SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 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
-----------------------------------------------------------------
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 $32,140,026 as of April 10, 1997.
As of April 10, 1997, there were 7,501,714 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 1997 -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. [ ]
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the directors
and executive officers of the Company.
Name Age Position with the Company
---- --- -------------------------
Irwin L. Gross 53 Chairman of the Board of Directors; President and
Chief Executive Officer
Jules M. Seshens (1) 53 Executive Vice President, Corporate Development,
and Director
Seth Joseph Antine (1) 29 Director
Mark S. Hauser 39 Director
William Spier (1) 62 Director
Paul E. Finer 52 Vice President of EAI, and President and Chief
Executive Officer of Tanon Manufacturing, Inc.
Howard P. Kamins 39 Vice President and General Counsel of EAI
Stanley O. Jester 48 Treasurer and Vice President, Finance
(1) Member of Compensation Committee.
Irwin L. Gross was elected a director of the Company in March 1994 to
fill a Class II vacancy, and was elected as Chairman of the Board of Directors
in April 1995. Mr. Gross was elected President and Chief Executive Officer
("CEO") of the Company in December, 1996. Since May 1984, Mr. Gross has served
as Chairman of the Board of Directors of ICC Technologies, Inc. ("ICC"). Mr.
Gross is also President and Chief Executive Officer of ICC and the Chief
Executive Officer of Engelhard/ICC. Mr. Gross served on the Board of Directors
of Powerspectrum Inc., a private company involved in telecommunications from
1992 to July 27, 1993. From January 1982 to May 1984, Mr. Gross was employed in
various capacities by International Mobile Machines Corporation, a publicly-held
company engaged in the development of telecommunications systems and computer
security devices, in which company he served as Executive Vice President from
January 1982 until October 1983 and as Director for Corporate Development from
October 1983 until April 1984. From 1968 to 1982, he was a practicing attorney
in Philadelphia, Pennsylvania. He holds a Bachelor of Science degree in
Accounting from Temple University, Philadelphia, Pennsylvania, and a Juris
Doctor degree from Villanova University, Villanova, Pennsylvania.
Jules M. Seshens was elected a director of the Company in May 1994 to fill
a Class I vacancy. Mr. Seshens was also elected Vice President, Corporate
Development of the Company in April 1995. He has been an independent venture
capitalist/entrepreneur since May 1982 in the computer, telecommunications,
energy services and environmental services industries. He has served as
President of The Best Company, an environmental services company, from 1989 to
1992; Corporate Vice President of Marketing and Sales for ICC
1
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from 1985 to 1989; and Executive Vice President of General Data Systems, Ltd., a
company engaged in providing consulting and computer-based products and services
from 1982 to 1985. From May 1969 until May 1982, Mr. Seshens was employed by
COMSHARE, Inc., an international computer services company, in various
management positions, including Vice President and General Manager of the
Microcomputer Division from July 1981 to May 1982 and, prior to that, as Vice
President and General Manager of the Telephone/Telecommunications Industries
Division. Mr. Seshens holds both a Bachelor of Science Degree and Master of
Business Administration Degree from Temple University, Philadelphia,
Pennsylvania.
Seth Joseph Antine was elected a director of the Company in May 1994 to
fill a Class I vacancy. Since April 1993 he has been an independent financial
consultant with an office in New York, New York. From January 1991 until April
1993, Mr. Antine was President of Gotham Food Corp., an owner and operator of
several restaurants in New York, New York. From January 1990 until January 1991
Mr. Antine was an accountant with Laventhol & Horwath. Mr. Antine received a
B.S. degree in accounting from Touro College in December 1989.
Mark S. Hauser was elected a director of the Company in October 1995 to
fill a Class I vacancy. Mr. Hauser is a Founder and Managing Director of Hauser,
Richards & Co. since 1991 and Tamarix Capital Corporation since 1994, investment
and merchant banking firms. Prior to founding Hauser, Richards & Co. in March
1991, Mr. Hauser was a Managing Director at Ocean Capital Corporation, a private
international investment banking firm. He has extensive experience in
international financial transactions including corporate mergers and
acquisitions, capital-raisings, and financial restructurings. Prior to joining
Ocean Capital Corporation in 1986, Mr. Hauser worked as a corporate finance and
banking attorney at the New York office of Rogers & Wells. Mr. Hauser is a
director of ICC Technologies, Inc., a public company which, through a joint
venture with Engelhard Corporation, is engaged in the business of designing,
manufacturing and selling desiccant wheel components and desiccant air
conditioners. In 1996, Mr. Hauser became a director of Global One Distribution &
Merchandising Inc., a publicly-held company engaged in the publishing of
licensed posters. Mr. Hauser is an Advisory Director of Direct Language
Communications, a multi-lingual communication service company, and Vice Chairman
of the Board of Directors of The Holmes Protection Group, Inc., a public
security alarm systems company. Mr. Hauser is a member of the New York Bar and
is admitted to practice law as a solicitor to the Supreme Court of New South
Wales in Australia. He has economics and law degrees from Sydney University and
a Master of Law degree from the London School of Economics and Political
Science.
