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
EA INDUSTRIES, INC.
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(Name of Registrant as Specified in its Charter)
[INSERT NAME OF FILER WHEN APPLICABLE]
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Payment of Filing Fee (Check the appropriate box):
/ / $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
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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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(3) Per unit price or other underlying value of transaction computed pursuant to
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calculated and state how it was determined):
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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
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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EA INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held August 5, 1997
Please take notice that the Annual Meeting of Shareholders of EA
Industries, Inc., a New Jersey corporation (the "Company"), will be held at the
offices of the Company at 185 Monmouth Parkway, West Long Branch, NJ on August
5, 1997, at 10:00 a.m. for the following purposes:
To elect five (5) directors to the Board of Directors;
To consider and act upon a proposal to amend the Company's
Certificate of Incorporation to increase the Company's authorized
Common Stock from 12,500,000 shares to 35,000,000 shares.
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 2,250,000 shares to 5,000,000 shares;
To consider and act upon a proposal to ratify the selection
of Arthur Andersen LLP as the Company's auditors for the fiscal year
ending December 31, 1997; and
To transact such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors has fixed July 1, 1997 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
July 23, 1997
IMPORTANT Please sign,
date and mail your Proxy Card.
EA INDUSTRIES, INC.
185 MONMOUTH PARKWAY
WEST LONG BRANCH, NEW JERSEY 07764-9989
----------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
August 5, 1997
----------------
GENERAL
This Proxy Statement and accompanying proxy are furnished by EA
Industries, Inc. (the "Company" or "EAI") 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 offices of the Company at 185 Monmouth Parkway, West Long Branch, New Jersey
on August 5, 1997, 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 July 24, 1997. 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 July 1, 1997, the record date for the
meeting, there were outstanding and entitled to vote 8,405,376 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 increase the
Company's authorized Common Stock from 12,500,000 shares to 35,000,000; 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 2,250,000 shares to
5,000,000 shares; and FOR the proposal to ratify the selection of Arthur
Andersen LLP as the Company's auditors for the fiscal year ending December 31,
1997.
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 Equity Incentive Plan, 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
2
Stock entitled to vote on each such proposal. The affirmative vote of two thirds
of the votes cast by the holders of Common Stock is required to approve the
proposal to amend the Certificate of Incorporation. The vote on each proposal
will be tabulated as set forth below.
All votes will be tabulated by an inspector of election at the
meeting 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 Equity
Incentive Plan has 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 Equity Incentive Plan and
any shares present at the meeting that are voted as an abstention on such
proposal will be counted in the tabulation of the votes cast on such proposal,
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 15, 1997, 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.
4
Amount and
Nature of
Name and Beneficial Ownership Percent
Address of (number of shares of
Beneficial Owner* Position of Common Stock Class
----------------- -------- -------------------- -------
Joseph R. Spalliero, Sr. Former President, 182,109 2.17%
CEO and Director
Irwin L. Gross Chairman of the Board 235,500(1) 2.73%
Frank G. Brandenberg President, Chief 0(2) 0
Executive Officer
and Nominee for Director
Stanley O. Jester Vice President, 0(5) (4)
Finance and Treasurer
(Chief Financial
Officer)
Howard P. Kamins Vice President and 0(5) (4)
General Counsel
Edward A. Blechschmidt Nominee for Director 0 0
Bryan I. Finkel Nominee for Director 0 0
Ross Manire Nominee for Director 0 0
Ronald Verdoorn Nominee for Director 0 0
Jules M. Seshens Director 50,209(3) (4)
Warburg, Pincus Counsellors, Inc. None 559,600(6) 6.66%
466 Lexington Avenue
New York, NY 10017
Broad Capital Associates, Inc. None 326,472(7) 3.78%
152 W. 57th Street
New York, NY 10019
Mellon Bank Corporation None 791,000(8) 9.41%
One Mellon Bank Center
Pittsburgh, PA 15258
Millenco L.P. None 1,383,333(9) 14.13%
111 Broadway, 20th Floor
New York, NY 10006
All directors, nominees for director 658,082(1)-(5) 3.29%
and executive officers as a group
of (8 persons)
- --------------
* Addresses are included only for persons who beneficially own more than
5% of the outstanding Common Stock.
5
(1) Represents 150,000 shares of Common Stock into which certain 7%
Convertible Notes held by Mr. Gross are currently convertible, 20,000
shares of Common Stock and 65,500 warrants granted for consulting
services. Does not include options to purchase 166,667 shares of
Common Stock granted under the Company's Equity Incentive Plan, which
are not currently exercisable. See "Compensation of Executive Officers
Equity Incentive Plan" and "Transactions with Management and Others."
Does not include 20,000 shares of Common Stock held of record by
irrevocable trusts for the benefit of the children of Mr. Gross with
respect to which an independent trustee exercises voting and
investment power. Mr. Gross disclaims beneficial ownership of such
shares. Does not include 1,266,667 shares of Common Stock into which
certain 7% Convertible Notes are currently convertible, which are held
by irrevocable trusts for the benefit of the children of Mr. Gross
with respect to which an independent trustee exercises voting and
investment power. Mr. Gross disclaims beneficial ownership of such
shares. Does not include 458,286 shares issuable upon conversion of
certain 10% Series A Convertible Notes of the Company held by Mr.
Gross which are not currently convertible. Does not include 476,000
shares issuable upon conversion of certain 10% Series A Convertible
Notes held by certain family related trusts with respect to which an
independent trustee exercises voting control and investment power,
which are not currently convertible. Mr. Gross disclaims beneficial
ownership of such shares.
(2) Does not include options to purchase 340,000 shares of Common Stock
granted pursuant to the Company's 1994 Equity Incentive Plan, which are
not currently exercisable.
(3) Includes currently exercisable options to purchase 42,709 shares of
Common Stock granted under the Company's Equity Incentive Plan, but does
not include options to purchase 44,791 shares granted pursuant to that
Plan, which are not currently exercisable. Includes currently
exercisable options to purchase 7,500 shares of Common Stock granted
pursuant to the Company's Non-Employee Directors Plan. Does not include
options to purchase 5,000 shares granted under the Non-Employee
Directors Plan which are not currently exercisable. See "Compensation of
Directors".
(4) Represents less than 1% of the outstanding shares of Common Stock.
6
(5) Does not include options to purchase 100,000 shares of Common Stock
granted under the Company's Equity Incentive Plan, which are not
currently exercisable.
(6) Represents shares of Common Stock. Does not include 428,571 shares
issuable upon conversion of 6% Series A Convertible Notes of the Company
which are not currently convertible.
(7) Includes options to purchase 60,714 shares granted to Broad Capital in
July 1995 pursuant to the Company's Equity Incentive Plan. Also includes
Class B Warrants to purchase 88,236 shares of Common Stock held by the
1995 Huberfeld Family Charitable Income Trust ("Huberfeld Trust"), in
which Mr. Murray Huberfeld is the sole voting trustee, and Class B
Warrants to purchase 88,236 shares of Common Stock held by the 1995
Bodner Family Charitable Income Trust ("Bodner Trust"), in which Mr.
