-----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, I54r/cxyuJfLJnlHMQlQL4WJOBORu1LWeLOft35lsrT+RVReRp1kwMEKnZL7x16m DV7oyUxK/6zQJn7Prb3ZCQ== 0001092306-04-000158.txt : 20040316 0001092306-04-000158.hdr.sgml : 20040316 20040316172659 ACCESSION NUMBER: 0001092306-04-000158 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DHB INDUSTRIES INC CENTRAL INDEX KEY: 0000899166 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 113129361 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13112 FILM NUMBER: 04673568 BUSINESS ADDRESS: STREET 1: 555 WESTBURY AVE CITY: CARLE PLACE STATE: NY ZIP: 11514 BUSINESS PHONE: 5169971155 MAIL ADDRESS: STREET 1: 555 WESTBURY AVE CITY: CARLE PLACE STATE: NY ZIP: 11514 FORMER COMPANY: FORMER CONFORMED NAME: DHB CAPITAL GROUP INC /DE/ DATE OF NAME CHANGE: 19960518 10-K 1 dhbform10k.txt FORM 10-K FISCAL YEAR ENDED DECEMBER 31, 2003 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_______ to________ Commission File No. 01-13112 DHB INDUSTRIES, INC. _______________________________ (Name of issuer in its charter) DELAWARE 11-3129361 ____________________________ ___________________ (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) 400 POST AVE SUITE 303, WESTBURY, NEW YORK 11590 ________________________________________________ (Address of principal executive offices) Issuer's telephone number: (516) 997-1155 Securities registered under Section 12(b) of the Exchange Act: COMMON STOCK, $0.001 PAR VALUE (Title of Class) Securities registered under Section 12(g) of the Exchange Act: None Indicate by check mark whether the issuer (1) has filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in the definitive proxy or information statements incorporated by Reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ X]No [ ] . Aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock sold, or the average bid and asked price of such stock, as of March 1, 2004: $198,055,855. Number of shares outstanding of the issuer's common equity, as of March 1, 2004 (Exclusive of securities convertible into common equity): 40,742,136 DOCUMENTS INCORPORATED BY REFERENCE: None 1 PART I ITEM 1. BUSINESS GENERAL DHB Industries, Inc., a Delaware corporation, was organized in 1992 ("DHB" or the "Company") and, is a holding company comprised of two divisions: DHB Armor Group ("Armor Group") and DHB Sports Group ("Sports Group"). The Armor Group consists of Point Blank Body Armor, Inc. ("Point Blank") and Protective Apparel Corporation of America ("PACA"). DHB Armor Group develops, manufactures and distributes bullet and projectile-resistant garments, bullet-resistant and fragmentation vests, and related ballistic accessories. The Sports Group, which consists of NDL Products, Inc. ("NDL"), manufactures and distributes protective athletic apparel and equipment, including elbow, breast, hip, groin, knee, shin and ankle supports and braces, as well as a line of therapy products. The Armor Group represented approximately 97%, 96% and 95% of consolidated revenues of the Company during 2003, 2002 and 2001, respectively. The Company's executive offices are located at 400 Post Avenue, Suite 303, Westbury, New York 11590 and its telephone number is 516-997-1155. The Company's website is www.dhbindustries.com. The Company's manufacturing facilities are located in Oakland Park and Deerfield Beach, Florida and Jacksboro, Tennessee. As announced in December 2003, the Company plans to add a new 104,000 square foot manufacturing facility in Pompano Beach, Florida during the second quarter of 2004. The Company also has a sales office in Alexandria, Virginia. The Company reincorporated in Delaware in 1995 and changed its name from DHB Capital Group Inc. to DHB Industries, Inc. in July 2001. The Company's common stock trades on the American Stock Exchange where it began trading on February 1, 2002 under the ticker symbol "DHB". DHB ARMOR GROUP OVERVIEW In 2003, DHB recorded the most successful year in the 11-year history of the Company. DHB posted record operating results, as operating income in 2003 increased 88% to a record $26,016,000 as compared to $13,823,000 for 2002. Additionally, when comparing income available to common stockholders for 2003 with 2002, it is worth noting that income available to common stockholders in 2003 was fully taxed at 42%, whereas 2002 income available to common stockholders actually was increased due to a $3.7 million tax benefit. DHB's Armor Group continues to expand upon its position as the dominant leader in the US protective body armor industry. Point Blank and PACA brands are considered by many to be among the finest body armor products in the world. The market for its products domestically continues to grow and the Company is encountering a greater demand for its products in the international markets. Sales to the United States Department of Defense more than doubled in 2003 while sales to state and local law enforcement agencies grew by 61%. The Company is currently providing the majority of Outer Tactical Vests ("OTVs") to the US military. Its Interceptor OTV has been credited with saving the lives of numerous US soldiers that have served in Iraq and Afghanistan. In November 2003, the Company announced that it received a $60 million purchase order from the U.S. Department of Defense for Point Blank's "Interceptor" Outer Tactical Vest (OTV). The Company believes this is the largest single order for body armor ever issued by the U.S. Department of Defense. The Company's backlog of firm orders as of March 1, 2004 is approximately $132 million, up from approximately $57 million at the same point last year. PRODUCTS AND MARKETS. The Armor Group principally manufactures three types of body armor: concealable armor, which is worn beneath the user's clothing and is designed to protect against less serious ballistic threats; tactical armor, which is worn externally and is designed to protect against more 2 and modular concealable / tactical armor, which allows the wearer to customize the armor for either concealed or tactical use. The Armor Group's products are sold to state and local agencies predominantly through a network of distributors. Products are also sold directly by the Armor Group to federal and military. All Armor Group products are manufactured and tested to the applicable National Institute of Justice ("NIJ") standards and/or military specifications. The Armor Group's contract with the U.S. Department of Defense to manufacture and supply "Interceptor" OTVs continues to expand and is integral to the Company's continued growth and success. The Interceptor was designed as a continually upgradeable modular, soft body armor system for the U.S. military. The Armor Group has now delivered over 550,000 Interceptors to the U.S. Marine Corps, U.S. Army, and U.S. Air Force. The Interceptor was worn by American service men and women in both Operations Iraqi Freedom and Enduring Freedom and is credited with saving the lives of U.S. military personnel in both operations. The Armor Group has developed and received military approval for a total of 5 ballistic models of the Interceptor and provides different models to different branches of the U.S. military. Through this diversification of the Interceptor ballistic armor packages, the Armor Group has been able to deliver the Interceptor at a much higher rate of production and overcome ballistic fiber shortages. In addition to the Interceptor, the Armor Group manufactures a number of other protective armor systems for military use. Fragmentation armor, such as the Combat Vehicle Crewman from Point Blank and the Warfighter from PACA, is designed to military specifications and offers protection against materials and velocities associated with the fragmentation of explosive devices such as grenades, mortars, artillery shells and ballistic projectiles. During 2003, the Armor Group delivered the P3ICE Countermine Ensemble for the U.S. Army Countermine program. During the fourth quarter, the Armor Group also completed first article requirements for the Combat Vehicle Crewman ("CVC") Program and began to deliver the first quantities to the military depots. During 2003, the Armor Group increased the sales of its tactical body armor to law enforcement and federal government communities throughout the U.S. It also continued to offer department-specific modifications to standard products, resulting in the development of the BAT Vest, the Light Assault Vest, and the Warfighter. By providing customized tactical armor, the Armor Group was able to increase its market share specifically in the tactical market in both the law enforcement and the federal government communities. The Armor Group developed in 2003 an extensive ballistic fragmentation blanket program to address the need for protection against fragmentation during military troop movements in convoys and during ambushes. This enabled the U.S. military to respond quickly to these threats and provide its service men and women with additional protection. This product has been well received, and the volume of sales has increased during the fourth quarter of 2003 and the first quarter of 2004. The Armor Group's extensive lines of body armor products also include tactical police jackets, military field jackets, executive vests, K-9 protection, fragmentation and close-quarter-battle systems. During 2003, the Armor Group's government and international liaison office located in the Crystal City complex, within close proximity to the Pentagon in Washington, D.C., developed special accounts with customized products available for immediate delivery for the military, domestic and 3 international law enforcement communities. This office provides an optimal support for our efforts to grow our sales in the federal, military and international markets. In addition, the Armor Group's government and international office is working to build relationships with various international and government customers. RAW MATERIALS AND MANUFACTURING. The Armor Group manufactures all of its bullet, fragmentation and projectile-resistant products. Research and development efforts are designed to ensure that the raw materials are combined to suit particular applications. The primary woven fabrics used in the manufacture of the ballistic-resistant products include Kevlar(TM), Twaron(TM), Zylon(TM). Primary shield products include GoldFlex(TM), Dyneema(TM) and Spectra Flex(TM). Substantially all of the raw materials used in the manufacturing of ballistic-resistant garments are made from fabrics, which are patented by major corporations and purchased from four independent weaving or manufacturing companies. If any of the manufacturers ceases to produce these products for any reason, an alternative fabric would have to be selected and ballistic tests would need to be performed. Until this was done, the Company's sale of ballistic resistant products would be severely curtailed and the Company's financial condition would be materially adversely affected. If any of these manufacturers cease to produce these fabrics, there can be no assurance that the Company will be able to identify alternate fabrics with comparable performance. In an attempt to neutralize the possibility that the Company will be unable to obtain sufficient raw materials to produce its products in the quantities demanded by its customers, the Armor Group has cross-certified several product lines using competitive raw materials. This has given the Armor Group the ability to largely overcome the shortfall of raw materials and continue to meet all customer needs. RESEARCH AND DEVELOPMENT. The Armor Group's internal employee research and development team has combined 100+ years of ballistic research and development experience, including more than 40 years of experience in an NIJ certification environment. Many of the Company's research and development personnel previously held positions of responsibility with other companies within the industry. Research and development expenses are included in selling, general and administrative expenses as incurred and for the years ended December 31, 2003, 2002 and 2001 were $10.8 million, $4.2 million and $2.3 million, respectively. PATENTS AND TRADEMARKS. The Company holds numerous patents and trademarks registered in the United States for various products. A number of these patents are of considerable value and are believed to be critical to the Company's business. During 2003, no challenges to our patents and trademarks have arisen and the Company has no reason to believe that any such challenge will arise in the future. The Company has numerous patents pending for unique, futuristic protective armor designs and integrated technologies, and was issued eight additional trademarks during 2003. Two of the patents pending were granted full patent status during the fourth quarter of 2003 and the first quarter of 2004. CUSTOMERS. The Armor Group's products are sold domestically to U.S. military, to United States law enforcement agencies, corrections and distributors and are sold internationally to governments and distributors. Sales to the U.S. military directly or as a subcontractor accounted for 63%, 57% and 62% of the Armor Group's revenues for the years ended December 31, 2003, 2002 and 2001, respectively. Sales directly and indirectly to domestic state and local law enforcement agencies, security and intelligence agencies, and federal and state correctional facilities, accounted for 22%, 26% and 22%, of the Armor Group's revenues in the years ended December 31, 2003, 2002 and 2001, respectively. 4 Certain sales by the Armor Group to federal agencies are made pursuant to standard purchasing contracts of a type issued by the General Services Administration ("GSA") that is commonly referred to as a "GSA Schedule". GSA Schedule contracts accounted for approximately 60%, 16%, and 14% of the Armor Group's sales for the years ended December 31, 2003, 2002 and 2001, respectively. The Armor Group's current GSA contracts expire on July 31, 2006. With the exception of the U.S. Government, no customer accounted for 10% or more of the Company's revenues in 2003, 2002 and 2001. MARKETING AND DISTRIBUTION. The Armor Group employs 20 customer support representatives and 15 sales representatives under the direction of 5 sales managers. These personnel are responsible for marketing the Armor Group's products to federal, state and local law enforcement agencies in the United States. Sales to such law enforcement agencies are made primarily through distributorships established by the sales team. However, in areas in which there are no suitable distributors, the Armor Group fills orders directly. GOVERNMENT AND INDUSTRY REGULATIONS AND STANDARDS. Bullet and fragmentation 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 specify certain standards of performance, such as NIJ standards for bullet-resistant vests in several categories. In addition, the NIJ has established a voluntary standard for testing stab-resistant armor. The Armor Group regularly submits its vests to independent laboratories for testing under these standards. COMPETITION. The ballistic-resistant garment business is highly competitive and fragmented. The Company estimates the number of United States manufacturers are approximately 20. Since there are no published reports concerning the market, and most companies are privately held, management is unable to estimate the size of the market. Nevertheless, the Company believes that the Armor Group is the largest manufacturer of ballistic-resistant garments in the United States. The Armor Group believes that the principal elements of competition in the sale of ballistic-resistant garments are on time delivery, quality products and customer service. The Company believes that the Armor Group enjoys a favorable reputation in the industry with over 30 years of supplying federal, state and municipal governments and agencies. BACKLOG. As of March 1, 2004, the Armor Group had a backlog of approximately $132 million. Backlog at any one date is not a reliable indicator of future sales. In addition to its backlog, the Armor Group often receives contract awards for municipal orders that may be extended over a period of time. The actual dollar amount of products to be delivered pursuant to these and similar contracts cannot be accurately predicted and is generally excluded from reported backlog. POTENTIAL PRODUCT LIABILITY. The products manufactured or distributed by the Armor Group are used as protective devices in situations that could result in serious injuries or death, including injuries that may result from the failure of such products. The Armor Group maintains product liability insurance for PACA and Point Blank in the amount of $21,000,000 each per occurrence, and $22,000,000 in the aggregate, less a deductible of $100,000 for each company. Point Blank International, the Company's foreign sales arm, maintains product 5 liability insurance in the amount of $2,000,000 for each occurrence, with a $5,000 deductible. 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 Point Blank, PACA and Point Blank International would be able to obtain such insurance at a reasonable cost. Any substantial uninsured loss would have to be paid out of the subject subsidiary'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. The inability to obtain product liability coverage may prohibit Point Blank, PACA or Point Blank International in the future from bidding for orders from certain governmental customers. Many governmental agencies currently require such insurance coverage, and any such inability to bid for government contracts as a result of insufficient insurance coverage would have a materially adverse effect on the Company's financial condition and results of operations on a consolidated basis. EMPLOYEES. As of March 1, 2004, the Armor Group employed approximately 675 full-time employees. There was one operating officer, 32 employees in supervisory capacities, 541 employees in manufacturing, shipping and warehousing, 13 employees in quality control, 38 employees in customer service and sales, 6 employees in technical/research development, and 44 employees in office and administration. In the opinion of management, the Armor Group maintains a satisfactory relationship with its employees. DHB SPORTS GROUP PRODUCTS AND MARKETS. The Sports Group, which consists of NDL Products, Inc.("NDL") manufactures and distributes protective apparel and equipment, including elbow, breast, hip, groin, knee, shin and ankle supports and braces, as well as line of therapy products. The Sports Group also offers private label or house brand programs to major retailers and large wholesalers along with specific OEM programs to outside brands that service the same markets. Currently, the Sports Group manufactures and markets products under the brands NDL(TM), GRID(TM), MagneSystems(TM), FLEX-AID(TM), and Doctor Bone Savers(TM). The Sports Group markets its product to a variety of distribution points with an emphasis on major retailers. The Sports Group's various brands are offered to the customer by mass merchandisers, chain drug stores, food chains, independent sporting goods and pharmacy retailers, catalog sellers, wholesalers and e-commerce websites. The Sports Group customer list includes retail and wholesale establishments such as Wal-Mart, Target, Meijer and Longs Drug Stores. Two customers, Wal-Mart and Target, collectively accounted for 68%, 61% and 61% of the Sports Group's revenues for the years ended December 31, 2003, 2002 and 2001, respectively. The Sports Group has negotiated private label programs with three of the major wholesalers to the retail trade: Amerisource, Cardinal Health and CDMA. These wholesalers currently service their 10,000 store networks with their Brite Life(TM), Leader(TM) and Quality Choice Brands(TM) of health support products. The Sports Group is a member of NACDS (National Association of Chain Drug Stores), and PLMA (Private Label Manufacturers Association). POTENTIAL PRODUCT LIABILITY. The products manufactured or distributed by the Sports Group are used as protective devices in situations that could result in serious injuries or death, including injuries that may result from the failure of such products. The Sports Group maintains product liability insurance 6 in the amount of $21,000,000 per occurrence, and $22,000,000 in the aggregate, less a deductible of $100,000. 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 the Sports Group would be able to obtain such insurance at a reasonable cost. Any substantial uninsured loss would have to be paid out of the Sports Group's assets and may have a material adverse effect on the Company's financial condition and results of operations on a consolidated basis. EMPLOYEES. As of December 31, 2003 the Sports Group employed approximately 105 full-time employees. There was one officer, 4 employees in supervisory capacities, 92 employees in manufacturing, shipping and warehousing, 2 employees in sales and customer service, and 6 employees in office support. All of the Sports Group's employees are employed full-time. In the opinion of management, the Sports Group's relationship with its employees is satisfactory. The Sports Group also has more than 50 independent sales representatives who, together with the sales executives, are responsible for sales throughout the United States, Western Europe, Asia, the Middle East and Latin America. The Sports Group has in-house sales support and state-of-the-art EDI order and invoicing capabilities. SEGMENT INFORMATION As described in detail above, the Company operates in two principal segments: ballistic-resistant equipment and protective athletic and sports products. Financial information on the Company's business segments (in thousands) is as follows:
2003 2002 2001 ________ ________ _______ NET SALES Ballistic-resistant equipment $224,152 $124,860 $93,506 Protective athletic & sports products 5,859 5,492 4,520 ________ ________ _______ 230,011 130,352 98,026 Less inter-segment sales -- (5) (11) ________ ________ _______ Consolidated net sales $230,011 $130,347 $98,015 ======== ======== ======= INCOME FROM OPERATIONS Ballistic-resistant equipment $ 33,618 $ 17,534 $15,029 Protective athletic & sports products 426 563 94 Corporate and other (1) (8,028) (4,274) (2,344) ________ ________ _______ Consolidated operating from operations $ 26,016 $ 13,823 $12,779 ======== ======== ======= DEPRECIATION AND AMORTIZATION EXPENSE Ballistic-resistant equipment $ 350 $ 289 $ 223 Protective athletic & sports products 64 86 157 ________ ________ _______ 414 375 380 Corporate and other 150 88 98 ________ ________ _______ Consolidated depreciation and amortization expense $ 564 $ 463 $ 478 ======== ======== ======= 7 2003 2002 2001 ________ ________ _______ INTEREST EXPENSE Ballistic-resistant equipment $ 1,238 $ 935 $ 463 Protective athletic & sports products -- -- 77 ________ ________ _______ 1,238 935 540 Corporate and other (2) 106 710 1,973 ________ ________ _______ Consolidated interest expense $ 1,344 $ 1,645 $ 2,513 ======== ======== ======= INCOME TAXES (BENEFIT) Ballistic-resistant equipment $ 14,341 $ 22 $ 143 Protective athletic & sports products 182 2 -- ________ ________ _______ 14,523 24 143 Corporate and other (2) (3,425) (3,696) 32 ________ ________ _______ Consolidated tax (benefit) expense $ 11,098 $ (3,672) $ 175 ======== ======== ======= IDENTIFIABLE ASSETS Ballistic-resistant equipment $ 88,503 $ 56,471 Protective athletic & sports products 3,186 2,907 ________ ________ 91,689 59,378 Corporate and other (2) 1,739 5,993 ________ ________ Consolidated assets $ 93,428 $ 65,371 ======== ======== Foreign sales accounted for 1%, 2% and 2% of the total revenues for the years ended December 31, 2003, 2002 and 2001, respectively. Foreign identifiable assets accounted for 0%, 1% and 1% of the total assets at December 31, 2003, 2002 and 2001, respectively. (1) Corporate and other includes corporate general and administrative expenses. (2) Corporate assets are principally deferred income tax assets and property and equipment.
AVAILABLE INFORMATION The Company's Internet address/website is www.dhbindustries.com. As of the date of this Annual Report on Form 10-K, the Company makes available free of charge on its website materials filed or furnished by the Company under the Securities Exchange Act of 1934 as soon as reasonably practicable after such materials are filed with or furnished to the Securities and Exchange Commission. The Company will voluntarily provide electronic copies (or a reasonable number of paper copies) of its filings free of charge upon request. ITEM 2. PROPERTIES CORPORATE HEADQUARTERS. In February 2004, the Company relocated its corporate headquarters to a 3,952 square foot leased office located at 400 Post Avenue Suite 303, Westbury, New York. The lease expires on February 28, 2010. 8 PACA. The Company leases a 60,060 square foot manufacturing facility with administrative offices at 179 Mine Lane, Jacksboro, Tennessee 37757, for its subsidiary, PACA. The lease expires on April 15, 2006. NDL/POINT BLANK FACILITY. Point Blank leases a 67,000 square foot office and manufacturing facility (the "Oakland Park Facility") located at 4031 N.E. 12th Terrace, Oakland Park, Florida 33334, from V.A.E. Enterprises LLC ("V.A.E."), a limited liability company controlled by Mrs. Terry Brooks, wife of Mr. David H. Brooks, and beneficially owned by Mr. and Mrs. Brooks' minor children. NDL Products occupies a portion of the space in the Oakland Park facility. The lease expires on December 31, 2010. Management believes that the terms of the lease are no less favorable to the Company than terms that would have been obtained at the time of the lease from an unrelated third party. POINT BLANK-MILITARY FACILITY. In January 2003, the Company leased a 51,246 square foot manufacturing facility with administrative offices in Deerfield Beach, Florida, to expand Point Blank's military production. The lease expires on April 30, 2008. POINT BLANK-ADDITIONAL FACILITY. In December 2003, the Company leased a new 104,000 square foot manufacturing facility with administrative offices in Pompano Beach, Florida, to expand Point Blank's production. The lease expires on April 30, 2014. NDL WAREHOUSE. On October 1, 2002, the Company entered into a two-year lease for a 31,500 square foot warehouse adjacent to the Oakland Park Facility from an unrelated third party. This warehouse is located at 1201 NE 38th Street, Oakland Park, Florida. DC OFFICE. In May 2002, the Company opened a 2,192 square foot government and international liaison sales office at 1215 Jefferson Davis Highway, Arlington, Virginia. The lease expires on April 30, 2006. POINT BLANK INTERNATIONAL FACILITY. Point Blank International leases a 5,700 square foot office and warehouse facility located at Rue Leon Frederiq, 14, 4020 Liege, Belgium. This space is rented on a month-to-month basis. ITEM 3. LEGAL PROCEEDINGS The Company filed a lawsuit in the Supreme Court of the State of New York, County of Nassau, against its insurance carrier and an insurance agent, for negligence and breach of fiduciary duties as a result of the damages the Company incurred during Hurricane Irene in October 1999. During 2003, the Company entered into settlement agreements with its insurance agent and insurance carrier for a total payment of $1,009,000 to the Company, net of legal fees, which is included in the financial statements for the year ended December 31, 2003 in other income. On October 1, 2002, a shareholders' derivative action was commenced in the Supreme Court of the State of New York, County of Nassau, against the directors and officers of the Company and the Company as a nominal defendant, by Plumbers & Pipefitters Local 112 Pension Fund, derivatively on behalf of itself and all others similarly situated for breach of fiduciary duty, abuse of control and constructive fraud and is seeking an unspecified amount in damages. This case was dismissed with prejudice on March 13, 2003, without liability to the Company or its officers or directors. The Company is seeking dismissal of another suit brought on behalf of a second 9 shareholder on similar grounds. The Company maintains $10 million of directors and officers' liability insurance covering this type of claim. On or about October 30, 2002, the Company filed a lawsuit in the United States District Court for the Southern District of Florida against certain union leaders, claiming defamation, conspiracy to defame and tortious interference with contractual and ongoing business relationships. The case is still in its preliminary stages. The Company is currently the subject of an investigation by the Securities and Exchange Commission with respect to certain related party transactions between the Company and affiliates of Mr. David H. Brooks (the Company's Chief Executive Officer) (See Item 13 - Certain Relationships and Related Transactions"). The Company is cooperating with the SEC in this investigation, and the Audit Committee of the Company's Board of Directors has retained an independent forensic accounting firm to conduct an independent investigation with respect to these matters. In addition, the Audit Committee expects to continue periodically to monitor the status and performance of the related party transactions, to assess the relative benefits to the Company, and the related party's compliance with its contractual obligations. The Company is involved in other litigation, none of which is considered by management to be material to the Company's business or would, if adversely determined, have a material adverse effect on the Company's financial condition or operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: No matter was submitted during the fourth quarter of the fiscal year covered by this Report to a vote of security holders which is required to be disclosed pursuant to the instructions contained in the form for this Report. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The common stock of the Company began trading on the American Stock Exchange on February 1, 2002 under the symbol DHB. Previously, the Company was trading on the OTC Bulletin Board under the symbol DHBT. The following table shows the high and low prices of the Company's common stock for each quarter in the two-year period ended December 31, 2003. LOW HIGH 2003 4th Quarter $3.87 $8.25 3rd Quarter 3.80 4.95 2nd Quarter 2.18 4.60 1st Quarter 1.35 2.70 2002 4th Quarter 1.27 2.33 3rd Quarter 1.69 4.69 2nd Quarter 4.05 7.24 1st Quarter 5.50 8.10 The Company pays cash dividends on its Series A, 12% convertible preferred stock (the "Preferred Stock"). The Preferred Stock has a dividend rate of $0.72 per share per annum, an amount equal to the interest that would have been payable on the shareholder indebtedness from which the Preferred Stock was converted (See "Certain Transactions" below). The Company has not paid any dividends on its common stock in the last three fiscal years. 10 The Company presently retains its income from earnings and anticipates that its future earnings will be retained to finance the expansion of its business. Any determination to pay cash dividends on the Company's common stock in the future will be at the discretion of the Board of Directors after taking into account various factors, including financial condition, results of operations, current and anticipated cash needs, and restrictions, if any, under the Company's credit agreements. The Company's current credit facility prohibits the payment of dividends on the Company's common stock without the lender's prior written consent. On March 1, 2004, there were 117 holders of record of the Company's common stock. However, the number of holders of record includes brokers and other depositories for the accounts of others. The Company estimates that as of that date, there were approximately 5,300 beneficial owners of its common stock. In 2003, the Company issued 248,390 unregistered shares of common stock pursuant to the exercise of warrants, for which the Company received aggregate proceeds of approximately $426,555. The Company also issued 80,000 shares of unregistered common stock for services. In addition, the Company issued to the then current directors a total of 250,000 unregistered five-year common stock purchase warrants exercisable at $1.41 per share. In May 2003, the Company issued 15,000 shares of unregistered common stock to a salesman pursuant to his employment contract. In July 2003, the Company issued 50,000 unregistered five-year common stock purchase warrants exercisable at $4.33 per share to the newest independent board member. Also during 2003, the Company issued to key employees 35,000 and 33,000 unregistered five-year common stock purchase warrants exercisable at $2.01 and $3.85 per share, respectively. See "Executive Compensation-Stock Warrants" below. Also during 2003, the Company issued and subsequently canceled 10,000 warrants to an employee. On January 14, 2002, the principal stockholder of the Company exchanged $3 million of the indebtedness due him for 500,000 shares of Series A, 12% Convertible Preferred Stock. The Series A, 12% Convertible Preferred Stock has a dividend rate of $0.72 per share per annum, an amount equal to the interest that would have been payable on the exchanged indebtedness. Shares of the Series A, 12% Convertible Preferred Stock are convertible, on a one-to-one basis, at the option of the holder, into shares of common stock. The shares of Series A, 12% Convertible Preferred Stock are redeemable at the option of the Company on December 15 of each year. In 2002, the Company issued 8,931,832 unregistered shares of common stock pursuant to the exercise of warrants, for which the Company received aggregate proceeds of approximately $6,324,000; 5,593,751 of such shares were issued to Mr. and Mrs. David H. Brooks pursuant to "cashless exercises". The Company also issued 275,000 unregistered common stock purchase warrants to its investor relations firm; these warrants have an exercise price of $4.95 per share and expire on June 4, 2006. In addition, the Company issued to directors and executive officers a total of 200,000 unregistered five-year common stock purchase warrants exercisable at $7.11 per share. Also during 2002, the Company issued and canceled 150,000 warrants to an employee. In 2001, the Company issued 111,000 unregistered shares of common stock for services to attorneys, consultants and other service providers; the aggregate value of the services rendered for these issuances was $355,230. In September 2001, the Company sold 225,000 shares of unregistered common stock in a private placement to companies (accredited investors) affiliated with Morton Cohen, then a director of the Company, for proceeds of $506,250. In December 2001, a private investor exercised a warrant for 150,000 shares of unregistered common stock at $3.00 per share, for total proceeds to the Company of $450,000. All of the aforementioned issuances of unregistered securities were made by the Company pursuant to and in reliance upon Section 4(2) of the Securities Act of 1933, relating to transactions not involving a public offering, and, in the case of the 2001 private placement, Regulation D promulgated under the Securities Act of 1933. 11 As of December 31, 2003, the Company had outstanding options/warrants, and shares available for future grants of options/warrants under its equity plan, as follows:
Equity Compensation Plan Information Number of securities remaining Number of securities to be Weighted-average available for future issuance issued upon exercise of exercise price of under equity compensation outstanding options, outstanding options, plans (excluding securities Plan category warrants and rights warrants and rights reflected in column (a)) _____________ __________________________ ____________________ ______________________________ (a) (b) (c) Equity compensation plans approved by security holders 5,123,000 $1.51 -0- Equity compensation plans not approved by security holders -0- -- -0- _________ __________ Total 5,123,000 -0-
ITEM 6. SELECTED FINANCIAL DATA THE INDEPENDENT AUDITOR'S REPORT OF GRANT THORNTON, LLP IS NOT ATTACHED TO THIS ANNUAL REPORT ON FORM 10-K BECAUSE THE CHANGE OF THE COMPANY'S ACCOUNTANTS IN AUGUST 2003 AND THE COMPANY'S IMPLEMENTATION OF ADDITIONAL DISCLOSURE CONTROLS AND PROCEDURES, EACH AS DISCLOSED IN THIS ANNUAL REPORT ON FORM 10-K, DELAYED CERTAIN ACCOUNTING DETERMINATIONS UNTIL VERY LATE IN THE AUDIT PROCESS, WHICH GAVE GRANT THORNTON, LLP INSUFFICIENT TIME TO COMPLETE ITS REVIEW OF THE ANNUAL REPORT ON FORM 10-K AND ISSUE ITS REPORT IN TIME TO INCLUDE ITS REPORT IN THE ANNUAL REPORT ON FORM 10-K. THE COMPANY INTENDS TO FILE GRANT THORNTON'S REPORT IN AN AMENDED ANNUAL REPORT ON FORM 10-K AS SOON AS IT IS RECEIVED. The selected consolidated financial data set forth below for the years ended December 31, 2003, 2002, 2001, 2000 and 1999, were derived from the audited consolidated financial statements of the Company. The data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related Notes appearing elsewhere in this Form 10-K.
INCOME STATEMENT DATA (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 2003 2002 2001 2000 1999 ________ ________ ________ ________ ________ Net sales $230,011 $130,347 $ 98,015 $ 70,018 $ 35,141 Cost of goods sold 166,670 92,621 71,639 49,359 27,566 ________ ________ ________ ________ ________ Gross profit 63,341 37,726 26,376 20,659 7,575 Selling, general and administrative expenses 37,325 23,903 13,597 12,460 17,446 ________ ________ ________ ________ ________ Income (loss) before other income (expense) 26,016 13,823 12,779 8,199 (9,871) Interest expense (1,344) (1,645) (2,513) (2,743) (2,908) Other income (expense) 1,605 130 42 341 (9,561) ________ ________ ________ ________ ________ Income (loss) before discontinued operations 26,277 12,308 10,308 5,797 (22,340) Discontinued operations -- -- -- 340 (9,714) ________ ________ ________ ________ ________ Income (loss) before income taxes 26,277 12,308 10,308 6,137 (32,054) Income tax (benefit) expense 11,098 (3,672) 175 130 67 ________ ________ ________ ________ ________ Income (loss) before minority interest 15,179 15,980 10,133 6,007 (32,121) Minority interest (7) -- -- -- -- ________ ________ ________ ________ ________ Net income (loss) 15,172 15,980 10,133 6,007 (32,121) Dividend - preferred stock (360) (345) -- -- -- ________ ________ ________ ________ ________ Income available to common stockholders $ 14,812 $ 15,635 $ 10,133 $ 6,007 $(32,121) ======== ======== ======== ======== ======== 12 Earnings per share Basic $ 0.36 $ 0.42 $ 0.32 $ 0.19 $ (1.24) Diluted $ 0.34 $ 0.37 $ 0.28 $ 0.18 $ (1.09) BALANCE SHEET DATA (IN THOUSANDS) 2003 2002 2001 2000 1999 ________ ________ ________ ________ ________ Working capital $ 66,822 $ 53,125 $ 20,472 $ 7,497 $ 2,047 Total assets 93,428 65,371 40,896 28,056 23,300 Total current liabilities 23,969 7,822 16,585 16,949 5,153 Long-term liabilities 22,514 26,204 19,305 16,062 16,280 Stockholders' equity (deficit) 46,738 31,345 5,006 (4,955) (10,186)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE INDEPENDENT AUDITOR'S REPORT OF GRANT THORNTON, LLP IS NOT ATTACHED TO THIS ANNUAL REPORT ON FORM 10-K BECAUSE THE CHANGE OF THE COMPANY'S ACCOUNTANTS IN AUGUST 2003 AND THE COMPANY'S IMPLEMENTATION OF ADDITIONAL DISCLOSURE CONTROLS AND PROCEDURES, EACH AS DISCLOSED IN THIS ANNUAL REPORT ON FORM 10-K, DELAYED CERTAIN ACCOUNTING DETERMINATIONS UNTIL VERY LATE IN THE AUDIT PROCESS, WHICH GAVE GRANT THORNTON, LLP INSUFFICIENT TIME TO COMPLETE ITS REVIEW OF THE ANNUAL REPORT ON FORM 10-K AND ISSUE ITS REPORT IN TIME TO INCLUDE ITS REPORT IN THE ANNUAL REPORT ON FORM 10-K. THE COMPANY INTENDS TO FILE GRANT THORNTON'S REPORT IN AN AMENDED ANNUAL REPORT ON FORM 10-K AS SOON AS IT IS RECEIVED. 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 Form 10-K. GENERAL The Company is a holding company, which currently conducts business through its wholly-owned subsidiaries through two divisions, the DHB Armor Group and the DHB Sports Group. The Armor Group represented approximately 97%, 96% and 95% of consolidated revenues of the Company during 2003, 2002 and 2001, respectively. The Company's products are sold both nationally and internationally. The Armor Group's sales are derived primarily from law enforcement agencies and military services. Sales to the U.S. military comprise the largest portion of the Armor Group's business, followed by sales to federal, state and local law enforcement agencies, including correctional facilities. Accordingly, any substantial increase or reduction in government spending or change in emphasis in defense and law enforcement programs could have a material effect on the Armor Group's business. The Sports Group manufactures and markets a variety of sports medicine, protective gear, health supports and magnetic therapy products under its own labels, private labels and house brands for major retailers. The Company derives substantially all of its revenues from sales of its products. As indicated in the financial information included in this report, the Company has experienced substantial increases in its revenues in the past several years, which has been attributable primarily to product demand from the U.S. military and federal, state and local law enforcement. The Company's ability to maintain these revenue levels will be highly dependent on continued demand for body armor and projectile-resistant clothing; and although the Company does not foresee an immediate material reduction in such demand, there is no assurance that governmental agencies will not refocus their expenditures based on changed circumstances or otherwise. Due to its growth, the Company has out grown its small business status under government procurement regulations. The Company is now recognized as having the ability to manage larger contracts. This allows the Company to competively bid on large procurements and maintain support of small businesses as subcontractors. 13 The Company's market share is highly dependent upon the quality of its products, and its ability to deliver its products in a prompt and timely fashion. To meet projected demand, and to maintain its ability to deliver quality products in a timely manner, the Company has recently entered into a long-term lease for a new, expanded production facility in Pompano Beach, Florida. However, there is no assurance that, in the long term, demand for the Company's products will remain at recent levels, or that the Company will be able to diversify into alternate markets or alternate products, or to increase its market share through acquisitions of other businesses. Management's current strategic focus is on quality and delivery, which management believes are the key elements in obtaining additional and repeat orders under to the Company's existing procurement contracts with the U.S. military and other governmental agencies. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002. Consolidated net sales for the year ended December 31, 2003 increased 76.5% to $230.0 million as compared to a $130.3 million for the prior comparable periods. The Armor Group's revenues increased 79.5% to $224.2 million for the year ended December 31, 2003 from approximately $124.9 million for the year ended December 31, 2002. This increase was attributable to a 103.3% increase in orders from the military as well as a 61.2% increase in sales to state and local law enforcement agencies. In recognition of the increased focus on homeland security and the war on terrorism, the number of officers and agents has increased over the past two years and there has been increased funding to help equip these officers and agents, which has led to increased demand for our products. The Sports Group's revenues for the year ended December 31, 2003 increased 7.2% to approximately $5.9 million as compared to approximately $5.5 million for the year ended December 31, 2002. The increase in the Sports Group's revenues was attributable to the addition of Wal-Mart stores in Canada to its customer base, the addition of Long Drugs stores as a distribution network and an expanded number of products in Target stores during 2003. The consolidated gross profit percentage for the year ended December 31, 2003 was 27.5% as compared to 28.9% for the year ended December 31 2002. This decrease in the gross profit percentage reflects a change in the product mix as well as the additional costs associated with increasing and expediting the Company's sales orders to meet the accelerated demand of our customers, including overtime costs and freight and delivery charges. The Company's selling, general and administrative expenses as a percentage of sales improved to 16.2% of revenues for the year ended December 31, 2003 as compared to 18.3% for the year ended December 31, 2002. The Company incurred higher than normal selling, general and administrative expenses during the year ended December 31, 2003 over the prior comparable period due to $2.7 million in bonuses paid to key employees and executives to compensate them for their contribution to the success of the Company. These bonuses were approximately 1% of revenues for the year ended December 31, 2003. Also adding to the selling, general and administrative expenses for year ended December 31, 2003 was the legal and accounting fees associated with the Form 10-K/A filed on July 24, 2003 and the resignation of the Company's independent auditors, Grant Thornton LLP, and the associated Form 8-Ks filed on August 27, September 2, September 9, November 24, and December 1, 2003. During the fourth quarter of 14 2003, the Company also retained an Agent (a Related Party) to expand its overseas opportunities, and paid a consulting fee of $634,000. Research and development expenditures increased 157% to approximately $10.8 million for the year ended December 31, 2003, as compared to $4.2 million for the prior comparable year. The primary reason for this increase is associated with the testing costs for the military, which increased with the significant volume increase from the military, and the addition of two new programs for testing verification of incoming raw materials and the development of new law enforcement techniques for a more in depth analysis of performance. Selling, general and administrative expenses during the year ended December 31, 2002 included certain non-recurring expenses, including sharply increased legal fees pertaining to the Company's successful defense of a patent infringement suit, legal and professional fees associated with the union organizing campaign relating to the Company's Point Blank Body Armor subsidiary, and $646,000 in non- cash compensation charges for the issuance of stock warrants to an outside consultant. Operating income increased 88.4% to approximately $26.0 million during the year ended December 31, 2003 as compared to approximately $13.8 million in the prior comparable period, driven primarily by increased sales volume along with the decrease in the percentage of selling, general and administrative expenses. Operating margins increased to 11.4% in 2003 from 9.4% in 2002. Interest expense for the year ended December 31, 2003 was approximately $1.3 million, an 18.8% decrease from approximately $1.6 million for the prior comparable period . This decrease was due primarily to lower interest rates under the Company's revolving credit facility and the repayment of the shareholder loan. Included in other expenses is a $904,000 non-cash write off of the Company's long-term investment in non-marketable securities of a private company to its net realizable value. Also included in other income was the gain on the sale of approximately a 1% interest in the Company's Point Blank subsidiary. In December 2003 as part of this transaction, the Company received inventory as consideration for the sale of Point Blank Stock, with an approximate fair value of $1.65 million. The shares of Point Blank Stock had a book value of $200,000, realizing a gain of $1.45 million in December 2003. In 2003, the Company settled its lawsuit with its insurance agent and insurance carrier, for losses incurred from Hurricane Irene in 1999, for which the Company received net of legal fees, approximately $1,009,000 during the year ended December 31, 2003 which is included in Other Income. Income before taxes increased by 113.8% to approximately $26.3 million for the year ended December 31, 2003, as compared to approximately $12.3 million for the prior comparable period. Income taxes for the year ended December 31, 2003 were approximately $11.1 million as compared to approximately $3.7 million income tax benefit for the year ended December 31, 2002. The Company's effective tax rate was 42.2% for 2003, as compared to (29.8%) for 2002; the effective tax rate was nominal in 2002 due to the utilization of net operating loss carryforwards. Income available to common stockholders was approximately $14.8 million or $0.34 per diluted share for the year ended December 31, 2003, as compared to approximately $15.6 million or $0.37 per diluted share for the year ended December 31, 2002. The weighted average shares outstanding on a diluted basis for the year ended December 31, 2003 were 44,196,802 as compared to 42,304,254 for the year ended December 31, 2002. YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001. Consolidated net sales for the year ended December 31, 2002 increased 33.0% to $130.3 million compared to net sales of $98.0 million for the year ended December 31, 2001. Due to the emphasis on homeland security and various military actions occurring throughout 2002, the Armor Group's revenue increased 15 33.5% to $124.8 million compared to $93.5 million for 2001. The Sports Group's revenues increased by 22.1% to $5.5 million for the year ended 2002 versus $4.5 million for 2001. Gross profit margin for the year ended December 31, 2002 was 28.9% compared to 26.9% in 2001, primarily as a result of the increase in revenues as well as volume purchase discounts which the Company was able to utilize during 2002. Selling, general and administrative expenses as a percentage of sales increased to 18.3% of 2002 revenues as compared to 13.9% of revenues in 2001. The selling, general and administrative expenses increased from $13.6 million in 2001 to $23.9 million in 2002, primarily as a result of increased legal fees in the successful defense of a patent infringement case and legal and professional fees associated with the union organizing campaign targeting DHB's subsidiary, including the associated security, public relations and legal fees arising out of the defense of the organizing effort. Also included in selling, general and administrative expenses for 2002 were a $646,000 non-cash compensation charge and $255,000 in additional rental expenses in conjunction with the accounting principal of straight-line rent expense over the life of the lease. Primarily as a result of the increased selling, general and administrative expenses, operating margin decreased from 13.0% in 2001 to 10.6% in 2002. Interest expense for the year ended December 31, 2002 was approximately $1.6 million, down nearly $900,000 from the $2.5 million of interest expense for the year ended December 31, 2001. This decrease is the result of lower interest rates under the Company's credit facility, combined with the repayment of $5.5 million of shareholder indebtedness and the conversion of $3 million of shareholder indebtedness into preferred stock. Although the total amount owed under the credit facility increased, the overall cost of capital decreased during 2002. The Company had net operating loss (NOL) carryforwards of approximately $7.4 million available to offset income in future years. The benefit to the Company is the reduction of the cash tax payments such NOL carryforwards offset. Because the Company had three solid years of growth and projected profitability in 2003, it was considered more likely than not that the Company would be able to utilize this benefit prior to its expiration in 2019. Therefore, in 2002, the Company recognized a deferred income tax benefit of approximately $3.7 million related to temporary differences that will result in deductible amounts in future years and the net operating loss carryforwards bringing the total deferred tax asset at December 31, 2002 to $4.7 million. The deferred tax asset was broken down into the current portion of $3.3 million and the long-term portion of $1.4 million for temporary timing differences in book to tax income. The income tax expense for 2001 was nominal and was offset by the NOL, so that only state and franchise taxes were expensed. Net income was approximately $16.0 million for 2002, which was reduced by the $345,000 preferred stock dividend paid to bring the income available to common stockholders to $15.6 million or $0.37 cents per fully diluted share, compared to income of $10.1 million for the year ended December 31, 2001 or $0.28 per fully diluted share. The fully diluted shares outstanding for the years ended December 31, 2002 and 2001 were 42,304,254 and 36,775,910, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's expects that its primary capital requirements over the next twelve months will be to assist its subsidiaries in financing their working capital requirements. The Company's operating subsidiaries sell the majority of their products on 30 to 90-day terms. Working capital is needed to finance the receivables, manufacturing process and inventory. Working capital at December 31, 2003 was approximately $66.8 million as compared to working capital of 16 approximately $53.1 million at December 31, 2002. This increase in working capital primarily reflects a $10.6 million increase in accounts receivable, and $21.4 million increase in inventory reduced by $6.9 million increase in income taxes payable, and $4.0 million increase in accounts payable. The Company's operations provided cash of $2.6 million for the year ended December 31, 2003 as compared to cash used in operation of ($15.1) million for the comparable prior year period. On March 15, 2004, the Company entered into an amendment to its exiting $35 million credit agreement increasing borrowing limits from $35 million to $45 million. Pursuant to the Credit Agreement, the Company may borrow, on a revolving basis, up to $32.5 million on 85% of eligible accounts receivable, and the Company borrowed a secured term loan of $12.5 million amortizing at the rate of $1 million per quarter commencing July 2004. This amended agreement will expire on October 1, 2007. Borrowings under the Credit Agreement are secured by substantially all of the Company's assets, and bear interest, at the Company's option, at the bank's prime rate or LIBOR plus 1.75% per annum on the revolving credit facility and at the bank's prime rate or LIBOR plus 2.25% on the term loan. Under the terms of the Credit Agreement, the Company can only pay dividends on common stock with the written consent of the lender. For 2003, the borrowings under the prior credit agreement bore interest at the bank's prime rate or LIBOR plus 1.75%. A portion of these funds was used to partially refinance higher interest debt. The remaining funds have been and will be used to meet increased demands for capital generated by the Company's rate of growth. At December 31, 2003, the balance due under the credit facility was approximately $24.0 million under the new facility, the Company would be able to borrow up to $45 million based upon availability to fund its working capital needs in the future. The Company's capital expenditures in 2003 increased to $741,000, as compared to approximately $367,000 during 2002. This Increase is attributable to the addition of a second Florida location for the Company's Point Blank subsidiary. The Company anticipates increasing its capital expenditures in 2004 to help further the growth of the Company in connection with the expansion into the new facility. The Company believes that its existing credit line, together with funds generated from operations, will be adequate to sustain its operations (including projected capital expenditures) through 2004. Historically, the Company has been successful in obtaining increases in its revolving credit facility, as required in order to finance the increased working capital needs brought on by the rapid and substantial expansion of the Company's business. However, there can be no assurance that the Company will be able to obtain further such increases if needed, and the Company may be required to explore other potential sources of financing (including the issuance of equity securities and, subject to the consent of the Company's lender, other debt financing) if the Company continues to experience escalating demand for its products. 