management believes that HallMark is generally in compliance with
applicable governmental regulations and that these regulations have not had and
will not have a material adverse effect on its business or financial condition.
EMPLOYEES
As of March 1, 1996, the Company had 3 employees and HallMark had 42.
Approximately 75% of such employees are compensated on an hourly basis.
The Company and HallMark comply with prevailing local contracts in the
respective geographic locations of particular jobs with respect to wages, fringe
benefits and working conditions. Most employees of HallMark are unionized. The
current collective bargaining agreement for HallMark, which is with the
International Brotherhood of Electrical Workers, Local Union #3, expires on
April 30, 1996.
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ITEM 2. PROPERTIES
HallMark leases 28,250 square feet of office and warehouse facilities
in Brooklyn, New York, pursuant to a lease expiring on June 30, 2004, at an
annual rental of approximately $78,000 (which progressively escalates to
$106,000 in 2003). In December 1994, HallMark leased 4,500 square feet of
additional warehouse facilities in Brooklyn, New York, pursuant to a lease
expiring on June 30, 2004, at an annual rental of $18,000 (which progressively
escalates to $21,600). HallMark also leases 8,500 square feet of office and
warehouse facilities in Miami, Florida for its export business at an annual cost
of approximately $46,000, pursuant to a lease which expired in September 1995.
HallMark also has the right to exercise two one-year options in connection with
the Florida lease. HallMark exercised a one year option to continue to rent the
Florida space for $48,500.
The Company believes that all of its facilities are adequate for the
business in which it is engaged.
ITEM 3. LEGAL PROCEEDINGS
The State of Maine and Bureau of Labor Standards commenced an action in
Maine Superior Court on or about November 29, 1990 against the Company and Dori
Shoe Company (an indirect former subsidiary) to recover severance pay under
Maine's plant closing law. The case was tried without a jury in December 1994.
Under that law, an "employer" who shuts down a large factory is liable to the
employees for severance pay at the rate of one week's pay for each year of
employment. Although the law did not apply to the Company when the Dori Shoe
plant was closed it was amended so as to arguably apply to the Company
retroactively. In a prior case brought against the Company (then known as Lehigh
Valley Industries) and its former subsidiary under the Maine severance pay
statute prior to its amendment, the Company was successful against the State of
Maine (see CURTIS V. LOREE FOOTWEAR AND LEHIGH VALLEY INDUSTRIES, 516 A. 2d 558
(Me. 1986).
The Superior Court by decision docketed April 10, 1995 entered
judgement in favor of the former employees of Dori Shoe Company against Dori
Shoe and the Company in the amount of $260,969.11 plus prejudgment interest and
reasonable attorneys' fees and costs to the Plaintiff upon their application
pursuant to Maine Rules of Civil Procedure 54(b) (3) (d). The Company filed a
timely appeal appealing that decision and the matter was argued before the Maine
Supreme Judicial Court on December 7, 1995. Prejudgment interest will accrue at
an annual rate of approximately $20,800 from November 29, 1990.
The Company's counsel in Maine, believe that the application of Maine's
amended severance pay statute is unconstitutional under both the Maine and
United States constitutions. While the Company believes it has a strong defense,
the outcome of the appeal cannot presently be determined.
The Company is involved in other minor litigation, none of which is
considered by management to be material to its business or, if adversely
determined, would have a material adverse effect on the Company's financial
condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
N/A.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock is listed on the New York Stock Exchange. The Company
did not pay cash dividends on the Common Stock during 1995, 1994 or 1993 and has
no intention of paying cash dividends on the Common Stock in the foreseeable
future. On March 1, 1996, there were approximately 7,897 holders of record of
the Common Stock (excluding shares held in "nominee" or "street" name).
The following table sets forth the reported high and low closing sales
prices of the Common Stock on the Composite Tape for the quarters indicated
(adjusted to give effect to the 35-for-1 reverse split of the Common Stock that
occurred in December 1991).
HIGH LOW
---- ---
1994:
First Quarter $ 1-1/4 $ 5/8
Second Quarter 7/8 5/8
Third Quarter 5/8 5/8
Fourth Quarter 7/8 5/8
1995:
First Quarter $ 3/4 $ 5/8
Second Quarter 5/8 3/8
Third Quarter 1/2 3/8
Fourth Quarter 33/64 13/64
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ITEM 6. SELECTED FINANCIAL DATA
THE LEHIGH GROUP INC. & SUBSIDIARIES
Selected Financial Information
(in Thousands, Except For Per Share Data)
Statement Of Operations Data
- ----------------------------
Years ended
December 31, 1995 1994 1993 1992 1991
- ------------ -------- -------- -------- -------- --------
Revenues earned $ 12,105 $ 12,247 $ 12,890 $ 10,729 $ 17,146
Loss from continuing
operations $ (558) $ (410) $ (250) $ (2,048) $ (6,166)
Loss per common share from
continuing operations (A) $ (0.05) $ (0.04) $ (0.03) $ (0.19) $ (0.70)
Cash dividends declared per
common share -- -- -- -- --
Balance Sheet Data
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December 31, 1995 1994 1993 1992 1991
- ------------ -------- -------- -------- -------- --------
Working capital $ 2,437 $ 3,233 $ 2,800 ($28,700) ($25,500)
Total assets $ 6,622 $ 7,441 $ 7,050 $ 13,753 $ 19,232
Long-term debt $ 2,080 $ 2,361 $ 2,524 $ 12,787 $ 15,269
Total debt (B) $ 2,950 $ 3,240 $ 3,615 $ 45,882 $ 47,169
Shareholders' equity (deficit) $ 202 $ 510 $ (5,099) $(45,041) $(44,638)
(A) Loss per common share from continuing operations for the years
presented has been adjusted to reflect the 35-for-1 reverse split of
the Common Stock that occurred in December 1991.
(B) Includes long term debt, current maturities of long term debt and
Note payable - bank.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
1995 IN COMPARISON WITH 1994
Revenues earned for 1995 were $12.1 million, a decrease of $.1 million
or 1% compared with 1994. A slight increase in the Company's domestic sales was
more than offset by a decrease in export sales. As to the export business, the
Company has been unable to fully replace those sales lost due to the departure
of one of its key sales people approximately two years ago. Gross profit as a
percentage of revenues decreased from 30% in 1994 to 29% in 1995. The slight
decrease was again attributable to weakened margins in export. Selling, general
and administrative expenses for 1995 decreased by approximately $200,000, or 5%,
compared with 1994. The reduction was primarily a result of decreased sales and
certain cost cutting initiatives instituted by the Company during the year.
The net result of the factors discussed above resulted in no change in
operating loss in 1995 compared to 1994.
Interest expense increased by $35,000 to $433,000 in 1995 from $398,000
in 1994. A decrease in interest expense due to the continued reductions of long
term debt was more than offset by an increase in interest rates.
There was no federal income tax for 1995, due to the Company's
operating loss.
On December 31, 1991, the Company sold its right, title and interest in
the stock of the various subsidiaries which made up its discontinued interior
construction and energy recovery business segments subject to existing security
interests. The excess of liabilities over assets of subsidiaries sold amounted
to approximately $9.6 million. Since 1991, the Company has reduced this deferred
credit (the reduction is shown as income from discontinued operations) due to
the successful resolution of the majority of the liabilities for amounts
significantly less than was originally recorded. The deferred credits were
reduced as follows: 1995 - $250,000, 1994 - $5,000,000, 1993 - $1,760,000, 1992
- - $2,376,000. The remaining deferred credit of approximately $250,000 at
December 31, 1995 is, in the opinion of management, sufficient to cover for any
remaining future claims relating to the 1991 transaction.
1994 IN COMPARISON WITH 1993
Revenues earned for 1994 were $12.2 million, a decrease of $.6 million
or 5.0% compared with 1993. The decrease in revenues was due largely to a
departure of a member of the sales force in Hallmark's export operations and the
departure of certain clients of Hallmark that had been obtained by such person.
Gross profit as a percentage of revenues increased from 29.0% in 1993 to 30.0%
in 1994 due to increased profit margins in HallMark's domestic operation.
Selling, general and administrative expenses for 1994 represented a decrease of
approximately $34,000, or 8%, compared with 1993.
The factors discussed above resulted in an increase of $104,000 in the
operating loss, from $413,000 in 1993 to an operating loss of $517,000 in 1994.
Interest expense decreased by $26,000 to $398,000 in 1994 from $424,000
in 1993. This decrease was primarily a result of the continued reduction of
long-term debt.
There was no federal income tax expense for 1994, due to the Company's
operating loss.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund working
capital needs, capital expenditures and the payment of long term debt. The
Company has recently relied primarily on internally generated funds and private
placement proceeds to finance its operation.
Net cash provided by (used in) operating activities was $(267,000),
$(160,000) and $72,000 in 1995, 1994 and 1993, respectively. The decrease from
1993 to 1994 was primarily due to a reduction in net income after the addback of
the deferred credit income. The decrease from 1994 and 1995 was primarily due to
the net loss after the addback of the deferred credit income only being
partially offset by a decrease in receivables and an increase in accrued
expenses.