William Spier was elected a director of the Company in October 1995 to fill
a Class III vacancy. Mr. Spier was Chairman of DeSoto, Inc., a detergent
manufacturer, from May 1991 to September 27, 1996, and has been the Chairman and
President of Sutton Holding Company, a New York-based investment company, since
1989. Mr. Spier is also currently a director of Geotek Industries, Inc., a
public telecommunications company (since June 1990), Video Lottery Technologies,
Inc., a public company in the business of manufacturing gaming equipment (since
March 1991), Integrated Technology USA, Inc. and Keystone Consolidated
Industries, Inc.
Paul E. Finer was named Vice President of the Company and President and
Chief Executive Officer of Tanon in February 1996. From August 1987 to September
1995, Mr. Finer served in various executive capacities at KDI Corporation.
During the period from March 1990 through September 1995, he was Vice President
of KDI Corporation and President of KDI Electronics Group. He also served
concurrently as President/CEO of KDI/Triangle Electronics, Inc., a manufacturer
of components and subassemblies for cellular communications and radar
applications as well as President/CEO of KDI Precision Products, Inc., a
manufacturer of devices for electronic sensing and ordinance applications. From
September 1995 through February 1996 Mr. Finer was an independent management
consultant. From January 1982 to August 1987, Mr. Finer served as President of
various subsidiaries of Keene Corporation, a manufacturer of a broad range of
diversified technologies servicing both the commercial and defense electronics
markets. Prior to that, he was President of Chomerics Materials, Inc. and served
in various executive capacities at Raytheon Co. Mr. Finer has a B.S. degree from
Suffolk University in Boston, Massachusetts .
Howard P. Kamins joined the Company in April 1996 and was elected General
Counsel and Vice President in August 1996. Mr. Kamins has over fifteen years of
experience in law, finance and management.
2
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From December 1992 through February 1996, Mr. Kamins was Vice President and
Assistant General Counsel of NovaCare, Inc., a NYSE listed rehabilitation
services company. From April 1989 through October 1992, Mr. Kamins was Vice
President, General Counsel and Secretary of the Rocking Horse Child Care Centers
of America, Inc., a public company operating child care centers and private
schools. Mr. Kamins holds a BA degree from the State University of New York and
a JD from Stanford Law School.
Stanley O. Jester was elected Treasurer and Vice President, Finance in
September 1995 following the resignation of Jonathan R. Wolter who was acting in
such capacity. Mr. Jester has over 25 years of experience in accounting, finance
and management. Prior to joining EAI in September 1995, Mr. Jester was most
recently Chief Financial Officer of Southdown Thermal Dynamics for 6 years, a
private environmental remediation firm. Prior to this, Mr. Jester was Chief
Financial Officer of Energy Assets International, a public firm in the oil and
gas business, for four years. From 1980 through 1985 he was Controller and then
Chief Financial Officer of International Oil and Gas, an international private
oil and gas exploration company. Mr. Jester was Division Controller and then
Controller of Bodcaw Company, a private billion dollar natural resource company,
from 1975 through 1980. From 1971 through 1975 he was with Coopers & Lybrand.
Mr. Jester has B.S. and M.S. degrees from LA Tech University and has been a CPA
for over 20 years.
Pursuant to the Company's Bylaws, the number of directors may be not less
than three nor more than nine. The Board of Directors is divided into three
classes, with staggered three year terms, and up to three directors are
permitted in each class. As determined by the Board of Directors, the number of
directors is presently set at five. There are presently three Class I directors,
one Class II director and one Class III director. Under the provisions of the
Company's Bylaws, a vacancy may be filled by the Board of Directors. Directors
elected by the Board to fill vacancies will stand for election at the earlier of
the next Annual Meeting of Shareholders or the next meeting of shareholders for
the election of directors.
Messrs. Seshens, Antine and Hauser are current Class I directors, Irwin L.
Gross is a current Class II director, and William Spier is a current Class III
director.
The executive officers of the Company are elected by, and serve at the
discretion of, the Board of Directors. Mr. Gross is a director of ICC
Technologies, Inc. Mr. Spier is a director of Geotek Industries, Inc., Video
Lottery Technologies, Inc., Integrated Technology USA, Inc. and Keystone
Consolidated Industries, Inc. Mr. Hauser is a director of ICC Technologies,
Inc., The Holmes Protection Group and Global One Distribution & Merchandising
Inc. No other director of the Company holds any other directorships in a company
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or subject to the
requirements of Section 15(d) of the Exchange Act or any company registered as
an investment company under the Investment Company Act of 1940.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires EAI's officers and directors,
and persons who own more than ten percent of a registered class of EAI's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish EAI with
copies of all Section 16(a) forms they file.
To the best of the Company's knowledge, based solely on a review of Forms
3, 4 and 5 and amendments thereto, during and with respect to its most recent
fiscal year, and written representations filed with the Company, all Section
16(a) filing requirements applicable to the Company's officers, directors and
greater than 10% beneficial owners during the fiscal year ended December 31,
1996 or prior fiscal years were complied with, with the exception that Irwin
Gross filed a Form 4 and a Form 5, each relating to the late report of one
transaction.
