As Filed with the Securities and Exchange Commission on January 23, 1998
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. Identification No.)
incorporation or organization)
185 Monmouth Parkway
West Long Branch, New Jersey 07764-9989
(732) 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. [_]
<PAGE>
<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 unit price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 1,289,360 (2) (1)
- ----------------------------------------------------------------------------------------------------------------------
Common Stock 1,069,257 (3) (1)
- ----------------------------------------------------------------------------------------------------------------------
Preferred Stock
Purchase Rights 2,358,617 (4) N/A N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Total Registration Fee $4,544.39
======================================================================================================================
</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 January 22, 1998.
(2) Represents 1,289,360 shares of the Company's Common Stock into which
certain convertible subordinated debentures (the "9% Debentures") in the
aggregate principal amount of $1,934,038 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) are convertible. 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 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 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 conversion price described
above. 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 9%
Debentures to prevent dilution resulting from stock splits, stock dividends
or similar transactions by reason of changes in the conversion price as
aforesaid.
(3) Represents the maximum shares issuable in connection with the purchase of
Service Assembly, Inc. by the Company. The actual number of shares issued
in connection with such purchase will be determined based on the trading
price of the Company's Common Stock at closing of the acquisition of SAI
and the guarantee described in "The Company - Other Developments -
Acquisition of SAI."
(4) 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
<TABLE>
<CAPTION>
Item
Number
in Form
S-3 Item Caption in Form S-3 Caption in Prospectus
- ------- ------------------------ ---------------------
<S> <C> <C>
1 Forepart of Registration Statement and Outside Front Cover Page
Cover Page of Prospectus
2 Inside Front and Outside Back Cover Pages of Prospectus Inside Front Cover Page; Table of
Contents
3 Summary of Information, Risk Factors and Ratio of Earnings The Company; Risk Factors; and
to Fixed Charges 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 Registered Inapplicable
10 Interests of Named Experts and Counsel Legal Matters
11 Material Changes The Company
12 Incorporation of Certain Documents by Reference Incorporation of Certain Information
by Reference
13 Disclosure of Commission Position on Indemnification for Indemnification of Directors and
Securities Act Liabilities Officers
</TABLE>
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 JANUARY 23, 1998
Prospectus
2,358,617 Shares
EA INDUSTRIES, INC.
Common Stock
This Prospectus relates to the offer for sale of 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 9% Convertible Subordinated
Debentures (hereinafter defined) (the "9% Holders") and certain shareholders of
Service Assembly, Inc. ("SAI") who will be receiving shares of Common Stock of
the Company in connection with the Company's acquisition of SAI (the "SAI
Holders") (the 9% Holders and SAI Holders are collectively referred to as the
"Selling Securityholders" and individually as a "Selling Securityholder"),
together with the 2,358,617 Preferred Stock Purchase Rights ("Rights")
associated with such Shares. The Rights associated with the Shares are not
exercisable or transferable 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 SIX YEARS. SEE "RISK
FACTORS" COMMENCING ON PAGE 2 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 January 22,
1998, the last reported sale price of the Common Stock as reported by the NYSE
was $6.4375.
The expenses relating to the offering are estimated to be $15,044.39 all of
which will be paid by the Company.
The Date of this Prospectus is January 23, 1998.
1
<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.
TABLE OF CONTENTS
RISK FACTORS 2
AVAILABLE INFORMATION 9
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE 9
THE COMPANY 11
USE OF PROCEEDS 21
SELECTED CONSOLIDATED FINANCIAL DATA 22
PLAN OF DISTRIBUTION AND SELLING SHAREHOLDERS 23
LEGAL MATTERS 25
EXPERTS 25
INDEMNIFICATION OF DIRECTORS AND OFFICERS 25
RISK FACTORS
The following risk 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, 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, 1996, as amended on Form 10-K/A. Proxy
Statement dated July 23, 1997, and Quarterly Reports on Form 10-Q for the
quarterly periods ended March 29, 1997, June 28, 1997 and September 27, 1997.
2
<PAGE>
Absence of Profitable Operations
The Company has not had a profitable year since 1990. 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 six years and
for the nine-month period ended September 27, 1997, resulting in an accumulated
deficit of approximately $85 million as of September 27, 1997. In addition, the
Company had negative cash flows from continuing operations in each of the last
six years and for the nine-month period ended September 27, 1997.
Delisting of the Company's Common Stock from Trading on the New York Stock
Exchange
The Company's Common Stock is currently listed and trading on the NYSE, however,
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. 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 $12,000,000 and minimum average
earnings of $600,000 for each of the last three fiscal years. The NYSE has
informed the Company each time that it listed additional shares on the NYSE
between March 1995 and December 1996, and in correspondence in December 1997,
that it was considering the appropriateness of continued listing of the
Company's Common Stock. Management of the Company have discussed this issue with
the NYSE during a series of meetings and phone conferences from September 1991
through December 1997. 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
3
<PAGE>
As described above, the Company has incurred significant losses and had negative
cash flows from operations in each of the last six years and in the nine months
ended September 27, 1997. 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 $55 million from January 1, 1995
through the date of this prospectus, from the issuance of Common Stock, the
exercise of stock options and warrants, borrowings, and the sale of convertible
notes and debentures.
While operating losses and negative cash flows were substantial through the
first half of 1997, the Company's results improved in the second half of 1997.
The Company's financial projections indicate that it may potentially reach the
operating profit level sometime during the first quarter of 1998. Management
believes that the cash resources of the Company and available financing under
the Company's primary credit facility, an asset-based credit facility with IBJ
Schroder Bank & Trust Company ("Schroder") (the "Schroder Loan Facility"), are
sufficient to support its operations until the Company has positive cash flows
from operations. The Company is currently discussing increasing the limit on
borrowing under the Schroder Loan Facility but has no other current plans to
obtain additional financing.
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
results of operations at Tanon are significantly below forecasts, or expenses at
EAI are greater than expected, this would raise doubts about the Company's
ability to continue its operations without raising additional capital or a
significant financial restructuring, which could include a major reduction in
general and administrative expenses and liquidation of assets involving sale of
all or part of Tanon. There can be no assurance that such restructuring would
enable the Company to continue its operations or that the Company would be
successful in raising additional capital. The financial statements do not
reflect any adjustments that might result from the restructuring and other
measures being unsuccessful.
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.
4
<PAGE>
Dependence on a Limited Number of Customers and the Electronics Industry
Over 80% 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. Approximately 62% of the Company's net sales during the year ended
December 31, 1996 were derived from its three largest customers and the Company
remains dependent upon its large customers. The loss of one or more of these
customers or delays or cancellations of orders by these or other large customers
could have a material adverse effect on operations. 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. See "The Company - Results of Operations -
Overview".
Shortage of Parts in Electronics Industry
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. If shortages should occur in the future,
the Company might be forced to delay manufacturing and shipments, which could
have a material adverse effect on the Company's results of operations. In such
cases, the Company often partially assembles a product and holds it in inventory
until the parts for which there was a shortage become available. This increases
the inventory costs of the Company which decreases its income and strains its
capital resources. In addition, shipment delays defer sales by the Company to
later time periods.
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
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 is one lawsuit presently pending which involves environmental
claims against EAI, namely, the Lemco Associates lawsuit. See "The Company -
Legal Proceedings."
Dependence on Key Executives - Management Continuity
5
<PAGE>
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 and key managers of Tanon, its operating subsidiary. In
addition, over the past few years, a number of executives and directors have
resigned from time to time (see "The Company - Other Developments -
Resignations; Election of New Board of Directors"). 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 has historically been volatile
and in the future 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 Carry-forward
An annual limitation of approximately $4.9 million on the ability to utilize a
portion of the Company's net operating loss carry forward for Federal income tax
purposes, which amounted to approximately $45.6 million as of September 27,
1997, 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 December 31, 1997, the Company had approximately 9.5 million shares of Common
Stock outstanding substantially all of which shares are covered by effective
registration statements, or are saleable pursuant to exemptions from
registration. In addition to the shares covered by this Registration Statement,
the Company has outstanding (i) Convertible Debentures or Notes convertible into
at least 3.2 million shares of Common Stock (see "The Company - Recent
Developments - Capital Raised" for a more complete discussion of such Debentures
and Notes), (ii) approximately 1.8 million outstanding warrants at exercise
prices ranging from $4.00 per share to $29 per share, and (iii) approximately
2.4 million outstanding options at prices ranging from $3.50 to $5.00 per share,
under various vesting schedules. Possible or actual sales made under Rule 144,
pursuant to exemptions under the Securities Act, or pursuant to registration
rights, of the aforementioned shares of Common Stock, shares issuable upon
exercise of options, or warrants, or upon conversion of convertible notes or
debentures, including without limitation, the Shares issuable upon conversion of
the 9% Debentures, may have a material adverse effect upon the market price of
the Company's Common Stock. Further, shares issuable under all of the Company's
convertible debentures and notes, and certain of the warrants and options are
convertible into shares of Common Stock at a conversion or exercise 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.
6
<PAGE>
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 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 February 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
7
<PAGE>
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.
8
<PAGE>
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, 1996,
as amended on Form 10-K/A, Proxy Statement dated July 23, 1997 filed in
connection with the Company's 1997 Annual Meeting of Stockholders, Form 8-K
filed on December 18, 1996, Quarterly Report on Form 10-Q for the quarterly
period ended March 29, 1997, the Quarterly Report on Form 10-Q for the quarterly
period ended June 28, 1997, and the Quarterly Report on Form 10-Q for the
quarterly period ended September 27, 1997 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 on Form ___ (Commission File No. ____)
therefor under Section 12 of the Exchange Act, including any amendment or report
filed for the purpose of updating such description.
The description of the Company's Preferred Stock Purchase Rights is incorporated
herein by reference from the registration statement on Form 8-A (Filed February
12, 1988} 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
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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: (732) 229-1100.
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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.
The Company, through a 52.3% owned subsidiary, Electronic Associates
Technologies Israel, Ltd. ("EATI"), formed a 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. For
information on the current status of the joint venture, see "The Company - Other
Developments."
Results of Operations
Overview. During 1996, the Company's sales increased to approximately $81.6
million from approximately $77.1 million in 1995 and cost of sales increased
both in total value and as a percentage of sales. Selling, general and
administrative expenses also increased both in total value and as a percentage
of sales. The Company had a net loss of approximately $29.9 million for 1996,
which included a charge of approximately $5.2 million for an unrealized loss on
its investment in Aydin Corporation ("Aydin") (NYSE: AYD), a charge of
approximately $4.2 million representing additional interest expense incurred in
connection with the issuance of convertible debt, a write down of the Company's
investment in the Joint Venture by $1.6 million resulting from the Company's
decision to sell or otherwise dispose of such investment and charges of
approximately $1.4 million primarily representing the charge to expense of
purchased in-process research and development resulting from the Company's
investment in BarOn Technologies Ltd. ("BarOn"). This compared with a net loss
of approximately $30.9 million for 1995, which included a charge of
approximately $19.6 million representing the charge to expense of purchased
in-process research and development resulting from the Company's investment in
BarOn and the Joint Venture with IAI.
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In October 1996, the Company adopted a plan to refocus on its core business of
contract manufacturing, and the Company has continued to update and implement
that plan. The key elements of that plan are (i) concentrating the capital
resources of the Company in Tanon, (ii) selling or otherwise disposing of the
Company's interests in BarOn and ITI, (iii) using the Company's holdings in
Aydin Corporation to provide funding for Tanon and the Company and (iv)
attempting to increase revenues and improve profit margins in Tanon by focusing
on sales and margins, improving purchasing and inventory management and
expanding the range of services provided by Tanon. BarOn is currently in
liquidation proceedings and a receiver has been appointed in Israel to direct
those proceedings.
During the first six months of 1997, the Company's sales decreased to
approximately $31,300,000 from approximately $46,400,000 during the same period
of 1996 primarily as a result of a decrease in the level of business conducted
with the Company's three largest customers without a significant offsetting
increase in sales to new customers. During the third quarter of 1997, the
Company's sales grew to approximately $21,200,000 from approximately $17,600,000
for the same period of 1996 as the level of business from the three largest
customers increased and the Company obtained orders from ten new customers,
offset slightly by the curtailment of business from several small customers. The
Company had a net loss of approximately $9,800,000 for the first six months of
1997, which included non-recurring charges of approximately $5,031,000. With the
increase in sales in the third quarter of 1997, the Company's net loss was
reduced to approximately $1,502,000 for the third quarter including a
non-recurring charge of $250,000.
Most of the Company's sales are to industrial companies which use the Company's
contract electronic manufacturing services to manufacture products for a variety
of high-technology applications, including those for computers,
telecommunications devices, high-quality graphics, and medical testing devices.
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 during
1995. In 1996, the customers which accounted for more than 10% of the Company's
net sales were Advanced Fibre Communications, Inc., Dialogic Corporation and
Iris Graphics, which accounted for 33%, 16%, and 13% of net sales, respectively.
Although the Company has been successful in broadening its customers base, it
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 canceled and purchase levels can be changed or purchases
delayed at any time, the timely replacement of canceled, 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. Because the loss of one or more of these
customers could have a material adverse effect on its operations, the Company
maintains continuous dialogue with all its customers to ensure satisfactory
quality and an on-time delivery service. Also, the Company's marketing programs
are focused to identify and develop opportunities to provide contract electronic
manufacturing services to new customers.
The Company has been informed by its largest customer that the customer intends
to move the production of most of the components assembled by Tanon to
facilities outside of the United States, which have lower labor costs. The
customer has implemented such a move on two prior occasions on a trial basis,
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but has been unsatisfied with the quality, timeliness or responsiveness of the
contract manufacturers that it used. During the first nine months of 1997, $19.6
million of revenues from that customer were included in the Company's sales. If
this customer is successful in implementing a move offshore, sales to that
customer of the product lines currently assembled by Tanon will begin decreasing
significantly in the second or third quarter of 1998, and will continue to
decrease into 1999. Management of the Company believes that the decrease in
sales will be more than offset by sales to new customers and sales of additional
products to that customer.
Historically, the Company has had substantial recurring sales from existing
customers. Current marketing efforts are aimed at, and have been successful in
obtaining, long-term relationships with new customers, as well as maintaining
its current customer base. Although the Company believes that its relations with
its customers are good and that their business will continue, specific purchase
orders are generally of less than one year in duration, and there is no
assurance that future orders will be obtained. The volume of contract
manufacturing business also depends upon the success of customers' sales.
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 typically are
shipped within twelve months from time of receipt of the order. Because purchase
orders may be accelerated or deferred by rescheduling or canceled by payment of
cancellation charges, backlog does not necessarily reflect future sales levels.
The Company's backlog at the end of 1996 was $27,958,000. The Company's
consolidated backlog at September 27, 1997 was $45,911,000, as compared to
$38,745,000 for the same period in 1996.
The Company typically receives orders from its customers on a flexible schedule
to meet the sales/delivery schedule to the ultimate consumer. These purchase
orders specify delivery of product over periods ranging from as short as 30 days
or as long as a year and are adjusted as the sales by the Company's customers to
ultimate consumers change. The amount of inventory produced and stored on behalf
of customers also varies from time to time. Consequently, the Company's backlog
at the end of a period is not necessarily indicative of future shipments to
those customers.
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 (732)
229-1100.
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Other Developments
On January 16, 1995, the Company acquired an equity interest in BarOn, a
privately-owned Israeli corporation based in Haifa, Israel. BarOn is a
development stage company which has developed and was in the process of
commercializing an electronic computer input device that can directly digitize
handwriting in a variety of languages, from any surface. During the fourth
quarter of 1996 the Company determined that its investment and advances to BarOn
were unrecoverable and charged those amounts to expense. BarOn is currently in
liquidation proceedings and a receiver has been appointed in Israel to direct
those proceedings.
On August 8, 1995, the Company, through a 52.3% owned subsidiary, EATI, entered
into a Joint Venture Agreement with IAI to review, develop and exploit
non-classified technological applications developed by IAI. The Company has
decided to sell or otherwise dispose of its interest in the Joint Venture. The
Joint Venture has been classified as an unconsolidated subsidiary held for sale.
