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. 2]
EAC Industries, Inc.
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(Name of Issuer)
EAC Industries, Inc.
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(Name of Person(s) Filing Statement)
Common Stock
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(Title of Class of Securities)
(TO COME)
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(CUSIP Number of Class of Securities)
Peter B. Fritzsche
EAC Industries, Inc.
2111 Claridge Lane
Northbrook, IL 60062-8615
(847) 509-8657
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(Name, Address and Telephone Number of
Person Authorized to Receive Notices and
Communications on Behalf of Person(s) Filing Statement)
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.
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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
December 31, 1999, which were held by approximately 750 shareholders of record.
(c) Information with respect to the principal market in which such
securities are being traded, the range of high and low bid quotations for each
quarterly period during the past two years, and the source of such quotations is
set forth in the Preliminary Proxy (as defined below) at page 15 under "General
Information."
(d) Information with respect to dividends which have been paid during the
past two fiscal years with respect to such class of securities, and restrictions
on the issuer's present or future ability to pay such dividends is set forth in
the Preliminary Proxy at page 15 under "General Information."
(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.
With respect to the officers, directors, and control persons all the Company,
the names, business addresses, citizenship, present principal occupations,
currently and for the last five years, are all set forth in the Preliminary
Proxy at page 17 under the caption "Election of Directors." With respect to
such persons, the response to paragraph 2e and 2f hereof in each instance is\
"not applicable."
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 set forth in the Preliminary Proxy at pages 4-6 under the heading
"Background of the Proposal."
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 6 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 6 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 set forth in the Preliminary Proxy
on page 15 under "General Information."
(b) A statement of all expenses incurred or estimated to be incurred in
connection with the Rule 13-e-3 transaction including, but not limited to,
filing fees, legal, accounting and appraisal fees solicitation expenses and
printing costs is set forth in the Preliminary Proxy on page 15 under
"General Information."
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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 Considered By the
Board of Directors" 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 Considered By the Board of Directors."
(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 set forth in the Preliminary Proxy at page 15 under the
heading "General Information."
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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
Considered By the Board of Directors."
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 7 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") attached hereto as Exhibit g;
or in the Issuer's most recent SEC Form 10-QSB with respect to the 9-months
fiscal period ended October 31, 1999 (the "10-Q") attached hereto as Exhibit h;
and/or is included in the Preliminary Proxy enclosed herewith. The issuer
intends to mail the 10-KSB/Annual Report with the Final Proxy as part of its
annual meeting obligations under Regulation 14A.
(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 The disclosure materials (in their revised version) to be 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.
(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 Statement.
(f) N/A
(g) Form 10-KSB Report for the Fiscal Year Ended January 31, 1999, as
amended.
(h) Form 10-QSB Report for the Fiscal Period Ended October 31, 1999, as
amended.
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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.
February 15, 2000 (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
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
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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
5
<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. 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."
6
<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'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.
7
<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
8
<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.
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.
9
<PAGE>
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
10
<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 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
23
<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
24
<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
25
<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
26
<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.
27
<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.)
28
<PAGE>
EXHIBIT B
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A2
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 31, 1999 Commission File Number 1-4338
EAC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New York 21-0702336
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2111 Claridge Lane
Northbrook, IL 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847-509-8657
Securities registered pursuant to Section 12(B) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10
par value (Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrants' knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuers revenues for the most recent fiscal year - $4,324,714.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of April 30, 1999 was approximately $135,000.
Indicate by check mark whether the registrant has filed all documents and
reports required by Sections 12, 13, or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes X No ___.
As of April 30, 1999, the registrant had outstanding 2,885,521 shares of Common
Stock ($.10 par value).
- 1 -
<PAGE>
PART I
------
ITEM 1. BUSINESS
The Registrant (also referred to as "EAC" or "the Company") was organized in
1958 as a New York corporation. The common stock of the Company is currently
traded on the over-the-counter market and the principal market makers are Bishop
Rosen & Company and Troster, Singer Corporation.
The Company currently has one operating subsidiary, Flexible Printed Products,
Inc. ("Flexible"). The business and certain of the assets of Flexible were
acquired on December 11, 1994. Flexible produces and prints on plastic, pre-cure
in-mold heat transfer labels for the identification and decoration of rubber and
silicone hoses, belts and tire patches. Flexible's sales were backlogged at
approximately $60,000 at January 31, 1999 and $75,000 at January 31, 1998.
Flexible believes that it can fulfill its 1999 backlog on a timely basis.
Flexible faces strong competition in its business and its competition has been
mainly on the basis of quality, service and price. Flexible employs 14 persons,
none of whom are represented by unions.
In June 1998, the Company completed the sale of substantially all of the assets
of Goodren Label Corporation (formerly Athena Packaging Inc.). Goodren Label
Corporation ("Athena"), is a wholly owned subsidiary of the Company which was in
the business of producing printed, laminated, embossed and hot stamped labels,
wraps, seals and decals for the cosmetics, pharmaceutical and health and beauty
aids industries. The aggregate sales price of $277,000 including inventory
valued at the lower of cost or market. Simultaneously with the sale, the Company
entered into a consulting agreement, valued at $75,000, with the buyer which
terminated 180 days after the closing
On March 1, 1999, the Company completed the sale of the operating assets of
Goodren Products Corporation ("Goodren"), a wholly owned subsidiary of the
Company, for a price of $400,000 plus the assumption of all trade payable
liabilities. Goodren was in the business of designing and providing
point-of-purchase advertising displays and wall decorations on semi-durable
plastic.
FINANCIAL CONDITION OF THE COMPANY
The Company's financial condition has declined from January 31, 1998. The
primary reasons for this decline were: (a) the decline in sales and gross profit
margins at Goodren and Flexible and (b) a moderate increase in the operating
overhead of the Company (EAC). The combination of the above factors has resulted
in the Company's working capital declining to $448,128 in 1999 from $755,321 in
1998. Current assets decreased to $935,125 in 1999 from $1,258,249 in 1998 and
current liabilities also decreased to $486,997 in 1999 from $502,928 in 1998.
Dues to the above factors, shareholders' equity decreased to $479,121 in 1999
from $818,132 in 1998.
IN-MOLD HEAT TRANSFER LABELS
Flexible produces and markets in-mold, pre-cure heat transfer labels to the
rubber and silicone industry primarily for identification and decoration of
hoses and belts. Other products include post cure heat transfer labels for
rubber patches, tires and other rubber and silicone products.
Flexible's products are sold nationwide primarily to rubber and silicone hose
and belt manufacturers, principally by its
- 2 -
<PAGE>
in-house sales personnel. The remainder is sold by a limited number of
manufacturers' representatives.
Management believes that the total in-mold decal/label market for decorating
rubber hoses and belts is approximately $10 million with Flexible's share
estimated at approximately 15%. The Company estimates that approximately five
companies compete directly with Flexible, including the parent company of one of
its customers. Flexible is a service business which competes on the basis of its
ability to produce and deliver high quality printing on short notice.
