SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 1-4680
EA INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
New Jersey 21-0606484
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
185 Monmouth Parkway 07764-9989
West Long Branch, New Jersey (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (908) 229-1100
Former Name - Electronic Associates, Inc.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter-period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $65,586,276 as of March 25, 1996.
As of March 25, 1996, there were 17,650,503 outstanding shares of the
Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement with respect to the Company's Annual Meeting of Shareholders to
be held in June 1996 Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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PART I
ITEM 1. BUSINESS
Introduction
EA Industries, Inc., a New Jersey corporation formerly known as "Electronic
Associates, Inc." ("EAI" or the "Company"), is engaged principally in the
business of providing contract electronic manufacturing services ranging from
the assembly of printed circuit boards to the complete procurement, production,
assembly, test and delivery of entire electronic products and systems.
Accordingly, the Company, provides services to act in part, or in whole, as the
manufacturing function of its customers. Such services are provided directly by
the Company and through the Company's wholly-owned subsidiary, Tanon
Manufacturing, Inc. ("Tanon"), located in Freemont, California, which was
acquired by the Company on January 4, 1995 (the "Tanon Acquisition"). References
to the Company with respect to any time period after January 3, 1995 shall be
deemed to include Tanon unless the context otherwise requires.
In addition, the Company, through its one-third investment in BarOn
Technologies, Ltd. ("BarOn") a privately owned Israeli corporation based in
Haifa, Israel and its indirect interest in a joint venture ("ITI") with Israel
Aircraft Industries, Ltd., an Israeli government corporation ("IAI"), seeks to
develop and market new, high technology products. BarOn has developed and is in
the process of commercializing an electronic computer input pen that captures
handwriting independent of surface or language. The joint venture with IAI which
was formed in August 1995, was organized to review, evaluate and exploit the
commercial potential of products based on technologies developed by IAI. See
"1995 Developments."
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1995 Developments
Overview. During 1995, the Company's sales increased, cost of
sales increased both in total value and as a percentage of sales, and selling,
general and administrative expense increased in total, but decreased as a
percentage of sales. The Company had a net loss of $30,894,000 in 1995 including
a charge to expense for purchased in-process research and development of
$19,546,000, compared to a net loss of $4,784,000 in 1994 which included a
provision for restructuring of $2,400,000. During the fourth quarter of 1995,
the Company initiated action to reduce its cost of materials which represents
approximately 65% of cost of sales. This action includes hiring new personnel to
increase the Company's material purchasing skill level and upgrading the
Company's material control computer system. Additionally, the Company began the
process of adding to and upgrading its high speed SMT capability by adding two
new lines in 1995 and a new line in early 1996. In addition, the Company expects
to replace two older lines with new high speed lines later in 1996. This
expansion of the Company's high speed Surface Mount Technology ("SMT")
capabilities should enable the Company to attract new higher volume customers.
Tanon Acquisition. On January 4, 1995, the Company acquired Tanon, a
privately owned contract electronic manufacturing firm with operations located
in Fremont, California. The Tanon Acquisition was accomplished by means of a
merger of a newly-formed, wholly owned subsidiary of the Company, with and into
Tanon. The Tanon Acquisition has been reported as a purchase for accounting
purposes and, accordingly, the results of operations of Tanon are included with
those of the Company from January 4, 1995 forward. Tanon's manufacturing
services consist primarily of the assembly of printed circuit boards, the
manufacturing and assembly of integrated electro-mechanical systems and related
engineering support. At the closing of the Tanon Acquisition, the Company issued
1,538,462 shares of its Common Stock and granted options to purchase its common
stock with a combined appraised value of $11,856,000 in exchange for all the
outstanding common stock of Tanon and outstanding options to purchase common
stock of Tanon.
In anticipation of the Tanon Acquisition, the Company determined in the
fourth quarter of 1994 that it would be necessary to restructure its operations
to reduce the operating expenses associated with redundant activities and to
achieve greater operating efficiency from combined operations subsequent to the
Tanon Acquisition. As a result, a provision for restructuring in the amount of
$2,400,000 was established in the fourth quarter of 1994. Pursuant to such
determination, during the first quarter of 1995 the Company began taking steps
to close and sell its Southwest operations in Tucson, Arizona and Nogales,
Mexico to eliminate the operating expenses associated with these facilities. The
closing of the Tucson, Arizona operations and sale of the Nogales, Mexico
operations were completed in the second quarter of 1995. The majority of the
operations which were supporting the Company's sales base out of the Tucson
location were transferred to the New Jersey facility in the second quarter of
1995. Additionally, the Company reduced indirect manufacturing and sales,
general and administrative staff in its New Jersey facility during the first
quarter in 1995 and the Fremont, California facility in the second quarter of
1995.
BarOn Investment. On January 16, 1995, the Company acquired an equity
interest in BarOn, a privately-owned Israeli corporation based in Haifa, Israel
(the "BarOn Investment"). BarOn is a development stage company. The BarOn
Investment has been accounted for as a purchase of a minority interest using the
equity method of accounting, and, accordingly, the Company's investment in BarOn
and equity interest in the results of BarOn are included in the
consolidated financial statements of the Company from January 16, 1995 forward.
At the closing of the BarOn Investment, the Company acquired 25.01% of the
ordinary shares of BarOn, a right to acquire an additional 8.33% of the ordinary
shares of BarOn, and rights of first refusal to purchase additional equity in
BarOn but limited to an amount that would cause the Company's aggregate interest
not to exceed 49% of BarOn's issued and outstanding ordinary stock. The Company
acquired 8.33% of the 25.01% equity interest in BarOn from certain shareholders
of BarOn for $2,700,000 which was paid in cash at closing. The remaining 16.68%
equity interest in BarOn was acquired directly from BarOn in exchange for
$3,000,000 in cash and 127,592 shares of Common Stock of the Company with an
estimated value of $1,000,000. On September 30, 1995, the Company elected to
acquire, in accordance with the terms of an Investment Agreement with BarOn, an
additional equity interest of 8.33% of BarOn, which increased the Company's
aggregate equity interest to 33-1/3% of the outstanding ordinary shares of
BarOn. As a result of the Company's election to acquire such additional equity
interest, the Company recorded a current payable in the amount of $2,000,000 and
issued 255,183 shares of Company's Common Stock valued at approximately
$995,000. Subsequent to September 30, 1995 the Company paid $1,500,000 of such
payable.
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BarOn is engaged in the research and development of a computer input
device, the BarOn Pen, designed to digitize handwriting in a variety of
languages using motion recognition technology. Applications for motion
recognition technology include acting as a computer input device for most
languages, including Asian languages which have numerous characters, signature
recognition for home banking and Internet applications, handwritten E-mail
messages and handwritten fax messages. The BarOn Pen is currently still being
developed and no sales have been made. There can be no assurance that the BarOn
Pen will be successfully marketed or sold.
Joint Venture with IAI. The Company, through a 52.3% owned subsidiary,
Electronic Associates Technologies Israel, Ltd. ("EATI"), has entered into a
Joint Venture Agreement ("JVA") with IAI to review, develop, and exploit
certain non-military, non-classified technological applications ("Applications")
developed by IAI. The transaction was consummated on August 8, 1995.
To implement the JVA, in early August, 1995, the Company entered into a
Preincorporation Agreement to form EATI, the joint venture partner intended to
own 50.1% of the Joint Venture ("ITI"). IAI owns 49.9% of ITI. Under the
Preincorporation Agreement, EATI is owned as follows: (a) the Company owns a
52.3% interest, (b) certain Israeli persons own an aggregate 25.2% interest, (c)
Mark Hauser, a director of the Company, owns a 15% interest, (d) Irwin L. Gross,
Chairman of the Company, owns a 5% interest, and (e) Broad Capital Associates,
owns a 2.5% interest.
The equity interests in EATI were issued for an aggregate consideration of
$10,000. In addition, the Company on the one hand and the Israeli citizens
collectively on the other hand, have advanced $6,300,000 and $1,575,000,
respectively, to EATI. Of such funds, $7.5 million has been advanced by EATI to
ITI to be used for working capital purposes. The remaining $375,000 was
used by EATI to pay expenses relating to consummation of ITI and for working
capital purposes. In connection with the formation of ITI, warrants to purchase
500,000 and 600,000 shares of the Company's common stock were granted to
IAI and A.M.P. Argonauts Ltd., respectively. The warrants have an exercise price
of $7.25 per share. In addition, the Company issued 140,719 additional shares of
common stock to Control Centers Ltd. and Moshe Wertheim, an individual, in
exchange for additional services rendered in connection with the Joint Venture.
In addition, (i) Mr. Hauser was granted options to purchase 100,000 shares of
the Company's Common Stock at an exercise price of $8.175, of which 33,333
shares are currently exercisable, (ii) Broad Capital Associates was granted
options to purchase 425,000 shares of the Company's common stock at an exercise
price of $8.125 per share, which options were subsequently amended to an
exercise price of $4.50 per share and made currently exercisable, provided that
such amended options were exercised prior to March 1, 1996, and (iii) Dedi
Graucher, an individual, was granted options to purchase 250,000 shares of the
Company's common stock at an exercise price of $8.125 per share, which options
were subsequently amended to an exercise price of $4.50 per share and made
immediately exercisable, provided that such amended options were exercised prior
to March 1, 1996.
On November 21, 1995, Broad Capital Associates exercised its option to
purchase 200,000 of such shares at $4.50 per share. In consideration for such
exercise, the exercise period for the options to purchase the remaining 225,000
shares and the options granted to Mr. Graucher were extended for an additional
period of six months and the exercise prices were changed to $5.00 per share.
The JVA provides that ITI will review and evaluate Applications developed by
IAI, which are in various stages of development. To review and evaluate the
Applications, an investment committee ("Investment Committee") comprised of
seven persons has been formed. EATI selected four of the seven members of the
Investment Committee. If an Application is selected for development and
exploitation, an entity will be formed ("Licensee") in which EATI will own a
50% interest and IAI will own a 50% interest, and IAI will grant such Licensee a
perpetual, royalty free license for such Application. The Investment Committee
will prepare a business plan to exploit each application selected, including a
funding plan. The Company will be primarily responsible to raise the funds
necessary to exploit the Application selected. However, the Company will not be
under any obligation to raise any funds for such purpose unless and until the
Investment Committee selects an Application for exploitation. In the event the
Company is unable to raise the funds necessary to exploit any Application which
the Investment Committee selects, IAI can terminate the
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JVA. The JVA can also be terminated under certain other circumstances.
As of the date of this report, the Investment Committee
has selected one Application for development and exploitation ("Vista").
Vista is a system for the automatic inspection of manufactured parts,
capable of detecting defects as small as 20 microns. The preliminary business
plan for Vista requires funding of $1,000,000. Consistent with the terms of the
JVA, the Company is considering raising funds for Vista through a variety of
methods including a combination of sales of Vista equity interests and
borrowings by Vista. There can be no assurance that the Company will be
successful in its efforts to raise such funds, in which case the Company will be
obligated to fund the $1,000,000 through its own resources or lose its
investment in ITI.
To fund its obligations under the Preincorporation Agreement, on August 3,
1995 the Company sold 1,458,333 shares of its Common Stock at a price of $4.80
per share for an aggregate of $7.0 million to five Israeli persons, three of
whom are shareholders in EATI. The purchase agreements pursuant to which the
shares were sold contained an adjustment provision which required the issuance
of additional shares in the event that the average closing price of the shares
for a certain period of time was less than the offering price in the offering.
Such adjustment provision was triggered, and accordingly, the Company issued an
aggregate of 59,281 additional shares to the five Israeli persons for no
additional consideration. The proceeds from the offering were placed in escrow
and were released upon the execution of the JVA. The balance of $700,000
remaining from the sale of 1,458,333 shares after funding the Company's
obligations under the Preincorporation Agreement was used by the Company for
working capital purposes.
Capital Raised. As a result of negative cash flows from operations in 1995,
the investments in BarOn and EATI, the growth of Company revenues and
corresponding sizable increases in inventories, and investment in new high speed
SMT equipment, the Company required substantial amounts of additional working
capital. On April 14, 1995, the Company completed the sale of 525,000 shares of
common stock at $5.85 per share for net proceeds of approximately $3,000,000. On
July 21, 1995, the Company completed the sale of 416,667 shares of common stock
at $4.80 per share for net proceeds of approximately $2,000,000. On August 3,
1995, the Company completed the sale of 1,458,333 shares of common stock at
$4.80 per share for net proceeds of approximately $7,000,000. On September 19,
1995 and October 2, 1995, the Company completed the sale of 9% convertible
debentures in the aggregate principal amount of $3,600,000. The debentures were
subsequently converted into a total of 800,000 shares of Company's Common Stock
in accordance with their terms.
On November 22, 1995 and November 28, 1995, the Company completed the sale
of 10% convertible debentures in the aggregate principal amount of $2,200,000 to
four purchasers. The debentures are convertible into shares of Company's Common
Stock at a conversion price equal to 80% of the average of the closing price of
the Company's Common Stock trading on the New York Stock Exchange for the five
days immediately preceding the date of conversion, provided that in no event
shall the conversion price exceed $6.00 per share of Common Stock. As of the
date of this report $1,900,000 of such debentures have been converted into
550,602 shares of Company's stock in accordance with their terms.
On December 29, 1995 (the "Closing Date"), the Company completed the sale of
7% convertible notes of the Company in the aggregate principal amount of
$10,000,000 to GFL Advantage Fund Limited and GFL Performance Fund Limited (the
"GFL Notes"). The GFL Notes will mature on December 29, 1997 and are convertible
into shares of the Company's Common Stock at a conversion price equal to 82% of
the average of the closing price of the Company's Common Stock as traded on the
New York Stock Exchange for the five days immediately preceding the date of
notice to the Company that a purchaser wishes to exercise its right of
conversion. The terms of the GFL Notes require that the GFL Notes will
automatically convert into shares of Company's Common Stock as of the maturity
date if the entire aggregate principal amount of the GFL Notes has not been
converted as of such date, and each purchaser may not convert its GFL Note into
a number of shares of Company's Common Stock which would result in the
beneficial ownership by the purchaser of greater than 4.9% of the issued and
outstanding shares of Company's Common Stock. In connection with the
transaction, the Company entered into a registration rights agreement pursuant
to which it agreed to file a registration statement with the Securities and
Exchange Commission covering the shares of Company's Common Stock underlying the
GFL Notes within 25 days of the Closing Date and to cause the shares to be
registered within 105 days following the Closing Date. The registration
statement was filed on January 17, 1996 and became effective on February 7,
1996. As of this date $1,000,000 of such debentures have been converted into
275,596 shares of Company's stock in accordance with their terms.
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Milo Resignation. On February 2, 1995, Charles A. Milo resigned as
President and director of the Company to pursue other interests. On that date,
the Company entered into a separation agreement with Mr. Milo pursuant to which
(i) the Company agreed to pay him his regular compensation as an employee
through March 31, 1995, (ii) Mr. Milo was deemed to have earned his $50,000
bonus (iii) the loan to Mr. Milo by the Company on September 15, 1994 in the
principal amount of $160,000 was canceled with Mr. Milo having no further
liability thereunder, (iv) a $10,000 fee for services rendered by him in
connection with the closure or sale of the Company's Mexican facility was paid
to him, and (v) the exercise period for certain options held by Mr. Milo and his
wife was extended to September 30, 1995. Mr. Milo agreed to limit the sale of
his shares of common stock in the Company during the two calendar quarters
following his resignation to 100,000 shares per each quarter and during the next
six calendar quarters to those shares which he is eligible to sell pursuant to
Rule 144 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). After such period, there will be no further restrictions on
the sale of his shares.
Contract Electronic Manufacturing
In recent years, primarily as a response to rapid technological change and
increased competition in the electronics industry, the contract electronic
manufacturing industry has grown significantly. The Company believes that
original equipment manufacturers ("OEMs") have recognized that, by using
contract electronic manufacturers, they can improve their competitive position,
realize an improved return on investment, and concentrate in areas of their
greatest expertise, such as research, product design and development, and
marketing. In addition, contract electronic manufacturing allows OEMs to: bring
new products to market more rapidly and adjust more quickly to fluctuations in
product demand; avoid additional investment in plant, equipment, and personnel;
reduce inventory carrying and other overhead costs; and establish fixed unit
costs over the life of a contract.
The Company believes that several important trends have developed recently
in the contract electronic manufacturing industry. OEMs increasingly require
contract electronic manufacturers to provide complete turnkey manufacturing and
material handling services, rather than working on a consignment basis in which
the OEM supplies all material and the contract electronic manufacturer supplies
only labor. Turnkey contracts involve manufacturing and engineering support, the
procurement of all materials, and sophisticated in-circuit and functional
testing. The manufacturing partnership between OEMs and contract electronic
manufacturers often require the use of increasingly sophisticated inventory
management techniques which minimize the OEM's investment in component
inventories, personnel and related facilities, thereby reducing costs to the
OEM's.
The contract electronic manufacturing business consists of providing
contract electronic manufacturing services ranging from the assembly of printed
circuit boards to the complete procurement, production, assembly, test and
delivery of entire electronic products and systems.
The Company manufactures over 1500 different assemblies which are
incorporated into product lines of over 30 different companies. The Company
provides contract electronic manufacturing services primarily for manufacturers
of: micro, mini and mainframe computers; computer peripheral equipment; high
quality graphic equipment; office equipment; telecommunications equipment;
consumer appliances, industrial tools and measuring devices.
The technology required to manufacture electronic products is becoming
increasingly costly and complex. Traditionally, manufacturers used the so-called
"through-hole" technology in assembling printed circuit boards. However, a newer
technology, known as "surface-mount" technology ("SMT") has gained acceptance in
the manufacture of these products. SMT offers several key advantages for
assembly of printed circuit board assemblies, such as increased board density,
reduced weight, automation, better quality, and lower costs. Management believes
that SMT will continue to constitute an increasing percentage of printed circuit
board
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production and assembly for the Company, and accordingly the Company has
increased its investments in such SMT equipment and expects that it will
continue to do so.
Research and Development
The Company did not incur any significant research and development
expenditures other than the purchased research and development relating to the
BarOn and IAI transactions.
Customers and Marketing
Most of the Company's sales are to industrial companies which use the
Company's contract electronic manufacturing services to manufacture products for
a variety of high-technology applications, including those for computers,
telecommunications devices, high-quality graphics, and medical testing devices.
Substantially all of the Company's net sales during the year ended December
31, 1995 were derived from customers which were also customers of the Company or
Tanon during 1994. In 1995, the customers which accounted for more than 10% of
the Company's sales from continuing operations were Advanced Fibre
Communications, Inc., Ungerman Bass, Inc. and Dialogic Corporation, which
accounted for 23%, 14%, and 13% of sales, respectively. In 1995, the Company
initiated a disengagement from providing further services to a significant
customer, which disengagement process is still ongoing as of the date of this
report. As a result, management believes that sales to the customer
will be less than 10% of Company sales in 1996. The loss of revenue from the
customer has been offset by the Company's ability to expand services
to other customers and by attracting new customers. Currently, the Company
remains dependent upon its large customers. Because the loss of one or more of
these customers could have a material adverse effect on its operations, the
Company maintains continuous dialogue with all its customers to ensure
satisfactory quality and on-time delivery services. Also, the Company's
marketing programs are focused to identify and develop opportunities to provide
contract electronic manufacturing services to new customers.
Historically, the Company has had substantial recurring sales from existing
customers. The Company seeks to develop long-term relationships with a small
number of customers. Marketing efforts are aimed at obtaining similar long-term
relationships with new customers, as well as maintaining business with existing
customers. Although the Company believes that its relations with its customers
are good and that their business will continue, specific purchase orders are
generally of less than one year in duration, and there is no assurance that
future orders will be obtained. The volume of contract manufacturing business
also depends upon the success of customers' sales.
The Company employs a variety of marketing techniques for the sale of its
services, including direct sales efforts by an employed sales force, and the use
of independent sales representatives.
The Company's contract electronic manufacturing services in 1995 were
provided to customers in the following markets in the approximate percentage of
Company sales, respectively, indicated:
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<TABLE>
<CAPTION>
Market Served Representative
by Customers Percentage of 1995 Sales Customers
- ------------ ------------------------ --------------
<S> <C> <C>
Telecommunications 39% Advanced Fibre
Communications, Inc., Dialogic
Corporation
Computers 19 Ungerman Bass Inc.
Concurrent Computer Corp.
Computer Peripherals 11 First Virtual Corp.
High Quality Graphics 9 Iris Graphics, Inc.
Aerospace 6 Lockheed Corp.
Power Generation 5 General Electric Corp.
Miscellaneous 11 Various
--
Total 100%
===
</TABLE>
Backlog
The Company's backlog consists of firm purchase orders which typically are
shipped within twelve months from time of receipt of the order. Because purchase
orders may be accelerated or deferred by rescheduling or canceled by payment of
cancellation charges, backlog does not necessarily reflect future sales levels.
The approximate amount of the Company's backlog at the end of 1995 was
$47,305,000, of which $26,991,000 was attributable to Tanon's backlog. It is
anticipated that substantially all of the 1995 year-end backlog will be
delivered in 1996. The Company's and Tanon's backlogs at the end of 1994 were
$19,240,000 and $15,710,000, respectively.
Governmental Regulation
The Company's operations are subject to certain federal, state and local
regulatory requirements relating to environmental, waste management, health and
safety matters. Management believes that the Company's business is operated in
compliance with all material applicable environmental, waste management, health
and safety regulations. However, new or modified requirements, which are not
currently anticipated, could be adopted creating additional expense for the
Company.
New Jersey has enacted an Industrial Site Remediation Act ("ISRA"). As is
the case with many other companies doing business in New Jersey, if the Company
were to move from its present facilities in New Jersey, sell its assets or
effect a change in its ownership, such a transaction would be subject to the
requirements of ISRA. Under ISRA, before such a transfer could take place, a
determination would need to be made to ensure there has been no unremediated
discharge of hazardous substances or wastes on the site; or a satisfactory
clean-up plan would need to be submitted to the New Jersey Department of
Environmental Protection and Energy ("DEPE"). Failure to comply with ISRA is
grounds for voiding the transfer by the purchaser or by DEPE, among other
enforcement remedies.
Employees
As of December 31, 1995, 1994 and 1993, the Company had 514,334 and 315
total employees, respectively. Individuals employed at the Company's
manufacturing facility in Nogales, Sonora, Mexico, which has been sold, and
included in such totals were 124 and 109 in 1994 and 1993, respectively.
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Quality Control
The Company achieved "ISO 9000" certification for its West Long Branch
manufacturing facility in 1995 and its Fremont, California facility in early
1996. International Standards Organization ("ISO") certification refers to a
series of quality system standards adopted to ensure that companies worldwide
are in compliance with a documented system of quality control processes and
procedures.
Suppliers
The Company uses the services of numerous suppliers of electronic components
and other material for its manufacturing operations. Substantially all the
materials used in the Company's products are components purchased from
suppliers. Components generally are ordered when the Company has a firm purchase
order or letter of intent from a customer to purchase the completed assemblies.
Generally, the Company is not dependent upon a single source of supply for
materials or components that it considers important to its business, because
multiple suppliers are available for most important components or their
substantial equivalent.
Competition
The contract electronic manufacturing services provided by the Company are
available from many independent sources as well as from in-house manufacturing
facilities of current and potential customers. Many of the Company's competitors
have greater financial, manufacturing and marketing resources than the Company.
The Company believes that the primary basis of industry competition is quality,
service, price, and ability to deliver finished products on a timely and
reliable basis. The Company believes that it competes favorably with respect to
these factors.
Contracts
The Company's contracts are provided for services to be performed primarily
on a fixed-price basis, although change orders on large contracts are not
unusual. The contracts generally provide termination rights for customers, but
upon such termination the Company would be entitled to reimbursement for
allowable costs already incurred. The Company has no long-term contracts for the
sale of services that are individually material.
Facilities
See "Properties" at Part I, Item 2 of this Annual Report on Form 10-K.
International Operations
On May 29, 1992, the Company acquired all of the outstanding stock of
Milotec S.A. De C.V., located in Nogales, Sonora, Mexico ("Milotec"), in
connection with the acquisition of this contract electronic manufacturing
business. The Company sold its interest in Milotec in 1995.
Patents and Trademarks
The Company does not hold any patent rights which are material to the
contract electronic manufacturing business, nor does the Company believe that
patent protection is an important competitive factor in its market. The Company
has received federal trademark registration for the mark "EAI", which is also
registered in many other countries.
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ITEM 2. PROPERTIES
Currently, the Company's executive offices are located at 185 Monmouth
Parkway, West Long Branch, New Jersey 07764 at which the Company occupies
approximately 81,000 square feet. In addition, the Company currently leases
manufacturing facilities comprised of 33,120 square feet in Tucson, Arizona. The
Arizona lease provides for a five-year term ending in May 1997, with an option
to renew for five years. The Tucson facility has been closed and the Company
established a reserve for the remaining rent as part of the 1994 restructuring
charge. EAI is responsible for all repairs, maintenance, and utilities in its
premises, and in New Jersey, is also responsible for taxes.
The Company, through its wholly-owned subsidiary, Tanon, occupies a single
facility with 105,000 square feet at 46360 Fremont Boulevard, Fremont,
California, through which it conducts production and administrative operations
for its West Coast customers.
See Note 6 of the Notes to Consolidated Financial Statements at Part II Item
8, of this Annual Report on Form 10-K for information regarding the rents
payable under the above leases.
ITEM 3. LEGAL PROCEEDINGS
There are two lawsuits pending which involve environmental claims against
EAI:
1. Lemco Associates. In October, 1992, Lemco Associates L.P. ("Lemco"), the
owner of property previously owned by EAI, initiated an action in the Superior
Court of New Jersey against EAI and others alleging, among other things, that
the defendants created environmental contamination at the property. The lawsuit
seeks damages in unspecified amounts. EAI has denied Lemco's allegations and
asserted a counterclaim against Lemco and cross claims against co-defendants and
others for indemnification and contribution. The Company has also raised
defenses to Lemco's claims, including but not limited to an assertion that Lemco
knowingly waived its claims against the Company and an assertion that
insufficient evidence exists to establish liability on the part of the Company.
In addition, the Company has made a demand upon its insurance carriers for
coverage for the claims made by Lemco and cross claims and third party claims
may be filed against these insurance companies seeking indemnification against
these claims. To date, the Company's insurance carriers have agreed to pay 71%
of its defense costs under a reservation of rights.
Discovery in this matter is ongoing. By letter dated March 30, 1995, Lemco
provided the Company with a statement of its remediation costs to date, as well
as an estimate of future remediation costs associated with the contamination for
which it seeks recovery in this action. Specifically, Lemco claims that it has
expended approximately $424,000 in remediation costs, including fees for legal
oversight and consultation. It further estimates that its future remediation
costs will amount to approximately $4,900,000. Such amount is included in a
report made by Lemco's environmental consultants based on their current
assessment of the extent of contamination and the method and period required to
complete the remediation. Further, by letter dated June 7, 1995, Lemco provided
the Company with an appraisal report made by a real estate appraisal company
engaged by Lemco in support of Lemco's claim for diminution in the value of the
property. Such report states that it is the appraisal company's opinion that the
market value of the property as of May 23, 1988 was $3.6 million and as of April
14, 1995 was $750,000. The appraisal company subsequently increased its 1995
valuation to $960,000. Lemco purchased the property in question in 1979 for
approximately $400,000. The Company's experts have estimated that, based upon
hydrogeologic data gathered to date by Lemco's experts, the major source of
continuing contamination of groundwater was released into the water table
about late 1984 or, using more conservative extrapolations, about mid-1979.
Further hydrogeologic data to be collected will allow a more precise evaluation.
Based on the foregoing, management believes that the range of possible loss in
this matter ranges from zero to approximately $7.8 million, not including costs
and expenses, such as legal and expert fees, which will be incurred in
connection with this matter, and not taking into account the amount of any loss
which may be offset by
11
<PAGE>
insurance coverage as discussed above. There is no assurance that the outcome of
this matter will come within such range of possible loss.
The Company and its consultants recently completed the investigation and
evaluation of additional information received from Lemco and have determined
that Lemco's remediation cost estimates are premature and conceptual in nature.
In addition, an analysis of the site by experts retained by the Company to
determine the appropriateness of Lemco's claims and of the estimated cost of
remediation has not been completed.
The Company is vigorously defending this matter. Counsel estimates that this
litigation will reach trial in 1996.
2. Bridgeport Rental and Oil Services Superfund Site. The United States
Environmental Protection Agency in 1988, and the New Jersey Department of
Environmental Protection and Energy in 1989, identified EAI as one of over one
hundred parties potentially responsible for clean up costs at, and for any other
possible damages in connection with, the Bridgeport Rental and Oil Services
Superfund Site in Logan Township, New Jersey (the "B.R.O.S. Site"). EAI's
alleged connection to the B.R.O.S. site is through Rollins Environmental
Services, Inc. ("Rollins"), a waste transporter that was allegedly hired by EAI
to transport certain waste material alleged to be hazardous from EAI's
operations for appropriate disposal. One shipment of waste allegedly generated
by EAI was allegedly delivered to the B.R.O.S. site and constitutes less than
one quarter of one percent of the total liquid waste allegedly released to the
B.R.O.S. Site. Based solely upon the alleged single shipment of waste generated
by EAI, management believes that the range of possible loss in this matter
ranges from zero to approximately $300,000, not including costs and expenses
which will be incurred in connection with this matter which are not paid by
Rollins, and not taking into account the amount of any loss which may be offset
by insurance coverage or which may be recoverable from Rollins based on
indemnification claims. Although EAI is not a party to litigation involving
remediation at the B.R.O.S. Site initiated in the U.S. District Court for the
District of New Jersey, it is participating in informal discovery and settlement
negotiations without admitting liability. Settlement discussions in this matter
are ongoing and the Company's participation in such settlement discussions has
been limited to date; therefore, it is not possible to predict its outcome at
this time. Moreover, there is no assurance that the outcome of this matter will
come within the above-referenced range of possible loss.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following information is provided with respect to the Annual
Stockholders Meeting of the Company.
a) Held: October 12, 1995.
b) Directors Elected: NO. OF VOTES
VOTES WITHHOLDING
FOR AUTHORITY
--------- ------------
Irwin L. Gross 8,561,354 409,723
Mark S. Hauser 7,992,138 978,939
David J. Reibstein 8,561,114 409,963
William Spier 8,560,870 410,207
Directors whose term continued:
Seth Joseph Antine
Bruce P. Murray
Jules Seshens
Joseph R. Spalliero
c) Other Matters Voted on by Shareholders:
1 To amend the Company's certificate of Incorporation to change the
name of the Company to EA Industries, Inc.
VOTES VOTES
FOR AGAINST ABSTAINING
--------- ------- ----------
8,846,966 107,168 16,946
2. To amend the Company's Certificate of Incorporation to
increase the authorized shares of Common Stock of the
Company from 25,000,000 to 50,000,000.
VOTES VOTES
FOR AGAINST ABSTAINING
--------- ------- ----------
6,584,459 564,543 18,955
3. To amend the Company's 1994 Stock Option Plan for
Non-Employee Directors to increase the number of shares of
Common Stock of the Company reserved for issuance thereunder
from 400,000 shares to 2,400,000 shares.
VOTES VOTES
FOR AGAINST ABSTAINING
--------- --------- ----------
5,368,792 1,629,355 169,758
4. To amend the Company's Equity Incentive Stock Option Plan to
increase the number of shares of Common Stock of the Company
reserved for issuance thereunder from 3,000,000 to 6,000,000
shares.
13
<PAGE>
VOTES VOTES
FOR AGAINST ABSTAINING
--------- ------- ----------
6,233,374 914,742 19,789
5. To ratify the selection of Arthur Andersen LLP as the
Company's auditors.
VOTES VOTES
FOR AGAINST ABSTAINING
--------- ------- ----------
8,855,087 104,115 11,875
14
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
EAI's common stock is traded on the New York Stock Exchange ("NYSE"). The
range of quarterly common stock price for 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- -------------------------------------------------------------------------------------------------------------
High Low High Low High Low High Low
------------------ ------------------ ------------------ ------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 9-5/8 6-3/8 9 5-3/4 11-3/4 5-5/8 6-1/8 4-3/8
1994 3-7/8 1-1/8 5-1/8 3-1/8 8-3/8 4-1/2 8-3/4 6
</TABLE>
There were approximately 4,410 record holders of the Company's common stock
as of March 24, 1996.
There have been no cash dividends declared since 1956 and no stock dividends
declared since 1966. If the Company were to become profitable, it would expect
that all of such earnings would be retained to support the business of the
Company. Accordingly, the Company does not anticipate paying cash dividends on
its common stock in the foreseeable future. Moreover, certain financial
covenants set forth in the Company's current loan agreement prohibit the Company
from paying cash dividends.
Although the Company's common stock is currently listed and trading on the
NYSE, currently and since September 11, 1991, the Company has not been in
compliance with one or more of the criteria necessary for continued listing on
the NYSE. The Company and the NYSE have had discussions with respect to this
issue. As of the date of this report, the Company believes that it is in
compliance with all of the NYSE's continued listing criteria, with the exception
of the minimum net tangible assets available to Common Stock of $8,000,000 and
minimum average earnings of $600,000 for each of the last three fiscal years. To
the Company's knowledge, the NYSE has not taken any affirmative action to delist
the common stock, but, as it has each time it has authorized the listing of
additional shares on the NYSE, it stated in a letter dated March 29, 1995 and
again in a letter dated March 14, 1996, approving the listing of additional
shares of common stock, that consideration is being given to the appropriateness
of continued listing of the Company's common stock. Management of the Company
met with representatives of the NYSE on March 6, 1996 to discuss this matter and
the Company's financial plan for 1996, after which the NYSE indicated in its
letter dated March 14, 1996 that the Company's financial results for the first
quarter of 1996 will be reviewed and measured against such plan. If the
Company's common stock is delisted from the NYSE, it could have a material
adverse effect on the price and liquidity of the Company's common stock.
In the event that the Company's Common Stock is delisted from the NYSE, it
could seek to list its common stock on the National Association of Securities
Dealers Inc.'s Automated Quotation System ("NASDAQ") or on another exchange.