On May 6, 1996, the Company purchased 596,927 shares of the common stock of
Aydin, representing approximately 11.64% of the outstanding common shares of
Aydin. During May 1996, the Company initiated discussions with the Board of
Directors of Aydin concerning a possible merger or other combination with Aydin.
After due diligence and numerous 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 terminated
discussions with Aydin. During the fourth quarter of 1996 the Company decided to
sell its investment in Aydin and wrote down the investment to its estimated net
realizable value of $5,605,000. At that time, the approximate trading price for
the Aydin common stock was $9.375 per share. In May and June 1997, the Company
sold its entire investment in Aydin for approximately $6,425,000.
On December 23, 1996, the Company's contract manufacturing subsidiary, Tanon,
signed a binding letter of intent to acquire Tri-Star Technologies, Inc.
("TriStar") and in January, 1997 placed an initial non-refundable deposit of
$1.0 million toward the purchase of Tri-Star. In May, 1997 the Company and
Tri-Star mutually agreed to terminate the acquisition discussions and the $1.0
million deposit was written off to Other Expenses.
As a result of the decisions to sell its interest in the Joint venture with
IAI, cease making advances to BarOn Technologies, Ltd. (in which the Company
owns a one-third interest), discontinue the business combination discussions
with Aydin and to refocus its resources on the business of providing contract
manufacturing services, the Company determined in the second quarter of 1997
that it would be necessary to restructure its senior management and Board of
Directors. In addition, the Company has closed its Philadelphia office and
consolidated the activities previously handled at such office, and the staff at
such office, with the offices of Tanon in West Long Branch, New Jersey.
Acquisition of SAI. The Company has agreed to purchase Service Assembly, Inc.
("SAI"), which is based in Wareham, Massachusetts, outside of Boston. The
Company has agreed to pay $3,742,000 (the "Purchase Price") for SAI by
delivering shares of its common stock to the owners of SAI (the "SAI
Shareholders") and has agreed to register such shares on this Form S-3 for
resale by the SAI Shareholders.
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The Company has agreed to guarantee that the aggregate proceeds received by the
SAI Shareholders during the twenty trading days after effectiveness of this
Registration Statement is at least equal to the number of shares of Common Stock
sold multiplied by the volume weighted average price of the Common Stock at the
time of effectiveness of the Registration Statement. This guarantee will
determine the number of shares issued in payment of the Purchase Price. The
Company is in no event obligated to issue more than 1,069,257 shares to satisfy
this guarantee. If at the end of the guarantee period the Company would be
obligated to issue more than this number of shares, the SAI Shareholders may
elect (i) to deliver to the Company all proceeds they received from the sale of
shares of EA stock and to rescind the sale of SAI or (ii) to retain the maximum
of 1,069,257 shares of EA stock in full satisfaction of the Purchase Price.
SAI's net sales for the fiscal year ended October 31, 1997 were approximately
$3,700,000 and its net income before payment of bonuses and other distributions
to shareholders was approximately $750,000. SAI will be operated as a Tanon
Express facility ("Tanon Express") dedicated to quick turn and prototype
electronic manufacturing services located in close proximity to customer
engineering and manufacturing operations. Tanon Express will engage the customer
early in the product cycle and will provide quick turn and short lot runs to
meet the customer's needs during the final stages of product design and the
early stages of product start up.
As the product matures and the volume increases, production can be transferred
to one of Tanon's volume manufacturing facilities at Fremont, California or West
Long Branch, New Jersey. The Company plans to have several Tanon Express
facilities established as satellites around each of these volume manufacturing
factories.
Resignations; Election of New Board of Directors. 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, 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. Beginning in May 1997, the Company restructured
its senior management and Board of Directors. First, the Company engaged Frank
G. Brandenberg as President and Chief Executive Office in May 1997 replacing
Irwin L. Gross in those positions. Second, in June 1997 Jules M. Seshens,
Executive Vice President and Paul E. Finer, Vice President and President of
Tanon resigned from their positions as executive officers of the Company. Third,
in August and September 1997, the Company appointed six new outside directors,
who together with the Chief Executive Officer of the Company, Frank Brandenberg
now constitute the Board of the Company. On October 14, 1997, the Company's
Chief Financial Officer, Stanley Jester, exercised his right pursuant to his
employment agreement to resign and receive a severance package as a result of
the change in location of his office to West Long Branch, New Jersey. Based on
communications with these officers and directors at the time of their
resignation, each resignation was based on an independent decision by the
individual resigning, with no obvious pattern or common reason for resignation.
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
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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").
All references in this Prospectus to shares, share prices, per share amounts and
stock options or warrants have been adjusted to give retroactive effect to the
Reverse Stock Split.
Capital Raised. The Company has incurred significant losses and had negative
cash flows from operations in each of the last three years. 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 $15,870,000 during 1995 and from 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 Aydin Shares, 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 this date, $7,930,000 principal amount of such
notes had been converted into 810,661 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 Irwin L. Gross, Chairman of
the Company and certain related family trusts ("the "Note Holders"). In
connection with such assignment, the Company canceled 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 (pre
Reverse Stock Split basis). On February 6, 1997, the Company amended the
Original Convertible Notes (the "Convertible Notes") by (i) increasing the
aggregate principal amount of such 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 notes to $1.50 per share, such amendments were
made in consideration of the Note Holders foregoing interest and making
available certain other loans to the Company. The Company and the Note Holders
have agreed to amend the terms of the Convertible Notes (i) to extend the
maturity date of the Convertible Notes to December 31, 1998, (ii) to increase
the conversion price to the lesser of (a) eighty percent (80%) of the average of
the volume weighted average price per share of the Company's Common Stock (as
reported by Bloomberg Business Services in its Volume at Price Service) for the
five days immediately preceding the date of notice of conversion to the Company
or (b) $5.00 and (iii) to provide for interest payments in cash or stock at the
conversion price at the option of the holders and the Company. In consideration
of this amendment the Company has agreed to issue warrants with an exercise
price of $5.00 per share, with five year terms for an aggregate of 483,393
shares to the holders of the Convertible Notes. Listing of the shares issuable
upon conversion of the Convertible Notes is subject to approval by the
shareholders of the Company. If the shareholders do not approve the amended
terms the holders of the Convertible Notes may accelerate the payment of
outstanding principal and interest on the Notes with a twenty two percent
penalty. The holders of the Notes were also granted demand and piggyback
registration rights for the Convertible Notes and these warrants.
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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 equal to 5% of the proceeds raised in the sale of
the Original Convertible Debentures in cash of $50,000 during August and
September 1996 and by delivery of 125,000 shares of Common Stock of the Company.
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 wished to exercise its conversion right. The Company agreed to adjust the
ceiling price of each of the Debentures if the holder of such debenture
refrained from conversions and short sales from approximately the middle of
January through April 11, 1997. As a result, the conversion price of each of the
Original Convertible Debentures has been reduced from $4.00 per share
(pre-Reverse Stock Split price) to $1.50 per share (post-Reverse Stock Split
price) (as amended, the "9% Debentures"). As of the date hereof, $6,165,962
principal amount of such Original Convertible Debentures have been converted
into 3,901,275 shares of Common Stock (post-Reverse Stock Split Shares).
During the period beginning on October 25, 1996 and ending on April 10, 1997,
the Company borrowed a total of $3,520,000 from the then Chairman of its Board
of Directors, certain trusts benefiting his family and unaffiliated investors
(the "Series A Holders"). These loans are represented by certain 10% Series A
Convertible Notes (the "Series A Notes") issued by the Company. The 10% Series A
Notes will mature on January 22, 1999 and were originally 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 Company and the
Series A Holders have agreed to amend the terms of the Series A Notes (i) to
provide for interest payments in cash or stock at the conversion price at the
option of the holders and the Company, and (ii) to increase the conversion price
to the lesser of (a) eighty percent (80%) of the average of the volume weighted
average price per share of the Company's Common Stock (as reported by Bloomberg
Business Services in its Volume at Price Service) for the five days immediately
preceding the date of notice of conversion to the Company, or (b) $5.00. In
consideration of this amendment the Company has agreed to issue warrants with an
exercise price of $5.00 per share, with five year terms for an aggregate of
632,700 shares to the holders of the Series A Notes. These amendments do not
affect the terms of one of the Series A Notes, in the original principal amount
of $250,000, issued to an unaffiliated investor. Listing of the shares issuable
upon conversion of the Series A Notes is subject to approval of the shareholders
of the Company. If the shareholders of the Company do not approve of the amended
terms, the holders of the Series A Notes may accelerate the payment of
outstanding principal and interest on the Notes with a twenty-two percent
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penalty. The holders of the Notes were also granted demand and piggyback
registration rights for the Series A Notes and these warrants.
In April and July 1997, the Company borrowed a total of $1,000,000 from an
unaffiliated investor. These loans are represented by certain 10% Series B
Convertible Notes (the "10% Series B Notes") issued by the Company. The Series B
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 $2.50 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 Series B Notes bear interest at the
rate of 10% per annum, payable annually in arrears on January 15, 1998 and
January 22, 1999. Interest is payable at the option of the Company in cash or
stock of the Company at the conversion prices described above.
In addition, in April 1997 the Company borrowed a total of $4.5 million from
unaffiliated investors. These loans are represented by certain 6% Convertible
Notes due April 30, 1999 (the "6% Convertible Notes"). The 6% Convertible Notes
bear interest at 6% per annum, payable quarterly and mature on April 30, 1999.
The 6% Convertible Notes are convertible at a conversion price per share equal
to the lesser of (i) seventy-six and one-half percent (76.5%) of the average of
the volume weighed average price per share of the Company's Common Stock (as
reported by Bloomberg Business Services in its Volume at Price Service) for the
five days immediately preceding the date of notice of conversion to the Company,
or (ii) $3.395. In addition, the Company issued a 6% Convertible Note which is
non-interest bearing in the principal amount of $315,000 as a placement fee to
an unaffiliated party. The Company had agreed to list the shares issuable upon
conversion of the 6% Convertible Notes on the NYSE and to cause them to be
covered by an effective registration statement under the Securities Act by
December 1, 1997, or to pay a cash penalty equal to ten percent (10%) of the
outstanding principal and to pay interest from that date through the effective
date of the registration statement at eighteen percent (18%) per annum. The
Company has asked the holders of the 6% Convertible Notes to waive or reduce
these penalties.
In addition, during January 1997, the Company borrowed $1,000,000 from each of
two unrelated parties. In consideration for such loans, 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 the lenders, Ace Foundation, Inc.
(the "Ace Warrant") and Millenco, LP (the "Millenco Warrant") (collectively, the
"Warrants"). These loans were repaid in May and June 1997 in connection with the
sale of the shares of common stock of Aydin held by the Company. Pursuant to a
provision contained in the Millenco Warrant, the Company has repurchased that
warrant for approximately $176,000 in cash.
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Legal Proceedings
Lemco Associates. The Company on a regular basis reviews and updates its public
disclosure with respect to this litigation. 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.
In 1947, the Company purchased land in North Long Branch, New Jersey on which it
subsequently built a number of buildings and conducted a number of industrial
operations. In 1954 it built a building known as Building 11 on that land. From
the mid-1950's through 1977, the Company conducted finishing operations such as
metal plating and painting on that site using, among other machinery, a
degreaser to clean metal components using a variety of solvents. In 1977, EAI
leased Building 11 to a company called Comax, Inc. ("Comax") which then began
operations in the building. In 1977, Comax, with technical advice from EAI
filled the degreaser with solvents and used it at least once. Comax then capped
the degreaser without removing the solvents and did not use it again. In 1979,
EAI sold the property and all the buildings on the site to Lemco for
approximately $400,000. Comax continued to operate on the site until 1984 under
a lease from Lemco.
Between 1977 and the time it ceased operations on the site, Comax was cited by
local authorities for a range of environmental violations. Building 11 was
demolished in or about 1991. Evidence indicates that at the time of the removal
the degreaser was empty. EAI believes that, between the time it was capped in
1977 and the time of its removal the chemicals leached out gradually over time
or the chemicals were spilled at the site before or after the removal of the
degreaser.
The Company believes that Lemco was aware at the time of its purchase of the
site from EAI that some of the underground gasoline storage tanks on the site
had leaked and that there had been previous spills of hazardous materials on the
site.
Lemco's environmental consultants have analyzed the data from test wells on the
site and have concluded using a mathematical analysis and a modeling analysis
that TCE contamination occurred between 1959 and 1974 and that PCE contamination
occurred no later than 1968. The Company's environmental consultants have
analyzed the data from the same test wells on the site and have concluded that
based on a similar modeling analysis an initial TCE release to the aquifer
occurred in the mid 1970's to the late 1980's and a release of PCE occurred from
the mid 70's to the mid 80's. Their mathematical analysis also indicates that
TCE was most likely released to the aquifer in the mid 1980's and unlikely to
have been released before 1977. In addition, the evidence that would be
presented at trial by EAI is consistent with that conclusion.
The damages sought in the Lemco Suit are (i) recovery for the decreased value of
the property, (ii) recovery for the cost to remediate the contamination on the
property, and (iii) prejudgement interest and expert fees.
19
<PAGE>
In 1988, Lemco signed an agreement of sale for the property subject to various
contingencies for a price of approximately $4 million. Further, Lemco has
provided the Company with appraisal reports made by a real estate appraisal
company engaged by Lemco in connection with the Lemco Suit. The reports state
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 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.
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 expected approximately $609,000 in
remediation costs, including fees for legal oversight and consultation and
estimates that its future remediation costs will amount to approximately
$5,000,000. This estimate has been 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 costs
and fees for legal oversight and consultation. 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
approximately $2.4 million.
The Company has been vigorously defending this matter by, among other things,
asserting that the contamination was caused partially or completely by Comax,
not EAI, and that Lemco's damage figure is substantially overstated. To the
extent that it is determined that Comax contaminated the site during its tenancy
with the Company from 1977 to 1979, then the Company may be held liable for such
contamination as owner of the site at the time of the contamination. The Company
will pursue its claim for indemnity against Comax in the event said liability is
established. Additionally, the Company has participated in court ordered
mediation in an effort to explore opportunities for settlement.
Contemporaneously with the institution of the Lemco Suit, the Company made a
demand upon its insurance carriers for coverage for the claims 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 the Lemco Suit to the date hereof.
Although the Company's insurance carriers have not formally denied coverage or
refused to provide a defense for the Company, the Company believed that
settlement or other resolution of the Lemco Suit would be more likely with the
active participation of the insurance carriers. By court order, after request by
the Company, (i) the carriers were added as third party defendants in the Lemco
Suit, (ii) the court ordered expedited discovery with respect to the insurance
claim, (iii) the court scheduled a settlement conference for April 7, 1998 and
(iv) the court has set a new trial date of May 5, 1998.
Management of the Company believes that the range of possible loss by the
Company in this matter is approximately $250,000 to $9,000,000. This range
excludes prejudgment interest, if any, but includes costs and expenses, such as
legal and expert fees. In the quarter ended September 27, 1997, the Company
established a reserve to cover anticipated legal and expert fees in connection
with the Lemco Suit. Management of the Company believes that the reserves it has
established, together with its insurance coverage, should be sufficient to cover
the costs of defending or settling the Lemco Suit and the potential losses that
could be incurred by the Company in connection with the Lemco Suit. No assurance
can be
20
<PAGE>
given that the costs incurred by the Company, or a potential award of
damages against the Company, will not exceed Management's current estimates, or
that the insurance recovery, if any, and available resources of the Company will
not be less than the current estimates of Management.
Discovery in the Lemco Suit is ongoing.
USE OF PROCEEDS
The Company will not receive any portion of the proceeds of the resale of the
Shares by the Selling Securityholders.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated financial data of the
Company for the nine-month periods ended September 27, 1997 and September 28,
1996 and for each of the years in the five-year period ended December 31, 1996.