ITEM 2. PROPERTIES
The following table shows the location of each plant or facility of the
Registrant and its subsidiaries and sets forth related information. The
properties listed below are believed adequate to serve the Company's needs for
the foreseeable future.
<TABLE>
<S> <C> <C> <C> <C>
Approx. Lease
Area Expiration Annual
(Sq.Ft) Date Rental Principal Use
------- ---- ------ -------------
101 W. Forest Avenue
Englewood, New Jersey 20,000 6/2000 $57,000 Manufacturing and general offices
for Goodren and Athena
1600 North Orangethorp Avenue
Anaheim, California 7,500 3/2001 $41,600 Manufacturing and general office for
Flexible
2111 Claridge Lane
Northbrook, Illinois 600 Month to $7,800 Office space and headquarters
Month for the Company
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company or its subsidiaries are
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
- 3 -
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's stock is traded on the over-the-counter market. Bishop Rosen &
Company (212-602-0681) and Troster, Singer Corporation are the principal market
makers. As of April 30, 1999, the Company believes there were approximately
1,650 shareholders of record. No dividends have been declared or paid during the
past two fiscal years. The following table sets forth, by fiscal quarters, the
closing bid prices of the Registrant's Common Stock per share for 1999 and 1998:
1997 1998
---- ----
First Quarter $ First Quarter $ 3/6
Second Quarter Second Quarter 3/8
Third Quarter Third Quarter 3/16
Fourth Quarter Fourth Quarter 3/16
The volume of trading is sporadic and infrequent and the prices quoted may not
be representative.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
CONTINUING OPERATIONS
In fiscal 1999, the Company had a net loss from continuing operations of
$426,040 ($.15 per share) as compared to a net loss of $696,885 ($.30 per share)
in fiscal 1998. The loss for fiscal 1999 was primarily due to lower sales and
gross profit margins at Flexible. In addition, during fiscal 1999, the Company
experienced a slight increase of approximately 2% in its operating overhead.
During the current year, the Company reflected a write-down of its union
liability (see discussion below and Note 11c of Notes to the Consolidated
Financial Statements). The decreased sales and gross profit, increased overhead
and the effect of the write-down resulted in a pre-tax loss of $426,040 for the
current year compared to a loss of $179,591 sustained in the previous year. In
1998, the Company reversed a deferred tax asset of $510,000 which it had
recognized in prior years, since it was determined that it was not likely that
such asset will be realized in the near future. This reversal resulted in a net
loss from continuing operations of $696,885 in 1998 compared to $426,040 in the
current year.
DISCONTINUED OPERATIONS
In June 1998, the Company completed the sale of substantially all of the assets
of Goodren Label Corporation (formerly Athena Packaging Inc.) for an aggregate
sales price of $277,000 including inventory valued at the lower of cost or
market. On March 1, 1999, the Company completed the sale of the operating assets
of Goodren Products Corporation ("Goodren") for a price of $400,000 plus the
assumption of all trade payable liabilities. See Note 2 of Notes to the
Consolidated Financial Statements for a further description of these
transactions.
- 4 -
<PAGE>
For the fiscal 1999 year, these two discontinued subsidiaries reported a loss
from operations of $101,264 as compared to a loss in the prior year of $303,610.
The gain realized from the sale of the assets of Athena aggregated $87,274. The
results of the sale of Goodren's assets have not been recorded as of January 31,
1999 since this is a post-balance sheet event.
NET LOSS
Consolidated net loss for the year ended January 31, 1999 was $440,030 ($.15 per
share) compared to a loss of $1,000,495 ($.43 per share) for the previous year.
INFLATION
The Company expects inflation to be moderate and to be offset by cost reduction
programs and price increases.
FINANCIAL RESOURCES AND LIQUIDITY
The Company's financial condition declined in 1999 from 1998. The Company had
working capital of $445,731 as of January 31, 1999 compared to $755,321 as of
January 31, 1998. The Company and its subsidiaries are current on all of their
accounts payable and accrued expenses.
In March 1996, the Company entered into an agreement to make quarterly payments
of $7,548 against a union pension withdrawal liability/shortfall (see Note 11c
of Notes to the Consolidated Financial Statements). Subsequently, on September
30, 1996, the Company and Goodren entered into a Settlement Agreement with the
Trustees of the union pension plan whereby Goodren's pension fund liability was
reduced from $560,000 to $360,000 payable in 80 equal quarterly payments of
$8,752 including annual interest at a rate of 8%. In December 1997, the Company
entered into a Hardship Settlement Agreement with the Trustees whereby it was
able to reduce its quarterly payments/obligations to $3,000 because of the
Company's poor financial condition. If the Company's financial condition should
improve so that there would be no hardship in making future payments (i.e.
payment of the withdrawal liability does not impede its ability to operate),
then the Plan may terminate the Hardship Settlement and require the Company to
make all payments due after the date of such improvement in accordance with the
original Settlement Agreement. Should this occur, then the Company's quarterly
payment would revert back to $8,752. During the current fiscal year, the Company
further reduced its liability to approximately $150,000, its deemed fair value.
The Company believes that its cash on hand will be sufficient to fund planned
operations for at least the next 12-month period. The Company (primarily
Flexible) is anticipating capital expenditures of approximately $50,000, during
the next year. Management believes that these expenditures can be funded from
existing resources.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page Number
-----------
Independent Auditors' Report F - 1
Consolidated Balance Sheets F - 2
Consolidated Statements of Operations F - 3
- 5 -
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity F - 4
Consolidated Statements of Cash Flows F - 5
Notes to the Consolidated Financial Statements F - 6
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE:
None
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ACT
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
January 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 1/31/99
- ---- ------------------------------------- ----- --------------
<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.
- 6 -
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
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.
- 7 -
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of EAC, as of January 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%). See Item 9 above for additional information.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 9 above for relevant information.
PART IV
-------
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS
ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Consolidated Financial Statements of the Registrant
(Included in Part II, Item 7)
2. EXHIBITS
(22) Subsidiaries of the Registrant
Goodren Products Corporation
Flexible Printed Products, Inc.
Athena Packaging, Inc.
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
-8 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EAC INDUSTRIES, INC.
(Registrant)
By: /s/PETER B. FRITZSCHE
__________________________
Peter B. Fritzsche
President, Chief Executive
Officer and Principal Financial
and Accounting Officer
Date: May 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/PETER B. FRITZSCHE May 13, 1999
_________________________
Peter B. Fritzsche, Director
/s/ P. BARTLEY FRITZSCHE May 13, 1999
_________________________
P. Bartley Fritzsche, Director
/s/ JOHN B. MILLET, JR. May 13, 1999
_________________________
John B. Millet, Jr., Director
/s/ E. DONALD MCKENZIE, JR. May 13, 1999
_________________________
E. Donald McKenzie, Jr., Director
- 9 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EAC INDUSTRIES, INC.