David Bodner is the sole voting trustee. Does not include 800,000 shares
issuable upon exercise of warrants held by The Laura Huberfeld & Naomi
Bodner Partnership (the "L&N Partnership"). Messrs. Huberfeld and Bodner
are principals of Broad Capital. Each of Broad Capital, the L&N
Partnership, the Huberfeld Trust and the Bodner Trust disclaim
beneficial ownership in the shares beneficially owned by each of the
other parties. See "Transactions with Management and Others - Consulting
Agreement with Broad Capital."
(8) Represents shares held by Mellon Bank Corporation and/or its direct or
indirect subsidiaries: Mellon Bank, N.A., Mellon Capital Management
Corporation, The Dreyfus Corporation, Dreyfus Growth & Value Fund, Inc.,
Dreyfus Aggressive Growth Fund and Premier Aggressive Growth Fund, Inc.
(9) Represents 50,000 shares of stock underlying a Warrant held by Millenco
L.P. and 1,333,333 shares underlying certain 9% Convertible Subordinated
Debentures held by Millenco L.P.
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 three Class I directors, one Class II director and
two 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, two (2) individuals are to be elected to
serve as Class III directors until the Annual Meeting of Shareholders in
2000 or until their successors have been elected and qualified. Two individuals
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.
One individual is to be elected to serve as a Class I director until the Annual
Meeting of Shareholders in 1999 or until his successor has been elected and
qualified. The nominee for Class I director is Frank G. Brandenberg. The
nominees for Class II directors are Bryan I. Finkel and Ronald Verdoorn. The
nominees for Class III directors are Edward A. Blechschmidt and Ross Manire.
7
Messrs. Brandenberg and Seshens are current Class I directors.
Messrs. Finkel and Verdoorn are current Class II directors. Messrs. Blechschmidt
and Manire 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 Messrs. Blechschmidt, Brandenberg, Finkel,
Manire and Verdoorn as directors. 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 July 15, 1997, has
been furnished by the persons nominated for election as directors of the Company
and by current directors whose terms will not expire in 1997 and who therefore
are not nominees for election at the meeting.
Class I - For election to term expiring 1999
Frank G. Brandenberg, 50, was appointed President and Chief
Executive Officer of the Company in May 1997 and elected a director in July
to fill a Class I vacancy. For approximately 28 years prior to joining the
Company, Mr. Brandenberg held a series of management positions at Unisys
Corporation, including most recently Group Vice President and General Manager,
Personal Computers and NT Servers from April 1994 - May 1996 and Deputy
President for the Computer Systems Group from May 1990 to April 1994. Unisys is
a manufacturer of computer hardware and a designer and provider of computer
software and services. Mr. Brandenberg has a B.S. in Industrial Engineering and
a M.S. in Operations Research from Wayne State University.
Class II - For election to term expiring 1998
Bryan I. Finkel, 34, was elected a director of the Company in July
1997 to fill a Class II vacancy. Mr. Finkel is the Managing Director of
Technology Management Associates, a consulting and investment banking firm,
which he founded in January 1996. From August 1992 through January 1996, Mr.
Finkel was a Senior Associate at Broadview Associates, a mergers and
acquisitions advisory firm serving the information technology industry. Prior to
joining Broadview, Mr. Finkel was in the MBA program at Stanford University. Mr.
Finkel is also a director of Image Matrix Corporation, a publicly held vendor of
medical claims processing software and of Pacific Chemical, Inc., a publicly
held chemical manufacturer. Mr. Finkel holds an MBA from Stanford University and
an MS and BS in Electrical Engineering from the Massachusetts Institute of
Technology.
Ronald Verdoorn, 46, was elected a director of the Company in July
1997 fill a Class II vacancy. Mr. Verdoorn is Executive Vice President and Chief
Operating Officer of the Storage Products Group of Seagate Technology, Inc., a
publicly held manufacturer of disk drives and other computer storage products.
Mr. Verdoorn has served as an executive of Seagate for more than 14 years. Mr.
Verdoorn holds a BA from Linfield College, McMinnville, Oregon.
Class III - For election to term expiring 2000
Edward A. Blechschmidt, 44, was elected a director of the Company in
July 1997 to fill a class III vacancy. Mr. Blechschmidt is currently President
and Chief Executive Officer of Siemons Nixdorf Information Systems, Inc. a
publicly held information system company. Prior to joining Siemons in August
1996, Mr. Blechschmidt served for approximately 21 years in various management
positions at Unisys Corporation, most recently serving as Senior Vice President
and Chief Financial Officer. Mr. Blechschmidt holds a B.S. in business
administration from Arizona State University.
Ross Manire, 45, was elected a director of the Company in July 1997
to fill a Class III vacancy. Mr. Manire has been Senior Vice President, Carrier
Systems Division, 3COM Corporation, a manufacturer of computer peripherals,
since June 1997 when 3COM acquired U.S. Robotics. Mr. Manire had held various
executive positions at U.S. Robotics since 1991 when he served as Vice President
of Finance. Mr. Manire holds an MBA from the University of Chicago and a B.A. in
economics from Davidson College.
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 1997 Annual Meeting of Shareholders.
8
Class I - Term Expires 1999
Jules M. Seshens, 53, 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 and Executive Vice President
in 1996. 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, which is engaged in the business of designing,
manufacturing and selling dessicant wheel components and air conditioners, 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.
9
Operation of Board of Directors and Committees
The Board of Directors holds regular meetings and special meetings
when required. The Board has a standing Compensation Committee which assists it
in the discharge of its responsibilities. During 1996, the Board held twelve
(12) meetings. In 1996, each member of the Company's Board of Directors attended
at least 75% of the meetings of the Board and the Committee on which he serves.
The Company does not currently have a standing Audit Committee or
Nominating Committees but it intends to establish a standing Finance and Audit
Committee to review and report to the Board on the scope and results of audits
by the Company's independent auditors. It will periodically review with the
auditors the adequacy of the Company's system of internal controls, and
periodically review with management and the independent auditors compliance with
the Company's policies concerning business ethics and conflicts of interest. It
will recommend a firm of certified public accountants to serve as auditors of
the Company, subject to approval by the Board and ratification by the
shareholders, authorize all audits and other professional services rendered by
the independent auditors and periodically review the independence of the
auditors. The Audit and Finance Committee will be 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 members of the Compensation Committee during 1996 and until July
1997 were Messrs. Antine, Seshens and Spier. The Compensation Committee, makes
recommendations to the Board with respect to the salaries and bonuses, if any,
of officers of the Company and, also determines the recipients and amounts of
awards to be made under the 1972 Stock Option Plan and the Equity Incentive
Plan. The Compensation Committee met four times in 1996.