The selected historical consolidated financial data for each of the years ended
December 31, 1992 through 1996 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 27, 1997 and September 28, 1996 were
derived from the unaudited consolidated condensed financial statements of the
Company. The results for the nine-month periods ended September 27, 1997 and
September 28, 1996 are not necessarily indicative of results for the full year
or any future period. Historical information for the nine months ended September
27, 1997 and September 28, 1996 reflects, in the opinion of management, all
adjustments (consisting only of normal 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, 1996,
as amended on Form 10-K/A, and Forms 10-Q filed for each of the quarters ended
March 29, 1997, June 28, 1997, and September 27, 1997, 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>
(Thousands of dollars except for per share amounts, Common Shares outstanding and Other Data)
Nine-Month Period Ended
---------------------------- Year Ended December 31,
September 27, September 28, ---------------------------------------------------------
1997 1996 1996(4) 1995(1)(2)(4) 1994 1993 1992
------------- ------------- ------- ------------- ------- ------- -------
Unaudited Unaudited
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Net Sales from Continuing Operations $52,545 $64,008 $81,625 $ 77,085 $30,539 $26,034 $22,248
Purchased Research and Development $ -- -- 1,383 19,546 -- -- --
Provision for Restructuring $ -- -- -- -- 2,400 -- 285
Loss from Continuing Operations
Before Taxes $(6,138) (6,469) (29,954) (30,894) (4,784) (5,348) (3,524)
Loss from Continuing Operations, net $(6,138) (6,469) (29,954) (30,894) (4,784) (4,664) (3,189)
Income from Discontinued
Operations, net $ -- -- -- -- -- 1,327 651
Net Loss $(6,138) (6,469) (29,954) (30,894) (4,784) (3,337) (2,538)
Income (Loss) per Common Share:
Continuing Operations $ (1.41) (2.97) (6.24) (10.01) (3.79) (7.04) (4.88)
Discontinued Operations $ -- -- -- -- -- 2.00 1.00
Net Loss $ (1.41) (2.97) (6.24) (10.01) (3.79) (5.04) (3.88)
------- ------- ------- -------- ------- ------- -------
Balance Sheet Data:
Current Assets $30,366 -- 22,319 37,022 16,969 7,355 14,547
Current Liabilities $34,815 -- 31,485 25,834 12,603 8,614 11,594
Working Capital $(4,449) -- (9,166) 11,188 4,366 (1,259) 2,953
Net Equipment and Leasehold
Improvements $11,468 -- 10,522 8,048 2,719 3,603 4,344
Total Assets $53,667 -- 50,971 61,252 22,845 12,762 19,836
Total Long-Term Liabilities $13,687 -- 12,400 16,028 2,998 4,694 5,466
Shareholders' Equity (Deficit) $ 5,165 -- 7,086 19,390 7,244 (546) 2,776
Common Shares Outstanding (Note 3) 9,340 -- 5,601 4,011 2,027 665 662
Book Value per Common Share (Note 3) $ 0.55 -- 1.27 4.84 3.56 (0.84) 4.20
------- ------- ------- -------- ------- ------- -------
Other Data:
Number of Shareholders of Record 3,981 -- 4,152 4,254 4,447 4,600 4,718
Number of Employees 496 -- 449 514 334 315 458
Orders Received (Note 2) $70,498 -- 62,400 105,150 30,326 18,805 31,592
Sales Backlog at End of Period $45,911 -- 27,958 47,305 19,240 19,453 26,676
------- ------- ------- -------- ------- ------- -------
</TABLE>
(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).
(2): Orders received in 1995 includes $15,710,000 of Tanon backlog at December
31, 1994.
(3): The Board of Directors approved 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 transaction had the effect of reducing
the number of net shares outstanding to 5,600,632 shares from 22,402,528
shares. In addition, all references referring to shares, share prices and
per share amounts have been adjusted to give retroactive effect to the
one-for-four reverse stock split.
(4): The Company has decided to sell or otherwise dispose of its interest in the
Joint Venture and, accordingly, such interest has been classified as an
unconsolidated subsidiary held for sale. 1995 amounts have been
reclassified to conform to the 1996 presentation.
22
<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 16, 1998 (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
Number of Shares Shares Owned Stock Owned
Name of Selling Relationship to Owned Prior to Number of Shares After After
Securityholder Company(1) Offering Offered Offering(2) Offering(2)
- --------------- --------------- ---------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Laura Huberfeld & Naomi 1,087,020(3) 49,833(4) 1,037,187 9.8%
Bodner Partnership
Robert Cohen 36,800(4) 36,800(4) -0- -0-
Lenore Katz 6,667(4) 6,667(4) -0- -0-
Kids Associates 10,667(4) 10,667(4) -0- -0-
Chanie Lerner 586,667(4) 66,667(4) 520,000 5.2%
Millenco, LP 506,980(4) 506,980(4) -0- -0-
CMR Associates, L.L.C. 67,239(4) 67,239(4) -0- -0-
Arrasy Corp. 240,858(4) 240,858(4) -0- -0-
Fargher Trading, Ltd. 240,858(4) 240,858(4) -0- -0-
Kinley Consultants Limited 62,789(4) 62,789(4) -0- -0-
Don R. DeSantis 285,714(5) 285,714(5) -0- -0-
Colin Reddy 285,714(5) 285,714(5) -0- -0-
COMTEC Information 285,714(5) 285,714(5) -0- -0-
Systems, Inc.
23
<PAGE>
<CAPTION>
Percentage of
Number of Common
Number of Shares Shares Owned Stock Owned
Name of Selling Relationship to Owned Prior to Number of Shares After After
Securityholder Company(1) Offering Offered Offering(2) Offering(2)
- --------------- --------------- ---------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
James M. Ayars 28,571(5) 28,571(5) -0- -0-
David A. Goble 15,714(5) 15,714(5) -0- -0-
Arthur Demaggio 1,429(5) 1,429(5) -0- -0-
Marilyn A. Machado 2,000(5) 2,000(5) -0- -0-
Sandra A. Medeiros 571(5) 571(5) -0- -0-
Diane Mercier 571(5) 571(5) -0- -0-
Darlene B. Metivier 743(5) 743(5) -0- -0-
Debra Mitchell 571(5) 571(5) -0- -0-
Holly Shurtleff 571(5) 571(5) -0- -0-
Linda Snow 571(5) 571(5) -0- -0-
Candice Silvia 571(5) 571(5) -0- -0-
Lorraine Lobo 571(5) 571(5) -0- -0-
Christine L. Medeiros 571(5) 571(5) -0- -0-
</TABLE>
- -------------------------
(1) Except as expressly set forth in the table or this note, none of the Selling
Securityholders has had any relation to the Company within the past three years
except for their relationship as holders of securities issued by the Company.
Mr. DeSantis and Mr. Reddy will become employees of Tanon upon closing of the
acquisition of SAI. Broad Capital Associates, Inc. ("Broad Capital") has
provided investment advisory services and has introduced potential investors to
the Company on a number of occasions during the past three years. Ms. Lerner is
an employee of, or contractor to, Broad Capital. The Laura Huberfeld & Naomi
Bodner Partnership is a partnership owned by the spouses of two of the
principals of Broad Capital.
(2) Assumes that all Shares which are registered are sold in the Offering. Also,
calculation is based on approximately 9,467,530 shares of EAI Common Stock
outstanding at December 31, 1997.
(3) In addition to the 49,833 Shares offered hereby by The Laura Huberfeld &
Naomi Bodner Partnership (the "Partnership") (assuming conversion of the total
held by the Partnership of $74,749 in principal amount of the 9% Debentures at
$1.50 per share), the shares indicated include (i) options to purchase 60,715
shares granted to Broad Capital by the Company pursuant to the Company's Equity
Incentive Plan, (ii) 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, (iii) 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 and (iv) Warrants
to purchase 800,000 shares held by the Partnership. 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
24
<PAGE>
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.
(4) Represents the shares of the Company's Common Stock into which certain
convertible subordinated debentures (the "9% Debentures") in the aggregate
principal amount of $1,934,038 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) are convertible.
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 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 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 conversion price described above. 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 9% Debentures to prevent dilution
resulting from stock splits, stock dividends or similar transactions by reason
of changes in the conversion price as aforesaid.
(5) Represents the maximum shares issuable in connection with the purchase of
SAI by the Company. The actual number of shares issued in connection with such
purchase will be determined based on the trading price of the Company's Common
Stock at closing of the acquisition of SAI and the guarantee described in "The
Company - Other Developments - Acquisition of SAI."
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.
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. The Certificate of Incorporation does
not affect the right to bring a lawsuit or to recover
25
<PAGE>
monetary damages for violations of the Federal Securities laws. 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.
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, judgments, 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 $ 4,544.39
Legal fees and expenses $ 5,000*
Accounting fees and expenses $ 3,500*
Blue sky fees and expenses $ 0*
Printing expenses $ 1,000*
Miscellaneous $ 1,000*
-----------
TOTAL $ 15,044.39*
===========
- -------------------
*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. The Certificate of Incorporation does not affect
the right to bring a lawsuit or to recover monetary damages for violations of
the Federal Securities laws. 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
27
<PAGE>
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.
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, judgments, 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.
28
<PAGE>
Item 16. Exhibits
Exhibit No.
2.1 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.
2.2 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.
2.3 Agreement of Purchase and Sale dated as of December 23, 1997 by and
among Service Assembly, Inc., EA Industries, Inc. and the shareholders
of Service Assembly, Inc.
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 Warrant to purchase 50,000 shares of Common Stock granted by
the Company to Ace Foundation, Inc. as of January 6, 1997 was filed as
Exhibit 4.3 to the Company's Form S-3/A, dated January 9, 1998, and is
hereby incorporated by reference. (File No. 333-21605).
4.4 Letter dated December 12, 1997 from the New York Stock Exchange to the
Company was filed as Exhibit 4.4 to the Company's Form S-3/A, dated
January 9, 1998, and is hereby incorporated by reference. (File No.
333-21605).
4.5 Form of convertible debenture issued to holders of 9% Convertible
Debentures.
**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.
29
<PAGE>
- ----------------
* Previously filed.
** To be filed.
30
<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
31
<PAGE>
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.
32
<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 23rd day of
January, 1998.
EA INDUSTRIES, INC.
By: /s/ James Crofton
----------------------------------
James Crofton, 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/ Frank G. Brandenberg President, Chief Executive January 23, 1998
- ------------------------------ Officer and Director
Frank G. Brandenberg (Principal Executive
Officer)
/s/ James Crofton Treasurer, Vice President January 23, 1998
- ------------------------------ Finance and
James Crofton Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Edward A. Blechschmidt Director January 23, 1998
- ------------------------------
Edward A. Blechschmidt
/s/ Kenneth W. Cannestra Director, Chairman of the January 23, 1998
- ------------------------------ Board
Kenneth W. Cannestra
/s/ Bryan I. Finkel Director January 23, 1998
- ------------------------------
Bryan I. Finkel
/s/ Ross Manire Director January 23, 1998
- ------------------------------
Ross Manire
/s/ Shrawan K. Singh Director January 23, 1998
- ------------------------------
Shrawan K. Singh
/s/ Ronald Verdoorn Director January 23, 1998
- ------------------------------
Ronald Verdoorn
</TABLE>
33
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
2.1 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.
2.2 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.
2.3 Agreement of Purchase and Sale dated as of December 23,
1997 by and among Service Assembly, Inc., EA
Industries, Inc. and the shareholders of Service
Assembly, Inc.
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 Warrant to purchase 50,000 shares of Common
Stock granted by the Company to Ace Foundation, Inc. as
of January 6, 1997 was filed as Exhibit 4.3 to the
Company's Form S-3/A, dated January 9, 1998, and is
hereby incorporated by reference. (File No. 333-21605).
4.4 Letter dated December 12, 1997 from the New York Stock
Exchange to the Company was filed as Exhibit 4.4 to the
Company's Form S-3/A, dated January 9, 1998, and is
hereby incorporated by reference. (File No. 333-21605).
4.5 Form of convertible debenture issued to holders of 9%
Convertible Debentures.
**5 Opinion of Mesirov Gelman Jaffe Cramer & Jamieson.
<PAGE>
**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.
- --------------
* Previously filed.
** To be filed.
<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 8th day of
January, 1998.
EA INDUSTRIES, INC.
By: /s/ James Crofton
--------------------------------
James Crofton, 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/ Frank G. Brandenberg President, Chief Executive January 16, 1998
- --------------------------- Officer and Director
Frank G. Brandenberg (Principal Executive
Officer)
/s/ James Crofton Treasurer, Vice President January 16, 1998
- --------------------------- Finance and
James Crofton Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Edward A, Blechschmidt Director January 16, 1998
- ---------------------------
Edward A. Blechschmidt
/s/ Kenneth W. Cannestra Director, Chairman of the January 16, 1998
- --------------------------- Board
Kenneth W. Cannestra
/s/ Bryan I. Finkel Director January 16, 1998
- ---------------------------
Bryan I. Finkel
/s/ Ross Manire Director January 16, 1998
- ---------------------------
Ross Manire
/s/ Shrawan K. Singh Director January 16, 1998
- ---------------------------
Shrawan K. Singh
/s/ Ronald Verdoorn Director January 16, 1998
- ---------------------------
Ronald Verdoorn
</TABLE>
<PAGE>
AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT dated as of the 23rd day of December, 1997 by and among
Service Assembly, Inc., a Massachusetts corporation (the "Company"), EA
Industries, Inc. a New Jersey corporation ("EAI" or the "Purchaser"), and the
shareholders listed on the signature pages hereof (the "Shareholders").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of providing contract
manufacturing services, including designing and building electronic prototypes,
and quick turn assembly and testing of a wide range of products at a facility in
Wareham, Massachusetts (the "Facility") (such activities being hereinafter
referred to as the "Business");
WHEREAS, the Purchaser through its subsidiary Tanon Manufacturing, Inc., a
California corporation ("Tanon") is engaged in the business of providing
contract manufacturing services (including assembly and testing of a wide range
of products) at facilities in California and New Jersey (such activities being
hereinafter referred to as the "Purchaser's Business");
WHEREAS, the Shareholders are the holders of 935,600 shares of the common
stock, no par value (the "Common Stock"), of the Company, which shares
constitute all of the issued and outstanding shares of capital stock of the
Company (all such shares of Common Stock held by the Shareholders being
hereinafter referred to as the "Shares"). The two largest shareholders, Don R.
DeSantis and Colin Reddy (the "Management Shareholders") own 500,000 of the
Shares in the aggregate;
WHEREAS, effective on the date of the Closing (as hereinafter defined), the
Purchaser desires to acquire from the Shareholders all of the Shares, and the
Shareholders desire to sell the Shares to the Purchaser, on the terms and
subject to the conditions hereinafter set forth; and
WHEREAS, to induce the Purchaser to enter into this Agreement and perform
its obligations hereunder, the Shareholders have agreed to make the
representations, warranties, covenants and agreements of the Shareholders set
forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, and intending to be legally bound, the
parties hereto hereby agree as follows:
<PAGE>
SECTION I
PURCHASE AND SALE OF THE SHARES
A. Purchase and Sale of the Shares. Subject to the terms and conditions of
this Agreement and on the basis of the representations, warranties, covenants
and agreements herein contained each of the Shareholders hereby sells, assigns
and conveys to the Purchaser and the Purchaser hereby purchases, acquires and
accepts from each of the Shareholders, the number of Shares listed next to the
name of such Shareholder on Schedule 1 attached hereto and made a part hereof.
B. Purchase Price. The aggregate purchase price (the "Purchase Price") for
the Shares shall be three million seven hundred forty two thousand and four
hundred dollars ($3,742,400) payable at the price of four dollars ($4.00) for
each of the Shares by delivery of shares of common stock no par value of EAI
("EAI Common Stock"). The number of shares of EAI Common Stock to be delivered
shall be determined pursuant to Section V(G) of this Agreement.
C. Continued Employment. Colin Reddy shall become an employee of the
Purchaser or a subsidiary of Purchaser at Closing pursuant to an employment
agreement in the form attached as Exhibit VI(B)(i)(b) attached hereto. Don R.
DeSantis shall become a part-time employee of the Purchaser or a subsidiary of
Purchaser at Closing pursuant to a consulting agreement in the form attached as
Exhibit VI(B)(i)(b) attached hereto.
