As Filed with the Securities and Exchange Commission on February 11, 1997
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------
EA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
------------
New Jersey 21-0606484
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification No.)
185 Monmouth Parkway
West Long Branch, New Jersey 07764-9989
(908) 229-1100
(Address, including zip code, and
telephone number, including area
code, of registrant's principal
executive offices)
Richard P. Jaffe, Esquire
Mesirov Gelman Jaffe
Cramer & Jamieson
1735 Market Street, 38th Floor
Philadelphia, PA 19103-7598
(215) 994-1046
(Name, address, including
zip code, and telephone number,
including area code, of agent
for service)
---------------------------------------------
Approximate date of commencement of proposed sale to public: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box.[ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box.[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [_]
<TABLE>
<CAPTION>
Calculation of Registration Fee
===================================================================================================================================
Title of each class of Proposed Maximum Proposed maximum
securities to be Amount to be offering price per aggregate offering Amount of
registered registered (4) unit price Registration Fee
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 2,876,000(2) $5.00(1) $14,380,000 $4,358
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock 1,622,847(3) $5.00(1) $ 8,114,235 $2,459
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock 150,000(5) $5.00(1) $ 750,000 $ 228
- -----------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Purchase Rights 4,648,847(6) N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
Total Registration Fee $7,045
===================================================================================================================================
</TABLE>
(1) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as
amended ("Securities Act"), solely for purposes of calculation of the
registration fee, based upon the average of the high and low prices
reported in the consolidated reporting system on February 6, 1997.
[Notes continued on next page.]
<PAGE>
(2) Represents the additional shares of the Company's Common Stock into
which certain amended 9% Convertible Subordinated Debentures due May 3,
1998 in the aggregate principal amount of $4,314,000 ("Convertible
Debentures"), issued by the Company in May and June 1996 to certain of
the Selling Securityholders, may be convertible as a result of an
amendment to reduce the maximum conversion price of such Convertible
Debentures from $4.00 per share (pre-one for four reverse stock split,
effective December 27, 1996 (the "Reverse Stock Split")) to $1.50 per
share (post-Reverse Stock Split price). For purposes of determining the
number of shares of the Company's Common Stock issuable upon conversion
of the Convertible Debentures to include in this registration
statement, the Company assumed a conversion price of $1.50 per share.
The actual number of shares of Common Stock to be issued upon the
conversion of the Convertible Debentures will be equal to: the
principal amount of the Convertible Debentures converted divided by a
conversion price per share equal to the lesser of (i) eighty percent
(80%) of the average of the closing price of the Company's Common Stock
as traded on the NYSE for the five days immediately preceding the date
of notice of conversion to the Company, or (ii) $1.50. The actual
number of shares included in this registration statement equals that
number of shares of Common Stock issued upon conversion of the
Convertible Debentures in accordance with the amended conversion price
described above, in excess of the number of shares which would have
been issued upon conversion of the Convertible Debentures in accordance
with the "Original Conversion Price Formula" (defined below) set forth
in the original terms of the Convertible Debentures. The "Original
Conversion Price Formula" is defined as: the principal amount of the
Convertible Debentures converted divided by a conversion price per
share equal to the lesser of (i) eighty percent (80%) of the average of
the closing price of the Company's Common Stock as traded on the NYSE
for the five days immediately preceding the date of notice of
conversion to the Company, or (ii) $4.00 (pre-Reverse Stock Split). In
accordance with Rule 416 under the Securities Act, this registration
statement also covers such indeterminate number of additional shares of
Common Stock as may become issuable upon the conversion of the
Convertible Debentures to prevent dilution resulting from stock splits,
stock dividends or similar transactions or by reason of changes in the
conversion price as aforesaid.
(3) Represents the additional shares of the Company's Common Stock into
which certain amended Convertible Notes due December 29, 1997 in the
aggregate principal amount of $2,725,000 ("Convertible Notes"),
reissued by the Company in August 1996 to certain of the Selling
Securityholders, are convertible as a result of an amendment to
increase the aggregate principal amount of such Convertible Notes from
$2,070,000 to $2,725,000 and to reduce the fixed conversion price of
such Convertible Notes from $2.67 per share to $1.50 per share. In
accordance with Rule 416 under the Securities Act, this registration
statement also covers such indeterminate number of additional shares of
Common Stock as may become issuable upon the conversion of the
Convertible Notes to prevent dilution resulting from stock splits,
stock dividends or similar transactions or by reason of changes in the
conversion price as aforesaid.
(4) Pursuant to Rule 429 of the Securities Act, the prospectus contained
herein also relates to (i) the shares of Common Stock of the Company,
and associated Preferred Stock Purchase Rights ("Rights"), into which
the Convertible Debentures were convertible in accordance with the
Original Conversion Price Formula, which are covered by the
Registration Statement on Form S-3 declared effective on November 26,
1996 (Registration No. 333-12691) (the "Earlier Registration
Statement") and which for the purpose of determining the number of
shares of the Company's Common Stock issuable upon conversion of the
Convertible Debentures to include in such Earlier Registration
Statement, the Company assumed a conversion price of $4.00 per share
(pre-Reverse Stock Split price) or 269,625 shares of Common Stock,
however, the actual number of shares of the Company's Common Stock
issuable upon conversion of the Convertible Debentures in accordance
with the Original Conversion Price Formula included in the Original
Registration Statement is the principal amount of the Convertible
Debentures converted divided by a conversion price per share equal to
the lesser of (A) eighty percent (80%) of the average of the closing
price of the Company's Common Stock as traded on the NYSE for the five
days immediately preceding the date of notice of conversion to the
Company, or (B) $4.00 (pre-Reverse Stock Split price), (ii) the 193,820
shares of Common Stock of the Company, and associated Rights, into
which the Convertible Notes are convertible in accordance with the
original terms thereof and which are also covered by the Earlier
Registration Statement, and (iii) the 89,286 shares of the Company's
Common Stock, and associated Rights, which may be acquired upon
exercise of a certain Warrant, dated September 3, 1996 held by one of
the Selling Securityholders and which are also covered by the Earlier
Registration Statement. All of such shares of Common Stock, and
associated Rights, are being carried forward and the filing fee of
$2,337 associated with such shares was previously paid with the Earlier
Registration Statement.
(5) Represents an aggregate of 150,000 shares of Common Stock of the
Company which may be acquired upon exercise of three separate Warrants,
dated as of January 6, 1997, as of January 22, 1997, and as of February
10, 1997 respectively, each held by a Selling Securityholder. In
accordance with Rule 416 under the Securities Act, this registration
statement also covers such indeterminate number of additional shares of
Common Stock as may become issuable upon exercise of such Warrants to
prevent dilution resulting from stock splits, stock dividends or
similar transactions.
(6) The Rights associated with the shares of Common Stock are not
exercisable or transferable apart from the Shares of Common Stock at
the present time and no additional consideration has been, or will be,
received by the Company in connection with the granting of such Rights
upon issuance of the Common Stock. Accordingly, no material independent
value is attributable to the Rights and no separate registration fee is
required with respect to such Rights pursuant to Rule 457.
--------------------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the
Commission, acting pursuant to Section 8(a), may determine.
(ii)
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY FORM S-3
FILED AS PART OF REGISTRATION STATEMENT
Item
Number
in Form
S-3 Item Caption in Form S-3 Caption in Prospectus
- ------- ------------------------ ---------------------
1 Forepart of Registration Statement Cover Page
and Outside Front Cover Page of
Prospectus
2 Inside Front and Outside Back Cover Inside Front Cover Page;
Pages of Prospectus Table of Contents
3 Summary of Information, Risk Factors The Company; Risk Factors;
and Ratio of Earnings to Fixed Charges and Selected Consolidated
Financial Data
4 Use of Proceeds Use of Proceeds
5 Determination of Offering Price Cover Page
6 Dilution Inapplicable
7 Selling Security Holders Plan of Distribution and
Selling Securityholders
8 Plan of Distribution Plan of Distribution and
Selling Securityholders
9 Description of Securities to be Inapplicable
Registered
10 Interests of Named Experts and Counsel Legal Matters
11 Material Changes The Company
12 Incorporation of Certain Documents by Incorporation of Certain
Reference Information by Reference
13 Disclosure of Commission Position on Indemnification of Directors
Indemnification for Securities Act and Officers
Liabilities
(iii)
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission but has not yet become effective. These
securities may not be sold nor may offers to buy be accepted prior to the time
the registration statement becomes effective. This Prospectus shall not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 11, 1997
Prospectus
5,201,578 Shares
[COMPANY LOGO GRAPHIC]
EA INDUSTRIES, INC.
Common Stock
This Prospectus relates to the offer for sale of 5,201,578 shares of
common stock (the "Shares") of EA Industries, Inc. (the "Company" or "EAI") from
time to time after the date hereof by certain holders of Convertible Debentures
(hereinafter defined) (the "Debenture Holders"), certain holders of Convertible
Notes (hereinafter defined) (the "Note Holders"), and the holders of certain
Warrants (hereinafter defined) (the "Warrant Holders") (the Debenture Holders,
Note Holders and Warrant Holder are collectively referred to as the "Selling
Securityholders" and individually as a "Selling Securityholder"), together with
the 5,201,578 Preferred Stock Purchase Rights ("Rights") associated with such
Shares. The Rights associated with the Shares are not exercisable or
transferrable apart from the Shares as of the date of this Prospectus and no
additional consideration has been, or will be, received by the Company in
connection with the granting of such Rights upon the issuance of the Shares.
Except as described elsewhere in this Prospectus, the Company will not receive
any portion of the proceeds from the sale of the Shares offered hereby. See
"Plan of Distribution and Selling Securityholders."
THE SECURITIES BEING SOLD HEREBY ARE SPECULATIVE AND INVOLVE A HIGH
DEGREE OF RISK. THE COMPANY HAS EXPERIENCED LOSSES FOR THE PAST FIVE YEARS.
SEE "RISK FACTORS" COMMENCING ON PAGE 11 OF THIS PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The Shares will be offered by the Selling Securityholders or their
donees, pledgees, transferees or other successors in interest for resale by this
Prospectus from time to time after the date hereof in one or more transactions
on the New York Stock Exchange ("NYSE"), in negotiated transactions, or private
transactions, or otherwise, or a combination of such methods of sale, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The Selling Securityholders may effect
such transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions (which compensation may be in excess of customary
commissions). Any broker-dealers that participate in the distribution of the
Shares may be deemed to be underwriters and any commissions received by them and
any profit on the resale of Shares sold by them might be deemed to be
underwriting discounts and commissions under the Securities Act of 1933, as
amended (the "Securities Act"). Each of the Selling Securityholders may also be
deemed to be an underwriter as defined in the Securities Act.
The Company's common stock (the "Common Stock") is traded on the NYSE
under the symbol EA. However, as a result of, among other things, continuing
losses, the Company has been informed by the NYSE that it does not meet certain
of the NYSE's requirements for continued listing of its shares of Common Stock.
Although the NYSE has not taken any affirmative action to delist the Common
Stock, it has reserved the right to do so. See "Risk Factors." On February 6,
1997, the last reported sale price of the Common Stock as reported by the NYSE
was $5.00.
The expenses relating to the offering are estimated to be $80,000 all
of which will be paid by the Company.
The Date of this Prospectus is____________________, 1997.
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offer made hereby and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or the Selling
Securityholders. This Prospectus does not constitute an offer to sell or
solicitation of an offer to buy, nor shall there be any sale of these securities
by anyone in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities law of any
such State, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
The Company's Common Stock is listed on the NYSE, 11 Wall Street, New
York, New York 10005. Information regarding the Company is also available at the
NYSE.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December
31, 1995, Proxy Statement dated April 29, 1996 filed in connection with the
Company's Annual Meeting of Stockholders held on May 30, 1996, Quarterly Report
on Form 10-Q for the quarterly period ended March 30, 1996, Quarterly Report on
Form 10-Q for the quarterly period ended June 29, 1996, and Quarterly Report on
Form 10-Q for the quarterly period ended September 28, 1996, as amended on the
Quarterly Report on Form 10-Q/A dated November 25, 1996, are incorporated herein
by reference and made a part hereof.
All documents filed subsequent to the date of this Prospectus by the
Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior
to the termination of the offering described in this Prospectus shall be deemed
to be incorporated in this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The description of the Company's Common Stock is incorporated herein by
reference from the registration statement therefor under Section 12 of the
Exchange Act, including any amendment or report filed for the purpose of
updating such description.
(2)
<PAGE>
The description of the Company's Preferred Stock Purchase Rights is
incorporated herein by reference from the registration statement therefor under
Section 12 of the Exchange Act, including any amendment or report filed for the
purpose of updating such description.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the oral or written
request of such person, a copy (without exhibits, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates) of any and all information that has been incorporated by reference
in this Prospectus. Written or telephone requests for such information should be
directed to Shareholder Relations, EA Industries, Inc., 185 Monmouth Parkway,
West Long Branch, New Jersey 07764-9989, telephone: (908) 229-1100.
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION.......................................................(2)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................(2)
THE COMPANY.................................................................(4)
RISK FACTORS...............................................................(11)
USE OF PROCEEDS............................................................(20)
SELECTED CONSOLIDATED FINANCIAL DATA.......................................(21)
PLAN OF DISTRIBUTION AND SELLING SHAREHOLDERS..............................(22)
LEGAL MATTERS..............................................................(25)
EXPERTS....................................................................(25)
INDEMNIFICATION OF DIRECTORS AND OFFICERS..................................(25)
(3)
<PAGE>
THE COMPANY
General
The Company, through its wholly-owned subsidiary, Tanon Manufacturing,
Inc. ("Tanon"), is engaged principally in the business of providing contract
electronic manufacturing services ranging from the assembly of printed circuit
boards to the complete procurement, production, assembly, test and delivery of
entire electronic products and systems. Tanon was acquired by the Company on
January 4, 1995. References to the Company with respect to any time period after
January 3, 1995 shall be deemed to include Tanon unless the context otherwise
requires.
The Company manufactures over 1,500 different assemblies which are
incorporated into product lines of over 30 different companies. The Company
provides its services primarily to manufacturers of: micro, mini and mainframe
computers; computer peripheral equipment; high quality graphic equipment; office
equipment; telecommunications equipment; consumer appliances, industrial tools
and measuring devices.
The Company has invested in new manufacturing equipment to accommodate
the increased business for surface mount technology ("SMT") equipment. The SMT
process is increasingly replacing the older, through-hole technology previously
utilized in the assembly of printed circuit boards. SMT allows for production of
a smaller circuit board, with greater component and circuit density, resulting
in increased performance. Management believes that SMT will continue to
constitute an increasing percentage of printed circuit board production and
assembly.
In addition, the Company, through its one-third investment in BarOn
Technologies, Ltd. ("BarOn"), a privately owned Israeli corporation based in
Haifa, Israel, and its indirect interest in a joint venture with Israel Aircraft
Industries, Ltd., an Israeli government corporation ("IAI"), seeks to develop
and market new, high technology products. The investment in BarOn was acquired
in 1995. BarOn has developed and is in the process of commercializing an
electronic computer input pen that captures handwriting independent of surface
or language. The Company, through a 52.3% owned subsidiary, Electronic
Associates Technologies Israel, Ltd. ("EATI"), formed the joint venture (the
"Joint Venture" or "ITI") with IAI in August 1995 to review, evaluate and
exploit the commercial potential of products based on non-military technologies
developed by IAI. See "The Company - Recent Developments."
Results of Operations
During 1995, the Company's sales increased to approximately $77.1
million from $30.5 million in 1994 and cost of sales increased to approximately
$76.4 million from approximately $27.8 million, primarily as a result of the
additional sales generated by Tanon. Selling, general and administrative
expenses also increased primarily as a result of the addition of the Tanon
operations. The Company had a net loss of approximately $30.9 million for 1995,
which included charges of approximately $7.9 million and $11.7 million,
representing the charge to expense of purchased in-process research and
development resulting from its investments in BarOn and the Joint Venture with
IAI, respectively. This net loss compared with a net loss of approximately $4.8
million in 1994 which included a provision for restructuring of approximately
$2.4 million. During the first nine months of 1996, the Company's sales
increased to approximately $64.0 million from approximately $56.1 million, and
cost of sales increased to approximately $61.2 million from approximately $55.7
million but decreased as a percentage of revenue to 95.6% from 99.3%, as
compared to the same period in 1995. Selling, general and administrative
expenses increased to approximately $8.8 million in the first nine months from
approximately $6.3 million in the same period in 1995, and increased as a
percentage of revenue to 13.7% in the first nine months of 1996 from 11.2% in
the same period in 1995. The Company had a net loss of approximately $9.6
million for the first nine months of 1996, which included a charge of $959,000
representing the charge to
(4)
<PAGE>
expense for purchased in-process research and development resulting from the
Company's investments in BarOn and the Joint Venture. This compared with a net
loss of approximately $26.9 million in the first nine months of 1995 which
included a charge of approximately $19.6 million representing the charge to
expense for purchased in-process research and development resulting from the
Company's investments in BarOn and the Joint Venture.
