SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Eastco Industrial Safety Corp.
(Name of Registrant as Specified in Its Charter)
Eastco Industrial Safety Corp.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or Item
22(a)(2) of Schedule 14A
[ ] $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3)
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction
applies:___________________________________________________
(2) Aggregate number of securities to which transaction applies:
___________________________________________________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: _____________
(4) Proposed maximum aggregate value of transaction:
___________________________________________________________
(5) Total Fee Paid: ___________________________________________
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount previously paid:____________________________________
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:______________________________________________
(4) Date filed:____________________________________________
<PAGE>
<PAGE>
EASTCO INDUSTRIAL SAFETY CORP.
130 West 10th Street
Huntington Station, New York 11746
________________________________________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
_________________________________________
A special meeting of the stockholders of Eastco Industrial Safety Corp. will
be held on August 12, 1996 at 9:30 a.m., local time, at the Company's office
located at 130 West 10th Street, Huntington Station, New York 11746. The
meeting is called for the following purposes:
AUTHORIZATION OF AMENDMENT TO COMPANY'S CERTIFICATE OF
INCORPORATION TO EFFECT A ONE-FOR-TEN REVERSE STOCK SPLIT
To authorize an amendment to the Company's certificate of incorporation to
effect a one-for-ten reverse stock split (the "Reverse Split") of all issued
shares of the Company's Common Stock.
AUTHORIZATION OF AMENDMENT TO COMPANY'S CERTIFICATE OF
INCORPORATION TO AUTHORIZE PREFERRED STOCK
To authorize an amendment to the Company's certificate of incorporation to
authorize a class of preferred stock consisting of 1,000,000 shares issuable
in series and having such designations, powers, preferences, rights and
restrictions as may be determined by the board of directors.
APPROVAL OF 1996 INCENTIVE STOCK OPTION PLAN
Subject to the approval of the Reverse Split, to approve the adoption of a
1996 Incentive Stock Option Plan for the issuance of 300,000 shares
(post-Reverse Split) to key employees of the Company.
APPROVAL OF 1996 NON-QUALIFIED STOCK OPTION PLAN
Subject to the approval of the Reverse Split, to approve the adoption of the
1996 Non-Qualified Stock Option Plan for the issuance of up to 300,000 shares
(post-Reverse Split) to key employees of the Company.
TRANSACTION OF OTHER BUSINESS
To transact such other business as may properly come before the meeting or
any adjournments thereof.
Stockholders of record at the close of business on July 9, 1996 are entitled
to receive notice of, and to vote at, this meeting. Sending in your proxy
will not prevent your attending and voting at the meeting in person should
you later decide to do so.
The accompanying form of proxy is solicited by the board of directors of the
Company. Reference is made to the enclosed proxy statement for further
information with respect to the business to be transacted at the meeting.
If you do not expect to attend the meeting in person, please sign and date
the enclosed proxy and mail it promptly in the enclosed envelope.
By order of the board of directors.
ALAN E. DENSEN
President
DATED: July 10, 1996
<PAGE>
EASTCO INDUSTRIAL SAFETY CORP.
130 West 10th Street
Huntington Station, New York 11746
__________________________________
PROXY STATEMENT
__________________________________
The proxy statement mailed to stockholders commencing approximately July 12,
1996 is furnished in connection with the solicitation of proxies by the board
of directors of Eastco Industrial Safety Corp. (the "Company") in connection
with a special meeting of stockholders (the "Special Meeting") of the Company
to be held August 12, 1996 at 9:30 a.m. at the offices of the Company located
at 130 West 10th Street, Huntington Station, New York 11746. Proxies will be
voted in accordance with directions specified thereon and otherwise in
accordance with the judgment of the persons designated as proxies. Any proxy
on which no direction is specified will be voted in favor of the action
described in the proxy statement.
A proxy in the enclosed form may be revoked at any time, prior to it being
voted at the Special Meeting, by sending a subsequently dated proxy or by
giving written notice to the Company, in each case to the attention of
Anthony P. Towell, Secretary, at the address set forth above. Stockholders
who attend the meeting may withdraw their proxies at any time before their
shares are voted by voting their shares in person.
The expense of the solicitation of proxies for the meeting, including the
cost of preparing, assembling and mailing the notice, proxy card and proxy
statement, the handling and tabulation of proxies received and the charges of
brokerage houses and other institutions, nominees or fiduciaries in
forwarding such documents of the proxy material to beneficial owners, will be
paid by the Company. In addition to the mailing of the proxy material, such
solicitation may be made in person or by telephone and telegraph by
directors, officers or regular employees of the Company. It is estimated
that the total cost of proxy solicitations by the Company will not exceed
$10,000.
The matters to be considered at this Special Meeting will be (a) the
authorization of an amendment to the Company's certificate of incorporation
to effect a one-for-ten reverse stock split of all issued shares of the
Company's Common Stock; (b) the authorization of an amendment to the
Company's certificate of incorporation to authorize a class of preferred
stock; (c) the approval of the 1996 Incentive Stock Option Plan; and (d) the
approval of the 1996 Non-Qualified Stock Option Plan. The Company is aware
of no other matters to be presented for action at the meeting.
Under SEC rules, boxes are provided on the proxy card for stockholders to
mark if they wish either to abstain on one or more of the proposals.
<PAGE>
OUTSTANDING VOTING SECURITIES AND VOTING RIGHTS
The Company's voting securities consist solely of Common Stock. Holders of
Common Stock at the close of business on July 9, 1996 will be entitled to
vote. Each share of Common Stock entitles the holder to one (1) vote on each
matter to be voted upon. On the record date there were outstanding 8,794,883
shares of Common Stock.
STOCK OWNERSHIP OF DIRECTORS
The following table sets forth as of July 9, 1996, the number of shares of
Common Stock owned by each of the present directors of the Company, together
with certain information with respect to each:
Number of
Shares
Director Beneficially Percent
Name(Age) Since Owned (1) (1)
- --------- -------- ------------ -------
Alan E. Densen (61) 1958 593,958(2)(5)(9) 6.4%
Anthony P. Towell (64) 1989 1,387,647(3)(5)(9) 13.7%
Lawrence Densen (37) 1986 536,083(4)(5)(9) 5.8%
Dr. Martin Fleisher (58) 1989 10,000(6) *
James Favia (61) 1995 20,000(7) *
Herbert Schneiderman (64) 1995 38,333(8) *
All officers and directors
as a group (6 persons) 2,586,021 23.0%
___________________
* Less than 1%
(1) Beneficial ownership is determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934. All references in this Proxy
Statement to shares outstanding reflect all adjustments to options and
warrants in effect as of the date of this Proxy Statement.
(2) Includes warrants, held by Mr. Densen's wife, to acquire 16,667 shares
of Common Stock, exercisable at $1.30 per share which expire April 11,
1999. Also includes incentive stock options granted under the 1994 Plan
to acquire 20,000 shares of Common Stock, exercisable at $1.0625 which
expire January 19, 2005. Amount indicated does not include shares
beneficially owned by Lawrence Densen, son of Alan E. Densen.
(3) Includes 15,000 Class A Warrants; warrants, held by Mr. Towell's wife,
to acquire 16,667 shares of Common Stock, exercisable at $1.30 per share
which expire April 11, 1999; and incentive stock options granted under
the 1994 Plan to acquire 20,000 shares of Common Stock, exercisable at
<PAGE>
$1.0625 which expire January 19, 2005. Also includes warrants to
acquire 826,710 shares of Common Stock exercisable at $0.629 per share
which expire April 11, 1999.
(4) Does not include shares beneficially owned by Alan E. Densen, father of
Lawrence Densen. Includes 7,000 Class A Warrants; incentive stock
options granted under the 1983 Incentive Stock Option Plan (the "1983
Plan") to acquire 6,250 shares which expire December 17, 1996 and are
exercisable at $2.6664 per share; incentive stock options granted under
the 1983 Plan to acquire 563 shares of Common Stock which expire May 31,
1998 and are exercisable at $3.00 per share; and incentive stock options
granted under the 1994 Plan to acquire 20,000 shares of Common Stock,
which expire January 19, 2005 and are exercisable at $1.0625.
(5) Includes non-qualified options to acquire 400,792 shares to each Messrs.
A. Densen, A. Towell and L. Densen exercisable until January 19, 2005 at
an exercise price of $0.5302. Does not include options to acquire an
additional 400,792 shares to each Messrs. A. Densen, A. Towell and L.
Densen which cannot be exercised until January 20, 2000 unless the pre-
tax profit for fiscal 1996 is greater than $250,000. See "Certain
Relationships and Related Transactions".
(6) Includes stock options to acquire 10,000 shares of Common Stock at an
exercise price of $1.6875 per share until July 26, 2000.
(7) Includes stock options to acquire 10,000 shares of Common Stock at an
exercise price of $1.6875 per share until July 26, 2000.
(8) Includes warrants to acquire 8,333 shares of Common Stock exercisable at
$1.30 per share until April 11, 1999 and options to acquire 10,000
shares of Common Stock at an exercise price of $1.6875 per share until
July 26, 2000.
(9) Includes warrants to acquire 83,478 shares of Common Stock exercisable
at $0.5771 per share, which expire February 22, 2001. See "Certain
Relationships and Related Transactions".
As of July 9, 1996 the directors and executive officers of the Company, six
persons, owned of record and beneficially a total of 2,586,021 shares
(including warrants and options to acquire 2,440,000 shares) representing
23.0% of the issued and outstanding Common Stock of the Company. The
foregoing assumes the exercise of all of the outstanding options and warrants
held by each of such persons, and reflects all shares as adjusted.
Alan E. Densen has been President, Chief Executive Officer and a director of
the Company since 1958 (except for the period September 1993 to January 1994,
when he served as its Senior Vice President). He was also Treasurer and
Chief Financial Officer of the Company through 1992.
Lawrence Densen, Senior Vice President and director of the Company, has been
a Vice President and a director of the Company since 1986.
Anthony P. Towell has been the Company's Vice President of Finance,
Treasurer, and Chief Financial Officer since 1992, its Secretary since 1993,
and from 1989 to 1992 its Vice President. He has been a director of the
Company since 1989. He is a director, since 1988, of Nytest Environmental
<PAGE>
Inc. ("Nytest"), a hazardous waste testing company. Mr. Towell is also a
director, since 1991, of Ameridata Technologies, Inc. ("Ameridata"), a
provider of computer products and services. The common stock of Nytest and
Ameridata are registered under Section 12(g) and (b), respectively, of the
Securities Exchange Act of 1934. He was a director of New York Testing
Laboratories, Inc. ("NYT"), a laboratory testing company and manufacturer of
automotive accessories, from 1988 to 1995.
Dr. Martin Fleisher, who holds a Ph.D. in biochemistry from New York
University, has been attending clinical chemist at Memorial Sloan-Kettering
Cancer Center since 1967. He has been a director of the Company since 1989.
He devotes only a limited portion of his time to the business of the Company.
