SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ELECTRONIC ASSOCIATES, INC.
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(Name of Registrant as Specified in its Charter)
ELECTRONIC ASSOCIATES, INC.
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item
22(a)(2) of Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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ELECTRONIC ASSOCIATES, INC.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held October 12, 1995
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Please take notice that the Annual Meeting of Shareholders of
Electronic Associates, Inc., a New Jersey corporation (the "Company"), will be
held at the Company's principal offices, 185 Monmouth Parkway, West Long Branch,
New Jersey 07764-9989, on October 12, 1995, at 10:00 a.m. for the following
purposes:
1. To elect one (1) Class I director, two (2) Class II directors
and one (1) Class III director to the Board of Directors;
2. To consider and act upon a proposed amendment to the Company's
Certificate of Incorporation to change the name of the Company to EA
Industries, Inc.;
3. To consider and act upon a proposed amendment to the Company's
Certificate of Incorporation to increase the authorized shares of Common
Stock of the Company from 25,000,000 shares to 50,000,000 shares;
4. To consider and act upon a proposed amendment to the Company's
1994 Stock Option Plan for Non-Employee Directors to increase the number
of shares of Common Stock of the Company reserved for issuance under
such plan from 400,000 shares to 2,400,000 shares;
5. To consider and act upon a proposed amendment to the Company's
1994 Equity Incentive Stock Option Plan to increase the number of
shares of Common Stock of the Company reserved for issuance under such
plan from 3,000,000 shares to 6,000,000 shares;
6. To consider and act upon a proposal to ratify the selection
of Arthur Andersen LLP as the Company's auditors; and
7. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed August 15, 1995 as the record date
for the determination of shareholders entitled to vote at the Annual Meeting.
Only shareholders of record at the close of business on that date will be
entitled to notice of, and to vote at, the Annual Meeting.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. WHETHER
OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON, YOU ARE URGED TO SIGN,
DATE AND PROMPTLY RETURN THE ENCLOSED PROXY. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
By order of the Board of Directors.
Richard P. Jaffe
Secretary
West Long Branch, New Jersey
September 14, 1995
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IMPORTANT Please sign,
date and mail your Proxy Card.
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ELECTRONIC ASSOCIATES
185 MONMOUTH PARKWAY
WEST LONG BRANCH, NEW JERSEY 07764-9989
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PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
OCTOBER 12, 1995
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GENERAL
This Proxy Statement and accompanying proxy are furnished by
Electronic Associates, Inc. (the "Company") to the shareholders ("Shareholders")
of the Company in connection with the solicitation of proxies by the Board of
Directors for use in voting at the Annual Meeting of Shareholders to be held at
the Company's principal offices, 185 Monmouth Parkway, West Long Branch, New
Jersey 07764-9989, on October 12, 1995, at 10:00 a.m. or at any adjournment
thereof (the "meeting"). This Proxy Statement and the enclosed proxy are first
being mailed to shareholders on or about September 14, 1995. The cost of the
solicitation of proxies for the Annual Meeting will be borne by the Company.
Voting Securities and Proxies
At the close of business on August 15, 1995, the record date
for the meeting, there were outstanding and entitled to vote 13,710,144 shares
of Common Stock (the "Common Stock"). The owners of Common Stock have all voting
rights with respect to matters to come before the meeting. Each share of Common
Stock is entitled to one vote.
All properly executed proxies received in time for the
meeting will be voted as specified. Anyone giving a proxy may revoke it at any
time prior to the voting thereof by signing, dating and delivering a subsequent
proxy or by written notice to the Secretary of the Company or by attending the
meeting and filing written notice of revocation with the Secretary prior to any
vote. All shares represented by executed and unrevoked proxies will be voted in
accordance with the specifications therein. Proxies submitted without
specification will be voted IN FAVOR OF the election of the nominees for
director named herein; FOR the proposal to amend the Company's Certificate of
Incorporation to change the name of the Company to EA Industries, Inc.; FOR the
proposal to amend the Company's Certificate of Incorporation to increase the
authorized shares of Common Stock of the Company from 25,000,000 to 50,000,000;
FOR the proposal to amend the 1994 Stock Option Plan for Non-Employee Directors
(the "Non-Employee Directors Plan") to increase the number of shares of Common
Stock of the Company reserved for issuance under the Non-Employee Directors Plan
from 400,000 shares to 2,400,000 shares; FOR the proposal to amend the 1994
Equity Incentive Stock Option Plan (the "Equity Incentive Plan") to increase the
number of shares of Common Stock of the Company reserved for issuance under the
Equity Incentive Plan from 3,000,000 shares to 6,000,000 shares; and FOR the
proposal to ratify the selection of Arthur Andersen LLP as the Company's
auditors.
(2)
The affirmative vote of a plurality of the votes cast by the
holders of Common Stock entitled to vote at the meeting is required for the
election of directors. Approval of the proposals to amend the Non-Employee
Directors Plan and the Equity Incentive Plan, to amend the Company's Certificate
of Incorporation to change the Company's name and to increase the number of
authorized shares of Company's Common Stock, and to ratify the selection of
Arthur Andersen LLP as the Company's auditors requires the affirmative vote of a
majority of the votes cast by the holders of Common Stock entitled to vote on
each such proposal. The vote on each proposal will be tabulated as set forth
below.
All votes will be tabulated by a representative of the
American Stock Transfer & Trust Company, transfer agent for the Company's Common
Stock, who will serve as the inspector of election at the meeting and who will
separately tabulate affirmative votes, negative votes, authority withheld for
any nominee for director, abstentions and broker non-votes. Authority withheld
for any nominee for director will be counted in the tabulation of the votes cast
on the election of directors and will have the same effect as a negative vote.
Under New Jersey law, any proxy submitted and containing an abstention or broker
non-vote will not be counted as a vote cast on any matter to which it relates,
except that, solely for purposes of determining whether the proposal to approve
the amendment of the Non-Employee Directors Plan and the proposal to approve the
amendment to the Equity Incentive Plan have been approved by the Company's
shareholders in compliance with the voting standards of Rule 16b-3 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), any proxy
containing an abstention with respect to either the proposal to approve the
amendment to the Non-Employee Directors Plan or the proposal to approve the
amendment to the Equity Incentive Plan and any shares present at the meeting
that are voted as an abstention on either of such proposals will be counted in
the tabulation of the votes cast on such proposals, which will have the same
effect as a negative vote. Abstentions and broker non-votes will be counted for
purposes of determining whether a quorum is present at the meeting.
(3)
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of July 31, 1995,
information with respect to the ownership of the Company's outstanding Common
Stock by (i) each person who is known to the Company to be the beneficial owner
of more than 5% of the Company's outstanding shares of Common Stock, (ii) each
director and nominee for director, (iii) each of the Company's executive
officers named in the Summary Compensation Table, and (iv) all executive
officers, directors and nominees as a group. Unless otherwise indicated, each
individual has sole voting and investment power with respect to the shares
beneficially owned by him.
Amount and
Nature of
Name and Beneficial Ownership
Address of (number of shares Percent
Beneficial Owner* Position of Common Stock) of Class
----------------- -------- -------------------- --------
Charles A. Milo.......................... Former President and 1,194,126(1) 8.56%
11671 East Grampian Place CEO
Tucson, AZ 85748
Joseph R. Spalliero...................... President, CEO and 992,259 7.55%
Tanon Manufacturing, Inc. Director
46360 Fremont Blvd.
Fremont, CA 94538-6406
Irwin L. Gross........................... Chairman of the 596,833(2)(3) 4.35%
Board
Jules M. Seshens......................... Vice President, 89,167(2)(4) (5)
Corporate
Development; and
Director
Bruce P. Murray.......................... Director 93,667(4)(6) (5)
Seth Joseph Antine....................... Director 108,813(2)(4)(7) (5)
Michael M. Michigami..................... Director 80,000(8) (5)
David J. Reibstein....................... Director 0 --
Mark S. Hauser........................... Nominee for Director 33,333(9) (5)
William Spier............................ Nominee for Director 0 --
Laura Huberfeld.......................... None 950,493(10) 7.23%
420 West End Avenue
New York, NY 10024
Naomi Bodner............................. None 950,493(10) 7.23%
16 Grosser Lane
Monsey, NY 10952
(4)
Loretta W. Milo.......................... None 1,194,126(1) 8.56%
11671 East Grampian Place
Tucson, AZ 85748
All directors, nominees for
directors and executive officers as
a group (10 persons).................... 3,188,198(1)(2)(3)(4)(6)(7) 21.36%
(8)(9)
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* Addresses are included only for persons who beneficially own more
than 5% of the outstanding Common Stock.
(1) Includes 429,166 shares of Common Stock held by Mr. Milo and his
spouse, Loretta W. Milo, as joint tenants as to which they share
voting and dispositive power. Also includes currently exercisable
Class A Warrants to purchase 398,042 shares of Common Stock and Class
B Warrants to purchase 398,042 shares of Common Stock held by Mr. and
Mrs. Milo as joint tenants. See "Executive Compensation - Summary
Compensation Table."
(2) Includes options to purchase 22,500 shares of Common Stock granted
pursuant to the Non-Employee Directors Plan. See "Election of
Directors - Compensation of Directors." Does not include options to
purchase 27,500 shares granted under the Non-Employee Directors Plan
which are not currently exercisable.
(3) Includes warrants to purchase an aggregate of 131,000 shares of Common
Stock issued by the Company to Mr. Gross, in connection with his
retention as a consultant to the Company in March 1994. Also includes
options to purchase 333,333 shares of Common Stock granted under the
Company's Equity Incentive Plan but does not include options to
purchase 666,667 shares granted pursuant to the Company's Equity
Incentive Plan which are not currently exercisable. Also includes
options to purchase 100,000 shares of Common Stock of a total of
1,000,000 shares granted by the Company to Mr. Gross pursuant to the
Company's Equity Incentive Plan (subject to shareholder approval of an
increase in the number of shares of Common Stock available for
issuance under this plan), but does not include options to purchase
the balance of 900,000 shares granted under such plan which are not
currently exercisable. See "Executive Compensation - Equity Incentive
Plan" and "Transactions with Management and Others."
(4) Includes currently exercisable options to purchase 66,667 shares of
Common Stock granted under the Company's Equity Incentive Plan, but
does not include options to purchase 133,333 shares granted pursuant
to that Plan, which are not currently exercisable.
(5) Represents less than 1% of the outstanding shares of Common Stock.
See "Executive Compensation - Compensation of Directors."
(6) Includes currently exercisable options to purchase 27,000 shares of
Common Stock granted pursuant to the Company's Non-Employee Directors
Plan. Does not include options to purchase 33,000 shares granted under
the Non-Employee Directors Plan which are not currently exercisable.
See "Election of Directors - Compensation of Directors."
(5)
(7) Includes 2,000 shares owned by Mr. Antine and his wife, as joint
tenants, as to which they share voting and dispositive power. Also
includes Class A Warrants to purchase 5,882 shares of Common Stock and
Class B Warrants to purchase 5,882 shares of Common Stock.
(8) Includes options to purchase 80,000 shares granted pursuant to the
Company's 1972 Stock Option Plan, but does not include options to
purchase 320,000 shares granted under such plan which are not
currently exercisable.
(9) Includes options to purchase 33,333 shares of Common Stock granted by
the Company to Mr. Hauser pursuant to the Company's Equity Incentive
Plan in connection with services he performed for the Company related
to a certain joint venture with Israel Aircraft Industries, an Israeli
corporation (the "Joint Venture"). Does not include options to
purchase 66,667 shares granted under such plan which are not currently
exercisable. See "Transactions with Management and Others -- Joint
Venture With IAI."
(10) Includes 352,942 shares of Common Stock, Class A Warrants to purchase
352,942 shares of Common Stock and Class B Warrants to purchase
352,942 shares of Common Stock. All such warrants are exercisable
immediately. Also includes options to purchase 125,000 shares granted
by the Company in April 1995, but does not include options to purchase
250,000 shares which are not currently exercisable. Also includes
options to purchase 141,667 shares granted in July, 1995 pursuant to
the Company's Equity Incentive Plan (subject to shareholder approval
of an increase in the number of shares reserved for issuance under
the plan), but does not include options to purchase 283,333 shares
which are not currently exercisable. See "Transactions with
Management and Others - Consulting Agreement with Broad Capital".
(6)
PROPOSAL 1
ELECTION OF DIRECTORS
One of the purposes of the meeting is the election of
directors. Pursuant to the Company's Bylaws, the number of directors may be not
less than three nor more than nine. The directors are divided into three
classes, with staggered three year terms, and up to three directors are
permitted in each class. There are presently two Class I directors, three Class
II directors and two Class III directors. Michael M. Michigami, a Class II
director, is not standing for reelection at this year's meeting. As determined
by the Board of Directors, the number of directors is presently set at eight, of
which three may be Class I directors, two may be Class II directors and three
may be Class III directors. Under the provisions of the Company's Bylaws, a
vacancy may be filled by the Board of Directors. Directors elected by the Board
to fill vacancies will stand for election at the earlier of the next Annual
Meeting of Shareholders or the next meeting of shareholders for the election of
directors.
At this year's meeting, one (1) individual is to be elected
to serve as a Class I director until the Annual Meeting of Shareholders in 1996
or until his successor has been elected and qualified. Two (2) persons are to be
elected to serve as Class II directors until the Annual Meeting of Shareholders
in 1998 or until their successors have been elected and qualified, and one (1)
person is to be elected to serve as a Class II director until the Annual Meeting
of Shareholders in 1997 or until his successor has been elected and qualified.
The nominee for election as an additional Class I director
is Mark S. Hauser, the nominees for Class II directors are Irwin L. Gross and
David Reibstein and the nominee for election as an additional Class III director
is William Spier. Messrs. Seshens and Antine are current Class I directors,
Messrs. Gross and Michigami are current Class II directors and Messrs. Murray
and Spalliero are current Class III directors.
Unless otherwise directed, or if no specification is made,
it is the intention of the persons named in the enclosed form of proxy to vote
proxies received IN FAVOR OF the election of Mr. Hauser as a Class I director,
IN FAVOR OF the election of Messrs. Gross and Reibstein as Class II directors,
and IN FAVOR OF the election of Mr. Spier as a Class III director. The Company
has no reason to believe that any of these nominees will not be available for
election as a director. However, should any of the nominees become unable to
serve, proxies may be voted for substitute nominees in the discretion of those
named as proxies.
Nominees For Director
The following information, which is given as of August 1,
1995, has been furnished by the persons nominated for election as Class I, Class
II and Class III directors of the Company and by current directors whose terms
will not expire in 1995 and who therefore are not nominees for election at the
meeting.
Class I - Term Expires 1996
Mark S. Hauser, 37, is a Founder and Managing Director of
Hauser, Richards & Co. and Tamarix Capital Corporation, investment and
merchant banking firms. Prior to founding Hauser, Richards & Co. in March
1991, Mr. Hauser was a Managing Director at Ocean Capital Corporation, a private
(7)
international investment banking firm. He has extensive experience in
international financial transactions including corporate mergers and
acquisitions, capital-raisings, and financial restructurings. Prior to joining
Ocean Capital Corporation in 1986, Mr. Hauser worked as a corporate finance and
banking attorney at the New York office of Rogers & Wells. Mr. Hauser is a
director of ICC Technologies, Inc. ("ICC"), a public company which owns a 50%
interest in Engelhard/ICC, a joint venture partnership formed with Engelhard
Corporation in February 1994. Engelhard/ICC is engaged in the business of
designing, manufacturing and selling desiccant wheel components and desiccant
air conditioners. Mr. Hauser is an Advisory Director of Direct Language
Communications and Vice Chairman of the Board of Directors of The Holmes
Protection Group, Inc. Mr. Hauser is a member of the New York Bar and is
admitted to practice law as a solicitor to the Supreme Court of New South Wales
in Australia. He has economics and law degrees from Sydney University and a
Master of Law degree from the London School of Economics and Political Science.
Class II - Term Expires 1995
Irwin L. Gross, 51, was elected a director of the Company in
March 1994 to fill a Class II vacancy, and was elected as Chairman of the Board
of Directors in April 1995. Since May 1984, Mr. Gross has served as Chairman of
the Board of Directors of ICC. Mr. Gross is also President and Chief Executive
Officer of ICC and the Chief Executive Officer of Engelhard/ICC. Mr. Gross
served on the Board of Directors of Powerspectrum Inc., a private company
involved in telecommunications from 1992 to July 27, 1993. From January 1982 to
May 1984, Mr. Gross was employed in various capacities by International Mobile
Machines Corporation, a publicly-held company engaged in the development of
telecommunications systems and computer security devices, in which company he
served as Executive Vice President from January 1982 until October 1983 and as
Director for Corporate Development from October 1983 until April 1984. From 1968
to 1982, he was a practicing attorney in Philadelphia, Pennsylvania. He holds a
Bachelor of Science degree in Accounting from Temple University, Philadelphia,
Pennsylvania, and a Juris Doctor degree from Villanova University, Villanova,
Pennsylvania.
David J. Reibstein, 46, was elected a director of the
Company in August 1995 to fill a Class II vacancy. He has been the William S.
Woodside Professor and Professor of Marketing at The Wharton School, University
of Pennsylvania, since July 1980. Dr. Reibstein currently serves on the Board of
Directors of each of Advantage Capital, Inc., a privately-held venture capital
firm (since 1989), General Information Services, Inc., a privately-held computer
services company (since 1983), and And One, Inc., a privately-held manufacturer
of sports apparel (since 1994).