Net cash used in investing activities was $21,000, $39,000 and $24,000
in 1995, 1994 and 1993, respectively. Due to the amount of cash used in
operating activities, the Company has expended very little with respect to
property and equipment. The Company currently has no material commitments for
capital expenditures.
Net cash provided by (used in) financing activities was $(290,000),
$656,000 and $301,000 in 1995, 1994 and 1993, respectively. The increase from
1993 to 1994 was primarily due to private placement proceeds, net of issuing
costs, more than offsetting principal payments made under the Company's long
term debt agreement. The decrease from 1994 to 1995 was primarily due to the
fact that in 1995 the Company did not receive any outside funds whereas in 1994
it did. The Company is unable to borrow from its bank under the current credit
agreement.
On August 22, 1994, pursuant to a private placement, the Company sold
2,575,000 shares of Common Stock at an aggregate purchase price of $1,030,000
($.40 per share). On November 18, 1994, the Company sold an additional 106,250
shares of Common Stock at an aggregate price of $42,500 ($.40 per share)
pursuant to such private placement. On December 12, 1995 the Company filed a
registration statement to register for resale the shares of Common Stock sold in
such private placement.
On March 28, 1996, the Company issued a $300,000 subordinated debenture
to Macrocom Investors, LLC. The debenture includes interest at 2% per annum over
the prime lending rate of Chase Manhattan Bank, N.A. payable monthly commencing
May 1996. The principal balance is payable April 1, 1998. In connection with
this financing the lender was granted a five year warrant to purchase a number
of shares of Common Stock equal to $300,000 divided by the average closing bid
price of the Company's common stock for the ten business days prior to the date
of closing of the financing. The debenture contains various restrictions on the
Company and is secured by 100% of the outstanding common stock of the Company's
wholly-owned subsidiary, HallMark Electrical Supplies Corp. The Company has
entered into an agreement with a financial services company to use its best
efforts to raise an additional $450,000 under the same terms and conditions.
Management believes that the proceeds of the $300,000 subordinated debenture
combined with current working capital will be sufficient to fund the Company's
operations for the balance of 1996.
The Company continues to be in default in the payment of interest
(approximately $635,395 interest was past due as of December 31, 1995) on the
$500,000 aggregate principal amount of its 13-1/2% Senior Subordinated Notes due
May 15,1998 ("13-1/2% Notes") and 14-7/8% Subordinated Debentures due October
15, 1995 ("14-7/8% Debentures") that remain outstanding and were not surrendered
to the Company in connection with its financial restructuring consummated in
1991. The Company has been unable to locate the holders of the 13-1/2% Notes and
14-7/8% Debentures. The Company does not presently have sufficient funds to
repay its outstanding indebtedness under the 13-1/2% Notes and 14- 7/8%
Debentures.
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HallMark has a secured bank credit facility, the term of which expires
in January 31, 1999. The unpaid principal balance as of December 31, 1995 was
$2,440,000. HallMark has agreed to repay the principal balance of the loan in
monthly installments until January 31, 1999, and is not entitled to withdraw
additional amounts under such facility.
The Company has experienced liquidity problems recently due to poor
operating results, a weakened electrical supply market and an inability to
borrow funds. Additionally, the Company continues to be in default on certain
obligations and is currently appealing a court ruling (discussed in Item 3)
which if denied would have an adverse affect on the Company. The Company has
accrued approximately $350,000 relating to this Court ruling.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's operations
over the past three years.
NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which requires that certain long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. The adoption of this pronouncement is not anticipated to
have a significant impact on the Company's financial statements.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation," which allows a choice of either the intrinsic value method or the
fair value method of accounting for employee stock options. The Company expects
to select the option to continue the use of the current intrinsic value method.
Both standards are effective for fiscal years that begin after December
15, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-15 and page S-1 of this Form 10-K, which are
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NOT APPLICABLE
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the directors and executive officers of the Company:
Name Age Position
---- --- --------
Salvatore J. Zizza 50 Chairman of the Board, President, Chief
Executive Officer and Director of the
Company
Robert A. Bruno 39 Vice President, General Counsel,
Secretary and Director of the Company
Richard L. Bready 51 Director of the Company
Charles A. Gargano 60 Director of the Company
Anthony F. L. Amhurst 53 Director of the Company
Salvatore M. Salibello 50 Director of the Company
Joseph Delowery 61 President of HallMark
Mr. Zizza has been a director of the Company since 1985 (except that he
did not serve as a director during the period from March 15, 1991 through April
16, 1991) and Chairman of the Board of the Company since April 16, 1991, and was
Chief Executive Officer of the Company from April 16, 1991 through August 22,
1991 and President of NICO from 1983 through August 22, 1991. He also served as
President of the Company from October 1985 until April 16, 1991. He is also a
director of the Gabelli Equity Trust, Inc.; The Gabelli Asset Fund; The Gabelli
Growth Fund; The Gabelli Convertible Securities Funds, Inc. and The Gabelli
Global MultiMedia Trust Inc. On December 12, 1995, Mr. Zizza became Chairman of
the Board of The Bethlehem Corporation (an American Stock Exchange Company). On
November 18, 1992, Mr. Zizza also became Chairman of the Board, President and
Treasurer of Initial Acquisition Corp. (a Nasdaq listed Company).
Mr. Bruno has served as Vice President and General Counsel since May 5,
1993 and as Secretary since August 22, 1994. He was appointed to the Board on
March 31, 1994. He also has served as General Counsel to NICO and its
subsidiaries since June 1983 (except he did not serve as General Counsel to NICO
during the period of January 1, 1992 through May 31, 1993).
Mr. Bready has been a director of the Company since May 18, 1994. He
has served since 1991 as the Chairman of the Board and Chief Executive Officer
of Nortek, Inc. (an NYSE-listed company engaged in the manufacture and marketing
of residential, commercial and industrial building products) and since 1979 as
its President.
Mr. Charles A. Gargano was elected as a director of the Company on
December 20, 1994. He has been an entrepreneur since August 1991 and was the
Finance chairman of the New York State Republican Committee in 1994. He served
as the United States Ambassador to the Republic of Trinidad and Tobago from
August 1988 through August 1991. Currently, Mr. Gargano is Commissioner of the
New York State Office of Economic Development and President and Chief Executive
Officer of the New York State Urban Development Corporation. Mr. Gargano is also
on the board of directors of Alpha Hospitality Corporation and Winners All
International, Inc., both Nasdaq-listed companies.
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Mr. Anthony F. L. Amhurst was elected as a director of the Company on
December 20, 1994. He has been a Senior and Managing Partner of Amhurst Brown
Colombotti ( a law firm the principal office of which is in London) and a
Solicitor of the Supreme Court of Judicature of England for more than the past
five years.
Mr. Salibello was elected as a director of the Company on December 20,
1994. He is the founder and for more than the past five years has been the
managing partner of Salibello & Broder, a certified public accounting firm. He
is also a director of Nine West Group Inc. (an NYSE-listed company that designs,
develops and markets women's footwear).
Mr. Delowery has been the President of HallMark since July 1990. He
served as Vice President in charge of sales of HallMark from June 1988 through
July 1990.
No family relationship exists between any of the directors and
executive officers of the Company.
All directors will serve until the annual meeting of stockholders of
the Company to be held in 1996 and until their respective successors are duly
elected and qualified or until their earlier death, resignation or removal.
Officers are elected annually by the Board and serve at the discretion thereof.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of compensation awarded to,
earned by or paid to the Chief Executive Officer and the other executive
officers of the Company whose total annual salary and bonus exceeded $100,000
for services rendered in all capacities to the Company during each of the years
ended December 31, 1995, December 31, 1994 and December 31, 1993:
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SUMMARY COMPENSATION TABLE
Long Term
Compensa-
tion
----------
Annual Compensation Awards
------------------------------- ----------
Securities
Other Underlying
Name And Principal Annual Options
- ------------------ Compen- (Number Of All Other
Position Year Salary Bonus sation(2) Shares) Compensation (3)
- -------- ---- ------ ----- --------- ------- ----------------
Salvatore J. Zizza (1) 1995 $200,000 0 0 0 $1,272
Chairman of the Board
1994 $200,000 0 0 10,250,000(1) $ 800
1993 $191,994 0 0 0 0
Robert A. Bruno (4) 1995 $150,000 0 0 250,000(5) $1,272
Vice President and
General Counsel 1994 * 0 0 0 $ 822
1993 * 0 0 0 $ 318
Joseph Delowery (5)
President of Hallmark
1995 $110,784 $13,469 0 0 $1,272
1994 $110,613 0 0 0 $1,272
1993 $109,024 0 0 0 $ 960
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* Mr. Bruno's compensation for 1994 and 1993 did not exceed $100,000 and
therefore no disclosure was required to be provided for those years.
