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: ___________________________________________
[ ] 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
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<PAGE>
EASTCO INDUSTRIAL SAFETY CORP.
130 West 10th Street
Huntington Station, New York 11746
________________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
________________________________________
The annual meeting of the stockholders of Eastco Industrial Safety Corp. will
be held on January 22, 1997 at 3:30 p.m. at the Company's office located at
130 West 10th Street, Huntington Station, New York 11746. The meeting is
called for the following purposes:
ELECTION OF DIRECTORS
The election of three directors to hold office for the term continuing
through the annual meeting following the fiscal year ended June 30, 1998 and
until the election and qualification of their respective successors.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
To ratify the appointment of Cornick, Garber & Sandler, LLP, Certified Public
Accountants, as independent auditors.
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 December 6, 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: December 11, 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 December
13, 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 the annual meeting of stockholders (the "Annual Meeting") of
the Company to be held January 22, 1997 at 3:30 p.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 or
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 Annual 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
$7,500.
The matters to be considered at this Annual Meeting will be the election of
three directors to hold office for the term continuing through the annual
meeting following the fiscal year ended June 30, 1998 ("1998 Annual Meeting")
and until the election and qualification of their respective successors, and
the ratification of the appointment of Cornick, Garber & Sandler, LLP,
Certified Public Accountants, as independent auditors. The Company is aware
of no other matters to be presented for action at the meeting.
Under SEC rules, boxes and a designated blank space are provided on the proxy
card for stockholders to mark if they wish either to abstain on one or more
of the proposals or to withhold authority to vote for one or more nominees
for director.
<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 December 6, 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 1,583,079
shares of Common Stock.
STOCK OWNERSHIP OF DIRECTORS
The following table sets forth as of December 6, 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 (62) 1958 60,949(2)(5)(6) 3.7%
Anthony P. Towell (64) 1989 148,588(3)(5)(6) 8.6%
Lawrence Densen (38) 1986 55,161(4)(5)(6) 3.4%
Dr. Martin Fleisher (59) 1989 1,000(7) *
James Favia (62) 1995 3,000(8) *
Charles Holzberg (61) 1996 417(9) *
___________________
* Less than 1%
(1) Beneficial ownership is determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934.
(2) Includes warrants, held by Mr. Densen's wife, to acquire 1,667 shares of
Common Stock, exercisable at $13.00 per share until April 11, 1999.
Also includes incentive stock options granted under the 1994 Plan to
acquire 2,000 shares of Common Stock, exercisable at $10.625 until
January 19, 2005. Amount indicated does not include shares beneficially
owned by Lawrence Densen, son of Alan E. Densen.
(3) Includes Class A Warrants to acquire 1,500 shares of Common Stock;
warrants, held by Mr. Towell's wife, to acquire 1,667 shares of Common
Stock, exercisable at $13.00 per share until April 11, 1999; and
incentive stock options granted under the 1994 Plan to acquire 2,000
shares of Common Stock, exercisable at $10.625 until January 19, 2005.
Also includes warrants to acquire 90,941 shares of Common Stock,
exercisable at $5.718 per share until April 11, 1999.
(4) Includes Class A Warrants to acquire 700 shares of Common Stock;
incentive stock options granted under the 1983 Incentive Stock Option
Plan (the "1983 Plan") to acquire 625 shares of Common Stock,
exercisable at $26.664 per share until December 17, 1996; incentive
stock options granted under the 1983 Plan to acquire 56 shares of Common
Stock, exercisable at $30.00 per share until May 31, 1998; and incentive
<PAGE>
stock options granted under the 1994 Plan to acquire 2,000 shares of
Common Stock, exercisable at $10.625 per share until January 19, 2005.
Amount indicated does not include shares beneficially owned by Alan E.
Densen, father of Lawrence Densen.
(5) Includes non-qualified options to acquire 41,110 shares of Common Stock
to each Messrs. A. Densen, A. Towell and L. Densen exercisable at $5.169
per share until January 19, 2005. Does not include options to acquire
an additional 41,110 shares to each Messrs. A. Densen, A. Towell and L.
