SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
[Amendment No. 1]
EAC Industries, Inc.
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Peter B. Fritzsche
Chairman of the Board and Chief Executive Officer
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Common Stock
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[to come]
(CUSIP Number of Class of Securities)
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Peter B. Fritzsche
EAC Industries, Inc.
2111 Claridge Lane
Northbrook, IL 60062-8615
(847) 509-8657
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation 14C [17
CFR 240.14c-1 to 240.14c101] or Rule 13e-3(c) [Section 240.13e-3(c)] under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [X]
Calculation of Filing Fee
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Transaction valuation is based on approximately Amount of filing fee
70,000 shares being purchased at $.10 per share cash. $14.00
------
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[ ] Check box if any part of the fee is offset as provided by Rule O-11 (a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $14.00
Form or Registration No.: Rule 13e-3 Transaction Statement
Filing Party: EAC Industries, Inc.
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a) EAC Industries, Inc. 2111 Claridge Lane, Northbrook, Illinois
60062-8615
(b) Common Stock, $.10 per share, 2,885,521 shares outstanding as of
August 31, 1999, which were held by approximately 750 shareholders of record.
(c) The principal market in which such securities are being traded is the
over-the-counter market. The range of high and low bid quotations for each
quarterly period during the past two years, and the source of such quotations is
as follows. These quotations are inter-dealer quotations, without retail mark-up
or mark-down, and may not necessarily represent actual transactions. Also, due
to the very light trading volume, these quotations may not necessarily reflect
the true value of the stock.
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QTR. QTR.
ENDED HIGH LOW ENDED HIGH LOW
----- ---- --- ----- ---- ---
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9/30/99 0.10 0.02 9/30/98 0.0125 0.0938
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6/30/99 0.03 0.01 6/30/98 0.13 0.07
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3/31/99 0.10 0.03 3/31/98 0.13 0.10
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12/31/98 0.125 0.07 12/31/97 0.19 0.10
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9/30/97 0.19 0.10
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Source: National Quotation Bureau OTC Bulletin Board
(d) No dividends have been paid during the past two fiscal years with
respect to such class of securities. The restriction on the issuer's present or
future ability to pay such dividends includes New York corporate law which
requires that dividends be paid out of retained earnings (the issuer has a
substantial negative retained earnings account), unless other statutory
requirements are met so as to pay dividends out of capital surplus. Also, the
issuer's financial situation at present requires, to the extent practicable, the
conservation of cash and financial resources. This is due to the issuer's
ongoing and anticipated operating losses and various contingent obligations
which it must deal with which, in some cases, relate to businesses it has
previously disposed of.
(e) N/A
(f) With respect to purchases of such securities made by the issuer or its
affiliates since the commencement of the issuer's second full fiscal year
preceding the date of this Schedule, the amount of such securities purchased,
the range of prices paid for such securities and the average purchase price for
each quarterly period of the issuer during such period are as follows: None,
except as disclosed at page 13 of the issuer's preliminary proxy materials
attached hereto as Exhibit A ("Preliminary Proxy") under the caption "Fairness."
ITEM 2. IDENTITY AND BACKGROUND
The person filing this statement is the issuer of the class of equity securities
which is the subject of the subject Rule 13e-3 transaction.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
(a) N/A
(b) The contacts or negotiations concerning the matters referred to in
Item 3(a)(2) which have been entered into or which have occurred since the
commencement of the issuer's second full fiscal year preceding the date of
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this schedule (i) between any affiliates of the issuer of the class of
securities which is the subject of the subject Rule 13e-3 transaction; or (ii)
between such issuer or any of its affiliates and any person who is not
affiliated with the issuer and who would have a direct interest in such matters
are set forth in the Preliminary Proxy at pages 4 to 6 thereof under the caption
"Background of the Proposal."
ITEM 4. TERMS OF THE TRANSACTION
(a) The material terms of the subject Rule 13e-3 transaction are set forth
in the Preliminary Proxy at page 4 thereof under the heading "The Proposal.".
(b) A term or arrangement concerning the subject Rule 13e-3 transaction
relating to any security holder of the issuer which is not identical to that
relating to other security holders of the same class of securities of the issuer
is the fact that the Fritzsche Group (as defined in the Preliminary Proxy)
intends to dispose of certain of its shares, constituting approximately 23,500
shares in total to an independent third party so that its percentage ownership
is unchanged as a result of the Reverse Stock Split.
ITEM 5. PLANS OF PROPOSALS OF THE ISSUER OR AFFILIATE
As of this date there is no plan or proposal of the issuer or its
affiliates regarding activities or transactions which are to occur after the
subject Rule 13e-3 transaction which relate to or would result in:
(a) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the issuer or any of its subsidiaries;
(b) A sale or transfer of a material amount of assets of the issuer or any
of its subsidiaries;
(c) Any change in the present board of directors or management of the
issuer including, but not limited to, any plan or proposal to change the number
or term of directors, to fill any existing vacancy on the board or to change any
material term of the employment contract of any executive officer;
(d) Any material change in the present dividend rate or policy or
indebtedness or capitalization or the issuer;
(e) Any other material change in the issuer's corporate structure or
business;
(f) As described in the Preliminary Proxy at page 10 under caption
"Purpose of the Reverse Stock Split Proposal," one of the intended effects of
the Reverse Stock Split Proposal is that a class of equity securities of the
issuer would become eligible for termination of registration pursuant to Section
12(g)(4) of the Act;
(g) As described in the Preliminary Proxy at page 10 under caption
"Purpose of the Reverse Stock Split Proposal," one of the intended effects of
the Reverse Stock Split Proposal is that the suspension of the issuer's
obligation to file reports pursuant to Section 15(d) of the Act would be
accomplished.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION
(a) The source and total amount of funds or other consideration to be used
in the subject Rule 13e-3 transaction is as follows: general corporate funds not
expected to exceed $12,000;
(b) A statement of all expenses incurred or estimated to be incurred in
connection with the Rule 13e-3 transaction including, but not limited to, filing
fees, legal, accounting and appraisal fees, solicitation expenses and printing
costs is as follows: $100 in filing fees;
$18-20,000 in legal fees;
$5,000 in printing fees; and
$3,000 in mailing and solicitation fees.
The issuer had paid or will be responsible for paying all of such expenses.
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(c) No funds or other consideration is, or is expected to be, directly or
indirectly borrowed for the purpose of the subject Rule 13e-3 transaction.
(d) N/A
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
(a) The purpose(s) for the subject Rule 13e-3 transactions are set forth
in the Preliminary Proxy at pages 6 to 7 thereof under the caption "Purpose of
the Reverse Stock Split Proposal."
(b) The issuer and its affiliates considered alternative means to
accomplish such purpose(s) and such alternative(s) and the reason(s) for their
rejection are set forth in the Preliminary Proxy at pages 4 to 6 thereof under
the captions "Background of the Proposal" and "Alternatives" at pages 14-15.
(c) The reasons for the structure of the Rule 13e-3 transaction and for
undertaking such transaction at this time are set forth at pages 4 to 6 of the
Preliminary Proxy at caption "Background of the Proposal" and at pages 14-16
under "Alternatives."
(d) The effects of the Rule 13e-3 transaction on the issuer, its
affiliates and unaffiliated security holders, including the federal tax
consequences thereof are set forth at pages 4, 6 and 7 of the Preliminary Proxy
under captions "The Proposal," "Purpose of the Proposal" and "Federal Income Tax
Consequences of the Proposal."
ITEM 8. FAIRNESS OF THE TRANSACTION
(a) The issuer believes that the subject Rule 13e-3 transaction is fair to
unaffiliated security holders of the issuer, which view was unanimously endorsed
by the Board of Directors of the issuer. For further information on such
viewpoint, see pages 12 to 14 of the Preliminary Proxy under the caption
"Fairness."
(b) Set forth in the Preliminary Proxy at pages 12 to 14 under the caption
"Fairness" thereof is a discussion of the material factors upon which the belief
stated in Item 8(a) is based and, to the extent such exists, the weight assigned
to each such factor. As set forth in such discussion, the factors which were
given weight, to the extent deemed practicable and reliable, in determining the
fairness of a transaction to unaffiliated security holders and the relative
weight, if any, which was given to them in the determination whether the
consideration offered to unaffiliated security holders constitutes fair value
were:
(1) current market prices;
(2) historical market prices;
(3) net book value;
(4) going concern value;
(5) liquidation value;
(6) the purchase price paid in previous purchases disclosed in Item
1(f) of this Schedule;
(7) any report, opinion, or appraisal described in Item 9; and
(8) any firm offer of which the issuer or affiliate is aware made by
any unaffiliated person, other than the person filing this statement,
during the preceding eighteen months for (A) the merger or consolidation of
the issuer into or with such person or of such person into or with the
issuer, (B) the sale or other transfer of all or any substantial part of
the assets of the issuer or (C) securities of the issuer which would enable
the holder thereof to exercise control of the issuer.
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(c) The transaction has not been structured so that approval of at least a
majority of unaffiliated security holders is required.
(d) A majority of directors who are not employees of the issuer did not
retain an unaffiliated representative to act solely on behalf of unaffiliated
security holders for the purposes of negotiating the terms of the Rule 13e-3
transaction and/or preparing a report concerning the fairness of such
transaction.
(e) The Rule 13e-3 transaction was approved by a majority of the directors
of the issuer who are not employees of the issuer.
(f) N/A
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a) Neither the issuer nor its affiliate(s) has received any report,
opinion (including an opinion of counsel) or appraisal from an outside party
which is materially related to the subject Rule 13e-3 transaction including but
not limited to, any such report, opinion or appraisal relating to the
consideration or the fairness of the consideration to be offered to security
holders of the class of securities which is the subject of the Rule 13e-3
transaction or the fairness of such transaction to the issuer or affiliate or to
security holders who are not affiliates.
(b) N/A
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
(a) With respect to the class of equity security to which the subject Rule
13e-3 transaction relates, the aggregate amount and percentage of securities
beneficially owned as of the most recent practicable date by each affiliate, by
each person enumerated in Instruction C of this Schedule or by any associate or
majority owned subsidiary of the issuer or affiliate, and the name and address
of any such persons is as follows:
NAME ADDRESS PERCENT
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Peter B. Fritzsche EAC Industries, Inc. 33%
2111 Claridge Lane
Northbrook, IL 60062-8615
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Ruth Fritzsche, c/o EAC Industries, Inc. less than 1% *
wife and associate 2111 Claridge Lane
of P. B. Fritzsche Northbrook, IL 60062-8615
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Bart Fritzsche, c/o EAC Industries, Inc. less than 1% *
child and associate 2111 Claridge Lane
of P. B. Fritzsche Northbrook, IL 60062-8615
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David Fritzsche, c/o EAC Industries, Inc. less than 1% *
child and associate 2111 Claridge Lane
of P. B. Fritzsche Northbrook, IL 60062-8615
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Kathleen Fritzsche, c/o EAC Industries, Inc. less than 1% *
child and associate 2111 Claridge Lane
of P. B. Fritzsche Northbrook, IL 60062-8615
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* Beneficial ownership of their shares is disclaimed.
See the Preliminary Proxy at page 17 under the heading "General Information" for
additional information in this respect.
5
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(b) No transactions in the class of equity securities of the issuer were
effected during the past 60 days by the issuer or by the persons named in
response to paragraph (a) of this Item.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES
All contracts, arrangements, understandings or relationships (whether or
not legally enforceable) in connection with the subject Rule 13e-3 transaction
between the issuer (including any person enumerated in Instruction C of this
Schedule) and any person with respect to any securities of the issuer
(including, but not limited to, contracts, arrangements, understandings or
relationships concerning the transfer or the voting of any such securities,
joint ventures, loan or option arrangements, put or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies, consents or
authorizations), have been disclosed in the Preliminary Proxy attached hereto at
page 6 under caption "Purpose of the Proposal."
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION
(a) The present intention with regard to the subject Rule 13e-3
transaction indicating whether or not any executive officer, director or
affiliate of the issuer or any person enumerated in Instruction C of this
statement, and securities with respect to which such person holds proxies, will
be voted and the reasons therefor have been disclosed in the Preliminary Proxy
attached hereto at page 7 thereof under the caption "Vote Required; Vote of
Principal Stockholders."
(b) Certain persons named in paragraph (a) of this item have made a
recommendation in support of the subject Rule 13e-3 transaction and the reasons
for such recommendation have been disclosed in the Preliminary Proxy attached
hereto at page 12-15 thereof under captions "Fairness" and "Alternatives."
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
(a) Appraisal rights are not provided under applicable state law, under
the issuer's articles of incorporation will be voluntarily accorded by the
issuer only to affected security holders (those whose shares may be converted to
cash) in connection with the subject Rule 13e-3 transaction. Such rights are
described in the Preliminary Proxy Statement attached hereto at page 8 under the
caption "Dissenters' Rights of Appraisal."
(b) N/A
(c) N/A
ITEM 14. FINANCIAL INFORMATION
(a) The following financial data concerning the issuer is included in the
Issuer's 10-KSB Annual Report to the Securities and Exchange Commission for the
fiscal year ended January 31, 1999 (the "10-K") (incorporated herein by
reference); or in the Issuer's most recent 10-QSB with respect to the 6-months
fiscal period ended July 31, 1999 (the "10-Q") (incorporated herein by
reference); and/or is included in the Preliminary Proxy enclosed herewith. The
issuer intends to physically attach the 10-K and the 10-Q to the Final Proxy.
(1) Audited financial statements for the two fiscal years required to
be filed with the issuer's most recent annual report under Sections 13 and
15(d) of the Act;
(2) Unaudited balance sheets and comparative year-to-date income
statements and statements of cash flows and related earnings per share
amounts required to be included in the issuer's most recent quarterly
report filed pursuant to the Act;
(3) Ratio of earnings to fixed charges for the two most recent fiscal
years and the interim periods provided under Item 14(a)(2); and
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(4) Book value per share as of the most recent fiscal year end and as
of the date of the latest interim balance sheet provided under Item
14(a)(2).
(b) Pro forma data disclosing the effect of the subject Rule 13e-3
transaction on:
(1) The issuer's balance sheet as of the most recent fiscal year end
and the latest interim balance sheet provided under Item 14(a)(2);
(2) The issuer's statement of income, earnings (loss) per share
amounts, and ratio of earnings to fixed charges for the most recent fiscal
year and the latest interim period provided under Item 14(a)(2); and
(3) The issuer's book value per share as of the most recent fiscal
year end and as of the latest interim balance sheet date provided under
Item 14(a)(2), are not provided as such effects are not material.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) N/A
(b) N/A
ITEM 16. ADDITIONAL INFORMATION
N/A
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS
Attached are copies of the following Exhibits:
(a) N/A
(b) N/A
(c) Any document setting forth the terms of any contract, arrangements or
understandings or relationships referred to in Item 11 of this schedule; and
(d)(1) The disclosure materials furnished to security holders in connection
with the transaction pursuant to the subject Rule 13e-3(d) [Section
240.13e-3(d)] are set forth at Exhibit A (original version).