Class III - Term Expires 1997
William Spier, 60, has been Chairman of DeSoto, Inc., a
detergent manufacturer, since May 1991, and has been the Chairman and President
of Sutton Holding Company, a New York-based investment company, since 1989. Mr.
Spier is also currently a director of Geotek Industries, Inc., a public
telecommunications company (since June 1990), Video Lottery Technologies, Inc.,
a public company in the business of manufacturing gaming equipment (since March
1991), and Holmes Protection Group, a public security alarm systems company
(since August 1994).
Directors Whose Terms Continue
The following directors will continue in office in
accordance with the Company's Certificate of Incorporation and Bylaws and are
not nominees for election at the 1995 Annual Meeting of Shareholders.
(8)
Class I -- Term Expires 1996
Seth Joseph Antine, 27, was elected a director of the
Company in May 1994 to fill a Class I vacancy. Since April 1993 he has been an
independent financial consultant with an office in New York, New York. From
January 1991 until April 1993, Mr. Antine was President of Gotham Food Corp., an
owner and operator of several restaurants in New York, New York. From January
1990 until January 1991 Mr. Antine was an accountant with Laventhol & Horwath.
Mr. Antine received a B.S. degree in accounting from Touro College in December
1989.
Jules M. Seshens, 51, was elected a director of the Company
in May 1994 to fill a Class I vacancy. Mr. Seshens was also elected Vice
President, Corporate Development of the Company in April 1995. He has been an
independent venture capitalist/entrepreneur since May 1982 in the computer,
telecommunications, energy services and environmental services industries. He
has served as President of The Best Company, an environmental services company,
from 1989 to 1992; Corporate Vice President of Marketing and Sales for ICC from
1985 to 1989; and Executive Vice President of General Data Systems, Ltd., a
company engaged in providing consulting and computer-based products and services
from 1982 to 1985. From May 1969 until May 1982, Mr. Seshens was employed by
COMSHARE, Inc., an international computer services company, in various
management positions, including Vice President and General Manager of the
Microcomputer Division from July 1981 to May 1982 and, prior to that, as Vice
President and General Manager of the Telephone/Telecommunications Industries
Division. Mr. Seshens holds both a Bachelor of Science Degree and Master of
Business Administration Degree from Temple University, Philadelphia,
Pennsylvania.
Class III - Term Expires 1997
Bruce P. Murray, 49, was elected a director of the Company
in February 1994 to fill a Class III vacancy. He served as Chairman of the Board
from February 1994 through January 1995. He has been President of The Bannock
Burn Group, Ltd., a management consulting firm, since April 1987. Mr. Murray
received his B.S. degree from the United States Merchant Marine Academy and his
M.S. degree from Rensselaer Polytechnic Institute.
Joseph R. Spalliero, 48, was elected a Class III director
of the Company in January 1995 following the Company's acquisition of Tanon
Manufacturing, Inc. ("Tanon"). Mr. Spalliero was also elected President and
Chief Executive Officer of the Company in April 1995, and also serves as Chief
Operating Officer of Tanon. Mr. Spalliero was formerly the Chairman and
President of Tanon prior to the Company's acquisition of Tanon. Joseph Spalliero
has over twenty-five years of management experience of increasing
responsibilities in the manufacturing industry having produced a variety of
electronics products. He founded Tanon in 1983 and served as its Chairman and
CEO since inception. Mr. Spalliero was previously Vice President of Operations
at Cronus Precision Products ("Cronus") which produced a broad range of
precision watches. Prior to Cronus, Mr. Spalliero held several positions with
manufacturing responsibilities for Intersil Corporation, Fairchild Semi
Conductor and Teledyne Corporation.
Operation of Board of Directors and Committees
The Board of Directors holds regular meetings and special
meetings when required. The Board has a standing Audit and Finance Committee,
Compensation Committee and Nominating Committee which assist it in the discharge
of its responsibilities. During 1994, the Board held fifteen (15) meetings.
(9)
In 1994, each member of the Company's Board of Directors attended at least 70%
of the meetings of the Board and of the committees on which he serves.
The members of the Audit and Finance Committee during 1994
were Messrs. Gross and Ellis. The only current member of the Committee is Mr.
Antine. The Audit and Finance Committee reviews and reports to the Board on the
scope and results of audits by the Company's independent auditors. It
periodically reviews with the auditors the adequacy of the Company's system of
internal controls, and periodically reviews with management and the independent
auditors compliance with the Company's policies concerning business ethics and
conflicts of interest. It recommends a firm of certified public accountants to
serve as auditors of the Company, subject to approval by the Board and
ratification by the shareholders, authorizes all audits and other professional
services rendered by the independent auditors and periodically reviews the
independence of the auditors. The Audit and Finance Committee is responsible for
overseeing, on behalf of the Board, the financial structure of the Company and
making recommendations to the Board with respect to any changes in the financial
structure of the Company which require Board approval. The Committee did not
meet in 1994.
The members of the Compensation Committee during 1994 were
Messrs. Ellis, Seshens and Murray. The current members are Messrs. Murray and
Antine. The Compensation Committee, which consists of directors who are not
employees of the Company, makes recommendations to the Board with respect to the
salaries of officers of the Company, and with respect to the participants,
annual guidelines and amounts of awards to be made under the Management
Incentive Compensation Plan. The Compensation Committee also determines the
recipients and amounts of awards to be made under the 1972 Stock Option Plan.
The Compensation Committee met six (6) times and acted by unanimous written
consent three (3) times in 1994.
The Nominating Committee meets once each year to consider
nominees for director to be presented to the Annual Meeting of Shareholders and
meets at other times if necessary. The Nominating Committee will consider
nominees recommended by shareholders. Any shareholder who wishes to present a
person for consideration by the Nominating Committee as a nominee at the 1996
Annual Meeting must submit the resume of such person to the Secretary of the
Company so that it is received at the Company's principal executive offices no
later than May 31, 1996. The current members of the Nominating Committee are
Messrs. Gross, Seshens and Spalliero. The Nominating Committee met one (1) time
in 1994.
Messrs. Gross and Hauser are directors of ICC and Mr. Spier
is a director of each of Geotek Industries, Inc., Video Lottery Technologies,
Inc. and Holmes Protection Group, each of which has securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). No other director of the Company holds any other directorships
in a company with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act
or any company registered as an investment company under the Investment Company
Act of 1940.
Compensation of Directors.
From January 1, 1994 through July 31, 1994 the moratorium on
directors' fees for non-employee directors implemented in November 1993
continued, with all non-employee directors serving without receiving meeting
fees or annual retainer fees. Effective August 1, 1994, the Compensation
Committee recommended, and the Board of Directors approved, an annual stipend of
$50,000, payable in monthly installments to Mr. Murray and Mr. Seshens, in
consideration for extraordinary services to be
(10)
rendered by them in connection with the acquisition of an equity interest in
BarOn Technologies, Ltd. ("BarOn") and the acquisition of Tanon. See
"Transactions With Management and Others". During 1994, Mr. Murray and Mr.
Seshens each received $20,833 in consideration for such services during the five
month period ended December 31, 1994. The other non-employee directors continued
to serve during 1994 without receiving any meeting fees or retainer fees. All
non-employee directors are reimbursed by the Company for all reasonable
out-of-pocket expenses incurred in attending Board and Committee meetings, as
well as other business performed on behalf of the Company.
In January 1995, the Compensation Committee recommended, and
the Board of Directors approved, an increase in the annual stipend payable to
Messrs. Murray and Seshens to $150,000 each and an annual stipend of $75,000
payable to Mr. Gross, in each case payable in equal monthly installments in
consideration for providing extraordinary services to the Company throughout
the year. Effective March 31, 1995, after receiving stipend payments for three
months, the stipends payable to Messrs. Murray and Gross were suspended
indefinitely. The Company continues to pay Mr. Seshens an annual stipend of
$150,000 in consideration for his services.
1991 Directors Plan. In 1991, the Board of Directors
adopted, and the shareholders approved, the 1991 Stock Option Plan for
Non-Employee Directors (the "1991 Directors Plan"). The 1991 Directors Plan
provided for grants of options to "non-employee directors" of the Company. A
"non-employee director" is a director who is not an employee of the Company and
who has not been an employee of the Company for a period of at least one year
prior to the grant of an option under the 1991 Plan. Under the 1991 Directors
Plan, commencing with the 1991 Annual Meeting of Shareholders, each person who
was a non-employee director immediately after the Annual Meeting of Shareholders
became entitled to receive, on the date of the Annual Meeting, an option to
purchase 2,000 shares of Common stock. The 1991 Directors Plan was terminated
effective March 10, 1994 but options with respect to an aggregate of 6,000
shares previously granted under the plan remain outstanding and in effect in
accordance with their original terms. The exercise prices to purchase shares
under such options are equal to the fair market value of the Company's Common
Stock on the date of grant of the respective options.
Non-Employee Directors Plan. In March 1994 the Board of
Directors adopted, and in May 1994 the shareholders approved, the Company's
Non-Employee Directors Plan for Non-Employee Directors (the "Non-Employee
Directors Plan"). An aggregate of 400,000 shares has been reserved for issuance
under the Non-Employee Directors Plan. Under the terms of the Non-Employee
Directors Plan, each person who is an Eligible Director (as defined in the
Non-Employee Directors Plan) on March 10, 1994 (the "Effective Date") and each
person who becomes an Eligible Director thereafter will be granted an option to
purchase 50,000 shares of Common Stock. The Non-Employee Directors Plan also
provides for the grant of an additional option to purchase 10,000 shares of
Common Stock to the individual serving as Chairman of the Board on and after the
Effective Date. There is in each case a vesting date which may be accelerated
under certain circumstances. As of August 15, 1995, options to purchase a total
of 400,000 shares have been granted. The exercise prices to purchase shares
under such options are equal to the fair market value of the Company's Common
Stock on the date of grant of the respective options. In approving the
Non-Employee Directors Plan, the Board considered a variety of factors,
including the reduction in amount and subsequent suspension of payment of fees
payable to non-employee directors of the Company, the significant commitment of
time required from members of the Board to address the issues arising out of the
financial difficulties experienced by the Company in recent periods and the
importance to the Company and its shareholders of attracting and retaining the
services of experienced and knowledgeable independent directors. Only
non-employee directors of the Company may participate in the Non-Employee
Directors Plan. The Chief Executive Officer, other executive officers, officers
and
(11)
employees of the Company are not eligible to participate in such plan. For a
summary of the provisions of the Non-Employee Directors Plan, see "Proposal 4".
The following table sets forth the number of options granted
under the Non-Employee Directors Plan to the named non-employee directors in
1994. The per share fair market value of the Company's Common Stock on February
28, 1994, the grant date for options granted to Messrs. Murray and Ellis, was
equal to the per share exercise price for such options of $3.50. The per share
fair market value on March 21, 1994, the grant date for options to Mr. Gross,
was equal to the per share exercise price for such options of $3.25. The per
share fair market value of the Company's Common Stock on May 2, 1994, the grant
date for the options granted to Messrs. Seshens and Antine was equal to the per
share exercise price for such options of $4.31.
Non-Employee Directors Plan
Name and Position Number of Options(1)
----------------- --------------------
Bruce P. Murray.............................................. 60,000
Director (Former Chairman of the Board)
Jules M. Seshens............................................. 50,000
Director
G. Corson Ellis.............................................. 50,000
Director
Seth Joseph Antine........................................... 50,000
Director
Irwin L. Gross............................................... 50,000
Director (current Chairman of the Board)
- -------------------
(1) Options vest on specified dates or, in certain instances, upon the
achievement of Operating Profitability as defined in the plan. As of July 31,
1995, 45% of such options granted to Seshens and Antine are currently
exercisable and 45% of such options granted to Messrs Murray, Ellis and Gross
are currently exercisable.
(12)
EXECUTIVE OFFICERS
Name Age Position with the Company
---- --- -------------------------
Irwin L. Gross 51 Chairman of the Board of Directors since April 1995
Joseph R. Spalliero 48 President and Chief Executive Officer since April 1995
Jonathan R. Wolter 44 Treasurer and Vice President, Finance since January 1995
Jules M. Seshens 51 Vice President, Corporate Development since April 1995
Jonathan R. Wolter was elected Treasurer and Vice President,
Finance in January 1995 following the Company's acquisition of Tanon. Mr. Wolter
also serves as the Chief Financial Officer of Tanon. Mr. Wolter joined Tanon in
December 1993 and was the Corporate Controller of Failure Analysis Associates,
Inc., an international engineering firm, and its parent, The Failure Group,
Inc., for the three and one half years ended September 1993 during which time
Failure Analysis Associates completed its initial public equity offering. Prior
to this, Mr. Wolter was Vice President and Treasurer of First Republic Bancorp,
Inc., a public bank holding company in San Francisco, a position he held for
three years. From 1975 through 1986, he was employed by Arthur Andersen LLP,
most recently as a senior audit manager. Mr. Wolter earned his BS degree from
the University of California at Berkeley in 1975 after serving in the US Air
Force. He is a Certified Public Accountant.
Certain information concerning the other executive officers
is set forth above under "Election of Directors."
The executive officers of the Company are elected by, and
serve at the discretion of, the Board of Directors.
(13)
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth, for the
three fiscal years ended December 31, 1994, the compensation for services in all
capacities earned by the person who served as the Chief Executive Officer of the
Company in 1994. No other executive officer of the Company received or accrued
compensation exceeding $100,000 in fiscal year 1994.
Summary Compensation Table
Annual Compensation Long-Term Compensation
---------------------------------------- -----------------------------------------------
Awards Payouts
------------------------------ ---------------
Other Securities Long-Term
Annual Restricted Underlying Incentive All Other
Name and Principal Compen- Stock Options/ Plan Compen-
Position Year Salary($) Bonus($) sation($) Award(s)($) SARs(#) (Payouts($) sation($)
-------- ---- --------- -------- --------- ----------- ------- ----------- ---------
Charles A. Milo......... 1994 $110,644 $ 10,000 --- --- 342,000(6) --- $1,581(4)
Former President 1993 100,000 120,000(2) --- --- 97,000(3) --- 2,927(4)
and CEO(1) 1992 46,154 --- --- $100,000(5) --- --- ---
- -----------
(1) Mr. Milo resigned as President and Chief Executive Officer and as director
of the Company on February 2, 1995.
(2) Includes a $105,000 bonus paid in 1993 pursuant to an Employment Agreement
executed in 1992.
(3) Options granted in 1993 pursuant to the Company's 1972 Stock Option Plan.
The exercise prices for such options are equal to $ 1.688 with respect to
2,000 shares and $1.625 with respect to 95,000 shares. Such exercise prices
are equal to the fair market value of the Company's Common Stock on the
respective dates of grant.
(4) Represents Company's contribution to Company's 401(k) Savings Plan (which
covers employees who have completed six months of service).
(5) Represents 31,124 shares of Common Stock comprising a portion of the
consideration paid by the Company in connection with the acquisition of
assets and stock of entities affiliated with Mr. Milo. The closing market
price per share of the Company's Common Stock as reported on the NYSE on the
date of award was $3.21. The closing price per share reported on the NYSE on
December 30, 1994 was $8.25.
(6) Options granted in 1994 pursuant to the Company's 1972 Stock Option Plan, as
amended (the "1972 Stock Option Plan"). Options to purchase 2,000 shares
have an exercise price of $1.125, or 100% of the fair market value on
January 2, 1994, the date of grant, and vest at the rate of 25% annually
commencing January 2, 1995; options to purchase 20,000 shares have an
exercise price of $2.00, or 85% of the fair market value on the date of
grant, January 20, 1994, and all such options vested on January 20, 1995;
options to purchase 250,000 shares have an exercise price of $4.44, or 100%
of the fair market price on May 17, 1994, the date of grant, and vest at the
rate of 33 1/3% per year commencing May 17, 1995; options to purchase 50,000
shares have an exercise price of $4.375, or 100% of the fair market price on
May 2, 1994, the date of grant, and vest at the rate of 25% per year
commencing May 2, 1995; and options to purchase 20,000 shares have an
exercise price of $3.78 or 85% of the fair market value on May 17, 1994, the
date of grant, and vest on May 17, 1995. The 1972 Stock Option Plan, as
amended was adopted to assist in the Company's retention
(14)
of high quality personnel and to provide key employees with additional
incentive to contribute to the success of the Company through the grant of
options to purchase shares of the Company's Common Stock. The 1972 Stock
Option Plan provides for the grant of non-qualified stock options and
"incentive stock options" as that term is defined in Section 422 of the
Internal Revenue Code. Of the options granted to Mr. Milo in 1994 and 1993,
options to purchase 348,125 shares were cancelled upon Mr. Milo's
resignation on February 2, 1995 and options to purchase 90,875 shares were
exercised following such resignation.
The following table sets forth information concerning grants of options to
purchase Common Stock to the named executive officer during the fiscal year
ended December 31, 1994.
Option/SAR Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------------------------------
Number of Percent of
Securities Total
Underlying Options/SARs Grant
Options/ Granted to Date
SARs Employees in Exercise or Expiration Present
Name Granted(#)(2) Fiscal Year Base Price($/sh) Date Value(3)
---- ------------- ------------ ---------------- ---------- ---------
Charles A. Milo......... 2,000 0.2% $1.125 1/03/2004 $1,229
Former President 20,000 2.2% 2.00 1/19/2004 31,217
and CEO(1) 50,000 5.4% 4.375 5/01/2004 139,960
20,000 2.2% 3.78 5/16/2004 69,084
250,000 27.1% 4.44 5/16/2004 755,225
- -----------
(1) Mr. Milo resigned as President and Chief Executive Officer and as
director of the Company on February 2, 1995.