Although the Company believes that it is currently eligible for listing on the
NASDAQ Small-Cap Market System (but not on the NASDAQ National Market System),
there can be no assurance that the Company would be eligible for listing its
common stock on NASDAQ or any exchange at such time. If the Company would be
ineligible to list its Common Stock on NASDAQ or any other exchange at such
time, there would be no established trading market for the Company's Common
Stock except as may be established in the National Association of Securities
Dealers Inc.'s OTC Bulletin Board Service or in the "pink sheets," which, as
discussed above, could have a material adverse effect on the price and liquidity
of the Company's common stock. In addition, the Company's common stock could
then become subject to the Commission's "penny stock" rules which regulate
broker-dealer sales practices. Such rules could restrict the ability of
broker-dealers to sell the Company's common stock, which could also have a
material adverse effect on the price and liquidity of the Company's common
stock.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Thousands of Dollars Except for Per Share Amounts, Common Shares outstanding and Other Data)
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Results: [---------Note 2-----] [------------Note 1--------------]
Sales from Continuing Operations $ 77,085 $ 30,539 $ 26,024 $ 22,248 $ 22,933
Provision for Restructuring $ -- $ 2,400 $ $ 285 $ --
Loss from Continuing Operations before Taxes $ (30,894) $ (4,784) $ (5,348) $ (3,524) $ (6,811)
Loss from Continuing Operations, Net $ (30,894) $ (4,784) $ (4,664) $ (3,189) $ (5,227)
Income from Discontinued Operations, Net $ -- $ -- $ 1,327 $ 651 $ 1,531
Net Income (Loss) $ (30,894) $ (4,784) $ (3,337) $ (2,538) $ (3,696)
Income (Loss) Per Common Share:
Continuing Operations $ (2.50) $ (.95) $ (1.76) $ (1.22) $ (2.02)
Discontinued Operations $ - $ - .50 $ .25 $ .59
Net Income (Loss) $ (2.50) $ (.95) $ (1.26) $ (.97) $ (1.43)
- ---------------------------------------------------------------------------------------------------------------
Financial Position:
Current Assets $ 44,514 $ 16,969 $ 7,355 $ 14,547 $ 12,267
Current Liabilities $ 25,938 $ 12,603 $ 8,614 $ 11,594 $ 5,019
Working Capital $ 18,576 $ 4,366 $ (1,259) $ 2,953 $ 7,248
Net Property and Equipment $ 8,071 $ 2,719 $ 3,603 $ 4,344 $ 2,351
Total Assets $ 66,625 $ 22,845 $ 12,762 $ 19,836 $ 14,805
Shareholders' Equity $ 19,390 $ 7,244 $ (546) $ 2,776 $ 5,137
Common Shares Outstanding 16,045 8,108 2,661 2,646 2,588
Book Value per Common Share $ 1.21 $ .89 $ (.21) $ 1.05 $ 1.99
- ---------------------------------------------------------------------------------------------------------------
Other Data:
Number of Shareholders of Record 4,254 4,447 4,600 4,718 4,877
Number of Employees 514 334 315 458 368
Orders Received (Note 3) $ 105,150 $ 30,326 $ 18,805 $ 31,592 $ 20,064
Sales Backlog at Year-End $ 47,305 $ 19,240 $ 19,453 $ 26,676 $ 17,260
</TABLE>
Note 1 - Reclassified to reflect sale and discontinuation of certain operations
(See Note 4 of the Notes to Consolidated Financial Statements at Part II, Item 8
of this Annual Report Form 10-K).
Note 2 - 1995 amounts include the impact of the Tanon Acquisition, BarOn
investment, and joint venture with IAI (See Note 4 of the Notes to Consolidated
Financial Statements at Part II, Item 8 of this Annual Report Form 10-K).
Note 3 - Orders received in 1995 includes $15,710,000 of Tanon backlog at
December 31, 1994.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
On January 4, 1995, the Company acquired Tanon, a privately-owned contract
electronic manufacturing firm with operations located in Fremont, California.
The acquisition has been reported as a purchase for accounting purposes and,
accordingly, the results of operations of Tanon are included with those of the
Company from January 4, 1995 forward. Tanon's manufacturing services consist
primarily of the assembly of printed circuit boards, the manufacturing and
assembly of integrated electro-mechanical systems and related engineering
support. For a more thorough discussion of this transaction, see Part I., Item
1., Business -- 1995 Developments.
On January 16, 1995, the Company acquired a 25.01% equity interest in BarOn,
a privately-owned Israeli corporation based in Haifa, Israel. On September 30,
1995 the Company exercised its option to acquire an additional 8.33% equity
interest in BarOn. As a result of the acquisition of this additional equity
interest, the Company recorded a current amount payable of $2,000,000 of which
$1,500,000 had been paid as of December 31, 1995 and issued 255,183 shares of
common stock, which on September 30, 1995 had a value of approximately $995,000.
BarOn is a development stage company engaged in the research and development of
a computer input device that can directly digitize handwriting in a variety of
languages, from any surface. The investment in BarOn has been accounted for as a
purchase of a minority interest using the equity method of accounting, and
accordingly, the Company's equity interest in the results of BarOn are included
in the consolidated results of the Company from January 16, 1995 forward. For a
more thorough discussion of this transaction, see Part I, Item 1., Business --
1995 Developments.
On August 8, 1995, the Company, through a 52.3% owned subsidiary, EATI,
entered into a Joint Venture Agreement with IAI to review, develop and exploit
non-classified technological applications developed by IAI. The Company, on the
one hand, and certain other shareholders of EATI collectively, on the other
hand, advanced $6,300,000 and $1,575,000, respectively, to EATI. Of such funds
$7.5 million has been advanced to the Joint Venture, ITI. The Company's
investment in ITI is accounted for using the purchase method of accounting. For
a more thorough discussion of this transaction, see Part I, Item 1, Business --
1995 Developments.
Results of Operations: 1995 compared to 1994
During 1995, the Company's sales increased, cost of sales increased (both in
total value and as a percentage of sales), and selling, general and
administrative expenses increased in total but decreased as a percentage of
sales. The Company had a loss from operations of $30,894,000 for 1995, which
included charges of $7,874,000 and $11,672,000, representing the charge to
expense of purchased in-process research and development resulting from its
investments in BarOn and the Joint Venture with IAI, respectively. This loss
compared with a loss from operations of $4,784,000 in 1994 which included a
provision for restructuring of $2,400,000.
The amount of the purchase price in excess of the estimated fair value of
the 25.01% equity interest in BarOn acquired by the Company during the first
quarter of 1995 and the additional 8.33% equity interest acquired on September
30, 1995 represents in-process research and development with no alternative
future use. Accordingly, the estimated value associated with such purchased
research and development of $6,012,000 and $1,862,000, respectively, was charged
to expense.
No portion of the purchase price of the Company's indirect interest in ITI
has been capitalized because all of the technologies are in the initial stage of
development and considered to be in-process research and
17
<PAGE>
development. Therefore, the Company has recorded a charge to expense of
$11,672,000 with respect to formation of ITI.
The increase in sales to $77,085,000 in 1995 from $30,539,000 in 1994,
resulted primarily from the additional sales generated by Tanon, which had sales
of $50,452,000 in 1995. Sales from the Company's prior existing operations
decreased to $26,633,000 from $30,539,000 in 1994 which decrease was a direct
result of the closing of the Company's Tucson, AZ and Nogales, Mexico plants.
The majority of the services provided to customers at the Tucson facility was
transferred to the Company's manufacturing facility in New Jersey; a moderate
level of manufacturing services was transferred to the Company's Fremont
facility at the customer's request, and the assembly-related services provided
at the Nogales, Mexico facility were sold, together with the assets of that
facility. The sales of $50,452,000 for Tanon in 1995 decreased moderately from
sales of $50,735,000 in 1994, which reflects the loss of revenue from two
customers who terminated their relationship with Tanon during this period,
offset by the growth in sales to Tanon's existing customer base.
Cost of sales in 1995 increased to $76,422,000 from $27,759,000 in 1994
primarily due to the additional sales generated by Tanon. Cost of sales
increased, as a percentage of revenue, to 99.1% in 1995 compared with 90.9% in
1994, resulting primarily from (i) the increase in materials cost for a customer
with whom the Company has expanded its material handling services, (ii) a price
reduction in sales of material by Tanon to one of its existing customers, which
was negotiated in response to competitive pricing pressures, and (iii) a shift
in the New Jersey facility's focus from low volume, high margin customers to
high volume, low margin customers which resulted in a lower gross profit margin
and a higher volume breakeven point for the facility. In addition, the Company
incurred a loss on services rendered to a major customer. In January, 1996 the
Company renegotiated the pricing on future services for this customer. Also
during the fourth quarter of 1995, the Company initiated action to reduce its
material cost as a percentage of revenues. This action includes hiring new
personnel to increase the Company's material purchasing skill level and
upgrading the Company's material control computer system. Consistent with the
Company's shift in focus to high volume during 1995 the Company began the
process of adding to and upgrading its high speed SMT capabilities. Two new high
speed SMT lines were acquired in 1995 to increase the existing New Jersey
facility capabilities, a new high speed SMT line was acquired in early 1996 to
increase the Fremont facility capabilities and two additional high speed SMT
lines are planned to replace two older lines in 1996. Cost of sales at the
Company's prior existing operation increased to 106% of sales in 1995 from 90.9%
of sales in 1994 as a result of the above. As noted above, the pricing for
services to a major customer was renegotiated in January. This renegotiation,
combined with increased sales volume in the first two months of 1996, has
returned the Company's prior existing operations to a positive gross profit
margin, which Management expects will continue although there can be no
assurance that such operations will continue to have a positive gross profit
margin. Tanon's cost of sales increased moderately from 93.4% of sales to 95.4%
of sales between 1994 and 1995, also as a result of the above.
Selling, general and administrative expenses increased to $9,779,000 from
$4,591,000 in 1994. The increase in the level of selling, general and
administrative expenses was primarily related to the addition of the Tanon
operations. Selling, general and administrative expense for the Company's prior
existing operations increased to $6,167,000 in 1995 from $4,591,000 in 1994 as a
result of fees paid and warrants to purchase the Company's stock granted to
consultants, the payment of consulting fees for several directors, the
elimination of salary reductions for employees of the Company which had been in
effect during 1994 and additional general and administrative expense incurred in
connection with the Company's investment in ITI, partially offset by reductions
in sales, general and administrative staffs during the first and second
quarters. The Company has, however, hired additional sales, general and
administrative staff in the fourth quarter to support the increased level of
sales. Selling, general and administrative expenses declined as a percentage of
revenue to 12.7% in 1995 from 15.0% in 1994 primarily because the increase in
sales exceeded the rate of the increase in selling, general and administrative
expenses. Selling, general and administrative expense for Tanon was at
approximately the same level of $2,768,000 in 1995 as in 1994.
As a result of the Tanon Acquisition, during the first quarter of 1995 the
Company began taking steps to close and sell its Southwest operations in Tucson,
Arizona and Nogales, Mexico to eliminate the operating
18
<PAGE>
expenses associated with these facilities. The closing of the Tucson, Arizona
operations and sale of the Nogales, Mexico operations were completed in the
second quarter of 1995. The majority of the operations which were supporting the
Company's sales base out of the Tucson location were transferred to the New
Jersey facility in the second quarter of 1995. Additionally, the Company reduced
indirect manufacturing and sales, general and administrative staff in its New
Jersey facility during the first quarter in 1995 and in the Fremont, California
facility in the second quarter of 1995. The combined termination expenses for
these activities in 1995 was provided for as part of the Company's 1994
restructuring. Management believes that by these actions it has
substantially eliminated duplicate expenses and improved operating efficiencies
for materials procurement and management. However, no assurance can be given
that such effects will be experienced by the Company as a result thereof.
Interest income of $208,000 in 1995 increased from $89,000 in 1994 primarily
reflecting investment income from the sale of common stock in April, July and
August of 1995. Interest expense increased from $662,000 in 1994 to $1,357,000
in 1995 primarily as a result of the interest expense on Tanon's credit
facilities and, to a lesser extent, the sale of convertible subordinated
debentures in September and October. Interest expense for the Company's prior
existing operations was $719,000 in 1995 as compared to $662,000 in 1994.
Tanon's interest expense increased from $638,000 in 1994 to $662,000 in 1995
primarily as a result of an increase in the average amount borrowed under
Tanon's Revolving Loan.
Other expense in 1995 is primarily the Company's equity interest in the
results of BarOn. BarOn is a development stage company which was formed in July
1992 and has experienced losses of $3,157,000 and $1,101,000 for 1995 and 1994,
respectively. BarOn had total assets of $3,650,000, total liabilities of
$448,000, and net equity of $3,202,000 at December 31, 1995. BarOn has had no
sales since its formation.
As a result of the acquisition of the equity interest in BarOn, the Company
and BarOn entered into a Manufacturing and Consulting Agreement, dated January
16, 1995, pursuant to which the Company was granted a right of first refusal to
enter into manufacturing contracts with BarOn for the manufacture of BarOn's
products. The Company agreed to provide manufacturing consulting services to
BarOn when BarOn's products are manufactured by an independent third party.
EAI's Results of Operations: 1994 compared to 1993
During 1994, the Company's sales increased, gross profit increased, and
selling, general and administrative expenses declined. The Company's net loss
from continuing operations in 1994 was $4,784,000 including the provision for
restructuring of $2,400,000, compared to $4,664,000 in 1993.
Sales of $30,539,000 in 1994 increased $4,515,000, or 17.3%, from sales of
$26,024,000 in 1993, resulting primarily from increased orders for contract
electronic manufacturing services from the Company's existing customers.
Cost of sales increased to $27,759,000 in 1994 primarily due to the
Company's increased level of sales. Cost of sales declined as a percentage of
revenue to 90.9% in 1994, compared to 93.5% in 1993. As a result, gross profit
increased to $2,780,000, or 9.1% of revenue, in 1994 compared to $1,680,000, or
6.5% of revenue, in 1993. The reduction in cost of sales as a percentage of
revenue resulted from cost reduction measures put in place during 1994,
consisting primarily of a 20% compensation reduction for substantially all
employees, facility expense reductions in the West Long Branch location
resulting from lease renegotiations, and insurance and consultant fee expense
reductions. The 20% compensation reduction for substantially all employees was
completely eliminated in January 1995, with employee compensation levels
returning to pre-reduction levels.
Selling, general and administrative expenses decreased in 1994, both in
amount and as a percentage of revenue. Selling, general and administrative
expenses of $4,591,000 in 1994 declined from $7,000,000 in 1993.
19
<PAGE>
As a result, selling, general and administrative expenses declined to 15% of
revenue in 1994 from 26.9% of revenue in 1993. The decline resulted from a
reduction in staff, and the 20% compensation reduction and reduction in the
Company's use of consultants in 1994 as discussed above.
Interest income of $89,000 was recorded in 1994, reflecting investment
income from the proceeds of the Company's capital raising efforts, represented
primarily by the June Private Placement. Interest expense of $662,000 in 1994
increased $180,000 compared to $482,000 in 1993 and, as a percentage of revenue,
increased to 2.2% from 1.9% in 1993. The increase in interest expense reflects
both the increase in short-term interest rates during 1994, as well as an
increase in the balance of the Company's revolving credit facility to support
the greater sales volume during the year.
Tanon's Results of Operations: 1994 Compared to 1993. Tanon's sales of
$50,735,000 in 1994 increased 29% from sales of $39,451,000 in 1993. The
increase in Tanon's revenue results primarily from turnkey assembly services in
which the Company procures some or all of the assembly components. The net loss
of $155,000 in 1994 reflects primarily the lower profit margin on revenues
related to the materials management portion of its turnkey assembly services.
The sales increase in 1994 reflected increased demand for Tanon's turnkey
and consigned contract electronic manufacturing and electro-mechanical assembly
services. During 1994, Tanon's gross profit declined to $3,251,000, or 6.4% of
revenue, from $3,584,000 or 9.1% of revenue, in 1993, primarily due to
competitive pressure on profit margins relating to the materials portion of its
business.
The Company's sales, general and administrative expenses increased
moderately to $2,768,000 in 1994 from $2,653,000 in 1993. However, as a
percentage of sales, selling, general and administrative expenses declined to
5.4% in 1994 from 6.7% in 1993 resulting primarily from a reduction in the
administrative and executive staff of Tanon and increased sales.
Tanon's interest expense increased to $638,000 in 1994 from $408,000 in 1993
reflecting the increase in short-term interest rates throughout 1994 and the
increased balance of the Tanon's credit facility to support the greater sales
volume in 1994.
Liquidity and Capital Resources: 1995
Liquidity, as discussed below, is measured in reference to the consolidated
financial position of the Company at December 31, 1995, as compared to the pro
forma financial position of the Company at December 31, 1994, adjusted to
reflect the balance sheet of Tanon at December 31, 1994.
As a result of negative cash flows from operations in 1995, the investments
in BarOn and EATI, the growth in Company revenues and corresponding sizable
increases in inventories, and investment in new high speed SMT equipment, the
Company consumed substantial amounts of cash in 1995. Net cash used by
operations was $8,316,000 in 1995 as compared to $4,342,000 in 1994. The
increase in cash used by operations was a result of the greater net loss after
adjustment for noncash charges in 1995, as compared to 1994 and an increase in
consolidated inventory, somewhat offset by a reduction in consolidated
receivables. Liquidity as measured by cash and cash equivalents, increased to
$9,830,000 at December 31, 1995 from $6,157,000 at December 31, 1994. Liquidity
as measured by working capital (excluding Restricted Cash of $8,004,000)
increased to $10,572,000 at December 31, 1995 from $4,366,000 at December 31,
1994. The increase in liquidity despite the large consumption of cash as
referred to above resulted primarily from financings. Consolidated accounts
receivable declined by $2,316,000 in 1995 reflecting the collection of
receivables at a rate greater than sales were generated during the period. In
addition, a marginally profitable enterprise which had over $2,100,000 payable
to the Company at December 31, 1994 is currently paying its account in
accordance with established terms. Consolidated inventory increased by
$4,018,000 during 1995
20
<PAGE>
reflecting the higher percentage of turnkey business in 1995 and the increased
level of backlog at December 31, 1995 as compared to that at December 31, 1994.
Additionally, inventories at December 31, 1994 were low, relative to the volume
of sales in the fourth quarter of that year.
Financing activities during 1995 produced net cash of $29,039,000, which
resulted primarily from the issuance of an aggregate of 2,474,993 shares of
common stock in offerings conducted in April, July, and August 1995, the
exercise of Class C Warrants to purchase 383,861 shares of common stock, the
exercise of Class A and B Warrants to purchase 1,295,979 shares of common stock,
the exercise of employee stock options to purchase 686,205 shares of common
stock, the sale of $3,600,000 principal amount of convertible debentures in
September and October 1995, the sale of $2,200,000 principal amount of
convertible debentures in November, 1995 and the sale of $10,000,000 principal
amount of convertible notes in December, 1995.
Net cash in the amount of $17,050,000 was used for investing activities
during 1995. Funds in the amount of $5,427,000 were used in making capital
expenditures and $12,907,000 was used in making investments in affiliates
pursuant to the investments in BarOn and ITI. These uses were partially offset
by cash acquired in the acquisition of Tanon of $890,000 and the proceeds from
the sale of discontinued operations of $394,000. The cash required to consummate
the BarOn Investment was financed, in large part, from the cash flows from
financing activities during 1994.
The Company maintains an asset based credit facility with Congress Financial
Corporation (the "Congress Credit Facility"). The Congress Credit Facility
permits borrowings of up to $7,500,000 comprised of a revolving loan (the
"Revolving Loan"), a term loan (the "Term Loan") and letters of credit
(collectively, the "Loans"). Borrowings under the Revolving Loan may not exceed
a specified borrowing base (the "Borrowing Base"). In addition, Revolving Loan
advances are limited to $7,500,000 less the amounts outstanding under the Term
Loan and letters of credit. The Borrowing Base consists of the sum of (1) 80% of
eligible accounts receivable, (2) 18% of certain raw material inventory, and (3)
50% of raw material inventory designated for a particular customer (which
amount, $686,000 at December 31, 1995, was deleted from the Borrowing Base in
January, 1996). All advances and eligibility criteria under the Congress Credit
Facility are discretionary to the lender. At December 31, 1995, $3,646,000 was
outstanding under the Congress Credit Facility, which constituted the total
availability of the Borrowing Base.
The term of the Revolving Loan (which originated in 1993) is three years,
with one year renewals thereafter. The principal amount of the Term Loan is
repaid in monthly installments of approximately $21,500 over a term of five
years. Both the Revolving Loan and Term Loan bear interest at an annual rate of
2-1/4% over the CoreStates Bank (an affiliate of Congress) prime rate. In
addition, the Company must pay a fee equal to 1/2% of the unused portion of the
Revolving Loan plus amounts borrowed under the letters of credit.
The Congress Credit Facility contains certain working capital and tangible
net worth covenants. At December 31, 1995, the Company was in compliance with
those covenants. Substantially all of the assets of the Company are pledged
as collateral to secure the credit facility.
Tanon maintains a separate revolving line of credit, due on demand, with a
commercial bank that provides for short-term borrowings up to $5,500,000 based
on the sum of (1) 80% of eligible accounts receivable and (2) 18% of certain raw
material inventory. In January, 1996, the raw material inventory was deleted
from the Borrowing Base; however, such deletion is not anticipated to have any
material effect on the Company because its level of accounts receivable permits
full borrowing under the line. At December 31, 1995, $5,500,000 was committed
under this line ($5,196,000 in loans and $304,000 in a letter of credit). The
credit agreement pertaining to this line of credit restricts Tanon from entering
into certain transactions and contains covenants regarding the maintenance of
working capital, minimum net worth and debt-to-equity ratios, together with
minimum profitability requirements. At December 31, 1995 Tanon was in compliance
with all of these covenants. The annual interest rate on this line was prime
plus 1.5% through November 15, 1995, at which time the interest rate was
increased by agreement to prime, plus 2.25%. Substantially all of the assets of
Tanon are pledged as collateral to secure the revolving credit facility.
21
<PAGE>
The Company intends to replace the above two credit facilities with a single
facility to support the Company's contract electronic manufacturing operations.
In addition to an increased limit (as compared to the sum of the two existing
credit facilities) a single credit facility will provide a larger borrowing base
as a result of (1) calculating availability based on one facility limit versus
separate facilities where receivables and inventory might potentially not be
utilized for borrowing purposes as a result of having reached the maximum with
respect to an individual facility (2) reducing the impact of large customer
account receivable concentrations and the resulting reduction in borrowing base.
On March 25, 1996, the Company received a commitment (the "Commitment") to
provide a senior secured financing facility of up to $15,000,000 from IBJ
Schroder Bank & Trust Company ("Schroder") that would replace the Congress
Credit Facility and the Tanon revolving line of credit. Under the terms of the
Commitment, Schroder will advance up to $13,000,000 in the form of a revolving
loan with a borrowing base comprised of (1) between 80% and 85% of eligible
accounts receivable (2) up to 18% of eligible inventory subject to an
availability sublimit of $3,000,000 and (3) up to 75% of the liquidation value
of certain of the Company's machinery and equipment, subject to an availability
sublimit of $1,250,000. In addition, Schroder will advance up to $2,000,000 in
the form of a term loan for 75% of the cost of purchased new equipment, with a
condition precedent to such equipment funding that the contract electronic
manufacturing operations of the Company have two consecutive fiscal quarters of
profitability and meet a designated financial covenant. The financing facility
will have a three year term and bear interest at an annual rate of prime plus
1-1/2%. Advances under the term loan will be repaid by monthly payments based on
a 60 month amortization. The Company will pay a fee of 1/2% of the unused
portion of the revolving loan. The Company paid a commitment issuance fee of
$75,000 to Schroder on March 25, 1996 and will owe an additional $50,000 fee at
closing of the facility. There are several requirements precedent to the closing
of the facility, all of which the Company anticipates being able to meet timely.
At December 31, 1995, the Company had consolidated accounts payable of
approximately $13,522,000 of which approximately $167,000 had been outstanding
for over 90 days. This compares with $10,928,000 (including Tanon) of
consolidated accounts payable at December 31, 1994, of which $426,000 had been
outstanding for over 90 days.
Backlog at December 31, 1995 was $47,305,000 as compared to the Company's
and Tanon's combined backlog at December 31, 1994 of $34,950,000.
During 1995, the Company purchased new machinery and equipment and made
other capital expenditures of approximately $5,400,000 including two new high
speed SMT lines for the New Jersey facility. The Company obtained financing of
approximately $3,600,000, including financing of $1,800,000 in March 1996, on
this equipment and approximately $500,000 of equipment received in March, 1996.
In the first quarter of 1996 the Company made commitments in the amount of
$2,000,000 for the purchase of two additional SMT lines for the Fremont,
California facility. One of these lines has been delivered as of the date of
this report and was included in the financing noted above. The Company has
arranged to finance the purchase of the second SMT line with the same financing
company that provided the $1,800,000 in March, 1996. In addition, the Company
plans to make additional capital expenditures during 1996 and also plans to
finance such expenditures.
BarOn Investment. The Company intends to pay the remaining $500,000 owed in
connection with its BarOn investment during the second quarter of 1996.
According to BarOn's business and operating plan for 1996, BarOn will need
additional capital by early in the third quarter of 1996. Consistent with such
plan, BarOn is seeking investors to raise additional funds. Although no formal
determination has been made, currently, the Company does not plan to increase
its interest in BarOn, pursuant to its existing right of first refusal or
otherwise.
Joint Venture with IAI. In a transaction consummated on August 8, 1995, the
Company's 52.3% owned subsidiary ("EATI"), entered into a Joint Venture
Agreement with IAI to review, develop, and exploit certain non-military,
non-classified technological applications developed by IAI.
22
<PAGE>
The JVA provides that the investment committee will review and evaluate
Applications developed by IAI. If an Application is selected for development and
exploitation, an entity will be formed ("Licensee") in which EATI will own a 50%
interest and IAI will own a 50% interest, and IAI will grant such Licensee a
perpetual, royalty free license for such Application. The Investment Committee
will prepare a business plan to exploit each application selected, including a
funding plan. The Company will be primarily responsible to raise the funds
necessary to exploit the Application selected. However, the Company will not be
under any obligation to raise any funds for such purpose unless and until the
Investment Committee selects an Application for exploitation. In the event the
Company is unable to raise the funds necessary to exploit any Application which
the Investment Committee selects, IAI can terminate the JVA. The JVA can also be
terminated under certain other circumstances.
As of the date of this report, the Investment Committee has selected one
Application for development and exploitation, the Vista Application ("Vista").
Vista is a system for the automatic inspection of manufactured parts, capable of
detecting defects as small as 20 microns. The preliminary business plan for
Vista requires funding of $1,000,000. Consistent with the terms of the JVA,
the Company is considering raising funds for Vista through a variety methods
including combination of sales of Vista equity interests and borrowings by
Vista. There can be no assurance that the Company will be successful in its
efforts to raise such funds, in which case the Company will be confronted with
the choice of possibly foregoing its investment in ITI or funding the $1,000,000
through its own resources.
The Company believes revenues in 1996 will exceed those in 1995 which will
require additional cash to finance the resulting working capital needs. The
Company believes that the proceeds from the sale of convertible notes in
December, 1995, together its with existing credit facilities will enable
the Company to meet its cash obligations in 1996.
The remaining Class A and Class B warrants issued in the February 1994
Private Placement, if exercised, could provide the Company with additional
capital of approximately $3,100,000. Additional capital could also come from the
exercise of the other warrants held by warrant holders of which the underlying
shares are covered by the Company's currently effective registration statement
(such warrants, together with the Class A Warrants and Class B Warrants are
collectively hereinafter referred to as the "Warrants"). To date, Class A and
Class B warrants to purchase 1,241,000 shares have been exercised and the
Company received $1,302,000 in proceeds. No assurance can be given that the
remainder of such Warrants will be exercised.
EAI's Liquidity and Capital Resources: 1994
Net cash used by operations of $4,342,000 in 1994 increased by $2,558,000
over cash used in operations in 1993 resulting primarily from the net loss and
increases in accounts receivable and inventories. Liquidity, as measured by cash
and cash equivalents, increased to $6,157,000 at December 31, 1994 from $64,000
at December 31, 1993. Liquidity, as measured by working capital, increased to
$4,366,000 at December 31, 1994 from a deficit of ($1,259,000) at December 31,
1993. The improvement in liquidity results primarily from the Company's capital
raising efforts throughout 1994. The Company's ability to generate internal cash
flow is derived primarily from the sale of the material and labor elements of
its contract electronic manufacturing services. During 1994, the revenue from
such services increased 17.3% to $30,539,000. Accounts receivable increased
$2,226,000 or 61.9% as compared to 1993, while inventory increased $1,395,000 or
45.2% as compared to 1993. Such increases in accounts receivable and inventory
were primarily due to the increase in sales orders placed during the fourth
quarter of 1994. The majority of the increase in accounts receivable in 1994
relates to one of the Company's major customers, which is a marginally
profitable enterprise and which is in process of introducing new products to its
market. The Company evaluates this receivable balance continually and maintains
constant dialogue with management of the customer. To date, the receivable
balance has been paid in accordance with terms established with the customer.
Management of the Company constantly evaluates inventory levels on hand with
respect to orders placed by customers and, if necessary, inventory amounts which
may become excess could be reduced by the sale or return of inventories to
suppliers, usage of inventories on alternative customers' assemblies or the
cancellation of purchase commitments with or without the payment of cancellation
penalties.
23
<PAGE>
In January and February 1994, in order to conserve cash and reduce expenses,
the Company imposed a 20% decrease in pay on substantially all employees,
arranged for additional concessions from its West Long Branch landlord, deferred
certain debts and lease payments and arranged to raise capital as described
below.
Cash flows from financing activities during 1994 amounted to $13,192,000,
resulting primarily from the issuance of the February Units in the February
Private Placement and the issuance of the June Units and exercise of related
Class C Warrants issued in the June Private Placement, net of reductions in
outstanding debt.
The loan agreement between the Company and Congress Financial Corporation
contains certain working capital and tangible net worth covenants. At December
31, 1994, the Company satisfied all such covenants. As of December 31, 1994, the
principal amount outstanding under the Revolving Loan was $5,219,000, and the
outstanding balance of the Term Loan was $945,000, with additional borrowing
availability of $268,000 under the Congress Loan Agreement.
On August 4, 1994, the Company sold the assets of its discontinued Product
Engineering Division to a company organized by certain of its former employees.
The Company is a party to a contract with a Japanese company that may require
future performance. While the sale required an assignment and assumption of such
contract, the Company will be required to perform such contract following the
sale if additional orders are placed by the Japanese company and the purchaser
of the Product Engineering Division assets is unable to perform under such
contract. The Company's discontinuance and sale of the Product Engineering
Division, however, renders it more difficult for the Company to perform such
contract in such event. Due to the lack of any sales of the product covered by
the Japanese contract, management believes that it has little or no exposure
under such contract and such contract should not have a material adverse impact
on the Company's earnings or liquidity.
On August 11, 1994 the Company was informed by Halifax (the purchaser of the
Company's Field Service Division) that it is entitled to a set-off of certain
claims in the aggregate amount of approximately $230,000 and of its intention to
withhold the $200,000 installment of the Halifax Deferred Payment due to the
Company on August 31, 1994 as a result of such claims. The Company has denied
liability for such claims. At the date hereof, Halifax has deposited $200,000 in
escrow related to the payment due August 31, 1994 and approximately $6,000 of
the payment due on February 28, 1995, as required by its agreement with the
Company and both parties have entered into settlement discussions. The balance
of $194,000 of the payment due on February 28, 1995 was paid on schedule.
At March 31, 1995, the Company had accounts payable of approximately
$4,530,000 of which approximately $489,000 had been outstanding for over 90
days. This compares with $4,711,000 of accounts payable at December 31, 1994, of
which $426,000 had been outstanding for over 90 days. At December 31, 1993, the
Company had accounts payable of $3,674,000 of which $929,000 had been
outstanding for over 90 days.
Backlog at December 31, 1994 was $19,240,000, a decrease of $213,000 or 1%
from the balance of $19,453,000 at December 31, 1993. The backlog at both of
these dates did not include any orders from two customers lost in 1993. The
Company does not believe that the loss of either of them had a material adverse
effect on the Company in 1994 and, although it is not possible to predict with
certainty the effect of losing the two customers indicated above, does not
believe their loss will have a material adverse effect on the Company in 1995 in
view of its receipt of larger orders from existing customers and orders received
from new customers in 1994, and the prospects for receiving orders from existing
and new customers.
In the first quarter of 1995, the Company made commitments for the purchase
of manufacturing equipment of approximately $2,000,000 for the West Long Branch
manufacturing facility and approximately $3,000,000 for the Fremont, California
manufacturing facility; neither the Company, nor Tanon prior to its acquisition
by the Company, made material additions to their capital equipment during 1994.
The Company financed
24
<PAGE>
the capital equipment with financing arranged through equipment lease financers.
The Company has incurred significant losses and had negative cash flows from
operations in each of the last several years. As discussed above, in
contemplation of the Tanon acquisition in January 1995, the Company had
undertaken to restructure its operations to reduce operating costs and improve
operating results, which restructuring is expected to be completed by the second
quarter of 1995. However, the continued operating losses experienced by the
Company through December 31, 1994 gave rise to the need for additional working
capital to support the Company's existing operations and to support future
growth. As a result of the negative operating cash flow, the recurring operating
losses experienced by the Company in recent years, and the consummation of the
Tanon and BarOn acquisitions in January 1995, the Company estimated that it
would require between $2 million and $3 million of additional equity or debt
financing to meet its obligations through December 31, 1995.
Reference is made to "Legal Proceedings" at Part I, Item 3 of this Form 10-K
for information concerning certain pending claims which could have an adverse
impact on the Company's income and cash flow. Reference is also made to Note 14
of the Notes to Consolidated Financial Statements at Part II, Item 8 of this
Form 10-K for information concerning services provided by contract electronic
manufacturing to certain customers which are development stage or marginally
profitable enterprises or have highly leveraged capital structures.
Inflation has not had any significant impact on the Company's business to
date.
Although the Company does not believe its business is affected by seasonal
factors, the Company's sales and net income may vary from quarter to quarter,
depending primarily upon the timing of manufacturing orders and related
shipments to customers. The operating results for any particular quarter may not
be indicative of results for any future quarter.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires adoption no later than fiscal 1996.
This Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill to be held and used, and
for long-lived assets and certain identifiable intangibles to be disposed of.
The Company will adopt this Statement as of January 1, 1996, which is not
expected to have a material effect on its financial statements.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock-Based Compensation, which requires adoption no
later than fiscal 1996. The Statement provides a choice of accounting methods,
the fair value method or the intrinsic value method, with disclosure of the fair
value impact. Both methods require the Company to estimate (using an option
pricing model) the fair value of equity instruments issued to employees at the
date of grant. The fair value method requires recognition of compensation cost
ratably over the vesting period of the underlying equity instruments. The
intrinsic value method requires disclosure of pro forma net income and earnings
per share as if the fair value method had been applied. The Company will adopt
this Statement as of January 1, 1996, using the intrinsic value method.
Accordingly, there will be no impact on the financial accounts.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EA INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Page Number
----------
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS................................................. 27
FINANCIAL STATEMENTS:
Consolidated Balance Sheet as of December 31, 1995 and 1994.......................... 28
Consolidated Statement of Operations for the Three Years
Ended December 31, 1995............................................................. 29
Consolidated Statement of Shareholders' Equity
for the Three Years Ended December 31, 1995......................................... 30
Consolidated Statement of Cash Flows for the Three Years
Ended December 31, 1995............................................................. 31
Notes to Consolidated Financial Statements........................................... 32
SCHEDULE:
II. Valuation Account................................................................. 56
</TABLE>
Schedules other than that listed above are omitted as not being applicable
or required, or the required information is included in the accompanying
financial statements or related notes thereto.