Mr. Finkel is a director of Image Matrix Corporation, a vendor of
medical claims processing software, and Pacific Chemical, Inc. a chemical
manufacturer. Each of these companies 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
Securities Exchange Act of 1934, as amended (the "Exchange Act") or subject to
10
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.
In March 1996, the Board of Directors approved an annual stipend of $75,000
payable to Mr. Gross in consideration for his services to the Company as both an
officer and director. The other non-employee directors continued to serve during
1996 without receiving any meeting fees or retainer fees. All 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.
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").
Following an amendment to increase the number of shares reserved for issuance
approved at the 1995 Annual Meeting of Shareholders held on October 12, 1995, an
aggregate of 600,000 shares has been reserved for issuance under the
Non-Employee Directors Plan. Under the terms of the Non-Employee Directors Plan,
each person who was 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
12,500 shares of Common Stock. The Non-Employee Directors Plan also provides for
the grant of an additional option to purchase 2,500 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 July 15, 1997, options to purchase a total of 105,000
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 employees of the
Company are not eligible to participate in such plan. No options were granted
under the plan in 1996. See also "Compensation of Executive Officers - Equity
Incentive Plan."
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, as of July 23, 1997, the directors
and executive officers of the Company.
Name Age Position with the Company
---- --- -------------------------
Frank G. Brandenberg 50 President, Chief Executive Officer and Director
Jules M. Seshens (1) 53 Director
11
Edward A. Blechschmidt 44 Nominee for Director
Bryan I. Finkel 34 Nominee for Director
Ross Manire 45 Nominee for Director
Ronald Verdoorn 46 Nominee for Director
Howard P. Kamins 40 Vice President and General Counsel of EAI
Stanley O. Jester 48 Treasurer and Vice President, Finance
(1) Member of Compensation Committee.
Stanley O. Jester was elected Treasurer and Vice President, Finance
in September 1995 following the resignation of Jonathan R. Wolter who was
acting in such capacity. Mr. Jester has over 25 years of experience in
accounting, finance and management. Prior to joining EAI in September 1995, Mr.
Jester was Chief Financial Officer of Southdown Thermal Dynamics for 6 years, a
private environmental remediation firm. Prior to this, Mr. Jester was Chief
Financial Officer of Energy Assets International, a public firm in the oil and
gas business, for four years. From 1980 through 1985 he was Controller and then
Chief Financial Officer of International Oil and Gas, an international private
oil and gas exploration company. Mr. Jester was Division Controller and then
Controller of Bodcaw Company, a private billion dollar natural resource company,
from 1975 through 1980. From 1971 through 1975 he was with Coopers & Lybrand.
Mr. Jester has B.S. and M.S. degrees from LA Tech University and has been a CPA
for over 20 years.
Howard P. Kamins joined the Company in April 1996 and was elected
General Counsel and Vice President in August 1996. From February 1996 to April
1996, Mr. Kamins operated a private legal practice. Mr. Kamins has over fifteen
years of experience in law, finance and management. From December 1992 through
February 1996, Mr. Kamins was Vice President and Assistant General Counsel of
NovaCare, Inc., a NYSE listed rehabilitation services company. From April 1989
through October 1992, Mr. Kamins was Vice President, General Counsel and
Secretary of the Rocking Horse Child Care Centers of America, Inc., a public
company operating child care centers and private schools. Mr. Kamins holds a BA
degree from the State University of New York and a JD from Stanford Law School.
Certain information concerning the other executive officers is set
forth above under "Election of Directors."
12
The executive officers of the Company are elected by, and serve at
the discretion of, the Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth, for the three
fiscal years ended December 31, 1996, the compensation for services in all
capacities earned by the persons who served as Chief Executive Officers of the
Company who received or earned compensation exceeding $100,000 in the fiscal
year ended December 31, 1996.
13
Summary Compensation Table
Annual Compensation
--------------------------------------------------------------------
Other Annual
Name and Principal Compen-
Position Year Salary ($) Bonus ($) sation ($)
-------- ---- ---------- --------- ----------
Irwin L. Gross 1996 -- -- --
Former President and CEO (1) 1995 -- -- --
1994 -- -- --
Paul E. Finer 1996 $ 212,300 $ -- $ --
Former Vice President of EAI
and Chief Executive Officer
of Tanon Manufacturing, Inc.
Stanley O. Jester 1996 117,460 -- --
Treasurer and Vice 1995 40,000
President, Finance
Jules M. Seshens 1996 -- -- --
Former Executive Vice President 1995 -- -- --
Corporate Development 1994 -- -- --
Joseph R. Spalliero, Sr. 1996 238,400 -- --
Former President and 1995 240,000 450,000 (15) --
CEO (15)
Long-Term Compensation
--------------------------------------------------
Awards Payouts
--------------------------------------------------
Securities
Restricted Underlying Long-Term All Other
Name and Principal Stock Options/ Incentive Plan Compen-
Position Award(s)($) SARs(#) Payouts($) sation($)
-------- ----------- ------- ---------- ---------
Irwin L. Gross -- 250,000 (2) $ 75,000 (7)
Former President and CEO (1) -- 2,500 (3) 18,800 (7)
-- 10,000 (4)
250,000 (5)
65,500 (6)
Paul E. Finer -- 100,000 (8) -- $ 1,600 (9)
Former Vice President of EAI
and Chief Executive Officer
of Tanon Manufacturing, Inc.
Stanley O. Jester -- 50,000 (10) -- 1,800 (9)
Treasurer and Vice
President, Finance
Jules M. Seshens -- 37,500 (11) -- 150,000 (14)
Former Executive Vice President -- -- 150,000 (14)
Corporate Development -- 12,500 (12) -- 20,800 (14)
50,000 (13)
Joseph R. Spalliero, Sr. -- -- -- --
Former President and -- 87,500 (15) -- --
CEO (15)
- -----------
(1) Mr. Gross was elected President and CEO of the Company on December 16,
1996 and resigned in July 1997.
(2) Options for 250,000 shares were granted in 1995 pursuant to the
Company's Equity Incentive Plan. The exercise price of such options was
$29 per share which was the fair market value at the date of the grant,
exercisable at the rate of 10% per year, cumulatively. Such options had
a term of ten (10) years. In May, 1996 these options were canceled and
replaced with options to purchase 250,000 shares of the Company's Common
Stock. The exercise price for such options is $19.50 per share which was
the fair market value of the Company's Common Stock on the date of the
grant. In connection with Mr. Gross's resignation, the Company agreed to
immediately vest 166,667 of such options at an exercise price of $3.50
per share and cancel all other options held by Mr. Gross. See
"Repricing of Options".
(3) Options granted in 1995 pursuant to the Company's Non-Employee Directors
Plan. The exercise price for such options is $30.00 and such exercise
price was the fair market value of the Company's Common Stock on the
date of the grant.
