SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): OCTOBER 29, 1996
THE LEHIGH GROUP INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-1920670
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1-155
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(Commission File Number)
810 Seventh Avenue 10019
New York, New York ----------------------
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(Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (212) 333-2620
Exhibit Index on Page 5
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ITEM 5. OTHER EVENTS
1. The Company and First Medical Corporation ("FMC") have
entered into an Agreement and Plan of Merger dated October 29, 1996 providing
for the merger of FMC with a subsidiary of the Company. The Company and DHB
Capital Group Inc. ("DHB") have terminated the proposed merger between DHB and a
subsidiary of the Company.
2. The Company has been named as a defendant in a lawsuit
brought in the Supreme Court, State of New York, entitled SOUTHWICKE CORPORATION
V. THE LEHIGH GROUP, INC. [ET. AL,], Index No. 96 604932, a copy of the
Complaint in which is annexed as an exhibit hereto.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(c) Exhibits -
99.1 Complaint in SOUTHWICKE CORPORATION V. THE LEHIGH
GROUP, INC. [ET. AL.], Supreme Court, State of New
York, Index No. 96 604932.
99.2 Letter dated October 11, 1996 from DHB Capital Group
Inc. to the Company terminating the Agreement and
Plan of Reorganization between the two companies.
99.3 Press release dated October 11, 1996 announcing the
termination of the Company's merger agreement with
DHB Capital Group Inc.
99.4 Letter dated October 24, 1996 from Salvatore Zizza to
DHB Capital Group Inc. ("DHB") confirming the
termination of the option to purchase 6,000,000
shares of the Company's common stock granted by Mr.
Zizza to DHB by letter dated July 8, 1996.
99.5 Agreement and Plan of Merger dated October 29, 1996
between the Company, First Medical Corporation and a
subsidiary of the Company.
99.6 Debenture dated October 29, 1996 from the Company to
First Medical Corporation in the principal amount of
$300,000.
99.7 Letter dated October 29, 1996 from Salvatore J. Zizza
to First Medical Corporation ("FMC") granting to FMC
an option to purchase 6,000,000 shares of the Common
Stock of the Company.
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99.8 Promissory Note dated October 29, 1996 from First
Medical Corporation to Salvatore J. Zizza in the
principal amount of $100,000.
99.9 Press release dated October 29, 1996 announcing that
the Company and First Medical Corporation executed a
definitive merger agreement.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE LEHIGH GROUP INC.
(Registrant)
Dated: November 7, 1996 By: /S/ROBERT A. BRUNO
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Name: Robert A. Bruno
Title: Vice President and
General Counsel
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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99.1 Complaint in SOUTHWICKE CORPORATION V. THE LEHIGH
GROUP, INC. [ET. AL.], Supreme Court, State of New
York, Index No. 96 604932.
99.2 Letter dated October 11, 1996 from DHB Capital Group
Inc. to the Company terminating the Agreement and
Plan of Reorganization between the two companies.
99.3 Press release dated October 11, 1996 announcing the
termination of the Company's merger agreement with
DHB Capital Group Inc.
99.4 Letter dated October 24, 1996 from Salvatore Zizza
to DHB Capital Group Inc. ("DHB") confirming the
termination of the option to purchase 6,000,000
shares of the Company's common stock granted by Mr.
Zizza to DHB by letter dated July 8, 1996.
99.5 Agreement and Plan of Merger dated October 29, 1996
between the Company, First Medical Corporation and a
subsidiary of the Company.
99.6 Debenture dated October 29, 1996 from the Company to
First Medical Corporation in the principal amount of
$300,000.
99.7 Letter dated October 29, 1996 from Salvatore J.
Zizza to First Medical Corporation ("FMC") granting
to FMC an option to purchase 6,000,000 shares of the
Common Stock of the Company.
99.8 Promissory Note dated October 29, 1996 from First
Medical Corporation to Salvatore J. Zizza in the
principal amount of $100,000.
99.9 Press release dated October 29, 1996 announcing that
the Company and First Medical Corporation executed a
definitive merger agreement.
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SUPREME COURT THE STATE OF NEW YORK
COUNTY OF NEW YORK
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SOUTHWICKE CORPORATION, :
:
Plaintiff, : COMPLAINT
:
- against - : Index No. 96 604932
:
THE LEHIGH GROUP, INC, SALVATORE :
J. ZIZZA, ROBERT A. BRUNO, RICHARD :
L. BREADY, CHARLES A. GARGANO, :
ANTHONY F. L. AMHURST AND :
SALVATORE M. SALIBELLO, :
:
Defendants :
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Southwicke Corporation ("Southwicke"), by its attorneys,
Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, respectfully alleges as
follows:
INTRODUCTION
1. This action involves the improper conduct of the defendants
relating to a proposed merger between The Lehigh Group, Inc. ("Lehigh"), a
corporation in which Southwicke has a significant stockholder position, and DHB
Capital Group, Inc. ("DHB"), a company whose chairman and principal stockholder
was fined and enjoined by the Securities and Exchange Commission ("SEC"), and
who is prohibited for a five year period from holding a position in a
broker-dealer or related entities.
2. Upon information and belief, two of Lehigh's executive
officers, Salvatore Zizza ("Zizza") and Robert A. Bruno ("Bruno"), who dominate
and control Lehigh's Board of Directors,
<PAGE>
have proposed and supported the DHB merger (as hereinafter defined), and have
sworn allegiance to greed, eschewing in the process their fiduciary obligations
to Lehigh's stockholders because their obvious, self-interest has blinded them
to the patently inadequate nature of DHB's merger proposal.
3. DHB's merger proposal, inadequate by any measure because it
dilutes Lehigh's stockholders from a 100% to 3% equity interest, in return for a
mere bridge loan, not a capital infusion, is even more ludicrous when compared
to the competing offer recently made by Mentmore Holding Corp. ("Mentmore").
4. Mentmore's proposal is in the best interest of Lehigh's
stockholders but not that of Zizza and Bruno. Accordingly, upon information and
belief, Zizza and Bruno, who are determined to champion the DHB Merger because
of the substantial employment contracts and benefits they will receive pursuant
thereto, have caused the Lehigh Board of Directors to engage in dilatory tactics
and to create obstacles at every turn, first to altogether avoid evaluation of
Mentmore's superior proposal, and then to reject it out of hand.
PARTIES
5. Southwicke is a Delaware corporation with its principal
place of business in New York, New York.
6. Upon information and belief, Lehigh is a Delaware
corporation with its principal place of business in New York, New York.
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7. Upon information and belief, Salvatore J. Zizza ("Zizza")
is the President and Chief Executive Officer of Lehigh, and is, and at all
relevant times has been, the Chairman of it Board of Directors.
8. Upon information and belief, Robert A. Bruno ("Bruno") is
the Vice-President, General Counsel and Secretary of Lehigh, and is, and at all
relevant times has been, a member of its Board of Directors.
9. Upon information and belief, Richard L. Bready ("Bready")
is, and at all relevant times has been, a member of Lehigh's Board of Directors.
10. Upon information and belief, Charles A. Gargano
("Gargano") is, and at all relevant times has been, a member of Lehigh's Board
of Directors.
11. Upon information and belief, Anthony F. L. Amhurst
("Amhurst") is, and at all relevant times has been, a member of Lehigh's Board
of Directors.
12. Upon information and belief, Salvatore M. Salibello
("Salibello") is, and at all relevant times has been, a member of Lehigh's Board
of Directors.
BACKGROUND
13. Lehigh is a New York Stock Exchange listed company.
14. Lehigh's shares of common stock are widely held and the
majority of its shares are publicly held.
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15. Southwicke holds a substantial number of Lehigh's
outstanding shares of common stock.
LEHIGH'S PLAN TO MERGE WITH DHB
16. On or about June 12, 1996, Lehigh announced that it had
entered into a letter of intent to merge with DHB.
17. According to a document filed with the SEC, DHB's
principal, David H. Brooks, Chairman and principal shareholder of DHB, entered
into a consent decree with the SEC in December 1992. Without admitting or
denying guilt, he was assessed a fine and agreed to be enjoined from future
violations of Sections 15(b) and 15(f) of the Securities and Exchange Act of
1934. He is barred from having any direct or indirect interest in, or acting as
a director, officer or employee of any broker, dealer, municipal securities
dealer, investment advisor, or investment company, although he may reapply to
become associated in the above manner after a five year period.
18. Upon information and belief, on or about July 8, 1996,
Lehigh and DHB entered into a definitive merger agreement (the "Merger
Agreement") pursuant to which DHB will merge into a newly formed wholly-owned
subsidiary of Lehigh (the "DHB Merger").
19. Pursuant to the DHB Merger, DHB will acquire 97% of
Lehigh's outstanding common stock and will dilute Lehigh's stockholders from a
100% to a 3% equity position, providing as consideration a $300,000 loan to
Lehigh.
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20. The Boards of Directors of Lehigh and DHB both voted in
favor of the DHB Merger.
21. The Merger Agreement provides that Lehigh may terminate
the Merger Agreement if any action is threatened or brought before a court or
other governmental body to enjoin the Merger or if the Merger would subject
Lehigh or DHB to liability for breach of any law or regulation.
22. Pursuant to the Merger Agreement, Lehigh's shares will be
reverse-split on a 21.845 to 1 basis and DHB shares will then be exchanged for
Lehigh shares on a one-to-one basis.
ZIZZA WRONGFULLY TRANSFERS TO DHB AN OPTION FOR 37% OF LEHIGH'S STOCK
23. According to Lehigh's press release dated July 9, 1996
(the "Press Release"), which was filed with the SEC on Form 8-K on July 16,
1996, concurrent with the execution of the Merger Agreement and as an integral
part thereof, by letter agreement Zizza "sold to DHB an option to purchase upon
to six million shares of Lehigh stock at a price of $0.50 per share, which is
the price at which Mr. Zizza can acquire those shares from The Lehigh Group
under pre-existing agreements" (the "Zizza Option").
24. Such Form 8-K also reported that Zizza also promised to
use his best efforts prior to the record date for the stockholder meeting to
vote on the Merger Agreement to obtain irrevocable proxies for Lehigh's shares
from Lehigh's officers and directors.
25. In return for granting the Zizza Option to DHB, Zizza
received a promissory note from DHB in the amount of
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$100,000, payable at the earlier of 1) November 15, 1996, 2) the date on which
DHB exercises the option or 3) the date upon which the letter agreement between
Zizza and DHB terminates.