(1) On August 22, 1994, the Company and Mr. Zizza entered into an
employment agreement providing for his employment through December 31,
1999 as President, Chairman of the Board and Chief Executive Officer
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of the Company at an annual salary of $200,000 (subject to increase, in
the discretion of the Board, if the Company acquires one or more new
businesses, to a level commensurate with the compensation paid to the
top executives of comparable businesses). Pursuant to such agreement,
if the Company acquires any business with annual revenues in the year
immediately prior to such acquisition of at least $25 million (an
"Acquired Business"), Mr. Zizza will be entitled to a bonus for each
year of his employment following such acquisition (including the
portion of the year immediately following such acquisition), in an
amount equal to one-half of (i) 10% of the first $1,000,000 of all
Acquired Business Pre-Tax Income (as hereinafter defined) for such year
(or portion thereof), PLUS (ii) 9% of all Acquired Business Pre-Tax
Income for such year (or portion thereof) above $1,000,000 up to but
not exceeding $2,000,000, PLUS (iii) 8% of all Acquired Business
Pre-Tax Income for such year (or portion thereof) above $2,000,000 up
to but not exceeding $3,000,000, PLUS (iv) 7% of all Acquired Business
Pre-Tax Income for such year (or portion thereof) above $3,000,000 up
to but not exceeding $4,000,000, plus (v) 6% of all Acquired Business
Pre-Tax Income for such year above $4,000,000 up to but not exceeding
$5,000,000, PLUS (vi) 5% of all Acquired Business Pre- Tax Income for
such year above $5,000,000. For the purposes hereof, "Acquired Business
Pre-Tax Income" for any year (or portion thereof) means the total
pre-tax income of all Acquired Businesses for such year (or portion
thereof), excluding any income earned by Acquired Businesses prior to
their acquisition by the Company, any earnings attributable to any
minority interest in Acquired Businesses, and any extraordinary items.
(2) As to each individual named, the aggregate amounts of personal benefits
not included in the Summary Compensation Table do not exceed the lesser
of either $50,000 or 10% of the total annual salary and bonus reported
for the named executive officer.
(3) Represents premiums paid by the Company with respect to term life
insurance for the benefit of the named executive officer.
(4) On January 1, 1995, the Company and Mr. Bruno entered into an
employment agreement providing for his employment through December 31,
1999 as Vice President and General Counsel for the Company at an annual
salary of $150,000. Pursuant to such agreement, Mr. Bruno has deferred
one-third of his annual salary until such time as the Company's annual
revenues exceed $25 million. In April 1995 the Company granted Mr.
Bruno an option to purchase 250,000 shares of common stock at an
exercise price of $.50 per share. The option is (i) immediately
exercisable as to 100,000 shares subject to such option, (ii)
exercisable December 31, 1995 as to an additional 75,000 shares subject
to such option, and (iii) exercisable December 31, 1996 as to the
remaining 75,000 shares subject to such option. The option will expire
December 31, 1999.
(5) Mr. Delowery may be deemed to be an executive officer of the Company by
virtue of his position with HallMark. HallMark became the Company's
principal operating subsidiary following the 1993 Restructuring.
COMPENSATION OF DIRECTORS
Directors receive no compensation for serving on the Board other than
the reimbursement of reasonable expenses incurred in attending meetings. In
April 1995, the Company issued options to purchase 15,000 shares of common stock
at an exercise price of $.50 per share to Mr. Bready and options to purchase
10,000 shares of common stock at an exercise price of $.50 per share to each of
Messrs. Gargano, Amhurst and Salibello.
-13-
The following table provides information on options granted during 1995
to the executive officers of the Company named in the Summary Compensation
Table.
OPTION GRANTS IN 1995
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
- -----------------------------------------------------------------------------------------------------------
Percent of
Total
Options Options
Original Granted Granted to Exercise
Date of (number Employees Price Expiration
Name Grant* Of Shares In 1995 ($/Share) Date 0%($) 5%($) 10%($)
- ---- ------ --------- ------- --------- --------- ----- ----- ------
Robert A. Bruno 4/21/95 100,000(1) 40% $0.50 12/31/99 0 $13,800 $36,000
Robert A. Bruno 4/21/95 75,000(2) 30% 0.50 12/31/99 0 $10,350 $22,950
Robert A. Bruno 4/21/95 75,000(3) 30% 0.50 12/31/99 0 $10,350 $22,950
================================================================================
* On April 21, 1995, the closing price per share of the Common Stock on
the New York Stock Exchange was $.50.
(1) Immediately exercisable.
(2) Exercisable December 31, 1995.
(3) Exercisable December 31, 1996.
-14-
The following table sets forth the number of options exercised and the
dollar value realized thereon by the executive officers of the Company named in
the Summary Compensation Table, along with the number and dollar value of any
options remaining unexercised on December 31, 1995.
AGGREGATED OPTION EXERCISES IN
1995 AND YEAR-END OPTION VALUES
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Year-End Year-End(1)
Shares ---------------------------- ---------------------------------
Acquired Value
Name On Exercise Realized(2) Exercisable Unexercisable Exercisable(2) Unexercisable(2)
---- ----------- ----------- ----------- ------------- ----------- -------------
Salvatore Zizza $ 0 $ 0 4,250,000 6,000,000 $ 0 $ 0
Robert Bruno $ 0 $ 0 175,000 75,000 $ 0 $ 0
================================================================================
(1) On December 31, 1995, the average of the high and low prices per share
of the Common Stock on the New York Stock Exchange was $0.27.
(2) Represents the difference between the market value of the
Common Stock underlying the option and the exercise price of
such option upon exercise or year-end, as the case may be.
-15-
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 and the
regulations of the Securities and Exchange Commission (the "SEC") thereunder
require the Company's executive officers and directors, and persons who own more
than ten percent of a registered class of the Company's equity securities, to
file reports of initial ownership and changes in ownership with the SEC and the
National Association of Securities Dealers, Inc. Such officers, directors and
ten-percent stockholders are also required by SEC rules to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on its review of
the copies of such forms received by it, or written representations from certain
reporting persons that no other reports were required for such persons, the
Company believes that, during or with respect to the period from January 1, 1995
to December 31, 1995, all Section 16(a) filing requirements applicable to its
executive officers, directors and ten-percent stockholders were complied with,
except that Form 3's were not timely filed for the following Directors of the
Company: Charles A. Gargano, Salvatore M. Salibello and Anthony F.L. Amhurst. In
addition, one Form 4 was not timely filed by each of Mr. Zizza and Mr. Bruno.
The Company and the above named persons have taken the appropriate steps to file
the necessary forms.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Both Anthony Amhurst and Charles Gargano are members of the Company's
Compensation Committee and are directors. There are no compensation committee
interlock relationships to be disclosed pursuant to Item 402 of Regulation S-K.
BOARD REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is responsible for developing the Company's
executive compensation policies and determining the compensation paid to the
Company's Chief Executive Officer and its other executive officers.
The Compensation Committee considers the current executive compensation
(other than for Mr. Delowery) to be below the standard for executives performing
comparable services (such as, debt restructurings, work-outs, negotiations with
bondholders and various creditors, restructuring bank credit lines for more
favorable terms, pursuing opportunities to raise working capital, etc.).
The Company entered into an employment agreement with Mr. Zizza in
August 1994 providing for his employment through December 31, 1999 as President,
Chairman of the Board and Chief Executive Officer of the Company at an annual
salary of $200,000 (the same salary previously paid to him). His salary is
subject to increase, in the Board's discretion, if the Company acquires one or
more new businesses, to a level commensurate with the compensation paid to the
top executives of comparable businesses. If the Company acquires any business
with annual revenues in the year immediately prior to such acquisition of at
least $25 million, Mr. Zizza will be entitled to a bonus for each year of his
employment following such acquisition (including the portion of the year
immediately following such acquisition), based on specified percentages of the
total pre-tax income of all such acquired businesses for such year or portion
thereof. See "Certain Transactions." Pursuant to such employment agreement, the
Company also granted to Mr. Zizza options to purchase 10,250,000 shares of
Common Stock at exercise prices ranging from $.50 to $1.00 per share. For
information as to the terms and conditions of exercisability of such options,
see "Certain Transactions."
CHARLES A. GARGANO
ANTHONY F.L. AMHURST
-16-
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
Common Stock of the Company with the cumulative total return on the NYSE Market
Index and MG Group Index (assuming the investment of $100 in the Company's
Common Stock, the NYSE Market Index and MG Group Index on January 1, 1991, and
reinvestment of all dividends).
[GRAPHIC MATERIAL OMITTED]
COMPARISON 5-YEAR CUMULATIVE TOTAL RETURN
AMONG THE LEHIGH GROUP INC.,
NYSE MARKET INDEX AND MG GROUP INDEX
- ------------------------------ FISCAL YEAR ENDING ------------------------------
COMPANY 1990 1991 1992 1993 1994 1995
LEHIGH GROUP INC 100 28.57 51.43 37.14 31.43 12.86
MG GROUP INDEX 100 175.09 214.21 242.18 230.57 265.31
NYSE MARKET INDEX 100 129.41 135.50 153.85 150.86 195.61
ASSUMES $100 INVESTED ON JAN. 1, 1991
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1995
-17-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information on March 15, 1996 (except as
otherwise noted below) with respect to each person (including any "group", as
that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended) known to the Company to be the beneficial owner of more than 5% of the
Common Stock.