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EA Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Electronic
Associates, Inc. (a New Jersey corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements and the
schedule referred to below are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Electronic Associates, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to consolidated financial statements and schedule is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
Roseland, New Jersey /s/ Arthur Andersen LLP
March 25, 1996 ARTHUR ANDERSEN LLP
27
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995 and 1994
(thousands of dollars, except per share data)
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $9,830 $6,157
Restricted cash (Note 4) 8,004 -
Receivables, less allowance of $385 in 1995 and $207 in 1994
for doubtful accounts 12,092 5,958
Inventories (Note 1) 12,978 4,178
Prepaid expenses and other assets 1,610 676
--------- ---------
TOTAL CURRENT ASSETS 44,514 16,969
--------- ---------
Equipment and leasehold improvements 15,023 7,472
Less accumulated depreciation (Note 1) (6,952) (4,753)
--------- ---------
8,071 2,719
--------- --------
Investment in affiliates (Note 4) 1,083 2,745
Intangible assets (Notes 1, 3 and 4) 12,331 -
Less accumulated amortization (813) -
--------- ---------
11,518 -
--------- ---------
Other assets (Note 4) 1,439 412
--------- ---------
$66,625 $22,845
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of Debt and Capital Lease Obligations
(Notes 3, 5 and 6) $9,704 $ 5,474
Accounts payable 13,522 4,711
Accrued expenses 2,712 2,418
--------- --------
TOTAL CURRENT LIABILITIES 25,938 12,603
--------- --------
Long-Term Liabilities:
Long-Term Debt and Capital Lease Obligations (Notes 5 and 6) 1,731 690
Convertible Notes and Debentures (Note 2) 12,200 -
Accrued excess leased space costs (Note 3) 1,433 1,858
Other long-term liabilities (Note 14) 2,239 450
--------- --------
TOTAL LONG-TERM LIABILITIES 17,603 2,998
--------- --------
TOTAL LIABILITIES 43,541 15,601
--------- --------
Minority Interest 3,694
---------
Commitments and Contingencies (Notes 4 and 14) - -
Shareholders' Equity (Deficit) (Notes 1, 2, 4, 7, 10, 12 and 13) Preferred
stock, no par value; authorized 25,000,000 shares; none issued
Common stock, no par value; authorized 50,000,000 shares; issued 16,045,447
shares in 1995 and 8,326,056 shares in 1994. 63,397 20,117
Accumulated deficit since January 1, 1986 (43,532) (12,398)
--------- ----------
19,865 7,719
Less common stock in treasury, at cost: 218,476 shares in 1995
and 1994 (475) (475)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 19,390 7,244
--------- ---------
$66,625 $22,845
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
28
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Years Ended December 31, 1995
(thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales (Notes 1 and 4) $77,085 $30,539 $26,024
---------- ---------- ----------
Cost of sales 76,422 27,759 24,344
Selling, general and administrative expenses 9,779 4,591 7,000
Provision For Restructuring (Note 3) - 2,400 -
Purchased research and development (Note 4) 19,546 - -
Interest Income (208) (89) -
Interest Expense 1,357 662 482
Other (Income) Expense 1,083 - (454)
---------- ---------- ----------
107,979 35,323 31,372
Loss from continuing operations before benefit for
taxes (30,894) (4,784) (5,348)
Income tax benefit (Note 9) - - (684)
---------- ---------- ----------
Loss from continuing operations $(30,894) (4,784) (4,664)
---------- ---------- ----------
Discontinued Operations (Note 4)
Income from discontinued operations net of
applicable taxes - - 341
Income from disposition of discontinued
operations net of applicable taxes - - 986
---------- ---------- ----------
Net loss $(30,894) ($4,784) ($3,337)
========== ========== =========
Income (Loss) per common share:
Loss from continuing operations ($2.50) ($0.95) ($1.76)
Income from discontinued operations - - $0.50
---------- ---------- ----------
Loss per common share ($2.50) ($0.95) ($1.26)
========== ========== =========
Average common shares outstanding 12,344,282 5,052,480 2,646,575
========== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
29
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Three Years Ended December 31, 1995
(thousands of dollars, except per share data)
<TABLE>
<CAPTION>
Accumulated
Deficit
Common Stock Additional Treasury Stock Since
------------------------ Paid-In ---------------- January 1,
Shares Amount Capital Shares Amount 1986
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 2,862,640 $ 2,863 $ 4,661 (216,476) $(471) $(4,277)
Net loss (3,337)
Issuance of Common Stock 15,000 15
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 2,877,640 2,878 4,661 (216,476) (471) (7,614)
Net loss (4,784)
Private Placements of common stock 4,798,884 11,676
Debt Conversion 398,042 338
Exercise of common stock options 67,490 143
Other issuances of common stock 184,000 421
Purchase of treasury stock (2,000) (4)
Elimination of $1.00 par value $ 4,661 $(4,661)
- -----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 8,326,056 20,117 - (218,476) (475) (12,398)
Net Loss (30,894)
Issuance of Common Stock
BarOn Investment 382,775 1,995
Tanon Acquisition 1,538,462 10,473
Warrants, Options and Stock Issued in
connection with the IAI Investment 140,719 7,400
Value of Options Issued for Tanon __ 1,383
Shares Sold in Exempt Offerings 2,474,993 11,659
Value of Options and Warrants
Issued for Services -- 963
Exercise of Common Stock Options 702,602 2,763
Exercise of Warrants 1,679,840 3,057
Debt conversion 800,000 3,587
Net unrealized loss on marketable (240)
securities of investee
-------------------------------------------------------------------------------
Balance, December 31, 1995 16,045,447 $63,397 -- (218,476) $(475) $(43,532)
===============================================================================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
30
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Years Ended December 31, 1995
(thousands of dollars, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss $(30,894) $(4,784) $(3,337)
Adjustments to reconcile net loss to net cash
used by continuing operations:
Purchased Research and Development 19,546 - -
Equity in Loss of Affiliates 802 - -
Value of Options Granted For Services 963 - -
Income from discontinued operations - - (1,327)
Provision for Restructuring - 2,400
Depreciation and amortization 3,012 900 822
Cash provided (used) by changes (net of effects from
purchase of Tanon) in:
Receivables 2,316 (2,360) 957
Inventories (4,018) (1,395) 1,718
Accounts payable and accrued expenses 268 775 (1,871)
Accrued excess leased space costs (425) (573) (856)
Other operating items -- net 114 335 (957)
-------- ------- -------
Operating cash flow from continuing operations (8,316) (4,702) (4,851)
Operating cash flow from discontinued operations -- 360 3,067
-------- ------- -------
Net cash used by operations (8,316) (4,342) (1,784)
-------- ------- -------
Cash Flows from Investing Activities:
Capital expenditures (5,427) (212) 1
Investment in affiliates including cash paid
for purchased research and development (12,907) (2,745) -
Proceeds from sale of discontinued operations 394 200 2,400
Cash acquired in purchase of Tanon 890 - -
-------- ------- -------
Net cash provided/(used) by investing activities (17,050) (2,757) 2,401
-------- ------- -------
Cash flows from Financing Activities:
Net proceeds from capital leases 1,440 - -
Net proceeds from convertible subordinated debt 15,787 - -
Net proceeds from issuance of common stock 17,479 11,819 -
Net borrowings (repayments) under credit facilities (3,161) 2,381 (1,087)
Issuance (repayments) of debt in connection with
acquisition -- - (164)
Issuance of note receivable in connection with acquisition (1,000) - -
Principal (repayments) borrowings of debt - Net (639) (1,008) 207
Other (867) - 9
-------- ------- -------
Net cash provided (used) by financing activities 29,039 13,192 (1,035)
-------- ------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 3,673 6,093 (418)
Cash and Cash Equivalents at Beginning of Period 6,157 64 482
-------- ------- -------
Cash and Cash Equivalents at End of Period 9,830 6,157 64
======== ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,315 $ 662 $ 544
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
31
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
EA Industries, Inc. and subsidiaries ("EAI" or the "Company") is engaged in
the business of providing to customers contract electronic manufacturing
services ranging from the assembly of printed circuit boards to the complete
procurement, production, assembly, test and delivery of entire electronic
products and systems. The Company, therefore, provides services to act in part,
or in whole, as the manufacturing function of its customers. Most of the
Company's sales are to industrial companies which use the Company's contract
electronic manufacturing services to manufacture products for a variety of
high-technology applications, including those for computers, telecommunications
devices, high-quality graphics, and medical testing devices. In 1995 the
Company made acquisitions and investments which had a significant effect on
the composition of the Company (See Note 4).
The Company, through its one-third investment in BarOn Technologies, Ltd.
("BarOn") a privately owned Israeli corporation based in Haifa, Israel and its
indirect interest in a joint venture ("ITI") with Israel Aircraft Industries,
Ltd., an Israeli government corporation ("IAI"), seeks to develop and market
new, high technology products. BarOn has developed and is in the process of
commercializing an electronic computer input pen that captures handwriting
independent of surface or language. The joint venture with IAI which was formed
in August 1995, was organized to review, evaluate and exploit the commercial
potential of products based on technologies developed by IAI.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned and majority-owned subsidiaries. The Company follows the
equity method for 20% or more owned affiliates. For consolidated subsidiaries
where Company ownership is less than 100%, the outside shareholders' interest is
shown as Minority Interest in the consolidated financial statements. All
material intercompany balances and transactions have been eliminated in
consolidation.
Statement of Cash Flows
Cash and cash equivalents include cash on hand and highly liquid marketable
securities with original maturities of three months or less. Non-cash investing
and financing activities during 1995 consisted of, debt conversion into common
stock ($3,587,000 - See note 2); the value of stock and options issued and
granted in connection with the Tanon Acquisition ($11,856,000 - See note 4); the
value of stock issued in connection with the Baron acquisition ($1,995,000 - See
note 4); the value of options, warrants and stock issued in connection with the
indirect ITI acquisition ($7,400,000 - See note 4); and the value of options and
warrants issued for services ($963,000 - See note 7). Non-cash investing and
financing activities during 1994 consisted of debt conversion into common stock
($338,000 - see Note 2), common stock issued for rent abatement ($306,000 - see
Note 3), common stock issued for loan fees ($75,000 - see Note 5), and common
stock issued for director compensation ($40,000).
Quasi-Reorganization and Par Value Elimination
As of the close of business December 31, 1985, the Company effected a
quasi-reorganization whereby assets were restated to their estimated current
values, income postponed to future periods was reflected in shareholders' equity
and the accumulated deficit was transferred to additional paid-in capital.
Accumulated deficit reflects the Company's cumulative earnings or losses since
the quasi-reorganization and net unrealized loss on marketable securities in
investee. In May 1994, the shareholders of the Company approved a proposal which
eliminated the reference to the $1.00 per share par value of the Company's
common stock. Consequently, all amounts formerly classified as additional
paid-in capital are now classified as common stock.
32
<PAGE>
Revenue Recognition
The Company records sales as goods are shipped.
Inventories
Inventories are stated at the lower of cost or market (net realizable
value). Costs of such inventories are determined using average actual costs.
Inventories at December 31 consisted of:
1995 1994
------- -----
(thousands of dollars)
Raw Materials $ 7,435 $3,352
Work-in-Process 5,543 826
------ ------
Total $12,978 $4,178
====== ======
Goodwill and Other Intangibles
The excess of cost over the fair value of net assets acquired is being
amortized on the straight-line method over various periods not exceeding 20
years. Acquired research and development with no alternative future use is
charged to expense on the date acquired. Other acquired intangibles (principally
customer relationships and assembled workforce) are amortized on the
straight line method over their estimated useful lives (6 to 20 years). The
Company continually reviews goodwill and other intangibles to evaluate whether
changes have occurred that would suggest these assets may be impaired based on
the estimated cash flows of the entity acquired over the remaining amortization
period. If this review indicates that the remaining estimated useful life
requires revision or that the asset is not recoverable, the carrying amount of
the asset is reduced by the estimated shortfall of cash flows on an undiscounted
basis.
During 1995, Statement of Financial Accounting Standards (SFAS) No. 121 -
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" was issued. SFAS No. 121 is effective for fiscal years beginning
after December 15, 1995 and is not expected to have a material impact on the
Company's financial statements.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed over the estimated useful lives
of the assets or term of the lease using the straight-line method.
When assets are retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income for the period. The cost of maintenance and repairs is
charged to expense as incurred.
Concentration of Credit Risk
The Company's contract manufacturing business provides services to a
variety of customers some of which are development stage or marginally
profitable enterprises or which have a highly leveraged capital structure. In
connection with providing its services the Company extends credit to customers,
invests in inventories to supply product scheduled for delivery, and enters into
contractual commitments for the purchase of materials.
33
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company evaluates each customer's creditworthiness with regard to the amount
of credit it is willing to extend and investment risk it is willing to assume.
The Company may require collateral or conditional commitments from the customer
such as standby letters of credit or financial guarantees in connection with
assuming such credit or investment risk. The amount and nature of the collateral
or commitments is based on management's evaluation of the customer's
creditworthiness, together with competitive circumstances. To date the Company
has had a favorable credit experience with such customers.
During 1995, 1994 and 1993 the Company's top 5 customers represented 68%,
87% and 75%, respectively, of its consolidated revenues. In 1995, the customers
which accounted for more than 10% of the Company's sales were Advanced Fibre
Communications, Inc., Ungerman Bass, Inc. and Dialogic Corporation, which
accounted for 23%, 14% and 13% of sales, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications were made to the prior years' presentation to
conform to the 1995 presentation.
2. OPERATIONS AND LIQUIDITY
1995
- ----
As a result of negative cash flows from operations in 1995, the investments
in BarOn and EATI, the growth of Company revenues and corresponding increases in
inventories in excess of the increase in accounts payable and of decreases in
accounts receivable, and investment in new high speed SMT equipment, the Company
required substantial amounts of additional working capital. On April 14, 1995,
the Company completed the sale of 525,000 shares of common stock at $5.85 per
share for net proceeds of approximately $3,000,000. On July 21, 1995, the
Company completed the sale of 416,667 shares of common stock at $4.80 per share
for net proceeds of approximately $2,000,000. On August 3, 1995, the Company
completed the sale of 1,458,833 shares of common stock at $4.80 per share for
net proceeds of approximately $7,000,000. On September 19, 1995 and October 2,
1995, the Company completed the sale of 9% convertible debentures in the
aggregate principal amount of $3,600,000. The debentures were subsequently
converted into a total of 800,000 shares of Company's Common Stock in accordance
with their terms.
On November 22, 1995 and November 28, 1995, the Company completed the sale
of 10% convertible debentures in the aggregate principal amount of $2,200,000 to
four purchasers. The debentures are convertible into shares of Company's Common
Stock at a conversion price equal to 80% of the average of the closing price of
the Company's Common Stock trading on the New York Stock Exchange for the five
days immediately preceding the date of conversion, provided that in no event
shall the conversion price exceed $6.00 per share of Common Stock. As of this
date $1,900,000 of such debentures have been converted into 550,602 shares of
Company's stock in accordance with their terms.
On December 29, 1995 (the "Closing Date"), the Company completed the sale
of 7% convertible notes of the Company in the aggregate principal amount of
$10,000,000 to GFL Advantage Fund Limited and GFL
34
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Performance Fund Limited (the "GFL Notes"). The GFL Notes will mature on
December 29, 1997 and are convertible into shares of the Company's Common Stock
at a conversion price equal to 82% of the average of the closing price of the
Company's Common Stock as traded on the New York Stock Exchange for the five
days immediately preceding the date of notice to the Company that a purchaser
wishes to exercise its right of conversion. The terms of the GFL Notes require
that the GFL Notes will automatically convert into shares of Company's Common
Stock as of the maturity date if the entire aggregate principal amount of the
GFL Notes has not been converted as of such date, and each purchaser may not
convert its GFL Note into a number of shares of Company's Common Stock which
would result in the beneficial ownership by the purchaser of greater than 4.9%
of the issued and outstanding shares of Company's Common Stock. In connection
with the transaction, the Company entered into a registration rights agreement
pursuant to which it agreed to file a registration statement with the Securities
and Exchange Commission covering the shares of Company's Common Stock underlying
the GFL Notes within 25 days of the Closing Date and to cause the shares to be
registered within 105 days following the Closing Date. The registration
statement was filed on January 17, 1996 and became effective on February 7,
1996. As of this date $1,000,000 of such debentures have been converted into
275,596 shares of Company's stock in accordance with their terms.
Net cash flows from financing activities during 1995 amounted to a source
of $29,039,000, which resulted primarily from the issuance of securities
referred to above, the exercise of Warrants to purchase shares of common stock,
and the exercise of employee stock options.
Net cash in the amount of $17,050,000 was used for investing activities
during 1995. Funds in the amount of $5,427,000 were used in making capital
expenditures and $12,907,000 was used in making investments in BarOn and EATI.
The Company has incurred significant losses and had negative cash flows
from operations in each of the last several years. As discussed in Note 3, the
Company implemented measures to reduce costs, including the closing of its
Southwest operations in Arizona and Mexico, consolidation of its corporate
administrative functions with those of its newly acquired subsidiary, Tanon
Manufacturing Inc., and reduction of certain other administrative expenses. The
Company was successful in raising approximately $11,800,000 of capital during
1994 and approximately $33.2 million in 1995 through private placements and the
exercise of warrants and options. Although the Company's financial projections
indicate that operating losses and negative cash flows from operations will
continue during the beginning of 1996, management believes that available cash,
together with funds available under its existing lines of credit, will
enable the Company to meet its obligations in the normal course of business
during 1996. In addition the Company is in the process of securing a new credit
facility (see Note 5).
The Company's business plan includes making certain additional investments
with respect to its contract electronics manufacturing business and BarOn (see
Note 4). Management believes that its available cash and credit facilities will
enable the Company to meet its obligations and make the investments as per the
Company's business plan. The Class A and B Warrants issued in the February
Private Placement, if exercised, could provide the Company with additional
capital of approximately $1,955,000; however no assurance can be given that any
such warrants will be exercised.
1994
- ----
On February 4, 1994, the Company announced that it had closed a sale of
1,200,000 units of securities (the "February Units") to a limited number of
investors in a private placement (the "February Private Placement"). This
private placement resulted in gross proceeds to the Company of $1,020,000 or
$0.85 per unit. Net proceeds to the Company totaled approximately $957,000.
35
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Each unit sold in the February Private Placement consisted of one share of
EAI Common Stock, one Class A Warrant entitling the holder to purchase one share
of EAI common stock at $1.00 per share and one Class B Warrant entitling the
holder to purchase one share of EAI common stock at $1.75 per share.
The Class A and Class B Warrants each have a term of four years. The Class
A Warrants may expire earlier as to 82% of the shares covered thereby if the
Company satisfies certain financial performance objectives. The shares purchased
and shares issuable upon exercise of the warrants were registered under the
Securities Act of 1933 in August 1994.
In connection with the February Private Placement, Milo Technologies, Inc.
(MTI) (a company controlled by the former EAI President and CEO), agreed that
upon written notice by the holders of not less than 300,000 units issued in the
February Private Placement, the Company's indebtedness, incurred in connection
with the acquisition of Milo Technologies, Inc., in the outstanding amount of
approximately $338,000 including accrued interest, would be automatically
converted into February Units on the basis of $0.85 per Unit. On May 17, 1994
such notice was received and the Milo debt was converted into 398,042 February
Units at $0.85 per unit.
On May 31, 1994, the Company commenced a second private placement (the
"June Private Placement") of 2,500,000 units (the June Units) at a purchase
price of $2.75 per unit. Each June unit consisted of one share of common stock
and one Class C Warrant to purchase one share of common stock for $4.60 per
share until June 30, 1998. In August 1994, the Company completed the June
Private Placement in which the Company issued all 2,500,000 units for net
proceeds of approximately $5,900,000, after related fees, broker commissions,
and other offering expenses of approximately $975,000. In connection with the
June Private Placement, 250,000 unit warrants were issued to the placement agent
(which assigned such unit warrants to certain of its employees) to purchase
units which are exercisable at a price of $3.025 per unit, each unit consisting
of one share of EAI common stock and a Class C Warrant to purchase one share of
EAI common stock at a price of $4.60 per share. As required by the rules of the
New York Stock Exchange, the proposed issuance of the shares pursuant to this
June Private Placement was approved by the Shareholders of the Company at a
Special Meeting of Shareholders held on June 28, 1994. The final closing for the
June Private Placement took place on August 17, 1994.
On September 17, 1994, the Company called the Class C Warrants for
redemption. The redemption and/or exercise of Class C Warrants was completed on
December 23, 1994. Upon completion, 1,482,744 shares were issued in exchange for
net proceeds of approximately $6,600,000 after related redemption and other
offering expenses of approximately $229,000, of which approximately $4,800,000
of net proceeds was received through December 31, 1994, representing 1,098,883
shares. The 1,017,256 remaining Class C Warrants that were not exercised were
redeemed at $0.05 per share, for a total of $51,000 in redemption fees.
3. PROVISION FOR RESTRUCTURING
In December 1994, in contemplation of the acquisition of Tanon
Manufacturing, Inc., the Company committed to a plan to close or sell its
Southwest operations in Tucson, Arizona and Nogales, Mexico. The Company also
decided substantially to consolidate its corporate administrative functions. In
connection with these decisions, the Company recorded a $2,400,000 restructuring
charge. This amount includes $618,000 related to unamortized goodwill and other
intangibles which were acquired in connection with the 1992 acquisition of the
Southwest operations, $395,000 representing the present value of lease
commitments in Tucson, Arizona, $279,000
36
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
representing the book value and disposal cost of abandoned equipment, $300,000
for inventory which is not utilizable due to severed customer contracts,
$303,000 of contractual termination benefits for West Long Branch and Southwest
employees, $285,000 of executive separation costs, $145,000 to be paid to a
third party to assume certain lease obligations of Milotec for the Nogales
facility and other closing costs with respect to the sale of Milotec and its
operations in Nogales, Sonora, Mexico and $75,000 of other costs.
4. ACQUISITIONS AND DISPOSITIONS
Tanon Acquisition
On January 4, 1995, the Company acquired Tanon Manufacturing, Inc.
("Tanon") which provides contract manufacturing services to original equipment
manufacturers. Tanon was merged with a newly-formed wholly-owned subsidiary of
the Company and the Company issued 1,538,462 shares of common stock of the
Company with an appraised value of $10,473,000 for the remaining outstanding
shares of common stock of Tanon. In addition, the Company granted to certain
optionholders of Tanon in exchange for their options to purchase Tanon capital
stock, options to purchase approximately 201,000 shares of the Company's common
stock at a weighted average exercise price of $1.05 per share with an appraised
value of $1,383,000. In connection with the merger, the Company loaned Mr.
Spalliero, the Chief Operating Officer of Tanon, $1,000,000 for a 30-month term
with interest fixed at the applicable Federal rate and due together with
principal at the end of the 30-month term. Such loan is non-recourse and is
secured solely with 192,300 shares of common stock of the Company acquired by
Mr. Spalliero upon consummation of the Tanon Acquisition Agreement. The carrying
amount of such loan has been adjusted to the value of the collateral.
In addition, upon closing, Mr. Spalliero and certain other executives of
Tanon received certain compensation, incentives and benefits. Specifically, the
Company granted to Mr. Spalliero at closing, incentive and non-incentive stock
options to acquire an aggregate of 350,000 shares of common stock of the Company
at an exercise price equal to fair market value with respect to 305,000 shares
and 110% of fair market value with respect to 45,000 shares, which options will
vest proportionately over three years. Mr. Spalliero also received a cash bonus
of $300,000 at closing and earned a cash bonus of $150,000 with respect to 1995.
Also, upon closing, the Company indemnified Mr. Spalliero for certain
outstanding indebtedness of Tanon in the aggregate amount of $9,450,000, which
had been personally guaranteed by Mr. Spalliero.
A summary of the Purchase Price and the resultant intangibles follows:
37
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
<TABLE>
<S> <C> <C>
Cash investment in Tanon $ 2,000,000
Appraised value of 1,538,462 shares of common stock of the
Company exchanged for 100% of the outstanding shares of
Tanon common stock 10,473,000
Appraised value of options to acquire 201,000 shares of the Company's
common stock exchanged for options to acquire
shares of Tanon Common stock 1,383,000
Fees, expenses and other accruals 1,411,000
-----------
TOTAL $15,267,000
===========
Allocated as follows:
Historical Stockholders' Equity of Tanon $ 3,287,000
Adjustments to acquired assets and liabilities to reflect fair values:
Equipment 66,000
Deferred Income Taxes (417,000)
Intangible Assets:
Customer relationships and assembled workforce 3,223,000
Excess purchase price
over net assets acquired 9,108,000
----------
Total Intangible Assets 12,331,000
-----------
TOTAL $15,267,000
===========
</TABLE>
BarOn Acquisition
On January 16, 1995, the Company acquired (i) 25.01% of the ordinary shares
of BarOn Technologies, Ltd. ("BarOn") and (ii) an option to acquire an
additional 8.33% of the ordinary shares of BarOn for $2,000,000 in cash and
255,183 shares of common stock of the Company (the "BarOn Investment"). BarOn is
a privately-held Israeli corporation based in Haifa, Israel, engaged in the
research and development of input devices for computers that can directly
digitize handwriting in a variety of languages, from any surface. The
consideration for the 25.01% BarOn acquisition totalled $6,700,000 and was
comprised of a $4,000,000 capital contribution to BarOn ($2,500,000 cash and the
cancellation of BarOn's obligation to repay the Company $500,000 pursuant to a
previous business loan arrangement between the Company and BarOn at closing, and
127,592 shares of common stock of the Company with an estimated value of
$1,000,000), and $2,700,000 paid to various shareholders of BarOn. On
38
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
September 30, 1995, the Company exercised its option and, as a result, recorded
a current amount payable of $2,000,000 and issued 255,183 shares of common stock
which on September 30, 1995 had an estimated value of approximately $995,000.
The remaining amount due BarOn and included in accounts payable was $500,000 at
December 31, 1995. In addition, the Company has certain rights of first refusal
to purchase additional equity in BarOn, but not in an amount that would cause
the Company's aggregate interest to exceed 49% of BarOn's issued and outstanding
ordinary shares. The Company has accounted for this transaction as a purchase of
a minority interest using the equity method of accounting. The Company's equity
share of the 1995 BarOn loss totaled approximately $802,000 which has been
included in other expenses in the consolidated results of the Company for the
year ended December 31, 1995. The excess of the purchase price over the
estimated fair value of EAI's original 25.01% equity interest in the net assets
of BarOn in the amount of $6,012,000 has been determined to be in-process
research and development with no alternative future use and, accordingly, was
charged to expense in the first quarter of fiscal 1995. As discussed above, on
September 30, 1995 the Company made an additional investment in BarOn of
$2,995,000 bringing its equity interest in BarOn to 33.33%. This resulted in an
additional charge to purchased research and development expense in the third
quarter of 1995 of $1,862,000 based on the excess of purchase price over the
estimated fair value of EAI's 33.33% equity interest in the net assets of BarOn.
The following is BarOn's Comparative Condensed Statement of Operations:
(based on an assumed currency conversion ratio of $1 U.S. per 3 new shekels).
Year Ended
December 31,
------------
1995 1994
---- ----
(in thousands)
Research and Development Costs $ 2,044 $ 837
General and Administrative Expenses 1,099 272
Interest Expense (Income), Net 14 (8)
------- -------
Net Loss $3,157 $1,101
======= =======
The following unaudited pro forma summary presents the consolidated results
of operations as if the Tanon and BarOn acquisitions occurred on January 1, 1994
and does not purport to be indicative of what would have occurred had the
acquisitions actually been made as of such date or of results which may occur in
the future. The pro forma summary does not reflect the Company's investment in
ITI discussed below or the related $11,672,000 charged to purchased research and
development expense for that investment. The pro forma summary also does not
reflect the $7,874,000 of purchased research and development charged to expense
related to the BarOn Acquisition. The pro forma loss per common share for the
year ended December 31, 1994 reflects the issuance of 1,239,130 shares of common
stock of the Company to finance the BarOn Investment as if such shares had been
issued on January 1, 1994. These shares are based on a portion of the Class C
Warrants exercised in December, 1994 at $4.60 per warrant (Note 2) to arrive at
proceeds of $5,700,000 necessary to finance the BarOn Investment.
39
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
1994
----
(thousands of dollars,
except per share data)
Sales $ 81,274
Net Loss (3,617)
Loss Per Common Share (.45)
Israel Aircraft Industries, Ltd. Joint Venture
On August 8, 1995, the Company made an investment of $7,500,000 through a
52.3% owned subsidiary ("EATI") in a newly formed Israeli Corporation ("ITI")
which is 50.1% owned by EATI and 49.9% owned by Israel Aircraft Industries, Ltd.
("IAI"). The assets of ITI include the right to review and evaluate certain
technological applications developed by IAI which are in various stages of
development. Management's initial review has indicated that the technologies are
primarily in-process research and development with no alternative future use.
Accordingly the portion of the purchase price in excess of the Company's equity
interest in the joint venture has been charged to expense as Purchased Research
and Development. If a technology is selected for development and exploitation,
IAI will grant a perpetual, royalty free license to exploit the technology. The
Company's investment in ITI has been accounted for as a purchase. The purchase
price, the equity interest in ITI and the purchased research and development
have been determined as follows:
Purchase:
<TABLE>
<S> <C>
Cash investment in ITI $ 7,500,000 (1)
Value of options and warrants to acquire shares of
common stock of the Company and common stock of the
Company issued in connection with
this transaction 7,400,000 (2)
Fees, expenses and other accruals 529,000 (3)
-----------
Total purchase price 15,429,000
Equity in ITI (3,757,000)
-----------
Purchased research and development $11,672,000
===========
</TABLE>
(1) Represents the portion of cash loaned to EATI by the
Company and certain minority shareholders which was
invested in ITI.
(2) Represents the value of the options and warrants to acquire
775,000 and 1,100,000 shares of common stock of the Company,
respectively, at exercise prices of approximately $8.125 and
$7.25 per share, respectively, and the value of 140,719
shares of common stock of the Company, all granted in
connection with the transaction.
(3) Represents expenses related to the ITI formation and
investment including legal fees, accounting fees, due
diligence costs and other accruals.
40
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Under the terms of a Preincorporation Agreement, EATI is owned as
follows: (a) the Company owns a 52.3% interest, (b) certain Israeli persons own
an aggregate 25.2% interest, (c) Mark Hauser, a director of the Company, owns a
15% interest, (d) Irwin L. Gross, Chairman of the Company, owns a 5% interest,
and (e) Broad Capital Associatse owns a 2.5% interest.
The equity interests in EATI were issued for an aggregate consideration of
$10,000. In addition, the Company and the Israeli citizens advanced $6,300,000
and $1,575,000, respectively, to EATI in exchange for subordinated notes to be
repaid from a percentage of the first profits of EATI.
To fund its obligations under the Preincorporation Agreement, on August 3,
1995 the Company sold 1,458,333 shares of its Common Stock at a price of $4.80
per share for an aggregate of $7.0 million to five Israeli persons, three of
whom are shareholders in EATI. The purchase agreements pursuant to which the
shares were sold contained an adjustment provision which required the issuance
of additional shares in the event that the average closing price of the shares
for a certain period of time was less than the offering price in the offering.
Such adjustment provision was triggered, and accordingly, the Company issued an
aggregate of 59,281 additional shares to the five Israeli persons for no
additional consideration.
In connection with the consummation of the Joint Venture with IAI, warrants
for 500,000 and 600,000 shares of the Company's common stock were granted
to IAI and A.M.P. Argonauts Ltd., respectively, at an exercise price of $7.25
per share. In addition, the Company issued 140,719 additional shares of common
stock to Control Centers Ltd. and Moshe Wertheim, an individual, in exchange for
additional services rendered in connection with ITI. In addition, (i) Mark S.
Hauser was granted options to purchase 100,000 shares of the Company's common
stock at an exercise price of $8.175, of which 33,333 shares are currently
exercisable, (ii) Broad Capital Associates was granted options to purchase
425,000 shares of the Company's common stock at an exercise price of $8.125 per
share, which options were subsequently amended to an exercise price of $4.50 per
share and which unexercised options automatically reverted to an exercise price
of $8.125 on March 1, 1995, and (iii) Dedi Graucher, an individual, was granted
options to purchase 250,000 shares of the Company's common stock at an exercise
price of $8.125 per share, which options were subsequently amended to an
exercise price of $4.50 per share, and which options automatically reverted to
an exercise price of $8.125 on March 1, 1996.
On November 21, 1995 Board Capital Associates exercised its option to
purchase 200,000 of such shares at $4.50 per share. For certain consideration,
the exercise period for the options to purchase the remaining 225,000 shares
and the options granted to Mr. Graucher were extended for an additional
period of six months and the exercise price were increased from $4.50 to
$5.00 per share.
At December 31, 1995 ITI had remaining cash in the amount of approximately
$7,700.000 which is only available to fund expenses of ITI under the Joint
Venture Agreement. This cash is included in restricted cash.
Disposition of Field Service and Product Engineering
On June 30, 1993, the Company sold its Field Service Division and
discontinued the operations of its Product Engineering Division. These decisions
were based upon several factors, most prevalent of which was the desire to focus
the Company's resources upon the contract manufacturing business. The results of
these businesses are included in loss from discontinued operations net of
applicable taxes.
41
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
5. DEBT AND CAPITAL LEASE OBLIGATIONS
Debt and Capital Lease Obligations at December 31 consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
---- ----
(thousands of dollars)
<S> <C> <C>
Congress Financial Corporation loan facility $ 3,646 $ 6,164
Comerica Bank of California 5,194 -
Capital leases 2,595 -
------- --------
$11,435 $ 6,164
Less: Long term debt 1,731 5,474
------- --------
Current portion $ 9,704 $ 690
======= ========
</TABLE>
The above table does not include the convertible notes and
debentures because management believes all such obligations will be satisfied
through the conversion into shares of common stock. (See Note 2 for description
of convertible notes and debentures.)
Financial Revolving and Term Loan Facilities
The Company maintains an asset based credit facility with Congress
Financial Corporation (the "Congress Credit Facility"). The Congress Credit
Facility permits borrowings of up to $7,500,000 comprised of a revolving loan
(the "Revolving Loan"), a term loan (the "Term Loan") and letters of credit
(collectively, the "Loans"). Borrowings under the Revolving Loan may not exceed
a specified borrowing base (the "Borrowing Base"). In addition, Revolving Loan
advances are limited to $7,500,000 less the amounts outstanding under the Term
Loan and letters of credit. The Borrowing Base consists of the sum of (1) 80% of
eligible accounts receivable, (2) 18% of certain raw material inventory, and (3)
50% of raw material inventory designated for a particular customer (which
amount, $686,000 at December 31, 1995, was deleted from the Borrowing Base in
January, 1996). All advances and eligibility criteria under the Congress Credit
Facility are discretionary to the lender. At December 31, 1995, $3,646,000 was
outstanding under the Congress Credit Facility, which constituted the total
availability of the Borrowing Base.
The term of the Revolving Loan (which originated in 1993) is three years,
with one year renewals thereafter. The principal amount of the Term Loan is
repaid in monthly installments of approximately $21,500 over a term of five
years. Both the Revolving Loan and Term Loan bear interest at an annual rate of
2-1/4% over the CoreStates Bank (an affiliate of Congress) prime rate. In
addition, the Company must pay a fee equal to 1/2% of the unused portion of the
Revolving Loan plus amounts borrowed under the letters of credit.
The Congress Credit Facility contains certain working capital and tangible
net worth covenants. At December 31, 1995, the Company was in compliance with
those covenants.
42
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Substantially all of the assets of the Company are pledged as collateral to
secure the credit facility.
Tanon maintains a separate revolving line of credit, due on demand,
with a commercial bank that provides for short-term borrowings up to $5,500,000
based on the sum of (1) 80% of eligible accounts receivable and (2) 18% of
certain raw material inventory. In January, 1996, the raw material inventory was
deleted from the Borrowing Base; however, such deletion is not anticipated to
have any material effect on the Company because its level of accounts receivable
permits full borrowing under the line. At December 31, 1995, $5,500,000 was
committed under this line ($5,194,000 in loans and $306,000 in a letter of
credit). The credit agreement pertaining to this line of credit restricts Tanon
from entering into certain transactions and contains covenants regarding the
maintenance of working capital, minimum net worth and debt-to-equity ratios,
together with minimum profitability requirements. At December 31, 1995 Tanon was
in compliance with all of these covenants. The annual interest rate on this line
was prime plus 1.5% through November 15, 1995, at which time the interest rate
was increased by agreement to prime, plus 2.25%. Substantially, all of the
assets of Tanon are pledged as collateral to secure the revolving line of
credit.