ITEM 11. EXECUTIVE COMPENSATION
3
<PAGE>
Compensation of Executive Officers
The following Summary Compensation Table sets forth, for the three fiscal
years ended December 31, 1996, the compensation for services in all capacities
earned by the persons who served as Chief Executive Officer and the three other
Executive Officers of the Company who received or earned compensation exceeding
$100,000 in the fiscal year ended December 31, 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------------- ----------------------------------------
Awards Payouts
----------------------------------------
Securities
Other Annual Restricted Underlying Long-Term All Other
Name and Principal Compen- Stock Options/ Incentive Plan Compen-
Position Year Salary ($) Bonus ($) sation ($) Award(s)($) SARs(#) (Payouts($) sation($)
-------- ---- ---------- --------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Irwin L. Gross 1996 -- -- -- -- 250,000(2) $ 75,000(7)
President and CEO (1) 1995 -- -- -- -- 2,500(3) 18,800(7)
1994 -- -- -- -- 10,000(4)
250,000(5)
65,500(6)
Paul E. Finer 1996 $212,300 $ -- $ -- -- 100,000(8) -- $ 1,600(9)
Vice President of EAI
and Chief Executive Officer
of Tanon Manufacturing, Inc.
Stanley O. Jester 1996 117,460 -- -- -- 50,000(10) -- 1,800(9)
Treasurer and Vice 1995 40,000
President, Finance
Jules M. Seshens 1996 -- -- -- -- 37,500(11) -- 150,000(14)
Executive Vice President 1995 -- -- -- -- -- 150,000(14)
Corporate Development 1994 -- -- -- -- 12,500(12) -- 20,800(14)
50,000(13)
Joseph R. Spalliero, Sr. 1996 238,400 -- -- -- -- -- --
Former President and 1995 240,000 450,000(15) -- -- 87,500(15) -- --
CEO (15)
</TABLE>
- ----------
(1) Mr. Gross was elected President and CEO of the Company on December 16,
1996.
(2) Options for 250,000 shares were granted in 1995 pursuant to the Company's
Equity Incentive Plan. The exercise price of such options was $29 per share
which was the fair market value at the date of the grant, exercisable at
the rate of 10% per year, cumulatively. Such options had a term of ten (10)
years. In May, 1996 these options were canceled and replaced with options
to purchase 250,000 shares of the Company's Common Stock. The exercise
price for such options is $19.50 per share which was the fair market value
of the Company's Common Stock on the date of the grant. See "Repricing of
Options".
(3) Options granted in 1995 pursuant to the Company's Non-Employee Directors
Plan. The exercise price for such options is $30.00 and such exercise price
was the fair market value of the Company's Common Stock on the date of the
grant.
(4) Options granted in 1994 pursuant to the Company's Non-Employee Directors
Plan. The exercise price for such options is $13.00 and such exercise price
was the fair market value of the Company's Common Stock on the date of the
grant.
4
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(5) Options granted in 1994, pursuant to the Company's Equity Incentive Plan.
The exercise price of such options is $17.76 which was the fair market
value at the date of the grant.
(6) Warrants granted in 1994 pursuant to a consulting agreement with Mr. Gross.
The exercise price of such warrants was $11.08 per share. The fair market
value of the Company's Common Stock on the date of the grant was $13.00 per
share. See "Certain Relationships and Related Transactions".
(7) Represents the annual stipend paid to Mr. Gross as a Director of the
Company. No additional compensation has been paid to Mr. Gross since he
became President and CEO. See "Compensation of Directors".
(8) Options granted in 1996 pursuant to the Company's Equity Incentive Plan.
The exercise price for such options is $16.00 per share, and such exercise
price is equal to the fair market value of the Company's Common Stock on
the date of the grant.
(9) Represents the Company's contribution to Company's 401(k) Savings Plan
(which covers employees who have completed six months of service).
(10) Options granted in 1996 pursuant to the Company's Equity Incentive Plan.
The exercise price for such options is $14.50 per share, and such exercise
price is equal to the fair market value of the Company's Common Stock on
the date of the grant.
(11) Options granted in 1996 pursuant to the Company's Equity Incentive Plan.
The exercise price for such options is $19.50 per share, and such exercise
price is equal to the fair market value of the Company's Common Stock on
the date of the grant.
(12) Options granted in 1994 pursuant to the Company's Non-Employee Directors
Plan. The exercise price for such options is $17.24 per share and such
exercise price is equal to the fair market value of the Company's Common
Stock on the date of the grant.
(13) Options granted in 1994 pursuant to the Company's Equity Incentive Plan.
The exercise price for such options is $17.76 per share and is equal to the
fair market value of the Company's Common Stock on the date of the grant.
(14) Represents the annual stipend paid to Mr. Seshens as a Director of the
Company. See "Compensation of Directors".
(15) On January 4, 1995, the Company acquired Tanon pursuant to a certain
acquisition agreement. Upon consummation of the acquisition of Tanon, the
Company, through its wholly-owned subsidiary, Tanon, entered into an
Employment Agreement with Joseph R. Spalliero, Sr. (formerly the Chairman
and President of Tanon), pursuant to which Mr. Spalliero became the
President and Chief Executive Officer of the Company in April 1995. The
Company granted to Mr. Spalliero, at closing, incentive and non-incentive
stock options to acquire an aggregate of 87,500 shares of Common Stock of
the Company at an exercise price equal to $34.50 per share, which was the
fair market value on January 4, 1995, the date of grant with respect to
76,250 shares, and $37.96 per share, which was 110% of the aforementioned
fair market value with respect to 11,250 shares on January 4, 1995, the
date of grant. Those options expired. Mr. Spalliero also received a signing
cash bonus of $300,000 upon execution and delivery of his Employment
Agreement. In addition, under his Employment Agreement, Mr. Spalliero
earned a $150,000 bonus during 1995, which was paid in January and February
1996.