(Registrant)
By: __________________________
Peter B. Fritzsche
President, Chief Executive
Officer and Principal Financial
and Accounting Officer
Date: May 13, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
_________________________ May 13, 1999
Peter B. Fritzsche, Director
_________________________ May 13, 1999
P. Bartley Fritzsche, Director
_________________________ May 13, 1999
John B. Millet, Jr., Director
_________________________ May 13, 1999
E. Donald McKenzie, Jr., Director
-10-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
EAC Industries, Inc.
Northbrook, Illinois
We have audited the accompanying consolidated balance sheets of EAC Industries,
Inc. and subsidiaries as of January 31, 1999 and 1998 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the two year period ended January 31, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EAC Industries, Inc.
and subsidiaries as of January 31, 1999 and 1998 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
LAZAR LEVINE & FELIX LLP
New York, New York
April 19, 1999
F - 1
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1999 AND 1998
- ASSETS (Note 6) -
<TABLE>
<S> <C> <C>
1999 1998
---- ----
CURRENT ASSETS:
Cash (Note 3d) $ 467,910 $ 308,539
Accounts receivable - net of allowance for doubtful accounts of $20,000
for 1999 and 1998 (Note 3d) 180,161 227,674
Inventories (Notes 3e and 4) 60,041 85,055
Prepaid taxes and expenses 20,878 30,432
Net assets of discontinued operations (Note 2) 206,135 606,549
----------- -----------
TOTAL CURRENT ASSETS 935,125 1,258,249
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET (Notes 3f and 5) 224,885 265,101
----------- -----------
OTHER ASSETS:
Costs in excess of net assets acquired (Note 3g) 162,621 177,009
Other assets 4,404 -
----------- -----------
167,025 177,009
----------- -----------
$ 1,327,035 $ 1,700,359
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 143,899 $ 185,451
Accrued expenses (Note 6) 319,353 305,817
Long-term debt - current portion (Note 7) 23,745 9,460
Income taxes payable (Notes 3h and 9) - 2,200
----------- -----------
TOTAL CURRENT LIABILITIES 486,997 502,928
----------- -----------
LONG-TERM DEBT - NET OF CURRENT PORTION (NOTE 7): 360,917 379,299
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 10 AND 11)
SHAREHOLDERS' EQUITY (NOTE 8):
Common stock, $.10 par value; 20,000,000 shares authorized; 2,892,819
and 2,319,285 shares issued in 1999 and 1998, respectively 289,282 231,929
Capital in excess of par value 10,546,048 10,504,380
Accumulated deficit (10,307,607) (9,867,577)
----------- -----------
527,723 868,732
Less: Common stock in treasury, 7,298 and 7,598 shares at cost
in 1998 and 1998, respectively (48,602) (50,600)
----------- -----------
479,121 818,132
----------- -----------
$ 1,327,035 $ 1,700,359
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 2
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
Year Ended January 31,
1999 1998
---- ----
NET SALES $1,436,489 $ 1,669,739
---------- -----------
COSTS AND EXPENSES:
Cost of products sold 1,058,519 1,077,519
Selling, general and administrative expenses 803,707 787,769
---------- -----------
TOTAL COSTS AND EXPENSES 1,862,226 1,865,288
---------- -----------
(LOSS) FROM OPERATIONS (425,737) (195,549)
---------- -----------
OTHER INCOME (EXPENSE):
Interest expense (10,417) (8,094)
Interest and other income 10,114 24,052
---------- -----------
(303) 15,958
---------- -----------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (426,040) (179,591)
Provision for income taxes (Notes 3h and 9) - 517,294
---------- -----------
(LOSS) FROM CONTINUING OPERATIONS (426,040) (696,885)
---------- -----------
DISCONTINUED OPERATIONS (Note 2):
Loss from operations of discontinued subsidiary - net of taxes (101,264) (303,610)
Gain on disposal of operating assets of discontinued subsidiary - net of taxes 87,274 -
---------- -----------
(13,990) (303,610)
---------- -----------
NET LOSS $ (440,030) $(1,000,495)
========== ===========
BASIC LOSS PER SHARE (Note 3i)
Continuing operations $(0.15) ($0.30)
Discontinued operations - (0.13)
---------- -----------
$(0.15) $(0.43)
========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,837,427 2,311,687
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 3
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capital in Common Total
Number of Common Excess Accumulated Stock in Shareholders'
Shares Stock of Par Deficit Treasury Equity
------ ----- ------ ------- -------- ------
Balance at January 31, 1997 2,319,285 $231,929 $10,504,380 $ (8,867,082) $(50,600) $ 1,818,627
Net loss for the year - - - (1,000,495) - (1,000,495)
--------- -------- ----------- ------------ -------- -------------
Balance at January 31, 1998 2,319,285 231,929 10,504,380 (9,867,577) (50,600) 818,132
Sale of common stock 573,534 57,353 41,668 - 1,998 101,019
Net loss for the year - - - (440,030) - (440,030)
--------- -------- ----------- ------------ -------- -------------
BALANCE AT,
JANUARY 31, 1999 2,892,819 $289,282 $10,546,048 $(10,307,607) $(48,602) $ 479,121
========= ======== =========== ============ ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 4
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C>
Year Ended January 31,
1999 1998
---- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(440,030) $(1,000,495)
Adjustments to reconcile net (loss) to cash provided (utilized) by operating activities:
Depreciation and amortization 65,614 100,571
Allowance for doubtful accounts - 4,470
Loss (gain) on sale of fixed assets 9,812 (19,745)
Deferred income taxes - 510,000
Changes in assets and liabilities:
Decrease (increase) in accounts and notes receivable 47,513 (65,589)
Decrease (increase) in inventories 25,014 (23,129)
Decrease in prepaid expenses 5,150 1,219
Increase in accounts payable, accrued expenses and accrued income taxes 386,419 122,999
Net cash from discontinued operations 27,834 97,703
--------- -----------
NET CASH PROVIDED (UTILIZED) BY OPERATING ACTIVITIES 127,326 (271,996)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets - 113,249
Capital expenditures (20,823) (2,773)
--------- -----------
NET CASH (UTILIZED) PROVIDED BY INVESTING ACTIVITIES (20,823) 110,476
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 101,019 -
Payments of long-term debt (48,151) (149,353)
--------- -----------
NET CASH PROVIDED (USED BY) FINANCING ACTIVITIES 52,868 (149,353)
--------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 159,371 (310,873)
Cash and cash equivalents, at beginning of year 308,539 619,412
--------- -----------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 467,910 $ 308,539
========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $29,189 $40,364
Income taxes paid - 15,170
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 5
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 1 - DESCRIPTION OF THE COMPANY:
EAC Industries, Inc., the Company, was organized in 1958 as a New York
corporation. The Company is a holding company with, as of January 31,
1998, three wholly owned operating subsidiaries, Goodren Products
Corporation ("Goodren"), Flexible Printed Products, Inc. ("Flexible")
and Athena Packaging, Inc. ("Athena"). See Note 2 for a description of
Discontinued Operations. Flexible, currently the Company's only
operating subsidiary, produces and prints on plastic, pre-cure in-mold
heat transfer labels for the identification and decoration of rubber
and silicone hoses, belts and tire patches.