Densen which can be exercised from January 20, 2000 until January 19,
2005. These options provide for a dilution adjustment as a result of
sales of securities at less than the exercise price.
(6) Includes warrants to acquire 8,870 shares of Common Stock to each
Messrs. A. Densen, A. Towell, and L. Densen, exercisable at $5.431 until
February 22, 2001, in consideration of the guaranty of overadvances by
Congress to the Company. These warrants provide for a dilution
adjustment as a result of sales of securities at less than the exercise
price.
(7) Includes non-qualified stock options to acquire 1,000 shares of Common
Stock, exercisable at $16.876 per share until July 26, 2005.
(8) Includes non-qualified stock options to acquire 1,000 shares of Common
Stock, exercisable at $16.876 per share until July 26, 2005.
(9) Includes warrants to acquire 417 shares of Common Stock, exercisable at
$13.00 per share until April 11, 1999.
As of December 6, 1996 the directors and executive officers of the Company,
six persons, owned of record and beneficially a total of 269,115 shares
representing 14.6% 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.
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. He is the father of
Lawrence Densen.
Lawrence Densen, Senior Vice President and director of the Company, has been
a Vice President and a director of the Company since 1986. He is the son of
Alan E. Densen.
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. In addition, he has been a director since 1988 of Nytest
Environmental Inc. ("Nytest"), a hazardous waste testing company. He was a
director of New York Testing Laboratories, Inc. ("NYT"), a laboratory testing
company and manufacturer of automotive accessories, from 1988 to 1995. Mr.
Towell was a director of Ameridata Technologies, Inc. ("Ameridata"), a
provider of computer products and services from 1991 to 1996. The Common
stock of Nytest is registered, and the common stock of Ameridata was
registered, under Section 12(g) and (b), respectively, of the Securities
<PAGE>
Exchange Act of 1934.
Dr. Martin Fleisher has been a director of the Company since 1989. He
holds a Ph.D. in biochemistry from New York University, and has been an
attending clinical chemist at Memorial Sloan-Kettering Cancer Center since
1967. He devotes only a limited portion of his time to the business of the
Company.
James Favia has been a director of the Company since July 26, 1995. He has
been a consultant during the past five years to Donald & Co. ("Donald"),
which has acted 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 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.
Charles Holzberg has been a director of the Company since December 5,
1996. He has been President of The Charles Holzberg Agency, Inc. during the
past five years, a general agent for the sale of life insurance. He devotes
only a limited portion of his time to the business of the Company.
ELECTION OF DIRECTORS
Present Composition of Board
The bylaws of the Company provide that there will be not less than three nor
more than seven directors. The present size of the board is fixed at six (6)
directors. The Board of Directors is divided into two (2) classes. The term
of office of James Favia, Dr. Martin Fleisher and Charles Holzberg does
not expire until the Company's annual meeting following the fiscal year ended
June 30, 1997 and when their successors are elected. Herbert Schneiderman
resigned as a director effective December 5, 1996 and his seat for the
unexpired term has been filled by Charles Holzberg.
Nominees for Director
The Board of Directors has unanimously nominated and designated the following
individuals for election as directors for a two-year term continuing through
the Company's 1998 annual meeting and until their successors are elected and
take their places:
Alan E. Densen
Lawrence Densen
Anthony P. Towell
Reference should be made to "Stock Ownership of Directors", above, for
disclosure of their business experience and stock ownership, and to "Certain
Relationships and Related Transactions," below, for additional information
about them.
Proxies in the enclosed form will be voted for the nominees named above.
Authority may be withheld for any nominee. In addition, stockholders may
nominate additional nominees as candidates for the position as director.
Although the Board of Directors does not anticipate that any nominee will be
unavailable for election, in the event of such occurrence, the proxy will be
voted for such substitute, if any, as the Board of Directors may designate.
Proxies will not vote for a greater number of persons than the number of
nominees named. Directors will be elected by the vote of a majority of
<PAGE>
stockholders present or by proxy at the Annual Meeting. 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.