5
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The following table sets forth information concerning the exercise of
options to purchase the Company's Common Stock by the named executive officers
during the fiscal year ended December 31, 1996 as well as the number and
potential value of unexercised options (both options which are presently
exercisable and options which are not presently exercisable) as of December 31,
1996.
Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Values of Unexercised Option/SARs
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
at Fiscal at Fiscal
Year-End (#) (2) Year-End ($) (3)
---------------- ----------------
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable
---- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Irwin L. Gross 322,000 / $ 0 /
President and CEO 256,000 $ 0
Paul E. Finer 15,000 / $ 0 /
Vice President of EAI and 85,000 $ 0
Chief Executive Officer of
Tanon Manufacturing, Inc.
Stanley O. Jester 16,667 / $ 0 /
Treasurer and Vice 33,333 $ 0
President, Finance
Jules M. Seshens 50,209 / $ 0 /
Executive Vice President 49,791 $ 0
Corporate Development
Joseph R. Spalliero, Sr. ---- $ ----
Former President and CEO (1) ---- $ ----
</TABLE>
- -----------
(1) Mr. Spalliero resigned as President and Chief Executive Officer and
Director of the Company on November 15, 1996. The balance of any
unexercised options have been canceled.
(2) For information regarding such options, see footnotes (2) - (6), (8),
(10) - (13) and (15), respectively to the "Compensation of Executive
Officers - Summary Compensation Table".
(3) Based on the closing price per share on the NYSE on Tuesday, December 31,
1996 of $1.625.
6
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The following table sets forth information concerning grants of options to
purchase Common Stock to the named executive officers during the fiscal year
ended December 31, 1996.
<TABLE>
<CAPTION>
Option/SAR Grants in Last Fiscal Year
Individual Grants
------------------------------------------------------------------------
Percent of
Number of Total
Securities Options/SARs
Underlying Granted to Grant Date
Options/SARs Employees in Exercise or Expiration Present
Name Granted (#)(2) Fiscal Year Base Price($/sh) Date Value (3)
---- -------------- ----------- ---------------- ---- ---------
<S> <C> <C> <C> <C> <C>
Joseph R. Spalliero -- -- -- -- --
Former President
and CEO (1)
Irwin L. Gross 250,000 39.6% $ 19.50 5/30/06 $ 0
President and CEO (4)
Paul E. Finer 100,000 15.8% 16.00 2/2/06 816,000
Vice President of EAI
and Chief Executive Officer
of Tanon Manufacturing, Inc.
Stanley O. Jester 50,000 7.9% 14.50 8/21/06 386,000
Treasurer and Vice President,
Finance
Jules M. Seshens, 37,500 5.9% 19.50 5/30/06 382,500
Executive Vice President,
Corporate Development
</TABLE>
- ---------
(1) Mr. Spalliero resigned as President and Chief Executive Officer and
Director of the Company on November 15, 1996.
(2) For information regarding such options, see footnotes (2), (8), (10) and
(11) respectively, to the "Compensation of Executive Officers Summary
Compensation Table".
(3) Based on the Black-Scholes American option pricing model adapted for use in
valuing executive stock options. The actual value, if any, an executive may
realize will depend on the excess of the stock price over the exercise
price on the date the option is exercised, so there is no assurance the
value realized by an executive will be at or near the value estimated by
the Black-Scholes model. The estimated values under the model are based on
arbitrary assumptions as to variables such as a risk free rate of return
based upon the interest rate on 10 year treasury notes on the date of
grant, stock price volatility over a three year period, dividend yield of
zero, no presumption of early exercise and no adjustment for
non-transferability or risk of forfeiture.
7
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(4) Represents the grant of options to purchase 250,000 shares of the Company's
Common Stock that replaced options to purchase 250,000 shares of the
Company's Common Stock. See "Repricing of Options".
Repricing of Options
The following table sets forth information concerning the repricing of
options during 1996.
10 Year Option/SAR Repricings
<TABLE>
<CAPTION>
Market Length of
Number of Price of Exercise Original
Securities Stock at Price at Option Term
Underlying Time of Time of Remaining at
Options/SARs Repricing Repricing New Date of
Repriced or or or Exercise Repricing or
Name Date Amended(#) Amendment($) Amendment($) Price($) Amendment
---- ---- ---------- ------------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Irwin L. Gross 5/30/96 250,000 $19.50 $29.00 $19.50 9 years
</TABLE>
In May, 1996, options to purchase 250,000 shares of the Company's Common
stock originally granted in 1995 were canceled and replaced with options to
purchase 250,000 shares of the Company's Common Stock with an exercise price
equal to the fair market value of the Company's Common Stock on the date of the
grant (the "New Options"). The New Option vests 1/3 on the date of the grant,
1/3 on the first anniversary and 1/3 on the second anniversary of the grant. The
New Option becoming effective was conditioned on Mr. Gross making an investment
in the Company on terms meeting the approval of the Board of Directors of the
Company. Such condition was met in October, 1996. The market price of the
Company's Common Stock on the date of the grant of the New Options was $19.50
per share and the market price of the Company's Common Stock at the time the
condition was satisfied was $5.50 per share.