Historically, the Company has had substantial recurring sales from
existing customers. Current marketing efforts are aimed at obtaining long-term
relationships with new customers, as well as maintaining its current customer
base. The Company employs a variety of marketing techniques for the sale of its
services, including direct sales efforts by an in-house sales force, and the
utilization of independent sales representatives. The Company's backlog consists
of firm purchase orders which are typically shipped within twelve months from
receipt of order. As of year-end 1995, the Company's backlog from continuing
operations totalled approximately $47.3 million, of which approximately $27.0
million was attributable to Tanon's backlog. The Company's and Tanon's backlogs
at the end of 1994 were approximately $19.2 million and $15.7 million,
respectively. The Company's backlog at September 28, 1996 was approximately
$38.7 million. As a result of obtaining the Schroder Loan Facility discussed
below, the Company consolidated all of its contract electronic manufacturing
business into Tanon, and, accordingly, such backlog at September 28, 1996
represents the backlog for the consolidated contract electronic manufacturing
business of Tanon.
The shares of the Company's Common Stock have been continuously listed
for trading on the NYSE since 1962; however, the Common Stock presently does not
meet the NYSE's requirements for continued listing. See "Risk Factors."
The Company's principal executive offices are located at 185 Monmouth
Parkway, West Long Branch, New Jersey 07764-9989, and its telephone number is
(908) 229-1100.
Recent Developments
Schroder Loan Facility. On May 3, 1996, Tanon replaced the Company's
existing asset based credit facility and the Tanon separate revolving line of
credit with a new asset based credit facility provided by IBJ Schroder Bank &
Trust Company ("Schroder") to Tanon. Under the terms of this new facility,
Schroder will advance up to $13,000,000 in the form of a revolving loan with
availability subject to the amount of a borrowing base comprised generally of
the sum of (1) up to between 80% and 85% of eligible accounts receivable, (2) up
to 18% of eligible inventory subject to an availability sublimit of $3,000,000
and (3) up to 75% (reduced by one percentage point on the first day of each
month following May 3, 1996) of the liquidation value of certain of the
Company's machinery and equipment, subject to an availability sublimit of
$1,250,000 (the "Schroder Loan Facility"). The Schroder Loan Facility has a
three-year term and bears interest at an annual rate equal to the sum of the
base commercial rate determined by Schroder and publicly announced to be in
effect from time to time plus 1-1/2%. Each fiscal quarter, Tanon will also be
obligated to pay a fee at a rate equal to one-half of one percent (1/2%) per
annum of the average unused portion of the Schroder Loan Facility. The Company
paid a commitment issuance fee of $75,000 to Schroder on March 25, 1996 and an
additional $50,000 fee at the closing of the Schroder Loan Facility. Advances
under the Schroder Loan Facility can only be used to fund the Company's
electronic contract manufacturing operations which are now being conducted
solely by Tanon. The agreement with Schroder requires Tanon to maintain certain
financial ratios, including current assets to current liabilities and earnings
to certain fixed charges, and to maintain a minimum net worth. At September 28,
1996, Tanon was in compliance with all of these requirements, except the
required ratio of earnings to certain fixed charges. Schroder has, however,
waived this requirement for the period ended September 28, 1996. Based on its
current estimates of its results of operations for the period ended December 31,
1996, the Company believes that it was in compliance with all of these
requirements, except the required ratio of earnings to certain fixed charges at
December 31, 1996. The Company believes, however, that Schroder will waive such
requirement although there
(5)
<PAGE>
can be no assurance that Schroder will do so. Failure to obtain such waiver
would result in a default under the Schroder Line which would have a material
adverse effect on the Company. As a result of the new facility, Tanon's
available borrowing capacity increased by approximately $3,000,000 as compared
to the sum of the two prior facilities.
Concurrent with, and as a condition to, the closing of the Schroder
Loan Facility, the Company consolidated all of its contract electronic
manufacturing business into its wholly-owned subsidiary, Tanon, by assigning to
Tanon all of the assets and liabilities related to the contract electronic
manufacturing business conducted directly by the Company. As a result, EAI is
now principally a holding company with all operations being conducted by various
subsidiaries with EAI providing strategic, financial and other support to such
subsidiaries.
Acquisition of Common Stock of Aydin Corporation and Issuance of
Convertible Debentures. On May 6, 1996, the Company purchased 596,927 shares of
the common stock of Aydin Corporation ("Aydin"), a NYSE listed company, in a
private transaction from the then Chairman and Chief Executive officer of Aydin.
The purchase price for such shares was $18 per share or an aggregate of
$10,752,186 and the shares acquired represented approximately 11.64% of the
outstanding shares of common stock of Aydin. On May 6, 1996, the closing price
of the common stock of Aydin as reported by the NYSE was $15.50. Aydin designs,
manufactures and sells wireless, digital LOS radios and various other
telecommunications equipment systems, computer monitors and workstations, mostly
for utilities, network access equipment, airborne and ground data acquisition,
radar simulation, modernization and air-defense C3 equipment and systems.
To fund a portion of the purchase price of the Aydin common stock, on
May 3, 1996, the Company sold certain 9% Convertible Subordinated Debentures in
the aggregate principal amount of $7,000,000. The balance of the purchase price
was funded with existing cash of the Company. The Company sold additional 9%
Convertible Subordinated Debentures in the aggregate principal amount of
$1,100,000 during the remainder of May and June 1996 (such Convertible
Subordinated Debentures in the aggregate principal amount of $8,100,000 are
collectively referred to herein as the "Original Convertible Debentures"). The
Company paid a placement fee in cash and common stock equal to 5% of the
proceeds raised in the sale of the Original Convertible Debentures in
installments during August and September 1996. These Original Convertible
Debentures had a maturity date of May 3, 1998 and were convertible into shares
of the Company's Common Stock at a conversion price per share equal to the
lesser of (i) four dollars ($4) per share or (ii) 80% of the average closing
price of the Company's Common Stock as traded on the NYSE for the five (5) days
preceding the date of the notice to the Company that the holder wishes to
exercise its conversion right; provided that in no event shall the holder
convert less than $100,000 of the unpaid principal balance of the Convertible
Debentures at one time. As of the date hereof, $3,786,000 principal amount of
such Original Convertible Debentures have been converted into 2,314,640 shares
of Common Stock. The Company has agreed that with respect to each holder of the
remaining $4,314,000 aggregate principal amount of Original Convertible
Debentures (the "Convertible Debentures") that if such holder (i) during the
period beginning on January 14, 1997 and ending on April 11, 1997 or the date
the Company's Common Stock is trading at a price of $6.00 per share or higher,
if earlier, refrains from converting any portion of the Convertible Debentures
it holds, and (ii) during the period beginning on January 10, 1997 and ending on
April 11, 1997 or the date the Common Stock is trading at a price of $6.00 per
share or higher, if earlier, does not sell short against the Convertible
Debentures or sell short any shares of Common Stock, then the ceiling conversion
price of the Convertible Debentures shall be reduced from $4.00 per share
(pre-Reverse Stock Split price) to $1.50 per share (post-Reverse Stock Split
price). This Prospectus relates to the underlying shares of the Company's Common
Stock into which such Convertible Debentures, as so amended assuming such
conditions are satisfied, are convertible. See "The Company - Recent
Developments - Reverse Stock Split" and "Plan of Distribution and Selling
Securityholders."
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During May 1996, the Company initiated discussions with the Board of
Directors of Aydin concerning a possible merger or other combination with Aydin.
Both companies conducted due diligence on the business and prospects of each
other, including discussions about the structure and terms of possible
combinations. As a result of these discussions, the Company made an offer to
merge with Aydin, however, Aydin's Board of Directors rejected the Company's
final offer. The Company withdrew its offer on October 8, 1996 and has
terminated discussions with Aydin. At the present time, the Company continues to
hold its Aydin shares as an investment and has pledged such Aydin shares as
security for borrowings of $2,000,000. See "Recent Developments - Additional
Borrowings." In the future, the Company may continue to borrow against such
shares, sell all or a portion of such shares or otherwise dispose of such shares
in another fashion.
On January 23, 1997, Aydin and the Company entered into a Registration
Rights Agreement granting the Company and each subsequent holder of at least
250,000 of the shares of Aydin Common Stock currently held by the Company the
right on two occasions to demand registration of such shares and in addition
granting piggyback registration rights. Each demand is deemed to be an offer to
sell to Aydin or its assigns all shares covered by such demand at the then
current market price. The offer must be accepted or it lapses within ten days.
On January 24, 1997, the Company demanded registration of all 596,927 of the
shares of Aydin common stock that it currently holds in accordance with the
Registration Rights Agreement. Aydin did not exercise its right to purchase such
shares as a result of the initial demand of registration by the Company.
As a result of the merger discussions being terminated, the Company
reflected a direct charge to Shareholders' Equity of approximately $4,782,000 in
the third quarter of 1996, reflecting a net unrealized loss on marketable
securities of investee. In addition, approximately $800,000 of capitalized costs
incurred in connection with the terminated merger discussions with Aydin has
been charged to expense in the third quarter of 1996. The closing price of the
Aydin common stock as reported by the NYSE at February 6, 1997 was $11.375 per
share.
Joint Venture with IAI - Vista Funding. The Company's indirect joint
venture with IAI, ITI, has selected one application for development and
exploitation, the Vista Application ("Vista") and a licensee, Vista Computer
Vision, Ltd. ("VCV") has been formed. Vista is a system for the automatic
inspection of manufactured parts, capable of detecting defects as small as 20
microns. VCV is owned 50% by IAI and 50% by the Company's 52.3 percent owned
subsidiary, EATI, which is the entity through which the Company formed the joint
venture with IAI. The $1,000,000 funding for the initial operations of VCV was
made by EATI in June 1996 through a capital contribution of $250,000 to ITI and
a loan of $750,000 to ITI as evidenced by a $750,000 Subordinated Capital Note.
The note matures five years after its issuance and bears interest at 8% per
annum. Payments on the note may be made only out of remaining profits of VCV
after distribution of at least 50% of all accumulated profits. Upon liquidation
of VCV, the note would be subordinate to all other debts of VCV but would have a
preference over payments to equity holders of VCV.
On June 28, 1996, the Company loaned $1 million to EATI (the "EATI
Loan") to enable EATI to make the above capital contribution and loan to ITI,
which, in turn, funded VCV. The EATI Loan bears interest at 10% per annum,
payable annually. The principal is repayable in five equal annual installments
beginning on June 1, 2002 and continuing on June 1 of each year thereafter. The
Company may at its option, accelerate the EATI Loan and demand repayment 18
months after the date of issuance of the loan. The EATI Loan is subordinated to
all other debts of EATI but would have a preference over payments to equity
holders of EATI.
At September 28, 1996, the Joint Venture formed with IAI had remaining
funds of $8,049,000. Such funds can only be used to fund expenses of the Joint
Venture, and accordingly, have been classified as Restricted Cash by the
Company. With the exception of the initial investment of $6.3 million in EATI,
and the EATI Loan, the Company is unable to determine at this time the effect,
if any, of the Company's investment in the Joint Venture on the results of
operation of the Company or on its liquidity and capital
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resources. The Joint Venture is also currently exploring other opportunities in
addition to Vista. See "Risk Factors - Working Capital Needs and Liquidity
Problems."
BarOn Loan Agreement. On July 1, 1996, the Company entered into a Loan
Agreement (the "BarOn Loan Agreement") with BarOn. Pursuant to the BarOn Loan
Agreement, the Company has agreed to provide to BarOn a revolving line of credit
of $2 million until July 1, 1998 ("Revolving Line Period"). During the Revolving
Line Period, any unused availability under the line will be reduced in the
event, and to the extent, that BarOn is able to obtain other funds through
equity or debt financing. Advances under the line will be made in the Company's
sole discretion. Such advances bear interest at an annual rate equal to the sum
of the base commercial rate (the "Base Rate") as determined by Schroder from
time to time plus one and one half percent (1-1/2%). Interest is due each
calendar quarter and, at the option of BarOn, any payment for such interest may
be deferred until the succeeding July 1. Deferred interest bears additional
interest at the rate of two and one-half percent (2-1/2%) plus the Base Rate.
The Company, at its option, may require that interest be paid in cash or by
issuance of ordinary shares of BarOn at an agreed value of $4.00 per share (the
"Agreed Value"). BarOn, at its option, may make any interest payments due on or
before July 1, 1997 in ordinary shares of BarOn at the Agreed Value. As of
January 31, 1997, BarOn had borrowed $1,333,705, which was outstanding under the
BarOn Loan Agreement. In addition, the entire amount outstanding under the line
of credit during and upon expiration of the Revolving Line Period is due on the
earliest to occur of (i) an initial public offering by BarOn, (ii) the sale of
equity or borrowings by BarOn exceeding the amount outstanding by at least
$500,000 (unless prohibited by such lender or investor), (iii) availability of
excess cash flow from operations in an amount equal to or in excess of the
amount outstanding, or (iv) June 1, 2000. As of the date of this Prospectus, the
Company does not intend to make any further major advances under the BarOn Loan
Agreement until BarOn has implemented a financing plan that is satisfactory to
the Company. See "Risk Factors - Working Capital Needs and Liquidity Problems."
In consideration of the Company's agreement to open the line of credit,
BarOn has granted the Company antidilution protection for all shares currently
owned by the Company. This protection provides that the Company will be issued
additional shares if BarOn issues shares of its capital stock, instruments
convertible into such stock, or options or warrants to purchase such shares, at
any price below the Agreed Value. In addition, BarOn issued the Company a
warrant (the "BarOn Warrant") to purchase 1 million shares of BarOn's ordinary
shares at any time before July 1, 2001 at an exercise price equal to the Agreed
Value. The BarOn Warrant contains antidilution provisions substantially similar
to those described above and the Company has piggyback and demand registration
rights for shares purchased pursuant to the BarOn Warrant.
The Company and BarOn have also revised their agreement, effective on
July 1, 1996, regarding the manufacture of the products of BarOn. The revised
agreement has a five year term and provides that the Company or a subsidiary of
the Company will manufacture all of BarOn's products on an exclusive basis at a
price established based on actual component costs plus labor charges, overhead
and an agreed upon profit margin. This price is consistent with prices charged
to unrelated customers of the Company for comparable manufacturing services. As
of the date of this Prospectus, the Company is not yet manufacturing products
for BarOn. See "Risk Factors - Working Capital Needs and Liquidity Problems."
Tri-Star Letter of Intent. On December 23, 1996, the Company's and the
Company's contract manufacturing subsidiary, Tanon, signed a letter of intent to
acquire Tri-Star Technologies, Inc. ("Tri-Star") and has placed an initial
deposit toward the purchase price of Tri-Star. The letter of intent is binding
on Tri-Star but subject to approval by the Board of Directors of the Company.
Tri-Star is a full-service contract manufacturer that fabricates PC boards,
designs and builds electronic prototypes, and assembles and tests a wide range
of products, including printed circuit boards. Tri-Star operates a
state-of-the-art 120,000 square foot facility in Methuen, Massachusetts. The
Company expects a closing on the acquisition to occur in the first half of 1997,
however, completion of the acquisition is subject to due diligence reviews by
Tanon and the Company, as well as execution of a definitive purchase agreement.
The Company will also need to raise additional capital to pay
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the cash portion of the purchase price for Tri-Star. Accordingly, no
assurance can be given that such acquisition will occur. See "Risk Factors -
Working Capital Needs and Liquidity Problems."
Resignations. Effective November 15, 1996, Joseph R. Spalliero resigned
as President and Director of the Company. Upon the expiration of Mr. Spalliero's
employment agreement on January 3, 1997, Mr. Spalliero became an independent
sales representative for Tanon. Irwin L. Gross, Chairman of the Board of the
Company, has succeeded Mr. Spalliero as the President of the Company. Effective
January 17, 1997, Bruce P. Murray resigned as a Director of the Company.