(4) Options granted in 1994 pursuant to the Company's Non-Employee Directors
Plan. The exercise price for such options is $13.00 and such exercise
price was the fair market value of the Company's Common Stock on the
date of the grant.
(5) Options granted in 1994, pursuant to the Company's Equity Incentive
Plan. The exercise price of such options is $17.76 which was the fair
market value at the date of the grant.
(6) Warrants granted in 1994 pursuant to a consulting agreement with Mr.
Gross. The exercise price of such warrants was $11.08 per share. The
fair market value of the Company's Common Stock on the date of the grant
was $13.00 per share. See "Certain Relationships and Related
Transactions".
(7) Represents the annual stipend paid to Mr. Gross for serving as an
officer and a Director of the Company. No additional compensation has
been paid to Mr. Gross since he became President and CEO. See
"Compensation of Directors".
14
(8) Options granted in 1996 pursuant to the Company's Equity Incentive Plan.
The exercise price for such options is $16.00 per share, and such
exercise price is equal to the fair market value of the Company's Common
Stock on the date of the grant. Mr. Finer resigned in June 1997.
(9) Represents the Company's contribution to Company's 401(k) Savings Plan
(which covers employees who have completed six months of service).
(10) Options granted in 1996 pursuant to the Company's Equity Incentive Plan.
The exercise price for such options is $14.50 per share, and such
exercise price is equal to the fair market value of the Company's Common
Stock on the date of the grant.
(11) Options granted in 1996 pursuant to the Company's Equity Incentive Plan.
The exercise price for such options is $19.50 per share, and such
exercise price is equal to the fair market value of the Company's Common
Stock on the date of the grant.
(12) Options granted in 1994 pursuant to the Company's Non-Employee Directors
Plan. The exercise price for such options is $17.24 per share and such
exercise price is equal to the fair market value of the Company's Common
Stock on the date of the grant.
(13) Options granted in 1994 pursuant to the Company's Equity Incentive Plan.
The exercise price for such options is $17.76 per share and is equal to
the fair market value of the Company's Common Stock on the date of the
grant.
(14) Represents the annual stipend paid to Mr. Seshens for serving as an
officer of the Company. Mr. Seshens resigned as an officer of the
Company in June 1997.
(15) On January 4, 1995, the Company acquired Tanon pursuant to a certain
acquisition agreement. Upon consummation of the acquisition of Tanon,
the Company, through its wholly-owned subsidiary, Tanon, entered into an
Employment Agreement with Joseph R. Spalliero, Sr. (formerly the
Chairman and President of Tanon), pursuant to which Mr. Spalliero became
the President and Chief Executive Officer of the Company in April 1995.
The Company granted to Mr. Spalliero, at closing, incentive and
non-incentive stock options to acquire an aggregate of 87,500 shares of
Common Stock of the Company at an exercise price equal to $34.50 per
share, which was the fair market value on January 4, 1995, the date of
grant with respect to 76,250 shares, and $37.96 per share, which was
110% of the aforementioned fair market value with respect to 11,250
shares on January 4, 1995, the date of grant. Those options expired. Mr.
Spalliero also received a signing cash bonus of $300,000 upon execution
and delivery of his Employment Agreement. In addition, under his
Employment Agreement, Mr. Spalliero earned a $150,000 bonus during 1995,
which was paid in January and February 1996.
15
The following table sets forth information concerning grants of
options to purchase Common Stock to the named executive officer during the
fiscal year ended December 31, 1996.
Option/SAR Grants in Last Fiscal Year
Individual Grants
----------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Grant Date
Options/SARs Employees in Exercise or Expiration Present
Name Granted (#)(2) Fiscal Year Base Price($/sh) Date Value (3)
---- -------------- ----------- ---------------- ---- ---------
Joseph R. Spalliero -- -- -- -- --
Former President
and CEO (1)
Irwin L. Gross 250,000 39.6% $19.50 5/30/06 $0
Former President and CEO (4)
Paul E. Finer 100,000 15.8% 16.00 2/2/06 816,000
Former Vice President of EAI
and Chief Executive Officer
of Tanon Manufacturing, Inc.
Stanley O. Jester 50,000 7.9% 14.50 8/21/06 386,000
Treasurer and Vice President,
Finance
Jules M. Seshens, 37,500 5.9% 19.50 5/30/06 382,500
Former Executive Vice President,
Corporate Development
- -----------
(1) Mr. Spalliero resigned as President and Chief Executive Officer and
Director of the Company on November 15, 1996.
(2) For information regarding such options, see footnotes (2), (8), (10) and
(11) respectively, to the "Compensation of Executive Officers 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.
(4) Represents the grant of options to purchase 250,000 shares of the
Company's Common Stock that replaced options to purchase 250,000 shares
of the Company's Common Stock. See "Repricing of Options".
16
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, 1996 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,
1996.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Values of Unexercised Option/SARs
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
at Fiscal at Fiscal
Year-End (#) (2) Year-End ($) (3)
---------------- ----------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
Irwin L. Gross 322,000/ $ 0/
Former President and CEO 256,000 $ 0
Paul E. Finer 15,000/ $ 0/
Former Vice President of EAI and 85,000 $ 0
Chief Executive Officer of
Tanon Manufacturing, Inc.
Stanley O. Jester 16,667/ $ 0/
Treasurer and Vice 33,333 $ 0
President, Finance
Jules M. Seshens 50,209/ $ 0/
Former Executive Vice President 49,791 $ 0
Corporate Development
Joseph R. Spalliero, Sr. -- $ --
Former President and CEO (1) -- $ --
- -----------
(1) Mr. Spalliero resigned as President and Chief Executive Officer and
Director of the Company on November 15, 1996. The balance of any
unexercised options have been canceled.
(2) For information regarding such options, see footnotes (2) - (6), (8),
(10) - (13) and (15) respectively to the "Compensation of Executive
Officers - Summary Compensation Table".
(3) Based on the closing price per share on the NYSE on Tuesday, December 31,
1996 of $1.625.
17
Repricing of Options
The following table sets forth information concerning the repricing
of options during 1996.
10 Year Option/SAR Repricings
Market Length of
Number of Price of Exercise Original
Securities Stock at Price at Option Term
Underlying Time of Time of Remaining at
Options/SARs Repricing Repricing New Date of
Repriced or or or Exercise Repricing or
Name Date Amended (#) Amendment($) Amendment($) Price ($) Amendment
---- ---- ----------- ------------ ------------ --------- ---------
Irwin L. Gross 5/30/96 250,000 $19.50 $29.00 $19.50 9 years
In May, 1996, options to purchase 250,000 shares of the Company's
Common Stock originally granted in 1995 were canceled and replaced with options
to purchase 250,000 shares of the Company's Common Stock with an exercise price
equal to the fair market value of the Company's Common Stock on the date of the
grant (the "New Options"). The New Option vests 1/3 on the date of the grant,
1/3 on the first anniversary and 1/3 on the second anniversary of the grant. The
New Option becoming effective was conditioned on Mr. Gross making an investment
in the Company on terms meeting the approval of the Board of Directors of the
Company. Such condition was met in October, 1996. The market price of the
Company's Common Stock on the date of the grant of the New Options was $19.50
per share and the market price of the Company's Common Stock at the time the
condition was satisfied was $5.50 per share. In connection with Mr. Gross's
resignation, the Company agreed to immediately vest 166,667 of such options at
an exercise price of $3.50 per share and cancel all other options held by
Mr. Gross.