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership (1) of Class
------------------- ------------------------ ---------
Base Assets Trust, as liquidating 1,920,757 (2) 18.6% (2)
agent of Executive Life Insurance
Company in Rehabilitation/
Liquidation ("BAT") 11400 West
Olympic Blvd.
Los Angeles, CA 90064 (2)
Fidelity Bankers Life Insurance 799,921 (2) 7.7% (2)
Company Trust (a subsidiary of First
Dominion Mutual Life Insurance
Company) ("FBL")
1011 Boulder Springs Drive
Richmond, Virginia 23225 (2)
Allstate Life Insurance Company 743,878 (2) 7.2% (2)
("Allstate")
Allstate Plaza South G4B
2880 Sanders Road
Northbrook, IL 60062 (2)
Teachers Insurance and Annuity 533,280 (2) 5.2% (2)
Association ("Teachers")
730 Third Ave.
New York, NY 10017 (2)
Kenneth Godt as Trustee for The 750,000 7.3%
Orion Trust (The "Godt Trust")
c/o Siegel & Godt
666 Old Country Road
Garden City, NY 11530
Salvatore J. Zizza 12,255,502 (3) 54.2% (3)
c/o The Lehigh Group Inc.
810 Seventh Ave.
New York, NY 10019
The Equitable Life Assurance 637,113 (2) 6.2% (2)
Society of the United States
("Equitable")
787 Seventh Ave.
New York, NY 10019 (2)
(1) Except as otherwise indicated each of the persons listed above has sole
voting and investment power with respect to all of the shares shown in
the table as beneficially owned by such person.
-18-
(2) Based on information set forth on Schedule 13G's filed with the SEC by
BAT dated February 13, 1996; Sears, Roebuck and Co. (parent of
Allstate) dated February 10, 1994; Equitable on February 9, 1996, The
Godt Trust on September 27, 1994 and Teachers on April 23, 1992
(assuming, in each case, no change in beneficial ownership since such
date except in connection with the 1993 Restructuring. Information as
to FBL was obtained from an investment specialist at FBL on November
14, 1994.
(3) Includes (i) 4,250,000 shares issuable upon the exercise of immediately
exercisable options at a price of $.50 per share, (ii) 382 shares owned
by trust accounts for the benefit of Mr. Zizza's minor children, as to
which he disclaims beneficial ownership and (iii) 7,750,000 shares
issuable upon the exercise of immediately exercisable warrants at a
price of $.50 per share as to 1,750,000 such shares, $.75 per share as
to 3,000,000 such shares and $1.00 per share as to 3,000,000 such
shares. Excludes 6,000,000 shares of Common Stock issuable upon the
exercise of options held by Mr. Zizza at exercise prices of $.75 per
share, in the case of 3,000,000 shares, and $1.00 per share, in the
case of 3,000,000 shares. These options are not currently exercisable
or expected to become exercisable within the next 60 days, and will not
be exercisable until such time as (i) the Company receives aggregate
net cash proceeds of at least $10 million from the sale (whether public
or private) of its equity securities, (ii) the Company consummates an
acquisition of a business with annual revenues during the year
immediately preceding such acquisition of at least $25 million, and
(iii) the fair market value (determined over a 30-day period) of the
Common Stock shall have equalled or exceeded $1.00 per share. All of
the options granted to Mr. Zizza will terminate on the fifth
anniversary of the date of grant, subject to earlier termination under
certain circumstances in the event of his death or the termination of
his employment. The Company also granted to him one demand registration
right (exercisable only if the Company is eligible to file a
registration statement on Form S-3 or a form substantially equivalent
thereto) and certain "piggyback" registration rights with respect to
the shares of the Common Stock purchasable upon exercise of such
options.
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates the number of shares of Common Stock
beneficially owned on March 15, 1996 by (i) each director of the Company, (ii)
each of the executive officers named in the Summary Compensation Table set forth
above and (iii) all directors and executive officers of the Company as a group.
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership(1) Percent of Class
- ------------------------- -------------------------- -------------------
Salvatore J. Zizza 12,255,502(2) 54.2(2)
Richard L. Bready 15,000(5) *
Robert A. Bruno 237,760(3) *
Charles A. Gargano 10,000(5) --
Salvatore M. Salibello 43,200(6) --
Anthony F. L. Amhurst 10,000(5) --
Joseph Delowery 0 --
All executive officers
and directors as a group
(7 persons) 12,571,462(4) 54.84(4)
- ---------------
* Less than 1%.
-19-
(1) Each of the persons listed above has sole voting and investment power
with respect to all shares shown in the table as beneficially owned by
such person.
(2) See note 3 of the table under the caption "Security Ownership of
Certain Beneficial Owners" above.
(3) Includes options to purchase common stock at $.50 per share. Excludes
75,000 options to purchase common stock at $.50 per share which become
exercisable December 31, 1996.
(4) Includes and excludes shares as indicated in notes (2) and (3) above.
(5) Represents options to purchase common stock at $.50 per share.
(6) Includes 10,000 options to purchase common stock at $.50 per share.
-20-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 22, 1994, the Company sold 2,575,000 shares of Common Stock
pursuant to the Private Placement at a purchase price of $.40 per share,
including 250,000 shares sold to Salvatore J. Zizza (the Company's President,
Chairman of the board and Chief Executive Officer), 62,500 shares sold to Robert
A. Bruno (the Company's Vice President, General Counsel and Secretary) and
750,000 shares sold to Kenneth Godt as Trustee of the Orion Trust (which, by
virtue of such sale, became the owner of more than 5% of the outstanding Common
Stock). Pursuant to a registration rights agreement dated as of August 22, 1994
among the Company and the investors that purchased Common Stock pursuant to the
Private Placement (including Mr. Zizza, Mr. Bruno and Kenneth Godt as Trustee
for the Orion Trust), such investors have one demand registration right
(exercisable at any time after the first anniversary and prior to the fifth
anniversary of such date) and certain "piggyback" registration rights with
respect to such Common Stock. The Company is attempting to register such shares
under the Securities Act pursuant to the registration statement that was filed
on December 12, 1995 which has not yet been declared effective. On August 22,
1994, the Company also (i) issued to Goldis Financial Group, Inc. warrants to
purchase 386,250 shares of Common Stock at $.50 per share, as partial
consideration for its services as selling agent in connection with the Private
Placement, and (ii) granted to it certain piggyback registration rights as to
such shares. The shares of Common Stock issuable upon the exercise of such
warrants are attempting to be registered under the Securities Act pursuant to
the above mentioned registration statement.
On August 22, 1994 (immediately prior to the closing under the Private
Placement), (i) the Company and Mr. Zizza entered into an employment agreement
providing for the employment of Mr. Zizza through December 31, 1999 as
President, Chairman of the Board and Chief Executive Officer of the Company at
an annual salary of $200,000 (subject to increase, in the discretion of the
Board, if the Company acquires one or more new businesses, to a level
commensurate with the compensation paid to the top executives of comparable
businesses), and (ii) the Company and Dominic Bassani entered into a consulting
agreement providing for Mr. Bassani to serve as a consultant to the Company for
a five year period and to provide during such period such financial advisory
services and assistance as the Company may request in connection with arranging
for financing for the Company (including pursuant to the Private Placement) and
in connection with the selection and evaluation of potential acquisitions. The
consulting agreement with Mr. Bassani was mutually terminated in July 1995. If
the Company acquires any business with annual revenues in the year immediately
prior to such acquisition of at least $25 million (an "Acquired Business"), Mr.
Zizza will be entitled to a bonus for each year of his employment following such
acquisition (including the portion of the year immediately following such
acquisition), based on specified percentages of the total pre-tax income of all
Acquired Businesses for such year or portion thereof ("Acquired Business Pre-Tax
Income"). For this purpose, Acquired Business Pre-Tax Income excludes any income
earned by Acquired Businesses prior to their acquisition by the Company, any
earnings attributable to any minority interest in Acquired Businesses, and any
extraordinary items. The bonus for Mr. Zizza for each such year (or portion
thereof) will be an amount equal to one-half of (i) 10% of the first $1,000,000
of all Acquired Business Pre-Tax Income for such year (or portion thereof), (ii)
9% of all Acquired Business Pre-Tax Income for such year (or portion thereof)
above $1,000,000 up to but not exceeding $2,000,000, PLUS (iii) 8% of all
Acquired Business Pre-Tax Income for such year (or portion thereof) above
$2,000,000 up to but not exceeding $3,000,000, PLUS (iv) 7% of all Acquired
Business Pre-Tax Income for such year (or portion thereof) above $3,000,000 up
to but not exceeding $4,000,000, plus (v) 6% of all Acquired Business Pre-Tax
Income for such year above $4,000,000 up to but not exceeding $5,000,000, (vi)
5% of all Acquired Business Pre-Tax Income for such year above $5,000,000.
