-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Uoz0/jDweUq/6fF3RSZCiS5bFoyJ28IAlgxiYS078G6AwVT99KzW4A8Ccne7+Ubw OvGHrRCaXo0MylT5zzOxdg== 0000914317-96-000310.txt : 19960911 0000914317-96-000310.hdr.sgml : 19960911 ACCESSION NUMBER: 0000914317-96-000310 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19960910 SROS: BSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DHB CAPITAL GROUP INC /DE/ CENTRAL INDEX KEY: 0000899166 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 113129361 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-96846 FILM NUMBER: 96628238 BUSINESS ADDRESS: STREET 1: 11 OLD WESTBURY RD CITY: OLD WESTBURY STATE: NY ZIP: 11568 BUSINESS PHONE: 5166212552 MAIL ADDRESS: STREET 1: 11 OLD WESTBURY RD CITY: OLD WESTBURY STATE: NY ZIP: 11568 SB-2/A 1 August 23, 1996 Charles C. Leber, Branch Chief United States Securities and Exchange Commission Division of Corporation Finance Washington, D.C. 20049 Re: DHB Capital Group, Inc. Form SB-2, Amendment No.8 Filed July 31, 1996 File No. 33-96846 Dear Mr. Leber: We have the following responses to your comments on the above referenced filing. COMMENT 1. The Staff notes that the registration fee did not increase although the number of shares registered have increased from 2,601,010 in Amendment No. 7 to 3,901,515 in Amendment No. 8. Please advise. RESPONSE The number of shares increased to give effect to the 50% stock dividend. COMMENT 2. Please advise as to whether the offering of the 50 percent stock dividend to purchasers of the Company's securities with a record date after the declaration date is valid under state and federal laws. The staff may have further comments. RESPONSE We have been advised by counsel, Opton Handler Gottlieb Feiler & Katz, LLP, that having a record date after the declaration date is valid under Delaware state law and under federal laws. Counsel also pointed out that NASD requires in Regulation 10-b-17(b), that they be notified of the stock dividend no later than ten days before the record date which would of necessity have the declaration date set prior to the record date by at least ten days. COMMENT 3. It appears that an investment in the Company may be an investment in a subsidiary of the Lehigh Group (i.e., all of the shares of the Company may be exchanged for shares of a subsidiary of the Lehigh Group). In this regard, full disclosure of the business and the risks of the business of the Lehigh Group should be made throughout this prospectus. RESPONSE The Company has complied with your request and has added the risk factors associated with the Lehigh Group as well as Management's Discussion and Analysis, and a summary of The Lehigh Group's business. COMMENT 4. The staff notes that the number of shares beneficially held by Director David Brooks (16,500,600) exceeds the number of shares held by all directors and officers as a group (16,209,370). Please revise. RESPONSE The number of shares held by all directors and officers as a group has been revised to 16,959,370. COMMENT 5. All consents of experts should be filed as Exhibits 23.xx. Please revise. RESPONSE The Company has complied with your request . COMMENT 6. The Company's financial statements should retroactively give effect to the 50% stock dividend declared on July 1, 1996. Please revise the financial statements accordingly. We note that the selected financial information reflects such dividend. All other information in the filing (Certain Market Information and Dividends) should likewise reflect the stock split. RESPONSE The financial statements have been restated to give effect to the stock dividend/split as well as the "Certain Market Information" to comply with your request. COMMENT 7. The disclosure as to the Company's ability to renew the debt obligations is inconsistent with the discussion under the risk factor, "Need for Additional Financing." Please revise the MD&A accordingly. RESPONSE The MD&A was revised accordingly. COMMENT 8. Please revise the third paragraph to make reference to the consolidated statements of operations. RESPONSE The auditor's report has been revised to add the missing line. COMMENT 9. The net proceeds from the sale of a subsidiary should be classified as an investing activity. Please revise. RESPONSE As you have requested, we have classified the proceeds from the sale of a subsidiary as an investing activity on the statement of cash flows. COMMENT 10. Disclose the percentage of export sales to each geographic areas in accordance with paragraph 36 of FAS 14. In this regard, advise whether export sales are denominated in dollars or a foreign currency. If the latter, please note disclosure requirements of paragraph 30 of FAS 52. RESPONSE Note 1 has been revised to include the requested export sales information. COMMENT 11. Supplementally advise the staff under appropriate accounting literature (APB 30) as to the reason DISCOPS treatment is appropriate for the business segments discontinued in 1991. RESPONSE In 1991, The Lehigh Group Inc. sold it's right, title and interest in the stock of various subsidiaries which made up its discontinued interior construction and energy recovery business segments, which represented separate major lines of business. As noted in paragraph 8 of APB 30, "... the term discontinued operations refers to the operations of as segment of a business as defined in paragraph 13, that has been sold, abandoned, spun off or otherwise disposed of...". Paragraph 13 continues "... the term segment of a business refers to a component of an entity whose activities represent a separate major line of business or class of customer." Based on the above information, we believe that the appropriate classification for the losses of these sold subsidiaries is under "loss from discontinued operations." COMMENT 12. Based on the disclosures in the note, it appears to the staff that the Company retained the excess liabilities over assets of the business segments sold in 1991. The disclosures should be revised to clearly disclose this fact. The line item, "deferred credits," does not appear to describe the nature of the transaction. Please revise to use a more descriptive term such as "segment liabilities retained." In this regard, the subsequent settlement of the liabilities in considered to be an extraordinary gain and not income from DISCOPS. Please revise the statement of operations and cash flows. Finally, the 1994 deferred credit does not agree to the balance sheet. Please revise or advise. RESPONSE Because there were concerns that the creditors would seek collection from the Company, it was not considered appropriate to recognize a gain from the sale. Accordingly, the gain was deferred and recognized as management was able to refine its estimate of possible future payments. Since the credits to the income statement represents a change in the estimated gain rather than the settlement of liability, the Registrant believes they are more appropriately classified as a gain on disposal of the discontinued operations. As to the staff's comment that the 1994 deferred credit does not agree to the balance sheet, please note that in Footnote 4, the amounts shownn for each year represents reductions of the deferred credit and not the ending balance of the deferred credit. COMMENT 13. Supplementally advise the staff as to the nature of the adjustment related to the 1991 debt restructuring. RESPONSE The amount included in other income of $380,000 represented old legal and consulting fees relating to the 1991 restructuring. Most of these fees were paid in for amounts less than what was originally estimated, resulting in the "other income". COMMENT 14. Disclose the components of the deferred tax assets in accordance with paragraph 43 of FAS 109. RESPONSE The financial statement disclosures have been revised to comply with our request. COMMENT 15. Delete the pro forma consolidated balance sheet as of December 31, 1995 since such balance sheet should be presented only for the Company's most recently completed interim period. RESPONSE The company has complied with your request. COMMENT 16. Reference is made to pro forma adjustment (2). Since DHB will be merged into Lehigh after the reverse acquisition, the interest expense should not be eliminated. Please delete adjustment. RESPONSE The Company has complied with your request. COMMENT 17. Pro forma adjustment (3) should include the goodwill amortization related to the acquisition of Orthopedic Products, Inc. RESPONSE The Company has complied with your request COMMENT 18. The pro forma statements of income (loss) should give effect the depreciation of fixed assets acquired related to the acquisition of Orthopedic Products, Inc. and the reverse acquisition of the Company by Lehigh. Please revise or advise. RESPONSE The carrying value of the fixed assets of the companies acquired approximately the fair value of these assets. The entire excess of the purchase price over the net assets acquired was allocated to goodwill and has been amortized in the pro forma statements. COMMENT 19. The pro forma consolidated balance sheets presented need clarification. Since the Company will be acquired by Lehigh in a reverse acquisition, revise the format of the pro forma consolidated balance sheet as follows: (1) historical information of the Company (assuming the acquisition of Orthopedic Products is reflected in the historical balance sheet), (2) historical information of Lehigh, (3) all adjustments for the reverse acquisition and (4) the pro forma balance. After our review of the revised pro forma balance sheet, we may have further comments. RESPONSE The pro forma balance sheet as of June 30, 1996 has been revised to comply with your request. COMMENT 20. The pro forma adjustments (1) - (3) should assume that Orthopedic Products was acquired by the Company as of January 1, 1995 and the Company was acquired in a reverse acquisition by Lehigh as of January 1, 1995. Please revise. RESPONSE The company has complied with your request. COMMENT 21. The financial statements should be updated pursuant to Item 310 (3) (g) of Regulation S-B. RESPONSE The financial statements included for the interim period have been changed to show the six months ended June 30, 1996 instead of the three months ended March 31, 1996. COMMENT 22. The amendment should contain a currently dated accountants' consents. Manually signed consents should be kept on file for five years. Reference is made to Rule 402 of Regulation C and Rule 302 of Regulation S-T. RESPONSE The Company has complied with your request Sincerely, Mary Kreidell As filed with the Commission on August 20, 1996 Registration No. 33-96846 ================================================================================ U.S. Securities and Exchange Commission Washington, D.C. 20549 Form SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AMENDMENT NO. 9 DHB CAPITAL GROUP INC. (Name of small business issuer in its charter) Delaware 3842 (State or jurisdiction of incor- (Primary Standard Industrial poration or organization) Classification Code Number) 11-3129361 (I.R.S. Employer Identification No.) 11 Old Westbury Road Old Westbury, New York 11568 (516) 997-1155 (Address and telephone number of principal executive offices, and address of principal place of business or intended principal place of business) David H. Brooks, Chief Executive Officer With copies to DHB Capital Group Inc. D. David Cohen, Esq. 11 Old Westbury Road Jericho Atrium - Suite 133 Old Westbury, New York 11568 500 North Broadway (516) 997-1155 Jericho, New York 11753 (Name, address and telephone number of agent (516) 933-1700 for service) Approximate date of proposed sale to the public: As soon after the effective date of the Amendment of the Registration Statement as is practicable. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [X]
==================================================================================================================================== Title of each class of Dollar amount to be Proposed maximum Proposed maximum Amount of securities to be registered(1) offering price per aggregate offering registration fee(1) registered share price - ------------------------------------------------------------------------------------------------------------------------------------ Common stock, $- $12,702,241 At Market At Market $4,380.08 0.001 par value ====================================================================================================================================
(1) In accordance with Commission Rule 457(c), the registration fee and all other dollar amounts have been calculated based upon the average of the high and low prices of the Common Stock on the OTC Bulletin Board on September 8, 1995. The Registrant hereby amends this amendment of its 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 amendment shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement should become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================
Cross-Reference Sheet DHB Capital Group Inc. Registration Statement on Form SB-2 Registration No. 33-96846 Amendment No. 9 ==================================================================================================================================== Item and Caption of Form SB-2 Caption in Prospectus - ------------------------------------------------------------------------------------------------------------------------------------ 1. Front of Registration Statement and Outside Front Cover of Prospectus Front of Registration Statement; Outside Front Cover Page - ------------------------------------------------------------------------------------------------------------------------------------ 2. Inside Front and Outside Back Cover Pages of Prospectus Inside Front and Outside Back Cover - ------------------------------------------------------------------------------------------------------------------------------------ 3. Summary Information and Risk Factors Summary; Risk Factors - ------------------------------------------------------------------------------------------------------------------------------------ 4. Use of Proceeds Use of Proceeds - ------------------------------------------------------------------------------------------------------------------------------------ 5. Determination of Offering Price Cover Page; Selling Shareholders; Plan of Distribution - ------------------------------------------------------------------------------------------------------------------------------------ 6. Dilution Not Applicable - ------------------------------------------------------------------------------------------------------------------------------------ 7. Selling Security Holders Selling Shareholders; Certain Transactions - ------------------------------------------------------------------------------------------------------------------------------------ 8. Plan of Distribution Cover Page; Selling Shareholders; Plan of Distribution - ------------------------------------------------------------------------------------------------------------------------------------ 9. Legal Proceedings Litigation - ------------------------------------------------------------------------------------------------------------------------------------ 10. Directors, Executive Officers, Promoters and Control Persons Management - ------------------------------------------------------------------------------------------------------------------------------------ 11. Security Ownership of Certain Beneficial Owners and Management Management - ------------------------------------------------------------------------------------------------------------------------------------ 12. Description of Securities Description of Securities - ------------------------------------------------------------------------------------------------------------------------------------ 13. Interest of Named Experts and Counsel Experts; Legal Matters - ------------------------------------------------------------------------------------------------------------------------------------ 14. Disclosure of Commission Position on Indemnification for Management - Personal Liability and Securities Act Liabilities Indemnification of Directors - ------------------------------------------------------------------------------------------------------------------------------------ 15. Organization Within Last Five Years Business - ------------------------------------------------------------------------------------------------------------------------------------ 16. Description of Business Business - ------------------------------------------------------------------------------------------------------------------------------------ 17. Management's Discussion and Analysis or Plan of Operation Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------------------------------------------------------------------ (Continued) Cross-Reference Sheet DHB Capital Group Inc. Registration Statement on Form SB-2 Registration No. 33-96846 Amendment No. 9 =================================================================================================================================== Item and Caption of Form SB-2 Caption in Prospectus - ------------------------------------------------------------------------------------------------------------------------------------ 18. Description of Property Business - Properties - ------------------------------------------------------------------------------------------------------------------------------------ 19. Certain Relationships and Related Transactions Certain Transactions; Selling Shareholders - ------------------------------------------------------------------------------------------------------------------------------------ 20. Market for Common Equity and Related Stockholder Matters Certain Market Information and Dividends - ------------------------------------------------------------------------------------------------------------------------------------ 21. Executive Compensation Management - ------------------------------------------------------------------------------------------------------------------------------------ 22. Financial Statements Index to Financial Statements - ------------------------------------------------------------------------------------------------------------------------------------ 23. Changes in and Disagreements with Accountants on Accounting and Not Applicable Financial Disclosure ====================================================================================================================================