James Favia is a consultant to Donald & Co. ("Donald") who acts as the
Company's investment advisor. He is a chartered financial analyst and has an
MBA in finance which he obtained from New York University in 1959. He became
a director of the Company on July 26, 1995. He was a director of T.J.
Systems until November, 1994. The common stock of T.J. Systems is registered
under Section 12(g) of the Securities Exchange Act of 1934. He devotes only
a limited portion of his time to the business of the Company.
Herbert Schneiderman is President of the Casablanca Group, L.P., a
manufacturer of diversified women's sportswear. He became a director of the
Company on July 26, 1995. He devotes only a limited portion of his time to
the business of the Company.
PRINCIPAL HOLDERS OF SECURITIES(1)
The following table sets forth, as of July 9, 1996, the ownership with
respect to each person known to own beneficially more than 5% of the
Company's common stock:
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Owner(1) of Class
- -------------- ------------------- ------------------- -----------
Common Stock Alan E. Densen 593,958(2)(5)(6) 6.4%
$0.12 par value 130 W. 10th Street
Huntington Station, NY
Common Stock Anthony P. Towell 1,387,647(3)(5)(6) 13.7%
$0.12 par value 130 W. 10th Street
Huntington Station, NY
Common Stock Lawrence Densen 536,083(4)(5)(6) 5.8%
$0.12 par value 130 W. 10th Street
Huntington Station, NY
Common Stock George Schiavoni 760,000 8.6%
$0.12 par value 46 Bayview Avenue
Sag Harbor, NY
(1) See footnote (1) under "Stock Ownership of Directors," above.
(2) See footnote (2) under "Stock Ownership of Directors," above.
(3) See footnote (3) under "Stock Ownership of Directors," above.
(4) See footnote (4) under "Stock Ownership of Directors," above.
(5) See footnote (5) under "Stock Ownership of Directors," above.
<PAGE>
(6) See footnote (9) under "Stock Ownership of Directors," above.
See "Certain Relationships and Related Transactions" regarding completion
of private placement offerings on June 28, 1996 and July 9, 1996, pursuant to
which the Company issued 3,990,000 shares and 1,140,000 shares, respectively
at $0.15 per share.
EXECUTIVE COMPENSATION
Summary
The following describes the components of the total compensation of the CEO
of the Company. No executive, other than the CEO had a total annual salary
and bonus for the three years ended June 30, 1995 which exceeded $100,000.
Summary Compensation Table
Annual Compensation Long term compensation
------------------------ --------------------------------------
Awards Payouts
------------------ -----------------
Other Securities All
Name and annual Restricted underlying LTIP other
principal Salary Bonus compen- stock options / payouts compen-
position Year ($) ($) sation($) award(s)($) SARs (#) ($) sation($)
- -------- ---- ------ ----- ---------- --------- ---------- ------ --------
Alan E. 1995 107,930 -0- 32,875(3) -0- 821,584(2) -0- -0-
Densen, 1994(1) 117,154 -0- 30,078(3) -0- -0- -0- -0-
CEO 1993 168,801 -0- 30,078(3) -0- -0- -0- -0-
(1) From September, 1993 to January, 1994, Mr. Densen was not CEO; he served as
Senior Vice President.
(2) Includes incentive stock options granted January 20, 1995 to acquire 20,000
shares at $1.0625 as well as non-qualified stock options to acquire 400,792
shares exercisable at $0.5302 per share, at the closing market price on
such date, each exercisable until January 19, 2005. The non-qualified
options cannot be exercised during the first five years unless (a) the
audited pre-tax profit for fiscal 1995 is greater than $50,000, then
options to acquire 400,792 shares of Common Stock may be exercised and
(b) the audited pre-tax profit for fiscal 1996 is greater than $250,000,
then options to purchase the remaining 400,792 shares of Common Stock may
be exercised. It was determined in September 1995 that the non-qualified
options can now be exercised for 400,792 shares of Common Stock only.
(3) Primarily life insurance premiums on the life of Alan E. Densen owned by
Mr. Densen's wife and paid for by the Company.
For fiscal year ended June 30, 1996, Alan E. Densen's salary and other
compensation is anticipated to be $153,333. Lawrence Densen's anticipated
salary and other compensation for fiscal year ended June 30, 1996 is
anticipated to be $106,438. Lawrence Densen's salary and other compensation
for the prior three fiscal years has been: (i) $89,130 for fiscal year ended
June 30, 1995; (ii) $86,936 for fiscal year ended June 30, 1994; and
(iii) $84,030 for fiscal year ended June 30, 1993. See "Options and Warrants
Granted Subsequent to June 30, 1995" with respect to warrants granted to
Messrs. A. Densen, L. Densen, and A. Towell in February, 1996.
<PAGE>
Stock Options
OPTION/SAR GRANTS IN LAST FISCAL YEAR
[Individual Grants]
Number of Percent of
securities total options /
underlying SARs granted Exercise
Options/SARs in fiscal or base Expiration
Name granted (#)(1) year (1) price ($/Sh) Date
- ----- -------------- -------------- ------------- -----------
Alan E. 20,000 23.5% 1.0625 1/19/05
Densen,
CEO 801,584 33.3% 0.5302 1/19/05
(1) See note (2) above in the Summary Compensation Table.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number
of securities Value
underlying unexercised in-
unexercised the-money options
Shares SARs at FY-end (#) SARs at FY-end($)
acquired on Value exercisable / exercisable /
Name exercise (#) realized ($) unexersisable unexercisable(1)
- ----- -------------- -------------- ------------- ----------------
Alan E. -0- -0- 20,000/ -0- 13,750/ -0-
Densen,
CEO -0- -0- 400,792/400,792 248,925/248,925
(1) See footnote (2) above in the Summary Compensation Table.
Employment Agreements and Change in Control Features
As of July 1, 1995, Alan E. Densen entered into a new employment
agreement replacing an earlier employment agreement which commenced as of
the effective date of the Company's 1994 public offering. The employment
agreement with Alan E. Densen provides for him to serve as the Company's
President for a term of five years. At the end of each fiscal year
during the term of the agreement, the agreement is automatically extended
for one additional year to be added at the end of the then current term
of the agreement, unless the Board of Directors determines not to extend
the agreement. The base annual salary is $121,000 for fiscal 1996 which
shall be increased at the beginning of each fiscal year commencing July
1, 1996, at the discretion of the Board of Directors. Each increase is
not to be less than 10% of the minimum compensation paid to the employee
in the prior fiscal year. Mr. Densen is also eligible to receive an
annual bonus equal to 3 1/3% of the Company's earnings before interest
and taxes for the fiscal year ended June 30, 1996 and each fiscal year
thereafter during the term of the agreement. The bonus is to be paid
within 30 days after the completion of the Company's audited financial
statements for each fiscal year and is to be paid in cash or registered
shares of common stock of the Company. In addition, Mr. Densen, in
accordance with Company policy, is entitled to receive reimbursement of
ordinary and necessary business expenses, a monthly automobile allowance
of $700 and disability, medical and hospitalization insurance.
<PAGE>
The employment agreement entered into by Alan E. Densen includes
provisions that provide for his right to terminate the agreement and
thereby receive additional compensation, as provided below, in the event
that he is not elected or retained as President and a director of the
Company; the Company acts to materially reduce his duties and
responsibilities under the agreement; the Company changes the geographic
location of his duties to a location from the New York metropolitan area;
his base compensation is reduced by 10% or more; any successor to the
Company fails to assume the agreement; any other material breach of the
agreement which is not cured by the Company within 30 days; and a "Change
of Control" by which a person, other than a person who is an officer
and/or director of the Company as of the effective date of the
agreements, or a "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, becomes the beneficial owner of 20% or more of the
combined voting power of the then outstanding securities of the Company.
In the event that Mr. Densen terminates his position because of any of
the aforesaid reasons other than a "Change of Control", or if the Company
terminates his employment in any way that is a breach of the agreement by
the employer, Mr. Densen shall be entitled to receive, in addition to his
salary continuation, as a bonus, a cash payment equal to his total base
salary plus projected expenses and bonuses for the remainder of the term
thereof, payable within 30 days of termination and all stock options,
warrants and other stock appreciation rights granted by the Company to
him shall become immediately exercisable at an exercise price of $0.10
per share. In the event that he owns or is entitled to receive any
unregistered securities of the Company, than the Company shall register
such securities within 120 days of the his termination.
In the event that there is a "Change of Control", Mr. Densen shall be
paid within 30 days thereof a one-time bonus equal to his total minimum
base salary for the next three years and he shall be immediately
reimbursed for all amounts not yet received for his participation in the
$250,000 junior participation in the loans made to the Company from
Congress Financial Corporation ("Congress") made during September 1993,
without regard to whether such amount is currently due pursuant to the
terms thereof. Similar provisions are contained in each of the employment
agreements with Messrs. L. Densen and A. Towell.
Messrs. A. Densen, L. Densen, and A. Towell have waived: (i) their right
to bonuses based upon the Company's earnings for the fiscal years ended
June 30, 1996 and June 30, 1997; (ii) compensation payable in the event
of a Change in Control with respect to the Private Placement and
anticipated Proposed Standby Rights Offering referred to in "Certain
Relationships and Related Transactions"; and (iii) their right to
terminate their relationship with the Company, as per the terms of their
respective employment agreements.
During February 1996, Messrs. A. Densen, L. Densen, and A. Towell
guaranteed to Congress overadvances to the Company of up to $500,000 in
excess of the Company's eligible borrowings. The Company issued warrants
for a term of five years in consideration for their guaranty to each
Messrs. A. Densen, L. Densen, and A. Towell to purchase 83,478 shares of
Common Stock at an exercise price of $0.5771 per share commencing
February 23, 1996. The overadvances have since been repaid and their
guarantees have been returned to them.
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. J. Favia, M. Fleisher, and H. Schneiderman are members of the
Company's Compensation Committee. No members of the Compensation
Committee served as officers or employees of the Company.
See "Certain Relationships and Related Transactions" regarding Mr.
Schneiderman's ownership of certain warrants issued in connection
with a reduction of indebtedness regarding the Company's premises. On
January 31, 1995, the exercise price of such warrants were reduced to
$1.30 per share and extended until April 11, 1999.
Reference should also be made to "Certain Relationships and Related
Transactions" with regard to warrants granted to Donald & Co. Securities
Inc. ("Donald"). James Favia, a director of the Company, serves as
a consultant to Donald.
On July 26, 1995, the board of directors granted non-qualified options to
acquire 10,000 shares of Common Stock to each of Martin Fleisher, James
Favia and Herbert Schneiderman. The options are exercisable at a price
of $1.6875 per share and expire on the earlier of July 26, 2000 or within
thirty days of the termination of their position as a director.