MEETINGS OF THE BOARD OF DIRECTORS AND CERTAIN
COMMITTEES THEREOF
Eight meetings of the Board of Directors were held during the fiscal year
ending June 30, 1996.
The Board of Directors has established a Compensation Committee, a Stock
Option Committee and an Audit Committee. The Company does not have a
standing nominating committee.
The Compensation Committee consisted of Messrs. Fleisher, Favia and
Schneiderman. The purpose of the Compensation Committee is to review the
Company's compensation of its executives, to make determinations relative
thereto and to submit recommendations to the Board of Directors with respect
thereto.
The Stock Option Committee consisted of Messrs. Fleisher, Favia and
Schneiderman. The purpose of the Stock Option Committee is to select the
persons to whom options to purchase shares of the Company's Common Stock
under the Company's Stock Option Plans and to make various other
determinations with respect to such plans.
The Company's Audit Committee consisted of Messrs. Towell, Favia and
Schneiderman. The purpose of the Audit Committee is to provide general
oversight of audit, legal compliance and potential conflict of interest
matters.
Each of the foregoing committees met once during the fiscal year ended June
30, 1996. On December 5, 1996, Charles Holzberg was elected to fill the seats
of Schneiderman on the foregoing three committees.
Members of the Board of Directors who are not employees of the Company
receive a fee of $500 per meeting attended in person.
PRINCIPAL HOLDERS OF SECURITIES
The following table sets forth, as of December 6, 1996, the ownership with
respect to each person known to own beneficially more than 5% of the
Company's common stock:
Name and Address of Amount and Nature of Percent
Title of Class Beneficial Owner(1) Beneficial Owner(2) of Class
- - -------------- -------------------- ------------------- -----------
Common Stock Anthony P. Towell 148,588 8.6%
$0.12 par value 130 W. 10th Street
Huntington Station, NY
(1) On November 15, 1996, the Company consummated its Rights and Standby
Offering pursuant to which Royce Investment Group, Inc. ("Royce") purchased
<PAGE>
692,074 shares of Common Stock and advised the Company that it would be
selling 350,000 of these shares (as part of the Units consisting each of one
share of Common Stock and one Class B Warrant) to Continental Broker-Dealer
Corp. ("Continental"), Carle Place, New York, and that it may sell additional
shares to Continental or other broker-dealers. The foregoing are not
included in this table.
(2) See footnotes (3), (5) and (6) under "Stock Ownership of Directors,"
above.
EXECUTIVE COMPENSATION
Summary
The following describes the components of the total compensation of the CEO
and each other executive officer of the Company whose total annual salary and
bonus exceeds $100,000.
Summary Compensation Table
Annual Compensation Long term compensation
------------------------ --------------------------------------
Awards Payouts
------------------ -----------------
Other Securities All
Name and annual Restricted underlying LTIP other
principal Salary Bonus compen- stock options / payouts compen
position Year ($) ($) sation($) award(s)($) SARs (#)(5) ($) sation($)
- - -------- ---- ------ ----- ---------- --------- ---------- ------ --------
Alan E. 1996 119,731 -0- 35,672(3) -0- 8,870(4) -0- -0-
Densen, 1995 110,000 -0- 35,672(3) -0- 84,220(2) -0- -0-
CEO 1994(1) 119,225 -0- 30,078(3) -0- -0- -0- -0-
Lawrence1996 103,848 -0- 4,200 -0- 8,870(4) -0- -0-
Densen, 1995 87,000 -0- 4,200 -0- 84,220(2) -0- -0-
Senior 1994 84,806 -0- 4,200 -0- -0- -0- -0-
VP
- - ------
(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
2,000 shares at $10.625 as well as non-qualified stock options to acquire
82,220 shares exercisable at $5.169 per share, each exercisable until
January 19, 2005. Because it was determined that the audited pre-tax
profit for fiscal 1995 was greater than $50,000, non-qualified options
can now be exercised for 41,110 shares of Common Stock. The remaining
41,110 non-qualified options can not be exercised during the first five
years. The non-qualified options provide for adjustment in the event of
dilution as a result of sales of securities at less than the exercise
price.