SECTION II
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE COMPANY AND THE MANAGEMENT SHAREHOLDERS
The Company and the Management Shareholders, jointly and severally, hereby
represent and warrant to, and covenant and agree with, the Purchaser, as of the
date of the Closing that:
A. Organization and Qualification. The Company is duly organized, validly
existing and in good standing under the laws of the State of Massachusetts and
has full corporate power and authority to own its properties and to conduct the
business in which it is now engaged. The Company is in good standing in each
other jurisdiction wherein the failure to so qualify would have a material
adverse effect on its businesses or properties. The Company has no subsidiaries,
owns no capital stock or other proprietary interest, directly or indirectly, in
any other corporation, association, trust, partnership, joint venture or other
entity and has no agreement with any person, firm or corporation to acquire any
such capital stock or other proprietary interest. The Company has full corporate
power and authority, and all necessary approvals, permits, licenses and
authorizations to own its properties and to conduct the Business as currently
conducted and to enter into and consummate the transactions contemplated under
this Agreement. The copies of the Articles of Incorporation, By-Laws and minutes
of meetings of the Board of Directors of the Company which have been delivered
to the Purchaser are complete and correct.
2
<PAGE>
B. Authority. The execution and delivery of this Agreement by the Company,
the performance by the Company of its covenants and agreements hereunder and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action. This Agreement constitutes a
valid and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms.
C. No Legal Bar; Conflicts. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
violates any provision of the Articles of Incorporation or By-Laws of the
Company as amended or any statute, ordinance, regulation, order, judgment or
decree of any court or governmental agency or board, or conflicts with or will
result in any breach of any of the terms of or constitute a default under or
result in the termination of or the creation of any lien pursuant to the terms
of any contract or agreement to which the Company is a party or by which the
Company or any of its assets are bound. No consents, approvals or authorizations
of, or filings with, any governmental authority or any other person or entity
are required in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, except for required
consents, if any, to assignment of permits, certificates, contracts, leases and
other agreements as set forth in Schedule II(C) attached hereto.
D. Capitalization. The authorized capital stock of the Company consists of
1,000,000 shares of Common Stock, no par value, of which 935,600 shares are
issued and outstanding. All of the issued and outstanding shares of Common Stock
of the Company have been duly and validly authorized and issued and are fully
paid and non-assessable and are owned beneficially and of record by the
Shareholders as listed on Schedule I free and clear of any lien, encumbrance,
charge, security interest or claim whatsoever. There are no outstanding
subscriptions, warrants, options, calls, commitments or other rights or
agreements to which the Company or any of the Shareholders is bound relating to
the issuance, sale or redemption of shares of Common Stock or other securities
of the Company. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of the capital stock of the Company.
No shares of Capital Stock or other securities of the Company are reserved for
any purpose.
E. Financial Statements; No Undisclosed Liabilities. The Company and the
Shareholders have delivered to the Purchaser balance sheets of the Company as of
October 31, 1995, October 31, 1996 and October 31, 1997 and the related
statements of income, retained earnings and cash flows and the notes thereto, if
any, for the periods then ended (hereinafter referred to as the "Financial
Statements"). The Financial Statements are true and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles applied consistently throughout the periods involved. The Financial
Statements fully and fairly present in all material respects the financial
condition of the Company as at the dates thereof and the results of the
operations of the Company for the periods indicated and are consistent with the
books and records of the Company. The balance sheets contained in the Financial
Statements fairly reflect all liabilities of the Company of the types normally
reflected in balance sheets prepared in accordance with generally accepted
accounting principles or required
3
<PAGE>
to be reflected by accepted business practices as at the dates thereof. Except
to the extent set forth in or provided for in the balance sheet of the Company
as of October 31, 1997 included in the Financial Statements (the "1997 Balance
Sheet"), and except for current liabilities incurred in the ordinary course of
business on or after October 31, 1997 consistent with past practices (and not
materially different in type or amount), the Company has no liabilities or
obligations of any nature, whether accrued, absolute, contingent or otherwise,
whether due or to become due, whether properly reflected under generally
accepted accounting principles as a liability or a charge or reserve against an
asset or equity account, and whether the amount thereof is readily ascertainable
or not. A true and correct copy of the Financial Statements is attached hereto
as Schedule II(E).
F. Absence of Certain Changes. Subsequent to August 31, 1997, there has not
been any material adverse or, to the best knowledge of each of the Management
Shareholders, any prospective adverse change in the condition of the Business,
financial or otherwise, or in the results of the operations of the Company.
Without limiting the generality of the foregoing, since such date; (i) there has
not been a labor dispute or, to the best knowledge of each of the Management
Shareholders, any threatened labor dispute involving the employees of the
Company or any resignations or, to the best knowledge of each of the Management
Shareholders, any threatened resignations of key employees; (ii) there have been
no actual or, to the best knowledge of each of the Management Shareholders, any
threatened disputes pertaining to the Business with any major accounts of the
Company, or actual or, to the best knowledge of each of the Management
Shareholders, any threatened loss of business from any of the major accounts of
the Company; (iii) there has been no change in the methods or procedures for
billing or collection of customer accounts or recording of customer accounts
receivable or reserves for doubtful accounts with respect to the Company; or
(iv) the Company has not sold, leased, transferred, or assigned any of its
assets, tangible or intangible, other than for a fair consideration in the
ordinary course of business; (v) the Company has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) either involving more than $50,000 or outside the ordinary course
of business, other than for the sale of products or the purchase of supplies or
inventory; (vi) no party (including the Company) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series of
related agreements, contracts, leases, and licenses) involving more than $50,000
to which the Company is a party or by which the Company or its assets is bound,
except for change orders in the ordinary course of business; (vii) the Company
has not made any capital expenditure (or series of related capital expenditures)
either involving more than $50,000 or outside the ordinary course of business;
(viii) the Company has not made any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other person (or series of
related capital investments, loans, and acquisitions) either involving more than
$10,000 or outside the ordinary course of business; (ix) the Company has not
delayed or postponed the payment of accounts payable and other liabilities; (x)
the Company has not canceled, compromised, waived, or released any right or
claim (or series of related rights and claims) either involving more than
$50,000 or outside the ordinary course of business; (xi) the Company has not
granted any license or sublicense of any rights under or with respect to any
Intellectual Property, except to the extent of any license implied in the sale
of a product; (xii) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property; (xiii) the Company
has not
4
<PAGE>
committed to do any of the foregoing; and (xiv) there has been no other event or
condition of any character, known to the Company or the Management Shareholders
or which in the exercise of reasonable diligence should be known to the Company
or the Management Shareholders, not disclosed in this Agreement pertaining to
and materially adversely affecting the Company or the Business.
G. Liabilities. The obligations of the Company represented on the balance
sheet of the Company as of the Closing Date, in accordance with generally
accepted accounting principles, as Mortgage Payable Plymouth, shall not exceed
$441,384 less the scheduled payments thereon between October 31, 1997 and
Closing. Subsequent to August 31, 1997, the Company has not (i) incurred any
bank indebtedness, entered into any leases, loan agreements or contracts,
obligations or arrangements of any kind, including, without limitation, for the
payment of money or property to any person, or (ii) permitted any liens or
encumbrances to attach to any of its assets, except for draws made in the
ordinary course of business under the Company's line of credit with Plymouth
Savings Bank.
H. No Dividends, Loans, etc. Except as disclosed in Schedule II(H),
subsequent to August 31, 1997, the Company has not declared or paid any dividend
or made any other distribution in respect of its capital stock or, directly or
indirectly, purchased, redeemed or otherwise acquired or disposed of any shares
of its capital stock; and the Company has not, except in the ordinary course of
business paid or discharged any outstanding indebtedness. Subsequent to August
31, 1997, the Company has paid all normal and recurring installments when due
and payable (i) of bank indebtedness, (ii) under leases and contractual
obligations and (iii) of other amounts due and payable to any persons. Except as
disclosed in Schedule II (H), subsequent to August 31, 1997, the Company has not
(i) made any loans or advances to the Shareholders or members of the families of
the Shareholders, (ii) except as set forth in Schedule II(H), repaid the
principal of or interest on any indebtedness of the Company to the Shareholders
or members of the families of the Shareholders, (iii) forgiven any principal of
or interest on any indebtedness of the Shareholders or members of the families
of the Shareholders to the Company, or (iv) paid or agreed to make any payments
(whether characterized as bonus payments or otherwise) other than normal
recurring payments of base salaries to any of the Shareholders or members of the
families of the Shareholders.
I. Real Property Owned or Leased. A list and description of all real
property owned by or leased to or by the Company or in which the Company has any
interest is set forth in Schedule II(I). All such leased real property is held
subject to written leases or other agreements which are valid and legal
enforceable in accordance with their respective terms, and, to the best
knowledge of each of the Management Shareholders, there are no existing defaults
or events of default, or events which with notice or lapse of time or both would
constitute defaults, thereunder on the part of the Company. Neither the Company
nor any of the Management Shareholders has any knowledge of any default or
claimed or purported or alleged default or state of facts which with notice or
lapse of time or both would constitute a default on the part of any other party
in the performance of any obligation to be performed or paid by such other party
under any lease referred to in Schedule II(I). Neither the Company nor any of
the Shareholders have received any
5
<PAGE>
written or oral notice to the effect that any lease will not be renewed at the
termination of the term thereof or that any such lease will be renewed only at a
substantially higher rent.
J. Title to Assets; Condition of Property. Except as noted on Schedule
II(J) the Company has good and valid title to all Assets used in the Business
(the "Assets"), including, without limitation, the properties and assets
reflected in the 1997 Balance Sheet (except for assets leased under leases set
forth in Schedule II(J)). Except as noted on Schedule II(J) all of the Assets
currently used in the operation of the Business are owned by the Company or held
under valid leases with the Company as lessee. All such properties and assets
are in good condition and repair, are adequate and sufficient for all operations
conducted by the Company and have been maintained and serviced in accordance
with normal industry practice. None of the Assets is subject to any liens,
charges, encumbrances or security interests. To the best knowledge of each of
the Management Shareholders, none of the Assets (or uses to which they are put)
fails to conform with any applicable agreement, law, ordinance or regulation.
Except as set forth in Schedule II(J), the Company owns all the properties and
assets which have been located at or on any of the premises of the Company at
any time since December 31, 1995. The Facility and the other buildings owned by
the Company are located on a parcel of land containing approximately 1.72 acres
on Kendrick Road in Wareham (the land, the buildings, structures and other
improvements located on such parcel of land are referred to hereinafter as the
"Property"). The Company has good, indefeasible and marketable title in fee
simple to the Property, free and clear of all security interests, liens,
encumbrances, mortgages, pledges, equities, charges, assessments, easements,
covenants, restrictions, reservations, defects in title, encroachments, and
other burdens except as set forth on Schedule II(J). The Company has all
easements and rights of ingress and egress with respect to the Property and for
utilities and services necessary for all of its operations thereon.
K. Taxes. The Company has filed or caused to be filed on a timely basis all
federal, state, local, foreign and other tax returns, reports and declarations
(collectively, "Tax Returns") required to be filed by it. All Tax Returns filed
by or on behalf of the Company are true, complete and correct in all material
respects. The Company has paid all income, estimated, excise, franchise, gross
receipts, capital stock, profits, stamp, occupation, sales, use, transfer, value
added, property (whether real, personal or mixed), employment, unemployment,
disability, withholding, social security, workers' compensation and other taxes,
and interest, penalties, fines, costs and assessments (collectively, "Taxes"),
due and payable with respect to the periods covered by such Tax Returns (whether
or not reflected thereon). There are no tax liens on any of the properties or
assets, real, personal or mixed, tangible or intangible, of the Company. The
accrual for Taxes reflected in the Financial Statements accurately reflects the
total amount of all unpaid Taxes, whether or not disputed and whether or not
presently due and payable, of the Company as of the close of the period covered
by the Financial Statements. Except as set forth on Schedule II(K), since the
date the Company was incorporated, the Company has not incurred any tax
liability other than in the ordinary course of business. No Tax Return of the
Company has ever been audited. Except as set forth on Schedule II(K), no
deficiency in Taxes for any period has been asserted by any taxing authority
which remains unpaid at the date hereof (the results of any settlement being set
forth on Schedule II(K)), no written inquiries or notices have been received by
the Company from any taxing authority with respect to possible claims for
6
<PAGE>
Taxes, the Company has no reason to believe that such an inquiry or notice is
pending or threatened, and there is no basis for any additional claims or
assessments for Taxes. The Company has not agreed to the extension of the
statute of limitations with respect to any Tax Return or tax period. The Company
has delivered to the Purchaser copies of the federal and state income Tax
Returns filed by the Company for the past three years and for all other past
periods as to which the appropriate statute of limitations has not lapsed.
The Company and the Shareholders have not filed a consent pursuant to
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
relating to collapsible corporations.
L. Permits; Compliance with Applicable Law.
(i) General. The Company is not in default under any, and, to the best
knowledge of each of the Management Shareholders, has complied with all,
statutes, ordinances, regulations and laws, orders, judgments and decrees of any
court or governmental entity or agency, relating to the Company, the Business or
the Assets as to which a default or failure to comply might result in a material
adverse affect on the Company or the Business. Neither the Company nor any of
the Management Shareholders have any knowledge of any basis for assertion of any
violation of the foregoing or for any claim for compensation or damages or
otherwise arising out of any violation of the foregoing. Neither the Company nor
any of the Management Shareholders have received any notification of any
asserted present or past failure to comply with any of the foregoing which has
not been satisfactorily responded to in the time period required thereunder.
(ii) Permits; Intellectual Property. Set forth in Schedule II(L) is a
complete and accurate list of all permits, licenses, approvals, franchises,
patents, registered and common law trademarks, service marks, tradenames,
copyrights (and applications for each of the foregoing), notices and
authorizations issued by governmental entities or other regulatory authorities,
federal, state or local (collectively the "Permits"), held by the Company in
connection with the Business. The Permits set forth in Schedule II(L) are all
the Permits required for the conduct of the Business in its present form. All
the Permits set forth in Schedule II(L) are in full force and effect, and
neither the Company nor any of the Management Shareholders has engaged in any
activity which would cause or permit revocation or suspension of any such
Permit, and no action or proceeding looking to or contemplating the revocation
or suspension of any such Permit is pending or, to the best knowledge of each of
the Management Shareholders, threatened. To the best knowledge of each of the
Management Shareholders, there are no existing defaults or events of default or
event or state of facts which with notice or lapse of time or both would
constitute a default by the Company or the Shareholder under any such Permit.
Neither the Company nor any of the Management Shareholders have any knowledge of
any default or claimed or purported or alleged default or state of facts which
with notice or lapse of time or both would constitute a default on the part of
any other party in the performance of any obligation to be performed or paid by
any other party under any Permit set forth in Schedule II(L). To the best
knowledge of each of the Management Shareholders, the use by the Company of any
proprietary rights relating to any Permits does not involve any claimed
infringement of such Permit or rights.
8
<PAGE>
The consummation of the transactions contemplated hereby will in no way affect
the continuation, validity or effectiveness of the Permits set forth in Schedule
II(L) or require the consent of any person. Except as set forth on Schedule
II(L), the Company is not required to be licensed by, nor is it subject to the
regulation of, any governmental or regulatory body by reason of the conduct of
the Business in its present form.
(iii) Environmental.
(i) "Environmental, Health, and Safety laws" means the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1976, and the Occupational Safety
and Health Act of 1970, each as amended, together with all other laws (including
rules, regulations codes, plans, injunctions, judgments, orders, decrees,
rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof) concerning pollution or protection of the
environment, public health and safety, or employee health and safety, including
laws relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes. The Company, the Property
and the Facility are in material compliance with all Environmental, Health, and
Safety Laws. The Company has not been notified that any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against it alleging any failure so to comply.
Without limiting the generality of the preceding sentence, the Company has
obtained and is in compliance with all of the terms and conditions of all
permits, licenses, and other authorizations which are required under, and is in
compliance with all other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables which are
contained in, all Environmental, Health, and Safety Laws.
(ii) To the best knowledge of each of the Management Shareholders,
neither the Company nor any lessee (each a "Lessee") of any portion of the
Property has any liability (and none of such parties has handled or disposed of
any substance, arranged for the disposal of any substance, exposed any employee
or other individual to any substance or condition, or owned or operated any
property or facility in any manner that could form the basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against the Company giving rise to any material liability) for
damage to any site, location, or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other individual, or for any
reason under any Environmental, Health, and Safety Law.
(iii) To the best knowledge of each of the Management
Shareholders, other than pursuant to legal disposal procedures, neither the
Company nor any Lessee has introduced into the environment any asbestos, PCB's,
methylene chloride, trichloroethylene, 1, 2-trans-dichloroethylene, dioxins,
dibenzofurans, or Extremely Hazardous Substances as defined in Section 302 of
the Emergency Planning and Community Right to Know Act of 1986, as amended.