The Company intends to replace the above two credit facilities with a
single facility to support the Company's contract electronic manufacturing
operations. In addition to an increased limit (as compared to the sum of the two
existing credit facilities) a single credit facility will provide a larger
borrowing base as a result of (1) calculating availability based on one facility
limit versus separate facilities where receivables and inventory could
potentially not be utilized for borrowing purposes due to being at the maximum
of an individual facility (2) reducing the impact of large customer account
receivable concentrations and the resulting reduction in borrowing base. On
March 25, 1996, the Company received a commitment (the "Commitment") to provide
a senior secured financing facility of up to $15,000,000 from IBJ Schroder Bank
& Trust Company ("Schroder") that would replace the Congress Credit Facility and
the Tanon revolving line of credit. Under the terms of the Commitment, Schroder
will advance up to $13,000,000 in the form of a revolving loan with a borrowing
base comprised of (1) between 80% and 85% of eligible accounts receivable (2) up
to 18% of eligible inventory subject to an availability sublimit of $3,000,000
and (3) up to 75% of the liquidation value of certain of the Company's machinery
and equipment, subject to an availability sublimit of $1,250,000. In addition,
Schroder will advance up to $2,000,000 in the form of a term loan for 75% of the
cost of purchased new equipment, with a condition precedent to such equipment
funding that the contract electronic manufacturing operations of the Company
have two consecutive fiscal quarters of profitability and meet a designated
financial covenant. The financing facility will have a three year term and bear
interest at an annual rate of prime plus 1-1/2%. Advances under the term loan
will be repaid by monthly payments based on a 60 month amortization. The Company
will pay a fee of 1/2% of the unused portion of the revolving loan. The Company
paid a commitment issuance fee of $75,000 to Schroder on March 25, 1996 and will
owe an additional $50,000 fee at closing of the facility. There are several
requirements precedent to the closing of the facility, all of which the Company
anticipates being able to meet timely.
43
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company leases fixed assets under capitalized leases with a weighted
average interest rate of 12.1% and the following principal maturity schedule:
(in thousands)
1996 $ 864
1997 742
1998 495
1999 494
------
Total $2,595
Current ( 864)
------
Long Term $1,731
======
44
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
6. OPERATING LEASES
The Company leases its West Long Branch facility under a lease which
expires in 2006. The monthly rent thereon, as of March 1, 1996 is approximately
$110,000, monthly abatements are approximately $47,000, yielding a net monthly
rent of $63,000, plus the payment of taxes, repairs, maintenance replacements
and utilities. The lease agreement provides for increases in rental payments on
each April 1, through the year 1999 based upon the increase in the Consumer
Price Index with a minimum and maximum range of 3% to 6-1/2%. Thereafter, the
rent will be adjusted based on market rates for similar facilities. During 1993
and 1994 the Company negotiated amendments to the lease which provide for $2.8
million of rent abatements over 5.5 years.
During 1993, the Company reevaluated an excess leased space reserve
originally established in 1991. As a result, the remaining reserve was
determined to exceed the amount required and was reduced by $519,000 in 1993 as
a credit to other expense.
In addition, the Company currently leases its former manufacturing facility
in Tucson, Arizona from Mr. Milo who was President and Chief Executive Officer
of the Company. The monthly rent on this lease, which expires in 1997, is
$15,235. The present value of the monthly rent was provided for in 1994 as part
of the restructuring charge (Note 3).
The Company also entered into a lease for various manufacturing equipment
during 1994. The remaining lease term is for 4 years and provides an option to
purchase the equipment for its fair value.
The majority of the other lease commitments have been made under standard
office leases which have initial terms ranging from two to five years.
The aggregate minimum lease commitments under all noncancelable leases for
continuing operations as of December 31, 1995, amounted to $10,430,000;
$2,279,000 in 1996; $2,076,000 in 1997; $1,976,000 in 1998; $1,145,000 in 1999;
$886,000 in 2000 and $2,068,000 thereafter. Rent expense amounted to $2,234,000
in 1995, $1,395,000 in 1994; and $1,761,000 in 1993. A portion of the lease
commitments relating to the West Long Branch and Tucson facilities have been
accrued as described above. The lease on the West Long Branch, NJ facility was
extended to the year 2006 at the fair market value rent in March 1999. Since the
fair market value rent at that time cannot now be determined, no estimate of the
future commitment has been included herein.
7. STOCK OPTIONS AND WARRANTS
The Board of Directors grants options and warrants to acquire the Company's
common stock to certain non-employee individuals and companies as a means of
payment (often in lieu of cash) for a variety of services rendered. During 1995
and 1994 options and warrants to acquire 345,000 and 362,000 shares,
respectively of the Company's stock were issued for this purpose. No significant
options or warrants were issued for this purpose in 1993. The Company estimates
the value of these options and warrants using an option pricing model and
charges this value to expense over the shorter of the vesting or service period.
45
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
In connection with the Company's efforts to raise equity capital, the Board
of Directors grants options and warrants to acquire shares of the Company's
common stock to investment bankers and individuals and companies acting in that
capacity. During 1995 and 1994 options and warrants to acquire 375,000 and
1,000,000 shares of the Company's common stock were issued for this purpose.
No options or warrants were issued for this purpose in 1993.
Options or warrants issued to raise equity capital are accounted for as part of
the equity transactions.
As described in Note 4, options and warrants were issued in connection with
the Tanon Acquisition and in connection with the Company's indirect investment
in ITI.
A description of the Company's stock option plans for employees and non
employee directors and the more significant options and warrants granted for the
purposes described above follows:
1972 Employee Stock Option Plan
As of December 31, 1995, 810,281 shares of common stock were reserved for
issuance to employees under the Company's 1972 Employee Stock Option Plan (1972
Employee Plan). Incentive stock options are granted to substantially all
employees at either the fair market value on the date of grant or 85% of the
fair market value of EAI common stock at the date of grant and usually become
exercisable over a four-year period commencing one year after being granted. The
Board of Directors may grant non-qualified options at its discretion for less
than fair market value. The Board of Directors may at its discretion determine
the option vesting period.
1994 Stock Option Plan for Non-Employee Directors
In March 1994, the EAI Board adopted and in May 1994 the shareholders
approved the Company's 1994 Stock Option Plan for Non-Employee Directors ("The
Directors Plan"). In 1995, options to purchase 160,000 shares were granted at
the fair market value of EAI stock. The Plan was approved based upon a variety
of factors including the reduction in amount and subsequent suspension of
payment of fees payable to non-employee directors of the Company, the
significant commitment of time required from members of the Board to address the
issues arising out of the financial difficulties experienced by the Company in
recent periods and the importance to the Company and its shareholders of
attracting and retaining the services of experienced and knowledgeable
independent directors.
The aggregate number of shares of common stock reserved for issuance under
the 1994 Stock Option Plan is 2,355,000 shares. Under the terms of the plan,
each person who was an Eligible Director on March 10, 1994, (the "Effective
Date") and each person who became an Eligible Director thereafter will be
granted an option to purchase 50,000 shares of Common Stock. An additional
option to purchase 10,000 shares of common stock will be granted to the
individual serving as the Chairman of the Board on the Effective Date and to
each person who serves as the Chairman of the Board thereafter.
1994 Equity Incentive Plan
On May 17, 1994, the Board of Directors adopted the Company's Equity
Incentive Plan (the "Equity Incentive Plan"), which was approved by the
shareholders of the Company at the Special Meeting of Shareholders held on June
28, 1994. On October 12, 1995, the shareholders voted to approve an amendment to
the Equity Incentive Plan increasing the aggregate number of shares available
for issuance
46
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
to 6,000,000. The EAI Board of Directors believes that the Equity Incentive Plan
will provide a method whereby certain directors, officers, employees and
consultants can share in the long-term growth of the Company.
Wall Street Group Options
On June 28, 1994, the Board of Directors granted the Wall Street Group an
option to purchase 100,000 shares of the Company's common stock which vest
ratably over 1 year at a price of $4.56 in consideration of services to be
provided to the Company. Such options were granted at fair value at the date of
grant.
Waterton Group, LLC Options
On October 20, 1994, in consideration of investment banking services, the
Board of Directors granted to the Waterton Group, LLC options to acquire 200,000
shares of the Company's common stock, exercisable 50% on the first anniversary
of the date of grant and 50% on the second anniversary at an exercise price of
$7.70, which is equal to 110% of the closing price of the Company's common stock
on the date of grant. The Board also granted additional options which were
issued on October 20, 1995 to acquire 200,000 shares of the Company's common
stock, exercisable 50% on the first anniversary and 50% on the second
anniversary of the October 20, 1995 issue date, at an exercise price equal to
110% of the closing price of the Company's common stock on October 20, 1995.
Broad Capital Associates Options
On April 27, 1995, in consideration of investment banking services, the
Board of Directors granted to Broad Capital Associates, options to acquire
375,000 shares of common stock, exercisable 33-1/3% on the date of grant,
33-1/3% on the first anniversary, and 33-1/3% on the second anniversary of the
April 27, 1995 date of grant at an exercise price of $8.1875 per share which is
equal to the fair market value on the date of grant. The exercise price of such
options was subsequently reduced to $4.50 per share and then increased to $5.00
per share but automatically reverted to $8.1875 per share as of March 1, 1996.
Class A and Class B Warrants
In connection with the February 1994 Private Placement [and the Milo Note
Conversion], there were 427,452 Class A Warrants and 1,527,453 Class B Warrants
outstanding as of December 31, 1995. Each Class A Warrant entitles the holder to
purchase one share of the Company's common stock at $1.00 per share and each
Class B Warrant entitles the holder to purchase one share of the Company's
common stock at $1.75 per share.
47
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Irwin L. Gross Warrants
The Company entered into an agreement with Irwin L. Gross in March 1994
pursuant to which Mr. Gross will provide consulting services and financial
advice, for a term of five years ending March 1999. In consideration for such
services Mr. Gross received a warrant to purchase 262,000 shares of the
Company's common stock exercisable 50% on the first anniversary and 50% on the
second anniversary of the grant at a price of $2.77 per share. These options are
exercisable through March 21, 1999.
Neidiger/Tucker/Bruner, Inc. Unit Warrants
In connection with services rendered to the Company for the June 1994
Private Placement, the Company granted Unit Warrants to the investment banking
firm of Neidiger/Tucker/Bruner, Inc. ("NTB Warrants"). The NTB Warrants entitle
the holders to purchase 250,000 units at $3.03 per unit. Each unit consists of
one share of common stock and a Class C Warrant. On July 10, 1999, 62,650 Unit
Warrants will expire and on August 16, 1999, 187,350 Unit Warrants will expire
(see above).
Vista Quest Options
In connection with consulting services performed for the Company on
December 13, 1995, The Board of Directors granted VistaQuest warrants to
purchase 240,000 shares at an exercise price of $5.88 per share, which exercise
price was the fair market value on the date of the grant. The fair value of
these warrants was charged to expense in 1995.
Other Warrants
At December 31, 1995, the Company had certain other warrants outstanding
for issuance of shares of common stock under certain circumstances. All such
warrants were issued in prior years and are included in the summary of
outstanding warrants below.
During 1995, Statement of Financial Accounting Standards (SFAS) No. 123 -
"Accounting for Stock-Based Compensation" was issued. SFAS No. 123 is effective
for fiscal years beginning after December 15, 1995 and will have no impact on
the Company's financial statements because the Company selected the disclosure
only method.
48
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
A summary of activity in the various stock option plans discussed above and
a summary of warrants outstanding at December 31, 1995 follow:
<TABLE>
<CAPTION>
Stock Option Plans
Price Available
1972 Stock Option Plan Per Share Outstanding Exercisable For Grant
- ---------------------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
December 31, 1992, Balance $1.88-5.69 218,900 66,475 259,318
Options Granted 1.13-1.69 152,000 - (152,000)
Options Returned 2.25-5.69 (179,300) (179,300) (179,300)
Became Exercisable - - 128,950 -
----------- ---------- ---------- --------
December 31, 1993, Balance 1.13-3.56 191,600 16,125 286,618
Options Granted 2.00-6.28 921,601 - (921,601)
Options Authorized - - - 1,000,000
Became Exercisable - - 453,519 -
Options Exercised 1.13-3.56 (55,490) (55,490) -
Options Returned 1.13-6.28 (70,875) (70,875) 70,875
----------- ---------- ---------- --------
December 31, 1994, Balance 1.13-6.28 986,836 343,279 435,892
Options Granted -- 400,000 - (400,000)
Became Exercisable - - 525,644 -
Options Exercised 1.13-1.37 (346,978) (346,978) -
Options Returned
1.13-6.28 (774,389) - 774,389
----------- ---------- ---------- --------
December 31, 1995, Balance 1.13-6.25 265,469 521,945 810,281
========== ========= ========= =========
Non-Employee Directors $3.25-4.37 260,000 78,000 140,000
1994 Stock Option Plan For
December 31, 1994, Balance
Options Granted 5.57 160,000 - (160,000)
Became Exercisable 3.25-5.57 - 84,000 -
Options Exercised 3.24-4.37 (45,000) (45,000) -
Options Returned 3.24 (27,500) (27,500) 27,500
Options Authorized - - - 2,000,000
--------- ---------- ---------- ---------
December 31, 1995, Balance $3.25-5.57 347,500 89,500 2,007,500
========== ========= ========= =========
1994 Equitive Incentive Plan $ 4.44 1,800,000 1,200,000
December 31, 1994, Balance
Became Exercisable 4.44 - 1,808,794 -
Options Exercised 1.05-4.50 (487,502) (487,502) -
Options Returned 4.44 (457,521) (457,521) 457,521
Options Authorized - - - 3,000,000
Options Granted 1.05-8.62 4,408,320 - (4,408,320)
---------- ----------- ----------- -----------
December 31, 1995 $1.05-8.62 5,263,297 863,771 249,201
============= =========== =========== ==========
Wall Street Group Options $ 4.56 100,000 100,000 -
- ------------------------- ============= ========= =========== ==========
Waterton Group, LLC Options $ 7.70 400,000 100,000 -
- --------------------------- ============= ========= =========== ==========
Total all Options $0.05-8.62 6,376,266 1,675,216 3,066,982
============= =========== =========== ==========
</TABLE>
49
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
Warrants Outstanding
Exercise Price
Per Warrant Outstanding
-------------- -----------
Warrants
Class A Warrants $ 1.00 427,452
Class B Warrants 1.75 1,527,453
Gross Warrants 2.77 262,000
Neidiger/Tucker/Bruner, Inc. Unit Warrants 3.03 245,200
Neidiger/Tucker/Bruner, Inc. Class C Warrants 4.60 250,000
Public Utility Warrants 6.00 300,000
185 Monmouth Parkway 1.50 130,000
Norcross Warrants 1.00 50,000
IAI Warrants 7.25 500,000
A.M.P. Warrants 7.25 600,000
VistaQuest Warrants 5.88 240,000
------- ---------
Total Warrants outstanding $1.00-6.00 4,532,105
========== =========
At December 31, 1995 an aggregate of 13,975,353 shares of Common Stock was
reserved for the exercise of options and warrants and the conversion of
subordinated.
8. SAVINGS PLAN
The Company has a 401(k) Savings Plan whereby eligible employees may
voluntarily contribute up to 8% of annual compensation, or the maximum allowed
as determined by the Internal Revenue Code. Employee contributions are matched
50% by the Company up to a maximum of 4% of employee compensation. The Company
can also make an additional contribution which is at the discretion of the Board
of Directors. No additional contributions were made in 1995, 1994 or 1993.
Company contributions amounted to approximately $68,000 in 1995, $48,000 in
1994; and $100,000 in 1993. Payments upon retirement or termination of
employment are based on vested amounts credited to individual accounts.
9. INCOME TAXES
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109 - "Accounting for
Income Taxes", which the Company adopted on January 1, 1993. The adoption of the
new standard did not have any impact on the Company's financial statements.
As of December 31, 1995, the Company had a net operating loss carryforward
for tax purposes of approximately $33.4 million ($7.3 million expiring in 1999,
$2.0 million expiring in 2002, $3.1 million expiring in 2007, $6.2 million
expiring in 2008, $5.2 million expiring in 2009 and $9.6 million expiring in
2010) that may be applied to reduce future taxable income. A limitation on the
ability to utilize a portion of the Company's net operating loss carryforwards
may result if future stock ownership changes exceed certain thresholds as
defined in Section 382 of the Internal Revenue Code of 1986. In addition, the
Company has investment tax
50
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
credit and research activity credit carryforwards as of December 31, 1995 of
approximately $240,000 and $849,000, respectively. As a result of the
quasi-reorganization, the benefits of these carryforwards, as well as the net
benefit of book-tax basis differences, existing at January 1, 1986, are credited
to Common Stock when they reduce taxable income, rather than being reflected in
the statement of operations.
Because of the uncertainties related to the future realization of the
deferred tax asset of $13.0 and $9.1 million at December 31, 1995 and 1994,
respectively, the Company has established a valuation allowance of $13.0 and
$9.1 million at December 31, 1995 and 1994, respectively.
There was no net U.S. Federal income tax benefit for 1995, 1994 or 1993
because losses incurred in those years can not be carried back to prior years
and the future realization is uncertain.
10. LOSS PER COMMON SHARE
Losses per common share were computed based on the weighted average number
of common shares outstanding. Shares issuable upon the exercise of stock options
and warrants have not been included in per share computations, because their
impact would have been antidilutive in each year. The weighted average number of
shares used in the computation of earnings (loss) per share was 12,344,282 in
1995 5,052,480 in 1994, and 2,646,575 in 1993.
11. POSTRETIREMENT BENEFITS
In December 1990, Statement of Financial Accounting Standards (SFAS) No.
106 - "Employers' Accounting for Postretirement Benefits Other Than Pensions"
was issued. SFAS No. 106 requires that the expected cost of these benefits be
charged to expense during the years that the employees render service. The
Company adopted the new standard prospectively effective January 1, 1993. At
January 1, 1993, based on the substantive postretirement benefit plan in effect
at that date, the unfunded postretirement benefit obligation (transition
obligation) was estimated to be $1,978,000. The Company elected to amortize this
obligation over a 20-year period beginning in 1993.
In order to contain the cost of providing postretirement benefits, on
December 28, 1993, the Company notified retirees who worked through the date of
their normal retirement that the supplemental health insurance coverage
previously provided to employees over the age of 65 was terminated. The
termination of these benefits significantly reduced future postretirement
benefit costs and the transition obligation. The Company currently continues to
provide life insurance coverage to retirees eligible for those benefits.
Retirees that accepted an early retirement package, which included the Company's
health care program, currently continue to receive health insurance and life
insurance coverage. These benefits are subject to deductibles, copayment
provisions and other limitations and the Company may amend or change the plan
periodically. Based on the Company's current benefit policies on December 31,
1993, the Company reversed substantially all of the deferred transition
obligation initially recorded on January 1, 1993. The remaining liability for
expected postretirement benefits, included in accrued expenses, totaled $33,000
and $72,000 at December 31, 1995 and 1994, respectively. This liability will be
adjusted periodically as new claims experience becomes available. The total cost
of postretirement benefits for covered individuals, including retirees over 65,
charged to income was $-0- in 1995, $30,000 in 1994, and $276,000 in 1993. The
Company does not fund this plan.
51
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
12. EXECUTIVE SERVICES AND SEVERANCE AGREEMENTS
On February 2, 1995, pursuant to negotiations which had been commenced in
November, 1994, Charles A. Milo submitted his formal resignation as President,
Chief Executive Officer and Director. At that time, the Company executed an
agreement with Mr. Milo which specifies among other things, the forgiveness of
the $160,000 note due the Company; payment of a $50,000 bonus, continuation of
salary and benefits to March 31, 1995; and payment of $10,000 fee for services
to be rendered in connection with the closure of the Company's Mexican facility.
The charges are reflected in the restructuring charge disclosed in Note 3.
On November 15, 1993, Richard G. Rogers submitted his resignation as
President, Chief Executive Officer and Director. At that time the Company
entered into an Executive Services Agreement with Mr. Rogers which terminated
pursuant to its terms in March 1994 upon Mr. Rogers' reemployment with another
entity. Under the agreement, as amended, Mr. Rogers received 15,000 shares of
common stock upon the cancellation of previously granted stock options, the
assignment of a term life insurance policy and an aggregate amount of $94,615,
which has been paid.
13. PREFERRED STOCK PURCHASE RIGHTS
Pursuant to a Shareholder Rights Plan, there is one preferred stock
purchase right outstanding for each outstanding share of common stock. Under
certain conditions, each right may be exercised to purchase one one-hundredth
share of a new series of participating preferred stock at an exercise price of
$11, subject to adjustment. The rights may only be exercised commencing ten days
after a public announcement that a party acquired or obtained the right to
acquire 15% or more of the Company's common stock (except in a transaction
directly with the Company which the Board of Directors determines is in the best
interests of the shareholders) or ten days after commencement of a tender or
exchange offer the consummation of which would result in ownership by a party of
15% or more of the Company's common stock. The rights, which do not have voting
rights, expire in 1998 and may be redeemed by the Company at a price of $0.01
per right at any time prior to their expiration or the acquisition of 15% of the
Company's common stock. In the event that a party acquires 15% or more of the
Company's common stock, in a transaction not approved by the Board of Directors,
each other holder of a right shall have the right to receive that number of
shares of common (or, in certain circumstances, common stock equivalents) of the
Company, which would have a value of twice the exercise price of the right, and
in addition, the Board of Directors, at its option, may exchange each right
(other than rights held by the acquiring party) for one share of common stock
(or common stock equivalents). In the event that the Company is acquired in a
merger or other business combination transaction after the rights become
exercisable, each holder of a right shall have the right to purchase, at the
exercise price, that number of shares of common stock of the acquiring company
which would have a value of twice the exercise price of the right. The Plan will
not become effective if 80% or more of the Company's stock is acquired in an all
cash tender offer meeting certain conditions.
52
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
14. CONTINGENCIES
There are two lawsuits pending which involve environmental claims against
the Company.
In October, 1992, Lemco Associates L.P. ("Lemco"), the owner of property
previously owned by EAI, initiated an action in the Superior Court of New Jersey
against EAI and others alleging, among other things, that the defendants created
environmental contamination at the property. The lawsuit seeks damages in
unspecified amounts. EAI has denied Lemco's allegations and asserted a
counterclaim against Lemco and cross claims against co-defendants and others for
indemnification and contribution. The Company has also raised defenses to
Lemco's claims, including but not limited to an assertion that Lemco knowingly
waived its claims against the Company and an assertion that insufficient
evidence exists to establish liability on the part of the Company.
In addition, the Company has made a demand upon its insurance carriers
for coverage for the claims made by Lemco and cross claims and third party
claims may be filed against these insurance companies seeking indemnification
against these claims. To date, the Company's insurance carriers have agreed to
pay 71% of its defense costs under a reservation of rights.
Discovery in this matter is ongoing. By letter dated March 30, 1995, Lemco
provided the Company with a statement of its remediation costs to date, as well
as an estimate of future remediation costs associated with the contamination for
which it seeks recovery in this action. Specifically, Lemco claims that it has
expended approximately $424,000 in remediation costs, including fees for legal
oversight and consultation. It further estimates that its future remediation
costs will amount to approximately $4,900,000. Such amount is included in a
report made by Lemco's environmental consultants based on their current
assessment of the extent of contamination and the method and period required to
complete the remediation. Further, by letter dated June 7, 1995, Lemco provided
the Company with an appraisal report made by a real estate appraisal company
engaged by Lemco in support of Lemco's claim for diminution in the value of the
property. Such report states that it is the appraisal company's opinion that the
market value of the property as of May 23, 1988 was $3.6 million and as of April
14, 1995 was $750,000. The appraisal company subsequently increased its 1995
valuation to $960,000. Lemco purchased the property in question in 1979 for
approximately $400,000. The Company's experts have estimated that, based upon
hydrogeologic data gathered to date by Lemco's experts, the major source of
continuing contamination of groundwater was released into the water table
about late 1984, or using more conservative extrapolations, about mid-1979.
Further hydrogeologic data to be collected will allow a more precise evaluation.
Based on the foregoing, management believes that the range of possible loss
in this matter ranges from zero to approximately $7.8 million, not including
costs and expenses, such as legal and expert fees, which will be incurred in
connection with this matter, and not taking into account the amount of any loss
which may be offset by insurance coverage as discussed above. There is no
assurance that the outcome of this matter will come within such range of
possible loss.
The Company and its consultants recently completed the investigation and
evaluation of additional information recently received from Lemco and have
determined that Lemco's remediation cost estimates are premature and conceptual
in nature. In addition, an analysis of the site by experts retained by the
Company to determine the appropriateness of Lemco's claims and of the estimated
cost of remediation has not been completed.
53
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
The Company is vigorously defending this matter. Counsel estimates that
this litigation will reach trial in 1996. No reserve has been established in the
accompanying financial statements for the cost of remediation, if any, which may
be attributable to the Company. Estimated legal and environmental expert fees
have been reserved to the extent not covered by insurance.
In August 1988, the Company was notified by the United States
Environmental Protection Agency (EPA) that EPA considered the Company to be one
of the parties potentially responsible for costs incurred to date by the EPA in
taking corrective action, for future cleanup costs, and for other possible
damages in connection with a superfund site in New Jersey. In March 1989, the
Company was similarly so notified by the New Jersey Department of Environmental
Protection and Energy ("DEPE"). EAI's alleged connection to the B.R.O.S. Site is
through Rollins Environmental Services, Inc. ("Rollins") which is a waste
transporter that was allegedly hired by EAI to transport certain waste material
alleged to be hazardous from EAI's operations for appropriate disposal.
Information in EPA's files suggests that EPA is likely to assert that one
shipment of waste, allegedly generated by EAI and presumed to constitute less
than one-quarter of 1% of the total liquid waste allegedly released at the site,
was delivered to the site in 1973 by Rollins. Litigation has been initiated in
the U.S. District Court for the District of New Jersey with respect to the
remediation alleged to be required at the B.R.O.S. Site. EAI is not a party to
this litigation but is participating in informal discovery and settlement
negotiations with respect to the federal court actions without admitting
liability. Rollins has agreed to pay administrative expenses which may be
assessed against EAI in connection with its participation in the settlement
process as well as defend EAI should EAI be sued after participating in the
settlement process. Rollins has not agreed to assume any liability that any of
its customers may incur as a result of these claims, including liability for any
amount that EAI may agree to pay in settlement. Based solely upon the alleged
single shipment of waste generated by EAI, management believes that the range of
possible loss in this matter ranges from zero to approximately $300,000, not
including costs and expenses which will be incurred in connection with this
matter which are not paid by Rollins as discussed above, and not taking into
account the amount of any loss which may be offset by insurance coverage or
which may be recoverable from Rollins based on indemnification claims.
Settlement discussions in this matter are ongoing and the Company's
participation in such settlement discussions has been limited to date;
therefore, it is not possible to predict its outcome at this time. Moreover,
there is no assurance that the outcome of this matter will come within the
above-referenced range of possible loss. No reserve has been established in the
accompanying financial statements for the cost of remediation, if any, which may
be attributable to the Company.
Other Long Term Liabilities
Other long-term liabilities include $1,575,000 of subordinated debentures
issued by EATI to its shareholders other than the Company. The Company has no
liability on or with respect to any of such debentures. Moreover, the debentures
are payable by EATI only if, as, when, and out of any profits earned by EATI.
See Note 4.
54
<PAGE>
EA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
15. QUARTERLY FINANCIAL DATA (Unaudited)
Summarized quarterly financial data for the years ended December 31, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
Calendar Quarter
First Second Third Fourth
------- ------- ------- -------
(thousands of dollars except for per share amounts)
<S> <C> <C> <C> <C>
1995
Net sales $19,056 $18,178 $18,895 $20,956
Gross profit 106 67 250 240
Net loss $(8,598) $(2,484) $(15,786) $(4,026)
======= ======= ======== =======
Income (Loss) per common share $ (.84) $ (.23) $ (1.21) $ (.27)
======= ======= ======== =======
1994
Net sales, continuing operations $ 5,377 $ 8,313 $ 8,801 $ 8,048
Gross profit, continuing operations 315 1,013 1,448 4
Net income (loss) $ (661) $ (211) $4 $(3,916)
======= ======= ======== =======
Income (loss) per common share $ (.19) $ (.05) $ (.-) $ (.56)
======= ======= ======== =======
</TABLE>
55
<PAGE>
ELECTRONIC ASSOCIATES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION ACCOUNT
For the Three Years Ended December 31, 1995
(thousands of dollars)
<TABLE>
<CAPTION>
Charged
Balance at (Credited) Balance
Beginning to Costs and at End of
Description Of Period Expenses Deductions(1) Period
- ----------- --------- ------------ ------------ --------
<S> <C> <C> <C> <C>
1995: Allowance for doubtful accounts $307(2) $ 91 $ (13) $385
==== ==== ===== ====
1994: Allowance for doubtful accounts $277 $134 $(204) $207
==== ==== ====== ====
1993: Allowance for doubtful accounts $253 $ 90 $ (66) $277
==== === ===== ====
</TABLE>
- -------------
(1) Write-off of uncollectible accounts
(2) Adjusted to include Tanon Balance
56
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information with respect to each director and executive
officer is contained in the Company's definitive Proxy Statement to be prepared
in connection with its Annual Meeting to be filed within 120 days of the
Registrant's year ended December 31, 1995 ("1996 Annual Meeting"), which is
hereby incorporated by reference in this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The required information with respect to executive compensation is
contained in the Company's definitive Proxy Statement to be prepared in
connection with its 1996 Annual Meeting, which is hereby incorporated by
reference in this Annual Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The required information with respect to security ownership of certain
beneficial owners and management is contained in the Company's definitive Proxy
Statement to be prepared in connection with its 1996 Annual Meeting, which is
hereby incorporated by reference in this Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The required information with respect to certain relationships and
related transactions is contained in the Company's definitive Proxy Statement to
be prepared in connection with its 1996 Annual Meeting, which is hereby
incorporated by reference in this Annual Report on Form 10-K.
57
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Reference is made to the Consolidated Financial Statements and
Schedules at Part II, Item 8 of this Annual Report on Form 10-K and the same are
hereby incorporated by reference.
EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
2.1 Agreement and Plan of Reorganization by and among Electronic Associates, Inc.,
Tanon Manufacturing, Inc., EA Acquisition Corp. and Joseph R. Spalliero,
dated December 12, 1994, was filed as Exhibit 2 to the Company's Report on
Form 8-K (Date of Report: January 4, 1995), as amended, and is hereby
incorporated by reference.
2.2 Form of Investment Agreement dated January 16, 1995 by and between
Electronic Associates, Inc. and BarOn Technologies, Ltd., was filed as Exhibit
10.1 to the Company's Current Report on Form 8-K (Date of Report: January
16, 1995), as amended, and is hereby incorporated herein by reference.
2.3 Form of Stock Purchase Agreement, dated January 10, 1995, between the
company and various shareholders of BarOn Technologies, Ltd., was filed as
Exhibit 10.2 to the Company's Current Report on Form 8-K (date of report:
January 16, 1995), as amended, and is hereby incorporated herein by
reference.
2.4 Form of Shareholders Agreement, dated January 16, 1995, among the
Company, BarOn Technologies Ltd. and the shareholders of BarOn
Technologies Ltd. was filed as Exhibit 10.3 to the Company's Current Report
on Form 8-K (Date of Report: January 16, 1995), as amended, and is hereby
incorporated herein by reference.
2.5 Form of Pre-Incorporation Agreement in connection with the IAI Joint Venture
was filed as Exhibit 2.1 to the Company's Current Report on Form 8-K (Date
of Report: August 3, 1995) and is hereby incorporated herein by reference.
2.6 Form of Joint Venture Agreement in connection with IAI Joint Venture was
filed as Exhibit 2.2 to the Company's Current Report on Form 8-K (Date of
Report: August 3, 1995) and is hereby incorporated herein by reference.
3.1 Certificate of Incorporation, as amended, was filed as Exhibit 3.1 to the
Company's Registration on Form S-1, No. 33-81892, as amended and is
hereby incorporated by reference.
58
<PAGE>
3.11 Amendment to Certificate of Incorporation
3.2 By-Laws, as amended, were filed as Exhibit 3.2 to the Company's Annual
Report on Form 10-KA for the year ended December 31, 1994, and are
hereby incorporated by reference.
4.1 Specimen of common stock share Certificate, was filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-1, No. 33-81892, as amended,
and is hereby incorporated by reference.
4.2 Rights Agreement, dated as of February 10, 1988, between the Company and
Manufacturers Hanover Trust Company, as Rights Agent, was filed as Exhibit
1 to the Company's Form 8-A, dated February 11, 1988, and is hereby
incorporated by reference.
4.3 Amendment, dated as of October 24, 1990, to the Rights Agreement, was
filed as Exhibit 2 to the Company's Form 8, dated October 24, 1990, and is
hereby incorporated by reference.
10.1 Form of common stock Purchase Warrants issued pursuant to Settlement
Agreement dated March 10, 1988 between the Company and certain utilities
was filed as Exhibit 2(c) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1990, and is hereby incorporated by reference.
(*)10.2 1972 Stock Option Plan, as amended and restated, was filed as Appendix III
to the Company's Proxy Statement dated April 18, 1994, and is hereby
incorporated by reference.
10.3 Form of grant letter with respect to options granted pursuant to the 1972
Stock Option Plan was filed as Exhibit 10(c) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1990, and is hereby
incorporated by reference.
(*)10.4 1991 Stock Option Plan for Non-Employee Directors, was
filed as Exhibit 10(d) to the Company's Annual Report on Form
10-K for the year ended December 31, 1991, and is hereby
incorporated by reference.
(**)10.5 1988 Management Incentive Compensation Plan, as amended as of
January 1, 1992, was filed as Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991, and is hereby incorporated by reference.
10.6 Second Amendment of Lease and Option Agreement, dated as of April 1,
1989, between the Company and 185 Monmouth Parkway Associates was
filed as Exhibit (a) to the Company's Report on Form 10-Q for the three
months ended March 31, 1989, and is hereby incorporated by reference (File
No. 1-4680).
59
<PAGE>
(*) 10.7 Executive Death Benefit Plan and Amendment, was filed as Exhibit 10(k) to
the Company's Annual Report on Form 10-K for the year ended December
31, 1987, and is hereby incorporated by reference (File No. 1-4680).
10.8 Stock Purchase Agreement, dated as of February 8, 1990, between the
Company and Nippon Mining Co., Ltd. was filed as Exhibit 10(a) to the
Company's Report on Form 8-K, dated February 21, 1990, and is hereby
incorporated by reference (File No. 1-4680).
(**)10.9 Executive Severance Agreement, dated as of November 18,
1991, between the Company and Richard G. Rogers, was filed as
Exhibit 10(n) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991, and is hereby incorporated
by reference.
10.10 Development and Distribution Agreement, dated July 30, 1991, between the
Company and Nippon Mining Co., Ltd., was filed as Exhibit 10(o) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992, and is hereby incorporated by reference.
10.11 Asset Purchase Agreement, dated May 15, 1992, between the Company, Milo
Technologies, Inc., Charles A. Milo and Loretta Milo was filed as Exhibit 10(p)
to the Company's Annual Report on Form 10-K for the year ended December
31, 1993, and is incorporated herein by reference.