(3) Primarily life insurance premiums on the life of Alan E. Densen owned by
Mr. Densen's wife and paid for by the Company.
<PAGE>
(4) Warrants to acquire 8,870 shares of Common Stock at $5.431 granted
February 23, 1996 until February 22, 2001, in consideration of the
guaranty of overadvances by Congress to the Company. These warrants
provide for adjustment in the event of dilution as a result of
sales of securities at less than the exercise price.
(5) Each person's options including only options directly held by such
person.
Stock Options
OPTION/SAR GRANTS IN LAST FISCAL YEAR
[Individual Grants]
Number of Percent of
securities total options /
underlying SARs granted Exercise
Options/SARs in fiscal or base Expiration
Name granted (#)(1) year (1) price ($/Sh) Date
- - ----- -------------- -------------- ------------- -----------
Alan E. 8,870 33.3% 5.431 2/22/2001
Densen,
CEO
Lawrence 8,870 33.3% 5.431 2/22/2001
Densen,
Senior
VP
(1) See note (4) 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(2) unexercisable(1)
- - ----- -------------- -------------- ------------- ----------------
Alan E. 0 0 51,980/41,110 $129,850/$108,695
Densen
CEO(1)
Lawrence 0 0 52,661/41,110 $129,850/$108,695
Densen,
Senior
VP
- - ------
(1) See footnotes (2) and (4) above in the Summary Compensation Table. Does
not include warrants to acquire 1,667 shares described in Note (1) under
Principal Shareholders or options held by Lawrence Densen.
<PAGE>
(2) Each person's options include only options directly held by such person.
Employment Agreements and Change in Control Features
As of July 1, 1995, Alan E. Densen entered into a new employment agreement which
provides for him to serve as the Company's President for a term of five years
and Lawrence Densen also entered into a new employment agreement to serve as
Senior Vice-President for a term of five years. Anthony P. Towell has a similar
contract to that described herein for Alan E.Densen and Lawrence Densen but with
a lesser amount of compensation. At the end of each fiscal year during the term
of the agreement, the agreements are automatically extended for one additional
year to be added at the end of the then current term of the agreements, unless
the Board of Directors determines not to extend the agreements. Each may also
terminate their agreement upon 30 days written notice. The base annual salaries
for Alan E. Densen and Lawrence Densen were $119,731 and $103,848, respectively,
for fiscal 1996 which is to be increased at the beginning of each fiscal year
commencing July 1, 1996, at the discretion of the Board of Directors but not
less than 10% of the minimum compensation paid to the employees in the prior
fiscal year. For fiscal 1997, their base fiscal salaries are $133,100 and
$115,500, respectively. Each is entitled 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, and Lawrence Densen is entitled to .75% of the Company's revenues
in excess of $20.5 million (which was waived for fiscal 1996 and 1997). Bonuses
are 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, each, 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.
The employment agreements entered into by Messrs. Alan E. Densen and Lawrence
Densen include provisions that provide for their right to terminate the
agreements and thereby receive additional compensation, as provided below, in
the event that they are not elected or retained as President and Senior
Vice-President, respectively, or as a director of the Company; the Company acts
to materially reduce their duties and responsibilities under the agreement; the
Company changes the geographic location of their duties to a location from the
New York metropolitan area; their base compensation is reduced by 10% or more;
any successor to the Company fails to assume the agreements; any other material
breach of the agreements 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 or the composition of the board
changes so that officers of the Company no longer hold a majority of the seats.
In the event that Messrs. Alan E. Densen or Lawrence Densen terminate their
positions because of any of the aforesaid reasons other than a "Change of
Control", or if the Company terminates their employment in any way that is a
breach of the agreement by the employer, Messrs. Alan E. Densen and Lawrence
Densen shall be entitled to receive, in addition to their salary continuation,as
a bonus, a cash payment equal to their 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
<PAGE>
granted by the Company, with the exception of qualified incentive stock option
plans,to them shall become immediately exercisable at an exercise price of $0.10
per share. In the event that either owns or is entitled to receive any
unregistered securities of the Company, than the Company shall register such
securities within 120 days of the their termination.
