As filed with the Securities and Exchange Commission on September 13, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE LEHIGH GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 5063 13-1920670
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification
Number)
THE LEHIGH GROUP INC.
810 SEVENTH AVENUE
27TH FLOOR
NEW YORK, NEW YORK 10019
(212) 333-2620
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------------------------------
SALVATORE J. ZIZZA
THE LEHIGH GROUP INC.
810 SEVENTH AVENUE
27TH FLOOR
NEW YORK, NEW YORK 10019
(212) 333-2620
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------------------
Copies to:
ROBERT A. BRUNO ILAN K. REICH, ESQ.
THE LEHIGH GROUP INC. OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP
810 SEVENTH AVENUE 505 PARK AVENUE
27TH FLOOR NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10019 (212) 753-7200
(212) 333-2620
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. o
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Proposed Maximum
Title of Each Class of Amount to be Proposed Maximum Aggregate Offering Amount of
Securities to be Registered Registered Offering Price Per Share Price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock 22,954,529 $0.469 $10,765,674 $3,713
==================================================================================================================================
(1) Based on the closing price of Lehigh common stock on the New York Stock
Exchange on September 11, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
THE LEHIGH GROUP INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING THE LOCATION
OF INFORMATION REQUIRED BY PART I OF FORM S-4
ITEM NO. CAPTION LOCATION OR CAPTION IN PROSPECTUS
- -------- ------- ---------------------------------
Item 1 Forepart of Registration Statement and Outside Front Cover Page
Outside Front Cover Page of Prospectus
Item 2 Inside Front and Outside Back Cover Inside Front Cover Page; Table of
Pages of Prospectus Contents; Available Information
Item 3 Risk Factors, Ratio of Earnings to Fixed Summary; Special Factors; Business
Charges and Other Information Information Regarding Lehigh and Merger
Sub; Business Information Regarding DHB
Item 4 Terms of the Transaction Proposal No. 1 -- The Merger; Certain
Federal Income Tax Consequences;
Description of Lehigh's Capital Stock;
Comparison of Certain Rights of
Stockholders
Item 5 Pro Forma Financial Information Financial Statements
Item 6 Material Contracts with the Company Not Applicable
Being Acquired
Item 7 Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to Be Underwriters
Item 8 Interests of Named Experts and Counsel Legal Matters; Experts
Item 9 Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
Item 10 Information with Respect to S-3 Not Applicable
Registrants
Item 11 Incorporation of Certain Information by Not Applicable
Reference
Item 12 Information with Respect to S-2 or S-3 Not Applicable
Registrants
Item 13 Incorporation of Certain Information by Not Applicable
Reference
Item 14 Information with Respect to Registrants Summary; Special Factors; Business
Other than S-2 or S-3 Registrants Information Regarding Lehigh and Merger
Sub; Lehigh Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business Information
Regarding DHB; DHB Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Financial Statements
ITEM NO. CAPTION LOCATION OR CAPTION IN PROSPECTUS
- -------- ------- ---------------------------------
Item 15 Information with Respect to S-3 Not Applicable
Companies
Item 16 Information with Respect to S-2 or S-3 Not Applicable
Companies
Item 17 Information with Respect to Companies Not Applicable
Other than S-2 or S-3 Companies
Item 18 Information if Proxies, Consents or Summary; Introduction; Proposal No. 1 --
Authorizations are to be Solicited The Merger; Proposal No. 2 -- The
Certificate Amendments; Proposal No. 3 --
Election of Directors; Proposal No. 4 --
Ratification of Independent Auditors;
Ratification of DHB's Independent
Auditors; Security Ownership of Certain
Beneficial Owners of Lehigh
Item 19 Information if Proxies, Consents or Not Applicable
Authorizations are not to be Solicited,
or in an Exchange Offer
THE LEHIGH GROUP INC.
810 SEVENTH AVENUE
27TH FLOOR
NEW YORK, NEW YORK 10019
September , 1996
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
of The Lehigh Group Inc. ("Lehigh"), which will be held on October __, 1996, at
______________________________________ at ____ Eastern Time (the "Special
Meeting").
At this meeting, you will be asked to consider and vote upon a proposal
(the "Merger Proposal") to approve the proposed merger (the "Merger") of Lehigh
Management Corp., a wholly-owned subsidiary of Lehigh ("Merger Sub") into DHB
Capital Group Inc. ("DHB"), pursuant to an Agreement and Plan of Reorganization
dated as of July 8, 1996 and the related Agreement of Merger (together, the
"Merger Agreement") among Lehigh, DHB and Merger Sub.
If the Merger Proposal is approved by stockholders, immediately prior
to the effectiveness of the Merger, Lehigh will be obligated to effect a 21.845
to 1 reverse stock split, thereby reducing the number of outstanding shares of
the Common Stock, $.001 par value, of Lehigh (the "Lehigh Common Stock") from
approximately 10.4 million shares to approximately 470,000 shares (the "Reverse
Stock Split"). Approval of the Merger Proposal shall constitute approval of the
Reverse Stock Split. In the Merger each share of the Common Stock of DHB (the
"DHB Common Stock") would be exchanged for one post- reverse-split share of
Lehigh Common Stock. As a result of these actions, immediately following the
Merger, current Lehigh stockholders will own 3% and DHB stockholders will own
97% of Lehigh.
You will also be asked at the Special Meeting to vote on: (1) the
adoption of amendments to the Restated Certificate of Incorporation of Lehigh,
which will amend the current Certificate of Incorporation by: (A) changing the
name of the corporation from "The Lehigh Group Inc." to "The DHB Group, Inc." in
accordance with the terms of the Merger Agreement; (B) eliminating cumulative
voting for directors; (C) eliminating action by stockholders by written consent;
(D) fixing the number of members of the Board of Directors at between six and
nine, as determined from time-to-time by the Board of Directors; and (E)
requiring any further amendment to the provisions of the Certificate of
Incorporation addressed by items (B) through (D) to require the vote of the
holders of at least 60% of the outstanding shares of Lehigh Common Stock
(collectively, the "Certificate Amendments"); (2) the election of eight
directors to the Board of Directors; (3) ratification of the appointment of BDO
Seidman, LLP as the independent certified public accountants for Lehigh for the
fiscal year ending December 31, 1996; and (4) such other business as may
properly come before the Special Meeting or any adjournments thereof.
The accompanying Joint Proxy Statement/Prospectus provides detailed
information concerning the Merger and certain additional information. You are
urged to read and carefully consider this information.
THE BOARD OF DIRECTORS BELIEVES THAT THE MERGER AND THE MERGER
AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, LEHIGH. THE BOARD OF
DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, AND RECOMMENDS THAT YOU
VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
All stockholders are invited to attend the Special Meeting in person.
Approval of the Merger Proposal requires the affirmative vote of a majority of
the votes cast by all stockholders represented and entitled to vote thereon.
Adoption of the Certificate Amendments eliminating cumulative voting for
directors and fixing the number of directors at between six and nine requires
the affirmative vote of the holders of a majority of the outstanding shares of
Lehigh common stock or 80% of such shares voting at the Special Meeting,
whichever is greater. Adoption of the other Certificate Amendments requires the
affirmative vote of a majority of the outstanding shares of Lehigh Common Stock.
The election of directors requires the affirmative vote of a plurality of the
votes cast by all stockholders represented and entitled to vote thereon. As of
the Record Date for the Special Meeting, DHB is the beneficial owner of
6,000,000 shares of Lehigh Common Stock which represents approximately 37% of
the issued and
outstanding Lehigh Common Stock. DHB is contractually obligated to vote those
shares in accordance with the recommendation of Lehigh's Board of Directors.
Because of the significance of the proposed transaction to Lehigh, your
participation in the Special Meeting, in person or by proxy, is especially
important.
In order that your shares may be represented at the Special Meeting,
you are urged to complete, sign, date and return promptly the accompanying Proxy
in the enclosed envelope, whether or not you plan to attend the Special Meeting.
If you attend the Special Meeting in person, you may, if you wish, vote
personally on all matters brought before the Special Meeting even if you have
previously returned your Proxy.
Sincerely,
/s/ Salvatore J. Zizza
----------------------
Salvatore J. Zizza
President and Chief Executive Officer
DHB CAPITAL GROUP INC.
11 OLD WESTBURY ROAD
OLD WESTBURY, NEW YORK 11568
September , 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(in lieu of this year's Annual Meeting) of DHB Capital Group Inc. ("DHB"), which
will be held on October ____, 1996, at ________________________________ at
________ Eastern Time (the "Special Meeting").
At this meeting, you will be asked to consider and vote upon a proposed
merger (the "Merger") involving DHB and The Lehigh Group Inc. ("Lehigh"),
pursuant to which Lehigh Management Corp., a wholly-owned subsidiary of Lehigh
("Merger Sub") will be merged with and into DHB, with DHB being the surviving
corporation. Upon consummation of the Merger, DHB will become a wholly-owned
subsidiary of Lehigh (which is voting on a proposal to change its name to "The
DHB Group, Inc."), and stockholders of DHB will receive 97% of the common stock
of Lehigh immediately following the Merger.
THE BOARD OF DIRECTORS BELIEVES THAT THE TRANSACTIONS CONTEMPLATED BY
THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, DHB AND ITS
STOCKHOLDERS. THE BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
All stockholders are invited to attend the Special Meeting in person.
Approval of the Merger requires the affirmative vote of a majority of the
outstanding shares of common stock of DHB. As a stockholder of DHB holding
approximately 60% of the common stock of DHB, I will be voting in favor of the
transaction.
The accompanying Joint Proxy Statement/Prospectus provides detailed
information concerning the Merger and certain additional information. You are
urged to read and carefully consider this information.
In order that your shares may be represented at the Special Meeting,
you are urged promptly to complete, sign, date and return the accompanying Proxy
in the enclosed envelope, whether or not you plan to attend the Special Meeting.
If you attend the Special Meeting in person, you may, if you wish, vote
personally on all matters brought before the Special Meeting even if you have
previously returned your Proxy.
Sincerely,
/s/ David H. Brooks
-------------------
David H. Brooks
Chairman and Chief Executive Officer
THE LEHIGH GROUP INC.
810 SEVENTH AVENUE
27TH FLOOR
NEW YORK, NEW YORK 10019
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on October ___, 1996
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders of The
Lehigh Group Inc. ("Lehigh") will be held on October ___, 1996, at
_____________________________ at ____ __.m., Eastern Time (the "Special
Meeting"), for the following purposes:
1. To consider and to vote on a proposal (the "Merger Proposal") to
approve the proposed merger (the "Merger") of Lehigh Management Corp., a
Delaware corporation and a wholly-owned subsidiary of Lehigh ("Merger Sub"),
with and into DHB Capital Group Inc. ("DHB"), pursuant to an Agreement and Plan
of Reorganization dated as of July 8, 1996 and the related Agreement of Merger
(together, the "Merger Agreement"), among Lehigh, DHB and Merger Sub, a copy of
which is attached to the accompanying Joint Proxy Statement/Prospectus as
Appendix A. Approval of the Merger shall constitute approval of a 21.845 to 1
reverse stock split of the Lehigh common stock to be effected immediately prior
to the effectiveness of the Merger.
2. To approve the adoption of amendments to the Restated Certificate of
Incorporation of Lehigh which will amend the current Certificate of
Incorporation by: (A) changing the name of the corporation from "The Lehigh
Group Inc." to "DHB Group Inc." in accordance with the terms of the Merger
Agreement; (B) eliminating cumulative voting for directors; (C) eliminating
action by stockholders by written consent; (D) fixing the number of members of
the Board of Director at between six and nine, as determined from time-to-time
by the Board of Directors; and (E) requiring any further amendment to the
provisions of the Certificate of Incorporation addressed by items (B) through
(D) to require the vote of the holders of at least 60% of the outstanding shares
of Lehigh Common Stock (collectively, the "Certificate Amendments").
3. To elect eight directors of Lehigh to serve for a one year term and
until their successors are elected and qualify;
4. To confirm the appointment of BDO Seidman, LLP as the independent
certified public accountants for Lehigh for the year ending December 31, 1996;
and
5. To transact such other business as may properly come before the
meeting.
The foregoing items of business are more fully described in the Joint
Proxy Statement/Prospectus accompanying this Notice.
Only stockholders of record at the close of business on September ___,
1996 are entitled to notice of, and to vote at, the meeting and any adjournments
thereof.
All stockholders are invited to attend the Special Meeting in person.
Approval of the Merger Proposal requires the affirmative vote of a majority of
the votes cast by all stockholders represented and entitled to vote thereon.
Adoption of the Certificate Amendments eliminating cumulative voting for
directors and fixing the number of directors at between six and nine requires
the affirmative vote of the holders of a majority of the outstanding shares of
Lehigh common stock or 80% of such shares voting at the Special Meeting,
whichever is greater. Adoption of the other Certificate Amendments requires the
affirmative vote of a majority of the outstanding shares of Lehigh common stock.
The election of directors requires the affirmative vote of a plurality of the
votes cast by all stockholders represented and entitled to vote thereon. As of
the Record Date for the Special Meeting, DHB is the beneficial owner of
6,000,000 shares of Lehigh common stock which represents approximately 37% of
the issued and outstanding shares of Lehigh common stock. DHB is contractually
obligated to vote those shares in accordance with the recommendation of Lehigh's
Board of Directors.
THE BOARD OF DIRECTORS OF LEHIGH RECOMMENDS THAT STOCKHOLDERS VOTE TO
APPROVE THE MERGER PROPOSAL AND THE OTHER MATTERS TO BE PRESENTED AT THE SPECIAL
MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Robert A. Bruno
-------------------
Robert A. Bruno
Secretary
New York, New York
September __, 1996
YOUR VOTE IS IMPORTANT
To ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. To revoke a proxy, you must
submit to the Secretary of Lehigh prior to voting, either a signed instrument of
revocation or a duly executed proxy bearing a date or time later than the proxy
being revoked. If you attend the meeting, you may vote in person even if you
previously returned a proxy.
DHB CAPITAL GROUP INC.
11 OLD WESTBURY ROAD
OLD WESTBURY, NEW YORK 11568
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
IN LIEU OF ANNUAL MEETING
To Be Held on October ___, 1996
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of DHB
Capital Group Inc. ("DHB") will be held on October ___, 1996, at
______________________________ at _____ Eastern Time for the following purposes:
1. To consider and vote upon the approval and adoption of an Agreement
and Plan of Merger dated as of June 8, 1996 and the related Agreement of Merger
(together, the "Merger Agreement") among DHB, The Lehigh Group Inc. ("Lehigh")
and Lehigh Management Corp., a Delaware corporation and a wholly-owned
subsidiary of Lehigh ("Merger Sub"). A copy of the Merger Agreement is set forth
as Appendix A to the attached Joint Proxy Statement/Prospectus. The Merger
Agreement provides for, among other things, the proposed merger (the "Merger")
of Merger Sub with and into DHB, with DHB to be the surviving corporation; and
2. Ratification of the appointment of Capraro, Centofranchi, Kramer &
Co., P.C. as the independent certified public accountants for DHB for the fiscal
year ending December 31, 1996.
3. To transact such other business as may properly come before the
meeting.
The foregoing items of business are more fully described in the Joint
Proxy Statement/Prospectus accompanying this Notice.
Only stockholders of record at the close of business on September __,
1996 are entitled to notice of, and to vote at, the meeting and any adjournments
thereof.
Approval of the Merger and the Merger Agreement requires the
affirmative vote of a majority of the outstanding shares of DHB common stock.
THE BOARD OF DIRECTORS OF DHB RECOMMENDS THAT STOCKHOLDERS VOTE TO
APPROVE THE MERGER AND THE MERGER AGREEMENT.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Mary Kreidell
-----------------
Mary Kreidell
Secretary
Old Westbury, New York
September ___, 1996
YOUR VOTE IS IMPORTANT
To ensure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. To revoke a proxy, you must
submit to the Secretary of DHB, prior to voting, either a signed instrument of
revocation or a duly executed proxy bearing a date or time later than the proxy
being revoked. If you attend the meeting, you may vote in person even if you
previously returned a proxy.
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION........................................................2
SUMMARY ....................................................................3
The Companies.......................................................3
Meetings of Stockholders of Lehigh and DHB..........................3
The Merger..........................................................4
Price Range of Common Stock.........................................8
SPECIAL FACTORS..............................................................9
Special Factors Related to Lehigh...................................9
Special Factors Relating to DHB....................................10
The Business of the Armor Group of DHB.............................10
Other Business Activities of DHB...................................12
The Management of DHB..............................................13
INTRODUCTION................................................................14
Meetings of Stockholders...........................................14
Purpose of Meetings................................................14
Voting Requirements at Meetings....................................15
Proxies ..........................................................16
PROPOSAL NO. 1 -- THE MERGER................................................17
General ..........................................................17
Background to the Merger...........................................17
Lehigh Reasons For the Merger; Recommendation of the Lehigh Board..19
DHB Reasons for the Merger; Recommendation of the DHB Board........20
Federal Income Tax Consequences....................................21
Accounting Treatment...............................................21
Interests of Certain Members of Lehigh and DHB Management
in the Merger.....................................................21
Management After the Merger........................................21
Stock Options......................................................22
No Appraisal Rights................................................22
Trading Market.....................................................23
Effective Time.....................................................23
The Merger.........................................................23
Exchange of Shares.................................................23
Fractional Shares..................................................24
Registration and Listing of Share Consideration....................25
Representations and Warranties.....................................25
Covenants..........................................................25
No Solicitation; Transaction Moratorium............................25
Access to Information..............................................26
Additional Covenants...............................................26
Conditions to the Merger...........................................26
Termination and Termination Expenses...............................26
Indemnification....................................................27
Governmental and Regulatory Approvals..............................27
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.....................................28
Consequences to Lehigh and DHB.....................................28
Consequences to Lehigh and DHB Stockholders........................28
Limitations on Description.........................................28
PROPOSAL NO. 2 -- THE CERTIFICATE AMENDMENTS................................30
Part A -- Changing the Name of the Corporation from
"The Lehigh Group Inc." to "The DHB Group, Inc."....30
TABLE OF CONTENTS (cont'd)
Part B -- Eliminating Cumulative Voting for Directors..............30
Part C -- Eliminating Action by Stockholders by Written Consent....32
Part D -- Fixing the Number of Directors at between Six and Nine...33
Part E -- Requiring any Further Amendment to the
Provisions of the Certificate of Incorporation
addressed by Parts (B) through (D) to Require
the Vote of the holders of at Least 60% of the
Outstanding Shares of Lehigh Common
Stock.................................................33
PROPOSAL NO. 3 -- ELECTION OF DIRECTORS.....................................34
PROPOSAL NO 4 -- RATIFICATION OF INDEPENDENT AUDITORS.......................46
RATIFICATION OF DHB'S INDEPENDENT AUDITORS..................................46
BUSINESS INFORMATION REGARDING LEHIGH AND MERGER SUB .......................48
Lehigh ..........................................................48
Merger Sub.........................................................50
LEHIGH MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................51
Results of Operations..............................................51
DESCRIPTION OF LEHIGH'S CAPITAL STOCK.......................................55
BUSINESS INFORMATION REGARDING DHB..........................................57
Declaration of 50% Stock Dividend..................................57
Ballistic-Resistant Equipment......................................57
Protective Athletic Equipment......................................58
Orthopedic Products................................................58
DHB MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................. 60
DESCRIPTION OF DHB'S CAPITAL STOCK..........................................65
DHB Common Stock...................................................65
Preferred Shares...................................................65
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS................................67
Election and Removal of Directors..................................67
Quorum at Meetings of Stockholders.................................67
Special Meetings of Stockholders...................................67
Action of Stockholders by Written Consent..........................68
Amendment of Certificate of Incorporation..........................68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF LEHIGH...................69
LEGAL MATTERS...............................................................72
EXPERTS ...................................................................72
FINANCIAL STATEMENTS.......................................................F-1
APPENDIX A: MERGER AGREEMENT..............................................A-1
JOINT PROXY STATEMENT/PROSPECTUS
THE LEHIGH GROUP INC. DHB CAPITAL GROUP INC.
PROXY STATEMENT FOR SPECIAL PROXY STATEMENT FOR SPECIAL
MEETING OF STOCKHOLDERS MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER __, 1996 IN LIEU OF ANNUAL MEETING
TO BE HELD ON OCTOBER __, 1996
THE LEHIGH GROUP INC.
PROSPECTUS FOR COMMON STOCK
This Joint Proxy Statement/Prospectus and the accompanying forms of
proxy are being furnished in connection with the solicitation of proxies by the
Boards of Directors of The Lehigh Group Inc., a Delaware corporation ("Lehigh"),
and DHB Capital Group Inc., a Delaware corporation ("DHB"), to be used at the
Special Meeting of Stockholders of Lehigh to be held on October __, 1996 at
______ Eastern Time at _______________, (the "Lehigh Meeting"), and the Special
Meeting of Stockholders of DHB to be held on October __, 1996 at __________,
Eastern Time at _____________ (the "DHB Meeting" and, together with the Lehigh
Meeting, the "Meetings"). This Joint Proxy Statement/Prospectus and the
accompanying forms of proxy are first being mailed to stockholders of each of
Lehigh and DHB on or about September __, 1996.
At the Lehigh Meeting the stockholders of Lehigh, and at the DHB
Meeting the stockholders of DHB, will consider and vote on Proposal No. 1 (the
"Merger Proposal") -- to approve and adopt the Agreement and Plan of
Reorganization, dated as of July 8, 1996 and the related Agreement of Merger
(together, the "Merger Agreement"), among Lehigh, DHB and Lehigh Management
Corp., a Delaware corporation and a wholly-owned subsidiary of Lehigh ("Merger
Sub"). The Merger Agreement provides for the merger (the "Merger") of Merger Sub
with and into DHB, with DHB to be the surviving corporation (the "Surviving
Corporation"). If the Merger Proposal is approved by stockholders of both Lehigh
and DHB, immediately prior to the effectiveness of the Merger, Lehigh will be
obligated to effect a 21.845 to 1 reverse stock split, thereby reducing the
number of outstanding shares from approximately 10.4 million shares to
approximately 470,000 shares (the "Reverse Stock Split"). Approval of the Merger
Proposal shall constitute approval of the Reverse Stock Split. In the Merger,
each share of the Common Stock, $.001 par value, of DHB (the "DHB Common Stock")
would be exchanged for one post-reverse- split share of the Common Stock, $.001
par value, of Lehigh (the "Lehigh Common Stock"). In accordance with the Merger
Agreement, in exchange for all of the issued and outstanding capital stock of
the Surviving Corporation, Lehigh shall issue to DHB's stockholders shares (the
"Shares") of Lehigh Common Stock that would equal 97% of the total issued and
outstanding Lehigh Common Stock upon consummation of the Merger. Immediately
following the Reverse Stock Split and the Merger, existing Lehigh stockholders
would own 3% of the outstanding Lehigh Common Stock.
At the Lehigh Meeting, the stockholders of Lehigh will also vote on:
Proposal No. 2 -- the adoption of amendments to the Restated Certificate of
Incorporation of Lehigh, which will amend the current Certificate of
Incorporation by: (A) changing the name of the corporation from "The Lehigh
Group Inc." to "The DHB Group, Inc." in accordance with the terms of the Merger
Agreement; (B) eliminating cumulative voting for directors; (C) eliminating
action by stockholders by written consent; (D) fixing the number of members of
the Board of Directors at between six and nine, as determined from time to time
by the Board of Directors; and (E) requiring any further amendment to the
provisions of the Certificate of Incorporation addressed by items (B) through
(D) to require the vote of the holders of at least 60% of the outstanding shares
of Lehigh Common Stock (collectively, the "Certificate Amendments"); Proposal
No. 3 -- the election of eight directors to the Board of Directors; and Proposal
No. 4 -- ratification of the appointment of BDO Seidman, LLP as the independent
certified public accountants for Lehigh for the fiscal year ending December 31,
1996.
Also at the DHB Meeting, the stockholders of DHB will consider and vote
upon the ratification of the appointment of Capraro, Centofranchi, Kramer & Co.,
P.C. as the independent certified public accountants for DHB for the fiscal year
ending December 31, 1996.
STOCKHOLDERS OF LEHIGH AND DHB SHOULD CAREFULLY CONSIDER THIS
JOINT PROXY STATEMENT/PROSPECTUS IN ITS ENTIRETY, PARTICULARLY THE
FACTORS DISCUSSED UNDER THE HEADING "SPECIAL FACTORS" AT PAGE 9.
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Joint Proxy Statement/Prospectus is September __, 1996.
--------------------
This Joint Proxy Statement/Prospectus also serves as a Prospectus of
Lehigh under the Securities Act of 1933, as amended (the "Securities Act"),
relating to the shares of Lehigh Common Stock issuable in the Merger.
No person is authorized to give any information or to make any
representation other than those contained in this Joint Proxy
Statement/Prospectus, and if given or made, such information or representation
should not be relied upon as having been authorized. This Joint Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to purchase, the securities offered by this Joint Proxy
Statement/Prospectus, or the solicitation of a proxy, in any jurisdiction in
which such offer or solicitation may not lawfully be made. Neither the delivery
of this Joint Proxy Statement/Prospectus nor any distribution of securities
pursuant to this Joint Proxy Statement/Prospectus shall, under any
circumstances, create an implication that there has been no change in the
information set forth herein since the date of this Joint Proxy
Statement/Prospectus.
AVAILABLE INFORMATION
Lehigh and DHB are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith each company files reports and other information with the
Securities and Exchange Commission (the "SEC"). Reports and other information
filed by each of Lehigh and DHB can be inspected and copied at the public
reference facilities at the SEC's office at 450 Fifth Street, N.W., Washington,
D.C. 20549, at the SEC's Regional Office at Seven World Trade Center, New York,
New York 10048 and at the SEC's Regional Office at Citicorp Center, 500 W.
Madison Street, Chicago, Illinois 60621. Copies of such material can be obtained
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such material and other information
concerning DHB can be inspected and copied at the offices of The National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006. Such material and other information concerning Lehigh can be inspected
and copied at the offices of the New York Stock Exchange, 20 Broad Street, Inc.,
New York, New York 10005. Such material may also be accessed electronically by
means of the SEC's home page on the Internet at http://www.sec.gov.
Lehigh has filed with the SEC a Registration Statement on Form S-4 (the
"Registration Statement") under the Securities Act covering the securities
described herein. This Joint Proxy Statement/Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the SEC. Statements
contained herein or incorporated herein by reference concerning the provisions
of documents are summaries of such documents, and each statement is qualified in
its entirety by reference to the applicable document if filed with the SEC or
attached as an appendix hereto. For further information, reference is hereby
made to the Registration Statement and the exhibits filed therewith. The
Registration Statement and any amendments thereto, including exhibits filed as a
part thereof, are available for inspection and copying as set forth above.
2
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Joint Proxy Statement/Prospectus. This Summary does not
contain a complete statement of all material features of the proposals to be
voted on and is qualified in its entirety by the more detailed information
appearing elsewhere in this Joint Proxy Statement/Prospectus and in the
Appendices annexed hereto.
THE COMPANIES
Lehigh..................... Lehigh (formerly The LVI Group Inc.) 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.
See "Business Information Regarding Lehigh and
Merger Sub."
DHB....................... DHB, through various subsidiaries, is engaged in:
(i) the manufacture and distribution of
ballistic-resistant equipment and apparel and
related products used by police and other
law-enforcement and security personnel; (ii) the
manufacture and distribution of protective athletic
equipment and apparel, such as elbow, breast, hip,
groin, knee, shin and ankle supports, and wrist,
elbow, groin and knee braces; and (iii) the
orthopedic products business.
DHB was originally incorporated as a New York
corporation in 1992. Effective April 17, 1995 (the
"Reincorporation Date"), DHB was reincorporated
(the "Reincorporation") in Delaware. Any reference
in this Joint Proxy Statement/Prospectus to DHB for
any period ending prior to the Reincorporation Date
includes the New York corporation. See "Business
Information Regarding DHB."
MEETINGS OF STOCKHOLDERS OF LEHIGH AND DHB
Time, Date, Place and
Purposes................ The Lehigh Special Meeting will be held on October
__, 1996 at _________, Eastern Time, at
_______________________.
The DHB Special Meeting will be held on October __,
1996 at _________, Eastern Time, at
__________________________.
At the Meetings, Lehigh and DHB stockholders will
be asked to consider and vote upon proposals to
approve the Merger Agreement, a copy of which is
attached hereto as Appendix A. Lehigh stockholders
will also be asked to consider certain charter
amendments and the election of eight directors. See
"Introduction -- Meetings of Stockholders and --
Purpose of Meetings."
3
Record Date, Vote Required. The record date for stockholders of Lehigh and DHB
entitled to vote upon the Merger is September __,
1996 (the "Record Date"). Approval of the Merger
Proposal by the Lehigh stockholders requires the
affirmative vote of a majority of the votes cast by
all stockholders represented and entitled to vote
thereon. Approval of the Merger Proposal by the DHB
stockholders requires the affirmative vote of the
holders of a majority of the outstanding shares of
DHB's Common Stock. If the Merger is not approved
by the stockholders of both Lehigh and DHB, neither
the Merger not the Reverse Stock Split will be
effected and the current directors of Lehigh and
DHB will continue to serve. The presence, either in
person or by properly executed proxy, at the
Meetings of the holders of a majority of the
outstanding shares entitled to vote at each such
Meeting is necessary to constitute a quorum at each
such Meeting.
For the effect of abstentions and "broker
non-votes," see "Introduction-- Voting Requirements
at Meetings."
THE MERGER
Effect of the Merger....... If the Merger is approved by the stockholders of
Lehigh and DHB and other conditions to closing
specified in the Merger Agreement are satisfied or
waived, then Merger Sub will be merged with and
into DHB, with DHB being the surviving corporation
of the Merger. The surviving corporation will
continue to be a wholly-owned subsidiary of Lehigh
whose name will be changed to "The DHB Group, Inc."
On the Effective Date of the Merger, DHB will
continue to possess all of its assets and
liabilities, and the separate corporate existence
of Merger Sub will cease. See "Proposal No. 1 --
The Merger."
Effective Date of the
Merger.................. The Merger shall become effective (the "Effective
Time") when the following actions shall have been
completed: (i) the Merger Agreement shall have been
adopted and approved by the stockholders of each of
Lehigh, DHB and Merger Sub (ii) all conditions
precedent to the consummation of the Merger
specified in the Merger Agreement shall have been
satisfied or duly waived by the party entitled to
satisfaction; and (iii) a Certificate of Merger
shall have been filed with the Secretary of State
of Delaware, all of which must occur on or before
December 15, 1996. See "Proposal No. 1 -- The
Merger."
4
Terms of the Merger....... The Merger Agreement provides that immediately
prior to the Effective Time, Lehigh would effect a
21.845 to 1 reverse stock split, reducing the
number of outstanding shares of the Common Stock,
$.001 par value (the "Lehigh Common Stock"), from
approximately 10.4 million shares to approximately
470,000 shares. In the Merger each share of DHB
Common Stock would be exchanged for one
post-reverse-stock split share of Lehigh Common
Stock. As a result, immediately following the
Merger, current Lehigh stockholders will own
approximately 3% and DHB stockholders will own
approximately 97% of Lehigh Common Stock. See
"Proposal No. 1 -- The Merger."
The Board of Directors
and Management of Lehigh
Following Consummation
of the Merger;
Change of Control....... Upon consummation of the Merger, only three of the
eight members of the Board of Lehigh will be
current directors of Lehigh, and Mr. David H.
Brooks, currently the Chairman of the Board and
Chief Executive Officer of DHB, will be the Chief
Executive Officer of Lehigh (which will be renamed
"The DHB Group, Inc."), thereby effectively causing
a change of control of Lehigh. Mary Kreidell,
currently Chief Financial Officer, Treasurer,
Secretary and a Director of DHB, will become Chief
Financial Officer, Treasurer and a Director of
Lehigh.
Mr. Salvatore J. Zizza, the Chairman and Chief
Executive Officer of Lehigh, will become President
and Chief Operating Officer, and Mr. Robert A.
Bruno, Esq., Vice President and General Counsel of
Lehigh, will continue in that position. Both
Messrs. Zizza and Bruno have entered into new
employment agreements which will become effective
upon completion of the Merger. See "Proposal No. 3
-- Election of Directors."
Exchange of Shares........ Before the Effective Date of the Merger, Lehigh
will appoint an agent (the "Exchange Agent") for
the purpose of exchanging certificates representing
DHB Common Stock for certificates representing
Lehigh Common Stock. Lehigh will deposit with the
Exchange Agent, for the benefit of holders of DHB
Common Stock, certificates representing shares of
Lehigh Common Stock issuable pursuant to the Merger
Agreement in exchange for shares of DHB Common
Stock evidencing the right to receive one share of
Lehigh Common Stock for each share of DHB Common
Stock. Promptly after the Effective Date of the
Merger the Exchange Agent will send to each holder
of DHB Common Stock a letter of transmittal to be
used in such exchange. See "Proposal No. 1 -- The
Merger."
5
Conditions to the Merger;
Termination............. The parties' obligations to consummate the Merger
are subject to their respective stockholders
approval and a number of other conditions, each of
which may be waived either before or after the
Meetings. Such other conditions include that, on or
before the Effective Time: no action, lawsuit or
other proceeding shall have been instituted which
seeks to or does prohibit or restrain consummation
of the Merger; and there shall not have been any
material adverse change affecting either Lehigh or
DHB since July 8, 1996. The Merger Agreement may be
terminated at any time before the Effective Time,
whether before or after the Meetings, by the mutual
written consent of the parties, by any party if it
is not willing to waive a condition that another
party cannot satisfy by the Effective Time, or by
any party if the Merger is not consummated by
December 15, 1996 for any reason other than a
breach by the party giving such notice. See
"Proposal No. 1 -- The Merger."
Recommendation of the
Boards of Directors of
Lehigh and DHB.......... The Board of Directors of each of Lehigh and DHB
has approved the Merger Agreement and the
transactions contemplated thereby. THE BOARDS OF
DIRECTORS OF LEHIGH AND DHB RECOMMEND APPROVAL OF
THE MERGER AGREEMENT BY THE STOCKHOLDERS OF EACH OF
LEHIGH AND DHB RESPECTIVELY. For a discussion of
the reasons favoring the Merger considered by the
Boards of Directors in approving the Merger, see
"Proposal No. 1 -- The Merger."
Significant Stockholders'
Voting Intentions....... Mr. David H. Brooks, the Chairman of the Board and
Chief Executive Officer of DHB, who holds
approximately 60% of the outstanding DHB Common
Stock, and DHB, which holds approximately 37% of
the outstanding Lehigh Common Stock, have both
indicated that they will vote their ownership
interests at the DHB Meeting and the Lehigh
Meeting, respectively, in favor of the Merger
Proposal. In addition, certain officers, directors
and other stockholders of Lehigh, who together hold
approximately __% of the Lehigh Common Stock, have
indicated that they will be voting in favor of the
Merger Proposal. See "Proposal No. 1 -- The
Merger."
Opinion of Financial
Advisor................. Neither Lehigh nor DHB has requested or obtained
the opinion of any financial advisor in connection
with the Merger. See "Proposal No. 1 -- The Merger
-- Lehigh Reasons for the Merger; Recommendation of
the Lehigh Branch" and "-- DHB Reasons for the
Merger; Recommendation of the DHB Branch."
6
Governmental and
Regulatory Approvals.... Neither Lehigh nor DHB believes that any government
or regulatory approvals are required for
consummation of the Merger, other than compliance
with applicable securities laws and the filing of
the Certificate of Merger under Delaware law. See
"Proposal No. 1 -- The Merger."
Certain United States
Federal Income Tax
Consequences............. See "Certain Federal Income Tax Consequences" for a
discussion of the treatment of the Merger and the
Reverse Stock Split for federal income tax
purposes.
Accounting Treatment....... Both Lehigh and DHB intend to treat the Merger as a
"purchase" of Lehigh by DHB for accounting and
financial reporting purposes. See "Unaudited Pro
Forma Combined Financial Statements" in the
Financial Statements portion of this Joint Proxy
Statement/Prospectus.
Appraisal Rights........... The stockholders of Lehigh and DHB will not have
any appraisal rights in connection with the Merger.
See "Proposal No. 1 -- The Merger."
7
PRICE RANGE OF COMMON STOCK
The following table reflects (i) the range of the reported high and low
closing or last sale prices of Lehigh Common Stock on the NYSE Composite Tape
and (ii) the range of the reported high and low last sale prices of DHB Common
Stock on the over the counter market (OTC Bulletin Board), in each case for the
calendar quarters indicated. The information in the table and in the following
paragraph has been adjusted to reflect retroactively all applicable stock splits
and stock dividends.
LEHIGH COMMON STOCK DHB COMMON STOCK
------------------- ----------------
HIGH LOW HIGH LOW
---- --- ---- ---
1993:
First quarter...................... $1-5/8 $ 7/8
Second quarter..................... 1-1/8 5/8
Third quarter...................... 15/16 9/16
Fourth quarter..................... 7/8 9/16 $5-1/2 $ 1-1/3
1994:
First quarter...................... $1-1/4 $ 5/8 $3-1/2 $ 1-2/3
Second quarter..................... 7/8 5/8 3 1-1/2
Third quarter...................... 5/8 5/8 2-1/3 1-1/2
Fourth quarter..................... 7/8 5/8 3-1/4 1-1/3
1995:
First quarter...................... $ 3/4 $ 5/8 $2-1/2 $1-11/12
Second quarter..................... 5/8 3/8 3-3/4 1-11/12
Third quarter...................... 1/2 5/8 4 2-11/12
Fourth quarter..................... 33/64 13/16 3-1/6 2-11/12
1996:
First quarter...................... $11/16 $7/16 $2-3/4 $2
Second quarter..................... 9/16 3/8 6-2/3 2-2/3
Third quarter (through
September __, 1996)................
On June 10, 1996, the last full trading day prior to the execution and
public announcement of the letter of intent, the closing price of the Lehigh
Common Stock was $.50 per share and the last sale price of the DHB Common Stock
was $3.92 per share, as reported on the NYSE Composite Tape and the OTC Bulletin
Board, respectively. On July 8, 1996, the last day before the public
announcement of the execution of the Merger Agreement, the closing price of the
Lehigh Common Stock was $.57 per share and the last sale price of the DHB Common
Stock was $6.33 per share, as reported on the NYSE Composite Tape and the OTC
Bulletin Board, respectively. On September __, 1996, the most recent practicable
date prior to the mailing of this Joint Proxy Statement/Prospectus the last sale
prices of Lehigh Common Stock and DHB Common Stock were $___ per share and $___
per share, respectively, as reported on the NYSE Composite Tape and the OTC
Bulletin Board, respectively. Lehigh and DHB stockholders are encouraged to
obtain current market quotations.
Neither Lehigh nor DHB has paid any cash dividends since January 1,
1993.
8
SPECIAL FACTORS
HOLDERS OF LEHIGH AND DHB COMMON STOCK SHOULD CONSIDER CAREFULLY ALL OF
THE INFORMATION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS INCLUDING THE
INFORMATION IN THE APPENDIX AND, IN PARTICULAR, SHOULD EVALUATE THE SPECIFIC
FACTORS SET FORTH BELOW FOR RISKS ASSOCIATED WITH THE MERGER AND OWNERSHIP OF
LEHIGH COMMON STOCK. THESE RISK FACTORS SHOULD BE CONSIDERED IN CONJUNCTION WITH
THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS.
SPECIAL FACTORS RELATED TO LEHIGH
Dilution of Ownership of Lehigh Stockholders. Following the Reverse
Stock Split and upon consummation of the Merger, the former stockholders of DHB
as a group will beneficially own 97% of the Lehigh Common Stock and the existing
stockholders of Lehigh will own 3% of Lehigh. This represents substantial
dilution of the ownership interests of Lehigh's current stockholders after
consummation of the Merger.
Control of Lehigh by David H. Brooks. Upon consummation of the Merger,
Mr. David H. Brooks, Chairman and CEO of DHB, will own approximately 58% of
Lehigh's Common Stock. See "Proposal No. 1 -- The Merger -- Management After the
Merger." In addition, assuming the persons nominated as directors in Proposal
No. 3 are elected, only three of the eight members of the Board of Directors of
Lehigh following consummation of the Merger will be current directors of Lehigh.