26. The Zizza Option expires on the later of January 8, 1997,
or on the date the Merger Agreement is consummated or terminated.
27. If DHB exercises the Zizza Option, it will own
approximately 37% of the outstanding shares of Lehigh's common stock, after
giving effect to the exercise of such option.
28. DHB's Schedule 13-D dated July 17, 1996, states that DHB
purchased the option to ensure "a favorable vote of stockholders of [Lehigh]
with respect to the proposed merger between DHB and [Lehigh]."
29. The Press Release failed to state that the Zizza Option
was, upon information and belief, designed to discourage competitive proposals
from third parties.
30. According to the Press Release, in early October, 1996,
Lehigh will hold a stockholders' meeting to ratify the merger.
THE ATTEMPTED GRANTING OF THE ZIZZA OPTION IS VOID
31. According to documents filed with the SEC, any Lehigh
stock options Zizza owned which could be exercised at $0.50 per share (and which
he purported to transfer pursuant to the Zizza Option) are expressly
non-transferable.
32. According to documents filed with the SEC, any Lehigh
warrants that Zizza owned which entitled him to purchase
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Lehigh stock expired before Zizza granted the Zizza Option to DHB.
33. To the extent that Zizza purported to grant or transfer
options or warrants to DHB pursuant to the Zizza Option, such grant or transfer
is void.
SELF-DEALING BY ZIZZA AND BRUNO
34. As hereinafter alleged, Zizza and Bruno are on both sides
of the DHB Merger and are financially interested in the outcome.
ZIZZA'S NEW EMPLOYMENT AGREEMENT
35. Aside from receiving $100,000 from DHB in return for
selling $0.50 options to DHB, Zizza will receive other substantial benefits from
the DHB Merger.
36. If the DHB Merger is consummated, Zizza will be named
President and COO of the surviving entity, DHB Group, Inc.
37. In connection with the DHB Merger, Zizza is to obtain a
new employment agreement which will extend his term of employment from December
31, 1999 to four years after the consummation of the DHB Merger.
38. Zizza's new employment agreement provides for salaries of
$150,000, $175,000, $200,000 and then $225,000 for each of the four years of the
agreement.
39. Unlike the old employment agreement which provided only
for one performance-based bonus dependent upon reaching certain financial goals,
the new employment agreement contains a similar performance-based bonus as well
as a separate bonus equal
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to 8% of the excess of the base amount during the first year of employment, 6%
in excess of the base amount in the second year of employment and 4% in excess
of the base amount in the third and fourth years of employment, where the base
amount is defined as the difference between the company's "operating income
before other income less other income, net of interest income, as of the year
ended December 31, 1996."
40. The new employment agreement also provides that, in
exchange for relinquishing rights to certain options, Zizza will obtain a stock
option to buy up to 232,000 shares of common stock of Lehigh for $1.00 per
share, exercisable for four years from the date the options vest.
41. The options will contain an anti-dilution provision.
42. The new employment agreement also states that immediately
following the merger, Zizza will obtain 30,000 shares of common stock in the new
entity, in return for extinguishing a debt of $300,000 Lehigh owes Zizza. The
number of shares will be adjusted to prevent Zizza from being diluted.
BRUNO'S NEW EMPLOYMENT AGREEMENT
43. If the DHB Merger is consummated, in addition to being
named a director, Bruno also will be named Vice-President and General Counsel of
the surviving entity.
44. In connection with the DHB Merger, Bruno is to obtain a
new employment agreement which grants him a term of employment until four years
after the consummation of the merger.
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45. Under his prior employment agreement, Bruno's annual
salary for the duration of the agreement was $150,000, with $50,000 deferred
annually until such time as Lehigh's annual revenues exceed $25,000,000.
46. Upon information and belief, Lehigh's revenues have not
exceeded $25,000,000 during Bruno's employment with Lehigh at any time.
47. Pursuant to the new employment agreement, Bruno's salary
will be $100,000 the first year, $110,000 the second year, $120,000 the third
year and $130,000 the last year. No portion of the salary is stated to be
deferred.
48. Bruno's new employment agreement also provides that he may
receive a discretionary performance bonus each year.
49. Bruno's new employment agreement also provides that, in
exchange for relinquishing rights to certain options, Bruno will obtain a stock
option to buy up to 92,000 shares of common stock for $1.00 per share,
exercisable for four years from the date the options vest.
50. The options will contain an anti-dilution provision.
51. Pursuant to their new respective employment agreements,
Zizza and Bruno are both expected to be directors of the surviving entity
following the merger. The merged entity "shall use its best efforts to cause
[Zizza and Bruno] to be elected as [directors] at all times during the
[e]mployment [p]eriod."
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52. Zizza and Bruno are both therefore clearly financially
interested in the DHB Merger.
LEHIGH PASSES IMPROPER BYLAWS TO DISCOURAGE COMPETITIVE BIDDING
53. Prior to the announcement of the DHB Merger, Article I,
Section 6 of Lehigh's bylaws provided that, among others, stockholders who held
in excess of 15% of Lehigh's outstanding shares of common stock were permitted
to call a special stockholders' meeting for any purpose.
54. On July 17, 1996, almost immediately after the Merger
Agreement was executed, the Board of Directors amended Lehigh's bylaws.
55. Article I, section 6 was amended to provide that special
stockholders' meetings may be called only by certain officers or directors of
Lehigh or by resolution of the Board of Directors.
56. This bylaw, and others created on July 17, 1996, have the
effect of improperly preventing Lehigh's stockholders from calling special
meetings to consider alternative proposals to enhance stockholder values and
also improperly impedes action by written consent of stockholders in lieu of a
meeting who disapprove of the DHB Merger, with the intended result that the DHB
Merger will be approved by Lehigh's stockholders.
MENTMORE MAKES A COMPETING BID FOR LEHIGH
57. On August 28, 1996, Mentmore provided to Lehigh a written
proposal which offered to purchase a majority of the stock of Lehigh in return
for contributing substantial value to
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Lehigh's stockholders (the "Mentmore Proposal"), whereas DHB's offer seeks to
acquire 97% of Lehigh's stock in return for a $300,000 loan.
58. By correspondence, meetings and requests for meetings,
defendants were given every opportunity to obtain all necessary information to
adequately evaluate and consider the Mentmore Proposal.
59. Upon information and belief, defendants and each of them
failed and refused to adequately evaluate and consider the Mentmore Proposal,
instead rejecting it and advising that they would move forward with the DHB
Merger, all in derogation and violation of defendants' fiduciary
responsibilities and duties.
FIRST CAUSE OF ACTION
(BREACH OF FIDUCIARY DUTY)
60. Plaintiff repeats and realleges each and every allegation
contained in paragraphs 1-59 of the complaint as if fully stated herein.
61. Defendants Zizza and Bruno, as directors and officers, and
Bready, Gargano, Amhurst and Salibello, as directors (the "Individual
Defendants"), owe fiduciary duties of faith, loyalty and care to Lehigh and its
stockholders.
62. Once the Board of Directors decided to sell Lehigh, the
Board was required to obtain the best available price for Lehigh.
63. Upon information and belief, Lehigh's Board of Directors
did not review all reasonable alternatives to the DHB
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Merger before entering into the letter of intent and Merger Agreement with DHB.
64. Upon information and belief, the Individual Defendants
breached their fiduciary duties by, among other things:
a. failing to obtain the best price for Lehigh's
stockholders once the Board of Directors decided to sell Lehigh;
b. approving the DHB Merger when to do so is contrary
to business judgment, when DHB's proposal is not entirely fair to Lehigh's
stockholders, egregiously dilutes Lehigh's stockholders and fails to give
Lehigh's stockholders a premium for the change in control;
c. failing to consider alternative merger candidates
once the Board of Directors decided to sell Lehigh;
d. voting in favor of the DHB Merger without pursuing
other available options, when the effect of the merger with DHB is to dilute
dramatically and improperly Lehigh's stockholders;
e. as an integral part of the DHB Merger (i)
permitting Zizza to sell options to DHB which, by their terms, were
non-transferable and (ii) permitting Zizza to sell warrants to DHB which, by
their terms, expired prior to the date that Zizza purported to transfer them,
which together would improperly grant to DHB control of approximately 37% of
Lehigh's common stock;
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f. refusing adequately to consider the Mentmore
competing offer; and
g. enacting bylaws after entering into the Merger
Agreement with DHB which were wrongfully designed to discourage a competitive
bidding process for Lehigh and to preclude stockholders from calling a special
meeting concerning the Merger Agreement.
65. Southwicke is irreparably harmed by the Individual
Defendants' breaches of their fiduciary duty.
66. Southwicke has no adequate remedy at law.
SECOND CAUSE OF ACTION
(DECLARATORY JUDGMENT)
67. Plaintiff repeats and realleges each and every allegation
contained in paragraphs 1-66 of the complaint as if fully stated herein.
68. A justiciable and ripe controversy exists between
defendants and Southwicke, who as one of Lehigh's stockholders, is an intended
third party beneficiary of the restrictions placed on Zizza's ability to
transfer his options.
69. Upon information and belief, Zizza owned options to
purchase 4,250,000 shares of Lehigh common stock at $0.50 per share.
70. Upon information and belief, by their terms, these options
were expressly non-transferable.
71. Upon information and belief, on July 18, 1995, Zizza
purchased from Dominic Bassani certain warrants of Lehigh
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common stock, 1,750,000 of which were exercisable at $0.50 per share.
72. Upon information and belief, by their terms, these
warrants expired six months after Mr. Bassani ceased working with Lehigh.
73. Upon information and belief, Mr. Bassani ceased working
with Lehigh in or about July 1995, meaning that the warrants expired by no later
than in or about January 1996.
74. Upon information and belief, the warrants expired long
before Zizza purported to transfer the warrants to DHB pursuant to the DHB
Option.
75. Upon information and belief, Zizza's attempt to transfer
and grant his non-transferable options and expired warrants to DHB as part of
the DHB Option is void and of no force or effect.
THIRD CAUSE OF ACTION
(DECLARATORY JUDGMENT)
76. Plaintiff repeats and realleges each and every allegation
contained in paragraphs 1-75 of the complaint as if fully stated herein.
77. A justiciable and ripe controversy exists between
defendants and Southwicke, who as one of Lehigh's stockholders, is an intended
third party beneficiary of Lehigh's bylaws.
78. On July 17, the Board of Directors amended Lehigh's bylaws
as described in paragraphs 53-56 of the complaint.