17 CASH CONTRACTUAL OBLIGATIONS The following table presents the Company's estimated cash requirements for contractual obligations outstanding as of December 31, 2003: PAYMENTS DUE BY PERIOD ($ IN THOUSANDS) Less than 1-3 4-5 After Contractual Obligations 1 year years years 5 years Total _______________________ ______ _______ ______ _______ _______ Long-Term Debt $2,000 $22,514 $ -- $ -- $24,514 Employment Contracts 675 725 -- -- 1,400 Operating Leases 1,698 4,360 4,269 7,557 17,884 ______ _______ ______ _______ _______ Total Contractual Cash Obligations $4,373 $27,599 $4,269 $ 7,557 $43,798 ====== ======= ====== ======= ======= CRITICAL ACCOUNTING POLICIES The Company's management believes that its critical accounting polices include: REVENUE RECOGNITION - DHB recognizes revenue when it is realized or realizable and has been earned. Product revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title and all risks of ownership have been transferred, written contract and sales terms are complete, customer acceptance has occurred and payment is reasonably assured. Returns are minimal and do not materially affect the consolidated financial statements. ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingent assets and liabilities in the financial statements and accompanying notes. Significant estimates inherent in the preparation of the accompanying consolidated financial statements include the carrying value of long-lived assets and allowances for receivables and inventories. Actual results could differ from these estimates. INCOME TAXES - DHB uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. OTHER INVESTMENT - DHB had a cost-based investment in a non-publicly traded company. During 2003, a decline in the value of this cost-based investment below cost that was deemed other than temporary was charged to earnings, resulting in a loss on investment of $904,000. 18 NEW ACCOUNTING STANDARDS New Accounting Standards In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others," which expands previously issued accounting guidance and disclosure requirements for certain guarantees. The Interpretation requires an entity to recognize an initial liability for the fair value of an obligation assumed by issuing a guarantee. The provision for initial recognition and measurement of the liability will be applied on a prospective basis to guarantees issued or modified after December 31, 2002. This Interpretation did not have a material impact on the Company's consolidated financial position or results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure- an amendment of FASB Statement No. 123," which provides optional transition guidance for those companies electing to voluntarily adopt the accounting provisions of SFAS No. 123. In addition, SFAS No. 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has not changed its method of accounting for stock-based employee compensation. In January 2003, the FASB issued Interpretation No. 46 "Consolidation of Variable Interest Entities," which clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements." Interpretation 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not provide sufficient equity at risk for the entity to support its activities. In December 2003, the FASB concluded to revise certain elements of Fin 46. The FASB also modified the effective date of Fin 46. Fin 46 is to be applied for registrants who file under regulation S-X in periods ending after March 15, 2004. The Company is currently assessing the application of Fin 46 on its financial statement. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The Standard requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic entities. The adoption of SFAS No. 150 has not had and is not expected to have a material impact on the Company's consolidated financial position or results of operations. YEAR-END TRANSACTION On December 19, 2003, DHB's subsidiary Point Blank Body Armor Inc. ("Point Blank") issued to Hightower Capital Management, LLC ("Hightower") shares of common stock of Point Blank representing .0065 of the outstanding capital stock of Point Blank in consideration of which Hightower had transferred and delivered to Point Blank on December 19, 2003 certain inventories of Ballastic Plates and other goods usable in Point Blank's business. The inventory received by Point Blank had an aggregate list price of $1,650,000, equal to the appraised value of the shares of Point Blank issued to Hightower (such appraisal having been performed by an independent business appraiser). Simultaneously, DHB contributed to Point Blank shares of common stock of DHB's subsidiary NDL Products, Inc. ("NDL") having an aggregate appraised value equal to 10% of the appraised value of Point Blank (such appraisal of NDL having been performed by the same independent business appraiser as performed the appraisal of Point Blank), in consideration of which Point Blank issued to DHB a number of shares of common stock of Point Blank having an equivalent appraised value. DHB has retained rights of first refusal and rights to repurchase the shares of Point Blank issued to Hightower, either at the offered price (in the event of a proposed sale by Hightower) or at fair market value (in the event of termination of the business relationship between Point Blank and Hightower). The book value of Point Blank shares was approximately $200,000, which resulted in a $1,450,000 gain on the sale of the stock of Point Blank which is included in other income for the year ended December 31, 2003. Hightower's minority interest in the income of Point Blank was approximately $7,000 for the year ended December 31, 2003. In conjunction with the foregoing transactions, Point Blank entered into a marketing and consulting agreement with an affiliate of Hightower, pursuant to which such affiliate agreed, in consideration of a cash payment of $634,000, to assist Point Blank in the marketing, sales and distribution of Point Blank's body armor products in Asia, Saudi Arabia, Turkey and Jordan. Through March 1, 2004, the Company has received product orders for new international customers in these territories totaling approximately $6 million. The Company incurred approximately $136,000 of appraisal, accounting and legal fees to consummate these transactions. 19 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report contains certain forward-looking statements and information relating to the Company that is based on the beliefs of the Company's management, as well as assumptions made by and information currently available to the Company's management. When used in this document, the words "anticipate," "believe," "estimate," "expect," "going forward," and similar expressions, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions, including, but not limited to: general business and economic conditions, the maintenance of the Company's military supply contacts, the level of governmental expenditures on law enforcement equipment, continued supplies of materials from critical vendors, the continued availability of insurance for the Company's products and other risks described in this Annual Report on Form 10-K under the heading "Risk Factors" and other reports and materials filed with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated or expected. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. The Company undertakes no obligation to publish revised forward-looking statements to reflect the occurrence of unanticipated events or circumstances after the date hereof. RISK FACTORS The Company's business, operations and financial condition are subject to various risks. Several material risks are described below, and you should take these risks and other set forth in this Annual Report on Form 10-K and in other materials we file with the Securities and Exchange Commission into account in evaluating us or any investment decision involving us. This section does not describe all risks applicable to us, our industry or our business, and it is intended only as a summary of certain material risk factors. In this section, the Company is referred to using "us, ""our," "we" or similar words and our stockholders are referred to as "you." THE PRODUCTS WE SELL ARE INHERENTLY RISKY AND COULD GIVE RISE TO PRODUCT LIABILITY AND OTHER CLAIMS FOR WHICH WE MAY NOT BE ABLE TO OBTAIN ADEQUATE INSURANCE. The products that we manufacture are typically used in applications and situations that involve high levels of risk of personal injury. Failure to use our products for their intended purposes, failure to use them properly, their malfunction, or, in some limited circumstances, even correct use of our products, could result in serious bodily injury or death. We cannot assure that our insurance coverage would be sufficient to cover the payment of any potential claim. In addition, we cannot assure you that our current insurance or any other insurance coverage will continue to be available or, if available, that we will be able to obtain it at a reasonable cost. Our cost of obtaining insurance coverage has risen substantially since September 11, 2001. Any material uninsured loss could have a material adverse effect on our business, financial condition and results of operations. 20 MANY OF OUR CUSTOMERS HAVE FLUCTUATING BUDGETS, WHICH MAY CAUSE SUBSTANTIAL FLUCTUATIONS IN OUR RESULTS OF OPERATIONS. Customers for our products include federal, state, municipalities, foreign, military, law enforcement and other governmental agencies. Government tax revenues and budgetary constraints, which fluctuate from time to time, can affect budgetary allocations for these customers. Many domestic and foreign government agencies have in the past experienced budget deficits that have led to decreased spending in defense, law enforcement and other military and security areas. Our results of operations may be subject to substantial period-to-period fluctuations because of these and other factors affecting military, law enforcement and other governmental spending. A reduction of funding for federal, state, municipal, foreign and other governmental agencies could have a material adverse effect on sales of our products and our business, financial condition and results of operations. For example, our sales have increased due to the U.S. military operations in Iraq and Afghanistan. We can provide no assurance that these increases will be maintained after the completion of those operations. OUR BUSINESS IS SUBJECT TO VARIOUS LAWS AND REGULATIONS FAVORING THE U.S. GOVERNMENT'S CONTRACTUAL POSITION, AND OUR FAILURE TO COMPLY WITH SUCH LAWS AND REGULATIONS COULD HARM OUR OPERATING RESULTS AND PROSPECTS. As a contractor to the U.S. government, we must comply with laws and regulations relating to the formation, administration and performance of the federal government contracts that affect how we do business with our clients and may impose added costs on our business. These rules generally favor the U.S. government's contractual position. For example, these regulations and laws include provisions that subject contracts we have been awarded to protest or challenge by unsuccessful bidders and unilateral termination, reduction or modification by the government. The accuracy and appropriateness of certain costs and expenses used to substantiate our direct and indirect costs for the U.S. government under both cost-plus and fixed-price contracts are subject to extensive regulation and audit by the Defense Contract Audit Agency, an arm of the U.S. Department of Defense. Responding to governmental audits, inquiries or investigations may involve significant expense and divert management's attention. Our failure to comply with these or other laws and regulations could result in contract termination, suspension or debarment from contracting with the federal government, civil fines and damages and criminal prosecution and penalties, any of which could have a material adverse effect on our business, financial condition and results of operations. THERE ARE LIMITED SOURCES FOR SOME OF OUR RAW MATERIALS, WHICH MAY SIGNIFICANTLY CURTAIL OUR MANUFACTURING OPERATIONS. The raw materials used by our Armor Group in the manufacturing of our ballistic-resistant products include Kevlar(TM), Twaron(TM) and Zylon(TM) and our primary shield products include GoldFlex(TM), Dyneema(TM) and Spectra Flex(TM). Substantially all of the raw materials used in the manufacturing of ballistic-resistant garments consist of fabrics which are patented by major corporations and which are purchased from four independent weaving or manufacturing companies. During 2002 and 2003, shortages of required raw materials have limited our production capacity. If any of the manufacturers cease to produce these products or such shortages persist or get worse, we may be required to use other fabrics. There can be no assurance that, if any of these manufacturers cease to produce these fabrics, the Company will be able to identify alternate fabrics with comparable performance. OUR STOCK PRICE IS VOLATILE. The market price and trading volume of our common stock has been subject to significant volatility and this trend may continue. The general economic, political and stock market conditions that may affect the market prices of our common stock are beyond our control. The market price of our common stock at any particular time may not remain the market price in the future. The value of our common stock may decline regardless of our operating performance or prospects. Factors affecting our market price include (but are not limited to) variations in our operating results, and whether we have achieved our key business targets, the limited number of shares of our common stock available for purchase or sales in the public markets, sales or purchases of large blocks of our stock, changes in, or our failure to meet, our earnings estimates, changes in securities analysts; buy/sell recommendations, differences between our reported results and those expected by investors and securities analysts and announcements of new contracts by us or our competitors. In the past, securities class action litigation has been instituted against companies following periods of volatility in the market price of their securities. Any such litigation, if instituted against us, could result in substantial costs and a diversion of management's attention and resources. GROWTH IN OUR OPERATIONS MAY STRAIN OUR RESOURCES, AND IF WE FAIL TO SUCCESSFULLY MANAGE OUR GROWTH, OUR BUSINESS COULD BE HARMED. The increase in orders for body armor for military personnel as well as the introduction of new products, is placing, and will continue to place, a significant strain on our operational, financial and managerial resources and personnel. Any failure to effectively manage growth could have material adverse effects on our business, operating results and financial condition. 21 ITEM 7A. QUANTITATIVE AND QUALTITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not issue or invest in financial instruments or their derivatives for trading or speculative purposes. The Company's market risk is limited to fluctuations in interest rates as it pertains to its borrowings under its $45 million credit facility. The Company can borrow at either the prime rate of interest or LIBOR plus 1.75%. Any increase in these reference rates could adversely affect the Company's interest expense. The Company does not have any material sales, purchases, assets or liabilities denominated in currencies other than the U.S. Dollar, and as such, is not subject to material foreign currency exchange rate risk. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THE INDEPENDENT AUDITOR'S REPORT OF GRANT THORNTON, LLP IS NOT ATTACHED TO THIS ANNUAL REPORT ON FORM 10-K BECAUSE THE CHANGE OF THE COMPANY'S ACCOUNTANTS IN AUGUST 2003 AND THE COMPANY'S IMPLEMENTATION OF ADDITIONAL DISCLOSURE CONTROLS AND PROCEDURES, EACH AS DISCLOSED IN THIS ANNUAL REPORT ON FORM 10-K, DELAYED CERTAIN ACCOUNTING DETERMINATIONS UNTIL VERY LATE IN THE AUDIT PROCESS, WHICH GAVE GRANT THORNTON, LLP INSUFFICIENT TIME TO COMPLETE ITS REVIEW OF THE ANNUAL REPORT ON FORM 10-K AND ISSUE ITS REPORT IN TIME TO INCLUDE ITS REPORT IN THE ANNUAL REPORT ON FORM 10-K. THE COMPANY INTENDS TO FILE GRANT THORNTON'S REPORT IN AN AMENDED ANNUAL REPORT ON FORM 10-K AS SOON AS IT IS RECEIVED. SEE INDEX TO CONSOLIDATED FINANCIAL STATEMENTS APPEARING IN THE CONSOLIDATED FINANCIAL STATEMENTS ANNEXED HERETO.
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED, IN THOUSANDS EXCEPT FOR PER SHARE DATA) FIRST SECOND THIRD FOURTH FISCAL 2003 QUARTER QUARTER QUARTER QUARTER ___________ ___________ ___________ ___________ Net sales $ 46,153 $ 56,525 $ 54,417 $ 72,916 Cost of goods sold 33,185 41,001 39,599 52,885 ___________ ___________ ___________ ___________ Gross profit 12,968 15,524 14,818 20,031 Selling, general and admin expense 5,793 7,773 9,055 14,704 ___________ ___________ ___________ ___________ Operating income 7,175 7,751 5,763 5,327 Other income (expense), net 423 (331) (282) 451 ___________ ___________ ___________ ___________ Income before income taxes 7,598 7,420 5,481 5,778 Income taxes 2,579 3,369 2,231 2,919 ___________ ___________ ___________ ___________ Income before minority interest 5,019 4,051 3,250 2,859 Minority interest -- -- -- (7) ___________ ___________ ___________ ___________ Net income 5,019 4,051 3,250 2,852 Dividend - preferred stock (90) (90) (90) (90) ___________ ___________ ___________ ___________ Income available to common stockholders $ 4,929 $ 3,961 $ 3,160 $ 2,762 =========== =========== =========== =========== Earnings per share Basic $ 0.12 $ 0.10 $ 0.08 $ 0.07 =========== =========== =========== =========== Diluted $ 0.12 $ 0.09 $ 0.07 $ 0.06 =========== =========== =========== =========== Weighted average shares outstanding Basic shares 40,413,746 40,458,867 40,594,746 40,687,774 =========== =========== =========== =========== Diluted shares 42,785,488 44,235,879 44,510,790 45,049,051 =========== =========== =========== =========== RESTATED RESTATED RESTATED RESTATED FISCAL 2002*(RESTATED) FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ___________ ___________ ___________ ___________ Net sales $ 33,636 $ 34,014 $ 30,146 $ 32,548 Cost of goods sold 24,182 23,977 21,005 23,455 ___________ ___________ ___________ ___________ Gross profit 9,454 10,037 9,141 9,093 Selling, general and admin expense 4,267 5,283 7,605 6,747 ___________ ___________ ___________ ___________ Operating income 5,187 4,754 1,536 2,346 Other income (expense), net (441) (452) (503) (119) ___________ ___________ ___________ ___________ Income before income taxes 4,746 4,302 1,033 2,227 Income taxes 27 61 81 (3,841) ___________ ___________ ___________ ___________ Net income 4,719 4,241 952 6,068 Dividend - preferred stock -- -- -- (345) ___________ ___________ ___________ ___________ Income available to common stockholders $ 4,719 $ 4,241 $ 952 $ 5,723 =========== =========== =========== =========== 22 Earnings per share Basic $ 0.14 $ 0.11 $ 0.02 $ 0.14 =========== =========== =========== =========== Diluted $ 0.11 $ 0.10 $ 0.02 $ 0.13 =========== =========== =========== =========== Weighted average shares outstanding Basic shares 31,486,391 36,789,796 40,413,746 40,413,746 =========== =========== =========== =========== Diluted shares 41,722,903 41,024,916 43,827,580 42,641,615 =========== =========== =========== =========== * - During the fourth quarter of 2002, the Company recorded certain adjustments as described in Note 15 to the Company's consolidated financial statements contained in Form 10-K/A filed with the SEC on July 24, 2003. The effect of these adjustments on the condensed consolidated statements of operations for the first quarter of 2002 was a decrease in net income and no change in basic and diluted earnings per share. For the second and third quarters of 2002 there would have been a decrease in net income, basic earnings per share, and diluted earnings per share for each quarter. The Company has restated the three and nine months ended September 30, 2002, to show the effect of the adjustments on the condensed consolidated statements of operations. The first adjustment was an additional accrual to straight-line rent expense in accordance with SFAS No. 13 "Accounting for Leases," which increases the selling, general and administrative expenses by $39 for each of the first three quarters of 2002 for a total of $117 for the nine months ended September 30, 2002. In addition to straight-lining rent expense, the Company recorded in the fourth quarter of 2002 a $646 expense for the issuance of stock warrants to an unaffiliated outside consultant, of which $146 and $284 was applicable to the second and third quarters of 2002, respectively. These adjustments increased selling, general and administrative expenses for the first quarter, second quarter and third quarter of 2002 and decreased the selling, general and administrative expenses for the fourth quarter of 2002.
FIRST SECOND THIRD FOURTH FISCAL 2001 QUARTER QUARTER QUARTER QUARTER ___________ ___________ ___________ ___________ Net sales $ 20,175 $ 23,514 $ 24,009 $ 30,317 Cost of good sold 15,223 17,309 17,280 21,827 ___________ ___________ ___________ ___________ Gross profit 4,952 6,205 6,729 8,490 Selling, general and admin expense 3,304 3,090 3,282 3,921 ___________ ___________ ___________ ___________ Operating income 1,648 3,115 3,447 4,569 Other income (expense) (619) (678) (627) (547) ___________ ___________ ___________ ___________ Income before income taxes 1,029 2,437 2,820 4,022 Income taxes 6 134 27 8 ___________ ___________ ___________ ___________ Net income $ 1,023 $ 2,303 $ 2,793 $ 4,014 =========== =========== =========== =========== Earnings per share Basic $ 0.03 $ 0.07 $ 0.09 $ 0.13 =========== =========== =========== =========== Diluted $ 0.03 $ 0.07 $ 0.08 $ 0.11 =========== =========== =========== =========== Weighted average shares outstanding Basic shares 31,230,898 31,316,940 31,411,180 31,168,088 =========== =========== =========== =========== Diluted shares 36,760,623 35,923,088 35,666,896 36,567,864 =========== =========== =========== ===========
23 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On August 20, 2003, the Company was notified that Grant Thornton LLP ("Grant Thornton") had decided to resign as the Company's independent accountant. Grant Thornton had served as the Company's independent accountants since May 29, 2002. Prior to May 29, 2002, Paritz & Company P.A. served as the Company's independent accountants since January 23, 1998. Paritz & Company P.A. issued their report on the Company's financial statements for the year ended December 31, 2001. Grant Thornton issued their report on the Company's financial statements for the year ended December 31, 2002. For the Company's 2002 fiscal year, the opinion of Grant Thornton did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. During the Company's 2002 fiscal year and through August 20, 2003, there were no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Grant Thornton, would have caused Grant Thornton to make reference to the subject matter of the disagreement in connection with its reports. During the Company's most recent fiscal years and through August 20, 2003, there were no "reportable events" as listed in Item 304(a)(1)(v)(A)-(D) of Regulation S-K adopted by the Securities and Exchange Commission except that Grant Thornton notified the Company on August 20, 2003 that, in connection with its audit of the Company's consolidated financial statements for the year ended December 31, 2002 for filing with the Company's Form 10-K/A, it identified certain deficiencies involving internal control it considered to be significant deficiencies that, in the aggregate, constituted material weaknesses under standards established by the American Institute of Certified Public Accountants. These deficiencies included the failure to disclose certain related party transactions in the Company's Form 10-K for the fiscal year ended December 31, 2002, the Company's reliance on substantial outside assistance from outside professionals in preparing the Company's financial statements, and understaffing in the Company's accounting and finance department. The Company filed its Form 10-K for the fiscal year ended December 31, 2002 on March 31, 2003. The Company subsequently amended this Form 10-K on July 24, 2003 to fully disclose related party transactions. After further review, Grant Thornton reissued their audit report in the Company's Form 10-K/A, which states that the Company's consolidated financial statements presented fairly, in all material respects, the consolidated financial position of the Company and its subsidiaries as of December 31, 2002 and the consolidated results of its operations and consolidated cash flows for the year ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. Grant Thornton formally notified the Company of these deficiencies on the date of their resignation. The Company's Audit Committee did not discuss these deficiencies with Grant Thornton before their resignation. The Company has authorized Grant Thornton to discuss the subject matter of each material weakness identified with the successor auditor subsequently engaged as the principal accountant to audit the Company's financial statements. The Company's Board of Directors engaged Weiser LLP as the Company's new independent accountants, and the Company filed a Form 8-K on September 2, 2003, when this selection was made. 24 ITEM 9A. CONTROLS AND PROCEDURES The Company carried out an evaluation, as required by Exchange Act Rule 13a-15(b), under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic Securities and Exchange Commission filings. During the period covered by this report, the Company has begun to implement certain changes to its internal control over financial reporting as described below, which have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Disclosure controls and procedures are those controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including the Company's principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. As disclosed in the Company's Form 8-K filed on August 27, 2003, Grant Thornton, the Company's former independent accountants, informed the Company that they considered there to be certain deficiencies in the Company's internal control procedures that would be deemed to be a material weakness under standards established by the American Institute of Certified Public Accountants. Grant Thornton made this determination in connection with the preparation of the Company's consolidated financial statements as of and for the year ended December 31, 2002 for inclusion in the Company's Form 10-K/A, which was filed on July 24, 2003 to supplement the Company's Form 10-K filed on March 31, 2003. The opinion of Grant Thornton in the Form 10-K/A did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. The former independent accountants informed the Company and the Audit Committee of these deficiencies in a letter delivered on August 20, 2003. These deficiencies included the failure to disclose certain related party transactions in the Company's Form 10-K for the fiscal year ended December 31, 2002, the Company's reliance on substantial outside assistance from outside professionals in preparing the Company's financial statements, and understaffing in the Company's accounting and finance department. The Form 10-K/A filed by the Company on July 24, 2003 fully disclosed the related party transactions. In accordance with their fiduciary responsibilities, senior management and the Audit Committee directed the Company to dedicate resources and take additional steps to strengthen its control processes and procedures to ensure that these internal control deficiencies do not result in a material misstatement in the 25 Company's consolidated financial statements. Specifically, we have implemented or are preparing to implement the following additional procedures: o The Company briefed the Chairman and Chief Executive Officer on the requirement to disclose related party transactions. o The Company distributed a questionnaire to each of the Company's officers and directors specific to related party transactions; and the Company has pursued and will pursue more rigorous follow-up with its directors and executive officers regarding their responses to annual questionnaires used in preparing the Company's Form 10-K and proxy materials. o The Company developed a financial statement disclosure checklist to be completed by the Chief Financial Officer each time the Company prepares financial statements. o The Company has begun the preparation of its quarterly and annual financial statements sooner after the end of each fiscal quarter and fiscal year. The Company has undertaken an additional layer of internal review prior to delivering drafts to its outside professionals. o The Company continues to reinforce with its new auditors their ability to communicate with and obtain information from lower level personnel in the Company's accounting and finance department. o The Company will evaluate further delegation and allocation of responsibilities within its accounting and finance department to facilitate prompt availability of financial information. o Since the beginning of 2003, the Company hired new financial reporting personnel, including a Vice President of Finance for the Point Blank subsidiary and a staff accountant/assistant controller. The Company also hired a Controller in late 2002 for its PACA facility. o The Company continues to review, confirm and clarify with its personnel their specific functions and responsibilities to promote the orderly flow and availability of financial data and information. o During the second quarter of 2003, the Company hired an internal control specialist to review and revamp the Company's internal control policies and procedures. The Company engaged the firm Eisner LLP to assist management in complying with the internal control requirements under Section 404 of the Sarbanes-Oxley Act of 2002 to gain greater efficiency and effectiveness. The Company provided Eisner LLP with copies of the updated policies and procedures and flowcharts of the Accounting and IT departments. The Company will continue to: (a) evaluate the effectiveness of its internal controls and procedures on an ongoing basis, (b) implement actions to enhance its resources and training in the area of financial reporting and disclosure responsibilities, and (c) review such actions with the Audit Committee and the Company's new independent accountants, Weiser LLP. The Company has discussed its corrective actions and plans with the Audit Committee and Weiser LLP. The Company's management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Company's disclosure controls or its internal controls will prevent all errors and all fraud. A control 26 system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company monitors its disclosure controls and internal controls and makes modifications as necessary; the Company's intent in this regard is that the disclosure controls and the internal controls will be maintained as dynamic systems that change (including with improvements and corrections) as conditions warrant. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS The Directors serve for a term of one year following their election at the Annual Meeting of Stockholders, and until their successors have been elected and qualified. The officers serve at the discretion of the Board of Directors. Set forth below is certain information regarding the Company's current Directors and executive officers: DAVID H. BROOKS, age 49, has served as the Chairman or Co-Chairman of the Company since its inception in 1992. Mr. Brooks has served as the Chief Executive Officer of the Company since July 2000, having previously served in that capacity prior to September 1998. Mr. Brooks also serves as Chairman of the Board, President and a Director of Brooks Industries of L.I., Inc., a privately held venture capital firm. JEROME KRANTZ, age 48, has been a director of the Company since July 2000. Mr. Krantz has been the owner and President of Krantz Financial Group for over five years and has over 20 years of experience in the insurance and financial industry. Mr. Krantz is a chartered life underwriter, a chartered financial consultant and a registered investment advisor. Mr. Krantz currently serves as Chairman of the Audit and Compensation Committees of the Board of Directors. DAWN M. SCHLEGEL, age 34, has been the Chief Financial Officer of the Company since September 1999. Mrs. Schlegel has also served as Treasurer and Secretary of the Company since September 1999, and was elected a Director as of July 2000. Prior thereto, Mrs. Schlegel was the Accounting Manager for the Company's operations and finances since 1996. Prior to joining the Company, Mrs. Schlegel was a Senior Accountant with Israeloff, Trattner & Co. CPAs, P.C., a certified public accounting firm, for more than five years. 27 GARY NADLEMAN, age 51, has been a director of the Company since July 2001. Since 2002, Mr. Nadelman has been a partner in a company which manufactures ladies' sportswear under the labels Erik Stewart and Caryn Vallone. Immediately prior thereto, he was the President of Synari, Inc., a manufacturer of women's sportswear and other apparel, for more than five years. Mr. Nadelman has over 20 years of experience in the apparel industry. Mr. Nadelman currently serves on the Audit and Compensation Committees of the Board of Directors. CARY CHASIN, age 56, has been a Director of the Company since October 2002. Mr. Chasin has been an advertising executive at DSA Community Publishing for three years. Immediately prior thereto, he owned and operated an apparel retail store. He was an employee of the Company from November 1999 through April 2000, working on special projects including the closing of the hard armor division. He has over 30 years' experience in owning and operating apparel retail, manufacturing and importing businesses. Mr. Chasin is a member of the Audit and Compensation committees of the Board of Directors. BARRY BERKMAN, age 63, has been a Director of the Company since February 2003. Mr. Berkman has been a partner with Berkman Bottger & Rodd, a New York law firm, for more than five years, and he is a member of the American Bar Association. SANDRA L. HATFIELD, age 50, has been Chief Operating Officer of the Company since December 2000. From October 1996 until December 2000, she served as President of Point Blank. For more than five years before that, she was the Vice President of Production at PACA. AUDIT COMMITTEE. Effective January 31, 2000, the Securities and Exchange Commission adopted new rules and amendments to current rules relating to the disclosure of information about companies' audit committees. In addition, the SEC recommends that audit committees adopt written charters. Our Audit Committee has adopted a charter, a copy of which was included as Appendix A to the Company's 2002 proxy statement. In 2003, our Audit Committee was comprised of three directors, Jerome Krantz, Gary Nadelman, and Cary Chasin, who are not officers or employees of the Company. They are all considered "independent" under Section 121(A) of the listing standards of the American Stock Exchange. The Board of Directors determined that Jerome Krantz, a certified financial planner and registered investment advisor, is an "audit committee financial expert," and he is independent of management. The primary function of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities. The primary duties and responsibilities of the Audit Committee include: (i) monitoring the integrity of the Company's financial reporting process and systems of internal controls, (ii) monitoring the independence and performance of the Company's independent auditors, (iii) providing an avenue of communication among the independent auditors, management and the Board of Directors and (iv) reviewing and approving the engagement of professionals with respect to the performance of non-audit services. In this context, during 2003 the Audit Committee met eight times telephonically and held discussions with management and the Company's independent auditors. The Audit Committee's Chairman, as representative of the Audit Committee, also discussed the Company's interim financial information contained in each quarterly earnings announcement with the Company's Chief Financial Officer and the Company's independent auditors prior to public release. 28 CODE OF ETHICS. In June 2003, the Board of Directors adopted a code of ethics for the CEO, CFO, chief accounting officer, controllers and other financial officers, which is attached to this report as an exhibit. The Company's Code of Ethics is intended to be a codification of the business and ethical principles which guide the Company, and to deter wrongdoing, to promote honest and ethical conduct, to avoid conflicts of interest, and to foster full, fair, accurate, timely and understandable disclosures, compliance with applicable governmental laws, rules and regulations, the prompt internal reporting of violations and accountability for adherence to this Code. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE. The following table sets forth certain summary information regarding the compensation of the executive officers whose total salary and bonus for any of the years ended December 31, 2003, 2002 or 2001 exceeded $100,000: SECURITIES NAME AND PRINCIPAL YEAR ANNUAL UNDERLYING POSITION SALARY(1) BONUS OPTIONS (#) David H. Brooks 2003 $781,250 1,000,000 50,000 Chairman and CEO 2002 643,750 0 25,000 2001 525,000 0 25,000 Sandra L. Hatfield 2003 $163,068 $695,000 -- Chief Operating Officer 2002 163,068 0 25,000 2001 163,497 0 -- Dawn M. Schlegel 2003 $140,625 $100,000 50,000 Chief Financial Officer, 2002 140,625 0 25,000 Treasurer and Secretary 2001 103,718 0 125,000 ___________________________________________________________________________ Although certain officers receive certain benefits, such as auto allowances and expense allowances, the value of such perquisites did not in any year exceed the lesser of $50,000 or 10% of the respective officer's salary and bonus. EMPLOYMENT AGREEMENTS. In July 2000, Mr. Brooks and the Company entered into a five-year employment agreement. Pursuant to the agreement, Mr. Brooks received an annual salary of $500,000 through July 2001, with annual increases of $50,000 thereafter. On the effective date of the agreement, Mr. Brooks received 3,750,000 warrants exercisable at $1.00 per share and vesting 20% immediately and in 20% annual increments thereafter. These warrants expire in July 2010. STOCK WARRANTS. In January 2003, the then five members of the Company's Board of Directors were each awarded 50,000 warrants exercisable at $1.41 per share for five years. In July 2003, the additional Board member was issued 50,000 warrants exercisable at $4.33 per share for five years. In addition, in February 2003, the Board of Directors awarded key employees a total of 35,000 29 warrants exercisable at $2.01 per share, which expire in February 2008. In July 2003, the Board of Directors awarded a key employee 33,000 warrants exercisable at $3.85 per share, which expire in July 2008. Also in 2003, the Company issued 15,000 unregistered shares of common stock to an employee. During the year ended December 31, 2003, employees and consultants exercised warrants for 165,000 shares of the Company's common stock, with aggregate proceeds to the Company of approximately $261,000. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE. Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes of ownership of Common Stock and other equity securities of the Company. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations that no other reports were required during the year ended December 31, 2003, all Section 16(a) filing requirements applicable to the Company's officers, directors and greater-than-10% beneficial owners were complied with. The following table summarizes option/warrant grants (excluding director grants) and the named officers' stock option activity during 2003.
Number of Securities % of Total Potential Gain at assumed underlying Options/SARs Annual Rates of Stock options/ granted to Exercise or Price Appreciation for SARs2 employees in Base Price Expiration Option Term 1: Name Granted Fiscal Year ($/Share) Date 5% 10% __________________ __________ ____________ ___________ __________ _______ _______ David H. Brooks 50,000 4% $1.41 01/15/08 $69,319 $78,101 Sandra L. Hatfield -- -- -- -- -- -- Dawn M. Schlegel 50,000 4% $1.41 01/15/08 $69,319 $78,101 1. These amounts assume hypothetical appreciation rates of 5% and 10% over the term of the option, as required by the SEC, and are not intended to forecast the appreciation of the stock price. No gain to the named officers will occur unless the price of DHB's common shares exceeds the options' exercise price. 2. The Company has no SARs.
AGGREGATED WARRANT/OPTION VALUES The following table sets forth information regarding the number and value of unexercised warrants/options held at December 31, 2003 by the executive officers listed in the Summary Compensation Table above. This table does not include warrants provided to Mr. Brooks in capacities other than as a director or officer of the Company.
Number of Securities Value of Unexercised Underlying Unexercised In-the Money Options/SAR at FY-End Options/SAR at FY-End _____________________________ _____________________________ Name Exercisable Unexercisable Exercisable Unexercisable __________________ ___________ _____________ ___________ _____________ David H. Brooks 3,125,000 750,000 $18,464,250 $4,492,500 Sandra L. Hatfield 325,000 100,000 1,394,000 599,000 Dawn M. Schlegel 205,000 -0- 2,321,400 -0-
In 2003, none of such executive officers exercised any options or warrants to purchase stock of the Company. 30 COMPENSATION COMMITTEE REPORT The compensation of the Company's executive officers is generally determined by either the Board of Directors or the Compensation Committee of the Board of Directors, subject to approval by the Board of Directors, and subject to applicable employment agreements. See "Executive Compensation." Each member of the Compensation Committee is a director who is not an employee of the Company or any of its affiliates. GENERAL POLICIES The Company's compensation programs are intended to enable the Company to attract, motivate, reward and retain the management talent required to achieve its corporate objectives, and thereby increase shareholder value. It is the Company's policy to provide incentives to its senior management to achieve both short-term and long-term objectives and to reward exceptional performance and contributions to the development of the Company's businesses. To attain these objectives, the Company's executive compensation program includes a competitive base salary and stock-based compensation. Stock warrants are granted to employees, including the Company's executive officers, by the Board or the Compensation Committee. The Compensation Committee believes that stock warrants provide an incentive that focuses the executive's attention on managing the Company from the perspective of an owner with an equity stake in the business. Incentive stock warrants are awarded with an exercise price equal to the market value of Common Stock on the date of grant, and all such warrants have a maximum term of ten years and generally become exercisable not less than six months from the date of grant. Among the Company's executive officers, the number of shares subject to warrants granted to each individual generally depends upon the level of that officer's responsibility. Previous grants of stock warrants are reviewed but are not considered the most important factor in determining the size of any executive's stock option award in a particular year. In December 2003, the compensation committee authorized the payment of up to $3 million in cash bonuses to key employees and officers to reward those individuals who contributed to the Company's substantial revenue growth and profitability. The continued growth and positive performance of the Company is a testament to the dedicated employees who work for the Company, who have exceeded the goals and forecasts set by the Company. RELATIONSHIP OF COMPENSATION TO PERFORMANCE The Compensation Committee annually establishes, subject to the approval of the Board of Directors and any applicable employment agreements, the salaries that will be paid to the Company's executive officers during the coming year. In setting salaries, the Compensation Committee takes into account several factors, including competitive compensation data, the extent to which an individual may participate in the stock plans maintained by the Company, and qualitative factors bearing on an individual's experience, responsibilities, management and leadership abilities, and job performance. 31 COMPENSATION OF CHIEF EXECUTIVE OFFICER For fiscal 2003, pursuant to the terms of his employment agreement with the Company, David H. Brooks received a base salary of $650,000. See "Executive Compensation - Employment Agreements." In light of this employment agreement, the Compensation Committee was not required to make any decision regarding Mr. Brooks' base salary. The Compensation Committee elected to award Mr. Brooks a $1,000,000 bonus for fiscal 2003, in recognition of the outstanding performance of the Company and its accomplishments of exceeding all expectations and forecasts, and increased revenues and profits. Mr. Brooks also received warrants to purchase 50,000 shares of common stock at $1.41 per share (as did each of the other then-current Directors of the Company). COMPENSATION COMMITTEE Jerome Krantz, Chairman Gary Nadelman Cary Chasin ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth the beneficial ownership of the Company's common stock as of March 1, 2004, for (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 "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 the persons named as the owners hold investment and voting power.
Number of Shares Percent Owned1 Name Beneficially Owned2 * - Less than one (1%) _____________________________________ ___________________ ______________________ David H. Brooks(3) 15,866,440(3) 35% Jerome Krantz 145,350(4) * Sandra L. Hatfield 325,000(5) * Dawn M. Schlegel 205,500(6) * Gary Nadelman 190,875(7) * Cary Chasin 212,000(8) * Barry Berkman 182,200(9) * All officers and Directors as a group (7 people) 17,127,365(10) 38%(9) 1. Based upon 40,742,136 shares outstanding as of March 1, 2004. In calculating the percentage owned by any individual officer or director, the number of currently exercisable warrants and options held by such individual have been included in the calculation of the percentage owned. 2. Includes currently exercisable options or warrants, which are those exercisable within 60 days after the date of this Form 10-K. 3. Consists of 5,415,402 common shares owned directly by Mr. Brooks, 768,746 common shares owned by a trust, of which, Mr. Brooks is the trustee, 500,000 shares issuable upon conversion of Series A, 12% Convertible Preferred Stock owned by Mr. Brooks, 3,057,292 shares owned by his wife, 3,000,000 shares owned by his wife as custodian for his 32 minor children, and 3,125,000 shares acquirable under currently exercisable warrants at prices between $1.00 and $7.11 per share; 50,000 of the warrants were issued in 2003. As the only person with more than 5% ownership of the Company, Mr. Brooks' address is 400 Post Avenue, Westbury, New York 11590. 4. Includes 100,000 shares, which may be acquired upon exercise of currently exercisable warrants at prices between $1.41 and $7.11 per share; 50,000 of the warrants were issued in 2003. 5. Consists of 325,000 shares, which may be acquired under currently exercisable warrants at prices between $2.00 and $7.11 per share. 6. Consists of 205,000 shares, which may be acquired under currently exercisable warrants at prices between $1.41 and $7.11 per share; 50,000 of the warrants were issued in 2003. 7. Includes 100,000 shares, which may be acquired upon exercise of currently exercisable warrants at prices between $1.41 and $7.11 per share; 50,000 of the warrants were issued in 2003. 8. Includes 50,000 shares, which may be acquired under currently exercisable warrants at a price of $1.41 per share, issued in 2003. 9. Includes 50,000 shares, which may be acquired under currently exercisable warrants at a price of $4.33 per share, issued in 2003. 10. Includes 3,955,000 shares purchasable pursuant to currently exercisable warrants held by directors and officers.