Employment Agreements
On December 20, 1996, the Company entered into employment agreements with
the following executive officers: Paul Finer, Howard Kamins, Stanley Jester and
Jules Seshens. The agreements have an initial term expiring on December 31,
1997, and automatically renew for one year terms unless notice is given at least
180 days before expiration of the then current term. Each of the agreements
provide for severance in a lump sum equal to one year's salary and guideline
bonus, if any, continuation of benefits for 18 months, and vesting of any
unvested options if (i) the executive is terminated for any reason other than
due cause, (ii) a change of control of the Company occurs, (iii) Irwin L. Gross
is no longer Chairman, (iv) the executive's position is materially changed.
Compensation of Directors
In January, 1995 the Compensation Committee recommended, and the Board of
Directors approved, an increase in the annual stipend payable to Mr. Seshens
from $50,000 to $150,000 and an annual stipend of $75,000 payable to Mr. Gross.
Effective March 31, 1995, after receiving stipend payments for three months, the
stipend payable to Mr. Gross was voluntarily suspended. In March, 1996, the
Board of Directors approved an annual stipend of $75,000 payable to Mr. Gross in
consideration for his services to the Company. The Company continues to pay Mr.
Seshens an annual stipend of $150,000 in consideration for his services. The
other non-employee directors continued to serve during 1996 without receiving
any meeting fees or retainer fees. All non-employee directors are reimbursed by
the Company for all reasonable out-of-pocket expenses incurred in attending
Board and Committee meetings, as well as other business performed on behalf of
the Company.
8
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Non-Employee Directors Plan
In March 1994 the Board of Directors adopted, and in May 1994 the
shareholders approved, the Company's Non-Employee Directors Plan for
Non-Employee Directors (the "Non-Employee Directors Plan"). Following an
amendment to increase the number of shares reserved for issuance approved at the
1995 Annual Meeting of Shareholders held on October 12, 1995, an aggregate of
600,000 shares has been reserved for issuance under the Non-Employee Directors
Plan. Under the terms of the Non-Employee Directors Plan, each person who was an
Eligible Director (as defined in the Non-Employee Directors Plan) on March 10,
1994 (the "Effective Date") and each person who becomes an Eligible Director
thereafter will be granted an option to purchase 12,500 shares of Common Stock.
The Non-Employee Directors Plan also provides for the grant of an additional
option to purchase 2,500 shares of Common Stock to the individual serving as
Chairman of the Board on and after the Effective Date. There is in each case a
vesting date which may be accelerated under certain circumstances. As of March
31, 1997 options to purchase a total of 105,000 shares have been granted. The
exercise prices to purchase shares under such options are equal to the fair
market value of the Company's Common Stock on the date of grant of the
respective options. In approving the Non-Employee Directors Plan, the Board
considered a variety of factors, including the reduction in amount and
subsequent suspension of payment of fees payable to non-employee directors of
the Company, the significant commitment of time required from members of the
Board to address the issues arising out of the financial difficulties
experienced by the Company in recent periods and the importance to the Company
and its shareholders of attracting and retaining the services of experienced and
knowledgeable independent directors. Only non-employee directors of the Company
may participate in the Non-Employee Directors Plan. The Chief Executive Officer,
other executive officers, officers and employees of the Company are not eligible
to participate in such plan. No options were granted under the plan in 1996.
Equity Incentive Plan On May 17, 1994, the Board of Directors adopted the
Company's Equity Incentive Plan, which was approved by the shareholders of the
Company at the Special Meeting of Shareholders held on June 28, 1994. The Equity
Incentive Plan provides for the granting of awards ("Awards") to directors
(whether or not employees), officers, employees and consultants in the form of
stock options, stock appreciation rights ("SARs"), restricted stock awards
("Restricted Stock Awards") and deferred stock awards ("Deferred Stock Awards").
The variety of awards authorized by the Equity Incentive Plan is intended to
give the Company flexibility to adapt the Company's compensation practices as
the business environment in which it operates changes. The Board of Directors
believes that the Equity Incentive Plan provides a method whereby certain
directors, officers, employees and consultants can share in the long-term growth
of the Company. Following an amendment to increase the number of shares reserved
for issuance approved at the 1996 Annual Meeting of Shareholders held on May 30,
1996, the aggregate number of shares of Common Stock reserved for issuance under
the Equity Incentive Plan is 2,250,000 shares. During 1996 options to purchase
37,500 shares were granted to Mr. Seshens, a non-employee director of the
Company with an exercise price equal to the fair market value of the Company's
Common Stock on the date of grant. Also in May, 1996, options to purchase
250,000 shares of the Company's Common stock originally granted to Mr. Gross,
President, CEO and Chairman of the Board in 1995 were canceled and replaced with
options to purchase 250,000 shares of the Company's Common Stock with an
exercise price equal to the fair market value of the Company's Common Stock on
the date of the grant (the "New Options"). The New Options will vest ratably
over three years and have a term of ten (10) years. The New Options becoming
effective is conditioned on Mr. Gross making an investment in the Company on
terms that meet the approval of the Board of Directors of the Company. Such
condition was met in October, 1996. The market price of the Company's Common
Stock on the date of the grant of the New Options was $19.50 per share and the
market price of the Company's Common Stock at the time the condition was
satisfied was $5.50 per share.
ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE
Interlocks and Insider Participation in Compensation Decisions
9
<PAGE>
The members of the Compensation Committee for the Company in 1996 were Seth
Joseph Antine, William Spier and Jules M. Seshens; Mr. Seshens was an officer
of, and a consultant to, the Company in 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 31, 1997, information with
respect to the ownership of the Company's outstanding Common Stock by (i) each
person who is known to the Company to be the beneficial owner of more than 5% of
the Company's outstanding shares of Common Stock, (ii) each director and nominee
for director, (iii) each of the Company's executive officers named in the
Summary Compensation Table, and (iv) all executive officers and directors as a
group. Unless otherwise indicated, each individual has sole voting and
investment power with respect to the shares beneficially owned by him.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Beneficial Ownership Percent
Address of (number of shares of
Beneficial Owner* Position of Common Stock) Class
----------------- -------- ---------------- -----
<S> <C> <C> <C>
Joseph R. Spalliero, Sr. Former President, 182,109 2.42%
CEO and Director
Irwin L. Gross President, Chief 492,000 (1)(2) 6.15%
Executive Officer and
Chairman of the Board
Jules M. Seshens Executive Vice 50,209 (3)(5) (4)
President, Corporate
Development; and
Director
Seth Joseph Antine Director 22,955 (6)(7)(8) (4)
Mark S. Hauser Director 38,959 (9)(10) (4)
William Spier Director 22,292 (9) (4)
Paul E. Finer Vice President 15,000 (11) (4)
Stanley O. Jester Vice President, 16,667 (12) (4)
Finance and Treasurer
(Chief Financial
Officer)
Broad Capital Associates, Inc. None 326,472 (13) 4.16%
152 W. 57th Street
New York, NY 10019
All directors and executive officers 658,082 (1)-(13) 8.06%
as a group (8 persons)
</TABLE>
- -----------
* Addresses are included only for persons who beneficially own more than 5%
of the outstanding Common Stock.
10
<PAGE>
(1) Includes options to purchase 6,500 shares of Common Stock granted pursuant
to the 1994 Stock Option Plan for Non-Employee Directors (the "Non-Employee
Directors Plan"). See "Compensation of Directors." Does not include options
to purchase 6,000 shares granted under the Non-Employee Directors Plan
which are not currently exercisable.
(2) Includes warrants to purchase an aggregate of 65,500 shares of Common Stock
issued by the Company to Mr. Gross, in connection with his retention as a
consultant to the Company in March 1994. Also includes options to purchase
166,667 shares of Common Stock granted under the Company's Equity Incentive
Plan but does not include options to purchase 83,333 shares also granted at
the same time pursuant to the Company's Equity Incentive Plan which are not
currently exercisable. Includes options to purchase 83,333 shares granted
by the Company to Mr. Gross pursuant to the Company's Equity Incentive Plan
but does not include options to purchase 166,667 which are not currently
exercisable. See "Compensation of Executive Officers - Equity Incentive
Plan" and "Transactions with Management and Others." Does not include
20,000 shares of Common Stock held of record by irrevocable trusts for the
benefit of the children of Mr. Gross with respect to which an independent
trustee exercises voting and investment power. Mr. Gross disclaims
beneficial ownership of such shares. Includes 150,000 shares of Common
Stock into which certain 7% Convertible Notes held by Mr. Gross are
currently convertible. Does not include 1,266,667 shares of Common Stock
into which certain 7% Convertible Notes are currently convertible, which
are held by irrevocable trusts for the benefit of the children of Mr. Gross
with respect to which an independent trustee exercises voting and
investment power. Mr. Gross disclaims beneficial ownership of such shares.
Does not include 458,286 shares issuable upon conversion of certain 10%
Series A Convertible Notes of the Company held by Mr. Gross which are not
currently convertible. Does not include 476,000 shares issuable upon
conversion of certain 10% Series A Convertible Notes held by certain family
related trusts with respect to which an independent trustee exercises
voting control and investment power, which are not currently convertible.
Mr. Gross disclaims beneficial ownership of such shares.
(3) Includes currently exercisable options to purchase 42,709 shares of Common
Stock granted under the Company's Equity Incentive Plan, but does not
include options to purchase 44,791 shares granted pursuant to that Plan,
which are not currently exercisable.
(4) Represents less than 1% of the outstanding shares of Common Stock.
(5) Includes currently exercisable options to purchase 7,500 shares of Common
Stock granted pursuant to the Company's Non-Employee Directors Plan. Does
not include options to purchase 5,000 shares granted under the Non-Employee
Directors Plan which are not currently exercisable. See "Compensation of
Directors".
(6) Includes 1,471 shares of Common Stock owned by Mr. Antine. Also includes
Class A Warrants to purchase 1,471 shares of Common Stock and Class B
Warrants to purchase 1,471 shares of Common Stock. All such warrants are
exercisable immediately.
(7) Includes currently exercisable options to purchase 1,875 shares of Common
Stock granted pursuant to the Company's Non-Employee Directors Plan. Does
not include options to purchase 5,000 shares granted under the Non-Employee
Directors Plan which are not currently exercisable. See "Compensation of
Directors."
(8) Includes currently exercisable options to purchase 16,667 shares of Common
Stock granted under the Company's Equity Incentive Plan, but does not
include options to purchase 16,666 shares granted pursuant to that Plan,
which are not currently exercisable.
(9) Includes currently exercisable options to purchase 5,625 shares of Common
Stock granted pursuant to the Company's Non-Employee Directors Plan. Does
not include options to purchase 6,875 shares granted under the Non-Employee
Directors Plan which are not currently exercisable. Also includes currently
exercisable options to purchase 16,667 shares of Common Stock granted under
the Company's Equity Incentive Plan, but does not include options to
purchase 33,333 shares granted pursuant to that Plan, which are not
currently exercisable. See "Compensation of Directors."