(d)(2) Revised version of the proxy materials [in each case with the 10-K
and 10-Q attached].
(e) A detailed statement describing the appraisal rights and the
procedures for exercising such appraisal rights which are referred to in Item
13(a) of this schedule is set forth in the Preliminary Proxy at pages 8-9
thereof under the caption "Dissenters' Rights of Appraisal." Also, the entire
relevant New York Statute is as set forth at Annex A to the Proxy.
(f) N/A
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
EAC INDUSTRIES, INC.
November 18, 1999 (Date)
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/s/ Peter B. Fritzsche (Signature)
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Chairman of the Board and Chief Executive Officer
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EXHIBIT A
EAC INDUSTRIES, INC.
2111 CLARIDGE LANE
NORTHBROOK, IL 60062-8615
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement, which is being mailed to shareholders on or about
September, ___, 1999 is furnished in connection with the solicitation of proxies
by the Board of Directors of EAC Industries, Inc., a New York corporation ("EAC"
or the "Company"), to be used at the 1999 Annual Meeting of Shareholders of the
Company to be held at the time and place and for the purposes specified in the
foregoing Notice.
You are requested to complete, date and sign the accompanying proxy and
return it promptly to the Company in the enclosed envelope. Proxies duly
executed and received in time for the meeting will be voted at the meeting in
accordance with the instructions thereof. Such proxies may, nevertheless, be
revoked at any time prior to the voting thereof.
The Board of Directors has fixed the close of business on September ___,
1999 as the record date for the determination of shareholders who are entitled
to notice of, and to vote at, the meeting or any adjournments thereof. The
transfer books of the Company will not be closed. As of September ___, 1999,
there were 2,885,521 share of common stock outstanding, the holders of which are
entitled to one vote per share on all matters presented at the meeting.
Directors are elected by a plurality of votes cast. Under the law of New York,
EAC's state of incorporation, "votes cast" at a meeting of stockholders by the
holders of Shares entitled to vote are determinative of the outcome of the
matter subject to vote. Abstentions, broker non-votes, and withheld votes will
not be considered "votes cast" based on EAC's understanding of state law
requirements. To the best knowledge of the Company, there is one shareholder
owning more than 5% of the Company's Common Stock. See "Principal Holders of
Securities."
<PAGE>
EAC INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER ___, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of EAC
INDUSTRIES, INC., a New York corporation (the "Company"), will be held at the
office of Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, 26th
Floor, Chicago, IL 60603 on October ___, 1999 at 8:30 a.m., local time, for the
following purposes:
1. To elect four (4) Directors.
2. To amend the Company's Restated Certificate of Incorporation to
effect a 1 for 200 share reverse stock split of the Common Stock
and to pay cash in lieu of fractional Shares and immediately
thereafter to reclassify such resulting whole, or partial, Shares
on a 200 for 1 basis.
3. To transact such other business as may properly come before said
Annual Meeting and any and all adjournments thereof.
The Board of Directors has fixed the close of business on September ___,
1999 as the record date for the determination of shareholders who are entitled
to notice of, and to vote at, the meeting or any adjournments thereof. The
transfer books of the Company will not be closed.
By Order of the Board of Directors
PETER B. FRITZSCHE
Chairman of the Board and CEO
September ___, 1999
2
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PROPOSAL NO. 1
--------------
ELECTION OF DIRECTORS
Proxies in the accompanying form, which are properly executed, marked, duly
returned and not revoked, will be voted as directed. Unless otherwise indicated,
such proxies will be voted in favor of the election of the four nominees for
directors of EAC whose names appear below and for Proposal No. 2, the Reverse
Stock Split. If any of the nominees for directors becomes unavailable to serve
prior to the meeting date, an event which the Board of Directors does not
presently anticipate, the proxies will be voted for substitute nominees who will
be persons designated by the Board of Directors of EAC. Directors of EAC are to
be elected at its Annual Meeting to hold office until the next Annual Meeting of
Shareholders and until the election of their respective successors.
The following table sets forth the names of the nominees for the election
to the Board of Directors, their business experience during the past five years,
their positions, if any, with EAC, their previous terms as directors and the
number of Shares of Common Stock of EAC owned beneficially by each of them as of
August 31, 1999. Each nominee's Common Stock ownership represents less than 1%
of the aggregate amount of Common Stock outstanding, except for Peter B.
Fritzsche and P. Bartley Fritzsche whose beneficial ownership represents
approximately 33% and 1% respectively of the outstanding Common Stock of the
Company.
<TABLE>
Common Stock
Director Owned Beneficially
Name Principal Occupation for Last 5 Years Since As of 8/31/99
- ---- ------------------------------------- ----- -------------
<S> <C> <C> <C>
Peter B. Fritzsche(1) Chairman of the Board of Directors, President 1991 and 943,208(2)
Age 64 and CEO and Assistant Secretary, EAC - July from
1992 to present; Chairman of the Board of 1978-
Director and Assistant Secretary, EAC - 1990
December 1991 to July 1992; Yale University
Development Office, New Haven, CT - January
1992 to July 1994; consultant - 1990 to 1992;
Director of EAC - 1989 to 1990; Chairman of
the Board of Directors, President and CEO,
EAC - 1979 to 1989.
E. Donald McKenzie, Jr. President, Supercoups, Inc. Avon, MA (printer 1994 1,000
Age 47 of coupons) 1997 to present; Vice President -
Sales and Marketing, Health Tour, Inc. -
January, 1996-1997; President Graphic Systems
West, Irvine, CA - 1991 to 1995.
John B. Millet, Jr. President and Owner of Mohawk Metal 1994 38,254
Age 57 Products Co., Utica, NY (suppliers to the retail
petroleum industry) - since 1977.
3
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P. Bartley Fritzsche(1) Regional Account Manager, Neuberger & 1994 38,000
Age 30 Berman Management Inc., Chicago, IL.
Financial Services Company; John Marshall
Law School - 1993-1997 (LLB); Account
Representative, John Nuveen & Co., Chicago,
IL - 1991 to 1993.
</TABLE>
(1) Peter B. Fritzsche and P. Bartley Fritzsche are father and son.
(2) Includes 942,408 Shares held directly or through an IRA and 800 Shares
held of record by Mr. Fritzsche's spouse, whose beneficial ownership
may be attributable to Mr. Fritzsche, but which he disclaims.
Set forth below is the compensation paid to the executive officers of the
Company and its Goodren Products Corporation subsidiary (which was sold on July
1, 1999) and for all such persons as a group:
Name and All Other
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- ------------
Peter B. Fritzsche FY 1999 $132,000 $ -0- $ -0-
Chairman and CEO FY 1998 $132,000 $ -0- $ -0-
FY 1997 $132,000 $ -0- $ -0-
Steven Mann (1) FY 1999 $165,697 $ -0- $ -0-
President and Goodren FY 1998 $179,372 $ -0- $ -0-
Products Corp. FY 1997 $177,398 $ -0- $ -0-
Total FY 1999 $297,657 $ -0- $ -0-
FY 1998 $311,372 $ -0- $ -0-
FY 1997 $309,398 $ -0- $ -0-
(1) Mr. Mann had an employment contract, renewable annually, which called
for base compensation of $155,000 (subject to annual inflation
adjustments) and a bonus equal to 5% of Goodren's total operating
income, provided that operating income was in excess of $650,000 in
the pertinent fiscal year. Mr. Mann was not paid a discretionary bonus
in fiscal 1997, fiscal 1998 or fiscal 1999.
Board members are paid fees equal to $4,000 per year, plus $1,250 for each
board or committee meeting attended. As of September 30, 1999 Board members
agreed to waive board compensation while the Company's financial hardship
situation continues.
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PROFIT SHARING PLANS
The Company maintains a deferred profit sharing plan ("Profit Sharing
Plan") which is intended to qualify under Section 401(a) of the Internal Revenue
Code of 1954, as amended ("Code"). The Profit Sharing Plan covers full-time
employees of the Company and its subsidiaries, including Goodren (prior to the
sale), who have completed one (1) year of eligibility service and who are not
covered under any other tax qualified retirement plan. Employer contributions to
the Profit Sharing Plan are made at the discretion of the Company's Board of
Directors and are allocated among participating employees based on their
compensation. The Profit Sharing Plan benefits, subject to a vesting schedule,
become payable following a separation of service from the Company.
The Profit Sharing Plan also provides for employees to defer a portion of
their eligible compensation, pursuant to Section 401(k) of the Internal Revenue
Code. There is no provision for matching contributions to be made by the
Company. No contributions were made to the Profit Sharing Plan by the Company
during the fiscal years 1998 and 1999. Goodren's contributions to the Profit
Sharing Plan were zero for fiscal years 1998 and 1999 respectively.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee, Compensation
and Audit Committee, in accordance with the by-laws and New York law. The
members of the Executive Committee are Messrs. Peter Fritzsche and John Millet.
The members of the Compensation and Audit Committees are Messrs. Millet and
McKenzie. Each Director attended all meetings of the Board of Directors and
committees on which they served during fiscal 1999.
PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of EAC, as of August 31, 1999 the only beneficial
owner of 5% or more of EAC's Common Stock was:
Amount
Principle Name and Address Beneficially Percent of
Class of Beneficial Owner Owned Class
- ----- ------------------- ----- -----
Common Stock Peter B. Fritzsche 943,208 33%
EAC Industries, Inc.
2111 Claridge Lane
Northbrook, Illinois 60062-8615
As of that date, all directors and officers as a group owned _______________
Shares (36%).
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PROPOSAL NO. 2
PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO ELIMINATE HOLDERS OF 199 SHARES OR FEWER BY EFFECTING A
REVERSE STOCK SPLIT OF THE COMMON STOCK AND A SUBSEQUENT FORWARD STOCK SPLIT
OF THE COMMON STOCK AND BY PAYING FRACTIONAL SHARES AT THE RATE OF $.10
PER SHARE
Summary and Purpose of the Proposal
Summary. The Board of Directors has approved, and has directed that the
same be presented to shareholders for their approval at the Annual Meeting, a
proposal to amend the Company's Amended and Restated Certificate of
Incorporation (the "Reverse Stock Split Amendment") to (a) effect a 200 to 1
reverse stock split (the "Reverse Stock Split") of the Company's Common Stock,
$.10 par value, through a reclassification of the Common Stock pursuant to which
each 200 Shares of Common Stock outstanding as of the close of business on the
effective date of the amendment would be reclassified into one (1) new share of
Common Stock, $.10 par value, and (b) authorize an immediately subsequent
reclassification with a forward split of the new Common Stock (the "Forward
Stock Split") pursuant to which each holder of the reclassified Common Stock at
such moment would receive 199 additional Shares (or a proportionately
appropriate smaller number for holding not divisible by 200) of reclassified
Common Stock for each one (1) share of reclassified Common Stock held as of such
moment. No fractional Shares would be issued pursuant to the reclassification
and certain holders who would otherwise be entitled to receive a fractional
share in the Reverse Stock Split will receive cash at the rate of $.10 per share
in lieu of their fractional share interests. At the date hereof, the bid and
asked prices for the Common Stock were $____ and $____, respectively. If the
holders hold less than 199 Shares, their holdings are to be converted into the
right to receive cash; if their holdings are 200 Shares or more, any fractional
Shares otherwise due would be temporarily established on the books of the
Company. The Reverse Stock Split and the Forward Stock Split are herein referred
to collectively as the "Reverse Stock Split Proposal." The effect of the Reverse
Stock Split Proposal is that all holders of 200 Shares of Common Stock or more
would have NO change in their stock holdings; holders of less than 200 Shares
("fraction holders") would only be entitled to cash in lieu of fractional
Shares.
The effect of the proposed amendment to the Amended and Restated Articles
of Incorporation will be significant to shareholders, and each shareholder
should read carefully the information with respect to such amendment contained
in this Proxy Statement.
Purpose. The purpose of the Reverse Stock Split Proposal is to reduce the
number of shareholders of record of the Company below 300 thereby enabling the
Company to terminate registration of the Shares under, and be relieved of the
periodic reporting, proxy solicitation and other information requirements of,
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as well as
the expenses associated with such reporting requirements. As of August 31, 1999,
the Company had approximately 425 shareholder accounts of record in the 1 to 199
Share range aggregating ____ Shares. Based on approximately 1,350 shareholder
accounts overall and 2,285,521 Shares outstanding, shareholder with 199 or fewer
Shares constituted approximatly 31% of the Company's shareholders and
approximately 55% of its shareholders of record, but accounted for
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about 2% of the Shares outstanding. Expenses directly and indirectly
attributable to reporting requirements of the Exchange Act were approximately
$80-100,000 in fiscal 1999, which is approximately $100 per shareholder of
record. See "SPECIAL FACTORS - Purpose of Reverse Stock Split Proposal."
Upon termination of registration under the Exchange Act, the Shares will
cease to be authorized for quotation on NASDAQ and shareholders should expect a
very limited public market for their Shares as a result. The Company estimates
the Shares outstanding will be reduced by approximately 65,000 Shares after
payment for fractional Share interests, assuming no shareholders round up. The
effect of the Reverse Stock Split Proposal will not increase the holdings of
Peter B. Fritzsche and his associates and affiliates (collectively the
"Fritzsche Group"). Mr. Fritzsche and the other members of the Fritzsche Group
have agreed to dispose of the Shares representing the increase in their
percentage ownership. By doing so, it will eliminate the need for a "super
majority vote" on the matter pursuant to the Company's Amended and Restated
Certificate of Incorporation. The Shares will be eligible for removal from the
Federal Reserve Board's OTC margin list upon termination of registration under
the Exchange Act. As noted above, the Company believes termination of
registration under the Exchange Act will result in savings in management time
and out-of-pocket expenses. See "SPECIAL FACTORS - Effects of Reverse Stock
Split."
Although the Board did not retain an appraiser, an unaffiliated
representative or separate legal counsel to evaluate the Reverse Stock Split
Proposal or the price to be paid for fractional Share interests, the price to be
paid for fractional New Share interests was determined after consideration of
the price per Share paid by the Company and affiliates of the Company for
acquisition of Shares in various transactions since 1997, including acquisitions
pursuant to a reverse stock split made in November, 1997, recent market prices
of the Company's Shares and shareholders' equity per Share. See "SPECIAL FACTORS
- - Fairness."
Various alternatives to the Reverse Stock Split Proposal were considered
and rejected by the Board of Directors. See "SPECIAL FACTORS - Alternatives."
REASONS FOR REVERSE STOCK SPLIT PROPOSAL.
The Company believes that the benefits received from registration under the
Securities Exchange Act of 1934 ("Exchange Act") are disproportionate to the
expense and management time associated therewith. The probable effect of
approval of the Reverse Stock Split Proposal will be to reduce the number of
shareholders of record below 300, thereby enabling the Company to terminate
registration of the Shares under, and be relieved of the periodic reporting,
proxy solicitation and other informational requirements of, the Exchange Act.