Effective January 27, 1997, David J. Reibstein resigned as a Director of the
Company.
Reverse Stock Split. On December 16, 1996, the Board of Directors of
the Company approved and declared a one-for-four reverse stock split of the
shares of Common Stock of the Company to be effective as of the close of
business on December 27, 1996 (the "Record Date"), such that each holder of
record on the Record Date was entitled to receive, as soon as practicable
thereafter, one (1) share of no par value Common Stock of the Company for every
four (4) shares of no par value Common Stock held by such person on the Record
Date (the "Reverse Stock Split").
Additional Borrowings. During the period beginning on October 25, 1996
and ending on January 22, 1997, the Company has borrowed a total of $3,520,000
from the Chairman of its Board of Directors, certain related trusts and an
unaffiliated investor. These loans are represented by certain 10% Series A
Convertible Notes (the "Tanon Notes") issued by Tanon. The Tanon Notes will
mature on January 22, 1999 and are convertible at the option of the holder (i)
after January 1, 1998, into shares of Common Stock of the Company at a
conversion price of $3.50 per share, or (ii) into shares of Common Stock of
Tanon after completion of an initial public offering of shares of Common Stock
of Tanon at a conversion price equal to the quotient of (a) twenty five million
dollars ($25 million), divided by (b) the number of shares of Common Stock of
Tanon that were issued and outstanding at the close of business on the day
immediately prior to the effective date of the registration statement covering
the shares of Common Stock of Tanon offered in such initial public offering,
without giving effect to the number of shares of Common Stock of Tanon being
offered in such initial public offering.
The Tanon Notes bear interest at the rate of 10% per annum, payable on
the first day of each calendar quarter beginning on January 1, 1998. Interest is
payable at the option of the holder in cash or stock of the Company or Tanon at
the conversion prices described above. Repayment of the Tanon Notes will be
secured by a second lien on the stock of Tanon held by the Company. The Company
has also agreed to use all proceeds from any sales of the shares of Aydin held
by the Company after repayment of the EAI Notes (discussed below) toward
repayment of the Tanon Notes.
In addition, during January 1997, the Company borrowed $1,000,000 from
each of two unrelated parties, Ace Foundation, Inc. ("Ace") and Millenco, LP
("Millenco"). These loans are represented by two Promissory Notes in the
principal amount of $1,000,000 each (the "EAI Notes") issued by the Company to
Ace and Millenco, respectively. The EAI Notes will mature on January 6, 1999
and January 17, 1998, respectively, and are not convertible into common stock of
either the Company or Tanon. The EAI Notes bear interest at the rate of 13.5%
per annum, payable on the first day of each month beginning as early as March 1,
1997. Repayment of the EAI Notes will be secured by a lien on the common stock
of Aydin held by the Company. In addition, the Company is negotiating with
William Spier, a Director of the Company, for Mr. Spier to loan the Company
$500,000 upon terms similar to the EAI Notes. Mr. Spier has indicated that he is
willing to make such loan, provided that the Company grant him a secondary lien
on the common stock of Aydin held by the Company as security for such loan and
that Ace and Millenco consent to such secondary lien. In consideration for the
loans represented by the EAI Notes, the Company also granted a warrant to
purchase 50,000 shares of Common Stock of the Company at an exercise price of
$1.50 per share to each of Ace Foundation, Inc. (the "Ace Warrant") and
Millenco, LP (the "Millenco Warrant"). Also, the Company has granted a warrant
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to purchase 50,000 shares of Common Stock of the Company at an exercise price of
$1.50 per share to Mr. Spier (the "Spier Warrant"), the exercisability of which
is conditioned upon Mr. Spier making the $500,000 loan to the Company discussed
above. This Prospectus relates to the shares underlying the Ace Warrant,
Millenco Warrant, Spier Warrant and Broad Warrant (hereinafter defined). The Ace
Warrant, Millenco Warrant, Spier Warrant and Broad Warrant are collectively
referred to herein as the "Warrants". See "Plan of Distribution and Selling
Securityholders."
(10)
<PAGE>
RISK FACTORS
In addition to the information set forth elsewhere in, and incorporated
by reference into, this Prospectus, the following factors should be considered
carefully in evaluating the Company and its business before purchasing the
Shares offered hereby.
Except for historical matters contained in this Prospectus, statements
made in this Prospectus, including, without limitation, statements relating to
financial projections, operating losses, cash flow requirements, additional
capital needs, and current litigation contained in the following risk factors,
are forward-looking statements and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that these forward-looking statements reflect numerous assumptions
and involve risks and uncertainties which may cause actual results to differ
materially from these forward-looking statements, including loss of current
customers, reduction in orders from current customers, or delays in ordering by
current customers, failure to obtain anticipated contracts or orders from new
customers, or expected order volume from such customers, failure to obtain
financing, higher material or labor costs than anticipated, unfavorable results
in litigation against the Company, failure to consummate the acquisition of
Tri-Star, economic, competitive, technological, governmental, and the other
factors discussed in the following risk factors and in the Company's filings
with the Commission, including but not limited to, its Annual Report on Form
10-K for the year ended December 31, 1995, Proxy Statement dated April 29, 1996,
and Quarterly Reports on Form 10-Q for the quarterly periods ended March 30,
1996, June 29, 1996, and September 28, 1996, as amended, respectively.
Absence of Profitable Operations
The Company has not had a profitable year since 1990. Although the
Company has eliminated certain operations and reduced certain expenses in an
attempt to improve its operating results, there can be no assurance that the
Company's results of operations will improve or that the Company will be
profitable in the future.
History of Losses
The Company has incurred significant losses in each of the last five
years and for the nine-month period ended September 28, 1996, aggregating to
approximately $54.8 million. The Company's accumulated deficit was approximately
$58.4 million as of September 28, 1996. In addition, the Company had negative
cash flows from continuing operations in each of the last five years and for the
nine-month period ended September 28, 1996. Based upon its current estimates of
its results of operations, the Company believes that such losses and negative
cash flows continued during the quarter ended December 31, 1996.
Delisting of the Company's Common Stock from Trading on the New York Stock
Exchange
Although the Company's Common Stock is currently listed and trading on
the NYSE, currently and since September 11, 1991, the Company has not been in
compliance with one or more of the criteria necessary for continued listing on
the NYSE. The Company and the NYSE have had discussions with respect to this
issue. As of the date of this Prospectus, the Company believes that it is in
compliance with all of the NYSE's continued listing criteria, with the exception
of the minimum net tangible assets available to Common Stock of $8,000,000 and
minimum average earnings of $600,000 for each of the last three fiscal years. To
the Company's knowledge, as of the date hereof, the NYSE has not taken any
affirmative action to delist the Common Stock, but, as it has each time it has
authorized the listing of additional shares on the NYSE, it stated in letters
dated March 29, 1995, March 14, 1996, August 29, 1996, December 16, 1996 and
December 27, 1996 approving the listing of additional shares of Common Stock,
that consideration is being given to the
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appropriateness of continued listing of the Company's Common Stock. Management
of the Company met with representatives of the NYSE on March 6, 1996 to discuss
this matter and the Company's financial plan for 1996, after which the NYSE
indicated in its letter dated March 14, 1996 that the Company's financial
results for the first quarter of 1996 will be reviewed and measured against such
plan. Management of the Company met again with representatives of the NYSE on
July 31, 1996 to discuss the Company's results of operations for the first
quarter ended March 30, 1996 and the Company's future plans, with no further
changes or developments resulting from such meeting. If the Company's Common
Stock is delisted from the NYSE, it could have a material adverse effect on the
price and liquidity of the Company's Common Stock and the Company's ability to
raise capital from the sale of equity.
In the event that the Company's Common Stock is delisted from the NYSE,
it could seek to list its Common Stock on the National Association of Securities
Dealers Inc.'s Automated Quotation System ("NASDAQ") or on another exchange.
Although the Company believes that it is currently eligible for listing on the
NASDAQ Small-Cap Market System (but not on the NASDAQ National Market System),
there can be no assurance that the Company would be eligible for listing its
Common Stock on NASDAQ or any exchange at such time. If the Company would be
ineligible to list its Common Stock on NASDAQ or any other exchange at such
time, there would be no established trading market for the Company's Common
Stock except as may be established in the National Association of Securities
Dealers Inc.'s OTC Bulletin Board Service or in the "pink sheets," which could
have a material adverse effect on the price and liquidity of the Company's
Common Stock. In addition, the Company's Common Stock could then become subject
to the Commission's "penny stock" rules which regulate broker-dealer sales
practices. Such rules could restrict the ability of broker-dealers to sell the
Company's Common Stock, which could also have a material adverse effect on the
price and liquidity of the Company's Common Stock.
Working Capital Needs and Liquidity Problems
As described above, the Company has incurred significant losses and had
negative cash flows from operations in each of the last five years and in the
nine months ended September 28, 1996. Based upon its current estimates of its
results of operations, the Company believes that such losses and negative cash
flows continued during the quarter ended December 31, 1996. In order to continue
operations, the Company has had to raise additional capital to offset cash
utilized in operating and investing activities. The Company raised approximately
$33,200,000 and $14,920,000 during 1995 and January 1, 1996 through January 31,
1997, respectively, from the issuance of Common Stock, the exercise of stock
options and warrants, borrowings secured by the shares of Aydin owned by the
Company, and the sale of convertible notes and debentures. Among such capital
raising activities, in December 1995, the Company completed the sale of 7%
convertible subordinated notes of the Company in the aggregate principal amount
of $10,000,000 to GFL Performance Fund Limited ("GFL Performance Fund") and GFL
Advantage Fund Limited ("GFL Advantage Fund"). As of November 12, 1996,
$7,930,000 principal amount of such notes had been converted into 2,595,881
shares of the Company's Common Stock in accordance with their terms. On August
19, 1996, GFL Performance Fund Limited transferred and assigned its $1,025,000
outstanding principal amount note of the Company to an unrelated third party,
who thereafter converted such note. Also, on August 19, 1996, GFL Advantage Fund
transferred and assigned its $2,070,000 outstanding principal amount note of the
Company to the Note Holders, including Irwin L. Gross, Chairman of the Company
and certain trusts for his daughters' benefit. In connection with such
assignment, the Company cancelled the prior note held by GFL Advantage Fund and
reissued certain Convertible Notes of the Company in the aggregate principal
amount of $2,070,000 due December 29, 1997 (the "Original Convertible Notes") to
the Note Holders. These Original Convertible Notes had a maturity date of
December 29, 1997 and were convertible into shares of the Company's Common Stock
at the fixed conversion price per share of $2.67. On January 22, 1997, the
Company amended the Original Convertible Notes by (i) increasing the aggregate
principal amount of such Original Convertible Notes to $2,725,000 (the purchase
price paid by the Note Holders for the Original Convertible Notes) and
(ii) reducing the fixed conversion price of such Original Convertible
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Notes to $1.50 per share, in return for the Note Holders foregoing interest,
making available certain other loans to the Company and foregoing the right to
receive the 245,319 shares of Common Stock that were to have been issued if such
Original Convertible Notes were converted by December 31, 1996 (such Original
Convertible Notes as so amended are herein referred to as the "Convertible
Notes"). This Prospectus relates to the underlying Shares of Common Stock of the
Company into which such Convertible Notes, as so amended, are convertible. See
"Plan of Distribution and Selling Security Holders." As a result of the
assignments of the subordinated convertible notes referred to above, neither GFL
Performance Fund nor GFL Advantage Fund owns any securities of the Company as of
the date hereof.
In May and June 1996, the Company raised the $8,100,000 referred to
above from the sale of the Convertible Debentures which was used in part, in
purchasing 596,927 outstanding shares of common stock of Aydin. This Prospectus
also relates to the underlying Shares of Common Stock of the Company into which
such Convertible Debentures are convertible. See "The Company - Recent
Developments."
On May 3, 1996, Tanon replaced the Company's existing asset based
credit facility and the Tanon separate revolving line of credit with a new asset
based facility provided by Schroder to Tanon. See "The Company - Recent
Developments."
The Company's financial projections indicate that operating losses and
negative cash flows will continue during the remainder of 1996 and the first
half of 1997. The purchase of the Aydin common stock, the BarOn Loan Agreement
and the EATI Loan discussed under the heading "The Company - Recent
Developments" of this Prospectus have resulted in the need to raise additional
capital. In addition, the Company's contract manufacturing operations conducted
through Tanon require additional working capital as a result of delaying the
shipments of orders at the requests of customers, operating losses by Tanon and
capital expenditures by Tanon. During the period beginning on October 25, 1996
and ending on January 22, 1997, the Company has borrowed a total of $3,520,000
from the Chairman of its Board of Directors, certain related trusts and an
unaffiliated investor through the issuance of the Tanon Notes by Tanon. In
addition, during January 1997, the Company borrowed a total of $2,000,000 from
unrelated parties. See "The Company - Recent Developments - Additional
Borrowings." Such borrowings have been and will be used to fund a portion of the
aggregate amount required to fund its holding company expenses, make advances to
BarOn under the BarOn Loan Agreement, pay costs incurred in connection with the
terminated merger discussions with Aydin, and provide additional working capital
to Tanon. Further, the Company will need to raise additional capital during 1997
to fund the future holding company expenses and complete the purchase of
Tri-Star. At the date hereof, the Company does not have any commitments,
understandings or agreements for such additional capital, and accordingly, there
can be no assurance that the Company will be successful in obtaining such funds.
Failure to obtain such additional capital could have a material adverse effect
on the financial condition and operations of the Company.
The Company's projections with respect to cash needs are based on its
forecasts of the results of operations at Tanon and expenses of EAI. If the
Company's financing efforts are unsuccessful or results of operations at Tanon
are significantly below forecasts, this would raise doubts about the Company's
ability to continue its operations without a significant financial
restructuring, which would include a major reduction in general and
administrative expenses and liquidation of assets other than those in the core
business of contract electronic manufacturing. There can be no assurance that
such restructuring would enable the Company to continue its operations.
BarOn has incurred significant losses and had negative cash flows from
operations since inception. BarOn's financial projections indicate that
operating losses and negative cash flows will continue through the remainder of
1997. BarOn is currently seeking additional financing to fund its ongoing
operations and has indicated that it may sell the 95,694 shares of Common Stock
of the Company that are currently held by BarOn to satisfy a portion of such
financing needs. The Company has ceased making advances under the BarOn
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Loan Agreement and has informed BarOn that it will not make any further major
advances until BarOn has implemented a financing plan that is satisfactory to
the Company. Failure to sell the shares of the Company held by BarOn and to
obtain additional financing would have a material adverse effect on BarOn and
could result in the loss of the Company's investment in BarOn.
The remaining unexercised Class A and Class B warrants issued in
February 1994, if exercised, could provide the Company with additional capital
of approximately $1,700,000. To date, Class A and Class B warrants to purchase
2,202,977 shares have been exercised and the Company has received $1,584,121 in
proceeds. In addition, in February 1996, the Company received unsecured
promissory notes in the aggregate principal amount of $1,096,000 as payment for
the exercise of Class A and Class B warrants to purchase 796,084 shares of
Common Stock. These promissory notes bear interest at the rate of 7% per annum
and are due on or before February 14, 1997. The remaining outstanding balance on
these promissory notes was approximately $220,000 as of February 11, 1997. No
assurance can be given that the remaining unexercised warrants will be exercised
or that such promissory notes will be paid in full.
Limitations on Dividend Payments
The Company has not had a profitable year since 1990 and there have
been no cash dividends declared since 1956 and no stock dividends declared since
1966. If the Company were to become profitable, it would expect that all of such
earnings would be retained to support the business of the Company. Accordingly,
the Company does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. Moreover, certain financial covenants set forth in the
Company's current loan agreement prohibit the Company from paying cash
dividends.
Dependence on a Limited Number of Customers and the Electronics Industry
Substantially all of the Company's net sales during the year ended
December 31, 1996 were derived from customers which were also customers of the
Company or Tanon during 1995. In 1995, the customers which accounted for more
than 10% of the Company's sales from continuing operations were Advanced Fibre
Communications, Inc., Ungerman Bass, Inc. and Dialogic Corporation, which
accounted for 23%, 14%, and 13% of sales, respectively. In 1995, the Company
initiated a disengagement from providing further services to a significant
customer, which disengagement process has been completed as of the date of this
Prospectus. As a result, sales to the customer were less than 10% of Company
sales in 1996 and no further sales are being made to such customer. The loss of
revenue from the customer has been offset by the Company's ability to expand
services to other customers and by attracting new customers. Currently, the
Company remains dependent upon its large customers. The loss of one or more of
these customers could have a material adverse effect on operations. Since
customer contracts can be cancelled and purchase levels can be changed or
purchases delayed at any time, the timely replacement of cancelled, delayed or
reduced contracts with new orders cannot be assured. In addition, substantially
all of the Company's customers are in the computer, telecommunications and
electronics industries which are each subject to rapid technological changes.