(10) Includes options to purchase 16,667 shares of Common Stock granted by the
Company to Mr. Hauser pursuant to the Company's Equity Incentive Plan in
connection with services he performed for the Company related to a certain
joint venture with Israel Aircraft Industries, an Israeli corporation (the
"Joint Venture"). Does not include options to purchase 8,333 shares granted
under such plan which are not currently exercisable.
(11) Includes currently exercisable options to purchase 15,000 shares of Common
Stock granted under the Company's Equity Incentive Plan, but does not
include options to purchase 85,000 shares granted pursuant to that Plan,
which are not currently exercisable.
(12) Includes currently exercisable options to purchase 16,667 shares of Common
Stock granted under the Company's Equity Incentive Plan, but does not
include options to purchase 33,333 shares granted pursuant to that Plan,
which are not currently exercisable.
11
<PAGE>
(13) Includes options to purchase 60,714 shares granted to Broad Capital in July
1995 pursuant to the Company's Equity Incentive Plan. Also includes Class B
Warrants to purchase 88,236 shares of Common Stock held by the 1995
Huberfeld Family Charitable Income Trust ("Huberfeld Trust"), in which Mr.
Murray Huberfeld is the sole voting trustee, and Class B Warrants to
purchase 88,236 shares of Common Stock held by the 1995 Bodner Family
Charitable Income Trust ("Bodner Trust"), in which Mr. David Bodner is the
sole voting trustee. Messrs. Huberfeld and Bodner are principals of Broad
Capital. Each of Broad Capital, the Huberfeld Trust and the Bodner Trust
disclaim beneficial ownership in the shares beneficially owned by each of
the other parties. See "Transactions with Management and Others -
Consulting Agreement with Broad Capital."
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
Spalliero Separation Agreement
Effective November 15, 1996, Joseph R. Spalliero resigned as President and
Director of the Company. By letter agreement, effective from the expiration of
Mr. Spalliero's employment agreement on January 3, 1997 through December 31,
1997 Mr. Spalliero has agreed to serve as an independent sales representative
for Tanon. Mr. Spalliero will be paid $5,000 per month plus a commission for
sales on a basis equivalent to that of other sales representatives. In addition,
Mr. Spalliero agreed not to sell or transfer more than 25,000 shares of Common
Stock of the Company during any calendar quarter through December 31, 1998.
Consulting Agreement with Irwin L. Gross
The Company entered into an agreement with Irwin L. Gross in March 1994
pursuant to which Mr. Gross will provide consulting services and financial
advice, for a term of five years ending March 1999. In consideration for such
services Mr. Gross received a warrant to purchase 65,500 shares of the Company's
Common Stock exercisable 50% on the first anniversary and 50% on the second
anniversary of the date of grant at a price of $11.08 per share until March 21,
1999. The closing price of the Company's Common Stock on the date of grant was
$13.00, as reported on the NYSE.
Consulting Agreement with Broad Capital
In January 1995, the Company entered into a consulting agreement with Broad
Capital Associates, a financial consulting and advisory company in which Murray
Huberfeld and David Bodner are principals. Broad Capital Associates was engaged
to provide financial consulting services to the Company. Such agreement was
amended on April 27, 1995 to expand the services of Broad Capital Associates,
cancel the options originally granted by the Company in consideration for such
services, and to grant new options to Broad Capital Associates for such
services. On April 27, 1995, in consideration of investment banking services,
the Board of Directors granted to Broad Capital Associates ("Broad"), options to
acquire 93,750 shares of common stock of the Company, exercisable 33 1/3% on the
date of grant, 33 1/3% on the first anniversary, and 33 1/3% on the second
anniversary of the April 27, 1995 date of grant at an exercise price of $32.75
per share which is equal to the fair market value on the date of grant. The
exercise price of such options was subsequently reduced to $18.00 per share and
then increased to $20.00 per share but automatically reverted to $32.75 per
share as of March 1, 1996.
In August 1996, the exercise price of such options was reduced to $11.20 per
share, exercisable immediately, but will automatically revert to the terms of
the original grant on August 1, 1997. On September 3, 1996 Broad exercised its
option to purchase 89,286 of such shares at $11.20 per share.
On July 5, 1995, in connection with the formation of the Joint Venture with
IAI , the Board of Directors granted Broad options to purchase 106,250 shares of
the Company's Common Stock at an exercise price of $32.50
12
<PAGE>
which options vest and are exercisable 33 1/3% on the date of grant, 33 1/3% on
the first anniversary of the date of the grant, and 33 1/3% on the second
anniversary of the date of the grant. Such options were subsequently amended to
an exercise price of $18.00 per share and which reverted to an exercise price of
$32.50 on March 1, 1996.
On November 21, 1995 Broad exercised its option to purchase 50,000 of such
shares at $18.00 per share. In consideration for such exercise, the exercise
period for the options to purchase the remaining 56,250 shares was extended for
an additional period of six months and the exercise price was increased from
$18.00 to $20.00 per share. In consideration of Broad's commitment to purchase
89,286 shares of the Company's Common Stock from the April 27, 1995 grant, the
options to purchase the remaining 56,250 shares of the July 5, 1995 grant were
amended to an exercise price of $11.20 in August, 1996 but will revert to $32.50
on August 1, 1997.