(2) For information regarding such options, see footnote (6) to the Summary
Compensation Table.
(3) Based on the Black-Scholes American option pricing model adapted for use
in valuing executive stock options. The actual value, if any, an
executive may realize will depend on the excess of the stock price over
the exercise price on the date the option is exercised, so there is no
assurance the value realized by an executive will be at or near the
value estimated by the Black-Scholes model. The estimated values under
the model are based on arbitrary assumptions as to variables such as a
risk free rate of return based upon the interest rate on 10 year
treasury notes on the date of grant, stock price volatility over a three
year period, dividend yield of zero, no presumption of early exercise
and no adjustment for non-transferability or risk of forfeiture.
The following table sets forth information concerning the exercise of
options to purchase the Company's Common Stock by the named executive officer
during the fiscal year ended December 31, 1994 as well as the number and
potential value of unexercised options (both options which are presently
exercisable and options which are not presently exercisable) as of December 31,
1994.
(15)
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Values of Unexercised Option/SARs
Number of Value of
Securities Unexercised
Underlying In-The-Money
Unexercised Options/SARs
Options/SARs at Fiscal
at Fiscal Year
Year-End(#)(1) End($)(2)
-------------- -----------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable
---- ----------- ----------- ------------- -------------
Charles A. Milo......................... ---- ---- 43,000/ $ 284,844/
Former President and CEO 396,000 $1,732,556
- -------------------
(1) For information regarding such options, see footnotes (3) and (6) to the
Summary Compensation Table.
(2) Based on the closing price per share reported on the NYSE on December
30, 1994 of $8.25.
The named executive officer was not granted options or rights which were the
subject of any repricings.
In view of the recent changes to existing tax laws, the Company presently is
considering what action, if any, it will take with respect to qualifying
compensation paid to its executive officers for deductibility under Section
162(m) of the Code. Effective January 1, 1994, Section 162(m) of the Code limits
deductions for compensation paid to or accrued for any officer named in the
Summary Compensation Table to $1,000,000 per annum. Certain types of
compensation which qualify as performance-based compensation are not subject to
the specified limit on deductibility.
Equity Incentive Plan. On May 17, 1994, the Board of Directors adopted the
Company's Equity Incentive Plan, which was approved by the shareholders of the
Company at the Special Meeting of Shareholders held on June 28, 1994. The Equity
Incentive Plan provides for the granting of awards ("Awards") to directors
(whether or not employees), officers, employees and consultants in the form of
stock options, stock appreciation rights ("SARs"), restricted stock awards
("Restricted Stock Awards") and deferred stock awards ("Deferred Stock Awards").
The variety of awards authorized by the Equity Incentive Plan is intended to
give the Company flexibility to adapt the Company's compensation practices as
the business environment in which it operates changes. The Board of Directors
believes that the Equity Incentive Plan provides a method whereby certain
directors, officers, employees and consultants can share in the long-term growth
of the Company. The aggregate number of shares of Common Stock reserved for
issuance under the Equity Incentive Plan is 3,000,000 shares. During 1994
options to purchase 1.8 million shares were granted to five non-employee
directors, each with exercise prices equal to the fair market value of the
Company's Common Stock on the date of grant of the respective options. For a
summary of the provisions of the Equity Incentive Plan, see "Proposal 5."
(16)
The following table sets forth the number of options granted under the
Equity Incentive Plan to the named non-employee directors of the Company in
1994. The per share fair market value of the Company's Common Stock on May 17,
1994, the grant date for the options granted to the persons named in the table
below, was $4.44, and the exercise price for all such options was $4.44. Each
option has a term of ten (10) years.
Equity Incentive Plan
Name and Position Number of Options(1)
----------------- --------------------
Bruce P. Murray..................................................... 200,000
Director (former Chairman of the Board)
Irwin L. Gross...................................................... 1,000,000
Director (current Chairman of the Board)
G. Corson Ellis..................................................... 200,000
Director
Jules M. Seshens.................................................... 200,000
Director
Seth Joseph Antine.................................................. 200,000
Director
- ------------
(1) Options are exercisable cumulatively in three equal annual installments,
with the first installment exercisable on May 17, 1995.
Management Incentive Compensation Plan. In 1988, the Board of Directors
adopted a Management Incentive Compensation Plan to replace a plan that had been
adopted in 1975. The Management Incentive Compensation Plan provides for the
establishment of target and maximum levels of incentive awards as a percentage
of salary, except that the minimum award may never exceed 60% of salary. Awards
are based upon the achievement of predetermined goals with respect to Company
performance, business unit performance and/or individual performance. Awards for
the fiscal year ended December 31 are paid in the subsequent fiscal year. In
fiscal 1994, no awards were made under this Plan which is administered by the
Compensation Committee and the Board of Directors.
401(k) Savings Plan. The Company's 401(k) Savings Plan (the "401(k) Plan)
covers employees who have completed six months of service. Each active
participant may enter into a salary deferral agreement in an amount equal to not
less than one percent (1%) nor more then 8% of annual compensation. The Company
also contributes an amount equal to $.50 for each $1.00 by which a participant
defers compensation up to a maximum of 4% of such participant's compensation.
The Company may make a discretionary additional contribution in any year in an
amount equal to a percentage of compensation specified by the Board of
Directors. Participants' deferred income contributions fully vest when made;
Company contributions vest at a rate of 20% per year of service. No
discretionary contribution was made by the Company for fiscal 1994.
All contributions paid by the Company under the 401(k) Plan are maintained
in individual participant accounts. Upon retirement, termination of employment
or death, the participant's entire vested interest in the account is distributed
to the participant or his or her designated beneficiary.
(17)
A participant who has attained age 59 1/2 or sustained a serious financial
hardship may make withdrawals from the vested portion of his or her account
attributable to salary deferral contributions. In the discretion of the Plan
Administrator, a participant may obtain a loan in an amount up to 50% of the
portion of the participant's account attributable to salary deferral
contributions. In no event may a participant borrow more than $50,000 less the
amount of any loans repaid within the preceding 12 months. The minimum loan from
the 401(k) Plan is $1,000.
1972 Stock Option Plan. The Company's 1972 Stock Option Plan provides for
the grant of non-qualified stock options and "incentive stock options" as that
term is defined in Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). Options granted under the 1972 Stock Option Plan on or after
January 1, 1976, and exercised on or after January 1 1981, are eligible for
incentive stock option treatment (subject to certain dollar limitations). Other
options granted under the 1972 Stock Option Plan are treated as non-qualified
stock options.
An aggregate of 1,850,000 shares of Common Stock has been reserved for
issuance under the 1972 Stock Option Plan. As of August 15, 1995, options to
purchase 1,313,946 shares have been granted under the 1972 Stock Option Plan
(net of cancellations) and there remain 401,247 shares reserved for issuance
thereunder (subject to adjustment under certain circumstances).
Additional Information with Respect to Compensation Committee Interlocks and
Insider Participation in Compensation Decisions.
The members of the Compensation Committee for the Company in 1994 were Bruce
P. Murray, G. Corson Ellis and Jules M. Seshens, during which time none of such
members were employees or officers of the Company. The current members of the
Compensation Committee are Messrs. Murray and Seth Joseph Antine.
(18)
CORPORATE PERFORMANCE
The following graph compares the cumulative total shareholder return for the
last five years for the Company's Common Stock to the annual cumulative total
returns of (i) the Russell 2000 Index, (ii) a Peer Group and (iii) a Market
Weighted Peer Group.
[PERFORMANCE GRAPH]
===================================================================================================================================
1989 1990 1991 1992 1993 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Electronic Associates 100 65.22 95.65 65.22 43.48 286.96
- -----------------------------------------------------------------------------------------------------------------------------------
Russell 2000 100 78.54 112.85 131.30 153.64 148.76
- -----------------------------------------------------------------------------------------------------------------------------------
Peer Group 100 63.29 51.87 69.67 87.05 125.38
- -----------------------------------------------------------------------------------------------------------------------------------
Market Weighted Peer Group 100 82.29 76.58 113.57 121.34 174.97
===================================================================================================================================
(19)
The above graph compares the performance of Electronic Associates,
Inc. with that of (i) the Russell 2000 Index, (ii) a peer group comprised of
companies having the same standard industrial classification (SIC) code as the
Company's contract manufacturing business (SIC 3672), and (iii) a weighted
market peer group comprised of companies having an SIC 3672 classification and
a peer group comprised of companies having the same SIC classification as the
Company's former field service business (SIC 7370) and having a market
capitalization comparable to that of the Company. The performance of companies
in each of these SIC segments was weighted in the market weighted peer group by
market capitalization at the close of each year for a five year period.
Performance of the overall market weighted peer group was weighted by corporate
sales at the close of each year for a five year period. The peer groups in the
market weighted peer group were weighted 80% toward contract manufacturing and
20% toward field service to reflect the discontinuation of the Company's field
service operations in fiscal 1993 and exclusive concentration on contract
manufacturing. The contract manufacturing peer group companies are: Data Design
Laboratories, Inc., Elexsys International, Inc., Intelligent Systems Corp. and
Parlex Corporation. The field service peer group companies are: Halifax Corp.
and American Management Systems, Inc. Because the Company is no longer in the
field service business (SIC 7370), it has determined to use, hereafter, the peer
group comprised of the companies in SIC 3672, rather than the market weighted
peer group which is also included for this year for comparative purposes.
The graph assumes $100 invested on December 31, 1989 and that dividends are
reinvested monthly. Total return calculations were performed by D.F. King & Co.,
Inc. using the data bases of Standard & Poor's Compustat Services, Inc.
(20)
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation through December 31, 1994.
The Compensation Committee is comprised of independent, non-employee
directors. It is charged with the responsibility of developing and recommending
executive compensation policies and specific salaries of the Company's executive
officers for consideration by the Board of Directors.
Compensation Philosophy
The Company's executive compensation program is designed to attract,
motivate and retain key executives for the management and long term success of
the Company.
Compensation programs include salary and incentive plans. Such plans are
reviewed on an annual basis to evaluate the relevance of the plan to both
Company and industry circumstances. The goals of the annual compensation
programs include objective evaluation of management performance and relating
total compensation to the success of the Company.
The Company's executive compensation programs have three principal
components: base salary, incentive compensation awards and stock option grants.
Salary levels reflect performance against stated goals, the amount of
responsibility assumed in each position and the overall results of the Company.
The type and amount of incentive compensation is a function of the performance
of both Company and individual participants in the particular plan. Such
compensation is directly linked to the Company's financial performance through a
cash based variable incentive component and is linked to the growth in the value
of the Company's stock through a stock option program. In principle, incentive
compensation is considered the premier method of creating total commitment of
participants to the success of the Company in the long term. The Compensation
Committee believes these components collectively provide an appropriate
relationship between an executive's compensation and the Company's financial
performance.
In view of the recent changes to existing tax laws, the Company presently is
considering what action, if any, it will take with respect to qualifying
compensation paid to its executive officers for deductibility under Section
162(m) of the Code.
Compensation
The Compensation Committee reviews the performance of the chief executive
officer and other officers of the Company annually. The Compensation Committee
makes recommendations to the Board with respect to salaries and awards to be
made under the Management Incentive Compensation Plan. The Compensation
Committee also determines recipients and the number of shares to be covered by
option grants under the 1972 Stock Option Plan to all employees, including
officers. Salaries, incentive compensation and stock option grants for executive
officers are determined by evaluating the performance of the individuals
reviewed and their contributions to the performance of the Company, their
responsibilities, experience and potential, their period of service at current
salary and compensation practices for comparable positions at other companies.
Financial results, nonfinancial measures and the chief executive officer's
evaluation of other executive officers are considered.
(21)
Mr. Milo assumed the duties of President and Chief Executive Officer in
November 1993 at which time his annual compensation was set at $160,000. In
connection with a cost containment program undertaken by all the Company, in
January 1994, compensation of most employees was reduced by 20% and Mr. Milo
voluntarily reduced his annual compensation by 50%. In addition, in January
1993, the Compensation Committee recommended and the Board of Directors
implemented a 25% reduction in non-employee directors' fees, including the
annual fee paid to the Chairman of the Board. Further, effective November 1,
1993, the Compensation Committee recommended, and the Board of Directors
implemented, a moratorium on non-employee directors' fees, including the fee
paid to the Chairman of the Board.
In order to attract and retain the services of experienced and independent
non-employee directors and in light of the implementation of the moratorium on
directors' fees, the Board of Directors and shareholders approved the
Non-Employee Directors Plan for Non-Employee Directors.
Incentive Compensation Plan
Under the Company's Management Incentive Compensation Plan, cash awards may
be granted if and to the extent that predetermined goals with respect to Company
performance, business unit performance and/or individual performance are met. No
awards were granted for the fiscal year ended December 31, 1994.
Stock Option Program
One of the primary purposes of the Company's stock option program is to
provide additional incentives to employees to work toward improving the
Company's performance and, in turn, maximize shareholder value. The option
program also utilizes vesting periods to encourage key employees to continue in
the employ of the Company.
The Company has not recently made incentive compensation awards under the
Management Incentive Compensation Plan. Effective January 1994 it implemented a
20% salary reduction for all employees including officers and a 50% salary
reduction for the chief executive officer. In view of these circumstances, the
grant of stock options is a means for the Company to provide incentives to
attract and retain executives and other employees.
1994 COMPENSATION COMMITTEE
G. Corson Ellis
Bruce P. Murray
Jules M. Seshens
1995 COMPENSATION COMMITTEE
Bruce P. Murray
Seth Joseph Antine
(22)
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Milo Acquisition and Related Agreements. On May 29, 1992, the Company
completed the acquisition of assets of Milo Technologies, Inc. ("MTI") and the
acquisition of all of the outstanding stock of Milotec S.A. de C.V. ("Milotec")
(collectively, the "Milo Acquisition") for a total consideration of $900,000
(the "Consideration") consisting of $300,000 cash, $100,000 of the Company's
Common Stock (31,124 shares) and $500,000 in promissory notes, of which $100,000
was paid in August 1993. On May 31, 1994, pursuant to the terms of agreements
among Mr. Milo, MTI, the Company, and the investors in a private placement of
securities made by the Company in February 1994, all of the outstanding debt of
the Company to MTI and Mr. Milo ($338,366 at that date) was converted into
398,042 units of securities of the Company, each unit consisting of one share of
Common Stock, one Class A Warrant and one Class B Warrant.
Charles A. Milo and Loretta Milo, his wife, are the holders of all of the
stock of MTI and Mr. Milo was the holder of substantially all of the stock of
Milotec. At the closing of the Milo Acquisition, the Company entered into
non-compete agreements with Charles Milo and Loretta Milo. Of the consideration
paid in the Milo Acquisition, $350,000 represents the amount payable under the
terms of non-compete agreements between the Company and each of Charles Milo and
Loretta Milo. Under the terms of the respective non-compete agreements, each of
Charles Milo and Loretta Milo agreed (i) not to engage directly or indirectly in
business substantially similar to the Company's contract manufacturing business
nor to compete with such business in the continental United States, Puerto Rico
or foreign countries in which MTI or Milotec had conducted such businesses, and
(ii) not to solicit business nor to interfere with the business, goodwill, or
customers of the Company, Milotec or any of their subsidiaries or affiliates,
for the respective terms of their agreements with the Company. The term of Mr.
Milo's non-compete agreement is five years ending May 1997, and the term of Mrs.
Milo's non-compete agreement was one year, which expired in May 1993.
At the closing of the Milo Acquisition, the Company entered into an
employment agreement ("1992 Employment Agreement") with Mr. Milo. Pursuant to
the 1992 Employment Agreement, Mr. Milo was employed for a term of three years
commencing May 1992, as the Site Manager at the Company's Tucson, Arizona
facility and the Milotec facility in Nogales, Mexico at an annual compensation
of $80,000. In December 1992, Mr. Milo assumed the duties of General Manager of
the Company's contract manufacturing division, and in November 1993, Mr. Milo
assumed the duties of President and Chief Executive Officer of the Company at an
annual salary of $160,000. In November 1993, Mr. Milo entered into a 1993
Employment Agreement ("1993 Employment Agreement") with the Company relating to
his services as President and Chief Executive Officer superseding a March 1993
Employment Agreement. In January 1994, Mr. Milo voluntarily reduced such salary
by 50% in connection with a cost containment program undertaken by the Company
in which the compensation of most employees was reduced by 20% in exchange for
options to purchase 40,000 shares of Common Stock of the Company at an exercise
price of $1.9656 per share, which is equal to 85% of the fair market value on
January 20, 1994, the date granted. The 1992 Employment Agreement remained in
effect with respect to a cash bonus and certain stock options discussed below.
Under the terms of the 1992 Employment Agreement, Mr. Milo became entitled
to certain benefits and expenses including (i) bonus payments of $105,000 and
$50,000 due January 8, 1993 and May 1, 1995, respectively, (ii) options to
purchase 2,000 shares of the Company's Common Stock on each of January 1993 and
1994 at an exercise price of $1.69 and $1.13, respectively, and (iii) options to
purchase 5,000 shares of the Company's Common Stock upon completion of the three
year term of
(23)
the 1992 Employment Agreement at an exercise price to be determined based upon
the fair market value in May 1995. The bonus payment to Mr. Milo and the payment
of $100,000 pursuant to one of the notes given by the Company in connection with
the purchase of MTI due in January 1993, were deferred, but were paid in full in
August 1993, together with accrued interest. Payment of a note in the initial
principal amount of $400,000 given by the Company in connection with the
acquisition was also deferred in connection with the restructuring of the
Company's bank indebtedness in March 1993. In August 1993 the terms of the note
were amended to provide for nineteen monthly installment payments of principal
and interest in the approximate amount of $19,926 each commencing on August 15,
1993 and a final payment of approximately $16,800 in March 1995. Mr. Milo agreed
to suspend such payments as of January 1994. On May 31, 1994 such note was
converted into 398,042 units as discussed above. See "Milo Employment Agreement
and Separation Agreement" below.