Prospectus DHB CAPITAL GROUP INC. 3,901,515 Shares of Common Stock, $0.001 par value This prospectus (the "Prospectus") relates to the offer and sale of a total of 3,901,515 shares (the "Shares") of the common stock, $0.001 par value after giving effect to a 50% Stock Dividend payable July 16, 1996 (the "Common Stock") of DHB Capital Group Inc., a Delaware corporation (the "Company"). The Shares offered hereby are being sold by certain shareholders of the Company (the "Selling Shareholders"). The shares offered hereby include shares received by the selling shareholders pursuant to a 50% Stock Dividend declared on July 1, 1996. See Business-Recent Developments-50% Stock Dividend. The Company will not receive any of the proceeds from the sale of the Shares. See "Selling Shareholders." The Shares may be offered for sale or sold by the owners thereof (hereinafter, the "Selling Shareholders"). The Selling Shareholders may be deemed to be "underwriters" as that term is defined in the Securities Act of 1933, as amended (the "Act"). The Selling Shareholders may offer their respective Shares for sale from time to time, and, if and when offers and/or sales are made, may be made through customary brokerage channels either through broker-dealers acting as agents or brokers for the Selling Shareholders, or through broker-dealers acting as principals who may then resell the Shares in the over-the-counter market or otherwise, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers of Shares for whom such broker-dealers may act as agent or to whom they sell as principal, or both (which compensation as to any particular broker-dealer may be in excess of customary commissions); sales may be at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices, or by a combination of such methods. The period of distribution of the Shares may occur over an extended period of time. The Company has no interest in, and will receive no proceeds from, any sales of the Shares. The Company will not pay or assume brokerage commissions or discounts incurred in the sale of any of the Shares. See "Selling Shareholders." The Common Stock is traded (i) in the over-the-counter market, and quotations are available through the OTC Bulletin Board under the symbol "DHBT," and (ii) on the Boston Stock Exchange under the symbol "DHB." On September 3, 1996, the closing bid quotation on the OTC Bulletin Board was $6.00. See "Certain Market Information and Dividends." THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS," WHICH BEGINS ON PAGE 8. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is September 4, 1996. DECLARATION OF 50% STOCK DIVIDEND On July 1, 1996, the Board of Directors of the Company declared a 50% Stock Dividend (the "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. Except where specifically noted, all information in this 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. The Summary Financial Information and the financial statements have been restated to give effect to the Stock Dividend. See Business-Recent Developments-Stock Dividend. SPECIAL NOTICE REGARDING REINCORPORATION IN DELAWARE The Company 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 the Company, the Company was reincorporated (the "Reincorporation") in Delaware. Any reference in this Prospectus to the Company 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 become 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. OTHER PROSPECTUSES The Company registered an aggregate of 9,751,155 shares of Common Stock, including the Conversion Shares and the Warrant Shares, for sale under Registration Statement No. 33-59764, which became effective on May 14, 1993, and, in connection therewith, caused to be distributed a Prospectus dated the effective date, which was amended by a supplement dated September 17, 1993. The Company registered an aggregate of 2,213,556 shares of Common Stock, including the Remaining Private Placement Shares, for sale under Registration Statement No. 33-70678, which became effective on December 29, 1993, and, in connection therewith, caused to be distributed a Prospectus dated the effective date. The Company filed post-effective amendments with respect to both of the aforesaid registration statements, as permitted under Rule 429 promulgated by the Securities and Exchange Commission (the "SEC"), and the most recent post-effective amendment thereof was declared effective on August 14, 1995. As of such date, an aggregate of 7,439,610 shares remained to be issued or sold pursuant to such other Registration Statements, and as of the date hereof, 7,169,610 shares remain to be issued or sold thereunder. The Company has also filed a Registration Statement on Form S-8, pursuant to which selected persons may offer for sale shares of Common Stock which they acquire under the Company's 1995 Stock Option Plan. As of the date hereof, the Company has not awarded any such options. See "Risk Factors," and "Management - Executive Compensation." AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 and in accordance therewith is required to file periodic reports, proxy statements and other information with the SEC relating to its business, financial statements and other matters. Additionally, the Company has filed a Registration Statement on Form SB-2, of which this Prospectus is a part (SEC Registration No. 33-96846) relating to this offering. As permitted by the rules and regulations of the SEC, this Prospectus omits certain information, exhibits and undertakings contained in the Registration Statement. Copies of the Registration Statement and exhibits thereto may be inspected and copied at the public reference facilities of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such periodic reports, proxy statements and other information may be inspected and copied at the public reference facilities maintained by the SEC at the SEC's regional offices located at: Suite 788, 1376 Peachtree St. N.E., Atlanta, Georgia 30367; Northwestern Atrium Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60621-2511 and 7 World Trade Center, 13th Floor, New York, New York 10048. Also, copies of such material can be obtained at prescribed rates from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Company's Common Stock is listed on the Boston Stock Exchange and reports, proxy statements and other information concerning the Company can be inspected and copied at the library of the Exchange at One Boston Place, Boston, Massachusetts 02108. TABLE OF CONTENTS DECLARATION OF 50% STOCK DIVIDEND SPECIAL NOTICE REGARDING REINCORPORATION IN DELAWARE OTHER PROSPECTUSES AVAILABLE INFORMATION PROSPECTUS SUMMARY RISK FACTORS USE OF PROCEEDS CERTAIN MARKET INFORMATION AND DIVIDENDS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS MANAGEMENT PRINCIPAL SHAREHOLDERS CERTAIN TRANSACTIONS DESCRIPTION OF SECURITIES SELLING SHAREHOLDERS PLAN OF DISTRIBUTION LEGAL MATTERS EXPERTS ADDITIONAL INFORMATION INDEX TO FINANCIAL STATEMENTS PROSPECTUS SUMMARY The following is a summary of certain information contained in this Prospectus and is qualified in its entirety by the more detailed information, including the financial statements, appearing elsewhere in this Prospectus. The Company The Company 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 the Company, the Company was reincorporated (the "Reincorporation) in Delaware. Any reference in this Prospectus to the Company 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 become 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 the Company declared a 50% Stock Dividend (the "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. Except where specifically noted, all information in this 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. The Summary Financial Information and the financial statements have been restated to give effect to the Stock Dividend. See Business-Recent Developments-Stock Dividend. Ballistic-resistant Equipment In November 1992, the Company 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, the Company, through a wholly owned subsidiary now known as Point Blank Body Armor, Inc., a Delaware corporation (hereinafter, "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 the Company. In October 1995, the Company hired Colonel James Magee, U.S.M.C. (Ret'd), to be President of Point Blank. 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 agreement with American Body Armor & Equipment, restricting the Company'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, the Company 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 The Company has very recently entered the orthopedic products business by acquiring the outstanding capital stock of Orthopedic Products, Inc., a Florida corporation ("OPI"). The Company issued 270,000 shares of its registered 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 were officers of OPI until they resigned in August 1996 and therefore, in the opinion of management, breached their three year employment contract. In each of the years ended September 30, 1995 and 1994, OPI had sales in excess of $3,000,000 and losses of approximately $200,000 in 1995 and $41,000 in 1994. See "Business" and "Management". Other Business The Company also actively seeks to acquire and finance, as appropriate, additional operating companies or interests therein. Since January 1, 1994, the Company made 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. 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, 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, 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 telecom munications company presently serving the New York-New Jersey region, which is traded on NASDAQ. Merger with Lehigh Group. On July 8, 1996 the Company and the Lehigh Group, Inc. ("Lehigh") entered into a definitive merger agreement whereby the Company would merge into a wholly-owned subsidiary of Lehigh. 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 owned by the current shareholders 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 throught its wholly-owned subsidiary Hall-Mark Electrical Supplies Corp. The proposed transaction is subject to among other things the approval by the shareholders of the Company and Lehigh, receipt of all necessary corporate and regulatory approvals and an examination of the properties and books of each company by the other. There is no assurance this transaction will be consummated. The Company intends to continue to evaluate and consider the acquistion of additional businesses which may or may not be related to its current businesses. Except as set forth above, The Company is not currently involved in any substantive negotiations for purchasing any business or group of assets. The Company 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. See "Risk Factors", "Management" and "Certain Transactions" for a discussion of certain factors that should be considered in evaluating the Company and its business. The Offering This Prospectus covers an aggregate of 3,901,515 shares (the "Shares") of common stock, $0.001 par value (the "Common Stock") of the Company, which are being offered by certain shareholders of the Company (the "Selling Shareholders") who acquired the shares within the last 20 months in private placements. There are, as of September 3, 1996, 22,954,529 shares of Common Stock outstanding (including the shares offered hereby), and warrants to purchase an additional 4,800,000 shares. The Shares offered hereby constitute approximately 15% of all shares of the Company's outstanding Common Stock (without giving effect to the exercise of outstanding warrants). The sale of Shares by the Selling Shareholders, if and when made, may be made through customary brokerage channels either through broker-dealers acting as agents or brokers for the Selling Shareholders, or through broker-dealers acting as principals who may then resell the Shares in the over-the-counter market or otherwise, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers of Shares for whom such broker-dealers may act as agent or to whom they sell as principal, or both (which compensation as to any particular broker-dealer may be in excess of customary commissions); sales may be at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices, or by a combination of such methods. The period of distribution of the Shares may occur over an extended period of time. The Company has no interest in, and will receive no proceeds from any sales of the Shares. The Company will not pay or assume brokerage commissions or discounts incurred in the sale of any of the Shares. See "Selling Shareholders." Other Pending Offerings, Redemption of Warrants, Conversion of Class A Shares The Company has filed two registration statements (Nos. 33-59764 and 33-70678) pursuant to which an aggregate of 7,169,610 shares of its Common Stock remain to be issued or sold. Of such amount, 305,625 shares (the "Warrant Shares") were issued by the Company pursuant to the exercise of certain warrants (the "Redeemable Warrants") at a price of $2.66 per share prior to November 30, 1995, and 173,436 shares (the "Conversion Shares") were issued upon conversion of the Company's outstanding Class A convertible preferred stock, $0.01 par value (the "Class A Stock"), at the rate of $2.66 per share of Common Stock. The Class A Shares were called for redemption, and all were tendered for conversion. The Company realized $815,000 from the exercise of Redeemable Warrants. See "Summary Financial Information," below. SEC Consent Decree David H. Brooks, Chairman and principal shareholder of the Company, and his brother, Mr. Jeffrey Brooks, and Jeffrey Brooks Securities, Inc. ("JBSI"), a company wholly owned by Mr. Jeffrey Brooks, entered into a consent decree with the SEC in December 1992. Without admitting or denying any allegations, they were assessed a fine and agreed to be enjoined from future violations of Section 15(b) and 15(f) of the Exchange Act. Mr. David Brooks is 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. Mr. David Brooks may apply to become so associated after a five-year period. Mr. David Brooks is not barred from being an officer or director of any public company other than a registered broker-dealer or investment company. Mr. Jeffrey Brooks was prohibited (for a period of one year which ended December 1993) from acting in a supervisory capacity with respect to any employee or any broker, dealer, municipal securities dealer, investment company or investment adviser, and JBSI (his company) was required to institute and maintain procedures pursuant to Section 15(f) of the Exchange Act. Mr. Jeffrey Brooks is a Selling Shareholder. See "Risk Factors," "Management," "Principal Shareholders," "Selling Shareholders," and "Certain Transactions." Summary Financial Information The following summary financial information concerning the Company, other than the pro forma and as adjusted balance sheet data, has been derived from the financial statements included elsewhere in this Prospectus and should be read in conjunction with such financial statements and the notes thereto. See "Financial Statements". All per share information has been adjusted for the Stock Dividend.
Statement of Income Data: Six Months Ended March 31, Year Ended December 31, --------------------------- ------------------------------------------- 1996 1995 1995 1994 1993 ------------ ------------ ------------ ------------ --------- (Unaudited) (Unaudited) Revenue $ 13,649,078 $ 5,269,500 $ 14,494,094 $ 9,102,373 7,107,090 Net Income (loss) 1,108,378 179,457 244,475 (75,273) 230,772 Primary income per common share $ .051 $ .010 0.01 (.005) 0.025 Weighted average number of primary common shares outstanding 21,670,790 17,945,700 21,167,754 16,701,220 14,072,352
Balance Sheet Data: June 30, 1996 December 31, 1995 -------------- ----------------- (unaudited) Working Capital $12,794,460 $ 6,526,004 Total Assets 25,996,089 19,465,208 Total Liabilities 8,636,743 7,663,240 Stockholders' Equity $17,359,346 $11,801,968
RISK FACTORS The securities offered are speculative and involve a high degree of risk. They should be purchased only by persons who can afford the loss of their entire investment. Prospective investors, prior to making an investment decision, should carefully read this Prospectus and consider, along with other matters referred to herein, the following Risk Factors: RELATING TO THE BUSINESS OF THE ARMOR GROUP: Concentration of Business Activities; 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 the Company'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 the Company's financial performance. Reliance Upon Governmental 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, 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. See "Business - DHB Armor Group - Customers." Products 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 the Company'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 the Company'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 Kevlar(TM), a patented product of E. I. Du Pont de Nemours Co., Inc. ("Du 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, the Company would be required to utilize other fabrics as a substitute. PACA has begun to use Spectrashield(TM) and Spectra Fibre(TM), 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. Until the Armor Group secured an adequate supply of an alternative fabric and appropriate ballistic tests were performed, its operations would be severely curtailed and the Armor Group's financial condition and operations would be adversely affected. See "Business - Raw Materials, Sources and Availability". Competition. The ballistic-resistant garment industry is highly competitive. Some competitors have substantially greater financial resources, brand recognition, market share, marketing power and other competitive advantages over the smaller competitors in the business, including the Company. The Company believes that the principal elements of competition in the sale of ballistic-resistant garments are price and quality. The Company must therefore maintain profitable prices and control costs and quality. As manufacturing technology changes, there can be no assurance that the Company will continue to be able to manufacture its products at competitive prices. Bankruptcies of Prior Owners of Certain Assets. The Company 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 the Company will be able to utilize the assets on a profitable basis. RELATING TO THE BUSINESS OF NDL: 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. The Company 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. See "Management"; see, also, "Bankruptcies of Prior Owners of Certain Assets," above. 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 like 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, marketing power and other competitive advantages over the smaller competitors in the business, including the Company. There can be no assurance that the Company will be able to compete successfully in this business. RELATING TO OTHER BUSINESS ACTIVITIES: New Venture in Orthopedic Products. In late March 1996, the Company entered the orthopedic products business by acquiring OPI, which had sales in its last two fiscal years of over $3,000,000 , and losses or approximately $200,000 and $41,000, respectively, in the years ended September 30, 1995 and 1994. In August 1996, Mr. Schepp and Mr. Wagner, the former shareholders from whom the Company acquired the stock of OPI, resigned as officers of OPI and therefore, in the opinion of management, breached their three year employment contract. There can be no assurance that OPI will become profitable or that its losses will not grow. Possible Acquisition of Unidentified Businesses. The Company intends to continue to diversify its business operations through the possible acquisition of one or more operating companies. The Company has not presently identified any specific business or industry in which it intends to expand through the purchase or development of a business. Purchasers of the Shares will have no opportunity to evaluate or to have a voice in the determination of the business or businesses that the Company may purchase. In addition, the Company 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. See "Business" and "Management". Need for Additional Financing. 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, N.A. ("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 ("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 the Company will be able to roll over such term loans as they become due. See, also, "Financial Accommodations by Related Persons." Financial Accommodations by Related Persons. David H. Brooks, the Company's Chairman and principal shareholder, previously loaned the Company the funds necessary to complete the acquisition of PACA. The Company repaid Mr. Brooks' loan from the proceeds of private placements completed in 1993. Mr. Brooks and his wife, Mrs. 