Accordingly, the former stockholders of DHB as a group, and Mr. Brooks in
particular, will be in a position to control the election of directors and other
corporate matters that require the vote of Lehigh stockholders.
Possible Volatility of Stock Price. Upon consummation of the Merger,
the market price of the Lehigh Common Stock may be highly volatile. In addition,
the trading volume of Lehigh Common Stock on the New York Stock Exchange, Inc.
(the "NYSE") has been limited. Also, the price of Lehigh Common Stock following
consummation of the Merger will be sensitive to the performance and prospects of
the combined companies.
No Dividends. Lehigh has paid no cash dividends on Lehigh Common Stock
and does not anticipate paying cash dividends in the foreseeable future.
Lehigh's ability to pay dividends is dependent upon, among other things, future
earnings, the operating results and financial condition of Lehigh, its capital
requirements, general business conditions and other pertinent factors, and is
subject to the discretion of the Board of Directors. The Board is authorized to
issue, at any time hereafter, up to 5,000,000 shares of preferred stock on such
terms and conditions as it may determine, which may include preferences as to
dividends. Accordingly, there is no assurance that any dividends will ever be
paid on Lehigh Common Stock.
Authorization and Discretionary Issuance of Preferred Stock. Lehigh's
Certificate of Incorporation authorizes the issuance of up to 5,000,000 shares
of "blank check" preferred stock with such designations, rights, and preferences
as may be determined from time to time by the Board of Directors. Accordingly,
the Board of Directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting, or other rights
that could adversely affect the voting power or other rights of the holders of
Lehigh's Common Stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying, or
preventing a change in control of Lehigh. Although Lehigh has no present
intention to issue any shares of its preferred stock, there can be no assurance
that Lehigh will not do so in the future.
9
Effect of Outstanding Warrants and Options. Lehigh currently has
outstanding options and warrants to purchase an aggregate of 18,697,187 shares
of Lehigh Common Stock and, upon consummation of the Merger, will assume
existing DHB options to purchase an additional 3,656,000 shares. All of the
foregoing securities represent the right to acquire Lehigh Common Stock during
various periods of time and at various prices. Holders of these securities are
given the opportunity to profit from a rise in the market price of the Lehigh
Common Stock and are likely to exercise their rights at a time when Lehigh may
wish to obtain additional equity capital on more favorable terms.
SPECIAL FACTORS RELATING TO DHB
See "Business Information Regarding DHB" for the definitions of certain
of the terms used in the following sections.
THE BUSINESS OF THE ARMOR GROUP OF DHB
Concentration of Business Activities of the Armor Group; Dependence on
Major Customer. The market for products of the Armor Group is, in large part,
composed of domestic and international military and civil authorities.
Accordingly, the Armor Group's operations are subject to the risk of
fluctuations in the demand for such products by such authorities. In addition,
significant portions of PACA's revenues in recent years have come from its
largest customer, the City of New York. Revenues from this customer constituted
5% and 8% of DHB's total revenues for the years ended December 31, 1995 and
1994, respectively. PACA is deriving a lower share of its revenue from this
customer, but the loss of this customer, if it were not replaced by other
customers, could have an adverse effect on DHB's financial performance.
Reliance Upon Government Spending. The Armor Group's products are sold
nationally and internationally, primarily to law enforcement agencies and
military services. Sales to domestic law enforcement agencies, including
government, security and intelligence agencies, police departments, federal and
state correctional facilities, and highway patrol and sheriffs' departments,
comprise the largest portion of the Armor Group's business. Accordingly, any
substantial reduction in government spending or change in emphasis in defense
and law enforcement programs could have a material adverse effect on the Armor
Group's business.
Product Liability. The products manufactured by PACA and Point Blank
are used in applications where the failure of such products could result in
serious personal injuries and death. PACA and Point Blank each maintain product
liability insurance in the amount of $1,000,000 per occurrence and $8,000,000 in
the aggregate for PACA, and $12,000,000 in the aggregate for Point Blank,
excluding legal fees which are borne by the insurance carriers, less a
deductible ($25,000 for PACA, $100,000 for Point Blank). There is no assurance
that these amounts would be sufficient to cover the payment of any potential
claim. In addition, there is no assurance that this or any other insurance
coverage will continue to be available or, if available, that PACA and/or Point
Blank will be able to obtain it at a reasonable cost. Any substantial uninsured
loss would have to be paid out of the assets of PACA or Point Blank, as
applicable, and may have a material adverse effect on DHB's financial condition
and operations on a consolidated basis. In addition, the inability to obtain
product liability coverage would prohibit PACA or Point Blank, as applicable,
from bidding for orders from certain municipal customers since, at present, many
municipal bids require such coverage, and any such inability would have a
material adverse effect on DHB's financial condition and results of operations,
on a consolidated basis.
Limited Sources of Raw Material. The primary raw material used by PACA
in manufacturing ballistic-resistant garments is KevlarTM, a patented product of
E. I. Du Pont de Nemours Co., Inc. ("Du
10
Pont"). Du Pont and its European licensee are currently the only producers of
Kevlar. PACA purchases Kevlar in the form of woven cloth from two independent
weaving companies, each of which provides more than 10% of PACA's requirements
of Kevlar. In the event Du Pont or its licensee in Europe cease, for any reason,
to produce and sell Kevlar, DHB would be required to utilize other fabrics as a
substitute. PACA has begun to use SpectrashieldTM and Spectra FibreTM, patented
products of Allied Signal, Inc., as a ballistic-resistant fabric and has tested
a new woven ballistic-resistant fabric, to reduce dependence on Kevlar.
Spectrashield and SpectraFibre have been used in combination with Kevlar in
approximately 20% of all vests sold by PACA. Neither Spectrashield nor
SpectraFibre, due to their respective physical characteristics, is expected to
become a complete substitute for Kevlar in the near future. Approximately 60% of
Old Point Blank's bullet-resistant garments were made of Twaron, a fabric
manufactured by Akxo, an Israeli company, and the balance of Old Point Blank's
bullet-resistant products were made with Spectrashield or Kevlar. In the opinion
of management, PACA enjoys a good relationship with its suppliers of Kevlar,
Spectrashield and SpectraFibre, and the acquisition of the Point Blank Assets is
expected to enable the Armor Group to develop and strengthen the Armor Group's
relations with all its current suppliers. If the Armor Group's access to Kevlar
were interrupted, unless and until it were able to secure an adequate supply of
an alternative fabric and appropriate ballistic tests were performed, its
operations would be severely curtailed and its financial condition and
operations would be adversely affected.
Competition. The ballistic-resistant garment industry is highly
competitive. Some competitors have substantially greater financial resources,
brand recognition, market share and marketing power than, and other competitive
advantages over, the smaller competitors in the business, including DHB. DHB
believes that the principal elements of competition in the sale of
ballistic-resistant garments are price and quality. DHB must therefore maintain
profitable prices and control costs and quality. As manufacturing technology
changes, there can be no assurance that DHB will continue to be able to
manufacture its products at competitive prices.
Bankruptcies of Prior Owners of Certain Assets. DHB acquired the assets
of NDL from a debtor- in-possession under the Bankruptcy Code, and certain
assets of Old Point Blank from a trustee in bankruptcy. The prior owners became
unable to utilize the assets in a profitable business, and there can be no
assurance that DHB will be able to utilize the assets on a profitable basis.
THE NDL BUSINESS OF DHB
Limited Operating History. NDL is a new business with only one year's
operating history. NDL has very limited business experience and is subject to
all the risks in the establishment of any new business venture. Therefore, in
addition to other risk factors, the likelihood of NDL's success must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in the development of a new business. DHB entered
the protective athletic equipment and apparel business by purchasing the
inventory, trademarks, trade names, equipment, and certain other assets of a
failed enterprise from a trustee in bankruptcy. Senior management of NDL have
all been hired since January 1, 1995.
Significant Competition. The protective athletic equipment and apparel
business is highly competitive. NDL believes that the principal elements of
competition are price and quality. The major manufacturers of protective
athletic equipment include well-known brands such as Everlast, Roller Blade and
Ace Bandage, and lesser known manufacturers such as Tru-fit Manufacturing, of
Boston, Massachusetts, Stromgren Co., of Kansas City, Missouri, and Mueller Co.,
of Wisconsin. Some competitors have substantially greater financial resources,
brand recognition, market share and marketing
11
power than, and other competitive advantages over, the smaller competitors in
the business, including DHB. There can be no assurance that DHB will be able to
compete successfully in this business.
OTHER BUSINESS ACTIVITIES OF DHB
New Venture in Orthopedic Products. In late March 1996, DHB entered the
orthopedic products business by acquiring Orthopedic Products, Inc. ("OPI"),
which had sales in its last two fiscal years of over $3,000,000, and losses of
approximately $200,000 and $41,000, respectively, in the years ended September
30, 1995 and 1994. There can be no assurance that OPI will become profitable or
that its losses will not grow.
Possible Acquisition of Unidentified Businesses. DHB intends to
continue to diversify its business operations through the possible acquisition
of one or more operating companies. DHB has not presently identified any
specific business or industry in which it intends to expand through the purchase
or development of a business. New investors in DHB will have no opportunity to
evaluate or to have a voice in the determination of the business or businesses
that DHB may purchase. In addition, DHB is presently a passive investor in
several other public or private companies and has little or no control over the
business and affairs of such entities.
Need for Additional Financing. DHB has, throughout its existence,
obtained funds for acquisitions and operations from term bank loans for periods
of up to a year, which have been secured, in part, by the controlling
shareholder's hypothecation of marketable securities. In the past, DHB has
always been able to roll over such loans with new loans at prevailing interest
rates. At the present time, it has a term loan from The Chase Manhattan Bank,
N.A. ("Chase") in the amount of $1,150,000 coming due in 1996, and a loan of
$1,400,000 from The Bank of New York ("BNY," and Chase and BNY may be referred
to hereinafter, individually and/or collectively, as the "Banks") coming due in
December 1996. There is no assurance that DHB will be able to roll over such
term loans as they become due.
Financial Accommodations by Related Persons. Mr. David H. Brooks, DHB's
Chairman and principal stockholder, previously loaned DHB the funds necessary to
complete the acquisition of PACA. DHB repaid Mr. Brooks' loan from the proceeds
of private placements completed in 1993. Mr. Brooks and his wife, Terry Brooks,
made loans totaling $1,140,000 in connection with the start-up of NDL, and they
have pledged certain of their personal assets to guaranty term loans made by the
Banks. In connection with the purchase of the Point Blank Assets, Mr. Brooks
made a demand loan in the amount of $2,000,000, of which $750,000 is still
outstanding, so that DHB is currently indebted to Mr. and Mrs. Brooks in the
principal sum of $1,300,000. All term loans from banks which DHB has obtained
since inception have been secured, in part, by the hypothecation of marketable
securities owned by Mr. and Mrs. Brooks. There can be no assurance that DHB will
not require similar accommodations in the future or that Mr. and Mrs. Brooks
will be able or willing to provide such accommodations on terms acceptable to
DHB. An entity controlled by Terry Brooks and beneficially owned by the Brooks's
minor children leased (as lessor) the facility occupied by NDL and Point Blank
in Oakland Park, Florida. While DHB believes that no future transactions will be
entered into between DHB and its officers, directors or 5% stockholder unless
such transactions are on terms no less favorable to DHB than could be obtained
from unaffiliated third parties, any current or future transactions between DHB
and such affiliates may involve possible conflicts of interest. See "DHB
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
12
THE MANAGEMENT OF DHB
SEC Consent Decree Affecting the Chairman of DHB. Mr. David H. Brooks
entered into a consent decree in December 1992 with the SEC, together with
Jeffrey Brooks, his brother and owner of Jeffrey Brooks Securities, Inc.
("JBSI"). The SEC had filed a civil complaint in the United States District
Court for the Southern District of New York (Docket No. 922846) alleging that an
employee of JBSI was involved in an unlawful insider-trading scheme allegedly
conducted through JBSI and the filing of false information by JBSI, which was
then a registered broker-dealer. The SEC alleged that JBSI did not establish,
maintain or enforce policies and procedures that are required under Section
15(f) of the Exchange Act, designed to detect and prevent insider trading by an
employee of JBSI, and that JBSI did not make required disclosures under Section
15(b) of the Exchange Act. The SEC further alleged that David Brooks exercised
"de facto control" of certain aspects of JBSI's operations and that David Brooks
and Jeffrey Brooks aided and abetted the reporting violations of JBSI. Pursuant
to the settlement of these charges, without admitting or denying such
allegations, David Brooks, Jeffrey Brooks and JBSI were assessed an aggregate
civil fine of $405,000 and were enjoined from future violations of Section 15(b)
and 15(f) of the Exchange Act; David Brooks was barred from having any direct or
indirect interest in, or acting as a director, officer or employee of, any
broker, dealer, municipal securities dealer, investment advisor, or investment
company, provided that David Brooks is able to apply to become so associated
after a five-year period; Jeffrey Brooks was prohibited from acting in a
supervisory capacity with respect to any employee or any broker, dealer,
municipal securities dealer, investment company or investment advisor for a
period of one year, which ended in December 1993; and JBSI was required to
institute and maintain procedures pursuant to Section 15(f) of the Exchange Act.
Mr. David Brooks is not under any prohibition from serving as an officer or
director of any public company other than a registered broker-dealer or an
investment company. See "Proposal No. 3 -- Election of Directors -- Proposed
Directors and Executive Officers."
Reliance Upon Key Personnel. DHB is substantially dependent upon the
personal efforts and abilities of Mr. David H. Brooks, Chairman of the Board and
Chief Executive Officer, and to a lesser extent, Ms. Mary Kreidell, Secretary
and Treasurer, and, at present, those of Leonard Rosen the President of PACA.
Should any of the members of DHB's senior management be unable or unwilling to
continue in their present roles, or should any such person determine to enter
into competition with DHB, DHB's business could be adversely affected. Because
of the relatively small size of DHB, the loss of a senior executive may have a
materially adverse effect upon DHB until a suitable replacement can be found.
See "Business" and "Management".
Dividends. DHB has paid no cash dividends on its common stock and does
not anticipate paying cash dividends on its common stock in the foreseeable
future. DHB's ability to pay dividends is dependent upon, among other things,
future earnings, the operating results and financial condition of DHB, its
capital requirements, general business conditions and other pertinent factors,
and is subject to the discretion of the Board of Directors. The Board is
authorized to issue, at any time hereafter, up to 5,000,000 shares of preferred
stock on such terms and conditions as it may determine, which may include
preferences as to dividends. Accordingly, there is no assurance that any
dividends will ever be paid on DHB's common stock.
13
INTRODUCTION
MEETINGS OF STOCKHOLDERS
This Joint Proxy Statement/Prospectus is being furnished to the holders
of Lehigh Common Stock in connection with the solicitation of proxies by and on
behalf of the Lehigh Board for use at the Lehigh Meeting to be held at
_________, Eastern Time, on October __, 1996, at
_____________________________________, and at any adjournments thereof. The
Lehigh Board has fixed the close of business on September __, 1996 (the "Lehigh
Record Date") as the record date for determining the stockholders of Lehigh
entitled to vote at the Lehigh Meeting. This Joint Proxy Statement/Prospectus
and the enclosed proxy are first being sent to holders of Lehigh Common Stock on
or about September ___, 1996.
This Joint Proxy Statement/Prospectus is also being furnished to the
holders of DHB Common Stock in connection with the solicitation of proxies by
and on behalf of the DHB Board for use at the DHB Meeting to be held at _____
a.m., Eastern Time, on October __, 1996, at
_______________________________________________________, and at any adjournments
thereof. The DHB Board has fixed the close of business on September __, 1996
(the "DHB Record Date") as the record date for determining the stockholders of
DHB entitled to vote at the DHB Meeting. This Joint Proxy Statement/Prospectus
and the enclosed proxy are first being sent to holders of DHB Common Stock on or
about September __, 1996.
PURPOSE OF MEETINGS
At the Lehigh Meeting, Lehigh's stockholders will consider and vote
upon Proposal No. 1 -- The Merger Proposal. Approval of the Merger Proposal
constitutes approval of the Merger and the Reverse Stock Split. Lehigh
stockholders will also consider and vote at the Lehigh Meeting on: Proposal No.
2 -- The adoption of amendments to the Restated Certificate of Incorporation of
Lehigh, which will amend the current Certificate of Incorporation by: (A)
changing the name of the corporation from "The Lehigh Group Inc." to "The DHB
Group, Inc." in accordance with the terms of the Merger Agreement; (B)
eliminating cumulative voting for directors; (C) eliminating action by
stockholders by written consent; (D) fixing the number of members of the Board
of Director at between six and nine, as determined by the Board of Directors;
and (E) requiring any further amendment to the provisions of the Certificate of
Incorporation addressed by items (B) through (D) to require the vote of the
holders of at least 60% of the outstanding shares of the Lehigh Common Stock
(collectively, the "Certificate Amendments"); Proposal No. 3 -- The election of
eight directors to the Board of Directors; Proposal No. 4 -- ratification of the
appointment of BDO Seidman, LLP as the independent certified public accountants
for Lehigh for the fiscal year ending December 31, 1996; and such other business
as may properly come before the Lehigh Meeting or any adjournments thereof.
If the Merger Proposal is not approved by the stockholders of both
Lehigh and DHB then Proposal No. 3 -- The election of directors, will be deemed
withdrawn from a vote of the stockholders and the current directors of Lehigh
will remain in office. The submission of Proposal No. 2 -- The Certificate
Amendments, to a vote of the stockholders of Lehigh is not dependant upon the
approval of the Merger Proposal, except that if the Merger Proposal is not
approved by stockholders, then the proposed name change of Lehigh will
automatically be removed from the Certificate Amendments.
At the DHB Meeting, DHB's stockholders will consider and vote upon the
approval and adoption of the Merger Agreement, the appointment of Capraro,
Centofranchi, Kramer & Co., Inc., as independent certified public accountants to
DHB for the fiscal year ended December 31, 1996, and such
14
other business as may properly come before the DHB Meeting or any adjournments
thereof. If the Merger Proposal is not approved or if the Merger Agreement is
terminated, the current directors of DHB will continue to serve until the next
annual meeting.
Mr. David H. Brooks, the Chairman of the Board and Chief Executive
Officer of DHB, who holds approximately 60% of the outstanding DHB Common Stock,
and DHB, which holds approximately 37% of the outstanding Lehigh Common Stock,
have both indicated that they will vote their ownership interests at the DHB
Meeting and the Lehigh Meeting, respectively, in favor of the Merger Proposal.
In addition, certain officers, directors and other stockholders of Lehigh, who
together hold approximately __% of the Lehigh Common Stock, have indicated that
they will be voting in favor of the Merger Proposal.
VOTING REQUIREMENTS AT MEETINGS
At the Lehigh Meeting, approval and adoption of the Merger Proposal
(Proposal No. 1) requires the affirmative vote of majority of the votes cast by
all stockholders represented and entitled to vote thereon. Approval of the
Certificate Amendments (Proposal No. 2) requires the affirmative vote of holders
of a majority of the outstanding Lehigh Common Stock, except with respect to the
Certificate Amendments eliminating cumulative voting for directors and fixing
the number of directors at between six and nine in the discretion of the Board,
which require the affirmative vote of the holders of a majority of the
outstanding shares of Lehigh Common Stock or 80% of such shares voting at the
Lehigh Meeting, whichever is greater. The election of directors at the Lehigh
Meeting (Proposal No. 3) requires a plurality of votes cast by the Lehigh
stockholders entitled to vote thereon at the Lehigh Meeting. Ratification of the
selection of BDO Seidman, LLP as Lehigh's independent public accountants for the
year ending December 31, 1996 (Proposal No. 4) requires the affirmative vote of
a majority of the votes cast at the Lehigh Meeting by holders of Lehigh Common
Stock.
The presence at the Lehigh Meeting, in person or by proxy, of the
holders of one-third of the total number of shares of Lehigh Common Stock
outstanding on the Lehigh Record Date will constitute a quorum for the
transaction of business by such holders at the Lehigh Meeting. On the Lehigh
Record Date, there were [16,339,250] outstanding shares of Lehigh Common Stock,
each holder of which is entitled to one vote per share with respect to each
matter to be voted on at the Lehigh Meeting, except that, pursuant to the
provisions of the Certificate of Incorporation of Lehigh, voting for directors
is cumulative whereby each stockholder may give any one candidate a number of
votes equal to the number of directors to be elected multiplied by the number of
shares held by such stockholder, or may distribute such votes on the same
principle among as many candidates as the stockholder determines. Lehigh has no
class or series of stock outstanding other than Lehigh Common Stock entitled to
vote at the Lehigh Meeting.
At the DHB Meeting, approval and adoption of the Merger Proposal
requires the affirmative vote of the holders of a majority of the outstanding
shares of DHB Common Stock. Ratification of the appointment of Capraro,
Centofranchi, Kramer & Co., P.C. as the independent certified public accountants
for DHB for the fiscal year ended December 31, 1996 requires the affirmative
vote of a majority of the votes cast at the DHB Meeting by holders of DHB Common
Stock. The presence at the DHB Meeting, in person or by proxy, of the holders of
a majority of the total number of shares of DHB Common Stock outstanding on the
DHB Record Date will constitute a quorum for the transaction of business by such
holders at the DHB Meeting. On the DHB Record Date, there were [22,954,529]
outstanding shares of DHB Common Stock, each holder of which is entitled to one
vote per share with respect to each matter to be voted on at the DHB Meeting.
DHB has no class or series of stock outstanding other than DHB Common Stock
entitled to vote at the DHB Meeting.
15
At the Meetings, abstentions and broker non-votes (as hereinafter
defined) will be counted as present for the purpose of determining the presence
of a quorum. For the purpose of computing the vote required for approval of
matters to be voted on at the Meetings, shares held by stockholders who abstain
from voting will be treated as being "present" and "entitled to vote" on the
matter and, thus, an abstention has the same legal effect as a vote against the
matter, except that abstentions will have no effect on the election of directors
of Lehigh or on the ratification of independent accountants for Lehigh or DHB.
However, in the case of a broker non-vote or where a stockholder withholds
authority from his proxy to vote the proxy as to a particular matter, such
shares will not be treated as "present" and "entitled to vote" on the matter
and, thus, a broker non-vote or the withholding of a proxy's authority will have
no effect on the outcome of the vote on the matter. A "broker non-vote" refers
to shares represented at the Meetings in person or by proxy by a broker or
nominee where such broker or nominee (i) has not received voting instructions on
a particular matter from the beneficial owners or persons entitled to vote and
(ii) the broker or nominee does not have discretionary voting power on such
matter.
PROXIES
All proxies that are properly executed by holders of Lehigh Common
Stock and received by Lehigh prior to the Lehigh Meeting will be voted in
accordance with the instructions noted thereon. Any proxy that does not specify
to the contrary will be voted in favor of the Merger Proposal, the Certificate
Amendments, the nominees for election as directors and in favor of the
ratification of Lehigh's independent certified public accountants and for any
other matter that may be properly brought before the Lehigh Meeting in
accordance with the judgment of person or persons voting the proxies. Any holder
of Lehigh Common Stock who submits a proxy will have the right to revoke it, at
any time before it is voted, by filing with the Secretary of Lehigh written
notice of revocation or a duly executed later-dated proxy, or by attending the
Lehigh Meeting and voting such Lehigh Common Stock in person.
All proxies that are properly executed by holders of DHB Common Stock
and received by DHB prior to the DHB Meeting will be voted in accordance with
instructions noted thereon. Any proxy that does not specify to the contrary will
be voted in favor of approval and adoption of the Merger Agreement and for any
other matter that may be properly brought before the DHB Meeting in accordance
with the judgment of the person or persons voting the proxies. Any holder of DHB
Common Stock who submits a proxy will have the right to revoke it, at any time
before it is voted, by filing with the Secretary of DHB written notice of
revocation or a duly executed later- dated proxy, or by attending the DHB
Meeting and voting such DHB Common Stock in person.
All costs relating to the solicitation of proxies of holders of Lehigh
Common Stock and DHB Common Stock will be borne by Lehigh and DHB, respectively.
Proxies may be solicited by officers, directors and regular employees of Lehigh
and DHB and their subsidiaries personally, by mail or by telephone or otherwise.
Although there is no formal agreement to do so, Lehigh and DHB may reimburse
banks, brokerage houses and other custodians, nominees and fiduciaries holding
shares of stock in their names or those of their nominees for their reasonable
expenses in sending solicitation material to their principals.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO
NOT EXPECT TO ATTEND THE RESPECTIVE MEETINGS OF LEHIGH AND DHB IN PERSON ARE
URGED TO MARK, SIGN AND DATE THE RESPECTIVE ACCOMPANYING PROXY AND MAIL IT IN
THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES, SO THAT THEIR VOTES CAN BE RECORDED.
16
PROPOSAL NO. 1 -- THE MERGER
GENERAL
This section of the Joint Proxy Statement/Prospectus describes certain
aspects of the Merger, the Merger Agreement and other related matters. The
following description does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement, which is attached as Appendix A
to this Joint Proxy Statement/Prospectus and is incorporated herein by
reference. All Lehigh and DHB stockholders are urged to read the Merger
Agreement in its entirety.
The Merger Agreement provides that, subject to the satisfaction or
waiver of certain conditions, including but not limited to the receipt of all
necessary third party, regulatory and stockholder approvals, Merger Sub will be
merged with and into DHB. As a result of the Merger, the separate corporate
existence of Merger Sub will cease and DHB, as the Surviving Corporation, shall
continue to possess all of its rights and property as constituted immediately
prior to the Effective Date of the Merger and shall succeed, without transfer,
to all of the rights and property of Merger Sub and shall continue subject to
all of its debts and liabilities as the same shall have existed immediately
prior to the Effective Date of the Merger, and become subject to all the debts
and liabilities of Merger Sub in the same manner as if DHB had itself incurred
them, all as more fully provided under the Delaware General Corporation law. In
addition, if the Merger Proposal is approved by stockholders of both Lehigh and
DHB, immediately prior to the effectiveness of the Merger, Lehigh will be
obligated to effect a 21.845 to 1 reverse stock split, thereby reducing the
number of outstanding shares from approximately 10.4 million shares to
approximately 470,000 shares (the "Reverse Stock Split"). The Reverse Stock
Split would be effected through the filing of a Certificate of Amendment with
the Secretary of the State of Delaware. In the Merger, each share of DHB Common
Stock would be exchanged for one post-reverse-split share of Lehigh Common Stock
which would constitute 97% of the issued and outstanding Common Stock of Lehigh
as provided for in the Merger Agreement. Following consummation of the Merger,
Lehigh will be renamed "The DHB Group, Inc."
BACKGROUND TO THE MERGER
Prior to 1994, Lehigh, through its wholly owned subsidiaries, had been
engaged in the following other businesses: (i) interior construction; (ii)
asbestos abatement; (iii) the design, production and sale of electrical
products; (iv) the manufacture and sale of dredging equipment and precision
machined castings; and (v) energy recovery and power generation and landfill
closure services. All of such other businesses were transferred or sold prior to
1994.
Following that restructuring, in which Lehigh eliminated approximately
$46 million of indebtedness, Messrs. Zizza and Bruno remained the only executive
officers of Lehigh and embarked on a mission of continuing to reduce Lehigh's
indebtedness, seek to raise working capital to allow Lehigh to remain viable,
and at the same time locate an acquisition candidate with the potential of
increasing shareholder value.
During the last two years, the management of Lehigh has held
discussions with approximately twenty companies who were purportedly interested
in an acquisition by, or a business combination transaction with, Lehigh. None
of those discussions resulted in a contract or understanding except that on
December 21, 1995, Lehigh and Consolidated Technology Group Ltd.
("Consolidated") signed a letter of intent whereby Consolidated agreed in
principle to merge with Lehigh in a transaction whereby the stockholders of
Consolidated would own approximately 75 percent of the combined company after
the merger. On May 15, 1996 Lehigh and Consolidated jointly announced that after
extensive negotiations
17
they were unable to proceed further with the business transaction contemplated
by the letter of intent, which was terminated.
On May 20, 1996, Mr. David H. Brooks, Chairman of the Board of DHB
called Lehigh for the purpose of discussing a possible business combination with
Lehigh. Mr. Zizza and Mr. Bruno spoke with Mr. Brooks and the parties met later
that day to further discuss the proposed business combination. After several
more meetings, Lehigh and DHB executed a letter of intent on June 11, 1996.
Messrs. Zizza and Bruno subsequently visited the corporate headquarters of DHB
in Old Westbury, New York, and the main manufacturing facility in Ft.
Lauderdale, Florida, where senior management was interviewed and due diligence
conducted.
Following the announcement of the letter of intent with DHB,
representatives and affiliates of an entity known as Southwicke Corporation met
with Messrs. Zizza and Bruno to express their opposition to the DHB transaction.
Those persons indicated that Southwicke Corporation had recently acquired
control of a significant equity interest in Lehigh. Messrs. Zizza and Bruno
asked if they wished to propose any alternative business combination transaction
to Lehigh, but they declined to do so.
Following the announcement of the letter of intent with DHB several
other meetings were held, culminating in a definitive merger agreement which was
presented to the Board of Directors of Lehigh on July 3, 1996. Lehigh's Board of
Directors considered the opposition of the Southwicke Corporation to the
transaction with DHB, the absence of any alternative proposal, and resolved to
unanimously approve the Merger Agreement. On July 8, 1996 the Merger Agreement
was executed by Lehigh and DHB.
Under the terms of the Merger Agreement, Lehigh Common Stock will be
reverse-split on a 21.845 to 1 basis and DHB Common Stock will be exchanged for
post-reverse-split Lehigh Common Stock on a one-for-one basis. Consequently,
following the Merger, the existing stockholders of Lehigh will own 3% and the
former stockholders of DHB will own 97% of Lehigh, which will be renamed from
"The Lehigh Group Inc." to "The DHB Group, Inc.". Following the Merger, Mr.
Brooks will become Chairman and Chief Executive Officer of the combined company,
Mr. Zizza will become President and Chief Operating Officer and Mr. Bruno will
remain Vice President and General Counsel.
Concurrently with the execution of the Merger Agreement, Mr. Zizza sold
to DHB for a $100,000 note an option to purchase up to six million shares
(approximately 37%) of Lehigh Common Stock at $0.50 per share, which is the
price at which Mr. Zizza is entitled to acquire those shares from Lehigh under
pre-existing agreements. That option was exercised in full on ____________
[prior to the Lehigh Record Date]. In addition, through open market purchases
DHB has acquired an additional ________ shares of Lehigh Common Stock at an
average price of $______ per share. Through these actions DHB has acquired
Lehigh Common Stock equal to approximately __% of the outstanding Lehigh Common
Stock as of the Lehigh Record Date.
The option agreement between Mr. Zizza and DHB contains customary
standstill agreements on DHB's ability to vote or dispose of any shares of
Lehigh Common Stock which it may acquire. Under the option agreement, DHB may
acquire up to 5% of Lehigh Common Stock prior to October 15, 1996 on the open
market or in privately negotiated purchases; and, if a new Schedule 13D is filed
by a third party after July 8, 1996, DHB may acquire up to an additional 10% of
Lehigh Common Stock. Because such a Schedule 13D was filed by Southwicke
Corporation and its affiliates, DHB became entitled to purchase up to 15% of
Lehigh Common Stock in addition to the approximately 37% of Lehigh Common Stock
arising from the option agreement with Mr. Zizza.
18
On July 12, 1996 Southwicke Corporation and its affiliates filed a
Schedule 13D indicating that they had acquired beneficial ownership, through
purchases and irrevocable proxies, of an aggregate of 2,670,757 shares of Lehigh
Common Stock (approximately 25.8%). The purpose in acquiring that ownership
position was stated as "investment", and the Schedule 13D also stated the
intention to seek representation on Lehigh's Board of Directors.
On July 17, 1996 Lehigh's Board of Directors met to consider the
Schedule 13D filing by Southwicke Corporation and its affiliates and to consider
certain amendments to Lehigh's By-laws. Mr. Zizza reported that he had not
received any proposal from Southwicke Corporation regarding a potential
acquisition of Lehigh. Thereafter, the Board of Directors adopted amendments to
Lehigh's By-laws which (i) eliminate the ability of stockholders to call a
special meeting, and (ii) add provisions which give the Board of Directors the
power to set a record date for any proposed stockholder action by written
consent and provide a procedure for managing actions by written consent. These
amendments were designed to foreclose the ability of a significant stockholder
(such as Southwicke Corporation) to control the timing of the presentation of
matters to a vote by stockholders and, conversely, to clarify and enhance the
authority of the Board of Directors with respect to such matters.
On August 28, 1996, Lehigh received a letter from Southwicke
Corporation. The Southwicke letter contained a demand that the Board of
Directors of Lehigh should commence a derivative action to rescind Mr. Zizza's
option to DHB, terminate the Merger Agreement and rescind the By-law amendments
which were enacted on July 17, 1996. [Update based on subsequent events].
Also on August 28, 1996, Lehigh received a letter from Mentmore
Holdings Corporation ("Mentmore"), which appears to be an indirect affiliate of
Southwicke Corporation. The Mentmore letter asked for an opportunity to meet
with Lehigh's Board of Directors so that an acquisition proposal could be
discussed; it went on to present the outlines of such a proposal. The Mentmore
proposal envisioned in general that Mentmore would contribute $3 million while
the equity of Lehigh's current stockholders would be valued at $3 million (less
any amounts payable under employment or severance agreements), and that each
party's ownership in the surviving company would be based on their proportionate
shares of that valuation. [Update based on subsequent events].
LEHIGH REASONS FOR THE MERGER; RECOMMENDATION OF THE LEHIGH BOARD
The Lehigh Board has unanimously approved the Merger and has determined
that the Merger and the Merger Agreement and the related transactions are in the
best interests of Lehigh and fair to Lehigh's stockholders from a financial
point of view. THE LEHIGH BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF
LEHIGH VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
During the course of its deliberations, the Board of Directors
considered, without assigning relative weights to, the following factors: (i)
the historical and prospective operations of Lehigh, including, among other
things, the current financial condition and future prospects of Lehigh, (ii) the
terms and conditions of the Merger Agreement and related documentation, (iii) a
review of the operations of DHB, including, among other things, the current
financial condition and future prospects of DHB, (iv) a review of Lehigh's
efforts over the past two years in trying to locate a suitable acquisition
candidate and the absence of any other competing offer from any other business
proposing a business combination with Lehigh, (v) the ability of a combination
with DHB to vastly increase Lehigh's market capitalization, thereby possibly
enhancing its ability to make acquisitions, (vi) the market value of DHB's
stock, (vii) the substantial increase in the market value of the Lehigh Common
Stock held by Lehigh stockholders which could result from the Merger, and (viii)
the management contracts and continued services of Messrs. Zizza and Bruno with
Lehigh.
19
The Lehigh Board also considered certain potentially negative factors
in its deliberations concerning the Merger, including, among others: (i) the
control by Mr. Brooks of Lehigh after the Merger (in this regard the Board
reviewed but did not consider to be material Mr. Brooks's SEC consent decree.
See "Proposal No. 3 -- Election of Directors -- Proposed Directors and Executive
Officers"); (ii) the risks associated with DHB's business including competitive
factors, and (iii) the absence of an investment banker's opinion regarding the
transaction. In this regard the Board did not feel an investment banker's
opinion would be an appropriate use of corporate funds.
In view of the wide variety of factors considered by the Lehigh Board,
the Lehigh Board did not quantify or otherwise attempt to assign relative
weights to the specific factors considered in making its determination. However,
in the view of the Lehigh Board, the potentially negative factors considered by
it were not sufficient, either individually or collectively, to outweigh the
positive factors it considered in its deliberations relating to the Merger.
The foregoing discussion of the information and factors considered by
the Lehigh Board is not intended to be exhaustive but is believed to include all
material factors considered by the Lehigh Board.
THE LEHIGH BOARD RECOMMENDS THAT LEHIGH STOCKHOLDERS VOTE FOR APPROVAL
OF THE MERGER PROPOSAL.
DHB REASONS FOR THE MERGER; RECOMMENDATION OF THE DHB BOARD
The DHB Board has unanimously approved the Merger and has determined
that the Merger and the Merger Agreement and the related agreements are in the
best interests of DHB and fair to DHB's stockholders from a financial point of
view. THE DHB BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF DHB VOTE FOR
APPROVAL OF THE MERGER PROPOSAL.
The DHB Board has unanimously approved the Merger and has determined
that the Merger and the Merger Agreement and the related agreements are in the
best interests of DHB and fair to DHB's stockholders from a financial point of
view. The DHB Board unanimously recommends that the stockholders of DHB vote for
approval of the Merger Proposal.
In reaching such conclusion, the Board of Directors considered, without
assigning relative weights to, the following factors: (i) the historical and
prospective operations of DHB, including, among other things, the current
financial condition and future prospects of DHB, (ii) the terms and conditions
of the Merger Agreement and related documentation, (iii) a review of the
operations of Lehigh, including, among other things, the current financial
condition and future prospects of Lehigh, (iv) the ability of a combination with
Lehigh to increase DHB's stockholder base thereby improving access to capital
markets and enhancing its ability to make acquisitions, (v) the potential market
value of Lehigh Common Stock held by DHB stockholders which could result from
the Merger, and (vi) the intended tax-free treatment of the Lehigh Common Stock
to be received in exchange for DHB Common Stock in the Merger.
The DHB Board also considered certain potentially negative factors in
its deliberations concerning the Merger, including, among others: (i) the
interest of certain Lehigh officers in connection with continued employment by
Lehigh, (ii) the risks associated with Lehigh's business including competitive
factors, and (iii) the absence of an investment banker's opinion regarding the
transaction. In this regard the Board did not feel an investment banker's
opinion would be an appropriate use of corporate funds.
In view of the wide variety of factors considered by the DHB Board, the
DHB Board did not quantify or otherwise attempt to assign relative weights to
the specific factors considered in making its determination. However, in the
view of the DHB Board, the potentially negative factors considered by
20
it were not so substantial, either individually or collectively so as to
outweigh the positive factors it considered in its deliberations relating to the
Merger.
The foregoing discussion of the information and factors considered by
the DHB Board is not intended to be exhaustive, but is believed to include all
material factors considered by the Lehigh Board.
THE DHB BOARD RECOMMENDS THAT DHB STOCKHOLDERS VOTE FOR APPROVAL OF THE
MERGER PROPOSAL.
FEDERAL INCOME TAX CONSEQUENCES
For a discussion of the federal income tax consequences of the Merger,
see "Certain Federal Income Tax Consequences of the Merger."
ACCOUNTING TREATMENT
Lehigh intends to treat the Merger as a "purchase" for accounting and
financial reporting purposes with DHB as the acquiring company. See "Unaudited
Pro Forma Combined Financial Statements" contained in the Financial Statements
portion of this Joint Proxy Statement/Prospectus.
INTERESTS OF CERTAIN MEMBERS OF LEHIGH AND DHB MANAGEMENT IN THE MERGER
In considering the Merger, Lehigh and DHB stockholders should be aware
that certain members of the Boards and managements of DHB and Lehigh have
certain interests that are in addition to the interests of Lehigh and DHB
stockholders generally and may cause them to have potential conflicts of
interest.
At the Effective Time, Mr. David H. Brooks, currently the Chairman of
the Board and Chief Executive Officer of DHB, will become the Chief Executive
Officer of Lehigh (which will be renamed "The DHB Group, Inc." if the
Certificate Amendments are approved) and Mary Kreidell, currently Chief
Financial Officer, Treasurer, Secretary and a Director of DHB will become Chief
Financial Officer and Treasurer of Lehigh. It is anticipated that senior
officers and employees of DHB will participate in Lehigh stock option plans and
other benefit arrangements.
At the Effective Time, Mr. Salvatore J. Zizza, the Chairman and CEO of
Lehigh, will become President and Chief Operating Officer (reporting to Mr.