Contemporaneous with the Milo Acquisition, the Company entered into a
sublease with MTI for approximately 4,900 square feet of space in Tempe,
Arizona. The term of the sublease was twelve months commencing May 1992 at a
base rent of $1,960 per month plus utilities and applicable taxes. The term of
the sublease was not extended and under its terms the Company was obligated to
pay one half of the rent and expenses for the eight months of the primary lease
term ending January 1994 or approximately $7,300.
The Company also entered into a lease with Charles A. Milo and Loretta Milo
for 33,120 square feet of office, manufacturing and warehouse space in Tucson,
Arizona for a term of five years, commencing June 1, 1992. The current monthly
rental is $15,235. The Company has an option to extend the term of the lease for
an additional five year period.
Milo Loan. On September 15, 1994, Charles A. Milo borrowed $160,000 from the
Company. The loan was repayable interest only, monthly, at the prime rate plus
2.25%, with the principal being due, in full, on September 15, 1996. The loan
was secured by a pledge of 31,000 shares of the Company's Common Stock which Mr.
Milo owns jointly with his wife. On February 2, 1995, pursuant to the terms of
the Separation Agreement with Mr. Milo, such loan was cancelled by the Company
with Mr. Milo having no further liability thereunder.
Milo Employment Agreement and Separation Agreement. Mr. Milo entered into an
Employment Agreement with the Company dated as of November 15, 1993 (the "1993
Agreement") pursuant to which he served as President and Chief Executive Officer
of the Company. The 1993 Agreement, which superseded a March 1993 Employment
Agreement between Mr. Milo and the Company, provided for a two year term and an
annual salary of $160,000. During the term of his employment by the Company, Mr.
Milo was eligible to participate in the Company's Management Incentive
Compensation Plan and other benefits plans, as provided by the Company from time
to time subject to eligibility standards which apply to other officers of the
Company. The Company was obliged to provide living accommodations to Mr. Milo in
the West Long Branch, New Jersey area. From January 20, 1994 until July 15,
1994, Mr. Milo voluntarily reduced his annual compensation by 50% to $80,000 in
connection with a cost containment program undertaken by the Company pursuant to
which the compensation of most employees was reduced by 20%. On July 15, 1994,
Mr. Milo's annual salary was raised to $128,000 or 80% of his base salary. Under
the terms of a 1992 employment agreement between Mr. Milo and the Company, Mr.
Milo was also entitled to receive a $50,000 bonus and options to purchase 5,000
shares of the Company's stock in May 1995.
On February 2, 1995, pursuant to negotiations which had commenced in
November, 1994, Charles A. Milo resigned as President and director of the
Company to pursue other interests. On that date, the
(24)
Company entered into a separation agreement with Mr. Milo (the "Separation
Agreement") pursuant to which (i) the Company agreed to pay him his regular
compensation as an employee through March 31, 1995, (ii) Mr. Milo was deemed to
have earned his $50,000 bonus, which was payable in four equal installments
through March 31, 1995, (iii) the loan to Mr. Milo by the Company on September
15, 1994 in the principal amount of $160,000 was cancelled with Mr. Milo having
no further liability thereunder, (iv) the Company paid to Mr. Milo a $10,000 fee
for services to be rendered in connection with the closure or sale of the
Company's Mexican facility, and (v) the exercise period for certain options held
by Mr. Milo and his wife was extended to September 30, 1995. Mr. Milo agreed to
limit the sale of his shares of Common Stock in the Company during the two
calendar quarters following his resignation to 100,000 shares per each quarter
and to limit the sale of his Shares of Company Common Stock during the next six
calendar quarters to those shares which he is eligible to sell pursuant to Rule
144. After such period, there will be no further restrictions on the sale of his
shares.
Separation Agreements with Messrs. Parton and Coe. Effective May 2, 1994
Charles T. Parton, former Chairman of the Company's Board of Directors, and
Bruce F. Coe resigned as directors of the Company. Options granted to each of
them under the Company's Non-Employee Directors Plan were cancelled and, in
substitution therefor, the Board of Directors awarded 5,000 shares of Common
Stock to Mr. Parton and 4,000 shares of Common Stock to Mr. Coe. In addition,
the vesting of options to purchase 6,000 shares of Common Stock previously
granted to each of Messrs. Parton and Coe under the 1991 Directors Plan was
accelerated by the Board of Directors and the Company paid $8,750 and $5,000 to
Messrs. Parton and Coe, respectively. The 12,000 options granted to Messrs.
Parton and Coe under the 1991 Directors Plan were exercised in May, 1994.
Bannock Burn Consulting Services. The Bannock Burn Group, Ltd. of which
Bruce Murray, a director, is President, performed consulting services for the
Company in fiscal 1994, for which it was paid an aggregate of $47,957.
Consulting Agreement with Irwin L. Gross. The Company entered into an
agreement with Irwin L. Gross in March 1994 pursuant to which Mr. Gross will
provide consulting services and financial advice, for a term of five years
ending March 1999. In consideration for such services Mr. Gross received a
warrant to purchase 262,000 shares of the Company's Common Stock exercisable 50%
on the first anniversary and 50% on the second anniversary of the date of grant
at a price of $2.77 per share until March 21, 1999. The closing price of the
Company's Common Stock on the date of grant was $3.25, as reported on the NYSE.
Directors' Compensation. For information with respect to the Company's
agreements to pay stipends to certain directors in consideration for their
extraordinary services to the Company, see "Election of Directors -
Compensation of Directors."
Tanon Acquisition and Related Agreements. On January 4, 1995, the Company
acquired Tanon pursuant to a certain acquisition agreement. Tanon was merged
with a newly-formed wholly-owned subsidiary of the Company and the Company
issued 1,538,462 shares of Common Stock of the Company with an appraised value
of $13,077,000 in exchange for all of the remaining outstanding shares of Common
Stock of Tanon. Of such shares, Joseph R. Spalliero received 992,259 shares of
Common Stock of Company in exchange for 1,090,000 shares of Tanon Common Stock.
Mr. Spalliero's children received an aggregate of 18,204 shares of Company
Common Stock in exchange for 20,000 shares of Tanon Common Stock. In addition,
the Company granted to certain option holders of Tanon, in exchange for their
options to purchase Tanon capital stock, options to purchase approximately
201,000 shares of Company Common Stock at a weighted average exercise price of
$1.05 per share with an appraised value of $1,383,000. Of such options (i) Mr.
Spalliero and his children received fully vested options to purchase an
aggregate of 7,553 shares at an exercise price of $0.99 per share in exchange
for their options to purchase shares of Tanon capital stock, and (ii)
(25)
Jonathan R. Wolter received options to purchase 9,103 shares of Common Stock at
an exercise price of $1.25 per share vesting proportionately over 3 years and
3,154 shares at an exercise price of $0.99 per share which are fully vested.
Upon consummation of the acquisition of Tanon, the Company, through its
wholly-owned subsidiary, Tanon, entered into an Employment Agreement with Joseph
R. Spalliero (formerly the Chairman and President of Tanon), pursuant to which
Mr. Spalliero has been engaged as the Chief Operating Officer of Tanon to serve
for a term commencing on January 4, 1995 and ending on January 3, 1997. Mr.
Spalliero will receive an annual base salary of $240,000. In addition, the
Company granted to Mr. Spalliero, at closing, incentive and non-incentive stock
options to acquire an aggregate of 350,000 shares of Common Stock of the Company
at an exercise price equal to $8.50 per share, which was the fair market value
on January 4, 1995, the date of grant with respect to 305,000 shares, and $9.35
per share, which was 110% of the fair market value with respect to 45,000 shares
on January 4, 1995, the date of grant. Such options will vest proportionately
over three years. Mr. Spalliero also received a signing cash bonus of $300,000
upon execution and delivery of his Employment Agreement and is eligible,
pursuant to the terms thereof, to earn a cash bonus of up to $750,000, to be
paid based upon Tanon meeting certain goals, in equal installments during 1996,
1997 and 1998.
In connection with the Tanon acquisition, the Company loaned Mr. Spalliero,
the Chief Operating Officer of Tanon, $1,000,000 for a 30-month term with
interest fixed at the applicable Federal rate and accruing and due together with
principal at the end of the 30-month term. Such loan is non-recourse and is
secured solely with 192,300 shares of Common Stock of the Company acquired by
Mr. Spalliero upon consummation of the Tanon Acquisition Agreement. Also, upon
closing, the Company indemnified Mr. Spalliero and his wife, Patricia Spalliero,
for certain outstanding indebtedness of Tanon set forth on Tanon's balance sheet
dated November 26, 1994, which indebtedness had been personally guaranteed by
Mr. and Mrs. Spalliero.
In January 1995, the Company granted to Jonathan R. Wolter incentive and
non-incentive stock options to acquire an aggregate of 75,000 shares of Common
Stock of the Company at an exercise price of $8.50 per share, which was the fair
market value on January 4, 1995, the date of grant. Such options vest
proportionately over four years. Mr. Wolter is also eligible to participate in
the Executive Bonus Plan of the Company adopted upon acquisition of Tanon for
annual bonus awards of up to 50% of salary at the discretion of Joseph R.
Spalliero.
BarOn Investment. On January 16, 1995, the Company acquired a 25.01% equity
interest in BarOn Technologies Ltd. ("BarOn"), a privately-owned Israeli
corporation based in Haifa, Israel (the "BarOn Investment"). BarOn is a
development stage company engaged in the research and development of a computer
input device that can directly digitize handwriting in a variety of languages,
from any surface. Messrs. Murray and Seshens received compensation for services
in connection with the BarOn transaction and the acquisition of Tanon. See
"Election of Directors -- Compensation of Directors."
Joint Venture with IAI. The Company, through a 52.3% owned Israeli
subsidiary ("Partner"), has entered into a Joint Venture Agreement ("JVA") with
Israel Aircraft Industries, Ltd., an Israel government corporation ("IAI"), for
the purpose of forming a joint venture ("Joint Venture") with IAI to review,
develop, and exploit certain non-military, non-classified technological
applications ("Applications") developed by IAI. The transaction was consummated
on August 8, 1995.
To implement the JVA, in early August, 1995, the Company entered into a
Preincorporation Agreement to form Partner which is the joint venture partner
and owns 50.1% of the Joint Venture. IAI owns 49.9% of the Joint Venture. Under
the Preincorporation Agreement, Partner is owned as
(26)
follows: (a) the Company owns a 52.3% interest as referenced above, (b) certain
Israeli persons own an aggregate of 25.2%, (c) Mark S. Hauser, nominee for
director of the Company, owns a 15% interest, (d) Irwin L. Gross, Chairman of
the Board and a director of the Company, owns a 5% interest, and (e) Broad
Capital Associates owns a 2.5% interest. See "Consulting Agreement with Broad
Capital" below.
The equity interests in Partner were issued for an aggregate consideration
of $10,000 paid by the shareholders in proportion to their equity interests in
Partner. In addition, the Company and the Israeli citizens loaned $6.3
million and $1.575 million, respectively, to Partner. Of such funds, $7.5
million has been invested in the Joint Venture to be used solely for working
capital purposes. The remaining $375,000 will be used by Partner for working
capital purposes.
The JVA provides that the Joint Venture will review and evaluate
Applications developed by IAI, which are in various stages of development. To
review and evaluate the Applications, an investment committee ("Investment
Committee") comprised of seven persons will be formed. Partner will be entitled
to select four of the seven members of the Investment Committee. If an
Application is selected for development and exploitation, an entity will be
formed ("Licensee") in which Partner will own a 50% interest and IAI will own a
50% interest, and IAI will grant such Licensee a perpetual, royalty free license
for such Application. The Investment Committee will prepare a business plan to
exploit each application selected, including a funding plan. The Company will be
primarily responsible to raise the funds necessary to exploit the Application
selected. However, the Company will not be under any obligation to raise any
funds for such purpose unless and until the Investment Committee selects an
Application for exploitation. In the event the Company is unable to raise the
funds necessary to exploit any Application which the Investment Committee
selects, IAI can terminate the JVA. The JVA can also be terminated under certain
other circumstances.
To fund its obligations under the Preincorporation Agreement, on August 3,
1995 the Company sold 1,458,333 shares of its Common Stock at a price of $4.80
per share for an aggregate of $7.0 million to five Israeli persons, three of
whom are shareholders in Partner. The offering was made pursuant to an exemption
from registration under the Securities Act of 1933, as amended. The purchase
agreements pursuant to which the shares were sold contain an adjustment
provision which requires the issuance of additional shares in the event that the
average closing price of the Common Stock for a certain period of time is less
than the offering price in the offering. The proceeds from the offering were
placed in escrow and were released upon the execution of the JVA. The balance of
$700,000 remaining from the sale of 1,458,333 shares after funding the Company's
obligations under the Preincorporation Agreement will be used by the Company for
working capital purposes.
In connection with consulting services related to the Joint Venture which
Mark S. Hauser, nominee for director of the Company, provided to the Company, on
July 19, 1995 the Company granted Mr. Hauser options to acquire 100,000 shares
of Common Stock pursuant to the Company's Equity Incentive Plan (subject to
shareholder approval of an increase in the number of shares reserved for
issuance under such plan) at an exercise price of $8.1875, the fair market
value as of the date of grant. Such options vest and are exercisable 33-1/3% on
the date of grant, 33-1/3% on the first anniversary of the date of grant and
33-1/3% on the second anniversary of the date of grant.
Option Grants to Irwin L. Gross. On May 17, 1994, Mr. Gross was granted an
option under the Company's Equity Incentive Plan for 1,000,000 shares at an
exercise price of $4.44 per share, which was the fair market value at the date
of grant. See "Compensation of Executive Officers - Equity Incentive Plan." On
July 12, 1995, Mr. Gross was granted, subject to the shareholder approval of the
proposed increase in the number of shares reserved for issuance under that plan
as set forth herein as Proposal 5, an additional option under the Equity
Incentive Plan for 1,000,000 shares, at an exercise
(27)
price of $7.25 per share, which was the fair market value at the date of grant,
exercisable at the rate of 10% per year, cumulatively.
Consulting Agreement with Broad Capital. In January 1995, the Company
entered into a consulting agreement with Broad Capital Associates, a financial
consulting and advisory company in which Murray Huberfeld, husband to Laura
Huberfeld, and David Bodner, husband to Naomi Bodner, are principals. Broad
Capital Associates was engaged to provide financial consulting services to the
Company. Such agreement was amended on April 27, 1995 to expand the services of
Broad Capital Associates, cancel the options originally granted by the Company
in consideration for such services, and to grant new options to Broad Capital
Associates for such services. Accordingly, on April 27, 1995, the Company
granted to Broad Capital Associates options to acquire 375,000 shares of Common
Stock of the Company at an exercise price of $8.1875 per share, which price was
equal to the fair market value on the date of grant. In addition, as additional
consideration for Broad Capital Associates services, on July 5, 1995 the Company
granted Broad Capital Associates options to purchase 425,000 shares of Common
Stock of the Company pursuant to the Company's Equity Incentive Plan (subject to
shareholder approval of an increase in the number of shares reserved for
issuance under such plan) at an exercise price of $8.125 per share, the fair
market value on the date of the grant. Such options vest and are exercisable
33-1/3% on the date of grant, 33-1/3% on the first anniversary of the date of
grant, and 33-1/3% on the second anniversary of the date of grant.
PROPOSAL 2
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO CHANGE THE
NAME OF THE COMPANY TO EA INDUSTRIES, INC.
On July 5, 1995, the Board of Directors approved, subject to shareholder
approval, an amendment to the Company's Certificate of Incorporation to change
the name of the Company from Electronic Associates, Inc. to EA Industries, Inc.
The Board of Directors believes that the change in name will better reflect the
present operations and business of the Company.
The description of Proposal 2 is qualified in its entirety by reference to
the full text of the proposed amendment to Article ONE of the Company's
Certificate of Incorporation set forth in Appendix I, annexed hereto and
contained in the Certificate of Amendment to the Company's Certificate of
Incorporation (the "Certificate of Amendment") which is annexed hereto as
Schedule A to Appendix I.
Vote Required. Adoption of the amendment to the Company's Certificate of
Incorporation to change the name of the Company to EA Industries, Inc. requires
the affirmative vote of a majority of the votes cast by the holders of shares of
Common Stock entitled to vote thereon.
Effective Date. The effective date of the amendment to the Certificate of
Incorporation set forth in Proposal 2, if the required approval of shareholders
is obtained, will be the date of the filing of the Certificate of Amendment in
the office of the Secretary of State of New Jersey. The Certificate of Amendment
will be filed as soon as reasonably practicable after adoption and approval of
Proposal 2 by the Company's shareholders.
The Board recommends a vote FOR approval of Proposal 2.
(28)
PROPOSAL 3
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 25,000,000 TO 50,000,000
SHARES.
The Company's Certificate of Incorporation currently authorizes 50,000,000
shares of capital stock comprised of 25,000,000 shares of Common Stock and
25,000,000 shares of Preferred Stock.
The Company's Certificate of Incorporation was amended in 1994 to increase
the number of shares of Common Stock authorized from 5,000,000 to 25,000,000. On
July 5, 1995, the Board of Directors approved, subject to shareholder approval,
an amendment to the Company's Certificate of Incorporation to increase the
number of authorized shares of Common Stock from 25,000,000 to 50,000,000.