See "SPECIAL FACTORS - Purpose of Reverse Stock Split Proposal."
FAIRNESS.
The Board believes the Reverse Stock Split Proposal to be fair because
holders of fractional Share interests will have the opportunity to liquidate
their holdings at a price the Board believes to
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be fair by taking into consideration several factors, including the following:
(a) a bid price of ____ per Share quoted by (two (2)) regional brokerage firms
on September ___,1999; (b) shareholders' tangible equity of $.18 per Share as of
January 31, 1999; (c) the sale can be accomplished without brokerage commission
being incurred; and (d) sales of small holdings such as those represented by
fractional Share interests are not equivalent to the sale of a single large
block of Shares which, in most cases, would be accomplished at higher prices.
See "SPECIAL FACTORS - Fairness." Subject to compliance with applicable
requirements, Dissenting Shareholders may elect to have the price paid for a
fractional Share interest determined by direct negotiation with the Company or
by a court. See "RIGHTS OF DISSENTING SHAREHOLDERS."
FEDERAL INCOME TAX CONSEQUENCES.
Fractional holders who receive cash for all of their Shares under the
Reverse Stock Split Proposal will recognize a capital gain or loss, depending on
the tax basis of the Shares, provided the Shares were held as capital assets.
See "ADDITIONAL FACTORS TO BE CONSIDERED Federal Income Tax Consequences of the
Reverse Stock Split Proposal."
VOTE REQUIRED; VOTE OF PRINCIPAL SHAREHOLDERS.
In order to effect the Reverse Stock Split Proposal, the Company's Amended
and Restated Articles of Incorporation must be amended, which requires the
approval of a majority of the outstanding Shares. Members of the Fritzsche Group
own, in the aggregate, 34% of the Company's outstanding Shares, and other
members of the Board of Directors own 46,575 Shares (2%) and the Company is
advised that all such Shares will be voted in favor of the Reverse Stock Split
Proposal. Approval of a majority of unaffiliated shareholders is not required or
being sought. See "CERTAIN BENEFICIAL OWNERSHIP OF SHARES."
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND NEW YORK
CORPORATE LAW.
Certain provisions of the Restated Certificate of Incorporation and New
York law may delay, deter or prevent a stockholder or group of stockholders from
taking corporate action or gaining control of the Company. For example, Article
Thirteen of the Company's Restated Certificate of Incorporation imposes certain
voting and other requirements on certain mergers and other combinations
(including a reverse stock split) involving certain affiliated parties of the
Company. Section 912 of the New York Corporation Law imposes essentially the
same limitations on such transactions. The Reverse Stock Split Proposal is not
subject to such charter and statutory voting and other requirements.
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SUMMARY OF SPECIAL FACTORS.
Purpose of Reverse Stock Split Proposal. The Company is registered under
the Securities and Exchange Act and, therefore, is required to file annual and
other periodic reports and comply with the proxy rules of the Securities and
Exchange Commission in the solicitation of proxies for annual meetings of
shareholders. If the number of shareholders of record of a class of securities
is reduced to less than 300, registration of the securities with the SEC may be
terminated. The purpose of the Reverse Stock Split Proposal is to reduce the
number of shareholders of record to less than 300 so that the Company may
terminate its reporting obligation under the Exchange Act and thereby reduce the
operating costs associated with being a publicly-reporting company.
Effects of Reverse Stock Split. On the Effective Date it is expected that
the number of shareholders will be reduced to fewer than 300 persons. The
Company will file a certification with the SEC to terminate registration of the
Shares under the Exchange Act, which termination will become effective not more
than 90 days after filing. Thereafter, shareholders will no longer receive
informational material such as the annual reports and proxy materials. Also as
of that date, no further periodic reports which would have been filed with the
SEC will be filed and will not be available to shareholders.
The Shares have been traded in the Over-The-Counter Market. Following the
effective date of termination of registration, the Shares will cease to be
authorized for quotation by NASD members and, therefore, shareholders may
encounter significantly more difficulty in disposing of their Shares. In
addition, the number of Shares outstanding may not be sufficient to support a
trading market, active or otherwise. Consequently, shareholders should expect a
very limited public trading market for the Shares, if at all.
Notwithstanding approval of the Reverse Stock Split Proposal, after the
Effective Date the officers and directors of the Company will continue to owe
fiduciary obligations to shareholders under New York law.
Fairness. The Company and its Board of Directors reasonably believe that
the Reverse Stock Split Proposal is fair to minority, unaffiliated shareholders.
On June 21, 1999, the Company's Board of Directors unanimously approved the
Reverse Stock Split Proposal. This approval was based on the recommendation by
John B. Millet, Jr. and E. Donald McKenzie, Jr., appointed as a special
committee of the Board of Directors for this purpose and given the plenary
authority by the Board of Directors to approve or reject Company management's
Reverse Stock Split Proposal. In approving the Reverse Stock Split Proposal,
neither the Board of Directors nor the special committee engaged an appraiser to
make an independent evaluation of the Reverse Stock Split Proposal nor did it
employ the advice of an unaffiliated representative or separate legal counsel to
act solely on behalf of the minority shareholders, or to represent the special
committee either for the purpose of structuring the Reverse Stock Split
Proposal, including a determination of the price to be paid for a fractional
Share interest, or for the purpose of preparing a report concerning its
fairness. The Board of Directors determined that the cost of retaining an
appraiser, or unaffiliated representative, or even separate legal counsel, was
not warranted in light of the considerable expense entailed in relation to the
expected cash payments to be made pursuant to the Reverse Stock Split Proposal
and
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in light of rights given to Dissenting Shareholders (see "RIGHTS OF DISSENTING
SHAREHOLDERS").
In determining that it believes that the price to be paid for a fractional
Share interest created by the Reverse Stock Split Proposal is fair, the Board of
Directors of the Company considered current and historical market prices,
including the prices per Share paid by the Company in its 1997 reverse stock
split (the "1997 Reverse Stock Split") ($.28125 per Share) and the price paid by
Mr. Fritzsche and other affiliates of the Company in their acquisitions of
Shares pursuant to the 1997 rights offering ($.22 per Share) made pursuant to a
prospectus dated November 10, 1997 (the "Rights Offering"). The Board of
Directors determined that the prices paid in the 1997 Reverse Stock Split and
the Rights Offering were not controlling or even important due to a number of
factors discussed herein.
Alternatives. The Board of Directors of the Company and the special
committee appointed to review and approve this matter have each determined that
the Reverse Stock Split Proposal is the most direct and appropriate and least
expensive method of reducing the number of the Company's shareholders to less
than 300 and saving the Company the considerable expenses associated with public
reporting without having a significant negative impact on the value of its
Shares.
POSSIBLE WITHDRAWAL OF REVERSE STOCK SPLIT PROPOSAL.
At its option, the Company may withdraw the Reverse Stock Split Proposal
from consideration and voting at the Annual Meeting, or thereafter following an
approving shareholder vote, if: (a) any legal action or proceeding concerning
the Reverse Stock Split Proposal or, in the opinion of the Board of Directors of
the Company, otherwise materially adversely affecting the Company, is instituted
or threatened in any court or by or before any governmental agency; or (b) if
the Board of Directors believes the best interests of the Company would be
served by withdrawing or abandoning the proposal.
VERY LIMITED MARKET FOR SHARES.
Because the Shares will cease to be authorized for quotation on the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), or otherwise be eligible for over-the-counter trading following
termination of registration under the Exchange Act, it is expected that approval
of the Reverse Stock Split Proposal will reduce marketability of the Company's
Shares. Although continuing shareholders of the Company may sell Shares in
privately negotiated transactions, and although it is probable that an
over-the-counter market may develop, shareholders may be dependent to a great
extent upon the Company's willingness to purchase Shares. In addition, members
of the Fritzsche Group or others may purchase Shares in the future. Neither the
Company nor members of the Fritzsche Group has any present specific plan or
proposal to make a tender offer or otherwise purchase additional Shares.
Furthermore, it is unlikely that any person desiring to acquire control of the
Company would be interested in acquiring small holdings of Shares and,
therefore, any future opportunities for sale may be limited to persons with
substantial holdings such as members of the Fritzsche Group. See "SPECIAL
FACTORS - Effects of Reverse Stock Split."
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RIGHTS OF DISSENTING SHAREHOLDERS.
Shareholders who would have fractional Share interest as a result of the
approval of the Reverse Stock Split Proposal and who object to the price of $.10
per Share to be paid for resulting fractional Share interest ("Dissenting
Shareholders"), may dissent from the Reverse Stock Split Proposal and, if the
Reverse Stock Split Proposal is approved, Dissenting Shareholders may seek to
have the price paid for fractional Share interest determined in accordance with
the procedures of Section 623 of the New York Business Corporation Law. The
price so determined could be higher or lower than the price set forth in the
Reverse Stock Split Proposal. See "Rights of Dissenting Shareholders."
FINANCIAL INFORMATION.
Summary financial information is contained in the Company's 1999 Annual
Report, which accompanies this Proxy Statement.
DISSENTERS' RIGHTS OF APPRAISAL
Under applicable New York law, any stockholder of the Company entitled to
receive the Reverse Stock Split Consideration is NOT entitled to demand the fair
value of his Shares if the Reverse Stock Split Proposal is approved and becomes
effective. Nevertheless, the Board of Directors of the Company has decided to
afford stockholders of the Company whose Shares of the Company are converted
into the right to receive cash and who timely object to such action ("Dissenting
Shareholders") with statutory appraisal rights. Following is a summary of the
applicable provisions of Section 623 of the New York Business Corporation Law,
which describes the appraisal rights of dissenting stockholders. This summary
should be read with the full text of Section 623, a copy of which is attached
hereto as Appendix B. We urge any Company stockholder who intends to exercise
his appraisal rights to review Appendix B carefully and to consult with legal
counsel so as to assure strict compliance with its provisions.
A vote in favor of the Reverse Stock Split Proposal will constitute a waiver of
your right to demand appraisal of your Company common stock.
Who May Exercise Statutory Appraisal Rights. Holders of Company common
stock who are entitled to receive cash upon the effectiveness of the Reverse
Stock Split Proposal and who follow the procedures set forth in the law will be
entitled to have their Company common stock appraised by a court and to receive
payment in cash of the "fair value" of their Shares, together with a fair rate
of interest, if any, as determined by the court. Company stockholders
considering seeking appraisal rights in respect of their Shares should be aware
that the fair value of the Shares under Section 623 could be more than, less
than or equal to the Reverse Stock Split Consideration.
Procedure for Exercising Statutory Appraisal Rights. A Company stockholder
who wishes to exercise his appraisal rights must: (a) deliver to the Company
prior to or at the annual meeting a written objection; and (b) not vote in favor
of the Reverse Stock Split Proposal. A demand for appraisal should be executed
by or on behalf of the holder of record, as such holder's name appears
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on the stock certificate. If the Company Shares in question are held in a
fiduciary or representative capacity, such as by a trustee, guardian or
custodian, execution of the demand should be made in that capacity. If the
Shares are owned of record by more than one person, the demand should be
executed by or on behalf of all joint owners. All demands for appraisal must be
made in writing and must be sent or delivered to the Company at 2111 Claridge
Lane, Northbrook, Illinois 60062-8615, Attn.: President.
Any holder of Company stock who has demanded an appraisal in compliance
with Section 623 will not, from and after the Effective Time of the Reverse
Stock Split Proposal, be entitled to vote the Shares subject to the demand for
any purpose or be entitled to the payment of any future dividends or other
distributions on the Company common stock.
Within ten days after the Annual Meeting, the Company will be required to
notify each stockholder who has complied with the provisions of Section 623, and
who has not voted in favor of the Reverse Stock Split Proposal, of the approval
of the Reverse Stock Split Proposal. Within 15 days after the Effective Time of
the Reverse Stock Split Proposal, any stockholder who has complied with the
requirements for exercise of statutory appraisal rights will be entitled to
receive from the Company an offer setting forth what the Company considers to be
the fair value for such Shares, the aggregate number of Shares of Company common
stock not voted in favor of the Reverse Stock Split Proposal and with respect to
which demands for appraisal have been received, and the aggregate number of
holders of such Shares.
Determination of Fair Value. The statute provides for a procedure for the
Company and the dissenting stockholder to reach an agreement as to the Fair
Value. Within a statutorily prescribed time period, the Company or any
stockholder who has complied with the statutory requirements may file a petition
in a court of proper jurisdiction demanding a determination of the fair value of
the Company common stock. If a petition for appraisal is timely filed,
stockholders entitled to appraisal rights may receive notice of the time and
place of a hearing on the petition. After the hearing, the court will determine
the stockholders entitled to statutory appraisal rights and the "fair value" of
their EAC stock.
Costs of Appraisal Action. The costs of an appraisal action may be
determined by the court and taxed upon the parties as it deems consistent with
the statement. The court may also order that all or a portion of the expenses
incurred by any stockholder in connection with appraisal, including reasonable
attorneys' fees and the fees and expenses of any experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the
Company Shares entitled to appraisal.
Loss of Appraisal Rights. If any stockholder who properly demands appraisal
rights of his Company common stock under Section 623 fails to perfect, or
effectively withdraws or loses, his right to appraisal, as provided under New
York law, that stockholder's Shares will be converted into the right to receive
the Reverse Stock Split Consideration. A stockholder will fail to perfect, or
effectively lose, his appraisal rights if, among other things, no petition for
appraisal is filed within the statutory time limit after the Effective Time or
if the stockholder delivers to the Company a written withdrawal of his demand
for appraisal and acceptance of the Reverse Stock Split Proposal.
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SPECIAL FACTORS
---------------
PURPOSE OF REVERSE STOCK SPLIT PROPOSAL.
The Company continues to have a large number of small shareholders. As of
December 31, 1998, the Company had approximately 425 shareholders of record in
the 1 to 199 Share range. Such shareholder accounts represented holdings of
about 45,000 Shares in total. As of August 31, 1999, the Company had a total of
approximately 745 shareholders of record. Shareholders with 199 or fewer Shares
constituted approximately 31% of the Company's shareholders (record and
beneficial), but accounted for about 2% of the Shares outstanding.
The Company is registered under the Exchange Act and, therefore, is
required to file annual and other periodic reports and comply with the proxy
rules of the Securities and Exchange Commission ("SEC") in the solicitation of
proxies for annual and special meetings of shareholders. If the number of
shareholders of record of a class of securities is reduced to less than 300, a
certification of that fact may be filed with the SEC, registration of the
securities may be terminated, and the issuer would no longer be subject to the
proxy requirements of Section 12(g) of the Exchange Act. The purpose of the
Reverse Stock Split Proposal is to reduce the number of shareholders of record
to less than 300 so that the Company may terminate registration of the Shares
under Section 12(g)(4) and terminate its reporting obligation under Section
15(d) of the Exchange Act and thereby reduce its operating costs associated with
being a publicly reporting company.