As of December 31, 2003, the Company maintained a single equity compensation plan (its 1995 Stock Option Plan), which had previously been approved by the Company's security holders, and under which the Company was authorized to issue options for up to 5,000,000 shares of common stock. A total of 377,000 common stock options remained available for issuance under the plan. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Company has funded certain of its acquisitions and operations through the use of term loans from Mr. David H. Brooks, Chairman of the Board and principal stockholder of the Company. On January 14, 2002, Mr. Brooks exchanged $3 million of the approximately $10 million of indebtedness due him at the time, for 500,000 shares of the Company's newly authorized Series A, 12% Convertible Preferred Stock (the "Preferred Stock"). The Preferred Stock has a dividend rate of $0.72 per share per annum, an amount equal to the interest that would have been payable on the exchanged indebtedness. Shares of the Preferred Stock are convertible, on a one-to-one basis, at the option of the holder, into shares of Common Stock. The shares of Preferred Stock are redeemable at the option of the Company on December 15 of each year. During 2002, the Company repaid $5.5 million of principal indebtedness owed to Mr. Brooks, bringing the total indebtedness owed by the Company to Mr. Brooks as of December 31, 2002 to $1.5 million. During the second quarter of 2003, the Company repaid the balance of $1.5 million to Mr. Brooks, eliminating the shareholder loan from the Company's balance sheet. These shareholder loans had borne interest at 12% per annum. Interest expense included in the financial statements for the years ended December 31, 2003 and 2002 was approximately $93 and $540, respectively. Point Blank leases a 67,000 square foot office and manufacturing facility (the "Oakland Park Facility") located at 4031 N.E. 12th Terrace, Oakland Park, Florida 33334, from V.A.E. Enterprises LLC ("V.A.E."), a limited liability company controlled by Terry Brooks, the wife of Mr. David H. Brooks, and beneficially owned by Mr. and Mrs. Brooks' minor children. Total base rental 33 under this lease was $682,000 in 2003, and the lease expires on December 31, 2010. Management performed a comparison of market rates at the time the lease was entered into, and believes that the terms of the lease were at the current market price that would then have been obtained from an unrelated party. The Company has been purchasing certain products, which are components of ballistic-resistant apparel manufactured and sold by the Company, from Tactical Armor Products, Inc. ("TAP"), a company owned by Terry Brooks, the wife of Mr. David H. Brooks. The total of such purchases during the years ended December 31, 2003, 2002, and 2001 were approximately $29,243,000, $7,975,000 and $2,760,000, respectively. The Company has benefited by doing business with TAP as the unit prices charged by TAP have been less than the prices charged to the Company by its previous outside suppliers, and TAP's products are available on demand and the Company would not be able to fulfill the demand of its customers, through any other source. To facilitate the delivery and integration of these components, beginning in May 2001, the Company permitted TAP to manufacture these components in a portion of the Company's manufacturing facility in Jacksboro, Tennessee, for which TAP paid to the Company occupancy charges of approximately $39,600, $39,600 and $26,400 for the years ended December 31, 2003, 2002 and 2001, respectively. (The rent paid by TAP is an estimated allocable portion of the Company's total rent for the entire facility.) Terry Brooks also owned another company, U.S. Manufacturing Corporation, that received revenues of $560,000 and $43,355 from the Company in 2003 and 2002 for stitching work, but has since been merged into TAP. TAP is an approved subcontractor under the applicable contracts between the Company and the United States federal government. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES AUDIT FEES. The aggregate fees billed for professional services rendered by Grant Thornton for the audit of the Company's financial statements ("Audit Services") during the year ended December 31, 2002 were $179,820. The aggregate fees billed by Grant Thornton for services rendered to the Company, other than the services described above under "Audit Fees", for the fiscal year ended December 31, 2002 were approximately $7,500. These fees were principally for review of the Company's Quarterly Reports on Form 10-Q. There were no audit or non-audit services rendered by Grant Thornton to the Company prior to May 29, 2002. The Company's current independent accountants, Weiser LLP, had billed the Company a total of $160,000 for audit services (in respect of the 2003 fiscal year) through March 1, 2004. TAX FEES. Grant Thornton billed the Company $11,250 for the preparations of its corporate income taxes for the year ended December 31, 2002. Weiser LLP has provided the Company with professional services for tax compliance, tax advice or tax planning and billed aggregate fees of approximately $30,000 for such professional services through March 1, 2004. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. Grant Thornton did not render any professional services described in paragraph (c)(4)(ii) of Rule 2-01 of Regulation S-X (17 C.F.R. 210.2-01), for the Company during the year ended December 31, 2002. The Audit Committee determined that the absence of any such services was compatible with maintaining the independence of Grant Thornton LLP. There were no audit or non-audit services rendered by Grant Thornton to the Company prior to May 29, 2002. No such services have to date been provided to the Company by Weiser LLP. 34 ALL OTHER FEES. Grant Thornton billed an "exit" fee for the change in accountants of $31,800. There were no other fees billed or services rendered to the Company by Grant Thornton, other than the services described above for the fiscal year ended December 31, 2002. There were no audit or non-audit services rendered by Grant Thornton to the Company prior to May 29, 2002. Except for audit and tax fees described above, Weiser LLP has not billed the Company or provided any services other than in connection with the audit of the Company's financial statements and tax planning during the year ended December 31, 2003. PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K. A. EXHIBITS AND FINANCIAL STATEMENTS (1) FINANCIAL STATEMENTS (2) FINANCIAL STATEMENT SCHEDULES (3) EXHIBITS. THE EXHIBITS FILED HEREWITH ARE SET FORTH ON THE INDEX OF EXHIBITS FILED AS PART OF THIS REPORT. B. FORM 8-K: The Company filed the following Reports on Form 8-K during the year ended December 31, 2003: (1) Form 8-K filed February 25, 2003 to report an amendment and increase of the Company's revolving credit facility. (2) Form 8-K filed April 30, 2003 to report financial results for the quarterly period ended March 31, 2003. The Form 8-K included financial statements. (3) Form 8-K filed July 24, 2003 to report financial results for the quarterly period ended June 30, 2003. The Form 8-K included financial statements. (4) Form 8-K filed August 27, 2003 as amended by Form 8-K/A filed September 9, 2003, by Form 8-K/A #2 filed on October 16, 2003, Form 8-K/A #3 filed on October 29, 2003, Form 8-K/A # 4 filed November 24, 2003, and Form 8-K/A #5 filed on December 1, 2003; all regarding the resignation of the Company's former independent accountants, Grant Thornton LLP. (5) Form 8-K filed September 2, 2003 to report the engagement of Weiser LLP as the Company's new independent accountants. (6) Form 8-K filed November 12, 2003 to report financial results for the quarterly period ended September 30, 2003. The Form 8-K included financial statements. 35 THE INDEPENDENT AUDITOR'S REPORT OF GRANT THORNTON, LLP IS NOT ATTACHED TO THIS ANNUAL REPORT ON FORM 10-K BECAUSE THE CHANGE OF THE COMPANY'S ACCOUNTANTS IN AUGUST 2003 AND THE COMPANY'S IMPLEMENTATION OF ADDITIONAL DISCLOSURE CONTROLS AND PROCEDURES, EACH AS DISCLOSED IN THIS ANNUAL REPORT ON FORM 10-K, DELAYED CERTAIN ACCOUNTING DETERMINATIONS UNTIL VERY LATE IN THE AUDIT PROCESS, WHICH GAVE GRANT THORNTON, LLP INSUFFICIENT TIME TO COMPLETE ITS REVIEW OF THE ANNUAL REPORT ON FORM 10-K AND ISSUE ITS REPORT IN TIME TO INCLUDE ITS REPORT IN THE ANNUAL REPORT ON FORM 10-K. THE COMPANY INTENDS TO FILE GRANT THORNTON'S REPORT IN AN AMENDED ANNUAL REPORT ON FORM 10-K AS SOON AS IT IS RECEIVED. DHB INDUSTRIES, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONTENTS PAGE Report of Independent Certified Public Accountants: Weiser LLP F-2 Report of Independent Certified Public Accountants: Grant Thornton LLP F-3 Report of Independent Certified Public Accountants: Paritz and Company P.A. F-4 Consolidated Balance Sheets F-5 Consolidated Statements of Operations F-6 Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income F-7 Consolidated Statements of Cash Flows F-8 Notes to the Consolidated Financial Statements F-9- F- 25 Schedule II - Valuation and Qualifying Accounts F-26 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders of DHB Industries, Inc. We have audited the accompanying consolidated balance sheet of DHB Industries, Inc. and Subsidiaries (the "Company") as of December 31, 2003, and the related consolidated statements of operations, stockholders' equity (deficit) and comprehensive income, and cash flows for the year then ended. These 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 audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we 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 consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of DHB Industries, Inc. and Subsidiaries as of December 31, 2003, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. We have also audited the financial statement schedule listed in the Index at Item 15(a)(2) for the year ended December 31, 2003. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ WEISER LLP New York, New York March 5, 2004 (except for Note 6, as to which the date is March 15, 2004) F-2 INDEPENDENT AUDITORS' REPORT The Board of Directors of DHB Industries, Inc. We have audited the accompanying consolidated balance sheet of DHB Industries, Inc. and Subsidiaries as of December 31, 2001 and the related consolidated statements of operations, stockholders' equity and other comprehensive income and cash flows for each of the two years in the period ended December 31, 2001. Our audits also included the financial statement schedule. 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 audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit 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 provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of DHB Industries, Inc. and Subsidiaries as of December 31, 2001 and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. On March 5, 2002 we originally reported on the consolidated financial statements referred to above. This report was issued prior to the discovery of the matters set forth in Note 10 and Note 13-Leases, to the consolidated financial statements, wherein revisions of disclosures in connection with certain other related party transactions existing as of December 31, 2001 and 2000, and for the year then ended are described. Paritz and Company P.A. Hackensack, New Jersey March 5, 2002 (except for Note 10,and Note 13- Leases, as to which the date is July 18, 2003) F-4 DHB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) DECEMBER 31, 2003 2002 _______ _______ ASSETS Current assets: Cash and cash equivalents $ 441 $ 393 Accounts receivable, less allowance for doubtful accounts of $852 and $1,070, respectively 33,707 22,904 Inventories 54,753 33,360 Deferred income tax assets 372 3,319 Prepaid expenses and other current assets 1,518 971 _______ _______ Total current assets 90,791 60,947 _______ _______ Property and equipment, net 1,819 1,620 _______ _______ Other assets: Other investment -- 942 Deferred income tax assets 437 1,402 Deposits and other assets 381 460 _______ _______ Total other assets 818 2,804 _______ _______ Total assets $93,428 $65,371 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 9,465 $ 5,368 Accrued expenses and other current liabilities 5,635 2,454 Note payable - bank 2,000 -- Income taxes payable 6,869 -- _______ _______ Total current liabilities 23,969 7,822 LONG TERM LIABILITIES Notes payable-bank 22,012 24,354 Note payable - stockholder -- 1,500 Other liabilities 502 350 _______ _______ Total liabilities 46,483 34,026 _______ _______ Minority interest in consolidated subsidiary 207 -- _______ _______ COMMITMENTS AND CONTINGENCIES Stockholders' equity Convertible preferred stock, $0.001 par value, 5,000,000 shares authorized, 500,000 shares of Series A, 12% convertible preferred stock issued and outstanding; liquidation preference $3,000 1 1 Common stock, $0.001 par value, 100,000,000 shares authorized, 40,742,136 and 40,413,746 shares issued and outstanding, respectively 41 40 Additional paid-in capital 35,384 34,792 Accumulated other comprehensive (loss) (53) (41) Retained earnings (accumulated deficit) 11,365 (3,447) _______ _______ Total stockholders' equity 46,738 31,345 _______ _______ Total liabilities and stockholders' equity $93,428 $65,371 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. F-5
DHB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, (In thousands, except share and per share data) 2003 2002 2001 ________ ________ _______ Net sales $230,011 $130,347 $98,015 Cost of goods sold (including related party purchases of $29,803, $7,975 and $2,760, respectively) 166,670 92,621 71,639 ________ ________ _______ Gross profit 63,341 37,726 26,376 Selling, general and administrative expenses 37,325 23,903 13,597 ________ ________ _______ Income before other income (expense) 26,016 13,823 12,779 ________ ________ _______ Other income (expense) Interest expense (1,344) (1,645) (2,513) Write down of other investment (904) -- (71) Gain on sale of subsidiary stock 1,450 Other income (including insurance settlement of $1,009 in 2003) 1,059 130 113 ________ ________ _______ Total other income (expense) 261 (1,515) (2,471) ________ ________ _______ Income before income tax (benefit) expense 26,277 12,308 10,308 ________ ________ _______ Income taxes (benefit) expense Current taxes 7,186 77 175 Deferred tax expense (benefit) 3,912 (3,749) -- ________ ________ _______ Total income tax (benefit) expense 11,098 (3,672) 175 ________ ________ _______ Income before minority interest of subsidiary 15,179 15,980 10,133 Less minority interest of subsidiary (7) -- -- ________ ________ _______ Net income 15,172 15,980 10,133 Dividend - preferred stock (360) (345) -- ________ ________ _______ Income available to common stockholders $ 14,812 $ 15,635 $10,133 ======== ======== ======= Basic earnings per common share $ 0.36 $ 0.42 $ 0.32 ======== ======== ======= Diluted earnings per common share $ 0.34 $ 0.37 $ 0.28 ======== ======== =======
The accompanying notes are an integral part of these consolidated financial statements. F-6
DHB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 (In thousands, except share and per share data) Accumulated Retained Series A Additional Other Earnings Preferred Par Par Paid-in Comprehensive (Accumulated) Shares Value Common Value Capital Loss (Deficit) Total _________ _____ __________ _____ __________ _____________ ________ _______ Balance, December 31, 2000 -- $-- 31,673,977 $ 32 $ 24,535 $(306) $(29,215) $(4,954) _______ Net income 10,133 10,133 Effect of foreign currency translation (29) (29) Effect of valuation allowance marketable securities 283 283 _______ Total comprehensive income 10,387 Sale of common stock 225,000 506 506 Stock issued for services 111,000 355 355 Exercise of stock warrants 150,000 450 450 Purchase of treasury stock -- -- (678,063) (1) (1,737) -- -- (1,738) _________ _____ __________ _____ __________ _____________ ________ _______ Balance December 31, 2001 -- -- 31,481,914 $ 31 $ 24,109 $ (52) $(19,082) $ 5,006 _______ Net income 15,980 15,980 Effect of foreign currency translation 11 11 _______ Total comprehensive income 15,991 Issuance of Series A Preferred Stock 500,000 1 2,999 3,000 Preferred stock dividends paid (345) (345) Issuance of stock warrants to outside consultant 646 646 Exercise of stock warrants (net of taxes) - - 8,931,832 9 7,038 -- -- 7,047 _________ _____ __________ _____ __________ _____________ ________ _______ Balance December 31, 2002 500,000 1 40,413,746 40 $ 34,792 (41) (3,447) 31,345 _______ Net income 15,172 15,172 Effect of foreign currency translation (12) (12) _______ Total comprehensive income 15,160 Preferred stock dividends paid (360) (360) Stock issued for services 80,000 165 165 Exercise of stock warrants 248,390 1 427 428 _________ _____ __________ _____ __________ _____________ ________ _______ Balance, December 31, 2003 500,000 $ 1 40,742,136 $ 41 $ 35,384 $ (53) $ 11,365 $46,738 ========= ===== ========== ===== ========== ============= ======== =======
The accompanying notes are an integral part of these consolidated financial statements. F-7 DHB INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (In thousands, except share and per share data) 2003 2002 2001 ________ ________ ________ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 15,172 $ 15,980 $ 10,133 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 564 463 478 Amortization of deferred financing costs 130 125 30 Provision for doubtful accounts (218) 278 283 Write-off of other investment 942 -- -- Change in minority interest due to sale of subsidiary stock 200 Minority interest in consolidated subsidiary 7 -- -- Stock issued for services 165 -- 355 Issuance of stock warrants to outside consultant 646 Deferred income tax expense 3,912 (4,462) 170 Changes in operating assets and liabilities Accounts receivable (10,585) (11,929) (3,131) Marketable securities -- -- 369 Inventories (21,393) (8,778) (10,285) Prepaid expenses and other current assets (547) 106 (310) Deposits and other assets (53) 67 327 Accounts payable 4,097 (7,930) 2,040 Income taxes payable 6,869 -- -- Accrued expenses and other current liabilities 3,181 (61) (3,033) Other liabilities 152 350 ________ ________ ________ Net cash provided by (used in) operating activities 2,595 (15,145) (2,574) ________ ________ ________ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property and equipment -- 302 -- Purchases of property and equipment (741) (367) (554) ________ ________ ________ Net cash used in investing activities (741) (65) (554) ________ ________ ________ CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid on preferred stock (360) (345) Net (repayments) proceeds of note payable- bank (342) 15,912 8,442 Payments of note payable- stockholder (1,500) (5,500) (6,046) Proceeds from the issuance of long-term debt -- -- 1,800 Issuance costs of long-term debt -- (32) (355) Principal payments on long-term debt (20) (863) (324) Proceeds from the issuance of common stock -- 6,275 956 Purchase of treasury stock -- -- (1,738) Net proceeds from exercise of stock warrants 428 -- -- ________ ________ ________ Net cash provided by (used in) financing activities (1,794) 15,447 2,735 ________ ________ ________ Effect of foreign currency translation (12) 11 (29) ________ ________ ________ Net increase (decrease) in cash and cash equivalents 48 248 (422) Cash and cash equivalents at beginning of year 393 145 567 ________ ________ ________ Cash and cash equivalents at end of year $ 441 $ 393 $ 145 ======== ======== ======== The accompanying notes are an integral part of these consolidated financial statements. F-8 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 1 BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation The consolidated financial statements include the accounts of DHB Industries, Inc. and its subsidiaries ("DHB" or the "Company"), all of which are wholly owned (except for a .0065 interest in a subsidiary, Point Blank Body Armor Inc., ("Point Blank") issued to an unaffiliated third party during December 2003.) DHB has two major divisions, DHB Armor Group and DHB Sports Group. All intercompany balances and transactions have been eliminated in consolidation. Business description DHB Armor Group develops, manufactures, and distributes bullet and projectile resistant garments, bullet resistant and fragmentation vests, bomb projectile blankets, aircraft armor, bullet resistant plates and shields and related ballistic accessories for United States armed forces, federal agencies and state and local law enforcement communities. DHB Sports Group produces and markets a comprehensive line of athletic supports and braces, which are merchandised through national superstore chains. DHB maintains manufacturing facilities in Deerfield Beach, FL, Oakland Park, FL, and Jacksboro, TN. Use of estimates in the preparation of financial statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, 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 net revenue and expenses during each reporting period. Actual results could differ from those estimates. Revenue recognition DHB recognizes revenue when it is realized or realizable and has been earned. Product revenue is recognized when persuasive evidence of an arrangement exists, the product has been delivered and legal title and all risks of ownership have been transferred, written contract and sales terms are complete, customer acceptance has occurred and payment is reasonably assured. Returns are minimal and do not materially affect the consolidated financial statements. Accounts Receivable Accounts receivable consist of trade receivables recorded at original invoice amount, less an estimated allowance for uncollectible accounts. Trade credit is generally extended on a short-term basis; thus trade receivables do not bear interest, although a finance charge may be applied to receivables that are past due. Trade receivables are periodically evaluated for collectibility based on past credit history with customers and their current financial condition. Changes in the estimated collectibility of trade receivables are recorded in the results of operations for the period in which the estimate is revised. Trade receivables that are deemed uncollectible are offset against the allowance for uncollectible accounts. The Company generally does not require collateral for trade receivables. Inventories Inventories are stated at the lower of cost (determined on the first-in, first-out basis) or market. Property and equipment Property and equipment are recorded at cost less accumulated depreciation. Major additions, improvements, and renewals, which substantially increase the useful lives of assets, are capitalized. Maintenance, repairs, and minor renewals are expensed as incurred. Depreciation is calculated primarily on the straight-line basis over the estimated lives of the assets. Leasehold improvements are amortized over the shorter of the estimated life or the term of the related lease. F-9 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 1 BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Cash and cash equivalents All short-term, highly liquid investments with original maturities of ninety days or less are considered cash equivalents. Marketable Securities Investments in marketable securities were accounted for in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". DHB classified all its marketable securities as held for investment and, accordingly, unrealized gains and losses were reflected as a component of other comprehensive income (loss) in the statement of stockholders' equity (deficit) and comprehensive income. During the year ended December 31, 2001, the Company liquidated its investments in marketable securities. Other investment DHB had a cost-based investment in a non-publicly traded company. At December 31, 2002, the investment is included in "Other investment" in the accompanying balance sheet and was carried at cost. During 2003, a decline in the value of this cost-based investment below cost that was deemed other than temporary resulted in the investment being written off at December 31, 2003. Fair values of financial instruments The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying values of cash, accounts receivable, accounts payable and long-term debt approximate their fair values. Income taxes DHB and its domestic subsidiaries file a consolidated Federal income tax return and separate state income tax returns. DHB uses the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Research and development expenses Research and development expenses are included in selling, general and administrative expenses as incurred and for the years ended December 31, 2003, 2002 and 2001 was $10,815, $4,221 and $2,327, respectively. F-10 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 1 BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued Advertising expenses The cost of advertising is expensed as incurred. The Company incurred approximately $1,143, $950 and $742 of advertising costs during the years ended December 31, 2003, 2002 and 2001, respectively. Earnings per share Basic earnings per share is computed by dividing net income, as adjusted for preferred dividends, by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding compounding the effects of all potentially dilutive common stock equivalents, principally warrants, using the treasury stock method except in cases where the effect would be anti-dilutive. Comprehensive income and foreign currency translation Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes foreign currency translation adjustments, which are a component of accumulated other comprehensive loss in stockholders' equity. Stock-based compensation The Company accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations ("APB No. 25") and has adopted the disclosure provisions of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123" ("SFAS No. 148"). Under APB No. 25, when the exercise price of the Company's employee stock warrants equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Accordingly, no compensation expense has been recognized in the consolidated financial statements in connection with employee stock warrant grants. Impairment of long-lived assets DHB reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on DHB's ability to recover the carrying value of the asset or asset group from the expected pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires management to estimate future cash flows and the fair value of long-lived assets. F-11 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 1 BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Continued Reclassification Years prior to 2003 have been reclassified to conform with the 2003 presentation. New Accounting Standards In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others," which expands previously issued accounting guidance and disclosure requirements for certain guarantees. The Interpretation requires an entity to recognize an initial liability for the fair value of an obligation assumed by issuing a guarantee. The provision for initial recognition and measurement of the liability will be applied on a prospective basis to guarantees issued or modified after December 31, 2002. This Interpretation did not have a material impact on the Company's consolidated financial position or results of operations. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure- an amendment of FASB Statement No. 123," which provides optional transition guidance for those companies electing to voluntarily adopt the accounting provisions of SFAS No. 123. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has not changed its method of accounting for stock-based employee compensation. In January 2003, the FASB issued Interpretation No. 46 "Consolidation of Variable Interest Entities," which clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements." Interpretation 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not provide sufficient equity at risk for the entity to support its activities. In December 2003, the FASB concluded to revise certain elements of FIN 46. The FASB also modified the effective date of FIN 46. FIN 46 is to be applied for registrants who file under Regulation S-X in periods ending after March 15, 2004. The Company is currently assessing the application of FIN 46 on its financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The Standard requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatory redeemable financial instruments of nonpublic entities. The adoption of SFAS No. 150 has not had and is not expected to have a material impact on the Company's consolidated financial position or results of operations. F-12 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 2 SUPPLEMENTAL CASH FLOW INFORMATION YEAR ENDED DECEMBER 31, _____________________________________ Cash paid for: 2003 2002 2001 _____________________________________ Interest 1,329 1,618 $2,364 Taxes 295 73 13 For the year ended December 31, 2003, the Company exchanged an approximately 0.0065 interest in Point Blank for $1,650 of inventory pursuant to a transaction which qualifies for non-recognition treatment pursuant to Section 351 of the Internal Revenue Code ("IRC") (See Notes 8 and 14). On January 14, 2002, the Company reduced its note payable-stockholder by $3,000 through the issuance of preferred stock. (See Note 5 and Note 6.) Note 3 INVENTORIES The components of inventories as of December 31, 2003 and 2002 are as follows: 2003 2002 _______ _______ Raw materials and supplies $21,750 $14,833 Work in process 15,430 9,116 Finished goods 17,573 9,411 _______ _______ $54,753 $33,360 ======= ======= Note 4 PROPERTY AND EQUIPMENT Property and equipment, at cost, as of December 31, 2003 and 2002 are summarized as follows: Estimated 2003 2002 Useful life _______ _______ ___________ Machinery and equipment $ 2,215 $ 1,937 5-10 years Furniture, fixtures and 1,147 1,146 3-7 years computer equipment Transportation equipment 453 374 3-5 years Leasehold improvements 970 720 3-10 years or term of _______ _______ lease 4,785 4,177 Less accumulated depreciation (2,966) (2,557) and amortization _______ _______ $ 1,819 $ 1,620 ======= ======= Depreciation and amortization expense for the years ended December 31, 2003, 2002 and 2001 was approximately $564, $463 and $478, respectively. F-13 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 5 NOTE PAYABLE - STOCKHOLDER This note was payable to the principal stockholder of DHB and bore interest at 12% per annum. The $1,500 balance was repaid in May 2003. On January 14, 2002, the note holder exchanged $3,000 of this indebtedness due him for 500,000 shares of the Company's Series A, 12% Convertible Preferred Stock. Note 6 NOTE PAYABLE - BANK DECEMBER 31, 2003 2002 _______ _______ Credit agreement - current $ 2,000 $ -- Credit agreement - non-current 22,012 24,354 _______ _______ $24,012 $24,354 ======= ======= On March 15, 2004, the Company amended its bank credit agreement (the "Credit Agreement"), to increase its borrowings limits from $35,000 to $45,000. Pursuant to the Credit Agreement, the Company may borrow, on a revolving basis, up to $32,500 on 85% of eligible accounts receivable(the "Credit Facility"), and the Company will receive a secured term loan of $12,500, amortizing at the rate of $1,000 per quarter. This new agreement will expire on October 1, 2007. Borrowings under the Credit Agreement bear interest, at the Company's option, at the bank's prime rate or LIBOR plus 1.75% per annum on the revolving Credit Facility and at the bank's prime rate or LIBOR plus 2.25% on the term loan. For 2003, the borrowings bore interest at the bank's prime rate or LIBOR plus 1.75% (3.145% at December 31, 2003). The borrowings under the Credit Agreement are collateralized by a first security interest in substantially all of the assets of the Company. The Company has reflected these transactions in accordance with Statement of Financial Accounting Standards No.6, "Classification of Short-Term Obligations Expected To Be Refinanced". Accordingly, the March 15, 2004 refinancing was retroactively reflected on the December 31, 2003 financial statements. Aggregate maturities of long-term debt are as follows: FOR THE YEARS ENDING DECEMBER 31, ____________________________________ 2004 $ 2,000 2005 4,000 2006 4,000 2007 14,012 _______ $24,012 In addition, the Credit Agreement includes both negative and affirmative covenants customary for a financing of this nature. The Credit Agreement, among other things, requires the Company to maintain a minimum (i) tangible net worth, as defined, (ii) fixed charge coverage ratio, and (iii) earnings before interest, taxes, depreciation and amortization. The Credit Agreement further limits the amount of capital expenditures that the Company may incur in any fiscal year and the payment of dividends. F-14 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 6 NOTE PAYABLE - BANK - Continued Deferred financing costs associated with the Credit Agreement were capitalized and are being amortized over the term of the September 2001 financing. Amortization expense was $130, $125 and $30 during the years ended December 31, 2003, 2002 and 2001, respectively. Note 7 ACCRUED EXPENSES AND OTHER CURRENT LIBILITIES Accrued expenses and other current liabilities consist of the following as of December 31,: 2003 2002 _______ ______ Accrued Commissions $ 815 $ 545 Accrued Wages 1,502 397 Accrued Inventory 1,017 -- Accrued Legal and professional fees 796 564 Accrued other expenses 1,138 948 Customer deposits 367 -- _______ ______ Total accrued expenses and other current liabilities $ 5,635 $2,454 ======= ====== Note 8 MINORITY INTEREST The Company's minority interest on the consolidated balance sheet includes the 10.76 minority shares related to its Point Blank subsidiary at December 31, 2003. The Company sold stock of a subsidiary representing approximately 0.0065 minority interest for $1,650 of inventory. This interest had a book value of approximately $200, which resulted in a gain on the sale of the stock of the subsidiary of approximately $1,450 included in other income. Note 9 STOCKHOLDERS' EQUITY Convertible Preferred Stock DHB is authorized to issue 5,000,000 shares of Preferred Stock ("Preferred Stock"). On January 14, 2002, the principal stockholder of the Company exchanged $3,000 of the indebtedness due him for 500,000 shares of Series A, 12% Convertible Preferred Stock. The Series A, 12% Convertible Preferred Stock has a dividend rate of $0.72 per share per annum, an amount equal to the interest that would have been payable on the exchanged indebtedness. Shares of the Series A, 12% Convertible Preferred Stock are convertible, on a one-to-one basis, at the option of the holder, into shares of common stock. The shares of Series A, 12% Convertible Preferred Stock are redeemable at the option of the Company on December 15 of each year. The Preferred Stock may be redeemed at the option of the Company at an amount in cash equal to $6 per share, as defined. In addition, the Preferred Stock has a liquidation preference at an amount equal to $6 per share, as defined. Common Stock DHB has 100,000,000 shares authorized of its $0.001 par value common stock. F-15 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 9 STOCKHOLDERS' EQUITY - Continued Treasury Stock On December 1, 2000, the Company's Board of Directors announced the directive for the Company to purchase up to 2,000,000 shares of its common stock in the open market, from time to time, at its discretion. As of December 31, 2003, the Company still has authorization to purchase 1,264,395 shares of its common stock. The Credit Agreement, as described in Note 6, limits the dollar amount available to purchase treasury shares based upon an excess cash flow calculation, as defined. All treasury shares repurchased by the Company are immediately retired. Earnings per common share Basic earnings per common share calculations are based on the weighted average number of common shares outstanding during each period: 40,588,605, 37,275,920, and 31,455,406 shares for the years ended December 31, 2003, 2002, and 2001, respectively. Calculations for diluted earnings per share are based on the weighted average number of outstanding common shares and common share equivalents during the periods: 44,196,802, 42,304,254, and 36,775,910 shares for the years ended December 31, 2003, 2002 and 2001, respectively.
Income Shares Per Share (numerator) (denominator) Amount ___________ _____________ _________ Basic EPS Income available for common stockholders for the year ended December 31, 2003 $14,812 40,588,605 $ 0.36 Add preferred stock dividends 360 Convertible preferred stock 500,000 Warrants 3,108,197 _______________________________________________ Diluted EPS $15,172 44,196,802 $ 0.34 ======= ========== ====== Basic EPS Income available for common stockholders for the year ended December 31, 2002 $15,635 37,275,920 $ 0.42 Add preferred stock dividends 345 _______________________________________________ Diluted EPS $15,980 42,304,254 $ 0.37 ======= ========== ====== Basic EPS Income available for common stockholders for the year ended December 31, 2001 $10,133 31,455,406 $ 0.32 _______________________________________________ Diluted EPS $10,133 36,775,910 $ 0.28 ======= ========== ======
Stock option plan The Company adopted a 1995 Stock Option Plan ("Plan") pursuant to which the Board of Directors is authorized to award options to purchase up to 5,000,000 shares of common stock to selected officers, employees, agents, consultants and other persons who render services to the Company. All of the options granted are covered under the plan. F-16 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 9 STOCKHOLDERS' EQUITY - Continued Stock warrants In January 2003, the then five members of the Board of Directors were each awarded 50,000 warrants exercisable at $1.41 per share for five years. In July 2003, the new Board member was granted 50,000 warrants exercisable at $4.33 per share for five years. Also during the year ended December 31, 2003, the Board of Directors awarded key employees 35,000 and 33,000 warrants exercisable at $2.01 and $3.85 per share, respectively, which expire in February 2008 and July 2008. The Company also issued and subsequently canceled 10,000 warrants to an employee. During the year ended December 31, 2002, the five members of the Board of Directors were each awarded 25,000 warrants exercisable at $7.11 per share for five years. Also during the year ended December 31, 2002, the Board of Directors awarded key employees 25,000 warrants exercisable at $7.11 per share, which expire in April 2007. The Company also issued and canceled 150,000 warrants to an employee. On June 4, 2002, the Company issued 275,000 warrants to its investor relations firm with an exercise price of $4.95 per share. This warrant expires June 4, 2006. The fair value of this warrant was determined to be approximately $646,000 which is included in selling, general and administrative expenses for the year ended December 31, 2002. The Black-Scholes warrant pricing model used for this warrant had the following assumptions: Risk-free interest rate of 4.67%, expected volatility of common stock of 59.83% and a 4-year option term. During the year ended December 31, 2002, the CEO/Chairman and his wife exercised warrants totaling 5,593,751 shares. A summary of the status of the Company's stock warrants is presented in the table below:
For the Year Ended December 31, 2003 2002 2001 ______________________ _______________________ _______________________ Weighted Weighted Weighted Average Average Average exercise exercise exercise Shares Price Shares Price Shares Price _________ ________ __________ ________ __________ ________ Warrants outstanding -beginning of year 5,163,857 $ 1.64 13,620,689 $ 1.72 13,007,666 $ 1.74 Granted 378,000 $ 2.08 625,000 $ 5.15 763,023 $ 2.13 Exercised (248,390) $ 2.61 (8,931,832) $ 0.58 (150,000) $ 3.00 Cancelled (170,467) $ 5.09 (150,000) $ 2.92 -- _________ __________ __________ Warrants outstanding - end of year 5,123,000 $ 1.51 5,163,857 $ 1.64 13,620,689 $ 1.72 ========== ====== ========= ==========
F-17 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 9 STOCKHOLDERS' EQUITY - Continued The per share weighted average fair value of stock warrants granted during the years ended December 31, 2003 and 2002 was $1.71 and $5.1625, respectively. The fair value of these warrants was determined at the date of grant using the Black-Scholes warrant pricing model with the following assumptions: The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock warrants have characteristics significantly different from those of traded warrants and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock warrants. The assumptions used to estimate these values are as follows: Grants Issued During ____________________ 2003 2002 2001 ____ ____ ____ Risk-free interest rate 2.86% 4.67% 4.92% Expected volatility of common stock 98.44% 94.54% 100.67% Dividend yield 0.00% 0.00% 0.00% Expected term 5 years 5 years 5.14 years The following table illustrates the effect on net income and earnings per share had the Company applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
YEAR ENDED DECEMBER 31, _______________________________ 2003 2002 2001 _______ _______ _______ Net income $15,172 $15,980 $10,133 Less dividend - preferred stock. (360) (345) -- _______ _______ _______ Income available to common stockholders as reported $14,812 $15,635 $10,133 Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect 1,027 1,829 2,225 _______ _______ _______ Pro forma $13,785 $13,806 $ 7,908 ======= ======= ======= Basic earnings per common share As reported $ 0.36 $0.42 $ 0.32 Pro forma $ 0.34 $0.37 $ 0.25 Diluted earnings per common share As reported $ 0.34 $0.37 $ 0.28 Pro forma $ 0.32 $0.33 $ 0.21
F-18 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 9 STOCKHOLDERS' EQUITY - Continued Pro forma compensation expense may not be indicative of pro forma expense in future years. For purposes of estimating the fair value of each warrant on the date of grant, the Company utilized the Black-Scholes option-pricing model. The following table summarizes information regarding stock warrants outstanding at December 31, 2003.
Weighted Average Weighted Number of Remaining Average Number of Weighted Exercise Price Warrants Contractual Exercise Shares Average Range Outstanding Life Price Exercisable Exercise Price 0 to $1.00 3,750,000 6.51 $1.00 3,000,000 $1.00 $1.01 to $1.50 250,000 4.04 $1.41 250,000 $1.41 $1.51 to $2.00 530,000 2.75 $2.00 420,000 $2.00 $2.01 to $2.50 135,000 4.10 $2.37 120,000 $2.42 $2.51 to $3.00 5,000 1.09 $3.00 5,000 $3.00 $3.01 and above 453,000 2.73 $5.24 420,000 $4.95 _________ _________ Totals 5,123,000 5.57 $1.53 4,215,000 $1.60 ========= =========
Note 10 RELATED PARTY TRANSACTIONS A summary of related party transactions paid or accrued to DHB's principal stockholder for the years ended December 31, 2003, 2002 and 2001 is as follows:
2003 2002 2001 ____ ____ ____ Repayment of note payable stockholder $1,500 $5,500 $6,046 Interest expense 95 710 2,296 Rent expense 811 1,060 607 Deferred rent included above (118) (350) -- Dividends 360 345 --
The Company leases an office and manufacturing facility from an entity indirectly owned by the principal stockholder of DHB pursuant to a lease expiring December 31, 2010, with annual rental of approximately $693, $643 and $607 during the years ended December 31, 2003, 2002 and 2001, respectively, and with 6% annual increases thereafter. In addition, included in rental expense was a non-cash expense of $152 and $350 relating to the straight-lining of the rent for the years ended December 31, 2003 and 2002. The Company has been purchasing certain products, which are components of ballistic resistant apparel, manufactured and sold by the Company, from a corporation owned by a shareholder andthe wife of DHB's principal stockholder. The total of such purchases during the years ended December 31, 2003, 2002 and 2001 were approximately $29,243, $7,975 and $2,760, respectively. The Company also sells certain components to this entity, which are used in manufacturing the products that the Company purchases from this entity. In addition, this entity F-19 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) sub-leases a portion of the Company's Tennessee facility, for which the Company received approximately $40, $40 and $26 during the years ended December 31, 2003, 2002 and 2001, respectively. The Company was owed $580 by this entity at December 31, 2002, which is included in accounts receivable in the accompanying consolidated balance sheets. The Company owed $108, $1,665 and $208 to this entity at December 31, 2003, 2002 and 2001, respectively, for purchases made, which is included in accounts payable in the accompanying consolidated balance sheets. DHB's principal stockholder's wife also owned another company that received revenues of $560 and $43 from the Company during the year ended December 31, 2003 and 2002, respectively, for stitching work. In 2003, company has since been merged into the other entity. The Company has indebtedness to the principal stockholder as described in Note 5. In conjunction with the sale of stock of Point Blank, Point Blank entered into a marketing and consulting agreement with an affiliate of the buyer, pursuant to which such affiliate agreed, in consideration of a cash payment of $634,000, to assist Point Blank in the marketing, sales and distribution of Point Blank's body armor products in Asia, Saudi Arabia, Turkey and Jordan. Note 11 CONCENTRATION OF CREDIT RISK The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $100,000. The Company's accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts. Approximately 77%, 76% and 75% for the years ended December 31, 2003, 2002 and 2001, respectively, of DHB's sales were made to the United States Government or its agencies. A substantial portion of the products sold by DHB are used in situations which could result in serious personal injuries or death, whether on account of the failure of such products, or otherwise. Although DHB maintains substantial amounts of insurance coverage to cover such risks, there is no assurance that these amounts would be sufficient to cover the payment of any potential claims. In addition, there is no assurance that this or any other insurance coverage will remain available or, if available, that DHB would be able to obtain such insurance at a reasonable cost. The inability to obtain such insurance coverage would prohibit DHB from bidding for certain orders for bullet resistant products from certain governmental customers. Substantially all of the raw materials used in the manufacturing of ballistic-resistant garments are made from fabrics which are patented by major corporations and which are purchased from four independent weaving or manufacturing companies. If any of the manufacturers ceases to produce these products for any reason, DHB would be required to use other fabrics. In such an event, an alternative fabric would have to be selected and ballistic tests would need to be performed. Until this was done, DHB's sale of ballistic resistant products would be severely curtailed and DHB's financial condition would be materially adversely affected. Note 12 SEGMENT INFORMATION As described in Note 1, the Company operates in two principal segments: ballistic-resistant equipment and protective athletic/sports products. Financial information on the Company's business segments is as follows: F-20 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 12 SEGMENT INFORMATION - Continued
2003 2002 2001 ________ ________ ________ NET SALES Ballistic-resistant equipment $224,152 $124,860 $ 93,506 Protective athletic & sports products 5,859 5,492 4,520 ________ ________ ________ 230,011 130,352 98,026 Less inter-segment sales -- (5) (11) ________ ________ ________ Consolidated net sales $230,011 $130,347 $ 98,015 ======== ======== ======== INCOME FROM OPERATIONS Ballistic-resistant equipment $ 33,618 $ 17,534 $ 15,029 Protective athletic & sports products 426 563 94 Corporate and other (1) (8,028) (4,274) (2,344) ________ ________ ________ Consolidated operating income $ 26,016 $ 13,823 $ 12,779 ======== ======== ======== DEPRECIATION AND AMORTIZATION EXPENSE Ballistic-resistant equipment $ 350 $ 289 $ 223 Protective athletic & sports products 64 86 157 ________ ________ ________ 414 375 380 Corporate and other 150 88 98 ________ ________ ________ Consolidated depreciation amortization expense $ 564 $ 463 $ 478 ======== ======== ======== INTEREST EXPENSE Ballistic-resistant equipment $ 1,238 $ 935 $ 463 Protective athletic & sports products -- -- 77 ________ ________ ________ 1,238 935 540 Corporate and other (2) 106 710 1,973 ________ ________ ________ Consolidated interest expense $ 1,344 $ 1,645 $ 2,513 ======== ======== ======== INCOME TAXES (BENEFIT) Ballistic-resistant equipment $ 14,341 $ 22 $ 143 Protective athletic & sports products 182 2 -- ________ ________ ________ 14,523 24 143 Corporate and other (2) (3,425) (3,696) 32 ________ ________ ________ Consolidated tax (benefit) expense $ 11,098 $ (3,672) $ 175 ======== ======== ======== IDENTIFIABLE ASSETS Ballistic-resistant equipment $ 88,503 $ 56,471 Protective athletic & sports products 3,186 2,907 ________ ________ 91,689 59,378 Corporate and other (2) 1,739 5,993 ________ ________ Consolidated assets $ 93,428 $ 65,371 ======== ========
Foreign sales accounted for 1%, 2% and 2% of the total revenues for the years ended December 31, 2003, 2002 and 2001, respectively. Foreign identifiable assets accounted for 0%, 1% and 1% of the total assets at December 31, 2003, 2002 and 2001, respectively. (1) Corporate and other includes corporate general and administrative expenses. (2) Corporate assets are principally deferred income tax assets and property and equipment. F-21 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 13 COMMITMENTS AND CONTINGENCIES Leases The Company has non-cancelable operating lease, which expire through 2014. These leases generally require the Company to pay certain costs, such as real estate taxes. As further described in Note 10, the Company leases an office and manufacturing facility from an entity owned by a related party. In addition, the Company subleases a portion of one of its facilities to an entity owned by a related party as described in Note 10. Pursuant to such sublease, which expired on December 31, 2003, the Company received sublease income of approximately $40 for the year ending December 31, 2003. In December 2003, the Company entered into a lease for an additional facility for the purpose of expanding its operations. This lease expires on April 30, 2014 and requires annual base rental payments of $723. As of December 31, 2003, future minimum lease commitments (excluding renewal options) under non-cancelable leases are approximately: For the Years Ending December 31, _________________________________ 2004 $ 1,698 2005 2,201 2006 2,159 2007 2,205 2008 2,064 Thereafter 7,557 _______ $17,884 ======= Rent and real estate tax expense on operating leases for the years ended December 31, 2003, 2002 and 2001 aggregated approximately $1,820, $1,785 and $1,106, respectively. Employment agreements The Company is party to an employment agreement dated July 1, 2000 with its principal stockholder, which expires in July 2005 and provides for an initial base salary of $500 per annum. The base salary is increased $50 each year on the anniversary. In addition, on the effective date of the employment agreement, the employee received 3,750,000 warrants, exercisable at $1.00 per share and vesting 20% immediately and in 20% annual increments thereafter. The warrants expire in July 2010. Litigation The Company filed a lawsuit against its insurance carrier and an insurance agent for negligence and breach of fiduciary duties as a result of the damages incurred during Hurricane Irene in October 1999. During 2003, this case was settled with all parties for $1,009, net of legal fees. In October 2002, the Company was served with a derivative shareholder suit against the Company's officers and directors as well as the Company itself. This case was dismissed with prejudice on March 13, 2003, without liability to the Company or its officers or directors. The Company is seeking dismissal of another identical suit brought on behalf of a second shareholder, on the same grounds that required dismissal in the other suit. F-22 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 13 COMMITMENTS AND CONTINGENCIES - Continued On or about October 30, 2002, the Company filed a lawsuit against certain union leaders in the United States District Court for the Southern District of Florida, claiming defamation, conspiracy to defame and tortious interference with contractual and ongoing business relationships. The Company is vigorously pursuing this action. The Company is subject to other legal proceedings and claims, which have arisen in the ordinary course of its business and have not been finally adjudicated. These actions when ultimately concluded and determined will not, in the opinion of management, have a material adverse effect on the results of operations or the financial condition of the Company. The Company is currently the subject of an investigation by the Securities and Exchange Commission with respect to certain related party transactions. Note 14 INCOME TAXES Components of income taxes are as follows: 2003 2002 2001 ______ _______ _____ Federal Current $6,143 $ 0 $ 0 Deferred 3,521 (3,175) 0 ______ _______ _____ Total federal $9,664 $(3,175) $ 0 ====== ======= ===== State Current $1,043 $ 77 $ 175 Deferred 391 (574) 0 ______ _______ _____ Total state $1,434 $ (497) $ 175 ====== ======= ===== A reconciliation of the statutory federal income tax rates to the Company's effective tax rate for the years ended December 31 is as follows:
2003 2002 2001 _____ _____ ---- Statutory U.S. income tax rate 34.00% 34.00% 34.00% Utilization of federal net operating loss carryforwards (34.00) (34.00) Utilization of state net operating loss carryforwards (5.00) Reduction of valuation allowance (23.39) Other 3.3 .08 State and local income taxes (benefit), net of federal benefits 4.9 (1.52) 1.60 _____ _____ ______ Effective tax rate 42.2% (29.83)% 1.60% ===== ====== ======