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79. These bylaws have the effect of inhibiting a competitive
bidding process for the sale of Lehigh to the highest bidder.
80. These bylaws are invalid and unenforceable.
WHEREFORE, Southwicke demands judgment as follows:
a) with respect to the first cause of action, a preliminary
and permanent injunction affirmatively requiring defendants to terminate the
Merger Agreement prior to the stockholders' meeting which will be scheduled to
vote on such Merger Agreement;
b) with respect to the second cause of action, a judgment
pursuant to CPLR ss. 3001 declaring that Zizza's attempt to sell options and/or
warrants to DHB, and the DHB Option, are invalid and of no force or effect;
c) with respect to the third cause of action, a judgment
pursuant to CPLR ss. 3001 declaring that the bylaws passed in conjunction with
the Merger Agreement are invalid and of no force or effect;
d) with respect to the first cause of action, a judgment in an
amount as yet to be determined but no less than the sum of $500,000; and
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e) such other and further relief as to the Court seems just
and proper, together with the attorneys' fees, costs and disbursements incurred
in this action.
Dated: October 1, 1996
New York, New York
GREENBERG, TRAURIG, HOFFMAN, LIPOFF, ROSEN &
QUENTEL Attorneys for Plaintiff 153 East
53rd Street, 35th Floor New York, New York
10022 (212) 801-9200
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DHB CAPITAL GROUP, INC.
P.O. BOX 269, OLD WESTBURY, NEW YORK 11568
PHONE (516) 997-1155 * FAX (516) 997-1144
October 11, 1996
The Lehigh Group, Inc.
810 7th Avenue, 37th Floor
New York, New York
Attention: Salvatore Zizza, President
Dear Sal:
The Board of Directors of DHB Capital Group, Inc. has
authorized me to notify you of the termination of the Agreement and Plan of
Reorganization entered into between us as of July 8, 1996.
We are taking this action pursuant to paragraph 17(a)(2) of
the Agreement in light of the recent lawsuit filed against Lehigh by Southwicke
Corporation seeking to restrain or prohibit the transactions contemplated by the
Agreement and Plan of Reorganization.
Very truly yours,
DHB Capital Group, Inc.
By: /S/ David H. Brooks
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THE LEHIGH GROUP INC.
810 SEVENTH AVENUE-27TH FLOOR
NEW YORK, NEW YORK 10019
PHONE: 212-333-2620
FAX: 212-333-7240
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PRESS RELEASE
THE LEHIGH GROUP INC. & DHB CAPITAL GROUP INC. TERMINATE
PROPOSED MERGER.
NY, NY, OCTOBER 11, 1996
THE LEHIGH GROUP INC. (NYSE-LEI) ("LEHIGH") TODAY ANNOUNCED WITH DHB
CAPITAL GROUP, INC. (NASDAQ BULLETIN BOARD - DHBT AND BOSTON STOCK EXCHANGE -
DHB) ("DHB") THAT THEIR PROPOSED MERGER PURSUANT TO THE DEFINITIVE MERGER
AGREEMENT DATED JULY 8, 1996 HAS BEEN TERMINATED.
FOR FURTHER INFORMATION, PLEASE CONTACT:
MR. ROBERT A. BRUNO
(212) 333-2620
The Lehigh Group Inc.
810 Seventh Avenue - 27th Floor
New York, New York 10019
333-2620
October 24, 1996
Via Fax 516/626-9177
Mr. David H. Brooks, Chairman & CEO
DHB Capital Group, Inc.
11 Old Westbury Road
Old Westbury, NY 11568
Dear David:
I am writing to confirm the discussions which took place between you and me, and
between your counsel Peter Landau and me, with respect to the status of the
option for six million shares of Lehigh common stock which I granted to DHB
Capital Group, Inc. by letter dated July 8, 1996.
In connection with the termination of the merger agreement between Lehigh and
DHB, you also agreed to terminate the option. The option was granted by me in
order to enhance DHB's ability to complete the merger. Given you decision to
terminate the merger due to the Southwicke lawsuit, it is clear that the option
no longer serves any useful purpose.
I am sorry we were unable to complete the merger transaction. I am writing this
letter simply to memorialize our discussions with respect to the option, so as
to clarify the status of the option.
Please be advised that I am prepared to cancel the $100,000 promissory note
which DHB paid in consideration of the option; in addition, Lehigh is prepared
to repay at this time the $300,000 loan which DHB extended when the letter of
intent was executed. I look forward to hearing from you as to how you'd like to
proceed on these matter.
Sincerely,
/S/ SALVATORE J. ZIZZA
- ---------------------------
Salvatore J. Zizza
SJZ/mjt
cc: Peter Landau, Esq. via fax 972 2219
Ilan K. Reich, Esq. via fax 935-1787
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT made and entered into as of the 29th day of
October 1996, by and among The Lehigh Group Inc., a Delaware corporation
("Lehigh"), Lehigh Management Corp., a Delaware corporation and a wholly-owned
subsidiary of Lehigh ("Newco") and First Medical Corporation, a Delaware
corporation ("FMC"). Unless the context indicates otherwise, all references
herein to Lehigh or FMC refer to Lehigh and FMC and their respective wholly
owned subsidiaries.
W I T N E S S E T H T H A T:
R E C I T A L S:
A. Lehigh has recently organized Newco for the purpose of
merging with and into FMC on the terms and conditions set forth herein and with
the effect that, as a result thereof, the present stockholders of Lehigh will
after consummation of the Merger hold four percent (4%) of the issued and
outstanding common stock, $.001 par value of Lehigh (the "Lehigh Common Stock")
on a fully-diluted basis.
B. Simultaneously with the execution and delivery of this
Agreement, FMC is lending to Lehigh the sum of $300,000 and, in evidence
thereof, Lehigh is delivering to FMC a debenture in the form annexed hereto as
Exhibit A.
C. It is intended that the transactions contemplated by this
Agreement shall constitute a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements and the benefits to be realized by each of the parties, the parties
hereto agree as follows:
1. THE MERGER
(a) On the Closing Date, Newco shall be merged with
and into FMC (the "Merger") in accordance with the provisions of the General
Corporation Law of the State of Delaware (the "DGCL"). FMC shall be the
surviving corporation of the Merger, shall be a wholly-owned subsidiary of
Lehigh and shall continue to be governed by the laws of Delaware. Immediately
prior to the Effective Time (as hereinafter defined), a 1 for 23 reverse stock
split of the 10,339,250 shares of the Lehigh Common Stock currently outstanding
shall be effected, resulting in there being an aggregate of approximately
450,000 shares of the Lehigh Common Stock outstanding immediately prior to the
Effective Time. Upon the effectiveness of the Merger, and by virtue thereof
without any further action by Lehigh, FMC or any of their stockholders: (i) any
and all shares of the Lehigh Common Stock held by FMC immediately prior to the
Effective Time shall be cancelled; (ii) each other share of the Lehigh Common
Stock issued and outstanding immediately prior to the Effective Time shall
remain issued and outstanding; (iii) each share of common stock, $.01 par value,
of FMC (the "FMC Common Stock") shall cease to be outstanding and shall be
converted into 1,000 shares of Lehigh Common Stock.
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(b) Certificates representing shares of FMC Common Stock shall
be exchanged for certificates of Lehigh Common Stock as follows:
(i) After the Effective Time, certificates evidencing
outstanding shares of FMC Common Stock shall evidence the right of the holder
thereof to receive certificates representing 1,000 whole share(s) of Lehigh
Common Stock for each share of FMC Common Stock. Each holder of FMC Common
Stock, upon surrender of the certificates which prior thereto represented shares
of FMC Common stock, to a trust company to be designated by Lehigh which shall
act as the exchange agent (the "Exchange Agent") for such stockholders to effect
the exchange of certificates on their behalf, shall be entitled upon such
surrender to receive in exchange therefor a certificate or certificates
representing the number of whole shares of Lehigh Common Stock into which the
shares of FMC Common Stock theretofore represented by the certificate or
certificates so surrendered shall have been converted. Until so surrendered,
each such outstanding certificate for shares of FMC Common Stock shall be
deemed, for all corporate purposes including voting rights, subject to the
further provisions of this Section 1(b), to evidence the ownership of the whole
shares of Lehigh Common Stock into which such shares have been converted.
(ii) No certificate representing a fraction of Lehigh
Common Stock will be issued and no right to vote or receive any distribution or
any other right of a stockholder shall attach to any fractional interest of
Lehigh Common Stock to which any holder of shares of FMC Common Stock would
otherwise be entitled hereunder.
(iii) If any certificate for whole shares of Lehigh
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise be in proper form for transfer and that the person requesting such
exchange pay to the Exchange Agent any transfer or other taxes required by
reason of the issuance of certificates for shares of Lehigh Common stock in any
name other than that of the registered holder of the certificate surrendered.
(iv) At the Effective Time, all shares of FMC Common
Stock which shall then be held in its treasury, if any, shall cease to exist,
and all certificates representing such shares shall be cancelled.
(c) Lehigh and FMC shall each submit this Agreement to its
stockholders for approval in accordance with the DGCL, at an annual or special
meeting of the stockholders (the "Meeting") called and held on a date to be
fixed by their respective Boards of Directors and shall use their best efforts
to hold such meeting on or before January 15, 1997 or as soon thereafter as
practical.
(d) Lehigh and FMC shall each use their best efforts to obtain
the affirmative vote of stockholders required to approve this Agreement and the
transactions contemplated hereby, and will recommend to their respective
stockholders the approval of the Merger, subject however, in the case of each
company's Board of Directors, to its fiduciary obligation to stockholders.
Lehigh and FMC shall each mail to all their stockholders entitled to vote at and
receive notice of such meeting the material required in accordance with the
Registration Statement and Prospectus provisions specified in paragraph 9
hereof.
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(e) On or before the date of the Meeting, the Board of
Directors of Newco shall duly approve this Agreement and Lehigh, as sole
stockholder of Newco, shall duly approve this Agreement and the transactions
contemplated hereby.
(f) Following the approval of the Merger by the stockholders
of Lehigh, Newco and FMC, a Certificate of Merger containing the information
required by applicable law shall be executed by the appropriate officers of FMC
and Newco.
(g) Notwithstanding any other provision of this Agreement to
the contrary, if Lehigh receives a proposal for a business combination with any
other party which is more favorable to Lehigh or its stockholders than the terms
set forth in this Agreement (an "Alternate Proposal") at any time prior to
consummation of the Merger, Lehigh shall be entitled to pursue and/or consummate
such transaction free of any obligation to FMC under or pursuant to this
Agreement except for those obligations set forth in Section 17 hereof.