The Company believes that termination of registration of the Shares under
Section 12 (g)(4) of the Exchange Act and termination of the reporting
requirements of Section 15(d) of the Exchange Act will result in significant
savings in management time and out-of-pocket expenses. The Company has been
publicly owned since the late 1960s. Compliance with the proxy solicitation and
reporting requirements of the Exchange Act has entailed substantial management
time and annual expense principally for legal, accounting and printing services
in respect of soliciting proxies, filing reports with the SEC and furnishing
detailed information to shareholders. Expenses directly or indirectly
attributable to being a "public company" and compliance with the reporting
requirements of the Exchange Act were approximately $80-100,000 for fiscal 1999.
EFFECTS OF REVERSE STOCK SPLIT.
On the Effective Date it is expected that the number of shareholders will
be reduced to fewer than 300 persons. The Company will file the appropriate
certification with the SEC to terminate registration of the Shares under Section
12(g)(4) and 15(d) of the Exchange Act, which termination will become effective
not more than 90 days after the Company files a certificate of termination.
Thereafter, shareholders will no longer receive informational material such as
the annual report and proxy materials in their present format. Also as of that
date, no further periodic reports which would have been filed with the SEC will
be filed and will not be available to shareholders. In addition, upon
termination of registration the Company's principal shareholders, directors and
officers will no longer be subject to certain insider reporting and trading
rules under the Exchange Act. At this time the Company does not contemplate
sending proxy solicitation material to holders of Shares in the future, although
notices of any meetings of shareholders will be sent as required by the New
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York Business Corporation Act. The Company does intend, however, to send
shareholders the results of its operations and a statement of its financial
condition at least once each year; these financial statements will either be
audited or reviewed by the Company's accountants. The Company has no present
plans to send shareholders interim reports on results of operations. Such
interim reports are not required under applicable law or the By-laws of the
Company.
The Shares have been traded in the Over-The-Counter Market. Following the
effective date of termination of registration under Section 12(g) (4) and 15(d)
of the Exchange Act, the Shares will cease to be authorized for quotation by
NASD members and, therefore, shareholders may encounter significantly more
difficulty in disposing of their Shares. In addition, the number of Shares
outstanding may not be sufficient to support a trading market, active or
otherwise. Consequently, shareholders should expect a very limited public
trading market for the Shares, if at all. Remaining shareholders who desire to
sell their Shares may be dependent to a great extent upon the Company's
willingness to purchase Shares. Neither the Company nor members of the Fritzsche
Group has any present specific plan or proposal to make a tender offer or to
purchase Shares in the future. Moreover, there is no intent to accomplish
another Reverse Stock Split. Furthermore, it is unlikely that any person
desiring to acquire control of the Company would be interested in acquiring
small holdings of Shares and, therefore, any future opportunities for sale may
be limited to persons with substantial holdings such as members of the Fritzsche
Group.
On the Effective Date, the Company estimates that Shares outstanding will
be reduced by approximately 65,000 Shares after payment for all fractional Share
interests. The effect on the holdings of the Fritzsche Group, assuming no
shareholders round up, will be an increase from approximately 34% to
approximately 35%. As noted, the Fritzsche Group intends to dispose of a
sufficient number of Shares to keep its shareholder interest unchanged.
The Shares are currently classified by the Federal Reserve Board as "OTC
margin stock." As such, certain lenders, including banking institutions and
brokers, are prohibited from making loans for the purpose of purchasing or
carrying the Shares, if secured directly or indirectly by the Shares, in an
amount in excess of 50% of the market value of such Shares. If registration of
the Shares is terminated under Section 12(g) (4) and 15(d) of the Exchange Act,
the Shares would be eligible for removal from the Federal Reserve Board's OTC
margin list.
Notwithstanding approval of the Reverse Stock Split Proposal, after the
Effective Date the officers and directors of the Company will continue to owe
fiduciary obligations to shareholders under New York law.
FAIRNESS.
The Company and its Board of Directors reasonably believe that the Reverse
Stock Split Proposal is fair to minority, unaffiliated shareholders. On June 21,
1999, the Company's Board of Directors unanimously approved the Reverse Stock
Split Proposal. This approval was based on the recommendation by John B. Millet,
Jr. and E. Donald McKenzie, Jr., appointed as a special committee of the Board
of Directors for this purpose and given the plenary authority by the Board of
Directors to approve or reject Company management's Reverse Stock Split
Proposal. In
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approving the Reverse Stock Split Proposal, neither the Board of Directors nor
the special committee engaged an appraiser to make an independent evaluation of
the Reverse Stock Split Proposal nor did it employ the advice of an unaffiliated
representative or separate legal counsel to act solely on behalf of the minority
shareholders, or to represent the special committee either for the purpose of
structuring the Reverse Stock Split Proposal, including a determination of the
price to be paid for a fractional Share interest, or for the purpose of
preparing a report concerning its fairness. The Board of Directors determined
that the cost of retaining an appraiser, or unaffiliated representative, or even
separate legal counsel, was not warranted in light of the considerable expense
entailed in relation to the expected cash payments to be made pursuant to the
Reverse Stock Split Proposal and in light of rights given to Dissenting
Shareholders (see "RIGHTS OF DISSENTING SHAREHOLDERS"). Under New York law
shareholders are not entitled to dissenters' rights with respect to the Reverse
Stock Split Proposal. The Board of Directors has determined to give such rights
to stockholders whose Shares will be purchased under the proposal.
In determining that it believes that the price to be paid for a fractional
Share interest created by the Reverse Stock Split Proposal is fair, the Board of
Directors of the Company considered current and historical market prices,
including the prices per Share paid by the Company in its 1997 reverse stock
split (the "1997 Reverse Stock Split") ($.28125 per Share) and the price paid by
Mr. Fritzsche and other affiliates of the Company in their acquisitions of
Shares pursuant to the 1997 rights offering ($.22 per Share) made pursuant to a
prospectus dated November 10, 1997 (the "Rights Offering"). Since January, 1997,
members of the Fritzsche Group have made acquisitions of an aggregate of
approximately 508,000 Shares at an average price of $.22 per Share. In February,
1998 members of the Fritzsche Group paid $.22 per share for approximately
505,000 Shares in the Company and Messrs. Millet and McKenzie bought 23,275
Shares and 500 Shares respectively in the Rights Offering.
On December 29, 1997, the Company purchase approximately 29,000 Shares from
shareholders owning less than 100 Shares at $.28125 per Share, net to seller, by
virtue of a reverse stock split with respect to its "odd-lot holders" owning 100
Shares or less (the "1997 Reverse Stock Split"). The total number of Shares
redeemed by the Company in accordance with the terms and conditions of the 1997
Reverse Stock Split was approximately 1% of Shares then outstanding. The funds
used by the Company to purchase Shares pursuant to the 1997 Reverse Stock Split
were corporate funds.
The recent market prices of the Company's Shares have, for the most part,
been below the price per Share to be paid for a fractional Share interest which
will be created by the Reverse Stock Split Proposal. Also, there has been very
sporadic trading, with trading occurring in some weeks on only one day. See
"ADDITIONAL FACTORS TO BE CONSIDERED - Stock Price Range." Shareholders'
tangible equity per Share of $.18 as of December 31, 1998 was also considered.
The price per Share to be paid for a fractional Share interest which will be
created by the Reverse Stock Split Proposal is below shareholders' equity per
Share. Going concern value and liquidation value were not given substantial
consideration by the Board of Directors in determining the fairness of the price
per Share to be paid for a fractional Share interest which will be created by
the Reverse Stock Split Proposal because the Company has received no offers,
firm or otherwise, for the purchase of
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the Company as a whole within the past several years and does not presently
intend to sell, and because of the small number of Shares (less than _____
Shares in total) involved for each shareholder receiving cash for a fractional
Share interest.
The Board of Directors as a whole and the Committee do not believe that the
prices paid for the purchase of Shares in the 1997 Reverse Stock Split and sale
of Shares in the 1997 Rights Offering are of continuing relevance due to the
following considerations:
(a) The Company has continued to lose money since the 1997 Rights Offering and
1997 Reverse Stock Split and will likely lose money in fiscal year 2000.
(b) The Company has sold two (2) separate businesses since 1997, both of which
were losing money and had been unable to acquire, or develop, additional
businesses with profit-making potential.
(c) The future prospects for the Flexible Printed Products Operation, the
Company's sole remaining operating business, are not positive with intense
price competition occurring for its major customers.
(d) The market value of the Company's Shares has dropped significantly since
1997 and trading in its Shares is very sporadic.
For these reasons, the Board of Directors believes that a substantial
diminution in the value of the Company's Shares has occurred since 1997.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE REVERSE STOCK SPLIT PROPOSAL
AND INTENDS TO VOTE FOR THE PROPOSAL.
ALTERNATIVES.
The Board of Directors of the Company and the special committee appointed
to review and approve this matter have each determined that the Reverse Stock
Split Proposal is the most direct and appropriate and least expensive method of
reducing the number of the Company's shareholders to less than 300. The Company
intends to continue its operations for the indefinite future and has no present
plans to merge or consolidate with, or sell its assets to, another company or
person. The alternative of a cash merger with a subsidiary created by the
Company for that purpose was considered and rejected by the Board of Directors
because substantially greater funds would have been required to pay for the
entire minority interest in the Company. A cash tender offer to holders of fewer
than 200 Shares was rejected because there could be no assurance that a
sufficient number of Shares would be tendered to reduce the number of
shareholders to fewer than 300.
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INDEPENDENT AUDITORS
The Board of Directors reviews the selection of independent auditors
subsequent to the Annual Meeting of Shareholders. The firm of Lazar, Levine &
Company was EAC's independent auditor for the fiscal year ended January 31,
1999.
OTHER MATTERS
The Board of Directors does not intend to bring any other matters before
the meeting and does not know of any other matters which are expected to be
brought before it. However, if any other matters do come before the meeting, the
persons named in the enclosed proxy will vote in accordance with their proper
judgment.
In addition to solicitation of proxies by mail, directors or employee (who
may be officers of the Company) may solicit proxies in person and by telephone.
The Company is requesting brokers and other custodians, nominees and fiduciaries
to forward proxy soliciting materials to the beneficial owners of Shares held of
record by such persons. The cost of soliciting proxies shall be borne by the
Company, but any director or employee of the Company who solicits proxies will
not receive any additional compensation therefore.
If the Reverse Stock Split Proposal is adopted, the Company anticipates
that it will seek to be relieved from its SEC reporting obligations as soon as
practicable and will not solicit proxies for future annual meetings in
compliance with SEC regulations. If the proposal is defeated and the Company
remains subject to SEC proxy regulation, Shareholder proposals for the 2000
Annual Meeting of Shareholders of EAC must be received by the office of EAC
Industries, Inc. ____________________________, no later than __________ ___,
2000 for inclusion in the Proxy Statement for the 2000 Annual Meeting of
Shareholders.
By Order of the Board of Directors
PETER B. FRITZSCHE
Chairman of the Board and CEO
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APPENDIX 1
EAC INDUSTRIES, INC. 1999 ANNUAL MEETING
The undersigned hereby appoints Peter B. Fritzsche, P. Bartley Fritzsche,
E. Donald McKenzie, Jr. and John B. Millet, Jr., and each of them, as proxies of
the undersigned, and each with full power of substitution, to vote all shares
eligible to be voted by the undersigned at the Annual Meeting of the
Stockholders of EAC Industries, Inc. to be held at Suite 2600, 222 North
LaSalle, Chicago, Illinois 60601 on __________, 1999 at 8:30 a.m. (local time)
or any adjournment or postponement thereof, with respect to the matters set
forth below and such other business as may properly come before the meeting,
with the same force and effect as the undersigned might or could do if
personally present thereat.
Shares represented by this proxy, when returned properly executed, will be voted
in the manner directed herein by the undersigned stockholder. If no direction is
made as to a proposal, this proxy will be voted FOR the proposal.
The proxies are instructed to vote with respect to the proposals as follows:
1. ELECTION OF
DIRECTORS [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to to vote for all nominees
the contrary below) listed below
Peter B. Fritzsche, P. Bartley Fritzsche, E. Donald McKenzie, Jr. and John
B. Millet, Jr.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
INDICATE SUCH NOMINEE'S NAME ON THE LINE BELOW:
------------------------------------------------------------
2. STOCK
RECLASSIFICATION [ ] FOR [ ] AGAINST [ ] ABSTAIN
To amend the Company's Restated Certificate of Incorporation to effect a 1
for 200 share reverse stock split of the Common Stock and to pay cash in lieu of
fractional shares on the basis of $.10 per share to those stockholders owing 199
shares or less and to immediately thereafter reclassify resulting whole or
partial shares on a 200 for 1 basis.
3. In their discretion, the proxies are authorized to consider and vote
upon such other business that may properly come before the meeting or any
adjournment or postponement thereof.
<PAGE>
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by its President or other
authorized officer. If a partnership or like entity, please sign in partnership
name by an authorized person.
- -------------------------------------- -------------------------------------
Signature Signature if held jointly
Dated:__________________, 199___
Please mark, sign, date and return the Proxy Card promptly using the enclosed
envelope.