1983 INCENTIVE STOCK OPTION PLAN
On June 23, 1983 the board of directors approved a 1983 Incentive Stock
Option Plan under then Section 422A of the Internal Revenue Code which
was approved by the stockholders on February 28, 1984. Options to
acquire a total of 56,250 shares of Common Stock were authorized to be
issued under the 1983 Plan. As of July 9, 1996, options to acquire
8,654 shares of Common Stock remain outstanding at exercise prices
between $2.6664 and $3.00 per share, including options granted to
Lawrence Densen to acquire 6,250 shares exercisable at $2.6664 per share
until December 17, 1996 and options to acquire 563 shares exercisable at
$3.00 per share until May 31, 1998. The 1983 Plan expired on June 22,
1993 and no additional options may be issued thereunder.
1992 INCENTIVE STOCK OPTION PLAN
In December 1992, the board of directors and the shareholders of the
Company adopted the Company's 1992 stock option plan (the "1992 Plan").
The 1992 Plan provides incentives in the form of incentive stock options
("ISO's") and reserved 200,000 shares for issuance. As of July 9, 1996,
3,000 ISO's exercisable at $3.00 per share are outstanding under the 1992
Plan. The Company has agreed not to issue any further options under the
1992 Plan.
1994 INCENTIVE STOCK OPTION PLAN
On January 28, 1994, the board of directors adopted the 1994 Incentive
Stock Option Plan under Section 422 of the Internal Revenue Code which
was approved by the stockholders on December 15, 1994. A total of
100,000 shares were authorized to be issued under the 1994 Plan. The 1994
Plan expires on January 27, 2004 and no additional options may be issued
after such date.
The following summary provides a description of the significant
provisions of the 1994 Plan. However, such summary is qualified in its
<PAGE>
entirety by reference to the full text of the 1994 Plan.
Eligibility to participate in the 1994 Plan is limited to employees of
the Company and its subsidiaries. The term of an option will not exceed
10 years. Options will not be transferable except upon death and, in
such event, transferability will be effected by will or by the laws of
descent and distribution.
Options which are granted by the board of directors under the 1994 Plan
are subject to the following limitations: (i) options may not be granted
at less than 100% of fair market value at the time of grant, (ii) options
granted to employees who own more than 10% of the Company's outstanding
Common Stock will be granted at not less than 110% of the fair market
value for a term of five years, and (iii) the aggregate market value of
the Common Stock for which options are exercisable during any calendar
year by an individual is limited to $100,000, but the value may exceed
$100,000 for which options may be granted to an individual.
For purposes of the 1994 Plan, fair market value is the last price for
the Company's Common Stock as quoted by NASDAQ.
No disposition of Common Stock received upon exercise of Options shall be
made within two (2) years from the date of grant of the Option nor within
one (1) year after the exercise.
The 1994 Plan provides that the payment of the exercise price of options
shall be in cash or in shares of the Company's Common Stock of equivalent
value.
An option granted under the 1994 Plan may not be exercised unless, at the
time of exercise, the optionee is then in the Company's employ and has
completed at least twelve (12) months of continuous employment with the
Company from the date of grant of the option.
In the event of any future recapitalization, reorganization, split-up or
consolidation of shares, the number of shares and exercise price shall be
adjusted.
Schedule of Options Under 1994 Plan
- -----------------------------------
Unexercised Options
The table set forth below provides to July 9, 1996 a schedule of
unexercised options heretofore granted by the Company pursuant to the
1994 Plan. All options herein may not be exercised unless, at the time
of exercise, the optionee is then in the Company's employ and has
completed at least twelve (12) months of continuous employment with the
Company from the date of grant of the option.
<PAGE>
Aggregate
Number
of Shares Exercise
Date of Subject Price Date
Grant Option To Option Per Share(1) of Expiration
- ------------ --------- ----------- -------------
January 20, 1995 85,000 $1.0625 January 19, 2005
________
(1) The exercise price of the options equals the fair market value of
the Company's Common Stock on the date of grant.
Exercised Options
As of July 9, 1996, no options under the 1994 Plan have been exercised.
Remaining Options
15,000 additional options may be granted under the 1994 Plan.
Options Granted and Exercised
-----------------------------
During the
----------
Three Fiscal Years Ended June 30, 1995
--------------------------------------
Options Granted
During the three fiscal years ended June 30, 1995, no options were
granted to employees under the 1983 Plan and 8,654 remain outstanding,
3,000 options were granted and remain outstanding under the 1992 Plan and
85,000 options were granted and remain outstanding under the 1994 Plan to
employees, including 20,000 options granted on January 20, 1995 at an
exercise price of $1.0625 to each of Messrs. A. Densen, Towell and L.
Densen which options expire on January 19, 2005. See " and Related
Transactions" with respect to non-qualified options granted to Messrs. A.
Densen, L. Densen, and A. Towell on January 20, 1995.
Options Exercised
No options were exercised during the three fiscal years ended June 30,
1995.
Options and Warrants Granted Subsequent
to June 30, 1995
----------------
On July 26, 1995, Messrs. J. Favia, M. Fleisher, and H. Schneiderman
were each granted non-qualified stock options to acquire 10,000 shares of
Common Stock at an exercise price of $1.6875 per share until July 26,
2000.
During February 1996, in consideration for their guaranty to Congress of
Company overadvances, Messrs. A. Densen, L. Densen. and A. Towell were
each issued warrants for a term of five years to purchase 83,478 shares
<PAGE>
of Common Stock at $0.5771 per share commencing February 23, 1996. This
guaranty has since been returned to them.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During September 1993, the Company's lender, Congress, agreed to provide
an overadvance to the Company of $500,000. In connection therewith,
Messrs. A. Densen, L. Densen and A. Towell obtained a junior
participation interest from Congress by advancing $250,000 of their funds
to Congress. $250,000 of this overadvance was repaid to Congress during
fiscal 1994. The balance of $250,000 will be repaid by Congress, at its
option, to Messrs. A. Densen, L. Densen and A. Towell, subject to the
availability of funds. Mr. L. Densen was repaid $35,000 in full by
Congress during May, 1996.
A group of investors (the "Associates") holds a first mortgage on the
Company's executive offices and warehouse facility in the principal
amount of $494,109 as of May 31, 1996. The wives of Alan E. Densen and
Anthony P. Towell, executive officers and directors of the Company, and
Herbert Schneiderman, a director of the Company, are members of
Associates. During the year ended June 30, 1995, the Company paid
Associates $121,108 in principal and interest on the mortgage. For the
first eleven months, to May 31, 1996, of the ensuing fiscal year,
$111,016 of principal and interest was paid on this mortgage.
On January 20, 1995, the Company granted non-qualified options to acquire
400,792 shares of Common Stock to each Messrs. A. Densen, A. Towell, and
L. Densen. These options are exercisable until January 19, 2005 at an
exercise price of $0.5302, are subject to anti-dilution provisions, and
cannot be exercised during the first five years unless pre-tax profit for
fiscal year 1995 is greater than $50,000. It was determined in September
1995 that these options can now be exercised for 400,792 shares of Common
Stock and such shares are included in the table in the section entitled
"Stock Ownership of Directors". An additional 400,792 options were granted
on January 20, 1995, which are exercisable until January 19, 2005, but
which cannot be exercised during the first five years unless pre-tax
profit for fiscal year 1996 is greater than $250,000. The additional
400,792 options to acquire 400,792 shares of Common Stock are not included
in the table in the section entitled "Stock Ownership of Directors". All
of the options granted on January 20, 1995 were granted in consideration
of previous sacrifices including reduction in salaries, cancellation of
options, and other surrendered benefits by executive officers as well as
the turnaround performance achieved by the Company. The turnaround
achieved by the Company in its performance can be directly related to the
efforts of Messrs. A. Densen, A. Towell, and L. Densen.
On January 31, 1995, the Company's board of directors reduced the
exercise price of the 2.3 million outstanding Class A Warrants issued in
connection with the 1994 Public Offering to $1.30 per share. At the same
time, the board of directors also reduced the exercise price to $1.30 per
share with regard to the 108,333 warrants ("Associate Warrants") issued
to a group of investors, including the spouses of Alan Densen (16,667
<PAGE>
Associate Warrants owned by her) and Anthony P. Towell (16,667 Associate
Warrants owned by her), and Herbert Schneiderman (8,333 Associate
Warrants owned by him), in connection with a reduction of indebtedness
regarding the Company's premises; 826,710 warrants purchased by Anthony
P. Towell, the Company's Chief Financial Officer, from Scorpio Partners,
L.P.; 88,816 Royce warrants issued in connection with a 1991 public
offering; and 22,204 warrants in connection with a 1991 bridge loan. All
these warrants have also been extended to April 11, 1999. These warrants
were all adjusted as indicated so as to treat them on an equal basis and
to provide incentives for them to be exercised.
The Company had employment agreements with Messrs. A. Densen, A. Towell
and L. Densen, which commenced as of the effective date of the Company's
1994 public offering in April, 1994. As of July 1, 1995, these executive
officers entered into new agreements. See "Executive Compensation -
Employment Agreements and Change in Control Features" with regards to
provisions contained in the employment agreement of Alan E. Densen, the
Company's President and CEO. Similar provisions are contained in each of
the employment agreements with Anthony P. Towell and Lawrence Densen.
Messrs. A. Densen, L. Densen, and A. Towell have waived: (i) their right
to bonuses based upon the Company's earnings for the fiscal years ended
June 30, 1996 and June 30, 1997; (ii) compensation payable in the event
of a Change in Control with respect to the Private Placement and
anticipated Proposed Standby Rights Offering referred to in this Section;
and (iii) their right to terminate their relationship with the Company,
as per the terms of their respective employment agreements.
On April 18, 1995, the Company entered into an agreement with Donald to
act as its investment adviser for a term of three years at a retainer of
$3,000 per month. The agreement may be terminated for cause at any time
and after eighteen (18) months by either party upon forty-five days
notice. Donald was also granted a five year warrant to purchase 125,000
shares exercisable at $1.25 per share, the closing market price on the
date of grant. James Favia, a director of the Company, serves as a
consultant to Donald.
On July 10, 1995 the Company terminated its relationship with Lew
Lieberbaum & Co., Inc. ("Lew Lieberbaum"), the Company's underwriter in
its 1994 public offering. Pursuant to an agreement dated July 10, 1995,
the Company canceled all of Lew Lieberbaum's rights under the
Underwriting Agreement (the "Underwriting Agreement"), including, but
not limited to, the right of first refusal to act on behalf of the
Company in future transactions, the cancellation of all Underwriter's
Warrants held by Lew Lieberbaum or its affiliates, their right to
representation on the Company's board of directors and the termination of
any obligation by holders of securities subject to a "lock-up" to obtain
the permission of Lew Lieberbaum prior to sale or other disposition of
said securities. At the same time, Leonard A. Neuhaus and Sheldon
Lieberbaum, who are affiliated with Lew Lieberbaum, resigned as directors
of the Company. In exchange, the Company issued 100,000 shares of common
stock to Lew Lieberbaum.