The Company also granted (i) to Mr. Zizza options to purchase a total
of 10,250,000 shares of Common Stock: 4,250,000 exercisable at $.50 per share,
3,000,000 exercisable at $.75 per share, and 3,000,000 exercisable at $1.00 per
share; and (ii) to Mr. Bassani warrants to purchase a total of 7,750,000 shares
of Common Stock: 1,750,000 exercisable at $.50 per share, 3,000,000 at $.75 per
share, and 3,000,000 at $1.00 per share. In July 1995, Mr. Zizza purchased all
the warrants held by Mr. Bassani. The $.50 per share options are exercisable
immediately; the $.75 and $1.00 per share options will not be exercisable until
such time as (i) the Company has raised at least $10 million of equity, (ii) the
Company has consummated an acquisition of a business with annual revenues in the
year immediately prior to such acquisition of at least $25 million, and (iii)
the fair market value of the Common
-21-
Stock (as measured over a period of 30 consecutive days) has equalled or
exceeded $1.00 per share. The options and warrants held by Mr. Zizza will
terminate on the fifth anniversary of the date of grant, subject to earlier
termination under certain circumstances in the event of his death or the
termination of his employment. The Company also granted to Mr. Zizza one demand
registration right (exercisable only if the Company is eligible to file a
registration statement on Form S-3 or a form substantially equivalent thereto)
and certain "piggyback" registration rights with respect to the shares of Common
Stock purchasable upon exercise of the options or warrants granted to him.
The Company will require that any future transactions (other than those
described above) between the Company and its officers, directors, principal
stockholders and the affiliates of the foregoing persons be on terms no less
favorable to the Company than could reasonably be obtained in arm's length
transactions with independent third parties.
In connection with the issuance by the Company of Common Stock pursuant
to the 1991 Restructuring to the former holders of the 13-1/2% Notes and 14-7/8%
Debentures and NICO's Senior Secured Notes (which holders included BAT, FBL,
Allstate and Teachers or their predecessors in interest), the Company granted to
such holders two demand and unlimited piggyback registration rights (which
remain in effect to the extent such Common Stock is not otherwise freely
transferable). For information as to the Common Stock held by BAT, FBL, Allstate
and Teachers (which is covered by such registration rights), see "Item 12.
Security Ownership of Certain Beneficial Owners and Management."
-22-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
a. (1) Financial Statements
--------------------
The following financial statements are
included in Part II, Item 8 of this Annual
Report on Form 10-K:
Report of Independent Public Accountants
as of December 31, 1995, 1994 and 1993 F-2
Consolidated Balance Sheets, December 31,
1995 and 1994 F-3 - F-4
Consolidated Statements of Operations,
Years Ended December 31, 1995, 1994 and
1993 F-5
Consolidated Statements of Changes in
Shareholders' Deficit, Years Ended
December 31, 1995, 1994 and 1993. F-6
Consolidated Statements of Cash Flows,
Years Ended December 31, 1995, 1994 and
1993. F-7
Notes to Consolidated Financial Statements. F-8 - F-16
a. (2) Schedules
---------
The following schedules for the Years Ended
December 31, 1995, 1994 and 1993 are submitted
herewith:
Schedule II - Valuation and Qualifying
Accounts S-1
All other schedules are omitted because they are
not applicable or the required information is shown
in the financial statements or notes thereto.
a. (3) Exhibits
--------
The Exhibits to this Annual Report on Form 10-K are
listed in the Exhibit Index annexed hereto and
incorporated by reference.
(b) REPORTS ON FORM 8-K There were no reports on Form
8-K filed during the last quarter covered by this
report.
-23-
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.
THE LEHIGH GROUP INC.
By: /S/ SALVATORE J. ZIZZA
----------------------
Salvatore J. Zizza
President
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.
/S/ Salvatore J. Zizza Chairman of the Board Director March 29, 1996
- ---------------------------- and President Chief Executive
Salvatore J. Zizza Officer (Chief Financial Officer)
/S/ Robert A. Bruno Vice President, General Counsel, March 29, 1996
- ---------------------------- Secretary and Director
Robert A. Bruno
/S/ Richard L. Bready Director March 29, 1996
- ----------------------------
Richard L. Bready
Director
- ----------------------------
Charles A. Gargano
Director
- ----------------------------
Anthony F.L. Amhurst
/S/ Salvatore M. Salibello Director March 29, 1996
- ----------------------------
Salvatore M. Salibello
-24-
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Report of Independent Certified Public Accountants as of
December 31, 1995, 1994 and 1993 F-2
Consolidated Balance Sheets, December 31, 1995 and 1994 F-3 and F-4
Consolidated Statements of Operations, Years Ended December
31, 1995, 1994 and 1993 F-5
Consolidated Statements of Changes in Shareholders' Equity,
(Deficit) Years Ended December 31, 1995, 1994 and 1993 F-6
Consolidated Statements of Cash Flows, Years Ended December
31, 1995, 1994 and 1993 F-7
Notes to Consolidated Financial Statements F-8 to F-16
Schedules, Years Ended December 31, 1995, 1994 and 1993
II - Valuation and Qualifying Accounts S-1
All other schedules are omitted because the required
information is either inapplicable or is included in the
consolidated financial statements or the notes thereto.
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To The Board of Directors and Shareholders of
The Lehigh Group Inc.:
We have audited the accompanying consolidated balance sheets of The Lehigh Group
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1995. We have
also audited the schedule listed in the accompanying index. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits 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 The Lehigh Group
Inc. and subsidiaries at December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also in our opinion, the schedule presents fairly, in all material respects, the
information set forth therein.
/S/ BDO Seidman, LLP
----------------------------------------
BDO Seidman, LLP
New York, New York
March 4, 1996, except as to Note 3,
which is as of March 28, 1996
F-2
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1995 1994
- --------------------------------------------------------------------------------
(in thousands except for per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 347 $ 925
Accounts receivable, net of allowance for 4,335 4,611
doubtful accounts of $174 and $275
Inventories, net 1,823 1,745
Prepaid expenses and other current assets 22 22
------ ------
Total current assets 6,527 7,303
Property, plant and equipment, net of 61 105
accumulated depreciation and amortization
(Note 5)
Other assets 34 33
------ ------
TOTAL ASSETS $6,622 $7,441
====== ======
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
F-3
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1995 1994
- --------------------------------------------------------------------------------
(in thousands except for per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 6) $ 510 $ 519
Note payable-bank (Note 6) 360 360
Accounts payable 1,839 1,911
Accrued expenses and other current liabilities 1,381 1,280
-------- --------
Total current liabilities 4,090 4,070
-------- --------
Long-term debt, net of current maturities (Note 2,080 2,361
6) -------- --------
Deferred credit applicable sale of discontinued 250 500
operations (Note 4) -------- ---------
Commitments and Contingencies (Notes 3, 6 and 8)
SHAREHOLDERS' EQUITY (NOTE 7):
Preferred stock, par value $.001; authorized
5,000,000 shares, none issued -- --
Common stock, par value $.001 authorized
shares 100,000,000, in 1995 and 1994;
shares issued 10,339,250 in 1995 and 1994
which excludes 3,016,249 and 3,015,893
shares held as treasury stock in 1995 and
1994, respectively 11 11
Additional paid-in capital (Note 10) 106,594 106,594
Accumulated deficit from January 1, 1986 (104,749) (104,441)
Treasury stock - at cost (1,654) (1,654)
-------- --------
Total shareholders' equity 202 510
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,622 $ 7,441
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-4
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
(in thousands except for per share data)
Revenues earned $ 12,105 $12,247 $12,890
Costs of revenues earned 8,628 8,577 9,150
-------- ------- -------
Gross Profit 3,477 3,670 3,740
Selling, general and administrative expenses 3,994 4,187 4,153
-------- ------- -------
Operating loss (517) (517) (413)
-------- ------- -------
Other income (expense):
Interest expense (433) (398) (424)
Interest and other income (Note 6) 392 505 587
-------- ------- -------
(41) 107 163
-------- ------- -------
Loss before discontinued operations and
extraordinary item (558) (410) (250)
Income from discontinued operations (Note 4) 250 5,000 2,074
-------- ------- -------
Income (loss) before extraordinary item (308) 4,590 1,824
Extraordinary item:
Gain on early extinguishment of debt (Note 6) -- -- 1,997
-------- ------- -------
Net income (loss) $ (308) $ 4,590 $ 3,821
======== ======= =======
Earnings per share - Primary and Fully Diluted
- ----------------------------------------------
Loss before discontinued operations and
extraordinary item $ (0.05) $ (0.04) $ (0.03)
Income from discontinued operations 0.02 0.49 0.24
Income (loss) before extraordinary item (0.03) 0.45 0.21
Net Income (loss) (0.03) 0.45 0.43
Weighted average Common Shares
and share equivalents outstanding
- ---------------------------------
Primary and Fully diluted 10,339,250 10,169,000 8,825,000
========== ========== =========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-5
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1995, 1994 and 1993
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
Preferred
Stock Common Stock
-------------- ---------------------
Number Additional Treasury
Number of of Paid-In Deficit From Stock At
Shares Amount Shares Amount Capital Jan. 1, 1986 Cost Total
------------- -------- ------- ------ ---------- ------------ --------- --------
Balance December 31, 1992 -- -- 10,978 11 69,454 (112,852) (1,654) (45,041)