In the event that there is a "Change of Control", Messrs. Alan E. Densen and
Lawrence Densen shall be paid within 30 days thereof a one-time bonus equal to
their total minimum base salary for the next three years and they shall be
immediately reimbursed for all amounts not yet received for their participation
in the balance of $215,000 ($35,000 has been repaid to Lawrence Densen) junior
participation in the loans made to the Company from Congress Financial
Corporation ("Congress") during September 1993, without regard to whether such
amount is currently due pursuant to the terms thereof.
Messrs. A. Densen and L. Densen, and also A. Towell, in modification agreements
to their employment agreements,have waived:(i) their right to bonuses based upon
the Company's earnings before interest and taxes for the fiscal years ended June
30,1996 through June 30,2000; (ii) their exercise rights on options and warrants
and repayment of their junior participation interests with Congress and
compensation payable in the event of a Change in Control with respect two
private placements completed in 1996 and the Company's Rights and Standby
Offering in 1996 ("Offerings"). See "Certain Relationships and Related
Transactions" for a discussion of these Offerings; and (iii) their right to
terminate their relationship with the Company, as per the terms of their
respective employment agreements.The modification agreements and waivers provide
that their right to terminate their employment agreements and waiver of their
bonuses shall not be waived in the event that there is a material breach of such
agreements by the Company. Messrs. A. Densen and L. Densen, and also A. Towell
have agreed that the issuance of shares in this Offering will not result in any
"change of control" rights under their respective employment agreements.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No members of the Compensation Committee served as officers or employees of the
Company.
See "Certain Relationships and Related Transactions" regarding Messrs.
Schneiderman's and Holzberg'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 $13.00
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
1,000 shares of Common Stock to each of Martin Fleisher, James Favia and Herbert
Schneiderman. The options are exercisable at a price of $16.876 per share and
expire on the earlier of July 26, 2005 or within thirty days of the termination
of their position as a director.
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of the Company's Common Stock, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission.
Executive officers, directors and greater than ten percent beneficial owners are
required by SEC regulations to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the Company
and written representations from the Company's executive officers and directors,
the Company believes that during the fiscal year ended June 30, 1996 all Section
16(a) filing requirements applicable to its executive officers, directors and
greater than ten percent beneficial owners were complied with.
STATEMENT PURSUANT TO SECTION 726(d) BUSINESS CORPORATION LAW
The Company has obtained from National Union Insurance Company a Directors and
Officers Liability and Company Reimbursement Policy for the period September 16,
1996 to September 16,1997. The policy provides annual coverage of $2,000,000 per
loss with an aggregate of $2,000,000 for all claims for directors and officers
liability. Coverage is in accordance with the terms of the policy and is subject
to various exceptions contained therein.The insurance is on a claims made basis.
The premium paid for this insurance by the Company was $30,000. This statement
is delivered pursuant to Section 726(d) of the Business Corporation Law of the
State of New York.
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 ("ISOs") and reserved
20,000 shares for issuance. As of October 30, 1996, 300 ISO's exercisable at
$30.00 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 10,000 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 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.
<PAGE>
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
proportionately adjusted.
Schedule of Options Under 1994 Plan
- - -----------------------------------
Unexercised Options
The table set forth below provides to December 6, 1996 a schedule of unexercised
options heretofore granted by the Company pursuant to the 1994 Plan.
Aggregate
Number
of Shares Exercise
Date of Subject Price Date
Grant Option To Option Per Share(1) of Expiration
- - ------------ ------- ------- -------------
January 20, 1995 8,500 $10.625 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 December 6, 1996, no options under the 1994 Plan have been exercised.
Remaining Options
1,500 additional options may be granted under the 1994 Plan.
<PAGE>
1996 STOCK OPTION PLANS
At a special meeting of shareholders held on August 12, 1996, the shareholders
approved:(i) an incentive stock option plan (the "1996 Incentive Plan");and (ii)
a non-qualified stock option plan (the "1996 Non- Qualified Plan").