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M. Accounts Receivable; Inventories; Accounts Payable.
(i) The accounts receivable of the Company are in their entirety valid
accounts receivable, arising in the ordinary course of business, collectable at
their recorded amounts, and are not subject to set-off or counterclaims.
(ii) The accounts and notes payable and other accrued expenses reflected
in the Financial Statements, and the accounts and notes payable and accrued
expenses incurred by the Business subsequent to August 31, 1997, are in all
respects valid claims that arose in the ordinary course of business. Since
August 31, 1997, the accounts and notes payable and other accrued expenses of
the Business have been paid in a manner consistent with past practice and
industry standard practice.
(iii) The inventory of the Company consists of raw materials and
supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which are fit for the purpose for which they were procured or
manufactured, and none of which is slow-moving, obsolete, or damaged, adjusted
for the passage of time through the Closing Date in accordance with the past
custom and practice of the Company, and generally accepted accounting
principles. The finished goods inventory is merchantable.
N. Contractual and Other Obligations. Set forth in Schedule II(N) is a list
and brief description of all (i) contracts, agreements, licenses, leases,
arrangements (written or oral) and other documents to which the Company is a
party or by which the Company or any of the Assets is bound and which involve
more than $50,000 (including, in the case of loan agreements, a description of
the amounts of any outstanding borrowings thereunder and the collateral, if any,
for such borrowings); (ii) all obligations and liabilities of the Company
pursuant to uncompleted orders for the purchase of materials, supplies,
equipment and services for the requirements of the Business with respect to
which the remaining obligation of the Company is in excess of $50,000; and (iii)
material contingent obligations and liabilities of the Company; all of the
foregoing being hereinafter referred to as the "Contracts". To the best
knowledge of each of the Management Shareholders, neither the Company nor any
other party is in default in the performance of any covenant or condition under
any Contract and no claim of such a default has been made and no event has
occurred which with the giving of notice or the lapse of time would constitute a
default under any covenant or condition under any Contract. The Company is not a
party to any Contract which would terminate or be materially adversely affected
by consummation of the transactions contemplated by this Agreement. To the best
knowledge of each of the Management Shareholders, the Company is not a party to
any Contract expected to be performed at a loss. Originals or true, correct and
complete copies of all written Contracts have been provided to the Purchaser.
O. Compensation. Set forth in Schedule II(O) attached hereto is a list of
all agreements between the Company and each person employed by or independently
contracting with the Company with regard to compensation, whether individually
or collectively, and set forth in Schedule II(O) is a list of all employees of
the Company their respective salaries and any
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bonuses paid or payable to such employees since January 1, 1997. The
transactions contemplated by this Agreement will not result in any liability for
severance pay to any employee or independent contractor of the Company. The
Company has not informed any employee or independent contractor providing
services to the Company that such person will receive any increase in
compensation or benefits or any ownership interest in the Company or the
Business. The Company and the Shareholders acknowledge that the decision as to
whether to employ some or all the employees of the Company after Closing shall
be made by the Purchaser in its sole discretion and that neither the Company nor
the Management Shareholders have informed any person to the contrary.
P. Employee Benefit Plans. Except as set forth in Schedule II(P) attached
hereto, the Company does not maintain or sponsor, or contribute to, any pension,
profit-sharing, savings, bonus, incentive or deferred compensation, stock
option, stock purchase, severance pay, medical, life insurance, welfare, or any
other "employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), in which the
employees participate (such plans and related trusts, insurance and annuity
contracts, funding media and related agreements and arrangements hereinafter
referred to as the "Benefit Plans"). To the best knowledge of each of the
Management Shareholders, all Benefit Plans comply with all requirements of the
Department of Labor and the Internal Revenue Service, and with all other
applicable law, and the Company has not taken or failed to take any action with
respect to the Benefit Plans which might create any liability on the part of the
Company or the Purchaser. To the best knowledge of each of the Management
Shareholders, each "fiduciary" (within the meaning of Section 3(21)(A) of ERISA)
as to each Benefit Plan has complied in all material respects with the
requirements of ERISA and all other applicable laws in respect to each such
Plan. The Company has furnished to the Purchaser copies of all Benefit Plans and
all financial statements, actuarial reports and annual reports and returns filed
with the Internal Revenue Service with respect to such Benefit Plans for a
period of three years prior to the date hereof. Such financial statements,
actuarial reports and annual reports and returns are true and correct in all
material respects, and none of the actuarial assumptions, if any, underlying
such documents have changed since the respective dates thereof. In addition:
(i) Each Benefit Plan has received a favorable determination letter from
the Internal Revenue Service as to its qualification under Section 401(a) of the
Code, if required;
(ii) The Company has not withdrawn as a contributing sponsor (partially
or totally within the meaning of ERISA) from any Benefit Plan or any
Multiemployer Plan; and neither the execution and delivery of this Agreement or
the consummation of the transactions contemplated herein will result in the
withdrawal (partially or totally within the meaning of ERISA) from any Benefit
Plan or Multiemployer Plan, or in any withdrawal or other liability of any
nature to the Company or the Purchaser under any Benefit Plan or Multiemployer
Plan;
(iii) No "prohibited transaction" (within the meaning of Section 406 of
ERISA or Section 4975(c) of the Code) has occurred with respect to any Benefit
Plan;
(iv) No provision of any Benefit Plan or of any agreement, and no act or
omission of the Company, in any way limits, impairs, modifies or otherwise
affects the right of
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the Company or the Purchaser unilaterally to amend or terminate any Benefit Plan
after the Closing, subject to the requirements of applicable law;
(v) There are no contributions which are or hereafter will be required
to be made to trusts in connection with any Benefit Plan that would constitute a
"defined contribution plan" (within the meaning of Section(34) of ERISA);
(vi) To the best knowledge of each of the Management Shareholders, all
reports, returns and similar documents with respect to the Benefit Plans
required to be filed with any governmental agency have been so filed;
(vii) To the best knowledge of each of the Management Shareholders, the
Company has not incurred any liability to the Pension Benefit Guaranty
Corporation. No notice of termination has been filed by the plan administrator
(pursuant to Section 4041 of ERISA) or issued by the Pension Benefit Guaranty
Corporation (pursuant to Section 4042 of ERISA) with respect to any Benefit Plan
subject to ERISA. There has been no termination of any Defined Benefit Plan or
any related trust by the Company;
(viii) None of the provisions of the Company's 401(k) Plan (the "Plan"),
the operation of the Plan or the investments made by the Plan would prevent the
transfer of any assets from the Plan into a qualified plan maintained by the
Purchaser, the existing investments from being liquidated (at no cost to
participants or the Company) and participants' account balances invested as
provided under the terms of the Purchaser's 401(k) plan, or another plan
maintained by the Purchaser for or on behalf of the participants of the Plan.
The Shareholders agree to make all required final contributions to the Plan
before Closing. After Closing, Purchaser at its option shall (i) take any and
all steps necessary to effectuate promptly the termination of the Plan,
including, but not limited to, the filing of an Application for Determination
Upon Termination, or take any and all steps necessary to effectuate promptly the
merger of the Plan with the 401(K) plan of the Purchaser, (ii) prepare, file and
deliver all required forms with the Internal Revenue Service ("IRS") and
Department of Labor ("DOL") and any notices required to be delivered to
employees and to the trustees of the Plan in connection with the termination or
merger of the Plan, and (iii) continue to file any and all information reports,
including annual reports, required with respect to the Plan until the completion
of the termination of the Plan.
The Shareholders and the Company agree that any contributions now due or
that may become due to the Plan before Closing shall be the sole responsibility
of the Shareholders and shall be paid, when due, by the Shareholders.
The current trustees of the Plan shall be replaced by designees of the
Purchaser as trustees of the Plan promptly after Closing.
(ix) The Company does not maintain, sponsor or contribute to, and has
never maintained, sponsored or contributed to a "defined benefit plan" (within
the meaning of Section 3(35) of ERISA) or a "Multiemployer plan" (within the
meaning of Section 3(37) of ERISA);
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(x) Other than claims in the ordinary course for benefits with respect
to the Benefit Plans, there are no actions, suits or claims (including claims
for income taxes, interest, penalties, fines or excise taxes with respect
thereto) pending with respect to any Benefit Plan, or any circumstances which
might give rise to any such action, suit or claim (including claims for income
taxes, interest, penalties, fines or excise taxes with respect thereto); and
(xi) The Company has no obligation to provide health or other welfare
benefits to former, retired or terminated employees, except as specifically
required under Section 4980B of the Code and Section 601 of ERISA. The Company
has complied with the notice and continuation requirements of Section 4980B of
the Code and Section 601 of ERISA.
Q. Labor Relations. To the best knowledge of each of the Management
Shareholders, there have been no violations of any federal, state or local
statutes, laws, ordinances, rules, regulations, orders or directives with
respect to the employment of individuals by, or the employment practices or work
conditions of, the Company, or the terms and conditions of employment, wages and
hours. To the best knowledge of each of the Management Shareholders, the Company
is not engaged in any unfair labor practice or other unlawful employment
practice. There are no charges of unfair labor practices or other
employee-related complaints pending or To the best knowledge of each of the
Management Shareholders, threatened against the Company before the National
Labor Relations Board, the Equal Employment Opportunity Commission, the
Occupational Safety and Health Review Commission, the Department of Labor or any
other federal, state, local or other governmental authority. There is no strike,
picketing, slowdown or work stoppage or organizational attempt pending, or to
the best knowledge of each of the Management Shareholders, threatened against or
involving the Business. No issue with respect to union representation is pending
or to the best knowledge of each of the Management Shareholders threatened with
respect to the employees of the Company. No union or collective bargaining unit
or other labor organization has ever been certified or recognized by the Company
as the representative of any of the employees of the Company.
R. Increases in Compensation or Benefits. Except as set forth in Schedule
II(R), subsequent to August 31, 1997, there have been no increases in the
compensation payable or to become payable to any of the employees of the Company
and there have been no payments or provisions for any awards, bonuses, loans,
profit sharing, pension, retirement or welfare plans or similar or other
disbursements or arrangements for or on behalf of such employees (or related
parties thereof), in each case, other than pursuant to currently existing plans
or arrangements, if any, set forth in Schedule II(R). All bonuses heretofore
granted to employees of the Company have been paid in full to such employees.
The vacation policy of the Company is set forth in Schedule II(R). Except as set
forth in Schedule II(R), no employee of the Company is entitled to vacation time
during the current calendar year and no employee of the Company has any accrued
vacation or sick time with respect to any prior period.
S. Insurance. Schedule II(S) sets forth the following information with
respect to each insurance policy (including policies providing property,
casualty, liability, and workers' compensation coverage and bond and surety
arrangements but excluding health, life, dental and
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disability insurance) to which the Company has been a party, a named insured, or
otherwise the beneficiary of coverage at any item within the past 3 years: (i)
the name of the insurer, the name of the policyholder, and the name of each
covered insured; (ii) the policy number and the period of coverage; (iii) the
scope (including an indication of whether the coverage was on a claims made,
occurrence, or other basis) and amount (including a description of how
deductibles and ceilings are calculated and operate) of coverage; (iv) a
description of any retroactive premium adjustments or other loss-sharing
arrangements and (v) the name and agency of the insurance agent who sold such
policy to the Company. With respect to each such insurance policy, to the best
knowledge of each of the Management Shareholders (a) the policy is legally
enforceable; (b) the policy will continue to be legally enforceable on identical
terms following the consummation of the transactions contemplated hereby; (c)
neither the Company nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default, or permit termination, modification, or
acceleration, under the policy; and (d) no party to the policy (including the
Company) has repudiated any provision thereof. The Company has been covered
during the past 3 years by insurance in scope and amount customary and
reasonable for the business in which it has engaged during such period.
T. Conduct of Business. Neither the Company nor any of the Shareholders are
restricted from conducting the Business in any location by agreement or court
decree.
U. Use of Names. All names under which the Company currently conducts the
Business are listed in Schedule II(U). To the best knowledge of each of the
Management Shareholders, there are no other persons or businesses conducting
businesses similar to those of the Company in the Commonwealth of Massachusetts
having the right to use or using the names set forth in Schedule II(U) or any
variants of such names; and no other person or business has ever attempted to
restrain the Company or the Shareholders from using such names or any variant
thereof.
V. Power of Attorney. Except for powers granted pursuant to this Agreement,
neither the Company nor any of the Management Shareholders has granted any power
of attorney (revocable or irrevocable) to any person, firm or corporation for
any purpose whatsoever.
W. Litigation; Disputes. Except as set forth in Schedule II(W), there are
no claims, disputes, actions, suits, investigations or proceedings pending or to
the best knowledge of each of the Management Shareholders, threatened against
the Company, the Shareholders, the Business or any of the Assets, no such claim,
dispute, action, suit, proceeding or investigation has been pending or to the
best knowledge of each of the Management Shareholders threatened during the
five-year period preceding the date of the Closing and, to the best of the
knowledge of the Company and the Management Shareholders, there is no basis for
any such claim, dispute, action, suit, investigation or proceeding. Neither the
Company nor any of the Management Shareholders have any knowledge of any default
under any such action, suit or proceeding. The Company is not in default in
respect of any judgment, order, writ, injunction or decree of any court or of
any federal, state, municipal or other government department, commission,
bureau, agency or instrumentality or any arbitrator.
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X. Location of Business and Assets. Set forth in Schedule II(X) is each
location (specifying state, county and city) where the Company (i) has a place
of business, (ii) owns or leases real property and (iii) owns or leases any
other property, including inventory, equipment and furniture.
Y. Disclosure. No representation or warranty made under any Section hereof
and none of the information furnished by the Company or the Shareholders set
forth herein, in the exhibits hereto or in any document delivered by the Company
or the Shareholders to the Purchaser, or any authorized representative of the
Purchaser, pursuant to this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
herein or therein not misleading.
Z. No Foreign Person. None of the Shareholders is a foreign person within
the meaning of Section 1445(b)(2) of the Code.
AA. Bank Accounts. Set forth in Schedule II(AA) is a list of all bank
accounts maintained in the name of the Company and a brief description of
persons having power to sign on behalf of the Company with respect to each such
account.
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SECTION III
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF THE SHAREHOLDERS
The Shareholders hereby each individually represent and warrant to, and
covenant and agree with, the Purchaser, as of the date of the Closing, that:
A. Authority. Each of the Shareholders is fully able to execute and deliver
this Agreement and to perform his, her, or its covenants and agreements
hereunder, and this Agreement constitutes a valid and legally binding obligation
of each of the Shareholders, enforceable against each of the Shareholders in
accordance with its terms.
B. Ownership of Shares, etc. Each of the Shareholders represents that he,
she or it owns the number of shares of Common Stock of the Company set forth
opposite his, her or its name on Schedule I hereof, free and clear of any lien,
encumbrance, charge, security interest or claim whatsoever (including any
restriction on the right to vote, sell or otherwise dispose of the Shares), and
that he, she or it has the right to transfer such Shares to the Purchaser and,
upon transfer of the Shares to the Purchaser hereunder, the Purchaser will
acquire good and marketable title to the Shares, free and clear of any lien,
encumbrance, charge, security interest or claim whatsoever.
C. No Legal Bar; Conflicts. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
violates any statute, ordinance, regulation, order, judgment or decree of any
court or governmental agency, or conflicts with or will result in any breach of
any of the terms of or constitute a default under or result in the termination
of or the creation of any lien pursuant to the terms of any contract or
agreement to which the Company or any of the Shareholders is a party or by which
any of the Shareholders or any of the Shareholders' assets is bound.
D. Investment. Each of the Shareholders is acquiring the EAI Common Stock
for its own account without a view to the distribution thereof within the
meaning of the Securities Act, and will not directly or indirectly offer or sell
the shares or solicit any offer to purchase the shares, other than in conformity
with the Securities Act. Each of the Shareholders acknowledges that the EAI
Common Stock has not been registered under the Securities Act, and such
Shareholder shall not transfer any of the EAI Common Stock except in compliance
with the Securities Act or an opinion that registration is not required under
the Securities Act, and a legend to that effect may be placed on the
certificates representing the shares.