During February 1996, Messrs. A. Densen, A. Towell and L. Densen,
<PAGE>
executive officers and directors of the Company, guaranteed to Congress
overadvances to the Company of up to $500,000 in excess of the Company's
eligible borrowings. The Company issued warrants for a term of five
years in consideration for their guaranty to each Messrs. A. Densen, A.
Towell, and L. Densen to purchase 83,478 shares of Common Stock at
$0.5771 per share which expire on February 22, 2001, and are subject to
anti-dilution provisions. The overadvance has since been repaid and
their guarantees have been returned to them.
On June 28, 1996, the Company completed a Private Placement
Offering, pursuant to which it issued 3,990,000 shares at $0.15 per share
to 20 investors, pursuant to provisions for exemption from registration under
the Securities Act of 1933, as amended. These shares are to be included in the
next registration statement (other than certain designated and previously filed
registration statements) to be filed by the Company. The terms of the Private
Placement Offering were established by negotiation between the Company and
Royce Investment Group, Inc., a registered broker/dealer (the "Private
Placement Agent"). Under the terms of the Private Placement Offering, 10 1/2
units (the "Units") were offered, and sold, in multiples of $57,000 per Unit.
Each full Unit consists of 380,000 shares of the Company's Common Stock, par
value $0.12 per share. In the event that the proposal for the Reverse Split
contained herein is approved, the number of shares of Common Stock
underlying each Unit will be 38,000 (see "Proposal to Amend the
Certificate of Incorporation to Effect a 1-for-10 Reverse Stock Split -
Reason for Amendment"). The Company used net proceeds from the Private
Placement Offering to pay off a short-term loan in the amount of $500,000
from Elono Portfolio S.A., which had been used to reduce the amount due
to Congress. The Private Placement Offering is part of a letter of
intent, dated May 14, 1996, pursuant to which the Company will file a
registration statement for a Proposed Standby Rights Offering intended to
yield gross proceeds to the Company of approximately $3,500,000. For a
more complete discussion of the Proposed Standby Rights Offering, see
"Proposal to Amend the Certificate of Incorporation to Effect a "1-For-10"
Reverse Stock Split - Reason for Amendment". On July 9, 1996, the Company
completed an additional private placement offering for 1,140,000 shares at
$0.15 per share to 5 investors, pursuant to provisions for exemption from
registration under the Securities Act of 1933 as amended. These shares
are to be included in the next registration statement (other than certain
designated and previously filed registration statements) to be filed by
the Company.
<PAGE>
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION TO
EFFECT A "1-FOR-10" REVERSE STOCK SPLIT
Introduction
The board of directors is seeking shareholder approval for a proposed
Amendment to the Company's certificate of incorporation (the "Amendment")
which would effect a "1-for-10" reverse stock split of all of its issued
shares of Common Stock.
Effect of Amendment
As of the date of this Proxy Statement, the Company is authorized to
issue 20,000,000 shares of its Common Stock with 8,794,883 shares issued
and outstanding. The Amendment, if approved, would effect a "1-for-10"
reverse stock split, which would result in a reduction in the issued
shares of the Common Stock from 8,794,883 to approximately 879,488 shares
(subject to the treatment of fractional shares as set forth below).
Pursuant to the terms of the proposed Amendment, each shareholder will
receive one share of the Company's Common Stock for each ten shares of
Common Stock now held.
If the proposal is approved, there will be approximately 19,120,512
authorized shares available for future issuance by the Company.
Reason for Amendment
In connection with the sale of the Units in the Private Placement
Offering (see "Certain Relationships and Related Transactions"), the
Private Placement Agent has entered into a letter of intent dated May 14,
1996 with the Company (the "Letter of Intent"), to act as an underwriter
on a "firm commitment" basis with respect to a proposed, contemplated
standby rights offering (the "Proposed Standby Rights Offering") of the
Company's Common Stock. A condition of the Letter of Intent for the
Proposed Standby Rights Offering is the Company's completion of a one-for-ten
reverse split of all of its presently outstanding Common Stock.
Upon approval and authorization of the one-for-ten reverse split, the
Company will effectuate (subject to an effective registration statement
to be filed with the Securities and Exchange Commission) a rights
offering ("Rights Offering") to its Common Stock holders, which is
intended to yield gross proceeds of approximately $3,500,000. The number
of units (the "Public Units") and the precise ratio of rights to be
distributed per presently outstanding share of Common Stock will depend
upon the amount of the Rights Offering, the actual price per Public Unit,
and the extent of the reverse stock split. The price per Public Unit will
be set at approximately 70% of the average closing bid price of the
Company's Common Stock on NASDAQ for the ten (10) business days preceding
the effective date of the registration statement to be filed with the
Securities and Exchange Commission.
The Company's Common Stock is presently traded on the NASDAQ Small-Cap
Market. During the twelve months ended July 1, 1996, the bid prices
<PAGE>
for the Common Stock ranged from a high of $2.06 to a low of $0.63. The
closing price of the Common Stock on July 1, 1996 was $0.78125. The
Company's board of directors is recommending this change in
capitalization so as to attempt to increase the bid price of the Common
Stock and to reduce the number of issued shares to a more meaningful
level. In addition, due to the present bid price of the Common Stock,
many brokerage firms may choose not to engage in market making activities
or to effect transactions in the Company's Common Stock. Management
anticipates that this problem may be alleviated to some degree if the
proposed Amendment is adopted. Shareholders in negotiating stock sales
through securities dealers may benefit from having a higher trading price
range as compared with the present level, and to enhance and improve the
long-term market for the Common Stock. A reduction in the number of
issued and outstanding shares caused by the Reverse Split will increase
proportionately the Company's earnings/loss per share and book value per
share. Such an increase, in turn, may make the Common Stock more
attractive to brokerage houses and investment banking firms, thereby
expanding the number of brokers interested in and concerned about making
a market for the Common Stock.
It is likely, however, that the market for the Common Stock will not be
improved on a proportionate basis, at least initially. That is, the
market price may not automatically increase to a price ten times higher
than the market price prior to the effective date of the Reverse Split.
Shareholders should note that the board of directors cannot predict what
effect the Reverse Split will have on the market price of the Common
Stock. No assurance can be given that approval of the Reverse Split will
result in an increase in the bid price of the Common Stock.
Exchange of Shares and Elimination of Fractional Shares
If approved, the "Record Date" for exchange of outstanding shares of
Common Stock will be set at the discretion of the Company's board of
directors. Fractional shareholdings will result from the Reverse Split
for all shareholders holding a number of shares not evenly divisible by
ten. Fractional shares resulting from the Reverse Split will not be
issued. For fractions equal to or greater than one-half (1/2), the
Company will round up and issue a full share. For fractions less than
one-half (1/2), the Company will round down.
In the event that this proposal is implemented by the Company, all
shareholders, as of the Record Date, will be requested to return their
old shares to the Company's transfer agent for cancellation, whereupon
the shareholder will be issued a stock certificate for new shares. The
Company will bear the entire cost in furnishing the new stock
certificates.
The proposed Reverse Split will have the effect of increasing the number
of shareholders owning "odd lots" of fewer than 100 shares. "Odd lot"
transaction costs or brokerage commissions may be higher than
transactions associated with "round lots", which are 100 shares or
multiples thereof. The Company does not intend to purchase any "odd
lots" from such shareholders.
The Reverse Split will not result in a change in the existing rights of
<PAGE>
shareholders. Further, the number of Common Shares obtainable upon the
exercise of any outstanding stock options and stock warrants will also be
proportionally adjusted to reflect the 1-for-10 Reverse Split.
Accordingly, the proposal will not increase the potential voting power of
the holders of stock options, stock warrants or management.
The Company does not believe that there will be any federal income tax
consequences to it or the shareholders as a result of this proposal. In
this regard, shareholders should consult their tax advisors.
The following is a summary of shares outstanding and shares reserved for
options and warrants before and after the Reverse Split:
Shares reserved Shares reserved
Shares outstanding Shares outstanding for Options for Options
before Reverse after Reverse and Warrants and Warrants
Split Split before Split after Split
----------------- ---------------- -------------- -------------
8,794,883 879,488 6,240,402 624,040
The Proposed Amendment
This proposed amendment to Article 3 of the Company's certificate of
incorporation would permit the reverse stock split and the change in the
number of shares issued by the Company.
Article 3 of the Company's certificate of incorporation currently reads
as follows:
The total number of shares of stock which the corporation shall have
authority to issue is Twenty Million (20,000,000) common shares,
twelve cents par value per share.
Upon the adoption of the Amendment by the shareholders and the filing
thereof, the following provisions shall be added to the Company's
certificate of incorporation set forth above in substantially the
following form:
The 8,794,883 issued shares of the Corporation's Common Stock, par
value twelve cents per share, are hereby changed, on the basis of a
one twelve-cents-par share for ten twelve-cents-par shares, into
879,488 issued shares of the Corporation's Common Stock, par value
twelve cents per share.
The 11,205,117 unissued shares of the Corporation's Common Stock,
par value twelve cents per share, are hereby changed, on the basis
of 19120512/11205117ths twelve-cents-par shares for one
twelve-cents-par share, into 19,120,512 unissued shares of the
Corporation's Common Stock, par value twelve cents per share.
The executive officers of the Company shall be authorized to effectuate
such technical modifications to the foregoing in order to cause the
filing of the Amendment by the Department of State of the State of New
<PAGE>
York. In addition, if the proposal, set forth below, to authorize
preferred stock is approved at the Special Meeting, Article 3 of the
Certificate of Incorporation as currently in effect will be replaced by
the text set forth in the preferred stock proposal.
Vote Required for Approval
The affirmative vote by a majority of the issued and outstanding stock is
required to adopt this Amendment.
The board of directors is of the opinion that the proposed Amendment, if
adopted, will provide the Company with a proper capitalization and a
sufficient number of shares of Common Stock to give it flexibility to
meet future financing needs deemed to be in the Company's best interest.
The board of directors unanimously recommends a vote FOR the amendment to
---
the Company's certificate of incorporation.
PROPOSAL TO AMEND THE CERTIFICATE OF INCORPORATION
TO AUTHORIZE PREFERRED STOCK
Introduction
The Company's certificate of incorporation presently provides that the
Company is authorized to issue only one class of stock, being the Common
Stock (Article 3). The board of directors of the Company is seeking
shareholder approval for an amendment to the certificate of incorporation
to authorize an additional class of stock consisting of 1,000,000 shares
of Preferred Stock par value $0.01 per share.
Effect of Amendment
The proposed amendment will give the board of directors the express
authority, without further action of the stockholders, to issue shares of
Preferred Stock from time to time in one or more series and to fix before
issuance with respect to each series: (a) the designation and the number
of shares to constitute each series, (b) the liquidation rights, if any,
(c) the dividend rights and rates, if any, (d) the rights and terms of
redemption, if any, (e) whether the shares will be subject to the
operation of a sinking or retirement fund, if any, (f) whether the shares
are to be convertible or exchangeable into other securities of the
Company, and the rates thereof, if any, (g) any limitation on the payment
of dividends on the Common Stock while any such series is outstanding, if
any, (h) the voting power, if any, in addition to the voting rights
provided by law, of the shares, which voting powers may be general or
special, and (i) such other provisions as shall not be inconsistent with
the certificate of incorporation. All the shares of any one series of
the Preferred Stock shall be identical in all respects.