F-23 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data) Note 14 INCOME TAXES - CONTINUED The significant components of deferred tax assets and liabilities as of December 31, were as follows: 2003 2002 2001 ______ ______ ______ Net operating loss carryforwards $ -- $2,843 $5,440 AMT credit 7 21 Accounts receivable reserve 437 417 270 Deferred rent 187 137 Inventories 455 Deferred compensation 178 252 Capital loss carryover 641 641 95 Write down of non-marketable securities 448 Write down of investment in Point Blank Int'l -- 596 520 ______ ______ ______ 1,450 5,362 6,773 Less valuation allowance 641 641 6,514 ______ ______ ______ Net deferred income tax assets $ 809 $4,721 $ 259 ====== ====== ====== During the year ended December 31, 2002, the Company reduced approximately $5,873 of valuation allowance placed on the U.S. portion of the Company's deferred tax assets. This reduction was based on updated expectations about future years' taxable income to reflect continuing improvements in operating results influenced by the Company's continued revenue growth, and other indications that certain concerns that had previously limited management's expectations about future taxable income no longer were applicable. Year-End Transaction On December 19, 2003, DHB's subsidiary Point Blank Body Armor, Inc. ("Point Blank") issued to Hightower Capital Management, LLC ("Hightower") shares of common stock of Point Blank representing approximately 1% of the outstanding capital stock of Point Blank in consideration of which Hightower had transferred and delivered to Point Blank, on December 19, 2003 certain inventories of ballistic plates and other goods usable in Point Blank's business. The inventory received by Point Blank had an aggregate list price of $1,650,000, equal to the appraised value of the shares of Point Blank issued to Hightower (such appraisal having been performed by an independent business appraiser). Simultaneously, DHB contributed to Point Blank shares of common stock of DHB's subsidiary NDL Products, Inc. ("NDL") having an aggregate appraised value equal to 10% of the appraised value of Point Blank (such appraisal of NDL having been performed by the same independent business appraiser as performed the appraisal of Point Blank), in consideration of which Point Blank issued to DHB a number of shares of common stock of Point Blank having an equivalent appraised value. DHB has retained rights of first refusal and rights to repurchase the shares of Point Blank issued to Hightower, either at the offered price (in the event of a proposed sale by Hightower) or at fair market value (in the event of termination of the business relationship between Point Blank and Hightower). Due to the fact that the amount of the income tax benefit is uncertain, an estimated reserve of approximately $3,500,000 was recorded as of December 31, 2003. Note 15 QUARTERLY RESULTS (UNAUDITED) The following table presents summarized quarterly results of operations for the Company for the years ended December 31, 2003 and 2002. The Company believes all necessary adjustments have been included in the amounts stated below to present fairly the following selected information when read in conjunction with the consolidated financial statements and notes thereto included elsewhere herein. Future quarterly operating results may fluctuate depending on a number of factors. Results of operations for any particular quarter are not necessarily indicative of results of operations for a full year or any other quarter. During the fourth quarter of 2002, the Company recorded certain adjustments as described in Note 15 to the Company's consolidated financial statements contained in Form 10-K/A filed with the SEC on July 24, 2003. The effect of these adjustments on the condensed consolidated statements of operations for the first quarter of 2002 was a decrease in net income and no change in basic and diluted earnings per share. For the second and third quarters of 2002 there would have been a decrease in net income, basic earnings per share, and diluted earnings per share for each quarter. The Company has restated the three and nine months ended September 30, 2002, to show the effect of the adjustments on the condensed consolidated statements of operations. The first adjustment was an additional accrual to straight-line rent expense in accordance with SFAS No. 13 "Accounting for Leases," which increases the selling, general and administrative expenses by $39 for each of the first three quarters of 2002 for a total of $117 for the nine months ended September 30, 2002. In addition to straight-lining rent expense, the Company recorded in the fourth quarter of 2002 a $646 expense for the issuance of stock warrants to an unaffiliated outside consultant, of which $146 and $284 was applicable to the second and third quarter of 2002, respectively. These adjustments increase selling, general and administrative expenses for the first quarter, second quarter and third quarter of 2002 and decreased the selling, general and administrative expenses for the fourth quarter of 2002. F-24 DHB INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except share and per share data)
First Second Third Fourth Quarter Quarter Quarter Quarter _______ _______ _______ _______ Year ended December 31, 2003 Net sales $46,153 $56,525 $54,417 $72,916 Gross profit 12,968 15,524 14,818 20,031 Income available to common stockholders 4,929 3,961 3,160 2,762 Basic earnings per share $ 0.12 $ 0.10 $ 0.08 $ 0.07 Diluted earnings per share $ 0.12 $ 0.09 $ 0.07 $ 0.06 Year ended December 31, 2002 - as restated Net sales $33,636 $34,014 $30,146 $32,548 Gross profit 9,454 10,037 9,141 9,093 Income available to common stockholders 4,719 4,241 952 5,723 Basic earnings per share $ 0.14 $ 0.11 $ 0.02 $ 0.14 Diluted earnings per share $ 0.11 $ 0.10 $ 0.02 $ 0.13
F-25 DHB INDUSTRIES, INC. AND SUBSIDIARIES SCHEDULE II TO THE FINANCIAL STATEMENTS VALUATION AND QUALIFYING ACCOUNTS DECEMBER 31, 2003, 2002 AND 2001 (In thousands) Allowances deducted from related balance sheet accounts: Accounts Receivable Inventory __________ _________ Balance at December 31, 2000 $ 653 $ -- Additions charged to costs and expenses 290 Deductions/writeoffs (151) -- ______ ____ Balance at December 31, 2001 792 -- Additions charged to costs and expenses 379 Deductions/writeoffs (101) -- ______ ____ Balance at December 31, 2002 1,070 -- Additions charged to 99 226 costs and expenses Deductions/writeoffs (317) -- ______ ____ Balance at December 31, 2003 $ 852 $226 ====== ==== F-26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this the 15th day of March 2004. DHB Industries, Inc. /s/ DAVID H. BROOKS ________________________ David H. Brooks Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE CAPACITY DATE /s/ DAVID H. BROOKS Chairman of the Board, March 15, 2004 ____________________ and Director David H. Brooks /s/ DAWN M. SCHLEGEL Treasurer March 15, 2004 ____________________ Principal Financial Officer Dawn M. Schlegel Principal Accounting Officer /s/ JEROME KRANTZ Director March 15, 2004 ____________________ Jerome Krantz /s/ GARY NADELMAN Director March 15, 2004 ____________________ Gary Nadelman 36 Index of Exhibits. Exhibit Description 3.1 Certificate of Incorporation of DHB Capital Group Inc., a Delaware corporation. 1 3.2 Certificate of Amendment to Certificate of Incorporation filed December 31, 1996 2 3.3 Certificate of Amendment to Certificate of Incorporation filed July 24, 2001 6 3.4 Certificate of Designations & Preference, an amendment to the Certificate of Incorporation filed on December 26, 2001 6 3.5 By-Laws 1 4.2 Stock Subscription Agreement between the Registrant and David Brooks, dated December 14, 2001 6 4.3 Form of Warrant Agreement with respect to all Outstanding Warrants 3 10.1 Employment Agreement dated July 1, 2000 between DHB and David Brooks 3 10.2 Promissory Note between the Company and David Brooks dated November 6, 2000 3 10.3 1995 Stock Option Plan 4 10.6 Sale agreement dated March 10, 2000 between DHB and DMC2 Electronic Components 5 10.7 Lease agreement dated January 1, 2001 between Point Blank Body Armor and VAE Enterprises. 3 10.8 Lease agreement dated April 15, 2001 between DHB Capital Group and A&B Holdings, Inc. 3 10.9 Loan and Security Agreement dated September 24, 2001 with LaSalle Business Credit Inc. 7 10.10 First Amendment and Waiver to Loan and Security Agreement, dated June 28, 2002 8 10.11 Second Amendment to Loan and Security Agreement, dated February 25, 2003 9 10.12 Third Amendment to Loan and Security Agreement, dated as of August 30, 2002 10 10.13 Fourth Amendment to Loan and Security Agreement, dated as of November __, 2003 10.14 Industrial Lease dated December 5, 2003 between Point Blank Body Armor Inc. and Atlantic Business Center L.C. 10.15 Fifth Amendment to Loan and Security Agreement, dated as of December __, 2003 10.16 Subscription and Restructuring Agreement dated as of December 19, 2003 by and among Point Blank Body Armor Inc., Hightower Capital Management, LLC and DHB. 10.17 Sixth amendment to Loan and Security Agreement dated March 15, 2004 with LaSalle Business Credit LLC 14 Code of Ethics 37 21 List of Subsidiaries 31.1 Certification of Chairman and Chief Executive Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial Officer pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 32.1 Certification of Chairman and Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Notes to Exhibit Table: 1 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. 2 Incorporated by reference to Post-Effective Amendment No. #2 to the Company's Registration Statement on Form SB-2, File #33-59764, filed on Jan 31, 1997. 3 Incorporated by reference to the Company's Form 10-K for the year ended December 31, 2000, filed March 30, 2001. 4 Incorporated by reference to the Company's Registration Statement on Form S-8 filed on or about November 6, 1995. 5 Incorporated by reference to the Company's Current Report on Form 8-K filed March 23, 2000. 6 Incorporated by reference to the Company's Current Report on Form 8-K filed January 28, 2002. 7 Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2001, filed November 14, 2001. 8 Incorporated by reference to the Company's Current Report on Form 8-K filed July 12, 2002. 9 Incorporated by reference to the Company's Current Report on Form 8-K filed February 25, 2003. 10 Incorporated by reference to the Company's Form 10-Q for the quarter ended September 30, 2003, filed November 14, 2003. 38 EX-10 3 ex10-11.txt EX10.11-2ND AMENDMENT TO LOAN AND SECURITY AGMNT EXHIBIT 10.11 DRAFT 2/14/03 SECOND AMENDMENT (this "AMENDMENT"), dated as of February 17, 2003, to LOAN AND SECURITY AGREEMENT, dated as of September 24, 2001 (as amended, modified or supplemented from time to time, the "LOAN AGREEMENT"), by and among LASALLE BUSINESS CREDIT, INC., a Delaware corporation ("LASALLE"), and PROTECTIVE APPAREL CORPORATION OF AMERICA, a New York corporation ("PACA"), POINT BLANK BODY ARMOR, INC., a Delaware corporation ("POINT Blank"), and NDL PRODUCTS, INC., a Florida corporation ("NDL", and with PACA and Point Blank, collectively, the "BORROWERS" and each, a "BORROWER"), and DHB INDUSTRIES, INC., a Delaware corporation (f/k/a DHB Capital Group, Inc., the "PARENT"). Terms which are capitalized in this Amendment and not otherwise defined shall have the meanings ascribed to such terms in the Loan Agreement. WHEREAS, the Borrowers and Parent have requested that LaSalle consent to an increase in the Maximum Revolving Loan Limit and to the modification of certain other terms and provisions contained in the Loan Agreement; and WHEREAS, LaSalle has consented to such requests, on the terms and subject to the satisfaction of the conditions contained in this Amendment; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION ONE . AMENDMENTS. Effective upon the satisfaction of the conditions set forth in SECTION TWO hereof, the Loan Agreement shall be and is hereby amended as of February 17, 2003 as follows: (A) SECTION 2(A). REVOLVING LOANS. Section 2(a) of the Loan Agreement is amended by deleting in its entirety clause (y) of the proviso found immediately after clause (iv) thereof, and substituting in lieu thereof the following new clause (y): "(y) the Revolving Loan Limit with respect to Revolving Loans made to all Borrowers, at any one time outstanding, shall in no event exceed the following applicable amount: (I) Thirty-Five Million Dollars ($35,000,000) during the period commencing on February 18, 2003 and ending on (and including) August 31, 2003, (II) Thirty Million Dollars ($30,000,000) during the period commencing on September 1, 2003 and ending on (and including) November 30, 2003 and (III) Twenty-Five Million Dollars ($25,000,000) at all times on and after December 1, 2003 (such amount, as in effect on any date of determination, the "Maximum Revolving Loan Limit")." (B) SECTION 8. COLLECTIONS. SECTION 8 is amended by deleting the introductory portion of clause (iii) which follows the definition of the term "Triggering Event", and by substituting the following in lieu thereof: "(iii) during any sixty-day period ending on or after the date one hundred twenty (120) days from the date of this Agreement, less than ninety percent (90%);" (C) SECTION 10. TERMINATION; AUTOMATIC RENEWAL. SECTION 10 is amended by deleting the penultimate sentence thereof, and by substituting the following in lieu thereof: "In the event that the Borrowers elect to and in fact terminate this Agreement and prepay all of the Liabilities on or before February 28, 2004, then, in such event, on the date of such prepayment the Borrowers agree jointly and severally to pay to Lender as a prepayment fee, in addition to the payment of all other Liabilities, an amount equal to one per cent (1%) of the Maximum Revolving Loan Limit in effect on such date." SECTION TWO . CONDITIONS PRECEDENT. This Amendment shall become effective when all of the following conditions, the satisfaction of each of which is a condition precedent to the effectiveness of this Amendment, shall have occurred or shall have been waived in writing by LaSalle. (A) LaSalle shall have received and reviewed each of the following, which shall be in form and substance reasonably satisfactory to it: (i) this Amendment, duly executed by each Borrower and Parent, and by David H. Brooks; (ii) an Amended and Restated Revolving Note, in the form of EXHIBIT A hereto, in the principal amount of $35,000,000, duly executed by each Borrower; (iii) an opinion of counsel to the Borrowers and Parent regarding each Borrower's and Parent's due incorporation, valid existence, good standing and power and authority to execute this Amendment, the due authorization, execution and delivery of this Amendment by each Borrower and Parent, the enforceability of this Amendment against each Borrower and Parent, and such other matters as LaSalle and its counsel may reasonably require; (iv) a Certificate of the Secretary or Assistant Secretary of each Borrower and of Parent (A) relating to the adoption of resolutions by each such Borrower's and Parent's respective Board of Directors approving this Amendment and the other documents executed or delivered in connection herewith by such party, (B) certifying that no amendments have been made to each such Borrower's or Parent's Certificate of Incorporation, as amended, other than the Certificate of Designations and Preferences executed on December 14, 2001, and each such Borrower's or Parent's by-laws, as amended, since September 24, 2001, and (C) further certifying the names and incumbency 2 of officers of each such Borrower and of Parent authorized to sign this Amendment and all other documents executed or delivered in connection herewith, and the names and validity of signatures of such officers. (B) LaSalle shall have received payment, in cash, of an amendment fee in the amount of $25,000, which fee shall be non-refundable and deemed fully earned when paid, and the Borrowers authorize LaSalle to charge any loan account of the Borrowers for such fee. (C) All representations and warranties set forth in the Loan Agreement (except for such inducing representations and warranties that were only required to be true and correct as of a prior date) shall be true and correct in all material respects on and as of the effective date hereof, and no Default or Event of Default shall have occurred and be continuing. (D) No event or development shall have occurred since _________, 2002 which event or development has had or is reasonably likely to have a Material Adverse Effect. (E) LaSalle shall have received a certificate from each Borrower and Parent, executed by the chairman of each such party, as to the truth and accuracy of paragraphs (c) and (d) of this SECTION TWO. (F) All corporate and legal proceedings and all documents and instruments executed or delivered in connection with this Amendment shall be satisfactory in form and substance to LaSalle and its counsel, and LaSalle and its counsel shall have received all information and copies of all documents which it or its counsel may have reasonably requested in connection herewith and the matters contemplated hereunder, such documents, when requested by them, to be certified by appropriate corporate authorities. (G) There shall be no action, suit or proceeding pending or to any Borrower's or Parent's knowledge overtly threatened against any Borrower or Parent before any court (including any bankruptcy court), arbitrator or governmental or administrative body or agency which challenges or relates to the consummation of this Amendment or the other transactions contemplated herein. (H) LaSalle shall have received such further agreements, consents, instruments and documents as may be necessary or proper in the reasonable opinion of LaSalle and its counsel to carry out the provisions and purposes of this Amendment. SECTION THREE . REPRESENTATIONS AND WARRANTIES. Each Borrower and Parent each hereby represents and warrants (which representations and warranties shall survive the execution and delivery hereof) to LaSalle that: (A) Each Borrower and Parent has the corporate or other power, authority and legal right to execute, deliver and perform this Amendment and the other instruments, agreements, documents and transactions contemplated hereby to which it is a party, and has taken all actions necessary to authorize the execution, delivery and performance of this Amendment and the other instruments, agreements, documents to which it is a party and the transactions contemplated hereby and thereby; 3 (B) No consent of any Person (including, without limitation, stockholders or creditors of any Borrower or Parent, as the case may be) other than LaSalle, and no consent, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required in connection with the execution, delivery and performance by each Borrower and Parent, or the validity or enforceability against such parties, of this Amendment and the other instruments, agreements, documents and transactions contemplated hereby to which they are a party; (C) This Amendment has been duly executed and delivered on behalf of each Borrower and Parent by their respective duly authorized officers, and constitutes the legal, valid and binding obligation of such Borrower and Parent, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights of creditors generally or equitable remedies (whether arising in a proceeding at law or in equity); (D) No Borrower or Parent is in material default under any indenture, mortgage, deed of trust, agreement or other instrument to which it is a party or by which it may be bound. Neither the execution and delivery of each of this Amendment, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof will (i) violate any law or regulation, or (ii) result in or cause a violation by any Borrower or Parent of any order or decree of any court or government instrumentality, or (iii) conflict with, or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, material agreement or other material instrument to which each such Borrower or Parent is a party or by which any of them may be bound, or (iv) result in the creation or imposition of any lien, charge, or encumbrance upon any of the property of each such Borrower or Parent, except in favor of LaSalle, to secure the Liabilities, or (v) violate any provision of the Certificate of Incorporation, By-Laws or any capital stock or similar equity instrument of each such Borrower or Parent; (E) No Default or Event of Default has occurred and is continuing on the date hereof; (F) Since the date of Parent's consolidated and consolidating financial statements for the _____ month period ended _________, 2002, no change or event has occurred which has had or is reasonably likely to have a Material Adverse Effect; (G) Upon execution of this Amendment and the satisfaction of the conditions set forth in SECTION TWO hereof, each of Parent and each Borrower, each in its capacity as Guarantor under the Loan Agreement, agrees that the term "Liabilities" shall include any and all Liabilities arising under the Loan Agreement, as amended by this Amendment, including but not limited to any and all Revolving Loans resulting from the increase in the Maximum Revolving Loan Limit from $25,000,000 to $35,000,000 and all interest accruing on such Revolving Loans; (H) Parent and its Subsidiaries, taken as a whole, are, and after giving effect to the transactions contemplated by this Amendment, will be, solvent, able to pay its debts as they become due, has capital sufficient to carry on its business, now owns property having a value both at fair valuation and at present fair saleable value greater than the amount required to pay its debts, and will not be rendered insolvent by the execution and delivery of this Amendment or any of the other agreements instruments being executed in 4 connection herewith or by completion of the transactions contemplated hereunder or thereunder. SECTION FOUR . GENERAL PROVISIONS. (A) Except as herein expressly amended, the Loan Agreement and all other agreements, documents, instruments and certificates executed in connection therewith, are ratified and confirmed in all respects and shall remain in full force and effect in accordance with their respective terms. (B) All references in the Other Agreements to the Loan Agreement shall mean the Loan Agreement as amended hereby and as hereafter amended, supplemented or modified from time to time. From and after the date hereof, all references in the Loan Agreement to "this Agreement," "hereof," "herein," or similar terms, shall mean and refer to the Loan Agreement as amended by this Amendment. (C) This Amendment may be executed by the parties hereto individually or in combination, in one or more counterparts, each of which shall be an original and all which shall constitute one and the same agreement. (D) This Amendment shall be governed and controlled by the internal laws of the State of New York. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 5 IN WITNESS WHEREOF, LaSalle, each Borrower and Parent have caused this Amendment to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. LASALLE BUSINESS CREDIT, INC. By:___________________________________ Name: Title: PROTECTIVE APPAREL CORPORATION OF AMERICA By:___________________________________ Name: Title: POINT BLANK BODY ARMOR, INC. By:___________________________________ Name: Title: NDL PRODUCTS, INC. By:___________________________________ Name: Title: DHB INDUSTRIES INC. By:___________________________________ Name: Title: ACKNOWLEDGED AND CONSENTED TO: ____________________________________ DAVID H. BROOKS 6 EXHIBIT A FORM OF AMENDED AND RESTATED REVOLVING NOTE ORIGINAL DATE OF EXECUTION: SEPTEMBER 24, 2001 DATE OF AMENDMENT AND RESTATEMENT: AS OF FEBRUARY 17, 2003 $35,000,000.00 NEW YORK, NEW YORK FOR VALUE RECEIVED, PROTECTIVE APPAREL CORPORATION OF AMERICA, POINT BLANK BODY ARMOR, INC. and NDL PRODUCTS, INC. (each a "Borrower" and collectively, the "Borrowers") jointly and severally promise to pay to the order of LASALLE BUSINESS CREDIT, INC. (the "Lender"), at its offices located at 135 South LaSalle Street, Chicago, Illinois 60603, the principal sum of Thirty-Five Million and No/100 Dollars ($35,000,000.00) on the Maturity Date, which shall mean the last day of the Original Term, or the applicable Renewal Term, in the event that the Loan Agreement (as defined below) is renewed, as the case may be, or so much of such principal sum as shall be outstanding and unpaid on the Maturity Date, all as more fully set forth in the Loan and Security Agreement, dated as of September 24, 2001 (as the same may be amended, modified, supplemented or restated from time to time, the "Loan Agreement"), by and among each of the Borrowers, DHB Industries, Inc., as Guarantor, the DHB Subsidiaries and the Lender. Terms which are capitalized in this Revolving Note but are not otherwise defined shall have the meanings ascribed to them in the Loan Agreement. The Borrowers further promise jointly and severally to pay (a) the principal of the Revolving Loans, as set forth in Section 2(d)(i) of the Loan Agreement and (b) interest on the outstanding principal amount hereof on the dates and at the rates provided in the Loan Agreement, from the date hereof until payment in full hereof. This Revolving Note is referred to in and delivered pursuant to the Loan Agreement, and is subject to and entitled to all provisions and benefits thereof. The Borrowers hereby authorize the Lender to charge any account of the Borrowers maintained with the Lender for all sums payable hereunder as and when such sums become due. If payment hereunder becomes due and payable on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day, and interest shall be payable thereon at the rate specified during such extension. Credit shall be given for payments made, in the manner and at the times provided in the Loan Agreement. It is the intent of the parties that the rate of interest and other charges to the Borrowers under this Revolving Note shall be lawful; therefore, if for any reason the interest or other charges payable hereunder are found by a court of competent jurisdiction, in a final determination, to exceed the limit which the Lender may lawfully charge the Borrowers, then the obligation to pay interest or other charges shall automatically be reduced to such limit and, if any amount in excess of such limit shall have been paid, then such amount shall be refunded to the Borrowers. The principal and all accrued interest hereunder may be prepaid by the Borrowers, in part or in full, at any time; PROVIDED, HOWEVER, that if the Borrowers terminate the Loan Agreement prior to the Maturity Date, the Borrowers may be required to pay a prepayment fee as provided in Section 10 of the Loan Agreement. The Borrowers waive the benefit of any law that would otherwise restrict or limit the Lender in the exercise of its right, which is hereby acknowledged, to set off against the Liabilities, without notice and at any time hereafter, any amounts owing from the Lender to the Borrowers. The Borrowers agree that the Lender shall not be liable for any error in judgment or mistakes of fact or law, other than for gross negligence. To the extent the Borrowers have any counterclaims, they agree to assert any and all such counterclaims (other than compulsory counterclaims) by separate action. The Borrowers, any other party liable with respect to the Liabilities evidenced hereby and any and all endorsers and accommodation parties, and each one of them, if more than one, waive any and all presentment, demand, notice of dishonor, protest, and all other notices and demands in connection with the enforcement of the Lender's rights hereunder. The Revolving Loans evidenced hereby have been made, and this Revolving Note has been delivered, at New York, New York. THIS REVOLVING NOTE SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, and shall be binding upon the Borrowers and each of their successors and assigns. If this Revolving Note contains any blanks when executed by the Borrowers, the Lender is hereby authorized, without notice to the Borrowers, to complete any such blanks according to the terms upon which the Revolving Loan or Revolving Loans were granted. Wherever possible, each provision of this Revolving Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Revolving Note shall be prohibited by or be invalid under such law, such provision shall be severable, and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Revolving Note. To induce the Lender to make the Revolving Loans evidenced by this Revolving Note, the Borrowers (i) irrevocably agree that all actions arising directly or indirectly as a result or in consequence of this Revolving Note shall be instituted and litigated only in courts having situs in the City of New York, New York; PROVIDED, that Lender may elect to commence an action or proceeding with respect to the Collateral in another jurisdiction, (ii) hereby consent to the exclusive jurisdiction and venue of any State or Federal Court located and having its situs in said city, and (iii) waive any objection based on forum non-conveniens. IN ADDITION, THE BORROWERS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS REVOLVING NOTE, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY ANY BORROWER OR THE LENDER OR WHICH IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN THE BORROWERS AND THE LENDER, waive personal service of any and all process, and consent that all such service of process may be made by certified mail, return receipt requested, directed to 8 the Borrowers at the address indicated in the Lender's records; and service so made shall be complete five (5) days after the same has been deposited in the U.S. mails as aforesaid. This Note amends, supersedes and replaces in its entirety that certain Amended and Restated Revolving Note (the "Original Note") in the original principal amount of Twenty-Five Million and No/100 Dollars ($25,000,000) dated as of June 28, 2002, executed by the Borrowers and payable to the order of the Lender; provided, however, that all of the indebtedness evidenced by the Original Note continues to be outstanding as of the date hereof, no cancellation, adjustment or novation of such indebtedness shall be deemed to have occurred on account of the amendment and restatement of the Original Note pursuant to this Note, and the Borrowers' execution and delivery of this Note shall constitute an express acknowledgment and confirmation of, and agreement with, the foregoing. IN WITNESS WHEREOF, each of the Borrowers has executed this Revolving Note on the date first above set forth. PROTECTIVE APPAREL CORPORATION OF AMERICA By:______________________________________ Title: Name: POINT BLANK BODY ARMOR, INC. By:______________________________________ Title: Name: NDL PRODUCTS, INC. By:______________________________________ Title: Name: 9 EX-10 4 ex10-12.txt EX10.12-3RD AMENDMENT TO LOAN AND SECURITY AGMNT EXHIBIT 10.12 EXECUTION COPY THIRD AMENDMENT (this "AMENDMENT"), dated as of August 30, 2003, to LOAN AND SECURITY AGREEMENT, dated as of September 24, 2001 (as amended, modified or supplemented from time to time, the "LOAN AGREEMENT"), by and among LASALLE BUSINESS CREDIT, LLC, a Delaware limited liability company, successor by merger to LASALLE BUSINESS CREDIT, INC., a Delaware corporation ("LASALLE"), and PROTECTIVE APPAREL CORPORATION OF AMERICA, a New York corporation ("PACA"), POINT BLANK BODY ARMOR, INC., a Delaware corporation ("POINT BLANK"), and NDL PRODUCTS, INC., a Florida corporation ("NDL", and with PACA and Point Blank, collectively, the "BORROWERS" and each, a "BORROWER"), and DHB INDUSTRIES, INC., a Delaware corporation (f/k/a DHB Capital Group, Inc., the "PARENT"). Terms which are capitalized in this Amendment and not otherwise defined shall have the meanings ascribed to such terms in the Loan Agreement. WHEREAS, the Borrowers and Parent have requested that LaSalle extend the period during which the Maximum Revolving Loan Limit of $35,000,000 shall be in effect; and WHEREAS, LaSalle has consented to such request, on the terms and subject to the satisfaction of the conditions contained in this Amendment; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION ONE . AMENDMENT. Upon the satisfaction of the conditions set forth in SECTION TWO hereof, Section 2(a) of the Loan Agreement shall be and is hereby amended as of August 30, 2003 by deleting in its entirety clause (y) of the proviso found immediately after clause (iv) thereof, and substituting in lieu thereof the following new clause (y): "(y) the Revolving Loan Limit with respect to Revolving Loans made to all Borrowers, at any one time outstanding, shall in no event exceed the following applicable amount: (I) Thirty-Five Million Dollars ($35,000,000) during the period commencing on February 18, 2003 and ending on (and including) December 31, 2003 and (II) Twenty-Five Million Dollars ($25,000,000) at all times on and after January 1, 2004 (such amount, as in effect on any date of determination, the "Maximum Revolving Loan Limit")." SECTION TWO . CONDITIONS PRECEDENT. This Amendment is subject to the satisfaction of all of the following conditions, the satisfaction of each of which is a condition precedent to the effectiveness of this Amendment, except to the extent waived in writing by LaSalle. (A) LaSalle shall have received each of the following, which shall be in form and substance reasonably satisfactory to it: (i) this Amendment, duly executed by each Borrower and Parent, and by David H. Brooks; and (ii) a Certificate of the Secretary or Assistant Secretary of each Borrower and of Parent (A) relating to the adoption of resolutions by each such Borrower's and Parent's respective Board of Directors approving this Amendment and the other documents executed or delivered in connection herewith by such party, (B) certifying that no amendments have been made to each such Borrower's or Parent's Certificate of Incorporation, as amended, other than the Certificate of Designations and Preferences executed on December 14, 2001, and each such Borrower's or Parent's by-laws, as amended, since September 24, 2001, and (C) further certifying the names and incumbency of officers of each such Borrower and of Parent authorized to sign this Amendment and all other documents executed or delivered in connection herewith, and the names and validity of signatures of such officers. (B) All representations and warranties set forth in the Loan Agreement (except for such inducing representations and warranties that were only required to be true and correct as of a prior date) shall be true and correct in all material respects on and as of the effective date hereof, and no Default or Event of Default shall have occurred and be continuing. (C) No event or development shall have occurred since December 31, 2002 which event or development has had or is reasonably likely to have a Material Adverse Effect. (D) LaSalle shall have received a certificate from each Borrower and Parent, executed by the chairman of each such party, as to the truth and accuracy of paragraphs (b) and (c) of this SECTION TWO. (E) All corporate and legal proceedings and all documents and instruments executed or delivered in connection with this Amendment shall be satisfactory in form and substance to LaSalle and its counsel, and LaSalle and its counsel shall have received all information and copies of all documents which it or its counsel may have reasonably requested in connection herewith and the matters contemplated hereunder, such documents, when requested by them, to be certified by appropriate corporate authorities. (F) There shall be no action, suit or proceeding pending or to any Borrower's or Parent's knowledge overtly threatened against any Borrower or Parent before any court (including any bankruptcy court), arbitrator or governmental or administrative body or agency which challenges or relates to the consummation of this Amendment or the other transactions contemplated herein. (G) LaSalle shall have received such further agreements, consents, instruments and documents as may be necessary or proper in the reasonable opinion of LaSalle and its counsel to carry out the provisions and purposes of this Amendment. 2 SECTION THREE . REPRESENTATIONS AND WARRANTIES. Each Borrower and Parent each hereby represents and warrants (which representations and warranties shall survive the execution and delivery hereof) to LaSalle that: (A) Each Borrower and Parent has the corporate or other power, authority and legal right to execute, deliver and perform this Amendment and the other instruments, agreements, documents and transactions contemplated hereby to which it is a party, and has taken all actions necessary to authorize the execution, delivery and performance of this Amendment and the other instruments, agreements, documents to which it is a party and the transactions contemplated hereby and thereby; (B) No consent of any Person (including, without limitation, stockholders or creditors of any Borrower or Parent, as the case may be) other than LaSalle, and no consent, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required in connection with the execution, delivery and performance by each Borrower and Parent, or the validity or enforceability against such parties, of this Amendment and the other instruments, agreements, documents and transactions contemplated hereby to which they are a party; (C) This Amendment has been duly executed and delivered on behalf of each Borrower and Parent by their respective duly authorized officers, and constitutes the legal, valid and binding obligation of such Borrower and Parent, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights of creditors generally or equitable remedies (whether arising in a proceeding at law or in equity); (D) No Borrower or Parent is in material default under any indenture, mortgage, deed of trust, agreement or other instrument to which it is a party or by which it may be bound. Neither the execution and delivery of this Amendment, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof will (i) violate any law or regulation, or (ii) result in or cause a violation by any Borrower or Parent of any order or decree of any court or government instrumentality, or (iii) conflict with, or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, material agreement or other material instrument to which each such Borrower or Parent is a party or by which any of them may be bound, or (iv) result in the creation or imposition of any lien, charge, or encumbrance upon any of the property of each such Borrower or Parent, except in favor of LaSalle, to secure the Liabilities, or (v) violate any provision of the Certificate of Incorporation, By-Laws or any capital stock or similar equity instrument of each such Borrower or Parent; (E) No Default or Event of Default has occurred and is continuing on the date hereof; (F) Since the date of Parent's consolidated and consolidating financial statements for the twelve (12) month period ended December 31, 2002, no change or event has occurred which has had or is reasonably likely to have a Material Adverse Effect; (G) Upon execution of this Amendment and the satisfaction of the conditions set forth in SECTION TWO hereof, each of Parent and each Borrower, each in its capacity as Guarantor under the Loan Agreement, agrees that the term 3 "Liabilities" shall include any and all Liabilities arising under the Loan Agreement, as amended by this Amendment, including but not limited to any and all Revolving Loans resulting from the extension of the period during which the Maximum Revolving Loan Limit of $35,000,000 shall be in effect, and all interest accruing on such Revolving Loans; (H) Parent and its Subsidiaries, taken as a whole, are, and after giving effect to the transactions contemplated by this Amendment, will be, solvent, able to pay its debts as they become due, has capital sufficient to carry on its business, now owns property having a value both at fair valuation and at present fair saleable value greater than the amount required to pay its debts, and will not be rendered insolvent by the execution and delivery of this Amendment or any of the other agreements or instruments being executed in connection herewith or by completion of the transactions contemplated hereunder or thereunder. SECTION FOUR . GENERAL PROVISIONS. (A) Except as herein expressly amended, the Loan Agreement and all other agreements, documents, instruments and certificates executed in connection therewith, are ratified and confirmed in all respects and shall remain in full force and effect in accordance with their respective terms. (B) All references in the Other Agreements to the Loan Agreement shall mean the Loan Agreement as amended hereby and as hereafter amended, supplemented or modified from time to time. From and after the date hereof, all references in the Loan Agreement to "this Agreement," "hereof," "herein," or similar terms, shall mean and refer to the Loan Agreement as amended by this Amendment. (C) This Amendment may be executed by the parties hereto individually or in combination, in one or more counterparts, each of which shall be an original and all which shall constitute one and the same agreement. (D) This Amendment shall be governed and controlled by the internal laws of the State of New York. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 4 IN WITNESS WHEREOF, LaSalle, each Borrower, each Guarantor, each DHB Subsidiary and Parent have caused this Amendment to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. DHB ARMOR GROUP, INC. LASALLE BUSINESS CREDIT, LLC, successor by merger to LaSalle Business Credit, Inc. By:_________________________________ By:________________________________ Name: Name: Title: Title: DHB SPORTS GROUP, INC. PROTECTIVE APPAREL CORPORATION OF AMERICA By:________________________________ By:_________________________________ Name: Name: Title: Title: LANXIDE ARMOR PRODUCTS, INC. POINT BLANK BODY ARMOR, INC. By:________________________________ By:_________________________________ Name: Name: Title: Title: ORTHOPEDIC PRODUCTS, INC. NDL PRODUCTS, INC. By:________________________________ By:_________________________________ Name: Name: Title: Title: DHB INDUSTRIES INC. By:_________________________________ Name: Title: ACKNOWLEDGED AND CONSENTED TO: _____________________________ DAVID H. BROOKS 5 EX-10 5 ex10-13.txt EX10.13-4TH AMENDMENT TO LOAN AND SECURITY AGMNT EXHIBIT 10.13 FOURTH AMENDMENT (this "AMENDMENT"), dated as of November __, 2003, to LOAN AND SECURITY AGREEMENT, dated as of September 24, 2001 (as amended, modified or supplemented from time to time, the "LOAN AGREEMENT"), by and among LASALLE BUSINESS CREDIT, LLC, a Delaware limited liability company, successor by merger to LASALLE BUSINESS CREDIT, INC., a Delaware corporation ("LASALLE"), and PROTECTIVE APPAREL CORPORATION OF AMERICA, a New York corporation ("PACA"), POINT BLANK BODY ARMOR, INC., a Delaware corporation ("POINT BLANK"), and NDL PRODUCTS, INC., a Florida corporation ("NDL", and with PACA and Point Blank, collectively, the "BORROWERS" and each, a "BORROWER"), and DHB INDUSTRIES, INC., a Delaware corporation (f/k/a DHB Capital Group, Inc., the "Parent"). Terms which are capitalized in this Amendment and not otherwise defined shall have the meanings ascribed to such terms in the Loan Agreement. WHEREAS, the Borrowers and Parent have requested that LaSalle extend the Original Term; and WHEREAS, LaSalle has consented to such request, on the terms and subject to the satisfaction of the conditions contained in this Amendment; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION ONE . AMENDMENT. Upon the satisfaction of the conditions set forth in SECTION TWO hereof, Section 10 of the Loan Agreement shall be and is hereby amended effective as of the date hereof by deleting the first sentence thereof in its entirety, and substituting in lieu thereof the following: "THIS AGREEMENT SHALL BE IN EFFECT FOR A PERIOD (SUCH PERIOD, THE "ORIGINAL TERM") FROM THE DATE HEREOF UNTIL OCTOBER 1, 2004, AND SHALL BE EXTENDED THEREAFTER (EACH SUCH EXTENSION BEING REFERRED TO HEREIN AS A "RENEWAL TERM") SOLELY AT THE OPTION OF THE LENDER, UNLESS (A) THE DUE DATE OF THE LIABILITIES IS ACCELERATED PURSUANT TO SECTION 16 HEREOF OR (B) THE BORROWERS ELECT TO TERMINATE THIS AGREEMENT AT THE END OF THE ORIGINAL TERM OR AT THE END OF ANY RENEWAL TERM BY GIVING LENDER WRITTEN NOTICE OF SUCH ELECTION AT LEAST FORTY-FIVE (45) DAYS PRIOR TO THE END OF THE ORIGINAL TERM OR THE THEN CURRENT RENEWAL TERM AND BY PAYING ALL OF THE LIABILITIES IN FULL ON THE LAST DAY OF SUCH TERM." SECTION TWO . CONDITIONS PRECEDENT. This Amendment is subject to the satisfaction of all of the following conditions, the satisfaction of each of which is a condition precedent to the effectiveness of this Amendment, except to the extent waived in writing by LaSalle. (a) LaSalle shall have received each of the following, which shall be in form and substance reasonably satisfactory to it: (i) this Amendment, duly executed by each Borrower and Parent, and by David H. Brooks; and (ii)a Certificate of the Secretary or Assistant Secretary of each Borrower and of Parent (A) relating to the adoption of resolutions by each such Borrower's and Parent's respective Board of Directors approving this Amendment and the other documents executed or delivered in connection herewith by such party, (B) certifying that no amendments have been made to each such Borrower's or Parent's Certificate of Incorporation, as amended, other than the Certificate of Designations and Preferences executed on December 14, 2001, and each such Borrower's or Parent's by-laws, as amended, since September 24, 2001, and (C) further certifying the names and incumbency of officers of each such Borrower and of Parent authorized to sign this Amendment and all other documents executed or delivered in connection herewith, and the names and validity of signatures of such officers. (b) All representations and warranties set forth in the Loan Agreement (except for such inducing representations and warranties that were only required to be true and correct as of a prior date) shall be true and correct in all material respects on and as of the effective date hereof, and no Default or Event of Default shall have occurred and be continuing. (c) No event or development shall have occurred since December 31, 2002 which event or development has had or is reasonably likely to have a Material Adverse Effect. (d) LaSalle shall have received a certificate from each Borrower and Parent, executed by the chairman of each such party, as to the truth and accuracy of paragraphs (b) and (c) of this SECTION TWO. (e) All corporate and legal proceedings and all documents and instruments executed or delivered in connection with this Amendment shall be satisfactory in form and substance to LaSalle and its counsel, and LaSalle and its counsel shall have received all information and copies of all documents which it or its counsel may have reasonably requested in connection herewith and the matters contemplated hereunder, such documents, when requested by them, to be certified by appropriate corporate authorities. (f) There shall be no action, suit or proceeding pending or to any Borrower's or Parent's knowledge overtly threatened against any Borrower or Parent before any court (including any bankruptcy court), arbitrator or governmental or administrative body or agency which challenges or relates to the consummation of this Amendment or the other transactions contemplated herein. 2 (g) LaSalle shall have received such further agreements, consents, instruments and documents as may be necessary or proper in the reasonable opinion of LaSalle and its counsel to carry out the provisions and purposes of this Amendment. SECTION THREE . REPRESENTATIONS AND WARRANTIES. Each Borrower and Parent each hereby represents and warrants (which representations and warranties shall survive the execution and delivery hereof) to LaSalle that: (a) Each Borrower and Parent has the corporate or other power, authority and legal right to execute, deliver and perform this Amendment and the other instruments, agreements, documents and transactions contemplated hereby to which it is a party, and has taken all actions necessary to authorize the execution, delivery and performance of this Amendment and the other instruments, agreements, documents to which it is a party and the transactions contemplated hereby and thereby; (b) No consent of any Person (including, without limitation, stockholders or creditors of any Borrower or Parent, as the case may be) other than LaSalle, and no consent, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required in connection with the execution, delivery and performance by each Borrower and Parent, or the validity or enforceability against such parties, of this Amendment and the other instruments, agreements, documents and transactions contemplated hereby to which they are a party; (c) This Amendment has been duly executed and delivered on behalf of each Borrower and Parent by their respective duly authorized officers, and constitutes the legal, valid and binding obligation of such Borrower and Parent, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights of creditors generally or equitable remedies (whether arising in a proceeding at law or in equity); (d) No Borrower or Parent is in material default under any indenture, mortgage, deed of trust, agreement or other instrument to which it is a party or by which it may be bound. Neither the execution and delivery of this Amendment, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof will (i) violate any law or regulation, or (ii) result in or cause a violation by any Borrower or Parent of any order or decree of any court or government instrumentality, or (iii) conflict with, or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, material agreement or other material instrument to which each such Borrower or Parent is a party or by which any of them may be bound, or (iv) result in the creation or imposition of any lien, charge, or encumbrance upon any of the property of each such Borrower or Parent, except in favor of LaSalle, to secure the Liabilities, or (v) violate any provision of the Certificate of Incorporation, By-Laws or any capital stock or similar equity instrument of each such Borrower or Parent; (e) No Default or Event of Default has occurred and is continuing on the date hereof; 3 (f) Since the date of Parent's consolidated and consolidating financial statements for the twelve (12) month period ended December 31, 2002, no change or event has occurred which has had or is reasonably likely to have a Material Adverse Effect; (g) Parent and its Subsidiaries, taken as a whole, are, and after giving effect to the transactions contemplated by this Amendment, will be, solvent, able to pay its debts as they become due, has capital sufficient to carry on its business, now owns property having a value both at fair valuation and at present fair saleable value greater than the amount required to pay its debts, and will not be rendered insolvent by the execution and delivery of this Amendment or any of the other agreements or instruments being executed in connection herewith or by completion of the transactions contemplated hereunder or thereunder. SECTION FOUR . GENERAL PROVISIONS. (a) Except as herein expressly amended, the Loan Agreement and all other agreements, documents, instruments and certificates executed in connection therewith, are ratified and confirmed in all respects and shall remain in full force and effect in accordance with their respective terms. (b) All references in the Other Agreements to the Loan Agreement shall mean the Loan Agreement as amended hereby and as hereafter amended, supplemented or modified from time to time. From and after the date hereof, all references in the Loan Agreement to "this Agreement," "hereof," "herein," or similar terms, shall mean and refer to the Loan Agreement as amended by this Amendment. (c) This Amendment may be executed by the parties hereto individually or in combination, in one or more counterparts, each of which shall be an original and all which shall constitute one and the same agreement. (d) This Amendment shall be governed and controlled by the internal laws of the State of New York. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 4 IN WITNESS WHEREOF, LaSalle, each Borrower, each Guarantor, each DHB Subsidiary and Parent have caused this Amendment to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. DHB ARMOR GROUP, INC. LASALLE BUSINESS CREDIT, LLC, successor by merger to LaSalle Business Credit, Inc. By:________________________________ By:_________________________________ Name: Name:Michael F. Aliberto, III, Title: Title: Vice President DHB SPORTS GROUP, INC. PROTECTIVE APPAREL CORPORATION OF AMERICA By:________________________________ By:_________________________________ Name: Name: Title: Title: LANXIDE ARMOR PRODUCTS, INC. POINT BLANK BODY ARMOR, INC. By:________________________________ By:_________________________________ Name: Name: Title: Title: ORTHOPEDIC PRODUCTS, INC. NDL PRODUCTS, INC. By:________________________________ By:_________________________________ Name: Name: Title: Title: DHB INDUSTRIES INC. By:_________________________________ Name: Title: ACKNOWLEDGED AND CONSENTED TO: ___________________________________ DAVID H. BROOKS 5 EX-10 6 ex10-14.txt EX10.14-INDUSTRIAL LEASE DATED 12/5/03-POINT EXHIBIT 10.14 INDUSTRIAL LEASE THIS LEASE AGREEMENT is made and is entered into by and between Atlantic Business Center L.C., a Florida limited liability company (the "LANDLORD") and Point Blank Body Armor, Inc., a Delaware corporation (the "TENANT" or "YOU" or "YOU"). TERMS In consideration of the covenants and agreements herein contained, Landlord does hereby lease to you, and you do take and lease from Landlord the Premises (as hereinafter defined) for the term indicated at the rentals and upon and subject to the terms and conditions stated herein. ARTICLE I DEFINITIONS The terms defined in this Article shall, for all purposes of this Lease and all future agreements which may become supplemental thereto, have the meanings herein specified. "Adjustment Date" means the first day of the Lease Year. Notwithstanding, with respect to the First Extended Term, the term Adjustment Date means the first day of a Lease Year of the First Extended Term excluding, however, the first day of the First Extended Term. "Affiliate" means an affiliate of yours as defined in Rule 405 promulgated under the Securities Act of 1933, as amended. The term "Affiliate" shall also include any entity which succeeds to your business by reason of merger, consolidation or purchase of all or substantially all of your assets provided that such entity has a net worth (determined in accordance with GAAP) equal to or exceeding your net worth. "Association assessments" means assessments by the ABC Property Owner's Association, Inc. or any other owners association that the land on which the Building is situated may at a future date be required to be subject to. "Building" means the warehouse building within the Development depicted as Building 6B on the site plan attached to this Lease as EXHIBIT A. The post office address assigned to the shell building by the City is 2100 S.W. 2 Street, Pompano Beach, Florida. The Building is comprised of approximately 104,162 r.s.f. The shell Building was constructed pursuant to City permit no. 02 00001542 and the City issued its certificate of completion with respect to the shell Building on June 20, 2003. "Buildout Cost (Testing Lab)" means Landlord's out of pocket cost to permit and construct the testing lab part of the Phase 3 Area portion of the Interior Modifications. (pertains to Line Items 78, 105, 106, and 109 of the Scope of Work part of EXHIBIT C). The Buildout Cost (Testing Lab) will not include architecture costs or construction management fees. The general contractor's overhead and profit for the construction of the testing lab will be computed at 8%. "City" means the City of Pompano Beach. "Commencement Date" means, as to a particular Phase, the date that the Interior Modifications for such Phase have been Substantially Completed, provided, however, the Commencement Date for such Phase shall be accelerated by the number of days of Tenant Delay and further provided that the Commencement Date for the Phase 3 Area will be no later than July 1, 2004, irrespective of whether the Phase 3 Area has been Substantially Completed as of such date. (See Article III for additional provisions regarding a Tenant Delay). "Common Areas" means all access openings and roadways outside the Premises and within the exterior boundary line of the Realty, and the parking areas and landscaped areas within the Common Areas. "Construction Budget (Testing Lab)" means, as it pertains to Phase 3, the budget detailing the projected Buildout Cost (Testing Lab). The Construction Budget (Testing Lab) shall contain reasonable line item detail and will reflect the bids for all competitively bid subcontracts where competitive bidding has been required or has been agreed to. "Construction Drawings" means, as to all areas other than the Phase 3 Area (as hereinafter defined), the Space Plan and Landlord's Scope of Work, each of which is attached to this Lease as EXHIBIT C. Construction Drawings means, as to the portion of the Interior Modifications pertaining to the testing lab portion of Phase 3, mutually agreed upon plans and specifications. "Controllable Operating Costs" means all Operating Costs other than Taxes, insurance premiums, Association assessments, security, if any, contracted for by Landlord, utilities and trash removal. "Declaration" means the Declaration of Covenants and Restrictions for Atlantic Business Center recorded in Official Records Book 30915, Page 865, of the Public Records of Broward County, Florida. "Development" means the Building together with all other land and improvements within Atlantic Business Center. "Effective Date" means the date of this Lease which date shall be deemed to refer to the last date in point of time on which all parties hereto have executed this Lease. "Environmental Law" means any federal, state, or local law, ordinance, regulation, development order, regulatory guidance or pronouncement relating to pollution or protection of the environment or public wellfields including the use, analysis, generation, manufacture, handling, storage, presence, disposal or transportation of any Hazardous Substance. The term "Environmental Law" includes any applicable best management practices for products being sold or used by you at the Premises. "Event of Default" means (i) your failure to pay an installment of Rent when due, or any other payment or reimbursement to Landlord required herein when due if such failure continues for a period of five (5) days after written notice of non payment; (ii) if you fail to comply with any non-monetary term, provision 2 or covenant of this Lease if such failure continues more than twenty (20) days after receipt of written notice to you, provided, however, if the nature of the failure is such that it cannot be reasonably cured within such twenty day period, then the twenty day period will be extended for up to an additional sixty (60) days provided that you are continuously and diligently attempting to cure such breach; (iii) if, within the first Lease Year, you fail to operate your business at the Premises for the Permitted Use; or (iv) any other Event of Default specifically identified in this Lease. "Exit Condition" means the Premises in good condition and repair, ordinary wear and tear excepted and damage by casualty occurrence for any peril covered by insurance to be provided by Landlord under Section 12.01 excepted and damage by condemnation excepted. EXHIBIT D attached hereto contains move out standards that are considered part of Exit Condition. Ordinary wear and tear excepted shall not include damage caused by forklift use or damage caused by any other machinery. "Expiration Date" means the last day of the one hundred and twenty fifth (125th) full calendar month immediately following the Phase 1 Area Commencement Date. "Force Majeure Event" means, for purposes of entitlement to extensions as detailed in the definitions of Phase 1 Required Delivery Date and Phase 2 Required Delivery Date, solely (i) war or acts of war including terrorism, (ii) hurricane or other acts of nature; or (iii) material shortages. For all other purposes throughout this Lease, the term Force Majeure Event means (i) war or acts of war including terrorism, (ii) hurricane or other acts of nature; (iii) strikes, lockouts or material or labor shortages; or (iv) any delays due to other causes which are usually and customarily included in the definition of force majeure. In the case of the re-building of the Building following a casualty event, Force Majeure Event shall include rain days reasonably claimed by the general contractor hired to re-construct the Building. "GAAP" means generally accepted accounting principles consistently applied. "Hazardous Substances" means pollutants, contaminants, toxic or hazardous wastes, medical waste, radioactive waste or any other substances, the removal of which is required or the use of which is restricted, prohibited or penalized by any Environmental Law. "Holdover Rent" means the sum of (i) 200% of the monthly base rent amount in effect as of the last Lease Year of the term of this Lease (or earlier termination date) (125% for the first ninety days of holdover) plus (ii) your proportionate share of Operating Costs plus (iii) all sales tax required to be collected thereon. "Interior Modifications" means the construction work that Landlord has agreed to do as set forth in the Construction Drawings. "Landlord's Broker" means Premier Commercial Realty, Inc. "Lease" means this lease agreement including all exhibits attached hereto. 