Such technological changes could have a material adverse effect on the Company's
major customers which, in turn, could have a material adverse effect on the
Company's results of operations.
Availability of Raw Materials
The Company relies on third-party suppliers for components which it
uses in its assembly processes. At various times in the electronics industry
there have been shortages of these kinds of components. While management
believes that these shortages have not impacted significantly its performance in
the past, if shortages should occur in the future, the Company may be forced to
delay manufacturing and shipments, which could have a material adverse effect on
the Company's results of operations.
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Competition
The Company competes with numerous domestic and offshore contract
manufacturers as well as the in-house manufacturing capabilities of certain of
its existing and potential customers. Some of the Company's competitors have
substantially greater manufacturing, financial and marketing resources than the
Company. The Company believes that the significant competitive factors in
contract manufacturing are technology, quality, service, price and ability to
deliver finished products on a timely and reliable basis. The Company's
inability to compete effectively in any of these areas could have a material
adverse effect on the Company's business.
Environmental Compliance and Current Litigation
The Company is subject to a variety of environmental regulations
relating to the use, storage, discharge and disposal of hazardous chemicals used
during its manufacturing process. Any failure by the Company to comply with
present and future regulations could restrict the Company's ability to expand
its facilities or require the Company to acquire costly equipment or to incur
other expenses to comply with environmental regulations, or incur fines and
penalties.
In addition, there are two lawsuits presently pending which involve
environmental claims against EAI, namely, the Lemco Associates lawsuit and the
Bridgeport Rental and Oil Services Superfund Site lawsuit. In October, 1992,
Lemco Associates L.P., a limited partnership ("Lemco"), the owner of property
previously owned by EAI, initiated an action against EAI and others alleging,
among other things, that the defendants created environmental contamination at
the property and is seeking damages in unspecified amounts. EAI has denied
Lemco's allegations, asserted numerous defenses to the claims asserted and
asserted a counterclaim against Lemco and cross claims against co-defendants and
others for indemnification and contribution. In addition, the Company has made a
demand upon its insurance carriers for coverage for the claims made by Lemco and
cross claims and third party claims may be filed against these insurance
companies seeking indemnification against these claims. To date, the Company's
insurance carriers have agreed to pay 71% of its defense costs under a
reservation of rights. Discovery in this matter is ongoing. By letter dated
January 22, 1997, Lemco provided the Company with a statement of its remediation
costs to date, as well as an estimate of future remediation costs associated
with the contamination for which it seeks recovery in this action. Specifically,
Lemco claims that it has expended approximately $609,000 in remediation costs,
including fees for legal oversight and consultation. It further estimates that
its future remediation costs will amount to approximately $5,000,000. Such
amount is included in a report made by Lemco's environmental consultants based
on their current assessment of the extent of contamination and the method and
period required to complete the remediation, as well as anticipated New Jersey
Department of Environmental Protection and Energy ("DEPE") oversight costs and
fees for legal oversight and consultation. Further, by letter dated June 7,
1995, Lemco provided the Company with an appraisal report made by a real estate
appraisal company engaged by Lemco in support of Lemco's claim for diminution in
the value of the property. Such report states that it is the appraisal company's
opinion that the market value of the property as of May 23, 1988 was $3.6
million and as of April 14, 1995 was $750,000. Lemco's appraisal expert
subsequently determined in October 1995 that the value of the property as of
April 14, 1995 was $960,000. Lemco purchased the property in question in 1979
for approximately $400,000. Lemco's environmental consultants have recently
issued a new report indicating that, based upon further hydrogeologic data, the
contamination occurred before 1979. The Company's experts have estimated that,
based upon hydrogeologic data gathered to date by Lemco's experts, the major
source of continuing contamination of groundwater was released into the water
table about late 1984 or, using more conservative extrapolations, about
mid-1979. Based on the foregoing, management believes that the range of possible
loss in this matter ranges from zero to approximately $8.24 million, not
including costs and expenses, such as legal and expert fees, which will be
incurred in connection with this matter, and not taking into account the amount
of any loss which may be offset by insurance coverage as discussed above. The
Company and its consultants recently completed the investigation
(15)
<PAGE>
and evaluation of additional information received from Lemco and have determined
that Lemco's remediation cost estimates are overstated. The Company's experts
have estimated the cost of remediation as between $1.5 million and $2.5 million.
There is no assurance that the outcome of this matter will come within the
above-mentioned range of possible loss.
The Company is vigorously defending this matter. On May 3, 1996, the
Superior Court of New Jersey referred this case to mediation in an effort to
explore opportunities for settlement. Mediation proceedings have commenced and
are expected to continue through March 1997. In the event the matter cannot be
resolved through mediation, the case will be referred back to the Court and a
trial has been scheduled to commence on April 28, 1997.
The second matter involves environmental claims against EAI and others
regarding the Bridgeport Rental and Oil Services Superfund Site in Logan
Township, New Jersey (the "B.R.O.S. Site"). By letter dated August 31, 1988, the
United States Environmental Protection Agency ("EPA") notified EAI that the EPA
had identified EAI as one of the parties potentially responsible for clean up
costs at, and for any other possible damages in connection with, the B.R.O.S.
Site. EAI's alleged connection to the B.R.O.S. Site is through Rollins
Environmental Services, Inc. ("Rollins") which is a waste transporter that was
allegedly hired by EAI to transport certain waste material alleged to be
hazardous from EAI's operations for appropriate disposal. Information in the
EPA's files suggests that the EPA is likely to assert that one shipment of waste
allegedly generated by EAI and presumed to constitute less than one quarter of
one percent of the total liquid waste allegedly released at the B.R.O.S. Site,
was delivered to the B.R.O.S. Site in 1973 by Rollins. On March 29, 1989, DEPE
issued an administrative directive under New Jersey's Spill Compensation and
Control Act to over one hundred companies, including EAI, demanding payment by
May 15, 1989 of $9,224,189 as DEPE's share of remedial costs at the B.R.O.S.
Site. By letter dated August 29, 1989, and by similar letters to fifty-seven
other alleged waste generators, or transporters of waste allegedly released at
the B.R.O.S. Site, the EPA demanded that the targeted companies, individually or
jointly, pay to the "EPA Hazardous Substances Trust Fund" the sum of $17.8
million by September 29, 1989 in full reimbursement of past costs incurred by
the EPA in connection with the B.R.O.S. Site. The EPA estimated at that time
that the costs of the remaining remedial work will be in the range of $70 -$100
million. On May 15, 1989, a group of companies among those which had received
demands from DEPE, including EAI, without admitting liability, made a "good
faith" payment of $1,344,500 in response to DEPE's directive demanding payment
of $9,224,189. EAI's share of this payment was $5,000. On September 29, 1989,
a group of companies, including EAI, targeted by the EPA responded to the EPA's
demand letter for past costs of $17.8 million by declining to make any payments
at that time and by offering to negotiate a settlement of the EPA's claims.
Litigation has been initiated in the federal courts with respect to the
remediation alleged to be required at the B.R.O.S. Site. EAI is not a party to
this litigation but is participating in informal discovery and settlement
negotiations with respect to the federal court actions without admitting
liability. As of the date of this Prospectus, Rollins and the other defendants
have negotiated a settlement in principle with the governmental plaintiffs and a
consent decree was filed and approved by the court on January 17, 1997. Rollins
has agreed in principle to make payments pursuant to the expected consent decree
on behalf of EAI, and to include the claims against EAI in the release from the
government entities. EAI has also pursued insurance coverage for the B.R.O.S.
claims. To date, one carrier has responded, has agreed to pay one-third of EAI's
defense costs and has otherwise reserved rights. The other carrier to which EAI
has submitted the B.R.O.S. claims has denied coverage on grounds that EAI
believes are without merit under New Jersey law. This insurance company advised
EAI that it has no information at this time that would support EAI's claim of
coverage under any of the policies issued by it to EAI. EAI has asked for
reconsideration of its position and is awaiting a response. Based upon the
foregoing, management believes that the only remaining liability of EAI with
respect to the B.R.O.S. claims after the above-referenced settlements are
effectuated will be for costs and expenses incurred in connection with this
matter not paid by Rollins as discussed above, which are not expected to be
material and do not take into account the amount of any such costs and expenses
which may be offset by insurance
(16)
<PAGE>
coverage as discussed above, however, no assurance can be given as to the
outcome of this matter until such settlements are effectuated.
Dependence on Key Executives
The Company is continually assessing and evaluating its management
team. The Company is and will continue to be dependent upon the ability and
experience of its executive officers. There can be no assurance that the Company
will be able to retain experienced management. If, for any reason, the Company
is unable to retain such management, the Company's operations could be adversely
affected.
Possible Volatility of Stock Price
The trading price of the Company's Common Stock could be subject to
significant fluctuations in response to variations in quarterly operating
results, general conditions in the electronics industry, general conditions in
the economy and other factors, including the relatively small number of shares
held publicly.
Limitation of Net Operating Loss Carryforward
An annual limitation of approximately $4.9 million on the ability to
utilize a portion of the Company's net operating loss carryforwards, which
amounted to approximately $33.6 million as of December 31, 1995, has resulted
from stock ownership changes exceeding certain thresholds as defined in Section
382 of the Internal Revenue Code of 1986 (the "Code"). Further limitations may
occur if additional stock ownership changes occur which exceed certain
thresholds as defined by Section 382 of the Code.
Future Sales of Common Stock
At January 31, 1997, the Company had approximately 7,499,393 shares of
Common Stock outstanding. Of these shares, approximately 325,204 shares are
"restricted" or "affiliate" securities, as such terms are defined in the
Securities Act, which are not covered by currently effective registration
statements and may not be sold in the absence of registration under the
Securities Act or an exemption therefrom, including the exemption contained in
Rule 144 of the Securities Act. To the Company's knowledge, none of the
Company's "restricted" or "affiliate" securities outstanding as of January 17,
1997 are currently for sale in the public in reliance upon Rule 144. The Company
has granted certain holders of "restricted" or "affiliate" shares of Common
Stock rights which enable such holders to require the Company to register shares
of Common Stock held by them. Currently, in addition to the Shares offered under
this Prospectus, the Company has effective registration statements on file with
the Commission relating to the offer for sale of an aggregate of 3,353,644
shares of Common Stock of the Company by certain stockholders, option holders,
warrant holders, and convertible debenture or note holders, which shares are
held or may be acquired by such securityholders upon exercise of certain
options, warrants and convertible debentures or notes held by such
securityholders. As of the date of this Prospectus, a substantial number of the
shares included in such effective registration statements have been sold by the
named securityholders, however, a number of such shares remain to be sold.
As of January 31, 1997, the Company has granted to employees and others
options to purchase up to approximately 1,805,609 shares of Common Stock in
addition to the options mentioned in the immediately preceding paragraph, all of
which are also covered by currently effective registration statements. The
Company has also issued warrants which are exercisable for an aggregate of
approximately 1,133,070 shares of the Company's Common Stock and which contain
certain registration rights for the underlying shares. Of such warrants, 498,277
shares are included in the currently effective registration statements of the
Company referred to in the immediately preceding paragraph and 239,286 Shares
underlying the Warrants are offered under this Prospectus. In addition to the
"restricted" or "affiliate" shares and registered shares referred to above, in
(17)
<PAGE>
offerings exempt from the registration provisions under the Securities Act,
(i) on April 14, 1995, the Company completed the sale of 540,712 shares of
Common Stock, after adjustment; (ii) on July 21, 1995, the Company completed the
sale of 416,667 shares of Common Stock; (iii) on September 19, 1995, the Company
completed the sale of convertible debentures in the principal amount of
$3,150,000, which debentures were subsequently converted into 700,000 shares of
Common Stock; (iv) on October 2, 1995, the Company completed the sale of
convertible debentures in the principal amount of $450,000, which debentures
were subsequently converted into 100,000 shares of Common Stock; and (v) on
August 3, 1995, the Company sold 1,517,614 shares of its Common Stock, after
adjustment.
During the period beginning on October 25, 1996 and ending on January
22, 1997, the Company borrowed a total of $3,520,000 through the issuance of the
Tanon Notes by Tanon. The Tanon Notes will mature on January 22, 1999 and are
convertible at the option of the holders (i) after January 1, 1998, into shares
of Common Stock of the Company at a conversion price of $3.50 per share, or
(ii) into shares of Common Stock of Tanon after completion of an initial public
offering of shares of Common Stock of Tanon at a conversion price equal to the
quotient of (a) twenty five million dollars ($25 million), divided by (b) the
number of shares of Common Stock of Tanon that were issued and outstanding at
the close of business on the day immediately prior to the effective date of the
registration statement covering the shares of Common Stock of Tanon offered in
such initial public offering, without giving effect to the number of shares of
Common Stock of Tanon being offered in such initial public offering. Such Tanon
Notes also contain certain registration rights for the underlying shares of
Common Stock of the Company or common stock of Tanon, as the case may be.
Possible or actual sales made under Rule 144, or pursuant to exemptions
under the Securities Act, or pursuant to registration rights, of the
aforementioned shares of Common Stock or shares of Common Stock issued upon the
exercise of the aforementioned stock options or warrants, or upon conversion of
the aforementioned convertible notes and debentures, including without
limitation, the Shares issuable upon conversion of the Convertible Notes and
Convertible Debentures and exercise of the Warrant, may have a material adverse
effect upon the market price of the Company's Common Stock. Further, the
Convertible Notes and, assuming the amendment to the conversion price of each of
the Convertible Debentures becomes effective, the Convertible Debentures are
convertible into shares of Common Stock at a conversion price which is
significantly less that the current market price of the Company's Common Stock,
which may also have a material adverse effect on the market price of the
Company's Common Stock prior to conversion.
Control by Board of Directors
As of January 31, 1997, all officers and directors of the Company as a
group beneficially owned approximately 726,081 shares or 8.9% of the
outstanding Common Stock or options or warrants exercisable for Common Stock, or
convertible debentures or notes which are convertible into Common Stock,
assuming the exercise of presently exercisable options and warrants, and
conversion of presently convertible debentures and notes held by such persons.
Consequently, the Board of Directors can and will be able to continue to
exercise significant influence over the Company and its affairs. Such shares do
not include the 1,706,667 shares of Common Stock held by, or which may be
acquired upon conversion of the Convertible Notes held by, certain trusts formed
for the benefit of the Chairman's minor children, to which the Chairman
disclaims beneficial ownership.
Possible Issuances of Preferred Stock
Shares of Preferred Stock of the Company may be issued by the Board of
Directors of the Company, without shareholder approval, on such terms as the
Board of Directors may determine. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. Moreover, although the
ability to issue Preferred Stock may provide flexibility in connection with
possible acquisitions and other corporate purposes, such issuance may make
(18)
<PAGE>
it more difficult for a third party to acquire, or may discourage a third party
from acquiring, control of the Company. The Company has no outstanding Preferred
Stock.
Provisions with Possible Anti-Takeover Effect
The New Jersey Business Corporation Act ("NJBCA") provides that in
determining whether a proposal or offer to acquire a corporation is in the best
interests of the corporation, the corporation's board of directors may, in
addition to considering the effects of any action on shareholders, consider any
of the following: (a) the effects of the proposed action on the corporation's
employees, suppliers, creditors and customers, (b) the effects on the community
in which the corporation operates and (c) the long-term as well as short-term
interests of the corporation and its shareholders, including the possibility
that these interests may best be served by the continued independence of the
corporation and if, based on these factors, the board of directors determines
that any such offer is not in the best interest of the corporation, it may
reject the offer. The New Jersey Shareholders Protection Act (the "Protection
Act"), prohibits a publicly held New Jersey corporation with its principal
executive office and significant business operations in New Jersey from engaging
in any business combination with an "Interested Shareholder" (defined generally
as a beneficial owner of 10% or more of the outstanding voting stock) for a
period of five years from the date the Interested Shareholder became an
Interested Shareholder, unless such transaction is approved by the board of
directors prior to the date the shareholder became an Interested Shareholder. In
addition, the Protection Act prohibits any business combination at any time with
an Interested Shareholder other than a transaction that (i) is approved by the
board of directors for the applicable company prior to the date the Interested
Shareholder became an Interested Shareholder; or (ii) is approved by the
affirmative vote of the holders of two-thirds of the voting stock not
beneficially owned by the Interested Shareholder at a meeting called for that
purpose; or (iii) satisfies certain stringent price and terms criteria.