Exchange of Class A and B
notes in connection with
sale of subsidiary (3,320) 36,121 36,121
Net Income -- -- -- -- 3,821 3,821
----- ----- ----- ------- ----- ------ ------- -----
Balance December 31, 1993 -- $-- 7,658 $11 $105,575 $(109,031) $(1,654) $(5,099)
Issuance of common stock in
connection with private
placement 2,681 1,019 1,019
Net Income -- -- -- -- 4,590 -- 4,590
----- ----- ----- ------- ----- ----- ------- -----
Balance December 31, 1994 -- $-- 10,339 11 $106,594 $(104,441) $(1,654) $ 510
== === ====== === ======== ========== ======== =======
Net Loss -- -- -- -- $ (308) -- $ (308)
----- ----- ----- ------- ----- -------- ------- --------
Balance December 31, 1995 -- $-- 10,339 11 $106,594 $(104,749) $(1,654) $ 202
== === ====== === ======== ========== ======== =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-6
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 11)
Years Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
(in thousands)
Cash flows from operating activities:
Net income (loss) $ (308) $ 4,590 $ 3,821
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Gain on early extinguishment of debt -- -- (1,997)
Depreciation and amortization 65 59 95
Provision for doubtful accounts receivable -- -- (85)
Deferred credit applicable to sale of discontinued
operations (250) (5,000) (1,760)
Changes in assets and liabilities:
Accounts receivable 276 93 (493)
Inventories (78) (108) 255
Prepaid expenses and other current assets 55 423
Other assets (1) 6 12
Net assets applicable to discontinued operations -- -- 713
Accounts payable (72) 64 (217)
Accrued expenses and other current liabilities 101 81 (695)
------- ------- -------
Net cash provided by (used in) operating
activities (267) (160) 72
------- ------- -------
Cash flows from investing activities:
Capital expenditures (21) (39) (24)
Cash flows from financing activities:
Repayment of capital leases (20) (3) (19)
Net payments under bank debt (270) (360) (430)
Net proceeds from sale of stock and subsidiary -- 1,019 750
------- ------- -------
Net cash provided by (used in) financing activities (290) (656) (301)
------- ------- -------
Net change in cash and cash equivalents (578) 457 349
Cash and cash equivalents at beginning of period 925 468 119
------- ------- -------
Cash and cash equivalents at end of period $ 347 $ 925 $ 468
======= ======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-7
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES INCLUDED IN THE FOOTNOTES ARE IN THOUSANDS EXCEPT FOR PER SHARE DATA)
1 - GENERAL
The Lehigh Group Inc. (the "Company"), through its wholly owned
subsidiary, HallMark Electrical Supplies Corp. ("HallMark"), is engaged in the
distribution of electrical supplies for the construction industry both
domestically (primarily in the New York Metropolitan area) and for export.
HallMark was acquired by the Company in December 1988. HallMark's sales include
electrical conduit, armored cable, switches, outlets, fittings, panels and wire
which are purchased by HallMark from electrical equipment manufacturers in the
United States. Approximately 60% of HallMark's sales are domestic and 40% are
export. Export sales are made by sales agents retained by HallMark. Distribution
is made in approximately 26 countries including Bermuda, Costa Rica, Venezuela,
Columbia, Ecuador and Panama. Since November 1, 1992, HallMark's export business
has been conducted primarily from Miami, Florida.
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include all
of the accounts of the Company and its wholly owned subsidiaries. All
intercompany accounts and transactions have been eliminated in consolidation.
INVENTORIES - Inventories are stated at the lower of cost or market using a
first-in, first-out basis to determine cost. Inventories consist of electrical
supplies held for resale.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are carried at
cost. Depreciation is provided on the straight-line method over the estimated
useful lives of the related assets. Amortization of leasehold improvements are
provided over the life of each respective lease.
INCOME TAXES - In 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes," which requires the use of the
liability method of accounting for deferred income taxes. The provision for
income taxes typically includes Federal, state and local income taxes currently
payable and those deferred because of temporary timing differences between the
financial statement and tax bases of assets and liabilities. The financial
statements do not include a provision for income taxes due to the Company's net
operating losses.
EARNINGS PER SHARE - Earnings per common share is calculated by dividing net
income (loss) applicable to common shares by the weighted average number of
common shares and share equivalents outstanding during each period. Excluded
from fully diluted computations are certain stock options granted (12,000,000
options which are contingently exercisable pending the occurrence of certain
future events).
TREASURY STOCK - Treasury stock is recorded at net acquisition cost. Gains and
losses on disposition are recorded as increases or decreases to capital with
losses in excess of previously recorded gains charged directly to retained
earnings.
STOCK OPTIONS - During 1995, Statement of Financial Accounting Standards No. 123
"Accounting for Stock- Based Compensation" was issued. The Company has not
elected early adoption which allows a choice of either the intrinsic value
method or the fair value method of accounting for employee stock options. The
Company expects to select the option to continue the use of the current
intrinsic value method.
F-8
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES INCLUDED IN THE FOOTNOTES ARE IN THOUSANDS EXCEPT FOR PER SHARE DATA)
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 these estimates.
LONG-LIVED ASSETS - During 1995, Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long
Lived-Assets to be Disposed Of," was issued. The adoption of this pronouncement
is not expected to have a significant impact on the Company's financial
statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of financial
instruments including cash and cash equivalents, accounts receivable and
accounts payable approximate fair value at December 31, 1995, because of the
relative short maturities of these instruments. It is not possible to presently
determine the market value of the long term debt and notes payable given the
Company's current financial condition.
STATEMENTS OF CASH FLOWS - Cash equivalents include time deposits with original
maturities of three months or less.
REVENUE RECOGNITION - Revenue is recognized when products are shipped or when
services are rendered.
PRESENTATION OF PRIOR YEARS DATA - Certain reclassifications have been made to
conform prior years data with the current presentation.
F-9
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABLES INCLUDED IN THE FOOTNOTES ARE IN THOUSANDS EXCEPT FOR PER SHARE DATA)
3 - SALE OF SUBORDINATED DEBENTURE
On March 28, 1996, the Company issued a $300,000 subordinated debenture
to Macrocom Investors, LLC. The debenture includes interest at 2% per annum over
the prime lending rate of Chase Manhattan Bank, N.A. payable monthly commencing
May 1996. The principal balance is payable April 1, 1998. The debenture granted
the lender a five year warrant to purchase a number of shares equal to $300,000
divided by the price equal to the average closing bid price of the Company's
common stock for the ten business days prior to the date of closing of the
financing. The debenture contains various restrictions on the Company and is
secured by 100% of the outstanding common stock of the Company's wholly-owned
subsidiary, HallMark Electrical Supplies Corp. The Company has entered into an
agreement with a financial services company to use its best efforts to raise an
additional $450,000 under the same terms and conditions. Management believes
that the proceeds of the $300,000 subordinated debenture combined with current
working capital will be sufficient to fund the Company's operations for the
balance of 1996.
4 - DISCONTINUED OPERATIONS
On December 31, 1991, the Company sold its right, title and interest in
the stock of the various subsidiaries which made up its discontinued interior
construction and energy recovery business segments subject to existing security
interests. The excess of liabilities over assets of subsidiaries sold amounted
to approximately $9.6 million. Since 1991, the Company has reduced this deferred
credit (the reduction is shown as income from discontinued operations) due to
the successful resolution of the majority of the liabilities for amounts
significantly less than was originally recorded. The deferred credits were
reduced as follows:
1992 $ 2,376
1993 $ 1,760
1994 $ 5,000
1995 $ 250
F-10
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABLES INCLUDED IN THE FOOTNOTES ARE IN THOUSANDS EXCEPT FOR PER SHARE DATA)
5 - PROPERTY, PLANT AND EQUIPMENT
December 31
--------------------- Estimated
1995 1994 Useful Lives
-------- -------- ----------------------
Machinery and equipment $ 475 $ 469 3 to 5 years
Leasehold improvements 285 270 Term of leases
----- -----
760 739
Less accumulated depreciation and
amortization (699) (634)
----- -----
$ 61 $ 105
===== =====
6 - LONG-TERM DEBT
December 31,
--------------------------
INTEREST RATE 1995 1994
-------------
Subordinated Debentures 14-7/8% $ 400 $ 400
Senior Subordinated Notes 13-1/2% 100 100
Note Payable 10.56% 2,440 2,710
Other Long-Term Debt Various 10 30
-------- --------
2,950 3,240
Less Current Portion (870) (879)
-------- --------
Total Long-Term Debt $ 2,080 $ 2,361
======== ========
SUBORDINATED DEBENTURES AND SENIOR SUBORDINATED NOTES
On March 15, 1991, pursuant to a restructuring done by the Company (the
"1991 Restructuring"), the holders of $8,760,000 principal amount of the 14-7/8%
Debentures exchanged such securities, together with the accrued but unpaid
interest thereon, for $2,156,624 principal amount of Class B Notes and
53,646,240 shares of Common Stock. Additionally, the holders of $33,840,000
principal amount of the 13-1/2% Notes exchanged such securities, together with
the accrued but unpaid interest thereon, for $8,642,736 principal amount of
Class B Notes and 212,650,560 shares of Common Stock.