The officers and directors of the Company agreed in March 1997 to
exchange all options they currently hold for options or warrants with an
exercise price of $3.50 per share; provided that such new options and warrants
will not be exercisable unless and until the Company has sufficient authorized
and unreserved Common Stock to provide for such exercise and such shares have
been listed on the New York Stock Exchange ("NYSE"). The officers and directors
of the Company will be issued new options or warrants as follows:
Directors
Seth Joseph Antine 16,667
Mark Hauser 16,667
Jules M. Seshens 16,667
William Spier 16,667
------
Total 66,668
Officers
Jules M. Seshens 50,000
Paul Finer 200,000
Stanley O. Jester 100,000
Howard P. Kamins 100,000
-------
Total 516,668
18
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. Following an amendment to
increase the number of shares reserved for issuance approved at the 1996 Annual
Meeting of Shareholders held on May 30, 1996, the aggregate number of shares of
Common Stock reserved for issuance under the Equity Incentive Plan is 2,250,000
shares. During 1996 options to purchase 37,500 shares were granted Mr. Seshens,
a non-employee director of the Company with an exercise price equal to the fair
market value of the Company's Common Stock on the date of grant. Also in May,
1996, options to purchase 250,000 shares of the Company's Common Stock
originally granted to Mr. Gross, President, CEO and Chairman of the Board in
1996 were canceled and replaced with options to purchase 250,000 shares of the
Company's Common Stock with an exercise price equal to the fair market value of
the Company's Common Stock on the date of the grant (the "New Options"). The New
Options will vest ratably over three years and have a term of ten (10) years.
The New Options becoming effective is conditioned on Mr. Gross making an
investment in the Company on terms that meet the approval of the Board of
Directors of the Company. Such condition was met in October, 1996. The market
price of the Company's Common Stock on the date of the grant of the New Options
was $19.50 per share and the market price of the Company's Common Stock at the
time the condition was satisfied was $5.50 per share. In connection with Mr.
Gross's resignation, the Company agreed to immediately vest 166,667 of such
options at an exercise price of $3.50 per share and cancel all other options
held by Mr. Gross.
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 1996.
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.
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. The Company has terminated the 1972 Stock Option
Plan effective on April 30, 1996. As of May 1, 1997, there are options to
purchase 51,524 shares under the plan which were outstanding.
19
Employment Contracts and Termination of Employment Agreements. See "Transactions
with Management and Others."
Additional Information with Respect to Compensation Committee Interlocks and
Insider Participation in Compensation Decisions.
The members of the Compensation Committee for the Company in 1996
were Messrs. Antine, Seshens and Spier. Mr. Seshens was an officer of, and
consultant to, the Company in 1996.
20
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, and (ii) a Peer Group.
[GRAPHIC]
In the printed version of the document, a line graph appears which depicts the
following plot points:
Comparative Analysis
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
EA INDUSTRIES INC., Russell 2000 and Peer Group
December 1991-December 1996
EA INDUSTRIES INC.
1991 1992 1993 1994 1995 1996
----------------------------------------------------------
EA INDUSTRIES 100 68.182 45.455 300.000 186.364 14.773
Russell 2000 100 116.364 136.150 131.817 166.361 190.918
Peer Group 100 144.956 202.631 194.534 311.694 397.577
21
The above graph compares the performance of EA Industries, Inc. with
that of (i) the Russell 2000 Index and (ii) a peer group comprised of companies
having the same standard industrial classification (SIC) code as the Company's
contract manufacturing business (SIC 3672). The performance of each of the
companies in this SIC code peer group was weighted by stock market
capitalization at the close of each year for a five year period. The contract
manufacturing peer group companies are: Data Design Laboratories, Inc., Elexsys
International, Inc., Intelligent Systems Corp. and Parlex Corporation.
The graph assumes that the value of the investment in the Company's
Common Stock, and each index, was $100 on December 31, 1991 and that all
dividends were reinvested. Total return calculations were performed by D.F. King
& Co., Inc. using the data bases of Standard & Poor's Compustat Services, Inc.
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, 1996.
The Compensation Committee is comprised of two independent,
non-employee directors and Jules M. Seshens, Executive Vice President of the
Company and a director. It is charged with the responsibility of administering
the Stock Option Plans of the Company and 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 stock option 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 two principal
components: base salary 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. In addition, stock options may
be granted as compensation to link an executive's compensation directly to the
growth in the value of the Company's stock through a stock option program. The
Compensation Committee believes these components collectively provide an
appropriate relationship between an executive's compensation and the Company's
financial performance.
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 bonus
awards. The Compensation Committee also determines recipients and the number of
shares to be covered by option grants under the Equity Incentive Plan to all
participants, including officers and directors. Salaries, bonuses, if any, 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.
22
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 in 1995, the Board of Directors and shareholders
approved the Non-Employee Directors Plan for Non-Employee Directors.
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 grant of stock options is a means for the Company
to provide incentives to attract and retain executives and other employees.
The grant of stock options is a means for the Company to provide
incentives to attract and retain executives and other employees.
1996 Compensation of Chief Executive Officer
Joseph R. Spalliero, Sr., served as Chief Executive Officer of the
Company until December 16, 1996. Mr. Spalliero's compensation was determined by
the Board of Directors of the Company in connection with the acquisition of
Tanon Manufacturing, Inc. prior to Mr. Spalliero becoming Chief Executive
Officer in April 1995. Irwin L. Gross, became Chief Executive Officer of the
Company on December 16, 1996 and no review of, or adjustments to, his
compensation were considered at that time.
1996 COMPENSATION COMMITTEE
Seth Joseph Antine
Jules M. Seshens
William Spier
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Spalliero Separation Agreement
Effective November 15, 1996, Joseph R. Spalliero resigned as
President and Director of the Company. By letter agreement, effective from the
expiration of Mr. Spalliero's employment agreement on January 3, 1997 through
December 31, 1997 Mr. Spalliero has agreed to serve as an independent sales
representative for Tanon. Mr. Spalliero will be paid $5,000 per month plus a
commission for sales on a basis equivalent to that of other sales
representatives. In addition, Mr. Spalliero agreed not to sell or transfer more
than 25,000 shares of Common Stock of the Company during any calendar quarter
through December 31, 1998.
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 65,500 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 $11.08 per share until March 21,
1999. The closing price of the Company's Common Stock on the date of grant was
$13.00, as reported on the NYSE.