NOTE 2 - DISCONTINUED OPERATIONS:
In June 1998, the Company completed the sale of substantially all of
the assets of Goodren Label Corporation (formerly Athena Packaging
Inc.) for an aggregate sales price of $277,000 including inventory
valued at the lower of cost or market. Simultaneously with the sale,
the Company entered into a consulting agreement with the buyer which
terminated 180 days after the closing. The value of this agreement,
$75,000, was included with the payment made at closing. The buyer paid
the sales price as follows: (i) $167,000 at closing, (ii) value of
inventory 90 days after the closing plus interest accrued at an annual
rate of 7% and (iii) $62,500 which was to be paid 180 days after
closing plus accrued interest at 7% per annum. As of January 31, 1999,
all payments due had been received.
On March 1, 1999, subsequent to the balance sheet date, the Company
completed the sale of the operating assets of Goodren Products
Corporation ("Goodren") for a price of $400,000 plus the assumption of
all trade payable liabilities. The payment terms are as follows: (i)
$200,000 at closing, (ii) $30,000 to be paid 180 days after closing
plus interest accrued at an annual rate of 7% (iii) $50,000 to be paid
360 days after closing plus interest accrued at an annual rate of 7%,
(iv) $60,000 to be paid 540 days after closing plus interest accrued
at an annual rate of 7% (v) $60,000 to be paid 720 days after closing
plus interest accrued at an annual rate of 7%.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with generally
accepted accounting principles. Outlined below are those policies
considered particularly significant.
(a) USE OF ESTIMATES:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain estimates and
assumptions, where applicable, that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period.
While actual results could differ from those estimates, management
does not expect such variances, if any, to have a material effect on
the financial statements.
F - 6
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(b) BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of the
Company and its operating subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.
(c) STATEMENTS OF CASH FLOWS:
For purposes of the statements of cash flows, the Company considers
all investments purchased with a remaining maturity of three months or
less to be a cash equivalent.
(d) CONCENTRATION OF CREDIT RISK/FAIR VALUE:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash investments
and accounts receivable.
The Company and its subsidiaries maintain, at times, deposits, in
federally insured financial institutions, in excess of federally
insured limits. Management attempts to monitor the soundness of these
financial institutions and feels the Company's risk is negligible.
Concentrations of credit risk with respect to accounts receivable are
limited.
The carrying value of cash and cash equivalents, accounts receivable
and accounts payable reasonably approximate fair value because of the
short maturity of those instruments.
(e) INVENTORIES:
Inventories are stated at the lower of cost or market, determined on a
first-in, first-out basis.
(f) PROPERTY, PLANT AND EQUIPMENT:
Fixed assets are reflected at cost. The Company principally uses the
straight-line method to compute depreciation of fixed assets.
Depreciation lives generally range from three to ten years for
furniture and fixtures, machinery and equipment and transportation
equipment. Buildings are being amortized over 20 years and leasehold
improvements are amortized over the useful life of the asset or the
term of the lease, whichever is shorter. Major renewals and
betterments of fixed assets are capitalized while maintenance and
repairs are expensed as incurred. Upon retirement of fixed assets, the
related cost and accumulated depreciation are written off and any gain
or loss is reflected in income.
F - 7
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(g) GOODWILL:
Costs in excess of net assets acquired are considered goodwill and are
being amortized over periods ranging from 15 to 40 years on a straight
line basis. Amortization costs included in continuing operations were
$14,388 for each of the years ended January 31, 1999 and 1998.
Accumulated amortization as of January 31, 1999 and 1998 aggregated
$52,379 and $37,991, respectively.
The Company periodically reviews the valuation and amortization of
goodwill to determine possible impairment by comparing the carrying
value to the undiscounted future cash flows of the related assets in
accordance with Statement of Financial Accounting Standard No. 121 -
Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed of.
(h) INCOME TAXES:
The Company accounts for income taxes using the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109") which require that the Company utilize
an asset and liability approach for financial accounting and reporting
for income taxes. The primary objectives of accounting for income
taxes under SFAS No. 109 are to (a) recognize the amount of tax
payable for the current year and (b) recognize the amount of deferred
tax liability or asset based on management's assessment of the tax
consequences of events that have been reflected in the Company's
financial statements or tax returns. See also Note 9.
(i) INCOME PER SHARE:
The Company reports earnings per share as required by SFAS 128
"Earnings Per Share" ("SFAS 128"). SFAS 128 requires the presentation
of "basic" and "diluted" earnings per share on the face of the income
statement. Basic loss per common share is computed by dividing net
loss by the weighted average number of common shares outstanding
during each period.
(j) RECLASSIFICATIONS:
Certain reclassifications have been made to the 1998 financial
statements in order to conform to the 1999 presentation. These
reclassifications relate to the disposition of assets as disclosed in
Note 2.
F - 8
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(k) NEW ACCOUNTING PRONOUNCEMENTS:
SFAS 130 "Reporting Comprehensive Income" is effective for years
beginning after December 15, 1997 and early adoption is permitted.
This statement prescribes standards for reporting comprehensive income
and its components. The Company currently has no items of other
comprehensive income.
SFAS 131 "Disclosures About Segments of an Enterprise and Related
Information" is effective for years beginning after December 15, 1997
and early adoption is encouraged. The Company does not presently
believe that it operates in more than one identifiable segment.
(l) IMPACT OF THE YEAR 2000 ISSUE:
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. This could potentially result in a system failure or
miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send
invoices, or engage in other similar normal business activities. The
Company has ensured that its software is already year 2000 compliant,
and as such, this issue is not expected to have a material effect on
the operations of the Company.
NOTE 4 - INVENTORIES:
Inventories at January 31, 1999 and 1998 consisted of the following:
1999 1998
---- ----
Raw materials $57,691 $80,055
Finished goods 2,350 5,000
------- -------
$60,041 $85,055
======= =======
F - 9
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Fixed assets and accumulated depreciation at January 31, 1999 and 1998
consisted of the following:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Building and improvements $ 18,543 $ 8,242
Machinery and equipment 216,496 206,727
Label artwork 150,000 150,000
Transportation equipment 22,275 22,275
Furniture and fixtures 48,922 58,844
--------- ---------
456,236 446,088
Less: accumulated depreciation and amortization 231,351 180,987
--------- ---------
$ 224,885 $ 265,101
========= =========
</TABLE>
For the years ended January 31, 1999 and 1998, depreciation expense
from continuing operations aggregated $51,226 and $67,706,
respectively.