F-11
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABLES INCLUDED IN THE FOOTNOTES ARE IN THOUSANDS EXCEPT FOR PER SHARE DATA)
The Company was in default of certain covenants to the holders of Class
A Notes and Class B Notes (the "Notes") at December 31, 1992 and 1991 and, as a
consequence, the Notes were classified as current in the 1992 and 1991 Financial
Statements. The Company continues to be in default in the payment of interest
(approximately 635,000 and $482,000 of interest is past due as of December 31,
1995 and 1994) on the $500,000 principal amount of 13-1/2% Notes and 14-7/8%
Debentures that were not tendered in the Company's 1991 Restructuring. In May
1993 the Company reached an agreement (the "1993 Restructuring") whereby
participating holders of the Notes ("Noteholders") surrendered their Notes,
together with a substantial portion of their Common Stock, and, in exchange
therefore, the Noteholders acquired, through a newly formed corporation ("LVI
Holding"), all of the stock of LVI Environmental Services Group Inc. ("LVI
Environmental"), a subsidiary of the Company that conducted its asbestos
abatement operations. Management of LVI Environmental have a minority equity
interest in LVI Holding. As a consequence, the Company's outstanding
consolidated indebtedness was reduced from approximately $45.9 million to
approximately $3.6 million (excluding approximately $120,944 of indebtedness
under Class B Notes that LVI Holding agreed to pay in connection with the 1993
Restructuring but for which the Company remains liable). Since the Noteholders
were also principal stockholders of the Company, the gain from this transaction,
net of the carrying value of LVI Environmental, was credited directly to
additional paid-in capital.
In accordance with Statement of Financial Accounting Standards No. 15,
the Class A Notes and the Class B Notes were carried on the consolidated balance
sheet at the total expected future cash payments (including interest and
principal) specified by the terms of the Notes. A gain on early extinguishment
of debt occurred as a result of the carrying amounts of the 13-1/2% Notes,
14-7/8% Debentures and Senior Secured Notes (including accrued but unpaid
interest and unamortized deferred financing costs) being greater than the fair
market value of the common stock issued, the net assets transferred to a
liquidating trust, and total expected future cash payments of the Class A Notes
and Class B Notes, net of direct restructuring costs.
Included in interest and other income in 1995 is approximately $380,000
of other income which represents an adjustment to the value of certain items
which relate to the Company's 1991 Restructuring.
The Company continues to be in default in the payment of interest
(approximately $635,000 and $482,000 at December 31, 1995 and 1994,
respectively) and principal of the $500,000 on the 13-1/2 Notes and 14-7/8
Debentures not tendered in the Company's 1991 Restructuring. The principal of
$500,000 is included as current maturities of long term debt and the unpaid
interest is included in accrued expenses and other current liabilities.
NOTE PAYABLE
On June 30, 1993, HallMark restructured its revolving credit facility
as an installment loan. The loan is collateralized by the inventory and
receivables at HallMark. Monthly principal payments of $30,000 are due through
December 31, 1998 and the final payment is due on January 31, 1999. Payments on
the Note are due as follows:
1996 360
1997 360
1998 360
1999 1,360
F-12
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABLES INCLUDED IN THE FOOTNOTES ARE IN THOUSANDS EXCEPT FOR PER SHARE DATA)
7 - INCOME TAXES
At December 31, 1995, the Company had a net deferred tax asset
amounting to approximately $1.6 million. The net deferred tax asset consisted
primarily of net operating loss ("NOL") carryforwards, and temporary differences
resulting from inventory and accounts receivable reserves, and it is fully
offset by a valuation allowance of the same amount.
The Company did not have Federal taxable income in 1995, 1994, and 1993
and, accordingly, no Federal taxes have been provided in the accompanying
consolidated statements of operations. As of December 31, 1995, the Company had
NOL carryforwards of approximately $4.5 million expiring through 2010.
8 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company and its subsidiaries lease machinery, office and warehouse
space, as well as certain data processing equipment and automobiles under
operating leases. Rent expense aggregated $177,336, $148,000, and $191,000 for
the years ended December 31, 1995, 1994, and 1993, respectively.
Future minimum annual lease commitments, primarily for office and
warehouse space, with respect to noncancellable leases are as follows:
1996 103
1997 104
1998 105
1999 114
2000 118
Thereafter 433
---
$ 977
In addition to the above, certain office and warehouse space leases
require the payment of real estate taxes and operating expense increases.
EMPLOYMENT AGREEMENTS
On August 22, 1994 the Company and Mr. Salvatore Zizza entered into an
employment agreement providing employment to Mr. Zizza through December 31, 1999
as President, Chairman of the Board and Chief Executive Officer of the Company
at an annual salary of $200,000.
On January 1, 1995 the Company and Mr. Robert Bruno entered into an
employment agreement providing employment to Mr. Bruno through December 31, 1999
as Vice President and General Counsel of the Company at an annual salary of
$150,000. The agreement calls for deferral of $50,000 of Mr. Bruno's salary each
year until the Company's annual revenues exceed $25 million. The $50,000
deferral has not been accrued due to uncertainty regarding the Company achieving
$25 million in sales.
F-13
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABLES INCLUDED IN THE FOOTNOTES ARE IN THOUSANDS EXCEPT FOR PER SHARE DATA)
LITIGATION
The State of Maine and Bureau of Labor Standards commenced an action
against the Company and Dori Shoe Company (an indirect former subsidiary) to
recover severance pay under Maine's plant closing law. The case was tried
without a jury on December 12 and 13, 1994 in Maine Superior Court. Under that
law, an "employer" who shuts down a large factory is liable to the employees for
severance pay at the rate of one week's pay for each year of employment.
Although the law did not apply to the Company at the time that the Dori Shoe
plant was closed it was amended so as to arguably apply to the Company
retroactively.
In a prior case brought against the Company (then known as Lehigh
Valley Industries) and its former subsidiary under the Maine severance pay
statute prior to its amendment the Company was successful against the State of
Maine (see CURTIS V. LOREE FOOTWEAR AND LEHIGH VALLEY INDUSTRIES, 516 A. 2d 558
(Me. 1986)).
The Superior Court by decision docketed April 10, 1995 entered
judgement in favor of the former employees of Dori Shoe Company against Dori
Shoe and the Company in the amount of $260,969. plus prejudgment interest and
reasonable attorneys' fees and costs to the Plaintiff upon their application
pursuant to Maine Rules of Civil Procedure 54(b) (3) (d). Interest and other
fees are approximately $100,000 at December 31, 1995. The Company filed a timely
appeal appealing the decision and the matter was argued before the Maine Supreme
Judicial Court on December 7, 1995. The Company's attorneys in Maine believe
that the application of Maine's amended severance pay statute is
unconstitutional under both the Maine and United States constitutions. Since the
Company's appeal, no further action has taken place. Approximately $350,000 has
been accrued for by the Company relating to this judgement.
F-14
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABLES INCLUDED IN THE FOOTNOTES ARE IN THOUSANDS EXCEPT FOR PER SHARE DATA)
9 - STOCK OPTIONS
The following table contains information on stock options for the three
year period ended December 31, 1995:
Exercise price Weighted average
Option shares range per share price
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding, January 1, 1993 0 0 0
Granted 0 0 0
Exercised 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1993 0 0 0
Granted 10,250,000* $0.50 to $1.00 $0.72
Exercised 0 0 0
Forfeited 0 0 0
Outstanding, December 31, 1994 10,250,000 $0.50 to $1.00 $0.72
Granted 295,000 $0.50 $0.50
Exercised 0 0 0
Forfeited 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding, December 31, 1995 295,000 $0.50 $0.50
=============================================================================================================================
*Excludes warrants to purchase 7,750,000 shares of stock.
Exercisable at year end
1993 0
1994 4,250,000*
1995 4,545,000*
*Excludes warrants to purchase 1,750,000 shares of stock.
Twelve million of the eighteen million options and warrants granted in 1994 are
contingently exercisable pending the occurrence of certain future events. These
events include the Company acquiring any business with annual revenues in the
year immediately prior to such acquisition of at least $25 million dollars. The
occurrence of this event as well as certain other events will constitute the
measurement date for those options and the Company will recognize as
compensation the difference between measurement date price and the granted
price.
F-15
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(TABLES INCLUDED IN THE FOOTNOTES ARE IN THOUSANDS EXCEPT FOR PER SHARE DATA)
10 - SIGNIFICANT CUSTOMER
Sales to a customer accounted for approximately 25%, 22%, and 12% for years
ended December 31, 1995, 1994 and 1993, respectively. This customer accounted
for approximately 21% and 15 % of accounts receivable on December 31, 1995 and
1994, respectively.