3 "Lease Year" means, as to the first Lease Year, the 365 day period beginning on the Rent Commencement Date for the Phase 2 Area (366 day period if February 29 falls within such Lease Year), provided, however, if the Rent Commencement Date for the Phase 2 Area is a day other than the first day of a calendar month, then the first Lease Year shall instead be measured from the first day of the calendar month immediately following the calendar month within which the Rent Commencement Date for the Phase 2 Area falls. Thereafter, each succeeding Lease Year shall be the 365 day period (366 day period if February 29 falls within such period) immediately following the end of the prior Lease Year. By way of example, if the Rent Commencement Date for the Phase 2 Area is April 3, 2004, then each Lease Year would run from May 1 through April 30. Notwithstanding the preceding, as to the First Extended Term, the first Lease Year of the First Extended Term shall be the twelve month period beginning on the first day of the First Extended Term and thereafter, each succeeding Lease Year shall be for successive twelve month periods. "Letter of Credit" means an irrevocable, unconditional and confirmed letter of credit. The Letter of Credit must (i) be in form reasonably satisfactory to Landlord; (ii) clearly state that it is a clean sight draft in the required amount in favor of Landlord, irrevocable and expiring no earlier than thirty days immediately following the Lease Expiration Date, or, if the issuer is unable to or is unwilling to issue a multi-year form of Letter of Credit, then in a form which will automatically renew from year to year unless the issuer provides Landlord with at least sixty days advance written notice that the issuer will not be renewing the Letter of Credit; (iii) be issued by a bank reasonably approved by Landlord; (iv) be payable upon presentation to a bank in Broward County, Florida; (v) be unconditionally available to Landlord by Landlord's drafts, at sight, with partial draws permitted; and (vi) be transferrable. The Letter of Credit must specify that the issuer's obligation to honor Landlord's draft shall not be affected by any claim or setoff which the issuer then has or may thereafter acquire against either you or the Landlord. "Market Rent" means base rent determined with reference to the average of normal values being achieved by landlords in lease renewals entered into with private sector tenants for comparable space (i.e., the Premises in its as is condition at the time of renewal) in comparable buildings in equally desirable locations within the same market assuming operating expense and real estate passthroughs and fixed increases or consumer price index increases corresponding to those contained in this Lease. Consideration should be given to the value of any concession as may then be customary in the market for lease renewals, including, without limitation, rental abatements, cash allowances and/or credits for renewal tenant improvements over the entire renewal term. The determination of Market Rent shall be made by Landlord, acting reasonably. Notwithstanding, you shall have the right to disagree with Landlord's determination, and to submit your own determination of Market Rent. If Landlord does not agree with your determination, then you and Landlord shall mutually select an independent appraiser qualified to appraise commercial property and who shall have experience in the appraisal of similar properties within the referenced area. The sole function of the independent appraiser shall be to determine which between Landlord's and your determinations of Market Rent is most correct and the decision of the independent appraiser shall be final and binding upon the parties. The cost of the independent appraiser shall be paid for equally by the parties. Notwithstanding anything herein to the contrary, Market Rent shall never be less than 103% of the base rent being paid immediately prior to the period for which the Market Rent is being determined nor more than 110% of the 4 base rent being paid immediately prior to the period for which the Market Rent is being determined. "Operating Costs" means all reasonable and customary costs and expenses paid or incurred by Landlord in operating, maintaining, repairing and managing the Realty, including, without limitation, all Taxes, Association assessments, the costs of maintaining and repairing parking lots including parking lot re-striping, parking structures, easements, landscaping, property management fees, utility costs to the extent not separately metered, insurance premiums, depreciation of the costs of replacements or improvements to the Building but not including any Structural Repairs which are required to be capitalized under GAAP. The term "Operating Costs" does not include: (i) costs of alterations of tenants' premises and/or allowances for same; (ii) costs of curing construction defects; (iii) interest and principal payments on mortgages, and other debt cost; (iv) real estate brokers' leasing commissions or compensation; (v) any cost or expenditure for which Landlord is reimbursed, whether by insurance proceeds or otherwise; or (vi) the cost of any service furnished to any other occupant of the Building which Landlord does not provide to you hereunder. Notwithstanding anything contained herein to the contrary, depreciation in accordance with GAAP of any capital improvements which are intended to reduce Operating Costs, or are required under any governmental laws, regulations or ordinances which were not applicable to the Building as of the Effective Date, or are recommended by the N.F.P.A. Life Safety Code, shall be included in Operating Costs. If Landlord selects the accrual method of accounting rather than the cash accounting method for Operating Costs purposes, Operating Costs shall be deemed to have been paid when such expenses have accrued. Certain of the costs of management, operation and maintenance of the Realty may be common to all of the land and buildings within the Development owned by Landlord and you consent to Landlord's allocation of such common costs among the various buildings owned by Landlord within the Development and the amount of such common costs allocated by Landlord to the Realty shall be deemed an Operating Cost, provided that the allocation method used by Landlord is reasonable. Landlord may, in a reasonable manner, allocate insurance premiums for so-called "blanket" insurance policies which insure other properties as well as the Building and said allocated amount shall be deemed to be an Operating Cost. "Permit Drawings" means detailed plans and specifications for the Interior Modifications prepared by Landlord's architect consistent with the Construction Drawings. "Permitted Use" means the use of the Premises as a warehouse and wholesale distribution and manufacturing (to the extent permitted by the applicable zoning classification for the Realty) facility in connection with your business of manufacturing and selling body armour systems and sports protective equipment . Subject to the approvals of all applicable governmental entities and provided that is allowed under the applicable zoning classification of the Realty, the Permitted Use will include the manufacture and distribution of bullet and projectile resistant garments, bullet resistant and fragmentation vests, bomb projectile blankets, related ballistic accessories and technologies, as well as counterterrorism equipment, for governmental and law enforcement agencies. At least 80% of the Premises must be for warehouse use with the remaining portion of the Premises being permitted for office or other ancillary use in connection with your business. For purposes of the immediately preceding sentence, warehouse use includes manufacturing use to the extent permitted under the applicable zoning classification for the Realty. Your Permitted Use may also 5 include any use permitted under the applicable zoning classification for the Realty provided, however, that for any use other than body armour systems and sports protective equipment, Landlord's prior written consent shall be required, which consent shall not be unreasonably withheld, delayed or conditioned, and the standard for Landlord being permitted to withhold its consent is only (i) whether such other uses would materially increase the levels of odors, smoke, dust, gas, noise or vibrations emanating from the Premises beyond those (if any) resulting from the manufacture of body armour systems and sports protective equipment; or (ii) whether such uses would result in an increase in Landlord's insurance premiums on any other building within the Development or result in an inability of Landlord to obtain existing insurance; or (iii) whether such uses would materially adversely impair the reputation of the Development. "Phase" means, Phase 1, Phase 2 or Phase 3, as the case may be. "Phase Area" means, the Phase 1 Area, the Phase 2 Area or the Phase 3 Area, as the case may be. "Phase 1" means the Substantial Completion of the portion of the Interior Modifications attributable to the Phase 1 Area. "Phase 2" means the Substantial Completion of the portion of the Interior Modifications attributable to the Phase 2 Area. "Phase 3" means the Substantial Completion of the portion of the Interior Modifications attributable to the Phase 3 Area. "Phase 1 Area" means the portion of the Building identified in EXHIBIT B attached to this Lease as Phase 1. "Phase 2 Area" means the portion of the Building identified in EXHIBIT B attached to this Lease as Phase 2. "Phase 3 Area" means the portion of the Building identified in EXHIBIT B attached to this Lease as Phase 3. "Premises" means the entire Building. "Prohibited Use" means any use of the Premises not allowed as a permitted use for the Realty's then zoning classification (currently I-1 general industrial with a Planned Industrial Overlay). The use of the Premises to manufacture explosives or ammunition is a Prohibited Use. Pursuant to Section 155.205(A) of the City zoning code, heavy or hazardous manufacturing processes are Prohibited Uses. "Proportionate Share" means a fraction the numerator of which is the rentable area contained in the Premises and the denominator of which is the rentable area contained in the Building. Your Proportionate Share is 100%, provided, however, during the period from the Commencement Date for the Phase 1 Area until the day immediately preceding the Commencement Date for the Phase 2 6 Area, your Proportionate Share shall instead be 66.2871296% (69,046/104,162) and during the period from the Commencement Date for the Phase 2 Area until the day immediately preceding the Commencement Date for the Phase 3 Area, your Proportionate Share shall be 94.3357462% ((69,046 + 29,216) / 104,162). "Public Accommodation Law" means any and all applicable laws, regulations and building codes governing non-discrimination and public accommodations and commercial facilities including, without limitation, the requirements of the Americans with Disabilities Act, 42 USC 12-101 and all regulations and promulgations thereunder. "Punch List Items" means, with respect to the Interior Modifications, details of construction and mechanical adjustment which, in the aggregate, are minor in character and do not materially interfere with your use of the Premises. "Realty" means the land legally described as A portion of Tract "B" of ATLANTIC BUSINESS CENTER, according to the plat thereof, as recorded in Plat Book 169, Page 126, of the Public Records of Broward County, Florida, being more particularly described as follows: Commencing at the Southwest corner of Tract "A", according to the said plat of ATLANTIC BUSINESS CENTER, thence South 27 25'13" East, along the west limits of said plat of ATLANTIC BUSINESS CENTER, thence South 27 25'13" East, along the west limits of said plat, 189.36 feet to a point of curvature of a curve, concave to the west, having a radius of 595.00 feet and a central angle of 23 17'23"; thence along said west plat limits, an arc distance of 241.86 feet; thence South 88 49'22" East, 701.51 feet to the Point of Beginning; thence North 01 10'38" East, 366.00 feet; thence South 88 49'22" East, 603.01 feet to a point of curvature of a curve concave to the southwest, having a radius of 28.00 feet and a central angle of 90 00'00", an arc distance of 43.98 feet; thence South 01 10'38" West, 338.00 feet; thence North 88 49'22" West, 631.01 feet to the Point of Beginning. Said lands lying and situate in Broward County, Florida containing 230,781 s.f. (5.2980 acres) more or less. The foregoing legal description is subject to surveyor changes. The Realty is comprised of the land on which the Building is constructed, all improvements situated thereon including the Building, and the Common Areas, but does not include the remainder of the Development. "Renewal Notice" means written notice that you intend to exercise an option to extend granted to you under this Lease. A Renewal Notice, to be effective, must be received by Landlord no later than nine months prior to the Expiration Date, time being of the essence. "Rent" means the sum of the monthly base rent plus the additional rent as provided in Section 5.02 of this Lease including all sales tax required to be paid thereon. Notwithstanding anything in the Lease to the contrary, all amounts payable by you to or on behalf of Landlord under this Lease, whether or not expressly denominated as Rent, shall constitute additional rent.. "Rent Commencement Date" means, as to a particular Phase, the two hundred and seventy fourth (274th) day immediately following the Commencement Date for such Phase. "Required Phase 1 Delivery Date" means March 10, 2004 as extended by each day of Tenant Delay and as extended by each day of delay caused by a Force Majeure Event. For each five day period of extension there shall be added those 7 number of weekend days as is fair and equitable to put Landlord in the same position as if the Force Majeure Event or Tenant Delay had not occurred. "Required Phase 2 Delivery Date" means April 11, 2004 as extended by each day of Tenant Delay and as extended by each day of delay caused by a Force Majeure Event. For each five day period of extension there shall be added those number of weekend days as is fair and equitable to put Landlord in the same position as if the Force Majeure Event or Tenant Delay had not occurred. "Restoration Period " means a two hundred (200) day period beginning on the date that the Building has been damaged or destroyed by a casualty occurrence. "Security Deposit" means the sum of $130,654 which sum shall be held by Landlord, without obligation for interest, as security for the full, timely and faithful performance of your covenants and obligations under this Lease, it being expressly agreed that the Security Deposit is not an advance rental deposit or a measure of Landlord's damages. "Specifications" means electrical lighting placement data, finish selections or any other information or data requested by Landlord or Landlord's architect needed in order for Landlord's architect to prepare any Permit Drawings or needed for Landlord to complete the Interior Modifications. "Structural Repairs" means repairs and replacements to the Building's foundations, load-bearing walls, columns and joists and replacement of roofing and roof deck. "Substantial Completion" or "Substantially Complete" or "Substantially Completed" means, as to a particular Phase, the completion of the Interior Modifications, Punch List Items excepted, as to such Phase. Substantial Completion of a Phase shall be deemed to have occurred upon the issuance by the City of a certificate of occupancy or its equivalent (temporary or permanent) permitting you to occupy the particular Phase Area for your Permitted Use. "Superior Mortgagee" means a bank, insurance company or other institutional lender now or hereafter holding a mortgage encumbering the Building. The current Superior Mortgagee is BankUnited, FSB. "Taxes" means all ad valorem taxes and non ad valorem assessments, or governmental charges levied, assessed or imposed on the Realty. If at any time during the term of this Lease the present method of taxation shall be changed so that in lieu of the whole or any part of any such Taxes, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received therefrom and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents for the Building, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, shall be deemed to be included within the term "Taxes" for the purposes hereof. The Realty is separately assessed as a single tax parcel (Property Identification Number 19203-27-00800). If Landlord contests any assessment of Taxes, then the term Taxes shall include the professional fees incurred by Landlord to contest such Taxes. If Landlord receives any refunds or 8 rebates of previously paid Taxes included in Operating Costs paid for by you, then you shall be entitled to receive a refund of your Proportionate Share of such refund or rebate. (See last paragraph of Section 5.02 for certain provisions regarding Taxes). "Tenant's Broker" means Colliers International. "Tenant Delay" means, with respect to the construction of the Interior Modifications, any one or more of (i) your failure to deliver Specifications to Landlord within the time specified in Article III; (ii) Your failure to approve or disapprove Permit Drawings within the time specified in Article III; (iii) any delays in the issuance of the certificate of occupancy as to a particular Phase caused by you or your contractors, agents or employees; (iv) your failure to pay the Tenant Share when due irrespective of whether such failure causes an actual delay; (v) the number of days of delay resulting from requested changes to approved Permit Drawings; and/or (vi) any other Tenant Delay expressly provided for in this Lease. "Tenant Share" means the portion of the Buildout Cost (Testing Lab) in excess of $72,738 (Line items 78, 105, 106, and 109 of the Scope of Work part of EXHIBIT C plus the 8% overhead and profit charge of the general contractor). Fifty percent (50%) of the Tenant Share (initial or any increase) shall be paid by you within ten days of determination of amount with the balance paid within thirty days after submission of a final invoice after completion of the work. Past due payments will have interest added to the unpaid balance at a rate of one percent (1.0%) per month until payment, including any added interest until payment is received in full. "Term", "term" or "rental term" means the primary term of this Lease. If the term of this Lease has been extended pursuant to an option granted to you under this Lease to extend the term or pursuant to any amendment to this Lease extending the term, then such extended term shall be included as part of the term. "Transfer Premium" means all rent, additional rent or other consideration payable by an assignee or subtenant in excess of the Rent payable by you under this Lease (on a per rentable square foot basis in the case of a subletting where the subletting is for less than the entire Premises) after deducting the reasonable expenses incurred by you for (i) any changes, alterations and improvements to the Premises in connection with the assignment or subletting, including any reasonable fees or costs incurred with respect thereto; (ii) any brokerage commissions and reasonable attorney fees in connection with the assignment or subletting; or (iii) any marketing or promotional fees in connection with the assignment or subletting. ARTICLE II PREMISES AND COMMON AREAS 2.01 PREMISES. In consideration of your obligation to pay Rent and of the other terms, provisions and covenants hereof, Landlord leases the Premises to you and you lease the Premises from Landlord, including, without limitation, the exclusive use of all of the parking spaces in the Common Areas. 9 2.02 COMMON AREAS. During the term of this Lease, you and your employees, customers, licensees and invitees shall have the non-exclusive right to use, in common with others entitled to such use, the Common Areas as they exist from time to time, subject to any rights, powers, and privileges reserved by Landlord under the terms hereof or under the terms of any rules and regulations or covenants, conditions and restrictions governing the use of the Development. Landlord reserves and may exercise the following rights without affecting your obligations hereunder: (i) to make changes to the Common Areas, including, without limitation, changes in the locations, size, shape and number of driveways, entrances, roadways, ingress, egress, direction of traffic, landscaped areas, walkways and utility raceways provided that such changes do not materially adversely affect your ingress or egress to or from the Premises; (ii) to close temporarily any of the Common Areas for maintenance purposes so long as reasonable access to the Premises remains available; (iii) omitted; and/or (iv) to require you, upon reasonable advance notice, to keep clear any truck dock areas for the purpose of enabling Landlord to have access to manhole covers and other utility facilities to clean or maintain roof drains, utility lines and utility facilities. Landlord will not amend the Declaration in a manner that would materially adversely affect your ingress or egress to or from the Premises. 2.03 LANDLORD'S RESERVATION OF ACCESS, INGRESS AND EGRESS. During the term of this Lease, Landlord reserves the right, for its benefit and for the benefit of itself and Landlord's tenants and others, to use any access openings or roadways falling within the Realty and to grant easements falling wholly or partly within the Realty for any purpose provided that the granting of any such easement does not interfere with your Permitted Use of the Premises or reduce the number of parking spaces serving the Building. The foregoing reservations shall not, however, be construed to permit Landlord to grant a private easement in favor of another tenant of the Development to put such tenant's property on the Realty, e.g., Landlord may not grant another tenant of the Development easement rights to place a generator within the Common Areas. ARTICLE III CONSTRUCTION OF THE INTERIOR MODIFICATIONS The Interior Modifications shall be constructed in the three Phases as follows: 3.01 PERMIT DRAWINGS FOR PHASES 1 AND 2. (a) The Permit Drawings for Phases 1 and 2 will be finalized in accordance with the time line contained in this Section 3.01, and as to all time periods contained in this Section 3.01 required to be met by you, each day of delay caused by you shall be a Tenant Delay, time being of the essence. The time line is as follows: (b) Landlord previously delivered to you the electrical portion of the Permit Drawings comprised of the electrical layout, lighting reflective plan and phone stubs for the Phase 1 and Phase 2 portions of the Permit Drawings, which electrical portion of the Permit Drawings will show all electric outlets as 115 volt standard shared outlets . You delivered to Landlord, on Monday, December 1, 2003 your specific comments (or redlining or ballooning) to the electrical portion of the Permit Drawings identifying those outlets that must be changed from standard outlets and/or cut sheets on all equipment and identifying where the equipment will be located in order for 10 Landlord's engineer to determine what changes to the standard outlets need to be made. (c) If additional Specifications are required in order for Landlord to complete the Permit Drawings, within one (1) business day of your receipt of written request from Landlord, from time to time made, you must provide Landlord with the requested Specifications necessary for the preparation of the Permit Drawings. (d) Subject to Landlord's receipt of any additional required Specifications, Landlord's architect will finish the preparation of the Phase 1 and Phase 2 portions of the Permit Drawings and on the same day a representative of Landlord will deliver the Phase 1 and Phase 2 portions of the Permit Drawings to you and meet with you to review and obtain your approval of same. During that meeting, you must either approve or reject with particularity the Phase 1 and Phase 2 portions of the Permit Drawings. If rejected, Landlord will cause the particular portions of the Permit Drawings to be revised accordingly and re-submitted to you with the same day turnaround requirements and the process shall continue in that manner until the final Permit Drawings for Phase 1 and Phase 2 are mutually approved. (e) If, after any Permit Drawing for a Phase is submitted to the City for issuance of the building permit for that Phase, the City has required changes to the Permit Drawings, you will, within one business day of receipt of notification of the required change, provide Landlord with any needed Specification to accomplish the change, and upon completion of the change by Landlord's architect, Landlord will deliver the revised portions of the Permit Drawings to you and meet with you to review and obtain your approval of same. During that meeting, you must either approve or reject with particularity the revised portions of the Permit Drawings. If rejected, Landlord will cause the particular portions of the Permit Drawings to be revised accordingly and re-submitted to you with the same day turnaround requirements and the process shall continue in that manner until the revisions required by the City are mutually approved. 3.02 PERMIT DRAWINGS FOR PHASE 3. Subject to the prohibition that an application for a building permit for Phase 3 may not be submitted without your written consent, which written consent may be withheld in your sole and absolute discretion, until such time as Substantial Completion of the Phase 1 Area and Phase 2 Area has occurred, the Permit Drawings for Phase 3 will be finalized in accordance with the time line contained in this Section 3.02. The time line is as follows: You will deliver to Landlord, on or before the tenth business day immediately following the Effective Date, all Specifications for the Phase 3 Area including all OSHA requirements for the soundproofing of the Phase 3 Area. Landlord will then cause its architect to timely and diligently prepare to completion the Permit Drawings for the Phase 3 portion of the Interior Modifications within thirty days immediately following the date that Landlord receives the last of the Specifications needed in order to prepare the Phase 3 Area Permit Drawings. Landlord's representative will then meet with you to review the Phase 3 Area portion of the Permit Drawings. During that meeting or as promptly thereafter as is reasonably possible, you must either approve or reject with particularity the Phase 3 portion of the Permit Drawings. If rejected, Landlord will cause the particular portion of the Permit Drawings to be revised accordingly and re-submitted to you within five (5) business days and the process shall continue in that manner until the final Permit Drawings for Phase 3 are mutually approved. City required revisions to the Phase 3 portion of 11 the Permit Drawings will be approved in accordance with the procedures set forth in Paragraph 3.01(e). 3.03 SELECTION OF GENERAL CONTRACTOR. The approved general contractor to construct the Interior Modifications is Global Construction Associates LLC ("GLOBAL"). The construction contract to be entered into between Global and Landlord will require that the overhead and profit to be charged by Global will be eight percent (8%) and that general conditions will be usual and customary. Global will not be required to competitively bid any part of the work except that the parties will meet in good faith to determine if competitive bidding of any part of the testing lab would yield a significant benefit. Landlord represents that to its knowledge, Global is a Florida licensed general contractor, adequately insured, and possesses the experience to construct and complete the Interior Modifications in a diligent, good and workmanlike manner, and in accordance with the approved Permit Drawings, within reasonable construction tolerances. 3.04 DETERMINATION OF BUILDOUT COST (TESTING LAB). Immediately after you notify Landlord in writing that the Phase 3 portion of the Permit Drawings are finalized and approved by you, Global will competitively bid any major subcontracts that the parties had mutually agreed upon would be competitively bid, if any, and upon receipt of the bids from the major subcontractors, if any, Global will prepare and review with you the Construction Budget (Testing Lab) and deliver to you Landlord's invoice for the Tenant Share payment, if any. Within three (3) business days after receipt of the Construction Budget (Testing Lab), you shall either approve the Construction Budget (Testing Lab) as submitted or provide Landlord with requested modifications to the Phase 3 portion of the Permit Drawings. If you timely request modifications to the Phase 3 portion of the Permit Drawings, Landlord shall timely and promptly approve the requests and cause the Permit Drawings to be modified (and provide a revised Construction Budget (Testing Lab)), or disapprove the requests (and give you its reasons for disapproval), and the process shall continue until the Construction Budget (Testing Lab) (and any modifications to the Phase 3 Permit Drawings) are mutually approved. Following final completion of the Interior Modifications, Landlord will provide you with a statement of the actual Buildout Cost (Testing Lab). 3.05 APPLICATION FOR BUILDING PERMIT. Upon finalization of the Phase1 and 2 portion of the Permit Drawings, Landlord will make application for, and pursue with all reasonable diligence the issuance of the building permit required for the construction of the Phase 1 and Phase 2 portions of the Interior Modifications. Upon finalization of the Phase 3 portion of the Permit Drawings, but subject to the requirement that an application for a building permit for Phase 3 may not be submitted without your written consent, which written consent may be withheld in your sole and absolute discretion, until such time as Substantial Completion of the Phase 1 Area and Phase 2 Area has occurred, Landlord will make application for, and pursue with all reasonable diligence the issuance of the building permit required for the construction of the Phase 3 portion of the Interior Modifications. 3.06 COMMENCEMENT OF CONSTRUCTION. Upon receipt of the building permit for a Phase, Landlord will then pursue to completion the construction of the Interior Modifications for such Phase. Landlord will construct the Interior Modifications substantially in accordance with the Construction Drawings within 12 reasonable construction tolerances and in accordance with all applicable laws, codes and ordinances. 3.07 NOTIFICATION OF SUBSTANTIAL COMPLETION. From time to time, Landlord will cause Global to prepare and revise and deliver to you a construction schedule and updates thereof designed to keep you reasonably informed of the projected date that Global expects that the City will issue its certificate of occupancy with respect to a Phase. Landlord will notify you in writing as soon as the certificate of occupancy for such Phase has been received. The taking of possession of a Phase Area by you shall be deemed conclusively to establish that the Landlord has completed the Interior Modifications with respect to such Phase Area and that the Phase Area is in good and satisfactory condition, as of when possession was so taken, Punch List Items excepted and latent defects excepted (and the foregoing does not modify Landlord's maintenance and repair obligations set forth in the Lease). Punch List Items will be mutually compiled at the walk through of the Phase Area. Landlord shall, within a reasonable time after the Punch List is prepared, not to exceed thirty (30) days unless caused by a delay in receiving ordered materials, complete the Punch List Items. 3.08 TENANT SET UP WORK. As soon as is practical after finalization, Landlord will provide you with a copy of Landlord's initial construction schedule and thereafter, any revisions or updates to the construction schedule. You shall coordinate with Landlord the scheduling of any Tenant Set Up Work (as hereinafter defined) and subject to the terms and conditions of this Section, Landlord will grant access to the particular Phase Area to you and to your representatives and contractors, prior to the Commencement Date for a Phase Area, to enable you to perform the Tenant Set Up Work. No such early access shall be deemed to be an acceptance of the Phase Area by you. Tenant Set Up Work means (i) your installation of telephone and computer lines, provided, however, any such installation in an office portion of the Premises must be done before Landlord commences the installation of a drop ceiling; and (ii) your installation of racking in the warehouse portion of the Premises, provided, however, that no such racking may be installed by you until such time as you have received from the City a racking permit. Early access to the Premises under this Section is subject to the requirement that you do not interfere with Landlord's construction of the Interior Modifications and that such early access does not delay the Substantial Completion of the Interior Modifications. Your contractors, subcontractors and labor shall be reasonably approved by Landlord and shall be subject to the administrative supervision of Landlord's construction manager. All Tenant Set Up Work shall conform to and comply with any and all local and state building codes, ordinances and the N.F.P.A. Life Safety Code. Provided that the City consents in writing and provided that it does not interfere with Landlord's construction of the Interior Modifications and that such early access does not delay the Substantial Completion of the Interior Modifications, Tenant Set Up Work may include your installation of machinery and equipment. 3.09 LANDLORD'S INABILITY TO COMPLETE INTERIOR MODIFICATIONS DUE TO TENANT DELAY. If Landlord actually cannot Substantially Complete, as to any Phase, the Interior Modifications as a result of a Tenant Delay, Landlord may, at its sole and absolute discretion, complete so much of the Interior Modifications as may be practical under the circumstances and, by written notice to you, establish the Commencement Date as the date of such partial completion, subject to any accelerations due to any Tenant Delay, or if you have not cured such Tenant Delay within thirty days of Landlord's written notice to you advising of the Tenant Delay and specifying that Landlord has available the 13 remedy of the right to terminate, then Landlord, in Landlord's sole and absolute discretion, as Landlord's sole remedy, may elect to terminate the Lease in which case you shall be liable for, as liquidated damages, all design, permitting and construction costs expended by Landlord regarding the Interior Modifications through the date of termination together with all leasing commissions paid or payable by Landlord with respect to this Lease and together with Rent that would have been paid for the first Lease Year. In order to claim accelerations of the Commencement Date due to a Tenant Delay, Landlord must provide you with written notice no later than ten business days following the event giving rise to the claimed Tenant Delay and specifying the number of days of acceleration caused by the Tenant Delay, failing which Landlord is deemed to have waived the applicable Tenant Delay for any period prior to the tenth business day immediately preceding the date of the giving of such notice. 3.10 LANDLORD'S INABILITY TO COMPLETE INTERIOR MODIFICATIONS DUE TO TENANT REPUDIATION. For purposes of this Section, "REPUDIATION" means any one of the following actions: (i) your written rejection of the Lease; (ii) your written instruction that Landlord should cease performing the construction of the Interior Modifications; (iii) if you make a general assignment for the benefit of creditors; (iv) if you commence any case, proceeding or other action seeking to have an order for relief entered on your behalf as a debtor to adjudicate you as being a bankrupt or insolvent, or seeking reorganization or relief of debtors or seeking appointment of a receiver, trustee, custodian or other similar official for you or for all or of any substantial part of your property, or you take any action to authorize or in contemplation of any of the foregoing actions; (v) if, you fail to get dismissed, within thirty days of its filing, any case, proceeding or other action against you is filed seeking to have an order for relief entered against you as a debtor or to adjudicate you as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, liquidation, dissolution or composition of your debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking appointment of a receiver, trustee, custodian or other similar official for you or for all or any substantial part of your property; or (vi) if a receiver or trustee shall be appointed for all or substantially all of your assets. If a Repudiation occurs prior to the Substantial Completion of the Interior Modifications, then Landlord, in Landlord's sole and absolute discretion, as Landlord's sole remedy, may elect to terminate the Lease in which case you shall be liable for, as liquidated damages and as Landlord's sole remedy, all design, permitting and construction costs regarding the Interior Modifications expended by Landlord through the date of termination together with all leasing commissions paid or payable by Landlord with respect to this Lease and together with Rent that would have been paid for the first Lease Year. 3.11 CHANGE ORDERS AND UPGRADES. As to any particular Phase, you may request Landlord to make changes in approved Permit Drawings or to the Interior Modifications already installed prior to Substantial Completion. Any changes so requested by you ("TENANT'S CHANGES") will be subject to Landlord's prior written approval, which will not be unreasonably withheld or delayed. Landlord will, within seven (7) business days following receipt of proposed Tenant's Changes, deliver to you (i) a statement of Landlord's estimated out of pocket cost for such requested Tenant's Changes (per the contract with Global, such cost will be cost plus an overhead and profit charge of 8%) ("CHANGE COSTS") (including any additional architectural and engineering fees and costs), and (ii) an estimate of the period of time, if any, that such Tenant's Changes will delay Substantial Completion. In the case of Tenant's Changes requested prior to 14 the awarding of a construction contract by Landlord for the subject work, Landlord's statement of Change Costs will be based on a good faith estimate of such costs by Landlord and, in the case of Tenant's Changes requested after the awarding of a construction contract for the subject work, the statement of Change Costs will be based on the proposed change order to the construction contract to be issued and approved by Landlord for such Tenant's Changes. If you fail to approve in writing Landlord's submission within ten (10) business days following receipt thereof (three business days if Landlord's statement to you expressly puts you on notice that Landlord is at a point in construction where Landlord needs to know immediately if you are approving the applicable Tenant's Change) or if you fail to pay Landlord for the cost of such Tenant's Changes within such ten (10) business day period, the same will be deemed disapproved in all respects by you, and Landlord will not be authorized to make the applicable Tenant's Change. If you approve in writing the statement of cost and the delay in Substantial Completion as submitted by Landlord and if you timely pay Landlord for the cost thereof as provided herein, Landlord will promptly cause the Permit Drawings to be modified to provide for such change. If the Buildout Cost (Testing Lab), inclusive of an 8% general contractor charge for overhead and profit, is less than $72,738, then any savings (difference between $72,738 minus the actual Buildout Cost (Testing Lab)) will be credited against any Change Costs required to be paid for by you as set forth above. If Tenant's Changes result in a reduction in the requirements of a particular line item on the Scope of Work attached to this Lease as part of Exhibit C, then you shall be entitled to use the savings to offset the cost of any other Tenant Changes or against the Tenant Share, if any. By way of example, if there is a Tenant's Change that reduces the Line 116 lighting fixtures from 240 units to 239 units, then you shall be entitled to offset the $115 savings (and related overhead and profit savings) against any Change Costs or required Tenant Share payments. 3.12 INSPECTION OF WORK. You may inspect and conduct tests to determine whether construction is being performed consistent with the Permit Drawings, regardless of whether such inspections or tests are required by the Permit Drawings. Should your inspections or tests reveal that the work is not installed substantially in accordance with the Permit Drawings, the cost of uncovering and replacement shall be at Landlord's expense. If your inspections or tests require work to be uncovered and such inspections or tests reveal that the work has been installed substantially in accordance with the Permit Drawings, the costs of uncovering and replacement shall be at your expense and any actual delay associated therewith shall be a Tenant Delay. Neither your inspections, tests, or approvals nor your failure to make any such inspections, tests, or approvals shall relieve Landlord of its responsibility to complete the Interior Modifications in accordance with this Lease, nor constitute a waiver or acceptance of any defects in the Interior Modifications, unless otherwise expressly waived in writing by you. 3.13 WARRANTY FOR INTERIOR MODIFICATIONS. Notwithstanding anything to the contrary contained in the Lease, for the 365 day period immediately following the Commencement Date for a Phase, Landlord hereby provides a warranty in favor of you to repair or replace (if needed) any defect in the Interior Modifications pertaining to such Phase, so long as the need for such repair or replacement is not caused by the negligence or willful misconduct of you or your agents, employees or contractors. 15 3.14 LANDLORD'S FAILURE TO SUBSTANTIALLY COMPLETE ON OR BEFORE A REQUIRED DELIVERY DATE. If Landlord fails to Substantially Complete the Phase 1 Area by the Required Phase 1 Delivery Date, then in such event Landlord grants to you a credit to be used against Rent first due and owing, in an amount equal to $1,343 multiplied by the number of days from the Required Phase 1 Delivery Date through but not including the date of Substantial Completion of the Phase 1 portion of the Interior Modifications. If Landlord fails to Substantially Complete the Phase 2 Area by the Required Phase 2 Delivery Date, then in such event Landlord grants to you a credit to be used against Rent first due and owing, in an amount equal to $568 multiplied by the number of days from the Required Phase 2 Delivery Date through but not including the date of Substantial Completion of the Phase 2 portion of the Interior Modifications. 3.15 PHASE 3 COMPLETION. Landlord shall Substantially Complete the Phase 3 Area as soon as is reasonably practical following issuance of the permit therefor. ARTICLE IV TERM 4.01 PRIMARY TERM. The primary term of this Lease shall begin on the Commencement Date and the primary term of this Lease shall end on the Expiration Date. After the Commencement Date, you shall, upon demand, execute and deliver to Landlord a letter of acceptance of delivery of the Premises. After the Commencement Date and at the request of either party, the parties will enter in to a Clarification of Lease Terms which will set forth the Commencement Date, Rent Commencement Date, Expiration Date, and post office address for the Premises assigned by the City (if different from the shell Building post office address). 4.02 HOLDING OVER. If Landlord agrees in writing that you may hold over after the expiration or termination of this Lease, unless the parties hereto otherwise agree in writing on the terms of such holding over, the hold over tenancy shall be subject to termination by either party upon not less than thirty (30) days advance written notice, and all of the other terms and provisions of this Lease shall be applicable during that period, except that you shall pay Landlord from time to time upon demand, as rental for the period of any hold over, an amount equal to the Holdover Rent, computed on a daily basis for each day of the hold over period. If Landlord does not consent to your holdover, then you shall also pay to Landlord all actual damages sustained by Landlord resulting from retention of possession by you, including the loss of any proposed subsequent tenant for any portion of the Premises provided that Landlord has provided you with advance written notice of the existence of such subsequent tenant and you nonetheless failed to surrender possession of the Premises within sixty days of such notification. No holding over by you, whether with or without consent of Landlord, shall operate to extend this Lease except as otherwise expressly provided. The preceding provisions of this paragraph shall not be construed as consent for you to hold over. 4.03 OPTION TO EXTEND. Landlord grants to you the option to extend the term of this Lease for a five year extended term (the "FIRST EXTENDED TERM"), the First Extended Term to begin on the day after the end of the primary term of 16 this Lease. To effectively exercise your First Extended Term option, you must timely provide the Landlord with the Renewal Notice. If Landlord does not timely receive the Renewal Notice, time being of the essence, you shall not be entitled to exercise your First Extended Term option. ARTICLE V RENT 5.01 BASE RENT. Base Rent shall be payable during the primary or during any extended term in accordance with this Section 5.01. 5.01(a) BASE RENT DURING PRIMARY TERM. Subject to the base rental abatements detailed in Paragraph 5.01(c), and subject to the fact that there will be different rent Commencement Dates as to each Phase, you agree to pay to Landlord base rent for the Premises for the entire primary term hereof beginning on the Rent Commencement Date, at the initial rate of $46,438.89 a month, provided, however, that if the Rent Commencement Date is a day other than the first day of a calendar month, then for the initial partial month, you agree to pay a per diem base rental based on the actual number of days in such month for each day of the partial month beginning on the Rent Commencement Date and ending on the last day of the partial month in which the Rent Commencement Date falls. On each Adjustment Date falling within the primary term beginning with the Adjustment Date corresponding with the first day of the second Lease Year, the monthly base rent amount shall increase to 103% of the monthly base rent amount then in effect immediately prior to such Adjustment Date. Notwithstanding the foregoing, until such time as the Rent Commencement Date has occurred as to all Phases, the monthly base rent amount will be as follows: For period from the Rent Commencement Date for Phase 1 through the day immediately preceding the Rent Commencement Date for Phase 2, the sum of $30,783.00 a month, prorated for any period less than a full month; and For period from the Rent Commencement Date for Phase 2 through the day immediately preceding the Rent Commencement Date for Phase 3, the sum of $43,808.50 a month, prorated for any period less than a full month. 5.01(b) BASE RENT DURING EXTENDED TERM. Subject to the last sentence of the definition of Market Rent, if you exercised an Extended Term option, then you agree to pay to Landlord monthly base rent for the Premises at an initial rate equal to Market Rent. On each Adjustment Date falling within the Extended Term beginning with the Adjustment Date corresponding to the first day of the second Lease Year of the Extended Term, the monthly base rent amount shall increase in accordance with the fixed rate increases (based on market at the time) specified in Landlord's determination of Market Rent. 5.01(c) BASE RENT ABATEMENTS DURING PRIMARY TERM. Provided that no uncured Event of Default then exists, the monthly base rent (but not the additional rent under Section 5.02) for the last two full calendar months of the primary term (months 124 and 125) shall abate. 17 5.02 ADDITIONAL RENT FOR TENANT'S PROPORTIONATE SHARE OF OPERATING COSTS. Beginning on the Commencement Date (as opposed to the Rent Commencement Date) and continuing during the primary and any extended term of this Lease, you agree to pay to Landlord as additional rent, your Proportionate Share of Operating Costs. Any payments with respect to any partial calendar year in which the term commences or ends shall be prorated. You agree to pay, for calendar year 2004, $15,190.29 per month as an estimated amount for Operating Costs. Landlord may, at any time, deliver to you its estimate (or reasonably revised estimate) of such additional amounts payable under this Section for each calendar year. On or before the first day of the next month and on or before the first day of each month thereafter, you shall pay to Landlord as additional rent such amount as Landlord reasonably determines to be necessary to bring and keep you current. As soon as practicable after the close of each calendar year, Landlord shall deliver to you an itemized statement in reasonable detail showing the total amount payable by you under this Article. If such statement shows an amount due from you that is less than the estimated payments previously paid by you, it shall be accompanied by a refund of the excess to you or at Landlord's option the excess shall be credited against the next monthly installment of Rent. If such statement shows an amount due from you that is more than the estimated payments paid by you, you shall pay the deficiency to Landlord, as additional rent, which payment shall be due within thirty (30) days after the date of Landlord's statement to you. You or your representatives shall have the right after seven (7) days prior written notice to Landlord to examine Landlord's books and records of Operating Costs during normal business hours within one hundred and eighty (180) days following the furnishing of the statement to you. Unless you take written exception to any item within one hundred and eighty (180) days following the furnishing of the statement to you (which item shall be paid in any event but which may nonetheless be challenged within such 180 day period), such statement shall be considered as final and accepted by you. The taking of exception to any item shall not excuse you from the obligation to make timely payment based upon the statement as delivered by Landlord. If you timely take written exception to any item, any dispute with respect to the written exception not resolved to the mutual satisfaction of both Landlord and you within thirty (30) days following Landlord's receipt of your written exception shall be resolved in accordance with the following procedures. First, Landlord shall have seven days immediately following the thirty day period to provide you with a list of three independent certified public accountants. You shall then have seven days following your receipt of the list of independent certified public accountants to designate one of the three independent certified public accountants (hereinafter the "CPA") and to provide Landlord with written notice of your designation. If Landlord fails to timely provide you with the list of three independent certified public accountants, then you may select any independent certified public accountant you wish to serve as the CPA. If you fail to timely designate one of the three independent certified public accountants as the CPA, then Landlord may select any independent certified public accountant it wishes to serve as the CPA. The decision of the CPA shall be final and binding as to any dispute with respect to your written exception and the cost of the CPA shall be paid for by the party who does not prevail. For purposes of the preceding, (i) the term "INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT" means a certified public accountant who has not previously rendered accounting services of any kind for either you or Landlord; and (ii) Landlord will be deemed to have prevailed if the determination of the CPA results in a reduction in your Proportionate Share of Operating Costs which is five percent 18 or less of the Landlord's determination of your Proportionate Share of Operating Costs and you will be deemed to have prevailed if the determination of the CPA results in a reduction in your Proportionate Share of Operating Costs which is more than five percent of the Landlord's determination of your Proportionate Share of Operating Costs. You may, at your option but subject to a reasonable basis existing to do so, cause Landlord to challenge or contest any assessment of Taxes and the reasonable costs of such contest will be included as part of Taxes. Landlord agrees to give you a copy of any trim notice (i.e., notice of the assessed value of the real property of which the Realty is a part) within five days of Landlord's receipt of written request from you. 5.02A. CAP ON CONTROLLABLE OPERATING COSTS. Notwithstanding anything in Section 5.02 to the contrary, the increase in your Proportionate Share of Controllable Operating Costs during the primary term of the Lease shall not exceed 6% from one year to the next, on a non cumulative basis. Short years will be annualized for purposes of determining any cap pursuant to the foregoing. By way of example of what is meant by a non cumulative basis, if your Proportionate Share of Controllable Operating Costs for calendar year 2005 increased by 3% from calendar year 2004, then your maximum Proportionate Share of Controllable Operating Costs for calendar year 2006 would be 106% of the calendar year 2005 amount, irrespective of the fact that the increase from calendar year 2004 to calendar year 2005 was only 3%. Repairs first incurred after the expiration of a warranty will not be subject to the foregoing cap. For any period prior to January 1, 2006 and provided that management fees do not exceed 4% of Rent (prior to the portion of Rent attributable to the management fees), management fees will not be subject to the foregoing cap. 5.03 SALES TAX. With each installment of Rent, you shall pay to Landlord all sales taxes due thereon. 