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SECTION IV
REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF EAI
EAI represents and warrants to the Shareholders and the Company that the
statements contained in this Section IV are correct and complete as of the date
of this Agreement:
A. Organization. EAI is a corporation duly incorporated, validly existing,
and in good standing under the laws of the State of New Jersey. EAI is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required and where the failure to so
qualify would have a material adverse effect on its business.
B. Authorization of Transaction. The Purchaser has full corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes a valid and legal binding obligation of
the Purchaser, enforceable against it in accordance with its terms. EAI is not
required to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order to consummate the transactions contemplated by this Agreement, other than
the filings and qualifications regarding the EAI Stock as set forth in the
Registration Agreement and obtaining official approval of listing of the EAI
Stock on the New York Stock Exchange, subject to official notice of issuance,
required of EAI.
C. Non-Contravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Purchaser is subject or any provision
of its charter or By-Laws, or (ii) except as set forth on Exhibit (IV)(C)
conflict with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify,
or cancel, or require any notice under any agreement, contract, lease, license,
instrument or other arrangement to which the Purchaser is bound or to which any
of its assets is subject.
D. Investment. The Purchaser is acquiring the Shares for its own account
without a view to the distribution thereof within the meaning of the Securities
Act, and will not directly or indirectly offer or sell the Shares or solicit any
offer to purchase the Shares, other than in conformity with the Securities Act.
The Purchaser acknowledges that the Shares have not been registered under the
Securities Act, and the Purchaser shall not transfer any of the Shares except in
compliance with the Securities Act or an opinion that registration is not
required under the Securities Act, and a legend to that effect may be placed on
the certificates representing the Shares.
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SECTION V
ADDITIONAL REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE COMPANY, THE MANAGEMENT SHAREHOLDERS,
THE SHAREHOLDERS AND THE PURCHASER
A. Publicity. The Company and the Management Shareholders covenant and
agree that any and all publicity (whether written or oral) and notices to third
parties concerning the sale of the Shares and other transactions contemplated by
this Agreement shall be subject to the prior written approval of the Purchaser,
which approval may be withheld in the sole discretion of the Purchaser.
B. Notices and Consents. EAI, the Company, Tanon and the Management
Shareholders will give notices to third parties, will use their respective best
efforts to obtain any third-party consents, authorizations and approvals, and
will make any filings with any governmental agencies, in connection with the
matters referred to in Section III and IV above or elsewhere in this Agreement.
C. Operation of Business. Neither the Company nor the Management
Shareholders will engage in any practice, take any action, or enter into any
transaction outside the ordinary course of business between the date hereof and
the Closing. In consideration of the substantial expenditures of time, effort
and expense to be undertaken by EAI and Tanon in connection with the preparation
and execution of this Agreement, and the various investigations and due
diligence reviews the Management Shareholders agree that neither they nor the
Company shall, directly or indirectly, for the period until Closing or the
termination hereof as set forth below, (i) solicit, encourage (including
furnishing any information to any third party or group), consider, respond to or
assist in any manner any other offers, bids, proposals, inquiries or expressions
of interest for the acquisition of all or part of the business, assets or
securities of the Company or (ii) enter into any agreement or understanding with
any third party for the acquisition of all or part of the business, assets or
securities of the Company.
D. Preservation of Business. The Company and the Management Shareholders
will each use their best efforts to keep the Business substantially intact,
including its present operations, physical facilities, working conditions, and
relationships with lessors, licensers, suppliers, customers, and employees
between the date hereof and the Closing.
E. Full Access; Physical Inventory. The Company and EAI will each permit
the other party's representatives to have full access to all premises,
properties, personnel, books, records (including Tax records), contracts,
customers, and documents of or pertaining to their business between the date
hereof and the Closing.
F. Post Closing Cooperation. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party may request, all at the sole cost and expense of the requesting
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party (unless the requesting party is entitled to indemnification therefor under
Section IX), so long as such documents do not increase the liability or risk of
liability of the Party of whom action is requested. The Company and Shareholders
acknowledge and agree that from and after the Closing, the Purchaser will be
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company.
G. Registration/Purchase Price Adjustment. The shares of EAI Common Stock
issued in payment of the Purchase Price will be issued in a private placement
and will consist of restricted securities only tradable subject to the
restrictions of Rule 144 under the Securities Act of 1944, as amended (the
"Act"). The sales of such stock will also be subject to restrictions to the
extent that the insider trading rules are applicable and to the extent that the
seller is then subject to restrictions under Section 16 of the Securities
Exchange Act of 1934. EAI covenants and agrees to file a Registration Statement
(the "Registration Statement") on Form S-3 under the Act within fifteen days
after the date hereof registering for resale by the Shareholders all of the
shares of Common Stock of EAI issued at Closing in payment of the Purchase
Price. The Purchaser shall use its best efforts to have the Registration
Statement declared effective by the Securities and Exchange Commission ("SEC")
as promptly thereafter as practicable and shall notify the Shareholders' Agent
promptly after the SEC has completed its review and comment on the Registration
Statement.
The period of time beginning on the date the Registration Statement is
declared effective by the SEC (the "Effective Date") and ending at the end of
the twentieth day thereafter on which the NYSE was open for trading is referred
to as the "Grace Period". At least two days before Closing, the Shareholders'
Agent shall deliver a notice to the Purchaser telling the Purchaser the
aggregate percentage of the Purchase Price (the "Grace Period Purchase Price")
to be delivered in EA Shares that the Shareholders intend to sell during the
Grace Period. At Closing the Purchaser shall deliver to the Escrow Agent (as
defined in Section VI(B)(i)(c)), that number of EA Shares (the "Grace Period
Shares") determined by dividing the Grace Period Purchase Price by $3.50. In
addition, at Closing the Purchaser shall deliver to the Escrow Agent, that
number of EA Shares (the "NonSale Shares) determined by dividing (x)$3,742,000
minus the Grace Period Purchase Price by (y) the arithmetic average of the
volume weighted average price per share of EAI Common Stock for the two trading
days immediately preceding the day of Closing, as reported by Bloomberg Business
Services in its Volume at Price Service (the "Closing Market Price").
During the Grace Period (i) any sales of Common Stock of EA held by any of
the Shareholders, directly or indirectly, shall be effected on their behalf by
the Shareholders' Agent, (ii) the Shareholders' Agent shall use his best efforts
to effectuate the sale of all of the Grace Period Shares at the highest price
that he can obtain, (iii) the Shareholders' Agent shall not sell any of the
Grace Period Shares for less than $3.50 per share, and (iv) the Shareholders'
Agent shall notify (the "Notification") the Purchaser at the time that the
aggregate proceeds of sales of the Grace Period Shares equal or exceed the Grace
Period Purchase Price.
At the earlier of the end of the Grace Period or the receipt of the
Notification by the Purchaser the Escrow shall be terminated. If at such time
the aggregate proceeds of sales of the
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Grace Period Shares equal or exceed the Grace Period Purchase Price, the Escrow
Agent shall deliver the remaining Grace Period Shares to the Purchaser and shall
deliver the NonSale Shares to the Shareholders' Agent. If at such time the
aggregate proceeds of sales of the Grace Period Shares do not equal or exceed
the Grace Period Purchase Price the Shareholders' Agent may declare the sale of
the Shares rescinded or may elect to have the remaining EA Shares distributed to
the Shareholders' Agent in full satisfaction of payment of the Purchase Price.
If the transaction is rescinded, the Shareholders' Agent shall deliver to
the Escrow Agent the aggregate proceeds of sales of the Grace Period Shares.
Upon receipt of such funds, the Escrow Agent shall deliver to the Purchaser (i)
such proceeds, (ii) the remaining Grace Period Shares, and (iii) the NonSale
Shares. At such time the Escrow Agent shall deliver to the Shareholders' Agent
the Shares.
If after the Grace Period any of the Shareholders desire to sell or
otherwise transfer any of his shares of EAI Stock pursuant to the Registration
Statement, the Shareholder shall notify EAI of the Shareholder's intention to do
so by written notice received by EAI at least five business days prior to the
proposed date of such sale or transfer. The Shareholder may effect such sale or
transfer after five business days following the delivery of such notice unless,
prior to the end of such five business day period, EAI shall furnish the
Shareholder a written notice stating that in the good faith judgment of EAI's
President, the sale or transfer of the shares of EAI Stock pursuant to the
Registration Statement would, at such time, require the disclosure of material
information that EAI has a bona fide business purpose for preserving as
confidential or EAI is unable to comply with SEC requirements. In such event
EAI's obligation to prepare a prospectus to be used in connection with the sale
or transfer or to amend the Registration Statement shall be suspended for a
reasonable period (but not in excess of 60 days or 15 days after the providing
or disclosure of any information causing such deferral) until such confidential
information is disclosed or EAI is able to provide any information required by
the SEC or the Securities Act. Each Shareholder agrees to keep confidential any
notification EAI provides to the Shareholder pursuant to the above provisions.
Each of the Shareholders agrees that, in connection with any sale or transfer of
shares of EAI Stock acquired pursuant to the Purchase Agreement, the Shareholder
will comply with any legal requirement the Shareholder may have to deliver a
prospectus. The Shareholder also agrees not to offer or sell any shares of EAI
Stock in any offering or sale that would require EAI to amend or supplement any
prospectus solely due to a change in the description of the plan of distribution
of such shares of EAI Stock contained in such prospectus.
EAI covenants that the Registration Statement and the prospectus contained
therein, as amended and supplemented by any prospectus filed pursuant to Rule
424 under the Securities Act, will contain at all times all statements which are
required under the Securities Act and the rules and regulations of the SEC under
the Securities Act, and the Registration Statement and such prospectus will not
at any time contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Each of the Shareholders covenants that he or she shall provide all
information and materials and take all actions as may be required in order to
permit EAI to comply with all
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applicable requirements of the Securities Act, the Exchange Act, and the SEC,
and to comply with all requirements of applicable Blue Sky Laws or other
applicable rules and regulations of any administrative agency of any state of
the United States.
In connection with the offering of EA Shares, the Shareholders, jointly and
severally, agree to indemnify and hold harmless EAI, each of its officers and
directors and each person, if any, who controls EAI within the meaning of the
Securities Act from and against, the entirety of any Adverse Consequences
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys fees and expenses, and any action in
respect thereof, to which any such party may become subject, under the
Securities Act or any other statute or common law or otherwise, insofar as such
Adverse Consequences arise out of or are based upon, (A) any untrue statement or
alleged untrue statement of a material fact contained in the Shelf Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading or (B) any untrue statement or alleged untrue statement of material
fact contained in any preliminary prospectus, together with the documents
incorporated by reference therein (as amended or supplemented if EAI shall have
filed with the SEC any amendment thereof or supplement thereto), if used prior
to the effective date of such registration statement, or contained in the
prospectus, together with the documents incorporated by reference therein (as
amended or supplemented if EAI shall have filed with the SEC any amendment
thereof or supplement thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, if, in each case, that statement or omission was made in
reliance upon and in conformity with written information furnished to EAI by the
Shareholders or on behalf of the Shareholders or by SAI (if furnished prior to
the Closing) specifically for use in connection with the preparation of the
Shelf Registration Statement or any preliminary prospectus or prospectus
contained in the Shelf Registration Statement or any amendment thereof or
supplement thereto. The foregoing indemnity is in addition to any liability that
the Shareholder may otherwise have to EAI or any of its officers, directors and
controlling persons.
In the case of each offering registered pursuant to this Agreement, EAI
agrees to indemnify and hold harmless each of the Shareholders from and against
any Adverse Consequences, and any action in respect thereof, to which the
Shareholder may become subject, under the Securities Act or any other statute or
common law or otherwise, insofar as such Adverse Consequence arises out of, or
is based upon (A) any untrue statement or alleged untrue statement of a material
fact contained in the Shelf Registration Statement or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein no misleading, or (B) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, together with the documents incorporated by reference
therein (as amended or supplemented if EAI shall have filed with the SEC any
amendment thereof or supplement thereto), if used prior to the effective date of
such registration statement, or contained in the prospectus, together with the
documents incorporated by reference therein (as amended or supplemented if EAI
shall have filed with the SEC any amendment thereof or supplement thereto), or
the omission or
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alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the indemnity by EAI contained in this paragraph shall not apply to the
Shareholder for any such Adverse Consequence which arises out of, or is based
upon, any sale of Shareholder's EAI Stock if that Adverse Consequence shall
arise out of, or is based upon, any untrue statement or alleged untrue statement
or omission or alleged omission, if such statement or such omission shall have
been (i) made in reliance upon and in conformity with written information
furnished to EAI by the Shareholder or on behalf of the Shareholder or by
Tri-Star (if furnished prior to the Closing) specifically for use in connection
with the preparation of the registration statement or any preliminary prospectus
or prospectus contained in the registration statement or any amendment thereof
or supplement thereto or (ii) made in any prospectus and such statement or
omission shall have been corrected in any amendment or supplement thereto, if
the Shareholder shall have been sent or given a copy of such amendment or
supplement at or prior to the consummation of such sale. The foregoing indemnity
is in addition to any liability that EAI may otherwise have to any of the
Shareholder.
SECTION VI
CLOSING AND DELIVERIES
A. Time and Place of Closing. The closing of the purchase and sale of the
Shares as set forth herein (the "Closing") shall be held at the offices of
Mesirov Gelman Jaffe Cramer & Jamieson, 1735 Market Street, Philadelphia, PA
19103 or at such other place upon which EAI and the Shareholders' Representative
may mutually agree. The Closing shall commence at 10:00 a.m. local time on
February 12, 1998(the "Closing Date") or such other date upon which EAI and the
Shareholders' Agent shall mutually agree following the satisfaction or waiver of
all conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself) (the "Closing Date").
B. Deliveries.
(i) At the Closing, the Purchaser shall deliver to the Escrow Agent the
following:
a. The Grace Period Shares and the NonSale Shares
b. Employment Agreements (the "Employment Agreements") executed by
the Purchaser or a subsidiary of the Purchaser, substantially in the form of
Exhibit VI(B)(i)(b) attached hereto.
c. An escrow agreement (the "Escrow Agreement") substantially in
the form of Exhibit VI(B)(i)(c) attached hereto appointing Mesirov Gelman Jaffe
Cramer & Jamieson as the Escrow Agent
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(ii) At the Closing, the Company and the Shareholders shall deliver to
the Escrow Agent, as a condition to Closing, the following:
a. Certificates in negotiable form representing the Shares, each
such certificate to be accompanied by any requisite documentary or stock
transfer taxes;
b. Written resignations of all directors and officers of the
Company.
c Such certificates, instruments and other documents, in form and
substance satisfactory to the Purchaser and its counsel, as they shall have
reasonably requested in connection with the transactions contemplated hereby;
d. An opinion of Cameron & Mittelman, counsel for the Company and
the Shareholders, delivered to the Purchaser pursuant to the instructions of the
Company and the Shareholders, dated the date of the Closing, substantially in
the form set forth in Exhibit VI(B)(ii)(d) attached hereto;
e. All necessary consents of third parties under the contracts,
agreements, leases, insurance policies and other instruments of the Company to
the consummation of the transactions contemplated hereby, which consents shall
not provide for the acceleration of any liabilities or any other detriment to
the Purchaser or the Company;
f. The Employment Agreements executed by Colin Reddy and Don R.
DeSantis.
g. Non-Competition Agreements executed by each of Don R. DeSantis,
Colin Reddy, James M. Ayars and David A. Goble substantially in the form of
Exhibit VI(B)(ii)(g) attached hereto.
h. The Escrow Agreement
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SECTION VII
ADDITIONAL COVENANTS
A. Conduct of Business. During the period commencing on the date hereof and
ending on the Closing Date:
(a) The Management Shareholders shall cause the Company to continue to
conduct its business prudently and diligently in the ordinary course in
substantially the same manner as heretofore conducted, and to use its best
efforts to preserve intact the business organization of the Company, to keep
available the services of its present officers and employees, and to preserve
the good will of those having business relationships with the Company; and
(b) Except for the transactions expressly contemplated by this Agreement
or with the specific prior written consent of Purchaser, the Management
Shareholders shall not permit the Company to:
(i) amend its character document or By-Laws;
(ii) declare, set aside or pay any dividend or make any
distribution on or with respect to shares of its capital stock;
(iii) issue, grant, sell or pledge any shares of, or rights of any
kind to acquire any shares of, the capital stock of the Company, or
purchase, redeem or otherwise acquire any shares of such capital stock;
(iv) acquire any assets or properties, other than in the ordinary
course of business;
(v) sell, lease, transfer, dispose of, encumber or mortgage any
assets or properties, other than in the ordinary course of business;
(vi) enter into any merger, consolidation, recapitalization or
other business combination or reorganization.