10.12 Stock Purchase Agreement, dated May 15, 1992, between the Company,
Milotec S.A. De C.V., Charles A. Milo, Loretta Milo and certain other
individuals, was filed as Exhibit 10(q) to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992, and is hereby
incorporated by reference.
(**)10.13 Employment Agreement, dated May 29, 1992, between the
Company and Charles A. Milo, was filed as Exhibit 10(r) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and is hereby incorporated by reference.
(**)10.14 Non-Compete Agreement, dated May 29, 1992, between the
Company and Charles A. Milo, was filed as Exhibit 10(s) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and is hereby incorporated by reference.
(**)10.15 Non-Compete Agreement, dated May 29, 1992, between the
Company and Loretta Milo, was filed as Exhibit 10(t) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992, and is hereby incorporated by reference.
10.16 Sublease Agreement, dated May 29, 1992, between the Company and Milo
Technologies, Inc., was filed as Exhibit 10(u) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992, and is hereby
incorporated by reference.
60
<PAGE>
10.17 Lease Agreement, dated May 22, 1992, between the Company, Charles A.
Milo and Loretta Milo, was filed as Exhibit 10(v) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1992, and is hereby
incorporated by reference.
10.18 Form of Purchase Agreement executed by each purchaser in connection with
the private sale of the Company's securities in January 1994, was filed as
Exhibit 10(w) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, and is incorporated by reference.
10.19 Form of Class A Warrant issued to each purchaser in connection with the
private sale of the Company's securities in January 1994, was filed as Exhibit
10(X) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, and is hereby incorporated by reference.
10.20 Form of Class B Warrant issued to each purchaser in connection with the
private sale of the Company's securities in January 1994, was filed as Exhibit
10(y) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, and is hereby incorporated by reference.
10.21 Agreement to Issue Warrants, dated January 28, 1994, between the Company
and Norcross Securities, Inc. together with a Warrant issued by the Company
and a form of a Warrant issuable under certain circumstances, comprising
Exhibits to the Agreement to Issue Warrants, was filed as Exhibit 10(z) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993, and is hereby incorporated by reference.
10.22 Subscription Agreement, dated February 4, 1994, between the Company and
185 Monmouth Parkway Associates, L.P., was filed as Exhibit 10(aa) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993, and is hereby incorporated by reference.
10.23 Second Amendment, dated August 4, 1993, to Second Amendment of Lease
and Option Agreement, dated as of April 1, 1989, between the Company and
185 Monmouth Parkway Associates, L.P. and letter dated August 6, 1993,
modifying Second Amendment, dated August 4, 1993, to Second Amendment
of Lease and Option Agreement, was filed as Exhibit 10(ab) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993, and is hereby incorporated by reference.
(**)10.24 Employment Agreement, dated as of November 15, 1993,
between the Company and Charles A. Milo, was filed as Exhibit
10(ac) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993, and is hereby incorporated by
reference.
61
<PAGE>
10.25 Accounts Financing Agreement between Congress Financial Corporation and
the Company, dated August 13, 1993; Covenant Supplement to Accounts
Financing Agreement between Congress Financial Corporation and the
Company, dated August 13, 1993; Term Promissory Note A given to
Congress Financial Corporation, dated August 13, 1993; Term Promissory
Note B given to Congress Financial Corporation, dated August 13, 1993;
Inventory Loan Letter executed by the Company to Congress Financial
Corporation, dated August 13, 1993; Inventory and Equipment Security
Agreement Supplement to Accounts Financing Agreement executed by the
Company to Congress Financial Corporation, dated August 13, 1993; Trade
Financing Agreement Supplement to Accounts Financing Agreement
executed by the Company to Congress Financial Corporation, dated August
13, 1993; Subordination and Intercreditor Agreement between Congress
Financial Corporation and Milo Technologies, Inc., dated August 13, 1993;
Subordination and Intercreditor Agreement between Congress Financial
Corporation and Mezzanine Financial Fund, L.P., dated August 13, 1993; and
Enhancement Fee Agreement between the Company and Mezzanine
Financial Fund, L.P., dated August 13, 1993, was filed as Exhibit 10(ad) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993, and is hereby incorporated by reference.
10.251 Form of Amendment No. 1 to Financing Agreements, dated March 29, 1994
by and among Congress Financial Corporation and the Company, consented
to by Milotec, S.A. de C.V.
10.252 Form of Amendment No. 2 to Financing Agreements, dated December 30,
1994 by and between Congress Financial Corporation and the Company,
consented to by Milotec S.A. de C.V.
10.253 Form of Amendment No. 3 to Financing Agreements, dated April 26, 1995 by
and between Congress Financial Corporation and the Company, consented
to by Milotec S.A. de C.V.
10.254 Form of Amendment No. 4 to Financing Agreements, dated August 11, 1995
by and between Congress Financial Corporation and the Company.
10.255 Form of Amendment No. 5 to Financing Agreements, dated December 28,
1995 by and between Congress Financial Corporation and the Company.
10.26 Asset Purchase Agreement, dated June 4, 1993, between the Company and
Halifax Corporation together with a Non-Competition Agreement, Assignment
and Assumption Agreement, Service Mark License Agreement, Low Cost
Host License Agreement, and Master Subcontract Agreement, comprising
Exhibits to the Asset Purchase Agreement, was filed as Exhibit 10(ae) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1993, and is hereby incorporated by reference.
10.27 Lease Agreement, dated August 1, 1993, between the Company and Parque
Industrial de Nogales, S.A. de C.A., Nogales, Sonora, Mexico, was filed as
Exhibit 10(af) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, and is hereby incorporated by reference.
62
<PAGE>
10.28 Form of Subscription Agreement executed by each purchaser in connection
with the private placement of the Company's securities which was
commenced in June 1994, was filed as Exhibit 10.28 to the Company's
Registration Statement on Form S-1, No. 33-81892, as amended, and is
hereby incorporated by reference.
10.29 Form of Class C Warrant issued to each purchaser in connection with the
private placement of the Company's securities which was commenced in
June 1994, was filed as Exhibit 10.29 to the Company's Registration
Statement on Form S-1, No. 33-81892, as amended, and is hereby
incorporated by reference.
(*)10.30 1994 Equity Incentive Plan, as adopted by the Company's shareholders on
June 28, 1994, as amended and restated.
(*)10.31 1994 Stock Option Plan for Non-Employee Directors, as adopted by the
Company's shareholders on May 17, 1994, as amended and restated.
(**)10.32 Executive Services Agreement, dated November 15, 1993,
between the Company and Richard G. Rogers, as amended by
Amendment to Executive Services Agreement, dated March 14,
1994, was filed as Exhibit 10.32 to the Company's Registration
Statement on Form S-1, No. 33-81892, as amended, and is hereby
incorporated by reference.
(**)10.33 Employment Agreement, dated as of November 18, 1991,
between the Company and Richard G. Rogers, was filed as
Exhibit 10(m) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991, and is hereby incorporated
by reference.
(**)10.34 Form of Consulting Agreement entered into between the
Company and Irwin L. Gross on March 21, 1994, was filed as
Exhibit 2 to the Company's Registration Statement on Form S-1,
No. 33-81892, as amended, and is hereby incorporated by
reference.
10.35 Form of Placement Agent's Warrant Agreement entered into between the
Company and Neidiger/Tucker/Bruner, Inc., together with a Form of Warrant
issued by the Company comprising an Exhibit to the Placement Agent's
Warrant Agreement, was filed as Exhibit 10.35 to the Company's Registration
Statement on Form S-1, No. 33-81892, as amended, and is hereby
incorporated by reference.
10.36 Loan and Security Agreement, dated January 17, 1990, between the
Company and Mellon Bank (East) N.A. was filed as Exhibit 4(a) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1989, and is hereby incorporated by reference.
63
<PAGE>
10.37 First Amendment and Modification to Loan and Security Agreement, dated
April 1990, between the Company and Mellon Bank (East) N.A. was filed as
Exhibit 4(e) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1990, and is hereby incorporated by reference.
10.38 Second Amendment and Modification to Loan and Security Agreement, dated
January 17, 1991, between the Company and Mellon Bank (East) N.A. was
filed as Exhibit 4(f) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1990, and is hereby incorporated by reference.
10.39 Third Amendment and Modification to Loan and Security Agreement, dated
March 4, 1992, between the Company and Mellon Bank, N.A., was filed as
Exhibit 4(g) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1991, and is hereby incorporated by reference.
10.40 Fourth Amendment and Modification to Loan and Security Agreement, dated
June 19, 1992, between the Company and Mellon Bank (East) N.A., was filed
as Exhibit 4(h) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992, and is hereby incorporated by reference.
10.41 Fifth Amendment and Modification to Loan and Security Agreement, dated
July 31, 1992, between the Company and Mellon Bank (East) N.A., was filed
as Exhibit 4(i) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1992, and is hereby incorporated by reference.
10.42 Sixth Amendment and Modification to Loan and Security Agreement, dated
December 31, 1992, between the Company and Mellon Bank (East) N.A., was
filed as Exhibit 4(j) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and is hereby incorporated by reference.
10.43 Seventh Amendment and Modification to Loan and Security Agreement,
dated January 22, 1993, between the Company and Mellon Bank (East) N.A.,
was filed as Exhibit 4(k) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1992, and is hereby incorporated by reference.
10.44 Eighth Amendment and Modification to Loan and Security Agreement, dated
February 26, 1993, between the Company and Mellon Bank (East) N.A., was
filed as Exhibit 4(l) to the Company's Annual Report on Form 10-K for the
year ended December 31, 1992, and is hereby incorporated by reference.
10.45 Amended and Restated Loan and Security Agreement, dated March 31, 1993,
between the Company and Mellon Bank N.A., was filed as Exhibit 4(m) to the
Company's Annual Report on Form 10-K for the year ended December 31,
1992, and is hereby incorporated by reference.
10.46 Form of Investment Agreement dated January 15, 1995 by and between
Electronic Associates, Inc. and BarOn Technologies, Ltd., was filed as Exhibit
10.1 to the Company's Report on Form 8-K (Date of Report: January 16,
1995), as amended, and is hereby incorporated herein by reference.
64
<PAGE>
10.47 Form of Stock Purchase Agreement between the Company and various
shareholders of BarOn Technologies, Ltd., was filed as Exhibit 10.2 to the
Company's Report on Form 8-K (Date of Report: January 16, 1995), as
amended, and is hereby incorporated herein by reference.
10.48 Form of Shareholders Agreement among the Company, BarOn Technologies,
Ltd. and the shareholders of BarOn Technologies, Ltd., was filed as Exhibit
10.3 to the Company's Report on Form 8-K (Date of Report: January 16,
1995), as amended, and is hereby incorporated herein by reference.
10.49 Business Loan Agreement dated as of October 20, 1994 by and between
Electronic Associates, Inc., and BarOn R&D Ltd. was filed as Exhibit 10.49 to
the Company's Annual Report on Form 10-K/A for the year ended December
31, 1994, and is hereby incorporated by reference.
10.50 Business Loan Agreement dated September 8, 1994 by and between
Electronic Associates, Inc. and Tanon Manufacturing, Inc. was filed as Exhibit
10.50 to the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1994, and is hereby incorporated by reference.
(**)10.51 Employment Agreement dated as of January 4, 1995 between
Tanon Manufacturing, Inc. and Joseph R. Spalliero was filed as
Exhibit 10.51 to the Company's Annual Report on Form 10-K/A
for the year ended December 31, 1994, and is hereby
incorporated by reference.
(**)10.52 Non-Competition and Confidentiality Agreement dated as
of January 4, 1995 by and among Electronic Associates, Inc.,
Tanon Manufacturing, Inc. and Joseph R. Spalliero, was filed
as Exhibit 10.52 in the Company's Annual Report on Form 10-K/A
for the year ended December 31, 1994, and is hereby
incorporated by reference.
10.53 Promissory Note dated January 4, 1995 in the principal amount of $1,000,000
from Joseph R. Spalliero and Patricia Spalliero to Electronic Associates, Inc.
filed as Exhibit 10.53 to the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1994, and is hereby incorporated by reference.
(**)10.54 Letter Agreement dated February 2, 1995 between Charles A. Milo and
Electronic Associates, Inc. filed as Exhibit 10.54 to the Company's Annual
Report on Form 10-K/A for the year ended December 31, 1994, and is
hereby incorporated by reference.
(**)10.55 Amendment dated March 23, 1995 to Consulting Agreement
dated March 21, 1994 between Irwin L. Gross and Electronic
Associates, Inc. filed as Exhibit 10.55 to the Company's
Annual Report on Form 10-K/A for the year ended December 31,
1994, and is hereby incorporated by reference.
10.56 Manufacturing and Consulting Agreement, dated as of January 16, 1995,
between BarOn Technologies Ltd. and Electronic Associates, Inc. filed as
Exhibit 10.56 to the Company's Annual Report on Form 10-K/A for the year
ended December 31, 1994, and is hereby incorporated by reference.
22 Subsidiaries of the registrant
65
<PAGE>
a. The Company has three active subsidiaries:
1. BarOn Technologies Ltd.
Haifa, Israel
2. Tanon Manufacturing, Inc.
Fremont, California
3. Electronic Associates Technologies Israel, Ltd.
23 Consents of experts and counsel
a. Consent of Arthur Andersen, LLP, Independent Public Accountants of EA Industries,
Inc.
b. Consent of Luboshitz Kasierer & Co., and Yosef Shimony, Independent Public
Accountants of BarOn Technologies Ltd.
27 Financial Data Schedule
99.1 The audited balance sheet of BarOn Technologies Ltd. as of December 31, 1993 and
December 31, 1992 and related statements of operations, shareholders' equity and cash
flow for the year ended December 31, 1993 and for the period from inception in 1992
through December 31, 1992, together with the unaudited balance sheet of BarOn
Technologies Ltd. as of September 30, 1994 and related statements of operations,
shareholders' equity and cash flows for the nine months ended September 30, 1994, were
filed as Exhibit 99.1 to the Company's Report on Form 8-K (date of Report: January 16,
1995), as amended, and are hereby incorporated herein by reference.
99.2 The audited balance sheet of Tanon Manufacturing, Inc. as of December 31, 1993 and
December 31, 1992 and related statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1993, 1992 and 1991, together with the unaudited
balance sheet of Tanon Manufacturing, Inc. as of October 1, 1994 and related statements
of operations, shareholders' equity and cash flows for the nine months ended October 1,
1994 and October 2, 1993, were filed as Exhibit 99 to the Company's Report on Form 8-K
(date of Report: January 4, 1995), as amended, and are hereby incorporated herein by
reference.
(*) Constitutes a compensatory plan filed pursuant to Item 14(c) of the Company's Annual Report on
Form 10-K.
(**) Constitutes a management contract filed pursuant to Item 14(c) of the Company's Annual Report on
Form 10-K.
</TABLE>
The Company will provide copies of the above Exhibits to shareholders
upon the payment of a fee of $4 per order to cover postage and handling plus
seven cents per page. Requests for such copies should be directed to Mrs. Karin
Gaskill, EA Industries, Inc., 185 Monmouth Parkway, West Long Branch, New Jersey
07764.
(b) The Company did not file a Report on Form 8-K during the calendar
quarter ended December 31, 1995.
66
<PAGE>
(c) See Item 14(a) above.
(d) BarOn Technologies Ltd. Consolidated Financial Statements
67
<PAGE>
BARON TECHNOLOGIES LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995
68
<PAGE>
BARON TECHNOLOGIES LTD.
(A DEVELOPMENT STAGE COMPANY)
C O N T E N T S
Page Number
AUDITORS' REPORT.................................................... 70
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet ................................................. 71
Statement of Operations ....................................... 72
Statement of Changes in Shareholders Equity ................... 73
Statement of Cash Flows ...................................... 74
Notes to the Financial Statements.............................. 75
69
<PAGE>
INDEPENDENT AUDITORS' REPORT
Extended form to comply with U.S. standards
To the Shareholders of
BARON TECHNOLOGIES LTD.
(a development stage company)
We have audited the consolidated balance sheets of BarOn Technologies Ltd. (a
development stage company) (the "Company") as of December 31, 1994 and 1995, and
the consolidated statements of operations, changes in shareholders' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in Israel and the United States, including those proscribed by the Auditors'
(Mode of Performance) Regulations (Israel), 1973. These standards require that
we plan and perform the audit to obtain reasonable assurance as to whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and the significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the Company is a development
stage corporation and as such, faces a number of risks. In addition, there is
uncertainty as to the Company's ability to successfully raise the required
additional financing to continue its development as planned.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1994 and 1995, and the results of its operations, changes in
shareholders' equity and cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States and also in
Israel, except for charging the decrease in market value of investment in shares
directly to shareholders' equity (see Note 5).
Luboshitz, Kasierer & Co. Yosef Shimony
- ------------------------------------- ------------------------------------
Certified Public Accountants (Israel) Certified Public Accountants (Israel)
Tel Aviv, February 29, 1996
70
<PAGE>
BARON TECHNOLOGIES LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
In Shekels of December 1995
<TABLE>
<CAPTION>
December 31
----------------
1995 1994
---- ----
NOTE NIS NIS
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash Equivalents 4,298,756 995,044
Receivables and prepaid expenses (4) 131,245 39,625
---------- ---------
4,430,001 1,034,669
INVESTMENT
Related party's shares (5) 6,149,998 --
FIXED ASSETS (6) 864,706 400,631
---------- ---------
11,444,705 1,435,300
========== =========
CURRENT LIABILITIES
Creditors and accounts payable (7) 1,243,005 936,205
---------- ---------
ACCRUED SEVERANCE PAY (8) 163,685 151,131
---------- ---------
SHAREHOLDERS' EQUITY
Share capital (9) 112,535 93,077
Premium on shares 17,170,921 3,649,243
Receipts on accounts of shares 10,880,471 1,661,389
Unrealized loss on investments (3,178,017) --
Accumulated deficit (14,947,895) (5,055,745)
---------- ---------
10,038,015 347,964
========== =========
11,444,705 1,435,300
========== =========
</TABLE>
---------------------------
Dr. E. Baron
Chairman of the Board
February 29, 1996.
The accompanying notes form an integral part of the financial statements.
71
<PAGE>
BARON TECHNOLOGIES LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
In Shekels of December 1995
<TABLE>
<CAPTION>
Cumulative
from the
enterprise's
inception until
Year Ended December 31 December 31
---------------------- -----------
1995 1994 1995
Note NIS NIS NIS
---- --------- ---------- -----------
<S> <C> <C> <C> <C>
Research and development (12) 6,400,339 2,525,016 10,288,879
General and administrative expense (13) 3,445,400 821,341 4,655,364
---------- ---------- -----------
(9,845,739) (3,345,357) (14,944,243)
Financing income (expenses), net (14) (46,411) 25,370 (3,652)
---------- ---------- -----------
Net Loss (9,892,150) (3,320,987) (14,947,895)
========== ========== ===========
</TABLE>
The accompanying notes form an integral part of the financial statements.
72
<PAGE>
BARON TECHNOLOGIES LTD.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
In Shekels of December 1995
<TABLE>
<CAPTION>
Receipt on Unrealized
Share Premium on Account of Loss on Accumulated
Number of Capital Shares (*) Shares Investment Deficit Total
Shares NIS NIS NIS NIS NIS NIS
-------- ----- ----- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994 40,000 49,580 -- 1,295,708 -- (1,734,758) (389,470)
=======
Stock split 4,000,000 -- -- -- -- -- --
Receipts on account of
shares -- -- -- 1,661,389 -- -- 1,661,389
Shares Issued 3,425,800 43,497 3,649,243 (1,295,708) -- -- 2,397,032
Net Loss -- -- -- -- -- (3,320,987) (3,320,987)
---------- -------- ----------- ----------- --------- ----------- -----------
Balance as of 12/31/94 7,425,800 93,077 3,649,243 1,661,389 -- (5,055,745) 347,964
Shares issued 1,803,130 19,458 13,521,678 (1,661,389) -- -- 11,879,747
Receipts on account of
shares -- -- -- 10,880,471 -- -- 10,880,471
Unrealized loss on
investments -- -- -- -- (3,178,017) -- (3,178,017)
Net Loss -- -- -- -- -- (9,892,150) (9,892,150)
---------- -------- ----------- ----------- --------- ----------- -----------
Balance as of 12/31/95 9,228,930 112,535 17,170,921 10,880,471 (3,178,017) (14,947,895) 10,038,015
========== ======= ========== ========== =========== ============ ===========
</TABLE>
(*) Net of issue expenses of approximately NIS 360,000
The accompanying notes form an integral part of the financial statements.
73
<PAGE>
BARON TECHNOLOGIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
In Shekels of December 1995
<TABLE>
<CAPTION>
Cumulative from
the enterprise's
Year Ended inception until
December 31 December 31
------------------------ --------------
1995 1994 1995
---- ---- ----
NIS NIS NIS
--- --- ---
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss (9,892,150) (3,320,987) (14,947,895)
----------- --------- ----------
Adjustments to reconcile net loss to net
Cash used in operating activities:
Depreciation and amortization 181,705 76,729 303,258
Exchange rate differences -- (2,777) --
Increase in provision for severance pay 12,554 89,357 163,685
Changes in assets and liabilities:
Increase in receivables and prepaid exp. (91,620) (15,819) (131,245)
Increase in creditors and accts. pay. 306,800 519,996 1,243,005
----------- --------- ----------
409,439 667,486 1,578,703
========== ========= ==========
Net cash used in operating activities (9,482,711) (2,653,501) (13,369,192)
----------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets and other assets (645,780) (262,298) (1,167,964)
----------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of shares 8,776,251 2,398,194 11,222,863
Receipts on account of shares 4,655,952 1,661,389 7,613,049
Increase (decrease) in short-term bank credit -- (59,465) --
Loan received from related parties (repaid) -- (89,623) --
Net cash provided by financing activities 13,432,203 3,910,495 18,835,912
========== ========= ==========
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,303,712 994,696 4,298,756
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 995,044 348 --
----------- --------- ----------
CASH AND CASH EQUIVALENTS AT END
OF YEAR 4,298,756 995,044 4,298,756
========== ========= ==========
Non cash transactions
Issuance of shares in consideration for shares
in a related party's company 9,328,015 -- 9,328,015
========== ========= ==========
Unrealized loss on investments 3,178,017 -- 3,178,017
========== ========= ==========
</TABLE>
The accompanying notes form an integral part of the financial statements.
74
<PAGE>
BARON TECHNOLOGIES, LTD.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - GENERAL
The Company is a development stage Israeli corporation established in July
1992. Since its inception the Company has been primarily engaged in the
development of an electronic pen as an input device for computers. In the
course of its development activities, the Company has sustained continuous
operating losses and expects such losses to continue for the duration of
the development stage.
The Company faces a number of risks, including inability to secure the
necessary funding required to complete its development program, inability
to complete the development program successfully and dependence on key
employees.
In accordance with an investment agreement of January 1995, the investors
notified the Company that they are exercising their option to acquire
additional shares as per the option agreement. The Company expects to
receive the balance due of $500,000 to complete the full payment of the
option shares during the first quarter of 1996. Furthermore, the Company
is presently negotiating with several entities regarding potential
investment in the Company.
Although there is no assurance of success, the Company is confident that
the successful completion of these negotiations will give the Company the
resources required to continue its development as planned, until revenues
from sales will commence.
Note 2 - FINANCIAL STATEMENTS RESTATED FOR INFLATION
A. GENERAL
The financial statements are presented on the basis of historical
cost, restated for changes in the general purchasing power of the
Israeli currency. Accordingly, the nominal figures in the accounting
records (the Company maintains its books of accounts in nominal
shekels) are restated to New Israeli Shekels (NIS) of the last month
of the reported period (December 1995) based on the changes in the
Consumer Price Index (CPI). Condensed statements in nominal shekels
are presented in Note 15.
The restatement is made in accordance with principals laid down in
the relevant Opinions issued by the Institute of Certified Public
Accountants in Israel. The increase in the CPI for the year 1995 was
8.1% (1994 - 14.5%).
B. BALANCE SHEET
Nonmonetary items - fixed assets, other assets and shareholders'
equity items, are restated for changes in the CPI from the date of
the transaction to balance sheet date.
Monetary items are presented in the balance sheet at nominal amounts
(Comparative figures are restated to shekels of balance sheet date).
The restated values of nonmonetary items do not necessarily represent
economic or realization values restated for changes in the general
purchasing power of the Israeli currency.
75
<PAGE>
C. STATEMENT OF OPERATIONS
Amounts relating to nonmonetary items (mainly, depreciation and
amortization) are restated on the same basis as the restated balance
sheet item. Other expenses (excluding finance) are restated on the
basis of changes in the CPI between transaction date and balance
sheet data.
Note 3 - SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies, applied in the preparation of the
financial statements on a consistent basis, are as follows:
A. FIXED ASSETS - Fixed assets (including leasehold improvements) are
stated at cost. Depreciation is calculated by the straight-line
method at rates considered adequate to amortize the cost of assets
over their estimated useful lives.
B. CASH AND CASH EQUIVALENTS - Cash and cash equivalents include
deposits in banks which are held for immediate or short-term
withdrawal (original deposit period not exceeding three months).
C. RESEARCH AND DEVELOPMENT COSTS - These costs are charged to
operations as incurred.
D. BALANCE IN FOREIGN CURRENCY - These balances are stated based on the
representative rate at balance sheet date (1 U.S.$ = NIS 3.135; 1994
- NIS 3.018).
E. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
of the Company include the accounts of the Company and its
wholly-owned U.S. subsidiary. All significant intercompany balances
and transactions have been eliminated.
Note 4 - RECEIVABLES AND PREPAID EXPENSES
December 31
-----------
1995 1994
---- ----
NIS NIS
Value Added Tax refundable 53,426 24,704
Income tax refundable 46,350 6,927
Shareholders 1,765 1,908
Prepaid expenses 16,319 5,455
Other 13,385 631
------- ------
131,245 39,625
======= ======
76
<PAGE>
Note 5 - INVESTMENT IN A RELATED PARTY'S SHARES
A. In accordance with an investment agreement of January 1995, EA
Industries, Inc. (EA) a U.S. corporation, purchases shares of the
Company, partly for cash and partly for EA's shares. EA's shares
are quoted on the New York Stock Exchange (NYSE). EA's shares owned
by the Company, have not yet been registered on the NYSE.
EA's shares are included in the balance sheet at market value.
Decrease in market value from agreement date to balance sheet date,
in the amount of NIS 3,178,017, was charged directly to shareholders'
equity.
B. In 1995 the Company established a 100% owned U.S. subsidiary -
Baron Motion Communication, Inc. (BMC).
Note 6 - FIXED ASSETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------------------- --------
Rate of Cost Accumulated Net Net
depreciation depreciation
% NIS NIS NIS NIS
------------ -------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Computer and peripheral
equipment 10-20 746,126 241,209 504,917 331,476
Furniture and office equipment 7-10 103,015 14,656 88,359 56,093
Leasehold improvements (*) 20 23,943 10,457 13,486 13,062
Cars 15 287,146 29,202 257,944 --
--------- ------- ------- -------
1,160,230 295,524 864,706 400,631
========= ======= ======= =======
</TABLE>
(*) The Company operates in a premise leased from a related party. Lease
agreement has expired and has not yet been extended.
Note 7 - CREDITORS AND ACCOUNTS PAYABLE
December 31
1995 1994
NIS NIS
--------- -------
Suppliers 398,047 174,552
Employees and employee institutions 439,728 289,405
Directors, shareholders and other
related parties 98,624 231,315
Other creditors and accounts payable 306,606 240,933
--------- -------
1,243,005 936,205
========= =======
77
<PAGE>
Note 8 - ACCRUED SEVERANCE PAY
The Company's obligation for severance to employees is covered by the
unfunded accrual in the balance sheet and by payments to an insurance
company. Provision includes amounts in respect of prior years for
salaries increased in 1995. Payments to the insurance company are not
under the custody or the disposal of the Company, and therefore were
not included in the balance sheet.
Note 9 - SHAREHOLDERS' EQUITY
A. Share capital consists of ordinary shares of NIS 0.01 par value
each. Authorized share capital - 11 million shares. Issued and
paid-up capital - 9,228,930 shares (1994 - 7,425,800 shares).
B. Receipts on account of shares at balance sheet date represent U.S.
$1,500,000 received in cash from EA and U.S. $2,000,000 received in
shares of EA.
C. The Premium on shares and Receipts on account of shares include the
amount of NIS 9,328,015 which represents EA shares as valued on the
date of Agreement ($3,000,000).
Note 10 - COMMITMENTS AND CONTINGENT LIABILITIES
A. The Company has an obligation to pay a shareholder royalties of 2%
of sales up to a maximum of U.S. $500,000. This shareholder also
has the right to market the Company's products in Japan.
B. In accordance with a software development contract between the
Company and ART Ltd. (an Israeli company), the Company has an
obligation to pay royalties to ART Ltd. as follows:
1. For each and every product shipped ex-factory up to the first
100,000 units, the sum of U.S. $2. From the 100,001 unit and
up-U.S., $1.5 per unit.
2. A minimum payment of U.S. $200,000, of which U.S. $50,000 was
already paid and charged to expenses. The balance is due no
later than June 30, 1996. This minimum payment will be
deducted from any royalty payment that shall become
due in the future.
C. Maximum exposure of a claim against the Company amounts to
approximately U.S. $30,000. Managements estimates that ultimate
outcome of this claim will not have a material adverse effect on
the Company.
Note 11 - INCOME TAXES
A. The Company has not as yet receive any final tax assessment since
its establishment (1992).
B. The Company's loss and deductions available to be carried forward for
tax purposes amount to approximately NIS 13.7 million. The difference
between the reported loss and the loss for tax purposes is due mainly
to unallowable expenses. Future tax benefits will be included on
realization.
78
<PAGE>
Note 12 - RESEARCH AND DEVELOPMENT COSTS
<TABLE>
<CAPTION>
Cumulative
from the
enterprise's
inception
Year Ended until
December December 31
1995 1994 1995
NIS NIS NIS
--------- --------- ------------
<S> <C> <C> <C>
Salaries and related expenses (*) 2,885,642 1,741,365 5,631,497
Materials and components (*) 158,086 258,475 450,373
Consultants and subcontractors (*) 2,354,977 248,070 2,838,122
Patents 630,235 111,747 741,982
Travel 200,187 93,766 343,431
Depreciation and amortization 138,761 69,710 249,140
Professional literature 5,972 1,883 7,855
Other 26,479 -- 26,479
--------- --------- ----------
6,400,339 2,525,016 10,288,879
========= ========= ==========
(*) Including to related parties 100,391 335,848 564,550
========= ========= ==========
</TABLE>
Note 13 - GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Cumulative
from the
enterprise's
inception
Year Ended until
December December 31
-------- -----------
1995 1994 1995
NIS NIS NIS
--------- ------- ---------
<S> <C> <C> <C>
Salaries and related expenses (*) 1,348,634 368,934 1,764,756
Professional fee (*) 1,208,511 112,261 1,407,467
Rent and building maintenance (*) 173,323 95,609 354,918
Advertising 40,372 60,573 108,201
Communications 130,340 56,693 237,213
Car maintenance 46,004 28,454 74,458
Travel 324,274 16,839 415,579
Depreciation 13,742 7,018 24,916
Other 160,200 74,960 267,856
--------- ------- ---------
3,445,400 821,341 4,655,364
========= ======= =========
(*) Including to related parties 1,169,807 312,744 1,597,450
========= ======= =========
</TABLE>
79
<PAGE>
Note 14 - FINANCING INCOME (EXPENSES), NET
Cumulative
from the
enterprise's
inception
until
Year Ended Year Ended December 31
---------- ---------- -----------
1995 1994 1995
NIS NIS NIS
--------- --------- ----------
Including expenses to a
related party 12 5,542 12,918
== ===== ======
Note 15 - CONDENSED STATEMENTS IN NOMINAL SHEKELS
<TABLE>
<CAPTION>
December 31 December 31
----------- -----------
1995 1994 1995 1994
NIS NIS NIS NIS
--- --- --- ----
CONSOLIDATED THE COMPANY
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
A. BALANCE SHEET
Current Assets 4,429,355 957,109 3,782,759 957,109
Investments 6,149,998 -- 6,602,503 --
Fixed assets, net 779,513 327,159 722,062 327,159
---------- --------- ---------- ---------
11,358,866 1,284,268 11,107,324 1,284,268
========== ========= ========== =========
Current liabilities 1,243,005 866,026 991,463 866,026
Accrued severance pay 163,685 139,802 163,685 139,802
Shareholders' equity 9,952,176 278,440 9,952,176 278,440
---------- --------- ---------- ---------
11,358,866 1,284,268 11,107,324 1,284,268
========== ========= ========== =========
80
<PAGE>
B. STATEMENT OF OPERATIONS
Research and development costs 6,073,364 2,223,592 6,134,389 2,223,592
General and administrative
expenses 3,394,396 711,835 3,247,496 711,835
----------- --------- ---------- ----------
(9,467,760) (2,935,427) (9,381,885) (2,935,427)
Financing income (expenses),
net 141,019 588 101,514 588
----------- --------- ---------- ----------
(9,326,741) (2,934,839) (9,280,371) (2,934,839)
Company's share in net loss of
its subsidiary -- -- 46,370 --
----------- --------- ---------- ----------
Net loss (9,326,741) (2,934,839) (9,326,741) (2,934,839)
=========== ========= ========== ==========
</TABLE>
81
<PAGE>
C. STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Receipt on Unrealized
Share Premium Account of Loss on Accumulated
Number of Capital on Shares Shares Investment Deficit Total
Shares NIS (*) NIS NIS NIS NIS NIS
-------- ----- ------- ----- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of
January 1, 1994 40,000 40,000 -- 955,010 -- (1,324,666) (329,656)
========= ====== ========== ========== ========= ========== =========
Stock split 4,000,000 -- -- -- -- -- --
Receipts on account
of shares -- -- -- 1,504,500 -- -- 1,504,500
Shares Issued 3,425,800 34,258 2,959,187 (955,010) -- -- 2,038,435
Net Loss -- -- -- -- -- (2,934,839) (2,934,839)
--------- ------ ---------- ---------- --------- ---------- ---------
Balance as of
12/31/94 7,425,800 74,258 2,959,187 1,504,500 -- (4,259,505) 278,440
Shares issued 1,803,130 18,031 12,684,968 (1,504,500) -- -- 11,198,499
Receipts on account
of shares -- -- -- 10,561,017 -- -- 10,561,017
Unrealized loss on
investments -- -- -- -- (2,759,039) -- (2,759,039)
Net Loss -- -- -- -- -- (9,326,741) (9,326,741)
--------- ------ ---------- ---------- --------- ---------- ---------
Balance as of
12/31/95 9,228,930 92,289 15,644,155 10,561,017 (2,759,039) (13,586,246) 9,952,176
========= ====== ========== ========== ========= ========== =========
</TABLE>
82
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
EA INDUSTRIES, INC.