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. David H. Brooks made a demand loan in the amount of $2,000,000, of which $750,000 is still outstanding, so that the Company is currently indebted to Mr. and Mrs. Brooks in the principal sum of $1,890,000. All term loans from banks which the Company 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 the Company will not require similar accommodations in the future or that Mr. and Mrs. David Brooks will be able or willing to do so on terms acceptable to the Company. An entity controlled by Mrs. Terry Brooks and beneficially owned by the Brooks' minor children leased (as lessor) the facility occupied by NDL and Point Blank in Oakland Park, Florida. While the Company believes that no future transactions will be entered into between the Company and its officers, directors or 5% shareholders unless such transactions are on terms no less favorable to the Company than could be obtained from unaffiliated third parties, any current or future transactions between the Company and such affiliates may involve possible conflicts of interest. See "Management's Discussion and Analysis of Results of Financial Condition and Results of Operations," "Business - - Properties" and "Certain Transactions". RELATING TO MANAGEMENT: Control by Management. David H. Brooks currently beneficially owns approximately 60% of the outstanding Common Stock. His brother owns 1,987,500 shares (7.2%), and each disclaims beneficial ownership of shares owned by the other. Shareholders do not have cumulative voting rights, and each shareholder is entitled to cast one vote per share on all matters submitted to a vote of shareholders, including the election of directors, and so shareholders holding a majority of the outstanding shares will be able to elect all of the directors. Accordingly, Mr. David Brooks is able to elect all of the directors of the Company and generally direct the management of the Company, and other shareholders will be unable to elect any members of the Board of Directors. See "Principal Shareholders" and "Description of Securities - Common Stock". SEC Consent Decree Affecting the Chairman. Mr. David 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. Mr. Jeffrey Brooks is one of the Selling Shareholders. See "Management," "Principal Shareholders," "Certain Transactions" and "Selling Shareholders." Reliance Upon Key Personnel. The Company 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, Barry Finn, President of the Company, and Col. James Magee, President of Point Blank. Should any of the members of the Company's senior management be unable or unwilling to continue in their present roles, or should such person determine to enter into competition with the Company, the Company's business could be adversely affected. Because of the relatively small size of the Company, the loss of a senior executive may have a materially adverse effect upon the Company until a suitable replacement can be found. See "Business" and "Management". RELATING TO THE SECURITIES: Depressive Effect on Market of Untimely Sales by Selling Shareholders; Shares Eligible for Future Sale. The Company has engaged in private placements of unregistered securities, including the Shares covered by this Prospectus, at prices below prevailing market prices for registered shares at the times the private placements were effected. In March 1996, the Company issued 270,000 registered shares to acquire OPI. In October 1995, the Company adopted a plan (the "1995 Stock Option Plan" or the "Plan") pursuant to which the Board of Directors of the Company is authorized to award up to 2,000,000 options to purchase Common Stock (the "Plan Options") to officers, employees and independent contractors of the Company. The Company has also filed a registration statement covering the shares (the "Plan Shares") acquirable under the Plan Options. At the present time, no Plan Options have been awarded. Exercise of Outstanding Warrants May Have Dilutive Effect on Market. There are presently outstanding warrants or options (collectively, the "Miscellaneous Warrants") to purchase approximately 4,800,000 shares of the Company's Common Stock, after giving effect to the 50% Stock Dividend at a price of $1.33 per share, for various terms of up to 5 years, which are held by certain of the Company's officers or directors or their affiliates. The Miscellaneous Warrants provide, during their respective terms, an opportunity for the holder to profit from a rise in the market price of the Common Stock, with resulting dilution in the ownership interest in the Company held by the then present shareholders. Holders of the Miscellaneous Warrants would most likely exercise them and purchase the underlying Common Stock at a time when the Company may be able to obtain capital by a new offering of securities on terms more favorable than those provided by such Miscellaneous Warrants, in which event the terms on which the Company may be able to obtain additional capital would be adversely affected. At the present time, neither the Miscellaneous Warrants nor the shares underlying the Miscellaneous Warrants are registered under the Act, but the Company reserves the right to do so at any time. Rights of Common Shareholders May be Affected by Issuance of Preferred Shares. The Company's Delaware charter authorizes the Board of Directors to issue up to 5,000,000 shares of preferred stock, $0.001 par value of the Company, in such amounts and with such rights to dividends, voting, conversion, redemption and other terms as the Board may determine. No preferred shares are presently issued or outstanding . If the Board were to authorize and issue preferred shares, the holders of preferred shares may be entitled to dividends in preference to the holders of the common stock, may be entitled to preferences in liquidation, and may be entitled to voting rights, which may affect the composition of the Board of Directors. See "Dividends" and "Description of Securities". Dividends. The Company has paid no cash dividends on its Common Stock and does not anticipate paying cash dividends on its Common Stock in the foreseeable future. The Company's ability to pay dividends is dependent upon, among other things, future earnings, the operating results and financial condition of the Company, 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 the Company's Common Stock. See "Certain Market Information and Dividends" and "Description of Securities". RELATING TO THE LEHIGH GROUP 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%. 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 60% of Lehigh's Common Stock. In addition, assuming the persons nominated as directors 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. 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 depended 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 "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. Effect of Outstanding Warrants and Options. Lehigh currently has outstanding options and warrants to purchase an aggregate of 18,295,000 shares of Lehigh Common Stock and, upon consummation of the Merger, will assume DHB options to purchase an additional 6,000,000 shares of Lehigh Common Stock. 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 most likely to exercise their rights at a time when Lehigh may wish to obtain additional equity capital on more favorable terms thereby interfering in the process or otherwise inhibiting Lehigh's capacity to obtain additional equity capital. USE OF PROCEEDS The Company will not realize any proceeds from the sale of the Shares covered by this Prospectus. See "Selling Shareholders." CERTAIN MARKET INFORMATION AND DIVIDENDS The Common Stock of the Company has been traded on the over-the-counter market ("OTC Bulletin Board") since September 22, 1993. Prior thereto, there was no public market for the Company's securities. The bid prices set forth below represent quotations by brokers making a market in the Company's Common Stock, and have been adjusted to reflect the 50% Stock Dividend. do not include retail mark-ups, mark-downs or commissions, and may not necessarily reflect actual transactions. Commencing on June 8, 1994, the Company was listed on the Boston Stock Exchange and traded under the symbol "DHB." Low High --- ---- 1994: 1st Quarter $1.67 $3.50 2nd Quarter 1.50 3.00 3rd Quarter 1.50 2.33 4th Quarter 1.33 3.25 1995: 1st Quarter 1.92 2.50 2nd Quarter 1.92 3.75 3rd Quarter 2.92 4.00 4th Quarter 2.17 3.17 1996: 1st Quarter 2.00 2.75 2nd Quarter 2.67 6.67 3rd Quarter 5.88 6.93 (through September 3) On July 1,1996, the Board of Directors declared a 50% stock dividend payable on July 16, 1996 to holders of record on July 15, 1996. See Business-Recent Developments-50% Stock Dividend. If the Company generates earnings, management's policy is to retain such earnings for further development of its business. The payment of cash dividends in the future will depend upon the earnings and financial requirements of the Company and all other relevant factors, including approval of such dividends by the Board of Directors. The number of holders of record of the Company's Common Stock on September 3, 1996, was 113; however, the number of holders of record includes several brokers and depositories for the accounts of their customers. The Company estimates that shares of Common Stock are held by approximately 800 beneficial owners. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis of the Company'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 The Company 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. (The Company's acquisition of a subsidiary which manufactures orthopedic products occurred after the end of the fiscal periods hereinafter discussed.) In August 1995, the Company 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, the Company 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, the Company 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 the Company, is engaged in the design and production of sophisticated telecommunications equipment for the remote execution and authentication of documents. The Company 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 the Company is engaged in the review of potential acquisitions and in providing management assistance to the Company's operating subsidiaries. The Company 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 the Company'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 the Company'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. The Company's financial condition and results of operations in the future may also be materially affected by the Company'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 the Company's overall penetration of the market for ballistic-resistant garments, equipment and accessories. Results of Operations Three Months ended June 30, 1996, compared to the three months ended June 30, 1995. Consolidated net sales of the Company 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. The Company had a consolidated net income for the three months ended June 30, 1996 and 1995 of approximately $532,000 and $150,000, 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. The Company'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. The Company'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 the Company. The Company 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 the Company 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. The Company 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 to 131% over 1995 to $4,108,738. The Company'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. The Company'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 the Company. The Company 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. Year Ended December 31, 1995, compared to year ended December 31, 1994. Consolidated net sales of the Company 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. The Company 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 the Company's marketable securities. Gross profit in 1995 increased to $5,405,477, an increase of 119% over 1994. The Company's gross profit ratio increased from 27% in 1994 to 37% in 1995, primarily because of the products sold by Point Blank yielded greater margins. The Company'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 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 the Company's funds in its operating business, and increases in the borrowings of the Company. The Company 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 the Company 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. The Company 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. The Company'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. The Company'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, the Company wrote off a loan-receivable of approximately $58,000, which was made to the corporation from which the Company 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 the Company's funds in its operating business, and increases in the interest rates available to the Company. The Company 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. The Company'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, NDL and OPI 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. The Company's principal sources of cash to date have been proceeds from private offerings of the Company'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, as more fully set forth below, term bank loans of up to a year's duration, guaranteed by Mr. David H. Brooks, Chairman of the Board, and certain affiliated persons. At the present time, the Company is obligated on a note due in September 1996 to the Chase Manhattan Bank ("Chase") in the principal sum of $1,150,000 bearing interest at 6.255% per year, and on a note due in December 1996 to the Bank of New York ("BNY"), bearing interest at 6.43% per year. The Chase loans are secured by a security interest in the marketable investment securities of the Company and certain marketable investment securities of the majority shareholders. The Company expects to renew these loans, at prevailing interest rates, when they become due. Of the proceeds drawn down to date, $1,400,000 were used by the Company 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, the Company 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 [third party] (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 the Company to Chase. In exchange for this, the Company granted to Mrs. Terry Brooks, on December 20, 1994, 5-year warrants to purchase 3,750,000 shares of the Company's Common Stock, at a price of $1.33 per share. The warrants contain provisions for a one-time demand registration, and piggyback registration rights. All of the aforesaid loans were made directly to the Company, and the Company has lent the loan proceeds to NDL. Mr. David Brooks also lent $2,000,000 to the Company 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. See "Principal Shareholders" and "Certain Transactions." In connection with the start-up of NDL, the Company 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. See "Properties - NDL Facility." The Company's consolidated working capital at December 31, 1995 and 1994 were $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. The Company 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 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 the Company. The Company believes that it has sufficient funds to meet Media's anticipated needs for the next twelve months. The Company 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 the Company's balance sheet. Effect of Inflation and Changing Prices. The Company did not experience increases in raw material prices during the year ended December 31, 1995 or 1994, or in the first half of 1996. The Company 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. LEHIGH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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 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. 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. The factors discussed above resulted in an operating loss of $182,000 for the first half of 1996, 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 form 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% 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. 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 operations. 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 provided by (used in) 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 form 1994 and 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 of 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 included interest at a rate of two percent per annum over the prime lending rate of Chase Manhattan Bank, N.A., payable monthly, commencing of 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 and 14-7/8% Subordinated Debentures due October 15, 1995 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. BUSINESS History The Company was originally incorporated as a New York corporation in 1992, to acquire PACA, which manufactures and distributes ballistic-resistant equipment and apparel and related products used by police and other law-enforcement and security personnel. Effective April 17, 1995 (the "Reincorporation Date"), pursuant to the authorization of the security holders of the Company, the Company was reincorporated (the "Reincorporation") in Delaware. Any reference in this Prospectus to the Company 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 become 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. The Company acquired certain 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 the Company will be able to utilize the assets on a profitable basis. Management believes that it purchased the NDL Assets and the Point Blank Assets at substantial discounts, because the sellers were trustees in bankruptcy. Though these discounted purchases do not assure that the Company will be able to utilize these assets profitably, the discounted purchase prices lower the Company's financial requirements for starting up or expanding its operating businesses. DECLARATION OF 50% STOCK DIVIDEND Recent Developments On July 1, 1996, the Board of Directors of the Company declared a 50% Stock Dividned (the "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. Except where specifically noted, all information in this 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. The Summary Financial Information on page 7 has been adjusted to give effect to the Stock Dividend. The Company will pay cash in lieu of fractional shares issuable on account of the Stock Dividend; the aggregate amount of such payments is not expected to be material Point Blank Body Armor, Inc. and DHB Armor Group, Inc. In August 1995, the Company, through a wholly owned subsidiary now known as Point Blank Body Armor, Inc., a Delaware corporation (hereinafter, "Point Blank"), acquired from a trustee in bankruptcy substantially all the assets (the "Point Blank Assets") of Point Blank Body Armor, L.P. and an affiliated company (collectively, "Old Point Blank"), for a cash payment of $2,000,000. 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. 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 the Company. In 1990, in connection with certain transactions, the Armor Group entered into an agreement with American Body Armor & Equipment, restricting the Company's right to sell products outside the United States and to certain domestic distributors prior to 2000. In August 1995, in connection with the settlement of a lawsuit brought by PACA against American Body Armor & Equipment, Inc., the Armor Group purchased from American Body Armor & Equipment, Inc., the domestic and international non-competition agreement for total consideration of $250,000, thereby terminating this agreement and the restriction on the Armor Group against international sales. NDL Products, Inc. On December 20, 1994, the Company, through a newly organized, wholly owned subsidiary, DHB Acquisition, Inc. a Florida corporation, purchased (the "Transaction") the assets (the "NDL Assets"), free of all liabilities, of N.D.L. Products, Inc., a Delaware corporation and of its wholly owned subsidiaries (collectively, the "Seller"), for a cash payment of $3,080,000. Prior to the Transaction, the Seller was a debtor-in-possession under Chapter 11 of the United States Bankruptcy Code. The transaction was consummated pursuant to an order of the United States Bankruptcy Court, Southern District of Florida, dated December 20, 1994. The Seller was engaged in the manufacture and distribution of protective athletic apparel and equipment, such as elbow, breast, hip, groin, knee, shin and ankle supports, and wrist, elbow, groin and knee braces. The Company changed the name of DHB Acquisition, Inc., to "NDL Products, Inc." (hereinafter, "NDL"), in order to use the NDL Assets to start up a business as a manufacturer and distributor of specialized protective athletic apparel and equipment. The NDL Assets consisted of cash, accounts receivable, prepaid expenses, inventory (including finished goods, raw materials and work-in-process), machinery and equipment, customer lists and customer information, and 80% of the outstanding ordinary shares of NDL Products PTE, Ltd., a Singapore corporation. The assets also include trademarks and patents covering a variety of protective athletic equipment. See "NDL Products, Inc." Orthopedic Products. The Company has very recently entered the orthopedic products business by acquiring the outstanding capital stock of OPI. The Company issued 180,000 shares of its registered Common Stock in March 1996, in two transactions, in exchange for all the outstanding capital stock of OPI. The former owners of the OPI capital stock were officers of OPI until August 1996 when they resigned. In each of the years ended September 30, 1995 and 1994, OPI had sales in excess of $3,000,000 and losses of approximately $200,000 in 1995 and $41,000 in 1994. Other Investments. The Company's investments in securities as of June 30, 1996, were approximately $3,816,750 on a historical cost basis. These investments are non-controlling minority positions in a number of private and/or public companies, with a view to hold some of these positions for not more than 4 years. These companies are engaged in a variety of businesses, including health care, pharmaceuticals and medical diagnostics, and telecommunications equipment. Merger with Lehigh Group. On July 8, 1996 The Company and the Lehigh Group, Inc. ("Lehigh") entered into a definitive merger agreement whereby the Company would merge into a wholly-owned subsidiary of Lehigh whose name would be changed to DHB Capital Group Inc. Upon the execution of this 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 to be owned by the shareholders of Lehigh including current directors of Lehigh. Lehigh whose common stock is listed on the New York Stock Exchange. Lehigh is engaged in the distribution of electrical supplies for export and import throught its wholly-owned subsidiary Hall-Mark Electrical Supplies Corp. This is subject to among other things the execution of a formal agreement approval by the shareholders of the Company and Lehigh, receipt of all necessary corporate and regulatory approvals and an examination of the properties and books of each company by the other. There is no assurance this transaction will be consummated. The Company intends to continue to evaluate and consider the acquistion of additional businesses which may or may not be related to its current businesses. Except as set forth above, The Company is not currently involved in any substantive negotiations for purchasing any business or group of assets. DHB Armor Group The Company entered the body-armor business by acquiring PACA at the end of 1992. PACA is engaged in the development, manufacture and distribution of bullet-, bomb- and projectile-resistant garments, including bullet-resistant vests, fragmentation-protective vests, bullet-resistant blankets and tactical load-bearing vests. In addition, PACA distributes other ballistic protection devices, including helmets, face masks and trauma shields, manufactured by other companies. In August 1995, the Company, 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") of Point Blank Body Armor, L.P., and an affiliated company (collectively, "Old Point Blank"), for a cash payment of $2,000,000, which was provided by a loan from Mr. David Brooks. 