2. CLOSING; EFFECTIVE TIME
(a) The closing of all the transactions contemplated hereby
(herein called the "Closing" or the "Closing Date") shall occur at a date and
place mutually agreed between the parties and on a date within fifteen (15)
business days after all of the of the conditions described in paragraphs 14 and
15 hereof have been satisfied or, to the extent permitted by paragraph 16(c)
hereof, their satisfaction has been waived. Lehigh, Newco and FMC will use their
best efforts to obtain the approvals specified in paragraph 8 hereof and any
other of the consents, waivers, or approvals necessary or desirable to
accomplish the transactions contemplated by this Agreement. All documents
required to be delivered by each of the parties hereto shall be duly delivered
to the respective recipient thereof at or prior to the Closing. Without the
consent of FMC and Lehigh to extend such date, the Closing Date shall be no
later than February 1, 1997, and if it is delayed beyond said date, or extended
date, then either party shall have the right to terminate this Agreement upon
notice to that effect.
(b) At the Closing, Lehigh, Newco and FMC shall jointly direct
that the Certificate of Merger be duly filed, and in accordance with such
direction it shall be filed, in the Offices of the Secretary of State of
Delaware so that the Merger shall be effective on the Closing Date. The time at
which the Merger becomes effective is referred to herein as the "Effective
Time."
3. LISTING
At a time mutually agreed to by Lehigh and FMC, but in no
event later than the date following the approval of stockholders of both Lehigh
and FMC, Lehigh agrees, at its expense, to apply for and use its best efforts to
obtain additional listings on the New York Stock Exchange, subject to notice of
issuance, of the shares of Lehigh Common Stock to be delivered to FMC
stockholders pursuant to the terms of this Agreement. FMC agrees to render
assistance to Lehigh in obtaining such listing, including the furnishing of such
financial statements as Lehigh may reasonably request.
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4. INVESTIGATION BY THE PARTIES
Lehigh and FMC acknowledge that they have made or caused to be
made such investigation of the properties of the other and its subsidiaries and
of its financial and legal condition as the party making such investigation
deems necessary or advisable to familiarize itself with such properties and
other matters. Lehigh and FMC each agree that if matters come to the attention
of either party requiring additional due diligence, each agrees to permit the
other and its authorized agents or representatives to have, after the date of
execution hereof, full access to its premises and to all of its books and
records at reasonable hours, and its subsidiaries and officers will furnish the
party making such investigation with such financial and operating data and other
information with respect to the business and properties of it and its
subsidiaries as the party making such investigation shall from time to time
reasonably request. No investigation by Lehigh or FMC shall affect the
representations and warranties of the other and each such representation and
warranty shall survive any such investigation. Each party further agrees that in
the event the transactions contemplated by this Agreement shall not be
consummated, it and its officers, employees, accountants, attorneys, engineers,
authorized agents and other representatives will not disclose or make available
to any other person or use for any purpose unrelated to the consummation of this
Agreement any information, whether written or oral, with respect to the other
party and its subsidiaries or their business which it obtained pursuant to this
Agreement. Such information shall remain the property of the party providing it
and shall not be reproduced or copied without the consent of such party. In the
event that the transactions contemplated by this Agreement shall not be
consummated, all such written information shall be returned to the party
providing it.
5. "AFFILIATES" OF FMC
Each stockholder of FMC who is, in the opinion of counsel to
Lehigh, deemed to be an "affiliate" of FMC as such term is defined in the rules
and regulations of the Securities and Exchange Commission under the Securities
Act of 1933, as amended (hereinafter called the "1933 Act"), is listed on a
Schedule to be delivered to Lehigh within 20 days hereof, and will be informed
by FMC that: (i) absent an applicable exemption under the 1933 Act, the shares
of Lehigh Common Stock to be received by such "affiliate" and owned beneficially
on consummation of the transactions contemplated hereunder may be offered and
sold by him only pursuant to an effective registration statement under the 1933
Act or pursuant to the provisions of paragraph (d) of Rule 145 promulgated under
the 1933 Act; (ii) Rule 145 restricts the amount and method of subsequent
dispositions by such "affiliate" of such shares and (iii) a continuity of
interests by the "affiliate" must be maintained. Prior to the Closing Date, FMC
agrees to obtain from each "affiliate" an agreement to the effect that such
affiliate will not publicly sell any of such shares unless a registration
statement under the 1933 Act with respect thereto is then in effect, or such
disposition complies with paragraph (d) of Rule 145 promulgated under the 1933
Act, or counsel satisfactory to Lehigh has delivered a written opinion to Lehigh
and to such "affiliate" that registration under the 1933 Act is not required in
connection with such disposition.
6. STATE SECURITIES LAWS
Lehigh will take such steps as may be necessary to comply with
any state securities or so-called Blue Sky laws applicable to the actions to be
taken in connection with the Merger and the delivery by Lehigh to FMC
stockholders of the shares of Lehigh Common Stock to be delivered
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pursuant to this Agreement. Costs and expenses of any such Blue-Sky
qualifications shall be borne by Lehigh.
7. CONDUCT OF BUSINESS PENDING THE CLOSING
From the date hereof, to and including the Closing Date,
except as may be first approved by the other Party or as is otherwise permitted
or contemplated by this Agreement:
(i) Lehigh and FMC shall each conduct their business only in
the usual and ordinary course;
(ii) neither Lehigh or FMC shall make any change in its
authorized or outstanding capitalization;
(iii) Except as set forth on their respective Disclosure
Schedules annexed to this Agreement neither Lehigh or FMC shall authorize for
issuance or issue or enter any agreement or commitment for the issuance of
shares of capital stock;
(iv) neither Lehigh or FMC shall create or grant any rights or
elections to purchase stock under any employee stock bonus, thrift or purchase
plan or otherwise;
(v) neither Lehigh or FMC shall amend their Certificates of
Incorporation or Bylaws unless deemed to be reasonably necessary to consummate
the transaction contemplated herein and upon prior notice thereof to each other;
(vi) Neither Lehigh or FMC shall make any modification in
their employee benefit programs or in their present policies in regard to the
payment of salaries or compensation to their personnel and no increase shall be
made in the compensation of their personnel, except in the ordinary course of
business;
(vii) Neither Lehigh or FMC shall make any contract,
commitment, sale or purchase of assets or incur debt, except in the ordinary
course of business;
(viii) Lehigh and FMC will use all reasonable and proper
efforts to preserve their respective business organizations intact, to keep
available the services of their present employees and to maintain satisfactory
relationships with suppliers, customers, regulatory agencies, and others having
business relations with it;
(ix) Neither Lehigh or FMC shall create or implement a profit
sharing plan; and,
(x) The Board of Directors of Lehigh and FMC will not declare
any dividends on, or otherwise make any distribution in respect of, their
outstanding shares of capital stock.
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8. EFFORTS TO OBTAIN APPROVALS AND CONSENTS
FMC and Lehigh will use all reasonable and proper efforts to
obtain, where required, the approval and consent (i) of any governmental
authorities having jurisdiction over the transactions contemplated in this
Agreement, and (ii) of such other persons whose consent to the transactions
contemplated by this Agreement is required.
9. PROXY STATEMENT AND REGISTRATION STATEMENT
(a) FMC and Lehigh agree that they shall cooperate in the
preparation of and the filing with the Securities and Exchange Commission by
Lehigh of a proxy statement/prospectus (the "Proxy Statement") in accordance
with the Securities Exchange Act of 1934 (the "1934 Act") and the applicable
rules and regulations thereunder, to be included in the registration statement
of Lehigh referred to below and (ii) the filing with the Securities and Exchange
Commission, by Lehigh, of a registration statement on Form S-4 or such other
Form as may be appropriate (the "Registration Statement"), including the Lehigh
Proxy Statement, in accordance with the Securities Act of 1933 (the "1933 Act")
and the applicable rules and regulations thereunder covering the shares of
Lehigh Common Stock to be issued pursuant to this Agreement. Lehigh and FMC
thereafter shall use all reasonable efforts to cause the Registration Statement
to become effective under the 1933 Act at the earliest practicable date, and
shall take such actions as may reasonably be required under applicable state
securities laws to permit the transactions contemplated by this Agreement.
Lehigh shall advise FMC promptly when the Registration Statement has become
effective, and FMC and Lehigh shall thereupon each send a Proxy Statement to
their respective stockholders for purposes of the Meeting contemplated by this
Agreement. The Proxy Statements shall be mailed not less than 20 days prior to
such meetings to all stockholders of record at their address of record on the
transfer records of FMC and Lehigh. Each party shall bear their respective out
of pocket expenses, and expenses related to preparing their respective Proxy
Statement, soliciting proxies, and preparing documents, financial statements,
schedules, exhibits, and like materials for inclusion in the Registration
Statement. Lehigh shall be responsible for the expenses of filing the
Registration Statement.
(b) Subject to the conditions set forth below, the parties
agree to indemnify and hold harmless each other, their respective officers,
directors, partners, employees, agents and counsel against any and all loss,
liability, claim, damage, and expense whatsoever (which shall include, for all
purposes of this Section 9, but not be limited to, attorneys' fees and any and
all expense whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or threatened, or any claim whatsoever and any
and all amounts paid in settlement of any claim or litigation) as and when
incurred arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact made by the party
against whom indemnification is sought and contained (1) in any Prospectus/Proxy
Statement, the Registration Statement, or Proxy Statement (as from time to time
amended and supplemented) or any amendment or supplement thereto; or (2) in any
application or other document or communication (in this Section 9 collectively
called an "application") executed by or on behalf of either party or based upon
written information filed in any jurisdiction in order to qualify the shares of
Lehigh Common Stock to be issued in connection with the Merger under the "Blue
Sky" or securities laws thereof or filed with the Securities and Exchange
Commission or any securities exchange; or any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
indemnifying party from the party seeking indemnification expressly for
inclusion in any
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Prospectus/Proxy Statement, the Registration Statement, or Proxy Statement, or
any amendment or supplement thereto, or in any application, as the case may be,
or (ii) any breach of representation, warranty, covenant, or agreement contained
in this Agreement. The foregoing agreement to indemnify shall be in addition to
any liability each party may otherwise have, including liabilities arising under
this Agreement. If any action is brought against either party or any of its
officers, directors, partners, employees, agents, or counsel ( an "indemnified
party") in respect of which indemnity may be sought pursuant to the foregoing
paragraph, such indemnified party or parties shall promptly notify the other
party (the "indemnifying party") in writing of the institution of such action
(but the failure to so notify shall not relieve the indemnifying party from any
liability it may have other than pursuant to this Paragraph 9(b)) and the
indemnifying party shall promptly assume the defense of such action, including
the employment of counsel and payment of expenses (satisfactory to such
indemnified party or parties). Such indemnified party or parties shall have the
right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the indemnifying party in connection with the defense of such action
or the indemnifying party shall not have promptly employed counsel satisfactory
to such indemnified party or parties to have charge of the defense of such
action or such indemnified party or parties shall have reasonably concluded that
there may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the other party in any of which events such fees and expenses shall be borne by
the indemnifying party and the indemnifying party shall not have the right to
direct the defense of such action on behalf of the indemnified party or parties.