The Company's Certificate of Incorporation and By-Laws provide that the
Board of Directors of the Company shall be divided into three classes, each of
which serves for a three year term, with one class standing for election every
year. As a result, it ordinarily requires two annual meeting cycles and more
than one year for stockholders holding a majority of the shares to elect a
majority of the Board.
The Company has also adopted a Shareowners Rights Plan, pursuant to
which it has granted to shareholders one Preferred Stock Purchase Right for each
outstanding share of Common Stock. Under certain conditions, each Right entitles
shareholders to purchase one 1/100th of a share of Series A Junior Participating
Preferred Stock of the Company at an exercise price of $11.00, which Rights
expire in 1998. The Rights are exercisable only if a person or group acquires
15% or more of EAI's outstanding Common Stock (except in a transaction directly
with the Company which the Board determines is in the best interests of
shareowners) or commences a tender offer the consummation of which would result
in ownership by a person or group of 15% or more of the Common Stock. In the
event a person or group acquires 15% or more of EAI's outstanding Common Stock
(except in a transaction directly with the Company which the Board determines is
in the best interest of shareowners) each Right will entitle all other holders
to receive, upon exercise, EAI Common Stock with a value of twice the exercise
price. In addition, at any time after a 15% position is acquired, the Board of
Directors may, at its option, require each outstanding Right to be exchanged for
one share of Common Stock. Further, if EAI is acquired in a merger or other
business combination transaction after the Rights become exercisable, each Right
will entitle its holder to purchase, at the Right's then-current exercise price,
a number of the acquiring company's common shares having a value at that time of
twice the Right's exercise price.
These provisions of New Jersey law, the Company's Certificate of
Incorporation and By-Laws, and Preferred Stock Purchase Rights Plan could delay
or impede the removal of incumbent directors and could make a merger, tender
offer or proxy contest involving the Company more difficult, even if such event
could be beneficial to the interests of the stockholders. Such provisions could
limit the price that certain investors might be willing to pay in the future for
the Company's Common Stock.
(19)
<PAGE>
USE OF PROCEEDS
The Company will not receive any portion of the proceeds of the resale
of the Shares by the Selling Securityholders. However, $7,039,000 of liabilities
of the Company as of the date of this Prospectus would be converted to equity
upon the conversion of the Convertible Debentures and Convertible Notes into
Shares of Common Stock of the Company as provided in accordance with the terms
thereof, as amended, assuming the conversion in full thereof. Further, the
Company would receive proceeds from the exercise of the Warrants. As of the date
of this Prospectus, none of the Debenture Holders or Note Holders has converted
his or her respective Convertible Debentures or Convertible Notes, nor have the
Warrant Holders exercised any portion of the Warrants. There can be no assurance
that any or all of the Convertible Debentures or Convertible Notes will be
converted or that any or all of the Warrants will be exercised.
(20)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated financial data
of the Company for the nine-month periods ended September 28, 1996 and September
30, 1995 and for each of the years in the five-year period ended December 31,
1995. The selected historical consolidated financial data for each of the years
ended December 31, 1991 through 1995 presented below were derived from the
consolidated financial statements of the Company, which were audited by Arthur
Andersen LLP, independent public accountants. The financial data of the Company
for the nine-month periods ended September 28, 1996 and September 30, 1995 were
derived from the unaudited consolidated condensed financial statements of the
Company. The results for the nine-month periods ended September 28, 1996 and
September 30, 1995 are not necessarily indicative of results for the full year
or any future period. Historical information for the nine months ended September
28, 1996 and September 30, 1995 and at September 28, 1996 reflects, in the
opinion of management, all adjustments (consisting only of nominal recurring
adjustments) necessary to present fairly the results for the interim periods.
This data should be read in conjunction with the Company's financial statements
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated by reference in the Company's Form 10-K filed for the
year ended December 31, 1995 and Forms 10-Q filed for each of the quarters ended
March 30, 1996, June 29, 1996 and September 28, 1996, respectively.
No adjustment to the financial data has been made to reflect any
adjustments that might result from a possible restructuring discussed in "Risk
Factors - Working Capital Needs and Liquidity Problems."
<TABLE>
<CAPTION>
(in thousands, except share data and certain other data)
Nine-Month Period Ended
September 28 September 30 Year Ended December 31,
------------------------------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Unaudited Unaudited
Operating Results: (Note 1)
Sales from Continuing
Operations $ 64,008 $56,128 $77,085 $30,539 $26,024 $22,248 $22,933
Purchased Research and
Development $ 959 19,546 19,546 -- -- -- --
Provision for
Restructuring __ __ __ 2,400 __ 285 --
Loss from Continuing
Operations Before Taxes $ ( 6,894) (25,395) (30,894) (4,784) (5,348) (3,524) (6,811)
Loss from Continuing
Operations $ (6,894) (25,395) (30,894) (4,784) (4,664) (3,189) (5,227)
Income from Discontinued
Operations $ -- -- __ -- 1,327 651 1,531
Net Income (Loss) $ (9,566) (26,871) (30,894) (4,784) (3,337) (2,538) (3,696)
Income (Loss) per
Common Share:
Continuing Operations $ (0.52) (2.35) (2.50) (.95) (1.76) (1.22) (2.02)
Discontinued Operations $ -- -- __ -- .50 .25 .59
Net Income (Loss) $ (0.52) (2.35) (2.50) (.95) (1.26) (.97) (1.43)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data:
Current Assets $ 34,412 -- 44,514 16,969 7,355 14,547 12,267
Current Liabilities $ 27,806 -- 25,938 12,603 8,614 11,594 5,019
Working Capital $ 6,606 -- 18,576 4,366 (1,259) 2,953 7,248
Net Property and
Equipment $ 11,313 -- 8,071 2,719 3,603 4,344 2,351
Total Assets $ 64,091 -- 66,625 22,845 12,762 19,836 14,805
Long-Term portion of
capital lease obligations $ 3,381 -- 1,731 690 1,820 1,678 605
Shareholders' Equity
(Deficit) $ 16,012 -- 19,390 7,244 (546) 2,776 5,137
Common Shares
Outstanding 20,739 -- 15,827 8,108 2,661 2,646 2,588
Book Value per
Common Share $ 0.77 -- 1.21 .89 (.21) 1.05 1.99
- ------------------------------------------------------------------------------------------------------------------------------------
Other Data:
Number of Shareholders
of Record 4,160 -- 4,254 4,447 4,600 4,718 4,877
Number of Employees 515 -- 514 334 315 458 368
Orders Received $ 55,448 -- 105,150 30,326 18,805 31,592 20,064
Sales Backlog at End of
Period $ 38,745 -- 47,305 19,240 19,453 26,676 17,260
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note (1): 1995 amounts include the results of Tanon Manufacturing, Inc.
from the date of the Tanon Acquisition (January 4, 1995), EAI's
equity in the results of BarOn Technologies Ltd. from the date of the
BarOn Investment (January 16, 1995), and EAI's equity in the results
of the Joint Venture with Israel Aircraft Industries, Ltd. from the
date of formation (August 8, 1995).
(21)
<PAGE>
PLAN OF DISTRIBUTION AND
SELLING SECURITYHOLDERS
The Shares will be offered by the Selling Securityholders or their
donees, pledgees, transferees or other successors in interest for resale by this
Prospectus from time to time after the date hereof in one or more transactions
on the NYSE, in negotiated transactions, or private transactions, or otherwise,
or a combination of such methods of sale, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Selling Securityholders may effect such transactions by
selling the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of underwriting discounts, concessions or
commissions (which compensation may be in excess of customary commissions). The
following table sets forth as of January 31, 1997 (a) the name of each Selling
Securityholder, (b) the nature of any position, office or other material
relationship which the Selling Securityholder has had within the past three
years with the Company, (c) the number of Shares owned prior to the offering,
(d) the number of Shares to be offered for the Selling Securityholder's account,
(e) the number of Shares to be owned by the Selling Securityholder after
completion of the offering, and (f) the percentage of Common Stock to be owned
by the Selling Securityholder after completion of the offering.
<TABLE>
<CAPTION>
Percentage of
Number of Common
Relation- Number of Shares Shares Owned Stock Owned
Name of Selling ship to Owned Prior to Number of Shares After After
Securityholder Company(1) Offering(10) Offered(10)(11) Offering(10) Offering(2)
- --------------- ---------- ---------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Laura Huberfeld & 426,473(7) 100,000(3) 326,473 4.3%
Naomi Bodner
Partnership
Robert Cohen 100,000 100,000(3) -0- -0-
Lenore Katz 16,667 16,667(3) -0- -0-
Kids Associates 26,667 26,667(3) -0- -0-
Chanie Lerner 67,667 66,667(3) 1,000 less than 1%
Millenco, LP 1,383,333 1,383,333(3)(8) -0- -0-
CMR Associates,
L.L.C. 140,000 140,000(3) -0- -0-
Arrasy Corp. 483,333 483,333 -0- -0-
Fargher Trading, Ltd. 483,333 483,333 -0- -0-
Kinley Consultants 126,000 126,000 -0- -0-
Limited
Elizabeth Gross Trust 853,334 833,334(4) 20,000 less than 1%
A U/T/A of Irwin
Gross Trust dated
3/20/90
Gabrielle Gross Trust 853,334 833,334(4) 20,000 less than 1%
B U/T/A of Irwin
Gross Trust dated
3/20/90
Irwin L. Gross Chairman 587,459(5) 150,000(4) 412,375 5.5%
Broad Capital 515,759(7) 89,286(6) 426,473 5.6%
Associates, Inc.
Ace Foundation, Inc. 50,000 50,000(9) -0- -0-
William Spier Director 50,000 50,000(12) -0- -0-
</TABLE>
(22)
<PAGE>
- ----------------------
(1) Except as expressly set forth in the table, none of the Selling
Securityholders has had any relation to the Company within the past three years.
(2) Assumes that all Shares which are registered are sold in the
Offering. Also, calculation is based on approximately 7,499,393 shares of EAI
Common Stock outstanding at January 31, 1997.
(3) Represents the additional shares of the Company's Common Stock
into which the Convertible Debentures in the aggregate principal amount of
$4,314,000 issued by the Company in May and June 1996 to the named Selling
Securityholders (or to other persons who have transferred their Convertible
Debentures to the named Selling Securityholders, may be convertible as a result
of an amendment to reduce the maximum conversion price of such Convertible
Debentures from $4.00 per share (pre-Reverse Stock Split price) to $1.50 per
share (post-Reverse Stock Split price). For purposes of determining the number
of shares of the Company's Common Stock issuable upon conversion of the
Convertible Debentures to include in this registration statement, the Company
assumed a conversion price of $1.50 per share. The actual number of shares of
Common Stock to be issued upon the conversion of the Convertible Debentures will
be equal to: the principal amount of the Convertible Debentures converted
divided by a conversion price per share equal to the lesser of (i) eighty
percent (80%) of the average of the closing price of the Company's Common Stock
as traded on the NYSE for the five days immediately preceding the date of notice
of conversion to the Company, or (ii) $1.50. The actual number of shares
included in this registration statement equals that number of shares of Common
Stock issued upon conversion of the Convertible Debentures in accordance with
the amended conversion price described above, in excess of the number of shares
which would have been issued upon conversion of the Convertible Debentures in
accordance with the "Original Conversion Price Formula" (defined below) set
forth in the original terms of the Convertible Debentures. The Original
Conversion Price Formula is defined as: the principal amount of the Convertible
Debentures converted divided by a conversion price per share equal to the lesser
of (i) eighty percent (80%) of the average of the closing price of the Company's
Common Stock as traded on the NYSE for the five days immediately preceding the
date of notice of conversion to the Company, or (ii) $4.00 (pre-Reverse Stock
Split). Pursuant to Rule 429 of the Securities Act, the prospectus contained
herein also relates to (i) the shares of Common Stock of the Company, and
associated Preferred Stock Purchase Rights ("Rights"), into which the
Convertible Debentures were convertible in accordance with the Original
Conversion Price Formula, which are covered by the Registration Statement on
Form S-3 declared effective on November 26, 1996 (Registration No. 333-12691)
(the "Earlier Registration Statement") and which for the purpose of determining
the number of shares of the Company's Common Stock issuable upon conversion of
the Convertible Debentures to include in such Earlier Registration Statement,
the Company assumed a conversion price of $4.00 per share (pre-Reverse Stock
Split price) or 269,625 shares of Common Stock, however, the actual number of
shares of the Company's Common Stock issuable upon conversion of the Convertible
Debentures in accordance with the Original Conversion Price Formula included in
the Original Registration Statement is the principal amount of the Convertible
Debentures converted divided by a conversion price per share equal to the lesser
of (A) eighty percent (80%) of the average of the closing price of the Company's
Common Stock as traded on the NYSE for the five days immediately preceding the
date of notice of conversion to the Company, or (B) $4.00 (pre-Reverse Stock
Split Price). In accordance with Rule 416 under the Securities Act, this
registration statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon the conversion of the
Convertible Debentures to prevent dilution resulting from stock splits, stock
dividends or similar transactions or by reason of changes in the conversion
price as aforesaid.
(4) Represents the additional shares of the Company's Common Stock,
and associated Rights, into which the Convertible Notes in the aggregate
principal amount of $2,725,000, reissued by the Company in August 1996 to the
named Selling Securityholders, are convertible as a result of an amendment to
increase the aggregate principal amount of such Convertible Notes from
$2,070,000 to $2,725,000 and to reduce the fixed conversion price of such
Convertible Notes from $2.67 per share to $1.50 per share. Pursuant to Rule 429
of the Securities Act, this Prospectus also relates to the 193,820 shares of
Common Stock of the Company, and associated Rights, into which the Convertible
Notes were convertible in accordance with the original terms thereof and which
are also covered by the Earlier Registration Statement. The Selling
Securityholders listed above acquired such Convertible Notes from GFL Advantage
Fund on August 19, 1996, and as a result, the Company reissued the Convertible
Notes to such Selling Securityholders upon cancellation of the note assigned by
GFL Advantage Fund. In accordance with Rule 416 under the Securities Act, the
registration statement of which this Prospectus is a part and the Earlier
Registration Statement also cover such indeterminate number of additional shares
of Common Stock as may become issuable upon the conversion of the Convertible
Notes to prevent dilution resulting from stock splits, stock dividends or
similar transactions or by reason of changes in the conversion price as
aforesaid.
(5) In addition to the Shares referred to in footnote (4) above as
being offered hereby by Mr. Gross, the 587,459 shares of Common Stock includes
(i) 30,000 shares of Common Stock held by Mr. Gross; (ii) warrants to purchase
an aggregate of 65,500 shares of Common Stock issued by the Company to Mr. Gross
in connection with his retention as a consultant to the Company in March 1994,
(iii) options to purchase 166,667 shares of Common Stock of a total of 250,000
shares granted pursuant to the Company's Equity Incentive Plan, (iv) options to
(23)
<PAGE>
purchase 166,667 shares of Common Stock of a total of 250,000 shares granted by
the Company to Mr. Gross pursuant to the Company's Equity Incentive Plan, and
(iv) options to purchase 8,625 shares of Common Stock of a total 15,000 shares
granted pursuant to the 1994 Stock Option Plan for Non-Employee directors.
Mr. Gross disclaims any beneficial ownership of the shares referred to in Note 4
as being offered by the Elizabeth Gross Trust A and Gabrielle Gross Trust B.
(6) Pursuant to Rule 429 of the Securities Act, this Prospectus also
relates to the 89,286 shares of the Company's Common Stock which may be acquired
upon exercise of a Warrant (the "Broad Warrant") granted by the Company to Broad
Capital Associates, Inc. ("Broad Capital") on September 3, 1996 (at an exercise
price post-Reverse Stock Split of $12.00 per share) as additional consideration
for Broad Capital's exercise of certain options to purchase 357,143 shares of
Common Stock of the Company (pre-Reverse Stock Split) for proceeds to the
Company of approximately $1 million, which shares are covered by the Earlier
Registration Statement. In accordance with Rule 416 under the Securities Act,
the Earlier Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon exercise of such
warrant to prevent dilution resulting from stock splits, stock dividends or
similar transactions.