It is likely that the holders of any series of Preferred Stock, when and
if issued, will have priority claims to dividends and to any distribution
upon liquidations of the Company, and may have other preferences over the
Common Stock, including a preferential right to elect directors in the
<PAGE>
event preferred dividends, if any, are not paid for a specified period.
Although the Company currently has no reason to believe that a takeover
attempt is likely to occur, the authorization of a class of Preferred
Stock may provide the Company with a means of discouraging any such
attempt, since the holders of Preferred Stock could be given the power to
approve any corporate reorganization or business combination. Such stock
could be privately placed directly by the Company with persons
sympathetic to present management and such private placement would tend
to entrench current management. In addition, the voting strength of
persons seeking to obtain control of the Company could be diluted by the
issuance of shares of Preferred Stock, if the two classes were to vote
together.
Reason for Amendment
The purpose of the proposed amendment is to give the Company the
flexibility to issue shares of Preferred Stock for financing or
acquisition purposes without the delay of having to obtain stockholder
approval at the time of any proposed issuance. At present the Company
has no agreements or understandings to issue any of the shares of
Preferred Stock which would be authorized by the proposed amendment.
Once the shares of Preferred Stock have been authorized, they would be
subject to issuance, except in the case of certain acquisitions.
The Proposed Amendment
If the foregoing proposal to ratify the Reverse Split is approved at the
Special Meeting, it is proposed that Article 3 of the certificate of
incorporation, as set forth on page 16 of the Proxy Statement, be amended
to read in pertinent part in substantially the following form:
The corporation is authorized to issue two classes of stock to
be designated respectively "Common Stock" and "Preferred
Stock." The total number of shares of stock which the
corporation shall have authority to issue is Twenty-One Million
(21,000,000). The total number of shares of Common Stock which
the corporation shall have authority to issue is Twenty Million
(20,000,000), twelve cents par value per share. The total
number of shares of Preferred Stock which the corporation shall
have the authority to issue is One Million (1,000,000), one
cent par value per share. The shares of Preferred Stock may be
issued from time to time in one or more series. The board of
directors of the corporation is authorized to determine or
alter any or all of the designations, powers, preferences and
rights and the qualifications, limitations or restrictions
thereof, in respect of the wholly unissued class of Preferred
Stock or any wholly unissued series of Preferred Stock, and to
fix or alter the number of shares comprising any series of
Preferred Stock (but not below the number of shares of any such
series then outstanding).
The executive officers of the Company shall be authorized to effectuate
such technical modifications to the foregoing in order to cause the
<PAGE>
filing of the Amendment by the Department of State of the State of New
York.
Vote Required for Approval
The adoption of the amendment of the certificate of incorporation to
authorize a class of Preferred Stock requires the affirmative vote of not
less than a majority of the issued and outstanding shares of common
Stock. If the amendment is not so approved, the Common Stock will
continue to be the only authorized class of stock.
The board of directors unanimously recommends a vote FOR the amendment of
---
the Company's certificate of incorporation.
PROPOSAL TO APPROVE THE ADOPTION OF THE COMPANY'S 1996
INCENTIVE STOCK OPTION PLAN
Introduction
The board of directors unanimously recommends that the shareholders
approve the 1996 Incentive Stock Option Plan.
Description of the 1996 Incentive Stock Option Plan
On May 13, 1996, the board of directors adopted, the 1996 Incentive Stock
Option Plan (the "1996 Incentive Plan") under Section 422 of the Internal
Revenue Code. The adoption of the 1996 Incentive Plan is subject to the
approval of the Company's stockholders at the Special Meeting on August 12,
1996 and is also subject to the approval of the Reverse Split. The 1996
Incentive Plan is applicable to the Company's key employees. The purpose
of the 1996 Incentive Plan is to encourage and reward key employees by
giving them an opportunity to share in any future success of the Company
without burdening the Company's cash resources. The 1996 Incentive Plan
authorizes stock incentives for the key employees to acquire shares of
the Company's Common Stock.
As adopted by the board, the 1996 Incentive Plan authorizes the grant of
300,000 shares of Common Stock (post-Reverse Split), subject to
adjustment as provided in the plan. No options have been granted under
the 1996 Incentive Plan to date.
The following summary provides a description of the significant
provisions of the 1996 Incentive Plan. However, such summary is
qualified in its entirety by reference to the full text of the 1996
Incentive Plan.
Eligibility to participate in the 1996 Incentive Plan is limited to key
employees of the Company and its subsidiaries. The 1996 Incentive Plan
terminates May 12, 2006. The term of each option may not exceed ten
years. Options will not be transferable except upon death and, in such
event, transferability will be effected by will or by the laws of descent
and distribution. An option granted under the 1996 Incentive Plan may
not be exercised unless, at the time of exercise, the optionee is then in
the Company's employ and has completed at least twelve (12) months of
<PAGE>
continuous employment with the Company from the date of grant of the
option.
Incentive Stock Options may not be granted at less than 100% of fair
market value at the time of the grant. Options granted to employees who
own more than 10% of the Company's outstanding Common Stock will be
granted at not less than 110% of fair market value for a term of five
years. The aggregate market value of stock for which Incentive Stock
Options are exercisable during any calendar year by an individual is
limited to $100,000, but the value may exceed $100,000 for which options
may be granted to an individual. Payment of the exercise price for
options under the 1996 Incentive Plan are to be made in cash or by the
exchange of Common Stock having equivalent value.
For purposes of the 1996 Incentive Plan, fair market value is the last
price for the Company's Common Stock as quoted by NASDAQ.
No disposition of Common Stock received upon exercise of Options shall be
made within two (2) years from the date of grant of the Option nor within
one (1) year after the exercise.
In the event of any future recapitalization, split-up or consolidation of
shares, the number of shares and exercise price shall be proportionately
adjusted.
Vote Required for Approval
A copy of the 1996 Incentive Plan is annexed hereto as Exhibit "1." The
1996 Incentive Plan must be approved by the Company's stockholders. The
affirmative vote of the holders of a majority of the shares of Common
Stock represented at the Special Meeting on August 12, 1996 is required for
approval of this proposal. Abstentions are not counted in determining the
number of votes required to attain a majority of the outstanding shares
in connection with this proposal. "Broker non-votes" (which represent
shares of Common Stock held by stockbrokers and not voted by the brokers)
will not be considered as votes cast in determining the outcome of this
proposal.
The board of directors unanimously recommends a vote FOR approval of the
---
adoption of the 1996 Incentive Stock Option Plan.
PROPOSAL TO APPROVE THE ADOPTION OF THE COMPANY'S 1996
NON-QUALIFIED STOCK OPTION PLAN
Introduction
The board of directors unanimously recommends that the stockholders
approve the 1996 Non-Qualified Stock Option Plan.
<PAGE>
Description of the 1996 Non-Qualified Stock Option Plan
On May 13, 1996, the board of directors authorized the adoption the 1996
Non-Qualified Stock Option Plan (the "1996 Non-Qualified Plan"). The
adoption of the 1996 Non-Qualified Plan is subject to the approval of the
Company's stockholders at the Special Meeting on August 12, 1996 and is
also subject to the approval of the Reverse Split. The purpose of the
1996 Non-Qualified Plan is to encourage and reward key employees,
consultants, and others by giving them an opportunity to share in any
future success of the Company without burdening the Company's cash
resources. The 1996 Non-Qualified Plan authorizes stock options to the
key employees of the Company, consultants and others to acquire shares of
the Company's Common Stock.
The 1996 Non-Qualified Plan authorizes the grant of 300,000 shares
(post-Reverse Split), subject to adjustment as provided therein. No options
have been granted under the 1996 Non-Qualified Plan to date. The 1996
Non-Qualified Plan terminates ten (10) years after stockholder approval.
Options granted shall specify the exercise price, the duration of the
option, the number of shares to which the option applies and such other
terms and conditions not inconsistent with the 1996 Non-Qualified Plan as
the committee, or other legally permissible entity, administering the 1996
Non-Qualified Plan shall determine provided that the option price shall not
be less than 100% of the fair market value at the time the option is granted
and no option may be exercisable for more than ten (10) years after the date
on which it is granted. Payment of the exercise price for options under the
1996 Non-Qualified Plan is to be made in cash, by the exchange of Common
Stock having equivalent value or through a "Cashless Exchange". If a
Participant elects to utilize a Cashless Exercise, he shall be entitled to
a credit equal to the amount of that equity by which the current Fair Market
Value exceeds the option price on that number of options surrendered and to
utilize that credit to exercise additional options held by him that such
equity could purchase. There shall be canceled that number of options
utilized for the credit and for the options exercised with such credit.
In the event of any future recapitalization, split-up or consolidation of
shares, the number of shares and exercise price shall be proportionately
adjusted.
The description of certain features of the 1996 Non-Qualified Plan set
forth herein is subject to and qualified in its entirety by the full text
of the 1996 Non-Qualified Plan, which is attached as Exhibit "2" to this
Proxy Statement.
Reasons for the 1996 Non-Qualified Plan
The purpose of the 1996 Non-Qualified Plan is to provide greater
flexibility and increased effectiveness in motivating the Company's
employees to provide for the Company's long term growth and business
success.
The 1996 Non-Qualified Plan does not qualify for treatment as an
incentive stock option plan under the Internal Revenue Code. There are
various tax benefits which could accrue to the Company upon the exercise
of non-qualified stock options that are not be available to the Company
upon the exercise of qualified incentive stock options.
<PAGE>
Administration by Committee
The 1996 Non-Qualified Plan provides for its administration by a stock
option committee, or other entity as may be authorized under Rule 16b-3
of the Act.
Federal Income Tax Consequences
The Company believes that under existing federal income tax laws, the
grant of non-qualified stock options generally will create no tax
consequences for a participant or the Company. A participant must
generally recognize ordinary income equal to the difference between the
exercise price and the fair market value of the shares received on the
date of exercise of the options. The Company will be entitled to
deductions to the extent that participants recognize ordinary income upon
the exercise of the options. Special tax rules and elections apply under
certain circumstances which may affect the timing and measurement of
income recognized in connection with awards under the 1996 Non-Qualified
Plan, particularly in the case of directors and officers subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended.
Vote Required for Approval
A copy of the 1996 Non-Qualified Plan is annexed hereto as Exhibit "2".
The 1996 Non-Qualified Plan must be approved by the Company's
stockholders. The affirmative vote of the holders of a majority of the
shares of Common Stock represented at the Special Meeting in person or by
proxy is required for approval of this proposal. Abstentions are not
counted in determining the number of votes required to attain a majority
of the outstanding shares in connection with this proposal. "Broker Non-Votes"
(which represent shares of Common Stock held by stockbrokers and not voted
by the brokers) will not be considered as votes cast in determining the outcome
of this proposal.