(vii) create, incur or assume any indebtedness for borrowed money
except in the ordinary course of business, or prepay any part of the
principal or interest of any existing indebtedness prior to the due date
thereof;
(viii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person or entity.
(ix) make any loans, advances, or capital contributions to or
investments in any person or entity;
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(x) incur, assume or pay any management fee, interest or any other
similar charge.
(xi) cause or permit any of the Company's current insurance (or
reinsurance) policies to be canceled or terminated or any of the
coverage thereunder to lapse, unless simultaneously with such
termination, cancellation or lapse, the Company obtains replacement
policies from the same or comparable insurers providing coverage which
is the same as or comparable to that provided under the canceled,
terminated or lapsed policies.
(xii) sell, transfer, license or otherwise dispose of any of its
assets, other than in the ordinary course of business.
(xiii) waive, release, grant or transfer any rights of value or
modify or change in any material respect any existing license, lease,
contract or other document, other than in the ordinary course of
business;
(xiv) make aggregate capital expenditures and commitments therefor,
which when taken together with all other capital expenditures and
commitments of the Company during such period, would exceed $50,000.
(xv) make any change in any method of accounting or accounting
practice, except as may be required by law and after written notice to
Purchaser;
(xvi) increase the compensation payable or to become payable by it
to any of its employees except for normal periodic increases in the
ordinary course of business that are made in accordance with the
established compensation policies of the Company.
(xvii) make any payment or provision with respect to any employee
benefit or welfare plan, except in the ordinary course of the
administration of such plans consistent with the established
compensation policies of the Company.
(xviii) grant any stock options, restricted stock grants or stock
appreciation rights;
(xix) enter into any employee agreement or other contract or
arrangement with respect to the performance of personal services which
is not terminable without liability by the Company on thirty days notice
(or less);
(xx) make any payment (other than normal recurring payments of base
salaries) or loan to, or enter into any written contract, lease or
commitment with, any shareholder, officer or director of the Company;
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(xxi) adopt any new employee benefit plan or program or amend to
increase materially the compensation or benefits payable under any of
the employee welfare or benefit plans, or grant any severance or
termination pay or benefit otherwise than pursuant to policies of the
Company in effect on the date of this Agreement; or
(xxii) enter into any oral or written agreement, contract,
commitment, arrangement or understanding with respect to any of the
foregoing.
SECTION VIII
CLOSING CONDITIONS
A. Conditions to Obligations of EA and the Purchaser. The obligation of EAI
to consummate the purchase of the Shares is subject to the following conditions,
which may be waived , in whole or in part, by EAI in its sole and absolute
discretion:
(i) the representations and warranties of the Company and the
Shareholders set forth in this Agreement shall be true and correct in all
material respects at and as of the Closing Date;
(ii) the Company and the Shareholders shall have performed and complied
with all of their covenants hereunder in all material respects through the
Closing;
(iii) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order decree, ruling, or charge would (a) prevent consummation of any
of the transactions contemplated by this Agreement, (b) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (c) affect adversely the right of EA to own the Shares and to
control the Company;
(iv) the parties shall have received all authorizations, consents, and
approvals of governments and governmental agencies required to effectuate the
transactions contemplated by this Agreement;
(v) all actions to be taken by the Shareholders in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and substance to EA;
(vi) the Company and Shareholders shall have made the deliveries
specified in Section VI(b)(ii);
(vii) all assets used in the Business since December 31, 1995, shall
have been transferred to the Company before Closing without payment by the
Company or shall be subject to a legally enforceable lease agreement with an
unrelated third party; and
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(viii) at Closing, the debt obligations of the Company represented on
the balance sheet of the Company in accordance with generally accepted
accounting principles shall not exceed $441,384 less the scheduled payments
thereon between October 31, 1997 and Closing.
B. Conditions to Obligation of the Company and the Shareholders. The
obligation of the Company and the Shareholders to consummate the transactions to
be performed by them in connection with this Agreement is subject to
satisfaction of the following conditions, which may be waived , in whole or in
part, by the Company and the Shareholders in their sole and absolute discretion:
(i) the representations and warranties of EAI set forth in this
Agreement shall be true and correct in all material respects at and as of the
Closing Date;
(ii) EA shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending before any court
or quasi-judicial or administrative agency of any federal, state, local, or
foreign jurisdiction wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (a) prevent consummation of any of the transactions
contemplated by this Agreement or (b) cause any of the transactions contemplated
by this Agreement to be rescinded following consummation (nor shall any such
injunction, judgment, order, decree, ruling, or charge be in effect);
(iv) the parties shall have received all authorizations, consents, and
approvals of governments and governmental agencies required to effectuate the
transactions contemplated by this Agreement;
(v) EAI shall have made the deliveries specified in Section (VI)(b)(i);
(vi) all certificates, opinions, instruments, and other documents
required to effect the transactions contemplated hereby will be reasonably
satisfactory in form and substance to the Company and the Management
Shareholders. The Company and the Shareholders may waive any condition specified
in this Section VIII by executing a writing so stating at or prior to the
Closing; and
(vii) EA has notified the Shareholders' Agent that (i) the listing of
the EA Shares on the NYSE has been completed and (ii) the SEC has completed its
review of the Registration Statement and that there is no reason that the
Registration Statement can not be declared effective.
SECTION IX
INDEMNIFICATION
A. Indemnification by the Management Shareholders. The Management
Shareholders shall, jointly and severally, indemnify and hold harmless Tanon,
the Company and
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the Purchaser and their successors and assigns, directors, officers, employees,
agents and representatives, from and against any and all losses, claims,
assessments, actions, suits, claims, demands, debts, liabilities, obligations,
losses, damages, costs and expenses, including without limitation the cost of
investigation and reasonable attorney's fees and court costs, arising out of,
resulting from, related to, or caused by, directly or indirectly, in whole or in
part any or all of the following (hereinafter referred to collectively as
"Damages"):
(i) any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties and covenants made by the Company or any of the
Shareholders in this Agreement;
(ii) Damages arising out of or attributable to the operations prior to
the Closing Date of the Company, and/or to the acts or omissions prior to the
Closing Date of any of its current or former shareholders, directors, officers,
employees or agents, including without limitation Damages arising out of claims
(a) for violation of federal or state insurance, antitrust, securities, unfair
trade practice or other laws, (b) personal injury claims, (c) claims of any
nature by past or present directors, officers, employees or agents of the
Company (including workers' compensation claims to the extent not fully insured
against and claims under federal or state employment statutes and judicial
decisions), (d) claims based on breach of warranty, products liability or
defective or omitted service, and (e) any other liability not disclosed to the
Purchaser in this Agreement or in the Schedules hereto. It is understood and
agreed that the acts, omissions or events for which Purchaser is entitled to
indemnification hereunder include, but are not limited to, claims asserted after
the Closing (whether such claims are tort claims, contract claims or otherwise)
which are based in whole or in part upon (1) alleged defects in products or
services which were either sold, delivered or rendered by the Company on or
before the Closing, (2) alleged defects in products which were in the inventory
of the Company at the time of the Closing and sold or delivered thereafter by
the Purchaser or (3) alleged defects in services which were rendered by the
Company at the time of Closing and were completed thereafter by the Purchaser.
It is further understood and agreed that the acts, omissions and events for
which Purchaser is entitled to indemnification hereunder include claims (whether
tort, contract or otherwise) which are based upon any injury to any Person or
any damage to any property which occurs after the Closing and which results in
whole or in part from acts, omissions and events which occurred at or before the
Closing; the Shareholders or Company's lack of knowledge of such act, omission
or event, or the fact that such act, omission or event was unknowable by such
person, shall not be a defense to the claim for indemnity.
(iii) any liability for Taxes (as defined in Section II(K)) heretofore
or hereafter imposed by any taxing authority (including penalties and interest)
owed by, relating to, resulting from or attributable to the business or
operations of the Company or the acts or omissions of any of the Shareholders on
or before the Closing Date, including interest and penalties related to such
Taxes.
In addition to the right of the Company and the Purchaser to indemnification
hereunder, the Purchaser and its subsidiaries and affiliates shall have the
right from time to time to set off the amount of any Damages against any
payments due and payable to any of the Shareholder from the Company, the
Purchaser or such subsidiaries or affiliates.
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B. Indemnification by the Purchaser. The Purchaser shall indemnify and hold
harmless the Shareholders, their heirs, representatives, successors, assigns,
directors, officers, employees and agents from and against any and all (i)
Damages sustained or incurred by the Shareholders by reason of the breach of any
of the obligations, covenants or provisions of, or the inaccuracy of any of the
representations or warranties made by the Purchaser herein, (ii) Damages arising
out of or attributable to the operations after the Closing Date of the Company,
including without limitation Damages arising out of claims (a) for violation of
federal or state insurance, antitrust, securities, unfair trade practice or
other laws, (b) personal injury claims and (b) claims based on breach of
warranty, products liability or defective or omitted service; and (iii) any
liability for Taxes (as defined in Section II(K)) heretofore or hereafter
imposed by any taxing authority (including penalties and interest) owed by,
relating to, resulting from or attributable to the business or operations of the
Company after the Closing Date, including interest and penalties related to such
Taxes.
C. Procedure for Indemnification. If a claim by a third party is made
against any party hereto, and such party (the "Indemnified Party") intends to
seek indemnity with respect to such claim under this Section IX, such
Indemnified Party shall promptly notify the party from whom such indemnity may
be sought (the "Indemnifying Party") of such claim. The Indemnifying Party shall
have thirty (30) days after receipt of the above-mentioned notice to undertake,
conduct and control, through counsel of such party's own choosing (subject to
the consent of the Indemnified Party, such consent not to be unreasonably
withheld) and at such party's expense, the settlement or defense of it, and the
Indemnified Party shall cooperate with the Indemnifying Party in connection with
such efforts; provided that: (i) the Indemnifying Party shall not by this
Agreement permit to exist any lien, encumbrance or other adverse charge upon any
asset of any Indemnified Party, (ii) the Indemnifying Party shall permit the
Indemnified Party to participate in such settlement or defense through counsel
chosen by the Indemnified Party, provided that the fees and expenses of such
counsel shall be borne by the Indemnified Party, and (iii) the Indemnifying
Party shall agree promptly to reimburse the Indemnified Party for the full
amount of any loss resulting from such claim and all related expense incurred by
the Indemnified Party pursuant to this Section IX. So long as the Indemnifying
Party is reasonably contesting any such claim in good faith, the Indemnified
Party shall not pay or settle any such claim. If the Indemnified Party does not
notify the Indemnified Party within thirty (30) days after receipt of the
Indemnified Party's notice of a claim of indemnify under this Section IX that
such party elects to undertake the defense of such claim, the Indemnified Party
shall have the right to contest, settle or compromise the claim in the exercise
of the Indemnified Party's exclusive discretion at the expense of the
Indemnifying Party, and the Indemnifying Party shall within 30 days after
receipt of notice of such settlement or compromise pay to the Indemnified Party
the amount of expenses and damages as a result of contesting, settling or
compromising such claim. In the event that any party hereto shall incur any
Damages in respect of which indemnity may be sought by such party pursuant to
this Section IX, the party from whom such indemnity may be sought (the
"Indemnifying Party") shall be given written notice thereof by the party seeking
such indemnity (the "Indemnified Party"), which notice shall specify the amount
and nature of such Damages and include the request of the Indemnified Party for
indemnification of such amount.
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The Indemnifying party shall within 30 days pay to the Indemnified Party the
amount of the Damages so specified.
D. Disclosure Not a Defense. The disclosure of any act, omission or event
in this Agreement, or in any Schedule or exhibit of this Agreement, or in any
agreement executed in connection herewith, shall not be a defense to claims for
indemnification hereunder.
E. Limitations. The amount of Damages payable to an Indemnified Party
pursuant to this Section IX shall be reduced by the actual amount of proceeds
received by such party from an insurance carrier on account of such Damages. No
party to this Agreement shall make a claim for indemnification hereunder, until
the total amount of the Damages suffered by that party, and its subsidiaries and
affiliates exceeds $50,000. Once that threshold amount is reached, such party
may recover the full amount of its Damages, including the threshold amount. The
maximum liability of the Shareholders for indemnification pursuant to Section IX
shall be the Purchase Price. No party to this Agreement shall make a claim for
indemnification hereunder more than two years after the Closing Date.
SECTION X
BROKERS AND FINDERS
A. The Shareholders' Obligation. The Purchaser shall not have any
obligation to pay any fee or other compensation to any person, firm or
corporation engaged by the Company or any of the Shareholders in connection with
this Agreement and the transactions contemplated hereby, and the Management
Shareholders, hereby agree to jointly and severally indemnify and save the
Purchaser harmless from any liability, damage, cost or expense arising from any
claim for any such fee or other compensation.
B. The Purchaser's Obligation. The Shareholders shall not have any
obligation to pay any fee or other compensation to any person, firm or
corporation engaged by the Purchaser in connection with this Agreement and the
transactions contemplated hereby, and the Purchaser hereby agrees to indemnify
and save the Shareholders harmless from any liability, damage, cost or expense
arising from any claim for any such fee or other compensation.
SECTION XI
REPRESENTATION OF SHAREHOLDERS BY
SHAREHOLDERS' AGENT
A. Appointment of Agent. Each of the Shareholders hereby irrevocably
appoints Donald R. DeSantis (herein called the "Shareholders' Agent") as his
agent and attorney-in-fact to take any action required or permitted to be taken
by such Shareholder under the terms of this Agreement, including, without
limiting the generality of the foregoing, the giving and receipt of any notices
to be delivered or received by or on behalf of any or all of the Shareholders,
the sale of the EA Shares by the Shareholders pursuant to the Registration
Statement, the payment of expenses relating to the transactions contemplated by
this Agreement, the representation of the
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Shareholders in indemnification proceedings hereunder, and the right to waive,
modify or amend any of the terms of this Agreement, and agrees to be bound by
any and all actions taken by such agent on his behalf. The Shareholders agree
jointly and severally to indemnify the Shareholders' Agent from and against and
in respect of any and all liabilities, damages, claims, costs and expenses,
including but not limited to attorneys' fees, arising out of or due to any
action as Shareholders' Agent and any and all actions, proceedings, demands,
assessments or judgments, costs and expenses incidental thereto, except to the
extent that the same result from bad faith or gross negligence on the part of
the Shareholders' Agent.
The Purchaser shall be entitled to rely exclusively upon any communications
given by the Shareholders' Agent and shall not be liable in any manner
whatsoever for any action taken or not taken in reliance upon the actions taken
or not taken or communications given or made by the Selling Shareholders' Agent.
The Purchaser shall be entitled to disregard any notices or communications not
given or made through the Shareholders' Agent, except as provided in paragraph B
below.
B. Successor Agent. Subsequent to the Closing Date, in the event of the
death of the Shareholders' Agent or his inability to perform his functions
hereunder, the Shareholders shall promptly appoint a new agent or agents as
attorney-in-fact or attorneys-in-fact, and such appointment or appointments
shall be deemed to have been made when communicated to the Buyer in writing
signed by the former holders (or the personal representatives thereof) of at
least 51% of the Shares immediately prior to the Closing Date. If the
Shareholders do not within fifteen days appoint a new agent or agents, then the
Shareholder then living who previously owned the greatest number of shares
outstanding immediately prior to the Closing Date shall serve as Shareholders'
Agent if he is able and willing to do so, until a successor agent or agents
shall have been appointed in accordance with the provisions hereof.
C. Shareholders' Actions. The manner and form by which the Shareholders
shall decide upon any new agent and attorney-in-fact shall be decided solely by
the former holders (or the personal representatives thereof) of at least 51% of
the Shares outstanding immediately prior to the Closing Date. The Shareholders
recognize, and hereby acknowledge, that the Shareholders' Agent has an interest
in the subject matter of this Agreement and that the appointment of such Agent
[which shall include any person who becomes the Shareholders' Agent pursuant to
the provisions of the subparagraph B above] as the Shareholders' Agent
constitutes an irrevocable power-of-attorney coupled with an interest.