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. 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 the Company. History. PACA was incorporated in January 1975 in New York. In November 1987, PACA underwent a reorganization in bankruptcy, and thereafter was owned by three other corporate owners. The Company acquired all the outstanding stock of PACA from The Thunder Group in November 1992. PACA does not have any continuing relationship with any of its prior corporate owners. A wholly owned subsidiary of the Company now known as Point Blank Body Armor, Inc. ("Point Blank"), acquired the Point Blank Assets in August 1995. Products. PACA manufactures two basic types of body armor: concealable armor, which is generally intended to be worn beneath the user's clothing, and tactical armor, which is worn externally and is designed to protect against more serious ballistic threats. Both types of armor are manufactured using multiple layers of Kevlar and/or a combination of Kevlar, Spectrashield and Spectra Fibre ballistic fabric, then covered and fully enclosed in an outer carrier. During fiscal 1994, body armor constituted more than 90% of the Company's sales, as compared to 96% in fiscal 1993. Old Point Blank manufactured and distributed a similar - but broader - line of products, primarily using a ballistic resistant fabric known as Twaron and the Armor Group expects to manufacture and distribute substantially all products previously manufactured by Old Point Blank. Although some products of Point Blank and PACA are competitive with each other, brand recognition, brand loyalty and distribution channels are expected to minimize the extent to which products of the two companies may impact each other's sales. Concealable vests are contoured to closely fit the user's body shape. PACA and Point Blank each sell a line of vests designed specifically for the body shapes of women users. Male vests are manufactured in standard sizes and may also be custom-made. Vests are fastened using Velcro-brand elastic strapping. Concealable vests may be supplied with a shock plate or Spectrashield trauma plate, which is a light insert designed to enhance protection of vital areas. Vests may be supplemented with additional armor plate made of either metal or ceramic to withstand greater threat levels than the vest is otherwise designed to protect against. PACA's wholesale prices for its concealable vests range from approximately $150 to approximately $475. Old Point Blank's wholesale prices for its concealable vests ranged from approximately $175 to $475, and the Armor Group expects to continue these prices. Tactical vests are designed to give all-around protection and more coverage around the neck, shoulders and kidneys than concealable vests. A groin protector is a popular accessory. These vests contain pockets to incorporate small panels constructed from high-alumina ceramic tiles which provide additional protection against rifle fire. Tactical vests come in a variety of styles, including tactical assault vests, high-coverage armor, and flak jackets, each of which is manufactured to protect against varying degrees of ballistic threat. PACA's wholesale prices of these products range from approximately $370 to approximately $1200. Old Point Blank's wholesale prices for its tactical garments ranged from approximately $295 to $1025, and the Armor Group expects to continue these prices. The Armor Group's other body-armor products include a tactical police jacket, military field jacket, executive vests, NATO-style vests, fragmentation vests and attack vests. Bomb and fragmentation vests and parts are designed to specifications in U.S. government contracts to offer protection against materials and velocities associated with the fragmentation of explosive devices such as grenades and artillery shells. In general, concealable vests sold to law enforcement agencies and distributors are designed to resist bullets from handguns. Bomb gear utilizes a variety of designs and materials and patterns slightly different from bullet-resistant vests. PACA also manufactures a variety of accessories for use with its body-armor products; Old Point Blank did likewise, and Point Blank expects to continue to manufacture and distribute such products. Potential Product Liability. The products manufactured or distributed by the Armor Group, e.g., bullet-resistant vests, are used in situations which could result in serious personal injuries and death, whether on account of the failure of such products, or otherwise. 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 insufficient 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 Point Blank would be able to obtain it at a reasonable cost. Any substantial uninsured loss would have to be paid out of PACA's or Point Blank's assets, as applicable, and may have a material adverse effect on the Company's financial condition and results of 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 governmental customers, because many governmental agencies require such coverage, and any such inability to bid would have a material adverse effect on the Company's financial condition and results of operations on a consolidated basis. Raw Materials and Manufacturing. PACA and Point Blank each manufacture substantially all of their respective bullet-, bomb- and projectile-resistant garments and other ballistic-protection devices. The primary raw material used by PACA in manufacturing ballistic-resistant garments are Kevlar(TM), a patented product of E.C. Du Pont de Nemours & Co., and Spectrashield(TM) and SpectraFibre(TM), which are patented products of Allied Signal. Old Point Blank uses Twaron, a fabric manufactured by Akxo, an Israeli company, in about 60% of its bullet-resistant garments, and the balance of Point Blank's bullet resistant products are made with Spectra or Kevlar. Currently, Spectrashield and SpectraFibre are used in approximately 20% of all vests made by PACA. The Armor Group purchases cloth woven from these materials from three independent weaving companies. See "Raw Materials, Sources and Availability". The woven fabric is placed on tables, layered over patterns for a particular component of a garment (for example, the front or back of a vest), cut using electric knives, and then stitched together. The Armor Group utilizes several hundred patterns based upon size, shape and style (depending upon whether the garment is a bullet-, bomb- or fragmentation-resistant garment). The various components of the garment are then sewn together to create the finished product. Kevlar, Spectrashield, Spectra Fibre and Twaron differ in their pliability, strength and cost, such that the materials are combined to suit a particular application. In the opinion of management, PACA enjoys a good relationship with its suppliers of Kevlar Spectrashield and SpectraFibre The acquisition of the Point Blank Assets is expected to enable the Armor Group to develop and strengthen its relations with all its current suppliers. If, however, Du Pont or its European licensee were to cease, for any reason, to manufacture and distribute the bullet-resistant fabrics, the Armor Group would be required to utilize other fabrics, and the specifications of some of the Armor Group's products would have to be modified. Until the Armor Group selected an alternative fabric and appropriate ballistic tests were performed, its operations would be severely curtailed and the Armor Group's financial condition and results of operations would be adversely affected. The Armor Group purchases other raw materials used in the manufacture of their products from a variety of sources and believes additional sources of supply for these materials are readily available. Customers. PACA's products are sold principally to United States law enforcement agencies and the military. Sales to domestic law enforcement agencies, security and intelligence agencies, police departments, federal and state correctional facilities, highway patrols and sheriffs' departments accounted for 29% and 51%, respectively, of the Armor Group's revenues in each of the years ended December 31, 1995 and 1994. One customer, the New York City Police Department, accounted for approximately 5% and 8% of PACA's sales for the years ended December 31, 1995 and 1994, respectively. That customer requested bids for 1995 and 1996, and PACA is the successful bidder for a significant portion of the contract. The loss of any one customer would not be expected to have a significant impact on the Armor Group's continuing financial results, due to the Armor Group's constant submission of bids for new contracts. Old Point Blank had domestic and international customers. Sales to the United States armed forces directly or as a subcontractor accounted for 5% of revenues in 1995, compared to only 1% of revenues in 1994, and 22% of PACA's total revenues in 1993. Substantially all sales by PACA to the armed services and other federal agencies are made pursuant to a standard purchasing contract between PACA and the General Services Administration of the Federal Government, commonly referred to as a "GSA Contract". PACA also responds to invitations by military branches and government agencies to bid for particular orders. PACA and Point Blank, as GSA Contract vendors, are obligated to make all sales pursuant to such contract at its lowest unit price. PACA's current GSA Contract expires July 31, 1996, while Point Blank's contract is from August 1, 1996 through August 1997. The contracts contain a maximum single order limit of $300,000. During the years ended December 31, 1995 and 1994, commercial sales (i.e., sales to non-governmental entities) accounted for 52% and 38%, respectively, of PACA's revenues. Marketing and Distribution. PACA employs 1 sales manager, 2 customer support representatives, 2 regional sales managers and 17 independent sales representatives who are paid solely on a commission basis. These personnel are responsible for marketing PACA's products to law enforcement agencies in the United States. These individuals often call upon personnel within these agencies who are responsible for making purchasing decisions in order to provide information concerning PACA's products. Sales are made primarily through independent local distributors. However, in areas in which there are no suitable distributors, PACA will fill orders directly. The start-up of Point Blank Body Armor, Inc., is expected to lessen the Armor Group's dependence on any single customer, but that objective may not be achieved in the current year. Substantially all of PACA's advertising is directed toward domestic law enforcement agencies in the form of catalogues and trade shows. PACA advertises its products primarily in law enforcement trade magazines and at trade shows. During the years ended December 31, 1995 and 1994, advertising expenditures were $72,000 and $117,000, respectively. Government and Industry Regulations and Standards. Bullet- and bomb-resistant garments and accessories manufactured and sold by the Armor Group are not currently the subject of government regulations. However, law enforcement agencies and the military publish invitations for bidding which specify certain standards of performance which the bidders' products must meet. The National Institute of Justice, under the auspices of the United States Department of Justice, has issued a revised voluntary ballistic standard (NIJ0101.03) for bullet-resistant vests of several categories. PACA regularly submits its vests to independent laboratories for ballistic testing under this voluntary ballistic standard and all of its products have, at the time of manufacture, met or exceeded such standards in their respective categories. Point Blank will follow similar practices. In addition, bullet-resistant garments and hard-armor inserts are regularly submitted by PACA for rating by independent laboratories in accordance with a test commonly referred to as V50. This test involves exposing the tested item to blasts of fragments of increasing velocity until 50% of the fragments penetrate the materials. The tested item is then given a velocity rating which may be used by prospective purchasers in assessing the suitability of PACA's products for a particular application. Point Blank will perform similar tests internally, rather than retaining an independent testing laboratory. Competition. The ballistic-resistant garment business is highly competitive and the number of United States manufacturers is estimated to be less than 20. Management is not aware of published reports concerning the market, and most companies are privately held. Nevertheless, PACA believes, based upon its experience in the industry, that the largest manufacturer was Old Point Blank prior to its filing for Liquidation under Chapter 7 of the United States Bankruptcy Code. The Company therefore believes that as a result of its purchase of the Point Blank Assets, it is positioned to become the largest manufacturer of ballistic-resistant garments in the United States. In the future, the Company may face other and unknown competitors, some of whom may have substantially greater financial, marketing and other resources than the Company. The Armor Group believes that the principal elements of competition in the sale of ballistic- resistant garments are price and quality. In dealings with law enforcement agencies and the military, PACA and Point Blank bid for orders in response to invitations for bidding which set forth specifications for product performance. The Armor Group believes its products are competitive as to both price and quality with the products of its competitors having similar ballistic capabilities and that its ability to remain competitive in pricing is due to its relatively lower labor and production costs. In addition, the Company believes that the Armor Group enjoys a favorable reputation in the industry after 17 years of supplying federal, state and municipal governments and agencies. These factors, combined with the financial resources made available to the Armor Group by the Company, have permitted it, and are expected to continue to permit it, to reduce interest expenses, improve production efficiency and capacity, control purchasing costs and permit the Armor Group to compete favorably. In March 1990, before PACA was controlled by the Company, PACA entered into an agreement with American Body Armor and Equipment, Inc., which prohibited PACA, for a period of ten years ending March 2000, from soliciting business from American Body Armor's twelve largest domestic distributors, nor may PACA solicit business outside the United States relating to the manufacturing, distribution or sale of projectile-resistant garments and materials and other ballistic-protection devices, including without limitation personal body armor. In August 1995, PACA entered into an agreement which terminated all such restrictions, for a payment of $250,000, which was expensed in the quarter ended September 30, 1995. The Armor Group's Backlog. As of December 31, 1995, the Armor Group had a backlog of approximately $4,100,000, as compared to $1,083,000 as of December 31, 1994, at which time the Company had not yet acquired the Point Blank Assets. Backlog at any one date is not a reliable indicator of future sales or sales trends. In addition to the backlog, which represents orders believed to be firm, from time to time PACA receives contract awards for municipal orders which may be placed over an extended period of time. The actual dollar amount of products to be delivered pursuant to this and similar contracts cannot be accurately predicted and is generally excluded from reported backlog. Employees. As of June 30, 1996, there were two officers of the Armor Group, 12 persons employed in supervisory capacities, 180 employed for manufacturing, shipping and warehousing, and 12 are office personnel. All of Armor Group's employees are employed full time. In the opinion of management, the Armor Group enjoys good relationships with its employees. NDL PRODUCTS, INC. On December 20, 1994, the Company, through a wholly-owned subsidiary, acquired the NDL Assets for a cash payment of $3,080,000, and renamed the acquiring subsidiary "NDL Products, Inc." NDL is engaged in business as a manufacturer and distributor of specialized protective athletic equipment and apparel. NDL's protective sports apparel and fitness products and related items are sold under the brand names NDL(TM), Grid(TM), Dr. Bone Savers(TM), Hitman(TM) and Flex Aid(TM). NDL has hired new executives for sales and marketing, production, and new product research and development. NDL has moved its corporate, manufacturing and warehouse operations into a single building in Oakland Park, Florida. See "Properties - NDL Facility." NDL's Marketing and Distribution. NDL employs 2 sales executives who supervise 30 independent sales representatives who are paid solely on a commission basis, and who are responsible for sales throughout the United States, Western Europe, Asia, the Middle East and Latin America. These representatives call on customers, who are generally major retailers and distributors. NDL also sells to local distributors and has a telemarketing staff of 4. NDL is evaluating and developing its marketing and sales strategies. NDL's Potential Products Liability. Some of the products manufactured or distributed by NDL are used in situations where serious personal injuries could occur, whether on account of the failure of NDL's products or otherwise. NDL maintains product liability insurance in the amount of $2,000,000 per occurrence and $2,000,000 in the aggregate, including legal fees, subject to a $1,000 deductible. There can be no assurance that these amounts would be sufficient to cover payment of potential claims, and there can be no assurance that this or any other insurance coverage would continue to be available, or if available, that NDL would be able to obtain it at reasonable cost. Any substantial uninsured loss would have to be paid out of NDL's assets and could have a material adverse effect on the Company's financial condition and results of operations. ORTHOPEDIC PRODUCTS, INC. In March 1996, the Company exchanged a total of 270,000 shares of its common stock with a value of approximately $376,000 to acquire 100% of the common stock of Orthopedic Products, Inc., a Florida corporation. 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 approximately $57,000 which was allocated to goodwill. The purchase price may be adjusted pending verification of certain financial ratios. In addition, the Company issued 7,000 shares to buy out the remainder of OPI's lease. OPI is engaged in the manufacture and sale of orthopedic products, and the distribution and sale of general medical supplies to orthopedists, orthopedic clinics, hospitals, sports medicine centers and orthopedic medical practices. In August 1996, Mr. Schepp and Mr. Wagner, the former shareholders from whom the Company acquired the stock of OPI, resigned as officers of OPI, and therefore, in the opinion of managment, breached their employment contracts. As of June 30, 1996, OPI's has one officer , three people employed in supervisory capacities, 24 employed for manufacturing, shipping and warehousing, and four office personnel. Some of the products manufactured or distributed by OPI are used in situations where serious personal injuries could occur, whether on account of the failure of OPI's products or otherwise OPI maintains products liability insurance in the amount of $1,000,000 per occurrence, and $1,000,000 in the aggregate, including legal fees, subject to a $1,000 deductible. There can be no assurance that these amounts would be sufficient to cover payment of potential claims and there can be no assurance that this or any other insurance coverage would continue to be available, or if available, that OPI would be able to obtain it at reasonable cost. Any substantial uninsured loss would have to be paid out of OPI's assets and could have a material adverse effect on the Company's financial condition and results of operation. THE LEHIGH GROUP General. Lehigh (formerly the LVI Group Inc.) through its wholly owned subsidiary, HallMark Electrical Supplies Corp. is engaged in the distribution of electrical supplies for the construction industry both domestically (primarily in the New York Metropolitan area) and for export. 