Brooks), and Mr. Robert A. Bruno, Esq., Vice President and General Counsel of
Lehigh, will continue in that position. Both Messrs. Zizza and Bruno have
entered into new employment agreements which become effective upon completion of
the Merger. Generally, these agreements provide for a reduction in their
compensation and change in their stock options. See "Stock Options", below.
Also, Messrs. Zizza and Bruno have personally indemnified Lehigh
following the Effective Time for any loss suffered by Lehigh in excess of
$25,000 by reason of any untrue or incorrect representation or warranty of
Lehigh in or pursuant to the Merger Agreement (provided they had, and to the
extent DHB did not have, actual knowledge thereof prior to the Effective Date of
the Merger). See "The Merger -- Indemnification", below.
21
MANAGEMENT AFTER THE MERGER
DIRECTORS
Assuming they are elected at the Lehigh Meeting, the directors of
Lehigh after consummation of the Merger will be David H. Brooks, Salvatore J.
Zizza, Richard L. Bready, Charles A. Gargano, Mary Kreidell, Gary Nadelman,
Patrick J. Garvey and Morton A. Cohen. See "Proposal No. 3 -- Election of
Directors -- Proposed Directors and Executive Officers."
EXECUTIVE OFFICERS
Assuming election of the Board of Directors recommended by the Lehigh
Board in Proposal No. 3, it is expected that the principal executive officers of
Lehigh to be appointed after consummation of the Merger will be as follows:
NAME TITLE
---- -----
David H. Brooks Chairman and
Chief Executive Officer
Salvatore J. Zizza President and
Chief Operating Officer
Mary Kreidell Chief Financial Officer and
Treasurer
Joseph Delowery President of HallMark
Leonard Rosen President of DHB
Armor Group
Robert A. Bruno Vice President, General
Counsel and Secretary
STOCK OPTIONS
Salvatore J. Zizza, currently Chairman of the Board, President and
Chief Executive Officer of Lehigh owns options and warrants to purchase an
aggregate of 18,000,000 shares of Lehigh Common Stock, at exercise prices
ranging from $.50 to $1.00 per share, and Robert A. Bruno, currently Vice
President, General Counsel, Secretary and a director of Lehigh, owns options to
purchase an aggregate of 250,000 shares of Lehigh Common Stock at an exercise
price of $.50 per share. As part of the negotiation of the Merger Agreement, on
July 8, 1996 Messrs. Zizza and Bruno each agreed effective upon consummation of
the Merger to exchange the options and warrants held by them at the Effective
Time for options to purchase, at an exercise price of $1.00 per share, 232,000
post-reverse-split shares of Lehigh Common Stock in the case of Mr. Zizza and
92,000 post-reverse-split shares of Lehigh Common Stock in the case of Mr.
Bruno. In addition, Messrs. Bready, Gargano, Anthony F.L. Amhurst, and Salvatore
M. Salibello, directors of Lehigh, own options to purchase, respectively, 15,000
shares, 10,000 shares, 10,000 shares and 10,000 shares of Lehigh Common Stock at
exercise prices of
22
$.50 per share. See "Proposal No. 3 - Election of Directors - Certain
Relationships and Related Transactions" and " - Executive Compensation."
NO APPRAISAL RIGHTS
Delaware law provides appraisal rights for certain mergers and
consolidations. Appraisal rights are not available to holders of (i) shares
listed on a national securities exchange or held of record by more than 2,000
stockholders or (ii) shares of the surviving corporation of the merger, if the
merger did not require the approval of the stockholders of such corporation,
unless in either case, the holders of such stock are required pursuant to the
merger to accept anything other than (A) shares of stock of the surviving
corporation, (B) shares of stock of another corporation which are also listed on
a national securities exchange or held by more than 2,000 holders, or (C) cash
in lieu of fractional shares of such stock. Consequently, the holders of Lehigh
Common Stock and of DHB Common Stock are not entitled to appraisal rights in
connection with the Merger.
TRADING MARKET
The outstanding shares of Lehigh Common Stock are listed for trading on
the NYSE. Lehigh will use its best efforts to cause the shares of Lehigh Common
Stock issuable as Merger consideration to be approved for listing on the NYSE.
EFFECTIVE TIME
The Merger Agreement provides that the Merger will become effective at
the time a certificate of merger (the "Certificate of Merger") is duly filed
with the Secretary of the State of the State of Delaware. The time at which the
Merger will become effective is referred to herein as the "Effective Time." The
Reverse Stock Split will be effected immediately prior to the Effective Time.
Such filings, together with all other filings or recordings required by Delaware
law in connection with the Merger, will be made upon the satisfaction or, to the
extent permitted under the Merger Agreement, waiver of all conditions to the
Merger contained in the Merger Agreement.
THE MERGER
At the Effective Time, Merger Sub will be merged with and into DHB at
which time the separate corporate existence of Merger Sub will cease and DHB, as
the Surviving Corporation, (i) shall continue to possess all of its rights and
property as constituted immediately prior to the Effective Date of the Merger
and shall succeed, without transfer, to all of the rights and property of Merger
Sub and (ii) shall continue subject to all of its debts and liabilities as the
same shall have existed immediately prior to the Effective Date of the Merger,
and become subject to all the debts and liabilities of Merger Sub in the same
manner as if DHB had itself incurred them, all as more fully provided under the
Delaware General Corporation law.
As part of the Merger, and in exchange for all of the issued and
outstanding shares of capital stock of DHB, Lehigh shall issue shares of Lehigh
Common Stock (the "Shares") in order to permit the Merger to be effected in
accordance with the terms of the Merger Agreement. The exact number of Shares to
be issued to the stockholders of DHB shall be that number of authorized but
unissued shares of Lehigh that would equal 97% of the total number of issued and
outstanding shares of Lehigh upon consummation of the Merger contemplated
hereby, after giving effect to such issuance. Lehigh will then be renamed "The
DHB Group, Inc."
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EXCHANGE OF SHARES
If the Merger Proposal is approved by stockholders of both Lehigh and
DHB, immediately prior to the effectiveness of the Merger, Lehigh will be
obligated to effect a 21.845 to 1 reverse stock split, thereby reducing the
number of outstanding shares from approximately 10.4 million shares to
approximately 470,000 shares. In the Merger each share of DHB Common Stock would
be exchanged for one post-reverse-split share of Lehigh Common Stock. As a
result of these actions, immediately following the Merger, current Lehigh
stockholders will own 3% and DHB stockholders will own 97% of the Lehigh Common
Stock.
Before the Effective Time, Lehigh will appoint an agent reasonably
acceptable to DHB (the "Exchange Agent") for the purpose of exchanging
certificates representing DHB Common Stock for certificates representing Lehigh
Common Stock. As of the Effective Time, Lehigh will deposit with the Exchange
Agent, for the benefit of holders of DHB Common Stock certificates representing
shares of Lehigh Common Stock issuable pursuant to the Merger Agreement in
exchange for shares of DHB Common Stock evidencing the right to receive one
share of Lehigh Common Stock for each share of DHB Common Stock. Promptly after
the Effective Time, Lehigh will, or will cause the Exchange Agent to, send to
each holder of DHB Common Stock at the Effective Time a letter of transmittal to
be used in such exchange.
DHB STOCKHOLDERS ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR
EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE
EXCHANGE AGENT OR LEHIGH.
Each holder of shares of DHB Common Stock, upon surrender to the
Exchange Agent of a certificate or certificates representing such DHB Common
Stock, together with a properly completed letter of transmittal, will be
entitled to receive in exchange therefor the number of shares of Lehigh Common
Stock which such holder has the right to receive pursuant to the Merger
Agreement and cash in lieu of any fractional shares of Lehigh Common Stock, as
contemplated by the Merger Agreement. The certificate or certificates for shares
of DHB Common Stock so surrendered shall be canceled. Until so surrendered, each
such certificate will, after the Effective Time, represent for all purposes only
the right to receive Lehigh Common Stock pursuant to the terms of the Merger
Agreement.
If any shares of Lehigh Common Stock are to be issued to any person
other than the registered holder of the shares of DHB Common Stock represented
by the certificate or certificates surrendered in exchange therefor, it will be
a condition to such issuance that the certificate or certificates so surrendered
be properly endorsed or otherwise be in proper form for transfer and that the
person requesting such issuance shall pay to the Exchange Agent any transfer or
other taxes required as a result of such issuance.
After the Effective Time, there will be no further registration of
transfers of shares of DHB Common Stock. If, after the Effective Time,
certificates representing shares of DHB Common Stock are presented for transfer,
they will be canceled and exchanged for Lehigh Common Stock and cash in lieu of
the issuance of fractional shares, if applicable, pursuant to the terms of the
Merger Agreement.
No dividends or other distributions on shares of Lehigh Common Stock
will be paid to the holder of any certificates representing shares of DHB Common
Stock until such certificates are surrendered for exchange as provided in the
Merger Agreement. Upon such surrender, there will be paid, without interest, to
the person in whose name the certificates representing the shares of Lehigh
Common Stock into which such shares were converted are registered, all dividends
and other distributions paid in respect
24
of such Lehigh Common Stock on a date subsequent to, and in respect of a record
date after, the Effective Time.
FRACTIONAL SHARES
No fractional shares of Lehigh Common Stock will be issued in the
Merger or the Reverse Stock Split. All fractional shares of Lehigh Common Stock
that a holder of shares of DHB Common Stock or Lehigh Common Stock would
otherwise be entitled to receive as a result of the Merger or the Reverse Stock
Split will be aggregated, and the Exchange Agent will sell such shares in the
public market and distribute to each such holder entitled thereto a pro rata
portion of the net proceeds of such sale. No cash in lieu of fractional shares
of Lehigh Common Stock will be paid to any holder of shares of DHB Common Stock
or Lehigh Common Stock until certificates representing such shares are
surrendered and exchanged.
REGISTRATION AND LISTING OF SHARE CONSIDERATION
Lehigh has agreed that it will cause the offer and sale of Lehigh
Common Stock issuable in the Merger to be registered under the Securities Act.
Lehigh has agreed to use its best efforts to have such shares listed for trading
on the NYSE. Such listing is not a condition to the consummation of the Merger.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains representations and warranties by each of
Lehigh and DHB that are customary and usual for transactions similar to that
contemplated by the Merger Agreement. These include, but are not limited to
corporate existence and authority to enter into the Merger Agreement; the
respectively capitalization of Lehigh and DHB; that the shares to be issued by
Lehigh to the stockholders of DHB will be validly authorized and issued fully
paid and nonassessable; and that the financial statements furnished by each
party present fairly their financial position and results of operations and have
been prepared in conformity with generally accounting principles consistently
applied.
COVENANTS
The Merger Agreement also contains covenants by each of Lehigh and DHB,
principally as to the conduct of their respective business between the date of
the Merger Agreement and the Effective Date of the Merger. The principal
covenants are that Lehigh and DHB will conduct their business only in the usual
and ordinary course; neither shall amend their Certificates of Incorporation or
By-Laws unless it is deemed reasonably necessary to consummate the Merger; and
neither will declare any dividends or distributions on their outstanding shares
of capital stock.
NO SOLICITATION; TRANSACTION MORATORIUM
The agreement pursuant to which Mr. Zizza sold DHB an option to
purchase up to 6 million shares of Lehigh Common Stock at $.50 per share
contains certain restrictions on DHB's ability to vote or dispose of Lehigh
shares which it may acquire and prohibits the transfer of the option.
Until December 31, 2001, DHB agreed (i) it cannot acquire any shares of
common stock of Lehigh except (a) by means of the option, (b) up to 5% of
Lehigh's common stock through open market or privately negotiated purchases
which are consummated prior to October 15, 1996 and (c) up to an additional 10%
of Lehigh's common stock through open market or privately negotiated purchases
in the
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event any new Schedule 13D is filed after July 8, 1996 other than by DHB; (ii)
the only matter for which DHB may solicit proxies from Lehigh stockholders is
for approval of the Merger Agreement for which it must vote all shares of common
stock of Lehigh under its control or to which it obtains proxies in favor of the
Merger Agreement; (iii) on all other matters submitted for a vote of
stockholders, it must vote all shares of common stock of Lehigh under its
control in accordance with the recommendation of the Board of Directors of
Lehigh (so long as such matter has no detrimental effect on the Merger
Agreement); and (iv) it shall not transfer, assign, hypothecate, pledge or
otherwise dispose of any of the shares of common stock of Lehigh under its
control (or the voting rights attendant thereto) without first obtaining (a) Mr.
Zizza's permission and (b) the agreement of the purchaser to be bound by the
foregoing provisions; PROVIDED, HOWEVER, DHB may sell shares pursuant to its
demand registration right pursuant to the terms of an agreement with Lehigh.
ACCESS TO INFORMATION
In addition to each party having the opportunity to investigate the
properties and financial and legal condition of the other prior to the execution
of the Merger Agreement, Lehigh and DHB agreed that if matters come to the
attention of either party requiring additional due diligence, each will permit
the other and its authorized agents or representatives to have full access to
its premises and to all of its books and records and officers of the respective
companies will furnish the party making such investigation with such financial
and operating data and other information with respect to its business and
properties as the party making such investigation shall reasonably request.
ADDITIONAL COVENANTS
Additional covenants between the parties include Lehigh's covenant to
apply for listing on the New York Stock Exchange of the Lehigh shares to be
delivered to DHB stockholders; compliance by Lehigh and with state securities
laws; reasonable efforts by both parties to obtain any required approvals or
consents of government or other authorities to the transactions contemplated by
the Merger Agreement; and for Lehigh and DHB to cooperate with each other and
with their respective counsel and accountants with respect to action required to
be taken as part of their obligations under the Merger Agreement, including the
preparation of financial statements and the supplying of information in
connection with the preparation of the Joint Proxy Statement/Prospectus.
CONDITIONS TO THE MERGER
The Merger Agreement contains certain conditions are to be satisfied by
Lehigh and DHB to each other's satisfaction on or before the closing of the
Merger. As to both Lehigh and DHB the Merger Agreement these conditions include
that the Merger Agreement shall have been approved by the vote of a majority of
the outstanding shares of common stock of Lehigh and DHB; Lehigh and DHB shall
have furnished each other with appropriate stockholder and Board of Directors
resolutions approving the Merger Agreement; appropriate and customary opinions
of counsel with respect to various aspects of the transactions; and that the
representation and warranties of each party as set forth in the Merger Agreement
are true in all material respects as of the Closing Date.
DHB's obligation to close is subject to the further conditions that the
reverse stock split with respect to shares of Lehigh common stock shall have
occurred; that the Board of Directors of Lehigh shall be constituted as set
forth herein upon effectiveness of the Merger; that Messrs. Zizza and Bruno
shall have entered into Employment Agreements as described herein and that
Lehigh's name shall have been changed to "The DHB Group, Inc." effective upon
the Merger.
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TERMINATION AND TERMINATION EXPENSES
The Merger Agreement provides that it may be terminated at any time
prior to the Closing Date by (i) mutual consent of the parties (ii) upon written
notice to the other party, by either party upon authorization of its Board of
Directors:
(1) if in its reasonably exercised judgment since July 8, 1996 there
shall have occurred a material adverse change in the financial condition or
business of the other party or the other party shall have suffered a material
loss or damage to any of its property or assets, which change, loss or damage
materially affects or impairs the ability of the other party to conduct its
business, or if any previously undisclosed condition which materially adversely
affects the earning power or assets of either party come to the attention of the
other party; or
(2) if any action or proceeding shall have been instituted or
threatened before a court or other governmental body or by any public authority
to restrain or prohibit the transactions contemplated by this Agreement or if
the consummation of such transactions would subject either of such parties to
liability for breach of any law or regulation.
The Merger Agreement may also be terminated by either party upon notice
to the other in the event the Closing shall not be held by December 15, 1996.
Any term or condition may be waived the party is entitled to the
benefit thereof, by action taken by the Board of Directors of such party.
In the event of termination each party bears its own expenses in
connection the contemplated transactions.
INDEMNIFICATION
Messrs. Zizza and Bruno have jointly and severally indemnified Lehigh
against any and all damage, loss, cost or reasonable expenses (including
reasonable attorney's fees) suffered, incurred or required to be paid by Lehigh
after the Effective Date of the Merger by reason of any representation or
warranty made by Lehigh in or pursuant to the Merger Agreement or if any
documents or financial statements delivered pursuant to the Merger Agreement are
untrue or incorrect, to the extent not actually known by DHB prior to the
Effective Time, provided that Messrs. Zizza and Bruno had actual knowledge that
such representation or warranty was untrue or incorrect prior to the Effective
Time. There shall be no indemnification for losses unless the aggregate amount
of such losses exceeds $25,000, and then only the losses in excess of $25,000
shall be subject to indemnification. The limitation of liability for losses
above the $25,000 threshold shall in the case of each of Messrs. Zizza and Bruno
be the amount of and shall be paid from the remaining unpaid salary from their
respective employment contracts. In computing the amount of losses, the
indemnification shall before the net amount of a loss after giving effect to
anything which directly mitigates the loss and after taking into account
insurance proceeds or any other recovery resulting from the loss.
Messrs. Zizza and Bruno are entitled to certain notice provisions and
details with respect to any breach claimed and shall be entitled to defend any
claim made by a third party which would entitle Lehigh to a claim against them.
No claim may be asserted with respect to indemnification after the period ending
two years from the Effective Time.
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GOVERNMENTAL AND REGULATORY APPROVALS
Lehigh and DHB are not aware of any governmental or regulatory
approvals required for consummation of the Merger, other than compliance with
applicable securities laws and the filing of the Certificate of Merger under
Delaware law.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a discussion of certain federal income tax
consequences under the Internal Revenue Code of 1986, as amended (the "Code"),
to Lehigh and DHB and to stockholders of DHB and Lehigh who receive Lehigh
Common Stock as a result of the Merger or the Reverse Stock Split. This
discussion does not deal with all aspects of federal taxation that may be
relevant to particular DHB stockholders, or with the effects of state, local or
foreign income taxation.
STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS REGARDING
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY
OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
No ruling has been requested from the Internal Revenue Service (the
"Service") in connection with the Merger, and in the opinion of counsel for
Lehigh and DHB no ruling would be given if one were requested. The tax
description set forth below has been prepared and reviewed by such counsel and
in their opinion is correct in all material respects. An opinion represents only
the best judgment of tax counsel. The description of the tax consequences set
forth below will not be binding on the Service, and the Service may adopt a
position contrary to that described below.
CONSEQUENCES TO LEHIGH AND DHB
The Merger will constitute a reorganization under Section 368(a) of the
Code if carried out in the manner set forth in the Merger Agreement. By reason
of the Merger constituting a "reorganization," no gain or loss will be
recognized by Lehigh or DHB on account of the Merger.
CONSEQUENCES TO LEHIGH AND DHB STOCKHOLDERS
By virtue of the qualification of the Merger as a "reorganization"
under the Code, no gain or loss will be recognized by DHB stockholders upon the
receipt in connection with the Merger of Lehigh Common Stock in exchange for
their shares of DHB Common Stock. No gain or loss will be recognized by Lehigh
stockholders in connection with the Merger or basis adjustment as a result of
the Reverse Stock Split.
The aggregate tax basis of Lehigh Common Stock received by each DHB
stockholder will be the same as the aggregate tax basis of DHB Common Stock
surrendered in exchange therefor.
The holding period for each share of Lehigh Common Stock received by
each stockholder of DHB in exchange for DHB Common Stock will include the period
for which such stockholder held the DHB Common Stock exchanged therefor,
provided such stockholder's DHB Common Stock is held as a capital asset at the
Effective Date of the Merger.
LIMITATIONS ON DESCRIPTION
The description of the tax consequences set forth above is subject to
certain assumptions and qualifications and is based on the truth and accuracy of
the representations of the parties in the Merger Agreement and in representation
letters to be delivered by the officers and directors of Lehigh and DHB and by
certain stockholders of DHB. Of particular importance is the assumption that the
Merger will satisfy the "continuity of interest" requirement.
29
In order for the continuity of interest requirement to be met, DHB
stockholders must not, pursuant to a plan or intent existing at or prior to the
Effective Time, dispose of an amount of the Lehigh Common Stock to be received
in the Merger (including, under certain circumstances, pre-merger dispositions
of DHB Common Stock) such that the DHB stockholders do not retain a meaningful
continuing equity ownership in Lehigh. Generally, so long as holders of DHB
Common Stock do not plan to dispose of in excess of 50 percent of the Lehigh
Common Stock to be received as described above (the "50 Percent Test"), such
requirement will be satisfied. Management of Lehigh and DHB have no knowledge of
a plan or intention that would result in the 50 Percent Test not being
satisfied.
A successful challenge by the Service to the above-described tax status
of the Merger would result in a DHB stockholder recognizing gain or loss with
respect to each share of DHB Common Stock surrendered equal to the difference
between such stockholder's basis in such share and the fair market value of the
Lehigh Common Stock received in exchange therefor. In such event, a DHB
stockholder's aggregate basis in the shares of the Lehigh Common Stock received
in the exchange would equal the fair market value of such shares and the
stockholder's holding period for such shares would not include the period during
which the stockholder held DHB Common Stock.
30
PROPOSAL NO. 2 -- THE CERTIFICATE AMENDMENTS
GENERAL
The Board of Directors of Lehigh has unanimously adopted a resolution
proposing and declaring it advisable to amend Lehigh's Restated Certificate of
Incorporation and By-laws: (A) changing the name of the corporation from "The
Lehigh Group Inc." to "The DHB Group, Inc." in accordance with the terms of the
Merger Agreement; (B) eliminating cumulative voting for directors; (C)
eliminating action by stockholders by written consent; (D) fixing the number of
members of the Board of Director at between six and nine, as determined from
time-to-time by the Board of Directors; and (E) requiring any further amendment
to the provisions of the Certificate of Incorporation addressed by items (B)
through (D) to require the vote of the holders of at least 60% of the
outstanding shares of Lehigh Common Stock (collectively, the "Certificate
Amendments"). Stockholders may vote for or against, or abstain from voting with
respect to, all of the parts of this proposal as a group.
PART A -- CHANGING THE NAME OF THE CORPORATION FROM "THE LEHIGH GROUP INC." TO
"THE DHB GROUP, INC."
The Board has unanimously adopted a resolution proposing and declaring
it advisable to amend Lehigh's Restated Certificate of Incorporation to change
the name of Lehigh from "The Lehigh Group Inc." to "The DHB Group, Inc."
The affirmative vote of a majority of the outstanding shares of Lehigh
Common Stock is required for approval of the proposed amendment to change
Lehigh's name.
The Board recommends a vote FOR this proposed amendment and it is
intended that shares represented by the enclosed form of proxy will be voted in
favor of this proposed amendment unless otherwise specified in such proxy.
PART B -- ELIMINATING CUMULATIVE VOTING FOR DIRECTORS
In connection with the financial restructuring of Lehigh consummated in
1991 (the "1991 Restructuring"), Lehigh's Restated Certificate of Incorporation
and By-laws were amended to provide for cumulative voting in all elections of
directors, to eliminate the classification of the Board and to fix the number of
directors comprising the entire Board at six. Such amendments were adopted to
ensure that, following the closing of such restructuring, the
predecessors-in-interest of Base Asset Trust, as liquidating agent of Executive
Life Insurance Company in Rehabilitation/Liquidation ("BAT"), by themselves,
would be able to elect at least one of Lehigh's directors at each annual meeting
of Lehigh's stockholders (so long as they continued to own at least one-sixth of
the outstanding shares of common stock). The adoption of such amendments was
required as a condition to such holders of Lehigh's outstanding subordinated
debentures and senior subordinated notes and such predecessors-in-interest of
BAT. Lehigh believes that such amendments are no longer required in light of the
financial restructuring of Lehigh consummated in May 1993 (the "1993
Restructuring") and as a result of BAT selling all of its stock in Lehigh on
July 2, 1996. For information as to these restructurings, see "Business
Information Regarding Lehigh and Merger Sub."
The Board has unanimously approved, subject to stockholder approval,
adoption of amendments to Lehigh's Restated Certificate of Incorporation and
By-laws to eliminate the requirement for cumulative voting in all future
elections of directors of Lehigh by its stockholders. Currently, in all
elections of
31
directors, each holder of shares of common stock is entitled to cast such number
of votes as shall equal the number of shares owned by such holder multiplied by
the number of directors to be elected by the holders of common stock, and such
holder may cast all of such holder's votes for a single candidate or may
distribute them among any two or more candidates in such proportions as such
holder may determine. The candidates receiving the highest number of votes, up
to the number of directors to be elected, shall be elected.
If the proposal to eliminate cumulative voting is adopted, cumulative
voting will not be available with respect to the election of directors in
connection with any future elections of directors by stockholders. The holder or
holders of shares representing a majority of the votes entitled to be cast in an
election of directors for Lehigh will be able to elect all directors.
In addition, currently no director may be removed by the stockholders
when the votes cast against his removal would be sufficient to elect him if
voted cumulatively (as described above) at an election of directors at which the
same number of votes were cast and the entire Board were then being elected. If
the proposal to eliminate cumulative voting is adopted, the holders of a
majority of the shares entitled to vote at an election of directors will be able
to remove any director or the entire Board with or without cause.
The absence of cumulative voting could have the effect of preventing
representation of minority stockholders on the Board. In addition, the
elimination of cumulative voting may have certain anti-takeover effects. It may,
under certain circumstances: discourage or render more difficult a merger,
tender offer proxy contest or acquisition of large blocks of Lehigh's shares by
persons who would not make such acquisition without assurance of the ability to
place a representative on the Board; deter or delay the assumption of control by
a holder of a large block of Lehigh's shares; or render more difficult the
replacement of incumbent directors and management.
The Board believes, however, that, in general, and especially in
publicly held corporations, each director should represent the interests of all
stockholders rather than the interests of a special constituency, and that the
presence on the Board of one or more directors representing such a constituency
could disrupt and impair the efficient management of Lehigh. Adoption of the
proposal to eliminate cumulative voting requires the affirmative vote of the
holders of a majority of the outstanding shares of common stock or the holders
of a least 80% of the outstanding shares of common stock voting at the Meeting,
whichever is greater.
The Board recommends a vote FOR this proposal and it is intended that
shares represented by the enclosed form of proxy will be voted in favor of this
proposal unless otherwise specified in such proxy.
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PART C -- ELIMINATING ACTION BY STOCKHOLDERS BY WRITTEN CONSENT
The Board of Directors recommends that Lehigh's Certificate of
Incorporation be amended to provide that actions required or permitted to be
taken at any annual or special meeting of the stockholders may be taken only
upon the vote of the stockholders at a meeting duly called and may not be taken
by written consent of the stockholders.
Under the General Corporation Law of the State of Delaware (the "GCL"),
unless otherwise provided in the Certificate of Incorporation, any action
required or permitted to be taken by stockholders of Lehigh may be taken without
a meeting, without prior notice and without a stockholder vote if a written
consent setting forth the action to be taken is signed by the holders of shares
of outstanding stock having the requisite number of votes that would be
necessary to authorize such action at a meeting of stockholders at which all
shares entitled to vote thereon were present and voted. Lehigh's Certificate of
Incorporation currently contains no provision restricting or regulating
stockholder action by written consent.
The adoption of this amendment would eliminate the ability of Lehigh
stockholders to act by written consent in lieu of a meeting. It is intended to
prevent solicitation of consents by stockholders seeking to effect changes
without giving all of Lehigh's stockholders entitled to vote on a proposed
action an adequate opportunity to participate at a meeting where such proposed
action is considered. The proposed amendment would prevent a takeover bidder
holding or controlling a large block of Lehigh's voting stock from using the
written consent procedure to take stockholder action unilaterally.
The Board of Directors does not believe that the elimination of
stockholder action by written consent will create a significant impediment to a
tender offer or other effort to take control of Lehigh. Nevertheless, the effect
of this proposal may be to make more difficult, or delay, certain actions by a
person or a group acquiring a substantial percentage of Lehigh's stock even
though such actions might be desired by, or beneficial to, the holders of a
majority the Lehigh's stock.
This amendment will ensure that all stockholders will have advance
notice of any attempted major corporate action by stockholders, and that all
stockholders will have an equal opportunity to participate at the meeting of
stockholders where such action is being considered. It will enable Lehigh to set
a record date for any stockholder voting, and should reduce the possibility of
disputes or confusion regarding the validity of purported stockholder action.
The amendment could provide some encouragement to a potential acquiror to
negotiate directly with the Board of Directors.
The Board recommends a vote FOR this proposal and it is intended that
shares represented by the enclosed form of proxy will be voted in favor of this
proposal unless otherwise specified in such proxy.
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PART D -- FIXING THE NUMBER OF DIRECTORS AT BETWEEN SIX AND NINE
The Board has unanimously approved, subject to stockholder approval,
adoption of amendments of Lehigh's Restated Certificate of Incorporation and
By-laws to provide that the number of directors comprising the entire Board be
not less than six nor more than nine, as determined from time to time by the
Board. Such amendments are intended to increase the flexibility of the Board to
vary its size depending on the needs of Lehigh, the availability of qualified
persons willing to serve as directors and other relevant factors.
Lehigh's Restated Certificate of Incorporation currently provides that
the number of directors constituting the entire Board shall be six. Although the
Board currently consists of six directors, eight directors have been nominated
for election at the Lehigh Meeting. If the stockholders fail to approve this
proposal and the Merger is approved, then the six nominees who receive the most
votes shall serve as Lehigh's directors.
If such proposed amendments are adopted, Lehigh's Restated Certificate
of Incorporation will be amended to provide that the number of directors
comprising the entire Board will be determined as set forth in Lehigh's By-laws
and such By-laws will be amended to provide that the number of directors
comprising the entire Board would be not less than six nor more than nine, as
determined from time to time by the Board. Adoption of these amendments requires
the affirmative vote of the holders of a majority of the outstanding shares of
Lehigh Common Stock or the holders of at least 80% of the outstanding shares of
Lehigh Common Stock voting at the Meeting, whichever is greater.
The Board recommends a vote FOR this proposal and it is intended that
shares represented by the enclosed form of proxy will be voted in favor of this
proposal unless otherwise specified in such proxy.
PART E -- REQUIRING ANY FURTHER AMENDMENT TO THE PROVISIONS OF THE CERTIFICATE
OF INCORPORATION ADDRESSED BY PARTS (B) THROUGH (D) TO REQUIRE THE VOTE OF THE
HOLDERS OF AT LEAST 60% OF THE OUTSTANDING SHARES OF LEHIGH COMMON STOCK
The Board of Directors recommends that Lehigh's Certificate of
Incorporation be amended to require that in order to amend, repeal or adopt any
provision inconsistent with the amendments to the Certificate of Incorporation
described in Parts (B) through (D) the affirmative vote of at least 60% of the
outstanding shares of Lehigh Common Stock shall be required.
Under the GCL of the State of Delaware, amendments to the Certificate
of Incorporation require the approval of the holders of a majority of the
outstanding stock entitled to vote thereon, but the law also permits a
corporation to include provisions in its Certificate of Incorporation which
require a greater vote than otherwise required by law for any corporate action.
With respect to such supermajority provisions, the GCL requires that any
alteration, amendment or repeal thereof be approved by an equally large
stockholder vote.
The requirement of an increased stockholder vote is designed to prevent
a person holding or controlling a majority, but less than 60%, of the shares of
Lehigh from avoiding the requirements of the proposed amendments by simply
repealing them.
The Board recommends a vote FOR this proposal and it is intended that
shares represented by the enclosed form of proxy will be voted in favor of this
proposal unless otherwise specified in such proxy.
34
PROPOSAL NO. 3 -- ELECTION OF DIRECTORS
GENERAL
Lehigh's Restated Certificate of Incorporation and By-laws provide that
the number of directors constituting the entire Board of Directors of Lehigh
(the "Board") shall be six. Lehigh is proposing to amend its Restated
Certificate of Incorporation and By-laws to provide that the number of directors
comprising the entire Board be not less than six nor more than nine, as
determined from time to time by the Board. See "Proposal No. 2 -- The
Certificate Amendments". There are eight nominees for director. If the
stockholders fail to approve the proposed amendment to Lehigh's Restated
Certificate of Incorporation and By-laws to provide that the number of directors
comprising the entire Board shall be not less than six nor more than nine, then
the six nominees who receive the most votes shall serve as Lehigh's directors.
Cumulative voting will be available with respect to the election of
directors at the Lehigh Meeting. Each holder of shares of Lehigh Common Stock
shall be entitled to cast such number of votes as shall equal the number of
shares owned by such holder multiplied by the number of directors to be elected
by the holders of Common Stock, and such holder may cast all of such holder's
votes for a single candidate or may distribute them among any two or more
candidates in such proportions as such holder may determine. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected. Unless instructions to the contrary are given, the
shares represented by a proxy at the Lehigh Meeting will be voted for any one or
more of management's nominees, to the exclusion of others, and in such order of
preference as the proxy holders determine in their sole discretion.
If for any reason any of Lehigh's nominees should be unable to serve or
refuse to serve as a director, an event which is not anticipated, the enclosed
proxies may be voted for a substituted nominee, in accordance with the judgment
of the proxy holders, and for the other nominees of management.
The table set forth below sets forth information with respect to each
nominee and the current executive officer of Lehigh. Information as to age,
occupation and other directorships has been furnished to Lehigh by the
individual named. Mr. Zizza, Mr. Bready and the Honorable Charles A. Gargano are
currently directors of Lehigh. Those directors elected at the Lehigh Meeting
will serve until the next annual meeting of stockholders of Lehigh (or until
their respective successors are duly elected and qualified or until their
earlier death, resignation or removal).
PROPOSED DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE CURRENT POSITION
---- --- ----------------
Salvatore J. Zizza 50 Chairman of the Board, President, Chief
Executive Officer, Director of Lehigh
and Nominee for Director
Robert A. Bruno 40 Vice President, General Counsel,
Secretary and Director of Lehigh
Richard L. Bready 51 Director of Lehigh and Nominee for
Director
35
NAME AGE CURRENT POSITION
---- --- ----------------
Charles A. Gargano 60 Director of Lehigh and Nominee for
Director
Anthony F.L. Amhurst 53 Director of Lehigh
Salvatore M. Salibello 50 Director of Lehigh
Leonard Rosen 57 President of PACA
Joseph Delowery 61 President of HallMark
Mary Kreidell 43 CFO, Treasurer, Secretary, and a
Director of DHB; Nominee for Director
David H. Brooks 41 Chairman and CEO of DHB; Nominee
for Director
Gary Nadelman 44 Nominee for Director
Patrick J. Garvey 61 Nominee for Director
Morton A. Cohen 61 Nominee for Director
Mr. Zizza has been a director of Lehigh 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 Lehigh since April 16, 1991, and was Chief
Executive Officer of Lehigh from April 16, 1991 through August 22, 1991 and
President of NICO from 1983 through August 22, 1991. He also served as President
of Lehigh 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 Lehigh 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 Lehigh 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
36
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.
Mr. Anthony F. L. Amhurst was elected as a director of Lehigh 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 Lehigh 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. Rosen is a founder of PACA and has served as its President since
its inception in 1975. He is actively involved in all facets of PACA's
operations, from production to sales. Mr. Rosen has experience in the apparel
industry for over 35 years. He worked closely in the research and development of
ballistic-resistant soft body armor and helmets with the Federal Government,
including serving as a charter member of the committee that conceived the
National Institute of Justice "Ol" Standard for ballistic body armor.
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.
Ms. Kreidell has served as Chief Financial Officer, Treasurer,
Secretary, and a Director of DHB since its inception. Ms. Kreidell became a
Certified Public Accountant in 1991. She worked for Israeloff, Trattner & Co.
CPA's, P.C., a certified public accounting firm, for four years prior thereto.
Mr. Brooks has served as Chairman of the Board and Chief Executive
Officer of DHB since its inception. Mr. Brooks has been the Chairman of the
Board, President and a Director of Brooks Industries of L.I., Inc. ("Brooks
Industries"), since October 1988, a New York corporation of which he is the sole
stockholder and through which he makes investments. Brooks Industries engages in
the venture capital business and in securities trading. Mr. Brooks served as a
consultant to U.S. Alcohol Testing of America Inc. ("U.S. Alcohol") during the
period from February 1991 to November 1992 and has, through Brooks Industries,
served as a consultant to Good Ideas Enterprises, Inc., a majority-owned
indirect subsidiary of U.S. Alcohol pursuant to an agreement having a five-year
term expiring in May 1997. Mr. Brooks served as a consultant to The Thunder
Group Inc. from October 25, 1991, until the filing of an involuntary Chapter 11
bankruptcy petition against The Thunder Group in February 1993. In each case,
Mr. Brooks provided advice on matters relating to the business, financial
management and marketing activities. Mr. Brooks does not serve as a consultant
to any other company at the present time and, other than as previously
described, he has not served in such capacity for more than the past five years.
David H. Brooks, his brother Jeffrey Brooks and Jeffrey Brooks
Securities, Inc. ("JBSI"), which was wholly owned by Jeffrey Brooks, entered
into a consent decree in December 1992 with the SEC. The SEC had filed a civil
complaint in the United States District Court for the Southern District of New
York (Docket No. 922846) alleging that an employee of JBSI was involved in an
unlawful insider-trading scheme allegedly conducted through JBSI and the filing
of false information by JBSI, a registered broker-dealer. The SEC alleged that
JBSI did not establish, maintain or enforce policies and procedures that are
required under Section 15(f) of the Exchange Act, designed to detect and prevent
insider trading by an employee of JBSI, and that JBSI did not make required
disclosures under Section 15(b) of the Exchange
37
Act. The SEC further alleged that David Brooks exercised "de facto control" of
certain aspects of JBSI's operations and that David Brooks and Jeffrey Brooks
aided and abetted the reporting violations of JBSI. Pursuant to the settlement
of these charges, without admitting or denying such allegations, David Brooks,
Jeffrey Brooks and JBSI were assessed an aggregate civil fine of $405,000 and
were enjoined from future violations of Section 15(b) and 15(f) of the Exchange
Act; David Brooks was barred from having any direct or indirect interest in, or
acting as a director, officer or employee of, any broker, dealer, municipal
securities dealer, investment advisor, or investment company (provided that
David Brooks is able to apply to become so associated after a five-year period);
Jeffrey Brooks is prohibited from acting in a supervisory capacity with respect
to any employee or any broker, dealer, municipal securities dealer, investment
company or investment advisor for a period of one year; and JBSI was required to
institute and maintain procedures pursuant to section 15(f) of the Exchange Act.
Mr. David Brooks is not under any prohibition from serving as an officer or
director of any public company other than a registered broker-dealer or an
investment company.
Mr. Nadelman has been the president of Synari, Inc., of New York, NY, a
privately held manufacturer and distributor of women's sportswear and other
apparel, for more than 5 years. He is currently a director of DHB.
Mr. Patrick J. Garvey is the Director of Canal Enterprises for the N.Y.
State Thruway Authority and its wholly owned subsidiary, the N.Y. State Canal
Corp. (development for commercial shipping and economic development
initiatives). Prior to joining the Thruway Authority in 1993, he served for more
than seven years as the Commander of Camp Smith in Peekskill, N.Y. and as
Legislative Assistant to the Adjutant General of N.Y. Mr. Garvey is also a
retired colonel in the United States Marine Corps Reserve.
Mr. Morton A. Cohen has over ten years experience in venture capital
and over twenty-five years experience in the public securities industry, both as
securities analyst and investment banker. Also, he has successfully managed
several emerging growth companies. Mr. Cohen has been Chairman, President and
Chief Executive Officer of Clarion Capital Corp. since 1982. Mr. Cohen served as
Governor of the Montreal Stock Exchange, is a Chartered Financial Analyst and
holder of MBA from the Wharton School of the University of Pennsylvania. Mr.
Cohen was a member of The Board of Governors of the National Association of
Small Business Investment Companies and is a member of the Small Business
Investment Advisory Council. He is the Chairman of Monitek Technologies, Inc.
(Nasdaq) and Zemex Corp. (NYSE), Chairman of Cohesant Technologies (Nasdaq) and
Director of Gothic Energy (Nasdaq).
No family relationship exists between any of the directors and
executive officers of Lehigh.
All directors will serve until the annual meeting of stockholders of
Lehigh to be held in 1997 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.