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APPENDIX 2
ANNEX __
NEW YORK BUSINESS CORPORATION LAW
SECTION 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT
FOR SHARES. (a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election
stating his name and residence, address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations) or from a share exchange under paragraph
(g) of Section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of a copy of the
plan of merger or exchange or an outline of the material features thereof under
section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as
to which he has a right to dissent held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and an other rights under this section. A notice of election
may be withdrawn by the shareholder at any time prior to his acceptance in
writing of an offer made by the corporation, as provided in paragraph (g), but
in no case later than sixty days from the date of consummation of the corporate
action except that
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if the corporation fails to make a timely offer, as provided in paragraph (g),
the time for withdrawing a notice of election shall be extended until sixty days
from the date an offer is made. Upon expiration of such time, withdrawal of a
notice of election shall require the written consent of the corporation. In
order to be effective, withdrawal of a notice of election must be accompanied by
the return to the corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn, or the proposed
corporate action is abandoned or rescinded, or a court shall determine that the
shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder
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entitled thereto forthwith upon consummation of the corporate action. Every
advance payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute a
waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety-day period after the shareholders'
authorization date, the offer may be conditioned upon the consummation of such
action. Such offer shall be made at the same price per share to all dissenting
shareholders of the same class, or if divided into series, of the same series
and shall be accompanied by a balance sheet of the corporation whose shares the
dissenting shareholder holds as of the latest available date, which shall not be
earlier than twelve months before the making of such offer, and a profit and
loss statement or statements for not less than a twelve-month period ended on
the date of such balance sheet or, if the corporation was not in existence
throughout such twelve-month period, for the portion thereof during which it was
in existence. Notwithstanding the foregoing, the corporation shall not be
required to furnish a balance sheet or profit and loss statement or statements
to any shareholder to whom such balance sheet or profit and loss statement or
statements were previously furnished, nor if in connection with obtaining the
shareholders' authorization for or consent to the proposed corporate action the
shareholders were furnished with a proxy or information statement, which
included financial statements, pursuant to Regulation 14A or Regulation 14C of
the United States Securities and Exchange Commission. If within thirty days
after the making of such offer, the corporation making the offer and any
shareholder agree upon the price to be paid for his shares, payment therefor
shall be made within sixty days after the making of such offer or the
consummation of the proposed corporate action, whichever is later, upon the
surrender of the certificates for any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
assenting shareholder or shareholders fail to agree with it within the period of
thirty days thereafter upon the price to be paid for their shares:
(l) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a special
proceeding in the supreme court in the judicial district in which the office of
the corporation is located to determine the rights of dissenting shareholders
and to fix the fair value of their shares. If, in the case of merger or
consolidation, the surviving or new corporation is a foreign corporation without
an office in this state, such proceeding shall be brought in the county where
the office of the domestic corporation, whose shares are to be valued, was
located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such proceeding
for the same purpose not later than thirty days after the expiration of such
twenty-day period. If such proceeding is not instituted within such thirty-day
period, all dissenter's rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting shareholder
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who is a resident of this state in the manner provided by law for the service of
a summons, and upon each nonresident dissenting shareholder either by registered
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as
to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not request
any such determination or if the court finds that any dissenting shareholder is
so entitled, it shall proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction giving
rise to the shareholder's right to receive payment for shares and its effects on
the corporation and its shareholders, the concepts and methods then customary in
the relevant securities and financial markets for determining fair value of
shares of a corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the fair
value of the shares without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any shareholder who is a
party to the proceeding, the court may, in its discretion, permit pretrial
disclosure, including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares, whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of section 3101 of
the civil practice laws and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such
rate as the court finds to be equitable, from the date the corporate act was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporation offer of payment for his shares was arbitrary, vexatious or
otherwise not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees incurred by
the corporation against any or all of the dissenting shareholders who are
parties to the proceeding, including any who have withdrawn their notices of
election as provided in paragraph (e), if the court finds that their refusal to
accept the corporate offer was arbitrary, vexatious or otherwise not in good
faith. Such expenses shall include reasonable compensation for and the
reasonable expenses of the appraiser, but shall exclude the fees and expenses of
counsel for and experts employed by any party unless the court, in its
discretion, awards such fees and expenses. In exercising such discretion, the
court shall consider the court may, in its discretion, apportion and assess all
or any part of the costs, expenses and fees incurred by any or all of the
dissenting shareholders who are parties to the proceeding against the
corporation if the court finds any of the
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following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer or
required advance payment was made by the corporation; and (C) that the
corporation failed to institute the special proceeding within the period
specified therefor; or (D) that the action of the corporation in complying with
its obligations as provided in this section was arbitrary, vexatious or
otherwise not in good faith. In making any determination as provided in clause
(A), the court may consider the dollar amount or the percentage, or both, by
which the fair value of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be due
him, upon surrender of the certificates for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event be
deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if
it is liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of this paragraph. If the
dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for
his shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
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(l) Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e), (2) of section 907 (Merger or consolidation of
domestic and foreign corporations). (Amended by L. 1965, Ch. 803; L. 1982, Ch.
202, Sections 3-9, Ex. Sess., Ch. 928, Sections 38-40; L. 1986, Ch 117, Section
3.)
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EXHIBIT B
EAC INDUSTRIES, INC.
2111 CLARIDGE LANE
NORTHBROOK, IL 60062-8615
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement, which is being mailed to shareholders on or about
November ___, 1999 is furnished in connection with the solicitation of proxies
by the Board of Directors of EAC Industries, Inc., a New York corporation ("EAC"
or the "Company"), to be used at the 1999 Annual Meeting of Shareholders of the
Company to be held at the time and place and for the purposes specified in the
enclosed Notice.
You are requested to complete, date and sign the accompanying proxy and
return it promptly to the Company in the enclosed envelope. Proxies duly
executed and received in time for the meeting will be voted at the meeting in
accordance with the instructions thereof. Such proxies may, nevertheless, be
revoked at any time prior to the voting thereof.
Two important matters will be brought before the Annual Meeting for
shareholder consideration: a reverse stock split which, if adopted, will result
in the Company ceasing to be a reporting company to the Securities and Exchange
Commission, and the election of directors. As discussed herein, the Board of
Directors has recommended the reverse stock split proposal to the shareholders
for adoption. The Board of Directors may be deemed to have a conflict of
interest in this regard because they devised and priced the proposal. Under the
proposal, holders of 199 shares or fewer will have their shares converted into
the right to receive $.10 per share. As of July 31, 1999 the Company had a book
value of approximately $.30 per share and available cash resources of $.21 per
share. Adoption of the proposal will require a vote of a majority of the
outstanding shares. See Proposal No. 1 below.
The Board of Directors has fixed the close of business on November ___,
1999 as the record date for the determination of shareholders who are entitled
to notice of, and to vote at, the Annual Meeting or any adjournments thereof.
The transfer books of the Company will not be closed; rather, only shareholders
of record as of November ___, 1999 will be entitled to vote at the Annual
Meeting. As of November ___, 1999, there were 2,885,521 shares of common stock
outstanding, the holders of which are entitled to one vote per share on all
matters presented at the meeting. Directors are elected by a plurality of votes
cast. Under the law of New York, EAC's state of incorporation, "votes cast" at a
meeting of stockholders by the holders of Shares entitled to vote are
determinative of the outcome of the matter subject to vote. Abstentions, broker
non-votes, and withheld votes will not be considered "votes cast" based on EAC's
understanding of state law requirements. To the best knowledge of the Company,
there is one shareholder owning more than 5% of the Company's Common Stock. See
"Principal Holders of Securities."
<PAGE>
EAC INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
DECEMBER ___, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of EAC
INDUSTRIES, INC., a New York corporation (the "Company"), will be held at the
office of Vedder, Price, Kaufman & Kammholz, 222 North LaSalle Street, 26th
Floor, Chicago, IL 60603 on December ___, 1999 at 8:30 a.m., local time, for the
following purposes:
1. To amend the Company's Restated Certificate of Incorporation to
effect a 1 for 200 share reverse stock split of the Common Stock
and to pay cash in lieu of fractional Shares in the amount of
$.10 per share and immediately thereafter to reclassify such
resulting whole, or partial, Shares on a 200 for 1 basis.
2. To elect four (4) Directors.
3. To transact such other business as may properly come before said
Annual Meeting and any and all adjournments thereof.
The Board of Directors has fixed the close of business on November ___,
1999 as the record date for the determination of shareholders who are entitled
to notice of, and to vote at, the meeting or any adjournments thereof. The
transfer books of the Company will not be closed.
By Order of the Board of Directors
PETER B. FRITZSCHE
Chairman of the Board and CEO
November ___, 1999
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Proxies in the accompanying form, which are properly executed, marked, duly
returned and not revoked, will be voted as directed. Unless otherwise indicated,
such proxies will be voted in favor of the election of the four nominees for
directors of EAC whose names appear below and for Proposal No. 1, the Reverse
Stock Split. Directors of EAC are to be elected at its Annual Meeting to hold
office until the next Annual Meeting of Shareholders and until the election of
their respective successors.
PROPOSAL NO. 1
--------------
PROPOSAL TO AMEND THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION TO ELIMINATE HOLDERS OF 199 SHARES OR FEWER BY EFFECTING A
REVERSE STOCK SPLIT OF THE COMMON STOCK AND A SUBSEQUENT FORWARD STOCK SPLIT
OF THE COMMON STOCK AND BY PAYING FRACTIONAL SHARES AT THE RATE OF $.10
PER SHARE
The Proposal. The Board of Directors has approved, and has directed that
the same be presented for shareholder approval at the Annual Meeting, a proposal
to amend the Company's Amended and Restated Certificate of Incorporation (the
"Reverse Stock Split Amendment") to (a) effect a 200 to 1 reverse stock split
(the "Reverse Stock Split") of the Company's Common Stock, $.10 par value,
through a reclassification of the Common Stock pursuant to which each 200 Shares
of Common Stock outstanding as of the close of business on the effective date of
the amendment would be reclassified into one (1) new share of Common Stock, $.10
par value, and (b) authorize an immediately subsequent reclassification with a
forward split of the new Common Stock (the "Forward Stock Split") pursuant to
which each holder of the reclassified Common Stock at such moment would receive
199 additional Shares (or a proportionately appropriate smaller number for
holding not divisible by 200) of reclassified Common Stock for each one (1)
share of reclassified Common Stock held as of such moment. No fractional Shares
would be issued pursuant to the reclassification and certain holders who would
otherwise be entitled to receive a fractional share in the Reverse Stock Split
will receive cash at the rate of $.10 per share in lieu of their fractional
share interests. At the date hereof, the bid and asked prices for the Common
Stock were $____ and $____, respectively. As of such date, the book value per
share and available cash per share were approximately $_____ and $_____
respectively. If the holders hold less than 199 Shares, their holdings are to be
converted into the right to receive cash; if their holdings are 200 Shares or
more, any fractional Shares otherwise due would be temporarily established on
the books of the Company. The Reverse Stock Split and the Forward Stock Split
are herein referred to collectively as the "Reverse Stock Split Proposal." The
effect of the Reverse Stock Split Proposal is that all holders of 200 Shares of
Common Stock or more would have NO change in their stock holdings; holders of
less than 200 Shares ("fraction holders") would only be entitled to cash in lieu
of fractional Shares.
Background of the Proposal. At its meeting following the 1999 Annual
Meeting of Shareholders held on December ___, 1999, the Board of Directors
considered the deteriorating results of operation and future prospects of the
Company. It was determined at that meeting that the Goodren Products subsidiary
would be sold to its management. Goodren had been experiencing lower sales and
profitability under the Company's ownership in recent years. The Board of
Directors also concluded that, if the sale of Goodren could be accomplished,
leaving only the Flexible Printed Products subsidiary as an operating entity,
the Company's existing operating and
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administrative overhead, particularly related to its SEC reporting obligations,
no longer could be sustained.
The Board of Directors then began an examination of a possible liquidation
of the Company at its December meeting, but concluded that such an initiative
was not feasible, given the relatively high expense of maintaining EAC as
"liquidating entity" until all of the various contingent liabilities related to
its former businesses were resolved. A representative of Vedder Price Kaufman &
Kammholz, the Company's outside legal counsel, was present at the meeting, and
he advised the Board on the expenses and feasibility of liquidating a public
company such as EAC. Peter Fritzsche, as the Company's largest shareholder, was
not interested in a liquidation of the Company that would not produce an obvious
benefit for the shareholders as a whole.
Several board members inquired about the feasibility of "going private" or
eliminating the Company's SEC reporting obligation. With the Company in the
process of selling its money - losing operations, overall sales volume had been
reduced by approximately 75% over the prior three years, and with profitably
from operations still not being reasonably foreseeable, the Board believed that
a return to profitability and positive cash flow required strong action. The
Board asked Mr. Fritzsche to investigate a "going private" transaction and
report back to the Board.
The Board next met on January 29 by telephone to discuss the pending sale
of Goodren Products and discussed in general terms the feasibility of a "going
private" transaction but no specific proposals were discussed.
The Board of Directors met in Chicago on May 5 and during the meeting Mr.
Fritzsche again introduced the issues of reduction of corporate overhead and the
possibility of a "going private" transaction. A representative of Vedder Price
discussed the techniques and legalities of a "going private" transaction with
the Board and advised that, given the state of the Company's current operations
and prospects, action to deregister under the 1934 Act was advisable. The Board
of Directors determined that John B. Millet, Jr. and E. Donald McKenzie, Jr.,
the two directors who were not affiliated with the Fritzsche Group (as defined
below), would act as a Special Committee to review any proposal to be submitted
to the shareholders. The Committee was given "plenary authority" over the issue.
If the Special Committee did not approve the strategic initiative, the Board as
a whole agreed not to approve it. However, Peter B. Fritzsche and P. Bartley
Fritzsche, both directors of the Company, were not to be legally bound to vote
for such proposal as stockholders, which factor the Special Committee took into
consideration in its deliberations. As noted below, the Fritzsche Group owns
approximately ___% of the shares.
The Special Committee asked Peter Fritzsche to examine the feasibility of a
purchase of all Company shares held by the non-affiliated stockholders, either
by merger or reverse stock split, or, in the alternative, a cash purchase of
just enough shares to reduce the number of shareholders below the SEC reporting
threshold.
Mr. Fritzsche reported back to the Special Committee informally in
subsequent weeks on his concerns that a complete purchase of the shares held by
unaffiliated stockholders would be too risky in terms of the need to conserve
the Company's cash resources and, due to the requirements of the
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<PAGE>
Company's governing corporate charter, which would require an 80% approving vote
of the shareholders in such instance, and which was very unlikely to be obtained
based on the shareholders' historic voting patterns.
On June 14, Mr. Fritzsche submitted a formal written proposal recommending
the Reverse Stock Split Proposal for the Special Committee's consideration, and
provided the Special Committee with relevant financial and other information
concerning the proposal. The Board of Directors met on June 24, 1999 and the
Special Committee reported that they had examined the proposal in detail. A
representative from Vedder Price participated in the meeting and the Special
Committee and the Board of Directors again examined the proposal in detail and
the Special Committee agreed to the proposal, and the Board of Directors
unanimously approved it.
Purpose of the Proposal. The purpose of the Reverse Stock Split Proposal is
to reduce the number of shareholders of record of the Company below 300 thereby
enabling the Company to terminate registration of the Shares under, and be
relieved of the periodic reporting, proxy solicitation and other information
requirements of, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as well as the expenses associated with such reporting requirements. As
of August 31, 1999, the Company had approximately 425 shareholder accounts of
record in the 1 to 199 Share range aggregating ____ Shares. Based on
approximately 1,350 shareholder accounts overall and 2,285,521 Shares
outstanding, shareholders with 199 or fewer Shares constituted approximately 31%
of the Company's shareholders and approximately 55% of its shareholders of
record, but accounted for about 2% of the Shares outstanding. Expenses directly
and indirectly attributable to reporting requirements of the Exchange Act were
approximately $80-100,000 in fiscal 1999, which is approximately $.04 per share.
See "SPECIAL FACTORS - Purpose of Reverse Stock Split Proposal."