Anything in this paragraph to the contrary notwithstanding, the indemnifying
party shall not be liable for any settlement of any such claim or action
effected without its written consent.
10. COOPERATION BETWEEN PARTIES
FMC and Lehigh shall fully cooperate with each other and with
their respective counsel and accountants in connection with any steps required
to be taken as part of their obligations under this Agreement, including the
preparation of financial statements and the supplying of information in
connection with the preparation of the Registration Statement and the Proxy
Statement.
11. REPRESENTATIONS OF LEHIGH
Lehigh represents, warrants and agrees that:
(a) Lehigh is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and it subsidiaries
are duly organized, validly existing and in good standing under the laws of the
jurisdiction pursuant to which they were incorporated. Lehigh and its
subsidiaries have the corporate power and any necessary governmental authority
to own or lease their properties now owned or leased and to carry on their
business as now being conducted. Lehigh and its subsidiaries are duly qualified
to do business and in good standing in every jurisdiction in which the nature of
their business or the character of their properties makes such qualification
necessary.
(b) As of the date hereof, the authorized capital stock of
Lehigh consists of 100,000,000 shares of Lehigh Common Stock, of which
10,339,250 shares are issued and outstanding, and 5,000,000 shares of preferred
stock, $.001 par value, none of which is issued and outstanding. As of the date
hereof, there are options and warrants outstanding to purchase
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18,697,187 shares of Lehigh Common Stock. The outstanding capital stock of
Lehigh and its subsidiaries has been duly authorized and issued and is fully
paid and nonassessable. Except for the foregoing, Lehigh and its subsidiaries
have no commitment to issue, nor will they issue, any shares of their capital
stock or any securities or obligations convertible into or exchangeable for, or
give any person any right to acquire from Lehigh or its subsidiaries, any shares
of Lehigh's or it subsidiaries' capital stock. Lehigh owns all of the issued and
outstanding capital stock of Newco.
(c) The shares of Lehigh Common Stock which are to be issued
and delivered to the FMC stockholders pursuant to the terms of this Agreement,
when so issued and delivered, will be validly authorized and issued and will be
fully paid and nonassessable. Lehigh shall have applied for and shall use its
best efforts to obtain approval for listing all such shares subject to notice of
issuance on the New York Stock Exchange prior to the Effective Time, and no
stockholder of Lehigh or other person will have any preemptive rights in respect
thereto.
(d) Lehigh has furnished FMC with copies of its Annual Report
on Form 10-K filed with the Securities and Exchange Commission for the year
ended December 31, 1995 which contains consolidated balance sheets of Lehigh and
subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, stockholders equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1995 audited by BDO Seidman,
LLP. Lehigh has also furnished FMC with unaudited financial statements as of
June 30, 1996 as set forth in its Form 10-Q as filed with the Securities and
Exchange Commission. All of the above financial statements present fairly the
consolidated financial position of Lehigh and its subsidiaries at the periods
indicated, and the consolidated results of operations and cash flows for the
periods then ended. The interim financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis, and in the opinion of Lehigh include all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of such interim
period. Since June 30, 1996 there has been no material adverse change in the
assets or liabilities or in the business or condition, financial or otherwise,
of Lehigh or its consolidated subsidiaries, and no change except in the ordinary
course of business or as contemplated by this Agreement.
(e) Except as disclosed in the public filings of Lehigh and
except for the lawsuit filed by Southwicke Corporation a copy of the complaint
in which is annexed hereto, neither Lehigh nor any of its subsidiaries is (i)
engaged in or a party to, or to the knowledge of Lehigh, threatened with any
material legal action or other proceeding before any court or administrative
agency or (ii) to the knowledge of Lehigh, has been charged with, or is under
investigation with respect to, any charge concerning any presently pending
material violation of any provision of Federal, state, or other applicable law
or administrative regulations in respect to its business.
(f) Lehigh and Newco have the corporate power to enter into
this Agreement and, subject to requisite stockholder approval, the execution and
delivery and performance of this Agreement have been duly authorized by all
requisite corporate action and this Agreement constitutes the valid and binding
obligations of Lehigh and Newco.
(g) The execution and carrying out of this Agreement and
compliance with the terms and provisions hereof by Lehigh and Newco will not
conflict with or result in any breach of any of the terms, conditions, or
provisions of, or constitute a default under, or result in the creation of, any
lien, charge, or encumbrance upon any of the properties or assets of Lehigh,
Newco or any of its other subsidiaries pursuant to any corporate charter,
indenture, mortgage, agreement (other than
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that which is created by virtue of this Agreement) or other instrument to which
Lehigh or any of its subsidiaries is a party or by which it or any of its
subsidiaries if bound or affected.
(h) This Agreement and the documents and financial statements
furnished hereunder on behalf of Lehigh do not contain and will not contain any
untrue statement of a material fact nor omit to state a material fact necessary
to be stated in order to make the statements contained herein and therein not
misleading; and there is no fact known to Lehigh which materially adversely
affects or in the future will materially adversely affect the business
operations, affairs or condition of Lehigh or any of its subsidiaries or any of
its or their properties or assets which has not been set forth in this Agreement
or any documents or materials furnished hereunder.
(i) There are no agreements or contracts between Lehigh and
its subsidiaries with any other third party that require approvals or consents
that could delay or prevent the Merger of Lehigh and Newco and the other
transactions contemplated thereby.
(j) Neither Lehigh nor any of its subsidiaries uses or handles
potentially hazardous materials and have not received notification of, and are
not aware of, any past or present event, condition or activity of or relating to
the business, properties or assets of Lehigh which violates any Environmental or
Occupational Safety Law.
12. REPRESENTATIONS OF FMC
FMC represents, warrants and agrees that:
(a) FMC is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and its subsidiaries
are duly organized, validly existing and in good standing under the laws of the
jurisdiction pursuant to which they were incorporated. FMC and its subsidiaries
have the corporate power and any necessary governmental authority to own or
lease their properties now owned or leased and to carry on their business as now
being conducted. FMC and its subsidiaries are duly qualified to do business and
in good standing in every jurisdiction in which the nature of their business or
the character of their properties makes such qualification necessary.
(b) The authorized capital stock of FMC consists of 15,000
shares of FMC Common Stock, of which 10,000 shares are issued and outstanding.
The outstanding capital stock, of FMC and its subsidiaries has been duly
authorized and issued and is fully paid and nonassessable. FMC and its
subsidiaries have no commitment to issue, nor will they issue, any shares of
their capital stock or any securities or obligations convertible into or
exchangeable for, or give any person any right to acquire from FMC or its
subsidiaries any shares of FMC or it subsidiaries capital stock, except for
those rights identified in the Disclosure Schedule of FMC annexed hereto (the
"FMC Disclosure Schedule").
(c) FMC has furnished Lehigh with copies of the unaudited
consolidated balance sheet of FMC and subsidiaries as of June 30, 1996 and the
related consolidated statements of operations, shareholder equity (deficit) and
cash flows for the six months ended June 30, 1996, and the consolidated balance
sheets of MedExec, Inc., a principal operating subsidiary of FMC, and its
subsidiaries as of December 31, 1995 and 1994 and the related consolidated
statements of operations, stockholder equity (deficit) and cash flows for each
of the two years in the period ended December
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31, 1995 audited by KPMG Peat Marwick. All of the above financial statements
present fairly the consolidated financial position of FMC and its subsidiaries
at the periods indicated, and the consolidated results of operations and cash
flows for the periods then ended. The interim financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis, and in the opinion of FMC include all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
such interim period. Since September 30, 1996 there has been no material adverse
change in the assets or liabilities or in the business or condition, financial
or otherwise, of FMC or its consolidated subsidiaries, and no change except in
the ordinary course of business or as contemplated by this Agreement.
(d) Neither FMC nor any of its subsidiaries is engaged in or a
party to, or to the knowledge of FMC, threatened with any material legal action
or other proceeding before any court or administrative agency except as set
forth in the FMC Disclosure Schedule to be furnished to Lehigh. Neither FMC nor
any of its subsidiaries, to the knowledge of FMC, has been charged with, or is
under investigation with respect to, any charge concerning any presently pending
material violation of any provision of Federal, state, or other applicable law
or administrative regulations in respect to its business except as set forth on
said FMC Disclosure Schedule.
(e) The information to be furnished by FMC for use in the
material mailed to stockholders of FMC in connection with the Meetings will in
all material respects comply with the applicable requirement of the 1933 Act and
the 1934 Act, and the rules and regulations promulgated thereunder.
(f) FMC has the corporate power to enter into this Agreement,
the execution and delivery and performance of this Agreement have been duly
authorized by all requisite corporate action, and this Agreement constitutes the
valid and binding obligations of FMC.
(g) The execution and carrying out of this Agreement and
compliance with the terms and provisions hereof by FMC will not conflict with or
result in any breach of any of the terms, conditions, or provisions of, or
constitute a default under, or result in the creation of, any lien, charge, or
encumbrance upon any of the properties or assets of FMC or any of its other
subsidiaries pursuant to any corporate charter, indenture, mortgage, agreement
(other than that which is created by virtue of this Agreement) or other
instrument to which FMC or any of its subsidiaries is a party or by which it or
any of its subsidiaries if bound or affected.
(h) This Agreement, the FMC Disclosure Schedule and all
documents and financial statements furnished hereunder on behalf of FMC do not
contain and will not contain any untrue statement of a material fact nor omit to
state a material fact necessary to be stated in order to make the statements
contained herein and therein not misleading; and there is no fact known to FMC
which materially adversely affects or in the future will materially adversely
affect the business operations, affairs or condition of FMC or any of its
subsidiaries or any of its or their properties or assets which has not been set
forth in this Agreement the FMC Disclosure Schedule or other documents and
material furnished hereunder.