NOTE 6 - ACCRUED EXPENSES:
At January 31, 1999 and 1998 accrued expenses consisted of the
following:
1999 1998
---- ----
Salaries and wages $ 9,239 $ 7,603
Employee benefits 162,048 162,048
Other 148,066 136,166
---------- ----------
$ 319,353 $ 305,817
========== ==========
F - 10
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 7 - LONG-TERM DEBT:
(a) OTHER LIABILITIES:
At January 31, 1999 and 1998 long-term liabilities included the
following:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
9.9% equipment note payable in monthly installments of
$1,454, inclusive of interest $ 35,283 $ 44,434
Union pension withdrawal liability/shortfall, presently
payable in quarterly installments of $3,000 (including
interest at 8% per annum (see Note 11c) 349,379 344,325
--------- ---------
384,662 388,759
Less: current portion 23,745 9,460
--------- ---------
$ 360,917 $ 379,299
========= =========
</TABLE>
Aggregate maturities of long-term liabilities for the next five years
and in the aggregate are $23,745, $25,960, $16,673, $12,007,
$12,935 and $293,342 thereafter.
NOTE 8 - SHAREHOLDERS' EQUITY:
In November 1997, the Company filed a statement with the Securities
and Exchange Commission registering 283,551 shares of its common stock
to be issued upon exercise of the rights to subscribe for such shares,
"the Rights Offering." Shareholders holding 100 shares of common stock
or more at the close of business on November 10, 1997 (the record
date) received one non-transferable Right for each share of common
stock held. Each Right entitled the holder to purchase one share of
Company common stock at an exercise price of $.22 per share. This
offering closed in February 1998 and the Company realized net proceeds
of $101,019. Simultaneously with the closing, the Company effected (i)
a 100 to 1 reverse split of its common stock through a
reclassification of its common stock and (ii) an immediate subsequent
reclassification with a forward stock split pursuant to which each
holder of the reclassified common stock would receive 99 additional
shares of reclassified common stock. The effect of this was to
eliminate all holders of less than 100 shares (pre-reverse split) of
common stock, such stockholders receiving cash of $.28125 per share in
lieu of their fractional interests.
F - 11
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 9 - INCOME TAXES:
The provision for income taxes consisted of the following for the
years ended January 31, 1999 and 1998:
<TABLE>
<S> <C> <C> <C>
1999 1998
---- ----
Current:
Federal - $ -
State and local - 7,294
----------- ----------
- 7,294
Deferred
Federal, state and local - 510,000
----------- ----------
PROVISION FOR INCOME TAXES $ - $ 517,294
The components of the net deferred income tax asset, pursuant to SFAS
109, as of January 31, 1999 and 1998 are as follows:
1999 1998
---- ----
Deferred tax assets:
Accounts receivable $ 6,500 $ 3,700
Inventory 3,200 2,800
Operating loss carryforward 3,115,000 3,000,000
Total deferred tax asset 3,124,700 3,006,500
Valuation allowance 3,124,700 3,006,500
----------- ----------
NET DEFERRED INCOME TAX ASSET $ - $ -
=========== ==========
</TABLE>
The Company has available operating loss carryforwards for federal tax
purposes of approximately $9,000,000. These losses expire in various
years beginning in 2005 and may result in deferred tax assets. The
Company had previously recorded a deferred tax asset based on the
assumed recoverability of the net operating loss carryforward. Since
the Company realized a significant net operating loss for the year
ended January 31, 1998, this deferred tax asset was reversed during
that year. The Company has provided a 100% valuation allowance against
its deferred tax asset since it is not more likely than not that such
asset will be realized in the near future. This allowance will be
evaluated at the end of each year, considering both positive and
negative evidence concerning the realizability of the asset, and will
be increased or reduced accordingly.
Reconciliation of the statutory Federal income tax rate to the
Company's negative effective tax rate for the years ended January 31,
1999 and 1998 is not meaningful and therefore not provided due to the
reversal of the deferred tax asset.
F - 12
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 10 - RETIREMENT PLANS:
Goodren has a defined contribution profit sharing plan covering
substantially all of its employees. Contributions are based on a
percentage of each participant's compensation or a fixed annual
contribution for union employees based on a collective bargaining
agreement. The cost of the plan approximated $35,000 in 1998. No
contributions were made in 1999.
Due to the sale of Goodren's operating assets in March 1999, the
Company is currently in the process of terminating this plan.
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
(a) OPERATING LEASES:
The Company and its subsidiaries lease certain administrative and
manufacturing facilities and equipment under operating leases expiring
at various times through 2002. Other locations are rented on a month
to month basis. Rental and lease expense aggregated approximately
$109,000 and $102,000 for the years ended January 31, 1999 and 1998,
respectively.
Future minimum rental commitments for existing operating leases and in
the aggregate are as follows:
Fiscal year ending January 31, 2000 - $108,325
2001 - 71,075
2002 - 3,639
$183,039
(b) EMPLOYMENT CONTRACTS:
The Company had an employment contract (the "Contract") with the
President of Goodren which, after its expiration on January 31, 1994,
was renewed automatically for successive one-year terms. The contract
specified base compensation of $155,000 for the initial term with
annual increases based on changes in the consumer price index. The
contract also provided for additional compensation equal to 5% of the
operating income of Goodren provided such operating income exceeds
$650,000 for the fiscal year. In December 1994, Goodren entered into a
further agreement with this executive whereby the proceeds of a newly
purchased term life insurance policy in the amount of $250,000 will be
paid to the spouse upon the death of this executive. As a result of
the sale of the operating assets in March 1999, this contract has now
been terminated.
Flexible entered into an employment contract with its President for a
three-year period ending December 15, 1997, subject to renewals for
successive one-year terms. The base compensation under this contract
was $75,000 with adjustments made annually based on changes in the
consumer price index. The contract also provided for additional
compensation based on annual sales revenue and/or gross profit
performance of Flexible. The contract also covered non-compete
provisions, availability of medical benefits and the use of an
automobile. During the year ended January 31, 1999, this employee
resigned thus terminating the contract.
F - 13
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
(c) OTHER:
Goodren has withdrawn from participating in the District 65 Union
Pension Plan (the "Plan"). The withdrawal has resulted in the
assessment of a withdrawal liability owed to the Plan by Goodren.