On September 3, 1996, also in consideration for Broad's commitment to
purchase 89,286 shares of the Company's Common Stock from the April 27, 1995
grant, the Board of Directors granted Broad warrants to purchase 89,286 shares
of the Company's Common Stock at an exercise price of $12.00 per share until
July 31, 1997 and thereafter at $32.50 per share, expiring on July 5, 2000.
Investment by Irwin L. Gross
On August 19, 1996, GFL Advantage Fund transferred and assigned its
$2,070,000 outstanding principal amount note of the Company to Irwin L. Gross,
Chairman of the Company and certain related family trusts ("the "Note Holders").
In connection with such assignment, the Company canceled the prior note held by
GFL Advantage Fund and reissued certain Convertible Notes of the Company in the
aggregate principal amount of $2,070,000 due December 29, 1997 (the "Original
Convertible Notes") to the Note Holders. These Original Convertible Notes had a
maturity date of December 29, 1997 and were convertible into shares of the
Company's Common Stock at the fixed conversion price per share of $2.67 (pre
Reverse Stock Split basis). On February 6, 1997, the Company amended the
Original Convertible Notes (the "Convertible Notes") by (i) increasing the
aggregate principal amount of such notes to $2,725,000 (the purchase price paid
by the Note Holders for the Original Convertible Notes) and (ii) reducing the
fixed conversion price of such notes to $1.50 per share, such amendments were
made in consideration of the Note Holders foregoing interest and making
available certain other loans to the Company.
During the period beginning on October 25, 1996 and ending on April 10,
1997, the Company has borrowed a total of $4,520,000 from the Chairman of its
Board of Directors, certain related trusts and unaffiliated investors. These
loans are represented by certain 10% Series A Convertible Notes (the "Series A
Notes") issued by the Company. The Series A Notes will mature on January 22,
1999 and are convertible at the option of the holder (i) after January 1, 1998,
into shares of Common Stock of the Company at a conversion price of $3.50 per
share, or (ii) into shares of Common Stock of Tanon after completion of an
initial public offering of shares of Common Stock of Tanon at a conversion price
equal to the quotient of (a) twenty five million dollars ($25 million), divided
by (b) the number of shares of Common Stock of Tanon that were issued and
outstanding at the close of business on the day immediately prior to the
effective date of the registration statement covering the shares of Common Stock
of Tanon offered in such initial public offering, without giving effect to the
number of shares of Common Stock of Tanon being offered in such initial public
offering.
The Series A Notes bear interest at the rate of 10% per annum, payable
annually in arrears on January 15, 1998 and January 22, 1999. Interest is
payable at the option of the holder in cash or stock of the Company or Tanon at
the conversion prices described above. Repayment of the Series A Notes will be
secured by a second lien on the stock of Tanon held by the Company and on
substantially all the assets of Tanon. These notes are subordinated to amounts
owed by Tanon to Schroder and the ability of Tanon to distribute or loan funds
to the Company to make interest payments on the Series A Notes is restricted
pursuant to the Schroder Loan Facility.
Seshens Consulting Agreement
13
<PAGE>
Jules M. Seshens, an officer and director of the Company provided
management services to BarOn on a consulting basis during 1995, 1996 and 1997.
BarOn has agreed to pay Mr. Seshens $75,000 per annum for such services.
14
<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/ Stanley O. Jester
---------------------
Stanley O. Jester, Treasurer
and Vice President - Finance
Chief Financial Officer
(Principal Financial and Chief Accounting Officer)
Dated: April 30, 1997
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:
Signature Title Date
/s/ Irwin L. Gross Chairman of the Board April 30, 1997
- -------------------------------- and President
Irwin L. Gross
/s/ Stanley O. Jester Treasurer and Vice April 30, 1997
- -------------------------------- President, Finance
Stanley O. Jester
(Principal Financial and
Accounting Officer)
/s/ Jules M. Seshens Executive Vice President April 30, 1997
- -------------------------------- and Director
Jules M. Seshens
/s/ Mark S. Hauser Director April 30, 1997
- --------------------------------
Mark S. Hauser
15
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No.
- -----------
23 Consent of Independent Public Accountants
27 Financial Data Schedule
16
EXHIBIT 23
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 April 15, 1997, included in this Form 10-K/A, into
the Company's previously filed Registration Statement File Nos. 333-257,
33-81892, 33-88056, 33-59509, 33-59511, 333-06149 and 333-12691.
/s/ Arthur Andersen LLP
----------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
April 30, 1997
<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, 1996 AND
THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> $461
<SECURITIES> 0
<RECEIVABLES> 12,311
<ALLOWANCES> 1,100
<INVENTORY> 10,068
<CURRENT-ASSETS> 22,319
<PP&E> 18,581
<DEPRECIATION> (8,059)
<TOTAL-ASSETS> 50,971
<CURRENT-LIABILITIES> 31,485
<BONDS> 8,109
0
0
<COMMON> 80,535
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 50,971
<SALES> 81,625
<TOTAL-REVENUES> 81,625
<CGS> 81,145
<TOTAL-COSTS> 93,907
<OTHER-EXPENSES> 5,186
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,559
<INCOME-PRETAX> (29,954)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,954)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,954)
<EPS-PRIMARY> $(6.24)
<EPS-DILUTED> $(6.24)
</TABLE>