11 - SUPPLEMENTARY INFORMATION
Statements of Cash Flows
- ------------------------
Years ended December 31
-----------------------
1995 1994 1993
---- ---- ----
Cash paid during the year for:
Interest $278 $264 $269
Income taxes 12 78 5
Supplemental disclosure of non-cash financing activities:
DECEMBER 31, 1995
Accounts payable and operating loss were both reduced by approximately $380,000
relating to an adjustment to he value of certain items which relate to the
Company's 1991 Restructuring.
DECEMBER 31, 1993
As a result of the 1993 Restructuring, 100% of the Class A Notes and over 97% of
the Class B Notes (the "Notes") of NICO Inc., a wholly owned subsidiary of the
Company, were surrendered to the Company together with 3 million shares of
common stock and, in exchange therefore, participating holders of such Notes
acquired through a newly formed corporation, all of the stock of LVI
Environmental Services Group Inc. The Company's consolidated indebtedness was
thereby reduced from approximately $45.9 million to approximately $3.6 million.
F-16
THE LEHIGH GROUP INC. AND SUBSIDIARIES
SCHEDULE II
Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1994 and 1993
(Dollar Amounts in Thousands)
Balance at Charged to
Beginning Costs and Charged to Other Charges Balance at
December 31, Description of Year Expenses Other Accounts Add (Deduct) End of Year
- -----------------------------------------------------------------------------------------------------------------------------------
1995 Allowance for doubtful
accounts $ 275 -- -- (101) $ 174
Inventory obsolescence reserve $ 158 -- -- $ 158
1994 Allowance for doubtful
accounts $ 300 -- -- (25) $ 275
Inventory obsolescence reserve $ 182 -- -- (24) $ 158
1993 Allowance for doubtful
accounts $ 385 (85) -- -- $ 300
Inventory obsolescence reserve $ 406 -- -- (224) $ 182
S-1
EXHIBIT INDEX
EXHIBIT
3(a) Restated Certificate of Incorporation, By-Laws and
Amendments to By-Laws (incorporated by reference to
Exhibits A and B to Company's Annual Report on Form 10-K
for the year ended December 31, 1970. Exhibits 3 and 1,
respectively, to Company's Current Reports on Form 8-K
dated September 8, 1972 and May 9, 1973, and Exhibit to
Company's Current Report on Form 8-K dated October 10,
1973, and Exhibit 3 to Company's Annual Report on Form
10-K for the year ended December 31, 1980).
3(b) Certificate of Amendment to Restated Certificate of
Incorporation dated September 30, 1983 (incorporated by
reference to Exhibit 4(a) to Company's Quarterly Report
on Form 10-Q for the quarter ended June 29, 1985).
3(c) Certificate of Amendment to Restated Certificate of
Incorporation of Company filed with the Secretary of
State of the State of Delaware on October 31, 1985
(incorporated by reference to Exhibit 4(c) to Company's
Current Report on Form 8-K dated November 7, 1985).
3(d) Certificate of Amendment to Restated Certificate of
Incorporation of Company filed with the Secretary of
State of the State of Delaware on January 2, 1986
(incorporated by reference to Exhibit 3(d) to Company's
Annual Report on Form 10-K for the year ended December
31, 1985).
3(e) Certificate of Amendment to Restated Certificate of
Incorporation of Company filed with the Secretary of
State of the State of Delaware on June 4, 1986
(incorporated by reference to Exhibit 4(a) to Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1986).
3(f) By-Laws of Company, as amended to date (incorporated by
reference to Exhibit 3(f) to Company's Annual Report on
Form 10-K for the year ended December 31, 1990).
3(g) Certificate of Amendment to Restated Certificate of
Incorporation of Company filed with the Secretary of
State of the State of Delaware on March 15, 1991
(incorporated by reference to Exhibit 3(g) to Company's
Annual Report on Form 10-K for the year ended December
31, 1990).
3(h) Certificate of Amendment to Certificate of Incorporation
of Company filed with the Secretary of State of the State
of Delaware on December 27, 1991 (incorporated by
reference to Exhibit 3(h) to Company's Annual Report on
Form 10-K for the year ended December 31, 1991).
3(i) Certificate of Amendment to Certificate of Incorporation
of Company filed with the Secretary of State of the State
of Delaware on January 27, 1995 (incorporated by
reference to Exhibit 3(i) to Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
4(a) Form of Indenture, dated as of October 15, 1985, among
Registrant, NICO, Inc. and J. Henry Schroder Bank & Trust
Company, as Trustee, including therein the form of the
subordinated debentures to which such Indenture relates
(incorporated by
E-1
reference to Exhibit 4(a) to the Company's Current Report
on Form 8-K dated November 7, 1985).
4(b) Amendment to Indenture dated as of March 14, 1991
referenced to in Item 4(b)(1) (incorporated by reference
to Exhibit 4(b)(2) to Registrant's Annual Report on Form
10-K for the year ended December 31, 1990).
4(c) Indenture dated as of March 15, 1991 (the "Class B Note
Indenture") among the Company, NICO, the guarantors
signatory thereto, and Continental Stock Transfer and
Trust Company, as Trustee, pursuant to which the 8% Class
B Senior Secured Redeemable Notes due March 15, 1999 of
NICO were issued together with the form of such Notes
(incorporated by reference to Exhibit 4(i) to Company's
Annual Report on Form 10-K for the year ended December
31, 1990).
4(d) First Supplemental Indenture dated as of May 5, 1993
between NICO and Continental Stock Transfer & Trust
Company, as trustee under the Class B Note Indenture
(incorporated by reference to Exhibit 4(h) to Company's
Annual Report on Form 10-K for the year ended December
31, 1993).
4(e) Form of indenture between the Company, NICO and Shawmut
Bank, N.A., as Trustee, included therein the form of
Senior Subordinated Note due April 15, 1998 (incorporated
by reference to Exhibit 4(b) to Amendment No. 2 to
Company's Registration Statement on Form S-2 dated May
13, 1988).
10(a) Guaranty of LVI Environmental dated as of May 5, 1993
(incorporated by reference to Exhibit 10(f) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
10(b) Indemnification Agreement dated as of May 5, 1993 among
LVI Environmental, Company and certain directors and
officers of Company (incorporated by reference to Exhibit
10(h) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993).
10(c) Assumption Agreement dated as of May 5, 1993 among
Company, NICO and LVI Holding for the benefit of holders
of certain securities of Hold-Out Notes (as defined
therein) (incorporated by reference to Exhibit 10(i) to
the Company's Annual Report on Form 10-K for the year
ended December 31, 1993).
10(d) Exchange Offer and Registration Rights Agreement dated as
of March 15, 1991 made by the Company in favor of those
persons participating in the Company's exchange offers
(incorporated by reference to Exhibit 10(j) to the
Company's Annual Report on Form 10-K/A Amendment #2 for
the year ended December 31, 1993).
10(e) Employment Agreement between Company and Salvatore J.
Zizza dated August 22, 1994 (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K
filed with the Securities and Exchange Commission in
September 1994).
10(f) Options of Mr. Zizza to purchase an aggregate of
10,250,000 shares of Common Stock of the Company
(incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
E-2
10(g) Registration Rights Agreement dated as of August 22, 1994
between Mr. Zizza and the Company (incorporated by
reference to Exhibit 10.3 to the Company's Current Report
on Form 8-K filed with the Securities and Exchange
Commission in September 1994).
10(h) Consulting Agreement dated as of August 22, 1994 between
Dominic Bassani and the Company (incorporated by
reference to Exhibit 10.4 to the Company's Current Report
on Form 8-K filed with the Securities and Exchange
Commission in September 1994).
10(i) Warrants of Mr. Bassani to purchase an aggregate of
7,750,000 shares of Common Stock of the Company
(incorporated by reference to Exhibit 10.5 to the
Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
10(j) Registration Rights Agreement dated as of August 22, 1994
between Mr. Bassani and the Company (incorporated by
reference to Exhibit 10.6 to the Company's Current Report
on Form 8-K filed with the Securities and Exchange
Commission in September 1994).
10(k) Form of Registration Rights Agreement dated as of August
22, 1994 among the Company and the investors in the
Private Placement (incorporated by reference to Exhibit
10.7 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission in September
1994).
10(l) Warrant of Goldis Financial Group, Inc. to purchase an
aggregate of 386,250 shares of Common Stock of the
Company (incorporated by reference to Exhibit 10.8 to the
Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
10(m) Employment Agreement between the Company and Robert A.
Bruno dated January 1, 1995.
10(n) Subordinated debenture dated March 28, 1996 between the
Company and Macrocom Investors, LLC.
21 Subsidiaries of the Company.
27 Financial Data Schedule to the Company's 10-K for the
year ended December 31, 1995.
The Company will provide a copy of any of the exhibits included in this Annual
Report on Form 10-K upon written request and payment of a fee to cover the
reasonable expense of furnishing such exhibits to The Lehigh Group Inc., 810
Seventh Avenue, New York, New York, 10019, Attention: Secretary (Telephone:(212)
333-2620).
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