The board of directors unanimously recommends a vote FOR approval of the
adoption of the 1996 Non-Qualified Stock Option Plan.
PROCEDURE FOR SUBMISSION OF 1996 STOCKHOLDER PROPOSALS
Proposals by stockholders for inclusion in the 1996 annual meeting proxy
statement must be received by Eastco Industrial Safety Corp. at 130 West
10th Street, Huntington Station, New York 11746, Attention Anthony P.
Towell, prior to August 14, 1996. All such proposals are subject to the
applicable rules and requirements of the Securities and Exchange
Commission.
<PAGE>
OTHER MATTERS
So far as the board of directors is aware, only the aforementioned
matters will be acted upon at the meeting. If any other matters properly
come before the meeting, it is intended that the accompanying proxy may
be voted on such other matters in accordance with the best judgment of
the person or persons voting said proxy.
By order of the board of directors.
Dated: July 10, 1996
ALAN E. DENSEN
President
<PAGE>
EASTCO INDUSTRIAL SAFETY CORP.
130 West 10th Street
Huntington Station, New York 11746
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
August 12, 1996
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ALAN E. DENSEN and LAWRENCE DENSEN and
each or either of them (with power of substitution) and proxies for the
undersigned, to vote all shares of Common Stock of record on July 9,
1996 of EASTCO INDUSTRIAL SAFETY CORP. which the undersigned would be
entitled to vote if personally present at the Special Meeting of
Stockholders to be held on August 12, 1996 at 9:30 a.m. local time, or at
any adjournment thereof, upon the matters set forth in the Notice of and
Proxy Statement for said Meeting, copies of which have been received by
the undersigned, and, in their discretion, upon all other matters which
may properly come before said meeting. Without otherwise limiting the
generality of the foregoing said proxies are directed to vote as follows:
No.1 Authorization of amendment to certificate of incorporation to
effect a one-for-ten reverse stock split.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
No.2 Authorization of amendment to certificate of incorporation to
authorize preferred stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
No.3 Proposal to approve the adoption of the 1996 Incentive Stock
Option Plan in the form attached to the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
No.4 Proposal to approve the adoption of the 1996 Non-Qualified
Stock Option Plan in the form attached to the Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE
UNDERSIGNED. IF NO CONTRARY DIRECTION IS GIVEN ABOVE, AND THIS PROXY IS
PROPERLY SIGNED, THE SHARES WILL BE VOTED FOR THE PROPOSALS LISTED ABOVE.
<PAGE>
Your proxy is important to assure a quorum at the meeting whether or not
you plan to attend the meeting in person. You may revoke this proxy at
any time, and the giving of it will not affect your right to attend the
meeting and vote in person.
Dated _________________________, 1996
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
_____________________________________________
Number of Shares as of July 9, 1996
This proxy must be signed exactly as name
appears. When shares are held by joint
tenants, both should sign. When signing as
attorney or as trustee, executor or guardian,
please give full title as such. If a
corporation, please sign in full corporate
name by President or other authorized officer.
If a partnership, please sign in partnership
name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
EXHIBIT "1"
EASTCO INDUSTRIAL SAFETY CORP.
1996 INCENTIVE STOCK OPTION PLAN
1. Purpose. The purpose of the Plan is to provide additional
-------
incentive for such Key Employees of the Company, its Subsidiaries
and divisions, as may be designated for participation in the Plan by
granting stock incentive options and thereby encouraging such Key Employees
to invest in such shares, thereby furthering their identity of interest
with the Company's shareholders, giving them a greater personal interest and
increasing their interest in and commitment to the future growth and
prosperity of the Company.
2. Definitions. Unless otherwise required by the context, the
-----------
following terms, when used in the Plan, shall have the meanings set forth
in this section 2. In addition to the definitions provided in this section 2,
certain words and phrases used in the Plan may be defined elsewhere in the Plan.
Act: The Securities Exchange Act of 1934, as amended.
Board of Directors or Board: The Board of Directors of the Company.
Change of Control: Any merger or consolidation of the Company, any
tender offer, exchange offer or other purchase of any outstanding
securities of the Company, or any sale of assets of the Company, if,
as a result of such event, the members of the Company's Board of
Directors prior to such event shall thereafter constitute less than
<PAGE>
a majority of the Board of Directors of the Company (or of the
surviving or resulting corporation, as the case may be).
Committee: (i) The Stock Option Committee of the Board of
Directors, which shall consist of not less than two (2) directors
of the Company; or (ii) such other entity as authorized under Rule
16b-3 promulgated under the Act, as the same may be amended or
supplemented from time to time. The members of the Committee shall
be "disinterested" persons within the meaning of Rule 16b-3
promulgated under the Act, as the same may be amended or
supplemented from time to time. No member of the Committee shall
be eligible to receive Incentive Stock Options unless permitted by
such Rule 16b-3.
Common Stock: The Common Stock of the Company, par value $0.12 per
share, or such other class of shares or other securities as may be
applicable pursuant to the provisions of section 6.
Company: Eastco Industrial Safety Corp. or such amended name as
utilized by the Company.
Fair Market Value: As applied to any date, the last price of the
Common Stock reported by NASDAQ, or if not applicable, by the
National Quotation Bureau or such stock exchange as said common stock
may be listed on.
Incentive Stock Option: A stock option that satisfies the
requirements of section 422 of the Internal Revenue Code.
Internal Revenue Code: The Internal Revenue Code of 1986, as
amended, and include the regulations promulgated pursuant thereto.
Key Employee: An employee of the Company or of a Subsidiary,
including an officer or director who is an employee, who in the
opinion of the Committee can contribute significantly to the growth
<PAGE>
and successful operations of the Company or a Subsidiary. The grant
or recommendation of the grant of an Incentive Stock Option to an
employee by the Committee shall be deemed a determination by the
Committee that such employee is a Key Employee.
Plan: The Incentive Stock Option Plan herein set forth as the
same may from time to time be amended.
Restricted Shares: Shares of Common Stock issued or transferred
subject to restrictions as authorized by paragraph (c) of Section 9
of the Plan.
Subsidiary: A corporation or other form of business association of
which shares (or other ownership interests) having 50% or more of
the voting power are owned or controlled, directly or indirectly,
by the Company.
3. Administration of Plan.
-----------------------
(a) Committee. The Plan shall be administered by the Committee,
----------
which shall consist of (i) not less than two (2) directors of the Company; or
(ii) such other members as authorized under Rule 16b-3 of the Act.
The members of the Committee shall be appointed by and shall serve at
the pleasure of the Board, which may from time to time change the Committee's
membership.
(b) Authority. The Committee shall have the sole and complete
----------
authority to:
(i) determine the individuals to whom Incentive Stock Options
are granted, the amounts of Incentive Stock Options to be
granted and the time of all such grants;
<PAGE>
(ii) determine the terms, conditions and provisions of, and
restrictions relating to, each Incentive Stock Option granted;
(iii)interpret and construe the Plan and all Agreements;
(iv) prescribe, amend and rescind rules and regulations relating to
the Plan;
(v) determine the content and form of all Agreements;
(vi) determine all questions relating to Incentive Stock Options
under the Plan;
(vii)maintain accounts, records and ledgers relating to Incentive
Stock Options;
(viii)maintain records concerning its decisions and proceedings;
(ix) employ agents, attorneys, accountants or other persons for
such purposes as the Committee considers necessary or desir-
able;
(x) do and perform all acts which it may deem necessary or
appropriate for the administration of the Plan and to carry
out the objectives of the Plan.
(c) Determinations. All determinations, interpretations, or other
---------------
actions made or taken by the Committee pursuant to the provisions of the Plan
shall be final, binding and conclusive for all purposes and upon all persons.
(d) Delegation. Except as required by Rule 16b-3 promulgated under
-----------
the Act (and any successor to such rule) with respect to the grant of Incentive
Stock Options to Key Employees who are subject to Section 16 of the Act, the
Committee may delegate to appropriate senior officers of the Company its duties
<PAGE>
under the Plan pursuant to such conditions and limitations as the Committee may
establish.
4. Grants of Incentive Stock Options.
----------------------------------
Subject to the provisions of the Plan, the Committee may at any
time, or from time to time, grant Incentive Stock Options under this Plan to,
and only to, Key Employees.
5. Stock Subject to the Incentive Stock Options.
---------------------------------------------
(a) Subject to the provisions of paragraph (c) of this section
5 and of Section 7, the aggregate number of shares of Common Stock which
may be issued or transferred pursuant to Incentive Stock Options granted under
the Plan shall not exceed 300,000.
(b) Authorized but unissued shares of Common Stock and shares of
Common Stock held in the treasury, whether acquired by the Company
specifically for use under the Plan or otherwise, may be used, as the
Committee may from time to time determine, for purposes of the Plan, provided,
however, that any previously issued shares acquired or held by the Company for
the purposes of the Plan shall, unless and until transferred to a Key Employee
in accordance with the Plan, be and at all times remain treasury shares of
the Company, irrespective of whether such shares are entered in a special
account for purposes of the Plan, and shall be available for any corporate
purposes and subject to the claims of creditors of the Company.
(c) If any shares of Common Stock subject to an Incentive Stock
Option shall not be issued or transferred and shall cease to be issuable or
transferable for any reason or if Any such shares shall, after issuance
or transfer, be reacquired or repurchased by the Company or Subsidiary, the
shares not so issued or transferred or the shares so reacquired or
<PAGE>
repurchased by the Company or a Subsidiary may again be made subject to
Incentive Stock Options.
6. Provisions of Incentive Stock Options.
--------------------------------------
(a) All Incentive Stock Options shall be subject to the following
provisions:
(1) The purchase price per share shall be determined by the
Committee from time to time and shall in no event be less than
100% of the Fair Market Value of such share on the date of
grant.
(2) Subject to the provisions of paragraphs (a)(5) and (a)(7)
of this section 6, an Option granted under the Plan may not be
exercised unless, at the time of such exercise, the optionee
shall be in the employ of the Company and shall have completed
at least twelve months of continuous employment with the
Company from the date of the grant of his Option. However,
in the event there is a Change in Control, an Option granted
under the Plan shall become immediately vested and
exercisable.
(3) Each Option shall expire at such time as the Committee may
determine, at the time the Option shall be granted, but not
later than ten years from the date such Option shall have
been granted.
(4) Any Option granted under the Plan may be exercised
solely by the person to whom granted (or by his
guardian or legal representative), except as provided in
paragraph (a)(7) of this section 6 in the case of such
person's death.
<PAGE>
(5) Absence on leave, approved by an officer of the Company
or a Subsidiary authorized to give such approval, shall not
be considered an interruption or termination of employment
for any purpose of the Plan, or Options granted thereunder,
except that no Option may be granted to an employee while he
is absent on leave.
(6) An Option may be exercised, in whole or in part, at any time
or from time to time during the balance of the term of the
Option, except as limited by provisions contained in the
Option.