5.04 TIME FOR PAYMENT OF RENT. Each monthly installment of Rent shall be due and payable on or before the first day of the calendar month for which such Rent is payable. Rent shall be payable without demand, deduction or right of set off, except as is otherwise expressly provided for herein, if any. Notwithstanding anything to the contrary contained in this Section, if you have received a final, nonappealable judgment for damages against Landlord as a result of an uncured default by Landlord under this Lease, which is not satisfied within thirty (30) days after it becomes final and nonappealable, then for so long as Landlord or an affiliate is the fee owner of the Building, you will have the right to deduct the unpaid amount of such judgment (plus interest) against the Rent to become due under this Lease until fully credited. 5.05 PLACE FOR PAYMENT. All Rent and other payments required to be made by you to Landlord shall be payable to: Atlantic Business Center L.C. or to such other entity at the such other address as Landlord may specify from time to time by written notice delivered in accordance herewith. Notwithstanding anything herein to the contrary, if the Building is encumbered by an assignment of leases and rents made by Landlord and recorded in the Public Records of the County in which the Building is located, then upon the written demand of the lender named in such assignment of leases and rents or the successor in interest to such lender (hereinafter the "LENDER"), together with a recorded copy of such assignment of leases and rents, you agree to pay all Rent and other payments required to be made by you hereunder to such Lender and Landlord agrees that you 19 will be credited by Landlord for any payments so made. 5.06 ACCORD AND SATISFACTION. Payment by you or receipt by Landlord of a lesser amount than the Rent herein stipulated or any other rent required to be paid by you hereunder may be, at Landlord's sole option, deemed to be on account of the earliest due stipulated Rents or other rent, or deemed to be on account of Rent or other rent owing for the current period only, notwithstanding any instructions by or on your behalf to the contrary, which instructions shall be null and void, and no endorsement or statement on any check or any letter accompanying any check payment as Rent or other rent shall be deemed an accord and satisfaction unless otherwise expressly agreed to by Landlord in writing, and Landlord shall accept such check or payment without prejudice to Landlord's right to recover the balance of such Rent or other rent or pursue any other remedy in this Lease against you. ARTICLE VI SECURITY DEPOSIT You agree to deposit the Security Deposit with Landlord on the date hereof. Upon the occurrence of any Event of Default by you, Landlord may, from time to time, without prejudice to any other remedy, use the Security Deposit to the extent necessary to make good any arrears of Rent or other payments due Landlord hereunder, and any other damage, injury, expense or liability caused by your default, and you shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount. Although the Security Deposit shall be deemed the property of Landlord, any remaining balance of the Security Deposit shall be returned to you by Landlord at such time after termination of this Lease when Landlord shall have determined that all your obligations under this Lease have been fulfilled but no later than the sixtieth day immediately following the expiration or earlier termination of the term. At the time the Security Deposit is due, you shall have the right to instead tender to Landlord a Letter of Credit in amount equal to the Security Deposit and in such event, references in this Lease to the Security Deposit shall mean the Letter of Credit and following a draw by Landlord you shall pay to the issuer on demand by Landlord any amounts necessary to restore the Letter of Credit to its original amount. Subject to you giving Landlord at least sixty (60) days advance written notice and provided that no uncured Event of Default then exists and if you had previously paid to Landlord the Security Deposit, you shall have the right to substitute a Letter of Credit in amount equal to the Security Deposit and upon Landlord's acceptance of the Letter of Credit, Landlord will thereafter promptly refund the Security Deposit to you. In such event, references in this Lease to the Security Deposit shall mean the Letter of Credit and following a draw you shall pay to the issuer on demand by Landlord any amounts necessary to restore the Letter of Credit to its original amount. ARTICLE VII USE OF THE PREMISES 7.01 PERMITTED USE. The Premises shall be used for the sole purpose of the Permitted Use and for no other use or purpose. The Premises may never be used by you, in whole or in part, for a Prohibited Use. You shall at your own cost and expense obtain any and all licenses and permits necessary for any such use. Your trucks and trucks visiting the Premises may only park in the dock 20 areas adjacent to your Premises. The outside storage of property is prohibited. Trash and garbage must be placed in a dumpster in an area specifically designated by Landlord. You agree that you will, at your own cost and expense keep your employees, agents, customers, invitees, and/or licensees from parking on any streets running through or contiguous to the Development or from parking at any other building within the Development. You shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise or vibrations to emanate from the Premises, nor take any other action which would constitute a nuisance or would disturb or endanger any other tenants of the Development or unreasonably interfere with any tenant's use of their respective premises or permit any use which would adversely affect the reputation of the Development. At your request, Landlord has deleted a provision that would have prohibited the overnight parking of trucks and other vehicles. Neither Landlord, the property management company or any security company hired by Landlord to patrol the Common Areas at night, if one is hired, will be liable to you for any theft or damage to vehicles or trucks (including property within the trucks or vehicles) parked overnight by you or by your employees, agents or contractors and you agree to indemnify and hold Landlord, the property management company and security company, if any, harmless for any claim by any person or entity resulting from the overnight parking of vehicles or trucks at the Premises. The omission of the prohibition against overnight parking is being agreed to by Landlord at your insistence and request and only after you have agreed to the foregoing exculpatory and indemnitory language and the foregoing exculpatory and indemnitory language shall be binding upon you even if the actions of the indemnified parties were determined to be negligent or, as to an omission as opposed to an action, grossly negligent. 7.02 TENANT'S DUE DILIGENCE AS TO PERMITTED USE . Landlord makes no (and does hereby expressly disclaim any) covenant, representation or warranty as to the Permitted Use being allowed by or being in compliance with any applicable laws, rules, ordinances or restrictive covenants now or hereafter affecting the Premises, and any zoning letters, copies of zoning ordinances or other information from any governmental agency or other third party provided to you by Landlord or any of Landlord's agents or employees shall be for informational purposes only, you hereby expressly acknowledging and agreeing that you shall conduct and rely solely on your own due diligence and investigation conducted by you prior to entering in to this Lease with respect to the compliance of the Permitted Use with all such applicable laws, rules, ordinances and restrictive covenants and not on any such information provided by Landlord or any of its agents or employees. Notwithstanding the foregoing, Landlord represents to you that the zoning classification of the Realty pursuant to the City zoning code is currently I-1 general industrial with a Planned Industrial Overlay. 7.03 COMPLIANCE WITH LAWS. You covenant to comply with any and all laws, statutes, ordinances and regulations, federal, state, county or municipal, now or hereinafter in force applicable to the Premises relating to the specific use or occupancy thereof or to the making of repairs thereto expressly required to be made by you pursuant to the terms of this Lease, or of changes, alterations or improvements therein, ordinary or extraordinary, seen or unforeseen, provided, however, in no event shall you be required to make any alterations to the structure of the Building or the base Building systems in order to comply with the foregoing unless necessitated by a specific use of the Building by you as opposed to general warehouse use. You also covenant to comply 21 with any and all regulations and rules applicable to the Premises issued by the Board of Fire Underwriters as it relates to the specific use of the Premises, or by any other body exercising similar functions, and insurance companies writing policies covering the Premises which now or hereafter may become applicable to the Premises. You shall pay all costs, expenses, claims, fines, penalties and damages that may in any manner arise out of or be imposed because of your failure to comply with this Section, and in any event, you agree to indemnify the Landlord from all liability with reference to the same. Landlord and you shall each promptly give notice to the other in writing of any notice of violation received by you or Landlord, respectively. (See Paragraph 8.01(b) for similar but not mutual covenants on the part of Landlord regarding Landlord's maintenance of the Common Areas). 7.04 TENANT'S REPAIR AND MAINTENANCE OBLIGATIONS. (a) Subject to Section 3.12, you shall, at your own cost and expense, keep and maintain all parts of the Building in a good, clean, safe and sanitary condition, promptly making all necessary repairs and replacement, whether ordinary or extraordinary, with materials and workmanship of the same character, kind and quality as the original, including but not limited to, windows, glass and plate glass, doors, any special office entries, interior walls and finish work, floors and floor coverings, heating and air conditioning systems, electrical systems and fixtures, sprinkler systems, life safety systems and equipment, water heaters, dock board, truck doors, dock bumpers, and plumbing work and fixtures. As part of your obligation hereunder, you shall keep the whole of the Premises in a clean and sanitary condition. You will as far as possible keep all parts of the Premises from deteriorating, ordinary wear and tear excepted, and from falling temporarily out of repair, and upon termination of this Lease in any way, you will yield up the Premises to Landlord in its Exit Condition. You shall, at your own cost and expense, as additional rent, pay for the repair of any damage to the Building or to the Development resulting from and/or caused in whole or in part by your negligence or misconduct, or the negligence or misconduct of your agents, servants, employees, patrons, customers, or any other person entering upon the Development as a result of your business activities or caused by your default hereunder, subject, however, to Section 12.06. (b) At your own cost and expense, you agree to enter into a regularly scheduled preventive maintenance/service contract with a maintenance contractor approved by Landlord, for servicing all heating and air conditioning systems and equipment servicing the Premises and an executed copy of such contract shall be delivered to Landlord. This service contract must include all services suggested by the equipment manufacturer within the operations/maintenance manual and must become effective within thirty (30) days of the date you take possession of the Premises. Landlord may (but shall not be required to), upon notice to you, elect to enter into such a maintenance service contract on your behalf or perform the work itself and, in either case, charge you therefore for Landlord's out of pocket costs provided that the charge to you does not exceed the charge that you would pay if you entered into such maintenance contract yourself. 7.05 UTILITIES. You agree to pay for all gas, heat, light, power, telephone, and other utilities and services (including trash removal) used on or from the Premises, together with any taxes, penalties and surcharges or the like pertaining thereto and any maintenance charges for utilities and any utility hookup fees (but not tap-in fees). Landlord shall in no event be liable for any interruption or failure of utility services on or to the Premises, provided, however, if the interruption or failure of utility service was caused solely by the negligent or intentional wrongful acts of Landlord or of Landlord's agents 22 or contractors (i) if Landlord then fails to diligently attempt to restore the utility service, then you shall be entitled to an abatement of Rent for each day after the third day of such interruption or failure until such time as Landlord commences to diligently attempt to restore the utility service; and (ii) if such interruption or failure continues for at least fifteen (15) consecutive days, then irrespective of Landlord's efforts to restore the utility service, you shall be entitled to an abatement of Rent (the abatement to be reduced by the amount of recovery you receive from the proceeds of business interruption insurance, if any, attributable to the Rent that would otherwise have been abated) for each day after such fifteenth day until such time as the utility service is restored. During any period of a failure of electric services and provided that it does not damage the Building and provided that the use of same is in compliance with all Environmental Laws, Landlord will not object to you bringing a portable generator on to the Premises to keep the Premises operational. 7.06 END OF THE TERM. You covenant that on the last day of the term, you will peaceably and quietly leave and surrender the Premises in its Exit Condition and that all payments required to be made by you in payment of utilities pursuant to Section 7.05 shall have been paid or provision for payment having been made. If you had any permit issued for alterations or improvements, whether consented to or not by Landlord, then you covenant that as of the last day of the term, such permits will be closed. The parties shall arrange to meet for a joint inspection of the Premises prior to you vacating. If through no fault of Landlord, the parties do not make such joint inspection, then Landlord's inspection at or after you vacate the Premises shall be conclusively deemed correct for purposes of determining your responsibility for repairs and restoration. 7.07 HURRICANE SHUTTERS. Landlord shall provide you with hurricane shutters (part of the base building and therefore not included in the Scope of Work attached as part of EXHIBIT C) for your use at the Premises in case of a threat of hurricane, tropical storm, or other adverse weather conditions. You agree to store the hurricane shutters in the Premises in accordance with Landlord's reasonable recommendations and you shall be solely responsible for the maintenance and protection of the hurricane shutters, and the replacement of the hurricane shutters in the event of damage, theft or loss. If there is a hurricane warning or other threat mandating the installation of hurricane shutters, it shall be your sole responsibility to promptly install the hurricane shutters and to then remove the hurricane shutters after the weather threat has passed. Hurricane shutters shall be installed on the pre-existing bolts properly installed by Landlord for such purposes and you will not be permitted to drill or install other bolts, nails or other devises in to the exterior of the Building. You shall be solely responsible to monitor weather reports and Landlord shall have no duty to advise you of threat of hurricane, tropical storm or other adverse weather condition nor shall Landlord have any duty or obligation to assist or instruct in your installation or removal of the hurricane shutters. Upon the expiration or earlier termination of the Lease, you shall return the hurricane shutters to Landlord in substantially the same condition in which such hurricane shutters were received, ordinary wear and tear excepted. 23 ARTICLE VIII LANDLORD'S OBLIGATIONS 8.01 REPAIRS AND MAINTENANCE. (a) Landlord shall maintain, repair and replace when needed the structural portions of the Building, including roof, foundation, and walls, and Landlord shall perform when needed the regular mowing of any grass, trimming, weed removal and general landscape maintenance, exterior painting, exterior lighting, exterior signs (other than your signage) and common sewage plumbing and the maintenance of all paved areas including driveways and alleys. You shall immediately give Landlord written notice of any defect or need for repairs, after which Landlord shall have a reasonable opportunity to repair the same or cure such defect. Landlord's liability with respect to any defects, repairs, or maintenance or the curing of such defect for which Landlord is responsible under the provisions of this Lease shall be limited to the cost of such repairs or maintenance or the curing of such defect. The term "walls" as used herein shall not include windows, glass or plate glass, doors, special store front or office entry. (b) Landlord covenants to comply with any and all laws, statutes, ordinances and regulations, federal, state, county or municipal, now or hereinafter in force applicable to the making of repairs to the Common Areas expressly required to be made by Landlord pursuant to the terms of this Lease, or of changes, alterations or improvements therein, ordinary or extraordinary, seen or unforeseen. 8.02 COVENANT OF QUIET ENJOYMENT. Landlord covenants that it now has good fee simple title to the Building, free and clear of all liens and encumbrances, excepting only the lien for current taxes not yet due, mortgages now or hereafter of record, zoning ordinances and other building and fire ordinances and governmental regulations relating to the use of such property, and easements, restrictions and other conditions of record. Landlord represents and warrants that it has full authority and right to enter into this Lease and that upon paying the Rent and other charges herein set forth and performing your other covenants and agreements herein set forth, you shall peaceably and quietly have, hold and enjoy the Premises for the term hereof without hindrance or molestation from Landlord or anyone other than a Superior Mortgagee claiming superior title to Landlord, subject to the terms and provisions of this Lease. Landlord agrees to make reasonable efforts to protect you from interference or disturbance by other tenants or third persons; however, and provided that Landlord makes such reasonable efforts, Landlord shall not be liable for any such interference or disturbance, nor shall you be released from any of the obligations of this Lease because of such interference or disturbance. ARTICLE IX ALTERATIONS AND SIGNAGE 9.01 ALTERATIONS. You agree that you will not make any alterations, additions or improvements to the Premises (including, without limitation, the roof and wall penetrations) without the prior written consent of Landlord, which consent, as to interior, nonstructural alterations, shall not be unreasonably withheld, delayed or conditioned. If Landlord shall consent to any alterations, additions or improvements proposed by you, you shall construct the same in accordance with all governmental laws, ordinances, rules and regulations and all requirements of Landlord's and your insurance policies and only in accordance 24 with plans and specifications approved by Landlord, which approval shall not be unreasonably withheld, delayed or conditioned. You may, without the consent of Landlord, but at your own cost and expense and in good workmanlike manner erect such shelves, bins, machinery and other trade fixtures as you may deem advisable, without altering the basic character of the Building and without overloading the floor or damaging the Building, and in each case after complying with all applicable governmental laws, ordinances, regulations and other requirements. All shelves, bins, machinery and trade fixtures installed by you may be removed by you prior to the termination of this Lease if you so elect, and shall be removed by the date of termination of this Lease or upon earlier vacating of the Premises if required by Landlord and upon any such removal you agree to repair any damage to the Premises caused by such removal. All such removals and restoration shall be accomplished in a good and workmanlike manner so as not to damage the primary structure or structural quality of the Building. Notwithstanding the foregoing, you may make without Landlord's prior consent but only after written notice to Landlord, non-structural alterations which do not require the issuance of a building permit. As to any alteration that does not require Landlord's consent, you will provide Landlord with advance notification of the making of the alteration. 9.02 ACCOUNTING FOR COST OF ALTERATIONS. As soon as is practical immediately following the completion of any improvements made to the Premises by you, you shall submit to Landlord an itemized statement setting forth the cost of such improvements. Within ninety (90) days of the request of Landlord from time to time made but not more than once in any one calendar year (unless such additional request results from a change in Landlord's insurance carrier), you shall provide Landlord with a written appraisal of the then current replacement value of the improvements to the Premises made by you. Your failure to submit such written appraisal shall not be an Event of Default, and instead, Landlord shall have the right to estimate the current replacement value of such improvements and any such estimate provided to Landlord's insurance carrier shall be binding upon you to the extent such improvements are covered under insurance required to be maintained by Landlord. 9.03 SIGNS AND WINDOW TREATMENT. You shall be permitted, at your cost and expense, to install exterior identification sign(s) on the Building in place(s) reasonably acceptable to Landlord provided that such signage conforms with signage criteria that Landlord has promulgated or is currently in the process of promulgating for the Development and provided that such signage is in compliance with all applicable codes and ordinances. Notwithstanding the foregoing, the number of exterior identification signs that you will be permitted to install on the fascia of the Building will be governed by the applicable codes and ordinances if Landlord's signage criteria is more restrictive than the applicable codes and ordinances. Such signage shall be maintained by you in good condition and repair during the term and removed by you upon termination of this Lease at which time you shall repair any damage to the Premises caused by such removal. Landlord may from time to time require you to change your identification signage to conform to a revised standard for the industrial portions of the Development provided that such revised standard is uniformly applied to all industrial tenants of the Development, provided Landlord pays the cost of removing and replacing such signage. You shall not be permitted to install monument, pylon or pole signage on any part of the Realty. 25 ARTICLE X LANDLORD ACCESS TO PREMISES Landlord and Landlord's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times upon reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, insurance adjustors or tenants, and making such alterations, repairs, improvements or additions to Building as Landlord may reasonably deem advisable or necessary. Landlord may at any time place on or about the Building any ordinary "For Sale" signs and Landlord may at any time during the last 270 days of the term hereof place on or about the Building any ordinary "For Lease" signs. All such activities of Landlord shall be without abatement of Rent or liability to you. Notwithstanding anything in the preceding to the contrary, Landlord's right to enter the Premises without your consent for the purpose of showing the Premises to prospective tenants will be limited to the period beginning 270 days immediately preceding the last day of the term. You shall have the right to have your representative accompany Landlord with respect to any entry onto the Premises, and in any event Landlord shall comply with your reasonable security procedures. ARTICLE XI ASSIGNMENT AND SUBLETTING 11.01 REQUIREMENT OF LANDLORD CONSENT. (a) You shall not have the right to assign, sublet, transfer or encumber this Lease, or any interest therein, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned. Any attempted assignment, subletting, transfer or encumbrance by you in violation of the terms and covenants of this Section shall be void. If Landlord consents to an assignment or subletting, as a condition thereto which the parties agree is reasonable, you shall pay to Landlord fifty percent (50%) of any Transfer Premium. These covenants shall run with the land and shall bind you and your successors and assigns. No assignment, subletting or other transfer, whether consented to by Landlord or not, shall relieve you of your liability and obligations hereunder. Upon the occurrence of an Event of Default, if the Premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided, may at Landlord's option collect directly from such assignee or subtenant all rents becoming due to you under such assignment or sublease and apply such rent against any sums due to Landlord for you hereunder, and no such collection shall be construed to constitute a novation or a release of you from the further performance of your obligations hereunder. Any assignee, sublessee or transferee of your interest in this Lease (all such assignees, sublessees and transferees being hereinafter referred to as "successors"), by assuming your obligations hereunder shall assume liability to Landlord for all amounts paid to persons other than Landlord by such successors in contravention of the immediately preceding sentence. (b) If you or your parent company are not a publicly traded corporation or a publicly traded limited partnership, then a change in control shall constitute an assignment requiring Landlord's consent. The transfer of 50% or more of your stock, if you are a corporation, or a change in 50% or more of your partners, if you are a general partnership or limited partnership, or a change in your general partner if you are a limited partnership, shall constitute a change in control for this purpose, requiring Landlord's consent. 26 (c) Except if permitted pursuant to Section 11.01(b) and/or Section 11.05, your involvement in a merger transaction, if you are not the surviving corporation in the merger or if the surviving entity in the merger is not a publicly traded entity or a non publicly traded entity whose net worth immediately after the merger is not at least equal to the larger of your net worth or the net worth of any guarantor of this Lease, shall be considered an assignment of this Lease requiring Landlord's consent. 11.02 EFFECT OF UNCONSENTED TO ASSIGNMENT OR SUBLETTING. An assignment or subletting of your interest in this Lease without Landlord's specific written prior consent (where Landlord's consent is required pursuant to the terms of this Lease) shall be an Event of Default curable after a ten day notice period and in addition to all rights and remedies available to Landlord under this Lease, and if Landlord does not elect to terminate the Lease, Landlord shall have the right to increase the monthly base rent to the Holdover Rent amount as if you were holding over during any period of time such unconsented to assignee or subtenant is in possession of any or all of the Premises. 11.03 SUB-LEASE TERMINATION: MERGER. Unless specifically stated otherwise in writing by Landlord, the voluntary or other surrender of this Lease by you, the mutual termination or cancellation hereof, or a termination hereof by Landlord for an uncured Event of Default by you, shall automatically terminate any sublease or lesser estate in the Premises, provided, however, Landlord shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Landlord's failure within fifteen (15) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Landlord's election to have such event constitute the termination of such interest. 11.04 THIRD PARTY PAYMENTS. You acknowledge that Landlord may not fully scrutinize and examine each Rent or other payment to see that the check submitted in payment is your check and not a third party check. Accordingly, if a third party check is tendered for payment of Rent or any other payment due under this Lease from you, and if such payment is accepted by Landlord, such acceptance shall not confer any rights upon the third party payor or entitle the third party payor to make a claim as an assignee or subtenant of yours nor shall such acceptance entitle the third party payor to occupy the Premises or create a landlord/tenant relationship between the third party payor and Landlord. 11.05 ASSIGNMENT TO AN AFFILIATE. Notwithstanding anything in Section 11.01 to the contrary, you shall have the right to assign your leasehold interest in the Premises to an Affiliate without Landlord's consent provided that (i) you provide Landlord with advance written notice of the assignment; (ii) you provide Landlord, in advance, with proof that the Affiliate has all insurance in place required to be maintained under this Lease including naming Landlord as an additional insured; (iii) you provide Landlord, in advance, with a fully executed assignment and assumption of lease document reasonably acceptable to Landlord including an acknowledgment that such assignment does not release you from liability; and (iv) you provide Landlord with an administrative charge payment of $700.00 to reimburse Landlord for the administrative and legal costs Landlord can reasonably be expected to incur regarding such assignment. 27 11.06 SUBLETTING TO AN AFFILIATE. Notwithstanding anything in Section 11.01 to the contrary, you shall have the right to sublet all or a portion of the Premises to an Affiliate without Landlord's consent provided that (i) you provide Landlord with advance written notice of the subletting; (ii) you provide Landlord, in advance, with proof that the Affiliate has all insurance in place required to be maintained under this Lease including naming Landlord as an additional insured; (iii) you provide Landlord, in advance, with a fully executed sublease reasonably acceptable to Landlord; and (iv) you provide Landlord with an administrative charge payment of $700.00 to reimburse Landlord for the administrative and legal costs Landlord can reasonably be expected to incur regarding such subletting. 11.07 CHANGE IN PERMITTED USE. Landlord will not unreasonably withhold, delay or condition its consent to a change in Permitted Use made in connection with a request for consent to an assignment or subletting transaction. ARTICLE XII INSURANCE During the term of this Lease, Landlord and you shall carry and maintain the following types of insurance and in the amounts specified in this Article, all as follows: 12.01 FIRE AND CASUALTY DAMAGE. Landlord agrees to maintain insurance covering the Building in an amount not less than full insurable value (subject to any applicable deductible) insuring against loss or damage by fire and other hazards included within the term "special causes of loss", "all risk" or "extended coverage" and against such other hazards as Landlord may deem advisable or which a Superior Mortgagee requires. Such insurance will not, however, insure your personal property. Subject to the provisions of subparagraph 13.01(c) below, such insurance shall be for the sole benefit of Landlord and under its sole control. 12.02 PERSONAL PROPERTY. You shall procure and maintain throughout the term of this Lease a policy or policies of insurance, at your sole cost and expense, insuring all personal property situated within the Premises against loss or damage by fire and other hazards included within the term "special causes of loss", "all risk" or "extended coverage" and against such other hazards as Landlord may reasonably require in the full insurable value. Landlord consents to you self insuring this risk, provided, however, for purposes of Section 12.06 the amount of insurance proceeds shall be deemed to equal the amount of your loss. 12.03 TENANT'S LIABILITY INSURANCE. You shall procure and maintain throughout the term of the Lease an industry-standard policy or policies of commercial general liability insurance, at your sole cost and expense, insuring you and Landlord(and, if requested by Landlord, insuring the Superior Mortgagee) as an additional insured, against your operations in and maintenance and use of the Premises and your liability assumed under this Lease, the limits of such policy or policies to be in the amount of not less than $5,000,000 per occurrence in respect to injury to persons (including death), and in the amount of not less than $250,000 per occurrence in respect to property damage or destruction, including loss of use thereof. The foregoing coverages shall be in any combination of primary insurance, supplemental insurance and blanket insurance (see Section 12.07 for blanket insurance provisions). If Landlord has 28 also obtained commercial liability insurance, then the insurance required to be maintained by you pursuant to this Section shall be primary and non contributing with respect to any policies carried by Landlord and any coverage carried by Landlord shall be excess insurance. 12.04 WORKERS' COMPENSATION AND EMPLOYER LIABILITY INSURANCE. You shall procure and maintain throughout the term of the Lease a policy or policies of insurance, at your sole cost and expense, all workers' compensation coverage as required by law and employer's liability insurance. 12.05 PROOF OF INSURANCE. Insurance required to be procured and maintained by you pursuant to this Article shall be procured by you from responsible insurance companies reasonably satisfactory to Landlord. Certificate(s) of insurance reasonably acceptable to Landlord evidencing your compliance with the provisions of Sections 12.02, 12.03 and 12.04 shall be delivered to Landlord prior to the Commencement Date. Not less than fifteen (15) days prior to the expiration date of any such policies, updated certificate(s) of insurance shall be delivered to Landlord. Such policies shall further provide that not less than thirty (30) days written notice shall be given to Landlord before such policy may be canceled or changed to reduce insurance provided thereby. 12.06 WAIVER OF SUBROGATION. To the maximum extent permitted by law and without affecting the coverage provided by insurance required to be maintained hereunder, Landlord and you each waive any right to recover against the other on account of any and all claims Landlord or you may have against the other with respect to property insurance actually carried, or required to be carried hereunder (including permitted self insurance), to the extent of the proceeds (and deductible) realized from such insurance coverage. Notwithstanding the preceding, if the damage or destruction to the Building was caused by your negligence, then you agree, upon demand, to reimburse Landlord for the deductible expended by Landlord under Landlord's policy of insurance (but not in excess of $20,000) to repair or rebuild the Building or part thereof after such damage or destruction. 12.07 TENANT BLANKET INSURANCE. With respect to insurance required to be maintained by you pursuant to this Lease, you shall have the right to utilize a "blanket" or "umbrella" policy of insurance, provided that you provide Landlord with satisfactory evidence that (i) Landlord is an additional insured under such blanket or umbrella policy, (ii) such blanket or umbrella policy expressly references the Premises as an insured location, and (iii) such blanket or umbrella policy contains a guaranteed amount of insurance for the Premises, which guaranteed amount shall equal or exceed the amounts of coverage required under this Lease. ARTICLE XIII CASUALTY AND CONDEMNATION 13.01 DAMAGE OR DESTRUCTION. (a) If the Building should be totally destroyed by fire, tornado or other casualty, or if the Building should be so damaged thereby that rebuilding or repairs cannot in Landlord's reasonable estimation be completed within the Restoration Period, this Lease shall terminate and the Rent shall be abated during the unexpired portion of this Lease, effective upon the date of the occurrence of such damage. 29 (b) If the Building should be damaged by any peril covered by insurance to be provided by Landlord under Section 12.01, but only to such extent that rebuilding or repairs can in Landlord's reasonable estimation be completed within the Restoration Period, or if the rebuilding or repairs cannot in Landlord's reasonable estimation be completed within the Restoration Period, but the parties nonetheless agree to continue this Lease pending Landlord's completion of the reconstruction, then this Lease shall not terminate, and Landlord shall at its sole cost and expense thereupon proceed with reasonable diligence to rebuild and repair the Building to substantially the condition in which it existed prior to such damage, except that Landlord shall not be required to rebuild, repair or replace any part of the partitions, fixtures, additions and other improvements which may have been placed in, on or about the Premises by you except that Landlord may elect not to rebuild if such damage occurs during the last year of the term of the Lease exclusive of any option which is unexercised at the time of such damage (unless you exercise the option within thirty (30) days of the date of damage or destruction). If the Premises are untenantable in whole or in part following such damage, the Rent payable hereunder during the period in which they are untenantable shall be reduced to such extent as may be fair and reasonable under all of the circumstances. If Landlord should fail to complete the repairs and rebuilding within the Restoration Period, you may, at your option, terminate this Lease by delivering written notice of termination to Landlord as your exclusive remedy, whereupon all rights and or obligations hereunder shall cease and terminate. Should construction be delayed because of changes, deletions, or additions in construction requested by you, strikes, lockouts, casualties, acts of God, war, material or labor shortages, governmental regulation or control or other causes beyond the reasonable control of Landlord, the Restoration Period shall be extended for the time Landlord is so delayed, but not to exceed ninety (90) days. (c) Notwithstanding anything herein to the contrary and if the cost of restoration exceeds $300,000, if a Superior Mortgagee requires that the insurance proceeds be applied to the indebtedness secured by a mortgage encumbering the Building, then Landlord shall have the right to terminate this Lease by delivering written notice of termination to you within fifteen (15) days after such requirement is made by the Superior Mortgagee, whereupon all rights and obligations hereunder shall cease and terminate. 13.02 CONDEMNATION. If the whole or any substantial part of the Building or if the whole or any substantial part of the Common Areas (the Building and Common Areas are singularly or collectively referred to in this Section as the "PROJECT") should be taken for any public or quasi-public use under governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase in lieu thereof, this Lease shall terminate effective when the legal taking or private purchase in lieu thereof shall occur. If less than the whole or less than a substantial part of the Project is thus taken or sold, and if the Rent would be reduced pursuant to the next sentence to an amount that is equal to or less than 80% of the amount payable before the taking, then either party may nonetheless terminate this Lease by giving written notice to the other in which event this Lease shall terminate effective when the legal taking or private purchase in lieu thereof shall occur. If this Lease is not terminated upon such taking or private sale in lieu thereof, the Rent payable hereunder during the unexpired portion of this Lease shall be reduced to such extent as may be fair and reasonable under all of the circumstances and Landlord shall undertake to restore the Project to a condition suitable for your use, as near to the condition thereof immediately prior to such taking as is 30 reasonably feasible under all the circumstances. All amounts awarded from the legal taking or private purchase in lieu thereof shall belong to Landlord and you shall not be entitled to and you expressly waive any claim to any of such proceeds, provided, however, you shall be entitled to pursue a separate claim for your trade fixtures and improvements paid for by you and for relocation expenses. ARTICLE XIV LANDLORD'S LIABILITY 14.01 LIABILITY AND INDEMNIFICATION. (a) If the waiver of subrogation provisions of Section 12.06 are not applicable, Landlord shall nonetheless not be liable to you for any damage to property on or about the Premises unless caused by or resulting from the gross negligence or intentional wrongful act of Landlord or its agents, servants or employees in the operation or maintenance of the Premises or the Development, subject to the doctrine of comparative negligence in the event of contributory negligence on your part or on the part of your agents, employees or servants. In no case will a Superior Mortgagee be liable to you for injury, damage or loss caused by Landlord, regardless of the cause. In those cases specified above where Landlord is liable to you for damage to your property, Landlord's liability is limited to the replacement value of the property damaged. In no case will Landlord be liable to you for incidental or consequential damages or for lost profits. (b) You agree to indemnify Landlord and hold Landlord harmless from and against all claims, actions, damages, liability, and expenses which may arise in connection with bodily injury or loss of life to persons while at the Premises if the injury or loss of life was occasioned totally or in part by any negligent or wrongful intentional act by you or by your agents, contractors, servants or employees. Your indemnification obligation under this paragraph shall not, however, apply to the extent the injury or loss of life was due to the negligent or wrongful intentional act of Landlord. In no case will you be liable to Landlord for incidental or consequential damages or for lost profits resulting from damage to Landlord's property. (c) You agree to indemnify Landlord and hold Landlord harmless from and against all claims, actions, damages, liability, and expenses which may arise in connection with damage to the property of third persons if the property is damaged while at the Premises and if the damage was occasioned totally or in part by any negligent or wrongful intentional act by you or by your agents, contractors, servants or employees. Your indemnification obligation under this paragraph shall not, however, apply to the extent the damage to third persons property was due to the negligent or wrongful intentional act of Landlord. (d) In case a party (the "INDEMNIFIED PARTY") shall, without any fault on its part, be made a party to any litigation commenced by or against the other party (the "INDEMNIFYING PARTY") in connection with the Premises, the Indemnifying Party hereby agrees to hold the Indemnified Party harmless and further agrees to pay all costs, expenses, and reasonable attorney's fees which may be incurred by the Indemnified Party in connection with such litigation. Notwithstanding, Landlord's obligation as an Indemnifying Party shall only apply to those causes of action which arise while Landlord is the owner of the Building and Landlord's obligations under this paragraph shall not be binding upon a Superior Mortgagee except for acts occurring while the Superior Mortgagee 31 is landlord hereunder after a Succession (as defined in Section 18.03) 14.02 TENANT REMEDIES (INCLUDES LIMITED SELF HELP REMEDY). In the event of any default by Landlord, your exclusive remedy shall be an action for damages or for specific performance or other injunctive relief if specific performance or injunctive relief is a commercially reasonable remedy given the circumstances, but prior to any such action you must give Landlord written notice specifying such default, and Landlord shall thereupon have thirty days in which to cure such default, or if the nature of such default is such that it is not reasonably susceptible of cure within the thirty day period, to commence to cure such default within such thirty day period and to thereafter proceed diligently to cure such default. Unless and until Landlord fails to cure such default as aforesaid, you shall not have any remedy or cause of action by reason thereof. Notwithstanding the preceding, if Landlord fails to perform or to commence to perform and to proceed diligently thereafter to completion, its obligations under Section 8.01 within a commercially reasonable period of time considering the failure of performance after written notice from you, then upon advance written notice received from you, you may perform such obligations yourself whereupon Landlord shall reimburse you for your actual cost to perform the obligation. 14.03 LIMITATION ON LIABILITY. If Landlord shall fail to perform any covenant, term or condition of this Lease upon Landlord's part to be performed, and if as a consequence of such default you shall recover a money judgement against Landlord, such judgement shall be satisfied only out of the proceeds of sale received upon execution of such judgement and levied thereon against the right, title and interest of Landlord in the Realty and out of the rents or other income from the Realty receivable by Landlord, or out of the consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title and interest in the Realty, subject, nevertheless, to the rights of a Superior Mortgagee, and neither Landlord nor any of the stockholders, partners or members comprising the entity which is Landlord herein shall be liable for any deficiency. ARTICLE XV TENANT DEFAULT Upon the occurrence of an Event of Default and in addition to all rights or remedies afforded to Landlord elsewhere in this Lease or at law or in equity, Landlord shall have the following rights and remedies: 15.01 RETAKE POSSESSION OF THE PREMISES AND OR TERMINATION. Upon the occurrence of an Event of Default, Landlord shall have the immediate right to reenter the Premises after process of law to dispossess you and all other occupants from the Premises and remove and dispose of all property situated within the Premises, or at Landlord's election, to store such property in a public warehouse or elsewhere at your cost and for your account, without Landlord being deemed guilty of trespass or becoming liable for any loss or damage which may be occasioned thereby, so long as Landlord acts reasonably and in accordance with process of law. Upon the occurrence of any such Event of Default, Landlord shall also have the right, at its option, in addition to and not in limitation of any other right or remedy available under this Lease or at law or in equity, to terminate this Lease by giving you notice of cancellation and upon the mailing of such notice, this Lease and the Term shall end and 32 expire as fully and completely as if the date of said notice were the date herein definitely fixed for the end and expiration of this Lease and the Term and thereupon, unless Landlord shall have previously elected to reenter the Premises, Landlord shall have the immediate right of reentry in the manner aforesaid, and you and all other occupants shall quit and surrender the Premises to Landlord but you shall remain liable to Landlord as set forth herein. No reentry or taking possession of the Premises or acceptance of keys to the Premises voluntarily given by you following an Event of Default, shall be construed as an election on the part of Landlord to terminate this Lease unless written notice of such intention be given by Landlord to you or unless the termination thereof shall result as a matter of law or be decreed by a court of competent jurisdiction. Notwithstanding any retaking of possession for your account or reletting for your account, Landlord may at any time thereafter elect to terminate this Lease. 15.02 RELETTING OF THE PREMISES. If by reason of the occurrence of an Event of Default, the Term shall end before the date originally fixed herein, or if by reason of an Event of Default Landlord retook possession of the Premises without an early termination of the Lease and the Term, or if you are ejected, dispossessed, or removed from the Premises by summary proceedings or in any other manner as a result of an Event of Default, Landlord at any time thereafter may relet all or a part of the Premises, either in the name of Landlord or as agent for you, for a term or terms which, at Landlord's option may be less than or exceed the period of the remainder of the Term or which otherwise would have constituted the balance of the Term had such Term not been sooner terminated and grant concessions and free Rent. Except as may otherwise expressly be required under applicable law, Landlord shall in no event be liable in any way for Landlord's failure to relet the Premises or to collect any rent receivable from such reletting. Landlord is hereby authorized and empowered to make such repairs, alterations, subdivisions or other preparations for the reletting of the Premises as Landlord reasonably deems fit, advisable and necessary, without in any way releasing you from any liability hereunder. Landlord shall receive the rents from such reletting and apply the same, first, to the payment of any monetary obligation due under this Lease other than Rent, second to the payment of any expenses as Landlord may have incurred in connection with reentering, ejecting removing, dispossessing, reletting, altering, repairing, subdividing or otherwise preparing the Premises for reletting, including reasonable brokerage and reasonable attorney fees, and the residue, if any, Landlord shall apply to your fulfillment of the terms, conditions and covenants hereunder and you waive any right to the surplus, if any. The residue, if any, is herein referred to as the "net rents received by Landlord from reletting". 15.03 DAMAGES FOR RENT. In addition to any damages for unpaid Rent and any additional rent that accrues up until the time that Landlord regains possession of the Premises, you shall be liable for and shall pay to Landlord as damages any deficiency between the Rent reserved herein and the net rents received by Landlord from reletting, if any, for each month of the period which otherwise would have constituted the balance of the Term. You shall pay such deficiency on an accelerated basis as provided for herein or, at Landlord's sole option, in monthly installments on the due date for such Rent installment as specified in this Lease, and any suit or proceeding brought to collect the deficiency for any month, either during the Term or after any termination thereof, shall not prejudice or preclude in any way the rights of Landlord to collect the deficiency for any subsequent month by a similar suit or proceeding. Unless Landlord elects to forego the acceleration of Rent, accelerated Rent shall be calculated as the present value of the Rent due for the remainder of 33 the Term, or, in the case of a termination, which would have been due for the remainder of the Term had such Term not been sooner terminated as a result of the Event of Default. For these purposes, the discount rate to be used for purposes of calculating the present value shall be the average rate established and announced for United States Treasury Bills, with a maturity of thirteen weeks at the four weekly auctions held immediately prior to the date that Landlord obtained possession of the Premises. Landlord shall, however, account to you for the net rents received by Landlord from reletting on a monthly basis only if you have paid to Landlord the damages recoverable by Landlord from you as provided for herein and only to the extent of such payments. Notwithstanding anything herein to the contrary, Landlord agrees that any final judgement for damages that it obtains for accelerated Rent will contain a restriction that will prohibit Landlord from enforcing collection on the portion of the judgement amount attributable to the discounted amount of accelerated Rent that is more than twenty four months from the date of collection, e.g., if the judgement amount includes accelerated Rent for 72 months, discounted, then Landlord would initially be entitled to only take collection action with respect to one-third (1/3) of the portion of the judgement amount attributable to accelerated Rent, and each succeeding month thereafter Landlord would be entitled to only take collection action with respect to an additional one-seventy second (1/72) of the portion of the judgement amount attributable to accelerated Rent. 15.04 LANDLORD'S SELF HELP REMEDY. If an Event of Default occurs and if Landlord elects not to reenter the Premises to take possession, then notwithstanding, Landlord shall have the right to enter upon the Premises, without being liable for prosecution or any claim for damages therefore, and do whatever you were obligated to do under the terms of this Lease to cure the Event of Default, and you agree to reimburse Landlord on demand for any reasonable expenses which Landlord may incur in thus effecting compliance with your obligations under this Lease, and you further agree that Landlord shall not be liable for any damages resulting to you from such action, whether caused by the negligence of Landlord or otherwise. 15.05 LATE CHARGES/NSF CHECKS. If you fail to pay any installment of Rent hereunder as when such installment is due, or if you fail to pay any additional rent or any other payment required to be made by you to Landlord hereunder, then to help defray the additional cost to Landlord for processing such late payment, you agree to pay to Landlord a late charge in an amount equal to five (5%) percent of such installment or payment. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner. If your check, given to Landlord in payment, is returned by the bank for non-payment, you agree to pay all expenses incurred by Landlord as a result thereof. Notwithstanding, as to the first six late payments only occurring during any one calendar year, the late charge will not be assessed if payment is made within five (5) days of written notice of non payment. 15.06 WAIVER. No waiver by Landlord of an Event of Default by you shall be deemed a waiver of any other, term, covenant or condition hereof, or of any subsequent Event of Default by you of the same or any other term, covenant or condition hereof. 34 ARTICLE XVI RIGHTS RESERVED TO LANDLORD In addition to any other rights reserved to Landlord pursuant to this Lease, Landlord reserves and may exercise the following rights without affecting your obligations hereunder: (a) to change the street address of the Building or the name of the Development provided that Landlord reimburses you for all of your reasonable out of pocket costs and expenses for new stationary and business cards and catalogues. ARTICLE XVII Omitted ARTICLE XVIII ESTOPPEL STATEMENT, SUBORDINATION AND ATTORNMENT 18.01 ESTOPPEL STATEMENT. You shall, without charge, at any time and from time to time, within ten (10) business days after receipt by you of written request made by Landlord or made by any Superior Mortgagee (or prospective Superior Mortgagee), deliver, in recordable form, a duly executed certificate or statement to the party requesting said certificate or statement or to any other person, firm, corporation or other entity designated by Landlord, certifying: (a) that this Lease is unmodified and in full force and effect, or, if there has been any modification, that the same is in full force and effect as modified, and stating any such modification; (b) the Commencement Date, Rent Commencement Date and Expiration Date of this Lease; (c) that Rent is paid currently without any offset or defense thereto (if correct); (d) the dates to which Rent has been paid, and the amount of Rent, if any, paid in advance; (e) whether or not, to the best of your knowledge, there is then existing any claim of Landlord's default hereunder and, if so, specifying the nature thereof; and (f) any other matters relating to the status of this Lease as shall be reasonably requested from time to time; provided that, in fact, such facts are accurate and ascertainable. The provisions of this Section 18.01 shall be deemed to be reciprocal with respect to estoppel certificates requested by you to be executed and delivered by Landlord. 