Upon termination of registration under the Exchange Act, the Shares will
cease to be authorized for quotation on NASDAQ and shareholders should expect a
very limited public market for their Shares as a result. The Company estimates
the Shares outstanding will be reduced by approximately 65,000 Shares after
payment for fractional Share interests, assuming no shareholders round up (i.e.
purchase additional shares to reach 200 in total so as to avoid having their
shares converted to cash). The effect of the Reverse Stock Split Proposal will
not increase the holdings of Peter B. Fritzsche and members of his immediate
family (Ruth Fritzsche, Bartley Fritzsche, Kathleen Fritzsche and David
Fritzsche, collectively the "Fritzsche Group"). Mr. Fritzsche and the other
members of the Fritzsche Group have informed the Company of their intention to
dispose of the Shares representing the increase in their percentage ownership if
the Reverse Stock Split Proposal is adopted. By doing so, they will eliminate
the need for a "super majority vote" or 80% vote of the shareholders on the
Reverse Stock Split Proposal, as would have been required pursuant to the
Company's Amended and Restated Certificate of Incorporation.
The Shares will be eligible for removal from the Federal Reserve Board's
OTC margin list upon termination of registration under the Exchange Act. As
noted above, the Company believes termination of registration under the Exchange
Act will result in savings in management time and out-of-pocket expenses. See
"SPECIAL FACTORS - Effects of Reverse Stock Split."
5
<PAGE>
Although the Board did not retain an appraiser, an unaffiliated
representative or separate legal counsel to evaluate the Reverse Stock Split
Proposal or the price to be paid for fractional Share interests, the price to be
paid for fractional New Share interests was determined after considering a
number of factors, including the price per Share paid by the Company and
affiliates of the Company for acquisition of Shares in various transactions
since 1997, including acquisitions pursuant to a reverse stock split made in
November, 1997, as well as recent market prices of the Company's Shares and
shareholders' equity and available cash resources per Share, and other factors.
See "SPECIAL FACTORS - Fairness."
Federal Income Tax Consequences of the Proposal. Fractional holders who
receive cash for all of their Shares under the Reverse Stock Split Proposal will
recognize a capital gain or loss, depending on the tax basis of the Shares,
provided the Shares were held as capital assets.
Vote Required; Vote of Principal Shareholders. In order to effect the
Reverse Stock Split Proposal, the Company's Amended and Restated Articles of
Incorporation must be amended, which requires the approval of a majority of the
outstanding Shares. Members of the Fritzsche Group own, in the aggregate, 34% of
the Company's outstanding Shares, and other members of the board of Directors
own 46,575 Shares (2%) and the Company is advised that all such Shares will be
voted in favor of the Reverse Stock Split Proposal. Approval of a majority of
unaffiliated shareholders is not required or being sought.
Certain Provisions of EAC's Charter and the New York Corporate Law. Certain
provisions of the Restated Certificate of Incorporation and New York law may
delay, deter or prevent a stockholder or group of stockholders from taking
corporate action or gaining control of the Company. For example, Article
Thirteen of the Company's Restated Certificate of Incorporation imposes certain
voting and other requirements on certain mergers and other combinations
(including a reverse stock split) involving certain affiliated parties of the
Company. Section 912 of the New York Corporation Law imposes essentially the
same limitations on such transactions. The Reverse Stock Split Proposal is not
subject to such charter and statutory voting and other requirements because of
the Fritzsche Group intended disposition of shares as discussed herein.
Financial Information. Summary financial information is contained in the
Company's 1999 Annual Report, which accompanies this Proxy Statement.
Dissenters' Rights of Appraisal. Under applicable New York law, any
stockholder of the Company entitled to receive the Reverse Stock Split
Consideration is NOT entitled to demand the fair value of his Shares if the
Reverse Stock Split Proposal is approved and becomes effective. Nevertheless,
the Board of Directors of the Company has decided to afford stockholders of the
Company whose Shares of the Company are converted into the right to receive cash
and who timely object to such action ("Dissenting Shareholders") with statutory
appraisal rights. Following is a summary of the applicable provisions of Section
623 of the New York Business Corporation Law, which describes the appraisal
rights of dissenting stockholders. This summary should be read with the full
text of Section 623, a copy of which is attached hereto as Appendix B. We urge
any Company stockholder who intends to exercise his appraisal rights to review
Appendix B carefully and to consult with legal counsel so as to assure strict
compliance with its provisions.
6
<PAGE>
A vote in favor of the Reverse Stock Split Proposal will constitute a waiver of
your right to demand appraisal of your Company common stock.
Who May Exercise Statutory Appraisal Rights. Holders of Company common
stock who are entitled to receive cash upon the effectiveness of the Reverse
Stock Split Proposal and who follow the procedures set forth in the law will be
entitled to have their Company common stock appraised by a court and to receive
payment in cash of the "fair value" of their Shares, together with a fair rate
of interest, if any, as determined by the court. Company stockholders
considering seeking appraisal rights in respect of their Shares should be aware
that the fair value of the Shares under Section 623 could be more than, less
than or equal to the Reverse Stock Split Consideration.
Procedure for Exercising Statutory Appraisal Rights. A Company stockholder
who wishes to exercise his appraisal rights must: (a) deliver to the Company
prior to or at the annual meeting a written objection; and (b) not vote in favor
of the Reverse Stock Split Proposal. A demand for appraisal should be executed
by or on behalf of the holder of record, as such holder's name appears on the
stock certificate. If the Company Shares in question are held in a fiduciary or
representative capacity, such as by a trustee, guardian or custodian, execution
of the demand should be made in that capacity. If the Shares are owned of record
by more than one person, the demand should be executed by or on behalf of all
joint owners. All demands for appraisal must be made in writing and must be sent
or delivered to the Company at 2111 Claridge Lane, Northbrook, Illinois
60062-8615, Attn.: President.
Any holder of Company stock who has demanded an appraisal in compliance
with Section 623 will not, from and after the Effective Time of the Reverse
Stock Split Proposal, be entitled to vote the Shares subject to the demand for
any purpose or be entitled to the payment of any future dividends or other
distributions on the Company common stock.
Within ten days after the Annual Meeting, the Company will be required to
notify each stockholder who has complied with the provisions of Section 623, and
who has not voted in favor of the Reverse Stock Split Proposal, of the approval
of the Reverse Stock Split Proposal. Within 15 days after the Effective Time of
the Reverse Stock Split Proposal, any stockholder who has complied with the
requirements for exercise of statutory appraisal rights will be entitled to
receive from the Company an offer setting forth what the Company considers to be
the fair value for such Shares (the Board of Directors has determined that such
currently is $.10 per share), the aggregate number of Shares of Company common
stock not voted in favor of the Reverse Stock Split Proposal and with respect to
which demands for appraisal have been received, and the aggregate number of
holders of such Shares.
Determination of Fair Value. The statute provides for a procedure for the
Company and the dissenting stockholder to reach an agreement as to the Fair
Value. Within a statutorily prescribed time period, the Company or any
stockholder who has complied with the statutory requirements may file a petition
in a court of proper jurisdiction demanding a determination of the fair value of
the Company common stock. If a petition for appraisal is timely filed,
stockholders entitled to appraisal rights may receive notice of the time and
place of a hearing on the petition. After the hearing, the
7
<PAGE>
court will determine the stockholders entitled to statutory appraisal rights and
the "fair value" of their EAC stock.
Costs of Appraisal Action. The costs of an appraisal action may be
determined by the court and taxed upon the parties as it deems consistent with
the statement. The court may also order that all or a portion of the expenses
incurred by any stockholder in connection with appraisal, including reasonable
attorneys' fees and the fees and expenses of any experts utilized in the
appraisal proceeding, be charged pro rata against the value of all of the
Company Shares entitled to appraisal.
Loss of Appraisal Rights. If any stockholder who properly demands appraisal
rights of his Company common stock under Section 623 fails to perfect, or
effectively withdraws or loses, his right to appraisal, as provided under New
York law, that stockholder's Shares will be converted into the right to receive
the Reverse Stock Split Consideration. A stockholder will fail to perfect, or
effectively lose, his appraisal rights if, among other things, no petition for
appraisal is filed within the statutory time limit after the Effective Time or
if the stockholder delivers to the Company a written withdrawal of his demand
for appraisal and acceptance of the Reverse Stock Split Proposal.
8
<PAGE>
SPECIAL FACTORS
---------------
PURPOSE OF REVERSE STOCK SPLIT PROPOSAL.
The Company has a large number of small shareholders, those holding fewer
than 200 shares. As of August 31, 1999, the Company had approximately 425
shareholders of record in the 1 to 199 Share range. Such shareholder accounts
represented holdings of about 45,000 Shares in total. As of August 31, 1999, the
Company had a total of approximately 760 shareholders of record. Shareholders
with 199 or fewer Shares constituted approximately 31% of the Company's
shareholders (record and beneficial), but accounted for about 2% of the Shares
outstanding.
As noted above, the Fritzsche Group (Peter B. Fritzsche, his wife Ruth and
three of their adult children, Bartley, Kathleen and David) intend to dispose of
a sufficient number of their shares so that the Reverse Stock Split Proposal
will not cause their proportionate holding in EAC to increase. There are no
specific plans at this date on how such disposition would be accomplished.
The Company is registered under the Securities and Exchange Act of 1934
and, therefore, is required to file annual and other periodic reports and comply
with the proxy rules of the Securities and Exchange Commission ("SEC") in the
solicitation of proxies for annual and special meetings of shareholders. If the
number of shareholders of record of a class of securities is reduced to less
than 300, a certification of that fact may be filed with the SEC, registration
of the securities may be terminated, and the issuer would no longer be subject
to the proxy requirements of Section 12(g) of the Exchange Act. The purpose of
the Reverse Stock Split Proposal is to reduce the number of shareholders of
record to less than 300 so that the Company may terminate registration of the
Shares under Section 12(g) (4) and terminate its reporting obligation under
Section 15(d) of the Exchange Act and thereby reduce its operating costs
associated with being a publicly-reporting company.
The Company believes that termination of registration of the Shares under
Section 12 (g) (4) of the Exchange Act and termination of the reporting
requirements of Section 15(d) of the Exchange Act will result in significant
savings in management time and out-of-pocket expenses. The Company has been
publicly owned since the late 1960's. Compliance with the proxy solicitation and
reporting requirements of the Exchange Act has entailed substantial management
time and annual expense principally for legal, accounting and printing services
in respect of soliciting proxies, filing reports with the SEC and furnishing
detailed information to shareholders. Expenses directly or indirectly
attributable to being a "public company" and compliance with the reporting
requirements of the Exchange Act were approximately $80-100,000 for fiscal 1999.
EFFECTS OF REVERSE STOCK SPLIT.
On the Effective Date it is expected that the number of shareholders will
be reduced to fewer than 300 persons. The Company will file the appropriate
certification with the SEC to terminate registration of the Shares under Section
12(g)(4) and 15(d) of the Exchange Act, which termination will become effective
not more than 90 days after the Company files a certificate of termination.
Thereafter, shareholders will no longer receive informational material such as
the annual report and proxy materials in their present format. Also as of that
date, no further periodic reports which would
9
<PAGE>
have been filed with the SEC will be filed and will not be available to
shareholders. In addition, upon termination of registration the Company's
principal shareholders, directors and officers will no longer be subject to
certain insider reporting and trading rules under the Exchange Act. At this time
the Company does not contemplate sending proxy solicitation material to holders
of Shares in the future, although notices of any meetings of shareholders will
be sent as required by the New York Business Corporation Act. The Company does
intend, however, to send shareholders the results of its operations and a
statement of its financial condition at least once each year; these financial
statements will be audited by the Company's accountants but the Company will not
be legally committed to disseminating audited financial statements in future
years. The Company has no present plans to send shareholders interim reports on
results of operations. Such interim reports are not required under applicable
law or the By-laws of the Company.
The Shares have been traded in the Over-The-Counter Market. Following the
effective date of termination of registration under Section 12(g) (4) and 15(d)
of the Exchange Act, the Shares will cease to be authorized for quotation by
NASD members and, therefore, shareholders may encounter significantly more
difficulty in disposing of their Shares. One possible effect of not being
authorized for quotation by NASD members is a reduction in the value of the
shares due to further loss of liquidity, loss of market makers and loss of news
coverage. In addition, the number of Shares outstanding may not be sufficient to
support a trading market, active or otherwise. Consequently, shareholders should
expect a very limited public trading market for the Shares, if at all. Remaining
shareholders who desire to sell their Shares may be dependent to a great extent
upon the Company's willingness to purchase Shares. Neither the Company nor
members of the Fritzsche Group has any present specific plan or proposal to make
a tender offer or to purchase Shares in the future. Moreover, there is no intent
to accomplish another Reverse Stock Split. Furthermore, it is unlikely that any
person desiring to acquire control of the Company would be interested in
acquiring small holdings of Shares and, therefore, any future opportunities for
sale may be limited to persons with substantial holdings such as members of the
Fritzsche Group.
On the Effective Date, the Company estimates that Shares outstanding will
be reduced by approximately 65,000 Shares after payment for all fractional Share
interests. The effect on the holdings of the Fritzsche Group, assuming no
shareholders round up, will be an increase from approximately 34% to
approximately 35%. As noted, the Fritzsche Group intends to dispose of a
sufficient number of Shares to keep its shareholder interest unchanged.
The Shares are currently classified by the Federal Reserve Board as "OTC
margin stock." As such, certain lenders, including banking institutions and
brokers, are prohibited from making loans for the purpose of purchasing or
carrying the Shares, if secured directly or indirectly by the Shares, in an
amount in excess of 50% of the market value of such Shares. If registration of
the Shares is terminated under Section 12(g) (4) and 15(d) of the Exchange Act,
the Shares would be eligible for removal from the Federal Reserve Board's OTC
margin list. Such removal should have no practical effect because brokers
typically will not lend on shares with a stock price as low as the Company's.
Nevertheless, removal from the margin list will not improve the market for EAC's
shares.
10
<PAGE>
Notwithstanding approval of the Reverse Stock Split Proposal, after the
Effective Date the officers and directors of the Company will continue to owe
fiduciary obligations to shareholders under New York law.
FAIRNESS.
The Company and its Board of Directors reasonably believe that the Reverse
Stock Split Proposal is fair to all unaffiliated shareholders of the Company.
See "Background of the Reverse Stock Split Proposal" above. On June 21, 1999,
the Company's Board of Directors unanimously approved the Reverse Stock Split
Proposal. This approval was based on the recommendation by John B. Millet, Jr.
and E. Donald McKenzie, Jr., appointed as a Special Committee of the Board of
Directors for this purpose and given the plenary authority by the Board of
Directors to approve or reject Company management's Reverse Stock Split
Proposal. In approving the Reverse Stock Split Proposal, neither the Board of
Directors nor the special committee engaged an appraiser to make an independent
evaluation of the Reverse Stock Split Proposal nor did it employ the advice of
an unaffiliated representative or separate legal counsel to act solely on behalf
of the minority shareholders, or to represent the special committee either for
the purpose of structuring the Reverse Stock Split Proposal, including a
determination of the price to be paid for a fractional Share interest, or for
the purpose of preparing a report concerning its fairness. The Board of
Directors determined that the cost of retaining an appraiser, or unaffiliated
representative, or even separate legal counsel, was not warranted in light of
the considerable expense entailed in relation to the expected cash payments to
be made pursuant to the Reverse Stock Split Proposal and in light of rights
given to Dissenting Shareholders (see "RIGHTS OF DISSENTING SHAREHOLDERS").