As of August 15, 1995 there were 13,710,144 shares of Common Stock issued
and outstanding and a total of approximately 11,385,131 additional shares are
reserved for issuance under the Company's 1972 Stock Option Plan, the 1991 Stock
Option Plan, the Non-Employee Directors Plan, the Equity Incentive Plan (subject
to shareholder approval of an increase in shares reserved for issuance under
such plan) and upon the exercise of various warrants and rights that have been
issued by the Company. The Company is presently pursuing additional potential
sources of equity capital and although no arrangements have been made to secure
such capital, the Board of Directors believes that it is in the best interests
of the Company and its shareholders that additional shares of Common Stock
should be available to allow for capital formation, particularly in view of the
Company's requirements for additional working capital in the near term. The
Board also believes that the availability for issuance of a sufficient number of
shares of its capital stock, including Common Stock, will provide the Company
with greater flexibility to take advantage of favorable business opportunities
and meet business needs as they arise, including the acquisition of other
businesses in the future. There are no present plans or arrangements to effect
any such acquisition. Further, if Proposals 4 and 5 are adopted at the meeting,
the Company will require additional authorized Common Stock to fund the
increase in the number of shares available for issuance under the Non-Employee
Directors Plan and the Equity Incentive Plan. The issuance of additional shares
of capital stock for capital formation purposes or otherwise will result in the
dilution of the ownership interests of the current shareholders of the Company.
The description of Proposal 3 is qualified in its entirety by reference to
the full text of proposed Article Fourth of the Company's Certificate of
Incorporation set forth in Appendix I annexed hereto and contained in the
Certificate of Amendment to the Company's Certificate of Incorporation which is
annexed hereto as Schedule A to Appendix I.
Vote Required. Adoption of the amendment to the Company's Certificate of
Incorporation to change the name of the Company to EA Industries, Inc. requires
the affirmative vote of a majority of the votes cast by the holders of shares of
Common Stock entitled to vote thereon.
Effective Date. The effective date of the amendment to the Certificate of
Incorporation set forth in Proposal 3, if the required approval of shareholders
is obtained, will be the date of the filing of the Certificate of Amendment in
the office of the Secretary of State of New Jersey. The Certificate of Amendment
will be filed as soon as reasonably practicable after adoption and approval of
Proposal 3 by the Company's shareholders.
(29)
PROPOSAL 4
A PROPOSAL TO AMEND THE COMPANY'S NON-EMPLOYEE DIRECTORS PLAN TO INCREASE
THE SHARES RESERVED FOR ISSUANCE UNDER SUCH PLAN FROM 400,000 SHARES TO
2,400,000 SHARES.
On July 12, 1995, the Company's Board of Directors approved an amendment to
the Non- Employee Directors Plan, subject to shareholder approval, to increase
the number of shares of the Company's Common Stock reserved for issuance under
this plan by 2,000,000 shares, from 400,000 shares to 2,400,000 shares.
The purpose of the Non-Employee Directors Plan, approved by the shareholders
at their 1994 Annual Meeting, is to attract and retain the services of
experienced and knowledgeable independent directors for the benefit of the
Company and its shareholders and to provide additional incentives for such
directors to continue to work for the best interests of the Company and its
shareholders. A total of 400,000 shares of Common Stock were authorized,
initially, for issuance under this Plan, of which options for 400,000 shares
(net of cancellations and repurchases) have been granted under this plan. No
shares remain available for issuance.
The following summary of the Non-Employee Directors Plan, as currently in
effect, is qualified by reference to the full text thereof which is attached
hereto as Appendix II.
Nonstatutory Stock Options. All options granted under the plan will be
nonstatutory stock options not intended to qualify as "incentive stock options"
as defined in Section 422 of the Code.
Administration. The plan is administered by the Company's Board of Directors
which has plenary authority to interpret the plan and to make all other
determinations and to take all other acts necessary or advisable in connection
with the administration of the plan, provided that all such determinations and
actions are consistent with the terms and conditions of the plan.
Eligibility. Each member of the Company's Board who is not an employee of
the Company or of a subsidiary of Company and who has not been an employee of
the Company or of a subsidiary of the Company for a period of at least one year
prior to the grant of an option under the plan is eligible to participate in the
plan ("Eligible Director").
Terms and Conditions of Options. The option price per share with respect to
each option is required to be 100 percent of the fair market value of the Common
Stock on the date the option is granted. Such fair market value is the average
of the high and low sale prices on the New York Stock Exchange consolidated tape
("NYSE Tape") on the date of the grant of the option (or if not traded on such
date, on the next preceding date on which it is traded); or if the market prices
of such Common Stock are not reported on the NYSE Tape on the grant date, such
other place as the market prices are reported as designated by the Committee.
The period of the option is ten (10) years from the date of the grant, provided
that an option is subject to earlier termination in the event of the termination
of an optionees status as a non-employee director.
Payment for the shares as to which an option is exercised shall be made in
cash, in Common Stock of the Company owned by the option holder for a period of
at least six (6) months having a market value on the date of exercise equal to
the aggregate option price, or in a combination of cash and of Common Stock of
the Company. The market value of shares tendered to exercise an option is the
average of the high and low sale prices of the Common Stock on the NYSE Tape on
the exercise date; or if the Common Stock is not reported on the NYSE Tape on
the exercise date, such other place as the market prices may be reported as
designated by the Committee, provided that if no transactions
(30)
occurred on the exercise date or if the notice of the exercise is delivered
after the closing of trading, the fair market value is the average of the high
and low sale prices of the Common Stock on the NYSE Tape (or if not so reported,
such other place that market prices are reported) on the next preceding date on
which the Common Stock is so traded.
Exercise of Options. An option shall become exercisable on a cumulative
basis as follows:
(1) 30% immediately in the case of persons who are Eligible
Directors on the Effective Date or who thereafter become Eligible
Directors;
(2) 15% on the first anniversary of the date of grant;
(3) 15% on the second anniversary of the date of grant;
(4) 20% upon the Company achieving Operating Profitability
(as defined in the Non-Employee Directors Plan) after the date of grant
("Initial Operating Profitability Date");
(5) 10% on the first anniversary of the Initial Operating
Profitability Date if the Company has also achieved Operating
Profitability; and
(6) 10% on the second anniversary of the Initial Operating
Profitability Date if the Company has also achieved Operating Profitability.
For purposes of the Non-Employee Directors Plan, "Operating Profitability"
means at any time after a respective date of grant both of the following
conditions are satisfied: (I) a positive net income from operations resulting
from the Company's present operations for each of two consecutive fiscal
quarters after a respective date of grant (the "Calculation Date"), and (2) a
positive aggregate net income from operations resulting from the present
operations for the four (4) fiscal quarters ended immediately prior to the
Calculation Date. All such accounting in connection with Operating Profitability
shall be in accordance with generally accepted accounting principles.
Nontransferability of options. During an option holder's lifetime, an option
shall be exercised only by him and shall not be transferable except in the event
of death, or pursuant to a qualified domestic relations order as defined in the
Code or pursuant to Title I of the Employee Retirement Income Security Act or
rules thereunder.
Termination of status as a Non-Employee Director. Upon termination of an
option holder's status as a non-employee director for any reason other than
death or Ineligibility (as defined below), such director's option privileges
will be limited to the shares which were immediately purchasable by him on the
date of such termination, and such option privileges will expire unless
exercised within 30 days following such termination. In no event, however, shall
an option be exercised after the expiration of ten (10) years from the date of
the grant.
Death of holder. Upon the death of an option holder, all his options become
immediately exercisable, and his option privileges will expire unless exercised
by the executor or administrator of his estate, or by a person who acquired the
right to exercise such option by bequest or inheritance or by reason of his
death, within twelve (12) months after the date of his death. In no event,
however, shall an option be exercised after the expiration of ten (10) years
from the date of the grant.
Ineligibility of holder. Upon the termination of an option holder's status
as a non-employee director due to his ineligibility under the Company's Bylaws,
as in effect on the Effective Date of the plan, to
(31)
stand for reelection ("Ineligibility"), all of his options shall become
immediately exercisable, and his option privileges shall expire unless exercised
within 180 days following such termination. In no event, however, shall an
option be exercised after the expiration of ten (10) years from the date of the
grant.
Nonshareholder. Neither the holder of an option nor his successor or
successors in interest shall, as such, have any of the rights of a shareholder.
Limited Stock Appreciation Rights. In the event of any tender or exchange
offer for some or all of the Company's Common Stock (other than an offer made by
the Company or any of its subsidiaries) an option holder may elect within sixty
(60) days after the commencement of such offer, in lieu of exercising such
option, to receive from the Company a cash payment equal to the product obtained
by multiplying (i) any excess of the then market price of the Company's Common
Stock over the exercise price of such option by (ii) the number of shares
subject to such option (the "Stock Appreciation Rights") provided that no
election in lieu of exercise may be made within six (6) months from the date of
grant of the option, provided, however, that the Board has the sole discretion
to approve the holder's election to receive cash in lieu of the exercise of such
option.
Adjustment in Event of Capital Stock Changes. In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation or any other change in the corporate structure or
shares of the Company, the Board may make such adjustment, if any, as it may
deem appropriate in the number and kind of shares authorized by the plan or in
the number, option price or kind of shares covered by the options granted.
Discontinuance or Amendment. The Board may discontinue the plan at any time
and may amend the plan from time to time. Amendments may be made without
shareholder approval except as required to satisfy Rule 16b-3 under the Exchange
Act if the plan so qualifies, or other regulatory requirements, provided that no
outstanding option may be revoked, or altered in a manner unfavorable to the
holder, without the consent of the holder.
Effective Date; Duration. The Non-Employee Directors Plan became effective
as of March 10, 1994 following approval by the shareholders at the Company's
1994 Annual Meeting of Shareholders held on May 17, 1994, The plan will
terminate on March 10, 1999 and no option may be granted under this plan
following such date; provided, however, that options previously granted may vest
and be exercised beyond that date.
Certain Federal Income Tax Consequences of the Non-Employee Directors Plan.
The following description of certain federal income tax consequences of the
Non-Employee Directors Plan is based upon current statutes, regulations and
interpretations and does not include state or local income tax consequences.
This description is not intended to address specific tax consequences applicable
to a director who receives a stock option under the Non-Employee Directors Plan.
Neither the option holder nor the Company incurs any federal income tax
consequences as a result of the grant of an option under the Non-Employee
Directors Plan.
Upon the exercise of an option, the difference between the exercise price
and the fair market value of the shares on the Income Recognition Date (defined
below) will be taxable as ordinary income to the option holder as of such Income
Recognition Date. Upon the exercise of a Stock Appreciation Right, the amount of
cash received will be taxable as ordinary income as of the exercise date. The
Income Recognition Date for shares received upon exercise of an option or Stock
Appreciation Right under the Non-Employee Directors Plan is generally the later
of the date of exercise or the date six (6) months after the date of grant,
unless the option holder elects to recognize income as of the exercise date.
(32)
At the time of a subsequent sale of any shares of Common Stock obtained upon
the exercise of an option under the Non-Employee Directors Plan, any gain or
loss generally will be a capital gain or loss to the option holder. Such capital
gain or loss will be long-term gain or loss if the sale occurs more than one
year after the Income Recognition Date and short-term capital gain or loss if
the sale occurs one year or less after the Income Recognition Date.
The Company will be entitled to a deduction for federal income tax purposes
at the same time and in the same amount that the holder of an option or a Stock
Appreciation Right recognizes ordinary income, to the extent that such income is
considered reasonable compensation under the Code. The Company will not,
however, be entitled to a deduction with respect to any payment that constitutes
an "excess parachute payment" pursuant to Section 280G of the Code and does not
qualify as reasonable compensation pursuant to that Section. Such payments will
also subject a non-employee director to a 20% excise tax.
For additional information, see the table setting forth the number of
options granted under the Non-Employee Directors Plan to the named non-employee
directors during 1994, as set forth above under the caption "Non-Employee
Directors Plan".
Vote Required. Adoption of the amendment to increase by 2,000,000 the number
of shares reserved for issuance under the Non-Employee Directors Plan requires
the affirmative vote of a majority of the votes cast by the holders of shares of
Common Stock entitled to vote thereon.
Effective Date. The amendment to the Non-Employee Directors Plan will be
effective upon approval by the shareholders.
The Board of Directors recommends a vote FOR proposal 4.
PROPOSAL 5
PROPOSAL TO AMEND THE COMPANY'S EQUITY INCENTIVE PLAN TO INCREASE THE SHARES
RESERVED FOR ISSUANCE UNDER SUCH PLAN FROM 3,000,000 TO 6,000,000.
On May 17, 1994, the Board of Directors adopted the Company's Equity
Incentive Plan, which was approved by the shareholders of the Company at the
Special Meeting of Shareholders held on June 28, 1994.
The purpose of the Equity Incentive Plan is to enhance the Company's ability
to recruit, attract, retain and reward directors, officers, employees and
consultants. The Equity Incentive Plan provides for the granting of awards
("Awards") to directors (whether or not employees), officers, employees and
consultants in the form of stock options, stock appreciation rights ("SARs"),
restricted stock awards ("Restricted Stock Awards") and deferred stock awards
("Deferred Stock Awards"). The variety of awards authorized by the Plan gives
the Company flexibility to adapt the Company's compensation practices as the
business environment in which it operates changes.
A total of 3,000,000 shares of Common Stock was reserved initially for
issuance under this plan, of which options for 4,324,000 shares (net of
cancellations and repurchases and including options for 1,324,000 shares which
were granted subject to shareholder approval of an increase in the number of
shares reserved for issuance under this plan) have been granted and no shares
remain available for issuance under this Plan.
(33)
On July 12, 1995 the Company's Board of Directors approved an amendment to
the Equity Incentive Plan, subject to shareholder approval, to increase the
number of shares of the Company's Common Stock reserved for issuance under this
Plan by 3,000,000 shares, from 3,000,000 shares to 6,000,000 shares.
In approving the amendment to increase the number of shares reserved for
issuance under the Equity Incentive Plan, the Board considered the importance to
the Company and its shareholders of the ability to grant different types of
awards as an incentive to attract and retain directors, executive and other
employees.
The summary of the Equity Incentive Plan set forth below is qualified by
reference to the full text thereof which is attached hereto as Appendix III.
Administration. The Equity Incentive Plan is administered by the
Compensation Committee of the Board of Directors (the "Committee"). The
Committee determines the recipients of awards under the Plan, the times at which
Awards are made and the terms of each Award. In its discretion, the Board of
Directors may elect to administer all or any aspects of the Plan and to perform
any of the duties or exercise any of the rights delegated or granted to the
Committee under the terms of the Plan; provided, however, that the Board may not
make such election if the election would result in the failure of the Plan to
comply with Rule 16b-3 promulgated under the Securities Exchange Act of 1934 at
a time at which the Plan would otherwise be in compliance with such rule. Any
determinations and actions of the Committee (or the Board as the case may be),
are conclusive and binding on all parties.
Effective Date and Term of Plan. The Plan was deemed effective on May 17,
1994, the date on which it was adopted by the Board of Directors, following the
Plan's approval by the Shareholders on June 28, 1994. The Plan will terminate
ten (10) years after the effective date of the Plan, subject to earlier
termination by the Board. No Award may be granted under the Plan after the
termination date, but Awards previously granted may extend beyond such date.
Eligibility. All employees of the Company and its subsidiaries and other
persons or entities who, in the opinion of the Committee are in a position to
make a significant contribution to the success of the Company or its
subsidiaries, including non-employee directors of and consultants to the Company
or its subsidiaries, are eligible to participate in the Plan.
Nature of Options. Both "incentive stock options," as defined in Section 422
of the Code (referred to herein as "ISOs") and non-incentive stock options may
be granted under the Plan. ISOs may be awarded only to employees of the Company
or its subsidiaries.
Option Price. The exercise price of each option is determined by the
Committee, but in the case of an ISO it shall not be less than 100% (110% in the
case of an ISO granted to a ten (10%) percent shareholder) of the fair market
value of the Common Stock on the date the option is granted.
Period of Option. The term of an option shall not exceed ten (10) years
(five (5) years in the case of an ISO granted to a ten (10%) percent
shareholder) from the date the option was granted.
Exercise of Options. Options become exercisable at such time or times, and
on and subject to such conditions, as the Committee may specify. No options are
exercisable unless and until the shares underlying such options are listed on
the New York Stock Exchange or such other exchange or quotation system on which
the Common Stock is then listed or quoted. Subject to the conditions relating to
the trading price of the Common Stock and the listing of the Common Stock
described above, the Committee may at any time and from time to time accelerate
the time at which all or any part of an option may be exercised.
(34)
Payment. Full payment for shares purchased pursuant to an exercise of an
option are made at the time of the exercise of the option in cash or such other
form of consideration as the Committee may approve, including, without
limitation, delivery of shares of Common Stock.
Stock Appreciation Rights. An SAR is an Award entitling the recipient to
receive payment in cash and/or Common Stock, determined in whole or in part by
reference to appreciation in the value of a share of Common Stock. In general,
an SAR entitles the recipient to receive, with respect to each share as to which
the SAR is exercised, the excess of the fair market value of a share of Common
Stock on the date of exercise over the fair market value of a share of Common
Stock on the date the SAR was granted. The Committee may, however, provide at
the time of grant that the amount the recipient is entitled to receive will be
adjusted upward or downward under rules established by the Committee to take
into account the performance of the Company's Common Stock in comparison with
the performance of other stocks or an index or indices of other stocks.