18.02 SUBORDINATION. You are accepting this Lease subject and subordinate to any mortgage and/or deed of trust now or at any time hereafter constituting a lien or charge upon the Building or the Premises, without the necessity of any act or execution of any additional instrument of subordination; provided, however, that if the mortgagee, trustee, or holder of any such mortgage or deed of trust elects to have your interest in this Lease superior to any such instrument, then by notice to you from such mortgagee, trustee or holder, this Lease shall be deemed superior to such lien, whether this Lease was executed before or after said mortgage or deed of trust. You shall at any time hereafter within ten days of demand, execute any instruments, releases or other documents which may be required by any Superior Mortgagee for the purpose of evidencing the subjection and subordination of this Lease to the lien of any such mortgage or for the purpose of evidencing the superiority of this Lease to the lien of any such mortgage as may be the case. Notwithstanding the preceding, your subordination obligation is conditioned on the Superior Mortgagee agreeing in writing that during the term of this Lease and any extended term thereof, so long as you are not in default under this 35 Lease beyond applicable notice and cure periods, your possession of the Premises shall not be disturbed and your rights and privileges under this Lease shall not be diminished or interfered with by the Superior Mortgagee upon any proceeding to foreclose a mortgage, and the Superior Mortgagee will not join you as a party defendant in any proceeding to foreclose the mortgage for the purpose of terminating the Lease. Without limiting the generality of the preceding paragraph, after written request is made by you from time to time, Landlord will use reasonable efforts to obtain from the then Superior Mortgagee a Subordination, Non-Disturbance and Attornment Agreement in a form reasonably acceptable to you, provided that you pay any Superior Mortgagee fees and costs incurred in connection with the negotiation of such instrument (to the extent you request changes from the Superior Mortgagee's standard form) and provided that Landlord shall not be in breach of this Lease if the Superior Mortgagee refuses to change its standard form. Landlord represents that except for the mortgage held by the Superior Mortgagee, there are no mortgages or ground leases in effect with respect to the Building as of the Effective Date. 18.03 ATTORNMENT. If a Superior Mortgagee or any other party succeeds to the interest of Landlord under the Lease in any manner, including but not limited to foreclosure, exercise of any power of sale, succession by deed in lieu or other conveyance (a "SUCCESSION"), then upon written notice from the Superior Mortgagee or other party succeeding to the interest of Landlord under the Lease (the "NEW LANDLORD"), you will attorn to and be bound to the New Landlord upon such Succession and will recognize the New Landlord as the landlord under the Lease. Such attornment is effective and self-operative without the execution of any further instrument. Upon the request of the New Landlord, you will sign and deliver any instruments reasonably requested to evidence such attornment. You waive the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give you any right or election to terminate or otherwise adversely affect the Lease and your obligations hereunder as a result of any such Succession. Upon any Succession, the New Landlord shall not be (a) liable for any act or omission of the Landlord under the Lease occurring prior to the Succession (except for the obligation to perform the improvement obligations of Landlord pursuant to this Lease and except for the obligation to perform ongoing maintenance and repair obligations of Landlord pursuant to this Lease), (b) subject to any offsets or defenses which you may have against Landlord arising or occurring prior to the Succession (except that the New Landlord is required to cure any non monetary defaults of Landlord that continue after a Succession), or (c) bound by any rent or additional rent which you may have paid to Landlord for more than the current month. 18.04 SUPERIOR MORTGAGEE CURE RIGHTS. No act or failure to act on the part of Landlord which would entitle you, under the express terms of this Lease or by law, to be relieved of your obligations under this Lease or to terminate this Lease, shall result in a release of such obligations or a termination of this Lease unless, as to any Superior Mortgagee that you have been provided a notice address for: (i) You have given notice by certified mail, return receipt requested, to the Superior Mortgagee; and (ii) you offer the Superior Mortgagee an opportunity to cure such default within thirty (30) days next following receipt of such notice, or if such default cannot be cured within thirty days, to commence to cure the default within the thirty day period and to proceed diligently thereafter to cure the default. 36 18.05 REMEDIES. Your failure to execute any statements or instruments necessary or desirable to effectuate the foregoing provisions of this Article within the time limits specified in this Article (which time limits are not subject to any grace period), shall constitute an Event of Default. In the event of such failure, Landlord, in addition to any other rights or remedies it might have, shall have the right by not less than ten (10) days' notice to you, unless you cure such failure within the ten day period, to declare this Lease terminated and the term ended, in which event this Lease shall cease and terminate on the date specified in such notice with the same force and effect as though the date set forth in such notice were the date originally set forth herein and fixed for the expiration of the term; upon such termination you shall vacate and surrender the Premises, but shall remain liable for all obligations arising during the original stated term as provided in this Lease by reason of said Event of Default. ARTICLE XIX MECHANICS LIENS You (the Tenant) shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind the interests of Landlord in the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with you, including those who may furnish materials or perform labor for any construction or repairs and nothing contained in this Lease shall be construed as a consent on the part of the Landlord to subject the estate of the Landlord to liability under the Construction Lien Law of the State of Florida, it being expressly understood that the Landlord's estate shall not be subject to liens for improvements made by you and each such claim shall affect and each such lien shall attach to, if at all, only the leasehold interest granted to you by this instrument. You covenant and agree that you will pay or cause to be paid all sums legally due and payable by you on account of any labor performed or materials furnished in connection with any work performed on the Premises on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises or the improvements thereon and that you will save and hold Landlord harmless from any and all loss, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Landlord in the Premises or under the terms of this Lease. You agree to give Landlord immediate written notice if any lien or encumbrance is placed on the Premises. Notwithstanding any provision of this Lease relating to improvements, additions, alterations, repairs or reconstruction of or to the Premises, you and the Landlord each agree and confirm that: (i) Landlord has not consented nor will Landlord ever consent to the furnishing of any labor or materials to the Premises that would or may result in any mechanic's or materialman's lien attaching to Landlord's interest in the Premises; (ii) You are not the agent of Landlord for the purposes of any such improvements, additions, alterations, repairs or reconstruction; and (iii) except as expressly provided herein, Landlord has retained no control over the manner in which any such improvements, additions, alterations, repairs or reconstruction are accomplished, and has made no agreement to make or be responsible for any payment to or for the benefit of any person furnishing labor or materials in connection therewith. No one furnishing labor or materials to or for your account shall be entitled to claim any lien against the interest of Landlord in the Premises and such entities 37 shall look solely to you and your leasehold interest under this Lease for the satisfaction of any such claims. You shall be liable for all taxes levied or assessed against personal property, furniture or fixtures placed by you in the Premises. If any such taxes for which you are liable are levied or assessed against Landlord or Landlord's property and if Landlord elects to pay the same or if the assessed value of Landlord's property is increased by inclusion of personal property, furniture or fixtures placed by you in the Premises, and Landlord elects to pay the taxes based on such increase, you shall pay to Landlord upon demand that part of such taxes. ARTICLE XX NOTICES Each provision of this Lease with reference to the sending, mailing or delivery of any notice shall be deemed to be complied with when and if the following steps are taken: (a) Unless specifically stated to the contrary in this Lease, any notice, demand, request or other instrument which may be or is required to be given by you under this Lease or by law shall be in writing and sent by United States certified mail, return receipt requested, postage prepaid or by recognized overnight delivery service, and shall be deemed to have been given upon receipt (or refusal of delivery) of same by Landlord; or, if required to be given by Landlord under this Lease or by law, such notice, demand, request or other instrument shall be in writing and sent by United States certified mail, return receipt requested, postage prepaid, or by recognized overnight delivery service, and shall be deemed to have been given upon receipt (or refusal of delivery) of same by you; and shall be addressed (a) if to Landlord c/o Premier Commercial Realty, Inc., 2100 Park Central Boulevard North, Suite 900, Pompano Beach, Florida 33064 or at such other address as Landlord may designate by written notice, together with copies thereof to such other parties designated by Landlord; or (b) if to you at the Premises address, Attention: General Manager, with a copy of all notices also sent to you at 555 Westbury Avenue, Carle Place, New York 11514, Attention: David H. Brooks, and to 400 Post Avenue, Suite 303, Westbury, New York 11590, Attention: David H. Brooks; or such other address as you shall designate by written notice, provided, however, prior to the Commencement Date, notices shall be sent only to the foregoing New York addresses (and not to the Premises). (b) If and when included within the term "Landlord", or "Tenant", as used in this instrument, there is more than one person, firm or corporation, all shall jointly arrange among themselves for their joint execution of such a notice specifying some individual at some specific address for the receipt of notices and payments. All parties included within the terms "Landlord" and "Tenant" respectively, shall be bound by notices given in accordance with the provisions of this paragraph to the same effect as if each had received such notice. ARTICLE XXI MISCELLANEOUS 21.01 Words of any gender used in this Lease shall be held or construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires. 38 21.02 The terms, provisions and covenants and conditions contained in this Lease shall apply to, inure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise herein expressly provided. Landlord shall have the right to assign any of its rights and obligations under this Lease and Landlord's grantee or Landlord's successor, as the case may be, shall upon such assignment, become Landlord hereunder, thereby freeing and relieving the grantor or assignor, as the case may be, of all covenants and obligations of Landlord hereunder so long as the grantee or successor has assumed in writing Landlord's obligations hereunder arising from and after the date of transfer. Nothing herein contained shall give any other tenant in the Building any enforceable rights either against Landlord or you as a result of the covenants and obligations of either party set forth herein. If there is more than one tenant, your obligation shall be joint and several. Any indemnification of Landlord shall also include or be exercisable by Landlord's agents and employees. 21.03 The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof, or in any way affect the interpretation of this Lease. 21.04 This Lease constitutes the entire understanding and agreement between you and the Landlord with respect to the subject matter of this Lease, and contains all of the covenants and agreements of Landlord and you with respect thereto. You and the Landlord each acknowledge that no representations, inducements, promises or agreements, oral or written, have been made by Landlord or you, or anyone acting on behalf of Landlord or you, which are not contained herein, and any prior agreements, promises, negotiations, or representations not expressly set forth in this Lease are of no force or effect. You have not relied upon any representation of Landlord or its agents, other than items contained in this Lease, as an inducement to enter into this Lease. No alteration, amendment, change or addition to this Lease shall be binding upon Landlord or you unless reduced to writing and signed by each party (which signatures may be by facsimile transmission and such facsimile transmission shall be deemed to be an original as to any such alteration, amendment, change or addition to this Lease). 21.05 All of your obligations not fully performed as of the expiration or earlier termination of the term of this Lease shall survive the expiration or earlier termination of the term, including without limitation, all payment obligations with respect to Operating Costs and all obligations concerning the condition of the Premises. Upon the expiration or earlier termination of the term, and prior to you vacating the Premises, you shall pay to Landlord any amount reasonably estimated by Landlord as necessary to put the Premises, including without limitation heating and air conditioning systems and equipment therein, in its Exit Condition. Any work required to be done by you prior to your vacation of the Premises which has not been completed upon such vacation, shall be completed by Landlord and billed to you at cost, which cost may include any reasonable construction management fee required to be paid by Landlord to Landlord's property manager. All such amounts shall be used and held by Landlord for payment of your obligations hereunder, with you being liable for any additional costs therefore upon demand by Landlord, or with any excess to be returned to you after all such obligations have been determined and satisfied, as the case may be. 39 21.06 If any clause, provision or portion of this Lease or the application thereof to any person or circumstance shall be invalid or unenforceable under applicable law, such event shall not affect, impair or render invalid or unenforceable the remainder of this Lease nor any other clause, phrase, provision or portion hereof, nor shall if affect the application of any clause, phrase, provision or portion hereof to other persons or circumstances, and it is also the intention of the parties to this Lease that in lieu of each such phrase, provision or portion of this Lease that is invalid or unenforceable, there be added as a part of this Lease, a clause, phrase, provision or portion which is valid. 21.07 Submission of this Lease shall not be deemed to be a reservation of the Premises. Landlord shall not be bound hereby until its delivery to you of an executed copy hereof signed by Landlord, already having been signed by you, and until such delivery Landlord reserves the right to exhibit and lease the Premises to other prospective tenants. Execution of this Lease by you shall be irrevocable for a period of five (5) business days immediately following delivery to Landlord. Notwithstanding anything contained herein to the contrary Landlord may withhold delivery of possession of the Premises from you until such time as you have paid to Landlord the first month's Rent as required hereunder, and the Security Deposit required hereunder and delivered to Landlord the certificate(s) of insurance required to be provided by you hereunder. 21.08 Whenever a time period is prescribed for action to be taken by a party, such party shall not be liable or responsible for, and there shall be excluded from the computations for any such time period, any delays due to causes beyond the control of such party, provided, however, that nothing contained in this paragraph shall be construed to extend the required date of payment or any grace period for any payment of Rent or any other payment required to be paid pursuant to this Lease or to extend the last day that a Renewal Notice may be timely delivered or extend the Required Phase 1 Delivery Date or Required Phase 2 Delivery Date beyond the dates specified in the definitions of same. 21.09 If you are not a publicly traded company (or if this Lease is guaranteed by a guarantor, if the guarantor is not a publicly traded company)and if Landlord desires to finance, refinance, or sell the Building, the Development or any part thereof, you agree to, at the request of Landlord, deliver to any potential lender or purchaser designated by Landlord such financial statements of yours as may be reasonably required by such lender or purchaser, including but not limited to your financial statements for the past 3 years. All such financial statements shall be received by Landlord and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 21.10 Each party represents and warrants to the other that such party has dealt with no broker, agent or other person in connection with this transaction, and that no broker, agent or other person brought about this transaction, other than Landlord's Broker and Tenant's Broker and each party agrees to indemnify and hold the other harmless from and against any and all claims to pay any other broker, agent or other person claiming a commission or other form of compensation by virtue of having dealt with such party with regard to this leasing transaction. 21.11 Landlord and you each waive trial by jury in any action, proceeding or counterclaim brought by either of the parties against the other on 40 any matter arising out of or in any way connected with this Lease, the relationship of Landlord and you or your use and occupancy of the Premises. 21.12 Notwithstanding anything to the contrary contained in this Lease, if any party brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the prevailing party in any such proceeding shall be entitled to reasonable attorneys' fees and court costs at all levels before, during and after trial, and on appeal. 21.13 This Lease may be executed in multiple counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. 21.14 The parties acknowledge that each has read this Lease, consulted with an attorney regarding its terms, and agrees with its terms as though that party had drafted this Lease itself. The parties agree that although this Lease was, by necessity, printed and assembled by Landlord and drafted by Landlord's attorney, this Lease reflects the terms as agreed to by the parties and that if a term or provision of this Lease is considered ambiguous, neither party shall be considered the draft person for the purpose of causing the terms of this Lease to be construed against that party. 21.15 This Lease shall be construed in accordance with and governed by the laws of the State of Florida. 21.16 If either Landlord or you excuses or condones any default by the other of any obligation under this Lease, this shall not be a waiver of such obligation in respect of any continuing or subsequent default and no such waiver shall be implied. 21.17 Neither party shall record this Lease. However, after the execution of this Lease, the parties shall execute in recordable form a Memorandum of Lease in form and content reasonably acceptable to both parties hereto (but not to include the Rent payable hereunder) and Landlord shall, at its expense, record such memorandum in the Public Records of Broward County, Florida. Such memorandum shall appoint Landlord as your attorney in fact to execute and record a termination if the term of this Lease expires or is earlier terminated. ARTICLE XXII PUBLIC ACCOMMODATION LAWS Responsibility for compliance of the Premises with any and all Public Accommodation Laws is hereby allocated among the parties as follows: (i) Landlord shall be responsible for providing that the Common Areas and the Interior Modifications are in compliance with the Public Accommodations Laws; and (ii) you shall be responsible for compliance with the Public Accommodations Laws with respect to any special use of the Premises by you and with respect to any alterations or improvements made to the Premises by you. You agree to complete any and all alterations, modifications or improvements to the Premises necessary in order to comply with all Public Accommodation Laws during the term of this Lease if the responsibility for compliance has been allocated to you under this Section. Each party shall indemnify, defend and hold harmless the 41 other from and against any and all claims, liabilities, fines, penalties, losses and expenses, including attorneys fees, arising in connection with such party's failure to comply with the provisions of this Section. Notwithstanding, Landlord's indemnification obligation under this Section shall not be binding upon a Superior Mortgagee or the successor or assign of a Superior Mortgagee for acts occurring prior to such Superior Mortgagee or the successor or assign of such Superior Mortgagee becoming landlord hereunder. ARTICLE XXIII ENVIRONMENTAL MATTERS 23.01 ENVIRONMENTAL MATTERS. You hereby agree that: (i) no activity will be conducted on the Premises that will produce any Hazardous Substance, except for such activities that are part of the ordinary course of your business (the "PERMITTED Activities") provided said Permitted Activities are conducted in accordance with all Environmental Laws and provided that you have obtained all applicable permits and licenses; (ii) the Premises will not be used in any manner for the storage of any Hazardous Substances except for the temporary storage of such materials that are used in the ordinary course of your business (the "PERMITTED MATERIALS") provided such Permitted Materials are properly labeled and stored in a manner and location meeting all Environmental Laws; (iii) no portion of the Premises or the common areas of the Development will be used by you as a landfill or dump; (iv) You will not install any underground tanks of any type in the common areas of the Development; (v) You will not cause any surface or subsurface conditions to exist or come into existence that constitute, or with the passage of time may constitute, a public or private nuisance; (vi) You will not bring any Hazardous Substances onto the Premises, except for the Permitted Materials and if so brought or found located thereon, the same shall be immediately removed, with proper disposal, and all required cleanup procedures shall be diligently undertaken pursuant to all Environmental Laws. If, at any time during or after the term of this Lease, the Premises is found to be so contaminated or subject to said conditions, you agree to indemnify and hold Landlord harmless from all claims, demands, actions, liabilities, costs, expenses, damages and obligations of any nature arising from or as a result of the use of the Premises by you. The foregoing indemnification shall survive the termination or expiration of this Lease. 23.02 ENVIRONMENTAL AUDIT; RIGHT OF ENTRY. Not more than one time every two years (except if Landlord has reason to believe that a bona fide violation of Environmental Laws exists at the Premises in which case the foregoing time limitation shall not apply) Landlord shall have the right to require you to undertake and submit to Landlord an environmental audit from an environmental company approved by Landlord, which audit shall cover your compliance with this Section. You shall promptly comply with all requirements of such audit and cure all matters raised therein at your sole cost. You agree to grant to all interested governmental agencies reasonable access to the Premises to the extent required by applicable Environmental Laws. Notwithstanding the preceding, the cost of the environmental audit will be paid for by Landlord except and unless the environmental report reflects one or more breaches of your environmental covenants under this Lease requiring you to expend at least $7,500 in remediation efforts. 23.03 RADON GAS. Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present 42 health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county health department. ARTICLE XXIV SPECIAL MATTERS 24.01 LANDLORD REPRESENTATIONS. Landlord represents to you that as of the Effective Date: (a) there are no pending or, to the actual knowledge of Landlord without duty of independent inquiry, threatened condemnation proceedings or actions affecting the Realty or any portion of the Building; (b) there are no pending or, to the actual knowledge of Landlord without duty of independent inquiry, threatened legal proceedings or actions affecting the Realty or Landlord's interest therein; (c) Landlord has not received notice nor has Landlord any actual knowledge without duty of independent inquiry of any uncured violation of any applicable laws, codes, ordinances, rules, or regulations affecting any part of the Realty; and (d) Landlord has no actual knowledge, without duty of independent inquiry, that the Realty (including the surface water, ground water, and any improvements) is not in compliance with the applicable Environmental Laws. 24.02 ROOFTOP RIGHTS. Subject to any approvals required by the City or any other applicable governmental entity, at no rental cost to you, during the term of this Lease you shall have the right to install and maintain on the Building's roof, a satellite dish. The location of the installation shall be at a location reasonably approved in advance by Landlord. Any costs associated with the installation and maintenance shall be your responsibility, including any applicable permit costs. All such installations shall be in accord with applicable codes, regulation, rules and ordinances and you shall pay for Landlord's roofer to observe the installation. Any satellite dish installed pursuant to this Section must be removed by you at your sole cost and expense no later than at the termination or expiration of the Lease including the cost of Landlord's roofer inspecting the removal. In addition, at your sole cost and expense and during any period of time in which there is a hurricane warning in effect for the area in which the Building is situated, you will temporarily remove or otherwise dismantle the satellite dishes. No part of the installed rooftop satellite dish may extend above the parapet wall of the Building or be visible from ground level. 24.03 CORPORATE GUARANTY. Your obligations under this Lease are secured by a separate Guaranty of Lease to be entered into by DHB Industries, Inc., a Delaware corporation. 24.04 CONSENT OR APPROVAL. Wherever in this Lease a party's approval or consent is required, then unless otherwise expressly provided for herein to the contrary, such consent or approval shall not be unreasonably withheld, delayed or conditioned. Whenever the provisions of this Lease allow the Landlord or you to perform or not perform some act at their option or in their judgment, the decision of the Landlord or you to perform or not perform such act must be reasonable unless otherwise expressly provided for herein to the contrary, provided, however, that nothing contained in this sentence shall be construed to require Landlord to provide security, whether such omission of providing security services is reasonable or not. 43 24.05 SUBORDINATION OF STATUTORY LIEN RIGHTS. Landlord hereby subordinates in favor of your working capital lenders and, as to a particular piece of equipment, the equipment lessor of such equipment, any statutory or common liens for rent (other than judgement liens). Although such subordination is hereby deemed to be automatic and self executing, Landlord agrees to execute such instruments as may be reasonably required from time to time, in a form reasonably acceptable to Landlord, confirming such subordination, provided, however, nothing contained herein shall be construed to require Landlord to give access to the Premises to such working capital lender or equipment lessor beyond the tenth day after the expiration or earlier termination of the term. Each and every term and provision of this Lease and all exhibits attached hereto, is agreed to by you, the Tenant, on , 2003. POINT BLANK BODY ARMOR, INC., a Delaware corporation (Witnesses as to Tenant) By: Print Name: Print Title: Each and every term and provision of this Lease and all exhibits attached hereto, is agreed to by the Landlord on , 2003. ATLANTIC BUSINESS CENTER L.C., a Florida limited liability company (Witnesses as to Landlord) By: By: 44 EXHIBITS TO ATTACH: Exhibit A ......... Site Plan of Development Exhibit B ......... Construction Phasing Plan Exhibit C ......... Space Plan and Scope of Work Exhibit D ......... Moveout Standards lpremier.abc.dhindustries.draft9 45 EX-10 7 ex10-15.txt EX10.15-5TH AMENDMENT TO LOAN AND SECURITY AGMNT EXHIBIT 10.15 12/22/03 FIFTH AMENDMENT (this "AMENDMENT"), dated as of December 31, 2003, to LOAN AND SECURITY AGREEMENT, dated as of September 24, 2001 (as amended, modified or supplemented from time to time, the "LOAN AGREEMENT"), by and among LASALLE BUSINESS CREDIT, LLC, a Delaware limited liability company, successor by merger to LASALLE BUSINESS CREDIT, INC., a Delaware corporation ("LASALLE"), and PROTECTIVE APPAREL CORPORATION OF AMERICA, a New York corporation ("PACA"), POINT BLANK BODY ARMOR, INC., a Delaware corporation ("POINT BLANK"), and NDL PRODUCTS, INC., a Florida corporation ("NDL", and with PACA and Point Blank, collectively, the "BORROWERS" and each, a "BORROWER"), and DHB INDUSTRIES, INC., a Delaware corporation (f/k/a DHB Capital Group, Inc., the "PARENT"). Terms which are capitalized in this Amendment and not otherwise defined shall have the meanings ascribed to such terms in the Loan Agreement. WHEREAS, the Borrowers and Parent have requested that LaSalle extend the period during which the Maximum Revolving Loan Limit of $35,000,000 shall be in effect; and WHEREAS, LaSalle has consented to such request, on the terms and subject to the satisfaction of the conditions contained in this Amendment; NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION ONE . AMENDMENT. Upon the satisfaction of the conditions set forth in SECTION TWO hereof, Section 2(a) of the Loan Agreement shall be and is hereby amended as of December 1, 2003 by deleting in its entirety clause (y) of the proviso found immediately after clause (iv) thereof, and substituting in lieu thereof the following new clause (y): "(y) the Revolving Loan Limit with respect to Revolving Loans made to all Borrowers, at any one time outstanding, shall in no event exceed the following applicable amount: (I) Thirty-Five Million Dollars ($35,000,000) during the period commencing on February 18, 2003 and ending on (and including) February 29, 2004 and (II) Twenty-Five Million Dollars ($25,000,000) at all times on and after March 1, 2004 (such amount, as in effect on any date of determination, the "Maximum Revolving Loan Limit")." SECTION TWO . CONDITIONS PRECEDENT. This Amendment is subject to the satisfaction of all of the following conditions, the satisfaction of each of which is a condition precedent to the effectiveness of this Amendment, except to the extent waived in writing by LaSalle. (a) LaSalle shall have received each of the following, which shall be in form and substance reasonably satisfactory to it: (i) this Amendment, duly executed by each Borrower and Parent, and by David H. Brooks; and (ii) a Certificate of the Secretary or Assistant Secretary of each Borrower and of Parent (A) relating to the adoption of resolutions by each such Borrower's and Parent's respective Board of Directors approving this Amendment and the other documents executed or delivered in connection herewith by such party, (B) certifying that no amendments have been made to each such Borrower's or Parent's Certificate of Incorporation, as amended, other than the Certificate of Designations and Preferences executed on December 14, 2001, and each such Borrower's or Parent's by-laws, as amended, since September 24, 2001, and (C) further certifying the names and incumbency of officers of each such Borrower and of Parent authorized to sign this Amendment and all other documents executed or delivered in connection herewith, and the names and validity of signatures of such officers. (b) All representations and warranties set forth in the Loan Agreement (except for such inducing representations and warranties that were only required to be true and correct as of a prior date) shall be true and correct in all material respects on and as of the effective date hereof, and no Default or Event of Default shall have occurred and be continuing. (c) No event or development shall have occurred since December 31, 2002 which event or development has had or is reasonably likely to have a Material Adverse Effect. (d) LaSalle shall have received a certificate from each Borrower and Parent, executed by the chairman of each such party, as to the truth and accuracy of paragraphs (b) and (c) of this SECTION TWO. (e) All corporate and legal proceedings and all documents and instruments executed or delivered in connection with this Amendment shall be satisfactory in form and substance to LaSalle and its counsel, and LaSalle and its counsel shall have received all information and copies of all documents which it or its counsel may have reasonably requested in connection herewith and the matters contemplated hereunder, such documents, when requested by them, to be certified by appropriate corporate authorities. (f) There shall be no action, suit or proceeding pending or to any Borrower's or Parent's knowledge overtly threatened against any Borrower or Parent before any court (including any bankruptcy court), arbitrator or governmental or administrative body or agency which challenges or relates to the consummation of this Amendment or the other transactions contemplated herein. (g) LaSalle shall have received such further agreements, consents, instruments and documents as may be necessary or proper in the reasonable opinion of LaSalle and its counsel to carry out the provisions and purposes of this Amendment. 2 SECTION THREE . REPRESENTATIONS AND WARRANTIES. Each Borrower and Parent each hereby represents and warrants (which representations and warranties shall survive the execution and delivery hereof) to LaSalle that: (a) Each Borrower and Parent has the corporate or other power, authority and legal right to execute, deliver and perform this Amendment and the other instruments, agreements, documents and transactions contemplated hereby to which it is a party, and has taken all actions necessary to authorize the execution, delivery and performance of this Amendment and the other instruments, agreements, documents to which it is a party and the transactions contemplated hereby and thereby; (b) No consent of any Person (including, without limitation, stockholders or creditors of any Borrower or Parent, as the case may be) other than LaSalle, and no consent, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required in connection with the execution, delivery and performance by each Borrower and Parent, or the validity or enforceability against such parties, of this Amendment and the other instruments, agreements, documents and transactions contemplated hereby to which they are a party; (c) This Amendment has been duly executed and delivered on behalf of each Borrower and Parent by their respective duly authorized officers, and constitutes the legal, valid and binding obligation of such Borrower and Parent, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights of creditors generally or equitable remedies (whether arising in a proceeding at law or in equity); (d) No Borrower or Parent is in material default under any indenture, mortgage, deed of trust, agreement or other instrument to which it is a party or by which it may be bound. Neither the execution and delivery of this Amendment, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof will (i) violate any law or regulation, or (ii) result in or cause a violation by any Borrower or Parent of any order or decree of any court or government instrumentality, or (iii) conflict with, or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, material agreement or other material instrument to which each such Borrower or Parent is a party or by which any of them may be bound, or (iv) result in the creation or imposition of any lien, charge, or encumbrance upon any of the property of each such Borrower or Parent, except in favor of LaSalle, to secure the Liabilities, or (v) violate any provision of the Certificate of Incorporation, By-Laws or any capital stock or similar equity instrument of each such Borrower or Parent; (e) No Default or Event of Default has occurred and is continuing on the date hereof; (f) Since the date of Parent's consolidated and consolidating financial statements for the twelve (12) month period ended December 31, 2002, no change or event has occurred which has had or is reasonably likely to have a Material Adverse Effect; (g) Upon execution of this Amendment and the satisfaction of the conditions set forth in SECTION TWO hereof, each of Parent and each Borrower, each in its capacity as Guarantor under the Loan Agreement, agrees that the term 3 "Liabilities" shall include any and all Liabilities arising under the Loan Agreement, as amended by this Amendment, including but not limited to any and all Revolving Loans resulting from the extension of the period during which the Maximum Revolving Loan Limit of $35,000,000 shall be in effect, and all interest accruing on such Revolving Loans; (h) Parent and its Subsidiaries, taken as a whole, are, and after giving effect to the transactions contemplated by this Amendment, will be, solvent, able to pay its debts as they become due, has capital sufficient to carry on its business, now owns property having a value both at fair valuation and at present fair saleable value greater than the amount required to pay its debts, and will not be rendered insolvent by the execution and delivery of this Amendment or any of the other agreements or instruments being executed in connection herewith or by completion of the transactions contemplated hereunder or thereunder. SECTION FOUR . GENERAL PROVISIONS. (a) Except as herein expressly amended, the Loan Agreement and all other agreements, documents, instruments and certificates executed in connection therewith, are ratified and confirmed in all respects and shall remain in full force and effect in accordance with their respective terms. (b) All references in the Other Agreements to the Loan Agreement shall mean the Loan Agreement as amended hereby and as hereafter amended, supplemented or modified from time to time. From and after the date hereof, all references in the Loan Agreement to "this Agreement," "hereof," "herein," or similar terms, shall mean and refer to the Loan Agreement as amended by this Amendment. (c) This Amendment may be executed by the parties hereto individually or in combination, in one or more counterparts, each of which shall be an original and all which shall constitute one and the same agreement. (d) This Amendment shall be governed and controlled by the internal laws of the State of New York. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 4 IN WITNESS WHEREOF, LaSalle, each Borrower, each Guarantor, each DHB Subsidiary and Parent have caused this Amendment to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. DHB ARMOR GROUP, INC. LASALLE BUSINESS CREDIT, LLC, successor by merger to LaSalle Business Credit, Inc. By:___________________________ Name: Title: By:___________________________ Name: Michael F. Aliberto, III Title: Vice President DHB SPORTS GROUP, INC. PROTECTIVE APPAREL CORPORATION OF AMERICA By:___________________________ Name: Title: By:___________________________ Name: Title: LANXIDE ARMOR PRODUCTS, INC. POINT BLANK BODY ARMOR, INC. By:___________________________ Name: Title: By:___________________________ Name: Title: ORTHOPEDIC PRODUCTS, INC. NDL PRODUCTS, INC. By:___________________________ Name: Title: By:___________________________ Name: Title: DHB INDUSTRIES INC. By:___________________________ Name: Title: ACKNOWLEDGED AND CONSENTED TO: ______________________________ DAVID H. BROOKS 5 EX-10 8 ex10-16.txt EX10.16-SUBSCRIPTION AND RESTRUCTURING AGREEMENT EXHIBIT 10.16 SUBSCRIPTION AND STRUCTURING AGREEMENT AGREEMENT (this "Agreement"), made as of the ____ day of December, 2003, by and among POINT BLANK BODY ARMOR INC., a Delaware corporation ("Point Blank"), HIGHTOWER CAPITAL MANAGEMENT, LLC, a Delaware limited liability company ("Hightower"), and DHB INDUSTRIES, INC., a Delaware corporation ("DHB"); W I T N E S S E T H: WHEREAS, Point Blank is currently a wholly-owned subsidiary of DHB; and WHEREAS, Hightower wishes to participate, as a consultant to and/or representative of Point Blank, in the promotion and marketing of Point Blank's products, primarily to new customers located in the Middle East; and WHEREAS, Hightower believes that its ability to market Point Blank's products will be enhanced if it is an owner of Point Blank; and WHEREAS, in order to assist Hightower in its efforts as aforesaid, Hightower has requested, and DHB and Point Blank have agreed, subject to the terms and conditions of this Agreement, to permit Hightower to subscribe for and purchase a certain amount of the shares of common stock(the "Common Stock"), of Point Blank (as more fully set forth herein); and WHEREAS, Hightower currently owns and holds inventories of ballistic plates and other goods usable in Point Blank's ordinary business; WHEREAS, DHB is currently the sole shareholder of NDL Products; and WHEREAS, DHB and Hightower believe that it will be beneficial to the future business of Point Blank to increase the capital of Point Blank and for Point Blank to directly control NDL Products; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: 1. SUBSCRIPTION. Subject to the terms and conditions of this Agreement, Hightower hereby subscribes for and agrees to acquire such number of shares of Common Stock of Point Blank (the "Shares") as have an aggregate value of $1,650,000, such number being calculated by dividing the appraised value of Point Blank (as determined in accordance with paragraph 3 below) by the 1,500 currently outstanding shares of Common Stock of Point Blank. The Shares shall at all times be held by Hightower subject to the terms and conditions of this Agreement. 2. PRICE CONSIDERATION. The consideration payable by Hightower for the Shares shall consist of first quality, good condition ballistic plates usable in Point Blank's ordinary business and having an aggregate list price of $1,650,000. Upon satisfaction of the conditions precedent set forth in paragraph 3 below, Hightower shall transfer and deliver to Point Blank such quantity of such first quality, good condition ballistic plates, in payment for the Shares. Upon receipt of such goods, Point Blank shall issue to Hightower a share certificate representing the Shares. 3. CONDITIONS PRECEDENT. Hightower's obligation to purchase and pay for the Shares is subject to (a) Point Blank filing a certificate of amendment to its certificate of incorporation, increasing its authorized common shares to a number sufficient to permit the issuance of the Shares and the shares of Common Stock issuable pursuant to this paragraph 3 below, (b) DHB contributing to the capital of Point Blank a number of shares of common stock of NDL Products, Inc. ("NDL") having an aggregate appraised value equal to ten (10%) percent of the appraised value of Point Blank, in consideration of which Point Blank shall issue to DHB a number of shares of common stock of Point Blank having an equivalent value (calculated in accordance with the appraisal hereinafter described) to the additional capital contribution being made by DHB to Point Blank; PROVIDED, HOWEVER, that if the appraised value of NDL is less than ten (10%) percent of the appraised value of Point Blank, then this condition may be satisfied by DHB's contribution to the capital of Point Blank of (i) all of the outstanding shares of capital stock of NDL, and (ii) cash in an amount equal to the amount by which the appraised value of NDL is less than ten (10%) percent of the appraised value of Point Blank, in consideration of which Point Blank shall issue to DHB a number of shares of common stock of Point Blank having an equivalent value (calculated in accordance with the appraisal hereinafter described) to the additional capital contribution being made by DHB to Point Blank and (c) there shall not have occurred any material adverse affect on the business, assets, liabilities, condition (financial or otherwise) or results of operations of Point Blank. DHB hereby confirms that it has engaged Empire Valuation Consultants, Inc. ("Empire") to perform appraisals of the businesses of Point Blank and NDL, and the parties hereby agree, for purposes of this Agreement, that the appraisal determinations rendered by Empire shall be final and binding. In the event that Empire has not rendered its written appraisals, or DHB fails to file the aforedescribed certificate of amendment and/or make the additional capital contribution to Point Blank in the amount contemplated herein, in either case on or before December 31, 2003, then this Agreement shall become null and void AB INITIO. 4. RESTRICTIONS ON TRANSFER. The Shares shall at all times be subject to the following restrictions: (a) Hightower shall not at any time sell, assign, transfer, alienate, pledge, hypothecate, or otherwise dispose of any legal or beneficial interest in any of the Shares (any such transaction being hereinafter referred to as a "Transfer"), unless (i) Hightower receives a BONA FIDE offer from an unaffiliated third party for the purchase of the Shares for cash, (ii) Hightower gives written notice of such offer to DHB, setting forth the name, address, 2 telephone number and principal line of business of the proposed Transferee, and the material terms and conditions of the proposed Transfer (including any relevant writings between Hightower and the proposed Transferee), and (iii) Hightower permits DHB to exercise an exclusive option, valid for a period of thirty (30) days after DHB's receipt of such written notice of proposed Transfer, to purchase (or to permit Point Blank to redeem) all (but not less than all) of the offered Shares at a cash purchase price equal to the purchase price pursuant to the BONA FIDE offer, and payable on the terms of the BONA FIDE offer. In the event that DHB fails to exercise its exclusive option within such thirty (30) day period, Hightower shall be permitted to effect the proposed Transfer solely to the Transferee and solely on the terms and conditions set forth in Hightower's notice of proposed Transfer, provided that, if such transaction is not completed within sixty (60) days after the expiration of DHB's exclusive option period hereunder, then the provisions of this paragraph 4(a) shall again be applicable. Any Transferee (other than DHB or Point Blank) which acquires any Shares shall also be subject to the provisions of this paragraph 4. Any Transfer in violation of this paragraph 4 shall be null and void and shall not be recognized by Point Blank for any purpose. (b) In the event that, and at any time after, Hightower terminates (for any reason or for no reason) the business or consulting relationship between Point Blank and Hightower, DHB shall have the right to purchase (or to designate Point Blank to redeem) the Shares at a cash purchase price equal to the fair value thereof (without discount for non-marketability or minority interest) as of the close of the last full calendar month immediately preceding the date of DHB's notice of its exercise of its option hereunder, as determined by an independent appraiser selected by DHB and reasonably acceptable to Hightower. Such purchase or redemption shall be completed within thirty (30) days after receipt by DHB and Hightower of the appraiser's appraisal report (c) The provisions of this paragraph 4 shall also be fully applicable to any and all shares or other securities which may be issued in respect of the Shares by reason of any stock split, stock dividend, combination of shares, recapitalization or other such event which may occur at any time and from time to time subsequent to the date hereof, and all such shares and other securities shall constitute part of the "Shares" for all purposes of this paragraph 4. (d) The certificate(s) representing the Shares shall at all times bear a conspicuous legend giving notice of the existence and requirements of this Agreement. 5. REPRESENTATIONS AND WARRANTIES. (a) Each party hereby represents and warrants to each other party that (i) such party is a corporation or a limited liability company (as the case may be) duly organized, validly existing and in good standing under the laws of its jurisdiction of formation, (ii) such party's execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or company action (as the case may be), and (iii) this Agreement constitutes the valid and binding agreement of such party, enforceable against such party in accordance with its terms. 3 (b) Each party further represents and warrants to each other party that the execution, delivery and performance by such party of this Agreement will not conflict with or result in a breach under (i) such party's organizational documents, (ii) any law or governmental regulation or (iii) any contract, agreement, note, mortgage, or other arrangement to which such party is bound, other than in the case of clauses (ii) and (iii), such conflicts or breaches as will not have a material adverse effect on such party. (c) Each party further represents and warrants to each other party that the execution, delivery and performance by such party of this Agreement do not and will not require any consent, approval or authorization of, or filing of any notices of or with, any governmental or regulatory authority or any third party. (d) DHB and Point Blank hereby further represent and warrant to Hightower that (i) the authorized and outstanding shares of capital stock of Point Blank consists only of 1,500 shares of Common Stock, all of which are fully paid and nonassessable, (ii) there are no outstanding options, warrants, convertible securities or other rights to purchase or acquire any capital stock of Point Blank, and (iii) upon Hightower's payment for the Shares in accordance with paragraph 2 above, the Shares will be duly authorized, validly issued, fully paid and nonassessable, and Hightower will acquire the Shares free and clear of all liens and encumbrances (other than such liens and encumbrances created by this Agreement or by Hightower. (e) Hightower hereby further represents and warrants that (i) it has received to its satisfaction all information that it has requested with respect to DHB, Point Blank and NDL, (ii) it is an "accredited investor" as defined in Regulation D promulgated under the Securities Act of 1933, as amended, and (iii) it will be acquiring the Shares for its own account for investment, and not with a view to resale or distribution in violation of any federal or state securities laws. (f) The parties intend that the transfers by DHB and Hightower to Point Blank described in this Agreement shall each be treated as a transfer solely in exchange for stock that is described in section 351 of the Internal Revenue Code of 1986, as amended, and agree to report the transfers for income tax purposes in a manner consistent with such characterization. 6. NOTICES. Any notice pursuant to paragraph 4 above or under this paragraph 6 shall be in writing and shall be deemed to have been given when delivered personally, one (1) business day after being sent by reputable overnight courier with all charges prepaid or billed to the account of the sender, or five (5) days after being mailed by certified mail, return receipt requested, addressed (a) if to Point Blank, to it c/o DHB Industries, Inc., 555 Westbury Avenue, Carle Place, New York 11514, Attn: Dawn Schlegel, or at such other address as Point Blank may hereafter designate to Hightower by written notice, and (b) if to Hightower, to it at c/o Shearman & Sterling, 599 Lexington 4 Avenue, New York, NY 10022 Attn: Andrew Noreuil, Esq., or at such other address as Hightower may hereafter to designate to Point Blank by written notice. 