Under New York law shareholders are not entitled to dissenters rights with
respect to the Reverse Stock Split Proposal. The Board of Directors has
determined to give such rights to stockholders whose Shares will be purchased
under the proposal. The Board believes this grant supports its assertion that
the price is fair and the process for resolving any dispute over the issue is
fundamentally fair.
Factors Tending to Support Fairness. As noted above, the Board of Directors
has unanimously concluded that the terms of the Reverse Stock Split Proposal are
fair to non-affiliated stockholders. The Company's current stock price ($.05 per
share) on July 31, 1999 and $.03 per share today were deemed relevant and the
Company's vital need to reduce operating expenses and to conserve its cash
resources until it, hopefully, resumes profitable operations were deemed very
compelling in terms of the overall assessment of fairness. The elimination of
operating expenses relating to the Company being an SEC registrant, on an annual
basis, of approximately $.04 per share was viewed as very important,
particularly in terms of the Company's on-going viability.
Factors Tending Not to Support Fairness. In determining that it believes
that the price to be paid for a fractional Share interest created by the Reverse
Stock Split Proposal is fair, the Board of Directors of the Company considered
current market prices, including the prices per Share over the last year (see
"General Information" below). The Board of Directors recognizes that current
prices may not be indicative of true value due to the very low trading in its
shares. Also, the Board considered the prices paid by the Company in its 1997
reverse stock split (the "1997 Reverse Stock Split") ($.28125 per Share) and the
price paid by Mr. Fritzsche and other affiliates of the Company in their
acquisitions of Shares pursuant to the 1997 rights offering ($.22 per Share)
made pursuant
11
<PAGE>
to a prospectus dated November 10, 1997 (the "Rights Offering"). Since January,
1997, members of the Fritzsche Group have made acquisitions of an aggregate of
approximately 508,000 Shares at an average price of $.22 per Share. In February,
1998 members of the Fritzsche Group paid $.22 per share for approximately
505,000 Shares in the Company and Messrs. Millet and McKenzie bought 23,275
Shares and 500 Shares respectively in the Rights Offering at $.22 per share.
On December 29, 1997, the Company purchased approximately 29,000 Shares
from shareholders owning less than 100 Shares at $.28125 per Share, net to
seller, by virtue of a reverse stock split with respect to its "odd-lot holders"
owning 100 Shares or less (the "1997 Reverse Stock Split"). The total number of
Shares redeemed by the Company in accordance with the terms and conditions of
the 1997 Reverse Stock Split was approximately 1% of Shares then outstanding.
The funds used by the Company to purchase Shares pursuant to the 1997 Reverse
Stock Split were corporate funds.
The Board of Directors as a whole and the Committee do not believe that the
prices paid for the purchase of Shares in the 1997 Reverse Stock Split and sale
of Shares in the 1997 Rights Offering are of continuing relevance due to the
following considerations:
(a) The Company has continued to lose money on an operating basis since the
1997 Rights Offering and 1997 Reverse Stock Split and will likely lose
money on an operating basis and on a net income basis in fiscal year 2000.
The Company did report income from continuing operations for its second
quarter; this was largely a result of increased investment income as the
Company has converted money-losing business into cash.
(b) The Company has sold two (2) separate businesses since 1997, both of which
were losing money and has been unable to acquire, or develop, additional
businesses with profit-making potential.
(c) The future prospects for the Flexible Printed Products subsidiary, the
Company's sole remaining operating business, are not positive with intense
price competition occurring for its major customers.
(d) The market value of the Company's Shares has dropped significantly since
1997 and trading in its Shares is very sporadic. Again the Board of
Directors recognizes that sporadic trading in its shares may not provide a
price based on the true value of the shares.
For these reasons, the Board of Directors believes that a substantial
diminution in the value of the Company's Shares has occurred since 1997.
Shareholders' tangible equity per Share of $.18 as of January 31, 1999 was
also considered. The price per Share to be paid for a fractional Share interest
which will be created by the Reverse Stock Split Proposal is below shareholders'
equity per Share.
Other Factors. Going concern value and liquidation value were not given
substantial consideration by the Board of Directors in determining the fairness
of the price per Share to be paid
12
<PAGE>
for a fractional Share interest which will be created by the Reverse Stock Split
Proposal. Going concern value was deemed somewhat non-probative on the issue of
fairness because the Company has received no offers, firm or otherwise, for the
purchase of the Company as a whole within the past several years, although the
Company has not solicited bids for its sale. It should be noted that the Company
did sell two of its operating licenses in the last 18 months. Furthermore, going
concern value had more relevance in the Board's view if the Company were
operating profitably and had reasonable prospects for profitable operation. In
terms of liquidation value, the Board was not convinced of its importance, given
the relative high costs and protracted time frame for liquidating a public
company which has a single operating business producing less than $2,000,000 in
annual sales and which has several significant contingent liabilities related to
discontinued operations.
ALTERNATIVES.
The Board of Directors of the Company and the Special Committee appointed
to review and approve this matter have each determined that the Reverse Stock
Split Proposal is the most direct and appropriate and least expensive method of
reducing the number of the Company's shareholders to less than 300. In their
view it is the fairest proposal because it accomplishes an important corporate
goal of reducing expenses, but does not strap the Company with a significant
cash outlay during a period of time when cutting costs and conserving cash is
vitally important. The Board of Directors believes that any delay in reducing
operating costs is unwise, as the Company will probably continue to lose money.
Prior to 1999, the Board of Directors believed that EAC continuing as a publicly
reporting entity with access to public capital market was in its best interest,
provided it could operate its subsidiaries profitably. This has not happened.
The Board of Directors believes that the fairest alternative is the Reverse
Stock Split Proposal, with the Company lowering its operating costs in an effort
to return to profitability. The Company intends to continue its operations for
the indefinite future and has no present plans to merge or consolidate with, or
sell its assets to, another company or person.
The alternative of a cash merger with a subsidiary created by the Company
for that purpose (or a reverse stock split having the same effect) was
considered and rejected by the Board of Directors because substantially greater
funds (at least $180,000) would have been required to pay for the entire
minority interest in the Company. As noted above, such a transaction would have
required an 80% approving vote, which the Board of Directors did not believe was
obtainable. A cash tender offer to holders of fewer than 200 Shares was rejected
because there could be no assurance that a sufficient number of Shares would be
tendered to reduce the number of shareholders to fewer than 300. As noted above
under "Background of the Proposal," the Board of Directors considered a
liquidation of the Company, but determined it was not feasible economically. The
Board of Directors also examined the option of "doing nothing." Given all of the
factors discussed above, "doing nothing" was not considered an alternative.
13
<PAGE>
GENERAL INFORMATION.
The principal market in which EAC's common stock is traded is the
over-the-counter market. The range of high and low bid quotations for each
quarterly period during the past two years, and the source of such quotations
follows. These quotations are inter-dealer quotations, without retail mark-up or
mark-down, and may not necessary represent actual transactions. Also, due to the
very light trading volume for the shares, these quotations may not necessarily
reflect the true value of the stock.
QTR. QTR.
ENDED HIGH LOW ENDED HIGH LOW
----- ---- --- ----- ---- ---
9/30/99 0.10 0.02 9/30/98 0.0125 0.0938
------------------------------------------------------
6/30/99 0.03 0.01 6/30/98 0.13 0.07
------------------------------------------------------
3/31/99 0.10 0.03 3/31/98 0.13 0.10
------------------------------------------------------
12/31/98 0.125 0.07 12/31/97 0.19 0.10
------------------------------------------------------
9/30/97 0.19 0.10
------------------------------------------------------
Source: National Quotation Bureau OTC Bulletin Board
No dividends have been paid by EAC during the past two fiscal years with
respect to such class of securities. The restriction on the Company's present or
future ability to pay such dividends includes New York corporate law which
requires that dividends be paid out of retained earnings (EAC has a substantial
negative retained earnings account), unless other statutory requirements are met
so as to pay dividends out of capital surplus. Also, EAC's financial situation
at present requires, to the extent practicable, the conservation of cash and
financial resources. This is due to the Company's ongoing and anticipated
operating losses and various contingent obligations which it must deal with
which, in some cases, relate to businesses it has previously disposed of.
The source and total amount of funds to be used in the Reverse Stock Split
Proposal transaction is general corporate funds not expected to exceed $12,000.
The expenses incurred or estimated to be incurred in connection with the Rule
13e-3 transaction including, but not limited to, filing fees, legal, accounting
and appraisal fees, solicitation expenses and printing costs is as follows:
$100 in filing fees;
$18-20,000 in legal fees;
$5,000 in printing fees; and
$3,000 in mailing and solicitation fees.
EAC has paid or will be responsible for paying all of such expenses.
14
<PAGE>
The transaction has not been structured so that approval of at least a
majority of unaffiliated security holders is required. The Rule 13E-3
transaction was approved by a majority of the directors to the issuer who are
not employees of the issuer.
With respect to the class of equity security to which the Reverse Stock
Split Proposal transaction relates, the aggregate amount and percentage of
securities beneficially owned as of the most recent practicable date by each
affiliate, other than Meus. Millet and McKenzie, who are directors of EAC and
whose addresses are c/o the Company at the address set forth below (see
"Election of Directors" for additional information), or by any associate
thereof, and the name and address of any such persons is as follows:
------------------------------------------------------------------------
NAME ADDRESS PERCENT
---- ------- -------
------------------------------------------------------------------------
Peter B. EAC Industries, Inc. 33%
Fritzsche 2111 Claridge Lane
Northbrook, IL 60062-
8615
------------------------------------------------------------------------
Ruth Fritzsche, c/o EAC Industries, Inc. less than 1% *
wife and 2111 Claridge Lane
associate of P. Northbrook, IL 60062-
B. Fritzsche 8615
------------------------------------------------------------------------
Bart Fritzsche, c/o EAC Industries, Inc. less than 1% *
child and 2111 Claridge Lane
associate of P. Northbrook, IL 60062-
B. Fritzsche 8615
------------------------------------------------------------------------
David c/o EAC Industries, Inc. less than 1% *
Fritzsche, child 2111 Claridge Lane
and associate of Northbrook, IL 60062-
P. B. Fritzsche 8615
------------------------------------------------------------------------
Kathleen c/o EAC Industries, Inc. less than 1% *
Fritzsche, child 2111 Claridge Lane
and associate of Northbrook, IL 60062-
P. B. Fritzsche 8615
------------------------------------------------------------------------
* Beneficial ownership of their shares is disclaimed.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE REVERSE STOCK SPLIT PROPOSAL
AND INTENDS TO VOTE FOR THE PROPOSAL.
15
<PAGE>
PROPOSAL NO. 2
ELECTION OF DIRECTORS
The following table sets forth the names of the nominees for the election
to the Board of Directors, their business experience during the past five years,
their positions, if any, with EAC, their previous terms as directors and the
number of Shares of Common Stock of EAC owned beneficially by each of them as of
August 31, 1999. Each nominee's Common Stock ownership represents less than 1%
of the aggregate amount of Common Stock outstanding, except for Peter B.
Fritzsche and P. Bartley Fritzsche whose beneficial ownership represents
approximately 33% and 1% respectively of the outstanding Common Stock of the
Company.
<TABLE>
Common Stock
Director Owned Beneficially
Name Principal Occupation for Last 5 Years Since As of 8/31/99
- ---- ------------------------------------- ----- -------------
<S> <C> <C> <C>
Peter B. Fritzsche(1) Chairman of the Board of Directors, President 1991 and 943,208(2)
Age 64 and CEO and Assistant Secretary, EAC - July from
1992 to present; Chairman of the Board of 1978-
Director and Assistant Secretary, EAC - 1990
December 1991 to July 1992; Yale University
Development Office, New Haven, CT - January
1992 to July 1994; consultant - 1990 to 1992;
Director of EAC - 1989 to 1990; Chairman of
the Board of Directors, President and CEO,
EAC - 1979 to 1989.
E. Donald McKenzie, Jr. President, Supercoups, Inc. Avon, MA (printer 1994 1,000
Age 47 of coupons) 1997 to present; Vice President -
Sales and Marketing, Health Tour, Inc. (agency for
temporary help / occupational therapists) -
January, 1996-1997; President Graphic Systems West
(manufacturers' representative for printing
equipment), Irvine, CA - 1991 to 1995.
John B. Millet, Jr. President and Owner of Mohawk Metal 1994 38,254
Age 57 Products Co., Utica, NY (suppliers to the retail
petroleum industry) - since 1977.
P. Bartley Fritzsche(1) Regional Account Manager, Neuberger & 1994 38,000
Age 30 Berman Management Inc., Chicago, IL.
Financial Services Company; John Marshall
Law School - 1993-1997 (LLB); Account
Representative, John Nuveen & Co., Chicago,
IL - 1991 to 1993.
</TABLE>
(1) Peter B. Fritzsche and P. Bartley Fritzsche are father and son.
(2) Includes 942,408 Shares held directly or through an IRA and 800 Shares
held of record by Mr. Fritzsche's spouse, whose beneficial ownership
may be attributable to Mr. Fritzsche, but which he disclaims.
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Set forth below is the compensation paid to the executive officers of the
Company and its Goodren Products Corporation subsidiary (which was sold on July
1, 1999) and for all such persons as a group:
Name and All Other
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- ------------
Peter B. Fritzsche FY 1999 $132,000 $ -0- $ -0-
Chairman and CEO FY 1998 $132,000 $ -0- $ -0-
FY 1997 $132,000 $ -0- $ -0-
Steven Mann (1) FY 1999 $165,697 $ -0- $ -0-
President and Goodren FY 1998 $179,372 $ -0- $ -0-
Products Corp. FY 1997 $177,398 $ -0- $ -0-
Total FY 1999 $297,657 $ -0- $ -0-
FY 1998 $311,372 $ -0- $ -0-
FY 1997 $309,398 $ -0- $ -0-
(1) Mr. Mann had an employment contract, renewable annually, which called
for base compensation of $155,000 (subject to annual inflation
adjustments) and a bonus equal to 5% of Goodren's total operating
income, provided that operating income was in excess of $650,000 in
the pertinent fiscal year. Mr. Mann was not paid a discretionary bonus
in fiscal 1997, fiscal 1998 or fiscal 1999.
Board members who are not employees (three presently) are paid fees equal
to $4,000 per year, plus $1,250 for each board or committee meeting attended.
Each non-employee director earning $9,000 during the fiscal year, having
attended a total of five board or committee meetings. As of September 30, 1999
Board members agreed to waive board compensation while the Company's financial
hardship situation continues.
