SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 2)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement |_| Confidential, for Use of the Commission
Only (as permitted by Rule 14c-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
|_| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined.):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials:
|X| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid: $14.00
(2) Form, Schedule or Registration Statement No.: Schedule 13e-3
(3) Filing Party: EAC Industries, Inc.
(4) Date Filed: September 22, 1999
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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
February ___, 2000 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 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 January 31, 2000 the Company had a
book value of approximately $.17 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 December 31,
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 December 31, 1999 will be entitled to vote at the Annual
Meeting. As of December 31, 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."
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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EAC INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MARCH ___, 2000
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 March __, 2000 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 December 31,
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
February __, 2000
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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 199 Shares or less, 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 1998 Annual
Meeting of Shareholders held on November 19, 1998, 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. These contingencies included those related
to previous obligations of former businesses and also to contractual warranties
and indemnities given to purchasers of the businesses, some of which obligations
were still outstanding. No estimate of a necessary contingency reserve account
was established however. 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. Although no estimate of expenses was prepared or given, the Vedder Price
attorney advised the Board that public companies rarely liquidate because
transactional and interim expenses are almost always higher than an outright
sale or merger. 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. The Board of Directors was advised by
Mr. Fritzsche and the Vedder Price attorney that the negative aspects of a
possible liquidation were so detrimental that further inquiry about the possible
sale of the Company's Flexible Printed Products subsidiary was not warranted.
Several board members inquired about the feasibility of "going private" or
eliminating the Company's SEC reporting obligation. The techniques normally
employed to achieve this result were discussed in general terms and the reverse
stock split technique and a buyout of some or all of the "publicly-held" shares
by the Company or Mr. Fritzsche personally, was also discussed. 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, 1999 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, 1999 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 Special 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 34% of the shares of EAC.
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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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. Mr. Fritzsche had noted
that the 1997 Reverse Stock Split Proposal (as defined below) had obtained only
a 72% vote of the outstanding shares and he was unwilling to risk the expense of
a transaction that was not probable of obtaining an 80% vote of the outstanding
shares. The Board of Directors agreed with management's conclusion that a buyout
of all the Company's "publicly-held" shares would severely deplete its financial
resources, which was unacceptable given its ongoing losses and its need to
reduce administrative costs as noted above.
On June 14, 1999, 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. Mr. Fritzsche did not recommend a
specific price. The proposal outlined the cost savings sought to be achieved,
estimated transaction expenses, possible prices for the shares held by those
owning 1999 and fewer shares based on trading prices, book value, cash asset
value and sale as a going concern value. The Board of Directors met on June 24,
1999 and the Special Committee reported that they had examined the proposal in
detail and we're prepared to reconsider it so long as the price was $.10 per
share, the highest recent "ask" price reported for the shares. 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. See "Fairness" below.
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 December 31, 1999, the Company had approximately 425 shareholder accounts of
record in the 1 to 199 Share range aggregating 44,000 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 $100,000 in fiscal 1999, which is approximately $.04 per share.
However, it is not feasible to exactly estimate this anticipated expense savings
due to the nature of the cost savings, as well as the Company's ongoing need,
following SEC deregistration, to conduct annual meetings and the Company's
intent to send audited financial statements to the shareholders annually, the
costs of which (estimated at $5-6,000) would offset, in part, these savings.
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 and before the charter amendment
making effective the proposal is filed with the Secretary of State of New York
for record. 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 Board of Directors believes that this
undertaking is necessary to avoid the 80% "super majority vote" applying to the
proposal - a vote the Board of Directors does not believe the Company could
obtain. The sale/gift of Shares by the Fritzsche Group must be pro rata; it must
be to persons other than the Board of Directors; and the failure of the
Fritzsche Group to affect such a disposition could render the charter amendment
necessary to achieve the Reverse Stock Split Proposal illegal under relevant New
York law.
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."
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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's intended disposition of shares as discussed herein.
Financial Information. Summary financial information for the Company is
set forth below under the caption "Summary Financial Information."
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.
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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
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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.
SUMMARY FINANCIAL INFORMATION
The following is summary financial information for (i) the two most
recent fiscal years and (ii) the latest year-to-date interim period and
corresponding interim period of the preceding year of the Company:
<TABLE>
<S> <C> <C> <C> <C>
Nine-Month Period ended
Year ended January 31, October 31,
---------------------- ----------
1999 1998 1999 1998
---- ---- ---- ----
Income Statement:
Net sales $1,436,489 1,669,739 1,139,368 1,141,673
Loss from operations (425,737) (195,549) (66,452) (248,776)
Loss from continuing (226,040) (696,885) (19,904) (266,394)
operations
Net loss (240,030) (1,000,495) 182,716 (107,918)
Balance Sheet (at end of
period):
Working capital 445,731 755,321 545,500 700,072
Total assets 1,327,035 1,700,359 1,431,152 2,054,798
Total assets less excess of
cost of assets acquired
over book value 1,164,414 1,523,350 1,279,322 1,888,580
Shareholder's equity 527,723 818,132 641,933 811,233
Per share:
Loss from operations $ (0.15) $ (.08) $ (.02) $ (.09)
Loss from continuing
operations $ (0.15) $ (.30) $ (.01) $ (.09)
Net income (loss) $ (0.15) $ (.43) $ .05 $ (.04)
Ratio of earnings to fixed N/A N/A N/A N/A
charges
Book value per share $ 0.17 $ .35 $ .22 $ .35
Tangible book value per $ 0.11 $ .28 $ .17 $ .28
share
</TABLE>
Complete financial information can be obtained by examination of the Company's
10-KSB / Annual Report to Shareholders accompanying this Proxy Statement as well
as the 10-QSB for the fiscal period ended October 31, 1999 which will be
forwarded to a shareholder upon request.