(i) There are no agreements or contracts between FMC and its
subsidiaries with any other third party that require approvals or consents that
could delay or prevent the Merger of FMC and Newco and the other transactions
contemplated thereby.
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(j) Neither FMC nor any of its subsidiaries uses or handles
potentially hazardous materials other than those customarily handled by medical
clinics of the type managed by FMC, and have not received notification of, and
are not aware of, any past or present event, condition or activity of or
relating to the business, properties or assets of FMC which violates any
Environmental or Occupational Safety Law.
13. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES
The representations and warranties made herein by FMC and
Lehigh shall not survive, and shall expire with and be terminated upon, the
Closing of the Merger.
14. CONDITIONS TO THE OBLIGATIONS OF LEHIGH
The obligations of Lehigh hereunder are subject to the
satisfaction on or before the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby
shall have been approved by the requisite vote of stockholders of Lehigh and
FMC.
(b) Each "affiliate" of FMC will have properly executed and
delivered the Affiliate's Agreement described in paragraph 5 hereof.
(c) FMC shall have furnished Lehigh with (i) certified copies
of resolutions duly adopted by the holders of a majority or more of the issued
and outstanding shares of FMC common stock entitled to vote, evidencing approval
of this Agreement and the transactions contemplated hereby; (ii) certified
copies of resolutions duly adopted by the Board of Directors of FMC approving
the execution and delivery of this Agreement and authorizing all necessary or
proper corporate action, to enable FMC to comply with the terms hereof and
thereof; (iii) an opinion dated the closing date of counsel for FMC in form and
substance satisfactory to Lehigh and its counsel to the effect that:
(1) FMC and each of its subsidiaries are corporations duly
organized and validly existing and in good standing under the laws of
its respective jurisdiction of incorporation, and to the best of the
knowledge of such counsel based on inquiries of responsible officers of
FMC, is duly qualified to do business and is in good standing in every
jurisdiction in which the nature of their business or the character of
their properties makes such qualification necessary, except where the
failure to be so qualified will not have a material adverse effect on
FMC's business or consolidated financial condition, and has all
corporate and other power and authority, including all governmental
licenses and authorizations, necessary to own its properties and to
carry on its business as described in the Proxy Statement;
(2) this Agreement has been duly authorized and executed by
proper corporate action of FMC and constitutes the valid and legally
binding obligation of FMC in accordance with its terms.
(3) no provision of the Certificate of Incorporation or the
By-laws of FMC or of any contract (except those pursuant to which
waivers or consents have been obtained) known to such counsel to which
FMC is a party, or any law, rule or regulation prevents it from
carrying out the transactions contemplated hereby.
11
<PAGE>
(4) there is no material action or proceeding known to such
counsel, pending or threatened against FMC before a court or other
governmental body or instituted or threatened by any public authority
or by the holders of any securities of FMC, other than as specifically
set forth in the FMC Disclosure Schedule.
(5) FMC has adequate title, subject only to liens and other
matters set forth on the financial statements furnished to Lehigh
pursuant to paragraph 12(c) hereof, to all its real estate properties,
except for any lien of taxes not yet delinquent or being contested in
good faith by appropriate proceedings and easements and restrictions of
record which do not materially adversely affect the use of the property
by FMC, and except for minor defects in titles, none of which, based
upon information furnished by officers of FMC, does or will materially
adversely affect FMC's use of such properties or its operations, and to
which the rights of FMC therein have not been questioned. In giving
such opinion, counsel may rely upon title policies previously issued to
FMC or updated certificates furnished by title insurance companies.
(6) to the best knowledge of such counsel and based upon
inquiries of responsible officers of FMC and upon searches of Uniform
Commercial Code filings in the offices of the appropriate Secretary of
State, there are no liens against properties of FMC (excluding real
estate) except as disclosed by FMC to Lehigh in the FMC Disclosure
Schedule.
In rendering its opinion, FMC counsel may rely as to factual matters on
statements of officers of FMC. In rendering this opinion with respect to the
laws of any jurisdiction other than Delaware, FMC counsel may rely on the
opinion of other counsel retained by FMC provided that said opinion shall state
that Lehigh is justified in relying on the opinion or opinions of such other
counsel.
(d) The representations and warranties of FMC contained in
this Agreement shall be true in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date, except for changes permitted by this Agreement or
those incurred in the ordinary course of business and FMC shall have received
from FMC at the Closing a certificate dated the Closing Date of the Chairman,
President or a Vice President of FMC to that effect.
(e) Each and all of the respective agreements of FMC to be
performed on or before the Closing Date pursuant to the terms hereof shall in
all material respects have been duly performed and FMC shall have delivered to
FMC a certificate dated the Closing Date, of the Chairman, President or a Vice
President of FMC to that effect.
(f) The completion of Lehigh's Proxy Statement and the
effectiveness of Lehigh's Registration Statement on Form S-4, as each may be
amended.
(g) The approval of this Agreement by the FMC Board of
Directors.
(h) The absence of any material contingent liabilities of FMC
not previously disclosed to Lehigh.
(i) The nonexistence of any agreement or contract that could
delay or prevent the completion of the transactions contemplated by this
Agreement.
12
<PAGE>
15. CONDITIONS TO THE OBLIGATIONS OF FMC
The obligations of FMC hereunder are subject to the
satisfaction on or before the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby
shall have been approved by the requisite vote of stockholders of Lehigh and
FMC.
(b) Lehigh shall have furnished FMC with (i) certified copies
of resolutions duly adopted by a majority of the holders of the issued and
outstanding shares of Lehigh common stock validly present at a meeting,
evidencing approval of this Agreement and the transactions contemplated hereby;
(ii) certified copies of resolutions duly adopted by the Board of Directors of
Lehigh approving the execution and delivery of this Agreement and authorizing
all necessary or proper corporate action, to enable Lehigh to comply with the
terms hereof and thereof; (iii) an opinion dated the closing date of counsel for
Lehigh in form and substance satisfactory to FMC and its counsel to the effect
that:
(1) Lehigh and each of its subsidiaries are corporations duly
organized and validly existing and in good standing under the laws of
its respective jurisdiction of incorporation, and to the best of the
knowledge of such counsel based on inquiries of responsible officers of
Lehigh, is duly qualified to do business and is in good standing in
every jurisdiction in which the nature of their business or the
character of their properties makes such qualification necessary,
except where the failure to be so qualified will not have a material
adverse effect on Lehigh's business or consolidated financial
condition, and has all corporate and other power and authority,
including all governmental licenses and authorizations, necessary to
own its properties and to carry on the business as described in the
Proxy Statement of Lehigh made a part of the Proxy Statement.
(2) this Agreement has been duly authorized and executed by
proper corporate action of Lehigh and constitutes the valid and legally
binding obligation of Lehigh in accordance with its terms.
(3) no provision of the Certificate of Incorporation or the
By-laws of Lehigh or of any contract (except those pursuant to which
waivers or consents have been obtained) known to such counsel to which
Lehigh is a party, or any law, rule or regulation prevents it from
carrying out the transactions contemplated hereby.
(4) there is no material action or proceeding known to such
counsel, pending or threatened against Lehigh before a court or other
governmental body or instituted or threatened by any public authority
or by the holders of any securities of Lehigh, other than as
specifically set forth in the Disclosure Schedule.
(5) Lehigh has adequate title, subject only to liens and other
matters set forth on the financial statements furnished to FMC pursuant
to paragraph 11(d) hereof, to all its real estate properties, except
for any lien of taxes not yet delinquent or being contested in good
faith by appropriate proceedings and easements and restrictions of
record which do not materially adversely affect the use of the property
by Lehigh, and except for minor defects in titles, none of which, based
upon information furnished by officers of Lehigh, does or will
materially adversely affect Lehigh's use of such properties or its
operations, and to which the
13
<PAGE>
rights of Lehigh therein have not been questioned. In giving such
opinion, counsel may rely upon title policies previously issued to
Lehigh or updated certificates furnished by title insurance companies.
(6) to the best knowledge of such counsel and based upon
inquiries of responsible officers of Lehigh and upon searches of
Uniform Commercial Code filings in the offices of the appropriate
Secretary of State, there are no liens against properties of Lehigh
(excluding real estate) except as to be disclosed by Lehigh to Lehigh
in the Disclosure Schedule.
In rendering its opinion, Lehigh counsel may rely as to factual matters on
statements of officers of Lehigh. In rendering this opinion with resect to the
laws of any jurisdiction other than Delaware, Lehigh counsel may rely on the
opinion of other counsel retained by Lehigh provided that said opinion shall
state that Lehigh is justified in relying on the opinion or opinions of such
other counsel.
(c) The representations and warranties of Lehigh contained in
this Agreement shall be true in all material respects on and as of the Closing
Date with the same effect as though such representations and warranties had been
made on and as of such date, except for changes permitted by this Agreement or
those incurred in the ordinary course of business and FMC shall have received
from Lehigh at the Closing a certificate dated the Closing Date of the President
or a Vice President of Lehigh to that effect.
(d) Each and all of the respective agreements of Lehigh to be
performed on or before the Closing Date pursuant to the terms hereof shall in
all material respects have been duly performed and Lehigh shall have delivered
to FMC a certificate dated the Closing Date, of the Chairman, President or a
Vice President of Lehigh to that effect.
(e) The completion of Lehigh's proxy Statement and the
effectiveness of Lehigh's Registration Statement on Form S-4, as each may be
amended.
(f) The approval of this Agreement by the Lehigh Board of
Directors.
(g) The absence of any material contingent liabilities of
Lehigh not previously disclosed to FMC.
(h) The nonexistence of any agreement or contract that could
delay or prevent the completion of the transactions contemplated by this
Agreement.
16. TERMINATION AND MODIFICATION OF RIGHTS
(a) This Agreement (except for the last three sentences of
paragraph 4 of this Agreement and paragraph 17 of this Agreement) may be
terminated at any time prior to the Closing Date by (i) mutual consent of the
parties hereto authorized by their respective Boards of Directors or (ii) upon
written notice to the other party, by either party upon authorization of its
Board of Directors:
(1) if in its reasonably exercised judgment since the date of
this Agreement there shall have occurred a material adverse change in
the financial condition or business of the other party or the other
party shall have suffered a material loss or damage to any of its
14
<PAGE>
property or assets, which change, loss or damage materially affects or
impairs the ability of the other party to conduct its business, or if
any previously undisclosed condition which materially adversely affects
the earning power or assets of either party come to the attention of
the other party; or
(2) if any action or proceeding shall have been instituted or
threatened before a court or other governmental body or by any public
authority to restrain or prohibit the transactions contemplated by this
Agreement or if the consummation of such transactions would subject
either of such parties to liability for breach of any law or
regulation.