1996 INCENTIVE STOCK OPTION PLAN
The 1996 Incentive Plan authorizes the grant of 300,000 shares of Common Stock,
subject to adjustment as provided in the 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 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.
No options have been granted under this Plan.
1996 NON-QUALIFIED STOCK OPTION PLAN
The 1996 Non-Qualified Plan authorizes the grant of 300,000 shares of Common
Stock, subject to adjustment as provided in the plan, to key employees,
consultants and others. 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" (as defined in the Plan), 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.
No options have been granted under this Plan.
<PAGE>
Options Granted and Exercised
During the
Three Fiscal Years Ended June 30, 1996
--------------------------------------
Options Granted
During the three fiscal years ended June 30, 1996, 300 options were granted and
remain outstanding under the 1992 Plan and 8,500 options were granted and remain
outstanding under the 1994 Plan to employees, including 2,000 options granted on
January 20, 1995 at an exercise price of $10.625 to each of Messrs. A. Densen,A.
Towell and L. Densen which options expire on January 19, 2005.
On July 26, 1995, Messrs. J. Favia, M. Fleisher and H. Schneiderman were each
granted non-qualified stock options to acquire 1,000 shares of Common Stock at
an exercise price of $16.876 per share until July 26, 2005.
During February 1996, in consideration for their guaranty to Congress Financial
Corp. ("Congress") of overadvances made by Congress, Messrs. A. Densen,L. Densen
and A. Towell were each issued warrants for a term of five years to purchase
8,870 shares of Common Stock at $5.431 per share commencing February 23, 1996.
This guaranty has since been returned to them.
Options Exercised
No options were exercised during the three fiscal years ended June 30, 1996.
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. Mr. L. Densen was repaid
his junior participation of $35,000 by Congress during May, 1996. The remaining
balance of $215,000 was repaid by Congress during December, 1996.
Associates holds a first mortgage on the Company's executive offices and
warehouse facility in the principal amount of $489,782 as of June 30, 1996 and
security interest on the Company's personal property.The wives of Alan E. Densen
and Anthony P. Towell, executive officers and directors of the Company, Charles
Holzberg, a director of the Compnay, and Herbert Schneiderman, a previous
director of the Company,are members of Associates owning approximately 38%
thereof.During the fiscal year ended June 30, 1996,the Company paid
Associates $121,107 in principal and interest on the mortgage, of which
$72,346 constituted interest.
On January 20, 1995, the Company granted non-qualified options to acquire 82,220
shares of Common Stock to each of Messrs. A. Densen, A. Towell, and L. Densen at
$5.169 per share. Because it was determined that the audited pre-tax profit for
fiscal 1995 was greater than $50,000, non-qualified options can now be exercised
for 41,110 shares of Common Stock.The remaining 41,110 non-qualified options can
not be exercised during the first five years. The non-qualified options provide
for adjustment in the event of dilution as a result of sales of securities at
less than the exercise price. The adjustment as a result of the Offerings
increased the
<PAGE>
number of shares subject to the exercise of these options from 40,000 (which
reflects the one-for-ten reverse stock split) to 82,220 each, with an exercise
price reduced from $10.625 to $5.169 per share. 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 $13.00 per share. At the same time, the Board of
Directors also reduced the exercise price to $13.00 per share with regard to the
10,833 warrants ("Associate Warrants") issued to a group of investors, including
the spouses of Alan Densen (1,667 Associate Warrants owned by her) and Anthony
P. Towell (1,667 Associate Warrants owned by her), and Herbert Schneiderman (833
Associate Warrants owned by him), and Charles Holzberg (417 Associate Warrants
owned by him) in connection with a reduction of indebtedness regarding the
Company's premises; 90,941 warrants (adjusted as a result of the Offerings
which increased the number of shares subject to the exercise of this
warrant from 40,000 (which reflects the one-for-ten reverse stock split) to
90,941 with an exercise price reduced from $13.00 to $5.718 per share), subject
to adjustment in the event of dilution as a result of sales of securities at
less than the exercise price, purchased by Anthony P. Towell, the Company's
Chief Financial Officer, from Scorpio Partners, L.P.; 4,078 Royce warrants
issued in connection with a 1991 public offering to Royce; and 833 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 regard to provisions contained in the employment
agreements of Alan E. Densen, the Company's President and CEO, and Lawrence
Densen,the Company's Senior Vice-President and waivers contained in modification
agreements. Similar provisions are contained in an employment agreement and
modification agreement with Anthony P. Towell.