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SPECIAL FACTORS
---------------
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
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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 annually financial statements prepared
under generally accepted accounting principles. The Company has estimated the
expenses of this undertaking to provide audited financial statements at
$4-6,000, and such costs will offset, in part, the expected expense savings
described above. 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.
11
<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. The Board of Directors was of the view that two independent directors,
as informed businessmen, could make the necessary analysis. 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 (at least $25,000), 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 (not
more than $8,000) to be made pursuant to the Reverse Stock Split Proposal and in
light of rights given to Dissenting Shareholders (see "RIGHTS OF DISSENTING
SHAREHOLDERS"). Under New York law shareholders are not entitled to dissenters
rights with respect to the Reverse Stock Split Proposal. The Board of Directors
has determined to give such rights to stockholders whose Shares will be
purchased under the proposal. The Board believes this grant supports its
assertion that the price is fair and the process for resolving any dispute over
the issue is fundamentally fair.
Fairness to Shareholders Whose Shares Would be Purchased (199 Shares or Less).
-----------------------------------------------------------------------------
Factors Tending to Support Fairness. On an overall basis the Board of
Directors has unanimously concluded that the terms of the Reverse Stock Split
Proposal are fair to non-affiliated stockholders. The Company's then-current
stock price ($.05 per share) on June 24, 1999 was 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.
In terms of the shareholders whose shares would be purchased, the Board
concluded that the reverse stock split was at a price which was double the
market price at the time the Board considered the matter and it provided
liquidity for stock which is virtually completely illiquid, and the proposal
did not require the stockholders to pay brokerage commissions. Brokerage
commissions for the sale of the stock at this price are very material, given the
fact that even a low $7 commission (e.g. through e-Trade) is a large fraction of
$20 (200 shares x $.10 the reverse stock split price). The Board believed that
some liquidity for these small shareholders, even when "forced out" in a reverse
stock split, is better than very limited liquidity otherwise.
The Special Committee and the Board's consideration of the stock price of
EAC Industries on June 24, 1999 and relevant prior periods were viewed as being
relevant to fairness, but not dispositive of the issue. They were aware that the
stock prices may not be indicative of the Shares' true value, given the
perceived clear need to be cautious with a stock which trades very infrequently
and with very low volume. The Special Committee took into account this sporadic,
low trading volume. The Special Committee was aware of the book value, tangible
book value, the cash-on-hand value as well as the various trading values and
the Special Committee chose $.10 as the price they wanted to use for the
Reverse Stock Split Proposal given all relevant facts and constituencies. The
Special Committee, and the Board of Directors, as a whole, considered $.10 to
be a midpoint between market value (with all of its uncertainties) and the
possible, potential sale of the entire company value (which value was never
quantified), and assigned $.10 as the fair value to those holders whose shares
would be repurchased in the Reverse Stock Split Proposal.
It should be noted that the expense savings referred to above are
irrelevant to holders of fewer than 200 Shares as they will not participate in
any such savings and the potential savings were not considered in setting the
Reverse Stock Split Proposal price.
Factors Tending Not to Support Fairness. In determining that it believes
that the price to be paid for a fractional Share interest created by the Reverse
Stock Split Proposal is fair, the Special Committee and Board of Directors of
the Company considered current market prices, including the prices per Share
over the last year (see "General Information" below). The Board of Directors
recognized that then-current prices may not be indicative of true value due to
the very low trading in its shares. Also, the Special Committee and Board
considered the prices paid by the Company in its 1997 reverse stock split (the
"1997 Reverse Stock Split") ($.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
12
<PAGE>
to a prospectus dated November 10, 1997 (the "Rights Offering"). On or about
January 30, 1998, members of the Fritzsche Group purchased an aggregate of
508,000 Shares at a price of $.22 per Share in the offering. Messrs. Millet
and McKenzie bought 23,275 Shares and 500 Shares, respectively, in the Rights
Offering at $.22 per share on the same date.