38
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 22, 1994, Lehigh sold 2,575,000 shares of Lehigh Common Stock
pursuant to a private placement (the "Private Placement") at a purchase price of
$.40 per share, including 250,000 shares sold to Salvatore J. Zizza (Lehigh's
President, Chairman of the board and Chief Executive Officer), 62,500 shares
sold to Robert A. Bruno (Lehigh'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 Lehigh
Common Stock). Pursuant to a registration rights agreement dated as of August
22, 1994 among Lehigh and the investors that purchased Lehigh 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. On August 22, 1994,
Lehigh also (i) issued to Goldis Financial Group Inc. warrants to purchase
402,187 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.
On August 22, 1994 (immediately prior to the closing under the Private
Placement), (i) Lehigh 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 Lehigh at an
annual salary of $200,000 (subject to increase, in the discretion of the Board,
if Lehigh acquires one or more new businesses, to a level commensurate with the
compensation paid to the top executives of comparable businesses), and (ii)
Lehigh and Dominic Bassani entered into a consulting agreement providing for Mr.
Bassani to serve as a consultant to Lehigh for a five year period and to provide
during such period such financial advisory services and assistance as Lehigh may
request in connection with arranging for financing for Lehigh (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 Lehigh 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 Lehigh, 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.
Lehigh also granted (i) to Mr. Zizza options to purchase a total of
10,250,000 shares of Lehigh 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. At the time of such
purchase, the Board consented to the transaction and amended the Bassani
39
warrants to make their expiration date co-terminus with the other warrants which
had been issued to Mr. Zizza. The $.50 per share options are currently
exercisable; the $.75 and $1.00 per share options will not be exercisable until
such time as (i) Lehigh has raised at least $10 million of equity, (ii) Lehigh
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 Lehigh Common 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 (including those purchased from Mr. Bassani) 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. Lehigh also granted to Mr. Zizza one demand
registration right (exercisable only if Lehigh 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 Lehigh
Common Stock purchasable upon exercise of the options or warrants granted to
him. An option to purchase 6,000,000 of the shares subject to the foregoing
options was granted to DHB on July 8, 1996 and was exercised by DHB in full on
_______________, 1996. This exercise was effected through (i) the exercise by
Mr. Zizza of his options, and (ii) the subsequent sale of those shares to DHB.
See "Proposal No. 1 -- The Merger -- Background to the Merger," and "Security
Ownership of Certain Beneficial Owners of Lehigh."
On July 8, 1996 Mr. Zizza entered into a new employment agreement to
become effective upon consummation of the Merger. For information regarding the
terms of the employment agreement see "Executive Compensation", Note (1), below.
In connection with the issuance by Lehigh 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 Southwicke,
FBL, Allstate and Teachers or their predecessors in interest), Lehigh 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 Lehigh Common Stock held by Southwicke,
FBL, Allstate and Teachers (which is covered by such registration rights), see
"Security Ownership of Certain Beneficial Owners of Lehigh."
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the regulations of the SEC thereunder require Lehigh's
executive officers and directors, and persons who own more than ten percent of a
registered class of Lehigh'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 Lehigh 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, Lehigh 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 Forms 3
were not timely filed for the following Directors of Lehigh: 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. Lehigh and the above named
persons have taken the appropriate steps to file the necessary forms.
40
BOARD MEETINGS AND COMMITTEES OF THE BOARD
During 1995 the Board of Directors held one meeting which was attended
by all of the directors except Charles Gargano.
The Lehigh Board of Directors has a standing Audit Committee, Executive
Committee and Compensation Committee.
The Audit Committee did not meet during 1995. The current members of
the Audit Committee are Salvatore Salibello and Richard Bready. The functions of
the Audit Committee include recommending to the Board the appointment of the
independent public accountants for Lehigh; reviewing the scope of the audit
performed by the independent public accountants and their compensation therefor;
reviewing recommendations to management made by the independent public
accountants and management's responses thereto; reviewing internal audit
procedures and controls on various aspects of corporate operations and
consulting with the independent public accountants on matters relating to the
financial affairs of Lehigh.
The Executive Committee of the Board held no meetings in 1995. The
current members of the Executive Committee are Messrs. Zizza, Bready and Bruno.
The Executive Committee is authorized (except when the Board is in session) to
exercise all of the powers of the Board (except as otherwise provided by law).
The Compensation Committee did not meet in 1995. The current members of
the Compensation Committee are Anthony Amhurst and Charles Gargano. The
Compensation Committee is responsible for developing Lehigh's executive
compensation policies and determining the compensation paid to Lehigh's Chief
Executive Officer and its other executive officers.
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 Lehigh whose total annual salary and bonus exceeded $100,000 for
services rendered in all capacities to Lehigh during each of the years ended
December 31, 1995, December 31, 1994 and December 31, 1993:
41
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
Awards
Securities
Underlying
Options
Other Annual (number of All Other
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(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(4) $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
* 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, Lehigh 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 of Lehigh
at an annual salary of $200,000 (subject to increase, in the discretion
of the Board, if Lehigh 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 Lehigh 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 Lehigh, any
earnings attributable to any minority interest in Acquired Businesses,
and any extraordinary items.
42
On July 8, 1996, Lehigh and Mr. Zizza entered into a new employment
agreement which will become effective on the Effective Date of the
Merger. The new agreement provides for Mr. Zizza's employment for a
period of four years and superseding the previous employment agreement
dated August 22, 1994. Under the terms of the July 8, 1996 employment
agreement, Mr. Zizza will be employed as President and Chief Operating
Officer of Lehigh at an annual salary of (i) $150,000 during the first
year (ii) $175,000 during the second year (iii) $200,000 during the
third year and (iv) $225,000 during the fourth year of the employment
period. In addition to Mr. Zizza's annual salary, Mr. Zizza shall also
be entitled to an annual bonus equal to (i) 8% in excess of the Base
Amount (as hereinafter defined) during the first year of the employment
period (ii) 6% in excess of the Base Amount during the second year of
the employment period (iii) 4% in excess of the Base Amount during the
third year of the employment period and (iv) 2% in excess of the Base
Amount during the fourth year of the employment period. The Base Amount
shall be an amount equal to the income (before other income), but
including interest expense for the calendar year ending December 31,
1996, in accordance with generally accepted accounting principles
applied on a consistent basis.
In addition to the above, and also effective on the effective date of
the Merger, Mr. Zizza agreed to exchange his current stock options and
warrants issued August 22, 1994 for an option to purchase up to 232,000
fully paid and non-assessable shares of Lehigh Common stock at an
exercise price of $1.00 per share, which shall be exercisable at any
time after said options vest and on or before five years after the
Effective Date of the Merger.
The aforementioned stock options shall vest as follows: (i) 58,000
options shall vest within one year of the effective date of the Merger,
(ii) 58,000 options shall vest two years after the effective date of
the Merger, (iii) 58,000 options shall vest three years after the
effective date of the Merger and (iv) 58,000 options shall vest within
four years after the effective date of the Merger.
(2) As to each individual named, the aggregate amount of personal benefits
not included in the Summary Compensation Table does not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus reported
for the named executive officer.
(3) Represents premiums paid by Lehigh with respect to term life insurance
for the benefit of the named executive officer.
(4) On January 1, 1995, Lehigh and Mr. Bruno entered into an employment
agreement providing for his employment through December 31, 1999 as
Vice President and General Counsel for Lehigh 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 Lehigh's annual revenues exceed
$25 million. In April 1995, Lehigh 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.
On July 8, 1996, Lehigh and Mr. Bruno, entered into a new employment
agreement, which will become effective on the effective date of the
Merger, providing for his employment for a period of four years and
superseding the previous employment agreement dated August 22, 1994.
Under the terms of the July 8, 1996 employment agreement, Mr. Bruno
will be employed as Vice President and General Counsel of Lehigh at an
annual salary of (i) $100,000 during the first year of the Employment
Period (ii) $110,000 during the second year of the Employment Period
(iii) $120,000 during the third year of the Employment Period and (iv)
$130,000 during the fourth year of the Employment Period. Mr. Bruno has
also given up the right to receive his deferred compensation for 1995
and 1996.
At the end of each calendar year within the Employment Period, Lehigh
shall review its performance and that of Mr. Bruno and may, in its sole
judgment and discretion, determine to pay Mr. Bruno a discretionary
performance bonus.
In addition to the above and also effective on the effective date of
the Merger, Mr. Bruno agreed to exchange his current stock options
issued April 1, 1995 for an option to purchase up to 92,000 fully paid
and non-assessable shares of Lehigh's Common Stock, at an exercise
price of $1.00 per share, which shall be exercisable at any time after
said options vest and on or before five years after the Effective Date
of the Merger.
The aforementioned stock options shall vest as follows: (i) 23,000
options shall vest within one year of the effective date of the Merger,
(ii) 23,000 options shall vest two years after the effective date of
the Merger, (iii) 23,000 options shall vest three years after the
effective date of the Merger and (iv) 23,000 options shall vest within
four years after the effective date of the Merger.
The July 8, 1996 employment agreement will become effective on the
Effective Date of the Merger.
43
(5) Mr. Delowery may be deemed to be an executive officer of Lehigh by
virtue of his position with HallMark. HallMark became Lehigh's
principal operating subsidiary following the 1993 Restructuring.
COMPENSATION OF DIRECTORS
Lehigh directors receive no compensation for serving on the Board other
than the reimbursement of reasonable expenses incurred in attending meetings. In
April 1995, Lehigh granted 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 $.50 per share to each of Messrs.
Gargano, Amhurst and Salibello.
The following table provides information on options granted during 1995
to the executive officers of Lehigh named in the Summary Compensation Table.
OPTION GRANTS IN 1995
Potential Realizable Value
at Assumed Annual Rates
of Stock Price Appreciation
Individual Grants for Option Term
Percent of
Total
Options Options
Original Granted Granted to Exercise
Date of (number Employees Price Expiration
NAME Grant* of Shares in 1995 ($/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.
The following table sets forth the number of options exercised and the
dollar value realized thereon by the executive officers of Lehigh named in the
Summary Compensation Table, along with the number and dollar value of any
options remaining unexercised on December 31, 1995.
44
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 6,000,000 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Both Anthony Amhurst and Charles Gargano are members of Lehigh'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 Lehigh's
executive compensation policies and determining the compensation paid to
Lehigh'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.).
Lehigh 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 Lehigh 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 Lehigh acquires one or more new
businesses, to a level commensurate with the compensation paid to the top
executives of comparable businesses. If Lehigh 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 Relationships and Related Transactions", above. Pursuant to such
employment agreement,
45
Lehigh 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
Relationships and Related Transactions", above.
On July 8, 1996 Lehigh entered into a new employment agreement with Mr.
Zizza. For information as to the terms and conditions of said agreement, see
"Executive Compensation", above.
46
PROPOSAL NO 4 -- RATIFICATION OF INDEPENDENT AUDITORS
The Board of Directors of Lehigh has selected BDO Seidman, LLP to be
the independent auditors of Lehigh for the year ending December 31, 1996.
Although the selection of auditors does not require ratification, the Board of
Directors of Lehigh has directed that the appointment of BDO Seidman, LLP be
submitted to stockholders for ratification due to the significance of their
appointment to Lehigh. If stockholders do not ratify the appointment of BDO
Seidman, LLP, the Board of Directors of Lehigh will consider the appointment of
other certified public accountants. A representative of BDO Seidman, LLP is
expected to be available at the Lehigh Meeting to make a statement if such
representative desires to do so and to respond to appropriate questions.
VOTE REQUIRED
Ratification of the appointment of BDO Seidman, LLP requires the
affirmative vote of a majority of the votes cast by all stockholders represented
and entitled to vote thereon. An abstention, withholding of authority to vote or
broker non-vote, therefore, will not have the same legal effect as an "against"
vote and will not be counted in determining whether the proposal has received
the requisite stockholder vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF LEHIGH
THE BOARD OF DIRECTORS OF LEHIGH RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE APPOINTMENT OF BDO SEIDMAN, LLP AS LEHIGH'S INDEPENDENT AUDITORS FOR THE
FISCAL YEAR ENDING DECEMBER 31, 1996.
RATIFICATION OF DHB'S INDEPENDENT AUDITORS
The Board of Directors of DHB has selected Capraro, Centofranchi,
Kramer & Co., P.C. to be the independent auditors of DHB for the year ending
December 31, 1996. Although the selection of auditors does not require
ratification, the Board of Directors of DHB has directed that the appointment of
Capraro, Centofranchi, Kramer & Co., P.C. be submitted to stockholders for
ratification due to the significance of their appointment to DHB. If
stockholders do not ratify the appointment of Capraro, Centofranchi, Kramer &
Co., P.C., the Board of Directors of DHB will consider the appointment of other
certified public accountants. A representative of Capraro, Centofranchi, Kramer
& Co., P.C. is expected to be available at the DHB Meeting to make a statement
if such representative desires to do so and to respond to appropriate questions.
VOTE REQUIRED
Ratification of the appointment of Capraro, Centofranchi, Kramer & Co.,
P.C. requires the affirmative vote of a majority of the votes cast by all
stockholders represented and entitled to vote thereon. An abstention,
withholding of authority to vote or broker non-vote, therefore, will not have
the same legal effect as an "against" vote and will not be counted in
determining whether the proposal has received the requisite stockholder vote.
47
RECOMMENDATION OF THE BOARD OF DIRECTORS OF DHB
THE BOARD OF DIRECTORS OF DHB RECOMMENDS A VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF CAPRARO, CENTOFRANCHI, KRAMER & CO., P.C. AS DHB'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1996.
48
BUSINESS INFORMATION REGARDING LEHIGH AND MERGER SUB
LEHIGH
GENERAL
Lehigh (formerly The LVI Group Inc.) 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, Lehigh, 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 Lehigh's financial restructuring of its outstanding debt and
preferred stock on March 15, 1991 (the "1991 Restructuring"). During the third
quarter of 1991, Lehigh 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, Lehigh 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.
Lehigh consummated a restructuring on May 5, 1993 (the "1993
Restructuring"). Pursuant to the 1993 Restructuring, Lehigh, 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 Lehigh (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 Lehigh, together with 3,000,000 shares of its common stock, par
value $.001 per share (the "NICO 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. Lehigh'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 Lehigh remains liable). LVI Holding paid $1.5
million to Lehigh during 1993 and 1994 in connection with the 1993 Restructuring
to fund operating expenses and working capital requirements.
Since 1994, Lehigh has been investigating the feasibility of acquiring
or investing in one or more other businesses that management of Lehigh believes
may have a potential for growth and profit. Lehigh would need to obtain
additional financing to effect any such acquisition or investment (except to the
extent
49
Lehigh Common Stock or other securities of Lehigh were used to effect such
acquisition or investment, which would likely result in dilution to the existing
holders of Lehigh Common Stock). No assurance can be given that Lehigh 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 Lehigh, or (iv) profitably operate any such business.
The Board of Directors believes that the proposed Merger gives it this ability.
Lehigh was incorporated under the laws of the State of Delaware in
1928. Lehigh'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 Lehigh 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 June 30, 1996, Lehigh had 3 employees and HallMark had 42.
Approximately 75% of such employees are compensated on an hourly basis.
Lehigh 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, 1999.
50
MERGER SUB
Merger Sub is a Delaware corporation organized and wholly-owned by
Lehigh. Merger Sub has not conducted any activities other than those related to
its formation, the preparation of this Joint Proxy Statement/Prospectus and the
negotiations of the Merger Agreement and its obligations thereunder.
51
LEHIGH MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Second Quarter of 1996 in Comparison
with Second Quarter of 1995
Revenues for the second quarter of 1996 were $2.9 million, a decrease
of $200,000 or 6.58% compared to the second quarter of 1995. Most of the
decrease in sales occurred in the export operation due in part to the departure
of certain clients of HallMark that left when there was a change in sales force
and change in market conditions that resulted when certain clients of HallMark
decided to purchase supplies directly from the manufacturers instead of through
HallMark. In June 1996, the person in charge of HallMark's export operation in
Miami and another employee were terminated. HallMark does not presently intend
to hire replacements for the two employees that were terminated and is currently
analyzing whether it will close the Miami export operation. Since the export
operation had net loss of approximately $87,000 for the first half of 1996 and
the domestic operation had a net profit of $92,000, management does not believe
the closure of the Miami export operation will have a material adverse effect on
the Company. HallMark may continue its export operation from its home office in
New York.
Gross profit as a percentage of sales increased slightly from 30.16% in
the second quarter of 1995, to 30.33% in the second quarter of 1996.
Selling, general and administrative expenses decreased by approximately
$90,000 or 8.49% in the second quarter of 1996 as compared to the second quarter
of 1995. The decrease was primarily due to a reduction in fees associated with
consulting, legal and accounting due diligence.
The factors discussed above resulted in an operating loss in the second
quarter of 1996 of $100,000 as compared to an operating loss of $134,000 in the
second quarter of 1995.
First Half of 1996 in Comparison
with First Half of 1995
Revenues earned for the first half of 1996 were approximately
$6,000,000, an increase of approximately $400,000 compared to the first half of
1995. This increase in revenue was due largely to an increase in domestic sales
although there was also an increase in export sales as well. In June, 1996, the
person in charge of HallMark's export operation in Miami and another employee
were terminated. HallMark does not presently intend to hire replacements for the
two employees that were terminated and is currently analyzing whether it will
close the Miami export operation. Since the export operations had a net loss of
approximately $87,000 for the first half of 1996 and the domestic operation had
a net profit of $92,000, management does not believe the closure of the Miami
export operation will have a material adverse effect on the Company. HallMark
may continue its export operation from its home office in New York.
Selling, general and administrative expenses decreased by $185,000 or
9% in the first half of 1996 as compared to the first half of 1995. This
decrease was due in part to a reduction in consulting, accounting and legal
fees.
52
The factors discussed above resulted in an operating loss of $182,000
for the first half of 1996, as compared to an operating loss of $412,000 for the
first half of 1995.
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 Lehigh's domestic sales was more
than offset by a decrease in export sales. As to the export business, Lehigh 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 Lehigh 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 Lehigh's operating
loss.
On December 31, 1991, Lehigh 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, Lehigh 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 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 Lehigh's
operating loss.
53
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of approximately $2.2
million (including cash and cash equivalents of $453,000), compared to working
capital of $2.4 million at December 31, 1995.
Lehigh's principal capital requirements have been to fund working
capital needs, capital expenditures and the payment of long term debt. Lehigh
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) provided by investing activities was ($21,000),
($39,000) and $726,000 in 1995, 1994 and 1993, respectively. Due to the amount
of cash used in operating activities, Lehigh has expended very little with
respect to property and equipment. Lehigh currently has no material commitments
for capital expenditures.
Net cash provided by (used in) financing activities was $(290,000),
$656,000 and ($449,000) 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 Lehigh's long term
debt agreement. The decrease from 1994 to 1995 was primarily due to the fact
that in 1995 Lehigh did not receive any outside funds whereas in 1994 it did.
Lehigh is unable to borrow from its bank under the current credit agreement.
On August 22, 1994, pursuant to a private placement, Lehigh sold
2,575,000 shares of Common Stock at an aggregate purchase price of $1,030,000
($.40 per share). On November 18, 1994, Lehigh 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 Lehigh filed a registration
statement to register for resale the shares of Common Stock sold in such private
placement.
On March 28, 1996, Lehigh 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 Lehigh's common stock for the ten business days prior to the date of
closing of the financing. The debenture contains various restrictions on Lehigh
and is secured by 100% of the outstanding common stock of Lehigh's wholly-owned
subsidiary, HallMark Electrical Supplies Corp. Lehigh 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 Lehigh's operations for the balance
of 1996.
On June 11, 1996, Lehigh and DHB executed a letter of intent providing
for the merger of DHB with a subsidiary of Lehigh (which resulted in the
execution of a definitive merger agreement on July 8, 1996). Concurrent with the
execution of the letter of intent, DHB made a loan to Lehigh in the amount of
$300,000 pursuant to the terms of a Debenture. The Debenture includes interest
at the rate of two
54
percent per annum over the prime lending rate of Chase Manhattan Bank, N.A.,
payable monthly, commencing on the 1st day of each subsequent months next
ensuing through and including June 1, 1998 when the entire principal balance
plus all accrued interest is due and payable. The proceeds of the loan from DHB
were used to satisfy the loan which Lehigh previously obtained from Macrocom
Investors, LLC on March 28, 1996.
Lehigh continues to be in default in the payment of interest
(approximately $721,000 interest was past due as of June 30, 1996) 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 Lehigh in connection with its financial restructuring consummated in 1991.
Lehigh has been unable to locate the holders of the 13-1/2% Notes and 14-7/8%
Debentures. Lehigh does not presently have sufficient funds to repay its
outstanding indebtedness under the 13-1/2% Notes and 14-7/8% Debentures.
HallMark has a secured bank credit facility, the term of which expires
on January 31, 1999. The unpaid principal balance as of June 30, 1996 was $2.2
million. 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.
Lehigh has experienced liquidity problems recently due to poor
operating results, a weakened electrical supply market and an inability to
borrow funds. Additionally, Lehigh continues to be in default on certain
obligations and is currently appealing a court ruling which if denied would have
an adverse effect on Lehigh. Lehigh has accrued approximately $350,000 relating
to this Court ruling.
IMPACT OF INFLATION
Inflation has not had a significant impact on Lehigh'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 Lehigh'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. Lehigh 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.
55
DESCRIPTION OF LEHIGH'S CAPITAL STOCK
OUTSTANDING SHARES AND RECORD DATE
On September __, 1996 (the "Lehigh Record Date"), there were
[16,339,250] shares of Lehigh Common Stock, outstanding and entitled to vote at
the Lehigh Meeting. Shareholders of record at the close of business on the
Lehigh Record Date shall be entitled to vote at the Lehigh Meeting.
The following is a summary of certain provisions of the Lehigh
Certificate of Incorporation, as amended, and rights accorded to holders of
Lehigh Common Stock generally and as a matter of law, and does not purport to be
complete. It is qualified in its entirety by reference to Lehigh's Restated
Certificate of Incorporation, Lehigh's By-Laws, and the Delaware General
Corporation Law.
LEHIGH COMMON STOCK
GENERAL. Under Lehigh's Delaware charter and applicable law, the Board
of Directors has broad authority and discretion to issue convertible preferred
stock, options and warrants, which, if issued in the future, may impact the
rights of the holders of the Lehigh Common Stock.
DIVIDENDS. Holders of Lehigh Common Stock may receive dividends if, as
and when dividends are declared on Lehigh Common Stock by Lehigh's Board of
Directors. If the Board of Directors hereafter authorizes the issuance of
preferred shares, and such preferred shares carry any dividend preferences,
holders of Lehigh Common Stock may have no right to receive dividends unless and
until dividends have been declared and paid. At the present time, there is no
preferred stock outstanding. The ability of Lehigh to lawfully declare and pay
dividends on Lehigh Common Stock is also limited by certain provisions of
applicable state corporation law. It is not expected that dividends will be
declared on the Lehigh Common Stock in the foreseeable future.
DISTRIBUTIONS IN LIQUIDATION. If Lehigh is liquidated, dissolved and
wound up for any reason, distribution of Lehigh's assets upon liquidation would
be made first to the holders of preferred shares, if any, and then to the
holders of Lehigh Common Stock. If Lehigh's net assets upon liquidation were
insufficient to permit full payment to the holders of shares of preferred stock,
if any, then all of the assets of Lehigh would be distributed pro rata to the
holders of shares of preferred stock and no distribution will be made to the
holders of Lehigh Common Stock. There are no shares of preferred stock issued or
outstanding at this time. A consolidation or merger of Lehigh with or into any
other company, or the sale of all or substantially all of Lehigh's assets, is
not deemed a liquidation, distribution or winding up for this purpose.
VOTING RIGHTS
The holders of record of Lehigh Common Stock; Lehigh's only class or
series of voting stock outstanding, are entitled to one vote for each share
held, except that, as more fully described under "Proposal No. 3 -- Election of
Directors," Lehigh's Restated Certificate of Incorporation provides for
cumulative voting in all elections of directors. Lehigh has proposed to amend
its Restated Certificate of Incorporation to eliminate the requirement for
cumulative voting in all future elections of directors by stockholders. See
"Proposal No. 2 -- The Certificate Amendments", Abstentions and broker non-votes
with respect to any proposal will be counted only for purposes of determining
whether a quorum is present for the purpose of voting on that proposal and will
not be voted for or against that proposal. The
56
presence, in person or by proxy, of the holders of one-third of the outstanding
Common Stock entitled to vote at the Meeting will constitute a quorum.
PREFERRED SHARES
Lehigh currently has 5,000,000 shares of preferred stock, $0.001 par
value, authorized. At this time there is no preferred stock issued or
outstanding.
DELAWARE LAW
Lehigh is subject to Section 203 of the GCL, which prevents an
"interested stockholder" (defined in Section 203, generally, as a person owning
15% or more of a corporation's outstanding voting stock) from engaging in a
"business combination" with a publicly-held Delaware corporation for three years
following the date such person became an interested stockholder, unless: (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owns at least 85%
of the voting stock of the corporation outstanding at the time the transaction
commenced (subject to certain exceptions); or (iii) following the transaction in
which such person became an interested stockholder, the business combination is
approved by the affirmative vote of the holders of 66-2/3% of the outstanding
vote stock of the corporation not owned by the interested stockholder. A
"business combination" includes mergers, stock or asset sales and other
transactions resulting in a financial benefit to the interested stockholder. In
connection with its approval of the Merger Agreement, due to the existence of
the option between Mr. Zizza and DHB, the Lehigh Board of Directors exempted the
Merger from the requirements of Section 203.
The provisions authorizing the Board of Directors to issue preferred
stock without stockholder approval and the provisions of Section 203 of the GCL
could have the effect of delaying, deferring or preventing a change in control
of Lehigh.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
The transfer agent, warrant agent and registrar for the Lehigh Common
Stock is American Stock Transfer & Trust Company, New York, New York.
57
BUSINESS INFORMATION REGARDING DHB
DHB was originally incorporated as a New York corporation in 1992.
Effective April 17, 1995 (the "Reincorporation Date"), pursuant to the
authorization of the security holders of DHB, DHB was reincorporated (the
"Reincorporation") in Delaware. Any reference in this Joint Proxy
Statement/Prospectus to DHB as of or for any period ending prior to the
Reincorporation Date includes the New York corporation. Under the terms of the
Reincorporation, the Delaware corporation is the successor in interest to all
the rights, interests, assets and liabilities of the New York corporation.
Holders of certificates which, prior to the Reincorporation Date, evidenced
securities of the New York corporation, automatically became holders of a like
number of securities of the Delaware corporation and are entitled (subject to
compliance with customary procedures) to exchange their certificates for
certificates evidencing the Delaware corporation.
DECLARATION OF 50% STOCK DIVIDEND
On July 1, 1996, the Board of Directors of DHB declared a 50% stock
dividend (the "Stock Dividend") payable on July 16, 1996, to stockholders of
record as of July 15, 1996. As a result thereof, the number of outstanding
shares of the DHB Common Stock has been increased from 15,303,019 to 22,954,529.
Except where specifically noted, all information in this Joint Proxy
Statement/Prospectus about shares outstanding, per share financial information,
share prices, option prices, warrant prices, and the like have been restated to
give effect to the Stock Dividend as if it occurred prior to the date or period
for which such information is reported or disclosed herein.
BALLISTIC-RESISTANT EQUIPMENT
In November 1992, DHB acquired Protective Apparel Corporation of
America ("PACA"), which manufactures and distributes ballistic-resistant
equipment and apparel and related products used by police and other
law-enforcement and security personnel. In August 1995, DHB, through a wholly
owned subsidiary now known as Point Blank Body Armor, Inc., a Delaware
corporation ("Point Blank"), acquired from a trustee in bankruptcy certain
assets (the "Point Blank Assets"), free of all liabilities, of Point Blank Body
Armor, L.P., and an affiliated company (collectively, "Old Point Blank"), for a
cash payment of $2,000,000 at an auction held pursuant to Chapter 7 of the
United States Bankruptcy Code (the "Bankruptcy Code"). Prior to the filing of
the petition in bankruptcy, Old Point Blank had been the leading manufacturer of
bullet resistant garments and related accessories. PACA and Point Blank are now
wholly owned by DHB Armor Group Inc., a Delaware corporation (the "Armor
Group"), which is a wholly owned subsidiary of DHB.
PACA was founded in 1975 and has been engaged in the development,
manufacture and distribution of bullet- and projectile-resistant garments,
including bullet-resistant vests, fragmentation vests, bomb-protection blankets
and tactical load-bearing vests. Old Point Blank was founded in 1975 and was,
prior to its bankruptcy, the leading United States manufacturer of bullet- and
projectile-resistant garments. In addition to these products, both companies
distribute other ballistic-protection devices including helmets and shields, and
the Armor Group will continue to do so. In 1993, PACA began manufacturing and
distributing a line of reversible utility jackets which is marketed under the
trade name "DHB USA", and a line of nylon tactical equipment (holsters, gun
cases and specialty utility bags) which is marketed under the trade name "DHB
Systems." PACA's products are sold through a nationwide independent sales
representative and distributor network primarily to domestic law enforcement
agencies, the U.S. military, various federal government agencies, federal and
state correctional facilities, highway patrols and sheriffs' departments. Old
Point Blank marketed its products in a similar way. In 1990, in connection with
certain transactions, PACA entered into a domestic and international
non-competition
58
agreement with American Body Armor & Equipment, restricting DHB's right to sell
products outside the United States and to certain domestic distributors prior to
2000. In August 1995, the Armor Group purchased the agreement from American Body
Armor & Equipment, Inc., for a cash payment of $250,000, thereby terminating
this agreement and the restriction on the Armor Group against international
sales.
PROTECTIVE ATHLETIC EQUIPMENT
On December 20, 1994, DHB started up a business of manufacturing and
distributing protective athletic equipment and apparel by purchasing (the "NDL
Transaction"), through a wholly-owned subsidiary now known as NDL Products,
Inc., a Florida corporation (hereinafter, "NDL"), the assets (the "NDL Assets")
of N.D.L. Products, Inc., a Delaware corporation, and of its wholly owned
subsidiaries, for a cash payment of $3,080,000, net of cash acquired, at an
auction held pursuant to Chapter 7 the U.S. Bankruptcy Code. Prior to the
transaction and a conversion, the seller was a debtor-in-possession, under
Chapter 11 of the Bankruptcy Code. The transaction was consummated pursuant to
an order of the U.S. Bankruptcy Court, Southern District of Florida dated
12-20-94. NDL distributes protective athletic apparel and equipment, such as
elbow, breast, hip, groin, knee, shin and ankle supports, and wrist, elbow,
groin and knee braces.
ORTHOPEDIC PRODUCTS
DHB has recently entered the orthopedic products business by acquiring
the outstanding capital stock of Orthopedic Products, Inc., a Florida
corporation ("OPI"). DHB issued 270,000 shares of its registered DHB Common
Stock in March 1996, in two transactions, in exchange for all the outstanding
capital stock of OPI. The former owners of the OPI outstanding capital stock
continue to be officers of OPI. In each of the years ended September 30, 1995
and 1994, OPI had sales in excess of $3,000,000 and losses of approximately
$135,000 in 1995 and $105,000 in 1994.
OTHER BUSINESS
DHB also actively seeks to acquire and finance, as appropriate,
additional operating companies or interests therein. Since January 1, 1994, DHB
has effected the following transactions:
A 98% interest in the common stock of Intelligent Data Corporation, a
Nevada corporation ("ID"), which is a development-stage company engaged
in applying sophisticated telecommunications systems, known as "virtual
writing," for remote document signature and authentication, remote
issuance of bank or brokerage cashier's checks and the facilitation of
COD payment transactions.
A 100% interest in the capital stock of Royal Acquisition Corp.
("RAC"), whose principal asset is a film library.
Minority interests in the common stock or securities convertible into
common stock, of the following companies:
Zydacron, Inc., which designs and manufactures video
teleconferencing codecs that are fully compliant with ITU
H.320 standards. Zydacron codecs provide full-featured
multimedia capabilities that integrate into micro-computers
running Windows 3.1 operating system software. Zydacron's
family of codec products offers a low-cost full- function
"codec engine" that meets existing video teleconferencing
environments.
59
Darwin Molecular Corporation ("DMC"), which hopes to use DNA
sequencing to create novel drugs for the treatment of cancer,
AIDS and auto-immune disease.
Positron corporation, a publicly held Texas corporation, which
designs, manufacturers, markets and services advanced medical
imaging devices which utilize positron emission tomography
("PET") technology. Unlike other available imaging
technologies, PET technology permits the measurement of the
biological processes of organs and tissues as well as
producing anatomical and structural images.
Pinnacle Diagnostics, Inc., a privately held Delaware
corporation, which is engaged in marketing a variety of
medical diagnostic products.
FED Corporation, a development-stage company, which intends to
manufacturer liquid crystal display devices using proprietary
field emission display technologies, which can be used in
smart notebook computers and other smart devices.
Solid Manufacturing Co., of Fairplay, Colorado, a privately
held manufacturer of snowboards and related goods and
accessories.
Total Tel USA Communications, Inc., a regional long-distance
telecommunications company presently serving the New York-New
Jersey region, which is traded on NASDAQ.
DHB maintains its executive offices at 11 Old Westbury Road, Old
Westbury, New York 11568, telephone number (516) 997-1155. PACA is located in
Norris, Tennessee. NDL, Point Blank and OPI are located in Oakland Park,
Florida.
60
DHB MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis of DHB's financial condition and results of
operations should be read in conjunction with the financial statements,
including the notes thereto, contained elsewhere in this Prospectus.
GENERAL
DHB is a holding company which is principally engaged through its
wholly-owned subsidiaries in the development, manufacture and distribution of
bullet- and projectile-resistant garments, and the manufacture and distribution
of protective athletic equipment and apparel. In August 1995, DHB acquired
certain assets, free of all liabilities (the "Point Blank Assets") of Point
Blank Body Armor, L.P., and an affiliated company (collectively, "Old Point
Blank") at an auction held pursuant to Chapter 7 of the United States Bankruptcy
Code. In late December 1994, DHB started up its protective athletic equipment
business by acquiring the trade inventory, work in process, raw materials, trade
names and trademarks (the "NDL Assets") of N.D.L. Products, Inc., a Delaware
corporation, at an auction held pursuant to Chapter 7 of the Bankruptcy Code. In
March 1996, DHB acquired Orthopedic Products, Inc. ("OPI"), which is a
manufacturer of orthopedic products and a distributor of general medical
supplies. Intelligent Data Corporation ("ID"), a development stage company which
is a 98% owned subsidiary of DHB, is engaged in the design and production of
sophisticated telecommunications equipment for the remote execution and
authentication of documents. DHB also owns a minority interest in several other
companies, some privately held and some publicly held, in the pharmaceuticals
business, health care, telecommunications, and snowboard manufacturing. The
management of DHB is engaged in the review of potential acquisitions and in
providing management assistance to DHB's operating subsidiaries.
DHB commenced operations in November 1992 by acquiring the outstanding
common stock of PACA, a manufacturer and distributor of bullet-proof garments
and accessories. From the acquisition of PACA through December 20, 1994, i.e.,
the date of the start-up of NDL, PACA was DHB's only source of revenue from
operations. Thereafter, and to date, NDL and Point Blank are also a source of
revenue from operations.
The discussion that follows must be considered in light of the
significant changes in DHB's business at the end of 1994, and the acquisition of
the Point Blank Assets in August 1995, and should be read in conjunction with
the financial statements, including the notes thereto. DHB's financial condition
and results of operations in the future may also be materially affected by DHB's
acquisition of OPI in March 1996.
The Armor Group's products are sold nationally and internationally,
primarily to law enforcement agencies and military services. Sales to domestic
law enforcement agencies, including government, security and intelligence
agencies, police departments, federal and state correctional facilities, highway
patrol and Sheriffs' departments, comprise the largest portion of the Armor
Group's business. Accordingly, any substantial reduction in governmental
spending or change in emphasis in defense and law enforcement programs could
have a material adverse effect on the Armor Group's business. The acquisition of
the Point Blank Assets is expected to improve DHB's overall penetration of the
market for ballistic-resistant garments, equipment and accessories.
RESULTS OF OPERATIONS
61
Three Months ended June 30, 1996, compared to the three months ended
June 30, 1995. Consolidated net sales of DHB for the quarter ended June 30, 1996
was $6,604,450 versus $2,617,430 for the quarter ended June 30, 1995. This 152%
increase was primarily due to the inclusion of Point Blank, NDL and OPI. DHB had
a consolidated net income for the three months ended June 30, 1996 and 1995 of
approximately $532,000 and $151,000, respectively, principally because of the
increased sales volume.
Gross profit ratio for the three months ended June 30, 1996 increased
to 33% compared to a gross profit percentage of 25% for the three months ended
June 30, 1995. DHB's gross profit increased approximately $1,513,000 to
$2,158,643 for the three months ended June 30, 1996 as compared to the three
months ended June 30, 1995. The change in the gross profit ratio is primarily
due to the diversity of the product mix being sold in the different companies.
DHB's selling, general, and administrative expenses for the three
months ended June 30, 1996 increased to $2,051,217 from $1,156,454 for the three
months ended June 30, 1995. However, as a percentage of net sales, expenses
decreased to 31% of net sales for the quarter ended June 30, 1996, compared to
60% for the quarter ended June 30, 1995. This decrease principally resulted from
the efficiencies of operating NDL, Point Blank, and OPI at the same location and
stricter fiscal controls.
Interest expense, net of interest income, for the three months ended
June 30, 1996 increased to $94,072 from $69,666 for 1995, principally due to
increases in the borrowings of DHB.
DHB had a net realized gain of $108,401 and an unrealized gain on its
investments in marketable securities of $578,221 for the three months ended June
30, 1996, as compared to a net realized gain of $22,234 and an unrealized gain
of $708,952 for the three months ended June 30, 1995.
Six Months ended June 30, 1996, compared to the six months ended June
30, 1995. Consolidated net sales of DHB for the six months ended June 30, 1996,
increased from $5,269,520 to $13,649,078. The increase was primarily due to the
inclusion of Point Blank, NDL and OPI. DHB had a consolidated net income for
1996 and 1995 of approximately $1,108,000 and $179,000, respectively,
principally because of the appreciation of marketable securities and increased
sales volume.
Gross profit in 1996 increased by 131% over 1995 to $4,108,738. DHB's
gross profit ratio decreased from 34% in 1995 to 30% in 1996 due to the
diversity of the product mix, certain products are being sold at lower margins.
DHB's selling, general, and administrative expenses for 1996 increased
to $3,762,751 from $2,148,611 in 1995. However, as a percentage of net sales,
expenses decreased to 28% of net sales in 1996, compared to 41% in 1995. This
decrease principally resulted from the efficiencies of operating NDL, Point
Blank, and OPI at the same location and management's efforts to enforce tighter
fiscal controls.
Interest expense, net of interest income, for the six months ended June
30, 1996 increased to $162,608 from $88,385 for 1995, principally due to
increases in the borrowings of DHB.
DHB had a net realized gain of $94,416 and an unrealized gain on its
investments in marketable securities of $1,126,663 for the six months ended June
30, 1996, as compared to a net realized gain of $39,087 and an unrealized gain
of $610,392 for the six months ended June 30, 1995.
62
Year Ended December 31, 1995, compared to year ended December 31, 1994.
Consolidated net sales of DHB for the year ended December 31, 1995, increased by
$5,391,721, or 59% to approximately $14,494,000. The increase was primarily due
to the inclusion of Point Blank and NDL. The start-up of NDL on December 20,
1994, contributed less than $100,000 to sales in 1994 as compared to $4,276,603
in 1995. DHB had consolidated net income of approximately $244,000 for 1995, as
compared to a consolidated net loss of $75,243 for 1994. The improved results
are attributable to the ability to utilize volume discounts and eliminating
duplication of expenses, as well as income derived from the sale and
appreciation of DHB's marketable securities.
Gross profit in 1995 increased to $5,405,477, an increase of 119% over
1994. DHB's gross profit ratio increased from 27% in 1994 to 37% in 1995,
primarily because the products sold by Point Blank yielded greater margins.