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PROFIT SHARING PLANS
The Company maintains a deferred profit sharing plan ("Profit Sharing
Plan") which is intended to qualify under Section 401(a) of the Internal Revenue
Code of 1954, as amended ("Code"). The Profit Sharing Plan covers full-time
employees of the Company and its subsidiaries, including Goodren (prior to the
sale), who have completed one (1) year of eligibility service and who are not
covered under any other tax qualified retirement plan. Employer contributions to
the Profit Sharing Plan are made at the discretion of the Company's Board of
Directors and are allocated among participating employees based on their
compensation. The Profit Sharing Plan benefits, subject to a vesting schedule,
become payable following a separation of service from the Company.
The Profit Sharing Plan also provides for employees to defer a portion of
their eligible compensation, pursuant to Section 401(k) of the Internal Revenue
Code. There is no provision for matching contributions to be made by the
Company. No contributions were made to the Profit Sharing Plan by the Company
during the fiscal years 1998 and 1999. Goodren's contributions to the Profit
Sharing Plan were zero for fiscal years 1998 and 1999 respectively.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee, Compensation
and Audit Committee, in accordance with the by-laws and New York law. The
members of the Executive Committee are Messrs. Peter Fritzsche and John Millet.
The members of the Compensation and Audit Committees are Messrs. Millet and
McKenzie. Each Director attended all meetings of the Board of Directors and
committees on which they served during fiscal 1999.
PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of EAC, as of August 31, 1999 the only beneficial
owner of 5% or more of EAC's Common Stock was:
Amount
Principal Name and Address Beneficially Percent of
Class of Beneficial Owner Owned Class
- ----- ------------------- ----- -----
Common Stock Peter B. Fritzsche 943,208 33%
EAC Industries, Inc.
2111 Claridge Lane
Northbrook, Illinois 60062-8615
As of that date, all directors and officers as a group owned _______________
Shares (36%).
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INDEPENDENT AUDITORS
The Board of Directors reviews the selection of independent auditors
subsequent to the Annual Meeting of Shareholders. The firm of Lazar, Levine &
Company was EAC's independent auditor for the fiscal year ended January 31,
1999. A representative of such firm will not attend the Annual Meeting, but will
be available by speaker telephone to make a statement if they desire to do so
and to answer any questions.
OTHER MATTERS
The Board of Directors does not intend to bring any other matters before
the meeting and does not know of any other matters which are expected to be
brought before it. However, if any other matters do come before the meeting, the
persons named in the enclosed proxy will vote in accordance with their proper
judgment.
In addition to solicitation of proxies by mail, directors or employees (who
may be officers of the Company) may solicit proxies in person and by telephone.
The Company is requesting brokers and other custodians, nominees and fiduciaries
to forward proxy soliciting materials to the beneficial owners of Shares held of
record by such persons. The cost of soliciting proxies shall be borne by the
Company, but any director or employee of the Company who solicits proxies will
not receive any additional compensation therefor.
If the Reverse Stock Split Proposal is adopted, the Company anticipates
that it will seek to be relieved from its SEC reporting obligations as soon as
practicable and will not solicit proxies for future annual meetings in
compliance with SEC regulations. If the proposal is defeated and the Company
remains subject to SEC proxy regulation, shareholder proposals for the 2000
Annual Meeting of Shareholders of EAC must be received by the office of EAC
Industries, Inc. ____________________________, no later than __________ ___,
2000 for inclusion in the Proxy Statement for the 2000 Annual Meeting of
Shareholders.
By Order of the Board of Directors
PETER B. FRITZSCHE
Chairman of the Board and CEO
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APPENDIX 1
EAC INDUSTRIES, INC. 1999 ANNUAL MEETING
The undersigned hereby appoints Peter B. Fritzsche, P. Bartley Fritzsche,
E. Donald McKenzie, Jr. and John B. Millet, Jr., and each of them, as proxies of
the undersigned, and each with full power of substitution, to vote all shares
eligible to be voted by the undersigned at the Annual Meeting of the
Stockholders of EAC Industries, Inc. to be held at Suite 2600, 222 North
LaSalle, Chicago, Illinois 60601 on __________, 1999 at 8:30 a.m. (local time)
or any adjournment or postponement thereof, with respect to the matters set
forth below and such other business as may properly come before the meeting,
with the same force and effect as the undersigned might or could do if
personally present thereat.
Shares represented by this proxy, when returned properly executed, will be voted
in the manner directed herein by the undersigned stockholder. IF NO DIRECTION IS
MADE AS TO A PROPOSAL, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL.
The proxies are instructed to vote with respect to the proposals as follows:
1. STOCK
RECLASSIFICATION [ ] FOR [ ] AGAINST [ ] ABSTAIN
To amend the Company's Restated Certificate of Incorporation to effect a 1
for 200 share reverse stock split of the Common Stock and to pay cash in lieu of
fractional shares on the basis of $.10 per share to those stockholders owning
199 shares or less and to immediately thereafter reclassify resulting whole or
partial shares on a 200 for 1 basis.
2. ELECTION OF
DIRECTORS [ ] FOR all nominees listed [ ] WITHHOLD AUTHORITY
below (except as marked to to vote for all nominees
the contrary below) listed below
Peter B. Fritzsche, P. Bartley Fritzsche, E. Donald McKenzie, Jr. and John
B. Millet, Jr.
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
INDICATE SUCH NOMINEE'S NAME ON THE LINE BELOW:
------------------------------------------------------------
3. In their discretion, the proxies are authorized to consider and vote upon
such other business that may properly come before the meeting or any
adjournment or postponement thereof.
<PAGE>
Please sign exactly as your name appears below. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by its President or other
authorized officer. If a partnership or like entity, please sign in partnership
name by an authorized person.
- ------------------------------------- --------------------------------------
Signature Signature if held jointly
Dated:________________, 199___
Please mark, sign, date and return the Proxy Card promptly using the enclosed
envelope.
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APPENDIX 2
ANNEX __
NEW YORK BUSINESS CORPORATION LAW
SECTION 623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT
FOR SHARES. (a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate action
referred to therein is taken shall file with the corporation, before the meeting
of shareholders at which the action is submitted to a vote, or at such meeting
but before the vote, written objection to the action. The objection shall
include a notice of his election to dissent, his name and residence address, the
number and classes of shares as to which he dissents and a demand for payment of
the fair value of his shares if the action is taken. Such objection is not
required from any shareholder to whom the corporation did not give notice of
such meeting in accordance with this chapter or where the proposed action is
authorized by written consent of shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which term
as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall give
written notice of such authorization or consent by registered mail to each
shareholder who filed written objection or from whom written objection was not
required, excepting any shareholder who voted for or consented in writing to the
proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election
stating his name and residence, address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations) or from a share exchange under paragraph
(g) of Section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of a copy of the
plan of merger or exchange or an outline of the material features thereof under
section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares, as to
which he has a right to dissent held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any beneficial
owner as to less than all of the shares of such owner, as to which such nominee
or fiduciary has a right to dissent, held of record by such nominee or
fiduciary.
(e) Upon consummation of the corporate action, the shareholder shall cease
to have any of the rights of a shareholder except the right to be paid the fair
value of his shares and any other rights under this section. A notice of
election may be withdrawn by the shareholder at any time prior to his acceptance
in writing of an offer made by the corporation, as provided in paragraph (g),
but in no case later than sixty days from the date of consummation of the
corporate action except that
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<PAGE>
if the corporation fails to make a timely offer, as provided in paragraph (g),
the time for withdrawing a notice of election shall be extended until sixty days
from the date an offer is made. Upon expiration of such time, withdrawal of a
notice of election shall require the written consent of the corporation. In
order to be effective, withdrawal of a notice of election must be accompanied by
the return to the corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn, or the proposed
corporate action is abandoned or rescinded, or a court shall determine that the
shareholder is not entitled to receive payment for his shares, or the
shareholder shall otherwise lose his dissenter's rights, he shall not have the
right to receive payment for his shares and he shall be reinstated to all his
rights as a shareholder as of the consummation of the corporate action,
including any intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights have expired
or any such dividend or distribution other than in cash has been completed, in
lieu thereof, at the election of the corporation, the fair value thereof in cash
as determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or within one
month thereafter the shareholder of shares represented by certificates shall
submit the certificates representing his shares to the corporation, or to its
transfer agent, which shall forthwith note conspicuously thereon that a notice
of election has been filed and shall return the certificates to the shareholder
or other person who submitted them on his behalf. Any shareholder of shares
represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within which
shareholders may file their notices of election to dissent, or within fifteen
days after the proposed corporate action is consummated, whichever is later (but
in no case later than ninety days from the shareholders' authorization date),
the corporation or, in the case of a merger or consolidation, the surviving or
new corporation, shall make a written offer by registered mail to each
shareholder who has filed such notice of election to pay for his shares at a
specified price which the corporation considers to be their fair value. Such
offer shall be accompanied by a statement setting forth the aggregate number of
shares with respect to which notices of election to dissent have been received
and the aggregate number of holders of such shares. If the corporate action has
been consummated, such offer shall also be accompanied by (1) advance payment to
each such shareholder who has submitted the certificates representing his shares
to the corporation, as provided in paragraph (f), of an amount equal to eighty
percent of the amount of such offer, or (2) as to each shareholder who has not
yet submitted his certificates a statement that advance payment to him of an
amount equal to eighty percent of the amount of such offer will be made by the
corporation promptly upon submission of his certificates. If the corporate
action has not been consummated at the time of the making of the offer, such
advance payment or statement as to advance payment shall be sent to each
shareholder
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<PAGE>
entitled thereto forthwith upon consummation of the corporate action. Every
advance payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute a
waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety-day period after the shareholders'
authorization date, the offer may be conditioned upon the consummation of such
action. Such offer shall be made at the same price per share to all dissenting
shareholders of the same class, or if divided into series, of the same series
and shall be accompanied by a balance sheet of the corporation whose shares the
dissenting shareholder holds as of the latest available date, which shall not be
earlier than twelve months before the making of such offer, and a profit and
loss statement or statements for not less than a twelve-month period ended on
the date of such balance sheet or, if the corporation was not in existence
throughout such twelve-month period, for the portion thereof during which it was
in existence. Notwithstanding the foregoing, the corporation shall not be
required to furnish a balance sheet or profit and loss statement or statements
to any shareholder to whom such balance sheet or profit and loss statement or
statements were previously furnished, nor if in connection with obtaining the
shareholders' authorization for or consent to the proposed corporate action the
shareholders were furnished with a proxy or information statement, which
included financial statements, pursuant to Regulation 14A or Regulation 14C of
the United States Securities and Exchange Commission. If within thirty days
after the making of such offer, the corporation making the offer and any
shareholder agree upon the price to be paid for his shares, payment therefor
shall be made within sixty days after the making of such offer or the
consummation of the proposed corporate action, whichever is later, upon the
surrender of the certificates for any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to make
such offer within such period of fifteen days, or if it makes the offer and any
assenting shareholder or shareholders fail to agree with it within the period of
thirty days thereafter upon the price to be paid for their shares:
(l) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a special
proceeding in the supreme court in the judicial district in which the office of
the corporation is located to determine the rights of dissenting shareholders
and to fix the fair value of their shares. If, in the case of merger or
consolidation, the surviving or new corporation is a foreign corporation without
an office in this state, such proceeding shall be brought in the county where
the office of the domestic corporation, whose shares are to be valued, was
located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, any dissenting shareholder may institute such proceeding
for the same purpose not later than thirty days after the expiration of such
twenty day period. If such proceeding is not instituted within such thirty day
period, all dissenter's rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting shareholder
24
<PAGE>
who is a resident of this state in the manner provided by law for the service of
a summons, and upon each nonresident dissenting shareholder either by registered
mail and publication, or in such other manner as is permitted by law. The
jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting shareholder, as
to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not request
any such determination or if the court finds that any dissenting shareholder is
so entitled, it shall proceed to fix the value of the shares, which, for the
purposes of this section, shall be the fair value as of the close of business on
the day prior to the shareholders' authorization date. In fixing the fair value
of the shares, the court shall consider the nature of the transaction giving
rise to the shareholder's right to receive payment for shares and its effects on
the corporation and its shareholders, the concepts and methods then customary in
the relevant securities and financial markets for determining fair value of
shares of a corporation engaging in a similar transaction under comparable
circumstances and all other relevant factors. The court shall determine the fair
value of the shares without a jury and without referral to an appraiser or
referee. Upon application by the corporation or by any shareholder who is a
party to the proceeding, the court may, in its discretion, permit pretrial
disclosure, including, but not limited to, disclosure of any expert's reports
relating to the fair value of the shares whether or not intended for use at the
trial in the proceeding and notwithstanding subdivision (d) of section 3101 of
the civil practice laws and rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such
rate as the court finds to be equitable, from the date the corporate act was
consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporation offer of payment for his shares was arbitrary, vexatious or
otherwise not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees incurred by
the corporation against any or all of the dissenting shareholders who are
parties to the proceeding, including any who have withdrawn their notices of
election as provided in paragraph (e), if the court finds that their refusal to
accept the corporate offer was arbitrary, vexatious or otherwise not in good
faith. Such expenses shall include reasonable compensation for and the
reasonable expenses of the appraiser, but shall exclude the fees and expenses of
counsel for and experts employed by any party unless the court, in its
discretion, awards such fees and expenses. In exercising such discretion, the
court may apportion and assess all or any part of the costs, expenses and fees
incurred by any or all of the dissenting shareholders who are parties to the
proceeding against the corporation if the court finds any of the
25
<PAGE>
following: (A) that the fair value of the shares as determined materially
exceeds the amount which the corporation offered to pay; (B) that no offer or
required advance payment was made by the corporation; -and- (C) that the
corporation failed to institute the special proceeding within the period
specified therefor; or (D) that the action of the corporation in complying with
its obligations as provided in this section was arbitrary, vexatious or
otherwise not in good faith. In making any determination as provided in clause
(A), the court may consider the dollar amount or the percentage, or both, by
which the fair value of the shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding,
the corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificates for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be canceled as provided in section 515
(Reacquired shares), except that, in the case of a merger or consolidation, they
may be held and disposed of as the plan of merger or consolidation may otherwise
provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event be
deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if
it is liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which right the
corporation shall be obliged to satisfy when the restrictions of this paragraph
do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment for
his shares cannot be made because of the restrictions of this paragraph. If the
dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment for
his shares in the manner provided herein shall exclude the enforcement by such
shareholder of any other right to which he might otherwise be entitled by virtue
of share ownership, except as provided in paragraph (e), and except that this
section shall not exclude the right of such shareholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate action
will be or is unlawful or fraudulent as to him.
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<PAGE>
(l) Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a shareholder under this section shall be given in
the manner provided in section 605 (Notice of meetings of shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e), (2) of section 907 (Merger or consolidation of
domestic and foreign corporations). (Amended by L. 1965, Ch. 803; L. 1982, Ch.
202, Sections 3-9, Ex. Sess., Ch. 928, Sections 38-40; L. 1986, Ch 117, Section
3.)
27