23
Agreements with Broad Capital
In January 1995, the Company entered into a consulting agreement
with Broad Capital Associates, Inc. ("Broad") a financial consulting and
advisory company in which Murray Huberfeld and David Bodner are principals.
Broad was engaged to provide financial consulting services to the Company. Such
agreement was amended on April 27, 1995 to expand the services of Broad, cancel
the options originally granted by the Company in consideration for such
services, and to grant new options to Broad for such services. On April 27,
1995, in consideration of investment banking services, the Board of Directors
granted to Broad, options to acquire 93,750 shares of Common Stock of the
Company, exercisable 33 1/3% on the date of grant, 33 1/3% on the first
anniversary, and 33 1/3% on the second anniversary of the April 27, 1995 date of
grant at an exercise price of $32.75 per share which is equal to the fair market
value on the date of grant. The exercise price of such options was subsequently
reduced to $18.00 per share and then increased to $20.00 per share but
automatically reverted to $32.75 per share as of March 1, 1996.
In August 1996, the exercise price of such options was reduced to
$11.20 per share, exercisable immediately, but will automatically revert to the
terms of the original grant on August 1, 1997. On September 3, 1996 Broad
exercised its option to purchase 89,286 of such shares at $11.20 per share.
On July 5, 1995, in connection with the formation of the Joint
Venture with Israel Aircraft Industries, Ltd. ("IAI"), the Board of Directors
granted Broad options to purchase 106,250 shares of the Company's Common Stock
at an exercise price of $32.50 which options vest and are exercisable 33 1/3% on
the date of grant, 33 1/3% on the first anniversary of the date of the grant,
and 33 1/3% on the second anniversary of the date of the grant. Such options
were subsequently amended to an exercise price of $18.00 per share and which
reverted to an exercise price of $32.50 on March 1, 1996.
On November 21, 1995 Broad exercised its option to purchase 50,000
of such shares at $18.00 per share. In consideration for such exercise, the
exercise period for the options to purchase the remaining 56,250 shares was
extended for an additional period of six months and the exercise price was
increased from $18.00 to $20.00 per share. In consideration of Broad's
commitment to purchase 89,286 shares of the Company's Common Stock from the
April 27, 1995 grant, the options to purchase the remaining 56,250 shares of the
July 5, 1995 grant were amended to an exercise price of $11.20 in August, 1996
but will revert to $32.50 on August 1, 1997.
On September 3, 1996, also in consideration for Broad's commitment
to purchase 89,286 shares of the Company's Common Stock from the April 27, 1995
grant, the Board of Directors granted Broad warrants to purchase 89,286 shares
of the Company's Common Stock at an exercise price of $12.00 per share until
July 31, 1997 and thereafter at $32.50 per share, expiring on July 5, 2000.
In April 1997, the Company arranged with Broad and certain of its
affiliates for standby financing of up to $4,500,000, subsequently reduced to
$1,125,000, to provide additional working capital. This commitment was
originally irrevocable until April 1, 1998 and was to be further reduced to the
extent the Company received proceeds from the sale of its remaining 96,927
shares of common stock of Aydin Corporation or from additional equity or
convertible debt financing. The Company agreed to issue warrants exercisable
at $4.125 per share for 1,000,000 shares in consideration of this commitment.
The commitment was eliminated in June 1997 in connection with the Company's
sale of its remaining stock in Aydin Corporation and the Company has issued
warrants for a total of 800,000 shares.
24
Investment by Irwin L. Gross
On August 19, 1996, GFL Advantage Fund transferred and assigned its
$2,070,000 outstanding principal amount note of the Company to Irwin L. Gross,
Chairman of the Company and certain related family trusts ("the "Note Holders").
In connection with such assignment, the Company canceled the prior note held by
GFL Advantage Fund and reissued certain Convertible Notes of the Company in the
aggregate principal amount of $2,070,000 due December 29, 1997 (the "Original
Convertible Notes") to the Note Holders. These Original Convertible Notes had a
maturity date of December 29, 1997 and were convertible into shares of the
Company's Common Stock at the fixed conversion price per share of $2.67 (before
the effect of the 1 for 4 reverse stock split on December 27, 1996). On February
6, 1997, the Company amended the Original Convertible Notes (the "Convertible
Notes") by (i) increasing the aggregate principal amount of such notes to
$2,725,000 (the purchase price paid by the Note Holders for the Original
Convertible Notes) and (ii) reducing the fixed conversion price of such notes to
$1.50 per share, such amendments were made in consideration of the Note Holders
foregoing interest and making available certain other loans to the Company.
During the period beginning on October 25, 1996 and ending on April
10, 1997, the Company has borrowed a total of $4,520,000 from the Chairman of
its Board of Directors, certain related trusts and unaffiliated investors. These
loans are represented by certain 10% Series A Convertible Notes (the "Series A
Notes") issued by the Company. The Series A Notes will mature on January 22,
1999 and are convertible at the option of the holder (i) after January 1, 1998,
into shares of Common Stock of the Company at a conversion price of $3.50 per
share, or (ii) into shares of Common Stock of Tanon after completion of an
initial public offering of shares of Common Stock of Tanon at a conversion price
equal to the quotient of (a) twenty five million dollars ($25 million), divided
by (b) the number of shares of Common Stock of Tanon that were issued and
outstanding at the close of business on the day immediately prior to the
effective date of the registration statement covering the shares of Common Stock
of Tanon offered in such initial public offering, without giving effect to the
number of shares of Common Stock of Tanon being offered in such initial public
offering.
The Series A Notes bear interest at the rate of 10% per annum,
payable annually in arrears on January 15, 1998 and January 22, 1999. Interest
is payable at the option of the holder in cash or stock of the Company or Tanon
at the conversion prices described above. Repayment of the Series A Notes will
be secured by a second lien on the stock of Tanon held by the Company and on
substantially all the assets of Tanon. These notes are subordinated to amounts
owed by Tanon to Schroder and the ability of Tanon to distribute or loan funds
to the Company to make interest payments on the Series A Notes is restricted
pursuant to the Schroder Loan Facility.
Seshens Consulting Agreement
Jules M. Seshens, an officer and director of the Company provided
management services to BarOn Technologies, Ltd. ("BarOn") on a consulting basis
during 1995, 1996 and 1997. BarOn has agreed to pay Mr. Seshens $75,000 per
annum for such services.
Employment Agreements
On December 20, 1996, the Company entered into employment agreements
with the following executive officers: Paul Finer, Howard Kamins, Stanley Jester
and Jules Seshens. The agreements have an initial term expiring on December 31,
1997, and automatically renew for one year terms unless notice is given at least
180 days before expiration of the then current term. Each of the agreements
provide for severance in a lump sum equal to one year's salary and guideline
bonus, if any, continuation of benefits for 18 months, and vesting of any
unvested options if (i) the executive is terminated for any reason other than
due cause, (ii) a change of control of the company occurs, (iii) Irwin L. Gross
is no longer Chairman, (iv) the executive's position is materially changed.