During the year ended January 31, 1995, the Company accrued a reserve
for an estimated liability of $560,000 which counsel to the Company
believed would be payable over a period of approximately 22 years
beginning approximately one year from the withdrawal date. In March of
1996, the Company signed an agreement with the Plan whereby they will
make quarterly payments of $7,548. At September 30, 1996, the Company
and Goodren entered into a Settlement Agreement with the Trustees of
the union pension plan whereby Goodren's pension fund liability was
reduced to $360,000 payable in 80 equal quarterly payments of $8,752
including annual interest at a rate of 8%. In December 1997, the
Company entered into a Hardship Settlement Agreement with the Trustees
whereby it was able to reduce its quarterly payments/obligations to
$3,000 because of the Company's poor financial condition. If the
Company's financial condition should improve so that there would be no
hardship in making future payments (i.e. payment of the withdrawal
liability does not impede its ability to operate), then the Plan may
terminate the Hardship Settlement and require the Company to make all
payments due after the date of such improvement in accordance with the
original Settlement Agreement. Should this occur, then the Company's
quarterly payment would revert back to $8,752. The Company applied for
relief as a "hardship case" pursuant to the Settlement Agreement, and
received approval to reduce its quarterly obligations to $3,000 until
such time as the Company is out of hardship.
F - 14
<PAGE>
ARTICLE 5
The schedule contains summary financial information extracted from the
consolidated financial statements for the year ended January 31, 1999 and is
qualified in its entirety by reference to such statements.
>
MULTIPLIER 1
<TABLE>
<S> <C>
PERIOD-TYPE YEAR
FISCAL-YEAR-END JAN-31-1999
PERIOD-START FEB-01-1998
PERIOD-END JAN-31-1999
CASH 467,910
SECURITIES 0
RECEIVABLES 200,161
ALLOWANCES 20,000
INVENTORY 60,041
CURRENT-ASSETS 935,125
PP&E 456,236
DEPRECIATION 231,351
TOTAL-ASSETS 1,327,035
CURRENT-LIABILITIES 486,997
BONDS 360,917
COMMON 289,282
PREFERRED-MANDATORY 0
PREFERRED 0
OTHER-SE 189,839
TOTAL-LIABILITY-AND-EQUITY 1,327,035
SALES 1,436,489
TOTAL-REVENUES 1,436,489
CGS 1,058,519
TOTAL-COSTS 1,862,226
OTHER-EXPENSES 0
LOSS-PROVISION 0
INTEREST-EXPENSE 10,417
INCOME-PRETAX (426,040)
INCOME-TAX 0
INCOME-CONTINUING (426,040)
DISCONTINUED (13,990)
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (440,030)
EPS-PRIMARY (.15)
EPS-DILUTED (.15)
</TABLE>
<PAGE>
EXHIBIT C
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------
Commission File Number: 1-4338
------
EAC INDUSTRIES, INC.
-----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 21-0702336
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2111 CLARIDGE LANE, NORTHBROOK, IL 60062
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(847) 509-8657
- -------------------------------------------------------------------------------
(Issuer's telephone number, including area code)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31, 1999
- -------------------------------------- -------------------------------------
Common Stock, par value $.10 per share 2,885,521 shares
<PAGE>
- INDEX -
PAGE(S)
-------
PART I. Financial Information:
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets - October 31, 1999
(Unaudited) and January 31, 1999 3.
Consolidated Condensed Statements of Operations (Unaudited) -
Three and Nine Months Ended October 31, 1999 and 1998 4.
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Nine Months Ended October 31, 1999 and 1998 5.
Notes to Interim Consolidated Condensed Financial Statements
(Unaudited) 6.
ITEM 2. Management's Discussion and Analysis or Plan of Operation 8.
PART II. Other Information 11.
SIGNATURES 12.
EXHIBITS:
Exhibit 27 - Financial Data Schedule
Page 2.
<PAGE>
PART I. FINANCIAL INFORMATION:
ITEM I. FINANCIAL STATEMENTS:
EAC INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
- ASSETS -
<TABLE>
<CAPTION>
OCTOBER 31, January 31,
1999 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash .............................................. $ 623,688 $ 467,910
Notes and accounts receivable - net of allowance
for doubtful accounts of $20,000 at October 31,
and January 31, 1999, respectively ............... 155,651 180,161
Inventories ....................................... 78,684 60,041
Prepaid expenses .................................. 29,934 20,878
Due from buyer (Note 2) ........................... 110,000 --
Net assets of discontinued operations (Note 2) .... -- 206,135
---------- ---------
TOTAL CURRENT ASSETS .................................. 997,957 935,125
---------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET .................... 216,961 224,885
---------- ---------
OTHER ASSETS:
Due from buyer (Note 2) ........................... 60,000 --
Costs in excess of net assets acquired - net ...... 151,830 162,621
Other assets ...................................... 4,404 4,404
---------- ----------
216,234 167,025
---------- ----------
$1,431,152 $1,327,035
========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable .................................. $ 170,025 $ 143,899
Accrued expenses .................................. 264,332 319,353
Long-term liabilities - current portion ........... 19,160 26,142
---------- ----------
TOTAL CURRENT LIABILITIES ............................. 453,517 489,394
---------- ----------
LONG-TERM LIABILITIES - NET OF CURRENT PORTION ........ 151,789 158,520
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value; 20,000,000 shares
authorized, 2,892,819 shares issued at
October 31, and January 31, 1999 ................. 289,282 289,282
Capital in excess of par value .................... 10,546,048 10,546,048
Accumulated deficit ............................... (9,960,882) (10,107,607)
---------- -----------
874,448 727,723
Less: Common stock in treasury, 7,298
shares at cost at October 31, and
January 31, 1999 ............................ (48,602) (48,602)
---------- -----------
825,846 679,121
---------- -----------
$1,431,152 $ 1,327,035
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 3.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended October 31 October 31,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES ............................................. $ 384,620 $ 362,802 $ 1,139,368 $ 1,141,673
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold ............................. 238,960 252,416 726,319 796,907
Selling, general and administrative expenses ...... 161,395 207,561 479,501 593,542
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES .............................. 400,355 459,977 1,205,820 1,390,449
----------- ----------- ----------- -----------
OPERATING (LOSS) ...................................... (15,735) (97,175) (66,452) (248,776)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense .................................. (1,220) (1,715) (4,050) (24,257)
Interest and other income ......................... 13,043 1,928 34,511 6,639
----------- ----------- ----------- -----------
11,823 213 30,461 (17,618)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES ..................... (3,912) (96,962) (35,991) (266,394)
Income taxes, net of operating loss carryforward .. -- -- -- --
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS .............. (3,912) (96,962) (35,991) (266,394)
----------- ----------- ----------- -----------
DISCONTINUED OPERATIONS (NOTE 2):
(Loss) from operations of discontinued subsidiaries
- net of taxes ................................ (22,766) (29,964) (57,502) (131,029)
Gain on disposal of operating assets of
discontinued subsidiary - net of taxes ........ -- 56,505 240,218 289,505
----------- ----------- ----------- -----------
(22,766) 26,541 182,716 158,476
----------- ----------- ----------- -----------
NET INCOME (LOSS) ..................................... $ (26,678) $ (70,421) $ 146,725 $ (107,918)
=========== =========== =========== ===========
BASIC AND DILUTED INCOME (LOSS)
PER SHARE (NOTE 3):
Continuing operations .......................... $ -- $ (.03) $ (.01) $ (.09)
Discontinued operations ........................ (.01) .01 .06 .05
----------- ----------- ----------- -----------
$ (.01) $ (.02) $ .05 $ (.04)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ....................................... 2,885,521 2,885,521 2,885,521 2,846,147
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 4.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
For The Nine Months
Ended October 31,
1999 1998
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................... $ 146,725 $(107,918)
Adjustments to reconcile net income (loss) to
cash used by operating activities:
Depreciation and amortization ...................... 35,098 42,431
Gain on sale of assets ............................. (240,218) (289,505)
Change in assets and liabilities:
Decrease in accounts and notes receivable .......... 24,510 143,520
(Increase) in inventories .......................... (18,643) (15,852)
Decrease (increase) in prepaid expenses and
other assets .................................... 1,705 (5,629)
(Decrease) in accounts payable, accrued expenses
and accrued income taxes ........................ (12,552) (113,435)
Net cash flow from discontinued operations ......... 13,123 70,110
--------- ---------
NET CASH (USED) BY OPERATING ACTIVITIES .......... (50,252) (276,278)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets .......................... 230,000 311,750
Capital expenditures .................................. (19,257) (27,678)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES ......... 210,743 284,072
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock ................ -- 101,019
Payments of long-term debt ............................ (4,713) (50,945)
--------- ---------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES .. (4,713) 50,074
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 155,778 57,868
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR ........... 467,910 450,031
--------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD ............... $ 623,688 $ 507,899
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 6.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
------------------------------------------------------------
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited interim
consolidated condensed financial statements of EAC Industries,
Inc. (the "Company") and its subsidiaries, contain all
adjustments necessary (consisting of normal recurring accruals
or adjustments only) to present fairly the Company's financial
position as of October 31,1999 and the results of its operations
for the three and nine month periods ended October 31, 1999 and
1998, and its cash flows for the nine month periods ended
October 31, 1999 and 1998.