Grant of SARs. SARs are granted in tandem with, or independently of, options
granted under the Plan. An SAR granted in tandem with an option which is not an
ISO is granted either at or after the time the option is granted. An SAR granted
in tandem with an ISO is granted only at the time the option is granted.
Exercise of SARs. An SAR not granted in tandem with an option will become
exercisable at such time or times, and on such conditions, as the Committee may
specify. An SAR granted in tandem with an option will be exercisable only at
such times, and to the extent, that the related option is exercisable. An SAR
granted in tandem with an ISO may be exercised only when the market price of the
shares subject to the option exceeds the exercise price of such option. The
Committee may at any time and from time to time accelerate the time at which all
or part of the SAR may be exercised.
Restricted Stock Awards. A Restricted Stock Award entitles the recipient to
acquire shares of Common Stock, subject to certain restrictions or conditions,
for no cash consideration, if permitted by applicable law, or for such other
consideration as determined by the Committee. The Award is subject to such
restrictions, conditions and forfeiture provisions as the Committee may
determine, including, but not limited to, restrictions on transfer, continuous
service with the Company or any of its subsidiaries, achievement of business
objectives, and individual, unit and Company performance. Subject to such
restrictions, conditions and forfeiture provisions as may be established by the
Committee, any participant receiving an Award has all the rights of a
shareholder of the Company with respect to shares of Restricted Stock, including
the right to vote the shares and the right to receive any dividends thereon.
Deferred Stock Awards. A Deferred Stock Award entitles the recipient to
receive shares of Common Stock to be delivered in the future. Delivery of the
shares takes place at such time or times, and on such conditions, as the
Committee specifies. The Committee may at any time accelerate the time at which
delivery of all or any part of the shares will take place.
Transfers of Awards. No Award (other than an Award in the form of an
outright transfer of cash or stock) may be assigned, pledged or transferred
other than by will or by the laws of descent and distribution and during a
participant's lifetime is exercisable only by the participant or, in the event
of a participant's incapacity, his or her guardian or legal representative.
Adjustments. In the event of a stock dividend, stock split or combination of
shares, recapitalization or other change in the Company's capitalization, or
other distribution to holders of Common Stock other than normal cash dividends,
after the effective date of the Equity Incentive Plan, the Committee makes any
appropriate adjustments to the maximum number of shares that may be delivered
under the Plan and to any participant. In the event of any such occurrence, the
Committee also makes any
(35)
appropriate adjustments to the number and kind of shares of stock or securities
subject to Awards then outstanding or subsequently granted, any exercise prices
relating to Awards and any other provision of Awards affected by such change.
The Committee also makes adjustments to take into account material changes in
law or in accounting practices or principles, mergers, consolidations,
acquisitions, dispositions or similar corporate transactions, or any other
event, if it is determined by the Committee that adjustments are appropriate to
avoid distortion in the operation of the Plan.
Mergers, Etc. In the event of any merger or consolidation involving the
Company, any sale of substantially all of the Company's assets or any other
transaction or series of related transactions as a result of which a single
person or several persons acting in concert own a majority of the Company's then
outstanding stock (such merger, consolidation, sale or other transaction being
hereinafter referred to as a "Transaction"), all outstanding options and SARs
will become immediately exercisable and each outstanding share of Restricted
Stock and each outstanding Deferred Stock Award shall immediately become free of
all restrictions and conditions. Upon consummation of the Transaction, all
outstanding options and SARs will terminate and cease to be exercisable. These
provisions do not apply, however, to any Transaction as a result of which (a)
the holders of Common Stock prior to the Transaction retain or acquire
securities constituting a majority of the outstanding voting Common Stock of the
acquiring or surviving corporation or other entity and (b) no single person owns
more than half of the outstanding voting Common Stock of the acquiring or
surviving corporation or other entity.
In lieu of the foregoing, if there is an acquiring or surviving corporation
or entity, the Committee may by vote of a majority of the members of the
Committee who are Continuing Directors (as defined below), arrange to have such
acquiring or surviving corporation or entity or an affiliate thereof grant to
participants holding outstanding Awards replacement Awards which, in the case of
ISOs, satisfy, in the determination of the Committee, the requirements of
Section 425 (e) of the Code. The term "Continuing Director" means any director
of the Company who (i) is not an Acquiring Person (as defined in the Plan) or an
affiliate of an Acquiring Person and (ii) either was (a) a member of the Board
of Directors on May 17, 1994 or (b) nominated for his or her initial term of
office by a majority of the Continuing Directors at the time of such nomination.
Amendments and Termination. The Committee has the authority to make such
amendments to any terms and conditions applicable to outstanding Awards as are
consistent with the Plan provided that no such action will modify an Award in a
manner adverse to the participant without the participant's consent, except as
such modification is provided for or contemplated in the terms of the Award. The
Board may amend, suspend or terminate the Plan without shareholder approval.
Certain Federal Income Tax Consequences of the Equity Incentive Plan. The
following description of certain Federal income tax consequences of the Equity
Incentive Plan is based upon current statutes, regulations and interpretations
and does not include State or local income tax consequences applicable to a
person who receives a stock option under the Equity Incentive Plan.
Neither the option holder nor the Company incurs any Federal income tax
consequences as a result of the grant of an option under the Equity Incentive
Plan.
Upon the exercise of a Non-Qualified Option, the difference between the
exercise price and the fair market value of the shares on the Income Recognition
Date (defined below) is taxable as ordinary income to the option holder as of
such Income Recognition Date. The Income Recognition Date for shares received
upon exercise of a Non-Qualified Option under the Equity Incentive Plan is the
date of exercise (except in the case of persons subject to Section 16(b) of the
Securities Exchange Act of 1934, in which case the Income Recognition Date is
generally the later of the date of exercise or the date six (6) months after the
date of grant, unless the option holder elects to recognize income as of the
exercise date).
(36)
At the time of a subsequent sale of any shares of Common Stock obtained upon
the exercise of a Non-Qualified Option under the Equity Incentive Plan, any gain
or loss generally will be a capital gain or loss to the option holder. Such
capital gain or loss will be long-term gain or loss if the sale occurs more than
one (1) year after the Income Recognition Date and short-term capital gain or
loss if the sale occurs one (1) year or less after the Income Recognition Date.
The Company is entitled to a deduction for Federal income tax purposes at
the same time and in the same amount that the holder of a Non-Qualified Option
recognizes ordinary income, to the extent that such income is considered
reasonable compensation under the Code, and provided that the Company properly
withholds taxes in respect of the exercise. The Company is not, however,
entitled to a deduction with respect to any payment that constitutes an "excess
parachute payment" pursuant to Section 280G of the Code and does not qualify as
reasonable compensation pursuant to that Section. Such payments subject a
participant in the Plan to a 20% excise tax.
An option holder will not recognize any income, and the Company will not be
entitled to a deduction, upon the exercise of an ISO during the option holder's
employment with the Company or within three (3) months after termination of
employment (or longer in the event of termination by reason of death or
disability); however, in certain circumstances, upon the exercise of an ISO, the
option holder may be subject to the alternative minimum tax.
Assuming that the option holder does not dispose of the shares received
within the "incentive stock option holding period", which is both two (2) years
after the ISO was granted and one (1) year after the transfer of shares upon
exercise of an ISO, any gain recognized by the option holder on the sale or
exchange of the shares will be treated as long-term capital gain and any loss
sustained will be a long-term capital loss. If the shares acquired upon exercise
of an ISO are disposed of before the end of the incentive stock option holding
period, the disposition may cause the option holder to recognize ordinary
income.
A participant who has been awarded Restricted Stock does not recognize
taxable income at the time of the award (except in cases where an award of
Common Stock is made without the imposition of transfer or forfeiture
restrictions, in which case the recipient will recognize ordinary income and the
Company will be entitled to a corresponding deduction as described below). At
the time any transfer or forfeiture restrictions applicable to the Restricted
Stock award lapse, the recipient recognizes ordinary income and the Company is
entitled to a corresponding deduction equal to the excess of the fair market
value of such stock at such time over the amount paid therefor (if any),
provided that the Company properly withholds taxes at that time. Any dividends
paid to the recipient on the Restricted Stock at or prior to such time is
ordinary compensation income to the recipient and deductible as such by the
Company.
A participant who is granted a Deferred Stock Award does not recognize
ordinary income at the time of the Award. At the time that all of the conditions
to the receipt of the Common Stock subject to the Award are satisfied, the
recipient recognizes ordinary income and the Company is entitled to a
corresponding deduction equal to the excess of the fair market value of such
stock at such time over the amount paid therefor (if any), provided the Company
properly withholds taxes at that time.
There are no Federal income tax consequences either to the employee or the
Company upon the grant of SARs. The amount of any cash (or the fair market value
of any Common Stock) received by the holder upon the exercise of SARs under the
Plan will be subject to ordinary income tax in the year of receipt and the
Company is entitled to a deduction for such amount, provided that the Company
properly withholds taxes in respect of the exercise.
(37)
In view of the recent changes to existing tax laws, the Company presently is
considering what action, if any, it will take with respect to qualifying
compensation paid to its executive officers for deductibility under Section
162(m) of the Code. Effective January 1, 1994, Section 162(m) of the Code limits
deductions for compensation paid to or accrued for any officer named in the
Compensation Table presented in the Company's Proxy Statement to $1,000,000 per
annum. Certain types of compensation which qualify as performance-based
compensation are not subject to the specified limit on deductibility if the
criteria for the awards are approved by an independent committee of the Board
and by shareholders.
Vote Required. The increase in the number of shares reserved for issuance
under the Equity Incentive Plan requires the affirmative vote of a majority of
the votes cast by the holders of shares of Common Stock entitled to vote
thereon.
The Board of Directors recommends a vote FOR Proposal 5.
PROPOSAL 6
RATIFICATION OF SELECTION OF ARTHUR ANDERSEN LLP AS AUDITORS
The Company's Board of Directors has selected Arthur Andersen LLP,
independent certified public accountants ("Arthur Andersen"), as auditors of the
Company's financial statements for the current fiscal year. Arthur Andersen have
acted as auditors of the Company since 1967.
The Board has determined to afford shareholders the opportunity to express
their opinion on the matter of auditors, and accordingly is submitting to the
Annual Meeting of Shareholders a proposal to ratify the Board's selection of
Arthur Andersen. Failure of the shareholders to ratify the selection of Arthur
Andersen will be interpreted as an instruction to seek other auditors.
Representatives of Arthur Andersen are expected to be present at the Annual
Meeting of Shareholders and will be given the opportunity to make a statement if
they so desire and to answer appropriate questions.
Vote required. The proposal to ratify the Board's selection of Arthur
Andersen as auditors will be adopted if approved by the affirmative vote of a
majority of the votes cast by the holders of shares of Common Stock entitled to
vote thereon.
The Board of Directors recommends a vote FOR Proposal 6.
(38)
OTHER MATTERS WHICH MAY BE PRESENTED
FOR ACTION AT THE MEETING
The management is not aware that any matter other than those specifically
set forth in the Notice of Annual Meeting of Shareholders is to be presented for
action at the 1995 Annual Meeting. If any other matter is properly presented for
action at the meeting, it is the intention of the persons named in the enclosed
form of proxy to vote thereon in accordance with their judgment pursuant to the
discretionary authority conferred by the proxy.
REPORTS UNDER SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
To the best of the Company's knowledge, based solely on a review of Forms 3,
4 and 5 and written representations filed with the Company, all Section 16(a)
filing requirements applicable to the Company's officers, directors and greater
than 10% beneficial owners were complied with, except that the following named
directors, officers or beneficial owners of more than 10% of the Common Stock of
the Company made the following number of late filings of reports required by
Section 16(a) of the Exchange Act (each report related to a single transaction
except for Loretta Milo) during the fiscal year ended December 31,1994: Loretta
Milo (2) (each reporting the same two transactions); Charles A. Milo (1); Irwin
Gross (1); Jules Seshens (1); Corson Ellis (1); Seth J. Antine (1); Naomi Bodner
(2); Laura Huberfeld (2).
SHAREHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
Any shareholder who wishes to present a proposal for action at the Annual
Meeting of Shareholders in 1996 and who wishes to have it set forth in the
Company's Proxy Statement in accordance with the rules of the Securities and
Exchange Commission must submit such proposal so that it is received at the
Company's principal executive offices no later than May 31, 1996.
MISCELLANEOUS
The cost of the solicitation of proxies will be borne by the Company. In
addition to the use of the mails, proxies may be solicited personally, or by
telephone or telegraph, by certain of the Company's directors, officers and a
group of management employees who will not receive any extra compensation for
such solicitation other than out-of-pocket expenses, and by the American Stock
Transfer & Trust Company which has been engaged to assist the Company in the
solicitation of proxies. The cost of solicitation (excluding customary
out-of-pocket expenses) is included in the monthly fees of approximately $800
paid by the Company to the American Stock Transfer & Trust Company for services
as transfer agent for the Company's Common Stock.
(39)
The Company's Annual Report on Form 10-K/A, which constitutes the Company's
Annual Report to Shareholders, is being mailed to shareholders with this Proxy
Statement. The Annual Report, however, is not to be considered proxy soliciting
material nor in any way a part of this Proxy Statement.
The Company will provide without charge to each person solicited by the
Proxy Statement, on the written request of such person, an additional copy of
the Company's Annual Report on Form 10-K/A, including the financial statements
and schedules thereto, filed with the Securities and Exchange Commission for its
most recent year. Such written requests should be directed to the attention of
Karin Gaskill at the address of the Company appearing on the first page of this
Proxy Statement.
- -------------------------------------------------------------------------------
IMPORTANT Please sign, date
and mail your Proxy Card.
- -------------------------------------------------------------------------------
By order of the Board of Directors.
Richard P. Jaffe, Secretary
West Long Branch, New Jersey
September 14, 1995
(40)
APPENDIX I
PROPOSED AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION
OF
ELECTRONIC ASSOCIATES, INC.
PROPOSAL 2 and PROPOSAL 3
Proposal 2. The present text of Article ONE of the Company's Certificate of
Incorporation, as previously amended, reads as follows:
"The name of the Corporation is Electronic Associates, Inc."
If Proposal 2 to amend the Company's Certificate of Incorporation to change
the name of the Corporation is approved by the shareholders, the amendment to
Article ONE will be as follows:
In Article ONE, delete the words "Electronic Associates
Inc." and substitute therefor the words "EA Industries,
Inc."
Proposal 3. The present text of the first paragraph of Article FOURTH of the
Company's Certicate of Incorporation, as previously amended, reads as follows:
"The total authorized capital stock of this Corporation is
fifty million (50,000,000) shares divided into twenty five
million (25,000,000) shares of Common Stock, and twenty five
million (25,000,000) shares of Preferred Stock. Said shares
may be issued by the Corporation from time to time for such
consideration as may be fixed from time to time by the Board
of Directors of the Corporation."
If Proposal 3 to amend the Company's Certificate of Incorporation to
increase the number of authorized shares of Common Stock is approved by the
shareholders, the amendment to Article FOURTH will be as follows:
In the first sentence of the first paragraph of Article
FOURTH:(i) delete the words "fifty million (50,000,000)" and substitute
therefor the words "seventy five million (75,000,000)"; and (ii) delete the
words "twenty five million (25,000,000) shares of Common Stock" and
substitute therefor the words "fifty million (50,000,000) shares of Common
Stock."
(41)
Schedule A to
Appendix I
CERTIFICATE OF AMENDMENT
TO
THE CERTIFICATE OF INCORPORATION
OF
ELECTRONIC ASSOCIATES, INC.
TO: SECRETARY OF STATE
STATE OF NEW JERSEY
This is to certify that the Certificate of Incorporation of Electronic
Associates, Inc. (herein referred to as the "Corporation ) which was filed and
recorded in the office of the Secretary of State, State of New Jersey on October
31, 1945, as amended, is hereby amended pursuant to the provisions of N.J.
Stat. Ann. ss. 14A:9-2 of the "New Jersey Business Corporation Act".
1. NAME OF CORPORATION
The name of the Corporation is Electronic Associates, Inc
2. DATE OF ADOPTION, TEXT AND APPROVAL OF AMENDMENTS
The following amendments to the Certificate of Incorporation of Electronic
Associates, Inc. (the "Amendments") were adopted by the shareholders of the
Corporation on the 12th day of October, 1995:
(a) In Article ONE, delete the words "Electronic Associates, Inc." and
substitute therefor the words "EA Industries, Inc."
The Corporation has issued and outstanding a total of 13,710,144 of Common
Stock, the holders of which are entitled to vote on the Amendment. A total of
_________ shares of Common Stock (constituting a majority of the votes cast by
the holders of shares of Common Stock entitled to vote thereon) voted in favor
of the amendment to the Company's Certificate of Incorporation to change the
name of the Company from "Electronic Associates, Inc." to "EA Industries, Inc."
(b) In the first sentence of the first paragraph of Article FOURTH, delete
the words "fifty million (50,000,000)" and substitute therefor the words
"seventy five million (75,000,000)"; and (ii) delete the words "twenty five
million (25,000,000) shares of Common Stock" and substitute therefor the words
"fifty million (50,000,000) shares of Common Stock".
The Corporation has issued and outstanding a total of 13,710,144 of Common
Stock, the holders of which are entitled to vote on the Amendment. A total of
_________ shares of Common Stock (constituting a majority of the votes cast by
the holders of shares of Common Stock entitled to vote thereon) voted in favor
of the amendment to the Company's Certificate of Incorporation to increase the
Company's authorized Common Stock from 25,000,000 shares to 50,000,000 shares.
No other classes of shares are outstanding.
ATTEST: ELECTRONIC ASSOCIATES, INC.