(7) In addition to the Shares referred to in footnote (6) above as
being offered hereby by Broad Capital and the 100,000 Shares offered hereby by
the Laura Huberfeld & Naomi Bodner Partnership, the shares indicated include
(i) 89,286 shares of Common Stock held by Broad Capital, (ii) options to
purchase 60,715 shares granted to Broad Capital by the Company pursuant to the
Company's Equity Incentive Plan, (iii) Class B Warrants to purchase 88,236
shares of Common Stock held by the 1995 Huberfeld Family Charitable Income Trust
("Huberfeld Trust"), in which Mr. Murray Huberfeld is the sole voting trustee,
and (iv) Class B Warrants to purchase 88,236 shares of Common Stock held by the
1995 Bodner Family Charitable Income Trust ("Bodner Trust"), in which Mr. David
Bodner is the sole voting trustee. Laura Huberfeld and Naomi Bodner are the
respective spouses of Messrs. Huberfeld and Bodner. Messrs. Huberfeld and Bodner
are principals of Broad Capital. Each of Broad Capital, the Huberfeld Trust and
the Bodner Trust, and the Laura Huberfeld & Naomi Bodner Partnership disclaim
beneficial ownership in the shares beneficially owned by each of the other
parties.
(8) Also represents shares of the Company's Common Stock which may be
acquired upon exercise of the Millenco Warrant dated as of January 22, 1997 at
an exercise price of $1.50 per share granted by the Company to Millenco, LP as
additional consideration in connection with a loan of $1 million by Millenco, LP
to the Company represented by one of the EAI Notes. In accordance with Rule 416
under the Securities Act, this registration statements also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon exercise of such warrant to prevent dilution resulting from stock splits,
stock dividends or similar transactions.
(9) Represents shares of the Company's Common Stock which may be
acquired upon exercise of the Ace Warrant dated as of January 6, 1997 at an
exercise price of $1.50 per share granted by the Company to Ace Foundation, Inc.
as additional consideration in connection with a loan of $1 million by Ace
Foundation, Inc. to the Company represented by one of the EAI Notes. In
accordance with Rule 416 under the Securities Act, this registration statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon exercise of such warrant to prevent dilution resulting
from stock splits, stock dividends or similar transactions.
(10) The number of shares depicted have been adjusted for the Reverse
Stock Split.
(11) The issuance of the additional shares of Common Stock of the
Company referenced in notes (3) and (4) above upon conversion of the Convertible
Debentures and Convertible Notes and the issuance of the shares of Common Stock
of the Company upon exercise of the Warrants, are subject to official notice of
listing of such shares on the NYSE. Further, the number of shares of Common
Stock issuable upon exercise or conversion of the Warrants, Convertible
Debentures and Convertible Notes, together with the number of shares of Common
Stock of the Company issuable upon exercise or conversion of all other
outstanding options, warrants, convertible notes and convertible debentures,
exceed the number of authorized and unissued shares of Common Stock of the
Company and, therefore, the Company will be required to obtain shareholder
approval to amend the Company's Certificate of Incorporation to increase its
authorized and unissued shares of Common Stock in an amount sufficient to cover
all outstanding options, warrants, convertible notes and convertible debentures,
including the shares issuable upon exercise or conversion of the Warrants,
Convertible Debentures and Convertible Notes. The Company may be required to
obtain such shareholder approval prior to the issuance of the shares of
Common Stock issuable upon exercise or conversion of the Warrants, Convertible
Debentures and Convertible Notes.
(12) Represents shares of the Company's Common Stock which may be
acquired upon exercise of the Spier Warrant dated as of February 10, 1997 at an
exercise price of $1.50 granted by the Company to Mr. Spier, which is
conditioned upon hime making a loan of $500,000 to the Company. In accordance
with Rule 416 under the Securities Act this registration statement also covers
such indeterminate number of additional shares of Common Stock as may become
issuable upon exercise of such warrant to prevent dilution resulting from stock
splits, stock dividends or similar transactions.
(24)
<PAGE>
LEGAL MATTERS
The validity of the shares being offered hereby will be passed upon for
the Company by Mesirov Gelman Jaffe Cramer & Jamieson, 1735 Market Street,
Philadelphia, Pennsylvania 19103-7598. Richard P. Jaffe, a partner of such law
firm, is the Secretary of the Company.
EXPERTS
The audited financial statements and schedules of EA Industries, Inc.,
incorporated by reference in this Prospectus and in the Registration Statement
of which the Prospectus is a part, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and have been included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports.
The financial statements of BarOn as of December 31, 1995 and 1994, and
for the years ended December 31, 1995 and 1994 and the period from inception in
1992 through December 31, 1995, incorporated by reference in this Prospectus and
in the Registration Statement of which the Prospectus is a part, have been
audited by Luboshitz, Kasierer & Co. and Yosef Shimony, independent public
accountants, as indicated in their reports with respect thereto, and have been
included herein in reliance upon the authority of said firms as experts in
accounting and auditing.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As authorized under New Jersey law, the Company's Certificate of
Incorporation eliminates the personal liability of directors and officers to the
Company and its shareholders for monetary damages for acts or omissions
(including negligent and grossly negligent acts or omissions) in violation of
directors' and officers fiduciary duties of care. The duty of care refers to the
fiduciary duty of directors and officers to manage the affairs of the
corporation with the same degree of care as would be applied by an "ordinarily
prudent person under similar circumstances." The Certificate of Incorporation
does not, however, in any way eliminate or limit the liability of a director or
officer for breaching his duty of loyalty (i.e., the duty to refrain from fraud,
self-dealing, and transactions involving improper conflicts of interest) to the
Company or its shareholders, failing to act in good faith, or knowingly
violating law or obtaining an improper personal benefit. These provisions do not
have any effect on the availability of equitable remedies (such as an injunction
or rescission) for breach of fiduciary duty. However, as a practical matter,
equitable remedies may not be available in particular circumstances.
Article 37 of the Company's By-laws ("Article 37") provides, among
other things, that the Company shall, to the fullest extent permitted by the
laws of the State of New Jersey as from time to time in effect, indemnify any
person who is or was made a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was a director or officer of the
Company or, while serving as a director or officer of the Company, is or was
serving at the request of the Company as a director, officer, trustee, employee
or agent of another corporation, partnership, trust, employee benefit plan or
other enterprise against all expenses and liabilities. Article 37 further
provides that the Company shall, from time to time, reimburse or advance to any
such director or officer the funds necessary for payment of expenses incurred in
connection with any proceeding, upon receipt of a written undertaking by or on
behalf of such director or officer to repay such amount unless it shall
ultimately be determined that he is entitled to indemnification. The rights and
authority conferred in Article 37 are not exclusive of any other right which an
indemnified party may have or acquire under any statute, provision of the
Company's By-laws, agreement, vote of the shareholders or directors or
otherwise. The Company's By-laws specify that the right to indemnification is a
contract right, enforceable against the Company
(25)
<PAGE>
with respect to any act or omission which occurs while such By-law provision is
in effect, even if such By-law provision is not in effect when the claim for
indemnification is made.
The NJBCA generally provides that a corporation may, and in certain
circumstances, shall, indemnify its officers, directors, employees and agents
("Corporate Agents"), Corporate Agents of constituent corporations that it has
absorbed by merger or consolidation, and Corporate Agents of other corporations
if such Corporate Agents serve at the indemnifying corporation's request. A
corporation may indemnify such Corporate Agent in a civil proceeding if the
Corporate Agent acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and, in a criminal
proceeding, if he had no reasonable cause to believe his conduct was unlawful,
except that indemnification is not permitted in an action by or in the right of
the corporation if the Corporate Agent is adjudged to be liable to the
corporation, unless the court in which the proceeding was brought shall have
determined that indemnification is appropriate in light of the circumstances of
the case.
The Company has purchased and maintains insurance for its officers and
directors against certain liabilities, including liabilities under the
Securities Act. The effect of such insurance is to indemnify any officer or
director of the Company against expenses, judgements, fines, attorney's fees and
other amounts paid in settlements incurred by him, subject to certain
exclusions. Such insurance does not insure against any such amount incurred by
an officer or director as a result of his own dishonesty.
These provisions of the Company's Certificate of Incorporation and
By-laws apply only to claims against a director or officer arising out of his
service in such a capacity. Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended, may be permitted to directors,
officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and therefore is unenforceable.
(26)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
SEC registration fee $ 7,045
Legal fees and expenses $ 15,000*
Accounting fees and expenses $ 15,000*
Blue sky fees and expenses $ 2,500*
Printing expenses $ 2,500*
Miscellaneous $ 1,000*
--------
TOTAL $ 43,045*
========
- -------------------
*Estimated.
Item 15. Indemnification of Directors and Officers
As authorized under New Jersey law, the Company's Certificate of
Incorporation eliminates the personal liability of directors and officers to the
Company and its shareholders for monetary damages for acts or omissions
(including negligent and grossly negligent acts or omissions) in violation of
directors' and officer's fiduciary duties of care. The duty of care refers to
the fiduciary duty of directors and officers to manage the affairs of the
corporation with the same degree of care as would be applied by an "ordinarily
prudent person under similar circumstances." The Certificate of Incorporation
does not, however, in any way eliminate or limit the liability of a director or
officer for breaching his duty of loyalty (i.e., the duty to refrain from fraud,
self-dealing, and transactions involving improper conflicts of interest) to the
Company or its shareholders, failing to act in good faith, knowingly violating
law or obtaining an improper personal benefit. These provisions do not have any
effect on the availability of equitable remedies (such as an injunction or
rescission) for breach of fiduciary duty. However, as a practical matter,
equitable remedies may not be available in particular circumstances.
Article 37 of the Company's by-laws ("Article 37") provides, among
other things, that the Company shall, to the fullest extent permitted by the
laws of the State of New Jersey as from time to time in effect, indemnify any
person who is or was made a party or is threatened to be made a party to any
proceeding by reason of the fact that he is or was a director or officer of the
Company or, while serving as a director or officer of the Company, is or was
serving at the request of the Company as a director, officer, trustee, employee
or agent of another corporation, partnership, trust, employee benefit plan or
other enterprise against all expenses and liabilities. Article 37 further
provides that the Company shall, from time to time, reimburse or advance to any
such director or officer the funds necessary for payment of expenses incurred in
connection with any proceeding, upon receipt of a written undertaking by or on
behalf of such director or officer to repay such amount unless it shall
ultimately be determined that he is entitled to indemnification. The rights and
authority conferred in Article 37 are not exclusive of any other right which an
indemnified party may have or acquire under any statute, provision of the
Company's by-laws, agreement, vote of the shareholders or directors or
otherwise. The Company's By-laws specify that the right to indemnification is a
contract right, enforceable against the Company with respect to any act or
omission which occurs while such By-law provision is in effect, even if such
By-law provision is not in effect when the claim for indemnification is made.
II-1
<PAGE>
The NJBCA generally provides that a corporation may, and in certain
circumstances, shall, indemnify its officers, directors, employees and agents
("Corporate Agents"), Corporate Agents of constituent corporations that it has
absorbed by merger or consolidation, and Corporate Agents of other corporations
if such Corporate Agents serve at the indemnifying corporation's request. A
corporation may indemnify such Corporate Agent in a civil proceeding if the
Corporate Agent acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and, in a criminal
proceeding, if he had no reasonable cause to believe his conduct was unlawful,
except that indemnification is not permitted in an action by or in the right of
the corporation if the Corporate Agent is adjudged to be liable to the
corporation, unless the court in which the proceeding was brought shall have
determined that indemnification is appropriate in light of the circumstances of
the case.
The Company has purchased and maintains insurance for its officers and
directors against certain liabilities, including liabilities under the
Securities Act. The effect of such insurance is to indemnify any officer or
director of the Company against expenses, judgements, fines, attorney's fees and
other amounts paid in settlements incurred by him, subject to certain
exclusions. Such insurance does not insure against any such amount incurred by
an officer or director as a result of his own dishonesty.
II-2
<PAGE>
Item 16. Exhibits
Exhibit No.
- -----------
o2.1 Agreement and Plan of Reorganization by and among
Electronic Associates, Inc., Tanon Manufacturing, Inc.,
EA Acquisition Corp. and Joseph R. Spalliero, dated
December 12, 1994 was filed as Exhibit 2 to the Company's
Current Report on Form 8-K (Date of Report: January 4,
1995) and is hereby incorporated herein by reference.
o2.2 Form of Investment Agreement dated January 16, 1995 by
and between Electronic Associates, Inc. and BarOn
Technologies Ltd., was filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K (Date of Report:
January 16, 1995), as amended, and is hereby incorporated
herein by reference.
o2.3 Form of Stock Purchase Agreement, dated January 10, 1995,
between the Company and various shareholders of BarOn
Technologies Ltd., was filed as Exhibit 10.2 to the
Company's Current Report on Form 8-K (date of report:
January 16, 1995), as amended, and is hereby incorporated
herein by reference.
o2.4 Form of Shareholders Agreement, dated January 16, 1995,
among the Company, BarOn Technologies Ltd. and the
shareholders of BarOn Technologies Ltd., was filed as
Exhibit 10.3 to the Company's Current Report on Form 8-K
(Date of Report: January 16, 1995), as amended, and is
hereby incorporated herein by reference.
o2.5 Form of Pre-Incorporation Agreement in connection with
the IAI Joint Venture was filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K (Date of Report:
August 3, 1995) and is hereby incorporated herein by
reference.
o2.6 Form of Joint Venture Agreement in connection with IAI
Joint Venture was filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K (Date of Report: August 3,
1995) and is hereby incorporated herein by reference.
4.1 Rights Agreement, dated as of February 10, 1988, between the
Company and Manufacturers Hanover Trust Company, as Rights
Agent, was filed as Exhibit 1 to the Company's Form 8-A, dated
February 11, 1988, and is hereby incorporated herein by
reference. (File No. 1-4680)
4.2 Amendment, dated as of October 24, 1990, to the Rights
Agreement, was filed as Exhibit 2 to the Company's Form 8,
dated October 24, 1990, and is hereby incorporated herein by
reference. (File No. 1-4680)
4.3 Form of Subscription Agreement and Form of 9% Convertible
Subordinated Debenture issued in connection with raising $8.1
million in May and June of 1996 were filed as Exhibit 10.31 to
the Company's Form 10-Q for the quarterly period ended March
30, 1996 and are hereby incorporated herein by reference.
II-3
<PAGE>
4.4 Warrant, dated September 3, 1996, to purchase 357,143 shares
of Common Stock issued by the Company to Broad Capital
Associates, Inc. was filed as an Exhibit to the Registration
Statement on Form S-3 (Registration No. 333-12691) and is
incorporated herein by reference.
4.5 Form of Convertible Notes, as amended, issued to each of Irwin
L. Gross, Elizabeth Gross Trust A U/T/A of Irwin Gross Trust
dated 3/20/90, and Gabrielle Gross Trust B U/T/A of Irwin Gross
Trust dated 3/20/90.
4.6 Form of Warrant to purchase 50,000 shares of Common Stock
granted by the Company to each of Ace Foundation, Inc. as of
January 6, 1997, Millenco, LP as of January 22, 1997, and
William Spier as of February 10, 1997.
5 Opinion of Mesirov Gelman Jaffe Cramer & Jamieson.
23.1 Consent of Mesirov Gelman Jaffe Cramer & Jamieson is included
in their opinion filed as Exhibit 5 hereto.
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
of EA Industries, Inc.
23.3 Consent of Luboshitz, Kasierer & Co., and Yosef Shimony,
Independent Auditors of BarOn Technologies Ltd.
- --------------
o The Company will furnish supplementally to the Commission, upon request,
copies of any Appendices, Schedules and Exhibits to the named Agreement which
are omitted from Exhibit Nos. 2.1 through 2.6.
II-4
<PAGE>
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers
or sales are being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933 (the "Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement:
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the undersigned Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions discussed in Item 14 of this registration statement,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of West Long Branch, New Jersey on the 11th day of
February, 1997.
EA INDUSTRIES, INC.