Registrant
By:/s/ Joseph R. Spalliero
-----------------------------------
Joseph R. Spalliero, President
Dated: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Irwin L. Gross Chairman of the Board March 29, 1996
- --------------------------------
Irwin L. Gross
/s/ Joseph R. Spalliero Director and President March 29, 1996
- -------------------------------- (Principal Executive
Joseph R. Spalliero Officer)
/s/ Stanley O. Jester Treasurer and Vice March 29, 1996
- -------------------------------- President, Finance
Stanley O. Jester (Principal Financial and
Accounting Officer)
/s/ Bruce P. Murray Director March 29, 1996
- --------------------------------
Bruce P. Murray
/s/ Jules M. Seshens Director March 29, 1996
- --------------------------------
Jules M. Seshens
[Signatures continued on next page]
83
<PAGE>
Director March , 1996
- --------------------------------
Seth Joseph Antine
/s/ William Spier Director March 29, 1996
- ---------------------------------
William Spier
Director March , 1996
- ---------------------------------
David J. Reibstein
/s/ Mark S. Hauser Director March 29, 1996
- --------------------------------
Mark S. Hauser
</TABLE>
84
EXHIBIT 3.11
CERTIFICATE OF AMENDMENT
<PAGE>
CERTIFICATE OF AMENDMENT
TO
THE CERTIFICATE OF INCORPORATION
OF
ELECTRONIC ASSOCIATES, INC.
TO: SECRETARY OF STATE
STATE OF NEW JERSEY
This is to certify that the Certificate of Incorporation
of Electronic Associates, Inc. (herein referred to as the "Corpora-
tion") which was filed and recorded in the office of the Secretary of
State, State of New Jersey on October 31, 1945, as amended, is hereby
amended pursuant to the provisions of N.J. Stat. Ann. ss. 14A:9-2 of
the "New Jersey Business Corporation Act".
1. NAME OF CORPORATION
The name of the Corporation is Electronic Associates, Inc.
2. DATE OF ADOPTION, TEXT AND APPROVAL OF AMENDMENTS
The following amendments to the Certificate of Incorporation of
Electronic Associates, Inc. (the "Amendments") were adopted by the shareholders
of the Corporation on the 12th day of October, 1995:
(a) In Article ONE, delete the words "Electronic Associates
Inc." and substitute therefor the words "EA Industries,
Inc."
The Corporation has issued and outstanding a total of 13,927,620
of Common Stock, the holders of which are entitled to vote on the Amendment. A
total of 8,846,966 shares of Common Stock (constituting a majority of the votes
cast by the holders of shares of Common Stock entitled to vote thereon) voted in
favor of the amendment to the Company's Certificate of Incorporation to change
the name of the Company from "Electronic Associates, Inc." to "EA Industries,
Inc."
(b) In the first sentence of the first paragraph of Article
FOURTH, delete the words "fifty million (50,000,000)" and substitute therefor
the words "seventy five million (75,000,000)"; and (ii) delete the words "twenty
five million (25,000,000) shares of Common Stock" and substitute therefor the
words "fifty million (50,000,000) shares of Common Stock".
<PAGE>
The Corporation has issued and outstanding a total of 13,927,620
of Common Stock, the holders of which are entitled to vote on the Amendment. A
total of 6,584,459 shares of Common Stock (constituting a majority of the votes
cast by the holders of shares of Common Stock entitled to vote thereon) voted in
favor of the amendment to the Company's Certificate of Incorporation to increase
the Company's authorized Common Stock from 25,000,000 shares to 50,000,000
shares. No other classes of shares are outstanding.
ATTEST: ELECTRONIC ASSOCIATES, INC.
/s/ Richard P. Jaffe By: /s/ Irwin L. Gross
- --------------------------- ------------------------------
RICHARD P. JAFFE, Secretary IRWIN L. GROSS, Chairman
Date: October 12, 1995
March 29, 1994
Electronics Associates, Inc.
185 Monmouth Parkway
West Long Branch, New Jersey 07764
Re: Amendment No. 1 to Financing Agreements
Gentlemen:
Congress Financial Corporation ("Congress") and Electronic Associates,
Inc. ("Borrower") have entered into financing arrangements pursuant to the
Accounts Financing Agreement [Security Agreement], dated August 13, 1993,
between Congress and Borrower (the "Accounts Agreement") and various supplements
thereto, including the Covenant Supplement to Accounts Financing Agreement
[Security Agreement], dated August 13, 1993, between Congress and Borrower (the
"Covenant Supplement"; together with the Accounts Agreement and all other
agreements, documents and instruments at any time executed and/or delivered in
connection therewith or related thereto, as the same now exist or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced,
collectively, the "Financing Agreements"). All capitalized terms used in this
letter agreement, unless otherwise defined herein, shall have the meaning set
forth in the Financing Agreements.
Borrower has requested that Congress agree to amend the Financing
Agreements in order to defer the increase in the minimum amount of the
Consolidated Tangible Net Worth otherwise required to be maintained on or after
October 1, 1994 and Congress is willing to agree to such amendment on and
subject to the terms and conditions contained in this letter agreement (the
"Amendment").
In consideration of the foregoing, the mutual agreements and covenants
contained herein and other good and valuable consideration, the parties hereto
agree as follows:
1. Consolidated Tangible Net Worth. Section 4.11 of the Covenant
Supplement is hereby deleted in its entirety and replaced with the following:
"4.11 Consolidated Tangible Net Worth. Borrower shall, at all times,
maintain a Consolidated Tangible Net Worth of not less than (a)
negative $1,400,000 from the date hereof through and including
December 31, 1994, (b) negative $500,000 from January 1, 1995 through
and including July 31, 1995 and (c) positive $700,000 at all times on
and after August 1, 1995; provided, that, if Borrower receives one or
more [cash] equity contribution(s) in an aggregate amount of
$2,000,000 or more during the period from March 29, 1994 through and
including December 31, 1994, then Section 4.11 of the Covenant
Supplement shall be deemed further amended automatically effective as
of the later of October 1, 1994 or the date upon which such aggregate
[cash] equity capital contributions equal or exceed $2,000,000, so as
to increase the minimum amount of Consolidated Tangible Net Worth
required to be maintained at all times on and after such date from
negative $1,400,000 to negative S500,000 (subject to further increase
in accordance with clause (c) effective on and after August 1, 1995)."
2. Effectiveness of Amendment. Except as modified pursuant hereto, the
Accounts Agreement, the Covenant Supplement and the other Financing Agreements
are hereby specifically ratified, restated and confirmed by the parties hereto
as of the date hereof. To the extent of conflict between the terms of this
Amendment and the Financing Agreements, the terms of this Amendment control.
3. Further Assurances. The parties hereto shall
execute and deliver such additional documents and take such
additional actions as may be necessary to effectuate the provisions
and purposes of this Amendment.
<PAGE>
4. Counterparts. This Amendment may be executed in
any number of counterparts but all of such counterparts shall
together constitute one and the same agreement.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By:____________________________
Title:_________________________
AGREED:
ELECTRONIC ASSOCIATES, INC.
By:____________________________
Title:_________________________
CONSENTED TO:
MILOTEC S.A. De C.V.
By:____________________________
Title:_________________________
EXHIBIT 10.252
FORM OF
AMENDMENT NO. 2 TO FINANCING AGREEMENTS
<PAGE>
FORM OF
AMENDMENT NO. 2 TO FINANCING AGREEMENTS
December 30, 1994
Electronic Associates, Inc.
185 Monmouth Parkway
West Long Branch, New Jersey 07764
Gentlemen:
Congress Financial Corporation, a California corporation (together
with its successors and assigns, "Congress") and Electronic Associates, Inc., a
New Jersey corporation (together with its successors and assigns, "Borrower")
have entered into certain financing Arrangements pursuant to the Accounts
Financing Agreement [Security Agreement], dated August 13, 1993, between
Congress find Borrower (the "Accounts Agreement"), together with all supplements
thereto, including, but not limited to, the Covenant Supplement to Accounts
Agreement, dated August 13, 1993, between Congress and Borrower (the "Covenant
Supplement"), as amended by Amendment No. 1 to Financing Agreements dated March
29, 1994, and various agreements, documents and instruments executed and/or
delivered in connection therewith or related thereto, (as the foregoing now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, collectively, the "Financing Agreements").
Borrower and Guarantor have requested that Congress (i) amend the
Financing Agreements to evidence Congress' consent to certain loans made by
Borrower to each of Charles A. Milo, Tanon Manufacturing, Inc. and BarOn
Technologies Ltd., and (ii) consent to the proposed acquisition by Borrower of
all of the issued and outstanding capital stock of Tanon Manufacturing, Inc. and
certain transactions related thereto, Congress is willing to so amend the
Financing Agreements and to so consent upon and subject to the terms and
conditions contained herein.
In consideration of the foregoing, the parties hereto hereby agree as
follows:
1. Definitions.
(a) Additional Definitions. As used herein, the following terms
shall have the respective meanings given to them below, and the Financing
Agreements shall be deemed and are hereby amended to include, in addition and
not in limitation, each of the following definitions:
<PAGE>
(i) "Acquisition Subsidiary" shall mean EA Acquisition
Corp., a Pennsylvania Corporation and a wholly-owned Subsidiary of Borrower, and
its successors and assigns.
(ii) "BarOn" shall mean BarOn Technologies Ltd., formerly
known as BarOn R & D Ltd., an Israeli corporation, and its successors and
assigns.
(iii) "BarOn Loan Note" shall mean the Promissory Note,
dated October 20, 1994, by BarOn payable to order of Borrower in the original
principal amount of $500,000, and all amendments, extensions, renewals,
replacements, substitutions and restatements thereof.
(iv) "BarOn Loan Documents" shall mean the Business Loan
Agreement dated as of October 20, 1994, between BarOn and Borrower, the BarOn
Loan Note, and any and all other related agreements, documents, instruments at
any time executed and/or delivered by BarOn or its stockholders or other
Affiliates with, to or in favor of Borrower, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
(v) "Milo" shall mean Charles A. Milo, an
individual, and his successors, assigns and heirs.
(vi) "Milo Loan Note" shall mean the Promissory Note, dated
___________________ by Milo payable to the order of Borrower in the original
principal amount of $160,000, and all amendments, extensions, renewals,
replacements, substitutions and restatements thereof.
(vii) "Milo Loan Documents" shall mean the Milo Loan Note,
and any and all other related agreements, documents, instruments at any time
executed and/or delivered by Milo with, to or in favor of Borrower, as the same
now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
(viii) "Spalliero" shall mean Joseph R. Spalliero,
and his heirs, administrators, executors, representatives, successors and
assigns.
2
<PAGE>
(ix) "Spalliero Loan Note" shall mean the Promissory Note,
to be dated as of the effective date of the Tanon Merger, by Spalliero payable
to the order of Borrower in the original principal amount of $1,000,000, and all
amendments, extensions, renewals, replacements, substitutions and restatements
thereof.
(x) "Tanon" shall mean Tanon Manufacturing, Inc., a
California corporation, and its successors and assigns.
(xi) "Tanon Acquisition Agreements" shall mean the Tanon
Merger Agreement and any and all agreements, documents, instruments at any time
executed and/or delivered pursuant to or in connection with the Tanon Merger
Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
(xii) "Tanon Investment Documents" shall mean the Business
Loan Agreement, dated September 8, 1994, between Tanon and Borrower, the Tanon
Loan Note, the other Tanon Securities, and any and all related agreements,
documents, instruments at any time executed and/or delivered by Tanon or its
stockholders or other Affiliates with, to or in favor of Borrower, as the same
now exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
(xiii) "Tanon Loan Note" shall mean the Promissory Note,
dated September 8, 1994, by Tanon payable to the order of Borrower in the
original principal amount of $1,000,000, and all amendments, extensions,
renewals, replacements, substitutions and restatements thereof.
(xiv) "Tanon Securities" shall mean, individually and
collectively, the Tanon Loan Note and all debt or equity securities of Tanon
into which such Note may be converted or exchanged, together with additional
debt or equity securities of Tanon issued to Borrower in consideration of an
additional loan or investment by Tanon in the principal amount of $1,000,000
made on or after the date hereof pursuant to or in connection with the Tanon
Merger Agreement, and all amendments, extensions, renewals, replacements,
substitutions and restatements thereof.
(xv) "Tanon Merger" shall mean the merger of Acquisition
Subsidiary with and into Tanon, which will be the surviving corporation,
pursuant to which merger the stockholders of Tanon shall receive solely voting
common stock of Borrower (subject to dissenters' rights), upon the terms and
conditions set forth in the Tanon Merger Agreement.
3
<PAGE>
(xvi) "Tanon Merger Agreement" shall mean the Agreement and
Plan of Reorganization, dated December 12, 1994, by and among Borrower,
Acquisition Subsidiary, Tanon and Spalliero pursuant to which, inter alia,
Acquisition Subsidiary has agreed to merge with and into Tanon, with Tanon as
the surviving corporation.
(b) Interpretation. For purposes of this Amendment, unless
otherwise defined herein, all capitalized terms used herein, including, but not
limited to, those capitalized terms used and/or defined in the recitals hereto,
shall have the respective meanings set forth in the Financing Agreements.
2. Permitted Loans and Investments.
(a) Effective as of the date of the Milo Loan Note (i) the word
"and" appearing at the end of Section 4.5(d) is hereby deemed deleted in its
entirety, (hi) a semicolon is hereby deemed added to the end of Section 4.5(e)
and (iii) the following new Section 4.5(f) is hereby deemed inserted into the
Covenant Supplement immediately following Section 4.5(e) thereof:
"(f) a loan to Milo in the principal amount of $160,000
evidenced by the Milo Loan Note and secured by certain shares of
Borrower pledged by Milo in favor of Borrower pursuant to the
Milo Loan Documents;".
(b) Effective as of September 8, 1994, the following new Section
4.5(g) is hereby deemed inserted into the Covenant Supplement immediately
following new Section 4.5(f) thereof:
"(g) a loan to Tanon in the principal amount of $1,000,000
evidenced by the Tanon Loan Note and secured by all of the
personal property of Tanon pursuant to the Tanon Investment
Documents, which loan may be converted into or exchanged for
other Tanon Securities prior to the Tanon Merger;".
(c) Effective as of the date hereof, the following new Section
4.5(h) is hereby deemed inserted into the Covenant Supplement immediately
following new Section 4.5(g) thereof:
(h) a loan to or equity investment in Tanon prior to the
Tanon Merger in the principal amount of $1,000,000, evidenced by
Tanon Securities issued to Borrower provided the funds used to
make such loan or investment are obtained by Borrower from the
proceeds of its prior sales of securities and/or the exercise of
Borrower's Class C warrants."
4
<PAGE>
(d) Effective as of October 20, 1994, the following new Section
4.5(1) is hereby deemed inserted into the Covenant Supplement immediately
following new Section 4.5(h) thereof:
"(i) a loan to BarOn in the principal amount of $500,000
evidenced by the BarOn Loan Note;".
(e) Effective as of the date upon which the Tanon Merger is
Consummated, the following new Sections 4.5(j) and (k) are hereby deemed
inserted into the Covenant Supplement immediately following new Section 4.5(i)
thereof:
(j) a non-recourse loan to Spalliero in the principal amount
of $1,000,000 evidenced by the Spalliero Loan Note and secured by
192,308 shares of common stock of Borrower; and
(k) indemnification obligations by Borrower in favor of
Spalliero in respect of the contingent obligations of Spalliero
arising pursuant to the guarantees by Spalliero of certain
indebtedness, liabilities and obligations of Tanon, to the extent
such guarantees are set forth in Section 4.AA of the Disclosure
Schedule to the Tenon Merger Agreement."
(f) Notwithstanding the foregoing amendments, Congress has not,
as of the execution and delivery of this Amendment, consented to or approved any
additional loans to or by, investments in, transfers of assets or property to or
from Borrower, or other transactions between Borrower and any one or more of
Milo, Tanon, Spalliero or BarOn, whether or not provided for or contemplated by
the Milo Loan Documents, the Tanon Investment Documents, the Tanon Acquisition
Agreements, the BarOn Loan Documents or any letters of intent, agreements or
instruments now or hereafter entered into between or among Borrower and any of
Milo, Tanon, Spalliero or BarOn, or any persons affiliated therewith, and
whether or not disclosed to or discussed with Congress, except only those other
or further loans, investments, transfers of assets or property, or other
transactions, if any, as to which a further written consent or amendment
executed by Congress expressly with respect thereto, is executed and delivered
to Borrower after the execution and delivery of this Amendment.
5
<PAGE>
3. Consent to Tanon Merger. Subject to the other terms
hereof, Congress hereby consents to the Tanon Merger; provided,
however, that
(i) all of the conditions precedent to Borrower's and Acquisition
Subsidiary's obligations to close the Tanon Merger, as set forth in the Tanon
Merger Agreement are fulfilled and not merely waived, except with Congress'
further written consent,
(ii) Congress' consent to the Tanon Merger is limited to a
consent to the exchange of Borrower's voting common stock representing no more
than a twenty (20%) voting interest on a fully diluted basis, for all of the
issued and outstanding capital stock of Tanon, other than any capital stock of
Tanon owned by Borrower (which shall be cancelled upon the Tanon Merger without
payment or dissenter's rights), and except for sums paid or payable to those
stockholders of Tanon exercising or asserting dissenters' rights,
(iii) Borrower has received by the time of the Tanon Merger, in
immediately available funds, from the exercise of outstanding Class C warrants
of Borrower, an amount sufficient and to be used by Borrower (A) to fund the
loans evidenced by the Spalliero Loan Note and, to the extent not funded with
the proceeds of Borrower's prior sales of securities, the additional loan or
investment of $1,000,000 made by Borrower as permitted under new Section 4.5(h)
of the Covenant Supplement added by this Amendment, (B) to pay the signing
bonus to Spalliero pursuant to the Tanon Merger Agreement and (C) to pay the
dissenting stockholders of Tanon, if any, (but in any event excluding Borrower,
whose shares of capital stock of Canon shall be cancelled upon the Tanon Merger
without payment or dissenter's rights) the funds necessary to satisfy any
additional amounts to which such dissenting stockholders may be or become
entitled to receive through appraisal proceedings or any settlement thereof, and
the costs and expenses of appraisal proceedings, (such additional amounts, costs
and expenses, the "Dissenters' Payments"), and
(iv) Congress' consent under this paragraph 3 shall not extend to
any loans, investments, transfers of assets or property or other or further
actions or transactions contemplated or provided to be taken under the terms of
the Tanon Merger Agreement or other Tanon Acquisition Agreements, or any letter
of intent, instrument or agreement now or hereafter entered into in connection
therewith or relating thereto, whether or not disclosed to or discussed with
Congress, except (A) the loans, investments and indemnifications by Borrower
permitted in new Sections 4.5 (g), (h), (j) and (k) of the Covenant Supplement
(as added hereby) and (B) only those other or further loans, investments,
transfers of assets or property, or other actions or transactions, if any, as to
which a further written consent executed by Congress expressly with respect
thereto is executed and delivered to Borrower after the execution and delivery
of this Amendment.
6
<PAGE>
4. Application of Financial Covenants and Financial Reporting.
Effective upon the closing of the Tanon Merger as consented to herein, the terms
"Consolidated Tangible Net Worth" and "Consolidated Working Capital", as each
are defined in the Covenant Supplement, shall not, for purposes of the financial
covenants set forth in Sections 4.11 and 4.12 of the Covenant Supplement,
include any assets or liabilities of Tanon or any Subsidiary of Tanon,
notwithstanding that Tanon will then be a Subsidiary of Borrower. All financial
reports under the Financing Agreements required to be delivered to Congress on a
consolidated basis for Borrower and its Subsidiaries shall be delivered on a
consolidated and consolidating basis, including the financial statements for
Tanon and its Subsidiaries.
5. Representations, Warranties and Covenants.
Borrower hereby represents, warrants and covenants to and in favor
of Congress as follows which representations, warranties and
covenants are continuing and shall survive the execution and
delivery hereof:
(a) No Event of Default has occurred or existed on the date
hereof, and no event has occurred or condition exists which, with notice or
lapse of time or both, would constitute an Event of Default.
(b) The Tanon Merger Agreement and each of the other Tanon
Acquisition Agreements have been duly authorized, executed and delivered by the
parties thereto.
(c) All actions and proceedings required by the Tanon Merger
Agreement and applicable law or regulation, have been duly and validly taken.
(d) Borrower has delivered, or caused to be delivered to
Congress, a true, correct and complete copy of the Milo Loan Documents, the
Tanon Investment Documents, the Tanon Merger Agreement, each of the other Tanon
Acquisition Agreements, and the BarOn Loan Documents and each of the other
documents, agreements and instruments to be executed and/or delivered in
connection with the transactions contemplated thereunder.
7
<PAGE>
(e) No court of competent jurisdiction has issued any injunction,
restraining order or other order which prohibits consummation of the
transactions described in the Tanon Acquisition Agreements and no governmental
or other action or proceeding has been commenced or, to the best of Borrower's
knowledge, threatened seeking any injunction, restraining order or other order
which seeks to void or otherwise modify the transactions described in the Tanon
Acquisition Agreements.
(f) Borrower shall, upon the consummation of the Tanon Merger,
deliver to Congress a certified copy of the Certificates of Merger filed in the
offices of the Secretary of State of Pennsylvania and California with respect to
the Tanon Merger.
(g) The loans and investments made by Borrower to or in Tanon,
the loan by Borrower to Spalliero and the signing bonus received by Spalliero
pursuant to the Tanon Merger Agreement from Borrower and any Dissenters'
Payments will all be funded solely by proceeds which Borrower received from
prior sales of Borrower's securities or from the exercise of certain outstanding
Class C warrants of Borrower.
(h) Upon consummation of the Tanon Merger, holders of not more
than two (2%) percent of the outstanding common stock of Tanon (excluding any
shares owned by Borrower immediately prior to the Tanon Merger) shall have
exercised or asserted or be entitled thereafter to exercise or assert
dissenters' rights with respect to the Tanon Merger, all other holders of common
stock of Tanon having consented to the Tanon Merger or, as of the consummation
of the Tanon Merger, no longer having the right to exercise or assert
dissenters' rights with respect to the Tanon Merger (any such shares of Tanon
owned by Borrower to be cancelled upon the Tanon Merger without payment or
dissenter's rights).
6. Confirmatory Pledge, Assignments. Borrower hereby pledges and
assigns as Collateral to Congress, and grants to Congress a security interest
in, all of the right, title and interest of Borrower (but not its obligations)
in and to the Milo Loan Documents, the Tanon Investment Documents (including all
securities into which the Obligations evidenced by the Tanon Loan Note are
converted or exchanged and all other Tanon Securities), the Tanon Acquisition
Agreements and the BarOn Loan Documents, including, without limitation, all
obligations to Borrower thereunder and all collateral security for such
obligations, and the proceeds thereof, all as additional Collateral for the
Obligations, and confirms its prior pledges, assignments as Collateral and
grants of security interests in favor of Congress in all of the foregoing,
pursuant to the Financing Agreements.
8
<PAGE>
7. Conditions Precedent. The effectiveness of the
amendments and consents contained herein shall be subject to the
satisfaction of the following additional condition precedents:
(a) the receipt by Congress, as pledgee, as part of the
Collateral, of the original Milo Loan Note, Tanon Securities and BarOn Loan
Note, each duly endorsed by borrower to the order of Congress or accompanied by
a stock power signed in blank and undated, as applicable, together with
assignments and/or delivery of the collateral security securing such notes or
securities;
(b) the receipt by Congress of true, correct and complete copies
of all of the other Milo Loan Documents, Tanon Investment Documents, Tanon
Merger Agreement and each of the other Tanon Acquisition Agreements, and BarOn
Loan Documents, duly authorized, executed and delivered by the respective
parties thereto;
(c) Borrower shall have obtained and provided evidence to
Congress that it has obtained all required consents or approvals of any
governmental authority or other persons, other than Congress, to the execution,
delivery and performance of the Milo Loan Documents, the Tanon Investment
Documents, the Tanon Merger Agreement and each of the other Tanon Acquisition
Agreements and the BarOn Loan Documents and each of the transactions
contemplated thereunder;
(d) Borrower shall have obtained and delivered to Congress a
certified copy of the Certificate of Incorporation of Acquisition Subsidiary and
a Certificate of Good Standing with respect thereto;
(e) the receipt by Congress of the legal opinion delivered by
counsel for Borrower under the terms of the Tanon Merger Agreement containing an
express provision authorizing Congress to rely on such opinion or accompanied by
a separate letter from such counsel authorizing Congress to rely thereon; and
(f) the receipt by Congress of an original of this Amendment,
duly authorized, executed and delivered by Borrower and Guarantor.
8. Additional Events of Default. In addition to the Events of Default
set forth in the Financing Agreements, any event of default by Borrower or any
other party to the Tanon Acquisition Agreements, the Milo Loan Documents, the
Tanon Investment Documents and the BarOn Loan Documents, under such document,
shall be deemed to be an Event of Default under the Financing Agreements.
9
<PAGE>
9. Miscellaneous.
(a) Headings. The headings listed herein are for
convenience only and do not constitute matters to be considered in
interpreting this Amendment.
(b) Effect of this Amendment. Except as modified pursuant hereto,
the Financing Agreements are hereby specifically ratified, restated and
confirmed by all parties hereto as of the effective date hereof. To the extent
of a conflict between the terms of this Amendment and the other Financing
Agreements, the terms of this Amendment shall control. Any acknowledgment or
consent contained herein shall not be construed to constitute a consent to any
other or further action by Borrower or Guarantor or to entitle Borrower or
Guarantor to any other consent.
(c) Further Assurances. Borrower and Guarantor shall execute and
deliver such additional documents and take such additional action as may be
necessary or desirable, as determined by Congress, to effectuate the provisions
and purposes of this Amendment.
(d) Counterparts. This Amendment may be executed
in any number of counterparts, but all of such counterparts shall
together constitute but one and the same agreement.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By:____________________________
Title:_________________________
10
<PAGE>
AGREED:
ELECTRONIC ASSOCIATES, INC.
By:____________________________
Title:_________________________
CONSENTED:
MILOTEC S.A. DE C.V.
By:____________________________
Title:_________________________
11
EXHIBIT 10.253
FORM OF
AMENDMENT NO. 3 TO FINANCING AGREEMENTS
<PAGE>
FORM OF
AMENDMENT NO. 3 TO FINANCING AGREEMENTS
April __, 1995
Electronic Associates, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764
Gentlemen:
Congress Financial Corporation, a California corporation (together with its
successors and assigns, "Congress") and Electronic Associates, Inc., a New
Jersey corporation (together with its successors and assigns, "Borrower") have
entered into certain financing arrangements pursuant to the Accounts Financing
Agreement (Security Agreement), dated August 13, 1993, between Congress and
Borrower (the "Accounts Agreement"), together with all supplements thereto,
including, but not limited to, the Covenant Supplement to Accounts Agreement,
dated August 13, 1993, between Congress and Borrower (the "Covenant
Supplement"), as amended by Amendment No. 1 to Financing Agreements dated March
29, 1994, Amendment No. 2 to Financing Agreements dated December 30, 1994, and
various agreements, documents and instruments executed and/or delivered in
connection therewith or related thereto (as the foregoing now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, collectively, the "Financing Agreements").
Borrower and Guarantor have requested that Congress agree to amend the
Financing Agreements to evidence Congress' consent to certain investments made
by Borrower in BarOn Technologies Ltd., an Israeli corporation ("BarOn") and
Congress is willing to so amend the Financing Agreements upon and subject to the
terms and conditions contained herein.
In consideration of the foregoing, the parties hereto hereby agree as
follows:
1. Definitions.
(a) Additional Definitions.
As used herein, the following term shall have the meaning given to it
below, and the Financing Agreements shall be deemed and are hereby amended to
include, in addition and not in limitation, the following definition:
<PAGE>
"BarOn Investment Agreement" shall mean the Investment Agreement, dated
January 16, 1995 between Borrower and BarOn, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
(b) Interpretation. For purposes of this Amendment, unless otherwise
defined herein, all capitalized terms used herein, including, but not limited
to, those capitalized terms used and/or defined in the recitals hereto, shall
have the respective meanings set forth in the Financing Agreements.
2. Permitted Loans and Investments.
(a) Effective as of January 16, 1995 the word "and" appearing at the end of
Section 4.5(j) is hereby deleted, a semicolon is hereby added to the end of
Section 4.5(k), and the following new Sections 4.5(l), 4.5(m), 4.5(n) and 4.5(o)
are hereby inserted into the Covenant Supplement, immediately following Section
4.5(k) thereof:
"(l) an equity investment in BarOn in the aggregate amount of
$4,700,000 in the form of (i) cash in the amount of $4,200,000, of which
(A) $2,700,000 has been paid on or about January 16, 1995 to existing
shareholders of BarOn in exchange for 649,000 ordinary shares, par value
N.I.S. 0.01 per share, of previously issued stock of BarOn and (B)
$1,500,000 has been paid on or about January 16, 1995 directly to BarOn in
exchange for 1,732,970 ordinary shares, par value N.I.S. 0.01 per share, of
newly issued stock of BarOn and (ii) the forgiveness or contribution to
equity of BarOn by Borrower of the existing indebtedness of BarOn to
Borrower in the principal amount of $500,000 evidenced by the BarOn Loan
Note;
"(m) an additional equity investment in BarOn on May 16, 1995 in the
amount of $1,000,000 in cash plus 127,592 shares of Borrower's common
stock, to be made in accordance with the terms and provisions of the
"Subsidiary Investment," as such term is defined in the BarOn Investment
Agreement as in effect on January 16, 1995; provided, however, that, none
of the cash portion of such additional equity investment may be made,
directly or indirectly, with the proceeds of any loans, advances or other
financial accommodations provided by Congress to Borrower unless (i)
Borrower shall have Excess Availability of not less than $500,000 for the
thirty (30) consecutive days immediately
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<PAGE>
preceding the date of such payment to BarOn and immediately after giving
effect thereto and (ii) as of the date of and after giving effect to such
payment, no Event of Default or act, condition or event which with notice
or lapse of time or both would constitute an Event of Default shall exist
or have occurred and be continuing; and provided, further, that, regardless
of the source of funds, none of the cash portion of such additional equity
investment may be made in any event unless (x) Borrower shall have Excess
Availability of not less than $250,000 for the thirty (30) consecutive days
immediately preceding the date of such payment to BarOn and immediately
after giving effect thereto and (y) as of the date of and after giving
effect to such payment, no Event of Default or act, condition or event
which with notice or lapse of time or both would constitute an Event of
Default shall exist or have occurred and be continuing;
"(n) an additional equity investment in BarOn, at Borrower's option,
in the amount of $1,000,000 in cash plus 127,592 shares of Borrower's
common stock, to be made in accordance with the terms and provisions of the
"Beta Investment," as such term is defined in the BarOn Investment
Agreement as in effect on January 16, 1995; provided, however, that, none
of the cash portion of such additional equity investment may be made,
directly or indirectly, with the proceeds of any loans, advances or other
financial accommodations provided by Congress to Borrower unless (i)
Borrower shall have Excess Availability of not less than $1,000,000 for the
thirty (30) consecutive days immediately preceding the date of such payment
to BarOn and immediately after giving effect thereto and (ii) as of the
date of and after giving effect to such payment, no Event of Default or
act, condition or event which with notice or lapse of time or both would
constitute an Event of Default shall exist or have occurred and be
continuing; and provided, further, that, regardless of the source of funds,
none of the cash portion of such additional equity investment may be made
in any event unless (x) Borrower shall have Excess Availability of not less
than $500,000 for the thirty (30) consecutive days immediately preceding
the date of such payment to BarOn and immediately after giving effect
thereto and (y) as of the date of and after giving effect to such payment,
no Event of Default or act,
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<PAGE>
condition or event which with notice or lapse of time or both would
constitute an Event of Default shall exist or have occurred and be
continuing; and
"(o) an additional equity investment in BarOn, at Borrower's option,
in the amount of $1,000,000 in cash plus 127,592 shares of Borrower's
common stock, to be made in accordance with the terms and provisions of the
"ElectronicPen Investment," as such term is defined in the BarOn Investment
Agreement as in effect on January 16, 1995; provided, however, that, none
of the cash portion of such additional equity investment may be made,
directly or indirectly, with the proceeds of any loans, advances or other
financial accommodations provided by Congress to Borrower unless (i)
Borrower shall have Excess Availability of not less than $1,000,000 for the
thirty (30) consecutive days immediately preceding the date of such payment
to BarOn and immediately after giving effect thereto and (ii) as of the
date of and after giving effect to such payment, no Event of Default or
act, condition or event which with notice or lapse of time or both would
constitute an Event of Default shall exist or have occurred and be
continuing; and provided, further, that, regardless of the source of funds,
none of the cash portion of such additional equity investment may be made
in any event unless (x) Borrower shall have Excess Availability of not less
than $500,000 for the thirty (30) consecutive days immediately preceding
the date of such payment to BarOn and immediately after giving effect
thereto and (y) as of the date of and after giving effect to such payment,
no Event of Default or act, condition or event which with notice or lapse
of time or both would constitute an Event of Default shall exist or have
occurred and be continuing;
(b) Effective as of January 16, 1995, Section 4.5(i) of the Covenant
Supplement shall be deemed deleted in its entirety and replaced with the
following: (i) "[intentionally omitted]".
(c) Notwithstanding the foregoing amendments, and except as expressly set
forth in Sections 4.5(l), 4.5(m), 4.5(n) and 4.5(o) of the Covenant Supplement
as added by this Amendment, Congress has not consented to or approved any
additional investments by Borrower or its subsidiaries in BarOn, or loans to
BarOn from Borrower or its subsidiaries, whether or not provided for or
4
<PAGE>
contemplated by the BarOn Investment Agreement other than investments by
Borrower paid for solely through issuance or delivery of Borrower's common
stock, all of which additional investments or loans by Borrower, other than
investments by Borrower paid for solely through issuance or delivery of
Borrower's common stock, shall require Congress' prior written consent. Without
limiting the foregoing, except for those additional cash equity investments in
BarOn made in compliance with Sections 4.5(l), 4.5(m), 4.5(n) and 4.5(o) of the
Covenant Supplement as added by this Amendment, all additional cash equity
investments by Borrower or its subsidiaries in BarOn, as well as the
consummation of any transactions involving any such cash investments pursuant to
any agreements or instruments now existing or hereafter entered into between
Borrower and BarOn, or any persons affiliated therewith, whether or not
disclosed to or discussed with Congress, or contemplated by the BarOn Investment
Agreement or otherwise, shall not be permitted for purposes of the Financing
Agreements, unless a further written consent or amendment executed by Congress
expressly with respect thereto is executed by Congress and delivered to Borrower
after the execution and delivery of this Amendment.
3. Confirmatory Pledge; Assignments.
(a) Confirming and supplementing the other grants of Collateral set forth
in the Financing Agreements, as additional security for payment and performance
of all Obligations, Borrower hereby specifically pledges and assigns as
Collateral to Congress, and hereby grants to Congress a security interest in the
following: (i) all shares and rights to acquire ordinary shares or other capital
stock of BarOn now owned and hereafter acquired by Borrower and all dividends,
income and other distributions thereon, and (ii) all of the right, title and
interest of Borrower (but not its obligations) in and to the BarOn Investment
Agreement (including Borrower's right of first offer to acquire additional
ordinary shares of BarOn pursuant thereto), the stock purchase agreements
between Borrower and selling shareholders of BarOn, and any manufacturing
agreements, manufacturing contracts and consulting agreements between Borrower
and BarOn, subject, in the case of the agreements referred to in this clause
(ii), to Borrower's obtaining any required consents with respect to the
collateral assignment thereof, and (iii) the proceeds thereof.
(b) Borrower shall (i) deliver to Congress all certificates or other
evidence of the ordinary shares or other shares of capital stock of BarOn now or
hereafter owned by Borrower ("BarOn Stock"), together with stock powers or other
appropriate instruments of transfer with respect thereto, duly executed by
Borrower in blank and undated, and (ii) execute and deliver to Congress a pledge
and security agreement in favor of Congress, in
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<PAGE>
form and substance satisfactory to Congress, in order to further evidence and
govern the pledge to Congress of all of the BarOn Stock; provided, that the
failure to deliver such pledge and security agreement shall not impair the
foregoing pledge of, and grant of security interest in, the BarOn Stock.