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 manufactures 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 approximatley 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 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. OTHER CONTROLLED INVESTMENTS Intelligent Data Corporation, a Nevada corporation, was incorporated in December 1992 and is a development-stage company. The Company owns 98% of the outstanding common stock of ID. The balance of ID's common stock is owned by 5 investors. ID is engaged in developing sophisticated telecommunications systems for remote document signature and authentication, remote issuance of bank or brokerage cashier's checks and the facilitation of COD payment transactions. This technology is sometimes referred to as "virtual writing." ID is currently exploring methods by which it can complete the development of products and bring them to market. The book value of ID's equipment and fixed assets, when consolidated with the Company's assets, is not material. There are, potentially, numerous applications of ID's virtual writing technology which may be conceived and developed in the future. At the present time, ID does not have any formal agreements with anybody to market specific products. To be successful, management of the Company believes that it must develop contractual relationships with established enterprises to aid in the design and to market ID's products. There can be no assurance that ID will develop such relationships, or that, if developed, they will be successful. Furthermore, ID's competitors, which include some of the world's largest and most successful enterprises, may develop or otherwise acquire technology which will enable them to compete successfully with the products which ID may develop. DHB Media Group Inc. In April 1994, DHB Media Group Inc. ("Media"), a New York corporation which is a wholly-owned subsidiary of the Company, acquired all the outstanding capital stock of Royal Acquisition Corp., a New York corporation ("RAC") from RAC's sole shareholder, in exchange for 100,000 registered shares of the Company's Common Stock. RAC's assets consisted of a loan receivable of approximately $150,000, which Media has collected in full and the contractual right to receive a library of approximately 2500 films which were to be obtained, through one or more intermediaries, from a bankruptcy trustee. Following the closing, the price was adjusted in favor of Media by $36,550. The film library is not expected to bring in significant revenues to the Company. The officers and directors of the Company are the officers and directors of Media. Media has no other employees. Minority Investments and Possible Future Acquisitions and Investments. The Company intends to seek, evaluate and acquire controlling or minority interests in one or more operating companies, including development-stage companies. In furtherance of this strategy, the Company may consider a public offering of its shares or an acquisition or merger with a company that has a public trading market for its securities. There are no agreements or commitments for any of the foregoing, nor can there be any assurance that the Company will be able to consummate such transactions. OTHER INVESTMENTS The Company also actively seeks to acquire and finance, as appropriate, additional operating companies or interests therein. Since January 1, 1994, the Company made acquired 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. The Company owns 4.6% of the equity. Darwin Molecular Corporation ("DMC"), which hopes to use DNA sequencing to create novel drugs for the treatment of cancer, AIDS and auto- immune disease. The Company owns 3.9% of the equity. Pinnacle Diagnostics, Inc., a privately held Delaware corporation, which is engaged in marketing a variety of medical diagnostic products. The Company owns 16.7% of the equity. Positron Corporation, a publicly held Texas corporation, designs, manufacturers, markets and services advanced medical imaging devices which utilize positron emission tomography ("PET") technology. Unlike other available imaging technologies, PET technologies, PET technology permits the measurement of the biological processes of organs and tissues as well as producing anatomical and structural images. The Company owns less than 2% of the equity securities of Positron. FED Corporation, a development-stage company, intends to manufacturer liquid crystal display devices using proprietary field emission display technologies, which can be used in small notebook computers and other similar devices. The Company owns 2.9% of the equity. Solid Manufacturing Co., of Fairplay, Colorado, a privately held manufacturer of snowboards and related goods and accessories. The Company owns 9.5% of the equity. Total Tel USA Communications, Inc., a regional long-distance telecommunications company presently serving the New York-New Jersey region, which is traded on NASDAQ. The Company owns 3.4% of the equity. The Company intends to continue to evaluate and consider the acquisition of additional businesses, which may or may not be related to its current businesses. The Company is not currently involved in any substantive negotiations for purchasing any business or group of assets; except for the purposed transaction with The Lehigh Group, Inc. ("See Recent Developments"). PROPERTIES Corporate Headquarters. On January 17, 1996, the Company purchased a one-story building on a two-acre lot at 11 Old Westbury Road, Old Westbury, New York, and relocated its corporate headquarters into that building on or about January 19, 1996. Media and ID use the facilities of the Company's new corporate headquarters. PACA. PACA leases 23,400 square feet of office, manufacturing and warehouse space at 148 Cedar Place, Norris, Tennessee from Leonard Rosen, President of PACA, at a present annual rental of $43,200, plus real estate taxes of approximately $4,800 annually. The space is occupied pursuant to a five-year lease which expires October 31, 1997, with an option to acquire the property for $500,000. In the opinion of management, PACA's facilities are adequate for its current needs and for its needs in the foreseeable future. Management believes that the terms of the lease are no less favorable to the Company than could be obtained from an unrelated party. NDL/Point Blank Facility. NDL Products leases a 67,000 square foot office and warehouse facility (the "Oakland Park Facility") located at 4031 N.E. 12th Terrace, Oakland Park, Florida 33334 from V.A.E. Enterprises ("V.A.E."), a partnership controlled by Mrs. Terry Brooks, wife of Mr. David H. Brooks, and beneficially owned by Mr. and Mrs. Brooks' minor children. V.A.E. purchased the Oakland Park facility as of January 1, 1995. Point Blank and OPI entered into a net-net lease for a portion of the space in the Oakland Park facility. Annual aggregate base rental is $480,000 and is scheduled to increase by 4% per year. NDL Products, Point Blank and OPI as lessees, are responsible for all real estate taxes and other operating and capital expenses. Management believes that the terms of the lease are no less favorable to the Company than could be obtained from an unrelated party. PENDING LITIGATION In June 1996, the Company commenced a lawsuit against the former president of NDL, Mr. Barry Finn, for breach of his employment agreement. Mr. Finn has threatened to assert counterclaims against the Company but has not done so to date. The legal counsel handling the case for the Company have advised that it is too early to reliably predict the outcome of the case. MANAGEMENT Executive Officers, Directors, and Key Employees The executive officers, directors and key employees of the Company and their respective positions and ages as of September 3, 1996, are as follows:
Name Age Position - ---- --- -------- David H. Brooks 41 Chairman of the Board of Directors and Chief Executive Officer and President of the Company, Director of NDL and OPI Mary Kreidell 43 Secretary, Treasurer and Director of the Company, PACA , NDL and OPI Leonard Rosen 57 President and Director of PACA James Magee 51 President of Point Blank Joseph Giaquinto 32 President of NDL Melvin Paikoff 60 Director Gary Nadelman 44 Director
The Directors serve for a term of one year following their election at the Annual Meeting of Shareholders, and until their successors have been elected and qualified the officers serve at the discretion of the Board of Directors. David H. Brooks has served as Chairman of the Board and Chief Executive Officer of the Company 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 shareholder 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. 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. Mr. Brooks received a bachelor of science degree in accounting from New York University in 1976. Since that time he has been engaged principally as an investor for his own account. 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 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. Mary Kreidell has served as Treasurer, Secretary, and a Director of the Company since its inception. Mrs. 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. Leonard 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. Colonel James Magee, U.S.M.C. (Ret'd), became the President of Point Blank in October 1995. He was an officer in the United States Marine Corps for 26 years ending in October, 1993. Following his retirement from the Marine Corp, he became chief of staff and director of operations for a multinational pharmaceuticals technology company in Columbus, Ohio, until April 1995. He then served as a senior program manager for a company engaged in security systems integration, in Washington, D.C. Joseph Giaquinto has been President of NDL since March, 1995. For more than 7 years prior thereto, he was a vice president of sales for Tru-Fit Marketing, of Boston, Massachusetts. Melvin Paikoff has been the owner and chief executive officer of Parmel Agency, Inc., a privately held property and casualty insurance agency, for more than 5 years. Gary 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. Because of the relatively small size of the Company, the loss of a senior executive may have a materially adverse effect upon the Company until a suitable replacement can be found. Executive Compensation. Summary Compensation Table. The following table sets forth certain summary information regarding the compensation of the Company's Chief Executive Officer and each of its other executive officers whose total salary and bonus for the year ended December 31, 1995, exceeded $100,000:
Long-Term Compensation ------------ Annual Compensation Awards ------------------- ------ Securities Other Annual underlying Op Name and Principal Position Year Salary(1) Bonus Compensation tions/SAR's - --------------------------- ---- --------- ----- ------------ ----------- David Brooks, Chairman, CEO 1995 39,583 0 0 0(2) 1994 50,000 0 0 0 Michael Dinkes, President 1995 95,417 0 0 25,000(3) 1994 110,000 0 0 50,000(3) Leonard Rosen, President of 1995 PACA 125,000 0 0(4) 0 1994 115,000 0 0 0
(1) Although certain officers receive certain perquisites such as auto allowances and expense allowances, the value of such perquisites did not exceed the lesser of $50,000 or 10% of the respective officers' salary and bonus. 2) Certain warrants were awarded to Mrs. Terry Brooks in 1994 and Mr. David Brooks in 1996; see "Employment Agreements" and "Certain Transactions." (3) Mr. Dinkes resigned from all positions with the Company in November 1995. All these options were terminated upon his resignation and therefore the amounts have not been adjusted for the Stock Dividend. (4) Mr. Rosen is the lessor of PACA's premises in Norris, Tennessee. See "Properties" and "Certain Transactions." The Company does not consider the lease payments to be compensation, because they are not in excess of the fair market value of the lease. (5) In October 1995, the Company adopted a plan (the "1995 Stock Option Plan" or the "Plan") pursuant to which the Board of Directors or a committee (the "committee") of the Board is authorized to award up to 3,500,000 shares of Common Stock after giving effect to the 50% stock dividend paid July 16, 1996 to selected officers, employees, agents, consultants and other persons who render services to the Company. The options may be issued on such terms and conditions as determined by the Board or Committee, and may be issued so as to qualify as incentive stock options under Internal Revenue Code Section 422A. The directors who are authorized to award options are not eligible to receive options under the Plan. The Company has filed a registration statement with respect to the Plan, and shares ("Option Shares") of Common Stock acquired under the Plan are eligible for resale by non-affiliates without further registration under the Act; Option Shares acquired by affiliates of the Company are subject to the registration requirements of the Act. Employment Agreements. Mr. Brooks, the CEO of DHB Capital Group, Inc. is employed pursuant to a five year employment agreement which was entered into April 1, 1996. Pursuant to the agreement Mr. Brooks receives an annualy salary of $250,000 through April 1997 with annual increases of $25,000. The terms of Mr. Brook's contract provide for 750,000 of warrants exercisable at $2.33 and an annual bonus of ten percnet of the net profit. The Company owns businesses in Florida and Mr. Brooks is expected to spend considerable time there. Therefore, this employment contract provides that all expenses associated with the Employee's Florida residence will be paid by the Employer. Mr. Rosen is employed pursuant to a five-year employment agreement with PACA which was entered into at the time the Company acquired PACA, i.e., November 6, 1992. Pursuant to the agreement, Mr. Rosen received salary at the annual rate of $125,000 until November 1996, and thereafter receives an annual increase of $10,000. Mr. Magee , the President of Point Blank, is employed pursuant to an agreement for a 5-year term expiring September 30, 2000. He receives a base salary of $120,000 per year and options to purchase up to 150,000 shares of the Common Stock after giving effect to the 50% stock dividend paid July 16, 1996 at a price of $1.33 per share, exercisable at the rate of not more than 30,000 shares per year. These options are not part of the 3,500,000 shares covered by the 1995 Stock Option Plan. NDL's executive, Mr. Giaquinto, has a three year employment contract providing for an annual base salary of $100,000 and options to purchase 49,500 shares of common stock at a price of $1.33 per share exercisable at the rate of not more than 16,500 shares per year. OPI's executives, Mr. Schepp and Mr. Wagner, had three year employment contracts of $67,800 plus certain fringe benefits. These contracts were entered into in March 1996 concurrent to the Company acquiring 100% of the outstanding capital stock of OPI. In August 1996, Mr. Schepp and Mr. Wagner resigned as officers of OPI and therefore, in the opinion of management, breeched their employment contract. Stock Options. In the year ended December 31, 1995, the Company did not grant stock options, warrants or similar securities, rights or interests to any of the executive officer of the Company listed in the Summary Compensation Table above, and no options, warrants or similar securities, rights or interests were exercised by any such executive officers. In 1994, a warrant was issued to Mrs. Terry Brooks in exchange for loans by Mrs. Brooks and her pledging of certain assets to secure the Company's indebtedness to The Chase Manhattan Bank, N.A. See "Certain Transactions." Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of Common Stock and other equity securities of the Company. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended December 31, 1995, all Section 16(a) filing requirements applicable to its officers, directors and greater-than-ten-percent beneficial owners were complied with. Personal Liability and Indemnification of Directors The Company's Certificate of Incorporation and By-Laws contain provisions which reduce the potential personal liability of directors for certain monetary damages and provide for indemnity of directors and other persons. The Company is unaware of any pending or threatened litigation against the Company or its directors that would result in any liability for which such director would seek indemnification or similar protection. Such indemnification provisions are intended to increase the protection provided directors and, thus, increase the Company's ability to attract and retain qualified persons to serve as directors. Because directors' liability insurance is available only at considerable cost and with low dollar amounts of coverage and broad policy exclusions, the Company does not currently maintain a liability insurance policy for the benefit of its directors, although the Company may attempt to acquire such insurance in the future. The Company believes that the substantial increase in the number of lawsuits being threatened or filed against corporations and their directors and the general unavailability of directors' liability insurance to provide protection against the increased risk of personal liability resulting from such lawsuits have combined to result in a growing reluctance on the part of capable persons to serve as members of boards of directors of public companies. The Company also believes that the increased risk of personal liability without adequate insurance or other indemnity protection for its directors could result in overcautious and less effective direction and management of the Company. Although no directors have resigned or have threatened to resign as a result of the absence of such insurance or other indemnity protection from liability, it is uncertain whether the Company's directors would continue to serve in such capacities if improved protection from liability were not provided. The provisions regarding personal liability do not abrogate a director's fiduciary duty to the Company and its shareholders, but the personal liability for monetary damages for breach of that duty. The provisions do not, however, eliminate or limit the liability of a director for failing to act in good faith, for engaging in intentional misconduct or knowingly violating a law, for authorizing the illegal payment of a dividend or repurchase of stock, for obtaining an improper personal benefit, for breaching a director's duty of loyalty (which is generally described as the duty not to engage in any transaction which involves a conflict between the interest of the Company and those of the director) or for violations of the federal securities laws. The provisions also limit or indemnify against liability resulting from grossly negligent decisions including grossly negligent business decisions relating to attempts to change control of the Company. The provisions regarding indemnification provide, in essence, that the Company will indemnify its directors against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding arising out of the director's status as a director of the Company, including actions brought by or on behalf of the Company (shareholder derivative actions). The provisions do not require a showing of good faith. Moreover, they do not provide indemnification for liability arising out of willful misconduct, fraud, or dishonesty, for "short-swing"profits violations under the federal securities laws, or for the receipt of illegal remuneration. The provisions also do not provide indemnification for any liability to the extent such liability is covered by insurance. One purpose of the provisions is to supplement the coverage provided by such insurance. However, as mentioned above, the Company does not currently provide such insurance to its directors, and there is no guarantee that the Company will provide such insurance to its directors in the near future, although the Company may attempt to obtain such insurance. The provisions regarding personal liability of officers and directors diminish the potential rights of action which might otherwise be available to shareholders by limiting the liability of officers and directors to the maximum extent allowable under applicable state law and by affording indemnification against most damages and settlement amounts paid by a director of the Company in connection with any shareholder derivative action. However, the provisions do not have the effect of limiting the right of a shareholder to enjoin a director from taking actions in breach of his fiduciary duty, or to cause the Company to rescind actions already taken, although as a practical matter courts may be unwilling to grant such equitable remedies in circumstances in which such actions have already been taken. Also, because the Company does not presently have directors' liability insurance and because there is no assurance that the Company will procure such insurance or that, if such insurance is procured, it will provide coverage to the extent directors would be indemnified under such provisions, the Company may be forced to bear a portion or all of the cost of a director's claims for indemnification under such provisions. If the Company is forced to bear the costs for indemnification, the value of the Company stock may be adversely affected. In the opinion of the SEC, indemnification for liabilities arising under the Securities Act of 1933 is contrary to public policy and, therefore, is unenforceable. PRINCIPAL SHAREHOLDERS The following table sets forth the beneficial ownership of the Company's Common Stock as of September 3, 1996, after giving effect to a 50% Stock Dividend (i) each person known by the Company to beneficially own more than five percent of the shares of outstanding Common Stock, (ii) each of the executive officers listed in the Summary Compensation Table in "Management - Executive Compensation" and (iii) all of the Company's executive officers and directors as a group. Except as otherwise indicated, all shares are beneficially owned, and investments and voting power is held by the persons named as the owners.