______________________________ By: ____________________________
RICHARD P. JAFFE, Secretary IRWIN L. GROSS, Chairman
(42)
Appendix II
ELECTRONIC ASSOCIATES, INC.
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose
The purpose of the Electronic Associates, Inc. 1994 Stock Option Plan for
Non-Employee Directors (the "Plan") is to promote the interests of Electronic
Associates, Inc. ("EAI") and its shareholders by strengthening EAI's ability to
continue to attract and retain the services of experienced and knowledgeable
independents non-employee directors for the benefit of EAI and its shareholders
and to provide an additional incentive for such directors to continue to work
for the best interests of EAI and its shareholders by encouraging such directors
to acquire an increased proprietary interest in EAI.
2. Shares Subject to the Plan
The aggregate number of shares of common stock ("Common Stock") of EAI
issuable upon exercise of options granted under this Plan shall not exceed
400,000, subject to adjustment pursuant to Section 11 below. The shares shall be
made available from authorized and unissued Common Stock, or from Common Stock
issued and held as treasury shares, including shares purchased in the open
market or in private transactions, as shall be determined by the Board of
Directors of EAI (the "Board").
3. Effective Date of the Plan
This Plan shall become effective immediately on March 10, 1994 (the
"Effective Date"), subject to the approval by the shareholders of EAI at EAI's
1994 Annual Meeting of Shareholders of (A) the Plan, and (B) an amendment to
EAI's Certificate of Incorporation increasing the number of authorized shares of
Common Stock to 25,000,000.
4. Duration of the Plan
This Plan shall terminate on the fifth anniversary of the Effective Date
(the "Date of Termination"), and no option shall be granted under this Plan
following the Date of Termination; provided, however, that grants of options
made prior to the Date of Termination may vest and be exercised following such
Date of Termination in accordance with their terms as set forth in the Plan.
5. Nonstatutory Stock Options
All options granted under the Plan shall be nonstatutory stock options not
intended to qualify as "incentive stock options" as that term is defined in
Section 422 of the Internal Revenue Code of 1986, as amended.
6. Administration of the Plan
The Plan shall be administered by the Board. The Board shall have plenary
authority to interpret the Plan and to take all other actions necessary or
advisable in connection with the administration of the Plan, provided that all
such determinations and actions are consistent with the terms and conditions of
the Plan. The Board's determinations of the matters referred to in this Section
6 shall be conclusive.
7. Participation in the Plan
Each member of EAI's Board who is not otherwise an employee of EAI or
subsidiary of EAI and who has not been an employee of EAI or a subsidiary of EAI
for a period of at least one year prior to the grant of an option under the Plan
(the "Eligible Director") shall be eligible to participate in the Plan.
(43)
8. Option Grant Size and Grant Dates
An option to purchase 50,000 shares, subject to adjustment pursuant to
Section 11 of this Plan, of Common Stock of EAI is or shall be granted to (a)
each person who is an Eligible Director on the Effective Date, and (b) each
person who becomes an Eligible Director following the Effective Date on the date
the person is elected to the Board (the date any such person receives a grant
shall be referred to herein as the "Date of Grant") and an additional option to
purchase 10,000 shares (the "Chairman Option"), subject to adjustment pursuant
to Section 11 of this Plan, of Common Stock of EAI shall be granted to (a) each
person who is an Eligible Director on the Effective Date who serves as Chairman
of the Board of Directors of the EAI (the "Chairman of the Board"), and (b) each
person who becomes the Chairman of the Board following the Effective Date and
who is an Eligible Director at such time he becomes Chairman of the Board. If an
Eligible Director who was previously granted an option under this Plan is no
longer serving as a member of the Board (or Chairman of the Board with respect
to the Chairman Option), and thereafter is again elected or appointed to the
Board (or Chairman of the Board as the case may be), such director shall be
eligible to receive a second grant of an option pursuant to this Plan to
purchase shares of Common Stock of EAI only to the extent that the previous
option granted under this Plan did not vest and become exercisable.
9. Terms and Conditions of Options
(a) Option Agreement
Each option granted under the Plan shall be evidenced by an option agreement
(the "Agreement") duly executed on behalf of EAI and by the Eligible Director to
whom such option is granted and dated as of the applicable date of grant. Each
Agreement shall be signed on behalf of EAI by an officer or officers delegated
such authority by the Board using either manual or facsimile signature. Each
Agreement shall comply with and be subject to the terms and conditions of the
Plan. Any Agreement may contain such other terms, provisions and conditions not
inconsistent with the Plan as may be determined by the Board.
(b) Option Price
The option price per share with respect to each option granted to Eligible
Directors on the Effective Date shall be 100% of the fair market value of the
Common Stock on the Effective Date. Such fair market value shall be the average
of the high and low sales prices of the Common Stock on the New York Stock
Exchange consolidated tape on the Effective Date or, if for any reason market
prices of EAI Common Stock shall not be reported on the New York Stock Exchange
consolidated tape on the Effective Date, such other place as the market prices
may be reported as designated by the Board. The option price per share with
respect to each option granted subsequent to the Effective Date to an Eligible
Director shall be 100% of the fair market value of the Common Stock on the Date
of Grant. Such fair market value shall be the average of the high and low sales
prices of the Common Stock on the New York Stock Exchange consolidated tape on
the Date of Grant or, if for any reason market prices of EAI Common Stock shall
not be reported on the New York Stock Exchange consolidated tape on the Date of
Grant, such other place as the market prices may be reported as designated by
the Board. If the Common Stock is not traded on either the Effective Date or the
Date of Grant, then the fair market value on such date shall be the average of
the high and low sales prices of the Common Stock on the New York Stock Exchange
consolidated tape on the next preceding date on which the Common Stock was so
traded.
(44)
(c) Term of Options
Each option granted to an Eligible Director on the Effective Date shall
expire ten (10) years from its Effective Date, and each option granted to an
Eligible Director following the Effective Date shall expire ten (10) years from
its Date of Grant; provided, that an option shall be subject to earlier
termination under subsection (h) below.
(d) Payment
Payment for shares as to which an option is exercised shall be made in cash
or personal check, in Common Stock of EAI owned by the option holder having a
market value on the date of exercise equal to the aggregate option price, or in
a combination of cash and Common Stock of EAI. In the event that the option
holder decides to pay in whole or in part in shares of EAI Common Stock, such
shares shall have been held by the option holder for at least six (6) months and
the option holder must submit written notification that is binding and
irrevocable of the number of shares that are to be used to pay the option price.
The market value of shares tendered to exercise an option shall be the average
of the high and the low prices of EAI Common Stock on the New York Stock
Exchange consolidated tape, or, if for any reason trading prices of EAI Common
Stock shall not be reported on the New York Stock Exchange consolidated tape at
the time of exercise, such other place where it shall be reported as the Board
may designate, on the day notice of the exercise of the option is given to EAI
if it is delivered before the close of trading on the New York Stock Exchange
or, if no transactions occurred on such day or if it is delivered after the
close of trading on the New York Stock Exchange, on the next succeeding day on
which such transactions take place.
(e) Exercise of Option
If the Plan is approved by EAI's shareholders, an option granted to an
Eligible Director shall become exercisable on a cumulative basis as follows:
(1) 30% (A) immediately in the case of persons who are
Eligible Directors on the Effective Date, (B) upon election to the Board in the
case of persons who are elected to the Board after the Effective Date;
(2) 15% on the first anniversary of the Date of Grant;
(3) 15% on the second anniversary of the Date of Grant;
(4) 20% upon EAI's achievement of Operating Profitability
(as hereinafter defined) after the Date of Grant ("initial Operating
Profitability Date");
(5) 10% on the first anniversary of the Initial Operating
Profitability Date if EAI has also achieved Operating Profitability on such
first anniversary; and
(6) 10% on the second anniversary of the Initial Operating
Profitability Date if EAI has also achieved Operating Profitability on such
second anniversary; with fractional shares carried over and exercisable as a
whole in the final year; provided, however, that the option shall become
immediately exercisable if a Change in Control occurs.
(45)
For purposes of this Plan, "Operating Profitability" shall mean at any time
after a respective Date of Grant both of the following conditions are satisfied:
( I ) a positive "Net Income From Operations" resulting from EAI's operations in
West Long Branch, New Jersey, Tucson, Arizona and Nogales, Sonora, Mexico (the
"Present Operations") for each of two consecutive fiscal quarters immediately
prior to such date in question (the "Calculation Date"; the precise Calculation
Date with regard to determining the Initial Operating Profitability Date cannot
be determined on the Effective Date), and (2) a positive aggregate "Net Income
From Operations" resulting from the Present Operations for the four (4) fiscal
quarters ended immediately prior to the Calculation Date. All such accounting in
connection with Operating Profitability shall be in accordance with generally
accepted accounting principles.
For purposes of this Plan, a "Change in Control" shall be deemed to have
occurred if (a) any individual, person (including any "person" defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, as in effect on the
Effective Date (the "Act")), firm, corporation, partnership or other entity is
or becomes (other than pursuant to a merger or consolidation in which EAI's
stock is issued in which case Section I below is applicable) the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Act), directly or
indirectly, of securities of EAI representing 30% or more of the total voting
power of the outstanding voting securities of EAI having the right under
ordinary circumstances to vote at an election of the Board; (b) either (i)
Current Directors shall cease for any reason to constitute at least a majority
of the members of the Board (for these purposes, a "Current Director" shall mean
any member of the Board as of the Effective Date and any successor of a Current
Director whose election, or nomination for election by EAI's shareholders, was
approved by at least two-thirds of the Current Directors then on the Board) or
(ii) at any meeting of shareholders of EAI called for the purpose of electing
directors, a majority of the persons nominated by the Board for election as
directors shall fail to be elected; or (c) the shareholders of EAI approve (i) a
plan of complete liquidation of EAI, (ii) an agreement providing for the merger
or consolidation of EAI with another corporation where the shareholders of EAI,
immediately prior to the merger or consolidation, would not beneficially own,
immediately after the merger or consolidation, shares entitling such
shareholders to more than 50% of all votes to which all shareholders of the
corporation issuing cash or securities in the merger or consolidation would be
entitled under ordinary circumstances in the election of directors or where the
members of the Board, immediately prior to the merger or consolidation, would
not, immediately after the merger or consolidation, constitute a majority of the
Board of Directors of the corporation issuing cash or securities in the merger
or consolidation or (iii) an agreement (or agreements) providing for the sale or
other disposition (in one transaction or a series of transactions) of all or
substantially all the assets of EAI.
(f) Time and Manner of Option Exercise
Any vested and exercisable option is exercisable in whole or in part at any
time or from time to time during the option period by giving written notice,
signed by the person exercising the option, to EAI stating the number of shares
with respect to which the option is being exercised, accompanied by payment in
full of the option exercise price for the number of shares to be purchased. The
date both such notice and payment are received by EAI shall be the date of
exercise of the stock option as to such number of shares. No option may at any
time be exercised with respect to a fractional share.
(g) Nontransferability of Options
During an option holder's lifetime, an option shall be exercised only by him
and shall not be transferable except as provided in paragraph (i) below and as
pursuant to a qualified domestic relations
(46)
order as defined by the Internal Revenue Code of 1986, as amended, or Title I of
the Employee Retirement Income Security Act, or the rules thereunder.
(h) Termination of Status as Non-Employee Director
Upon the termination of an option holder's status as an Eligible Director
for any reason other than death or Ineligibility (as defined below), the
Eligible Director's option privileges shall be limited to the shares which were
immediately purchasable by the Eligible Director at the date of such
termination, and such option privileges shall expire unless exercised within
thirty (30) days following such termination. In no event, however, shall an
option granted to an Eligible Director on the Effective Date be exercised after
the expiration of ten (10) years from the Date of Grant, nor shall an option
granted to an Eligible Director following the Effective Date be exercised after
the expiration of ten (10) years from the Date of Grant.
(i) Death of Option Holder
Upon the death of an option holder, all of the holder's options shall become
immediately exercisable, and his option privileges shall expire unless exercised
by the executor or administrator of the holder's estate, or by a person who
acquired the right to exercise such option by bequest or inheritance or by
reason of the death of the holder, within twelve (12) months after the date of
death. In no event, however, shall an option granted to an Eligible Director on
the Effective Date be exercised after the expiration of ten (10) years from the
Effective Date, nor shall an option granted to an Eligible Director following
the Effective Date be exercised after the expiration of ten (10) years from the
Date of Grant.
(j) Ineligibility of Option Holder
Upon the termination of an option holder's status as an Eligible Director
due to the ineligibility of the Eligible Director under EAI's Bylaws, as in
effect on the Effective Date, to stand for reselection ("Ineligibility"), all of
the Eligible Director's options shall become immediately exercisable, and the
Eligible Director's option privileges shall expire unless exercised within one
hundred eighty (180) days following such termination. In no event, however,
shall an option granted to an Eligible Director on the Effective Date be
exercised after the expiration of ten (10) years from the Effective Date, nor
shall an option granted to an Eligible Director following the Effective Date be
exercised after the expiration of ten (10) years from the Date of Grant.
(k) Non-Shareholder
Neither the recipient of an option under the Plan nor an optionee's
successor or successors in interest, as described in subsection (i) above, shall
have any rights as a shareholder of EAI with respect to any shares subject to an
option granted to such person until the date of issuance of a stock certificate
for such shares.
10. Limited Stock Appreciation Rights
In the event of any tender or exchange offer for some or all of EAI's Common
Stock (other than an offer made by EAI or any of its subsidiaries) each holder
of an option may elect within sixty (60) days after the commencement of such
offer, in lieu of exercising such option, to receive from EAI a cash payment
equal to the product obtained by multiplying (i) the excess, if any, of the then
market
(47)
price of EAI's Common Stock over the exercise price of such option by (ii) the
number of shares subject to such option; provided, however, that no such
election in lieu of exercise may be made within six (6) months from the
Effective Date for options granted prior to obtaining shareholder approval and
within six (6) months of the Date of Grant for options granted following
shareholder approval of the Plan; provided, however, that the Board has the sole
discretion to approve the holder's election to receive cash in lieu of the
exercise of such option. Such limited stock appreciation rights are subject to
the completion of the exchange or tender offer and the conditions of any
agreement to which EAI is a party.
11. Adjustment in Event of Capital Stock Changes
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation or any other change in
the corporate structure or shares of EAI, the Board shall make such adjustment,
if any, as it may deem appropriate in the number and kind of shares authorized
by this Plan or in the number, option price or kind of shares covered by the
options granted.
12. Reallocation of Lapsed Options
Shares covered by options which lapse or are terminated shall be reallocated
and made available for future grants of options under the Plan.
13. Governmental Regulations
This Plan, and the grant and exercise of options hereunder, shall be subject
to all applicable rules and regulations of governmental or other authorities. No
Common Stock may be purchased under this Plan until EAI has taken all actions
then required to comply with the Securities Act of 1933, as amended, and any
other applicable state securities laws and any exchange on which the Common
Stock may be listed.
14. No Guarantee of Director Status
Neither the Plan, nor the granting of an option, nor any other action taken
pursuant to the Plan shall constitute or be evidence of any agreement or
understanding, express or implied, that an Eligible Director has a right to
continue as a director for any period of time or at any particular rate of
compensation.
15. Expenses of the Plan
All costs and expenses of the adoption and administration of the Plan shall
be borne by EAI, and none of such expenses shall be charged to any optionee.
16. Indemnification
In addition to such other rights of indemnification as they may have as
members of the Board, the members of the Board shall be indemnified by EAI
against all costs and expenses reasonably incurred by them in connection with
any action, suit or proceeding to which they or any of them may be party by
reason of any action taken or failure to act under or in connection with the
Plan or any option granted thereunder, and against all amounts paid by them in
settlement thereof, or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except a judgment based upon a
(48)
finding of bad faith; provided that upon the institution of any such action,
suit or proceeding, a Board member shall, in writing, give EAI notice thereof
and an opportunity, at its own expense, to handle and defend the same before
such Board member undertakes to handle and defend it on such member's own
behalf.
17. Discontinuance or Amendment
The Board may discontinue this Plan at any time and may amend it from time
to time. Plan amendments may be made without shareholder approval except as
required to satisfy Rule 16b-3 under the Securities Exchange Act of 1934 or
other regulatory requirements, in each case as amended from time to time;
provided, however, that the provisions relating to the option recipient, option
grant size and option grant date contained in Section 8 above and option price
contained in Section 9(b) above, shall not be amended more than once every six
(6) months, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules thereunder. Other than as
contemplated by Section 11 above, no outstanding option may be revoked, or
altered in a manner unfavorable to the holder, without the consent of the
holder.
(49)
APPENDIX III
1994 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this 1994 Equity Incentive Plan (the "Plan") is to advance
the interests of Electronic Associates, Inc. (the "Company") and its
subsidiaries by enhancing the ability of the Company to (i) attract and retain
employees and other persons or entities who are in a position to make
significant contributions to the success of the Company and its subsidiaries;
(ii) reward such persons or entities for such contributions; and (iii) encourage
such persons or entities to take into account the long-term interest of the
Company through ownership of shares ("Shares") of the Company's Common Stock
("Stock").
The Plan is intended to accomplish these goals by enabling the Company to
grant awards ("Awards") in the form of Options, Stock Appreciation Rights,
Restricted Stock or Deferred Stock, all as more fully described below.