Borrower shall use its best efforts to obtain any required consents to the
collateral assignment in favor of Congress of Borrower's right, title and
interest in and to the agreements referred to in paragraph 3(a)(ii) of this
Amendment, and such collateral assignment as to a particular agreement shall
take effect automatically upon obtaining such required consents applicable to
such agreement, or immediately upon execution hereof to the extent no such
consent is required by such agreement or applicable law.
4. BarOn Accounts. Without limiting Congress' discretion to determine
Eligible Accounts pursuant to the Financing Agreements, Borrower acknowledges
that Accounts at any time owed by BarOn or any Affiliate of BarOn to Borrower
shall not be Eligible Accounts for lending purposes, but shall nevertheless
remain part of the Collateral.
5. Representations, Warranties and Covenants. Borrower hereby represents,
warrants and covenants to and in favor of Congress as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof:
(a) No Event of Default has occurred or existed on the date hereof,
and no event has occurred or condition exists which, with notice or lapse
of time or both, would constitute an Event of Default.
(b) The BarOn Investment Agreement and each of the other related
documents, agreements and instruments executed and/or delivered in
connection therewith have been duly authorized, executed and delivered by
the parties thereto.
(c) Borrower has delivered, or caused to be delivered to Congress, a
true, correct and complete copy of the BarOn Investment Agreement and each
of the other documents, agreements and instruments to be executed and/or
delivered in connection with the transactions contemplated thereunder.
6. Conditions Precedent. The effectiveness of the amendments and consents
contained herein shall be subject to the satisfaction of the following
conditions precedent:
(a) the receipt by Congress, as pledgee, of all of the stock
certificates of BarOn issued to Borrower representing all of the shares of
BarOn Stock owned by Borrower as of the date
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<PAGE>
hereof, together with stock powers or other appropriate instruments of
transfer with respect to each such stock certificate, executed by Borrower
in blank and undated; and
(b) the receipt by Congress of an original of this Amendment, duly
authorized, executed and delivered by Borrower and consented to by
Guarantor.
7. Miscellaneous.
(a) Headings. The headings listed herein are for convenience only and
do not constitute matters to be considered in interpreting this Amendment.
(b) Effect of this Amendment. Except as modified pursuant hereto, the
Financing Agreements are hereby specifically ratified, restated and
confirmed by all parties hereto as of the effective date hereof. To the
extent of a conflict between the terms of this Amendment and the other
Financing Agreements, the terms of this Amendment shall control. Any
acknowledgment or consent contained herein shall not be construed to
constitute a consent to any other or further action by Borrower or
Guarantor or to entitle Borrower or Guarantor to any other consent.
(c) Further Assurance. Borrower and Guarantor shall execute and
deliver such additional documents and take such additional action as may be
necessary or desirable, as determined by Congress, to effectuate the
provisions and purposes of this Amendment.
7
<PAGE>
(d) Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but
one and the same agreement.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: __________________________
Title: _______________________
AGREED:
ELECTRONIC ASSOCIATES, INC.
By:_________________________
Title: _____________________
CONSENTED TO:
MILOTEC S.A. DE C.B.
By:_________________________
Title: _____________________
8
<PAGE>
Exhibit 10.254
FORM OF
AMENDMENT NO. 4 TO FINANCING AGREEMENTS
<PAGE>
FORM OF
AMENDMENT NO. 4 TO FINANCING AGREEMENTS
August 11, 1995
Electronic Associates, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764
Gentlemen:
Congress Financial Corporation, a California corporation (together with its
successors and assigns, "Congress") and Electronic Associates, Inc., a New
Jersey corporation (together with its successors and assigns, "Borrower") have
entered into certain financing arrangements pursuant to the Accounts Financing
Agreement (Security Agreement), dated August 13, 1993, between Congress and
Borrower (the "Accounts Agreement"), together with all supplements thereto,
including, but not limited to, the Covenant Supplement to Accounts Agreement,
dated August 13, 1993, between Congress and Borrower (the "Covenant
Supplement"), as amended by Amendment No. 1 to Financing Agreements dated March
29, 1994, Amendment No. 2 to Financing Agreements dated December 30, 1994 and
Amendment No. 3 to Financing Agreements dated April 26, 1995, and various
agreements, documents and instruments executed and/or delivered in connection
therewith or related thereto (as the foregoing now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced,
collectively, the "Financing Agreements").
Borrower has sold certain shares of its common stock pursuant to Regulation
S of the Securities Act of 1933, as amended, for the aggregate purchase price of
$9,000,000 (the "Reg S offering"). As part of the Reg S Offering and pursuant to
the Purchase Agreement, dated as of June 27, 1995, between Borrower and
Millennium Offshore Partners, C.V. ("Millennium"), Borrower issued and sold
416,667 shares of its common stock to Millennium for the purchase price of
$2,000,000 (the "Millennium Investment"). In addition, Borrower has received the
amount of $1,130,000 in connection with the exercise of certain stock options
previously issued by Borrower.
Borrower has requested that Company amend the Financing Agreements to
evidence Congress' consent (a) to a loan, funded with a portion of the proceeds
of the Reg S Offering, made by Borrower to Electronic Associates Technologies
Israel Limited, an Israeli corporation ("EA Israel", as hereinafter further
defined), in the amount of $5,300,000 to be used by EA Israel for a joint
venture with Israel Aircraft Industries Limited, together with a cash
<PAGE>
equity investment of $5,200 made by Borrower in EA Israel, (b) to a loan, funded
with a portion of the proceeds of the Millennium Investment, made by Borrower to
Tanon in the amount of $229,518.75, to be used for working capital, (c) to the
extent consent by Congress is required, to the payment, funded with a portion of
the proceeds of the Millennium Investment, made by Borrower to Tanon of
intercompany indebtedness in the amount of $770,481.25 owed to Tanon in respect
of sums advanced by Tanon for Borrower's account in connection with the Tanon
Merger (as defined in the Amendment No. 2 to Financing Agreements) and (d) to an
equity investment in the amount of $500,000, funded with a portion of the
remaining proceeds of the Reg S Offering and/or proceeds realized from the
exercise of certain stock options previously issued by Borrower, made by
Borrower in BarOn to be used for working capital. Congress is willing to agree
to the foregoing, to amend the Financing Agreements and so consent upon and
subject to the terms and conditions contained herein.
In consideration of the foregoing, the parties hereto hereby agree as
follows:
1. Definitions.
(a) Additional Definitions. As used herein, the following terms shall
have the meanings given to them below, and the Financing Agreements shall
be deemed and are hereby amended to include, in addition and not in
limitation, the following definitions:
(i) "August 1995 BarOn Investment" shall mean the equity
investment by Borrower in BarOn in the amount of $500,000, as
permitted pursuant to Section 2(b) of this Amendment.
(ii) "August 1995 Tanon Investment" shall mean the loan by
Borrower to Tanon evidenced by a promissory note, dated as of August
1, 1995, in the original principal amount of $229,518.75, as permitted
pursuant to Section 2(b) of this Amendment.
(iii) "EA Israel" shall mean Electronic Associates Technologies
Israel Limited, an Israeli corporation, and its successors and
assigns.
(iv) "EA Israel Investment" shall mean, individually and
collectively, the loan by Borrower to EA Israel evidenced by the EA
Israel Note, in the Original principal amount of $6,300,000, as
permitted pursuant to Section 2(b) of this Amendment, and the cash
investment of $5,200 made by Borrower in EA Israel, as permitted
pursuant to Section 2(b) of this Amendment.
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<PAGE>
(v) "EA Israel Note" shall mean the promissory note, dated
August 8, 1995, issued by EA Israel payable to the order of Borrower
in the original principal amount of $6,300,000, as the same now exists
or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced.
(vi) "IAI Joint Venture" shall mean the joint venture formed
between EA Israel and Israel Aircraft Industries Limited pursuant to
the IAI Joint Venture Agreement.
(vii) "IAI Joint Venture Agreement" shall mean the Joint Venture
Agreement dated as of August 8, 1995 among EA Israel, Israel Aircraft
Industries Limited and an Israeli corporation formed to conduct the
joint venture formed between EA Israel and Israel Aircraft Industries
Limited.
(b) Interpretation. For purposes of this Amendment, unless otherwise
defined herein, all capitalized terms used herein, including, but not
limited to, those capitalized terms used and/or defined in the recitals
hereto, shall have the respective meanings set forth in the Financing
Agreements.
2. Repayment of Intercompany Indebtedness; Permitted Loans and Investments.
(a) To the extent Congress' consent is required, Congress hereby
consents to the payment by Borrower to Tanon of intercompany indebtedness
in the sum of $770,481.25 owed to Tanon in respect of sums advanced by
Tanon for Borrower's account in connection with the Tanon Merger (as
defined in Amendment No. 2 to Financing Agreements).
(b) The word "and" appearing at the end of Section 4.5(n) of the
Covenant Supplement is hereby deleted and the following new Sections
4.5(p), 4.5(q) and 4.5(r) are hereby inserted into the Covenant Supplement,
immediately following Section 4.5(o) thereof:
"(p) a loan to Tanon in the sum of $229,518.75 to be evidenced by
a promissory note dated as of August 1, 1995 and to be used by Tanon
for working capital purposes;
(q) a loan to EA Israel in the sum of $6,300,000 evidenced by the
EA Israel Note, to be used by EA Israel to fund a portion of the
initial $7,500,000 capital contribution to be made by EA Israel to an
Israeli corporation formed to conduct the IAI Joint Venture pursuant
to the IAI Joint Venture Agreement,
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<PAGE>
and a cash equity investment by Borrower of $5,200 in EA Israel in
consideration of the issuance to Borrower of 52.3% of the capital
stock of EA Israel; and
(r) an additional equity investment in BarOn in the sum of
$500,000 in cash to be used by BarOn for working capital purposes, and
representing a portion of the "Subsidiary Investment" as such term is
defined in the BarOn Investment Agreement as in effect on January 16,
1995."
(c) Future equity investments permitted under and subject to the terms
of Section 4.5(m) of the Covenant Supplement shall be limited to $500,000
in the aggregate.
(d) Notwithstanding the foregoing amendments, and except as expressly
set forth in Sections 4.5(g), 4.5(h) and 4.5(p) of the Covenant Supplement,
Congress has not consented to or approved any additional investments by
Borrower or its subsidiaries in Tanon or loans to Tanon from Borrower or
its subsidiaries, all of which additional investments or loans by Borrower
or its subsidiaries shall require Congress' prior written consent. Without
limiting the foregoing , except for those additional cash equity
investments in or loans to Tanon made in compliance with Sections 4.5(g),
4.5(h) and 4.5(p) of the Covenant Supplement, all additional cash equity
investments in or loans to Tanon by Borrower or its subsidiaries, as well
as the consummation of any transactions involving any such cash investments
or loans pursuant to any agreements or instruments now existing or
hereafter entered into between Borrower and Tanon or any persons affiliated
therewith, whether or not disclosed to or discussed with Congress, shall
not be permitted for purposes of the Financing Agreements, unless a further
written consent or amendment executed by Congress expressly with respect
thereto is executed by Congress and delivered to Borrower after the
execution and delivery of this Amendment.
(e) Notwithstanding the foregoing amendments and except as expressly
set forth in Section 4.5(q) of the Covenant Supplement as added by this
Amendment, Congress has not consented to or approved any additional
investments by Borrower or its subsidiaries in EA Israel, or loans to EA
Israel from Borrower or its subsidiaries, all of which additional
investments or loans by Borrower or its subsidiaries shall require
Congress' prior written consent. Without limiting the foregoing, except for
the loan to EA Israel and the cash equity investment made in compliance
with Section 4.5(q) of the Covenant Supplement as added by this Amendment,
all additional equity investments by Borrower or its subsidiaries in, or
loans to or for, EA Israel or the IAI Joint
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<PAGE>
Venture, as well as the consummation of any transactions involving any such
additional cash investments or loans pursuant to any agreements or
instruments now existing or hereafter entered into between Borrower and EA
Israel, the IAI Joint Venture or any person affiliated therewith, whether
or not disclosed to or discussed with Congress, shall not be permitted for
purposes of the Financing Agreements, unless a further written consent or
amendment executed by Congress expressly with respect thereto is executed
by Congress and delivered to Borrower after the execution and delivery of
this Amendment.
(f) Notwithstanding the foregoing amendments and except as expressly
set forth in Sections 4.5(l), 4.5(m), 4.5(n), 4.0(o) and 4.5(r) of the
Covenant Supplement as added by this Amendment and Amendment No. 3,
Congress has not consented to or approved any additional investments by
Borrower or its subsidiaries in BarOn, or loans to BarOn from Borrower or
its subsidiaries, whether or not provided for or contemplated by the BarOn
Investment Agreement other than, in accordance with Sections 4.5(m),
4.5(n), and 4.5(o) of the Covenant Supplement, investments by Borrower paid
for solely through issuance or delivery of Borrower's common stock, shall
require Congress' prior written consent. Without limiting the foregoing,
except for those additional cash equity investments in BarOn made in
compliance with Sections 4.5(l), 4.5(m), 4.5(n), 4.0(o) and 4.5(r) of the
Covenant Supplement as added by this Amendment and Amendment No. 3, all
additional cash equity investments by Borrower or its subsidiaries in
BarOn, as well as the consummating of any transactions involving any such
cash investments pursuant to any agreements or instruments now existing or
hereafter entered into between Borrower and BarOn, or any persons
affiliated therewith, whether or not disclosed to or discussed with
Congress, or contemplated by the BarOn Investment Agreement or otherwise,
shall not be permitted for purposes of the Financing Agreements, unless a
further written consent or amendment executed by Congress expressly with
respect thereto is executed by Congress and delivered to Borrower after the
execution and delivery of this Amendment.
3. Pledge. Supplementing the other grants of Collateral set forth in the
Financing Agreements, as additional security for payment and performance of all
Obligations, Borrower hereby pledges and assigns as Collateral to Congress, and
hereby grants to Congress a security interest in, the following: (a) all
instruments and documents evidencing the August 1995 Tanon Investment and (b)
the EA Israel Note and all other instruments and documents evidencing the loan
to EA Israel permitted pursuant to Section 2(b) of this Amendment.
4. Pledge of Stock. Borrower hereby acknowledges and agrees that (a)
Congress may, at any time, require a pledge of all
5
<PAGE>
of Borrower's shares and rights to acquire ordinary shares or other capital
stock of EA Israel, now owned and hereafter acquired by Borrower and all
dividends, income and other contributions thereon and the proceeds thereof and
(b) Borrower will, upon Congress' request, deliver or cause to be delivered to
Congress all of the original stock certificates of EA Israel evidencing
Borrower's equity interest in EA Israel now owned or hereafter acquired by
Borrower, together with stock powers or other appropriate instruments of
transfer with respect to each such stock certificate, executed by Borrower in
blank and undated.
5. Representations, Warranties and Covenants. Borrower hereby represents,
warrants and covenants to and in favor of Congress as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof:
(a) No Event of Default has occurred or existed on the date hereof,
and no event has occurred or condition exists which, with notice or lapse
of time or both, would constitute an Event of Default.
(b) The agreements evidencing the Millennium Investment, the August
1995 Tanon Investment, the August 1995 BarOn Investment, the EA Israel
Investment, and each of the other related documents, agreements and
instruments executed and/or delivered in connection therewith have been
duly authorized, executed and delivered by the parties thereto, and none of
such agreements, documents or instruments or the consummation of the
transactions contemplated thereby have or will violate any applicable law
or regulation or require the consent of any governmental or regulatory body
or other person that has not been obtained (except, in the case of the IAI
Joint Venture, the consent of the government of Israel as provided in the
IAI Joint Venture Agreement).
(c) Borrower has delivered, or caused to be delivered to Congress,
true, correct and complete copies of the agreements evidencing the
Millennium Investment, the August 1995 Tanon Investment, the August 1995
BarOn Investment and the EA Israel Investment, together with each of the
other documents, agreements and instruments to be executed and/or delivered
in connection with the transactions contemplated thereunder.
(d) Borrower has delivered, or caused to be delivered to Congress, a
true, correct and complete copy of the approval by the New York Stock
Exchange of the additional listing of Borrower's common stock issued to
Millennium pursuant to the Millennium Investment.
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<PAGE>
(e) Pursuant to the EA Israel Investment, Borrower has acquired, and
shall retain at all times, not less than a 52.3% interest in the voting
capital stock of EA Israel. Aggregate cash equity investments in, or loans
to EA Israel of, at least $1,200,000 have been made by the holders of the
remaining 47.7% of the capital stock of EA Israel as set forth in the IAI
Joint Venture Agreement, no portion of which sums have been provided,
directly or indirectly, by Borrower. EA Israel has acquired (after giving
effect to and assuming the exercise of the Option granted to Israel
Aircraft Industries Limited pursuant to the IAI Joint Venture Agreement)
and shall retain at all times beneficial ownership of at least 50.1% of the
voting capital stock of the entity formed to conduct the IAI Joint Venture.
(f) Within fifteen (15) days from the date hereof, Borrower shall
deliver to Congress evidence that Borrower has delivered, or has caused to
be delivered to Tanon, from a portion of the proceeds of the Millennium
Investment, the sum of $1,000,000 representing payment of intercompany
indebtedness owed to Tanon and disbursement of the loan to Tanon, each as
permitted pursuant to Section 2(b) of this Amendment.
(g) Within fifteen (15) days from the date hereof, Borrower shall
deliver to Congress evidence that Borrower has delivered, or caused to be
delivered to EA Israel, from a portion of the other proceeds of the Reg S
Offering, the sum of $6,300,000, representing the disbursement of the loan
by Borrower to EA Israel, together with the sum of $5,200, representing
Borrower's cash equity investment in EA Israel, in each case as permitted
pursuant to Section 2(b) of this Amendment.
(h) Within fifteen (15) days from the date hereof, Borrower shall
deliver to Congress evidence that Borrower has delivered, or caused to be
delivered to BarOn, from a portion of the remaining proceeds of the Reg S
Offering and the exercise of certain stock options previously issued by
Borrower, the sum of $500,000 representing Borrower's cash equity
investment in BarOn, as permitted pursuant to Section 2(b) of this
Amendment.
(i) Within fifteen (15) days from the date hereof, Borrower shall
deliver to Congress all instruments and documents evidencing the August
1995 Tanon Investment.
(j) Within fifteen (15) days from the date hereof, Borrower shall
deliver, or cause to be delivered to Congress, a Secretary's Certificate of
Directors' Resolutions evidencing the adoption and subsistence of
resolutions of the board of directors of Borrower approving the Millennium
Investment, the August 1995 Tanon Investment, the August 1995 BarOn
Investment, the EA Israel Investment and the other terms and provisions of
this Amendment.
7
<PAGE>
(k) Within fifteen (15) days from the date hereof, Borrower shall
deliver, or cause to be delivered to Congress, a Secretary's Certificate of
Directors' Resolutions evidencing the adoption and subsistence of
resolutions of the board of directors of Borrower ratifying all prior
amendments to the Financing Agreements and transactions thereunder.
(l) Within fifteen (15) days from the date hereof, on a best efforts
basis, and in any event within thirty (30) days from the date hereof,
Borrower shall deliver to Congress, the EA Israel Note and all other
documents and instruments evidencing the loan to EA Israel permitted
pursuant to Section 2(b) of this Amendment.
6. Conditions Precedent. The effectiveness of the amendments and consents
contained herein shall be subject to the satisfaction of the following
conditions precedent:
(a) the receipt by Congress from Borrower, in immediately available
funds, of the sum of $1,330,000, representing the remaining Reg S Offering
proceeds and proceeds of the exercise of certain stock options, after
taking into account the other uses of such proceeds permitted by this
Amendment, such sum to be applied by Congress to the outstanding revolving
loan Obligations of Borrower to Congress; and
(b) Borrower shall deliver to Congress an original of this Amendment,
duly authorized, executed and delivered by Borrower.
7. Miscellaneous.
(a) Headings. The headings listed herein are for convenience only and
do not constitute matters to be considered in interpreting this Amendment.
(b) Effect of this Amendment. Except as modified pursuant hereto, the
Financing Agreements are hereby specifically ratified, restated and
confirmed by all parties hereto as of the effective date hereof. To the
extent of a conflict between the terms of this Amendment and the other
Financing Agreements, the terms of this Amendment shall control. Any
acknowledgment or consent contained herein shall not be construed to
constitute a consent to any other or further action by Borrower or to
entitle Borrower to any other consent.
(c) Further Assurance. Borrower shall execute and deliver such
additional documents and take such additional action as may be necessary or
desirable, as determined by Congress, to effectuate the provisions and
purposes of this Amendment.
8
<PAGE>
(d) Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but
one and the same agreement.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: __________________________
Title: _______________________
AGREED:
ELECTRONIC ASSOCIATES, INC.
By:_________________________
Title: _____________________
9
EXHIBIT 10.255
FORM OF
AMENDMENT NO. 5 TO FINANCING AGREEMENTS
<PAGE>
FORM OF
AMENDMENT NO. 5 TO FINANCING AGREEMENTS
As of December 28, 1995
EA Industries, Inc., formerly known
as Electronic Associates, Inc.
185 Monmouth Parkway
West Long Branch, New Jersey 07764
Gentlemen:
Congress Financial Corporation, a California corporation (together
with its successors and assigns, "Congress") and EA Industries, Inc., formerly
known as Electronic Associates, Inc., a New Jersey corporation (together with
its successors and assigns, "Borrower") have entered into certain financing
arrangements pursuant to the Accounts Financing Agreement [Security Agreement],
dated August 13, 1993, between Congress and Borrower (the "Accounts Agreement"),
together with all supplements thereto, including, but not limited to, the
Covenant Supplement to Accounts Agreement, dated August 13, 1993, between
Congress and Borrower (the "Covenant Supplement"), as amended by Amendment No. 1
to Financing Agreements dated March 29, 1994, Amendment No. 2 to Financing
Agreements dated December 30, 1994, Amendment No. 3 to Financing Agreements
dated April 26, 1995 and Amendment No. 4 to Financing Agreements dated August
11, 1995, and various agreements, documents and instruments executed and/or
delivered in connection therewith or related thereto, (as the foregoing now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, collectively, the "Financing Agreements").
Pursuant to Regulation D of the Securities Act of 1933, as amended,
Borrower has, as of the date hereof, issued and sold convertible notes for the
aggregate purchase price of $10,000,000, which notes are convertible into shares
of Borrower's common stock (the "December 1995 Reg D Offering").
Borrower has requested that Congress amend the Financing Agreements to
evidence Congress' consent to (a) the issuance and sale of the convertible notes
pursuant to the December 1995 Reg D Offering, (b) an equity investment in the
amount of up to $500,000, to be made by Borrower in BarOn, funded with a portion
of the proceeds of the December 1995 Reg D Offering, and (c) an equity
investment to be made by Borrower in Tanon in the amount of up to $1,000,000,
funded with a portion of the proceeds of the December 1995 Reg D Offering.
Congress is willing to agree to so amend the Financing Agreements and so
consent, upon and subject to the terms and conditions contained herein.
<PAGE>
In consideration of the foregoing recitals, the parties hereto hereby
agree as follows:
1. Definitions.
(a) Amendments to Definitions. All references to "Electronic
Associates, Inc." in any of the Financing Agreements shall be deemed and each
such reference is hereby amended to refer to "EA Industries Inc." and shall
continue to mean Borrower, which has changed its corporate name to "EA
Industries, Inc.", and its successors and assigns.
(b) Additional Definitions. As used herein, the following terms
shall have the meanings given to them below, and the Financing Agreements shall
be deemed and are hereby amended to include, in addition and not in limitation,
the following definitions:
(i) "December 1995 BarOn Investment" shall mean the equity
investment by Borrower in or loan to BarOn in the amount of up to $500,000, as
permitted pursuant to Section 3(a) of this Amendment.
(ii) "December 1995 Reg D Offering" shall have the meaning
set forth in the recitals hereto.
(iii) "December 1995 Tanon Investment" shall mean the equity
investment by Borrower in or loan to Tanon in the amount of up to $1,000,000, as
permitted pursuant to Section 3(a) of this Amendment.
(iv) "GFL Convertible Notes" shall have the meaning set
forth in Section 4.3(g) of the Covenant Supplement, as added by Section 2 of
this Amendment.
(v) "GFL Note Purchase Agreements" shall have the meaning
set forth in Section 4.3(g) of the Covenant Supplement, as added by Section 2 of
this Amendment.
(c) Interpretation. For purposes of this Amendment, unless
otherwise defined herein, all capitalized terms used herein, including, but not
limited to, those capitalized terms used in the recitals hereto, shall have the
respective meanings set forth in the Financing Agreements.
2
<PAGE>
2. Indebtedness. The word "and" appearing at the end of Section 4.3(e)
of the Covenant Supplement is hereby deleted, a semicolon is hereby added to the
end of Section 4.3(f), and the following new Section 4.3(g) is hereby inserted
into the Covenant Supplement, immediately following Section 4.3(f) thereof:
"(g) Indebtedness evidenced by the Convertible Note, dated
December __, 1995, issued by Borrower payable to the order of GFL
Advantage Fund Limited, in the original principal amount of $6,000,000
and the Convertible Note dated December __, 1995 issued by Borrower
payable to the order of GFL Performance Fund Limited in the original
principal amount of $4,000,000, each as in effect on the date hereof
(collectively, the "GFL Convertible Notes"); provided, that, (i)
Borrower may only make regularly scheduled payments of principal and
interest when due, in accordance with the terms of the GFL Convertible
Notes (as in effect on the date hereof), except that, whenever the
terms of the GFL Convertible Notes or the Note Purchase Agreements
related thereto (collectively, the "GFL Note Purchase Agreements")
permit Borrower at its option to make any such payment in the form of
Borrower's common stock, Borrower shall make such payment in the form
of Borrower's common stock, rather than in cash or other property,
unless Congress otherwise provides its prior written consent, in its
sole discretion; (ii) Borrower shall not, and shall not permit any
Subsidiary to, directly or indirectly, (A) make any other prepayments
or other payment in respect of any such Indebtedness or (B) redeem,
retire, defease, purchase or otherwise acquire such Indebtedness, or
set aside or otherwise deposit or invest any sums for such purpose,
except that the GFL Convertible Notes may be converted to Borrower's
common stock to the extent permitted or required to be so converted in
accordance with the terms thereof or the GFL Note Purchase Agreements
or (C) amend, modify, alter or change the terms of the arrangements
relating thereto or any agreement or instrument evidencing such
Indebtedness, and (iii) Borrower and its Subsidiaries shall furnish to
Congress all notices, demands or other materials concerning such
Indebtedness, promptly after receipt thereof or concurrently with the
sending thereof, as the case may be."
3
<PAGE>
3. Permitted Loans and Investments.
(a) The word "and" appearing at the end of Section 4.5(q) of the
Covenant Supplement is hereby deleted, a semicolon is hereby added to the end of
Section 4.5(r), and the following new Sections 4.5(s) and 4.5(t) are hereby
inserted into the Covenant Supplement, immediately following Section 4.5(r)
thereof:
"(s) an additional cash equity investment by Borrower in or
loan to BarOn in the sum of up to $500,000, funded with a portion of
the proceeds of the December 1995 Reg D Offering, to be used by BarOn
for working capital purposes, but only to the extent permitted to be
so invested and used pursuant to the GFL Note Purchase Agreements; and
(t) an additional cash equity investment by Borrower in or
loan to Tanon in the sum of up to $1,000,000, funded with a portion of
the proceeds of the December 1995 Reg D Offering, to be used by Tanon
for working capital purposes, but only to the extent permitted to be
so invested and used pursuant to the GFL Note Purchase Agreements."
(b) Except as expressly set forth in Section 3(a) of this
Amendment or in the provisions of the Covenant Supplement as added by prior
written amendments to the Financing Agreements signed by Congress and Borrower,
Congress has not consented to or approved any prior, contemporaneous or future
investments by Borrower or its Subsidiaries in BarOn or Tanon, or loans to BarOn
or Tanon from Borrower or its Subsidiaries, whether or not provided for or
contemplated by the BarOn Investment Agreement or Tanon Acquisition Agreements.
(c) Without limiting the provisions of Section 3(b), except as
expressly set forth in Sections 4.5(s) and 4.5(t) of the Covenant Supplement as
added by this Amendment, Congress has not consented to or approved any
investment or loan by Borrower or its Subsidiaries funded with any of the
proceeds received from the December 1995 Reg D Offering, whether or not
permitted under the terms of the GFL Note Purchase Agreements, all of which
additional investments or loans by Borrower or its Subsidiaries shall require
Congress' prior written consent, whether or not disclosed to or discussed with
Congress or otherwise, and shall not be permitted for purposes of the Financing
Agreements, unless a further written consent or amendment executed by Congress
expressly with respect thereto is executed by Congress and delivered to Borrower
after the execution and delivery of this Amendment.
4
<PAGE>
4. Certain Inventory Loans.
(a) Section 1(a) of the Letter Agreement Re: Inventory Loans,
dated August 13, 1993, by Borrower in favor of Congress (the "Inventory Loan
Supplement") is hereby deleted in its entirety and the following substituted
therefor, effective as of the date hereof:
"a. 'Eligible Inventory' shall mean and include Inventory
consisting of first quality finished goods held for sale in the
ordinary course of our contract manufacturing business and raw
materials for our contract manufacturing business, in each case which
are located at our premises in the United States and are acceptable to
you in all respects. Inventory located at our leased premises shall
not, however, be deemed Eligible Inventory unless you have received a
written agreement, in form and substance satisfactory to you, from the
owner and/or lessor that (i) agrees to waive and release in your favor
any and all claims such owner/lessor may have against such Inventory,
and (ii) grants to you the right to enter and remain on the premises
in order to exercise your rights and remedies on the terms acceptable
to you. General criteria for Eligible Inventory may be established and
revised from time to time by you in your exclusive judgment. In
determining such acceptability, you may, but need not, rely on reports
and schedules of Inventory furnished to you by us, but reliance
thereon by you from time to time shall not be deemed to limit your
right to revise standards of eligibility at any time. In general,
except in your sole discretion, Eligible Inventory shall not include
work in process, components which are not part of finished goods,
spare parts, packaging and shipping materials, supplies used or
consumed in our business, Inventory at the premises of third parties
or subject to a security interest or lien in favor of any third party,
bill and hold goods, Inventory which is not subject to your perfected
security interest, returned and/or defective goods, slow-moving
inventory, "seconds", inventory purchased on consignment, or Custom
Inventory. As used herein, "Custom Inventory" shall mean Inventory of
circuit boards, sheetmetal work, components, or subassemblies which
are purchased, manufactured or assembled by or for us according to the
specifications of particular customers, or which are otherwise
non-standard, unique, proprietary or otherwise determined by you not
to be generally and readily saleable to a variety of customers in the
marketplace."
5
<PAGE>
(b) Section 2.b. of the Inventory Loan Supplement is hereby
deleted in its entirety and the following substituted therefor:
"b. Intentionally Omitted."
(c) All Obligations determined by Congress to be outstanding as
of the date hereof in respect of loans or advances previously made in respect of
"Custom Inventory", prior to giving effect to this Amendment, shall be repaid by
Borrower to Congress contemporaneously with the execution and delivery of this
Amendment, with a portion of the proceeds of the December 1995 Reg D Offering or
any other immediately available funds.
5. No Waiver. Congress has not waived, and is not by this Amendment
waiving, any existing or future Event of Default, and Congress reserves the
right, in its discretion, to exercise any or all of its rights and remedies
under the terms of the Financing Agreements as a result of any existing or
future Event of Default.
6. No Waiver of Terms of Prior Amendments. Notwithstanding anything
contained herein, or in any prior amendment to the Financing Agreements
(collectively, the "Prior Amendments"), Congress has not waived and is not
hereby waiving the conditions or requirements contained in the Prior Amendments
that Borrower deliver to Congress the documents, agreements and instruments
specified therein.
7. Representations, Warranties and Covenants.
Borrower hereby represents, warrants and covenants to and in favor
of Congress as follows, which representations, warranties and
covenants are continuing and shall survive the execution and
delivery hereof:
6
<PAGE>
(a) No Event of Default has occurred or exists as of the date
hereof, and no event has occurred or condition exists which, with notice or
lapse of time or both, would constitute an Event of Default.
(b) The agreements evidencing the December 1995 Reg D Offering,
and each of the related documents, agreements and instruments executed and/or
delivered in connection therewith have been duly authorized, executed and
delivered by the parties thereto, and none of such agreements, documents or
instruments or the consummation of the transactions contemplated thereby have or
will violate any applicable law or regulation or require the consent of any
governmental or regulatory body or other person that has not been obtained.
(c) Borrower has delivered, or caused to be delivered to
Congress, true, correct and complete copies of the agreements evidencing the
December 1995 Reg D Offering, including the GFL Notes and the GFL Note Purchase
Agreements, together with each of the documents, agreements and instruments to
be executed and/or delivered in connection with the transactions contemplated
thereunder.
(d) Borrower shall deliver to Congress all agreements and
documents relating to the December 1995 BarOn Investment, and hereby pledges and
shall deliver to Congress, as part of the Collateral, all securities,
instruments or other evidences of the December 1995 BarOn Investment.
(e) Borrower has delivered to Congress all agreements and
documents relating to the December 1995 Tanon Investment, and hereby pledges and
shall deliver to Congress, as part of the Collateral, all securities,
instruments or other evidences of the December 1995 Tanon Investment.
(f) Borrower shall execute and deliver to Congress, in form and
substance satisfactory to Congress, such additional UCC-1 financing statements
as Congress shall require, naming Congress, as secured party, and Borrower and
Electronic Associates, a tradename of Borrower, as debtor.
7
<PAGE>
8. Miscellaneous.
(a) Headings. The headings listed herein are for
convenience only and do not constitute matters to be considered in
interpreting this Amendment.
(b) Effect of this Amendment. Except as modified pursuant hereto,
the Financing Agreements are hereby specifically ratified, restated and
confirmed by all parties hereto as of the effective date hereof. To the extent
of a conflict between the terms of this Amendment and the other Financing
Agreements, the terms of this Amendment shall control. Any acknowledgment or
consent contained herein shall not be construed to constitute a consent to any
other or further action by Borrower or to entitle Borrower to any other consent.
(c) Further Assurances. Borrower shall execute and deliver such
additional documents and take such additional action as may be necessary or
desirable, as determined by Congress, to effectuate the provisions and purposes
of this Amendment.
(d) Counterparts. This Amendment may be executed in any number
of counterparts, but all of such counterparts shall together constitute but
one and the same agreement.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By:____________________________
Title:_________________________
AGREED:
EA INDUSTRIES, INC., formerly known as Electronic Associates, Inc.
By:____________________________
Title:_________________________
8
EXHIBIT 10.30
EA INDUSTRIES, INC.
1994 EQUITY INCENTIVE PLAN (AS AMENDED AND RESTATED)
<PAGE>
EA INDUSTRIES, INC.
1994 EQUITY INCENTIVE PLAN (AS AMENDED AND RESTATED)
1. PURPOSE
The purpose of this 1994 Equity Incentive Plan (the "Plan") is to
advance the interests of Electronic Associates, Inc. (the "Company") and its
subsidiaries by enhancing the ability of the Company to (i) attract and retain
employees and other persons or entities who are in a position to make
significant contributions to the success of the Company and its subsidiaries;
(ii) reward such persons or entities for such contributions; and (iii) encourage
such persons or entities to take into account the long-term interest of the
Company through ownership of shares ("Shares") of the Company's Common Stock
("Stock").