Mr. Finer resigned in June 1997 and received the severance payment specified
in his contract. Mr. Seshens resigned as an officer in June 1997 and the
Company and Mr. Seshens are currently negotiating the terms of his separation.
25
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."
26
PROPOSAL 2
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK OF THE COMPANY FROM
12,500,000 SHARES TO 35,000,000 SHARES.
The Company is currently authorized to issue 12,500,000 shares of
Common Stock, no par value. The Company's Certificate of Incorporation currently
authorizes 37,500,000 shares of capital stock comprised of 12,500,000 shares of
Common Stock and 25,000,000 shares of Preferred Stock. The Company's Board of
Directors has approved, subject to shareholder approval, an amendment to the
Company's Certificate of Incorporation to increase the authorized shares of
Common Stock, from 12,500,000 shares, no par value, to 35,000,000 shares, no par
value. The Company had 8,405,376 shares of Common Stock outstanding as of
July 1, 1997. The increase of 22,500,000 shares of Common Stock is defined
as the "Additional Shares". The Company intends to reserve a total of
approximately 10 million of the Additional Shares for the purposes described
below.
The description of Proposal 2 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 2, annexed hereto.
The Company is obligated to issue additional shares upon conversion
of certain 9% convertible debentures (the "Aydin Debentures") it issued in
connection with its purchase of common stock of Aydin Corporation. As of July
15, 1997, Aydin Debentures in the principal amount of $3,013,838 were
outstanding. These debentures are convertible into shares of Common Stock of the
Company at a conversion price equal to the lesser of (i) 80% of the average
closing price of the Company's Common Stock as traded on the New York Stock
Exchange ("NYSE") for the five (5) days preceding the date of a conversion
notice, or (ii) $1.50 per share. Based on the current conversion price, the
total number of shares reserved for issuance to the holders of the Aydin
Debentures will be approximately 2.0 million shares if Proposal 2 is approved.
The Company is also obligated to issue additional shares upon
conversion of certain 7% convertible subordinated notes in the principal amount
of $2,725,000 (the "7% Notes") currently held by the Chairman of the Company,
certain related family trusts and an unrelated investor. These notes are
convertible into shares of Common Stock of the Company at a conversion price
equal to $1.50 per share. The total number of shares which will be reserved for
issuance to the holders of the 7% Notes will be approximately 1.8 million shares
if Proposal 2 is approved.
The Company is also obligated to issue additional shares upon
conversion of certain 10% Series A convertible subordinated notes in the
principal amount of $3,520,000 (the "10% Notes") currently held by the
Chairman of the Company, certain related family trusts and an unrelated
investor. These notes are convertible into shares of Common Stock of the Company
at a conversion price equal to $3.50 per share, on or after January 1, 1998. The
10% Notes are also convertible at the option of the holders into shares of
Common Stock of Tanon after completion of an initial public offering of shares
of Common Stock of Tanon at a conversion price equal to the quotient of (a)
twenty five million dollars ($25 million), divided by (b) the number of shares
of Common Stock of Tanon that were issued and outstanding at the close of
business on the day immediately prior to the effective date of the registration
statement covering the shares of Common Stock of Tanon offered in such initial
public offering, without giving effect to the number of shares of Common Stock
of Tanon being offered in such initial public offering. Based on the current
conversion price, the total number of shares reserved for issuance to the
holders of the 10% Notes will be approximately 1.0 million shares if Proposal 2
is approved.
The Company is also obligated to issue additional shares upon
conversion of certain 10% Series B convertible subordinated notes in the
principal amount of $1,000,000 (the "Series B Notes") currently held by an
unrelated investor. These notes are convertible into shares of Common Stock of
the Company at a conversion price equal to $2.50 per share. The Series B Notes
are also convertible at the option of the holder into shares of Common
Stock of Tanon after completion of an initial public offering of shares of
Common Stock of Tanon at a conversion price equal to the quotient of (a) twenty
five million dollars ($25 million), divided by (b) the number of shares of
Common Stock of Tanon that were issued and outstanding at the close of business
on the day immediately prior to the effective date of the registration statement
covering the shares of Common Stock of Tanon being offered in such initial
public offering. Based on the current conversion price, the total number of
shares reserved for issuance to the holders of the Series B Notes will be
approximately 400,000 shares if Proposal 2 is approved.
In April 1997, the Company sold convertible notes in the aggregate
amount of $4,815,000 including notes issued to pay placement fees (the "Series A
Notes"). The Series A Notes bear interest at 6% per annum payable quarterly and
have a maturity date of April 30, 1999. The Series A Notes are convertible into
shares of the Company's Common Stock at a conversion price per share equal to
the lesser of (i) three dollars and fifty cents ($3.50) per share or (ii) eighty
percent of the volume weighted average price of the Company's Common Stock as
27
traded on the NYSE for the five days preceding the date of notice to the Company
that the holder wishes to exercise its conversion right. The Company has granted
piggyback registration rights to the Series A Note holders and has agreed that
if the shares underlying the Series A Notes are not covered by an effective
registration statement and listed on the NYSE within one hundred and twenty days
from the date of issuance, to pay a ten percent penalty, and the holders may
accelerate the entire balance of the Series A Notes. Based on the current
conversion price, the Company intends to reserve for issuance to the holders of
the Series A Notes approximately 1.3 million of the Additional Shares.
The Company has also issued warrants (the "Lender's Warrants") for
an aggregate of 100,000 shares to certain lenders to the Company exercisable at
$1.50 per share and warrants for 800,000 shares to the Laura Huberfeld &
Naomi Bodner Partnership exercisable at $4.125 per share in consideration of
certain standby financing. See "Transactions with Management and Others -
Agreement with Broad Capital". The Company intends to reserve 900,000 of the
Additional Shares for issuance upon exercise of these warrants.
Officers and directors of the Company hold warrants or options
representing approximately 517,000 shares of Common Stock exercisable
at $3.50 per share. Such warrants or options are not exercisable until the
Company has a sufficient number of shares of authorized Common Stock which have
been listed on the NYSE. The Company intends to reserve a total of approximately
517,000 of the Additional Shares for issuance to the holders of such warrants or
options.
If proposals 2 and 3 are approved, the Company intends to reserve
2.5 million of the Additional Shares for issuance pursuant to options under
the 1994 Equity Incentive Plan, including the approximately 517,000 options
granted to officers and directors and described above.
Although there can be no assurance that any of the warrants or
options described in the preceding paragraphs will be exercised, the Board
of Directors of the Company believes that it is in the best interests of the
Company and its shareholders that the Company be in a position to render such
warrants or options exercisable by amending the Certificate of Incorporation and
making shares of Common Stock available for issuance if the warrants or options
are exercised. In addition, 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 possible requirements for additional working capital in
the future. 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. The issuance of additional shares
of capital stock in connection with the convertible notes, debentures, warrants
and options described above, for capital formation purposes or otherwise will
result in the dilution of the ownership interests of the current shareholders in
the Company.