The accounting policies followed by the Company are set forth in
Note 3 to the Company's consolidated financial statements
included in its Annual Report on Form 10-KSB/A for the year
ended January 31, 1999, which is incorporated herein by
reference. Specific reference is made to this report for a
description of the Company's securities and the notes to
consolidated financial statements.
The results of operations for the three and nine month periods
ended October 31, 1999 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - DISCONTINUED OPERATIONS:
On March 1, 1999, the Company completed the sale of the
operating assets of Goodren Products Corporation ("Goodren") for
a price of $400,000 plus the assumption of all trade payable
liabilities. The payment terms are as follows: (i) $200,000 at
closing, (ii) $30,000 to be paid 180 days after closing plus
interest accrued at an annual rate of 7% (iii) $50,000 to be
paid 360 days after closing plus interest accrued at an annual
rate of 7%, (iv) $60,000 to be paid 540 days after closing plus
interest accrued at an annual rate of 7% (v) $60,000 to be paid
720 days after closing plus interest accrued at an annual rate
of 7%.
In June 1998, the Company completed the sale of substantially
all of the assets of Goodren Label Corporation (formerly Athena
Packaging Inc.) for an aggregate sale price of $277,000
including inventory valued at the lower of cost or market. The
full sales price was paid in cash at closing.
Certain reclassifications have been made to the 1998 financial
statements in order to conform to the 1999 presentation. These
reclassifications relate to the disposition of assets as
disclosed above.
The accompanying financial statements have been presented to
reflect the results of the discontinued subsidiaries separately.
The following is a summary of the results of operations of
Goodren and Athena for the periods ended October 31, 1999 and
1998.
<TABLE>
<CAPTION>
For The Nine Months Ended
October 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Goodren Products Corp.:
Revenues .................... $ 181,928 $2,000,204
Income (loss) from operations (36,546) 48,155
Gain on sale of assets ...... 240,218 --
Net income .................. 203,672 48,155
Income per share ............ $ .07 $ .02
</TABLE>
Page 7.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
------------------------------------------------------------
(UNAUDITED)
NOTE 2 - DISCONTINUED OPERATIONS (CONTINUED):
<TABLE>
<CAPTION>
For The Nine Months
Ended October 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Goodren Label Corp. (Athena):
Revenues ................. $ -- $ 414,708
Loss from operations ..... (20,956) (179,184)
Gain on sale of assets.... -- 289,505
Net income (loss) ........ (20,956) 110,321
Income (loss) per share... $ (.01) $ .04
</TABLE>
NOTE 3 - EARNINGS (LOSS) PER SHARE:
Earnings per share has been computed on the basis of the
weighted average number of common shares outstanding during each
period presented, in accordance with the provisions of SFAS No.
128.
NOTE 4 - CONTINGENCY:
Goodren withdrew from participating in the District 65 Union
Pension Plan (the "Plan"), which withdrawal resulted in the
assessment of a withdrawal liability owed to the Plan by
Goodren. During the year ended January 31, 1995, the Company
accrued a reserve for an estimated liability of $560,000 which
counsel to the Company believed would be payable over a period
of approximately 22 years beginning approximately one year from
the withdrawal date. In March of 1996, the Company signed an
agreement with the Plan whereby they would make quarterly
payments of $7,548. At September 30, 1996, the Company and
Goodren entered into a Settlement Agreement with the Trustees of
the union pension plan whereby Goodren's pension fund liability
was reduced to $360,000 payable in 80 equal quarterly payments
of $8,752 including annual interest at a rate of 8%. In December
1997, the Company entered into a Hardship Settlement Agreement
with the Trustees whereby it was able to reduce its quarterly
payments/obligations to $3,000 because of the Company's poor
financial condition. However, the agreement provides that if the
Company's financial condition should improve so that there would
be no hardship in making future payments (i.e. payment of the
withdrawal liability does not impede its ability to operate),
then the Plan may terminate the Hardship Settlement and require
the Company to make all payments due after the date of such
improvement in accordance with the original Settlement
Agreement. Should this occur, then the Company's quarterly
payment would revert back to $8,752. The Company continues to
make quarterly payments of $3,000.
Page 7.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
INTRODUCTION:
EAC Industries, Inc., the Company, is a holding company with
currently one operating subsidiary, Flexible Printed Products,
Inc. ("Flexible"). Flexible produces and prints on plastic,
pre-cure, in-mold heat transfer labels for the identification
and decoration of rubber and silicone hoses, belts and tire
patches.
In June 1998, the Company completed the sale of substantially all
of the assets of Goodren Label Corporation (formerly Athena
Packaging Inc.). Goodren Label Corporation ("Athena"), a wholly
owned subsidiary of the Company, was in the business of producing
printed, laminated, embossed and hot stamped labels, wraps, seals
and decals for the cosmetics, pharmaceutical and health and
beauty aids industries. The aggregate sales price of $277,000
included inventory valued at the lower of cost or market.