The Plan is intended to accomplish these goals by enabling the
Company to grant awards ("Awards") in the form of Options, Stock Appreciation
Rights, Restricted Stock or Deferred Stock, all as more fully described below.
2. ADMINISTRATION
The Plan will be administered by the Compensation Committee (the
"Committee") of the Board of Directors of the Company (the "Board"). The
Committee will determine the recipients of Awards, the times at which Awards
will be made and the size and type or types of Awards to be made to each
recipient and will set forth in such Awards the terms, conditions and
limitations applicable to it. Awards may be made singly, in combination or in
tandem. The Committee will have full and exclusive power to interpret the Plan,
to adopt rules, regulations and guidelines relating to the Plan, to grant
waivers of Plan restrictions and to make all of the determinations necessary for
this administration. In its discretion, the Board of Directors may elect to
administer all or any aspects of the Plan and to perform any of the duties or
exercise any of the rights delegated or granted to the Committee under the terms
of the Plan; provided, however, that the Board may not make such election if the
election would result in the failure of the Plan to comply with Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), at a time at which the Plan would otherwise be in compliance with such
rule. Such determinations and actions of the Committee (or the Board as the case
may be), and all other determinations and actions of the Committee (or the Board
as the case may be) made or taken under authority granted by any provision of
the Plan, will be conclusive and binding on all parties. Nothing in this
paragraph shall be construed as limiting the power of the Committee to make
adjustments under Section 11 or to amend or terminate the Plan under Section 16.
3. EFFECTIVE DATE AND TERM OF PLAN
Subject to the approval of the Plan by the Company's
shareholders*, the Plan will be deemed effective on May 17, 1994. Grants of
Awards under the Plan may be made prior to the receipt of shareholder approval,
subject to such approval of the Plan.
The Plan will terminate ten (10) years after the effective date of
the Plan, subject to earlier termination of the Plan by the Board pursuant to
Section 16. No Award may be granted under the Plan after the termination date of
the Plan, but Awards previously granted may extend beyond that date.
- --------
* Approved by the shareholders on June 28, 1994.
<PAGE>
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 11 below, the maximum
aggregate number of Shares of Stock that may be delivered for all purposes under
the Plan shall be six million (6,000,000)**.
If any Award requiring exercise by the Participant for delivery of
Stock is canceled or terminates without having been exercised in full, or if any
Award payable in Stock or cash is satisfied in cash rather than Stock, the
number of Shares of Stock as to which such Award was not exercised or for which
cash was substituted will be available for future grants of Stock except that
Stock subject to an Option canceled upon the exercise of an SAR shall not again
be available for Awards under the Plan unless, and to the extent that, the SAR
is settled in cash. Likewise, if any Award payable in Stock or cash is satisfied
in Stock rather than cash, the amount of cash for which such Stock was
substituted will be available for future Awards of cash compensation. Shares of
Stock tendered by a Participant or withheld by the Company to pay the exercise
price of an Option or to satisfy the tax withholding obligations of the exercise
or vesting of an Award shall be available again for Awards under the Plan, but
only to Participants who are not subject to Section 16 of the Exchange Act.
Shares of Restricted Stock forfeited to the Company in accordance with the Plan
and the terms of the particular Award shall be available again for Awards under
the Plan unless the Participant has received the benefits of ownership (within
the applicable interpretation under Rule 16b-3 under the Exchange Act), in which
case such Shares may only be available for Awards to Participants who are not
subject to Section 16 of the Exchange Act.
Stock delivered under the Plan may be either authorized but
unissued Stock or previously issued Stock acquired by the Company and held in
treasury. No fractional Shares of Stock will be delivered under the Plan and the
Committee shall determine the manner in which fractional share value will be
treated.
5. ELIGIBILITY AND PARTICIPATION
Those eligible to receive Awards under the Plan ("Participants")
will be persons in the employ of the Company or any of its subsidiaries
("Employees") and other persons or entities who, in the opinion of the
Committee, are in a position to make a significant contribution to the success
of the Company or its subsidiaries, including non-employee directors of the
Company or a subsidiary of the Company and consultants to the Company or a
subsidiary of the Company. A "subsidiary" for purposes of the Plan will be a
corporation in which the Company owns, directly or indirectly, stock possessing
50% or more of the total combined voting power of all classes of stock.
6. OPTIONS
a. Nature of Options. An Option is an Award entitling the
Participant to purchase a specified number of Shares at a specified exercise
price. Both "incentive stock options," as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") (referred to herein as an "ISO")
and non-incentive stock options may be granted under the Plan. ISOs may be
awarded only to Employees.
- --------
** Increase from 3,000,000 to 6,000,000 shares approved by the shareholders on
October 12, 1995.
2
<PAGE>
b. Exercise Price. The exercise price of each Option shall be
determined by the Committee, but in the case of an ISO shall not be less than
100% (110% in the case of an ISO granted to a ten (10%) percent shareholder) of
the Fair Market Value of a Share at the time the ISO is granted. For purposes of
this Plan, "Fair Market Value" shall have the same meaning as it does in the
provisions of the Code and the regulations thereunder applicable to ISOs. For
purposes of this Plan, "ten-percent shareholder" shall mean any Employee who at
the time of grant owns directly, or is deemed to own by reason of the
attribution rules set forth in Section 424(d) of the Code, Stock possessing more
than ten (10%) percent of the total combined voting power of all classes of
stock of the Company or any of its subsidiaries.
c. Duration of Options. In no case shall an Option be exercisable
more than ten (10) years (five (5) years, in the case of an ISO granted to a
"ten-percent shareholder" as defined in (b) above) from the date the Option was
granted.
d. Exercise of Options and Conditions. Options granted under any
single Award will become exercisable at such time or times, and on and subject
to such conditions, as the Committee may specify; provided, however, that no
Option will become exercisable until the expiration date of such Option if
subsequent to the effectiveness of the Plan, the Sale Price (as defined below)
of the Company's Common Stock does not equal or exceed $6.00 per share for ten
(10) consecutive trading days. For purposes of this Plan, the Sale Price of the
Company's Common Stock shall be the average of the high and low sale prices or,
in case no such sale takes place on such day, the average of the high bid and
low asked prices, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange-or, if the Common Stock is not then
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Common Stock
is listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the average of the high
bid and low asked prices in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the Common
Stock is not quoted by any such organization, the average of the high bid and
low asked prices as furnished by a professional market maker making a market in
the Common Stock selected by the Board of Directors. In addition, options will
not be exercisable unless the shares subject thereto have been approved for
listing on the New York Stock Exchange or such other exchange or quotation
system on which the Common Stock is then listed or quoted. Subject to the
conditions described above with respect to the Sale Price and listing of the
Common Stock, the Committee may at any time and from time to time accelerate the
time at which all or any part of the Option may be exercised.
e. Payment for and Delivery of Stock. Full payment for Shares
purchased will be made at the time of the exercise of the Option, in whole or in
part. Payment of the purchase price will be made in cash or in such other form
of consideration as the Committee may approve, including, without limitation,
delivery of Shares of Stock.
3
<PAGE>
7. STOCK APPRECIATION RIGHTS
a. Nature of Stock Appreciation Rights. A Stock Appreciation Right
(an "SAR") is an Award entitling the recipient to receive payment, in cash
and/or Stock, determined in whole or in part by reference to appreciation in the
value of a Share. In general, an SAR entitles the recipient to receive, with
respect to each Share as to which the SAR is exercised, the excess of the Fair
Market Value of a Share on the date of exercise over the Fair Market Value of a
Share on the date the SAR was granted. However, the Committee may provide at the
time of grant that the amount the recipient is entitled to receive will be
adjusted upward or downward under rules established by the Committee to take
into account the performance of the Shares in comparison with the performance of
other stocks or an index or indices of other stocks.
b. Grant of SARs. SARs may be granted in tandem with, or
independently of, Options granted under the Plan. An SAR granted in tandem with
an Option which is not an ISO may be granted either at or after the time the
Option is granted. An SAR granted in tandem with an ISO may be granted only at
the time the Option is granted.
c. Exercise of SARs. An SAR not granted in tandem with an Option
will become exercisable at such time or times, and on such conditions, as the
Committee may specify. An SAR granted in tandem with an Option will be
exercisable only at such times, and to the extent, that the related Option is
exercisable. An SAR granted in tandem with an ISO may be exercised only when the
market price of the Shares subject to the Option exceeds the exercise price of
such Option. The Committee may at any time and from time to time accelerate the
time at which all or part of the SAR may be exercised.
8. RESTRICTED STOCK
A Restricted Stock Award entitles the recipient to acquire Shares,
subject to certain restrictions or conditions, for no cash consideration, if
permitted by applicable law, or for such other consideration as determined by
the Committee. The Award may be subject to such restrictions, conditions and
forfeiture provisions as the Committee may determine, including, but not limited
to, restrictions on transfer, continuous service with the Company or any of its
subsidiaries; achievement of business objectives, and individual, unit and
Company performance. Subject to such restrictions, conditions and forfeiture
provisions as may be established by the Committee, any Participant receiving an
Award will have all the rights of a shareholder of the Company with respect to
Shares of Restricted Stock, including the right to vote the Shares and the right
to receive any dividends thereon.
9. DEFERRED STOCK
A Deferred Stock Award entitles the recipient to receive Shares to
be delivered in the future. Delivery of the Shares will take place at such time
or times, and on such conditions, as the Committee may specify. The Committee
may at any time accelerate the time at which delivery of all or any part of the
Shares will take place. At the time any Deferred Stock Award is granted, the
Committee may provide that the Participant will receive an instrument evidencing
the Participant's right to future delivery of Deferred Stock.
4
<PAGE>
10. TRANSFERS
No Award (other than an Award in the form of an outright transfer
of cash or Stock) may be assigned, pledged or transferred other than by will or
by the laws of descent and distribution and during a Participant's lifetime will
be exercisable only by the Participant or, in the event of a Participant's
incapacity, his or her guardian or legal representative.
11. ADJUSTMENTS
a. In the event of a stock dividend, stock split or combination of
Shares, recapitalization or other change in the Company's capitalization, or
other distribution to holders of the Company's Common Stock other than normal
cash dividends, after the effective date of the Plan, the Committee will make
any appropriate adjustments to the maximum number of Shares that may be
delivered under the Plan and to any Participant under Section 4 above.
b. In any event referred to in paragraph (a), the Committee will
also make any appropriate adjustments to the number and kind of Shares of Stock
or securities subject to Awards then outstanding or subsequently granted, any
exercise prices relating to Awards and any other provision of Awards affected by
such change, including the requirement that the Sale Price of the Common Stock
equal or exceed the threshold described in Section 6(d). The Committee may also
make such adjustments to take into account material changes in law or in
accounting practices or principles, mergers, consolidations, acquisitions,
dispositions or similar corporate transactions, or any other event, if it is
determined by the Committee that adjustments are appropriate to avoid distortion
in the operation of the Plan.
12. RIGHTS AS A SHAREHOLDER
Except as specifically provided by the Plan, the receipt of an
Award will not give a Participant rights as a shareholder; the Participant will
obtain such rights, subject to any limitations imposed by the Plan or the
instrument evidencing the Award, upon actual receipt of Shares. However, the
Committee may, on such conditions as it deems appropriate, provide that a
Participant will receive a benefit in lieu of cash dividends that would have
been payable on any or all Shares subject to the Participant's Award had such
Shares been outstanding.
13. CONDITIONS ON DELIVERY OF STOCK
The Company will not be obligated to deliver any Shares pursuant
to the Plan or to remove any restrictions or legends from Shares previously
delivered under the Plan until, (a) in the opinion of the Company's counsel, all
applicable federal and state laws and regulations have been complied with, (b)
if the outstanding Shares are at the time listed on any stock exchange, until
the Shares to be delivered have been listed or authorized to be listed on such
exchange upon official notice of notice of issuance, and (c) until all other
legal matters in connection with the issuance and delivery of such Shares have
been approved by the Company's counsel. If the sale of Shares has not been
registered under the Securities Act of 1933, as amended, the Company may
require, as a condition to exercise of the Award, such representations and
agreements as counsel for the Company may consider appropriate to avoid
violation of such Act and may require that the certificates evidencing such
Shares bear an appropriate legend restricting transfer. If an Award is exercised
by the Participant's legal representative, the Company will be under no
obligation to deliver Shares pursuant to such exercise until the Company is
satisfied as to the authority of such representative.
5
<PAGE>
14. TAX WITHHOLDING
The Company will have the right to deduct from any cash payment
under the Plan taxes that are required to be withheld and further to condition
the obligation to deliver or vest Shares under this Plan upon the Participant's
paying the Company such amount as it may request to satisfy any liability for
applicable withholding taxes. The Committee may in its discretion permit
Participants to satisfy all or part of their withholding liability by delivery
of Shares with a Fair Market Value equal to such liability or by having the
Company withhold from Stock delivered upon exercise of an Award, Shares whose
Fair Market Value is equal to such liability.
15. MERGERS; ETC.
In the event of any merger or consolidation involving the Company,
any sale of substantially all of the Company's assets or any other transaction
or series of related transactions as a result of which a single person or
several persons acting in concert own a majority of the Company's then
outstanding Stock (such merger, consolidation, sale or other transaction being
hereinafter referred to as a "Transaction"), all outstanding Options and SARs
shall become immediately exercisable and each outstanding share of Restricted
Stock and each outstanding Deferred Stock Award shall immediately become free of
all restrictions and conditions. Upon consummation of the Transaction, all
outstanding Options and SARs shall terminate and cease to be exercisable. There
shall be excluded from the foregoing any Transaction as a result of which (a)
the holders of Stock prior to the Transaction retain or acquire securities
constituting a majority of the outstanding voting Common Stock of the acquiring
or surviving corporation or other entity and (b) no single person owns more than
half of the outstanding voting Common Stock of the acquiring or surviving
corporation or other entity. For purposes of this Section, voting Common Stock
of the acquiring or surviving corporation or other entity that is issuable upon
conversion of convertible securities or upon exercise of warrants or options
shall be considered outstanding, and all securities that vote in the election of
directors (other than solely as the result of a default in the making of any
dividend or other payment) shall be deemed to constitute that number of shares
of voting Common Stock which is equivalent to the number of such votes that may
be cast by the holders of such securities.
In lieu of the foregoing, if there is an acquiring or surviving
corporation or entity, the Committee may by vote of a majority of the members of
the Committee who are Continuing Directors (as defined below), arrange to have
such acquiring or surviving corporation or entity or an Affiliate (as defined
below) thereof grant to Participants holding outstanding Awards replacement
Awards which, in the case of ISOs, satisfy, in the determination of the
Committee, the requirements of Section 425 (e) of the Code. The term "Continuing
Director" shall mean any director of the Company who (i) is not an Acquiring
Person or an Affiliate of an Acquiring Person and (ii) either was (A) a member
of the Board of Directors of the Company on the effective date of the Plan or
(B) nominated for his or her initial term of office by a majority of the
Continuing Directors in office at the time of such nomination. The term
"Acquiring Person" shall mean, with respect to any Transaction, each Person who
is a party to or a participant in such Transaction or who, as a result of such
Transaction, would (together with other Persons acting in concert) own a
majority of the Company's outstanding Common Stock; provided, however, that none
of the Company, any wholly-owned subsidiary of the Company, any employee benefit
plan of the Company or any trustee in respect thereof acting in such capacity
shall, for purposes of this Section, be deemed an "Acquiring Person." The term
"Affiliate", with respect to any Person, shall mean any other Person who is, or
would be deemed to be an "affiliate" or an "associate" of such Person within the
respective meanings ascribed to such terms in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended. The term
"Person" shall mean a corporation, association, partnership,
6
<PAGE>
joint venture, trust, organization, business, individual or government or any
governmental agency or political subdivision thereof.
16. AMENDMENTS AND TERMINATION
The Committee will have the authority to make such amendments to
any terms and conditions applicable to outstanding Awards as are consistent with
this Plan provided that, except for adjustments under Section 11 hereof, no such
action will modify such Award in a manner adverse to the Participant without the
Participant's consent except as such modification is provided for or
contemplated in the terms of the Award.
The Board may amend, suspend or terminate the Plan without
shareholder approval.
17. NO GUARANTEE OF EMPLOYMENT
The grant of an Award under this Plan shall not constitute an
assurance of continued employment for any period.
18. MISCELLANEOUS
This Plan shall be governed by and construed in accordance with
the laws of the State of New Jersey.
7
EXHIBIT 10.31
ELECTRONIC ASSOCIATES, INC.
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (AS AMENDED AND RESTATED)
<PAGE>
ELECTRONIC ASSOCIATES, INC.
1994 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (AS AMENDED AND RESTATED)
1. Purpose
The purpose of the Electronic Associates, Inc. 1994 Stock Option
Plan for Non-Employee Directors (the "Plan") is to promote the interests of
Electronic Associates, Inc. ("EAI") and its shareholders by strengthening EAI's
ability to continue to attract and retain the services of experienced and
knowledgeable independents non-employee directors for the benefit of EAI and its
shareholders and to provide an additional incentive for such directors to
continue to work for the best interests of EAI and its shareholders by
encouraging such directors to acquire an increased proprietary interest in EAI.
2. Shares Subject to the Plan
The aggregate number of shares of common stock ("Common Stock") of
EAI issuable upon exercise of options granted under this Plan shall not exceed
2,400,000*, subject to adjustment pursuant to Section 11 below. The shares shall
be made available from authorized and unissued Common Stock, or from Common
Stock issued and held as treasury shares, including shares purchased in the open
market or in private transactions, as shall be determined by the Board of
Directors of EAI (the "Board").
3. Effective Date of the Plan
This Plan shall become effective immediately on March 10, 1994
(the "Effective Date"), subject to the approval by the shareholders of EAI at
EAI's 1994 Annual Meeting of Shareholders of (A) the Plan, and (B) an amendment
to EAI's Certificate of Incorporation increasing the number of authorized shares
of Common Stock to 25,000,000.**
4. Duration of the Plan
This Plan shall terminate on the fifth anniversary of the
Effective Date (the "Date of Termination"), and no option shall be granted under
this Plan following the Date of Termination; provided, however, that grants of
options made prior to the Date of Termination may vest and be exercised
following such Date of Termination in accordance with their terms as set forth
in the Plan.
5. Nonstatutory Stock Options
All options granted under the Plan shall be nonstatutory stock
options not intended to qualify as "incentive stock options" as that term is
defined in Section 422 of the Internal Revenue Code of 1986, as amended.
- --------
* Increase from 400,000 to 2,400,000 shares approved by the shareholders on
October 12, 1995.
** Approved by the shareholders on May 17, 1994.
6. Administration of the Plan
The Plan shall be administered by the Board. The Board shall have
plenary authority to interpret the Plan and to take all other actions necessary
or advisable in connection with the administration of the Plan, provided that
all such determinations and actions are consistent with the terms and conditions
of the Plan. The Board's determinations of the matters referred to in this
Section 6 shall be conclusive.
7. Participation in the Plan
Each member of EAI's Board who is not otherwise an employee of EAI
or subsidiary of EAI and who has not been an employee of EAI or a subsidiary of
EAI for a period of at least one year prior to the grant of an option under the
Plan (the "Eligible Director") shall be eligible to participate in the Plan.
8. Option Grant Size and Grant Dates
An option to purchase 50,000 shares, subject to adjustment
pursuant to Section 11 of this Plan, of Common Stock of EAI is or shall be
granted to (a) each person who is an Eligible Director on the Effective Date,
and (b) each person who becomes an Eligible Director following the Effective
Date on the date the person is elected to the Board (the date any such person
receives a grant shall be referred to herein as the "Date of Grant") and an
additional option to purchase 10,000 shares (the "Chairman Option"), subject to
adjustment pursuant to Section 11 of this Plan, of Common Stock of EAI shall be
granted to (a) each person who is an Eligible Director on the Effective Date who
serves as Chairman of the Board of Directors of the EAI (the "Chairman of the
Board"), and (b) each person who becomes the Chairman of the Board following the
Effective Date and who is an Eligible Director at such time he becomes Chairman
of the Board. If an Eligible Director who was previously granted an option under
this Plan is no longer serving as a member of the Board (or Chairman of the
Board with respect to the Chairman Option), and thereafter is again elected or
appointed to the Board (or Chairman of the Board as the case may be), such
director shall be eligible to receive a second grant of an option pursuant to
this Plan to purchase shares of Common Stock of EAI only to the extent that the
previous option granted under this Plan did not vest and become exercisable.
9. Terms and Conditions of Options
(a) Option Agreement
Each option granted under the Plan shall be evidenced by an option
agreement (the "Agreement") duly executed on behalf of EAI and by the Eligible
Director to whom such option is granted and dated as of the applicable date of
grant. Each Agreement shall be signed on behalf of EAI by an officer or officers
delegated such authority by the Board using either manual or facsimile
signature. Each Agreement shall comply with and be subject to the terms and
conditions of the Plan. Any Agreement may contain such other terms, provisions
and conditions not inconsistent with the Plan as may be determined by the Board.
(b) Option Price
The option price per share with respect to each option granted to
Eligible Directors on the Effective Date shall be 100% of the fair market value
of the Common Stock on the Effective Date. Such fair market value shall be the
average of the high and low sales prices of the Common Stock on the New York
Stock Exchange consolidated tape on the Effective Date or, if for any reason
market prices of EAI Common
2
<PAGE>
Stock shall not be reported on the New York Stock Exchange consolidated tape on
the Effective Date, such other place as the market prices may be reported as
designated by the Board. The option price per share with respect to each option
granted subsequent to the Effective Date to an Eligible Director shall be 100%
of the fair market value of the Common Stock on the Date of Grant. Such fair
market value shall be the average of the high and low sales prices of the Common
Stock on the New York Stock Exchange consolidated tape on the Date of Grant or,
if for any reason market prices of EAI Common Stock shall not be reported on the
New York Stock Exchange consolidated tape on the Date of Grant, such other place
as the market prices may be reported as designated by the Board. If the Common
Stock is not traded on either the Effective Date or the Date of Grant, then the
fair market value on such date shall be the average of the high and low sales
prices of the Common Stock on the New York Stock Exchange consolidated tape on
the next preceding date on which the Common Stock was so traded.
(c) Term of Options
Each option granted to an Eligible Director on the Effective Date
shall expire ten (10) years from its Effective Date, and each option granted to
an Eligible Director following the Effective Date shall expire ten (10) years
from its Date of Grant; provided, that an option shall be subject to earlier
termination under subsection (h) below.
(d) Payment
Payment for shares as to which an option is exercised shall be
made in cash or personal check, in Common Stock of EAI owned by the option
holder having a market value on the date of exercise equal to the aggregate
option price, or in a combination of cash and Common Stock of EAI. In the event
that the option holder decides to pay in whole or in part in shares of EAI
Common Stock, such shares shall have been held by the option holder for at least
six (6) months and the option holder must submit written notification that is
binding and irrevocable of the number of shares that are to be used to pay the
option price. The market value of shares tendered to exercise an option shall be
the average of the high and the low prices of EAI Common Stock on the New York
Stock Exchange consolidated tape, or, if for any reason trading prices of EAI
Common Stock shall not be reported on the New York Stock Exchange consolidated
tape at the time of exercise, such other place where it shall be reported as the
Board may designate, on the day notice of the exercise of the option is given to
EAI if it is delivered before the close of trading on the New York Stock
Exchange or, if no transactions occurred on such day or if it is delivered after
the close of trading on the New York Stock Exchange, on the next succeeding day
on which such transactions take place.
(e) Exercise of Option
If the Plan is approved by EAI's shareholders, an option granted
to an Eligible Director shall become exercisable on a cumulative basis as
follows:
(1) 30% (A) immediately in the case of persons who are
Eligible Directors on the Effective Date, (B) upon election to the Board in the
ease of persons who are elected to the Board after the Effective Date;
(2) 15% on the first anniversary of the Date of Grant;
(3) 15% on the second anniversary of the Date of Grant;
3
<PAGE>
(4) 20% upon EAI's achievement of Operating Profitability
(as hereinafter defined) after the Date of Grant ("initial Operating
Profitability Date");
(5) 10% on the first anniversary of the Initial Operating
Profitability Date if EAI has also achieved Operating Profitability on such
first anniversary; and
(6) 10% on the second anniversary of the Initial Operating
Profitability Date if EAI has also achieved Operating Profitability on such
second anniversary; with fractional shares carried over and exercisable as a
whole in the final year; provided, however, that the option shall become
immediately exercisable if a Change in Control occurs.
For purposes of this Plan, "Operating Profitability" shall mean at
any time after a respective Date of Grant both of the following conditions are
satisfied: ( I ) a positive "Net Income From Operations" resulting from EAI's
operations in West Long Branch, New Jersey, Tucson, Arizona and Nogales, Sonora,
Mexico (the "Present Operations") for each of two consecutive fiscal quarters
immediately prior to such date in question (the "Calculation Date"; the precise
Calculation Date with regard to determining the Initial Operating Profitability
Date cannot be determined on the Effective Date), and (2) a positive aggregate
"Net Income From Operations" resulting from the Present Operations for the four
(4) fiscal quarters ended immediately prior to the Calculation Date. All such
accounting in connection with Operating Profitability shall be in accordance
with generally accepted accounting principles.
For purposes of this Plan, a "Change in Control" shall be deemed
to have occurred if (a) any individual, person (including any "person" defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as in effect on the
Effective Date (the "Act")), firm, corporation, partnership or other entity is
or becomes (other than pursuant to a merger or consolidation in which EAI's
stock is issued in which case Section I below is applicable) the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Act), directly or
indirectly, of securities of EAI representing 30% or more of the total voting
power of the outstanding voting securities of EAI having the right under
ordinary circumstances to vote at an election of the Board; (b) either (i)
Current Directors shall cease for any reason to constitute at least a majority
of the members of the Board (for these purposes, a "Current Director" shall mean
any member of the Board as of the Effective Date and any successor of a Current
Director whose election, or nomination for election by EAI's shareholders, was
approved by at least two-thirds of the Current Directors then on the Board) or
(ii) at any meeting of shareholders of EAI called for the purpose of electing
directors, a majority of the persons nominated by the Board for election as
directors shall fail to be elected; or (c) the shareholders of EAI approve (i) a
plan of complete liquidation of EAI, (ii) an agreement providing for the merger
or consolidation of EAI with another corporation where the shareholders of EAI,
immediately prior to the merger or consolidation, would not beneficially own,
immediately after the merger or consolidation, shares entitling such
shareholders to more than 50% of all votes to which all shareholders of the
corporation issuing cash or securities in the merger or consolidation would be
entitled under ordinary circumstances in the election of directors or where the
members of the Board, immediately prior to the merger or consolidation, would
not, immediately after the merger or consolidation, constitute a majority of the
Board of Directors of the corporation issuing cash or securities in the merger
or consolidation or (iii) an agreement (or agreements) providing for the sale or
other disposition (in one transaction or a series of transactions) of all or
substantially all the assets of EAI.
4
<PAGE>
(f) Time and Manner of Option Exercise
Any vested and exercisable option is exercisable in whole or in
part at any time or from time to time during the option period by giving written
notice, signed by the person exercising the option, to EAI stating the number of
shares with respect to which the option is being exercised, accompanied by
payment in full of the option exercise price for the number of shares to be
purchased. The date both such notice and payment are received by EAI shall be
the date of exercise of the stock option as to such number of shares. No option
may at any time be exercised with respect to a fractional share.
(g) Nontransferability of Options
During an option holder's lifetime, an option shall be exercised
only by him and shall not be transferable except as provided in paragraph (i)
below and as pursuant to a qualified domestic relations order as defined by the
Internal Revenue Code of 1986, as amended, or Title I of the Employee Retirement
Income Security Act, or the rules thereunder.
(h) Termination of Status as Non-Employee Director
Upon the termination of an option holder's status as an Eligible
Director for any reason other than death or Ineligibility (as defined below),
the Eligible Director's option privileges shall be limited to the shares which
were immediately purchasable by the Eligible Director at the date of such
termination, and such option privileges shall expire unless exercised within
thirty (30) days following such termination. In no event, however, shall an
option granted to an Eligible Director on the Effective Date be exercised after
the expiration of ten ( 10) years from the Date of Grant, nor shall an option
granted to an Eligible Director following the Effective Date be exercised after
the expiration of ten (10) years from the Date of Grant.
(i) Death of Option Holder
Upon the death of an option holder, all of the holder's options
shall become immediately exercisable, and his option privileges shall expire
unless exercised by the executor or administrator of the holder's estate, or by
a person who acquired the right to exercise such option by bequest or
inheritance or by reason of the death of the holder, within twelve (12) months
after the date of death. In no event, however, shall an option granted to an
Eligible Director on the Effective Date be exercised after the expiration of ten
(10) years from the Effective Date, nor shall an option granted to an Eligible
Director following the Effective Date be exercised after the expiration of ten
(10) years from the Date of Grant.
(j) Ineligibility of Option Holder
Upon the termination of an option holder's status as an Eligible
Director due to the ineligibility of the Eligible Director under EAI's Bylaws,
as in effect on the Effective Date, to stand for reselection ("Ineligibility"),
all of the Eligible Director's options shall become immediately exercisable, and
the Eligible Director's option privileges shall expire unless exercised within
one hundred eighty (180) days following such termination. In no event, however,
shall an option granted to an Eligible Director on the Effective Date be
exercised after the expiration of ten (10) years from the Effective Date, nor
shall an option granted to an Eligible Director following the Effective Date be
exercised after the expiration of ten (10) years from the Date of Grant.
5
<PAGE>
(k) Non-Shareholder
Neither the recipient of an option under the Plan nor an
optionee's successor or successors in interest, as described in subsection (i)
above, shall have any rights as a shareholder of EAI with respect to any shares
subject to an option granted to such person until the date of issuance of a
stock certificate for such shares.
10. Limited Stock Appreciation Rights
In the event of any tender or exchange offer for some or all of
EAI's Common Stock (other than an offer made by EAI or any of its subsidiaries)
each holder of an option may elect within sixty (60) days after the commencement
of such offer, in lieu of exercising such option, to receive from EAI a cash
payment equal to the product obtained by multiplying (i) the excess, if any, of
the then market price of EAI's Common Stock over the exercise price of such
option by (ii) the number of shares subject to such option; provided, however,
that no such election in lieu of exercise may be made within six (6) months from
the Effective Date for options granted prior to obtaining shareholder approval
and within six (6) months of the Date of Grant for options granted following
shareholder approval of the Plan; provided, however, that the Board has the sole
discretion to approve the holder's election to receive cash in lieu of the
exercise of such option. Such limited stock appreciation rights are subject to
the completion of the exchange or tender offer and the conditions of any
agreement to which EAI is a party.
11. Adjustment in Event of Capital Stock Changes
In the event of a reorganization, recapitalization, stock split,
stock dividend, combination of shares, merger, consolidation or any other change
in the corporate structure or shares of EAI, the Board shall make such
adjustment, if any, as it may deem appropriate in the number and kind of shares
authorized by this Plan or in the number, option price or kind of shares covered
by the options granted.
12. Reallocation of Lapsed Options
Shares covered by options which lapse or are terminated shall be
reallocated and made available for future grants of options under the Plan.
13. Governmental Regulations
This Plan, and the grant and exercise of options hereunder, shall
be subject to all applicable rules and regulations of governmental or other
authorities. No Common Stock may be purchased under this Plan until EAI has
taken all actions then required to comply with the Securities Act of 1933, as
amended, and any other applicable state securities laws and any exchange on
which the Common Stock may be listed.
14. No Guarantee of Director Status
Neither the Plan, nor the granting of an option, nor any other
action taken pursuant to the Plan shall constitute or be evidence of any
agreement or understanding, express or implied, that an Eligible Director has a
right to continue as a director for any period of time or at any particular rate
of compensation.
15. Expenses of the Plan
All costs and expenses of the adoption and administration of the
Plan shall be borne by EAI, and none of such expenses shall be charged to any
optionee.
6
<PAGE>
16. Indemnification
In addition to such other rights of indemnification as they may
have as members of the Board, the members of the Board shall be indemnified by
EAI against all costs and expenses reasonably incurred by them in connection
with any action, suit or proceeding to which they or any of them may be party by
reason of any action taken or failure to act under or in connection with the
Plan or any option granted thereunder, and against all amounts paid by them in
settlement thereof, or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except a judgment based upon a finding of bad faith;
provided that upon the institution of any such action, suit or proceeding, a
Board member shall, in writing, give EAI notice thereof and an opportunity, at
its own expense, to handle and defend the same before such Board member
undertakes to handle and defend it on such member's own behalf.
17. Discontinuance or Amendment
The Board may discontinue this Plan at any time and may amend it
from time to time. Plan amendments may be made without shareholder approval
except as required to satisfy Rule 16b-3 under the Securities Exchange Act of
1934 or other regulatory requirements, in each case as amended from time to
time; provided, however, that the provisions relating to the option recipient,
option grant size and option grant date contained in Section 8 above and option
price contained in Section 9(b) above, shall not be amended more than once every
six (6) months, other than to comport with changes in the Internal Revenue Code,
the Employee Retirement Income Security Act, or the rules thereunder. Other than
as contemplated by Section 11 above, no outstanding option may be revoked, or
altered in a manner unfavorable to the holder, without the consent of the
holder.
7
EXHIBIT 23.(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EA Industries, Inc:
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated March 25, 1996, included in this Form 10-K,
into the Company's previously filed Registration Statement File Nos. 333-257,
33-81892, 33-88056, 33-59509 and 33-59511.
/s/ Arthur Andersen LLP
----------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 25, 1996
1 of 2
EXHIBIT 23.(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EA Industries, Inc:
As independent public accountants of BarOn Technologies Ltd., we hereby consent
to the incorporation by reference of our report dated February 29, 1996,
included in this Form 10-K, into EA Industries, Inc.'s previously filed
Registration Statement File Nos. 333-257, 33-81892, 33-88056, 33-59509 and
33-59511.
/s/ Luboshitz, Kasierer & Co., C.P.A. (Isr.)
LUBOSHITZ, KASIERER & CO., C.P.A. (Isr.)
A Member Firm of Andersen Worldwide, S.C.
Tel Aviv, Israel
March 25, 1996
<PAGE>
2 of 2
EXHIBIT 23.(b)
March 31, 1996
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EA Industries, Inc:
As independent public accountants of BarOn Technologies Ltd., we hereby consent
to the incorporation by reference of our report dated February 29, 1996,
included in this Form 10-K, into EA Industries, Inc.'s previously filed
Registration Statement File Nos. 333-257, 33-81892, 33-88056, 33-59509 and
33-59511.
/s/ SHIMONY YOSEF
Yosef Shimony,
C.P.A. (Isr.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 9,830
<SECURITIES> 0
<RECEIVABLES> 12,347
<ALLOWANCES> 255
<INVENTORY> 12,978
<CURRENT-ASSETS> 44,514
<PP&E> 15,023
<DEPRECIATION> 6,952
<TOTAL-ASSETS> 66,625
<CURRENT-LIABILITIES> 25,938
<BONDS> 13,775
0
0
<COMMON> 63,397
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 66,625
<SALES> 77,085
<TOTAL-REVENUES> 77,085
<CGS> 76,422
<TOTAL-COSTS> 105,747
<OTHER-EXPENSES> 1,083
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,357
<INCOME-PRETAX> (30,894)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,894)
<EPS-PRIMARY> ($2.50)
<EPS-DILUTED> ($2.50)
</TABLE>