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,
which was canceled during November, 1996. Donald was also granted a five year
warrant to purchase 12,500 shares exercisable at $12.50 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
<PAGE>
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 10,000 shares of common stock to Lew Lieberbaum.
During February 1996, Messrs. A. Densen, A. Towell and L. Densen, 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 8,870
shares of Common Stock at $5.431 per share which expire on February 22, 2001,and
are subject to adjustment in the event of dilution as a result of sales of
securities at less than the exercise price. (The adjustments as a result of the
Offerings increased the number of shares subject to the exercise of this warrant
from 4,100 (which reflects the one-for-ten reverse stock split) to 8,870 with an
exercise price reduced from $11.75 to $5.431 per share.) The overadvance has
since been repaid and their guarantees have been returned to them.
The first mortgage held by Associates which they agreed on in 1992 and upon
which interest was being paid at the rate of 14% comes due on July 1, 1997 in
the amount of approximately $434,000. Associates and the Company have agreed to
extend the mortgage for five years from July 1, 1997 with interest at 12% per
annum or 3% over prime, whichever is greater. At the end of five years, the
mortgage will come due in the amount of approximately $283,000. The Company
intends to explore the refinancing of this mortgage with various lenders.
Considering the circumstances of each transaction, the Company believes that all
transactions heretofore with officers/directors and shareholders of the Company
and their affiliates have been made, and in the future will be made on terms no
less favorable to the Company than those available from unaffiliated parties and
will be approved by a majority of the disinterested directors.
On June 28, 1996, the Company completed a private placement offering,pursuant to
which it issued 399,000 shares at $1.50 per share to 20 investors, pursuant to
provisions for exemption from registration under the Securities Act of 1933 as
amended. The terms of this private placement offering were established by
negotiation between the Company and Royce, a registered broker/dealer (the
"Private Placement Agent"). Under the terms of this 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 38,000 shares of the Company's Common Stock,par
value $0.12 per share. The Company used net proceeds from this 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. Gross
proceeds from this private placement offering were $598,500. Royce acted as
Placement Agent and received a commission of 10% and a 3% non-accountable
expense allowance. On July 9, 1996, the Company completed an additional private
placement offering for 114,000 shares at $1.50 per share for use as working
capital to 5 investors, pursuant to provisions for exemption from registration
under the Securities Act of 1933 as amended. Royce did not act as placement
agent, nor was it involved in any way with the private placement which closed on
July 9, 1996.
On August 12,1996,the shareholders of the Company approved a one-for-ten reverse
split (the "Reverse Split") of the outstanding Common Stock of the Company. The
Reverse Split became effective at the close of business on August 12, 1996.
Pursuant to the terms of the Reverse Split, each shareholder received one share
of the Company's Common Stock for each ten shares of Common Stock held. As a
result of the Reverse Split and prior adjustments,the Company's Class A Warrants
<PAGE>
are now exercisable on the basis of ten Class A Warrants at $13.00 to acquire
one share of the Company's Common Stock. Each certificate representing shares of
Common Stock outstanding before the Reverse Split is automatically deemed to
represent one-tenth the number of shares of Common Stock.If the number of shares
owned by a shareholder on August 12, 1996 is not divisible by ten, the
shareholder received one additional full share for each fractional new share
greater than one-half. No additional shares were received for each fractional
new share less than one-half.