Number of Shares Name and Address Beneficially Owned Percent Owned(1) ---------------- ------------------ ---------------- David H. Brooks 16,500,600(2) 60% 11 Old Westbury Road Old Westbury, New York 11568 Jeffrey Brooks(3) 1,987,500 7.2% 44 Coconut Row Palm Beach, Florida 33480 Michael Dinkes 1,125 * Rockville Centre, New York Leonard Rosen 120,142(4) * 148 Cedar Place Norris, Tennessee All Officers and Di- 16,959,370(5) 61%(6) rectors as a group (11 persons)
* Less than one (1%) percent. - --------------------------- 1. Based upon 22,954,529 shares outstanding as of September 3, 1996 after giving effect to the 50% Stock Dividend increased by, with respect to Mr. Brooks, the 3,750,000 shares acquirable by his wife pursuant to a warrant to purchase 3,750,000 shares at a price per share of $1.33 and the 750,000 warrants acquirable by Mr. Brooks at $2.33 as well as $75,000 warrants exercisable at $1.33 for each, Ms. Kreidell and Mr. Rosen. 2. Consists of 7,500,600 shares owned by Mr. Brooks and 4,500,000 owned by his wife as custodian for his minor children, and 3,750,000 shares which may be acquired by Mrs. Brooks upon exercise of a warrant to purchase such shares at a price per share of $1.33. Messrs. David H. Brooks and Jeffrey Brooks are brothers. Each disclaims beneficial ownership of shares owned by the other. 3. Messrs. David H. Brooks and Jeffrey Brooks are brothers. Each disclaims beneficial ownership of shares owned by the other. 4. Consists of 45,142 shares outstanding and 75,000 shares acquirable under warrants awarded to Mr. Rosen; does not include 4,350 shares owned by Mr. Rosen's wife, as to which Mr. Rosen disclaims beneficial ownership. 5. Includes 4,500,000 acquirable by an officer and his wife pursuant to a presently exercisable warrant. 6. Based upon all share outstanding as set forth in Footnote 1 above, including 3,750,000 acquirable by Mrs. Terry Brooks. CERTAIN TRANSACTIONS The Company obtained funds for the cash payment required to carry out the acquisition of the assets used to start up NDL, and for working capital for NDL, from (i) the Company's working capital, (ii) the Chase Loans, and (iii) term loans of $1,140,000 from Mr. and Mrs. Brooks, bearing interest at 9% per year. Under a collateral agreement [third party] (the "Collateral Agreement") covering securities owned by Mr. David H. Brooks, Chairman of the Board of the Company, and Mrs. Terry Brooks, his wife, Mr. Brooks and Mrs. Brooks have pledged certain marketable securities to Chase to partially secure the Chase Loans and other obligations of the Company to the Chase. In exchange for this, the Company has agreed to grant to Mrs. Brooks 5-year warrants to purchase 3,750,000 shares of Common Stock, after giving effect to the stock dividend at a price of $1.33 per share. The warrants contain provisions for a one-time demand registration, and piggyback registration rights. Mr. David Brooks also lent $2,000,000 to the Company to provide the funds needed to purchase the Point Blank Assets; the outstanding balance on that loan is now $750,000; the Company obtained funds to pay down the loan by liquidating certain investments at a profit. In the 12 months ended December 31, 1995, the Company has accrued for the account of Mr. and Mrs. Brooks a total of $111,750 in interest on their loans to the Company. Mr. and Mrs. Brooks have also pledged personal assets to BNY to secure the Company's debt to that bank. The Company entered into an employment agreement in April 1996 with Mr. Brooks, see "Employment Agreement". During 1995 and 1996, the Company sold unregistered shares of Common Stock to approximately 12 persons, including 1,725,000 shares to Mr. Jeffrey Brooks, and 610,714 shares to Ms. Anna Brooks. Such shares are covered by this Prospectus. Mr. Jeffrey Brooks is the brother of Mr. David Brooks, and Ms. Brooks is the mother of Mr. David Brooks. See "Selling Shareholders." NDL, Point Blank and OPI operate at a 67,000 square foot office and warehouse facility (the "Facility") located at 4031 N.E. 12th Terrace, Fort Lauderdale, Florida 33334, which it leases from V.A.E. Enterprises ("V.A.E."), a partnership controlled by Mrs. Brooks and beneficially owned by Mr. and Mrs. Brooks' minor children, which purchased the Facility on or about January 1, 1995. The lease is a 5-year net-net lease; annual base rental is $480,000 and is scheduled to increase by 4% per year. The Company, as lessee, is responsible for all real estate taxes and other operating and capital expenses. The Company completed a private offering of Class A Shares and Redeemable Warrants in March 1993. JBSI, which acted as placement agent for the Company, received a commission of 10% of the purchase price of the Units sold in New York and Florida, and a non-accountable expense allowance of 3%, totaling approximately $377,650. JBSI also received 10.9 Unit Purchase Options to purchase units consisting of 6,250 Class A Shares and 6,250 Redeemable Warrants, at $27,500 per Unit, and two registered representatives of JBSI received an aggregate of 11.625 Unit Purchase Options. Jeffrey Brooks, the sole shareholder of JBSI, is David Brooks' brother. The Company, in order to clear the sale of shares of Common Stock in May 1993 with the Corporate Financing Department of the National Association of Securities Dealers, Inc., repurchased (i) 142,187 Class A Shares and 142,187 Redeemable Warrants from Jeffrey Brooks, the sole owner of JBSI, for $568,748, (ii) 3,125 Class A Shares and 3,125 Redeemable Warrants from Paul Kazak, an associate of JBSI, for $12,500, and (iii) 1,562 Class A Shares and 1,562 Redeemable Warrants from Jason Chang, an associate of JBSI, for $6,248, which, in each case, was the price paid to the Company for such securities. In addition, JBSI, Paul Kazak and Jason Chang have returned the 11.625 Unit Purchase Options to the Company for cancellation. (The forgoing number of shares have not been adjusted for the Stock Dividend). The Company also paid interest on the foregoing amounts. JBSI returned commissions previously received in the aggregate of $58,750 related to the repurchased securities. See "Risk Factors" and "Management" for information concerning the settlement of an SEC action by David Brooks, Jeffrey Brooks and JBSI. PACA leases 23,400 square feet of office, manufacturing and warehouse space at 148 Cedar Place, Norris, Tennessee from Leonard Rosen, President of PACA, at a present annual rental of $43,200, plus real estate taxes of approximately $4,800 annually. The space is occupied pursuant to a five-year lease which expires October 31, 1997, with an option to acquire the property for $500,000. In the opinion of management, the rental is fair and reasonable and is approximately at the same rate that could be obtained from an unaffiliated lessor for property of similar type and location. In the opinion of management, PACA's facilities are adequate for its current needs and for its needs in the foreseeable future. The Company was organized by David H. Brooks on October 22, 1992. On November 6, 1992, Mr. Brooks purchased 12,000,000 shares of the Company's Common Stock for the sum of $8,000 and loaned the Company $1,200,000 on an unsecured basis. The purchase price of the shares of Common Stock purchased by Mr. Brooks was arbitrarily determined. The loan was evidenced by a demand promissory note which bore interest at the rate of 8% per annum and was repaid in March 1993 in full from the proceeds of a private placement transaction described above. On November 6, 1992, the Company acquired all of the issued and outstanding capital stock of PACA for $800,000 from ESC Industries, Inc. ("ESC") and loaned ESC $100,000. In addition, and as part of the transaction, the Company acquired 2,000,000 common stock purchase warrants from The Thunder Group, Inc., ESC's parent, for $205,000. Each warrant permits the purchase of one share of common stock of The Thunder Group, Inc. for $0. 10 per share during the period ending November 30, 1997. The Thunder Group, Inc., and ESC are now out of business and the warrants have no value. At the time of these transactions, Mr. Brooks and certain of sac affiliates owned 775,000 shares of the common stock of The Thunder Group, Inc., representing approximately 5.6% of such outstanding shares, and warrants to acquire an additional 750,000 shares. The transactions between the Company, The Thunder Group, and its affiliates were negotiated at arm's length and were supported by an opinion of an independent business appraisal as to the fairness of the purchase price paid for PACA. See "Business - History". DESCRIPTION OF SECURITIES The following is a summary of certain provisions of the Certificate of Incorporation, as amended, and rights accorded to holders of 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 the Company's Restated Certificate of Incorporation, the Company's By-Laws, and the Delaware General Corporation Law. See "Special Notice Regarding Reincorporation in Delaware" and "Business - History." Common Stock General. Under the Company'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 Common Stock. Cash Dividends. Holders of Common Stock may receive dividends if, as and when dividends are declared on Common Stock by the Company'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 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 the Company to lawfully declare and pay dividends on Common Stock is also limited by certain provisions of applicable state corporation law. It is not expected that dividends will be declared on the Common Stock in the foreseeable future. Distributions in Liquidation. If the Company is liquidated, dissolved and wound up for any reason, distribution of the Company's assets upon liquidation would be made first to the holders of preferred shares, if any, and then to the holders of the Common Stock. If the Company'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 the Company would be distributed pro rata to the holders of shares of preferred stock and no distribution will be made to the holders of the Common Stock. There are no shares of preferred stock authorized, issued or outstanding at this time. A consolidation or merger of the Company with or into any other company, or the sale of all or substantially all of the Company's assets, is not deemed a liquidation, distribution or winding up for this purpose. Voting Rights. Each share of Common Stock is entitled to one vote on all matters to be voted on at meetings of the shareholders of the Company, including the election of directors. The holders of Common Stock will be entitled to elect all of the Company's directors. Holders of Common Stock do not have any cumulative voting rights or preemptive rights. Preferred Shares The Company's Delaware charter authorizes the Board of Directors to issue up to 5,000,000 shares of preferred stock, $0.001 par value of the Company, in such amounts and with such rights to dividends, voting, conversion, redemption and other terms as the Board may determine. At this thine, no preferred stock is authorized, issued or outstanding. The Company had previously issued Class A convertible preferred stock, but all outstanding preferred shares were converted prior September 30, 1995. SELLING SHAREHOLDERS An aggregate of up to 3,901,515 Shares of Common Stock after giving effect to a 50% Stock Dividend payable July 16, 1996 may be offered by the Selling Shareholders. The Shares offered hereby constitute approximately 15% of all shares of the Company's outstanding Common Stock, without giving effect to the possible exercise of outstanding warrants, except as noted. The following table sets forth certain information with respect to persons for whom the Company is registering for resale to the public shares of the Company's Common Stock. The table reflects such persons' ownership of the Common Stock as of September 3, 1996, without giving effect to the sales of any shares under the other registration statements. The Company will not receive any proceeds from the sale of the Shares. There are no material relationships between any of the Selling Shareholders and the Company or any of its predecessors or affiliates, nor have any such material relationships existed within the past three years, except as noted.
======================================================================================================================= Beneficial Ownership as of Maximum Beneficial Ownership September 3, 1996 to be Sold After Offering if Maximum in this is Sold Selling Shareholder Amount** Percent Offering** Amount** Percent - ----------------------------------------------------------------------------------------------------------------------- Anna Brooks 928,125 3.8% 675,000 253,125 1.1% - ----------------------------------------------------------------------------------------------------------------------- Jeffrey Brooks 1,987,500 8.0% 1,987,500 0 * - ----------------------------------------------------------------------------------------------------------------------- Brotman Associates 75,000 * 75,000 0 * - ----------------------------------------------------------------------------------------------------------------------- Clarion Capital 75,000 * 75,000 0 * Corporation - ----------------------------------------------------------------------------------------------------------------------- Robert H. Davidson 37,500 * 37,500 0 * - ----------------------------------------------------------------------------------------------------------------------- Kenneth Froehlich 75,000 * 75,000 0 * - ----------------------------------------------------------------------------------------------------------------------- Joseph Giaquinto 60,000(5) * 45,000 15,000 * - ----------------------------------------------------------------------------------------------------------------------- Irina Kazak 57,765 * 39,015 18,750 * - ----------------------------------------------------------------------------------------------------------------------- Phylllis G. Koock 63,750 * 37,500 26,250 * - ----------------------------------------------------------------------------------------------------------------------- Robert Koutu 165,000 * 165,000 0 * - ----------------------------------------------------------------------------------------------------------------------- Larry Loscalzo 300,000 * 300,000 0 * - ----------------------------------------------------------------------------------------------------------------------- Elliot Mardenly 187,500 * 75,000 112,500 * - ----------------------------------------------------------------------------------------------------------------------- Melvin Paikoff(6) 300,000 1.1% 150,000 150,000 * - ----------------------------------------------------------------------------------------------------------------------- Productos En- 75,000 * 75,000 0 * vironmental de Mexico - ----------------------------------------------------------------------------------------------------------------------- Leonard Rosen and A. 120,142 * 15,000 105,142 * Patricia Moore, JTWROS - ----------------------------------------------------------------------------------------------------------------------- Herbert Stein 75,000 * 75,000 0 * =======================================================================================================================
*Less than one (1%) percent. **All amounts in the table and the related footnotes below take into effect the 50% Stock Dividend paid July 16, 1996. 1. Calculated by dividing the number of shares owned by each respective Selling Shareholder by the sum of (i) all shares of Common Stock issued and outstanding as of September 3, 1996, i.e.,22,954,529 shares, and (ii) 4,800,000 shares of Common Stock which may hereafter be issued pursuant warrants awarded to certain executive officers of the Company, or their affiliates. 2. Some of the Selling Shareholders are offering shares for sale under a prospectus which is part of a different Registration Statement. The amounts in this column do not give effect to the possible sale of those shares. 3. Ms. Brooks is the mother of Mr. David H. Brooks, Chairman of the Board and majority shareholder of the Company. Each disclaims beneficial ownership in shares owned by the other. The number of shares includes approximately 33,000 which Ms. Brooks owns jointly with her brother, Mr. Leon Jacobs, who is also a selling shareholder under a prospectus dated August 14, 1995. Mr. Jacobs is not a Selling Shareholder under this Prospectus. 4. Messrs. Jeffrey Brooks and David H. Brooks are brothers. Each disclaims beneficial ownership in shares owned by the other. 5. Includes 45,000 shares which Mr. Giaquinto owns jointly with his wife. 6. Includes 37,500 shares held by Mr. Paikoff as a trustee of a defined benefit retirement plan. Mr. Paikoff became a director of the Company on November 15, 1995. 7. Includes 75,000 shares which are acquirable pursuant to warrants awarded to Mr. Rosen. Does not include 4,350 shares owned by Mr. Rosen's wife. PLAN OF DISTRIBUTION The sale of the Shares by the Selling Shareholders may be effected from time to time in transactions (which may include block transactions by or for the account of the Selling Shareholders) in the over-the-counter market or in negotiated transactions, a combination of such methods of sale, or otherwise. Sales may be made at fixed prices which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. Selling Shareholders may effect such transactions by selling their Shares of Common Stock directly to purchasers, through broker-dealers acting as agents for the Selling Shareholders, or to broker-dealers who may purchase shares as principals and thereafter sell the Shares from time to time in the over-the-counter market, in negotiated transactions, or otherwise. Such broker-dealers, if any, may receive compensation in the form of discounts, concessions, or commissions from the Selling Shareholders and/or the purchasers for whom such broker-dealers may act as agents or to whom they may sell as principals, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). The Selling Shareholders and broker-dealers, if any, acting in connection with such sale might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commission received by them and any profit on the resale of the securities might be deemed to be underwriting discounts and commissions under the Securities Act. The Selling Shareholders each entered into a registration rights agreement with the Company providing for the registration of the shares of Common Stock under the Securities Act and the blue sky laws of the several states. Pursuant to the registration rights agreement, the Company is required to bear the cost of such registration and indemnify the Selling Shareholders against certain liabilities, including those under the Securities Act. Insofar as indemnification for liabilities under the Securities Act may be permitted pursuant to the above-described agreements or otherwise to directors, officers and controlling persons of the Company, the Company has been advised that, in the opinion of the SEC, such indemnification is against public policy expressed in the Securities Act and is therefore unenforceable. LEGAL MATTERS The validity of the securities offered hereby has been passed upon for the Company by the Law Offices of D. David Cohen, Jericho Atrium - Suite 133, 500 North Broadway, Jericho, New York 11753. EXPERTS The audited financial statements of the Company as of December 31, 1995 and 1994, and for each of the years then ended, which are included in this 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 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. The financial statements and schedule for the Lehigh Group, Inc. and subsidiaries included in this Prospectus and in the registration statement have been audited by BDO Seidman, LLP, independent certified public accountants, to the extent and for the periods set forth in the registration statement and are included in reliance upon such reports given upon the authority of such firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission, Washington, D.C., Amendment No. 5 of its Registration Statement No. 33-96846 under the Securities Act of 1933, as amended, with respect to the shares of Common Stock offered hereby. This Prospectus does not contain all of the information set forth in such Amendment and the exhibits thereto. For further information with respect to the Company and the Shares offered hereby, reference is made to such Amendment and exhibits, which may be obtained from the Commission at its principal office in Washington, D.C., upon payment of charges prescribed by the Commission. Statements contained in this Prospectus as to the contents of any contract or other documents referred to are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Amendment, each such statement being qualified all respects by such reference. INDEX TO FINANCIAL STATEMENTS The Company: Independent Auditors' (Capraro, Centofranchi, Kramer & Co.P.C.) Report on the Financial Statements as of and for the Year Ended 12/31/95 Consolidated Balance Sheet as of 12/31/95 Consolidated Statements of Income (Loss) for the Years Ended 12/31/95 and 12/31/94 Consolidated Statements of Stockholders' Equity for the Years Ended 12/31/95 and 12/31/94 Statements of Cash Flows for the Years Ended 12/31/95 and 12/31/94 Notes to Consolidated Financial Statements Orthopedic Products, Inc.: Independent Auditor's (Jay Howard Linn, C.P.A.) Report on the Financial Statements as of and for the Year Ended 9/30/95 and 9/30/94 Balance Sheets as of 9/30/95 and 9/30/94 Statements of Operations and Retained Earnings for the Years Ended 9/30/95 and 9/30/94 Statements of Cash Flows for the Years Ended for the Years Ended 9/30/95 and 9/30/94 Notes to Financial Statements The Lehigh Group, Inc.: 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 Consolidated Balance Sheet as of 12/31/95 and 12/31/94 Consolidated Statements of Operations for the Years Ended 12/31/95, 12/31/94, and 12/31/93 Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended 12/31/95, 12/31/94, and 12/31/93 Statements of Cash Flows for the Years Ended 12/31/95, 12/31/94, and 12/31/93 Notes to Consolidated Financial Statements Schedules of valuation and Qualifying Accounts for the years Ended 12/31/95, 12/31/94, and 12/31/93 Interim Financial Information Orthopedic Products, Inc.: Balance Sheet as of 12/31/95 Statements of Operations and Retained Earnings for the Three Months Ended 12/31/95 Statements of Cash Flows for the Years Ended for the Three Months Ended 12/31/95 The Company: Consolidated Balance Sheet as of 06/30/96 Consolidated Statements of Income for the Three Months Ended 06/30/96 and 06/30/95 Consolidated Statements of Income the Six Months Ended 06/30/96 and 06/30/95 Statements of Cash Flows for the Six Months Ended 06/30/96 and 06/30/95 Notes to Consolidated Financial Statements The Lehigh Group, Inc.: Consolidated Balance Sheet as of 06/30/96 Consolidated Statements of Operation for the Six and Three Months Ended 06/30/96 and 06/30/95 Consolidated Statements of Shareholders' Equity (Deficit) for the Six Months Ended 06/30/96 and 06/30/95 Statements of Cash Flows for the Six Months Ended 06/30/96 and 06/30/95 Notes to Consolidated Financial Statements Pro Forma Financial Information Pro Forma Introduction Pro Forma Balance Sheet of The Company and The Lehigh Group, Inc. as of 06/30/96 Pro Forma Consolidated Statement of Income (Loss) of the Company and OPI and Lehigh for the year ended 12/31/95 Pro Forma Consolidated Statement of Income of the Company and Orthopedic Products, Inc., and The Lehigh Group,Inc., for the Six Months Ended 6/30/96 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. Capraro, Centofranchi, Kramer & Co., P.C. South Huntington, New York March 14, 1996
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.
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 (Expenses) 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 ($ 0.01) ============ ============ Fully Diluted $ 0.01 ($ 0.01) ============ ============ 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
DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 Number of Number of Additional Common Stock Preferred Par Common Par Paid-in Subscription shares Value shares Value Capital Receivable ------- ------ ---------- ------- ----------- ---------- Balance, December 31, 1993 104,687 $1,047 10,504,452 $10,504 $5,002,499 -- Loss for the year ended December 31, 1994 Sale of common stock 812,500 812 2,007,668 Conversion of preferred stock into common stock (40,625) (406) 81,250 82 324 Issuance of common stock to acquire subsidiary 100,000 100 299,900 ------- ------ ---------- ------- ----------- ---------- Balance- December 31, 1994 64,062 641 11,498,202 11,498 7,310,391 -- Net income for the year ended December 31, 1995 Sale of common stock 1,955,000 1,955 3,863,045 (437,500) Conversion of preferred stock into common stock (42,187) (422) 84,374 84 338 Exercise of stock warrants 303,750 304 949,696 Common stock-50% stock dividend 6,920,665 6,921 (6,921) ------- ------ ---------- ------- ----------- ---------- Balance- December 31, 1995 21,875 $219 20,761,991 $20,762 $12,116,549 ($437,500) ======= ====== ========== ======= =========== ========== See accompanying notes to financial statements. DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 Retained Earnings Total -------- ----------- Balance, December 31, 1993 ($67,294) $4,946,756 Loss for the year ended December 31, 1994 (75,243) (75,243) Sale of common stock 2,008,480 Conversion of preferred stock into common stock -- Issuance of common stock to acquire subsidiary 300,000 -------- ----------- Balance- December 31, 1994 (142,537) 7,179,993 Net income for the year ended December 31, 1995 244,475 244,475 Sale of common stock 3,427,500 Conversion of preferred stock into common stock -- Exercise of stock warrants 950,000 Common stock-50% dividend -- -- -------- ----------- Balance- December 31, 1995 $101,938 $11,801,968 ======== ===========
See accompanying notes to financial statements.