DHB's selling, general and administrative expenses for 1995 increased
to $5,140,399 from $2,250,550 in 1994. These expenses as a percentage of net
sales were 35% in 1995, compared to 25% in 1994. The increase was attributable
to costs associated with the move of Point Blank and NDL into the present
location and other nonrecurring expenses.
Interest expense, net of interest income, for 1995 increased to
$303,615 from $65,072 for 1994, principally due to a decline in interest income
because of the use of DHB's funds in its operating business, and increases in
the borrowings of DHB.
DHB had a net realized gain of $675,743 and an unrealized gain on its
investments in marketable securities of $347,481 for the year ended December 31,
1995, as compared to a net realized loss of $360,817 and an unrealized loss of
$293,854 for the year ended December 31, 1994.
Year ended December 31, 1994, compared to the year ended December 31,
1993. Consolidated net sales of DHB for the year ended December 31, 1994,
increased by $1,995,000 (28%) to approximately $9,102,000. The increase was
primarily due to higher unit sales of ballistic- resistant vests and related
products by PACA. The start-up of NDL on December 20, 1994, contributed less
than $100,000 to sales in 1994. DHB had a consolidated net loss of approximately
$75,000 for 1994, as compared to consolidated net income of $231,000 for 1993,
principally because of the costs of ID's research and development on
telecommunication products.
Gross profit in 1994 increased to $2,480,756, an increase of 46% over
1993. DHB's gross profit ratio increased from 24% in 1993 to 27% in 1994,
primarily because of the mix of products sold in 1993 versus 1994.
DHB's selling, general and administrative expenses for 1994 increased
to $2,250,550 from $1,645,921 in 1993. These expenses as a percentage of net
sales were 25% in 1994, compared to 23% in 1993, principally because of the
acquisition of ID in April 1994. In 1994, DHB wrote off a loan- receivable of
approximately $58,000, which was made to the corporation from which DHB acquired
PACA. The loan was secured by accounts receivable, inventory and a personal
guaranty from an officer of the corporation. The corporation became insolvent
and ceased doing business. After all attempts to collect the debt out of the
security, including the personal guaranty, were unsuccessful, the loan was
written off.
Interest expense, net of interest income, for 1994 increased to $65,072
from $31,533 for 1993, principally due to a decline in interest income because
of the use of DHB's funds in its operating business, and increases in the
interest rates available to DHB.
63
DHB had a net realized loss of $360,817 and an unrealized loss on its
investments in marketable securities of $293,854 for the year ended December 31,
1994, as compared to a net realized gain of $196,063 and an unrealized loss of
$19,239 for the year ended December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
DHB's primary capital requirements over the next twelve months are to
assist PACA, Point Blank, NDL, OPI, ID and Media in financing their working
capital requirements, and to make possible acquisitions. PACA, Point Blank and
NDL sell most of their products on 60 - 90 day terms, and OPI sells most of its
products on 30-60 day terms, and working capital is needed to finance the
receivables, manufacturing process and inventory.
DHB's principal sources of cash to date have been proceeds from private
offerings of DHB's securities, and the Company has, throughout its existence,
obtained funds for acquisitions and operations from term bank loans for periods
of up to a year, which have been secured, in part, by the controlling
shareholder's hypothecation of marketable securities. In the past, the Company
has always been able to roll over such loans with new loans at prevailing
interest rates. At the present time, it has a term loan from the Chase Manhattan
Bank ("Chase") in the amount of $1,150,000 coming due in September 1996, and a
loan of $1,400,000 from the Bank of New York coming due in December 1996. There
is no assurance that the Company will be able to roll over such term loans as
they become due. Of the proceeds drawn down to date, $1,400,000 were used by DHB
to refinance PACA's obligations to another financial institution, and $1,150,000
were used to purchase the NDL Assets and provide NDL with working capital. In
1995, DHB realized $815,000 from the exercise of outstanding Redeemable
Warrants.
Mr. David H. Brooks, Chairman of the Board, and/or his wife, Mrs. Terry
Brooks, made term loans due in April 1997 of $1,140,000, bearing interest at 9%
per year, and entered into a collateral agreement (the "Collateral Agreement")
with Chase to pledge certain marketable securities owned by Mr. Brooks and Mrs.
Brooks to partially secure the term loans and other obligations of DHB to Chase.
In exchange for this, DHB granted to Mrs. Terry Brooks, on December 20, 1994,
5-year warrants to purchase 2,500,000 shares of DHB's Common Stock, at a price
of $1.33 per share after giving effect to the 50% Stock Dividend. The payment of
this dividend with the full reserve of the warrants outstanding would exceed the
authorized capital. Mrs. Brooks released the Company from its obligation to
reserve these shares and agreed not to exercise her Warrants until such time as
the Company increased its authorized capital. The warrants contain provisions
for a one-time demand registration, and piggyback registration rights. All of
the aforesaid loans were made directly to DHB, and DHB has lent the loan
proceeds to NDL. Mr. David Brooks also lent $2,000,000 to DHB to provide the
major portion of funds needed to purchase the Point Blank Assets, of which
$750,000 is currently outstanding. Mr. and Mrs. Brooks have also pledged certain
of their personal assets to secure the BNY Loan.
In connection with the start-up of NDL, DHB relocated substantially all
the NDL Assets to a 67,000 square foot office and warehouse facility located at
4031 N.E. 12th Terrace, Oakland Park, Florida 33334, which is now owned by
affiliates of Mr. Brooks. That facility is also used by Point Blank and OPI.
DHB's consolidated working capital at December 31, 1995 and 1994 was
$6,526,004 and $5,202,592 respectively, and its ratio of current assets to
current liabilities was 1.85:1 and 2.55:1, respectively, on such dates. DHB
believes that it has sufficient resources to meet its working capital
requirements for the next twelve months.
ID's working capital requirements are to finance the manufacturing and
marketing costs associated with its initial product, and research and
development costs associated with product enhancements and new products. ID's
principal sources of working capital will be borrowings. Media's working capital
64
requirements will be determined as different avenues for the exploitation of its
film library are researched and developed. The film library is not expected to
bring in significant revenues to DHB. DHB believes that it has sufficient funds
to meet Media's anticipated needs for the next twelve months.
DHB invested approximately $3,816,750 (as of June 30, 1996, on a
historical cost basis) in the securities of certain privately held companies and
restricted securities of certain public companies, which are included in
"Investments in Non-marketable Securities" on DHB's balance sheet.
EFFECT OF INFLATION AND CHANGING PRICES.
DHB did not experience increases in raw material prices during the year
ended December 31, 1995 or 1994, or in the first half of 1996. DHB believes
PACA, Point Blank and NDL will be able to increase prices on their products to
meet future price increases in raw materials, should they occur.
65
DESCRIPTION OF DHB'S CAPITAL STOCK
OUTSTANDING SHARES AND RECORD DATE
On September __, 1996 (the "DHB Record Date"), there were [22,954,529]
shares of DHB Common Stock outstanding and entitled to vote at the DHB Meeting
(including the shares issued in connection with the 50% stock dividend described
below). Shareholders of record at the close of business on the DHB Record Date
shall be entitled to vote at the DHB Meeting.
The following is a summary of certain provisions of the DHB Certificate
of Incorporation, as amended, and rights accorded to holders of DHB Common Stock
generally and as a matter of law, and does not purport to be complete. It is
qualified in its entirety by reference to DHB's Restated Certificate of
Incorporation, DHB's By-Laws, and the GCL.
DHB COMMON STOCK
GENERAL. Under DHB's Delaware charter and applicable law, the Board of
Directors has broad authority and discretion to issue convertible preferred
stock, options and warrants, which, if issued in the future, may impact the
rights of the holders of the DHB Common Stock.
DIVIDENDS. Holders of DHB Common Stock may receive dividends if, as and
when dividends are declared on DHB Common Stock by DHB's Board of Directors. On
July 1, 1996 DHB declared a 50% stock dividend to stockholders of record on July
15, 1996 payable July 16, 1996. If the Board of Directors hereafter authorizes
the issuance of preferred shares, and such preferred shares carry any dividend
preferences, holders of DHB Common Stock may have no right to receive dividends
unless and until dividends have been declared and paid. At the present time,
there is no preferred stock authorized or outstanding. The ability of DHB to
lawfully declare and pay dividends on DHB Common Stock is also limited by
certain provisions of applicable state corporation law. It is not expected that
dividends will be declared on the DHB Common Stock in the foreseeable future.
DISTRIBUTIONS IN LIQUIDATION. If DHB is liquidated, dissolved and wound
up for any reason, distribution of DHB's assets upon liquidation would be made
first to the holders of preferred shares, if any, and then to the holders of the
DHB Common Stock. If DHB's net assets upon liquidation were insufficient to
permit full payment to the holders of shares of preferred stock, if any, then
all of the assets of DHB would be distributed pro rata to the holders of shares
of preferred stock and no distribution will be made to the holders of the DHB
Common Stock. There are no shares of preferred stock authorized, issued or
outstanding at this time. A consolidation or merger of DHB with or into any
other company, or the sale of all or substantially all of DHB's assets, is not
deemed a liquidation, distribution or winding up for this purpose.
VOTING RIGHTS. Each share of DHB Common Stock is entitled to one vote
on all matters to be voted on at meetings of the stockholders of DHB, including
the election of directors. The holders of DHB Common Stock will be entitled to
elect all of DHB's directors. Holders of DHB Common Stock do not have any
cumulative voting rights or preemptive rights.
PREFERRED SHARES
DHB's Delaware charter authorizes the Board of Directors to issue up to
5,000,000 shares of preferred stock, $0.001 par value of DHB, in such amounts
and with such rights to dividends, voting,
66
conversion, redemption and other terms as the Board may determine. At this time,
no preferred stock is authorized, issued or outstanding. DHB had previously
issued Class A convertible preferred stock, but all outstanding preferred shares
were called in November, 1995.
67
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS
DHB and Lehigh are Delaware corporations subject to the provisions of
the Delaware General Corporation Law (the "GCL"). Stockholders of DHB, whose
rights are governed by DHB's Charter and Bylaws and by the GCL, will, upon
consummation of the Merger, become stockholders of Lehigh whose rights will then
be governed by the Certificate of Incorporation and By-laws of Lehigh and by the
GCL. The following is a summary of the material differences between the rights
of stockholders of DHB and Lehigh, as such differences arise from the provisions
of the GCL and from the provisions of the charter and by-laws of each of DHB and
Lehigh.
The following summaries do not purport to be complete statements of the
rights of Lehigh stockholders under the Lehigh Certificate of Incorporation and
Lehigh's By-laws as compared with the rights of DHB stockholders under DHB's
Charter and By-laws or a complete description of the specific provisions
referred to herein. The identification of specific differences is not meant to
indicate that other equal or more significant differences do not exist. These
summaries are qualified in their entirety by reference to the GCL and governing
corporate instruments of Lehigh and DHB, to which stockholders are referred. The
terms of Lehigh's capital stock are described in greater detail under
"Description of Lehigh's Capital Stock." Certain topics discussed below are also
subject to federal law and the regulations promulgated thereunder.
ELECTION AND REMOVAL OF DIRECTORS
Under the GCL and the Certificate of Incorporation of DHB, and of
Lehigh as it is proposed to be amended by Proposal No. 2 herein, directors are
elected by a plurality of the shares entitled to vote and voting at a meeting,
each share having one vote, and any director may be removed, with or without
cause, by the holders of a majority of the shares then entitled to vote at an
election of directors. Currently, the Lehigh Certificate of Incorporation
provides for cumulative voting. If the proposed Certificate Amendment to
eliminate cumulative voting for Lehigh directors (Part B of Proposal No. 2) is
not adopted, in the election of directors each holder of Lehigh Common Stock
will be entitled to cast such number of votes as shall equal the number of such
shares owned by such holder multiplied by the number of directors to be elected
and may cast such votes for a single candidate or distribute them among two or
more candidates as such holder may determine, and no director may be removed
without cause if the votes cast against his removal would be sufficient to elect
him if then cumulatively voted at an election of the entire board of directors.
QUORUM AT MEETINGS OF STOCKHOLDERS
The number of shares required to be represented to constitute a quorum
for the conduct of business at a meeting of the DHB stockholders is a majority
of the outstanding shares of DHB Common Stock and at a meeting of the Lehigh
stockholders is one-third of the outstanding shares of Lehigh Common Stock.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DHB By-laws, a special meeting of stockholders shall be
called upon the request of the record holders of a majority of the outstanding
stock of DHB entitled to vote at such meeting. No such provision is contained in
the Lehigh By-laws.
68
ACTION OF STOCKHOLDERS BY WRITTEN CONSENT
Under the GCL and the Certificate of Incorporation of each of DHB and
Lehigh, any action required or permitted to be taken at a meeting of the
stockholders of each of DHB and Lehigh may be taken without a meeting by written
consents signed by the holders of the common stock of the respective
corporations having less than the minimum number of votes necessary to take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
If Part C of Proposal No. 2 is adopted by the Lehigh stockholders, the
Lehigh Certificate of Incorporation will prohibit the stockholders of Lehigh
from taking action by written consent.
AMENDMENT OF CERTIFICATE OF INCORPORATION
Generally, the vote of a majority of the outstanding stock entitled to
vote thereon is required to amend the Certificate of Incorporation of either DHB
or Lehigh. However, the Certificate of Incorporation of Lehigh requires the
affirmative vote of the holders of 80% of the outstanding shares of Lehigh
Common Stock voting at a meeting of the Lehigh stockholders in order to amend
the provisions of the current Certificate of Incorporation which establish the
number of directors on the Lehigh Board at six directors and which provide for
cumulative voting for the election of Lehigh directors.
If Part E of Proposal No. 2 herein is adopted by the Lehigh
stockholders, the affirmative vote of the holders of at least 60% of the
outstanding shares of Lehigh Common Stock will be required to amend the
provisions of the Certificate of Incorporation (if adopted by the Lehigh
stockholders) eliminating cumulative voting in the election of directors,
eliminating stockholders' action by written consent, and fixing the number of
directors at between six and nine, to be determined from time-to-time by the
Board of Directors.
69
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF LEHIGH
The following table sets forth information as of September 3, 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 Lehigh 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)(2) OF CLASS (2)
------------------- --------------------------- -------------
Southwicke Corporation (a 2,670,757 (4) 25.8% (4)
wholly owned subsidiary of
Halton House, Ltd. of which The
Halton Declaration of Trust is
beneficial owner and over which
Bahamas Proctors, Ltd. exercises
all power with respect to
investment or voting of securities
beneficially owned by said Trust
("Southwicke")
1430 Broadway
New York NY 10018
Fidelity Bankers Life Insurance 799,921 7.7%
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 7.2%
("Allstate")
Allstate Plaza South G4B
2880 Sanders Road
Northbrook, IL 60062 (2)
Teachers Insurance and Annuity 533,280 5.2%
Association ("Teachers")
730 Third Ave.
New York, NY 10017 (2)
Kenneth Godt as Trustee for The 750,000 (4) 7.3% (4)
Orion Trust (The "Godt Trust")
c/o Siegel & Godt
666 Old Country Road
Garden City, NY 11530 (2)
Salvatore J. Zizza 12,255,502 (3) 54.2% (3)
c/o The Lehigh Group Inc.
810 Seventh Ave.
New York, NY 10019 (3)
70
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1)(2) OF CLASS (2)
------------------- --------------------------- -------------
The Equitable Life Assurance 637,113 6.2%
Society of the United States
("Equitable")
787 Seventh Ave.
New York, NY 10019 (2)
DHB Capital Group Inc. 6,000,000 (3 & 5) 37.0% (5)
("DHB")
11 Old Westbury Road
Old Westbury, NY 11568 (5)
(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.
(2) Based on information set forth on Schedules 13G and Schedules 13D filed
with the SEC by Southwicke dated July 12, 1996; Sears, Roebuck and Co.
(parent of Allstate) dated September 22, 1994; Equitable on February 9,
1996, The Godt Trust on September 26, 1994, Teachers on April 23, 1992
and DHB on July 17, 1996 (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) Lehigh receives aggregate net
cash proceeds of at least $10 million from the sale (whether public or
private) of its equity securities, (ii) Lehigh 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. Lehigh also granted to him one demand registration
right (exercisable only if Lehigh 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. Only July
8, 1996 Mr. Zizza sold to DHB an option to purchase up to 6,000,000
shares at $.50 per share from Lehigh under Mr. Zizza's existing options
and warrants.
(4) On July 2, 1996, Kenneth Godt as Trustee for The Orion Trust granted an
irrevocable proxy to Southwicke to vote all of its 750,000 shares with
respect to the election of directors and the
71
approval of a business combination. Said irrevocable proxy will expire
June 30, 1997. The shares shown as beneficially owned by Southwicke
include these 750,000 shares.
(5) On July 8, 1996, DHB purchased an option from Mr. Zizza to purchase
6,000,000 shares of Lehigh's common stock at $.50 per share.
SECURITY OWNERSHIP OF MANAGEMENT
The following table indicates the number of shares of Lehigh Common
Stock beneficially owned as of September 3, 1996 by (i) each director of Lehigh,
(ii) each of the executive officers named in the Summary Compensation Table set
forth above and (iii) all directors and executive officers of Lehigh as a group.
Name of Beneficial Amount and Nature of
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) 1.4
Salvatore M. Salibello 10,000(5) *
Anthony F. L. Amhurst 10,000(5) *
Joseph Delowery 0 *
All executive officers
and directors as a group
(7 persons) 12,538,262 (4) 5.5(4)
* Less than 1%.
(1) Except as otherwise indicated, 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 of Lehigh," above.
(3) Includes options to purchase 175,000 shares of common stock at $.50 per
share. Excludes options to purchase 75,000 shares of common stock at
$.50 per share which become exercisable December 31, 1996. Subject to
the effectiveness of the Merger, on July 8, 1996, Mr. Bruno agreed to
exchange his options to purchase 250,000 shares of Lehigh Common Stock
at an exercise price of $.50 per share, for an option to purchase
92,000 shares of Lehigh's Common Stock exercisable at $1.00 per share,
over a four year period, with 25% of said options vesting on each
consecutive anniversary of the Effective Date of the Merger.
72
(4) Includes and excludes shares as indicated in notes (2) and (3) above.
(5) Represents options to purchase common stock at $.50 per share.
LEGAL MATTERS
The validity of the shares of the Lehigh Common Stock to be issued in
connection with the Merger and certain other legal matters relating thereto will
be passed upon for Lehigh by Olshan Grundman Frome & Rosenzweig LLP, New York,
New York. Opton Handler Gottlieb Feiler & Katz, LLP is acting as counsel to DHB
in connection with certain legal matters relating to the Merger and the
transactions contemplated thereby.
EXPERTS
The financial statements and schedule of Lehigh included in this Joint
Proxy Statement/Prospectus and the Registration Statement have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
The audited financial statements of DHB as of December 31, 1995 and
1994, and for each of the years then ended, which are included in this Joint
Proxy Statement/Prospectus, have been so included in reliance on the reports of
Capraro, Centofranchi, Kramer & Co. P.C. (formerly known as Mincone, Capraro &
Centofranchi, P.C.), as independent certified public accountants, appearing
elsewhere herein, and upon the authority of such firm as experts in auditing and
accounting. The audited financial statements of OPI as of September 30, 1995 and
1994, and for each of the years then ended, which are included in this Joint
Proxy/Prospectus, have been so included in reliance on the reports of Jay Howard
Linn, C.P.A., as independent certified public accountant, appearing elsewhere
herein, and upon his authority as expert in auditing and accounting.
73
INDEX TO FINANCIAL STATEMENTS
DHB CAPITAL GROUP INC. ("DHB"):
Independent Auditors' (Capraro, Centofranchi, Kramer & Co., P.C.) Report
on the Financial Statements as of and for the Year Ended 12/31/95.........F-2
Consolidated Balance Sheet as of 12/31/95..................................F-3
Consolidated Statements of Income (Loss) for the Years Ended 12/31/95
and 12/31/94............................................................. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
12/31/95 and 12/31/94.....................................................F-5
Statements of Cash Flows for the Years Ended 12/31/95 and 12/31/94.........F-6
Notes to Consolidated Financial Statements..........................F-7 - F-15
ORTHOPEDIC PRODUCTS, INC. ("OPI"):
Independent Auditor's (Jay Howard Linn, C.P.A.) Report on the Financial
Statements as of and for the Years Ended 9/30/95 and 9/30/94F-16
Balance Sheets as of 9/30/95 and 9/30/94..................................F-17
Statements of Operations and Retained Earnings for the Years Ended 9/30/95
and 9/30/94..............................................................F-18
Statements of Cash Flows for the Years Ended 9/30/95 and 9/30/94..........F-19
Notes to Financial Statements......................................F-20 - F-22
THE LEHIGH GROUP INC. ("LEHIGH"):
Independent Auditors' (BDO Seidman, LLP) Report on the Financial Statements
as of and for the Years Ended 12/31/95, 12/31/94 and 12/31/93............F-23
Consolidated Balance Sheet as of 12/31/95 and 12/31/94..............F-24 - F25
Consolidated Statements of Operations for the Years Ended 12/31/95, 12/31/94,
and 12/31/93.............................................................F-26
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the
Years Ended 12/31/95, 12/31/94, and 12/31/93.............................F-27
Consolidated Statements of Cash Flows for the Years Ended 12/31/95,
12/31/94, and 12/31/93...................................................F-28
Notes to Consolidated Financial Statements..........................F-29 - F36
Schedule of Valuation and Qualifying Accounts for the Years Ended
12/31/95, 12/31/94, and 12/31/93.........................................F-37
INTERIM FINANCIAL INFORMATION
OPI:
Balance Sheet as of 12/31/95..............................................F-38
Statements of Operations and Retained Earnings for the Three Months
Ended 12/31/95...........................................................F-39
Statements of Cash Flows for the Years Ended for the Three Months
Ended 12/31/95...........................................................F-40
DHB:
Consolidated Balance Sheet as of 06/30/96.................................F-41
Consolidated Statements of Income for the Three Months Ended 06/30/96
and 06/30/95............................................................ F-42
Consolidated Statements of Income for the Six Months Ended
06/30/96 and 06/30/95....................................................F-43
Consolidated Statements of Cash Flows for the Six Months Ended
06/30/96 and 06/30/95....................................................F-44
Notes to Consolidated Financial Statements.......................F-45 and F-47
LEHIGH:
Consolidated Balance Sheet as of 06/30/96........................F-48 and F-49
Consolidated Statements of Operations for the Three Months and
Six Months Ended 06/30/96 and 06/30/95...................................F-50
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the Six Months Ended 06/30/96 and 06/30/95.................F-51
Consolidated Statements of Cash Flows for the Six Months Ended
06/30/96 and 06/30/95....................................................F-52
Notes to Consolidated Financial Statements................................F-53
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction..............................................................F-54
Pro Forma Consolidated Balance Sheet of DHB and Lehigh as of 06/30/96.....F-55
Pro Forma Consolidated Statement of Income (Loss) of DHB, OPI and Lehigh
for the Year Ended 12/31/95..............................................F-56
Pro Forma Consolidated Statement of Income (Loss) of DHB, OPI and
Lehigh for the Six Months Ended 6/30/96..................................F-57
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
DHB Capital Group Inc.
We have audited the accompanying consolidated balance sheet of DHB Capital Group
Inc. and Subsidiaries as of December 31, 1995 and the related consolidated
statements of income (loss), stockholders' equity and cash flows for the years
ended December 31, 1995 and 1994. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DHB Capital Group Inc. and
Subsidiaries as of December 31, 1995, and the results of its operations and its
cash flows for the years ended December 31, 1995 and 1994, in conformity with
generally accepted accounting principles.
/s/ Capraro, Centofranchi, Kramer & Co., P.C.
---------------------------------------------
Capraro, Centofranchi, Kramer & Co., P.C.
South Huntington, New York
March 14, 1996
F-2
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 475,108
Marketable securities 1,829,856
Accounts receivable, less allowance for doubtful accounts of $70,000 3,819,571
Inventories 7,856,199
Prepaid expenses and other current assets 208,510
----------
Total Current Assets $14,189,244
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation and
amortization of $325,454 1,077,066
OTHER ASSETS
Intangible assets, net 721,327
Investments in non-marketable securities 3,316,750
Deposits and other assets 160,821
---------
Total Other Assets 4,198,898
---------
TOTAL ASSETS $19,465,208
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note Payable $ 2,550,000
Accounts Payable 2,847,690
Due to shareholders 1,890,000
Accrued expenses and other current liabilities 301,068
Deferred taxes payable 23,700
State income taxes payable 50,782
----------
Total Current Liabilities $ 7,663,240
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock 219
Common stock 20,762
Additional paid-in capital 12,116,549
Common stock subscription receivable (437,500)
Retained earnings 101,938
----------
Total Stockholders' Equity 11,801,968
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,465,208
See accompanying notes to financial statements.
F-3
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
---- ----
Net Sales $14,494,094 $ 9,102,373
Cost of Sales 9,088,617 6,621,617
--------- ---------
Gross Profit 5,405,477 2,480,756
Selling, general and administrative expenses 5,140,399 2,250,550
--------- ---------
Income before other income (expense) 265,078 230,206
--------- ---------
Other Income (Expense)
Interest expense, net of interest income (303,615) (65,072)
Dividend Income 1,710 1,140
Payment to rescind restrictive covenant (250,000)
Write-off of uncollectible loan receivable --- (57,889)
Realized gain (loss) on marketable securities 675,743 (360,817)
Unrealized gain (loss) on marketable securities) 347,481 (293,854)
------- ---------
Total Other Income (Expense) 471,319 (776,492)
------- ---------
Income (loss) before minority interest and income tax (benefit) 736,397 (546,286)
Minority interest of consolidated subsidiary -- 91,655
---------- ----------
Income (loss) before income tax (benefit) 736,397 (454,631)
Income taxes (benefit) 491,922 (379,388)
------- ---------
Net Income (loss) $244,475 (75,243)
======== ==========
Earnings (loss) per common share
Primary $0.01 $(0.004)
===== ========
Fully Diluted $0.01 $(0.004)
===== ========
Weighted average number of common share outstanding:
Primary 21,167,754 16,701,220
========== ===========
Fully Diluted 21,689,754 16,854,861
========== ===========
See accompanying notes to financial statements
F-4
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NUMBER OF NUMBER OF
PREFERRED COMMON
SHARES PAR VALUE SHARES
------ --------- ------
Balance, December 31, 1993 104,687 $1,047 10,504,452
Loss for the year ended
December 31, 1994
Sale of common stock 812,500
Conversion of preferred
stock into common stock (40,625) (406) 81,250
Issuance of common stock to
acquire subsidiary 100,000
-------- -------- -----------
Balance - December 31, 1994 64,062 641 11,498,202
Net income for the year ended
December 31, 1995
Sale of common stock 1,955,000
Conversion of preferred
stock into common stock (42,187) (422) 84,374
Exercise of stock warrants 303,750
Common Stock-50% Dividend 6,920,665
------- ---- ----------
Balance - December 31, 1995 21,875 $219 20,761,991
====== ==== ==========
COMMON
ADDITIONAL STOCK
PAID-IN SUBSCRIPTION RETAINED
PAR VALUE CAPITAL RECEIVABLE EARNINGS TOTAL
--------- ------- ---------- -------- -----
Balance, December 31, 1993 $10,504 $5,002,499 --- $(67,294) $4,946,756
Loss for the year ended
December 31, 1994 (75,243) (75,243)
Sale of common stock 812 2,007,668 2,008,480
Conversion of preferred
stock into common stock 82 324 ---
Issuance of common stock to
acquire subsidiary 100 299,900 300,000
------- --------- -------- --------- ----------
Balance - December 31, 1994 11,498 7,310,391 --- (142,537) 7,179,993
Net income for the year ended
December 31, 1995 244,475 244,475
Sale of common stock 1,955 3,863,045 (437,500)
Conversion of preferred
stock into common stock 84 338 ---
Exercise of stock warrants 304 949,696 950,000
Common Stock-50% Dividend 6,921 (6,921) ---
-------- ----------- --------- ------- -----------
Balance - December 31, 1995 $20,762 $12,116,549 $(437,500) 101,938 $11,801,968
======= =========== ========== ======= ===========
See accompanying notes to financial statements.
F-5
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $244,475 $(75,243)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 254,956 217,091
Minority interest in loss of consolidated subsidiary ---- (91,655)
Realized (gain) loss on marketable securities (675,743) 360,817
Unrealized (gain) loss on marketable securities (347,481) 293,854
Write-off of uncollectible loan receivable --- 57,889
Deferred income taxes 440,000 (416,300)
Changes in assets and liabilities (Increase) Decrease in:
Accounts receivable (1,276,870) (346,261)
Marketable securities 1,150,655 (1,201,224)
Inventories (3,093,118) (94,863)
Prepaid expenses and other current assets 148,538 (22,102)
Deposits and other assets (76,962) (2,403)
Increase (decrease) in:
Accounts payable 2,336,854 104,322
Accrued expenses and other current liabilities 34,854 148,302
State income taxes payable 22,282 28,500
---------- ----------
Total Adjustments (1,082,035) (964,033)
----------- -----------
Net cash provided (used) by operating activities (837,560) (1,039,276)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for purchase of assets of subsidiary, net of cash acquired (2,000,000) (2,934,854)
Payments to acquire subsidiary --- (425,000)
Payments to acquire non-marketable securities (1,938,750) (1,378,000)
Collection of loan receivable acquired by issuance of common stock --- 150,000
Collections of loan receivable --- 9,000
Payments made for property and equipment (269,230) (142,555)
Payments for software development costs --- (10,691)
Payments of capitalized acquisition cost (14,277) ---
----------- -----------
Net Cash provided (used) by investing activities (4,222,257) (4,732,100)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable - bank --- 1,150,000
Net proceeds from note payable - shareholder 750,000 1,140,000
Net proceeds from sale of common stock 4,377,500 2,008,480
--------- ---------
Net cash provided (used) by financing activities 5,127,500 4,298,480
--------- ---------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 67,683 (1,472,896)
CASH AND CASH EQUIVALENTS - BEGINNING 407,425 1,880,321
----------- ---------
CASH AND CASH EQUIVALENTS - END $475,108 $407,425
========== =========
See accompanying notes to financial statements
F-6
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION/REPORTING ENTITIES
The consolidated financial statements of DHB Capital Group Inc. and Subsidiaries
(the "Company") include the following entities:
DHB CAPITAL GROUP, INC.
DHB Capital Group Inc. ("DHB") was incorporated on October 22, 1992 under the
laws of the State of New York. DHB was organized to seek, acquire and finance,
as appropriate, one or more operating companies. On February 15, 1995, the
holders of the common stock approved a re-incorporation of DHB as a Delaware
corporation, through a merger with a newly formed Delaware corporation.
PROTECTIVE APPAREL CORPORATION OF AMERICA
Protective Apparel Corporation of America ("PACA") was organized in 1975 and is
engaged in the development, manufacture and distribution of bullet and
projectile resistant garments, including bullet resistant vests, fragmentation
vests, bomb projectile blankets and tactical load bearing vests. In addition,
PACA distributes other ballistic protection devices including helmets and
shields. PACA is dependent upon a few suppliers for the raw materials utilized
to manufacture its products.
On November 6, 1992, PACA became a wholly-owned subsidiary of DHB, when DHB
purchased all of the issued and outstanding stock of PACA from PACA's former
parent, E.S.C. Industries, Inc, for $800,000. The transaction was accounted for
as a purchase and resulted in an excess purchase price over the fair market
value of the identifiable assets acquired and liabilities assumed of $465,278,
of which $312,086 was allocated to on-going government contracts and $153,192
was allocated to goodwill.
INTELLIGENT DATA CORP.
On April 1, 1994, the Company acquired 4,530,000 common shares (60.4% interest)
and 1,100,000 preferred shares of stock in Intelligent Data Corp. ("ID"), in
exchange for 425,000 shares of the Company's common stock. ID is engaged in the
development of sophisticated telecommunication systems. On July 1, 1994, a put
option was exercised by certain shareholders of ID resulting in an increase in
the Company's ownership to 89.58%. In December 1994, the Company converted all
of its preferred shares to common shares, increasing the Company's ownership to
98.35%. This transaction was accounted for as a purchase, and resulted in an
excess purchase price over the fair value of identifiable assets acquired and
liabilities assumed of $472,666 which was allocated to patents owned by ID.
DHB MEDIA GROUP, INC.
On April 15, 1994, DHB Media Group, Inc. ("Media"), a wholly-owned subsidiary of
the Company acquired all of the outstanding common stock of Royal Acquisition
Corp. in exchange for 100,000 shares of the Company's common stock, for a
purchase price of $300,000. Subsequent negotiations resulted in the reduction of
the acquisition cost by $36,550. Royal Acquisition Corp.'s primary assets were a
film library and a loan receivable of $150,000. The transaction was accounted
for as a purchase and resulted in the excess purchase price over the fair market
value of $113,450, of which $54,000 was allocated to the film library and
$59,450
F-7
was allocated to goodwill. Media intends to syndicate and market these films.
The loan receivable was collected in full during the year ended December 31,
1994.
NDL PRODUCTS, INC.
On December 20, 1994, the Company through a newly organized, wholly-owned
subsidiary, DHB Acquisition, Inc., ("Acquisition") purchased certain assets from
a debtor-in-possession, N.D.L. Products, Inc. for $3,080,000. Acquisition did
not assume any continuing obligations of the debtor-in-possession, nor did the
management of the debtor-in-possession continue. On February 21, 1995,
Acquisition changed its corporate name to NDL Products, Inc. NDL manufactures
and distributes specialized protective athletic apparel and equipment.
DHB ARMOR GROUP, INC.
On August 8, 1995, the Company formed a new Delaware Corporation which is a
wholly-owned subsidiary of the Company. The subsidiary, DHB Armor Group, Inc.,
("Armor"), now wholly owns PACA and Point Blank Body Armor, Inc., ("Point
Blank").
POINT BLANK BODY ARMOR, INC.
In August 1995, the Company, through a wholly-owned subsidiary known as USA
Fitness & Protection Corp, a Delaware Corporation, acquired from a trustee in
bankruptcy certain assets of Point Blank Body Armor, L.P. and an affiliated
company ("Old Point Blank"), for a cash payment of $2,000,000, free of all
liabilities. Prior to the filing of the petition in bankruptcy, Old Point Blank
had been a leading U.S. manufacturer of bullet- resistant garments and related
accessories. After acquiring the Old Point Blank, USA Fitness & Protection
Corp., amended its articles of incorporation to change their name to Point Blank
Body Armor, Inc. ("Point Blank").
PRINCIPLES OF CONSOLIDATION
All material intercompany transactions have been eliminated in the consolidated
financial statements.
USE OF 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 those estimates. Significant estimates include
those relating to the valuation of inventories and non-marketable securities,
and collectibility of receivables.
REVENUE RECOGNITION
Revenue is recognized on product sales upon shipment to the customer.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company includes cash on
deposit, money market funds and amounts held by brokers in cash accounts to be
cash equivalents.
F-8
MARKETABLE/NON-MARKETABLE SECURITIES
Effective for calendar year 1994, the Company adopted Financial Accounting
Standards Board Statement No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." In accordance with this standard, Securities which are
classified as "trading securities" are recorded in the Company's balance sheet
at fair market value, with the resulting unrealized gain or loss recognized as
income in the current period. Securities which are classified as "available for
sale" are also reported at fair market value, however, the unrealized gain or
loss on these securities is listed as a separate component of shareholder's
equity. Non-marketable securities, such as investments in privately-held
companies are carried at historical cost, if necessary, reduced by a valuation
allowance to net realizable value.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out) or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment is stated at cost. Major expenditures for property and
those which substantially increase useful lives are capitalized. Maintenance,
repairs, and minor renewals are expensed as incurred. When assets are retired or
otherwise disposed of, their costs and related accumulated depreciation are
removed from the accounts and resulting gains or losses are included in income.
Depreciation is provided by both straight-line and accelerated methods over the
estimated useful lives of the assets.
INTANGIBLE ASSETS
Goodwill is being amortized on a straight-line basis over ten years. The amount
allocated to on-going government contracts is being amortized over the life of
the individual contracts, which are typically 1-5 years. Patents are being
amortized on a straight-line basis over 17 years. Other intangible assets are
being amortized on a straight-line basis over their estimated lives, typically
5-15 years. Accumulated amortization was $409,297 and $301,033 as of December
31, 1995 and 1994, respectively.
EARNINGS PER SHARE
The computation of earnings per common share is based on the weighted average
number of outstanding common shares outstanding during the period. Primary
earnings per share and fully diluted earnings per share amounts assume the
conversion of the Cumulative Convertible Preferred Stock, and the exercise of
the stock warrants.
INCOME TAXES
The Company files a consolidated Federal tax return, which includes all of the
subsidiaries. Accordingly, Federal income taxes are provided on the taxable
income of the consolidated group. State income taxes are provided on a separate
company basis, if and when taxable income, after utilizing available
carryforward losses, exceeds certain levels.
DEFERRED INCOME TAXES
Deferred taxes arise principally from net operating losses and capital losses
available for carryforward against future years taxable income, and the
recognition of unrealized gains(losses) on marketable securities for financial
statement purposes, which are not taxable items for income tax purposes.
F-9
2. SUPPLEMENTAL CASH FLOW INFORMATION
1995 1994
---- ----
Cash paid for:
Interest $261,829 $78,602
Income taxes 35,774 7,983
Additionally, during, the year ended December 31, 1995 the Company had a
non-cash financing activity of $437,500 for a stock subscription receivable.
During the year ended December 31, 1994, the Company had non-cash investing
activities and it issued common stock to acquire all of the outstanding common
stock of Media at a value of $273,450. The Company also purchased a majority
interest in a subsidiary through the issuance of 425,000 shares of its common
stock.
3. MARKETABLE SECURITIES/NON-MARKETABLE SECURITIES
Following is a comparison of the cost and market value of marketable securities
included in current assets:
1995 1994
---- ----
Cost $1,482,375 $2,251,141
Unrealized gain (loss) 347,481 (293,854)
---------- ----------
Market Value 1,829,856 1,957,287
========= ==========
The Company's portfolio value of trading securities has been pledged as
collateral for the bank loans (see Note 6). However, the bank has placed no
restrictions on the Company's ability to trade freely in their portfolio.
The Company's investments in non-marketable securities is summarized as follows:
1995 1994
---- ----
Darwin Molecular Corporation (approximately 3.9% interest) $1,000,000 $1,000,000
Zydacron, Inc. (approximately 3.1% interest) 941,750 378,000
Pinnacle Diagnostics, Inc. (approximately 16.7% interest) 500,000 ---
FED Corporation (approximately 2.9% interest) 375,000 ---
Solid Manufacturing Co. - 10% convertible debentures
(approximately 9.5% interest, if converted) 500,000
--------- ----------
Totals 3,316,750 1,378,000
========= =========
All of these investments are carried at historical cost on the financial
statements of the Company, and are included under the caption "Investment in
non-marketable securities" on the balance sheet.
4. INVENTORIES
Inventories are summarized as follows:
1995
Finished products $3,844,506
Work-in process 1,209,849
Raw materials and supplies 2,801,844
----------
Total 7,856,199
==========
F-10
5. PROPERTY AND EQUIPMENT
Major classes of property and equipment consist of the following:
Estimated useful
LIFE - YEARS 1995
Deposit on building 39 $47,500
Machinery and equipment 5 - 10 759,797
Furniture and fixtures 5 - 7 249,986
Computer equipment 3 - 5 41,959
Transportation equipment 3 - 5 41,862
Leasehold improvements 5 - 31.5 261,416
----------
1,402,520
Less: accumulated depreciation and amortization 325,454
Net property and equipment ----------
1,077,066
==========
6. NOTES PAYABLE- FINANCIAL INSTITUTIONS
The Company has borrowed $2,550,000 in the form of two term loans. The first is
with the Bank of New York for $1,400,000 with interest at 6.43%, maturing in
June, 1996. The second loan is with Chase Manhattan Bank for $1,150,000 with
interest at 6.255%. This loan matures in September, 1996. These loans are
secured by substantially all of the Company's marketable securities portfolio
value, and certain personal investments of the majority shareholder. Both of
these loans require monthly payments of interest only.