(7) The Option shall terminate if and when the optionee shall
cease to be an employee of the Company and its Subsidiaries,
except as follows:
(i) If the optionee shall die while in the employ of the
Company or of a Subsidiary, the Option shall be
exercisable, as and to the extent exercisable by such
person or persons as shall have acquired the optionee's
rights under the Option by will or the law of descent and
distribution, but not later than one year after the date
of death and not after the expiration of the specific
period fixed in the Option grant.
(ii) If an optionee shall become disabled (within the meaning
of section 105(d)(4) of the Internal Revenue Code) while
in the employ of the Company or of a Subsidiary and such
<PAGE>
optionee's employment shall terminate by reason of such
disability the Option shall be exercisable, as and to
the extent exercisable at the time of the termination
of his employment, within such period as shall be set
forth in the Option grant, but only within one year
after the termination of the optionee's employment and
not after the expiration of the specific period fixed in
the Option grant as in effect at the time of the
termination of his employment.
(8) Shares purchased upon exercise of an Option shall be paid for
in full by cash, in the equivalent amount of the Company's
Common Stock or through a "Cashless Exercise". If a
Participant elects to utilize a Cashless
Exercise, he shall be entitled to a credit equal to the
amount of that equity by which the current Fair Market Value
exceeds the option price on that number of options
surrendered and to utilize that credit to exercise additional
options held by him that such equity could purchase. There
shall be canceled that number of options utilized for the
credit and for the options exercised for such credit. For
example, if the Participant has options to acquire 20,000
shares which are exercisable, the Fair Market Value is
$2.00 per share, the exercise price is $1.25 per share, and
the participant elects to utilize for a credit 10,000
<PAGE>
options ($7,500), then upon a Cashless exercise in connection
therewith he shall be entitled to acquire 6,000 shares of
Common Stock in exchange for the options for 10,000 shares for
which a credit has been received and options for 6,000 shares
have been exercised. The Participant will still have
exercisable options to acquire 4,000 shares of Common Stock.
(9) The Option agreements or Option grants authorized by the Plan
may contain such other provisions as the Committee shall deem
advisable provided they do not violate the provisions of
Section 422 of the Internal Revenue Code.
(10) The aggregate Fair Market Value (determined as of the time
of grant) of stock for which Incentive Stock Options are
exercisable for the first time during any calendar year by
an optionee is to be limited to $100,000, but the value may
exceed $100,000 for which options may be granted to an
optionee.
(11) In the event that any Incentive Stock Option is granted under
the Plan to any individual who, at the time such Incentive
Stock Option is granted, owns stock possessing more than ten
percent of the total combined voting power of all classes of
stock of the Company or of any Subsidiary, the purchase price
per share under such Incentive Stock Option shall be at least
110% of the fair market value of such share at the time such
<PAGE>
Incentive Stock Option is granted and such Incentive Stock
Option shall not be exercisable after the expiration of five
years from the date it is granted.
(12) Upon exercise of the Incentive Stock Option,no disposition of
such Common Stock shall be made within two (2) years from the
date of the granting of the Option nor within one (1) year
after the transfer of the Common Stock to him.
7. Adjustment Provisions. In the event that any recapitalization, or
----------------------
reclassification, split-up or consolidation of shares of Common Stock shall be
affected, or the outstanding shares of Common Stock are, in connection with a
merger or consolidation of the Company or a sale by the Company of all or a
part of its assets, exchanged for a different number or class of shares of
stock or other securities of any other corporation, or new, different or
additional shares or other securities of the Company or of another corporation
are received by the holder of Common Stock or any distribution is made to the
holders of Common Stock other than a cash dividend, (a) the number and class of
shares or other securities that may be issued or transferred and (b) the option
price shall in each case be equitably adjusted as the Committee may, in the
reasonable exercise of its discretion, determine. In no event may any change
be made under this section 7 in any Incentive Stock Option which would
constitute a "modification" within the meaning of Section 425(h)(3) of the
Internal Revenue Code.
8. Term. The Plan shall be deemed adopted and shall become effective upon:
-----
(i) approval and adoption by the shareholders at a Special Meeting of
Shareholders of the Company to be held on August 12, 1996 (the "Special
<PAGE>
Meeting") of a one-for-ten reverse stock split of the Company's Common
Stock (the"Reverse Split"); (ii) completion of the Reverse Split; and
(iii) shareholder approval and adoption of the Plan at the Special Meeting.
No Stock Incentives shall be granted under the Plan on or after May 12, 2006.
9. General Provisions.
-------------------
(a) The Committee may from time to time adopt such rules and
regulations, not inconsistent with the provisions of the Plan, as it deems
necessary to determine eligibility to participate in the Plan and for the proper
administration of the Plan, and may amend or revoke any rule or regulation so
established. The Committee may make such determinations and interpretations
under or in connection with the Plan as it deems necessary or advisable. All
such rules, regulations, determinations and interpretations shall be binding
and conclusive upon the Company, its Subsidiaries, its shareholders and all
employees and upon their respective legal representatives, beneficiaries,
successors and assigns and upon all other persons claiming under or through
any of them.
(b) Any action required or permitted to be taken by the Committee
under the Plan shall require the affirmative vote of a majority of all the
members of the Committee.
(c) With respect to any shares of Common Stock issued or transferred
under the provision of the Plan, such shares may be issued or transferred
subject to such conditions, in addition to those specifically provided in the
Plan, as the Committee may direct and, without limiting the generality of
the foregoing, provision may be made in that shares issued or transferred
upon their grant or exercise shall be Restricted Shares subject to
<PAGE>
forfeiture upon failure to comply with conditions and restrictions imposed in
the grant of such Stock Incentives.
(d) Nothing in the Plan nor in any instrument executed pursuant
thereto shall confer upon any employee any right to continue in the employ of
the Company or a Subsidiary or shall affect the right of the Company or of
a Subsidiary to terminate the employment of any employee with or without cause.
(e) No shares of Common Stock shall be sold, issued or transferred
pursuant to an Incentive Stock Option unless and until there has been
compliance, in the opinion of counsel to the Company, with all legal
requirements, applicable to the sale, issuance or transfer of such shares.
In connection with any such sale, issuance or transfer, the person acquiring
the shares shall, if requested by the Company, give assurances satisfactory to
counsel to the Company that the shares are being acquired for investment and
not with a view to resale or distribution thereof and assurances in respect of
such other matters as the Company or a Subsidiary may deem desirable to assure
compliance with all applicable legal requirements.
(f) No employee (individually or as a member of a group), and no
beneficiary or other person claiming under or through him, shall have any right,
title or interest in or to any shares of Common Stock allocated or reserved
for the purposes of the Plan except as to such shares of Common Stock, if any,
as shall have been issued or transferred to him.
(g) No Incentive Stock Option shall be assignable or subject to any
encumbrance, pledge or charge of any nature, shall be subject to execution,
attachment or similar process, or shall be transferable other than by will
or the laws of descent and distribution, and every Stock Incentive Option
<PAGE>
and all rights under the Plan shall be exercisable during the employee's
lifetime only by him or his guardian or legal representative.
10. Amendment or Discontinuance of Plan.
------------------------------------
(a) The Plan may be amended by the Committee at any time, provided
that, without the approval of the shareholders of the Company, no amendment
shall be made which (i) increases the aggregate number of shares of Common
Stock that may be issued or transferred pursuant to Stock Incentive Options
as provided in paragraph (a) of Section 5, (ii) materially increases the
benefits accruing to participants under the Plan, (iii) materially modifies
the requirements as to eligibility for participation in the Plan, (iv) amends
Section 8 to extend the term of the Plan, (v) amends this section 10 or which
would otherwise invalidate this Plan under Section 422 of the Internal Revenue
Code.
(b) The Committee may, by resolution adopted by a majority of the
entire Committee, discontinue the Plan.
(c) No amendment or discontinuance of the Plan by the Committee or
the shareholders of the Company shall adversely affect, except with the consent
of the holder, any Incentive Stock Option theretofore granted.
11. Compliance with Section 422 of the Internal Revenue Code.
---------------------------------------------------------
This Plan is intended to comply with the provisions of Section 422 of
the Internal Revenue Code and to the extent inconsistent or non-complying, the
provisions of said section shall be deemed applicable to this Plan.
12. No Guarantee of Employment by Participation.
--------------------------------------------
Nothing in the Plan shall interfere with or limit in any way the
right of the Company to terminate any employee's employment at any time,
nor confer upon any employee any right to continue in the employment of
the Company.
EXHIBIT "2"
EASTCO INDUSTRIAL SAFETY CORP.
1996 NON-QUALIFIED STOCK OPTION PLAN
SECTION 1 - OBJECTIVE
The objective of the Eastco Industrial Safety Corp. 1996 Non-Qualified
Stock Option Plan (the "Plan") is to attract and retain the best available
executive personnel, other key employees, consultants and others to be
responsible for the management, growth and success of the business, and to
provide an incentive for such individuals to exert their best efforts on
behalf of the Company and it shareholders.
SECTION 2 - DEFINITIONS
Unless otherwise required by the context, the following terms, when
used in the Plan, shall have the meanings set forth in section 2. In
addition to the definitions provided in this section 2, certain words and
phrases used in the Plan and any Agreement (as herein defined) may be
defined elsewhere in the Plan or in such Agreement.
Act: The Securities Exchange Act of 1934, as amended.
Agreement: The document which evidences the grant of any Award
under the Plan and which sets forth the terms, conditions, and
limitations relating to such Award.
Award: The grant of any stock option.
<PAGE>
Board: The Board of Directors of Eastco Industrial Safety Corp.
Code: The Internal Revenue Code of 1986, as amended, and
including the regulations promulgated pursuant thereto.
Committee: (i) The Stock Option Committee of the Board of Directors
of the Company, which shall consist of two or more members; or
(ii) such other entity as authorized under Rule 16b-3 promulgated
under the Act, as the same may be amended or supplemented from time
to time. The members of the Committee shall be "disinterested" persons
within the meaning of Rule 16b-3. No member of the Committee shall
be eligible to receive Awards under the Plan unless permitted by such
Rule 16b-3.
Common Stock: The present shares of Common Stock of the
Company, and any shares into which such shares are converted,
changed or reclassified.
Company: Eastco Industrial Safety Corp., a New York corporation,
and its groups, divisions and subsidiaries.
Employee: Any person employed by the Company as an employee.
Fair Market Value or "FMV": The fair market value of Common
Stock on a particular day shall be the closing price of the
Common Stock on NASDAQ, or if not applicable, by the National
Quotations Bureau or any other national stock exchange on which
the Common Stock is traded, on such date.
Option: The right to purchase Common Stock of the Company at a
stated price for a specified period of time. For purposes of
the Plan, the option is a Non-Qualified Stock Option.
Participant: Any Employee designated by the Committee to
participate in the Plan.
<PAGE>
Shares: Shares of Common Stock.