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) ----------- ----------- (Continued) DHB CAPITAL GROUP, INC. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995 1994 ----------- ----------- 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 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 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. 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 carryfoward losses, exceeds certain levels. DEFERRED INCOME TAXES Deferred taxes arise principally from net operating losses and capital losses available for carryfoward 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. 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 ========== 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. 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 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 $ 641 =========== =========== Common stock, $.001 par value, 25,000,000 shares authorized, Shares issued and outstanding 20,761,995 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. 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 $2 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 $2 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 carryfoward (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) ========= =========
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 carryfoward 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 carryfoward 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. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS On July 16, 1996, the Company paid a 50% Stock Dividend. All data in the accompanying financial statements and related notes have been restated to give effect to the dividend. 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. JAY HOWARD LINN APRIL 25, 1996 ----------------------------------------------------- MEMBER FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTS
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 -0- ---------- ---------- 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 ---------- ---------- (Continued) ORTHOPEDIC PRODUCTS, INC. BALANCE SHEET SEPTEMBER 30, 1995 1994 ---------- ---------- Stockholders' Equity: Common stock - $1. 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
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 -0- ----------- ----------- 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.
ORTHOPEDIC PRODUCTS, INC. STATEMENTS OF CASH FLOWS FISCAL YEAR ENDED SEPTEMBER 30, 1995 1994 --------- --------- Cash Flows from Operating Activities: Net Income $(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 provided 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 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: 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 ======== ========
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 (expense) 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 (expense) $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: 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 --------- $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. 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 provide 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 its subsidiaries at December 31, 1995 and 1994, and the results of 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. BDO Seidman, LLP New York, New York March 14, 1996, except as to Note 3, which is as of March 28, 1996 THE LEHIGH GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 1995 1994 (in thousands except for per share data) ------------------- ASSETS Current assets: Cash and cash equivalents ............................ $ 347 $ 925 Accounts receivable, net of allowance for ............ 4,335 4,611 doubtful accounts of $174 and $275 Inventories, net ..................................... 1,823 1,745 Prepaid expenses and other current assets ............ 22 22 ------ ------ Total current assets ............................... 6,527 7,303 Property, plant and equipment, net of ................ 61 105 accumulated depreciation and amortization (Note 5) Other assets ......................................... 34 33 ------ ------ Total assets ....................................... $6,622 $7,441 ====== ======
The accompanying notes to consolidated financial statements are an integral part of these financial statements. THE LEHIGH GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
December 31, 1995 1994 (in thousands except for per share data) ------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt (Note 6) $ 510 $ 519 Note payable-bank (Note 6) 360 360 Accounts payable 1,839 1,911 Accrued expenses and other current liabilities 1,381 1,280 ----- ----- Total current liabilities 4,090 4,070 ----- ----- Long-term debt, net of current maturities (Note 2,080 2,361 ----- ----- 6) Deferred credit applicable sale of 250 500 ------- ------- discontinued operations (Note 4) Commitments and Contingencies (Notes 3, 6 and 8) Shareholders' equity (Note 7): Preferred stock, par value $.001; authorized 5,000,000 shares, none issued -- -- Common stock, par value $.001 authorized shares 100,000,000, in 1995 and 1994; shares issued 10,339,250 in 1995 and 1994 which excludes 3,016,249 and 3,015,893 shares held as treasury stock in 1995 and 1994, respectively 11 11 Additional paid-in capital (Note 10) 106,594 106,594 Accumulated deficit from January 1, 1986 (104,749) (104,441) Treasury stock - at cost (1,654) (1,654) --------- --------- Total shareholders' equity 202 510 --------- --------- Total liabilities and shareholders' equity $ 6,622 $ 7,441 ======= =======
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. THE LEHIGH GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1995 1994 1993 - ------------------------ ---- ---- ---- (in thousands except for per share data) Revenues earned ..................................................... $ 12,105 $ 12,247 $ 12,890 Costs of revenues earned ............................................ 8,628 8,577 9,150 -------- -------- -------- Gross Profit ........................................................ 3,477 3,670 3,740 Selling, general and administrative expenses ........................ 3,994 4,187 4,153 -------- -------- -------- Operating loss ...................................................... (517) (517) (413) -------- -------- -------- Other income (expense): Interest expense ................................................. (433) (398) (424) Interest and other income (Note 6) ............................... 392 505 587 -------- -------- -------- (41) 107 163 -------- -------- -------- Loss before discontinued operations and extraordinary item ............................................... (558) (410) (250) Income from discontinued operations (Note 4) ........................ 250 5,000 2,074 -------- -------- -------- Income (loss) before extraordinary item ............................. (308) 4,590 1,824 Extraordinary item: Gain on early extinguishment of debt (Note 6) .................... -- -- 1,997 -------- -------- -------- Net income (loss) ................................................... $ (308) $ 4,590 $ 3,821 ======== ======== ======== Earnings per share - Primary and Fully Diluted Loss before discontinued operations and extraordinary item $ (0.05) $ (0.04) $ (0.03) Income from discontinued operations 0.02 0.49 0.24 Income (loss) before extraordinary item (0.03) 0.45 0.21 Net Income (loss) (0.03) 0.45 0.43 Weighted average Common Shares and share equivalents outstanding Primary and Fully diluted 10,339,250 10,169,000 8,825,000 ========== ========== =========
The accompanying notes to consolidated financial statements are an integral part of these statements. THE LEHIGH GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) Years Ended December 31, 1995, 1994 and 1993 (in thousands)
Number of Number of Additional Deficit From Shares Amount Shares Amount Paid In Capital Jan.1, 1986 ------ ------ ------ ------ --------------- ----------- Balance December 31, 1992 -- -- 10,978 11 69,454 (112,852) Exchange of Class A and B notes in connection with sale of subsidiary (3,320) 36,121 Net Income -- -- -- -- 3,821 ----- ----- ----- ------- ----- ------ Balance December 31, 1993 -- $-- 7,658 $11 $105,575 $(109,031) Issuance of common stock in connection with private placement 2,681 1,019 Net Income -- -- -- -- 4,590 ----- ----- ----- ------- ----- ----- Balance December 31, 1994 -- $-- 10,339 11 $106,594 $(104,441) == === ====== === ======== ========== Net Loss -- -- -- -- $ (308) ----- ----- ----- ------- ----- -------- Balance December 31, 1995 -- $-- 10,339 11 $106,594 $(104,749) == === ====== === ======== ==========
THE LEHIGH GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) Years Ended December 31, 1995, 1994 and 1993 (in thousands) (Continued)
Treasury Stock At Cost Total ------- ----- Balance December 31, 1992 (1,654) (45,041) Exchange of Class A and B notes in connection with sale of subsidiary 36,121 Net Income 3,821 ------- ------- Balance December 31, 1993 $(1,654) $ (5,099) Issuance of common stock in connection with private placement 1,019 Net Income -- 4,590 ------- ------ Balance December 31, 1994 $(1,654) $ 510 ======== ======== Net Loss -- $ (308) ------- -------- $(1,654) $ 202 Balance December 31, 1995 ======== ========
The accompanying notes to consolidated financial statements are an integral part of these statements. 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 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 statements. 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 each period. Excluded from fully diluted computations are certain stock options granted (12,000,000 THE LEHIGH GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tables included in the footnotes are in thousands except for per share data) 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 THE LEHIGH GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Tables included in the footnotes are in thousands except for per share data) subsidiary, HallMark Electrical Supplies Corp. The Company has entered into an agreement with a financial services company to use its best efforts to raise an additional $450,000 under the same terms and conditions. Management believes that the proceeds of the $300,000 subordinated debenture combined with current working capital will be sufficient to fund the Company's operations for the balance of 1996. 4 - Discontinued Operations On December 31, 1991, the Company sold its right, title and interest in the stock of the various subsidiaries which made up its discontinued interior construction and energy recovery business segments subject to existing security interests. The excess of liabilities over assets of subsidiaries sold amounted to approximately $9.6 million. The Company did not retain any of the liabilities of the sold subsidiaries. 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 199 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 ===== =====
THE LEHIGH GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Tables included in the footnotes are in thousands except for per share data) 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. 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 THE LEHIGH GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tables included in the footnotes are in thousands except for per share data) 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 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. THE LEHIGH GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tables included in the footnotes are in thousands except for per share data) 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. THE LEHIGH GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tables included in the footnotes are in thousands except for per share data) Employment Agreements On August 22, 1994 the Company and Mr. Salvatore Zizza entered into an employment agreement providing employment to Mr. Zizza through December 31, 1999 as President, Chairman of the Board and Chief Executive Officer of the Company at an annual salary of $200,000. On January 1, 1995 the Company and Mr. Robert Bruno entered into an employment agreement providing employment to Mr. Bruno through December 31, 1999 as Vice President and General Counsel of the Company at an annual salary of $150,000. The agreement calls for deferral of $50,000 of Mr. Bruno's salary each year until the Company's annual revenues exceed $25 million. The $50,000 deferral has not been accrued due to uncertainty regarding the Company achieving $25 million in sales. 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. THE LEHIGH GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tables included in the footnotes are in thousands except for per share data) 9 - Stock Options The following table contains information on stock options for the three year period ended December 31, 1995:
Exercise price Weighted average Option shares range per share price ------------- --------------- ----- Outstanding, January 1, 1993 0 0 0 Granted 0 0 0 Exercised 0 0 0 Outstanding, December 31, 1993 0 0 0 Granted 10,250,000* $0.50 to $1.00 $0.72 Exercised 0 0 0 Forfeited 0 0 0 Outstanding, December 31, 1994 10,250,000 $0.50 to $1.00 $0.72 Granted 295,000 $0.50 $0.50 Exercised 0 0 0 Forfeited 0 0 0 Outstanding, December 31, 1995 295,000 $0.50 $0.50 === ==== ======= ===== =====
*Excludes warrants to purchase 7,750,000 shares of stock. Exercisable at year end 1993 0 1994 4,250,000* 1995 4,545,000* *Excludes warrants to purchase 1,750,000 shares of stock. Twelve million of the eighteen million options and warrants granted in 1994 are contingently exercisable pending the occurrence of certain future events. These events include the Company acquiring any business with annual revenues in the year immediately prior to such acquisition of at least $25 million dollars. The occurrence of this event as well as certain other events will constitute the measurement date for those options and the Company will recognize as compensation the difference between measurement date price and the granted price. THE LEHIGH GROUP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Tables included in the footnotes are in thousands except for per share data) 10 - Significant Customer Sales to a customer accounted for approximately 25%, 22%, and 12% for years ended December 31, 1995, 1994 and 1993, respectively. This customer accounted for approximately 21% and 15 % of accounts receivable on December 31, 1995 and 1994, respectively. 11 - Supplementary Information Statements of Cash Flows
Years ended December 31 ----------------------- 1995 1994 1993 ---- ---- ---- Cash paid during the year for: Interest $278 $264 $269 Income taxes 12 78 5
Supplemental disclosure of non-cash financing activities: December 31, 1995 Accounts payable and operating loss were both reduced by approximately $380,000 relating to an adjustment to he value of certain items which relate to the Company's 1991 Restructuring. December 31, 1993 As a result of the 1993 Restructuring, 100% of the Class A Notes and over 97% of the Class B Notes (the "Notes") of NICO Inc., a wholly owned subsidiary of the Company, were surrendered to the Company together with 3 million shares of common stock and, in exchange therefore, participating holders of such Notes acquired through a newly formed corporation, all of the stock of LVI Environmental Services Group Inc. The Company's consolidated indebtedness was thereby reduced from approximately $45.9 million to approximately $3.6 million. 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 December 31, Description of Year Expenses Other Accounts Add (Deduct) End of Year - ------------ ----------- ------- -------- -------------- ------------ ----------- 1995 Allowance for doubtful accounts $ 275 -- -- (101) $ 174 Inventory obsolescence reserve $ 158 -- -- $ 158 1994 Allowance for doubtful accounts $ 300 -- -- (25) $ 275 Inventory obsolescence reserve $ 182 -- -- (24) $ 158 1993 Allowance for doubtful accounts $ 385 (85) -- -- $ 300 Inventory obsolescence reserve $ 406 -- -- (224) $ 182 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 $154,874) 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 ==========
ORTHOPEDIC PRODUCTS, INC. 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 ========
ORTHOPEDIC PRODUCTS, INC. 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-
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS UNAUDITED JUNE 30, DECEMBER 31, 1996 1995 ------------ ------------ ASSETS 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 ============ ============ (Continued) DHB CAPITAL GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS UNAUDITED JUNE 30, DECEMBER 31, 1996 1995 ------------ ------------ 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 469,777 301,067 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
DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) 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 (loss) on marketable securities 108,401 22,234 Unrealized gain (loss) on marketable securities 578,221 708,952 ------------ ------------ Total Other Income (Expense) 606,795 661,520 ------------ ------------ Income (loss) before income taxes 714,221 150,845 Income taxes 182,000 1,160 ------------ ------------ Net Income (loss) 532,221 149,685 Retained Earnings (Deficit) - Beginning 678,095 (112,765) ------------ ------------ Retained Earnings (Deficit) - End $ 1,210,316 $ 36,920 ============ ============ Earnings (loss) 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.
DHB CAPITAL GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) 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 (loss) on marketable securities 94,416 39,087 Unrealized gain (loss) on marketable securities 1,126,663 610,392 ------------ ------------ Total Other Income (Expense) 1,074,606 561,094 ------------ ------------ Income (loss) before income taxes 1,420,593 193,117 Income taxes 312,215 13,660 ------------ ------------ Net Income (loss) 1,108,378 179,457 Retained Earnings (Deficit) - Beginning 101,938 (142,537) ------------ ------------ Retained Earnings (Deficit) - End $ 1,210,316 $ 36,920 ============ ============ Earnings (loss) 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 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.