(b) As provided in paragraph 2(a), this Agreement may be
terminated by either party upon notice to the other in the event the Closing
shall not be held by February 1, 1997.
(c) Any term or condition of this Agreement may be waived at
any time by the party hereto which is entitled to the benefit thereof, by action
taken by the Board of Directors of such party; and any such term or condition
may be amended at any time, by an agreement in writing executed by the Chairman
of the Board, the President or any Vice President of each of the parties
pursuant to authorization by their respective Boards of Directors provided
however that no amendment of any principal term of the Merger shall be affected
after approval of this Agreement by the stockholders of Lehigh, FMC and Newco
unless such amendment is approved by such stockholders in accordance with
applicable law.
17. BREAK-UP FEE
In the event that Lehigh receives and consummates an Alternate
Proposal (as that term is defined in paragraph 1(g) hereof), then Lehigh shall
pay FMC $1,500,000 by wire transfer of immediately available funds at the date
of consummation of such Alternate Proposal.
18. BROKERS
Each of the parties represents that no broker, finder or
similar person has been retained or paid and that no brokerage fee or other
commission has been agreed to be paid for or on account of this Agreement other
than Gruntal & Company and First Union ________.
19. GOVERNING LAW
This Agreement shall be construed in accordance with the laws
of the State of Delaware.
20. NOTICES
All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand or when mailed by registered or certified
mail, postage prepaid, or when given by telex or facsimile transmission
(promptly confirmed in writing), as follows:
15
<PAGE>
(a) If to Lehigh or Newco:
Salvatore J. Zizza, President
810 Seventh Avenue - #27 F
New York, NY 10019
With a copy to:
Robert A. Bruno, Esq.
General Counsel & Vice President
810 Seventh Avenue - #27 F
New York, NY 10019
and
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, NY 10022
Attn: Ilan K. Reich, Esq.
(b) If to FMC:
Dennis Sokol
Chairman
First Medical Corporation
1055 Washington Boulevard
Stamford, CT 06901
With a copy to:
Gary Epstein, Esq.
Greenberg Traurig
1221 Brickell Avenue
Miami, FL 33131
21. NON-ASSIGNMENT
This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties.
22. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, and by the different parties hereto on separate counterparts each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
16
<PAGE>
23. HEADINGS AND REFERENCES
The headings of the paragraphs of this Agreement are inserted
for convenience of reference only.
24. ENTIRE AGREEMENT; SEVERABILITY
This Agreement, including the Disclosure Schedules, documents
referred to herein which form a part hereof, contains the entire understanding
of the parties hereto in respect of the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter. A determination that any portion of this
Agreement is unenforceable or invalid shall not affect the enforceability or
validity of any of the remaining portions of this Agreement or this Agreement as
a whole.
[SIGNATURES APPEAR ON NEXT PAGE]
17
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto by their respective officers thereunto duly authorized by a
majority of their directors as of the date first above written.
ATTEST: THE LEHIGH GROUP INC.
/s/ Robert A. Bruno By /s/ Salvatore J. Zizza,
- --------------------------- ---------------------------
AUTHORIZED OFFICER Salvatore J. Zizza,
Chairman of the Board and
Chief Executive Officer
ATTEST: FIRST MEDICAL CORPORATION
By /s/ Dennis A. Sokol
- --------------------------- ---------------------------
AUTHORIZED OFFICER Name: Dennis A. Sokol
Title: Chairman
ATTEST: LEHIGH MANAGEMENT CORP.
/s/ Robert A. Bruno By /s/ Salvatore J. Zizza
- --------------------------- ---------------------------
AUTHORIZED OFFICER Salvatore J. Zizza, President and
Chief Executive Officer
18
<PAGE>
EXHIBIT A
DEBENTURE
[Attached.]
19
<PAGE>
FMC DISCLOSURE SCHEDULE
12(b) Subscription Agreement dated June 11, 1996 between FMC and Generale de
Sante International, PLC.
20
<PAGE>
SOUTHWICKE LAWSUIT
(Attached)
21
THIS DEBENTURE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (II)
RECEIPT BY THE ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
ISSUER TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE
STATE SECURITIES LAWS.
CONVERTIBLE DEBENTURE
$300,000.00 OCTOBER 29, 1996
Two (2) years after date, The Lehigh Group Inc., located at 810 Seventh Avenue,
New York, NY 10019, (the "Company") promises to pay to the order of First
Medical Corporation, located at 1055 Washington Blvd., Stamford, CT 06901
("Lender"), the principal sum of THREE HUNDRED THOUSAND DOLLARS ($300,000.00)
with interest at the rate of two (2%) percent per annum over the prime lending
rate of Chase Manhattan Bank., N.A. Interest on the principal amount of this
Debenture shall be paid monthly, beginning on the 1st day of the month following
execution of the Agreement and Plan of Merger of even date herewith between the
Company, Lender and Lehigh Management Corp. (the "Merger Agreement") and monthly
thereafter on the first day of each subsequent month next ensuing through and
including 24 months thereafter. On the 24th month, the outstanding principal
balance and all accrued interest shall become due and payable.
CONVERSION
Lender shall have the right to convert the principal amount of this debenture
into the common stock of the Company within one year from the effective date of
the merger between a subsidiary of the Company and the Lender.
COLLATERAL
In addition to the foregoing, the Company shall not be permitted to consummate
any other business combination until Lender has been repaid whatever amounts are
outstanding under this debenture.
<PAGE>
COVENANTS OF COMPANY
A. The Company covenants and agrees that, so long as this Debenture shall be
outstanding, it will:
(i) Promptly pay and discharge all lawful taxes, assessments, and
governmental charges or levies imposed upon the Company or upon its income and
profits, or upon any of its property, before the same shall become in default,
as well as all lawful claims for labor, materials and supplies which, if unpaid,
might become a lien or charge upon such properties or any part thereof:
PROVIDED, HOWEVER, that the Company shall not be required to pay and discharge
any such tax, assessment, charge, levy or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings and the Company
shall set aside on its books adequate reserves with respect to any such tax,
assessment, charge, levy or claim so contested;
(ii) Do or cause to be done all things reasonably necessary to preserve
and keep in full force and effect its corporate existence, rights and franchises
and comply with all laws applicable to the Company, except where the failure to
comply would not have a material adverse effect on the Company.
(iii) At all times reasonably maintain, preserve, protect and keep its
property used or useful in the conduct of its business in good repair, working
order and condition, and from time to time make all needful and proper repairs,
renewals, replacements, betterments and improvements thereto as shall be
reasonably required in the conduct of its business;
(iv) To the extent necessary for the operation of its business, keep
adequately insured by all financially sound reputable insurers, all property of
a character usually insured by similar corporations and carry such other
insurance as is usually carried by similar corporations;
(v) At all times keep true and correct books, records and accounts.
EVENTS OF DEFAULT
1. This Debenture shall become and be due and payable upon written demand
made by the holder hereof if one or more of the following events, herein called
events of default, shall happen and be continuing:
(i) Default in the payment of the principal and accrued interest on
this Note when and as the same shall become due and payable.
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<PAGE>
(ii) Default in the due observance or performance of any material
covenant, condition or agreement on the part of the Company to be observed or
performed pursuant to the terms hereof and such default shall continue uncured
for thirty (30) days after written notice thereof, specifying such default,
shall have been given to the Company by the Lender.
(iii) Application for, or consent to, the appointment of a receiver,
trustee or liquidator of the Company or of its property;
(iv) General assignment by the Company for the benefit of creditors;
(v) Filing by the Company of a voluntary petition in bankruptcy or a
petition or an answer seeking reorganization, or an arrangement with creditors;
and
(vi) Entering against the Company of a court order approving a petition
filed against it under the Federal bankruptcy laws, which order shall not been
vacated or set aside or otherwise terminated within sixty (60) days.
2. The Company agrees that notice of the occurrence of any event of default
will be promptly given to the holder at this or her registered address by
certified mail.
CLOSING
The advance of funds the repayment of which is provided for herein (the
"Closing") shall take place at the office of the Company at 810 Seventh
Ave.-27F, NY NY 10019 simultaneously with the execution of the Merger Agreement.
At Closing the Lender shall deliver to the Company, a certified or cashier's
check made payable to the order of the Company in the amount of $300,000.
The obligations of the parties hereto shall be governed by the laws of the State
of New York.
Dated: October 29, 1996
FIRST MEDICAL CORPORATION THE LEHIGH GROUP INC.
By: /s/ Dennis Sokol By: /s/ Salvatore J. Zizza,
--------------------------- ---------------------------
Dennis Sokol, Salvatore J. Zizza,
Chairman of the Board President
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Salvatore J. Zizza
810 Seventh Avenue
27th Floor
New York, N.Y. 10019
October 29, 1996
First Medical Corporation
1055 Washington Boulevard
Stamford, CT 06901
Gentlemen:
When countersigned below, this letter agreement will constitute a legal
and binding agreement between us with respect to the following matters.
1. GRANT OF OPTION. I hereby grant to First Medical Corporation ("FMC")
an option to acquire up to 6,000,000 shares of common stock of The Lehigh Group
Inc. ("Lehigh") upon the terms and subject to the conditions set forth in this
letter agreement.
2. CONSIDERATION. Concurrently with the acceptance of this letter
agreement, FMC is delivering its note in the principal amount of $100,000 in
payment for the option. The form of the FMC note is attached hereto as Exhibit
A.
3. TERM OF THE OPTION. The option shall expire at the earlier of (a)
January 15, 1997 or (b) consummation or termination for any reason of the
Agreement and Plan of Merger between Lehigh and FMC (the "Merger Agreement").
4. EXERCISE PRICE. The price and terms upon which the option may be
exercised shall be governed by the Warrant Agreement between Lehigh and me, a
copy of which is attached hereto as Exhibit B. In the event of any inconsistency
between this letter agreement and the Warrant Agreement, this letter agreement
shall govern. In order to avoid any penalties for "short swing profits" under
Section 16(b), to the extent necessary this letter agreement shall be deemed to
constitute an assignment of my rights under the Warrant Agreement. The parties
agree to take any other actions which may be necessary to structure the exercise
of the option and the warrant so as to avoid any liability under Section 16(b).