SECTION 3 - COMMON STOCK
3.1 - Number of Shares. Subject to the provisions of Section 3.3,
-----------------
the number of Shares which may be issued for Options granted under the
Plan may not exceed 300,000 Shares.
3.2 - Re-Usage. If an Option expires or is terminated, surrendered,
---------
or canceled without having been fully exercised, or if any other grant
results in any Shares not being issued, the Shares covered by such Option
shall again be immediately available for Awards under the Plan.
3.3 - Adjustments. In the event of any change in the outstanding
------------
Common Stock by reason of a stock split, stock dividend, combination,
reclassification or exchange of Shares, recapitalization, merger,
consolidation or other similar event, the number of Shares available for
Options, and the number of Shares subject to outstanding Options, and the
price thereof, and the Fair Market Value, as applicable, shall be
proportionately adjusted by the Committee in its sole discretion and any
such adjustment shall be binding and conclusive on all parties. Any
fractional Shares resulting from any such adjustment shall be
disregarded.
SECTION 4 - ELIGIBILITY AND PARTICIPATION
Participants in the Plan shall be those key employees, consultants,
and others selected by the Committee to participate in the Plan who hold
positions of responsibility and whose participation in the Plan the
Committee or management of the Company determines to be in the best
interests of the Company.
<PAGE>
SECTION 5 - ADMINISTRATION
5.1 - Committee. The Plan shall be administered by the Committee,
----------
which shall consist of: (i) not less than two (2) directors of the Company; or
(ii) such other members as authorized under Rule 16b-3 of the Act and
who shall not be eligible to participate in the Plan. The members of the
Committee shall be appointed by and shall serve at the pleasure of the
Board, which may from time to time change the Committee's membership.
5.2 - Authority. The Committee shall have the sole and complete
----------
authority to:
(a) determine the individuals to whom awards are granted, the
amounts of the awards to be granted and the time of all
such grants;
(b) determine the terms, conditions and provisions of, and
restrictions relating to, each Award granted;
(c) interpret and construe the Plan and all Agreements;
(d) prescribe, amend and rescind rules and regulations
relating to the Plan;
(e) determine the content and form of all Agreements;
(f) determine all questions relating to Awards under the Plan;
(g) maintain accounts, records and ledgers relating to Awards;
(h) maintain records concerning its decisions and proceedings;
(i) employ agents, attorneys, accountants or other persons for
such purposes as the Committee considers necessary or
desirable;
(j) do and perform all acts which it may deem necessary or
appropriate for the administration of the Plan and to
carry out the objectives of the Plan.
<PAGE>
5.3 - Determinations. All determinations, interpretations, or other
---------------
actions made or taken by the Committee pursuant to the provisions of the
Plan shall be final, binding and conclusive for all purposes and upon all
persons.
5.4 - Delegation. Except as required by Rule 16b-3 promulgated
-----------
under the Act (and any successor to such rule) with respect to the grant
of Awards to Participants who are subject to Section 16 of the Act, the
Committee may delegate to appropriate senior officers of the Company its
duties under the Plan pursuant to such conditions and limitations as the
Committee may establish.
SECTION 6 - STOCK OPTIONS
6.1 - Type of Option. It is intended that only non-qualified stock
---------------
options may be granted by the Committee under the Plan.
6.2 - Grant of Option. An Option may be granted to Participants at
----------------
such time or times as shall be determined by the Committee. Each Option
shall be evidenced by an Option Agreement that shall specify the exercise
price, the duration of the Option, the number of Shares to which the
Option applies, and such other terms and conditions not inconsistent with
the Plan as the Committee shall determine.
6.3 - Option Price. The per share option price shall be not less
-------------
than 100% of the Fair Market Value at the time the Option is granted.
6.4 - Exercise of Options. Options awarded under the Plan shall be
--------------------
exercisable at such times and shall be subject to such restrictions and
conditions, including the performance of a minimum period of service
after the grant, as the Committee may impose, which need not be uniform
for all participants; provided, however, that no Option shall be
exercisable for more than 10 years after the date on which it is granted.
<PAGE>
6.5 - Payment. The Committee shall determine the procedures
--------
governing the exercise of Options, and shall require that the per share
option price be paid in full at the time of the exercise. The Committee
may, in its discretion, permit a Participant to make payment in cash, in
Shares already owned by the Participant, valued at the Fair Market Value
thereof, as partial or full payment of the exercise price or through a
"Cashless Exercise".
If a Participant elects to utilize a Cashless Exercise, he shall be
entitled to a credit equal to the amount of that equity by which the
current Fair Market Value exceeds the option price on that number of
options surrendered and to utilize that credit to exercise additional
options held by him that such equity could purchase. There shall be
canceled that number of options utilized for the credit and for the
options exercised for such credit. For example, if the Participant has
options to acquire 20,000 shares which are exercisable, the Fair Market
Value is $2.00 per share, the exercise price is $1.25 per share, and the
Participant elects to utilize for a credit 10,000 options ($7,500), then
upon a Cashless Exercise in connection therewith he shall be entitled to
acquire 6,000 shares of Common Stock in exchange for the options for
10,000 shares for which a credit has been received and option for 6,000
shares have been exercised. The Participant will still have exercisable
options to acquire 4,000 shares of Common Stock.
As soon as practical after full payment of the exercise price, the
Company shall deliver to the Participant a certificate or certificates
representing the acquired shares.
6.6 - Rights of a Shareholder. Until the exercise of an Option and
------------------------
the issuance of the Shares in respect thereof, a Participant shall have
<PAGE>
no rights as a Shareholder with respect to the Shares covered by such
Option.
SECTION 7 - AMENDMENT, MODIFICATION AND TERMINATION OF PLAN
The Board of Directors at any time may terminate or suspend the
Plan, and from time to time may amend or modify the Plan. No amendment,
modification, or termination of the Plan shall in any manner adversely
affect any Award theretofore granted under the Plan without the consent
of the Participant.
SECTION 8 - TERMINATION OF EMPLOYMENT
8.1 - Termination of Employment Due to Retirement. Unless otherwise
--------------------------------------------
determined by the Committee at the time of grant, in the event a
Participant's employment terminates by reason of retirement, any Option
granted to such Participant which is then outstanding may be exercised by
the Participant at any time prior to the expiration of the term of the
Option or within one (1) year following the Participant's termination of
employment, whichever period is shorter.
8.2 - Termination of Employment Due to Death or Disability. Unless
-----------------------------------------------------
otherwise determined by the Committee at the time of grant, in the event
a Participant's employment is terminated by reason of death or
disability, any Option granted to such Participant which is then
outstanding may be exercised by the Participant or the Participant's
legal representative at any time prior to the expiration date of the term
of the Option or within six (6) months following Participant's
termination of employment, whichever period is shorter.
8.3 - Termination of Employment for Any Other Reason. Unless
-----------------------------------------------
otherwise determined by the Committee at the time of grant, in the event
<PAGE>
the employment of the Participant shall terminate for any reason other
than misconduct or one described in Section 8.1 or 8.2, any Option
granted to such Participant which is then outstanding may be exercised by
the Participant at any time prior to the expiration date of the term of
the Option or within three (3) months following the Participant's
termination of employment, whichever period is shorter. If the
employment of a Participant is terminated by the Company by reason of the
Participant's misconduct, any outstanding Option shall cease to be
exercisable on the date of the Participant's termination of employment.
As used herein, "misconduct" means that the Participant has engaged, or
intends to engage, in competition with the Company, has induced any
customer of the Company to breach any contract with the Company, has made
any unauthorized disclosure of any of the secrets or confidential
information of the Company, has committed an act of embezzlement, fraud,
or theft with respect to the property of the Company, or has deliberately
disregarded the rules of the Company in such manner as to cause any loss,
damage, or injury to, or otherwise endanger the property, reputation, or
employees of the Company or has otherwise failed to act in a faithful or
diligent manner on behalf of the Company. The Committee shall determine
whether a Participant's employment is terminated by reason of misconduct.
8.4 - Accrual of Right at Date of Termination. The Participant
----------------------------------------
shall have the right to exercise an Option as indicated in Sections 8.1,
8.2 and 8.3 only to the extent the Participant's right to exercise such
Option had accrued at the date of termination of employment pursuant to
the terms of the Option Agreement and had not previously been exercised.
<PAGE>
SECTION 9 - MISCELLANEOUS PROVISIONS
9.1 - Non-Transferability of Awards. Unless otherwise determined by
------------------------------
the Committee at the time of grant, and except as provided in Section 8,
no Awards granted under the Plan shall be assignable, transferable, or
payable to or exercisable by anyone other than the Participant to whom it
was granted.
9.2 - No Guarantee of Employment by Participation. Nothing in the
--------------------------------------------
Plan shall interfere with or limit in any way the right of the Company to
terminate any Participant's employment at any time, nor confer upon any
Participant any right to continue in the employment of the Company. No
employee shall have a right to be selected as a Participant, or, having
been so selected, to receive any future Awards.
9.3 - Tax Withholding. The Company shall have the authority to
----------------
withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state and local withholding tax
requirements on any Award under the Plan, and the Company may defer
payment of cash or issuance of Shares until such requirements are
satisfied. The Committee may, in its discretion, permit a Participant to
elect, subject to such conditions are the Committee shall require, to
have Shares otherwise issuable under the Plan withheld by the Company and
having a Fair Market Value sufficient to satisfy all or part of the
Participant's estimated total federal, state and local tax obligation
associated with the transaction.
9.4 - Governing Law. The Plan and all determinations made and
--------------
actions taken pursuant hereto, to the extent not otherwise governed by
the Code or Act, shall be governed by the laws of the State of New York
and construed in accordance therewith.
<PAGE>
9.5 - Effective Date. The Plan shall be submitted to the
---------------
Shareholders of the Company for approval at the Special Meeting of
Shareholders of the Company scheduled to be held on August 12, 1996 (the
"Special Meeting") and shall be effective immediately upon: (i) such
approval by the Shareholders of the Company, provided, however, that no
Award requiring the issuance of shares shall be exercised or paid out
unless at the time of such exercise or payout (a) such Shares are covered
by a currently effective registration statement filed under the
Securities Act of 1933, as amended, if one is then required, or in the
sole opinion of the Company and its counsel such issuance of Shares is
otherwise exempt from the registration requirements of such Act, and
(b) such Shares are quoted on NASDAQ or on any other securities exchange
upon which the Common Stock of the Company is listed; (ii) shareholder
approval and adoption at the Special Meeting of a one-for-ten reverse
stock split of the Company's Common Stock (the "Reverse Split"); and
(iii) completion of the Reverse Split. The Plan shall terminate May 12,
2006.
9.6 - Provisions Relating to Section 16 Persons. Notwithstanding
------------------------------------------
any other provision herein, any Award granted hereunder to an Employee
who is then subject to Section 16 of the Act shall not be transferrable
other than by will or the laws of descent and distribution and shall be
exercisable during the Employee's lifetime only by him or by his guardian
or legal representative.
