SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 23, 1997
EA Industries, Inc.
(Exact name of registrant as specified in its charter)
New Jersey
(State or other jurisdiction of incorporation)
1-4680 21-0606484
(Commission File Number) (IRS Employer Identification No.)
185 Monmouth Parkway, West Long Branch, New Jersey 07764-9989
(Address of principal executive offices, including zip code)
(908) 229-1100
(Registrant's telephone number)
N/A
(Former name or former address, if changed since last report.)
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Item 5. Other Events.
There is a lawsuit presently pending which involves environmental
claims against EAI, namely, the Lemco Associates lawsuit. As previously
reported, in October, 1992, Lemco Associates L.P., a limited partnership
("Lemco"), the owner of property previously owned by EAI, initiated an action
(the "Lemco Suit") against EAI and others alleging, among other things, that the
defendants created environmental contamination at the property and seeking
damages in unspecified amounts. EAI filed a response to the complaint in which
it denied Lemco's allegations, asserted numerous defenses to the claims asserted
and asserted a counterclaim against Lemco and crossclaims against co-defendants
and others for indemnification and contribution. Contemporaneously with the
institution of the Lemco Suit, the Company made a demand upon its insurance
carriers for coverage for the claims made by Lemco. The Company's insurance
carriers in 1992 agreed to pay 71% of its defense costs under a reservation of
rights and have made partial payments for the period beginning on the date of
filing of the Lemco Suit to January 1, 1997.
Although at the date hereof, the Company's insurance carriers have not
formally denied coverage or refused to provide a defense for the Company, the
Company believes that settlement or other resolution of the Lemco Suit would be
more likely with the active participation of the insurance carriers. As a
result, by court order on September 23, 1997, the carriers were added as third
party defendants in the Lemco Suit and the court has ordered expedited discovery
with respect to the insurance claim.
Discovery in the Lemco Suit is ongoing. By letter dated January 22,
1997, Lemco provided the Company with a statement of its remediation costs to
that date, as well as an estimate of future remediation costs associated with
the contamination for which it seeks recovery in the Lemco Suit. 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 latest report of the Company's experts estimates 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 at
some point in or after the mid-1970's. Management of the Company is evaluating
the effect, if any, of this and other developments in the case, on the range of
possible losses in this matter. This range was previously reported as zero to
approximately $8.45 million, not including interest or costs and expenses, such
as legal and expert fees, which will be incurred in connection with this matter,
and does not take into account the amount of any reimbursements to defendants
from insurance carriers as discussed above. Management is unable, at this time,
to estimate the change, if any, in the lower end of the range of possible losses
and to compute what, if any, reserves should be established for this matter. The
Company and its consultants recently completed the investigation 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.
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 commenced and
continued through March 1997. Mediation did not result in settlement of the
Lemco Suit. Accordingly, the case is currently scheduled for trial beginning on
January 5, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
EA Industries, Inc.
Registrant
By: /s/ Howard P. Kamins
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Howard P. Kamins
Vice President and
General Counsel
Date: September 26, 1997