7. DUE TO SHAREHOLDER
The amount due to shareholder represent notes payable which bear interest at 9%,
payable April and September, 1996.
8. RELATED PARTY TRANSACTIONS
DHB:
DHB leased its office location from a relative of the former president of DHB.
Included in DHB's statement of income (loss) for the years ended December 31,
1995 and 1994 is $16,514 and $15,424 of rent paid or accrued under this lease,
respectively (see note 10). Effective January 1996, the Company vacated the
premises and purchased a building for use as the corporate headquarters.
PACA:
PACA leases its location (see note 10) from the President of PACA. Included in
the statement of income (loss) for the years ended December 31, 1995 and 1994 is
$48,000 of rent paid under this lease for each period.
ID:
ID leased its office location from a relative of the former President of DHB.
Included in DHB's statement of income (loss) for the year ended December 31,
1995 and 1994 is $5,511 and $13,175 of rent paid or accrued under this lease,
respectively (see note 10). The premises were vacated in April, 1995.
F-11
NDL AND POINT BLANK:
NDL Products, Inc. and Point Blank Body Armor, Inc. lease their facilities from
a partnership indirectly owned by relatives of the majority shareholder of DHB
(note 10). Included in the statement of income (loss) for the year ended
December 31, 1995 is $300,000 of rent paid or accrued under the lease.
9. COMMITMENTS AND CONTINGENCIES
LEASES
PACA:
PACA is obligated under a lease for its manufacturing facility with a related
party (note 9). This lease expires October 31, 1997, and provides for minimum
annual rentals of $43,200, plus increases based on real estate taxes and
operating costs.
ID:
ID was obligated under a lease for its office space with a related party (note
9), which expired in April, 1995 for minimum annual rentals of $15,000, plus
increases based on real estate taxes and operating costs. The space was
relinquished in April, 1995 and there are no further obligations.
MEDIA:
Media leases its facilities for storing its film library on a month-to-month
basis. The current rental rate is $210 per month. The company relinquished this
space in January 1996 and is storing the film library at the corporate
headquarters.
NDL PRODUCTS, INC. AND POINT BLANK BODY ARMOR, INC.
NDL Products, Inc. and Point Blank Body Armor are obligated under a lease for
its facilities with a related party (note 9). The lease commenced January 1,
1995 and expires December, 1999. The lease provides for minimum annual rentals
of $300,000 for the initial year and then $480,000 the following year with
scheduled increases of 4% per year thereafter, plus real estate taxes, operating
costs and capital expenditures.
The following is a schedule by year of future minimum lease obligations under
noncancellable leases as of December 31, 1995:
1996 $523,200
1997 542,400
1998 562,368
1999 583,135
---------
Total minimum obligation 2,211,103
=========
Total rental expense under cancelable and noncancellable operating leases was
$440,269 and $85,989 for the years ended December 31, 1995 and 1994,
respectively.
EMPLOYMENT AGREEMENT
Concurrent with the purchase of PACA, the President of PACA was given a five
year employment agreement. This agreement calls for annual salaries ranging from
$115,000 in 1993 to $155,000 in 1997, plus certain fringe
F-12
benefits. During the year ended December 31, 1995, Two of NDL's officers were
given three year employment contracts. These agreement calls for annual base
salaries of 100,000 and 96,000 plus certain fringe benefits.
OPEN LETTERS OF CREDIT
At December 31, 1995 the Company was contingently liable for open unused letters
of credit totaling $120,253.
LITIGATION
Media brought suit against an individual, corporation and others with respect to
alleged representations involving the acquisition of the film library. Media is
seeking compensatory and punitive damages. No determination of the outcome can
be made at this time, and accordingly, there is no provision for any recoverable
amount, if any included in the financial statements.
ID is also involved in a lawsuit with a former consultant to the Company
regarding his alleged misappropriation of several of the Company's confidential
computer programs, and to restrain their dissemination. Management has commenced
prosecuting its position, however, no determination of the outcome can be made
at this time.
10. CAPITAL STOCK
Capital stock is as follows:
1995 1994
---- ----
DHB:
Class A Preferred stock, 10% convertible, $.01 par value,
1,500,000 shares authorized (see amendment below)
Shares issued and outstanding 21,875 64,062
-------- --------
Par Value $ 219 $ 841
======== ========
Common stock, $.001 par value, 25,000,000 shares authorized
Shares issued and outstanding 20,761,955 17,247,303
---------- ----------
Par Value $ 20,762 $ 17,247
========== ==========
AMENDMENT TO CERTIFICATE OF INCORPORATION:
In January, 1993, DHB amended its certificate of incorporation, as follows:
a) To expand and qualify the relative rights and preferences of the
previously authorized Preferred shares as follows: Class A Preferred
stock, $.40 per annum dividend, non-voting, cumulative, convertible,
$.01 par value, 1,500,000 shares authorized, no shares issued and
outstanding, (redeemable in liquidation at $4 per share, or callable at
$.01 per share after November 30, 1994, convertible into 2 shares of
common stock.) These shares were called in November, 1995. As of
December 31, 1995, the outstanding preferred shares represent shares
which have not yet been surrendered for conversion.
b) To eliminate preemptive rights.
c) To provide for indemnification of officers and directors.
d) To permit the holders of a majority of the outstanding shares of voting
stock to take action by written consent.
F-13
11. PRIVATE PLACEMENTS
COMMON STOCK:
During June, July, and August, 1995 the Company sold 1,955,000 shares of common
stock in private placements for proceeds of $3,910,000. Out of these proceeds
$45,000 of direct expenses were paid. These shares have not been registered with
the Securities and Exchange Commission.
During June, October, and November, 1994 the Company sold 387,500 shares of
common stock in private placements for proceeds of $875,000. Out of these
proceeds, direct expenses of $8,703 were paid.
12. STOCK WARRANTS
During 1995, various warrants which would have expired in November, 1995 from
the Company's original private placement were exercised by certain shareholders.
These shareholders were issued 303,750 shares of the Company's common stock for
net proceeds of $950,000. All remaining warrants for the original private
placement have expired.
In December, 1994, in consideration for monies loaned to the Company, the Board
of Directors granted Mrs. Terry Brooks, a related party, stock warrants to
purchase 2,500,000 shares of common stock for $1.33 per share for a five year
period commencing December 19, 1994.
In June, 1993, the board of directors granted stock warrants to certain
individuals and organizations to purchase 295,000 shares of the Company's common
stock for $1.33 per share during the three year period commencing July 1, 1994.
The Company has reserved these shares for issuance upon the exercise of the
warrants. Certain of these individuals are also employees of the Company, and
the warrants issued to these employees are contingent based upon continued
employment until July 1, 1994. 210,000 of the warrants issued in 1993 have been
terminated by the Company.
13. STOCK DIVIDEND
Subsequent to year end, the Board of Directors declared a preferred stock
dividend of 7,944 common shares with a market value of $3.77 per share for the
years ended December 31, 1995 and 1994, which has not yet been paid. All
earnings per share data has been restated giving retroactive effect to the
intended stock dividend.
14. INCOME TAXES
Components of income taxes are as follows:
1995 1994
---- ----
Current:
Federal $5,400 $72,350
State 58,922 36,912
Benefit of net operating loss carryforward (12,400) (72,350)
-------- --------
Total current 51,922 36,912
------ ------
Deferred:
Federal 451,500 (459,100)
State 60,300 (104,900)
Less: valuation allowance (71,800) 147,700
-------- -------
Total deferred 440,000 (416,300)
------- ---------
Total income taxes (benefit) 491,922 (379,388)
======= =========
F-14
The composition of the federal and state deferred taxes at December 31, 1995 was
arrived at as follows:
FEDERAL STATE
------- -----
Net Operating Loss $36,000 $ --
Allowance for Doubtful Accounts 10,500 5,600
Capital Loss Carryforwards --- 70,300
Unrealized gain on Marketable Securities (52,100) (31,300)
-------- --------
Subtotal (5,600) 44,600
Less: Valuation Allowance --- 75,900
---------- ----------
Net Deferred Taxes (5,600) (31,300)
========== ==========
The Valuation Allowance changed from $147,700 at December 31, 1994 to $75,900 at
December 31, 1995, for a decrease of $71,800.
At December 31, 1995 the Company has operating losses available for carryforward
against future years' taxable income of approximately $240,000 for tax purposes,
which would expire in 2008. The deferred tax assets for the future benefit of
the capital loss carryforward was reduced in full by a valuation allowance of
$70,300 as the Company estimates that sufficient future taxable capital gains on
a separate company basis for state tax purposes may not be available to provide
the full realization of such an asset.
15. SUBSEQUENT EVENT
As of March 7, 1996, the entire subscription received of $437,500 has been
collected.
16. EVENT SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
On July 16, 1996, the Company paid a 50% Common Stock dividend. The payment of
this dividend with the full reserve of the warrants outstanding would exceed the
authorized capital. The holder of warrants to purchase 2,500,000 shares of
common stock (the wife of the Company's Chairman) released the Company from its
obligation to reserve these shares and agreed not to exercise her Warrants until
such time as the Company increased its authorized capital. All data in the
accompanying financial statements and related notes have been restated to give
effect to the dividend.
F-15
JAY HOWARD LINN
CERTIFIED PUBLIC ACCOUNTANT
1160 KANE CONCOURSE
SUITE 205
BAY HARBOR ISLANDS, FLORIDA 33154
--------
TELEPHONE: (305) 866-8700
FAX: (305) 866-8782
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Orthopedic Products, Inc.
I have audited the accompanying balance sheets of Orthopedic Products, Inc. and
subsidiaries as of September 30, 1995 and 1994, and the related statements of
operations and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I have conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
materials respected, the financial position of Orthopedic Products, Inc. as of
September 30, 1995 and 1994, and the results of its operations and its cash
flows for the two years then ended in conformity with generally accepted
accounting principles.
/S/ JAY HOWARD LINN
- -------------------
JAY HOWARD LINN
APRIL 25, 1996
-----------------------------------------------------------------
MEMBER FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTS
F-16
ORTHOPEDIC PRODUCTS, INC.
BALANCE SHEET
SEPTEMBER 30,
1995 1994
---- ----
ASSETS
Current Assets
Accounts receivable (Net of allowance for uncollectible
accounts of $3,195 in both years $431,254 $556,422
Inventories 585,248 579,637
Prepaid insurance 8,407 7,350
Income tax refund receivable 43,334 25,406
Deferred income tax benefit 12,600 ---
------ ----------
Total current assets 1,080,843 1,168,815
--------- ---------
Property and Equipment (Net of accumulated depreciation of
$155,793 in 1995 and $130,377 in 1994) 29,184 46,335
------ ------
Other Assets:
Deposits 6,230 6,230
Intangible assets (Net of accumulated amortization of
$8,000 in 1995 and $7,200 in 1994 12,000 12,800
------ ------
Total other assets 18,230 19,030
------ ------
TOTAL ASSETS $1,128,257 $1,234,180
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 202,571 $ 184,780
Note payable - bank 311,627 283,239
Current portion of long-term debt 41,868 14,834
-------- --------
Total current liabilities 556,066 482,853
------- -------
Other Liabilities:
Long-term debt 236,554 280,446
Due to related parties 149,100 149,100
------- -------
Total other liabilities 385,654 429,546
------- -------
Total liabilities 941,720 912,399
------- -------
Stockholders' Equity:
Common stock - $1.00 par value, 7,500 shares authorized,
1,170 shares issued and outstanding 1,170 1,170
Additional paid-in capital 90,308 90,308
Retained earnings 95,059 230,303
-------- ---------
Total stockholders' equity 186,537 321,781
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,128,257 $1,234,180
========== ==========
See Accompanying Notes to Financial Statements
F-17
ORTHOPEDIC PRODUCTS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FISCAL YEAR ENDED SEPTEMBER 30,
1995 1994
---- ----
Sales $3,229,249 $3,524,824
Cost of Goods Sold 2,195,576 2,264,585
--------- ---------
Gross Profit 1,033,673 1,260,239
--------- ---------
Operating Expenses:
Selling 654,587 712,883
Administrative 544,858 661,418
--------- ---------
Total operating expenses 1,199,445 1,374,301
--------- ---------
Income (Loss) Before Income Taxes (165,772) (114,062)
Income Tax Benefit:
Current 17,928 8,785
Deferred 12,600 ----
--------- -------
Total income tax benefit 30,528 8,785
---------- ----------
Net Loss (135,244) (105,277)
Retained Earnings - Beginning 230,303 335,580
--------- ---------
Retained Earnings - End $ 95,059 $ 230,303
=========== ==========
See Accompanying Notes to Financial Statements.
F-18
ORTHOPEDIC PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED SEPTEMBER 30,
1995 1994
---- ----
Cash Flows from Operating Activities:
Net Loss $(135,244) $ (105,277)
---------- ----------
Adjustments to reconcile to net cash provided by operating activities:
Depreciation and amortization 22,540 20,469
Sales tax audit expense 0 184,998
Deferred income tax benefit (12,600) 0
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 125,168 (19,542)
Increase in inventory (5,611) (65,066)
Increase in prepaid insurance (1,057) (7,350)
Increase in income tax refund receivable (17,928) (23,782)
Increase (decrease) in accounts payable and accrued expenses 17,791 (93,237)
---------- -----------
Net adjustments 128,303 (3,510)
------- -----------
Net cash used by operating activities (6,941) (108,787)
---------- -----------
Cash Flows from Investing Activities:
Purchase of Equipment (4,589) (1,511)
Additional security deposits 0 (810)
------- ----------
Net cash used by investing activities (4,589) (2,321)
---------- ----------
Cash Flows from Financing Activities:
Net bank borrowings 28,388 106,990
Principal payment on long-term debt (16,858) (8,867)
---------- ----------
Net cash used by financing activities 11,530 98,123
-------- --------
Net Change in Cash 0 (12,985)
Cash - October 1, 0 12,985
--------- ---------
Cash - September 30, $ 0 $ 0
========= =========
Cash Paid For:
Interest $37,350 $21,061
Income Taxes 0 14,997
Non Cash Acquisition of Equipment 0 49,581
See Accompanying Notes to Financial Statements
F-19
ORTHOPEDIC PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION - The company sells orthopedic and other medical supplies primarily
throughout the Southeastern United States.
ACCOUNTS RECEIVABLE - The allowance for uncollectible accounts is determined on
the basis of the company's experience with its customers.
INVENTORIES - Inventories, consisting primarily of finished goods for resale and
raw materials are stated at the lower of cost or market. Cost is determined on
the first-in, first-out basis.
PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost and
depreciated in amounts sufficient to relate the cost of the assets to operations
over their estimated useful lives, using accelerated methods.
INTANGIBLE ASSET - Goodwill is being amortized, using the straight line method,
over 25 years.
INCOME TAXES - The Company has adopted Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes." There are no temporary
differences between financial statement and income tax reporting.
NOTE 2. NOTE PAYABLE - BANK
The Company has revolving credit facility of $450,000 from First Union National
Bank. It bears interest at 1% above prime. It is collateralized by inventories,
accounts receivable, property and equipment and guarantees by the stockholders.
Under the terms of the credit facility, the bank advances funds (up to the
credit limit) to cover the Company's checks as they are presented. The Company
has $218,754 outstanding against that line and a net overdraft of $62,964 or a
total of $281,718 at September 30, 1995 and $274,735 outstanding and a net
overdraft of $8,504 or a total of $283,239 at September 30, 1994.
NOTE 3. LONG TERM DEBT
Long-term debt consists of:
1995 1994
---- ----
9.71%, note payable, due in monthly installments of $1,876, including interest,
with final payment due June 1999. Equipment with an original cost of $89,943 is
pledged as collateral $70,449 $85,282
9.0%, note payable, (Note 5), due in monthly installments of $3,600 per month,
with a final payment due September 2001 207,973 209,998
------- -------
278,422 295,280
Less current maturities 41,868 14,834
-------- --------
Long-Term Debt $236,554 $280,446
======== ========
F-20
As of September 30, 1995, annual maturities of long-term debt outstanding for
the next five years are as follows:
1996 $ 41,868
1997 61,221
1998 63,062
1999 59,416
2000 and thereafter 52,855
--------
Total $278,422
NOTE 4. DUE TO RELATED PARTIES
The Company owes its stockholder-officers $149,100 as accrued salaries from
prior years. It is anticipated that this amount will not be repaid within the
next twelve months.
NOTE 5. SALES TAX AUDIT SETTLEMENT:
The Florida Department of Revenue conducted an audit of Sales and Use Tax
collections for the period January 1, 1985 to October 31, 1992. The Company
settled the audit for $209,998, with interest accruing at 9% per annum. The note
is payable in seventy-two monthly payments of $3,600. Initially the payments are
applied in full to the tax liability. Once the tax liability is paid in full,
July 15, 2000 the payments are applied to the accrued interest. Although the
settlement was concluded in 1995, effect was given to it in the year ended
September 30, 1994. The company now collects and remits Florida sales taxes on
those sales deemed to be taxable.
NOTE 6. INCOME TAXES
Components of income taxes benefit are as follows:
1995 1994
---- ----
Current:
Federal $17,928 $8,875
State 0 0
------- -------
Total current 17,928 8,875
------- -------
Deferred:
Federal 12,600 0
State 0 0
------- --------
Total deferred benefit 12,600 0
------- --------
Total income taxes benefit $30,528 $ 8,875
======= ========
The composition of deferred taxes at September 30, 1995 was $12,600 for Federal
taxes. The Company has not provided for valuation allowance at September 30,
1995, because the Company anticipates they will be able to utilize the
carryforward losses before they expire. At September 30, 1995 the Company has
operating losses available for carryforward against future years' taxable income
of approximately $84,000 for tax purposes, which would expire in 2010.
NOTE 7. COMMITMENT AND CONTINGENCY:
F-21
The following is a schedule by year of future minimum lease obligations under
noncancellable leases as of September 30, 1995.
1996 $ 83,602
1997 83,602
1998 83,602
1999 $ 76,635
--------
Total $327,441
Total rental expense under cancelable and noncancellable operating leases was
$84,814 and $80,374 for the years ended September 30, 1995 and 1994,
respectively.
F-22
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-23
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 doubtful 4,335 4,611
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 accumulated 61 105
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-24
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 6) 2,080 2,361
------- -----
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 financial statements.
F-25
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 financial statements.
F-26
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 of Number
Shares Amount of Shares
-------------- -------- ---------
Balance December 31, 1992 -- -- 10,978
Exchange of Class A and B
notes in connection with sale of
subsidiary (3,320)
Net Income -- -- --
----- ----- -----
Balance December 31, 1993 -- $-- 7,658
Issuance of common stock in
connection with private
placement 2,681
Net Income -- -- --
----- ----- -----
Balance December 31, 1994 -- $-- 10,339
===== ===== ======
Net Loss -- -- --
----- ----- -----
Balance December 31, 1995 -- $-- 10,339
===== ===== ======
Years Ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------------------------------
(in thousands)
Preferred Stock Common Stock
-------------- -------------------
Additional Treasury
Paid-In Deficit From Stock At
Amount Capital Jan. 1, 1986 Cost Total
-------- ---------- ------------ ----------- -----------
Balance December 31, 1992 11 69,454 (112,852) (1,654) (45,041)
Exchange of Class A and B
notes in connection with sale of
subsidiary 36,121 36,121
Net Income -- 3,821 3,821
--- -------- ---------- -------- --------
Balance December 31, 1993 $11 $105,575 $(109,031) $(1,654) $(5,099)
Issuance of common stock in
connection with private
placement 1,019 1,019
Net Income -- 4,590 -- 4,590
--- -------- ---------- -------- -------
Balance December 31, 1994 11 $106,594 $(104,441) $(1,654) $ 510
=== ======== ========== ======== =======
Net Loss -- $ (308) -- $ (308)
--- -------- ---------- -------- --------
Balance December 31, 1995 11 $106,594 $(104,749) $(1,654) $ 202
=== ======== ========== ======== =======
The accompanying notes to consolidated financial statements are an integral part
of these financial statements.
F-27
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)
Net proceeds from the sale of subsidiary -- -- 750
---- ---- ----
Net cash provided by (used in) investing activities (21) (39) 726
----- ----- ----
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 -- 1,019 ---
----- ----- ------
Net cash provided by (used in) financing activities (290) 656 (449)
------- ------ --------
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 financial statements.
F-28
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, and since
November 1, 1992, HallMark's export business has been conducted primarily from
Miami, Florida.
EXPORT SALES AS A PERCENTAGE OF TOTAL SALES ARE SUMMARIZED AS FOLLOWS:
December 31,
1995 1994 1993
Central America 16% 14% 27%
South America 18% 16% 3%
Caribbean 6% --- ---
West Indies --- 6% 4%
OTHER --- 2% 4%
- ---------------------- ---- ---- ---
Total 40% 38% 38%
==== ==== ===
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
F-29
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.
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.
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
F-30
to existing security interests. The Company did not retain any of the
liabilities of the sold subsidiaries. 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
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-31
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
7 - Income Taxes
At December 31, 1995 and 1994, the Company had a net deferred tax asset
amounting to approximately $1.6 million and $1.4 million, respectively. The net
deferred tax asset consisted primarily of net
F-32
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 following is a summary of the
significant components of the Company's deferred tax assets and liabilities:
DECEMBER 31, 1995 1994
- ------------
Deferred tax assets:
Nondeductible accruals and allowances $ 65 $ 70
Net operating loss carryforward 1,575 1,400
------ ------
1,640 1,470
Deferred tax liabilities:
Depreciation and amortization 30 25
----- ------
Net deferred tax asset $1,610 $1,445
Less: Valuation Allowance 1,610 1,445
----- -----
Deferred Income Taxes --- ---
====== =====
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
F-33
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.
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.
9 - Stock Options
The following table contains information on stock options for the three
year period ended December 31, 1995:
Exercise price range Weighted average
Option shares 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
F-34
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.
**Excludes 402,187 warrants issued to Goldis.
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.
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:
F-35
DECEMBER 31, 1995
Accounts payable and operating loss were both reduced by approximately $380,000
relating to an adjustment to the 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-36
THE LEHIGH GROUP INC. AND SUBSIDIARIES
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
DEC. 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
F-37
ORTHOPEDIC PRODUCTS, INC.
BALANCE SHEET
DECEMBER 31, 1995
UNAUDITED
---------
ASSETS
Current Assets:
Accounts receivable (Net of allowance for uncollectible accounts of
$3,195) $ 459,645
Inventories 593,650
Prepaid income taxes 43,334
Deferred income tax benefit 12,600
----------
Total Current Assets $1,109,229
Property and Equipment (Net of accumulated depreciation of $153,874) 26,427
Other Assets:
Deposits 6,230
Intangible assets (Net of accumulated amortization of $8,201) 11,799
----------
Total Other Assets 18,029
TOTAL ASSETS $1,153,685
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 238,631
Note payable - bank 310,173
Current portion of long-term debt 42,849
----------
Total Current Liabilities 591,653
Other Liabilities:
Long-term debt 225,467
Due to related parties 149,100
Total Other Liabilities 374,567
Total Liabilities 966,220
Stockholders' Equity
Common stock - $1. Par value, 7,500 shares authorized, 1,170 shares
issued and outstanding 1,170
Additional paid-in capital 90,308
Retained earnings 95,987
----------
Total Stockholders' Equity 187,465
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,153,685
F-38
ORTHOPEDIC PRODUCTS, INC.
UNAUDITED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995
UNAUDITED
---------
Sales $ 738,823
Cost of Goods Sold 481,214
Gross Profit 257,609
Operating Expenses:
Selling 142,090
Administrative 114,591
Total Operating Expenses 256,681
Income Before Income Taxes 928
Provision for Income Taxes 0
Net Income 928
Retained Earnings - October 1, 1995 95,059
------------
Retained Earnings - December 31, 1995 $ 95,987
============
F-39
ORTHOPEDIC PRODUCTS, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995
UNAUDITED
---------
Cash Flows from Operating Activities:
Net Income $ 928
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 2,958
Changes in Current Assets and Liabilities:
Increase in accounts receivable (28,391)
Increase in inventory (8,402)
Decrease in prepaid insurance 8,407
Increase in accounts payable
and accrued expenses 36,060
--------
Net Adjustments 10,632
Net cash provided by operating activities 11,560
Cash Flows from Financing Activities:
Net bank repayments (1,454)
Principal payment on long-term debt (3,940)
Payment on sales tax audit settlement (6,166)
--------
Net cash used by financing activities (11,560)
--------
Net Change in Cash -0-
Cash - October 1, 1994 -0-
-------
Cash - December 31, 1995 $ -0-
=========
Cash Paid For:
Interest $ 13,559
Income Taxes -0-
F-40
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
ASSETS (UNAUDITED)
Current Assets
Cash and cash equivalents $ 667,215 $475,108
Marketable securities 4,957,327 1,829,856
Accounts receivable, less allowance for
doubtful accounts of $80,695 & $70,000 5,560,919 3,819,571
Inventories 7,416,015 7,856,199
Prepaid expenses and other current assets 771,124 208,510
---------- -----------
Total Current Assets 19,372,600 14,189,244
---------- -----------
Property, and Equipment, at cost, less accumulated
depreciation of $433,196 and $325,454 1,615,668 1,077,066
---------- ---------
Other Assets
Intangible assets, net 752,067 721,327
Investment in non-marketable securities 3,816,750 3,316,750
Deposits and other assets 439,004 160,821
---------- -----------
Total Other Assets 5,007,821 4,198,898
----------- -----------
Total Assets $25,996,089 $19,465,208
=========== ===========
LIABILITIES AND EQUITY
Current Liabilities
Note payable $2,550,000 $ 2,550,000
Current Maturities 60,000 -
Accounts payable 3,167,347 2,847,690
Accrued expenses and other liabilities 469,777 301,068
Deferred taxes payable 11,100 23,700
Income taxes payable 319,916 50,782
----------- -----------
Total Current Liabilities 6,578,140 5,773,240
----------- -----------
Long Term Debt
Long Term Debt 168,603 -
Due to shareholder 1,890,000 1,890,000
----------- -----------
Total Long Term Debt 2,058,603 1,890,000
Total Liabilities 8,636,743 7,663,240
----------- -----------
Stockholders' Equity
Preferred stock - 219
Common stock 22,815 20,762
Additional paid-in capital 16,701,215 12,116,549
Common stock subscription receivable (575,000) (437,500)
Retained earnings 1,210,316 101,938
----------- -----------
Total Stockholders' Equity 17,359,346 11,801,968
----------- -----------
Total Liabilities and Shareholders' Equity $25,996,089 $19,465,208
=========== ===========
See Accompanying notes to financial statements
F-41
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30,
UNAUDITED UNAUDITED
1996 1995
Net Sales $6,604,450 $2,617,430
Cost of sales 4,445,807 1,971,651
--------- ---------
Gross Profit 2,158,643 645,779
Selling, general and administrative expenses 2,051,217 1,156,454
--------- ---------
Income before other income (expense) 107,426 (510,675)
Other Income (Expense)
Interest expense, net of interest (94,072) (69,666)
Dividend income 14,245 -
Realized gain on marketable securities 108,401 22,234
Unrealized gain on marketable securities 578,221 708,952
------- -------
Total Other Income (Expense) 606,795 661,520
------- -------
Income before income taxes 714,221 150,845
Income taxes 182,000 1,160
------- -------
Net Income 532,221 149,685
Retained Earnings (Deficit) - Beginning 678,095 (112,765)
----------- ---------
Retained Earnings (Deficit) - End $ 1,210,316 $ 36,920
========= =========
Earnings per common share:
Primary $0.025 $0.008
Fully Diluted $0.024 $0.008
Weighted average number of common shares outstanding after giving effect to
the 50% stock dividend.:
Primary 21,670,790 17,945,700
Fully Diluted 22,192,790 17,945,700
See accompanying notes to financial statements.
F-42
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30,
UNAUDITED UNAUDITED
1996 1995
Net Sales $13,649,078 $5,269,520
Cost of sales 9,540,340 3,488,886
--------- ---------
Gross Profit 4,108,738 1,780,634
Selling, general and administrative expenses 3,762,751 2,148,611
--------- ---------
Income before other income (expense) 345,987 (367,977)
Other Income (Expense)
Interest expense, net of interest (162,608) (88,385)
Dividend income 16,135 -
Realized gain on marketable securities 94,416 39,087
Unrealized gain on marketable securities 1,126,663 610,392
--------- --------
Total Other Income (Expense) 1,074,606 561,094
--------- -------
Income before income taxes 1,420,593 193,117
Income taxes 312,215 13,660
------- -------
Net Income 1,108,378 179,457
Retained Earnings (Deficit) - Beginning 101,938 (142,537)
------- ---------
Retained Earnings (Deficit) - End $ 1,210,316 $ 36,920
========= =========
Earnings per common share:
Primary $0.051 $0.010
Fully Diluted $0.050 $0.010
Weighted average number of common shares outstanding after giving effect to
50% stock dividend
Primary 21,670,790 17,945,700
Fully Diluted 22,192,790 17,945,700
See accompanying notes to financial statements.
F-43
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
Net income (loss) $1,108,378 $179,457
--------- -------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 127,967 57,197
Deferred income taxes - (5,999)
Changes in assets and liabilities (Increase) Decrease in:
Accounts receivable (1,741,348) 280,701
Marketable securities (3,127,471) (1,003,028)
Inventories 440,184 (826,515)
Prepaid expenses and other current assets (562,614) 47,417
Other assets (308,923) (918,644)
Increase (Decrease) in:
Accounts payable 319,657 551,761
Accrued expenses and other current liabilities 168,710 248,782
Deferred taxes payable (12,600) -
State income taxes payable 269,133 (19,500)
---------- ----------
Net cash provided (used) by operating activities (3,318,927) (1,408,371)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash payments for the purchase of property (666,569) (93,954)
Payments to acquire non-marketable securities (500,000) (875,000)
--------- -----------
Net cash provided (used) by investing activities (1,166,569) (968,954)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long term debt (14,970) -
Proceeds from the issuance of debt 243,573 -
Net proceeds from sale of common stock 4,449,000 2,010,000
Cost incurred from issuance of common stock - (15,000)
--------- ----------
Net cash provided (used) by financing activities 4,677,603 1,995,000
--------- ----------
NET INCREASE (DECREASE) IN CASH AND 192,107 (382,325)
EQUIVALENT
CASH AND CASH EQUIVALENTS - BEGINNING 475,108 407,425
------- -------
CASH AND CASH EQUIVALENTS - END $667,215 $25,100
======== =======
Supplemental Cash Flow Information
Cash paid for interest and taxes
Interest 285,238 28,923
Taxes 33,301 31,101
Noncash transactions: The Company had noncash transactions in March 1996 when
the Company issued 180,000 shares of their common stock in lieu of a cash
payment of $579,000 to acquire OPI and in June 1996 when the Company's preferred
stock was converted into two shares of Common Stock for each share of preferred
stock outstanding.
F-44
DHB CAPITAL GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION/REPORTING ENTITIES
The consolidated financial statements of DHB Capital Group, Inc. and
Subsidiaries (the "Company") are unaudited and reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim period. The
consolidated Company includes the following entities:
DHB CAPITAL GROUP, INC.
DHB Capital Group Inc. ("DHB") was incorporated on October 22, 1992 under the
laws of the State of New York. DHB was organized to seek, acquire and finance,
as appropriate, one or more operating companies. On February 15, 1995, the
holders of the common stock approved a re-incorporation of DHB as a Delaware
corporation, through a merger with a newly formed Delaware corporation.
PROTECTIVE APPAREL CORPORATION OF AMERICA
Protective Apparel Corporation of America ("PACA") was organized in 1975 and is
engaged in the development, manufacture and distribution of bullet and
projectile resistant garments, including bullet resistant vests, fragmentation
vests, bomb projectile blankets and tactical load bearing vests. In addition,
PACA distributes other ballistic protection devices including helmets and
shields. PACA is dependent upon a few suppliers for the raw materials utilized
to manufacture its products.
On November 6, 1992, PACA became a wholly-owned subsidiary of DHB, when DHB
purchased all of the issued and outstanding stock of PACA from PACA's former
parent, E.S.C. Industries, Inc, for $800,000. The transaction was accounted for
as a purchase and resulted in an excess purchase price over the fair market
value of the identifiable assets acquired and liabilities assumed of $465,278,
of which $312,086 was allocated to on-going government contracts and $153,192
was allocated to goodwill.
INTELLIGENT DATA CORP.
On April 1, 1994, the Company acquired 4,530,000 common shares (60.4% interest)
and 1,100,000 preferred shares of stock in Intelligent Data Corp. ("ID"), in
exchange for 425,000 shares of the Company's common stock. ID is engaged in the
development of sophisticated telecommunication systems. On July 1, 1994, a put
option was exercised by certain shareholders of ID resulting in an increase in
the Company's ownership to 89.58%. In December 1994, the Company converted all
of its preferred shares to common shares, increasing the Company's ownership to
98.35%. This transaction was accounted for as a purchase, and resulted in an
excess purchase price over the fair value of identifiable assets acquired and
liabilities assumed of $472,666 which was allocated to patents owned by ID.
DHB MEDIA GROUP, INC.
On April 15, 1994, DHB Media Group, Inc. ("Media"), a wholly-owned subsidiary of
the Company acquired all of the outstanding common stock of Royal Acquisition
Corp. in exchange for 100,000 shares of the Company's common stock, for a
purchase price of $300,000. Subsequent negotiations resulted in the reduction of
the acquisition cost by $36,550. Royal Acquisition Corp.'s primary assets were a
film
F-45
library and a loan receivable of $150,000. The transaction was accounted for as
a purchase and resulted in the excess purchase price over the fair market value
of $113,450, of which $54,000 was allocated to the film library and $59,450 was
allocated to goodwill. Media intends to syndicate and market these films. The
loan receivable was collected in full during the year ended December 31, 1994.
NDL PRODUCTS, INC.
On December 20, 1994, the Company through a newly organized, wholly-owned
subsidiary, DHB Acquisition, Inc., ("Acquisition") purchased certain assets from
a debtor-in-possession, N.D.L. Products, Inc. for $3,080,000. Acquisition did
not assume any continuing obligations of the debtor-in-possession, nor did the
management of the debtor-in-possession continue. On February 21, 1995,
Acquisition changed its corporate name to NDL Products, Inc. NDL manufactures
and distributes specialized protective athletic apparel and equipment.
DHB ARMOR GROUP, INC.
On August 8, 1995, the Company formed a new Delaware Corporation which is a
wholly-owned subsidiary of the Company. The subsidiary, DHB Armor Group, Inc.,
("Armor"), now wholly owns PACA and Point Blank Body Armor, Inc., ("Point
Blank").
POINT BLANK BODY ARMOR, INC.
In August 1995, the Company, through a wholly-owned subsidiary known as USA
Fitness & Protection Corp, a Delaware Corporation, acquired from a trustee in
bankruptcy certain assets of Point Blank Body Armor, L.P. and an affiliated
company ("Old Point Blank"), for a cash payment of $2,000,000, free of all
liabilities. Prior to the filing of the petition in bankruptcy, Old Point Blank
had been a leading U.S. manufacturer of bullet-resistant garments and related
accessories. After acquiring the Old Point Blank, USA Fitness & Protection
Corp., amended its articles of incorporation to change their name to Point Blank
Body Armor, Inc. ("Point Blank").
ORTHOPEDIC PRODUCTS, INC.
On March 22 and March 26, 1996, the Company exchanged a total of 180,000 shares
of its registered common stock to acquire 100% of the common stock of OPI, a
Florida Corporation engaged in the manufacturing and distribution of orthopedic
products to the medical industry. This transaction was accounted for as a
purchase, and resulted in an excess purchase price over the fair value of
identifiable assets acquired and liabilities assumed which was allocated to
goodwill. Fifty thousand of these shares are restricted as follows: 25,000
shares cannot be sold until March 22, 1997 and 25,000 shares cannot be sold
until March 22, 1998.
PRINCIPLES OF CONSOLIDATION
All material intercompany transactions have been eliminated in the consolidated
financial statements.
MARKETABLE/NON-MARKETABLE SECURITIES
Effective for calendar year 1994, the Company adopted Financial Accounting
Standards Board Statement No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." In accordance with this standard, Securities which are
classified as "trading securities" are recorded in the Company's balance sheet
at fair market value, with the resulting unrealized gain or loss recognized as
income in the current period. Securities which are classified as "available for
sale" are also reported at fair market value,
F-46
however, the unrealized gain or loss on these securities is listed as a separate
component of shareholder's equity.
Non-marketable securities, such as investments in privately-held companies are
carried at historical cost, if necessary, reduced by a valuation allowance to
net realizable value.
The Company actively seeks to acquire and finance, as appropriate, additional
operating companies or interest therein.
EARNINGS PER SHARE
The computation of earnings per common share is based on the weighted average
number of outstanding common shares outstanding during the period. Primary
earnings per share and fully diluted earnings per share amounts assume the
conversion of the Cumulative Convertible Preferred Stock, and the exercise of
the stock warrants.
2. SUBSEQUENT EVENTS
PRIVATE PLACEMENT-COMMON STOCK
During July 1996 the Company sold 50,000 shares of common stock in private
placements for proceeds of $350,000. These shares have not been registered with
the Securities and Exchange Commission.
DECLARATION OF A 50% STOCK DIVIDEND
On July 1, 1996, the Board of Directors of the Company declared a 50% Stock
Dividend payable on July 16, 1996, to shareholders of record as of July 15,
1996. As a result thereof, the number of outstanding shares of the Common Stock
has been increased from 15,303,019 to 22,954,529. The weighted average number of
shares and earnings per share have been restated to give effect to the 50% stock
dividend. The payment of this dividend with the full reserve of the warrants
outstanding would exceed the authorized capital. The holder of warrants to
purchase 2,500,000 shares of common stock (the wife of the Company's Chairman)
released the Company from its obligation to reserve these shares and agreed not
to exercise her Warrants until such time as the Company increased its authorized
capital.
MERGER WITH THE LEHIGH GROUP
On July 8, 1996, the Company and The Lehigh Group, Inc. entered into a
definitive merger agreement whereby the Company would merge into a wholly-owned
subsidiary of Lehigh. Lehigh, whose common stock is listed on the New York Stock
Exchange, is engaged in the distribution of electrical supplies for export and
import through its wholly-owned subsidiary HallMark Electrical Supplies Corp. If
the merger is approved by the shareholders of the Company and Lehigh, then upon
completion of the proposed transaction, the shareholders of the Company would
receive shares of Lehigh which would represent approximately 97% of the issued
and outstanding shares of Lehigh, with the balance of Lehigh's shares to be
owned by the current shareholders of Lehigh including current officers and
directors. There is no assurance this transaction will be consummated.