If the Additional Shares are not approved and the option or warrant
holders or note or debenture holders seek to exercise their conversion rights,
the Company will be in default on such options, warrants, notes or debentures,
and the holders of such notes and debentures may demand immediate repayment of
the principal and accrued interest on such notes or debentures.
Under the Company's Shareholder Rights Plan, each holder of Common
Stock is entitled to purchase, under certain conditions, one one-hundredth share
of Preferred Stock. Accordingly, if shareholders approve the proposal to
increase the Company's authorized shares of Common Stock, additional share of
Preferred Stock will be reserved for issuance under the Shareholder Rights Plan.
Vote Required. Adoption of the amendment to the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock requires the affirmative vote of two-thirds 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.
28
The Board recommends a vote FOR approval of Proposal 2.
29
PROPOSAL 3
PROPOSAL 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 2,250,000 SHARES TO 5,000,000 SHARES.
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 666,667 (post reverse split shares) shares of Common
Stock was reserved initially for issuance under this plan which amount was
increased to 1,500,000 (post reverse split shares) pursuant to an amendment to
increase the authorized shares for issuance under this Plan approved by the
Shareholders at the 1995 Annual Meeting of Shareholders held on October 12,
1995. On April 12, 1996 the Company's Board of Directors approved an amendment
to the Equity Incentive Plan, which was approved by the shareholders at the 1996
Annual Meeting, to increase the number of shares of the Company's Common Stock
reserved for issuance under this Plan from 1,500,000 shares to 2,250,000 shares.
Options for 2,087,136 shares (net of cancellations and repurchases and including
options for 516,668 shares which were granted subject to shareholders'
approval of an increase in the number of shares reserved for issuance under this
Plan) have been granted as of July 15, 1997.
The Company's Board of Directors has approved an amendment to the
Equity Incentive Plan, subject to shareholder approval, to increase the
number of shares of the Company's Common Stock covered by the Equity Incentive
Plan by 2,750,000 from 2,250,000 shares to 5,000,000 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, executives 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 I.
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.
30
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.
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.
31
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 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.
32
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).
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
33
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.
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 3.
34
PROPOSAL 4
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 4.
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 1997 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 amendments thereto, during and with respect to its most
recent fiscal year 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 during the fiscal year ended
December 31, 1996 or prior fiscal years were complied with, with the exception
that during 1996 and 1997 Irwin Gross filed a Form 4 and a Form 5, each relating
to the late report of one transaction.
35
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING
Any shareholder who wishes to present a proposal for action at the
Annual Meeting of Shareholders for 1998 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 January 30, 1998.
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.
This Proxy Statement is either accompanied by or has been preceded
by the mailing of the Company's Annual Report on Form 10-K as amended, which
constitutes the Company's Annual Report to Shareholders. 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 as amended, 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 James Shanley at the address of the Company appearing on the
first page of this Proxy Statement.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Consolidated Balance Sheet, Statement of Operations,
Statement of Shareholders' Equity, Statement of Cash Flows, and Notes to
Consolidated Financial Statements (the "Company's Financial Statements") for the
years ended December 31, 1994, December 31, 1995 and December 31, 1996 are
incorporated by reference to the Company's Annual Report on Form 10-K/A for the
year ended December 31, 1996. The Company's Financial Statements for the quarter
ended March 29, 1997 are incorporated by reference to the Company's Quarterly
Report on Form 10-Q for the period ended March 29, 1997. All documents
containing or referring to the Company's Financial Statements filed subsequent
to the date of this Proxy Statement by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the date of the meeting shall be
deemed to be incorporated herein and to be a part hereof from the date of filing
of such documents. Any statements contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is, or
is deemed to be, incorporated by reference herein modifies or supersedes such
statements. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
- --------------------------------------------------------------------------------
IMPORTANT
Please sign, date and mail your Proxy Card.
- --------------------------------------------------------------------------------
By orderof the Board of Directors.
Richard P. Jaffe, Secretary
West Long Branch, New Jersey
July 23, 1997
36
APPENDIX I
1994 EQUITY INCENTIVE PLAN
1. PURPOSE
The purpose of this 1994 Equity Incentive Plan (the "Plan") is to
advance the interests of EA Industries, 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.
37
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 nine million (9,000,000).*
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.
- -----------------------
* Approved by the shareholders on May 30, 1996. Represents pre Reverse
Stock Split share number.
38
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 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
39
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.
40
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 part of their withholding liability by delivery
41
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.
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
42
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.
43
APPENDIX 2
PROPOSED AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
EA INDUSTRIES, INC.
PROPOSAL 2
The present text of the first paragraph of Article FOURTH of the
Company's Certificate of Incorporation, as previously amended, reads as follows:
"The total authorized capital stock of this Corporation is
thirty-seven million five hundred thousand(37,500,000) shares divided
into twelve million five hundred thousand (12,500,000) shares of
Common Stock, no par value and twenty-five million (25,000,000)
shares of Preferred Stock, no par value. 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."
Proposal 1. If Proposal 2 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 "thirty-seven million five hundred thousand
(37,500,000)" and substitute therefor the words "sixty million
(60,000,000)"; and (ii) delete the words "twelve million five hundred
thousand (12,500,000)" and substitute therefore the words "thirty
five million (35,000,000)".
44
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
EA INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Frank Brandenberg, Howard Kamins, and
Stanley O. Jester, and each of them as proxies, each with full power of
substitution, to vote all of the shares of Common Stock of EA Industries, Inc.
which the undersigned would be entitled to vote if personally present at the
Annual Meeting of Shareholders to be held on August 5, 1997 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 nominees of the Board of Directors named in Proposal 1 and FOR
Proposals 2, 3 and 4.
(To be Signed on Reverse Side)
_____ Please mark your
votes as in this
example.
FOR WITHHELD Nominees:
1. Election of Edward A. Blechschmidt (Class III)
Directors _____ _____ Frank G. Brandenberg (Class I)
To withhold authority Bryan I. Finkel (Class II)
for any individual Ross Manire (Class III)
nominee(s) check the Ronald Verdoorn (Class II)
box below and insert
the nominee's name
on the line.
FOR ALL EXCEPT
_____ _________________
_____ _________________
_____ _________________
FOR AGAINST ABSTAIN
2. To amend the Company's Certificate of
Incorporation to increase the number
of authorized shares of Common Stock
of the Company from 12,500,000
shares to 35,000,000 shares. ____ ______ ________
3. 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 2,250,000 shares to
5,000,000 shares. ____ ______ ________
4. To ratify the selection of Arthur
Andersen LLP as the Company's
auditors. ____ ______ ________
5. 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 a
partnership, sign in partnership name by authorized person.