On November 15, 1996, the Company consummated a Rights and Standby Offering for
the sale of 703,591 Units at $5.00 per Unit,pursuant to a registration statement
(the "Registration Statement") effective October 10, 1996 (the "Effective Date")
and a standby agreement dated October 10,1996 between the Company and Royce (the
"Standby Agreement"). Each Unit consists of one share of Common Stock and one
Class B Redeemable Common Stock Purchase Warrant ("Class B Warrant"). The Class
B Warrants entitle the holder to purchase one share of Common Stock commencing
twelve months (or sooner with the consent of Royce) after the Effective Date
until the close of business on the third year after the Effective Date at an
exercise price of $6.25 per share subject to adjustment for dilution. The
Company granted to all holders of its outstanding Common Stock of record on the
close of business September 24, 1996 (the "Record Date"), in those states where
qualified or exempt from qualification, the nontransferable right ("Rights") to
subscribe for Units, on the basis of 4 Units for every 5 shares of Common Stock
owned on the Record Date. No fractional Rights or Units were issued. The
subscription period ended at 5:00 p.m. New York time on November 8, 1996.
11,517 Units were subscribed for by holders of the Company's Common Stock.
Royce, pursuant to the terms of the Standby Agreement, purchased the remaining
692,074 Units. The gross proceeds of the Rights and Standby Offering were
$3,517,955, and after payment of expenses including Royce's financial
consulting fee, are being utilized for the paydown of monies due on the
Company's line of credit, thereby increasing the amount available under such
line of credit for future working capital and other corporate needs, including
possible acquisitions.
PROPOSAL TO RATIFY APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed the firm of Cornick, Garber
& Sandler, LLP as the Company's independent auditors for the fiscal year ending
June 30, 1997. The Board of Directors proposes ratification of the appointment
of Cornick, Garber & Sandler, LLP as independent auditors. Cornick, Garber &
Sandler, LLP has advised the Company that it has no financial interest of any
kind in the Company and has had no connection with the Company at any time in
the past except for the professional relationship between auditor and client.
The affirmative vote of the holders of a majority of the shares of Common Stock
represented at the Annual Meeting will be required for approval of the auditors.
In accordance with New York State law,abstentions are not counted in determining
the votes cast in connection with the selection of auditors. If such approval is
not obtained, selection of independent auditors will be reconsidered by the
Board of Directors.
Representatives of Cornick, Garber & Sandler, LLP are expected to be present at
the Annual Meeting with the opportunity to make a statement if they desire to do
so, and shall be available to respond to appropriate questions.
The Board of Directors unanimously recommends a vote FOR ratification of the
---
<PAGE>
appointment of Cornick, Garber & Sandler, LLP as independent auditors.
PROCEDURE FOR SUBMISSION OF 1997 STOCKHOLDER PROPOSALS
Proposals by stockholders for inclusion in the 1997 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
September 24, 1997. All such proposals are subject to the applicable rules and
requirements of the Securities and Exchange Commission.
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: December 11, 1996
ALAN E. DENSEN
President
<PAGE>
EASTCO INDUSTRIAL SAFETY CORP.
130 West 10th Street
Huntington Station, New York 11746
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
January 22, 1997
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 December 6, 1996 of EASTCO
INDUSTRIAL SAFETY CORP. which the undersigned would be entitled to vote if
personally present at the Annual Meeting of Stockholders to be held on January
22, 1997 at 3:30 p.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: ELECTION OF DIRECTORS
To serve for the term continuing through the 1998 Annual Meeting and until
the election and qualification of their respective successors.
Alan E. Densen, Lawrence Densen and Anthony P. Towell
[ ] FOR all nominees listed above (except as withheld in the space below.)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed above.
(Instruction: To withhold authority to vote for any individual nominee
write that nominee's name in the space provided below.)
____________________________________________________________________
No. 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Proposal to ratify the appointment of Cornick, Garber & Sandler, LLP,
Certified Public Accountants, as the independent auditors to examine the
financial statements of the Company for fiscal year 1997.
[ ] 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.
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 _________________________, 199__
_____________________________________________
Signature
_____________________________________________
Signature if held jointly
_____________________________________________
Number of Shares as of December 6, 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.