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 Special Committee do not believe
that the prices paid for the purchase of Shares in the Special 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 reported a loss from continuing operations for its third
quarter ended October 31, 1999 of $334, which was after interest and
other income of $16,621 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 recognized 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 and "cash on hand" of $.21
per share as of January 31, 1999 were also considered by the Special Committee
and the Board of Directors. The price per Share to be paid for a fractional
Share interest which will be created by the Reverse Stock Split Proposal is
substantially below shareholders' equity per Share and the "available" cash per
share. As noted herein, the Board of Directors and the Special Committee did not
consider these indicia of value as important as other factors discussed above
in determining fairness due to ongoing and anticipated deterioration of its
prospects as the Company loses money from operations.
The Board of Directors did not consider, nor does it expect to update its
fairness analysis since its original decision.
The Board of Directors also noted the fact that the Fritzsche Group's
undertaking to dispose of shares referred to above under "Purpose of the
Proposal" is not binidng and that the Company probably could not obtain the
necessary 80% vote without such disposition occurring.
Other Factors. Going concern value and liquidation value were not given
substantial consideration by the Special Committee or the Board of Directors
in determining the fairness of the price per Share to be paid
13
<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 issues of
fairness due to the Company's operating losses historically and likely future
losses, as well as the Special Committee and the Board's view that, as noted
above, an "exit mechanism" for a virtually illiquid stock was a more relevant
consideration in setting value. 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 (estimated to be 2-3 years) 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. As noted herein, the Company has not solicited bids for its sale,
or the sale of Flexible Printed Products, due to the fact that it is presently
losing money and has a number of unresolved financial uncertainties discussed
above.
Fairness To Shareholders Who Will Remain Shareholders
(200 Shares or More)
------------------------------------------------------
Factors Tending To Support Fairness. The Board of Directors believes
the action to cause the Company to cease reporting under the rules of the SEC
is prudent and fair to the shareholders who will remain following an approval
of the Reverse Stock Split Proposal, given the factors described herein. The
Board considered the need to reduce administrative expenses, conserve cash,
and find ways to make the Company profitable on an ongoing basis as the wisest
course.
Factors Tending Not to Support Fairness. The Board considered the following
factors in its decision to seek deregistration from SEC reporting:
o the loss of liquidity in EAC common stock,
o the fact that the Company will likely lose money on an operating basis in
fiscal 2000,
o the Company's only operating business, Flexible Printed Products; future
prospects are not positive,
o the Company's principal plan after the reverse stock split, at this point,
is to operate its business with negative future prospects, and
o the Company has no current plan for its nearly $.21 per share in cash,
other than to use its cash reserves at that point in time when a suitable
acquisition candidate is identified; however, the Company can give no
assurance such a candidate will be found.
The Board of Directors' Plan for the Future. If the Reverse Stock Split Proposal
is approved, the Company expects to reduce its operating costs (primarily SEC
reporting-related costs) by approximately $100,000 annually. After the reduction
of the operating costs, the Company's operating income provided by its
subsidiary, Flexible Printed Products, Inc., has the potential to almost cover
the Company's remaining operating costs. EAC's future plan is to seek to
continue to improve the performance of its Flexible Printed Products, Inc.'s
subsidiary and to find an acquisition in the printing or related business. The
Company's existing cash plus the potential borrowing power of Flexible Printed
Products would fund a such potential acquisition.
ALTERNATIVES CONSIDERED BY THE BOARD OF DIRECTORS.
As noted above, 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. Rather, the Company is seeking
ways to increase the profitability of its operating subsidiary, while
conserving cash so as to be able to acquire a business in the printing or
related business. On the other hand, if an offer for the Company or its
operating subsidiary were to be received, the Board of Directors would give it
appropriate and thorough consideration.
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. As noted above, the Fritzsche Group's intention to dispose of
certain shares, and the Board's reliance on the same, is essential to avoid the
imposition of the 80% voting requirement on the Reverse Stock Split Proposal.
The Board of Directors did not think such an approving vote 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.
14
<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
----- ---- --- ----- ---- ---
1/31/00 ____ ____
------------------------------------------------------
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. As noted above, 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.
15
<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 Messrs. 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 follows. All such
persons are U.S. citizens:
------------------------------------------------------------------------
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.
16
<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
December 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 12/31/99
- ---- ------------------------------------- ----- --------------
<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.
17
<PAGE>
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 earned $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.
18
<PAGE>
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 December 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 1,020,462
Shares (35%).
19
<PAGE>
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
20
<PAGE>
APPENDIX 1
EAC INDUSTRIES, INC. 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 __________, 2000 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. THIS PROXY WILL
BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE. IF NO SPECIFICATIONS ARE
MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES REFERRED TO IN
2. AND FOR THE PROPOSAL REFERRED TO IN 1. PROVIDED YOU HAVE SIGNED AND DATED
THE PROXY CARD.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING ON BEHALF OF THE UNDERSIGNED.
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:________________, 2000
Please mark, sign, date and return the Proxy Card promptly using the enclosed
envelope.
22
<PAGE>
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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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 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
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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 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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(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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