DHB CAPITAL GROUP INC. AND SUBSIDIARIES STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES 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 issuance of debt 243,573 -- Net proceeds from sale of common stock 4,449,000 2,010,000 Cost incurrred 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 EQUIVALENTS 192,107 (382,325) 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 transaction: The Company had a noncash transaction 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. 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 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 F-29 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, 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. F-30 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. 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. 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 accounts of $174 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. THE LEHIGH GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, December 31, 1996 1995 (Unaudited) (Audited) ----------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 503 $ 510 Notes payable-banks 360 360 Accounts payable 1,998 1,839 Accrued expenses and other liabilities 1,536 1,381 --------- --------- 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 and 1994, 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 (194) 202 --------- --------- Total liabilities and shareholders' equity $ 6,653 $ 6,622 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
PART I-FINANCIAL INFORMATION 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 Equivalents Outstanding: Primary and Fully Diluted 10,339 10,339 10,339 10,339 ======== ======== ======== ========
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) ========= ========= ========= ========= ========= Balance January 1, 1996 $ 11 $ 106,594 $ 104,749 $ (1,654) $ 202 Net loss (396) (396) Balance March 31, 1996 $ 11 $ 106,594 $(105,145) $ (1,654) $ (194) ========= ========= ========= ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. THE LEHIGH GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
1996 1995 Six Months Ended June 30, (in thousands) - ---------------------------- -------------- Cash flows from operating activities: Net income 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 -- ----- ----- Net cash provided by (used in) financing activities 113 (190) ----- ----- Net changes in cash 106 (405) Cash at beginning of period 347 925 ----- ----- Cash at end of period $ 453 $ 520 ===== =====
The accompanying notes to consolidated financial statements are an integral part of these statements. THE LEHIGH GROUP INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1. Basis of Presentation The financial information for the 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. For the periods presented, there were no common stock equivalents included in the calculation, since they would be antidilutive. 2. Supplementary Schedule Statement of cash flows Six months ended June 30,
1996 1995 (in thousands) Cash paid during the three months for: Interest $ 134 $ 141 Income taxes 4 2
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 Company's financial statements of the transactions described below. The pro forma information is based on the historical financial statements of the Companies. The unaudited pro forma combined balance sheet data at June 30, 1996 gives effect to the reverse acquisition of The Lehigh Group, Inc. The adjustments are presented as if, at such date, the Company had acquired The Lehigh Group, Inc. (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. They are Orthopedic Products Inc. which was purchased March 22, 1996 and The Lehigh Group, Inc. 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 necesary to present fairly the pro forma data. The unaudited pro forma combined financial statements should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto, and the Financial Statements and the Notes thereto of The Lehigh Group, Inc. and the Financial Statements and the Notes thereto of Orthopedic Products Inc. 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 Company's future results. There can be no assurance that the Lehigh reverse acquisition will be consummated. DHB CAPITAL GROUP INC. AND SUBSIDIARIES AND THE LEHIGH GROUP AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 1996 (IN THOUSANDS)
ASSETS The Lehigh Pro forma The Company Group Adjustments Balance ----------- ----- ----------- ------- CURRENT ASSETS Cash and cash $ 667 $ 453 $ (300)(1) $ 820 equivalents Marketable 4,957 4,957 securities Accounts 5,561 4,469 10,030 receivable, net Note 0 Receivable Inventories 7,416 1,593 9,009 Prepaid expenses and other current assets 771 50 821 ------- ------- ------ ------- Total Current $19,372 $6,565 $ (300) $25,637 Assets 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 securites 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 $ 2,550 $ 360 (200)(1),(3) $ 2,710 payable Current maturities of long 60 503 563 term debt Accounts payable 3,167 1,998 5,165 Accrued expenses and other 470 1,536 (300)(2) 1,706 current liabilities Deferred taxes payable 11 11 State income taxes payable 320 320 ------- -------- --------- ------- Total Current Liabilities $ 6,578 $ 4,397 $ (500) $10,475 DHB CAPITAL GROUP INC. AND SUBSIDIARIES AND THE LEHIGH GROUP AND SUBSIDIARIES UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET JUNE 30, 1996 (IN THOUSANDS) (continued) The Lehigh Pro forma The Company Group Adjustments Balance ----------- ----- ----------- ------- Long Term Debt 2,059 2,200 4,259 Deferred credit Applicable sale of Discontinue Operations 250 250 STOCKHOLDERS' EQUITY Preferred stock 0 Common stock 23 11 (10) (2),(4),(5),(6) 24 Additional paid-in capital 16,701 106,594 (101,091)(2)(4)(5)(6)(7)(8) 2,204 Common stock subscription receivable (575) (575) Treasury Stock - at cost (1,654) 1,654 (8) 0 Retained earnings 1,210 (105,145) 104,937 (6) 1,002 ------- -------- --------- ------- Total Stockholder' 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 issurance of warrants to the Lehigh officers 8 To retire Lehigh's treasury stock
DHB CAPITAL GROUP, INC. AND SUBSIDIARIES, ORTHOPEDIC PRODUCTS, INC., AND THE LEHIGH GROUP PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE YEAR ENDED DECEMBER 31, 1995 (In Thousands)
DHB Capital Lehigh Group and Orthopedic 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 9,881 Selling, general and administrative expenses 5,140 1,238 3,994 310 (1)(2)(3 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 uncollectable 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 736 (239) (558) (310) (371) operations 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. DHB CAPITAL GROUP INC. AND SUBSIDIARIES, ORTHOPEDIC PRODUCTS, INC., AND THE LEHIGH GROUP UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE SIX MONTHS ENDED JUNE 30, 1996 (IN THOUSANDS)
Jan 1 - Lehigh DHB Capital March 22 Group and Orthopedic 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 ------ ---- ------ ----- ------- DHB CAPITAL GROUP INC. AND SUBSIDIARIES AND ORTHOPEDIC PRODUCTS, INC., AND THE LEHIGH GROUP UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS) FOR THE SIX MONTHS ENDED JUNE 30, 1996 (IN THOUSANDS) (continued) Jan 1 - DHB Capital March 22 Lehigh and Orthopedic Group Pro forma Subsidiaries Products (Rounded) Adjustments Consolidated ------------ ---------- --------- ----------- ------------ 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
PART II Information Not Required in Prospectus Item 24. Indemnification of Directors and Officers. The certificate of incorporation of DHB Capital Group Inc., a Delaware corporation (the "Company"), Article Tenth, eliminates the personal liability of directors to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director, provided that such e elimination of personal liability of the director of the Company does not apply to (a) any breach of the director's duty of loyalty to the Company or its stockholders, (b) acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law, (c) actions prohibited under Section 174 of the Delaware General Corporation Law, i.e., the liabilities imposed upon directors who vote for or assent to the unlawful payment of dividends, unlawful repurchase or redemption of stock, unlawful distribution of assets of the Company to the shareholders without the prior payment or discharge of the Company's debts or obligations, or unlawful making or guaranteeing of loans to directors), or (d) any transaction from which the director derived an improper personal benefit. Article Ninth of the certificate of incorporation provides for the Company to indemnify its corporate personnel, directors and officers to the fullest extent permitted by the Delaware General Corporation Law, as amended from time to time. Item 25. Other Expenses of Issuance and Distribution. Item Amount - ---- ------ Securities and Exchange Commission filing fee $4,750 Blue Sky fees and expenses 0 Printing and engraving costs 2,500 Legal fees and expenses 8,500 Accounting fees and expenses 0 Transfer agent and registrar's fees 0 Miscellaneous 1,000 ----- TOTAL $16,750 ======= Item 26. Recent Sales of Unregistered Securities. Information responsive to Item 26 is incorporated by reference to Item 26 in the following prior filings with the Commission: Registration Statement No. 33-70678, filed 10/22/93, pages II-6 and II-7; Post-effective Amendment No. 1 of Registration Statement No. 33-70678, filed 10/17/94, page II-1; and Post-effective Amendment No. 2 of Registration Statement No. 33-70678, filed 8/3/95, page II-1. In the period from July 1, 1995, through the date of this Amendment, the Company sold an aggregate of 2,072,500 shares to 7 investors at an average price of $2.44 per share after giving effect to the 50% Stock Dividend. Each investor represented to the Company that he/she/it was an accredited investor. The sales were consummated without a broker or placement agent. The transactions are deemed to be exempt pursuant to Section 4(2) of the Act. Item 27. Exhibits. The following table lists all exhibits to the Registration Statement as amended hereby. Substantially all such exhibits are incorporated herein by reference to registration statements, reports, and amendments thereof previously filed by the Registrant, as more fully set forth below. Documents to be filed hereafter, if any, are marked with an asterisk (*).
Exhibit Description - ------- ----------- 2.1 Securities Purchase Agreement dated November 6, 1992, between the Company, E.S.C. Industries, Inc., The Thunder Group, Inc. and Protective Apparel Corporation of America Note 1 3.1 Certificate of Incorporation of DHB Capital Group Inc., a New York corporation (hereinafter, "DHB-New York") Note 1 3.2 Certificate of Amendment to the Certificate of Incorporation of DHB-New York filed November 5, 1992 Note 1 3.3 Restated and amended Certificate of Incorporation of DHB New York dated February 10, 1993 Note 1 3.4 By-laws of DHB-New York Note 2 3.5 Certificate of Incorporation of DHB Capital Group Inc., a Delaware corporation (hereinafter, "DHB Delaware"), filed with the Delaware Secretary of State on or about September 1, 1994 Note 2 3.6 By-laws of DHB Delaware Note 2 3.7 Plan of merger of DHB-New York into DHB-Delaware Note 2 3.8 Certificate of Ownership and Merger, Merging DHB-New York into DHB-Delaware, pursuant to Section 253 of the General Corporation Law of the State of Delaware, filed in the Office of the Secretary of State of Delaware on or about April 17, 1995 Note 2 4.1 Specimen Common Stock Certificate Note 1 4.2 Specimen Class A Preferred Stock Certificate Note 1 4.3 Form of Warrant Agreement with respect to the Redeemable Warrant together with list of purchasers Note 1 5.1 Combined Opinion and Consent of the Law Offices of D. David Cohen Note 10 7.1 Opinion regarding Liquidation Preference Note 1 10.1 Employment Agreement dated November 6, 1992 between Protective Apparel Corporation of America and Leonard Rosen Note 1 10.2 Lease dated November 6, 1992, between Protective Apparel Corporation of America and Leonard Rosen in Norris, Tennessee Note 1 10.3 Domestic and International Non-Competition Agreement dated March 12, 1990 between the Company and American Body Armor & Equipment, Inc. (the "American Body Armor Non-competition Agreement") Note 1 Exhibit Description - ------- ----------- 10.4 GSA Contracts dated January 21, 1991 and March 19, 1992 Note 1 10.5 Indemnification Agreements between certain officers of E.S.C. Industries, Inc., Protective Apparel Corporation of America and the Company regarding Certain Liabilities in Connection with the Acquisition of Protective Apparel Corporation of America Note 1 10.6 Warrant to purchase 2,000,000 shares of common stock of The Thunder Group, Inc. Note 1 10.7 Registration Rights Agreement between the Company and the Thunder Group, Inc. Note 1 10.8 Loan Agreement dated November 6, 1992, between the Company and E.S.C. Industries, Inc. Note 1 10.9 Security Agreement dated November 6, 1992 of TL Fasteners Corp. Note 1 10.10 Promissory Note between the Company and David Brooks dated November 6, 1992 Note 1 10.11 Loan and Security between the Company and Protective Apparel Corporation of American dated December 7, 1992 Note 1 10.12 Chase Manhattan Bank, N.A. ("Chase") Loan dated November 24, 1992 Note 1 10.13 Form of Registration Rights Agreement between the Company and participants in the Company's private placement Note 1 10.14 Form of Unit Purchase Option Note 1 10.15 Agreement between the Company, Jeffrey Brooks Securities, Inc., Jeffrey Brooks, Paul Kazak and Jason Chang dated September 13, 1993 Note 3 10.16 Agreement between the Company, Jeffrey Brooks Securities, Inc., Jeffrey Brooks, Paul Kazak and Jason Chang dated September 17, 1993 Note 3 10.17 Promissory note, general security agreement and related loan documents dated September 15, 1993 between the Company, PACA and Chase Note 4 10.18 Subscription agreement dated March 17, 1994 (the "ID Subscription Agreement"), between the Company and Intelligent Data Corporation, a Nevada corporation ("ID"), regarding the purchase by the Company of shares of the common stock and preferred stock of ED Note 5 10.19 Amendment dated March 30, 1994, of the ID Subscription Agreement Note 5 10.20 Shareholders' agreement dated March 17, 1994, among the Company, ID, and shareholders of ID Note 5 10.21 Employment agreement dated March 17, 1994, between ID and Sam Balabon, including written termination thereof Note 5 10.22 Bill of sale dated December 20, 1994, made by N.D.L. Products, Inc., a Delaware corporation, and its subsidiaries, N.D.L. International, Inc., Dr. Bonesavers, Inc., Grid, Inc., Hitman, Inc., and Flex-Aid, Inc., each being a Florida corporation, to DHB Acquisition, Inc., covering the NDL Assets Note 6 Exhibit Description - ------- ----------- 10.23 Order Determining Successful Bidder, etc., dated December 20, 1994, In Re N.D.L. Products, Debtor, of the United States Bankruptcy Court, Southern District of Florida, Case No. 9421458-BKC-RBR, Chapter 11 (Lead Case), jointly administered with Case Nos. 94- 21459 through 94-21463 Note 6 10.24 Term loan to the Registrant in the amount of $1,150,000 due September 19, 1995, from The Chase Manhattan Bank, N.A., of New York, New York (the "Secured Lender"), bearing interest at 7.2% per year Note 7 10.25 Collateral Agreement [Third Party] dated October 18, 1994, made by Mr. David H. Brooks in favor of the Secured Lender Note 7 10.26 Agreement dated August 4, 1995, terminating the American Body Armor Non-Competition Agreement Note 9 10.27 Bill of sale dated August 3, 1995, made by the Trustee in Bankruptcy of Point Blank Body Armor, L.P. Note 8 10.28 Order Authorizing Sale at Auction dated July 25, 1995, In Re Point Blank Body Armor, L.P., Debtor, of the United States Bankruptcy Court, Eastern District of New York, Case Nos. 895-83336-2D and 895-83335-2D Note 8 10.29 1995 Stock Option Plan Note 9 10.30 Stock Purchase Agreement with respect to the outstanding capital stock of Orthopedic Products, Inc., dated as of March 22, 1996 Note 11 10.31 Definitive Merger Agreement with the Lehigh Group Inc. and agreement and plan of reorganization 24.1 Consent of the Law Offices of D. David Cohen (included in opinion filed as Exhibit 5.1) Note 10 24.2 Consent of Capraro, Centofranchi, Kramer & Co., P.C., independent auditors, regarding Amendment No. 9 of the Registration Statement. Page II-7 24.3 Consent of Jay Howard Linn, C.P.A., independent auditor, regarding Amendment No. 9 of the Registration Statement Page II-8 24.4 Consent of BDO Seidman, LLP, independent auditors, regarding Amendment No. 9 of the Registration Statement
Notes to Exhibits Table: 1. Incorporated by reference to the Company's Registration Statement on Form SB-2, No. 33- 59764, which became effective on May 14, 1993. 2. Incorporated by reference to the Company's Definitive Proxy Material filed with the Commission in connection with the Special Meeting in Lieu of Annual Meeting of Shareholders of the Company held on February 15, 1995. 3. Incorporated by reference to the Company's Registration Statement on Form SB-2, No. 33- 70678, which became effective on December 29, 1993. 4. Incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the quarter ended June 30, 1993. 5. Incorporated by reference to Post-Effective Amendment No. 1 of the Company's two Registration Statements on Form SB-2, Nos. 33-59764 and 33-70678, which became effective on October 17, 1994. 6. Incorporated by reference to the Current Report on Form 8-K dated December 20, 1994. 7. Incorporated by reference to Amendment No. 1 dated March 2, 1995, of the Current Report on Form 8-K dated December 20, 1994. 8. Incorporated by reference to the Current Report on Form 8-K dated August 3, 1995. 9. Incorporated by reference to Registration Statement on Form S-8 filed on or about October 1, 1995. 10. Filed with Amendment No. 2 of the Registration Statement. 11. Incorporated by reference to the Current Report on Form 8-K dated March 22, 1996, including the amendments thereof. Item. 28 Undertakings. The Company hereby undertakes as follows: 1. The Company shall file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (a) include any prospectus required by section 10(a)(3) of the Securities Act; (b) reflect in the prospectus any facts or events which individually or together, represent fundamental change in the information in the registration statement; and notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of the Registration Fee" table in the effective registration statement; (c) include any additional or changed material information on the plan of distribution. 2. The Company shall, for determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. 3. The Company shall file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. 4. (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the company 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. (b) If a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company 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 Company 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 of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of the issue. SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and has authorized this amendment of its registration statement (No. 33-96846) to be signed on its behalf by the undersigned, thereunto duly authorized, in Old Westbury, New York, on September 3, 1996. Dated: September 3, 1996 DHB CAPITAL GROUP INC. /S/ David Brooks Chairman of the Board Pursuant to the requirements of the Securities Act of 1933, this amendment of the registration statement has been signed by the following persons in capacities and at the dates indicated: Signature Capacity Date - --------- -------- ---- /S/ DAVID BROOKS Chairman of the Board September 3, 1996 /S/ MARY KREIDELL Chief Financial Officer September 3, 1996 /S/ MELVIN PAIKOFF Director September 3, 1996 /S/ GARY NADLEMAN Director September 3, 1996 EX-10.31 2 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 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. 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. 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 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 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) 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. (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 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. (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 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. (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; (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. (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 (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 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 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. 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 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 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. 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 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 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. 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 (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. 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 EX-23 3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm, Capraro, Centofranchi, Kramer & Co., P.C., under the caption "Experts," and to the use of our report dated March 14, 1996, on the 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 (deficit) and cash flows for the years ended December 31, 1995 and 1994, in its Registration Statement on Form SB-2 dated September 3, 1996, and the related Prospectus. / S / Capraro, Centofranchi, Kramer & Co., P.C. South Huntington, New York September 3, 1996 CONSENT OF INDEPENDENT AUDITORS I consent to the reference to my firm, Jay Howard Linn, Certified Public Accountant, under the caption "Expert," and to the use of my report dated April 25, 1996, on the balance sheet of Orthopedic Products, Inc., as of September 30, 1995 and 1994, and the related statements of operations and retained earnings and cash flows for the years ended September 30, 1995 and 1994, in its Registration Statement on Form SB-2 dated September 3, 1996, and the related Prospectus. / S / Jay Howard Linn Bay Harbor Islands, Florida September 3, 1996 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated March 4, 1996, except as to Note 3 which is as of March 28, 1996, relating to the consolidated financial statements and schedule of The Lehigh Group, Inc. and Subsidiaries, which is contained in this Prospectus, and Part II of the Registration Statement. We also consent to the reference to us under the caption "Experts" in the Prospectus. /S/ BDO Seidman, LLP New York, New York September 3, 1996 -----END PRIVACY-ENHANCED MESSAGE-----