7. GENERAL. (a) Neither this Agreement nor any of the terms or conditions hereof may be waived, amended or modified except by means of a written instrument duly executed by the party to be charged therewith. Any waiver or amendment shall only be applicable in the specific instance, and shall not constitute or be construed as a waiver or amendment in any other or subsequent instance. No failure or delay on the part of any party in respect of any enforcement of obligations hereunder shall in any manner affect such party's right to seek or effect enforcement at any other time or in respect of any other required performance. (b) Neither this Agreement nor any rights or obligations hereunder may be assigned by any party without the express prior written consent of each other party. (c) The captions and paragraph headings used in this Agreement are for convenience of reference only, and shall not affect the construction or interpretation of this Agreement or any of the provisions hereof. (d) This Agreement, and all matters or disputes relating to the validity, construction, performance or enforcement hereof, shall be governed, construed and controlled by and under the laws of the State of New York. (e) This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. (f) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original hereof, but all of which together shall constitute one and the same instrument. (g) Except as otherwise set forth or referred to in this Agreement, this Agreement constitutes the sole and entire agreement and understanding between the parties hereto as to the subject matter hereof, and supersedes all prior discussions, agreements and understandings of every kind and nature between them as to such subject matter. (h) This Agreement is intended for the sole and exclusive benefit of the parties hereto and their respective successors and permitted assigns, and no other person or entity shall have any right to rely on this Agreement or to claim or derive any benefit herefrom absent the express written consent of the party to be charged with such reliance or benefit. (i) If any provision of this Agreement is held invalid or unenforceable, either in its entirety or by virtue of its scope or application to given circumstances, such provision shall thereupon be deemed modified only to the extent necessary to render same valid, or not applicable to given 5 circumstances, or excised from this Agreement, as the situation may require; and this Agreement shall be construed and enforced as if such provision had been included herein as so modified in scope or application, or had not been included herein, as the case may be. [The remainder of this page is intentionally blank] 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. POINT BLANK BODY ARMOR, INC. BY________________________________ HIGHTOWER CAPITAL MANAGEMENT, LLC BY_______________________________ DHB INDUSTRIES, INC. BY_________________________________ 7 EX-10.17 9 ex10-17.txt SIXTH AMENDMENT TO LOAN AND SECURITY ... Exhibit 10-17 EXECUTION COPY SIXTH AMENDMENT (this "AMENDMENT"), dated as of March 15, 2004, to LOAN AND SECURITY AGREEMENT, dated as of September 24, 2001 (as amended, modified or supplemented from time to time, the "LOAN AGREEMENT"), by and among LASALLE BUSINESS CREDIT, LLC, a Delaware limited liability company, successor by merger to LASALLE BUSINESS CREDIT, INC., a Delaware corporation ("LASALLE"), and PROTECTIVE APPAREL CORPORATION OF AMERICA, a New York corporation ("PACA"), POINT BLANK BODY ARMOR, INC., a Delaware corporation ("POINT BLANK"), and NDL PRODUCTS, INC., a Florida corporation ("NDL", and with PACA and Point Blank, collectively, the "BORROWERS" and each, a "BORROWER"), and DHB INDUSTRIES, INC., a Delaware corporation (f/k/a DHB Capital Group, Inc., the "PARENT"). Terms which are capitalized in this Amendment and not otherwise defined shall have the meanings ascribed to such terms in the Loan Agreement. WHEREAS, the Borrowers and Parent have requested that LaSalle agree to an extension of the term of the Loan Agreement and to the modification of certain other terms and provisions contained in the Loan Agreement; and WHEREAS, LaSalle has consented to such request, on the terms and subject to the satisfaction of the conditions contained in this Amendment. NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION ONE. AMENDMENTS. Effective upon the satisfaction of the conditions set forth in Section Three hereof, the Loan Agreement shall be and is hereby amended as follows: (a) SECTION 2. LOANS. (i) Clauses (ii) and (iii) of Section 2(a) of the Loan Agreement are deleted in their entirety; clause (iv) of Section 2(a) is renumbered as "(ii)"; and the word "plus" at the end of clause (i) of Section 2(a) is deleted and the word "minus" substituted in lieu thereof. (ii) The proviso appearing immediately after clause (iv) of Section 2(a) of the Loan Agreement is deleted in its entirety and the following substituted in lieu thereof: "provided, that the aggregate undrawn amount of all Letters of Credit issued or guaranteed by Lender, with respect to all Borrowers, shall at no time EXCEED Two Million and No/100 Dollars ($2,000,000) and (y) the Revolving Loan Limit with respect to Revolving Loans made to all Borrowers, at any one time outstanding, shall in no event exceed Thirty-Two Million Five Hundred Thousand and No/100 Dollars ($32,500,000) (the "MAXIMUM REVOLVING LOAN LIMIT")." (iii) Section 2(b) of the Loan Agreement is deleted in its entirety and the following substituted in lieu thereof: "(B) TERM LOAN. Subject to the terms and conditions of this Agreement and the Other Agreements, Lender shall make a term loan to Point Blank in the principal amount of Twelve Million Five Hundred Thousand and No/100 Dollars ($12,500,000) (the "ORIGINAL TERM LOAN"). Lender shall make an additional term loan (each, an "ADDITIONAL TERM LOAN"; the Original Term Loan and all Additional Term Loans are herein collectively referred to as the "TERM LOAN") to Point Blank in a principal amount equal to the difference between $12,500,000 and the principal balance of the Term Loan outstanding on the effective date of such Additional Term Loan for amortization purposes, upon the occurrence of each of the following events: (x) the net income of the Parent and its consolidated Subsidiaries, after taxes, for the fiscal year ending on or about December 31, 2004, shall be not less than the lesser of (i) 80% of the projected net income of the Parent and its consolidated Subsidiaries, after taxes, for such fiscal year, as reflected in acceptable annual projections for such fiscal year delivered to Lender pursuant to Section 9(d) hereof and (ii) $14,000,000; or (y) the net income of the Parent and its consolidated Subsidiaries, after taxes, for the fiscal year ending on or about December 31, 2005 and/or the fiscal year ending on or about December 31, 2006, shall be not less than $8,000,000. The effective date of each Additional Term Loan for amortization purposes shall be January 1st of the year in which such Additional Term Loan is made. Notwithstanding the foregoing, no Additional Term Loan shall be made if, on the date such Loan is required to be made hereunder, any one of the following conditions exist: (x) the aggregate value (measured at the lower of cost or market value) of the Borrowers' Eligible Inventory, shall be less than $35,000,000, as reflected in the most recent monthly Inventory report of the Borrowers delivered to Lender pursuant to Section 9(b) of this Agreement; or (y) all of the conditions set forth in Section 17(b) of this Agreement have not been satisfied. If, for any of the fiscal years referred to in this clause (b), Parent and its consolidated Subsidiaries shall have achieved the amount of net income required hereunder for an Additional Term Loan to be made, then Lender shall make such Additional Term Loan by the 5th day after Lender's receipt of the audited annual financial statements of Parent and its consolidated Subsidiaries for such fiscal year reflecting such amount of net income. For all purposes under this Agreement, the Term Loan shall constitute a Loan. The Term Loan shall be evidenced by the Term Note, in the principal amount of $12,500,000, dated on or about March 15, 2004." -2- (iv) Section 2(d)(ii) of the Loan Agreement is deleted in its entirety and the following substituted in lieu thereof: "Repayment of Term Loan. The Term Loan shall be repaid in consecutive quarterly installments, each in the amount of One Million and No/100 Dollars ($1,000,000) and each payable on the first day of each quarter, commencing July 1, 2004; provided, that the entire outstanding principal balance of the Term Loan shall be repaid on the earliest to occur of: (i) the last day of the Original Term; (ii) and the date of termination of this Agreement pursuant to Section 10 hereof; (iii) the date on which the due date of the Liabilities is accelerated pursuant to Section 16 hereof; or (iv) the date any mandatory prepayment thereof shall be required pursuant to Section 2(d)(iv) hereof. If any such payment due date is not a Business Day, then such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of the amount of interest and fees due hereunder." (v) Section 2(d)(iv) of the Loan Agreement is deleted in its entirety and the following substituted in lieu thereof: "If, at any time, the aggregate value (measured at the lower of cost or market value) of the Borrowers' Eligible Inventory shall be less than $35,000,000, as reflected in the most recent monthly Inventory report of the Borrowers delivered to Lender pursuant to Section 9(b) hereof, then the Borrowers shall immediately prepay the entire outstanding principal balance of the Term Loan and Lender shall thereafter have no obligation to make any Additional Term Loan." (b) SECTION 4. INTEREST, FEES AND CHARGES. (i) Clauses (a) and (b) of Section 4(a)(ii) are deleted in their entirety and the following substituted in lieu thereof: "(a) Revolving Loans borrowed as LIBOR Rate Loans shall bear interest at one and three-quarters percent (1.75%) in excess of the LIBOR Rate for the applicable Interest Period, (b) portions of the Term Loan borrowed as LIBOR Rate Loans shall bear interest at two and one-quarter percent (2.25%) in excess of the LIBOR Rate for the applicable Interest Period." (ii) Section 4(c)(ii) of the Loan Agreement is deleted in its entirety and the following substituted in lieu thereof: "(ii) Unused Line Fee. The Borrowers jointly and severally agree to pay to Lender an unused line fee of three-eighths of one percent per annum (0.375%) of the -3- difference each month between (i) the Maximum Revolving Loan Limit and (ii) the average daily balance of the Revolving Loans, plus the outstanding Letter of Credit Obligations, in each case for such month. Said fee shall be fully earned by Lender and payable monthly in arrears on the first Business Day of each month for the previous month, and shall be calculated on the basis of a 360 day year." (iii) Section 4(a)(iv) of the Loan Agreement is deleted in its entirety and the following substituted in lieu thereof: "(iv) Intentionally Omitted." (c) SECTION 10. TERMINATION; AUTOMATIC RENEWAL. (a) The first sentence of Section 10 of the Loan Agreement is deleted in its entirety and the following substituted in lieu thereof: "THIS AGREEMENT SHALL BE IN EFFECT FOR A PERIOD (SUCH PERIOD, THE "ORIGINAL TERM") FROM THE DATE HEREOF UNTIL OCTOBER 1, 2007, AND SHALL BE EXTENDED THEREAFTER (EACH SUCH EXTENSION BEING REFERRED TO HEREIN AS A "RENEWAL TERM") SOLELY AT THE OPTION OF THE LENDER, UNLESS (A) THE DUE DATE OF THE LIABILITIES IS ACCELERATED PURSUANT TO SECTION 16 HEREOF OR (B) THE BORROWERS ELECT TO TERMINATE THIS AGREEMENT AT THE END OF THE ORIGINAL TERM OR AT THE END OF ANY RENEWAL TERM BY GIVING LENDER WRITTEN NOTICE OF SUCH ELECTION AT LEAST FORTY-FIVE (45) DAYS PRIOR TO THE END OF THE ORIGINAL TERM OR THE THEN CURRENT RENEWAL TERM AND BY PAYING ALL OF THE LIABILITIES IN FULL ON THE LAST DAY OF SUCH TERM." (b) The last two sentences of Section 10 of the Loan Agreement are deleted in their entirety and the following substituted in lieu thereof: "In the event that the Borrowers elect to and in fact terminate this Agreement and prepay all of the Liabilities on or before October 1, 2005, then, in such event, on the date of such prepayment the Borrowers agree jointly and severally to pay to Lender as a prepayment fee, in addition to the payment of all other Liabilities, an amount equal to one percent (1%) of the Maximum Revolving Loan Limit in effect on such date. There shall be no prepayment fee imposed on the Borrowers upon -4- any prepayment of the Term Loan." (d) SECTION 14. FINANCIAL COVENANTS. Clauses (a), (b) and (c) of Section 14 of the Loan Agreement are deleted in their entirety and the following substituted in lieu thereof: "(A) TANGIBLE NET WORTH. (i) The Tangible Net Worth of Parent and its Subsidiaries, on a consolidated basis, shall not at any time be less than Forty-Five Million and No/100 Dollars ($45,000,000). (ii) Each Borrower shall at all times maintain a minimum Tangible Net Worth of at least One Dollar. (B) FIXED CHARGE COVERAGE. Parent and the Borrowers shall not permit the ratio of EBITDA to Fixed Charges for any fiscal quarter (determined as of the end of such fiscal quarter), commencing with the fiscal quarter ending on or about March 31, 2004, in each case together with the immediately preceding three fiscal quarters, to be less than 2.00 : 1.00. (C) CONSOLIDATED EBITDA. Parent and the Borrowers shall not permit EBITDA for any fiscal quarter (determined as of the end of such fiscal quarter), commencing with the fiscal quarter ending on or about March 31, 2004, to be less than Four Million Five Hundred Thousand and No/100 Dollars ($4,500,000)." (e) SECTION 15. DEFAULT. Clause (m) of Section 15 of the Loan Agreement is deleted in its entirety and the following substituted in lieu thereof: "(M) INTENTIONALLY OMITTED." SECTION TWO . AMENDMENT FEE. In consideration for the amendments contained herein, the Borrowers agree jointly and severally to pay to Lender an amendment fee of $83,000 (the "AMENDMENT FEE"), which fee shall be non-refundable and deemed fully earned when paid. The Borrowers authorize LaSalle to charge any loan account of the Borrowers for the Amendment Fee. SECTION THREE. CONDITIONS PRECEDENT. This Amendment shall become effective on the date when all of the following conditions, the satisfaction of each of which is a condition precedent to the effectiveness of this Amendment, shall have occurred or shall have been waived in writing by LaSalle. -5- (a) LaSalle shall have received and reviewed each of the following, which shall be in form and substance reasonably satisfactory to it: (i) this Amendment, duly executed by each Borrower and Parent, and by David H. Brooks; (ii) an original Amended and Restated Revolving Note, in the form of Exhibit A hereto, in the principal amount of $32,500,000, duly executed by each Borrower; and (iii) an Original Term Note, in the form of Exhibit B hereto, in the principal amount of $12,500,000, duly executed by each Borrower. (b) LaSalle shall have received payment, in cash, of the Amendment Fee. (c) All representations and warranties set forth in the Loan Agreement (except for such inducing representations and warranties that were only required to be true and correct as of a prior date) shall be true and correct in all material respects on and as of the effective date hereof, and no Default or Event of Default shall have occurred and be continuing. (d) No event or development shall have occurred since December 31, 2002 which event or development has had or is reasonably likely to have a Material Adverse Effect. (e) LaSalle shall have received a certificate from each Borrower and Parent, executed by the chairman of each such party, as to the truth and accuracy of paragraphs (c) and (d) of this Section Three. (f) There shall be no action, suit or proceeding pending or to any Borrower's or Parent's knowledge overtly threatened against any Borrower or Parent before any court (including any bankruptcy court), arbitrator or governmental or administrative body or agency which challenges or relates to the consummation of this Amendment or the other transactions contemplated herein. (g) LaSalle shall have received such further agreements, consents, instruments and documents as may be necessary or proper in the reasonable opinion of LaSalle and its counsel to carry out the provisions and purposes of this Amendment. SECTION FOUR . CONDITIONS SUBSEQUENT. The Borrowers shall cause each of the following documents to be delivered to LaSalle on or before the 30th day after the date hereof: (a) an opinion of counsel to the Borrowers and Parent, in form and substance satisfactory to LaSalle and its counsel, regarding each Borrower's and Parent's due incorporation, valid existence, good standing and power and authority to execute this Amendment, the due authorization, execution and delivery of this Amendment by each Borrower and Parent, the enforceability of this Amendment against each Borrower and Parent, the perfection of Lender's security interest in the Collateral and such other matters as LaSalle and its counsel may reasonably require; -6- (b) a Certificate of the Secretary or Assistant Secretary of each Borrower and of Parent, in each case in form and substance satisfactory to LaSalle and its counsel, (A) relating to the adoption of resolutions by each such Borrower's and Parent's respective Board of Directors approving this Amendment and the other documents executed or delivered in connection herewith by such party, (B) certifying that no amendments have been made to each such Borrower's or Parent's Certificate of Incorporation, as amended, other than Parent's Certificate of Designations and Preferences executed on December 14, 2001 and Point Blank's Certificate of Amendment dated December 31, 2003, and each such Borrower's or Parent's by-laws, as amended, since September 24, 2001, and (C) further certifying the names and incumbency of officers of each such Borrower and of Parent authorized to sign this Amendment and all other documents executed or delivered in connection herewith, and the names and validity of signatures of such officers; and (c) evidence, in each case satisfactory to LaSalle and its counsel, that PACA has filed its past-due Biennial Statement with the New York Department of State and that Parent has paid all past-due franchise taxes owing to the State of Delaware. The failure of the Borrowers to cause each of the aforementioned documents to be delivered to Lender on or before such date shall constitute an Event of Default. SECTION FIVE . REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Borrower and Parent hereby represents, warrants and covenants (which representations and warranties shall survive the execution and delivery hereof) to LaSalle that: (a) Each Borrower and Parent has the corporate or other power, authority and legal right to execute, deliver and perform this Amendment and the other instruments, agreements, documents and transactions contemplated hereby to which it is a party, and has taken all actions necessary to authorize the execution, delivery and performance of this Amendment and the other instruments, agreements, documents to which it is a party and the transactions contemplated hereby and thereby; (b) No consent of any Person (including, without limitation, stockholders or creditors of any Borrower or Parent, as the case may be) other than LaSalle, and no consent, permit, approval or authorization of, exemption by, notice or report to, or registration, filing or declaration with, any governmental authority is required in connection with the execution, delivery and performance by each Borrower and Parent, or the validity or enforceability against such parties, of this Amendment and the other instruments, agreements, documents and transactions contemplated hereby to which they are a party; (c) This Amendment has been duly executed and delivered on behalf of each Borrower and Parent by their respective duly authorized officers, and constitutes the legal, valid and binding obligation of such Borrower and Parent, enforceable in accordance with its terms, except to the extent that such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting the rights of creditors generally or equitable remedies (whether arising in a proceeding at law or in equity); -7- (d) No Borrower or Parent is in material default under any indenture, mortgage, deed of trust, agreement or other instrument to which it is a party or by which it may be bound. Neither the execution and delivery of each of this Amendment, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof will (i) violate any law or regulation, or (ii) result in or cause a violation by any Borrower or Parent of any order or decree of any court or government instrumentality, or (iii) conflict with, or result in the breach of, or constitute a default under, any indenture, mortgage, deed of trust, material agreement or other material instrument to which each such Borrower or Parent is a party or by which any of them may be bound, or (iv) result in the creation or imposition of any lien, charge, or encumbrance upon any of the property of each such Borrower or Parent, except in favor of LaSalle, to secure the Liabilities, or (v) violate any provision of the Certificate of Incorporation, By-Laws or any capital stock or similar equity instrument of each such Borrower or Parent; (e) After giving effect to this Amendment, no Default or Event of Default shall have occurred and is continuing; (f) Since the date of Parent's consolidated and consolidating financial statements for the Fiscal Year ended December 31, 2002, no change or event has occurred which has had or is reasonably likely to have a Material Adverse Effect; (g) Upon execution of this Amendment and the satisfaction of the conditions set forth in Section Three hereof, Parent and each of the Borrowers agrees that the term "Liabilities" shall include any and all Liabilities arising under the Loan Agreement, as amended by this Amendment, including but not limited to the Original Term Loan and any and all Additional Term Loans; (h) Parent and its Subsidiaries, taken as a whole, are, and after giving effect to the transactions contemplated by this Amendment, will be, solvent, able to pay its debts as they become due, has capital sufficient to carry on its business, now owns property having a value both at fair valuation and at present fair saleable value greater than the amount required to pay its debts, and will not be rendered insolvent by the execution and delivery of this Amendment or any of the other agreements instruments being executed in connection herewith or by completion of the transactions contemplated hereunder or thereunder. SECTION SIX. GENERAL PROVISIONS. (a) Except as herein expressly amended, the Loan Agreement and all other agreements, documents, instruments and certificates executed in connection therewith, are ratified and confirmed in all respects and shall remain in full force and effect in accordance with their respective terms. (b) All references in the Other Agreements to the Loan Agreement shall mean the Loan Agreement as amended hereby and as hereafter amended, supplemented or modified from time to time. From and after the date hereof, all references in the Loan Agreement to "this Agreement," "hereof," "herein," or similar terms, shall mean and refer to the Loan Agreement as amended by this Amendment. -8- (c) This Amendment may be executed by the parties hereto individually or in combination, in one or more counterparts, each of which shall be an original and all which shall constitute one and the same agreement. (d) This Amendment shall be governed and controlled by the internal laws of the State of New York. (e) Nothing contained in this Amendment shall be deemed to constitute a waiver of any Default or Event of Default, whether or not LaSalle has knowledge thereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -9- IN WITNESS WHEREOF, LaSalle, each Borrower and Parent have caused this Amendment to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. LASALLE BUSINESS CREDIT, INC. By:_____________________________________ Name: Michael F. Aliberto, III Title: First Vice President PROTECTIVE APPAREL CORPORATION OF AMERICA By:_____________________________________ Name: Title: POINT BLANK BODY ARMOR, INC. By:_____________________________________ Name: Title: NDL PRODUCTS, INC. By:_____________________________________ Name: Title: DHB INDUSTRIES, INC. By:_____________________________________ Name: Title: ACKNOWLEDGED AND CONSENTED TO: DAVID H. BROOKS _____________________________ -10- EXECUTION COPY DHB ARMOR GROUP, INC. By:_____________________________________ Name: Title: DHB SPORTS GROUP, INC. By:_____________________________________ Name: Title: LANXIDE ARMOR PRODUCTS, INC. By:_____________________________________ Name: Title: ORTHOPEDIC PRODUCTS, INC. By:_____________________________________ Name: Title: Exhibit A to Sixth Amendment FORM OF AMENDED AND RESTATED REVOLVING NOTE ORIGINAL DATE OF EXECUTION: SEPTEMBER 24, 2001 DATE OF AMENDMENT AND RESTATEMENT: MARCH 15, 2004 $32,500,000.00 NEW YORK, NEW YORK FOR VALUE RECEIVED, PROTECTIVE APPAREL CORPORATION OF AMERICA, a Delaware corporation, POINT BLANK BODY ARMOR, INC., a Delaware corporation, and NDL PRODUCTS, INC., a Florida corporation (each a "Borrower" and collectively, the "Borrowers") jointly and severally promise to pay to the order of LASALLE BUSINESS CREDIT, LLC (the "Lender"), at its offices located at 135 South LaSalle Street, Chicago, Illinois 60603, the principal sum of Thirty-Two Million Five Hundred Thousand and No/100 Dollars ($32,500,000.00) on the Maturity Date, which shall mean the last day of the Original Term, or the applicable Renewal Term, in the event that the Loan Agreement (as defined below) is renewed, as the case may be, or so much of such principal sum as shall be outstanding and unpaid on the Maturity Date, all as more fully set forth in the Loan and Security Agreement, dated as of September 24, 2001 (as the same may be amended, modified, supplemented or restated from time to time, the "Loan Agreement"), by and among each of the Borrowers, DHB Industries, Inc., as Guarantor, the DHB Subsidiaries and the Lender. Terms which are capitalized in this Revolving Note but are not otherwise defined shall have the meanings ascribed to them in the Loan Agreement. The Borrowers further promise jointly and severally to pay (a) the principal of the Revolving Loans, as set forth in Section 2(d)(i) of the Loan Agreement and (b) interest on the outstanding principal amount hereof on the dates and at the rates provided in the Loan Agreement, from the date hereof until payment in full hereof. This Revolving Note is referred to in and delivered pursuant to the Loan Agreement, and is subject to and entitled to all provisions and benefits thereof. The Borrowers hereby authorize the Lender to charge any account of the Borrowers maintained with the Lender for all sums payable hereunder as and when such sums become due. If payment hereunder becomes due and payable on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day, and interest shall be payable thereon at the rate specified during such extension. Credit shall be given for payments made, in the manner and at the times provided in the Loan Agreement. It is the intent of the parties that the rate of interest and other charges to the Borrowers under this Revolving Note shall be lawful; therefore, if for any reason the interest or other charges payable hereunder are found by a court of competent jurisdiction, in a final determination, to exceed the limit which the Lender may lawfully charge the Borrowers, then the obligation to pay interest or other charges shall automatically be reduced to such limit and, if any amount in excess of such limit shall have been paid, then such amount shall be refunded to the Borrowers. The principal and all accrued interest hereunder may be prepaid by the Borrowers, in part or in full, at any time; provided, however, that if the Borrowers terminate the Loan Agreement prior to the Maturity Date, the Borrowers may be required to pay a prepayment fee as provided in Section 10 of the Loan Agreement. Exhibit A-1 The Borrowers waive the benefit of any law that would otherwise restrict or limit the Lender in the exercise of its right, which is hereby acknowledged, to set off against the Liabilities, without notice and at any time hereafter, any amounts owing from the Lender to the Borrowers. The Borrowers agree that the Lender shall not be liable for any error in judgment or mistakes of fact or law, other than for gross negligence. To the extent the Borrowers have any counterclaims, they agree to assert any and all such counterclaims (other than compulsory counterclaims) by separate action. The Borrowers, any other party liable with respect to the Liabilities evidenced hereby and any and all endorsers and accommodation parties, and each one of them, if more than one, waive any and all presentment, demand, notice of dishonor, protest, and all other notices and demands in connection with the enforcement of the Lender's rights hereunder. The Revolving Loans evidenced hereby have been made, and this Revolving Note has been delivered, at New York, New York. THIS REVOLVING NOTE SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, and shall be binding upon the Borrowers and each of their successors and assigns. If this Revolving Note contains any blanks when executed by the Borrowers, the Lender is hereby authorized, without notice to the Borrowers, to complete any such blanks according to the terms upon which the Revolving Loan or Revolving Loans were granted. Wherever possible, each provision of this Revolving Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Revolving Note shall be prohibited by or be invalid under such law, such provision shall be severable, and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Revolving Note. To induce the Lender to make the Revolving Loans evidenced by this Revolving Note, the Borrowers (i) irrevocably agree that all actions arising directly or indirectly as a result or in consequence of this Revolving Note shall be instituted and litigated only in courts having situs in the City of New York, New York; provided, that Lender may elect to commence an action or proceeding with respect to the Collateral in another jurisdiction, (ii) hereby consent to the exclusive jurisdiction and venue of any State or Federal Court located and having its situs in said city, and (iii) waive any objection based on forum non-conveniens. IN ADDITION, THE BORROWERS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS REVOLVING NOTE, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY ANY BORROWER OR THE LENDER OR WHICH IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN THE BORROWERS AND THE LENDER, waive personal service of any and all process, and consent that all such service of process may be made by certified mail, return receipt requested, directed to the Borrowers at the address indicated in the Lender's records; and service so made shall be complete five (5) days after the same has been deposited in the U.S. mails as aforesaid. Exhibit A-2 This Note amends, supersedes and replaces in its entirety that certain Revolving Note (the "Original Note") in the original principal amount of Fifteen Million Five Hundred Thousand and No/100 Dollars ($15,500,000) dated September 24, 2001, executed by the Borrowers and payable to the order of the Lender; provided, however, that all of the indebtedness evidenced by the Original Note continues to be outstanding as of the date hereof, no cancellation, adjustment or novation of such indebtedness shall be deemed to have occurred on account of the amendment and restatement of the Original Note pursuant to this Note, and the Borrowers' execution and delivery of this Note shall constitute an express acknowledgment and confirmation of, and agreement with, the foregoing. IN WITNESS WHEREOF, each of the Borrowers has executed this Revolving Note on the date first above set forth. PROTECTIVE APPAREL CORPORATION OF AMERICA By:_____________________________________ Name: Title: POINT BLANK BODY ARMOR, INC. By:_____________________________________ Name: Title: NDL PRODUCTS, INC. By:_____________________________________ Name: Title: Exhibit A-3 Exhibit B to Sixth Amendment FORM OF TERM NOTE EXECUTED AS OF THE 15TH DAY OF MARCH, 2004 $12,500,000 FOR VALUE RECEIVED, PROTECTIVE APPAREL CORPORATION OF AMERICA, a Delaware corporation, POINT BLANK BODY ARMOR, INC., a Delaware corporation, and NDL PRODUCTS, INC., a Florida corporation (each, a "Borrower" and collectively, the "Borrowers") jointly and severally promise to pay to the order of LASALLE BUSINESS CREDIT, LLC ("Lender"), at its offices located at 135 South LaSalle Street, Chicago, Illinois 60603, the principal sum of Twelve Million Five Hundred Thousand and No/100 Dollars ($12,500,000.00) on the Maturity Date, which shall mean the last day of the Original Term, or the last day of the applicable Renewal Term, in the event that the Loan Agreement (as defined below) is renewed, as the case may be, or so much of such principal sum as shall be outstanding and unpaid on the Maturity Date, all as more fully set forth in the Loan and Security Agreement, dated as of September 24, 2001 (as the same has been, and may hereafter be, amended, modified, supplemented or restated from time to time, the "Loan Agreement") by and among the Borrowers, DHB Industries, Inc., as Guarantor, the DHB Subsidiaries and the Lender. Terms which are capitalized in this Term Note but are not otherwise defined shall have the meanings ascribed to them in the Loan Agreement. The Borrowers further promise to (a) pay the principal amount of this Term Note in installments as set forth in Section 2(d)(ii) of Loan Agreement, (b) make mandatory prepayments of principal of this Term Note as set forth in Section 2(d)(iv) of the Loan Agreement and (c) pay interest on the outstanding principal amount hereof on the dates and at the rates provided in the Loan Agreement from the date hereof until payment in full hereof. This Term Note is referred to and delivered pursuant to the Sixth Amendment to the Loan Agreement, and is subject to and entitled to all provisions and benefits of the Loan Agreement. The Borrowers hereby authorize the Lender to charge any account of the Borrowers maintained with the Lender for all sums payable hereunder as and when such sums become due. If payment hereunder becomes due and payable on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day, and interest shall be payable thereon at the rate specified during such extension. Credit shall be given for payments made in the manner and at the times provided in the Loan Agreement. It is the intent of the parties that the rate of interest and other charges to the Borrowers under this Term Note shall be lawful; therefore, if for any reason the interest or other charges payable hereunder are found by a court of competent jurisdiction, in a final determination, to exceed the limit which the Lender may lawfully charge the Borrowers, then the obligation to pay interest or other charges shall automatically be reduced to such limit and, if any amount in excess of such limit shall have been paid, then such amount shall be refunded to the Borrowers. The principal and all accrued interest hereunder may be prepaid by the Borrowers, in part or in full, at any time. Exhibit B-1 The Borrowers waive the benefit of any law that would otherwise restrict or limit the Lender in the exercise of its right, which is hereby acknowledged, to set off against the Liabilities, without notice and at any time hereafter, any amounts owing from the Lender to the Borrowers. The Borrowers agree that the Lender shall not be liable for any error in judgment or mistakes of fact or law, other than for gross negligence. To the extent the Borrowers have any counterclaims, they agree to assert any and all such counterclaims (other than compulsory counterclaims) by separate action. The Borrowers, any other party liable with respect to the Liabilities and any and all endorsers and accommodation parties, and each one of them, if more than one, waives any and all presentment, demand, notice of dishonor, protest, and all other notices and demands in connection with the enforcement of the Lender's rights hereunder. The Term Loan evidenced hereby has been made, and this Term Note has been delivered, at New York, New York. THIS TERM NOTE SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING WITHOUT LIMITATION THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, and shall be binding upon the Borrowers and each of their successors and assigns. If this Term Note contains any blanks when executed by Borrowers, the Lender is hereby authorized, without notice to the Borrowers, to complete any such blanks according to the terms upon which the Term Loan was granted. Wherever possible, each provision of this Term Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Term Note shall be prohibited by or be invalid under such law, such provision shall be severable, and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Term Note. To induce the Lender to make the Term Loan evidenced by this Term Note, the Borrowers (i) irrevocably agree that all actions arising directly or indirectly as a result of or in consequence of this Term Note or any other agreement with the Lender, or the Collateral, shall be instituted and litigated only in courts having situs in the City of New York, New York; provided that Lender may elect to commence an action or proceeding with respect to the Collateral in another jurisdiction, (ii) hereby consent to the exclusive jurisdiction and venue of any State or Federal Court located and having its situs in said city, and (iii) waive any objection based on forum non-conveniens. IN ADDITION, THE BORROWERS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS TERM NOTE, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY ANY BORROWER OR THE LENDER OR WHICH IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN THE BORROWERS AND THE LENDER, waive personal service of any and all process, and consent that all such service of process may be made by certified mail, return receipt requested, directed to the Borrowers at the address indicated in the Lender's records; and service so made shall be complete five (5) days after the same has been deposited in the U.S. mails as aforesaid. Exhibit B-2 IN WITNESS WHEREOF, each of the Borrowers has executed this Term Note on the date first above set forth. PROTECTIVE APPAREL CORPORATION OF AMERICA By:_____________________________________ Name: Title: POINT BLANK BODY ARMOR, INC. By:_____________________________________ Name: Title: NDL PRODUCTS, INC. By:_____________________________________ Name: Title: Exhibit B-3 EX-14 10 ex14.txt EXHIBIT 14 - CODE OF ETHICS EXHIBIT 14 DHB INDUSTRIES, INC. CODE OF BUSINESS CONDUCT AND ETHICS INTRODUCTION DHB Industries, Inc. and its subsidiaries (the "Company") is committed to the principle of honest and ethical conduct in all aspects of its business. With the adoption of the Sarbanes-Oxley Act of 2002, and rules adopted by the Securities and Exchange Commission (the "Commission"), all publicly held companies have been encouraged to adopt and make available to the public written codes of conduct and ethics. The following Code of Business Conduct and Ethics (this "Code") is intended to be a codification of the business and ethical principles which have been a part of the Company, and is intended, among other things, to promote: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o avoidance of conflicts of interest, including disclosure to an appropriate person or persons identified in this Code of any material transaction or relationship that reasonably could be expected to give rise to such a conflict; o full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Commission and in other public communications made by the Company; o compliance with applicable governmental laws, rules and regulations; o the prompt internal reporting of Code violations to an appropriate person or persons identified in this Code; and o accountability for adherence to this Code. This Code covers a wide range of business practices and procedures. It does not cover every issue that may arise, but it sets out basic principles to guide all employees of the Company. All Company employees must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. In appropriate circumstances, this Code should also be provided to and followed by the Company's agents and representatives, including consultants. If a law conflicts with a policy in this Code, the employee must comply with the law; however, if a local custom or policy conflicts with this Code, the employee must comply with the Code. If an employee has any questions about these conflicts, the employee should ask his or her supervisor how to handle the situation. Any employee who violates the standards in this Code will be subject to disciplinary action. IF AN EMPLOYEE IS IN A SITUATION THAT THE EMPLOYEE BELIEVES MAY VIOLATE OR LEAD TO A VIOLATION OF THIS CODE, THE EMPLOYEE SHOULD FOLLOW THE GUIDELINES DESCRIBED IN SECTION 14 OF THIS CODE. 1. COMPLIANCE WITH LAWS, RULES AND REGULATIONS Obeying the law, both in letter and in spirit, is the foundation on which the Company's ethical standards are built. All employees must respect and obey the laws of the cities, states, and countries in which the Company operates. Although not all employees are expected to know the details of these laws, it is important to know enough to determine when to seek advice from supervisors, managers or other appropriate personnel. The Company holds information and training sessions to promote compliance with laws, rules and regulations, including insider-trading laws. As noted, the Company is subject to various federal and state laws which govern various aspects of all businesses generally. A few examples, not intended to be all-inclusive, are laws which regulate conduct in the workplace, such as sexual harassment laws and laws which prohibit discrimination based on age, sex, race, national origin or the like. As a publicly held company, we are subject to significant regulation under the federal securities laws. Again, an example is our obligation to timely and accurately file all reports that we are required to file with the Commission, including the accurate filing of required financial information. Our products must meet legal and industry-mandated standards and specifications, which are designed to promote the effectiveness of our products for various uses. The Company expects all of its employees to comply with Company practices and procedures, which are intended to foster compliance with legal and industry standards. Various of our departments have applicable policies and procedures through which our managers, in conjunction with our senior management, assist the Company as part of their functions in complying with applicable laws and regulations. We expect all of our employees to cooperate in this respect and observe the policies and procedures set out by managers with respect to legal compliance. Where an employee reasonably believes that the Company is not compliant with any law or regulation, we encourage our employees to bring that matter up directly with the employee's immediate supervisor and, if the matter is not ultimately resolved by either a reasonable explanation or action taken to rectify any non-compliance, we encourage the employee to bring the matter directly to the attention of the Company's Chairman or the Company's President. With respect to financial matters in particular, and not just confined to those of our employees performing accounting or internal auditing functions, the Company's policy is that, if an employee believes that the Company has or is about to engage in any financial irregularity or impropriety, the matter be brought to the attention of the Chairman of our Audit Committee. This may be done anonymously and without fear of reprisal of any sort. Any complaint directed to the Chairman of the Audit Committee may be sent by mail or e-mail as follows: Jerry Krantz, Krantz Financial, 500 N. Broadway, Suite 251, Jericho, NY 11753 or jk2insure@aol.com 2 2. FINANCIAL INFORMATION AND DEALINGS WITH EXTERNAL AUDITORS The honest and accurate recording and reporting of financial information is of critical importance to the Company. This is not only essential in order for senior management to make informed responsible business decisions, but is also essential to the Company's ability to file accurate financial reports with the Securities and Exchange Commission; to enable the Company to comply with various laws relating to the maintenance of books and records and financial reporting; to enable the Chief Executive Officer and Chief Financial Officer of the Company to make their necessary certifications in connection with the periodic filing by the Company of financial information; and to inform the stockholders of the Company and the investing public of accurate financial information of the Company. No employee shall falsify the books and records of the Company or otherwise knowingly circumvent or fail to implement the internal accounting controls of the Company as they now exist or as they may be modified, revised, amended or supplemented. The external auditors of the Company play an integral role in the financial reporting process through their annual examination and report on the Company's financial statements and their review of periodic reports of the Company. Open and honest fair dealings with our external auditors is therefore essential. No employee of the Company, whether an officer, director or part of the Company's accounting department, shall make any false or misleading statement to any external auditor of the Company in connection with an audit or examination of the financial statements of the Company or the preparation or filing of any document or report. Similarly, no employee of the Company shall engage in any conduct to fraudulently influence, coerce, manipulate or mislead any accountant engaged in the audit or review of any financial statements of the Company. 3. CONFLICTS OF INTEREST A "conflict of interest" exists when an individual's private interest interferes in any way - or even appears to conflict - with the interests of the Company as a whole. A conflict situation can arise when an employee, officer or director takes actions or has interests that may make it difficult to perform his or her work on behalf of the Company in an objective and effective manner. Conflicts of interest may also arise when an employee, officer or director, or a member of his or her family, receives improper personal benefits as a result of his or her position in the Company. Loans by the Company to, or guarantees by the Company of obligations of, employees and/or their family members may create conflicts of interest. It is almost always a conflict of interest for a Company employee to work simultaneously for a competitor, customer or supplier. An employee is not allowed to work for a competitor as a consultant or board member. The best policy is to avoid any direct or indirect business connection with the Company's customers, suppliers or competitors, except on the Company's behalf. Conflicts of interest are prohibited as a matter of Company policy, except under guidelines approved by the Company's Board of Directors. Conflicts of interest may not always be clear-cut, so if a question arises, the employee should consult with higher levels of management or the Company's internal 3 auditor or Chief Financial Officer. Any employee, officer or director who becomes aware of a conflict or potential conflict should bring it to the attention of a supervisor, manager or other appropriate personnel, or consult the procedures described in Section 14 of this Code. 4. INSIDER TRADING Employees who have access to confidential information are not permitted to use or share that information for stock trading purposes or for any other purpose except the conduct of the Company's business. All non-public information about the Company should be considered confidential information. To use non-public information for personal financial benefit or to "tip" others who might make an investment decision on the basis of this information is not only unethical but also illegal. If a question arises, the employee should consult the Company's Chief Financial Officer. The Company has separately prepared and distributed an Insider Trading Policy dated March 2003, addressing these and other matters relating to securities trading by Company personnel. 5. CORPORATE OPPORTUNITIES Employees, officers and directors are prohibited from taking for themselves personally opportunities that are discovered through the use of corporate property, information or position, except with the prior consent of the Company's Board of Directors. No employee may use corporate property, information or position for improper personal gain, and no employee may compete with the Company directly or indirectly. Employees, officers and directors owe a duty to the Company to advance its legitimate interests when the opportunity to do so arises. 6. COMPETITION AND FAIR DEALING The Company seeks to outperform competitors fairly and honestly. The Company seeks competitive advantages through superior performance, never through unethical or illegal business practices. Stealing proprietary information, possessing trade secret information that was obtained without the owner's consent, or inducing such disclosures by past or present employees of other companies is prohibited. Each employee, officer and director should endeavor to respect the rights of and deal fairly with the Company's customers, suppliers, competitors and employees. No employee, officer or director should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other intentional unfair-dealing practice. To maintain the Company's valuable reputation, compliance with the Company's quality processes and safety requirements is essential. In the context of ethics, quality requires that the Company's products and services meet reasonable customer expectations. All inspection and testing documents must be handled in accordance with all applicable regulations. The purpose of business entertainment and gifts in a commercial setting is to create good will and sound working relationships, not to gain unfair advantage with customers. No gift or entertainment should ever be offered, given, provided or accepted by any Company employee, family member of an employee, or agent unless it (1) is not a cash gift, (2) is consistent with customary business practices, (3) is not excessive in value, (4) cannot be 4 construed as a bribe or payoff, and (5) does not violate any laws or regulations. An employee should discuss with his or her supervisor any gifts or proposed gifts that the employee is not certain are appropriate. 7. DISCRIMINATION AND HARASSMENT The diversity of the Company's employees is a tremendous asset. The Company is firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment or any kind. Examples include derogatory comments based on racial or ethnic characteristics and unwelcome sexual advances. 8. HEALTH AND SAFETY The Company strives to provide each employee with a safe and healthful work environment. Each employee has responsibility for maintaining a safe and healthy workplace for all employees by following safety and health rules and practices and reporting accidents, injuries, and unsafe equipment, practices, or conditions. Violence and threatening behavior are not permitted. Employees should report to work in condition to perform their duties, free from the influence of illegal drugs or alcohol. The use of illegal drugs in the workplace will not be tolerated. 9. RECORD-KEEPING All of the Company's books, records, accounts and financial statements must be maintained in reasonable detail, must appropriately reflect the Company's transactions, and must conform both to applicable legal requirements and to the Company's system of internal controls. Unrecorded or "off the books" funds or assets should not be maintained unless permitted by applicable law or regulation. Business records and communications should always be retained and not destroyed unless in accordance with to the Company's record retention policies. In accordance with those policies, in the event of litigation or governmental investigation, employees must consult with the Company's Chief Financial Officer before taking any action because it is critical that any impropriety or possible appearance of impropriety be avoided. 10. CONFIDENTIALITY Employees, officers and directors must maintain the confidentiality of confidential information entrusted to them by the Company or its customers, except when disclosure is authorized by an executive officer or required or mandated by laws, regulations, subpoenas or judicial/court orders. Confidential information includes all non-public information that, if disclosed, might be of use to competitors or harmful to the Company or its customers. It also includes information that suppliers and customers have entrusted to us. The obligation to preserve confidential information continues even after employment ends. 5 11. PROTECTION AND PROPER USE OF COMPANY ASSETS All employees, officers and directors should endeavor to protect the Company's assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the Company's profitability. Any suspected incident of fraud or theft should be immediately reported for investigation. Company assets should be used for legitimate business purposes and should not be used for non-Company business, though incidental personal use may be permitted. The obligation of employees to protect the Company's assets includes its proprietary information. Proprietary information includes intellectual property, such as trade secrets, patents, trademarks and copyrights, as well as business, marketing and service plans, engineering and manufacturing ideas, designs, databases, records, salary information, and any unpublished financial data and reports. Unauthorized use or distribution of this information would violate Company policy. It could also be illegal and result in civil or even criminal penalties. 12. MAKING OF IMPROPER PAYMENTS The laws of the United States, as well as the laws of many foreign countries, prohibit a wide variety of payments, gifts or other things of value to be given to officials of foreign governments as an inducement to obtain business from those governments or in those countries. All employees must be mindful of these legal restrictions, and must avoid any conduct that might be considered to violate such laws and regulations. 13. WAIVERS OF THE CODE OF BUSINESS CONDUCT AND ETHICS Any waiver of this Code for executive officers or directors may be made only by the Board or a Board committee and will be promptly disclosed to stockholders as required by law or stock exchange regulation. 14. REPORTING ANY ILLEGAL OR UNETHICAL BEHAVIOR Employees are encouraged to talk to supervisors, managers or other appropriate personnel when in doubt about the best course of action in a particular situation. Employees should report any observed illegal or unethical behavior and any perceived violations of laws, rules, regulations or this Code to appropriate supervisors or managerial personnel. It is the policy of the Company not to allow retaliation for reports of misconduct by others made in good faith by employees. Employees are expected to cooperate in internal investigations of suspected misconduct. 15. COMPLIANCE PROCEDURES We must all work to ensure prompt and consistent action against violations of this Code. However, in some situations it is difficult to know right from wrong. Since we cannot anticipate every situation that will arise, it is important that we have a way to approach a new question or problem. These are the steps to keep in mind: o MAKE SURE YOU HAVE ALL THE FACTS. In order to reach the right solutions, we must be as fully informed as possible. 6 o ASK YOURSELF: WHAT SPECIFICALLY AM I BEING ASKED TO DO? DOES IT SEEM UNETHICAL OR IMPROPER? This will enable you to focus on the specific question you are faced with and the alternatives you have. Use your judgment and common sense; if something seems unethical or improper, it probably is. o CLARIFY YOUR RESPONSIBILITY AND ROLE. In most situations, there is shared responsibility. Are your colleagues informed? It may help to get others involved and discuss the problem. o DISCUSS THE PROBLEM WITH YOUR SUPERVISOR. This is the basic guidance for all situations. In many cases, your supervisor will be more knowledgeable about the question and will appreciate being brought into the decision-making process. Remember that it is your supervisor's responsibility to help solve problems. o SEEK HELP FROM COMPANY RESOURCES. In the rare case where it may not be appropriate to discuss an issue with your supervisor, or where you do not feel comfortable approaching your supervisor with your question, discuss it locally with your office manager or your Human Resources manager. If that also is not appropriate, call Company headquarters to seek out the appropriate person to deal with your concern. If you prefer to write, address your concern to the Company's Chief Executive Officer or Chief Financial Officer. o YOU MAY REPORT ETHICAL VIOLATIONS IN CONFIDENCE AND WITHOUT FEAR OF RETALIATION. If your situation requires that your identity be kept secret, your anonymity will be protected. The Company does not permit retaliation of any kind against employees for good faith reports of ethical violations. o ALWAYS ASK FIRST, ACT LATER: If you are unsure of what to do in any situation, seek guidance BEFORE YOU ACT. 7 EX-21 11 ex21.txt EXHIBIT 21 - LIST OF SUBSIDIARIES EXHIBIT 21 LIST OF SUBSIDIARIES CORPORATION NAME % OWNED STATE DATE OF INC. INCORPORATED DHB Armor Group, Inc. 100 % FL 02/04/03 DHB Sports Group Inc. 100 % DE 05/02/97 NDL Products Inc. 100 % FL 12/16/94 Point Blank Body Armor Inc. 99 %* DE 01/27/95 Protective Apparel Corporation of America 100 % NY 01/09/75 Point Blank International S.A. 100 % Belgium 03/08/99 *In December 2003, Point Blank Body Armor Inc. issued an approximate 0.0065 equity interest to an unaffiliated third party,thereby reducing DHB's percentage ownership of Point Blank to 99%. EX-31 12 ex31-1.txt EX 31.1-CEO CERTIFICATION PURSUANT TO SECTION302 EXHIBIT 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER I, David H. Brooks, Chairman and Chief Executive Officer of the Company, certify that: 1. I have reviewed this annual report on Form 10-K of DHB Industries, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 15, 2004 /s/ DAVID H. BROOKS ____________________________________ David H. Brooks Chairman and Chief Executive Officer EX-31 13 ex31-2.txt EX31.2-CFO CERTIFICATION PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER I, Dawn M. Schlegel, Chief Financial Officer of the Company, certify that: 1. I have reviewed this annual report on Form 10-K of DHB Industries, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 15, 2004 /s/ DAWN M. SCHLEGEL _______________________ Dawn M. Schlegel Chief Financial Officer EX-32 14 ex32-1.txt EX32.1-CEO CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of DHB Industries, Inc. (the "Company") on Form 10-K for the year ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, David H. Brooks, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 15, 2004 By: /s/ DAVID H. BROOKS ____________________________________ David H. Brooks Chairman and Chief Executive Officer This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. EX-32 15 ex32-2.txt EX32.2-CFO CERTIFICATION PURSUANT TO SECTION 906 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of DHB Industries, Inc. (the "Company") on Form 10-K for the year ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dawn Schlegel, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 15, 2004 By: /s/ DAWN M. SCHLEGEL ______________________________ Dawn M. Schlegel Chief Financial Officer This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----