In order to induce the grant of this option, FMC hereby represents and warrants
to Salvatore J. Zizza that FMC has obtained a Commitment from First Union
National Bank of Florida to lend to FMC the sum of $3,000,000 to be used by FMC
to exercise the option, which commitment is embodied in a commitment letter a
copy of which is annexed hereto as Exhibit C.
5. STANDSTILL AGREEMENTS. Until December 31, 2001, FMC agrees to the
following: (i) it shall not acquire, directly or indirectly, any shares of
common stock of Lehigh or any voting rights with
<PAGE>
respect thereto, except (a) by means of the option granted pursuant to this
letter agreement and (b) up to 15% of the common stock of Lehigh through open
market or privately negotiated purchases which are consummated prior to January
15, 1997; (ii) the only matter for which it may solicit proxies from Lehigh
shareholders is approval of the Merger Agreement, for which it shall vote all
shares of common stock of Lehigh under its control or for which it obtains
proxies in favor of the Merger Agreement; (iii) on all other matters submitted
for a vote of stockholders, it shall vote all shares of common stock of Lehigh
under its control in accordance with the recommendation of the Board of
Directors of Lehigh (so long as such matter has no detrimental effect on the
Merger Agreement); and (iv) it shall not transfer, assign, hypothecate, pledge
or otherwise dispose of any of the shares of common stock of Lehigh under its
control (or the voting rights attendant thereto) without first obtaining (a) my
consent, and (b) the agreement of the purchaser to be bound by these standstill
provisions; provided, however, that FMC may sell shares pursuant its demand
registration right pursuant to the terms of an agreement with Lehigh dated as of
the date hereof.
6. NON-TRANSFERABILITY OF OPTION. This letter agreement, and the option
contained herein, may not be transferred, assigned, hypothecated or pledged
(either directly or indirectly) by FMC in any fashion to any entity without my
prior written consent. For this purposes, a "change of control" of FMC would
constitute a transfer of the option for which my prior written consent would be
required.
7. INDEMNIFICATION AND CONTRIBUTION. FMC agrees to indemnify and hold
me harmless against any and all claims, causes of action or liabilities which
may arise from this letter agreement or the exercise of the option or warrant
hereunder. I agree to provide FMC with prompt notification of any matter which
could give rise to a claim for indemnification; FMC agrees to promptly pay all
fees and expenses which I might incur in defending any such matters, and to pay
in full any ultimate liability which might result. Notwithstanding FMC's
agreement to provide such indemnification, I shall control the selection of
counsel and direct the defense strategy. In the event indemnification is not
available due to public policy or otherwise, the parties shall reformulate this
provision to provide for contribution by FMC based on the relative benefits
obtained by it, which shall be assumed to be 99%. FMC agrees that it will not
prosecute or support any claim which seeks to invalidate this provision.
8. PROXY AT MEETING. Prior to the record date for the stockholder
meeting at which the Merger Agreement shall be voted upon, I will use my best
efforts to obtain irrevocable proxies from major stockholders (including myself
and other officers and directors of Lehigh) in favor of approval of the Merger
Agreement.
<PAGE>
9. MISCELLANEOUS. This letter agreement: constitutes the entire
agreement between us with respect to this subject; shall inure to the benefit of
my successors and assigns; may only be modified or amended by a writing signed
by both parties; and is governed by the laws of the state of Delaware.
Very truly yours,
/s/ Salvatore J. Zizza
--------------------------
Salvatore J. Zizza
Agreed and accepted as of the date first written above.
First Medical Corporation
By /s/ Dennis A. Sokol
------------------------
Name: Dennis A. Sokol
Title: Chairman
PROMISSORY NOTE
$100,000.00 New York, New York
As of October 29, 1996
FOR VALUE RECEIVED, FIRST MEDICAL COPORATION, a Delaware
corporation, with its principal place of business located at 1055 Washington
Boulevard, Stamford, CT 06901 ("Maker"), does hereby promise to pay to the order
of Salvatore J. Zizza, an individual with mailing address at c/o The Lehigh
Group Inc., 810 Seventh Avenue, Suite 27 F, New York, New York 10019 ("Holder"),
or at such other address or at such other place as may be designated from time
to time by notice from Holder to Maker, the principal sum of ONE HUNDRED
THOUSAND DOLLARS ($100,000.00); together with interest accrued thereon at an
interest rate per annum equal to 8% from the date hereof. The principal and
accrued interest amount of this Note shall become due and payable upon the
earliest to occur of (1) January 15, 1997, (2) exercise, in whole or in part, of
the stock option granted by Holder to Maker pursuant to that certain letter
agreement dated October 29, 1996, or (3) termination of such letter agreement in
accordance with its terms. Except as otherwise provided below, interest shall
accrue on the outstanding principal balance then outstanding from the date
hereof until repaid, but shall not be payable with respect to the principal
amount of this Note until the principal is due and payable in full in accordance
with the terms hereof when such interest shall become due and payable. Interest
on this Note shall be computed on a basis of a year of 360 days for the actual
number of days elapsed (including the first day but excluding the last day).
1. EVENTS OF DEFAULT
The occurrence of any of the following events with respect to Maker
shall constitute an event of default which shall cause the entire principal
amount of this Note and accrued interest to become immediately due and payable
without the necessity for any demand on Maker:
(a) If Maker shall default in the payment of principal or any
interest when due and such default shall have continued unremedied for
a period of thirty (30) days; or
(b) If Maker shall make an assignment for the benefit of
creditors, or file a voluntary petition under the U.S. Bankruptcy Code,
as amended (the "Bankruptcy Code"), or any other federal or state
insolvency law, or apply for or consent to the appointment of a
receiver, trustee or custodian of all or part of his property; or
<PAGE>
(c) If Maker shall file an answer admitting the jurisdiction
of the court and the material allegations of an involuntary petition
filed against him under the Bankruptcy Code or any other federal or
state insolvency law; or
(d) If a proceeding shall be commenced against Maker seeking
the appointment of a trustee, receiver or custodian of all or part of
Maker's property and such proceeding shall not be dismissed within two
(2) days after its commencement.
2. PREPAYMENT
This Note may be prepaid without penalty or premium at any time, in
whole or in part, upon not less than two (2) days' prior written notice.
3. MISCELLANEOUS PROVISIONS
(a) Failure to exercise Holder's rights hereunder shall not
constitute a waiver of the right to exercise same in the event of any
subsequent default.
(b) Maker and Holder hereby irrevocably submit to the personal
jurisdiction of any state or Federal court sitting in the State of New
York over any suit, action or proceeding arising out of or relating to
this Note. Maker and Holder hereby irrevocably waive to the fullest
extent permitted by applicable law any objection which they have or
hereafter have to laying of the venue of any such suit, action or
proceeding brought in such a court and any claim that any such suit,
action or proceeding brought in such a court has been brought in an
inconvenient forum. Maker and Holder hereby agree to submit to the
exclusive jurisdiction of the courts of the state of New York for the
purpose of resolving any action or claim arising out of the performance
of the provisions of this Note.
(c) Maker expressly waives any right to a trial by jury in any
action to enforce this Note. Maker also waives the right to interpose
in any proceeding to collect this Note, any set-off, affirmative
defense or counterclaim of any nature except those asserted in good
faith that specifically arise under this Note.
(d) This Note shall be construed in accordance with and
governed by the laws of the state of Delaware.
(e) Maker expressly waives presentment for payment, demand and
protest, notice of protest and dishonor, and all other notices in
connection with the delivery, acceptance,
-2-
<PAGE>
performance default or enforcement of the payment of this Note.
(f) This Note may not be modified nor shall any waiver
hereunder be effective unless in writing signed by the party against
whom the same is asserted.
IN WITNESS WHEREOF, this Note has been executed on behalf of Maker as
of the day and year first above written.
FIRST MEDICAL CORPORATION
By: /s/ Dennis A. Sokol
-------------------------------
Name: Dennis A. Sokol
Title: Chairman
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THE LEHIGH GROUP INC.
810 SEVENTH AVENUE-27TH FLOOR
NY NY 10019
333-2620
- --------------------------------------------------------------------------------
PRESS RELEASE
THE LEHIGH GROUP INC. & FIRST MEDICAL CORP.
SIGN DEFINITIVE MERGER AGREEMENT;
FIRST MEDICAL CORP. BUYS OPTION TO PURCHASE SHARES
NY, NY, October 29, 1996
The Lehigh Group Inc. (NYSE - LEI) ("Lehigh") announced today that they
have executed a definitive merger agreement with First Medical Corp. ("FMC")
under which FMC will merge into a newly formed subsidiary of Lehigh. Immediately
following the merger the stockholders of Lehigh will retain 4% of the capital
stock of Lehigh. This transaction has been approved by the Board of Directors of
both companies and is subject to approval by the stockholders of each company.
It is contemplated that those shareholders' meetings will be held late December
1996.
First Medical Corp. ("FMC") is a privately held company which is an
Integrated Medical Service Company that operates businesses in Physician
Management, Hospital Services and International Primary Care Centers. For the
six months ended 6/30/96 the company had revenues of $26,000,000 and EBIT of
$1,300,000 with minimal debt.
Concurrent with the execution of the definitive merger agreement, Mr.
Zizza sold to FMC an option to purchase up to six million shares of Lehigh at
$0.50 per share, which is the price at which Mr. Zizza can acquire those shares
from Lehigh under pre-existing agreements. That option, if exercised in full,
would equal approximately 37% of Lehigh's stock at that time. Furthermore, Mr.
Zizza agreed to use his best efforts prior to the record date for the Lehigh
stockholders' meeting to obtain irrevocable proxies for Lehigh shares owned by
himself and other officers and directors of Lehigh.
* * * * * * * * * * * * * * *
<PAGE>
For further information contact: Robert A. Bruno, Vice President and
General Counsel, The Lehigh Group Inc., 810 Seventh Avenue, New York, NY 10019,
Telephone: 212/333-2620.
Dennis Sokol, Chairman, First Medical Corporation, 1055 Washington
Blvd., Stamford, Conn. 06901, Telephone: 203/327-0900.
Elliot H. Cole, Vice Chairman of First Medical Corporation, Office:
Patton Boggs, LLP, 2550 M Street, N.W., Washington, DC 20037, Telephone:
202/457-6080.
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