By: /s/ Stanley O. Jester
-----------------------------------
Stanley O. Jester, Treasurer and
Vice President, Finance
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ Irwin L. Gross Chairman of the Board February 11, 1997
- -------------------------------- and President
Irwin L. Gross (Principal Executive
Officer)
/s/ Stanley O. Jester Treasurer and Vice February 11, 1997
- --------------------------------- President, Finance
Stanley O. Jester Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Jules M. Seshens Director February 11, 1997
- --------------------------------
Jules M. Seshens
/s/ Seth Joseph Antine Director February 11, 1997
- --------------------------------
Seth Joseph Antine
Director February , 1997
- --------------------------------
Mark S. Hauser
Director February , 1997
- --------------------------------
William Spier
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
o2.1 Agreement and Plan of Reorganization by and Among Electronic Associates, Inc.,
Tanon Manufacturing, Inc., EA Acquisition Corp. and Joseph R. Spalliero, dated
December 12, 1994 was filed as Exhibit 2 to the Company's Current Report on
Form 8-K (Date of Report: January 4, 1995) and is hereby incorporated herein
by reference.
o2.2 Form of Investment Agreement dated January 16, 1995 by and between Electronic
Associates, Inc. and BarOn Technologies Ltd., was filed as Exhibit 10.1 to the
Company's Current Report on Form 8-K (Date of Report: January 16, 1995), as
amended, and is hereby incorporated herein by reference.
o2.3 Form of Stock Purchase Agreement, dated January 10, 1995, between the Company
and various shareholders of BarOn Technologies Ltd., was filed as Exhibit 10.2
to the Company's Current Report on Form 8-K (date of report: January 16, 1995),
as amended, and is hereby incorporated herein by reference.
o2.4 Form of Shareholders Agreement, dated January 16, 1995, among the Company, BarOn
Technologies Ltd. and the shareholders of BarOn Technologies Ltd., was filed as
Exhibit 10.3 to the Company's Current Report on Form 8-K (Date of Report:
January 16, 1995), as amended, and is hereby incorporated herein by reference.
o2.5 Form of Pre-Incorporation Agreement in connection with the IAI Joint Venture was
filed as Exhibit 2.1 to the Company's Current Report on Form 8-K (Date of Report:
August 3, 1995) and is hereby incorporated herein by reference.
o2.6 Form of Joint Venture Agreement in connection with IAI Joint Venture was filed
as Exhibit 2.2 to the Company's Current Report on Form 8-K (Date of Report:
August 3, 1995) and is hereby incorporated herein by reference.
4.1 Rights Agreement, dated as of February 10, 1988, between the Company and
Manufacturers Hanover Trust Company, as Rights Agent, was filed as Exhibit 1
to the Company's Form 8-A, dated February 11, 1988, and is hereby incorporated
herein by reference. (File No. 1-4680).
4.2 Amendment, dated as of October 24, 1990, to the Rights Agreement, was filed as
Exhibit 2 to the Company's Form 8, dated October 24, 1990, and is hereby
incorporated herein by reference. (File No. 1-4680)
4.3 Form of Subscription Agreement and Form of 9% Convertible Subordinated Debenture
issued in connection with raising $8.1 million in May and June of 1996 were
filed as Exhibit 10.31 to the Company's Form 10-Q for the quarterly period
ended March 30, 1996 and are hereby incorporated herein by reference.
4.4 Warrant, dated September 3, 1996, to purchase 357,143 shares of Common Stock
issued by the Company to Broad Capital Associates, Inc. was filed as an
Exhibit to the Registration Statement Form S-3 (Registration No. 333-12691)
and is incorporated herein by reference.
4.5 Form of Convertible Notes issued to and of Irwin L. Gross, Elizabeth Gross Trust
A U/T/A of Irwin Gross Trust dated 3/20/90 and Gabrielle Gross Trust B U/T/A of
Irwin Gross Trust dated 3/20/90.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ------------ --------
<S> <C> <C>
4.6 Form of Warrant to purchase 50,000 shares of Common Stock granted by the Company
to each of Ace Foundation, Inc. as of January 6, 1997, Millenco, LP as of
January 22, 1997, and William Spier as of February 10, 1997.
5 Opinion of Mesirov Gelman Jaffe Cramer & Jamieson.
23.1 Consent of Mesirov Gelman Jaffe Cramer & Jamieson is included in their opinion
filed as Exhibit 5 hereto.
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants of Electronic
Associates, Inc.
23.3 Consent of Luboshitz, Kasierer & Co., and Yosef Shimony, Independent Auditors of
BarOn Technologies Ltd.
</TABLE>
- ---------------
o The Company will furnish to the Commission, upon request, copies of any
Appendices, Schedules and Exhibits to the named Agreement which are omitted from
Exhibit Nos. 2.1 through 2.6.
Exhibit 4.5
Form of Convertible Notes
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT.
CONVERTIBLE NOTE
West Long Branch, New Jersey $225,000.00
January 22, 1997
FOR VALUE RECEIVED, EA INDUSTRIES, INC., a New Jersey corporation
(hereinafter called the "Borrower"), hereby promises to pay, subject to the
provisions of Section 2.6 hereof, to Irwin Gross or registered assigns (the
"Holder") or order, the sum of Two Hundred and Twenty-Five Thousand Dollars
($225,000.00) on December 31, 1997 (the "Final Maturity Date"). Any amount of
principal on this Note which is not paid when due shall bear interest at the
rate of fourteen percent (14%) per annum from the due date thereof until the
same is paid. All payments of principal on this Note shall be made in lawful
money of the United States of America or, at the option of the Borrower and
subject to the provisions of this Note, in whole or in part in fully paid and
nonassessable shares of Common Stock of the Borrower as such stock exists on the
date of issuance of this Note, or any shares of capital stock of Borrower into
which such stock shall hereafter be changed or reclassified (the "Common
Stock"). All payments shall be made at such address as the Holder shall
hereafter give to the Borrower by written notice made in accordance with the
provisions of this Note. This Note was issued in the original principal amount
of Six Million Dollars ($6,000,000) on the date set forth above. On April 25,
1996, Eight Hundred Twenty Thousand Dollars ($820,000) of such original
principal amount, on May 9, 1996, One Million Three Hundred Thousand Dollars
($1,300,000) of such original principal amount, on July 22, 1996 six hundred
sixty thousand dollars ($660,000) of such original principal amount, and on July
23, 1996 one million one hundred fifty thousand dollars ($1,150,000) of such
original principal amount was converted into shares of Borrower's Common Stock
as set forth herein. On August 19, 1996, the remaining balance of the original
note was reassigned to three purchasers and was reissued in three notes. The
Borrower has agreed to amend the terms of such notes and to reissue them. This
Note represents one such reissued Note.
PREPAYMENT
1.1 Prepayment. So long as no Event of Default (as defined herein) shall
have occurred and be continuing, the Borrower shall have the right, exercisable
on not less than 15 days or more than 20 days written notice to the Holder, at
any time after the date hereof to prepay this Note in whole or in any part of
not less than $500,000 principal amount (or such lesser principal amount as
shall remain unpaid at the time of exercise of such right), in accordance with
this Section 1.1. Any notice of prepayment shall be delivered to the Holder at
its registered address appearing on the records of the Borrower and shall state
(1) that the Borrower is exercising its right to prepay all or a portion of the
principal amount of this Note, (2) the principal amount to be prepaid and (3)
the date of prepayment. On the date fixed for prepayment, the Borrower shall
make payment of the Prepayment Amount (as hereinafter defined), to or upon the
order of the Holder as specified by the Holder in writing to the Borrower at
least one business day prior to the prepayment date. If the Borrower exercises
its right to prepay all or a portion of this Note, the Borrower shall make
payment to the Holder of an amount equal to the sum of (1) the principal amount
of this Note to be prepaid plus (2) an amount equal to 22 percent of the
principal amount to be prepaid (such sum being referred to as the "Prepayment
Amount"). Upon the prepayment of less than the entire unpaid principal amount of
this Note, a new Note containing the same date and provisions as this Note shall
be issued by the borrower to the Holder for the principal balance of this Note
which shall not have been prepaid.
ARTICLE II
CONVERSION AND PURCHASE RIGHTS
2.1 Conversion Right. The Holder shall have the right from and after the
date of this Note and then at any time on or prior to the day this Note is paid
in full, to convert at any time all or from time to time any part of the
outstanding and unpaid principal amount of this Note of at least $100,000, or
such lesser amount as shall remain unpaid at the time of the conversion, into
fully paid and nonassessable shares of Common Stock (the "Common Stock") at the
conversion price determined as provided herein (the "Conversion Price").
<PAGE>
Upon the surrender of this Note, accompanied by a Notice of Conversion of
Convertible Note in the form attached hereto as Exhibit A, properly completed
and duly executed by the Holder (a "Conversion Notice"), the Borrower shall
issue and, within three business days after such surrender of this Note with the
Conversion Notice, deliver to or upon the order of the Holder (1) that number of
shares of Common Stock for the portion of the Note converted as shall be
determined in accordance herewith, and (2) a new Note in the form hereof for the
balance of the principal amount hereof, if any. The number of shares of Common
Stock to be issued upon each conversion of this Note shall be determined by
dividing that portion of the principal amount of the Note to be converted by the
Conversion Price.
NOTWITHSTANDING THE FOREGOING, THE CONVERSION OF THE NOTE INTO THE COMMON
STOCK IS EXPRESSLY CONDITIONED UPON (i) SUFFICIENT AUTHORIZED, UNISSUED AND
UNRESERVED COMMON STOCK OF THE ISSUER OF SUCH SHARES TO PERMIT SUCH CONVERSION,
(ii) OFFICIAL NOTICE OF THE LISTING (THE "LISTING") OF SUCH SHARES ON THE NEW
YORK STOCK EXCHANGE OR THE NASDAQ NATIONAL MARKET SYSTEM, IF APPLICABLE, PRIOR
TO SUCH CONVERSION, AND (iii) COMPLIANCE WITH ALL FEDERAL AND STATE SECURITIES
LAWS AND REGULATIONS.
2.2 Conversion Price. The Conversion Price shall be one dollar and fifty
cents ($1.50).
2.3 Method of Conversion. Except as otherwise provided in this Note or
agreed by the Holder, this Note may be converted by the Holder in whole at any
time or in part from time to time by (i) submitting to the Borrower a Conversion
Notice and (ii) surrendering this Note at the principal office of the Borrower.
Upon partial exercise of the conversion rights provided hereby, a new Note
containing the same date and provisions as this Note shall be issued by the
Borrower to the Holder for the principal balance of this Note which shall not
have been converted. This Note has been issued pursuant to a Note Purchase
Agreement, dated as of December 29, 1995, between the Borrower and the original
Holder of this Note (the "Note Purchase Agreement"). By its acceptance of this
Note, each Holder agrees to be bound by the terms of the Note Purchase
Agreement. This Note has been issued by the Borrower pursuant to the exemption
from registration under the Securities Act of 1933, as amended (the "Act")
provided by Regulation D thereunder.
2.4 Concerning the Shares. The Shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless either (i) they
first shall have been registered under the Act and applicable state securities
laws or (ii) the Borrower shall have been furnished with an opinion of legal
counsel to the effect that such sale or transfer is exempt from the registration
requirements of the Act and all applicable state securities laws. Each
certificate for shares of Common Stock issuable upon conversion of this Note
that have not been so registered and that have not been sold pursuant to an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon conversion of this Note, the Borrower shall remove the
foregoing legend from the certificate or issue to such holder a new certificate
therefor free of any transfer legend if, with such request, the Borrower shall
have received either (i) an opinion of counsel to the effect that any such
legend may be removed from such certificate, or (ii) if the present paragraph
(k) of Rule 144 or a substantially similar successor rule remains in force and
effect, satisfactory representations from the holder that such holder is not
then, and has not been during the preceding three (3) months, an affiliate of
the Borrower, and that a period of at least three (3) years has elapsed since
the later of the date the securities were acquired (as determined under Rule
144) from the Borrower or an affiliate of the Borrower.
2.5 Automatic Conversion. Any part of the principal amount of this Note
that is outstanding on the Final Maturity shall automatically be converted into
such number of shares of Common Stock (to the extent the same is at such time
convertible into shares of Common Stock) as shall be determined pursuant to
Section 2.1 and 2.2 of this Note as if the conversion of such principal amount
of this Note were made by the
<PAGE>
Holder in accordance therewith. Within three trading days after the Holder
surrenders this Note to the Borrower after the Final Maturity Date, the Borrower
shall deliver to or on upon the order of the Holder (1) that number of shares of
Common Stock for the portion of the Note converted as shall be determined in
accordance herewith and (2) payment of the accrued and unpaid interest on the
portion of the principal amount of this Note so converted (which payment of
interest may be made in accordance with Section 1.2 of this Note if the Company
satisfies the requirements thereof).
ARTICLE III
EVENTS OF DEFAULT
If of any of the following events of default (each, an "Event of Default")
shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the
principal hereof when due, whether at maturity, upon redemption, upon
acceleration or otherwise;
3.2 Conversion and the Shares. The Borrower fails to issue shares of Common
Stock to the Holder upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Note, fails to transfer any
certificate for shares of Common Stock issued to the Holder upon conversion of
this Note and when required by this Note or the Registration Rights Agreement,
or fails to remove any restrictive legend on any certificate or any shares of
Common Stock issued to the Holder upon conversion of this Note as and when
required by this Note, the Agreement or the Registration Rights Agreement;
3.3 Breach of Covenant. The Borrower breaches any material covenant or
other material term or condition of this Note (other than as specifically
provided in Sections 3.1 and 3.2 hereof), the Note Purchase Agreement or the
Registration Rights Agreement and such breach continues for a period of fifteen
(15) business days after written notice thereof to the Borrower from the Holder;
3.4 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Note Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made;
3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business; or such a receiver or trustee shall otherwise be
appointed;
3.6 Judgments. Any money judgment, writ or similar process shall be entered
or filed against the Borrower or any subsidiary of the Borrower or any of its
property or other assets for more than $500,000, and shall remain unvacated,
unbonded or unstayed for a period of twenty (20) days unless otherwise consented
to by the Holder, which consent will not be unreasonably withheld;
3.7 Certain Adjudications and Appointments. A court of competent
jurisdiction enters a judgment, decree or order for relief in respect of the
Company in an involuntary case or proceeding under any Bankruptcy Law which
shall (a) approve as properly filed a petition seeking reorganization,
arrangement, adjustment or composition in respect of the Company, (b) appoint a
Custodian of the Company or for any substantial part of its property or (c)
order the winding-up or liquidation of its affairs; and such judgment, decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or any bankruptcy or insolvency petition or application is filed, or any
bankruptcy or insolvency proceeding is commenced, against the Company and such
petition, application or proceeding is not dismissed within 60 days; or
3.8 No Registration. The Registration Statement has not been declared
effective by the SEC on or before the Final Computation Date (as defined in the
Registration Rights Agreement);
then upon the occurrence and during the continuation of any Event of Default
specified in Section 3.1, 3.2, 3.3, 3.4, 3.6 or 3.8, at the option of the Holder
hereof, the Borrower shall, and upon the occurrence of any event of default
specified in Section 3.5 or 3.7, the Borrower shall, pay to the Holder an amount
equal to the sum of (1) the unpaid principal amount of this Note plus (2) an
amount equal to 22 percent of the unpaid principal amount of this Note, plus
accrued and unpaid interest on the unpaid principal amount of this Note to the
date of payment and all other amounts payable hereunder shall immediately become
due and payable, all without demand, presentment or notice, all of which hereby
are expressly waived, together with all costs, including, without
<PAGE>
limitation, legal fees and expenses, of collection, and the Holder shall be
entitled to exercise all other rights and remedies available at law or in
equity.
ARTICLE IV
MISCELLANEOUS
4.1 Failure or Indulgency Not Waiver. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
4.2 Notices. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier or sent by
United States mail and shall be deemed to have been given upon receipt if
personally served or sent by courier or three (3) days after being deposited in
the United States mail, certified, with postage pre-paid and properly addressed,
if sent by mail. For the purposes hereof, the address of the Holder shall be as
shown on the records of the Borrower; and the address of the Borrower shall be
185 Monmouth Parkway, West Long Branch, New Jersey 07764-9989, Attention:
President. Both the Holder and the Borrower may change the address for service
by service of written notice to the other as herein provided.
4.3 Amendment Provision. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its
successors and assigns, and shall inure to be the benefit of the Holder and its
successors and assigns.
4.5 Cost of Collection. If default is made in the payment of this Note, the
Borrower shall pay the Holder hereof costs of collection, including attorneys'
fees.