F-47
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1996 1995
---- ----
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 453 $ 347
Accounts receivable, net of allowance
for doubtful account of $170 and $275 4,469 4,335
Inventories, net 1,593 1,823
Prepaid expenses and other current assets 50 22
-------- -------
Total current assets 6,565 6,527
Property, plant and equipment, net of
accumulated depreciation and
amortization 53 61
Other assets 35 34
-------- -------
Total assets $ 6,653 $ 6,622
-------- -------
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-48
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1996 1995
(Unaudited) (Audited)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 503 $ 510
Notes payable-bank 360 360
Accounts payable 1,998 1,839
Accrued expenses and other liabilities 1,536 1,381
Income taxes payable -- --
--------- -------
Total current liabilities 4,397 4,090
Long-term debt, net of current maturities 2,200 2,080
------- -------
Deferred credit applicable to sale of
discontinued operations 250 250
Commitments and contingencies -- --
--------- -------
Preferred stock, par value $.001; authorized
5,000,000 shares none issued
Common stock, par value $.001
authorized shares 100,000,000
shares issued 10,339,250
in 1995 and 1994; which
excludes 3,016,249 shares held as
treasury stock in 1995 and1994, 11 11
Additional paid-in capital 106,594 106,594
Accumulated deficit from January 1, 1986 (105,145) (104,749)
Treasury stock - at cost (1,654) (1,654)
-------- ---------
Total shareholders' equity (deficit) (194) 202
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 6,653 $ 6,622
======= =======
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-49
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
JUNE 30, JUNE 30,
1996 1995 1996 1995
---- ---- ---- ----
Sales $ 2,868 $ 3,070 $ 5,988 $ 5,592
Cost of Sales 1,998 2,144 4,201 3,850
------- ------- ------- ------
Gross profit 870 926 1,787 1,742
Selling, general and administrative expenses 970 1,060 1,969 2,154
------- ------- ------- ------
Operating loss (100) (134) (182) (412)
Other income (expense):
Interest expense (113) (108) (220) (215)
Interest and other income 4 5 7 24
------- ------- ------ ------
(109) (103) (213) (191)
Loss from continuing operations
before income taxes (209) (237) (395) (603)
Income taxes 0 0 1 2
------- ------- ------ ------
Net loss (209) (237) (396) (605)
======= ======= ======= =======
Net loss per common share
From continuing operations before extraordinary item $(.02) $(.02) $(.04) $(.06)
Net loss per common share $(.02) $(.02) $(.04) $(.06)
======= ====== ====== ======
Weighted average number of common shares
and share equivalents outstanding
Primary and Fully diluted 10,339 10,339 10,339 10,339
====== ====== ====== ======
F-50
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES
IN SHAREHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(IN THOUSANDS)
Additional Accumulated Treasury
Common Paid In Deficit From Stock
STOCK CAPITAL JAN. 1, 1986 AT COST TOTAL
-------- ---------- ------------ -------- -----
Balance January 1, 1995 $ 11 $106,594 $(104,441) $(1,654) $ 510
Net loss (605) (605)
---------- ------------ ------------ ----------- --------
Balance June 30, 1995 $ 11 $106,594 $(105,046) $(1,654) $ (95)
======== ======== ========== ========= ========
Additional Accumulated Treasury
Common Paid In Deficit From Stock
STOCK CAPITAL JAN. 1, 1986 AT COST TOTAL
-------- ---------- ------------ -------- ------
Balance January 1, 1996 $ 11 $106,594 $104,749 $(1,654) $ 202
Net loss (396) (396)
-------- ------------- ----------- ---------- -------
Balance June 30, 1996 $ 11 $106,594 $(105,145) $(1,654) $(194)
======= ========= ========== ======== =======
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
F-51
THE LEHIGH GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30, 1996 1995
-------- ------
(in thousands)
Cash flows from operating activities:
Net loss $ (396) $ (605)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 18 32
Changes in assets and liabilities:
Accounts Receivable (134) 544
Inventories-net 230 (78)
Prepaid and other current assets (28) (10)
Other assets - -
Accounts payable 159 (18)
Accrued expenses 155 (64)
------- ---------
Net cash used in investing activities 4 (199)
------- --------
Cash flows from investing activities:
Capital expenditures (11) (16)
-------- ---------
Cash flows from financing activities:
Net payments under bank debt (180) (180)
Repayment of Capital leases (7) (10)
Subordinated Debenture 300 0
------- -------
Net cash provided by (used in) financing activities 113 (190)
------- --------
Net changes in cash and cash equivalents 106 (405)
Cash and cash equivalents at beginning of period 347 925
------- -------
Cash and cash equivalents at end of period $ 453 $ 520
======= ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-52
THE LEHIGH GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial information for the three months and six months ended June
30, 1996 and 1995 is unaudited. However, the information reflects all
adjustments (consisting solely of normal recurring adjustments) which are, in
the opinion of management, necessary for the fair statement of results for the
interim periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and related
notes included in the Company's December 31, 1995 Report on Form 10-K.
The results of operations for the six month period ended June 30, 1996 are
not necessarily indicative of the results to be expected for the full year.
Loss per common share is calculated by dividing net loss by the weighted
average number of common shares and share equivalents outstanding during each
period. For the periods presented, there were no common stock equivalents
included in the calculation, since they would be anti-dilutive.
2. SUPPLEMENTARY SCHEDULE
1996 1995
------------------------
(in thousands)
Statement of cash flows
Six months ended June 30,
Cash paid during the six months for:
Interest $ 134 $ 141
Income taxes 4 2
F-53
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
INTRODUCTION
The unaudited pro forma data presented in the unaudited pro forma
combined financial statements are included in order to illustrate the effect on
the financial statements of Lehigh and DHB of the transactions described below.
The pro forma information is based on the historical financial statements of
DHB, OPI and Lehigh.
The unaudited pro forma combined balance sheet data at June 30, 1996
gives effect to the reverse acquisition of Lehigh by DHB. The adjustments are
presented as if, at such date, DHB had acquired Lehigh (which is expected to be
finalized during the fourth quarter 1996).
The unaudited pro forma combined statement of operations data for the
year ended December 31, 1995 and the six months ended June 30, 1996 present
adjustments for two series of transactions to show the effect of two
combinations with DHB: OPI, which was purchased March 22, 1996, and Lehigh. All
adjustments are presented as if these transactions were consummated as of
January 1, 1995.
In the opinion of management, all adjustments have been made that are
necessary to present fairly the pro forma data.
The unaudited pro forma combined financial statements should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto of
DHB, the Consolidated Financial Statements and the Notes thereto of Lehigh and
the Financial Statements and the Notes thereto of OPI, appearing elsewhere in
this Prospectus. The pro forma combined statement of income (loss) data are not
necessarily indicative of the results that would have been reported had such
events actually occurred on the date specified, nor are they indicative of the
companies' future results. There can be no assurance that the Lehigh reverse
acquisition by DHB will be consummated.
F-54
DHB CAPITAL GROUP INC. AND THE LEHIGH GROUP INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(IN THOUSANDS)
ASSETS Pro forma
DHB Lehigh Group Adjustments Balance
--- ------------ ----------- -------
CURRENT ASSETS
Cash and cash equivalents $667 $ 453 $ (300)(1) $820
Marketable securities 4,957 4,957
Accounts receivable, net 5,561 4,469 10,030
Note Receivable 0
Inventories 7,416 1,593 9,009
Prepaid expenses and other current assets 771 50 821
------- ------ ------------- ----------
Total Current Assets $19,372 $6,565 ($300) $25,637
PROPERTY AND EQUIPMENT, at cost, net 1,616 53 1,669
OTHER ASSETS
Intangible assets, net 752 5,290(3),(4),(6),(7) 6,042
Investments in non-marketable securities 3,817 3,817
Deposits and other assets 439 35 474
------- ------ ------------- ---------
Total Other Assets 5,008 35 5,290 10,333
------- ------ ------------- ---------
TOTAL ASSETS $25,996 $6,653 $4,990 $37,639
======= ====== ============= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $2,550 $360 (200)(1),(3) $2,710
Current maturities of long term debt 60 503 563
Accounts payable 3,167 1,998 5,165
Accrued expenses and other current liabilities 470 1,536 (300)(2) 1,706
Deferred taxes payable 11 11
State income taxes payable 320 320
------- ------ ------------- ---------
Total Current Liabilities $6,578 $4,397 ($500) $10,475
Long Term Debt 2,059 2,200 4,259
Deferred credit Applicable sale of Discontinue Operations 250 250
STOCKHOLDERS' EQUITY
Common stock 23 11 (10)(2),(4),(5) 24
Additional paid-in capital 16,701 106,594 (101,091)(2),(4),(5) 22,204
Common stock subscription receivable (575) (6),(7),(8) (575)
Treasury Stock - at cost (1,654) 1,654(8) 0
Retained earnings 1,210 (105,145) 104,937(6),(8) 1,002
------- --------- --------------- ----------
Total Stockholder's Equity 17,359 (194) 5,490 22,655
------- --------- --------------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $25,996 $6,653 $4,990 $37,639
======= ======== =============== =========
1 To record the payment of a Lehigh debt by DHB pursuant to the loan
agreement
2 To record the issuance of 30,000 shares of DHB to pay a Lehigh debt
3 To record the purchase of a warrant from a Lehigh executive.
4 To record the exercise of the Lehigh warrant
5 To record the Lehigh reverse stock split
6 To record the issuance of shares to DHB for the reverse acquisition and
the resulting goodwill
7 To record the goodwill on the issuance of warrants to the Lehigh officers
8 To retire Lehigh's treasury stock.
F-55
DHB CAPITAL GROUP INC., ORTHOPEDIC PRODUCTS, INC. AND THE LEHIGH GROUP INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
DHB Capital
and Orthopedic Lehigh Group and Pro forma
Subsidiaries Products Subsidiaries Adjustments Consolidated
-----------------------------------------------------------------------------------
Net sales $14,494 $3,086 $12,105 $ - $29,685
Cost of sales 9,089 2,087 8,628 - 19,804
------- ------ ------- ------------- -------
Gross Profit 5,405 999 3,477 0 9,881
Selling, general and administrative expenses 5,140 1,238 3,994 310(1),(2) 10,682
------- ------ ------- ------------- -------
Income before other income (expense) 265 (239) (517) (310) (801)
------- ------- -------- ------------- -------
Other Income (Expense)
Interest expense, net of interest income (304) - (41) - (345)
Dividend income 2 - - - 2
Payment to rescind restrictive covenant (250) - - - (250)
Write-off of uncollectible loan receivable - - - - 0
Realized gain on marketable securities 676 - - - 676
Unrealized gain on marketable securities 347 - - - 347
------- ------- -------- ------------- -------
Total Other Income (Expense) 471 - (41) - 430
------- ------- -------- ------------- -------
Income (loss) before discontinued operations 736 (239) (558) (310) (371)
Income from discontinued operations - - 250 - 250
------- ------- ------- ------------- -------
Income (loss) before income tax (benefit) 736 (239) (308) (310) (121)
Income taxes (benefit) 492 (40) - 0 452
------- ------- -------- ------------- -------
Net Income (loss) $244 ($199) ($308) ($310) ($573)
======= ======= ======== ============= =======
1 Assuming DHB acquired Orthopedic Products as of January 1, 1995, the debt
would have been repaid as of January 1, 1995 and accordingly, the interest
expense of $44,000 pertaining to the debt would have been eliminated. ( The
repayment of the debt was a stipulation in the purchase agreement)
2 To amortize the goodwill on the Lehigh and OPI acquisition
F-56
DHB CAPITAL GROUP INC., ORTHOPEDIC PRODUCTS, INC. AND THE LEHIGH GROUP INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
DHB Capital Jan 1 - March 22
and Orthopedic Lehigh Group and Pro forma
Subsidiaries Products Subsidiaries Adjustments Consolidated
---------------------------------------------------------------------- ---------------
Net sales $6,604 $643 $5,988 $ - $13,235
Cost of sales 4,446 442 4,201 - 9,089
------ ---- ------ -------- ---------
Gross Profit 2,158 201 1,787 0 4,146
Selling, general and administrative expenses 2,051 75 1,969 72(1),(2),(3) 4,167
------ ---- ------ -------- ---------
Income before other income (expense) 107 126 (182) (72) (21)
------ ---- ------- -------- ---------
Other Income (Expense)
Interest expense, net of interest income (94) - (213) - (307)
Dividend income 14 - - - 14
Realized gain on marketable securities 108 - - - 108
Unrealized gain on marketable securities 578 - - - 578
------ ---- ------ -------- ---------
Total Other Income (Expense) 606 - (213) - 393
------ ---- ------ -------- ---------
Income (loss) before discontinued operations 713 126 (395) (72) 372
Income from discontinued operations - - - - 0
------ ---- ------- -------- ---------
Income (loss) before income tax (benefit) 713 126 (395) (72) 372
Income taxes (benefit) 182 22 1 0 205
------ ---- ------- -------- ---------
Net Income (loss) $531 $104 ($396) ($72) $167
====== ==== ======= ======== =========
1 When DHB acquired Orthopedic Products, the debt would have been repaid and
accordingly, the interest expense of $10,000 pertaining to the debt would
have been eliminated. ( The repayment of the debt was a stipulation in the
purchase agreement)
2 To record the goodwill amortization on the OPI acquisition
3 To amortize the goodwill on the Lehigh acquisition
F-57
Appendix A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT made and entered into as of the 8th day of July
1996, by and among The Lehigh Group Inc., a Delaware corporation ("Lehigh"),
Lehigh Management Corp., a Delaware corporation and a wholly-owned subsidiary of
Lehigh, ("Newco") and DHB Capital Group Inc., a Delaware corporation ("DHB").
Unless the context indicates otherwise, all references herein to Lehigh or DHB
refer to Lehigh and DHB and their respective wholly owned subsidiaries.
W I T N E S S E T H T H A T:
A. Lehigh has recently organized Newco for the purpose of merging with
DHB.
B. Newco and DHB will enter into an Agreement of Merger (hereinafter
called the "Merger Agreement") in substantially the form attached
hereto and made a part hereof as Exhibit A, which provides, among other
things, for the statutory merger of Newco with DHB in accordance with
the General Corporation Law of Delaware.
C. It is intended that the transactions contemplated by this Agreement
shall constitute a merger conforming to the provisions of Section
368(a)(2)(E) of the Internal Revenue Code of 1986.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements and the benefits to be realized by each of the parties:
1. The Merger
(a) Newco has an authorized capital stock, consisting of 100
shares of common stock, no par value, the issued shares of
which are owned by Lehigh.
(b) In accordance with the Merger Agreement, on the Closing Date
hereinafter referred to, Newco shall be merged with and into
DHB (the "Merger"). DHB shall be the surviving corporation. As
part of the Merger, and in exchange for all of the issued and
outstanding shares of capital stock of DHB, Lehigh shall issue
shares of Lehigh common stock, par value $.001 per share, (the
"Shares") in order to permit the Merger to be effected in
accordance with the terms of the Merger Agreement. The exact
number of Shares to be issued to the shareholders of DHB shall
be that number of authorized but unissued shares of Lehigh
that would equal 97% of the total number of issued and
outstanding shares of Lehigh upon consummation of the Merger
contemplated hereby, after giving effect to such issuance.
(c) Lehigh shall issue and deliver as and when required by the
Merger Agreement, certificates representing the Shares for
which the shares of capital stock of DHB outstanding
immediately prior to the effective time of the Merger shall
have been converted.
(d) Lehigh and DHB shall each submit this Agreement and the Merger
Agreement to its shareholders for approval in accordance with
the Delaware General Corporation Law, at an annual or special
meeting of the shareholders (the "Meeting") called and held on
a date to be fixed by their respective Board of
A-1
Directors and shall use their best efforts to hold such
meeting on or before December 15, 1996, or as soon thereafter
as practical.
(e) Lehigh and DHB shall each use their best efforts to obtain the
affirmative vote of shareholders required to approve the
Merger Agreement and the transactions contemplated thereby,
and will recommend to their respective shareholders the
approval of the Merger, subject however, in the case of each
company's Board of Directors, to its fiduciary obligation to
shareholders. Lehigh and DHB shall each mail to all their
shareholders entitled to vote at and receive notice of such
meeting, the material required in accordance with the
Registration Statement and Prospectus provisions specified in
paragraph 9 hereof.
(f) On or before the date of the Meeting, the Board of Directors
of Newco shall duly approve the Merger Agreement and Lehigh,
as sole shareholder of Newco, shall duly approve the Merger
Agreement and the transactions contemplated thereby.
(g) Following the approval of the Merger by the shareholders of
Lehigh, Newco and DHB, and upon execution of the Merger
Agreement by the officers of Newco and DHB as required by
applicable law, a Certificate of Merger containing the
information required by the applicable law shall be executed
by the appropriate officers of DHB and Newco.
2. CLOSING
(a) The closing of all the transactions contemplated hereby
(herein called the "Closing" or the "Closing Date") shall
occur at a date and place mutually agreed between the parties
and on a date within fifteen (15) business days after all of
the of the conditions described in paragraphs 15 and 16 hereof
have been satisfied or, to the extent permitted in paragraph
17(c) hereof, their satisfaction has been waived. Lehigh,
Newco and DHB will use their best efforts to obtain the
approvals specified in paragraph 8 hereof and any other of the
consents, waivers, or approvals necessary or desirable to
accomplish the transactions contemplated by this Agreement and
the Merger Agreement. All documents required to be delivered
by each of the parties hereto shall be duly delivered to the
respective recipient thereof at or prior to the Closing.
Without the consent of DHB and Lehigh to extend such date, the
Closing Date shall be no later than December 15, 1996, and if
it is delayed beyond said date, or extended date, then either
party shall have the right to terminate this Agreement upon
notice to that effect.
(b) At the Closing, Lehigh, Newco and DHB shall jointly direct
that the Certificate of Merger be duly filed, and it shall be
in accordance with such direction be filed, in the Offices of
the Secretary of State of Delaware so that the Merger shall be
effective on the Closing Date.
3. LISTING
At a time mutually agreed to by Lehigh and DHB, but in no
event later than the date following the approval of shareholders of
both Lehigh and DHB, Lehigh agrees, at its expense, to apply for and
use is best efforts to obtain additional listings on the New York Stock
Exchange, subject to notice of issuance, of the Shares to be delivered
to DHB shareholders pursuant to the terms of the Merger Agreement. DHB
agrees to render assistance to Lehigh in obtaining such listing,
including the furnishing of such financial statements as Lehigh may
reasonably request.
A-2
4. INVESTIGATION BY THE PARTIES
Lehigh and DHB acknowledge that they have made or cause to be
made such investigation of the properties of the other and its
subsidiaries and of its financial and legal condition as the party
making such investigation deems necessary or advisable to familiarize
itself with such properties and other matters. Lehigh and DHB each
agree that if matters come to the attention of either party requiring
additional due diligence, each agrees to permit the other and its
authorized agents or representatives to have, after the date of
execution hereof, full access to its premises and to all of its books
and records at reasonable hours, and its subsidiaries and officers will
furnish the party making such investigation with such financial and
operating data and other information with respect to the business and
properties of it and its subsidiaries as the party making such
investigation shall from time to time reasonably request. No
investigation by Lehigh or DHB shall affect the representations and
warranties of the other and each such representation and warranty shall
survive any such investigation. Each party further agrees that in the
event that the transactions contemplated by this Agreement shall not be
consummated, it and its officers, employees, accountants, attorneys,
engineers, authorized agents and other representatives will not
disclose or make available to any other person or use for any purpose
unrelated to the consummation of this Agreement any information,
whether written or oral, with respect to the other party and its
subsidiaries or their business which it obtained pursuant to this
Agreement. Such information shall remain the property of the party
providing it and shall not be reproduced or copied without the consent
of such party. In the event that the transactions contemplated by this
Agreement shall not be consummated, all such written information shall
be returned to the party providing it.
5. "AFFILIATES" OF DHB
Each shareholder of DHB who is, in the opinion of counsel to
Lehigh, deemed to be an "affiliate" of DHB as such term is defined in
the rules and regulations of the Securities and Exchange Commission
under the Securities Act of 1933, as amended (hereinafter called the
"1933 Act"), is listed on Schedule 5 attached hereto and made a part
hereof, and will be informed by DHB that: (i) absent an applicable
exemption under the 1933 Act, the Shares to be received by such
"affiliate" and owned beneficially on consummation of the transactions
contemplated hereunder may be offered and sold by him only pursuant to
an effective registration statement under the 1933 Act or pursuant to
the provisions of paragraph (d) of Rule 145 promulgated under the 1933
Act; (ii) Rule 145 restricts the amount and method of subsequent
dispositions by such "affiliate" of such Shares and (iii) a continuity
of interests by the "affiliate" must be maintained. Prior to the
Closing Date, DHB agrees to obtain from each "affiliate" an agreement
to the effect that such affiliate will not publicly sell any of such
Shares unless a registration statement under the 1933 Act with respect
thereto is then in effect, or such disposition complies with paragraph
(d) of Rule 145 promulgated under the 1933 Act, or counsel satisfactory
to Lehigh has delivered a written opinion to Lehigh and to such
"affiliate" that registration under the 1933 Act is not required in
connection with such disposition.
6. STATE SECURITIES LAWS
Lehigh will take such steps as may be necessary to comply with
any state securities or so-called Blue Sky laws applicable to the
action to be taken in connection with the Merger and the delivery by
Lehigh to DHB shareholders of the Shares pursuant to this agreement and
the Merger Agreement. Costs and expenses of any such Blue-Sky
qualifications shall be borne by Lehigh.
A-3
7. CONDUCT OF BUSINESS PENDING THE CLOSING
From the date hereof, to and including the Closing Date,
except as may be first approved by the other Party or as is otherwise
permitted or contemplated by this Agreement or the Merger Agreement:
(i) Lehigh and DHB shall each conduct their business only in
the usual and ordinary course;
(ii) neither Lehigh or DHB shall make any change in its
authorized capitalization, unless such change will not dilute the
percentage ownership of the shareholders of the other as further set
forth in Exhibit 1 annexed hereto and made a part hereof, as
constituted in Lehigh immediately after the Effective Date of the
Merger.
(iii) Except as set forth on their respective Disclosure
Statements to be delivered to each other pursuant to paragraphs 12(b)
and 13(b) herein, neither Lehigh or DHB shall authorize for issuance or
issue or enter any agreement or commitment for the issuance of shares
of capital stock;
(iv) neither Lehigh or DHB shall create or grant any rights or
elections to purchase stock under any employee stock bonus, thrift or
purchase plan or otherwise;
(v) neither Lehigh or DHB shall amend their Articles of
Incorporation or Bylaws unless deemed to be reasonably necessary to
consummate the transaction contemplated herein and upon prior notice
thereof to each other.
(vi) Neither Lehigh or DHB shall make any modification in
their employee benefit programs or in their present policies in regard
to the payment of salaries or compensation to their personnel and no
increase shall be made in the compensation of their personnel, except
in the ordinary course of business.
(vii) Neither Lehigh or DHB shall make any contract,
commitment, sale or purchase of assets, except in the ordinary course
of business.
(viii) Lehigh and DHB will use all reasonable and proper
efforts to preserve their respective business organization intact, to
keep available the services of their present employees and to maintain
satisfactory relationships with suppliers, customers, regulatory
agencies, and others having business relations with it;
(ix) Neither Lehigh or DHB shall create or implement a profit
sharing plan; and,
(x) Except as set forth on their respective Disclosure
Statements to be delivered to each other pursuant to paragraphs 12(b)
and 13(b) herein, the Board of Directors of Lehigh and DHB will not
declare any dividends on, or otherwise make any distribution in respect
of, their outstanding shares of capital stock unless such dividend or
distribution will not dilute the percentage ownership of the
shareholders of the other, as further set forth in Exhibit 1 annexed
hereto and made a part hereof.
8. EFFORTS TO OBTAIN APPROVALS AND CONSENTS
DHB and Lehigh will use all reasonable and proper efforts to
obtain, where required, the approval and consent (i) of any
governmental authorities having jurisdiction over the transactions
contemplated in this
A-4
Agreement and the Merger Agreement, and (ii) of such other persons
whose consent is required to the transactions contemplated by this
Agreement and the Merger Agreement.
9. PROXY STATEMENT AND REGISTRATION STATEMENT
(a) DHB and Lehigh agree that they shall cooperate in the
preparation of and the filing with the Securities and Exchange
Commission, by DHB and Lehigh of a proxy statement/prospectus
(the "Proxy Statement") in accordance with the Securities
Exchange Act of 1934 (the "1934 Act") and the applicable rules
and regulations thereunder, to be included in the registration
statement of Lehigh referred to below and (ii) the filing with
the Securities and Exchange Commission, by Lehigh, of a
registration statement on form S-4 or such other Form as may
be appropriate (the "Registration Statement"), including the
DHB Proxy Statement and Lehigh Proxy Statement, in accordance
with the 1933 Act and the applicable rules and regulations
thereunder covering the Shares to be issued pursuant to this
Agreement. Lehigh and DHB thereafter shall use all reasonable
efforts to cause the Registration Statement to become
effective under the 1933 Act at the earliest practicable date,
and shall take such actions as may reasonably be required
under applicable state securities laws to permit the
transactions contemplated by this Agreement. Lehigh shall
advise DHB promptly when the Registration Statement has become
effective, and DHB and Lehigh shall thereupon each send a
Proxy Statement to their respective shareholders for purposes
of the Meeting contemplated by this Agreement. The Proxy
Statements shall be mailed not less than 20 days prior to such
meetings to all shareholders of record at their address of
record on the transfer records of DHB and Lehigh. Each party
shall bear their respective out of pocket expenses, and
expenses related to preparing their respective Proxy
Statement, soliciting proxies, and preparing documents,
financial statements, schedules, exhibits, and like materials
for inclusion in the Registration Statement. Lehigh shall be
responsible for the expenses of filing the Registration
Statement.
(b) Subject to the conditions set forth below, the parties agree
to indemnify and hold harmless each other, their respective
officers, directors, partners, employees, agents and counsel
against any and all loss, liability, claim, damage, and
expense whatsoever (which shall include, for all purposes of
this Section 9, but not be limited to, attorneys' fees and any
and all expense whatsoever incurred in investigating,
preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever and any and all amounts
paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon, or in connection with (i)
any untrue statement or alleged untrue statement of a material
fact made by the party against whom indemnification is sought
and contained (1) in any Prospectus/Proxy Statement, the
Registration Statement, or Proxy Statement (as from time to
time amended and supplemented) or any amendment or supplement
thereto; or (2) in any application or other document or
communication (in this Section 9 collectively called an
"application") executed by or on behalf of either party or
based upon written information filed in any jurisdiction in
order to qualify the Shares under the "Blue Sky" or securities
laws thereof or filed with the Securities and Exchange
Commission or any securities exchange; or any omission or
alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading; unless such statement or omission was made in
reliance upon and in conformity with written information
furnished to the indemnifying party from the party seeking
indemnification expressly for inclusion in any
Prospectus/Proxy Statement, the Registration Statement, or
Proxy Statement, or any amendment or supplement thereto, or in
any application, as the case may be, or (ii) any breach of
representation, warranty, covenant, or agreement contained in
this Agreement. The foregoing statement to indemnify shall be
in addition to any liability each party may otherwise have,
including
A-5
liabilities arising under this Agreement. If any action is
brought against either party or any of its officers,
directors, partners, employees, agents, or counsel ( an
"indemnified party") in respect of which indemnity may be
sought pursuant to the foregoing paragraph, such indemnified
party or parties shall promptly notify the other party (the
"indemnifying party") in writing of the institution of such
action [but the failure to so notify shall not relieve the
indemnifying party from any liability it may have other than
pursuant to this Paragraph 9(b)] and the indemnifying party
shall promptly assume the defense of such action, including
the employment of counsel and payment of expenses
(satisfactory to such indemnified party or parties). Such
indemnified party or parties shall have the right to employ
its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such
counsel shall have been authorized in writing by the
indemnifying party in connection with the defense of such
action or the indemnifying party shall not have promptly
employed counsel satisfactory to such indemnified party or
parties to have charge of the defense of such action or such
indemnified party or parties shall have reasonably concluded
that there may be one or more legal defenses available to it
or them or to other indemnified parties which are different
from or additional to those available to the other party in
any of which events such fees and expenses shall be borne by
the indemnifying party and the indemnifying party shall not
have the right to direct the defense of such action on behalf
of the indemnified party or parties. Anything in this
paragraph to the contrary notwithstanding, the indemnifying
party shall not be liable for any settlement of any such claim
or action effected without its written consent.
10. COOPERATION BETWEEN PARTIES
DHB and Lehigh shall fully cooperate with each other and with
their respective counsel and accountants in connection with any steps
required to be taken as part of their obligations under this Agreement,
including the preparation of financial statements and the supplying of
information in connection with the preparation of the Registration
Statement and the Proxy Statement.
11. TAX RULING AND OTHER ACTIONS
(a) If deemed necessary or desirable by DHB and Lehigh, DHB and
Lehigh will use their best efforts to obtain as promptly as
possible rulings from the United States Internal Revenue
Service (IRS), satisfactory to their respective counsel, to
the effect that for Federal income tax purposes no gain or
loss will be recognized to the holders of DHB shares upon the
receipt of Shares in exchange for their DHB shares in
accordance with the provisions of this Agreement, and as to
other matters incident to the transactions contemplated by
this Agreement as such counsel may deem appropriate. Lehigh
and DHB agree not to take action inconsistent with the
representations made by them in such ruling request if such
action would result in the inapplicability of any of the
rulings given by the Internal Revenue Service. In lieu of a
ruling from the Internal Revenue, DHB may request an opinion
of counsel to DHB, to the foregoing effect which opinion shall
be a condition to both parties obligations to consummate the
Merger. All expenses relating to said ruling or opinion of
counsel shall be DHB's responsibility.
12. REPRESENTATIONS OF LEHIGH
Lehigh represents, warrants and agrees that:
A-6
(a) Lehigh is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and
it subsidiaries are duly organized, validly existing and in
good standing under the laws of the jurisdiction pursuant to
which they were incorporated. Lehigh and its subsidiaries have
the corporate power and any necessary governmental authority
to own or lease their properties now owned or leased and to
carry on their business as now being conducted. Lehigh and its
subsidiaries are duly qualified to do business and in good
standing in every jurisdiction in which the nature of their
business or the character of their properties makes such
qualification necessary.
(b) As of March 31, 1996, the capitalization of Lehigh and its
subsidiaries is as set forth in financial statements and
filings furnished to DHB. The outstanding capital stock,
including warrants of Lehigh and its subsidiaries has been
duly authorized and issued and is fully paid and
nonassessable. Lehigh and its subsidiaries have no commitment
to issue, nor will they issue, any shares of their capital
stock or any securities or obligations convertible into or
exchangeable for, or give any person any right to acquire from
Lehigh or its subsidiaries any shares of Lehigh or it
subsidiaries capital stock, except for those shares identified
in the Disclosure Schedule to be delivered by Lehigh to DHB
("Disclosure Schedule"). Lehigh owns all of the issued and
outstanding capital stock of Newco.
(c) The Shares which are to be issued and delivered to the DHB
shareholders pursuant to the terms of this Agreement and the
Merger Agreement, when so issued and delivered, will be
validly authorized and issued and will be fully paid and
nonassessable. Lehigh shall have applied for and used its best
efforts to obtain approval for listing all such Shares subject
to notice of issuance on the New York Stock Exchange prior to
the Effective Date of Merger and no stockholder of Lehigh or
other person will have any preemptive rights in respect
thereto.
(d) Lehigh has furnished DHB with copies of its Annual Report on
Form 10-K filed with the Securities and Exchange Commission
for the year ended December 31, 1995 which contains
consolidated balance sheets of Lehigh 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 audited by BDO Seidman, LLP. Lehigh has also
furnished DHB with unaudited financial statements as of March
31, 1996 as set forth in its Form 10- Q as filed with the
Securities and Exchange Commission. All of the above financial
statements present fairly the consolidated financial position
of Lehigh and its subsidiaries at the periods indicated, and
the consolidated results of operations and cash flows for the
periods then ended. The interim financial statements have been
prepared in conformity with generally accepted accounting
principles applied on a consistent basis, and in the opinion
of Lehigh include all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of such
interim period. Since March 31, 1996 there has been no
material adverse change in the assets or liabilities or in the
business or condition, financial or otherwise, of Lehigh or
its consolidated subsidiaries, and no change except in the
ordinary course of business or as contemplated by this
Agreement.
(e) Neither Lehigh nor any of its subsidiaries is engaged in or a
party to, or to the knowledge of Lehigh, threatened with any
material legal action or other proceeding before any court or
administrative agency except as set forth on the Disclosure
Schedule. Neither Lehigh nor any of its subsidiaries, to the
knowledge of Lehigh, has been charged with, or is under
investigation with respect to, any charge concerning any
presently pending material violation of any provision of
Federal, state, or other applicable law or administrative
regulations in respect to its business except as set forth on
said Disclosure Statement.
A-7
(f) The information to be furnished by Lehigh for use in the
material mailed to stockholders of DHB in connection with the
Meetings will in all material respects comply with the
applicable requirement of the 1933 Act and the 1934 Act, and
the rules and regulations promulgated thereunder.
(g) Lehigh and Newco have the corporate power to enter into this
Agreement, the execution and delivery and performance of this
Agreement have been duly authorized by all requisite corporate
action, and this Agreement constitutes the valid and binding
obligations of Lehigh and Newco.
(h) The execution and carrying out of this Agreement and
compliance with the terms and provisions hereof by Lehigh and
Newco will not conflict with or result in any breach of any of
the terms, conditions, or provisions of, or constitute a
default under, or result in the creation of, any lien, charge,
or encumbrance upon any of the properties or assets of Lehigh,
Newco or any of its other subsidiaries pursuant to any
corporate charter, indenture, mortgage, agreement (other than
that which is created by virtue of this Agreement) or other
instrument to which Lehigh or any of its subsidiaries is a
party or by which it or any of its subsidiaries if bound or
affected.
(i) This Agreement, the Disclosure Schedule, documents and
financial statements furnished hereunder on behalf of Lehigh
do not contain and will not contain any untrue statement of a
material fact nor omit to state a material fact necessary to
be stated in order to make the statements contained herein and
therein not misleading; and there is no fact known to Lehigh
which materially adversely affects or in the future will
materially adversely affect the business operations, affairs
or condition of Lehigh or any of its subsidiaries or any of
its or their properties or assets which has not been set forth
in this Agreement the Disclosure Schedule or other documents
and material furnished hereunder.
(j) There are no agreements or contracts between Lehigh and its
subsidiaries with any other third party that require approvals
or consents that could delay or prevent the Merger of Lehigh
and Newco and the other transactions contemplated thereby.
(k) Neither Lehigh nor any of its subsidiaries use or handle
potentially hazardous materials and have not received
notification of, and are not aware of, any past or present
event, condition or activity of or relating to the business,
properties or assets of Lehigh which violates any
Environmental or Occupational Safety Law.
13. REPRESENTATIONS OF DHB
DHB represents, warrants and agrees that:
(a) DHB is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and its
subsidiaries are duly organized, validly existing and in good
standing under the laws of the jurisdiction pursuant to which
they were incorporated. DHB and its subsidiaries have the
corporate power and any necessary governmental authority to
own or lease their properties now owned or leased and to carry
on their business as now being conducted. DHB and its
subsidiaries are duly qualified to do business and in good
standing in every jurisdiction in which the nature of their
business or the character of their properties makes such
qualification necessary.
(b) As of March 31, 1996, the capitalization of DHB and its
subsidiaries is as set forth in financial statements and
filings furnished to Lehigh. The outstanding capital stock, of
DHB and its subsidiaries
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has been duly authorized and issued and is fully paid and
nonassessable. DHB and its subsidiaries have no commitment to
issue, nor will they issue, any shares of their capital stock
or any securities or obligations convertible into or
exchangeable for, or give any person any right to acquire from
DHB or its subsidiaries any shares of DHB or it subsidiaries
capital stock, except for those shares identified in the
Disclosure Schedule to be delivered by DHB to Lehigh ("DHB
Disclosure Schedule").
(c) DHB has furnished Lehigh with copies of its Annual Reports on
Form 10-KSB filed with the Securities and Exchange Commission
for the year ended December 31, 1995 and 1994 which contains
consolidated balance sheets of DHB and subsidiaries as of
December 31, 1995 and 1994 and the related consolidated
statements of operations shareholder equity (deficit) and cash
flows for each of the three years in the period ended December
31, 1995 audited by Capraro Centofranchi Kramer & Co., P.C.
DHB has also furnished Lehigh with unaudited financial
statements as of March 31, 1996 as set forth in its Form
10-QSB as filed with the Securities and Exchange Commission.
All of the above financial statements present fairly the
consolidated financial position of DHB and its subsidiaries at
the periods indicated, and the consolidated results of
operations and cash flows for the periods then ended. The
interim financial statements have been prepared in conformity
with generally accepted accounting principles applied on a
consistent basis, and in the opinion of DHB include all
adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of such interim period.
Since March 31, 1996 there has been no material adverse change
in the assets or liabilities or in the business or condition,
financial or otherwise, of DHB or its consolidated
subsidiaries, and no change except in the ordinary course of
business or as contemplated by this Agreement.
(d) Neither DHB nor any of its subsidiaries is engaged in or a
party to, or to the knowledge of DHB, threatened with any
material legal action or other proceeding before any court or
administrative agency except as set forth in the DHB
Disclosure Schedule to be furnished to Lehigh. Neither DHB nor
any of its subsidiaries, to the knowledge of DHB, has been
charged with, or is under investigation with respect to, any
charge concerning any presently pending material violation of
any provision of Federal, state, or other applicable law or
administrative regulations in respect to its business except
as set forth on said DHB Disclosure Statement.
(e) The information to be furnished by DHB for use in the material
mailed to stockholders of DHB in connection with the Meetings
will in all material respects comply with the applicable
requirement of the 1933 Act and the 1934 Act, and the rules
and regulations promulgated thereunder.
(f) DHB has the corporate power to enter into this Agreement, the
execution and delivery and performance of this Agreement have
been duly authorized by all requisite corporate action, and
this Agreement constitutes the valid and binding obligations
of DHB.
(g) The execution and carrying out of this Agreement and
compliance with the terms and provisions hereof by DHB will
not conflict with or result in any breach of any of the terms,
conditions, or provisions of, or constitute a default under,
or result in the creation of, any lien, charge, or encumbrance
upon any of the properties or assets of DHB or any of its
other subsidiaries pursuant to any corporate charter,
indenture, mortgage, agreement (other than that which is
created by virtue of this Agreement) or other instrument to
which Lehigh or any of its subsidiaries is a party or by which
it or any of its subsidiaries if bound or affected.
A-9
(h) This Agreement, the DHB Disclosure Schedule, documents and
financial statements furnished hereunder on behalf of DHB do
not contain and will not contain any untrue statement of a
material fact nor omit to state a material fact necessary to
be stated in order to make the statements contained herein and
therein not misleading; and there is no fact known to Lehigh
which materially adversely affects or in the future will
materially adversely affect the business operations, affairs
or condition of DHB or any of its subsidiaries or any of its
or their properties or assets which has not been set forth in
this Agreement the DHB Disclosure Schedule or other documents
and material furnished hereunder.
(i) There are no agreements or contracts between DHB and its
subsidiaries with any other third party that require approvals
or consents that could delay or prevent the Merger of DHB and
Newco and the other transactions contemplated thereby.
(j) Neither Lehigh nor any of its subsidiaries use or handle
potentially hazardous materials and have not received
notification of, and are not aware of, any past or present
event, condition or activity of or relating to the business,
properties or assets of Lehigh which violates any
Environmental or Occupational Safety Law.
14. SURVIVAL OF WARRANTIES
The representations and warranties made herein by DHB and
Lehigh shall survive this Agreement for a period of two years from the
closing date and shall not expire with, nor be terminated by the Merger
of Newco into DHB.
15. CONDITIONS TO THE OBLIGATIONS OF LEHIGH
The obligations of Lehigh hereunder are subject to the
satisfaction on or before the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall
have been approved by the vote of a majority of the
outstanding shares of common stock of Lehigh and DHB.
(b) Each "affiliate" of DHB will have properly executed and
delivered the Affiliate's Agreement described in paragraph
five hereof.
(c) DHB shall have furnished Lehigh with (i) certified copies of
resolutions duly adopted by the holders of a majority or more
of the issued and outstanding shares of DHB common stock
entitled to vote, evidencing approval of this Agreement and
the Merger Agreement and the transactions contemplated hereby
and thereby; (ii) certified copies of resolutions duly adopted
by the Board of Directors of DHB approving the execution and
delivery of this Agreement and the Merger Agreement and
authorizing all necessary or proper corporate action, to
enable DHB to comply with the terms hereof and thereof; (iii)
an opinion dated the closing date of counsel for DHB in the
form and substance satisfactory to DHB and its counsel to the
effect that:
(1) DHB and each of its subsidiaries are corporations
duly organized and validly existing and in good
standing under the laws of its respective
jurisdiction of incorporation, and to the best of the
knowledge of such counsel based on inquiries of
responsible officers of DHB, is duly
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qualified to do business and is in good standing in
every jurisdiction in which the nature of their
business or the character of their properties makes
such qualification necessary, except where the
failure to be so qualified will not have a material
adverse effect on DHB's business or consolidated
financial condition, and has all corporate and other
power and authority, including all governmental
licenses and authorizations, necessary to own its
properties and to carry on the business as described
in the proxy Statement of DHB made a part of the
Registration Statement;
(2) this Agreement and the Merger Agreement each have
been duly authorized and executed by proper corporate
action of DHB and each constitutes the valid and
legally binding obligation of DHB in accordance with
its terms;
(3) no provision of the Articles of Incorporation or the
By-laws of DHB or of any contract (except those
pursuant to which waivers or consents have been
obtained) known to such counsel to which DHB is a
party, or any law, rule or regulation prevents it
from carrying out the transactions contemplated
hereby;
(4) there is no material action or proceeding known to
such counsel, pending or threatened against DHB
before a court or other governmental body or
instituted or threatened by any public authority or
by the holders of any securities of DHB, other than
as specifically set forth in the DHB Disclosure
Schedule.