On March 1, 1999, the Company completed the sale of the operating
assets of Goodren Products Corporation ("Goodren"), a
wholly-owned subsidiary of the Company, for a price of $400,000
plus the assumption of all trade payable liabilities. Goodren
was in the business of designing and providing point-of-purchase
advertising displays and wall decorations on semi-durable
plastic.
The financial information presented herein includes: (i)
Consolidated condensed balance sheets as of October 31, 1999 and
January 31, 1999; (ii) Consolidated condensed statements of
operations for the three and nine month periods ended October 31,
1999 and 1998 and (iii) Consolidated condensed statements of cash
flows for the nine month periods ended October 31, 1999 and 1998.
RESULTS OF CONTINUING OPERATIONS:
Sales for the three-month period ended October 31, 1999 were
$385,000 as compared to $363,000 for the comparable period of the
prior year, reflecting an increase of $22,000 or 6.1%. Cost of
sales as a percentage of sales was 62.1% for the three-month
period ended October 31, 1999 as compared to 69.6% for the
three-month period ended October 31, 1998. Sales for the
nine-month period ended October 31, 1999 were $1,139,000 as
compared to $1,142,000 for the comparable period of the prior
year, reflecting a decrease of $3,000. Cost of sales as a
percentage of sales was 63.7% for the nine-month period ended
October 31, 1999 as compared to 69.8% for the nine-month period
ended October 31, 1998. This decrease in cost of sales is a
result of reductions in raw material and labor costs.
Selling, general and administrative expenses decreased by $46,000
and $114,000 when comparing the three and nine month periods
ended October 31, 1999 and 1998. These decreases result from
reductions in marketing costs as well as the implementation of
various cost saving techniques initiated by management.
For the three months ended October 31, 1999 the Company reflected
a net loss from continuing operations of $3,912 compared to a net
loss of $96,962 for the comparative period of the prior year. For
the nine month periods ended October 31, 1999 and 1998, the
Company reflected net losses from operations of $35,991 and
$266,394, respectively. This decrease in the operating losses was
primarily due to the reduced operating overhead as mentioned
above.
Page 8.
<PAGE>
DISCONTINUED OPERATIONS:
In June 1998, the Company completed the sale of substantially all
of the assets of Goodren Label Corporation (formerly Athena
Packaging Inc.) for an aggregate sales price of $277,000
including inventory valued at the lower of cost or market. The
gain recognized on the sale of these assets aggregated $289,505.
On March 1, 1999, the Company completed the sale of the operating
assets of Goodren Products Corporation ("Goodren") for a price of
$400,000 plus the assumption of all trade payable liabilities.
The Company realized a gain of $240,218 upon the sale of
Goodren's assets. See Note 2 of Notes to the Consolidated
Financial Statements for a further description of these
transactions.
For the nine month period ended October 31, 1999, Goodren and
Athena reported a combined loss from operations of $57,502. The
gain realized from the sale of the assets of Goodren during the
current period aggregated $240,218. For the nine month period
ended October 31, 1998, Goodren and Athena reported a combined
operating loss of $131,029 and recognized a gain from the sale of
equipment of $289,505.
LIQUIDITY AND CAPITAL RESOURCES:
At October 31, 1999, the Company's working capital was $544,000
compared to working capital of $446,000 at its year ended January
31, 1999. Cash amounted to $624,000 at October 31, 1999 compared
to $468,000 at January 31, 1999.
The Company believes that its cash on hand will be sufficient to
fund planned operations for at least the next 12-month period.
The Company (primarily Flexible) has no planned capital
expenditures for the next year.
YEAR 2000 ISSUES
The Year 2000 ("Y2K") problem is the result of computer programs
being written using two digits (rather than four) to define the
applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000, which could result in
miscalculations or system failures. The Company has instituted a
Y2K compliance program, the objective of which is to determine
and assess the risks of the Y2K issue, and plan and institute
mitigating actions to minimize those risks. The Company's
standard for compliance requires that, for a computer system or
business process to be Y2K compliant, it must be designed to
operate without error in date and date-related data prior to, on
and after January 1, 2000. The Company's computer's hardware is
Y2K compliant and it has purchased an "off-the-shelf" business
software program, for internal use, which is also Y2K compliant.
The Company has spent less than $10,000 to date and expects that
any further expenditures will be minimal.
CONTINGENCY PLANS
The Company's management is in the process of developing a
"worst-case scenario" with respect to Y2K noncompliance and to
develop contingency plans designed to minimize the effects of
such scenario. Although management believes that it is very
unlikely that any of these worst-case scenarios will occur,
contingency plans will be developed and will address both IT
system and non-IT system failure.
Page 9.
<PAGE>
The Company intends to request assurances of Y2K readiness from
its telephone and electrical suppliers. However, management has
been informed that some suppliers have either declined to provide
the requested assurances, or have limited the scope of assurances
that they are willing to give. If suppliers of services that are
critical to the Company's operations were to experience business
disruptions as a result of their lack of Y2K readiness, their
problems could have a material adverse effect on the financial
position and results of operations of the Company. The impact of
a failure of readiness by critical suppliers cannot be estimated
with confidence, and the effectiveness of contingency plans to
mitigate the effect of any such failure is largely untested.
Management cannot provide any assurance that there will be no
material adverse effects to the financial condition or results of
operations of the Company as a result of Y2K issues.
OTHER:
This report contains forward-looking statements and information
that is based on management's beliefs and assumptions, as well as
information currently available to management. When used in this
document, the words "anticipate," "estimate," "expect," "intend"
and similar expressions are intended to identify forward-looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be
correct. Such statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may vary materially
from those anticipated, estimated or expected. Among the key
factors that may have a direct bearing on the Company's
operating results are fluctuations in the economy, the degree
and nature of competition, the risk of delay in product
development and release dates and acceptance of, and demand for,
the Company's products.
Page 10.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits:
(27) Financial Data Schedule
Page 11.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAC INDUSTRIES, INC.
----------------------------
Registrant
/s/ Peter B. Fritzsche
----------------------------
Date: December 14, 1999 Peter B. Fritzsche
Chief Executive Officer and Principal
Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the nine months ended October 31, 1999 and
is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 623,688
<SECURITIES> 0
<RECEIVABLES> 175,651
<ALLOWANCES> 20,000
<INVENTORY> 78,684
<CURRENT-ASSETS> 997,957
<PP&E> 405,024
<DEPRECIATION> 188,063
<TOTAL-ASSETS> 1,431,152
<CURRENT-LIABILITIES> 453,517
<BONDS> 151,789
<COMMON> 289,282
0
0
<OTHER-SE> 536,564
<TOTAL-LIABILITY-AND-EQUITY> 1,431,152
<SALES> 1,139,368
<TOTAL-REVENUES> 1,139,368
<CGS> 726,319
<TOTAL-COSTS> 1,205,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,050
<INCOME-PRETAX> (35,991)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35,991)
<DISCONTINUED> 182,716
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,725
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