2. ADMINISTRATION
The Plan will be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). The
Committee will determine the recipients of Awards, the times at which Awards
will be made and the size and type or types of Awards to be made to each
recipient and will set forth in such Awards the terms, conditions and
limitations applicable to it. Awards may be made singly, in combination or in
tandem. The Committee will have full and exclusive power to interpret the Plan,
to adopt rules, regulations and guidelines relating to the Plan, to grant
waivers of Plan restrictions and to make all of the determinations necessary for
this administration. In its discretion, the Board of Directors may elect to
administer all or any aspects of the Plan and to perform any of the duties or
exercise any of the rights delegated or granted to the Committee under the terms
of the Plan; provided, however, that the Board may not make such election if the
election would result in the failure of the Plan to comply with Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), at a time at which the Plan would otherwise be in compliance with such
rule. Such determinations and actions of the Committee (or the Board as the case
may be), and all other determinations and actions of the Committee (or the Board
as the case may be) made or taken under authority granted by any provision of
the Plan, will be conclusive and binding on all parties. Nothing in this
paragraph shall be construed as limiting the power of the Committee to make
adjustments under Section 11 or to amend or terminate the Plan under Section 16.
3. EFFECTIVE DATE AND TERM OF PLAN
Subject to the approval of the Plan by the Company's shareholders*, the
Plan will be deemed effective on May 17, 1994. Grants of Awards under the Plan
may be made prior to the receipt of shareholder approval, subject to such
approval of the Plan.
The Plan will terminate ten (10) years after the effective date of the Plan,
subject to earlier termination of the Plan by the Board pursuant to Section 16.
No Award may be granted under the Plan after the termination date of the Plan,
but Awards previously granted may extend beyond that date.
__________
* approved by the shareholders on June 28, 1994
(50)
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 11 below, the maximum aggregate
number of Shares of Stock that may be delivered for all purposes under the Plan
shall be three million (3,000,000).
If any Award requiring exercise by the Participant for delivery of Stock is
canceled or terminates without having been exercised in full, or if any Award
payable in Stock or cash is satisfied in cash rather than Stock, the number of
Shares of Stock as to which such Award was not exercised or for which cash was
substituted will be available for future grants of Stock except that Stock
subject to an Option canceled upon the exercise of an SAR shall not again be
available for Awards under the Plan unless, and to the extent that, the SAR is
settled in cash. Likewise, if any Award payable in Stock or cash is satisfied in
Stock rather than cash, the amount of cash for which such Stock was substituted
will be available for future Awards of cash compensation. Shares of Stock
tendered by a Participant or withheld by the Company to pay the exercise price
of an Option or to satisfy the tax withholding obligations of the exercise or
vesting of an Award shall be available again for Awards under the Plan, but only
to Participants who are not subject to Section 16 of the Exchange Act. Shares of
Restricted Stock forfeited to the Company in accordance with the Plan and the
terms of the particular Award shall be available again for Awards under the Plan
unless the Participant has received the benefits of ownership (within the
applicable interpretation under Rule 16b-3 under the Exchange Act), in which
case such Shares may only be available for Awards to Participants who are not
subject to Section 16 of the Exchange Act.
Stock delivered under the Plan may be either authorized but unissued Stock
or previously issued Stock acquired by the Company and held in treasury. No
fractional Shares of Stock will be delivered under the Plan and the Committee
shall determine the manner in which fractional share value will be treated.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants") will be
persons in the employ of the Company or any of its subsidiaries ("Employees")
and other persons or entities who, in the opinion of the Committee, are in a
position to make a significant contribution to the success of the Company or its
subsidiaries, including non-employee directors of the Company or a subsidiary of
the Company and consultants to the Company or a subsidiary of the Company. A
"subsidiary" for purposes of the Plan will be a corporation in which the Company
owns, directly or indirectly, stock possessing 50% or more of the total combined
voting power of all classes of stock.
6. OPTIONS
a. Nature of Options. An Option is an Award entitling the Participant to
purchase a specified number of Shares at a specified exercise price. Both
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") (referred to herein as an "ISO") and
non-incentive stock options may be granted under the Plan. ISOs may be awarded
only to Employees.
(51)
b. Exercise Price. The exercise price of each Option shall be determined by
the Committee, but in the case of an ISO shall not be less than 100% (110% in
the case of an ISO granted to a ten (10%) percent shareholder) of the Fair
Market Value of a Share at the time the ISO is granted. For purposes of this
Plan, "Fair Market Value" shall have the same meaning as it does in the
provisions of the Code and the regulations thereunder applicable to ISOs. For
purposes of this Plan, "ten-percent shareholder" shall mean any Employee who at
the time of grant owns directly, or is deemed to own by reason of the
attribution rules set forth in Section 424(d) of the Code, Stock possessing more
than ten (10%) percent of the total combined voting power of all classes of
stock of the Company or any of its subsidiaries.
c. Duration of Options. In no case shall an Option be exercisable more than
ten (10) years (five (5) years, in the case of an ISO granted to a "ten-percent
shareholder" as defined in (b) above) from the date the Option was granted.
d. Exercise of Options and Conditions. Options granted under any single
Award will become exercisable at such time or times, and on and subject to such
conditions, as the Committee may specify; provided, however, that no Option will
become exercisable until the expiration date of such Option if subsequent to the
effectiveness of the Plan, the Sale Price (as defined below) of the Company's
Common Stock does not equal or exceed $6.00 per share for ten (10) consecutive
trading days. For purposes of this Plan, the Sale Price of the Company's Common
Stock shall be the average of the high and low sale prices or, in case no such
sale takes place on such day, the average of the high bid and low asked prices,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange-or, if the Common Stock is not then listed or admitted to trading
on the New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Common Stock is not quoted by
any such organization, the average of the high bid and low asked prices as
furnished by a professional market maker making a market in the Common Stock
selected by the Board of Directors. In addition, options will not be exercisable
unless the shares subject thereto have been approved for listing on the New York
Stock Exchange or such other exchange or quotation system on which the Common
Stock is then listed or quoted. Subject to the conditions described above with
respect to the Sale Price and listing of the Common Stock, the Committee may at
any time and from time to time accelerate the time at which all or any part of
the Option may be exercised.
e. Payment for and Delivery of Stock. Full payment for Shares purchased will
be made at the time of the exercise of the Option, in whole or in part. Payment
of the purchase price will be made in cash or in such other form of
consideration as the Committee may approve, including, without limitation,
delivery of Shares of Stock.
7. STOCK APPRECIATION RIGHTS
a. Nature of Stock Appreciation Rights. A Stock Appreciation Right (an
"SAR") is an Award entitling the recipient to receive payment, in cash and/or
Stock, determined in whole or in part by reference to appreciation in the value
of a Share. In general, an SAR entitles the recipient to receive, with respect
to each Share as to which the SAR is exercised, the excess of the Fair Market
Value of
(52)
a Share on the date of exercise over the Fair Market Value of a Share on the
date the SAR was granted. However, the Committee may provide at the time of
grant that the amount the recipient is entitled to receive will be adjusted
upward or downward under rules established by the Committee to take into account
the performance of the Shares in comparison with the performance of other stocks
or an index or indices of other stocks.
b. Grant of SARs. SARs may be granted in tandem with, or independently of,
Options granted under the Plan. An SAR granted in tandem with an Option which is
not an ISO may be granted either at or after the time the Option is granted. An
SAR granted in tandem with an ISO may be granted only at the time the Option is
granted.
c. Exercise of SARs. An SAR not granted in tandem with an Option will become
exercisable at such time or times, and on such conditions, as the Committee may
specify. An SAR granted in tandem with an Option will be exercisable only at
such times, and to the extent, that the related Option is exercisable. An SAR
granted in tandem with an ISO may be exercised only when the market price of the
Shares subject to the Option exceeds the exercise price of such Option. The
Committee may at any time and from time to time accelerate the time at which all
or part of the SAR may be exercised.
8. RESTRICTED STOCK
A Restricted Stock Award entitles the recipient to acquire Shares, subject
to certain restrictions or conditions, for no cash consideration, if permitted
by applicable law, or for such other consideration as determined by the
Committee. The Award may be subject to such restrictions, conditions and
forfeiture provisions as the Committee may determine, including, but not limited
to, restrictions on transfer, continuous service with the Company or any of its
subsidiaries; achievement of business objectives, and individual, unit and
Company performance. Subject to such restrictions, conditions and forfeiture
provisions as may be established by the Committee, any Participant receiving an
Award will have all the rights of a shareholder of the Company with respect to
Shares of Restricted Stock, including the right to vote the Shares and the right
to receive any dividends thereon.
9. DEFERRED STOCK
A Deferred Stock Award entitles the recipient to receive Shares to be
delivered in the future. Delivery of the Shares will take place at such time or
times, and on such conditions, as the Committee may specify. The Committee may
at any time accelerate the time at which delivery of all or any part of the
Shares will take place. At the time any Deferred Stock Award is granted, the
Committee may provide that the Participant will receive an instrument evidencing
the Participant's right to future delivery of Deferred Stock.
10. TRANSFERS
No Award (other than an Award in the form of an outright transfer of cash or
Stock) may be assigned, pledged or transferred other than by will or by the laws
of descent and distribution and during a Participant's lifetime will be
exercisable only by the Participant or, in the event of a Participant's
incapacity, his or her guardian or legal representative.
(53)
11. ADJUSTMENTS
a. In the event of a stock dividend, stock split or combination of Shares,
recapitalization or other change in the Company's capitalization, or other
distribution to holders of the Company's Common Stock other than normal cash
dividends, after the effective date of the Plan, the Committee will make any
appropriate adjustments to the maximum number of Shares that may be delivered
under the Plan and to any Participant under Section 4 above.
b. In any event referred to in paragraph (a), the Committee will also make
any appropriate adjustments to the number and kind of Shares of Stock or
securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change, including the requirement that the Sale Price of the Common Stock
equal or exceed the threshold described in Section 6(d). The Committee may also
make such adjustments to take into account material changes in law or in
accounting practices or principles, mergers, consolidations, acquisitions,
dispositions or similar corporate transactions, or any other event, if it is
determined by the Committee that adjustments are appropriate to avoid distortion
in the operation of the Plan.
12. RIGHTS AS A SHAREHOLDER
Except as specifically provided by the Plan, the receipt of an Award will
not give a Participant rights as a shareholder; the Participant will obtain such
rights, subject to any limitations imposed by the Plan or the instrument
evidencing the Award, upon actual receipt of Shares. However, the Committee may,
on such conditions as it deems appropriate, provide that a Participant will
receive a benefit in lieu of cash dividends that would have been payable on any
or all Shares subject to the Participant's Award had such Shares been
outstanding.
13. CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any Shares pursuant to the Plan
or to remove any restrictions or legends from Shares previously delivered under
the Plan until, (a) in the opinion of the Company's counsel, all applicable
federal and state laws and regulations have been complied with, (b) if the
outstanding Shares are at the time listed on any stock exchange, until the
Shares to be delivered have been listed or authorized to be listed on such
exchange upon official notice of notice of issuance, and (c) until all other
legal matters in connection with the issuance and delivery of such Shares have
been approved by the Company's counsel. If the sale of Shares has not been
registered under the Securities Act of 1933, as amended, the Company may
require, as a condition to exercise of the Award, such representations and
agreements as counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
Shares bear an appropriate legend restricting transfer. If an Award is exercised
by the Participant's legal representative, the Company will be under no
obligation to deliver Shares pursuant to such exercise until the Company is
satisfied as to the authority of such representative.
14. TAX WITHHOLDING
The Company will have the right to deduct from any cash payment under the
Plan taxes that are required to be withheld and further to condition the
obligation to deliver or vest Shares under this Plan upon the Participant's
paying the Company such amount as it may request to satisfy any liability for
applicable withholding taxes. The Committee may in its discretion permit
Participants to satisfy all or
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part of their withholding liability by delivery of Shares with a Fair Market
Value equal to such liability or by having the Company withhold from Stock
delivered upon exercise of an Award, Shares whose Fair Market Value is equal to
such liability.
15. MERGERS; ETC.
In the event of any merger or consolidation involving the Company, any sale
of substantially all of the Company's assets or any other transaction or series
of related transactions as a result of which a single person or several persons
acting in concert own a majority of the Company's then outstanding Stock (such
merger, consolidation, sale or other transaction being hereinafter referred to
as a "Transaction"), all outstanding Options and SARs shall become immediately
exercisable and each outstanding share of Restricted Stock and each outstanding
Deferred Stock Award shall immediately become free of all restrictions and
conditions. Upon consummation of the Transaction, all outstanding Options and
SARs shall terminate and cease to be exercisable. There shall be excluded from
the foregoing any Transaction as a result of which (a) the holders of Stock
prior to the Transaction retain or acquire securities constituting a majority of
the outstanding voting Common Stock of the acquiring or surviving corporation or
other entity and (b) no single person owns more than half of the outstanding
voting Common Stock of the acquiring or surviving corporation or other entity.
For purposes of this Section, voting Common Stock of the acquiring or surviving
corporation or other entity that is issuable upon conversion of convertible
securities or upon exercise of warrants or options shall be considered
outstanding, and all securities that vote in the election of directors (other
than solely as the result of a default in the making of any dividend or other
payment) shall be deemed to constitute that number of shares of voting Common
Stock which is equivalent to the number of such votes that may be cast by the
holders of such securities.
In lieu of the foregoing, if there is an acquiring or surviving corporation
or entity, the Committee may by vote of a majority of the members of the
Committee who are Continuing Directors (as defined below), arrange to have such
acquiring or surviving corporation or entity or an Affiliate (as defined below)
thereof grant to Participants holding outstanding Awards replacement Awards
which, in the case of ISOs, satisfy, in the determination of the Committee, the
requirements of Section 425 (e) of the Code. The term "Continuing Director"
shall mean any director of the Company who (i) is not an Acquiring Person or an
Affiliate of an Acquiring Person and (ii) either was (A) a member of the Board
of Directors of the Company on the effective date of the Plan or (B) nominated
for his or her initial term of office by a majority of the Continuing Directors
in office at the time of such nomination. The term "Acquiring Person" shall
mean, with respect to any Transaction, each Person who is a party to or a
participant in such Transaction or who, as a result of such Transaction, would
(together with other Persons acting in concert) own a majority of the Company's
outstanding Common Stock; provided, however, that none of the Company, any
wholly-owned subsidiary of the Company, any employee benefit plan of the Company
or any trustee in respect thereof acting in such capacity shall, for purposes of
this Section, be deemed an "Acquiring Person." The term "Affiliate", with
respect to any Person, shall mean any other Person who is, or would be deemed to
be an "affiliate" or an "associate" of such Person within the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended. The term
"Person" shall mean a corporation, association, partnership, joint venture,
trust, organization, business, individual or government or any governmental
agency or political subdivision thereof.
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16. AMENDMENTS AND TERMINATION
The Committee will have the authority to make such amendments to any terms
and conditions applicable to outstanding Awards as are consistent with this Plan
provided that, except for adjustments under Section 11 hereof, no such action
will modify such Award in a manner adverse to the Participant without the
Participant's consent except as such modification is provided for or
contemplated in the terms of the Award.
The Board may amend, suspend or terminate the Plan without shareholder
approval.
17. NO GUARANTEE OF EMPLOYMENT
The grant of an Award under this Plan shall not constitute an assurance of
continued employment for any period.
18. MISCELLANEOUS
This Plan shall be governed by and construed in accordance with the laws of
the State of New Jersey.
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THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ELECTRONIC ASSOCIATES, INC.
ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Irwin L. Gross, Joseph R. Spalliero and
Jules M. Seshens and each of them as proxies, each with full power of
substitution, to vote all of the shares of Common Stock of Electronic
Associates, Inc. which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders to be held on October 12, 1995 at
10:00 a.m. local time, and at any adjournment thereof, upon the following
matters set forth in the notice of such meeting.
This proxy, when properly executed, will be voted as specified on the
reverse side. If not otherwise specified, this Proxy will be voted FOR the
election of the nominess of the Board of Directors named in Proposal 1 and FOR
Proposals 2, 3, 4, 5 and 6.
(To be Signed on Reverse Side)
(X) Please mark your
votes as in this
example
FOR WITHHELD Nominees:
1. Election of ( ) ( ) Irwin L. Gross
Directors. Mark S. Hauser
David Reibstein
William Spier
To withhold authority for any individual nominee(s) check the box below and
insert the nominee's name on the line.
( ) FOR ALL EXCEPT
- --------------------------------------
FOR AGAINST ABSTAIN
2. To adopt an amendment to the ( ) ( ) ( )
Company's Certificate of Incorporation
to change the name of the Company to
EA Industries, Inc.
3. To amend the Company's Certificate of ( ) ( ) ( )
Incorporation to increase the authorized
shares of Common Stock of the Company
from 25,000,000 shares to 50,000,000 shares.
4. To amend the Company's 1994 Stock Option ( ) ( ) ( )
Plan for Non-Employee Directors to increase
the number of shares of Common Stock of the
Company reserved for issuance
thereunder from 400,000 shares to 2,400,000 shares.
5. To amend the Company's 1994 Equity Incentive ( ) ( ) ( )
Stock Option Plan to increase the number of
shares of Common Stock of the Company reserved
for issuance thereunder from
3,000,000 shares to 6,000,000 shares.
6. To ratify selection of Arthur Andersen ( ) ( ) ( )
LLP as the Company's auditors.
7. In their discretion, on such other business as may properly come before the
Annual Meeting or any adjournment thereof.
PLEASE MARK, SIGN, DATE, AND RETURN IMMEDIATELY.
SIGNATURE ______________________ DATE __________ ___________________ DATE _____
SIGNATURE IF HELD JOINTLY
NOTE: Please sign exactly as your name appears hereon. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian give full title. If a corporation, sign in
full corporate name by President or other authorized officer. If Partnership,
sign in partnership name by authorized person.