(5) DHB has adequate title, subject only to liens and
other matters set forth on the financial statements
furnished to Lehigh pursuant to paragraph 13(c)
hereof, to all its real estate properties, except for
any lien of taxes not yet delinquent or being
contested in good faith by appropriate proceedings
and easements and restrictions of record which do not
materially adversely affect the use of the property
by DHB, and except for minor defects in titles, none
of which, based upon information furnished by
officers of DHB, does or will materially adversely
affect DHB's use of such properties or its
operations, and to which the rights of DHB therein
have not been questioned. In giving such opinion,
counsel may rely upon title policies previously
issued to DHB or updated certificates furnished by
title insurance companies.
(6) to the best knowledge of such counsel and based upon
inquiries of responsible officers of DHB and upon
searches of Uniform Commercial Code filings in the
offices of the appropriate Secretary of State, there
are no liens against properties of DHB (excluding
real estate) except as to be disclosed by DHB to
Lehigh in the DHB Disclosure Schedule. In rendering
this opinion with resect to the laws of any
jurisdiction other than Delaware, DHB counsel may
rely on the opinion of other counsel retained by DHB
provided that said opinion shall state that Lehigh is
justified in relying on the opinion or opinions of
such other counsel.
(d) The representations and warranties of DHB contained in this
Agreement shall be true in all material respect on and as of
the Closing Date with the same effect as though such
representations and warranties had been made on and as of such
date, except for changes permitted by this Agreement or those
incurred in the ordinary course of business and DHB shall have
received from DHB at the Closing a certificate dated the
Closing Date of the Chairman, President or a Vice President of
DHB to that effect.
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(e) Each and all of the respective agreements of DHB to be
performed on or before the Closing Date pursuant to the terms
hereof shall in all material respects have been duly performed
and DHB shall have delivered to DHB a certificate dated the
Closing Date, of the Chairman, President or a Vice President
of DHB to that effect.
(f) Rulings and other actions, if desirable or required, to the
effect described in paragraph 11 hereof, satisfactory to
counsel for DHB and Lehigh, shall have been obtained or filed
and the conditions of such rulings or other actions which must
be complied with on or prior to the Closing Date shall have
been complied with.
(g) The completion of DHB's Proxy Statement and the effectiveness
of Lehigh's Registration on Form S- 4, as each may be amended.
(h) The approval of this Agreement and the Merger Agreement by the
DHB Board of Directors.
(i) The absence of any material contingent liabilities of DHB not
previously disclosed to Lehigh.
(j) The nonexistence of any agreement or contract that could delay
or prevent the completion of the transactions contemplated by
this Agreement.
16. CONDITIONS TO THE OBLIGATIONS OF DHB
The obligations of DHB hereunder are subject to the
satisfaction on or before the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall
have been approved by the vote of a majority of the
outstanding shares of common stock of Lehigh and DHB.
(b) Lehigh shall have furnished DHB with (i) certified copies of
resolutions duly adopted by the holders of a majority or more
of the issued and outstanding shares of Lehigh common stock
entitled to vote, evidencing approval of this Agreement and
the Merger Agreement and the transactions contemplated hereby
and thereby; (ii) certified copies of resolutions duly adopted
by the Board of Directors of Lehigh approving the execution
and delivery of this Agreement and the Merger Agreement and
authorizing all necessary or proper corporate action, to
enable Lehigh to comply with the terms hereof and thereof;
(iii) an opinion dated the closing date of counsel for Lehigh
in the form and substance satisfactory to DHB and its counsel
to the effect that:
(1) Lehigh and each of its subsidiaries are corporations
duly organized and validly existing and in good
standing under the laws of its respective
jurisdiction of incorporation, and to the best of the
knowledge of such counsel based on inquiries of
responsible officers of Lehigh, is duly qualified to
do business and is in good standing in every
jurisdiction in which the nature of their business or
the character of their properties makes such
qualification necessary, except where the failure to
be so qualified will not have a material adverse
effect on Lehigh's business or consolidated financial
condition, and has all corporate and other power and
authority, including all governmental licenses and
authorizations, necessary to own its properties and
to carry on the business as described in the Proxy
Statement of Lehigh made a part of the Registration
Statement;
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(2) this Agreement and the Merger Agreement each have
been duly authorized and executed by proper corporate
action of Lehigh and each constitutes the valid and
legally binding obligation of Lehigh in accordance
with its terms;
(3) no provision of the Articles of Incorporation or the
By-laws of Lehigh or of any contract (except those
pursuant to which waivers or consents have been
obtained) known to such counsel to which Lehigh is a
party, or any law, rule or regulation prevents it
from carrying out the transactions contemplated
hereby;
(4) there is no material action or proceeding known to
such counsel, pending or threatened against Lehigh
before a court or other governmental body or
instituted or threatened by any public authority or
by the holders of any securities of Lehigh, other
than as specifically set forth in the Disclosure
Schedule;
(5) Lehigh has adequate title, subject only to liens and
other matters set forth on the financial statements
furnished to DHB pursuant to paragraph 12(d) hereof,
to all its real estate properties, except for any
lien of taxes not yet delinquent or being contested
in good faith by appropriate proceedings and
easements and restrictions of record which do not
materially adversely affect the use of the property
by Lehigh, and except for minor defects in titles,
none of which, based upon information furnished by
officers of Lehigh, does or will materially adversely
affect Lehigh's use of such properties or its
operations, and to which the rights of Lehigh therein
have not been questioned. In giving such opinion,
counsel may rely upon title policies previously
issued to Lehigh or updated certificates furnished by
title insurance companies;
(6) to the best knowledge of such counsel and based upon
inquiries of responsible officers of Lehigh and upon
searches of Uniform Commercial Code filings in the
offices of the appropriate Secretary of State, there
are no liens against properties of Lehigh (excluding
real estate) except as to be disclosed by Lehigh to
Lehigh in the Disclosure Schedule.
In rendering this opinion with resect to the laws of
any jurisdiction other than Delaware, Lehigh counsel
may rely on the opinion of other counsel retained by
Lehigh provided that said opinion shall state that
Lehigh is justified in relying on the opinion or
opinions of such other counsel.
(c) The representations and warranties of Lehigh contained in this
Agreement shall be true in all material respect on and as of
the Closing Date with the same effect as though such
representations and warranties had been made on and as of such
date, except for changes permitted by this Agreement or those
incurred in the ordinary course of business and Lehigh shall
have received from Lehigh at the Closing a certificate dated
the Closing Date of the President or a Vice President of
Lehigh to that effect.
(d) Each and all of the respective agreements of Lehigh to be
performed on or before the Closing Date pursuant to the terms
hereof shall in all material respects have been duly performed
and Lehigh shall have delivered to DHB a certificate dated the
Closing Date, of the Chairman, President or a Vice President
of Lehigh to that effect.
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(e) Rulings and other actions, if desirable or required, to the
effect described in paragraph 11 hereof, satisfactory to
counsel for Lehigh and DHB, shall have been obtained or filed
and the conditions of such rulings or other actions which must
be complied with on or prior to the Closing Date shall have
been complied with.
(f) At the time immediately prior to the closing of this
transaction, no more than 473,289 shares of Common Stock of
Lehigh shall be issued and outstanding resulting from Lehigh
shareholders having voted for a 21.845 for 1 reverse stock
split with respect to the 10,339,250 shares of Common Stock
presently outstanding; no other class of equity securities
will be issued and outstanding, nor will there be any
Warrants, Options or other securities outstanding which are
convertible into common stock or upon exercise would require
common stock to be issued, except as set forth in the
Disclosure Schedule.
(g) The completion of Lehigh's proxy Statement and the
effectiveness of Lehigh's Registration on Form S-4, as each
may be amended.
(h) The approval of this Agreement and the Merger Agreement by the
Lehigh Board of Directors.
(i) The absence of any material contingent liabilities of Lehigh
not previously disclosed to Lehigh.
(j) The nonexistence of any agreement or contract that could delay
or prevent the completion of the transactions contemplated by
this Agreement.
(k) The Board of Directors of Lehigh shall be constituted as set
forth on Exhibit B annexed hereto.
(l) The Employment Agreement shall be entered into with Messrs.
Salvatore J. Zizza and Robert A. Bruno in the forms annexed
hereto as Exhibit C and D respectively.
(m) The Board of Directors of Lehigh and the shareholders of
Lehigh shall have approved an amendment to Lehigh's Articles
of Incorporation changing the name of Lehigh to "The DHB
Group, Inc." effective upon the closing of the transactions
contemplated hereby.
17. TERMINATION AND MODIFICATIONS RIGHTS
(a) This Agreement (except for the last three sentences of
paragraph 4 of this Agreement) may be terminated at any time
prior to the Closing Date by (i) mutual consent of the parties
hereto authorized by their respective Boards of Directors or
(ii) upon written notice to the other party, by either party
upon authorization of its Board of Directors:
(1) if in its reasonably exercised judgment since the
date of this Agreement there shall have occurred a
material adverse change in the financial condition or
business of the other party or the other party shall
have suffered a material loss or damage to any of its
property or assets, which change, loss or damage
materially affects or impairs the ability of the
other party to conduct its business, or if any
previously undisclosed condition which materially
adversely affects the earning power or assets of
either party come to the attention of the other
party; or
A-14
(2) if any action or proceeding shall have been
instituted or threatened before a court or other
governmental body or by any public authority to
restrain or prohibit the transactions contemplated by
this Agreement or if the consummation of such
transactions would subject either of such parties to
liability for breach of any law or regulation.
(b) As provided in paragraph 2(a), this Agreement may be
terminated by either party upon notice to the other in the
event the Closing shall not be held by December 15, 1996.
(c) Any term or condition of this Agreement may be waived at any
time by the party hereto which is entitled to the benefit
thereof, by action taken by the Board of Directors of such
party; and any such term or condition may be amended at any
time, by an agreement in writing executed by the Chairman of
the Board, the President or any Vice President of each of the
parties pursuant to authorization by their respective Boards
of Directors provided however that no amendment of any
principal term of the Merger shall be affected after approval
of this Agreement by the shareholders of Lehigh, DHB and Newco
unless such amendment is approved by such shareholders in
accordance with applicable law.
18. INDEMNIFICATION
(a) Salvatore J. Zizza ("Zizza") and Robert A. Bruno ("Bruno"),
solely to the extent and in the manner set forth herein, shall
jointly and severally indemnify Lehigh and hold it harmless
against and in respect of any and all damage, loss, cost or
reasonable expense (which shall also include reasonable
attorney's fees) suffered, incurred or required to be paid by
Lehigh after the Effective Date of the Merger (herein referred
to as "Losses") by reason of any representation or warranty
made by Lehigh in or pursuant to this Agreement or in the
Disclosure Statement, documents or financial statements
delivered pursuant hereto being untrue or incorrect, to the
extent not actually known by DHB prior to the Effective Date
of the Merger at the date of this Agreement, provided that
Zizza and Bruno had actual knowledge that such representation
or warranty was untrue or incorrect prior to the Effective
Date of the Merger.
(b) There shall be no indemnification for Losses unless the
aggregate amount of such Losses exceeds $25,000, and then only
the Losses in excess of $25,000 shall be subject to
indemnification in accordance with this paragraph 18. The
limitation of liability for Losses above the $25,000 threshold
shall in the case of each of Zizza and Bruno be the amount of
and shall be paid from the remaining unpaid salary from their
respective employment contracts, annexed hereto as Exhibits C
and D. In computing the amount of Losses, the indemnification
shall be for the net amount of a loss after giving effect to
anything which directly mitigates the loss and after taking
into account insurance proceeds or any other recovery
resulting from the loss. (If, after the payment of any
indemnification hereunder, the amount of a loss shall be
reduced beyond the amount, if any, previously taken into
account by a recovery, settlement, or otherwise, the amount of
such reduction which is directly related to the loss less any
expenses incurred in connection with such reduction shall
promptly be repaid to the party that paid the indemnification
hereunder.)
(c) Notwithstanding anything herein contained, Zizza and Bruno
shall not be liable for any Losses referred to in paragraphs
18(a) or 18(b) hereof unless a written notice setting forth in
reasonable detail the breach which is being asserted has been
given to Zizza and/or Bruno within the applicable period of
limitations set forth in paragraph 18(d) hereof and, in
addition, if such matter arises out of a claim by a third
party, such notice shall be given promptly and in any event
(so long as the
A-15
indemnifying party shall not have been prejudiced by delay)
not later than thirty (30) days after the party seeking
indemnity shall have become aware thereof. The party from whom
indemnification is sought shall be entitled to defend against
any such claim as set forth in paragraph 18 hereof.
(d) No claim may be asserted with respect to indemnification after
the period ending two years from the Closing Date.
(e) In the event that any claim is made by a third party which, if
valid, would entitle Lehigh to indemnity under this paragraph
18, Zizza and Bruno shall be given written notice as set forth
in paragraph 18(c) hereof within the time hereinabove provided
and they, or either of them, may defend against and settle the
claim at their own expense and with counsel of their choosing.
Lehigh shall have the right, but not the obligation, to
participate at its own expense in the defense thereof by
counsel of its own choosing, but Zizza and Bruno, or either of
them, shall be entitled to control the defense unless Lehigh
has relieved them from liability with respect to the
particular matter. In the event Zizza or Bruno shall fail
timely to defend, contest or otherwise protect against such
claim, Lehigh shall have the right, but not the obligation, to
defend, contest or otherwise protect against the same or, on
not less than thirty (30) days' written notice, to Zizza and
Bruno make any compromise or settlement thereof, and such
settlement shall be binding on the party from whom
indemnification was sought for purposes of indemnification
under this paragraph 18 unless such party objects thereto
within the thirty (30) day period aforesaid.
19. BROKERS
Each of the parties represents that no broker, finder or
similar person has been retained or paid and that no brokerage fee or
other commission has been agreed to be paid for or on account of this
Agreement.
20. GOVERNING LAW
This Agreement shall be construed in accordance with the laws
of the State of Delaware.
21. NOTICES
All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed
to have been duly given when delivered by hand or when mailed by
registered or certified mail, postage prepaid, or when given by telex
or facsimile transmission (promptly confirmed in writing), as follows:
(a) If to Lehigh or Newco:
Salvatore J. Zizza, President
810 Seventh Avenue - #27 F
New York, NY 10019
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With a copy to:
Robert A. Bruno, Esq.
General Counsel & Vice President
810 Seventh Avenue - #27 F
New York, NY 10019
(b) If the DHB:
David H. Brooks, Chairman
DHB CAPITAL GROUP, INC.
11 Old Westbury Road
Old Westbury, New York 11568
With a copy to:
Peter Landau, Esq.
Option Handler Gottlieb Feiler & Katz
52 Vanderbilt Avenue
New York, NY 10017
22. ASSIGNMENT
This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement
nor any of the rights interests or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent
of the other parties.
23. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, and by the different parties hereto on separate
counterparts each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
24. HEADINGS AND REFERENCES
The headings of the paragraphs of this Agreement are inserted
for convenience of reference only.
25. ENTIRE AGREEMENT: SEVERABILITY
This Agreement, including the Disclosure Schedules, documents
referred to herein which form a part hereof, contains the entire
understanding of the parties hereto in respect of the subject matter
contained herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
A determination that any portion of this Agreement is unenforceable or
invalid shall not affect the enforceability or validity of any of the
remaining portions of this Agreement or this Agreement as a whole.
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IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto by their respective officers thereunto duly
authorized by a majority of their directors as of the date first above
written.
ATTEST: DHB CAPITAL GROUP INC.
/S/ MARY KREIDELL By /S/ DAVID H. BROOKS
- ------------------ -----------------------
AUTHORIZED OFFICER David H. Brooks, Chairman
and Chief Executive Officer
ATTEST: THE LEHIGH GROUP INC.
/S/ ROBERT A. BRUNO By /S/ SALVATORE J. ZIZZA
- ------------------- ---------------------------
AUTHORIZED OFFICER Salvatore J. Zizza,
Chairman of the Board and
Chief Executive Officer
ATTEST: LEHIGH MANAGEMENT CORP.
/S/ ROBERT A. BRUNO By /S/ SALVATORE J. ZIZZA
- ------------------- ---------------------------------
AUTHORIZED OFFICER Salvatore J. Zizza, President and
Chief Executive Officer
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AGREEMENT OF MERGER
OF
DHB CAPITAL GROUP INC.
AND
LEHIGH MANAGEMENT CORP.
AGREEMENT OF MERGER made as of the _____ day of ___________, 1996, by
and among DHB CAPITAL GROUP INC. a Delaware Corporation ("DHB"), LEHIGH
MANAGEMENT CORP. a Delaware Corporation ("NEWCO") AND THE LEHIGH GROUP INC. a
Delaware corporation ("LEHIGH"). DHB and Newco are sometimes hereinafter
collectively referred to as the "Constituent Corporations".
RECITALS:
DHB is a Delaware corporation originally organized as a New York
Corporation in 1992 and reincorporated in Delaware in 1995, and its authorized
capital stock consists of 25,000,000 shares of Common Stock par value $.001 per
share ("DHB Common Stock"), of which _________ shares were issued and
outstanding as of June 30, 1996.
Newco is a Delaware corporation organized in July 1996 and its
authorized capital stock consists of 2,500 shares of Common Stock, no par value,
of which 100 shares are issued and outstanding and all of which are owned by
Lehigh.
Lehigh is a Delaware corporation organized in 1928 and its authorized
capital stock consists of 100,000,000 shares of Common Stock par value $.001 per
share of which ___________ shares of Common Stock were issued and outstanding as
of June 30, 1996
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Lehigh, DHB and Newco have entered into an Agreement and Plan of
Reorganization dated as of July 1 1996 (the "Reorganization Agreement") setting
forth certain representations, warranties, agreements, and conditions in
connection with the merger provided for herein.
The respective Boards of Directors of Lehigh, DHB and Newco have, by
resolutions, duly approved the execution of and the transactions contemplated by
the Reorganization Agreement and this Agreement of Merger and directed that they
be submitted to the respective shareholders of the two Constituent Corporations
and Lehigh for adoption and approval.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto have agreed and do
hereby agree, subject to the terms and conditions hereinafter set forth, as
follows:
I
MERGER
1.1 In accordance with the provisions of this Agreement and applicable law,
Newco shall be merged with and into DHB (the "Merger"). DHB shall be
and is herein sometimes referred to as the "Surviving Corporation".
1.2 Upon the Effective Date of the Merger (as defined in Article III
hereof) the separate existence of Newco shall cease and DHB, as the
Surviving Corporation, (i) shall continue to possess all of its rights
and property as constituted immediately prior to the effective Date of
the Merger and shall succeed, without other transfer, to all of the
rights and property of Newco and (ii) shall continue subject to all of
its debts and liabilities as the same shall have existed immediately
prior to the Effective Date of the Merger, and become subject to all
the debts and liabilities of Newco in the same manner as if DHB had
itself incurred them, all as more fully provided under the Delaware
General Corporation law.
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1.3 Lehigh hereby agrees that at the time when the Merger shall become
effective, Lehigh will issue that number of whole shares of Lehigh into
which shares of DHB Common Stock issued and outstanding immediately
prior to the Effective Date of the Merger will, as of the Effective
Date of the Merger and by virtue of the Merger, be converted as
hereinafter provided.
1.4 The Merger shall not become effective until the following actions shall
have been completed: (i) this Agreement of Merger shall have been
adopted and approved by the shareholders of each of Lehigh, DHB and
Newco; (ii) all of the other conditions precedent to the consummation
of the Merger specified in the Reorganization Agreement shall have been
satisfied or duly waived by the party entitled to satisfaction thereof;
and (iii) a certificate of merger meeting the requirements of
applicable Delaware law shall have been filed with applicable
authorities.
II
CONVERSION AND EXCHANGE OF SHARES
The manner and basis of converting shares of DHB Common Stock into
Shares of Lehigh and the exchange of certificates therefor, shall be as
follows:
2.1 The exact number of Shares to be issued shall be based on the agreed
formula used for all the issued and outstanding shares of DHB Common
Stock immediately prior to the Effective Date of the Merger. The
Shareholders of DHB will receive that number of shares of Lehigh that
would equal 97% of the total number of issued and outstanding shares of
Lehigh immediately after the Effective Date of the Merger. No
fractional DHB shares will be considered in the exchange and no
fractional Lehigh shares will be issued. Holders of Options and
Warrants to purchase shares of DHB Common Stock immediately prior to
the Effective Date of the Merger will have the right to exercise such
Options and Warrants after the
A-21
Effective Date of the Merger as to shares of Lehigh Common stock for
the term, at the price per share and in the amounts set forth on
Schedule A annexed hereto.
2.2 After the Effective Date of the Merger, certificates evidencing
outstanding shares of DHB Common Stock shall evidence the right of the
holder thereof to receive certificates representing 1 whole share of
Lehigh Common Stock for each share of DHB Common Stock. Each holder of
DHB Common Stock, upon surrender of the certificates, which prior
thereto represented shares of DHB Common stock, to a trust company to
be designated by Lehigh which shall act as the exchange agent (the
"Exchange Agent") for such shareholders to effect the exchange of
certificates on their behalf, shall be entitled upon such surrender to
receive in exchange therefor a certificate or certificates representing
the number of whole shares of Lehigh Common Stock into which the shares
of DHB Common Stock theretofore represented by the certificate or
certificates so surrendered shall have been converted. Until so
surrendered, each such outstanding certificate for shares of DHB Common
Stock shall be deemed, for all corporate purposes including voting
rights, subject to the further provisions of this Article II, to
evidence the ownership of the whole shares of Lehigh Common Stock into
which such shares have been converted.
2.3 No certificate representing a fraction of Lehigh Common Stock will be
issued and no right to vote or receive any distribution or any other
right of a shareholder shall attach to any fractional interest of
Lehigh Common Stock to which any holder of shares of DHB Common Stock
would otherwise be entitled hereunder.
2.4 If any certificate for whole shares of Lehigh Common Stock is to be
issued in a name other than that in which the certificate surrendered
in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be properly
endorsed and otherwise be in proper form for transfer and that the
person requesting such exchange pay to the Exchange Agent any
A-22
transfer or other taxes required by reason of the issuance of
certificates for whole shares of Lehigh Common stock in any name other
than that of the registered holder of the certificate surrendered, paid
or is not payable.
2.5 At the Effective Date of the Merger, all shares of DHB Common Stock
which shall then be held in its treasury, if any, shall cease to exist,
and all certificates representing such shares shall be cancelled.
III
EFFECTIVE DATE OF MERGER; ABANDONMENT OF MERGER
3.1 Subject to the provisions of this Article III, this Agreement of Merger
shall be submitted to the shareholders of Lehigh, DHB and Newco as
provided in the Reorganization Agreement. If adopted and approved by
the vote of at least a majority of the shareholders of each of the
Constituent Corporations and Lehigh and if all of the conditions
precedent to the consummation of the Merger specified in the
Reorganization Agreement shall have been satisfied or duly waived by
the party entitled to satisfaction thereof, then unless terminated as
provided in this Article III, the Merger Certificate shall be filed
with the appropriate governmental authorities. The Effective Date of
the Merger is the date upon which a duly executed copy of the Merger
Certificate is filed with the Secretary of State of Delaware in
accordance with Section 103(c) of the Delaware General Corporation Law.
The date when the Merger shall become effective as aforesaid is herein
called the "Effective Date of the Merger".
3.2 This Agreement of Merger may be terminated and the proposed Merger
abandoned at any time prior to the Effective Date of the Merger,
subject to and in the manner provided in the Reorganization Agreement.
A-23
IV
MISCELLANEOUS
4.1 For the convenience of the parties hereto and to facilitate the filing
of this Agreement of Merger, any number of counterparts hereof may be
executed and each such counterpart shall be deemed to be an original
instrument.
4.2 At any time prior to the Effective Date of the Merger the parties
hereto may, by written agreement, (i) extend the time for the
performance of any of the obligations or other acts of the parties
hereto, (ii) waive (in the manner specified in paragraph 17(c) of the
Reorganization Agreement) any breach or inaccuracy in the
representations and warranties contained in this Agreement of Merger or
in the Reorganization Agreement or in any document delivered pursuant
thereto, or (iii) waive (in the manner specified in paragraph 17(c) of
the Reorganization Agreement) compliance with any of the covenants,
conditions or agreement contained in this Agreement of Merger or in the
Reorganization Agreement.
4.3 Any notice, request, instruction or other document to be given
hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mall, postage prepaid, as follows:
(a) If to Lehigh or Newco
Salvatore J. Zizza, President
810 Seventh Avenue - #27 F
New York NY 10019
With a copy to:
Robert A. Bruno, Esq.
General Counsel & Vice President
810 Seventh Avenue - #27 F
New York NY 10019
A-24
(b) If the DHB
David H. Brooks, Chairman
DHB CAPITAL GROUP, INC.
11 Old Westbury Road
Old Westbury, New York 11568
With a copy to
Peter Landau, Esq.
Opton Handler Gottlieb Feiler & Katz
52 Vanderbilt Avenue
New York NY 100l7
or such other person as may be designated in writing by the parties by
a notice given as aforesaid.
4.4 After the Merger becomes effective, Newco, through the persons who were
its officers immediately prior to the Merger shall execute or cause to
be executed such further assignments assurances or other documents as
may be necessary or desirable to confirm title to its properties,
assets, and rights in DHB.
4.5 The corporations who are parties to this Agreement are also parties to
the Reorganization Agreement. The two agreements are intended to be
construed together in order to effectuate their purposes, and said
agreements are intended as a plan of reorganization within the meaning
of Section 368 of the Internal Revenue Code of 1954 as amended.
A-25
IN WITNESS WHEREOF, each of the undersigned corporations has caused
this Agreement of Merger to be signed in its corporate name by its duly
authorized officers, all as of the date first above written.
THE LEHIGH GROUP INC.
By:
---------------------
Title: Chairman
(Corporate Seal) By:
-----------------------------
Title: Secretary
LEHIGH MANAGEMENT CORP.
By:
-----------------------------
Title: President
(Corporate Seal) By:
-----------------------------
Title: Secretary
DHB CAPITAL GROUP INC.
By:
-----------------------------
Title: Chairman
(Corporate Seal) By:
-----------------------------
Title: Secretary
A-26
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Restated Certificate of Incorporation and By-laws of
Lehigh contain provisions permitted by the Delaware General Corporation Law
(under which Lehigh is organized), that, in essence, provide that directors and
officers shall be indemnified for all losses that may be incurred by them in
connection with any claim or legal action in which they may become involved by
reason of their service as a director or officer of Lehigh if they meet certain
specified conditions. In addition, the Restated Certificate of Incorporation of
Lehigh contains provisions that limit the monetary liability of directors of
Lehigh for certain breaches of their fiduciary duty of care and provide for the
advancement by Lehigh to directors and officers of expenses incurred by them in
defending suits arising out of their service as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following Exhibits are filed as part of this registration statement
(references are to Regulation S-K Exhibit Numbers):
*2.1 Agreement and Plan of Reorganization, dated as of July 8,
1996, between the Registrant, the Registrant Acquisition
Corp. and DHB Capital Group, Inc. (filed as Appendix A to
the Joint Proxy Statement/Prospectus included in this
Registration Statement).
3(a) Restated Certificate of Incorporation, By-Laws and
Amendments to By-Laws (incorporated by reference to
Exhibits A and B to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1970. Exhibits
3 and 1, respectively, to the Registrant's Current
Reports on Form 8-K dated September 8, 1972 and May 9,
1973, and Exhibit to the Registrant's Current Report on
Form 8-K dated October 10, 1973, and Exhibit 3 to the
Registrant'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 the Registrant'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 the Registrant filed with the Secretary
of State of the State of Delaware on October 31, 1985
(incorporated by reference to Exhibit 4(c) to the
Registrant's Current Report on Form 8-K dated November 7,
1985).
3(d) Certificate of Amendment to Restated Certificate of
Incorporation of the Registrant filed with the Secretary
of State of the State of Delaware on January 2,
II-1
1986 (incorporated by reference to Exhibit 3(d) to the
Registrant'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 the Registrant filed with the Secretary
of State of the State of Delaware on June 4, 1986
(incorporated by reference to Exhibit 4(a) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1986).
3(f) Certificate of Amendment to Restated Certificate of
Incorporation of the Registrant filed with the Secretary
of State of the State of Delaware on March 15, 1991
(incorporated by reference to Exhibit 3(g) to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990).
3(g) Certificate of Amendment to Certificate of Incorporation
of the Registrant filed with the Secretary of State of
the State of Delaware on December 27, 1991 (incorporated
by reference to Exhibit 3(h) to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1991).
3(h) Certificate of Amendment to Certificate of Incorporation
of the Registrant filed with the Secretary of State of
the State of Delaware on January 27, 1995 (incorporated
by reference to Exhibit 3(i) to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994).
3(i) Amended and Restated By-Laws of the Registrant, as
amended to date (incorporated by reference to Exhibit
3(ii) to the Registrant's Current Report on Form 8-K
dated July 17, 1996).
4(a) Form of Indenture, dated as of October 15, 1985, among
Registrant, NICO, Inc. and J. Henry Schroder Bank & Trust
the Registrant, as Trustee, including therein the form of
the subordinated debentures to which such Indenture
relates (incorporated by reference to Exhibit 4(a) to the
Registrant'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 Registrant, NICO, the guarantors
signatory thereto, and Continental Stock Transfer and
Trust the Registrant, 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 the
Registrant'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 the
Registrant, as trustee under the Class B
II-2
Note Indenture (incorporated by reference to Exhibit 4(h)
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993).
4(e) Form of indenture between the Registrant, 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 the Registrant's Registration Statement on Form
S-2 dated May 13, 1988).
**5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP
regarding the legality of the securities being
registered.
10(a) Guaranty of LVI Environmental dated as of May 5, 1993
(incorporated by reference to Exhibit 10(f) to the
Registrant'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, the Registrant and certain directors
and officers of the Registrant (incorporated by reference
to Exhibit 10(h) to the Registrant'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 the
Registrant, 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 Registrant'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 Registrant in favor of
those persons participating in the Registrant's exchange
offers (incorporated by reference to Exhibit 10(j) to the
Registrant's Annual Report on Form 10-K/A Amendment #2
for the year ended December 31, 1993).
10(e) Employment Agreement between the Registrant and Salvatore
J. Zizza dated August 22, 1994 (incorporated by reference
to Exhibit 10.1 to the Registrant'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 Registrant
(incorporated by reference to Exhibit 10.2 to the
Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission in September 1994).
10(g) Registration Rights Agreement dated as of August 22, 1994
between Mr. Zizza and the Registrant (incorporated by
reference to Exhibit 10.3 to the Registrant'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 Registrant (incorporated by
reference to Exhibit 10.4 to the Registrant's
II-3
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 Registrant
(incorporated by reference to Exhibit 10.5 to the
Registrant'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 Registrant (incorporated by
reference to Exhibit 10.6 to the Registrant'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 Registrant and the investors in the
Private Placement (incorporated by reference to Exhibit
10.7 to the Registrant'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
Registrant (incorporated by reference to Exhibit 10.8 to
the Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission in September
1994).
10(m) Employment Agreement between the Registrant and Robert A.
Bruno dated January 1, 1995 (incorporated by reference to
Exhibit 10(m) to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
10(n) Subordinated debenture dated March 28, 1996 between the
Registrant and Macrocom Investors, LLC (incorporated by
reference to Exhibit 10(n) to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995).
*10(o) Option Letter Agreement, dated July 8, 1996, between
Salvatore J. Zizza and DHB Capital Group.
*10(p) $100,000 Promissory Note, dated as of July 8, 1996, from
DHB Capital Group, Inc. to Salvatore J. Zizza.
*10(q) Employment Agreement, dated as of June 11, 1996, between
the Registrant and Salvatore J. Zizza.
*10(r) Employment Agreement, dated as of June 11, 1996, between
the Registrant and Robert A. Bruno.
*10(s) Registration Rights Agreement, as of July 8, 1996,
between the Registrant and DHB Capital Group, Inc.
II-4
21 Subsidiaries of the Registrant (incorporated by reference
to Exhibit 21 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995).
*23.1 Consent of BDO Seidman, LLP.
*23.2 Consent of Capraro, Centofranchi, Kramer & Co., P.C.
*23.3 Consent of Jay Howard Linn.
**23.4 Consent of Olshan Grundman Frome & Rosenzweig LLP
(included in Exhibit 5.1).
*99.1 Form of Proxy with respect to the solicitation of the
holders of the Registrant's Common Stock.
*99.2 Form of Proxy with respect to the solicitation of the
holders of DHB's Common Stock.
- -----------------------------
* Filed herewith.
** To be filed by Amendment.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City and State of
New York on the 13th day of September, 1996.
THE LEHIGH GROUP INC.
By: /S/ SALVATORE J. ZIZZA
----------------------
Salvatore J. Zizza
President
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints SALVATORE J. ZIZZA and ROBERT A.
BRUNO, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent or either of them,or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
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 September 13, 1996
- ------------------------- Director and President Chief
Salvatore J. Zizza Executive Officer (Chief
Financial Officer)
/S/ ROBERT A. BRUNO Vice President, General September 13, 1996
- ------------------------- Counsel, Secretary and
Robert A. Bruno Director
/S/ RICHARD L. BREADY Director September 13, 1996
- -------------------------
Richard L. Bready
/S/ CHARLES A. GARGANO Director September 13, 1996
- -------------------------
Charles A. Gargano
II-7
/S/ANTHONY F.L. AMHURST Director September 13, 1996
- --------------------------
Anthony F.L. Amhurst
/S/ SALVATORE M. SALIBELLO Director September 13, 1996
- --------------------------
Salvatore M. Salibello
II-8
EXHIBIT INDEX
EXHIBIT
*2.1 Agreement and Plan of Reorganization, dated as of July 8, 1996,
between the Registrant, the Registrant Acquisition Corp. and DHB
Capital Group, Inc. (filed as Appendix A to the Joint Proxy
Statement/Prospectus included in this Registration Statement).
3(a) Restated Certificate of Incorporation, By-Laws and Amendments to
By-Laws (incorporated by reference to Exhibits A and B to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1970. Exhibits 3 and 1, respectively, to the
Registrant's Current Reports on Form 8-K dated September 8, 1972
and May 9, 1973, and Exhibit to the Registrant's Current Report on
Form 8-K dated October 10, 1973, and Exhibit 3 to the Registrant'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 the Registrant'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 the Registrant filed with the Secretary of State of the State
of Delaware on October 31, 1985 (incorporated by reference to
Exhibit 4(c) to the Registrant's Current Report on Form 8-K dated
November 7, 1985).
3(d) Certificate of Amendment to Restated Certificate of Incorporation
of the Registrant filed with the Secretary of State of the State
of Delaware on January 2, 1986 (incorporated by reference to
Exhibit 3(d) to the Registrant'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 the Registrant filed with the Secretary of State of the State
of Delaware on June 4, 1986 (incorporated by reference to Exhibit
4(a) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1986).
3(f) Certificate of Amendment to Restated Certificate of Incorporation
of the Registrant filed with the Secretary of State of the State
of Delaware on March 15, 1991 (incorporated by reference to
Exhibit 3(g) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990).
3(g) Certificate of Amendment to Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of
Delaware on December 27, 1991 (incorporated by reference to
Exhibit 3(h) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991).
3(h) Certificate of Amendment to Certificate of Incorporation of the
Registrant filed with the Secretary of State of the State of
Delaware on January 27, 1995 (incorporated by
E-1
reference to Exhibit 3(i) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994).
3(i) Amended and Restated By-Laws of the Registrant, as amended to date
(incorporated by reference to Exhibit 3(ii) to the Registrant's
Current Report on Form 8-K dated July 17, 1996).
4(a) Form of Indenture, dated as of October 15, 1985, among Registrant,
NICO, Inc. and J. Henry Schroder Bank & Trust the Registrant, as
Trustee, including therein the form of the subordinated debentures
to which such Indenture relates (incorporated by reference to
Exhibit 4(a) to the Registrant'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 Registrant, NICO, the guarantors signatory
thereto, and Continental Stock Transfer and Trust the Registrant,
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 the Registrant'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 the Registrant, as trustee
under the Class B Note Indenture (incorporated by reference to
Exhibit 4(h) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993).
4(e) Form of indenture between the Registrant, 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 the Registrant's Registration Statement on
Form S-2 dated May 13, 1988).
**5.1 Opinion of Olshan Grundman Frome & Rosenzweig LLP regarding the
legality of the securities being registered.
10(a) Guaranty of LVI Environmental dated as of May 5, 1993
(incorporated by reference to Exhibit 10(f) to the Registrant'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, the Registrant and certain directors and officers
of the Registrant (incorporated by reference to Exhibit 10(h) to
the Registrant'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 the Registrant,
NICO and LVI Holding for the benefit of holders of certain
securities of Hold-Out Notes (as
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defined therein) (incorporated by reference to Exhibit 10(i) to
the Registrant'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 Registrant in favor of those persons
participating in the Registrant's exchange offers (incorporated by
reference to Exhibit 10(j) to the Registrant's Annual Report on
Form 10-K/A Amendment #2 for the year ended December 31, 1993).
10(e) Employment Agreement between the Registrant and Salvatore J. Zizza
dated August 22, 1994 (incorporated by reference to Exhibit 10.1
to the Registrant'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 Registrant (incorporated by reference to
Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed
with the Securities and Exchange Commission in September 1994).
10(g) Registration Rights Agreement dated as of August 22, 1994 between
Mr. Zizza and the Registrant (incorporated by reference to Exhibit
10.3 to the Registrant'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 Registrant (incorporated by reference to Exhibit
10.4 to the Registrant'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 Registrant (incorporated by
reference to Exhibit 10.5 to the Registrant'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 Registrant (incorporated by reference to
Exhibit 10.6 to the Registrant'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 Registrant and the investors in the Private Placement
(incorporated by reference to Exhibit 10.7 to the Registrant'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 Registrant (incorporated
by reference to Exhibit 10.8 to the Registrant's Current Report on
Form 8-K filed with the Securities and Exchange Commission in
September 1994).
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10(m) Employment Agreement between the Registrant and Robert A. Bruno
dated January 1, 1995 (incorporated by reference to Exhibit 10(m)
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995).
10(n) Subordinated debenture dated March 28, 1996 between the Registrant
and Macrocom Investors, LLC (incorporated by reference to Exhibit
10(n) to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
*10(o) Option Letter Agreement, dated July 8, 1996, between Salvatore J.
Zizza and DHB Capital Group.
*10(p) $100,000 Promissory Note, dated as of July 8, 1996, from DHB
Capital Group, Inc. to Salvatore J. Zizza.
*10(q) Employment Agreement, dated as of June 11, 1996, between the
Registrant and Salvatore J. Zizza.
*10(r) Employment Agreement, dated as of June 11, 1996, between the
Registrant and Robert A. Bruno.
*10(s) Registration Rights Agreement, as of July 8, 1996, between the
Registrant and DHB Capital Group, Inc.
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
*23.1 Consent of BDO Seidman, LLP.
*23.2 Consent of Capraro, Centofranchi, Kramer & Co., P.C.
*23.3 Consent of Jay Howard Linn.
**23.4 Consent of Olshan Grundman Frome & Rosenzweig LLP (included in
Exhibit 5.1).
*99.1 Form of Proxy with respect to the solicitation of the holders of
the Registrant's Common Stock.
*99.2 Form of Proxy with respect to the solicitation of the holders of
DHB's Common Stock.
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* Filed herewith.
** To be filed by Amendment.
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