4.6 Governing Law. This Note shall be governed by the internal laws of the
Commonwealth of Pennsylvania, without regard to the principles of conflict of
laws.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its duly authorized officer on the day and in the year first above written.
EA INDUSTRIES, INC.
By:
-------------------------------
Name:
Title:
<PAGE>
Exhibit A
NOTICE OF CONVERSION
OF CONVERTIBLE NOTE
TO: EA INDUSTRIES, INC.
(1) Pursuant to the terms of the attached Convertible Note (the "Note"),
the undersigned hereby elects to convert $__________ principal amount of the
Note into shares of Common Stock of EA INDUSTRIES, INC., a New Jersey
corporation (the Borrower) at the Conversion Price of $1.50 per share.
Capitalized terms used herein and not otherwise defined herein have the
respective meanings provided in the Note.
(2) Please issue a certificate or certificates for the number of shares of
Common Stock into which such principal amount of the Note is convertible in the
name(s) specified immediately below or, if additional space is necessary, on an
attachment hereto:
------------------------- -------------------------
Name Name
------------------------- -------------------------
Address Address
------------------------- -------------------------
SS or Tax ID Number SS or Tax ID Number
(3) In the event of partial exercise, please reissue an appropriate Note
for the principal balance which shall not have been converted. Capitalized terms
used in this Notice of Conversion and not otherwise defined herein shall have
the respective meanings provided in the Note.
(4) If the shares of Common Stock issuable upon conversion of the Note have
not been registered under the Securities Act of 1933, as amended (the "Act"),
the undersigned represents and warrants that (i) such shares of Common Stock are
being acquired for the account of the undersigned for investment, and not with a
view to, or for resale in connection with, the distribution thereof, and that
the undersigned has no present intention of distributing or reselling such
shares and (ii) the undersigned is an "accredited investor" as defined in
Regulation D under the Act. The undersigned further agrees that (A) such shares
shall not be sold or transferred unless either (i) they first shall have been
registered under the Act and applicable state securities laws or (ii) the
Borrower first shall have been furnished with an opinion of legal counsel
reasonably satisfactory to the Borrower to the effect that such sale or transfer
is exempt from the registration requirements of the Act and (B) the borrower may
place a legend on the certificate(s) for the shares to that effect and place a
stop-transfer restriction in its records relating to the shares.
<PAGE>
Exhibit 4.6
Form of Warrant
<PAGE>
This Warrant and the Common Stock issuable on exercise of
this Warrant (the "Underlying Shares") may be transferred,
sold, assigned or hypothecated, only if registered by the
Company under the Securities Act of 1933 (the "Act") and if
registered or qualified in every applicable state, or if the
Company has received the favorable opinion of counsel to the
Holder, which opinion and counsel shall be satisfactory to
counsel to the Company, to the effect that such registration
or qualification of the Warrant or the Underlying Shares is
not necessary in connection with such transfer, sale,
assignment or hypothecation.
EA INDUSTRIES, INC.
WARRANT
DATED: as of
Number of Shares: 50,000
Holder:
Address:
- -----------------------------------
THIS CERTIFIES THAT the Holder is entitled to purchase from EA INDUSTRIES
INC., a New Jersey corporation (hereinafter called the "Company"), at $1.50 per
share the number of shares of the Company's common stock set forth above
("Common Stock").
1. All rights granted under this Warrant shall expire on _____________, and
no shares of Common Stock may be acquired under this Warrant from and after such
date.
2. This Warrant and the Common Stock issuable on exercise of this Warrant
(the "Shares" or "Underlying Shares") may be transferred, sold, assigned or
hypothecated, only if registered by the Company under the Securities Act of 1933
(the "Act") and registered and qualified in every applicable state or if the
Company has received the opinion of counsel to the Holder, which opinion and
counsel shall be satisfactory to counsel to the Company, to the effect that
registration of the Warrant or the Underlying Shares and registration and
qualification in every applicable state is not necessary in connection with such
transfer, sale, assignment or hypothecation. The Underlying Shares shall be
appropriately legended to reflect this restriction and stop transfer
instructions shall apply. The restrictions on transfer contained in this Section
shall apply to all successive transfers.
3. Any permitted assignment of this Warrant shall be effected by the Holder
by (i) executing an appropriate form of assignment, (ii) surrendering the
Warrant for cancellation at the office of the Company, accompanied by the
opinion of Counsel referred to above; and (iii) unless in connection with an
effective registration statement which covers the sale of this Warrant and or
the Underlying Shares, delivery to the Company of a statement by the Holder (in
a form reasonably acceptable to the Company and its counsel) that such Warrant
is being acquired by the Holder for investment and not with a view to its
distribution or resale; whereupon the Company shall issue, in the name or names
specified by the Holder (including the Holder) new Warrants representing in the
aggregate rights to purchase the same number of Shares as are purchasable under
the Warrant surrendered. Such Warrants shall be exercisable immediately upon any
such assignment of the number of Warrants assigned.
4. The term "Holder" should be deemed to include any transferee Holder of
this Warrant pursuant to a transfer in compliance with the requirements
described herein.
<PAGE>
5. The Company covenants and agrees that all shares of Common Stock which
may be issued upon exercise hereof will, upon issuance, be duly and validly
issued, fully paid and non-assessable.
6. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.
7. In the event that the outstanding shares of Common Stock of the Company
are at any time increased or decreased or changed into or exchanged for a
different number or kind of share or other security of the Company or of another
corporation through reorganization, merger, consolidation, liquidation,
recapitalization, stock split, combination of shares or stock dividends payable
with respect to such Common Stock, appropriate adjustments in the number and
kind of such securities then subject to this Warrant shall be made effective as
of the date of such occurrence so that the position of the Holder upon exercise
will be the same as it would have been had he owned immediately prior to the
occurrence of such events the Common Stock subject to this Warrant. Such
adjustment shall be made successively whenever any event listed above shall
occur and the Company will notify the Holder of the Warrant of each such
adjustment. Any fraction of a share resulting from any adjustment shall be
eliminated.
8. The rights represented by this Warrant may be exercised at any time
within the period above specified by (i) surrender of this Warrant, before
issuance of the Underlying Shares, at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company by check or wire transfer of
the exercise price for the number of Shares specified in the above-mentioned
purchase form together with applicable stock transfer taxes, if any and (iii)
unless in connection with an effective registration statement which covers the
sale of the shares underlying the Warrant, the delivery to the Company of a
statement by the Holder (in a form acceptable to the Company and its counsel)
that such Shares are being acquired by the Holder for investment and not with a
view to their distribution or resale. The certificates for the Common Stock so
purchased shall be delivered to the Holder within a reasonable time, not
exceeding five (5) days, after the rights represented by this Warrant shall have
been so exercised, and shall bear a restrictive legend with respect to any
applicable securities laws.
9. If the Company proposes to file a registration statement under the Act
with respect to an offering by the Company for its own account of its Common
Stock (other than a registration statement on Form S-4, S-8 or S-14 or any form
substituting therefor or filed in connection with an exchange offer or an
offering of securities solely to the Company's existing stockholders or
employees) during the period commencing on the date hereof and ending on
expiration of this Warrant, the Company shall in each case give written notice
of such proposed filing to the Holder and such notice shall offer the Holder the
opportunity to register such number of the Shares as the Holder may request in
writing within ten days after receipt of such notice. If such offering is an
underwritten offering, the amount of shares included by Holder may be reduced in
the sole discretion of the managing underwriter. In connection with a piggy-back
registration, the Company will bear all Registration Expenses. The Holder shall
deliver such documents, and provide the Company with such information, as is
necessary or desirable to effectuate such registration.
10. If a registration statement covering the Shares has not been declared
effective on or before _________________ so as to permit the disposition of all
Shares that have been or may be acquired hereunder and the Holder has not waived
its rights to have Shares included in any prior registration statement filed by
the Company, the Holder shall have the right to demand that the Company
repurchase the Warrant. This right shall be exercisable by written notice to the
Company anytime between _____________ and the earlier of ______________ or the
date such registration statement has been declared effective. The price to be
paid by the Company for the Warrant shall be (a) the weighted average price per
Share of the Common Stock of the Company as reported by Bloomberg Business
Services in its Volume At Price service for the day on which the Company
receives such notice or the next succeeding business day if the NYSE is not open
for business on that day less the exercise price for the Warrant Shares
multiplied by (b) the number of Shares for which the Warrant is then
exercisable. The purchase price shall be paid by the Company within three (3)
days after receipt by the Company of such demand.
<PAGE>
11. This Warrant shall be governed by and construed in accordance with the
internal laws of New Jersey.
IN WITNESS WHEREOF, EA INDUSTRIES, INC. and the Holder have each caused
this Warrant to be signed by its duly authorized officer under its corporate
seal, and to be dated as of the date set forth above.
EA INDUSTRIES, INC.
By:
-------------------------------
-----------------------------------
By:
-------------------------------
<PAGE>
Exhibit 5
Opinion of Mesirov Gelman Jaffe Cramer & Jamieson.
<PAGE>
MESIROV GELMAN JAFFE CRAMER & JAMIESON
(215) 994-1000
February 11, 1997
SECURITIES AND EXCHANGE COMMISSION
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: EA Industries, Inc. - Registration Statement on Form S-3
--------------------------------------------------------
Gentlemen:
This firm is counsel to EA Industries, Inc. (the "Company"). In such
capacity, we have assisted in the preparation of the Company's Registration
Statement on Form S-3, ("Registration Statement"), filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, covering
4,648,847 shares of the Company's Common Stock ("Shares") to be sold by certain
securityholders named in the Registration Statement (the "Selling
Securityholders") and the 4,648,847 Preferred Stock Purchase Rights associated
with such Shares. Of the 4,648,847 Shares, (i) 150,000 Shares ("Warrant Shares")
are issuable by the Company to certain Selling Securityholders upon exercise of
certain warrants (the "Warrants"), (ii) 2,876,000 Shares ("Additional Debenture
Shares") are those additional Shares into which certain amended 9% Convertible
Subordinated Debentures ("Amended Convertible Debentures") are convertible as a
result of certain amendments thereto, and (iii) 1,662,847 Shares ("Additional
Note Shares") are those additional Shares into which certain amended Convertible
Notes (the "Amended Convertible Notes") are convertible as a result of certain
amendments thereto.
In this connection, we have made such inquiry of the Company and examined
and considered the original or copies, certified or otherwise identified to our
satisfaction, of the Company's Certificate of Incorporation, as amended
("Certificate of Incorporation"), its By-laws, as amended, resolutions of its
Board of Directors, the Warrants, Amended Convertible Debentures, Amended
Convertible Notes and such other documents and corporate records relating to the
Company and the issuance and sale of the Shares, as we deemed necessary or
appropriate for purposes of rendering this opinion.
Our opinions set forth below are qualified to the extent that (i) the valid
issuance of the Warrant Shares, Additional Debenture Shares, and Additional Note
Shares, in each case, is subject to official notice of listing of such Shares on
the New York Stock Exchange, and (ii) the Warrant Shares, Additional Debenture
Shares and Additional Notes Shares issuable upon exercise or conversion of the
Warrants, Amended Convertible Debentures and Amended Convertible Notes, together
with the number of shares of Common Stock of the Company issuable upon exercise
or conversion of all other outstanding options, warrants, convertible notes and
convertible debentures, exceed the number of authorized and unissued shares of
Common Stock of the Company and, therefore, the Company may be required to
obtain shareholder approval to amend the Company's Certificate of Incorporation
to increase its authorized and unissued shares of Common Stock in an amount
sufficient to cover the Warrant Shares, Additional Debenture Shares and
Additional Note Shares prior to the issuance thereof.
1735 Market Street, Philadelphia PA 19103-7598
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
February 11, 1997
Page Two
Based upon the foregoing, it is our opinion that:
1. The Warrant Shares, when issued in accordance with the terms of,
and for the consideration set forth in, the Warrants, will be validly issued,
fully paid and non-assessable.
2. The Additional Debenture Shares, when issued upon conversion of the
Amended Convertible Debentures in accordance with the terms of, and for the
consideration set forth in, the Amended Convertible Debentures, will be validly
issued, fully paid and non-assessable.
3. The Additional Note Shares, when issued upon conversion of the
Amended Convertible Notes in accordance with the terms of, and for the
consideration set forth in, the Amended Convertible Notes, will be validly
issued, fully paid and non-assessable.
We hereby expressly consent to the reference to our firm in the
Registration Statement under the Prospectus caption "Legal Matters," to the
inclusion of this opinion as an exhibit to the Registration Statement, and to
the filing of this opinion with any other appropriate governmental agency.
Richard P. Jaffe, a partner of this firm, is the Secretary of the Company.
Very truly yours,
/s/ Mesirov Gelman Jaffe Cramer & Jamieson
------------------------------------------
Mesirov Gelman Jaffe Cramer & Jamieson
<PAGE>
Exhibit 23.2
Consent of Arthur Andersen LLP
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EA Industries, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-3 Registration Statement of our report dated March 25,
1996 included in EA Industries, Inc.'s (formerly known as Electronic Associates,
Inc.) Annual Report on Form 10-K for the year ended December 31, 1995, and to
all references to our firm included in or made a part of this registration
statement.
/s/ Arthur Andersen LLP
-------------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 7, 1997
<PAGE>
Exhibit 23.3
Consents of Luboshitz, Kasierer & Co., and Yosef Shimony
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EA Industries, Inc.:
As independent public accountants of BarOn Technologies Ltd., we hereby consent
to the incorporation by reference in this Form S-3 Registration Statement of our
report dated February 29, 1996 included in the financial statements of BarOn
Technologies Ltd. as of December 31, 1995 and December 31, 1994 and for the
years ended December 31, 1995 and December 31, 1994 and for the period from
inception in 1992 through December 31, 1995 included in EA Industries, Inc.'s
(formerly known as Electronic Associates, Inc.) Annual Report on Form 10-K for
the year ended December 31, 1995, and to all references to our firm included in
or made a part of this registration statement.
/s/ Luboshitz, Kasierer & Co.
------------------------------------
LUBOSHITZ, KASIERER & CO., C.P.A. (Isr.)
Tel-Aviv, Israel
February 7, 1997
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANT
To EA Industries, Inc.:
As an independent public accountant of BarOn Technologies Ltd., I hereby consent
to the incorporation by reference in this Form S-3 Registration Statement of my
report dated February 29, 1996 included in the financial statements of BarOn
Technologies Ltd. as of December 31, 1995 and December 31, 1994 and for the
years ended December 31, 1995 and 1994 and for the period from inception in 1992
through December 31, 1995 included in EA Industries, Inc.'s (formerly known as
Electronic Associates, Inc.) Annual Report on Form 10-K for the year ended
December 31, 1995, and to all references to my firm included in or made a part
of this registration statement.
/s/ Yosef Shimony
-------------------------------
YOSEF SHIMONY, C.P.A. (Isr.)
Tel-Aviv, Israel
February 10, 1997
<PAGE>
MESIROV GELMAN JAFFE CRAMER & JAMIESON
(215) 994-1138
February 11, 1997
VIA EDGAR
- ---------
SECURITIES AND EXCHANGE COMMISSION
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: EA Industries, Inc.
Registration Statement on Form S-3 (Registration No. 333-12691)
---------------------------------------------------------------
Gentlemen:
This firm is counsel to EA Industries, Inc., formerly known as Electronic
Associates, Inc. (the "Company"). We are filing herewith, on behalf of the
Company, one complete conformed copy of its Registration Statement on Form S-3
(the "Registration Statement"), including all exhibits thereto, registering
4,648,847 shares of Common Stock of the Company, and associated Preferred Stock
Purchase Rights, for public sale by certain named Selling Securityholders.
Pursuant to Rule 429 of the Securities Act of 1933, as amended, the Prospectus
contained therein also relates to an additional 552,731 Shares, which are
covered by the Registration Statement on Form S-3 declared effective on November
26, 1996 (Reg. No. 333-12691) and the registration fee therefor of $2,337 was
previously paid with such Registration Statement.
The registration fee of $7,045 with respect to the enclosed registration
statement has been paid separately via wire transfer.
If you have any questions concerning the enclosed filing, please do not
hesitate to contact me.
Sincerely,
/s/ Joseph J. Devine
#30217-88
cc: EA Industries, Inc. (w/enclosures)
NYSE (w/enclosures)
1735 Market Street, Philadelphia PA 19103-7598
<PAGE>