SECTION XII
MISCELLANEOUS
A. Notices. All notices, requests or instructions hereunder shall be in
writing and delivered personally, sent by telecopy, sent by nationally
recognized courier service, or sent by registered or certified mail, postage
prepaid, as follows:
If to the Company, the Shareholders' Agent or any of the Shareholders:
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Service Assembly, Inc.
18 Kendrick Road
Wareham, MA 02571
Attention: Don R. DeSantis, President
Telecopy No.: (508) 291-1720
Telephone No.: (508) 291-3803
with a copy to:
E. Colby Cameron, Esq.
Cameron & Mittelman
56 Exchange Terrace
Providence, RI 02903
Telecopy No.: (401) 331-5787
Telephone No.: (401) 331-5700
Telephone No.: (508)
If to the Purchaser:
EAI Industries, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764
Attention: Frank Brandenberg., President
Telecopy No.: (908) 229-6162
Telephone No.: (908) 229-1100
with a copy to:
Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street
Philadelphia, PA 19103
Attention: Richard P. Jaffe, Esquire
Telecopy No.: (215) 994-1111
Telephone No.: (215) 994-1046
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be effective on the earlier of (i) the date
of delivery to the addressee or (ii), four business days after it has been
mailed, telecopied or delivered to such nationally recognized courier service.
B. Survival of Representations. Each representation, warranty, covenant and
agreement of the parties hereto herein contained shall survive closing,
notwithstanding any investigation at any time made by or on behalf of any party
hereto.
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<PAGE>
C. Entire Agreement. This Agreement and the documents referred to herein
contain the entire agreement among the parties hereto with respect to the
transactions contemplated hereby, and no modification hereof shall be effective
unless in writing and signed by the party against which it is sought to be
enforced.
D. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or any breach hereof, shall be settled by arbitration before a sole
arbitrator in accordance with the rules of the American Arbitration Association
then in effect and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in the Philadelphia, Pennsylvania area.
E. Invalidity. Should any provision of this Agreement be held by a court or
arbitration panel of competent jurisdiction to be enforceable only if modified,
such holding shall not affect the validity of the remainder of this Agreement,
the balance of which shall continue to be binding upon the parties hereto with
any such modification to become a part hereof and treated as though originally
set forth in this Agreement. The parties further agree that any such court or
arbitration panel is expressly authorized to modify any such unenforceable
provision of this Agreement in lieu of severing such unenforceable provision
from this Agreement in its entirety, whether by rewriting the offending
provision, deleting any or all of the offending provision, adding additional
language to this Agreement, or by making such other modifications as it deems
warranted to carry out the intent and agreement of the parties as embodied
herein to the maximum extent permitted by law. The parties expressly agree that
this Agreement as modified by the court or the arbitration panel shall be
binding upon and enforceable against each of them. In any event, should one or
more of the provisions of this Agreement be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall be construed
as if such invalid, illegal or unenforceable provisions had never been set forth
herein.
F. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the successors and assigns of EAI, the Company and the
Purchaser, respectively, and the legal representatives and heirs of the
Shareholders. No Party may assign either this Agreement or any of his or its
rights, interests, or obligations hereunder without the prior written approval
of the other parties hereto.
G. No Third-Party Beneficiaries. This Agreement shall not confer any rights
or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
H. Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
I. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New Jersey without giving
effect to any choice or conflict of
32
<PAGE>
law provision or rule (whether of the State of New Jersey or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New Jersey.
J. Amendments and Waivers. No amendment, modification or termination of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by the Parties hereto. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
K. Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal and accounting fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
L. Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
M. Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
N. Materiality. As used in this Agreement, the terms "material" or
"materiality" shall mean an item or items which would affect the net income of
the Company during any fiscal year by $10,000 or more or which would affect its
shareholder's equity by $25,000 or more, during any fiscal year, provided,
however, that if a specific dollar amount is set forth elsewhere in a specific
provision of this Agreement, for purposes of that section that amount shall be
deemed material.
O. Gender. In this Agreement, unless the context requires otherwise, the
masculine, feminine and neuter gender and the singular and the plural include
one another.
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P. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
COMPANY: SERVICE ASSEMBLY, INC.
By: /s/ Don R DeSantis
-------------------------------
Don R. DeSantis, President
PURCHASER: EA INDUSTRIES, INC.
By: /s/ Frank Brandenberg
-------------------------------
Frank Brandenberg, President
and Chief Executive Officer
[signatures continued on next page]
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<PAGE>
SHAREHOLDERS:
/s/ Don R. DeSantis
- ----------------------------------
Don R. DeSantis
/s/ Colin Reddy
- ----------------------------------
Colin Reddy
COMTEC Information Systems, Inc.
By: /s/ Robert A Petteruti
- ----------------------------------
Robert A. Petteruti, President
/s/ James M. Ayars
- ----------------------------------
James M. Ayars
/s/ David A. Goble
- ----------------------------------
David A. Goble
/s/ Marilyn A. Machado
- ----------------------------------
Marilyn A. Machado
/s/ Sandra A. Medeiros
- ----------------------------------
Sandra A. Medeiros
/s/ Diane Mercier
- ----------------------------------
Diane Mercier
/s/ Darlene B. Metivier
- ----------------------------------
Darlene B. Metivier
[signatures continued on next page]
35
<PAGE>
/s/ Debra Mitchell
- ----------------------------------
Debra Mitchell
/s/ Holly Shurtleff
- ----------------------------------
Holly Shurtleff
/s/ Linda Snow
- ----------------------------------
Linda Snow
/s/ Candice Silvia
- ----------------------------------
Candice Silvia
/s/ Lorraine Lobo
- ----------------------------------
Lorraine Lobo
/s/ Christine L. Medeiros
- ----------------------------------
Christine L. Medeiros
/s/ Arthur Demaggio
- ----------------------------------
Arthur, Demaggio
36
<PAGE>
Schedule I
----------
Name of Shareholder Number of Shares
- ------------------- ----------------
Don R. DeSantis 250,000
Colin Reddy 250,000
COMTEC Information Systems, Inc. 250,000
James M. Ayars 100,000
David A. Goble 55,000
Arthur Demaggio 5,000
Marilyn A. Machado 7,000
Sandra A. Medeiros 2,000
Diane Mercier 2,000
Darlene B. Metivier 2,600
Debra Mitchell 2,000
Holly Shurtleff 2,000
Linda Snow 2,000
Candice Silvia 2,000
Lorraine Lobo 2,000
Christine L. Medeiros 2,000
37
<PAGE>
February __, 1998
Don R. DeSantis
30 Bud Way
Tiverton, RI 02878
Dear Don:
The following describes the terms of your employment:
1. Tanon Manufacturing, Inc. (the "Company") hereby employs Don R. DeSantis (the
"Executive), and the Executive agrees to serve in the employ of the Company, for
a term commencing on the date hereof and continuing through December 31, 2001.
2. The Executive shall serve the Company as General Manager of Service Assembly,
Inc. ("SAI"). The Executive shall devote at least ten hours per week to the
performance of his duties and responsibilities hereunder. The Executive hereby
represents that he is not bound by any confidentiality agreements or restrictive
covenants which restrict or may restrict his ability to perform his duties
hereunder.
3. The Company shall pay the Executive, and the Executive shall accept, a salary
at the rate of $60,000 per annum, payable in accordance with the standard
payroll practices of the Company.
4. During the term of this Agreement the Executive shall be entitled to
customary medical insurance on the same terms as are available to such similarly
situated employees, it being understood that (i) for purposes of eligibility for
such benefits, the Executive shall be treated as a full-time employee, to the
extent allowed by law and (ii) the Executive shall be required to make the same
contributions and payments in order to receive any of such benefits as may be
required of such similarly situated employees.
5. The Executive shall be granted options under the 1994 Equity Incentive Plan
of EA Industries, Inc. ("EA") to purchase seven thousand five hundred (7,500)
shares of the Common Stock of EA. The exercise price of these options shall be
the fair market value of such stock at the time the option grant is made by the
Compensation Committee or Board of Directors of EA, the options shall have a
term of ten years, shall vest 1/4 per year beginning on the first anniversary or
the date hereof, and shall have such other terms as are approved by the
Compensation Committee or Board of Directors of EA.
<PAGE>
6. If the Executive shall become incapacitated by reason of sickness, accident
or other physical or mental disability and shall for a period of sixty (60)
consecutive days, or for a cumulative total of ninety (90) days during any
twelve month period, be unable to perform his normal duties hereunder, the
employment of the Executive hereunder may be terminated by the Company upon ten
(10) days' prior written notice to the Executive. Within thirty (30) days after
such termination, the Company shall pay to the Executive the salary provided for
in paragraph 3 accrued to the date of such termination and not theretofore paid.
7. The employment of the Executive hereunder may be terminated by the Company at
any time during the term of this Agreement for Due Cause (as hereinafter
defined). In the event of such termination, the Company shall pay to the
Executive the salary provided for in Section 3 (at the annual rate then in
effect) accrued to the date of such termination and not theretofore paid to the
Executive, and, after the satisfaction of any claim of the Company against the
Executive arising as a direct and proximate result of such Due Cause, neither
the Executive nor the Company shall have any further rights or obligations under
this Agreement. For purposes hereof, "Due Cause" shall mean (a) a material
breach of any of the Executive's obligations hereunder or under the
Non-Competition and Confidentiality Agreement dated the date hereof, or (b)
performance which, in the good faith judgment of the Company, is unsatisfactory;
or (c) that the Executive, in carrying out his duties hereunder, has been guilty
of (i) willful or gross neglect or (ii) willful or gross misconduct, resulting
in either case in harm to any member of the Company Group (as hereinafter
defined); or (d) that the Executive has been charged with (i) a felony or (ii)
any crime or offense involving moral turpitude. In the event of an occurrence
under this paragraph 7, the Executive shall be given written notice by the
Company that it intends to terminate the Executive's employment for Due Cause
under this Section, which written notice shall specify the act or acts upon the
basis of which the Company intends so to terminate the Executive's employment.
If the basis for such written notice is an act or acts described in clause (a)
or (b) above and not involving moral turpitude, the Executive shall be given ten
(10) days to cease or correct the performance (or nonperformance) giving rise to
such written notice and, upon failure of the Executive within such ten (10) days
to cease or correct such performance (or nonperformance), the Executive's
employment by the Company shall automatically be terminated hereunder for Due
Cause.
8. The Company may terminate the Executive's employment prior to the expiration
of the term of this Agreement for whatever reason it deems appropriate;
provided, however, that in the event that such termination is not pursuant to
Section 7, the Company shall pay to the Executive (i)on the date of termination,
the base salary provided for in paragraph 10 accrued to the date of termination
and not theretofore paid to the Executive, (ii) severance pay, in the form of
salary continuation for the lesser of (a) the remaining term of this Agreement
or (b) a period of one year commencing on the date of termination, at a rate
equal to the base salary provided for in paragraph 3. During the severance pay
period, the Employee shall diligently seek other full-time employment which is
suitable and appropriate in light of his background, experience, seniority and
stature. Amounts payable to the Employee pursuant to this paragraph and shall be
offset by amounts earned from other employment (whether as an employee, a
consultant or otherwise) during the severance pay period.
9. This Agreement contains the entire agreement among the parties hereto with
respect to the matters contemplated hereby, and no modification hereof shall be
effective unless in writing and signed by the party against which it is sought
to be enforced.
2
<PAGE>
If this letter accurately reflects your understanding of the terms of your
employment please sign and return one copy to me.
Sincerely,
Frank Brandenberg, President
Agreed to and accepted this ____ day of February, 1998
- ----------------------
Don R. DeSantis
3
<PAGE>
Exhibit VI(B)(i)(b)
EMPLOYMENT AGREEMENT
AGREEMENT made the ____th day of February, 1998 by and between Tanon
Manufacturing, Inc., a California corporation (the "Company") and Colin Reddy
(the "Executive").
W I T N E S S E T H:
WHEREAS, the Company wishes to assure itself of the services of the
Executive, and the Executive wishes to serve in the employ of the Company, upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Employment, Term.
1.1 The Company agrees to employ the Executive, and the Executive agrees
to serve in the employ of the Company, for the term set forth in Section 1.2, in
the position and with the responsibilities, duties and authority set forth in
Section 2 and on the other terms and conditions set forth in this Agreement.
1.2 The term of the Executive's employment under this Agreement shall be
the period commencing on the date hereof and continuing through December 31,
2001, unless sooner terminated in accordance with this Agreement.
2. Position, Duties. The Executive shall serve the Company as Vice
President of Sales and Marketing of the East Coast Division of the Company, or
such other position or positions as directed by the president of Tanon and at
the request of the Board of Directors shall serve as an officer and director of
the Company, its parents, subsidiaries and/or affiliates without payment of any
additional compensation. The Executive shall have such duties and
responsibilities, appropriate to said positions as the President of the Company
or his designees shall assign to the Executive. The Executive shall perform his
duties and responsibilities hereunder, faithfully and diligently and shall
report to the President of East Coast Division of the Company. The Executive
shall devote his full business time and attention to the performance of his
duties and responsibilities hereunder. The Executive hereby represents that he
is not bound by any confidentiality agreements or restrictive covenants which
restrict or may restrict his ability to perform his duties hereunder, and agrees
that he will not enter into any such agreements or covenants during the term of
his employment hereunder, except such restrictive covenants or confidentiality
agreements which are required by the Company.
3. Base Salary. During the term of this Agreement, in consideration of the
performance by the Executive of the services set forth in Section 2 and his
observance of the other covenants set forth herein, the Company shall pay the
Executive, and the Executive shall accept, a salary at the rate of $120,000 per
annum, payable in accordance with the standard payroll practices of the Company.
In addition to the salary payable hereunder, the Executive may
2
<PAGE>
be entitled to receive merit increases in salary during the term hereof in
amounts and at such times as shall be determined by the President of the Company
in his sole discretion. In no event shall the failure to grant any such increase
(or the amount of any such increase) give rise to a claim by the Executive under
this Agreement.
4. Bonus Payments. The Company shall maintain a separate profit and loss
statement reflecting the operations of the business currently known as Service
Assembly, Inc. (the "Division"), of the business currently known as the Western
Division of the Company ("Tanon West") and of the business currently known as
the Eastern Division of the Company ("Tanon East"). The bonus payments for the
Executive shall be based on the results of operations for (i) the twelve month
period beginning on January 1, 1998 and ending on December 31, 1998 (the "1998
Bonus Year), (ii) the twelve month period beginning on January 1, 1999 and
ending on December 31, 1999 (the "1999 Bonus Year), (iii) the twelve month
period beginning on January 1, 2000 and ending on December 31, 2000 (the "2000
Bonus Year), and (iv) the twelve month period beginning on January 1, 2001 and
ending on December 31, 2001 (the "2001 Bonus Year). During the term of this
Agreement the Executive shall be paid an amount (the "Estimated Bonus") equal to
$10,000 per month. Within 15 days after determination of the bonus payable for
each Bonus Year, if such bonus payable exceeds the Estimated Bonus amounts paid
with respect to that Bonus Year, the difference shall be paid by the Company to
the Executive. Within 15 days after determination of the bonus payable for each
Bonus Year, if the Estimated Bonus amounts paid with respect to that Bonus Year
exceeds the bonus payable for that Bonus Year, the difference shall be paid to
the Company by the Executive.
The Company shall within 45 days after the end of each calendar quarter,
and within 90 days after its fiscal year end compute the Net Revenue and Net
Income of the Division, Tanon West and Tanon East for such period. The Executive
shall have twenty days from the date of delivery of such computations to dispute
such computations and on the twenty-first day after of such computations is
delivered Pursuant to the procedure set forth in Section XII(A) of the Purchase
Agreement they shall be deemed accepted. The amounts so computed, subject to
such adjustments as may be made thereto in the course of performing audit
procedures by the Company's independent public accountants, shall be the Net
Revenue and Net Income for purposes of determining whether or not the bonus
payments set forth in this Agreement shall be due and payable. Notwithstanding
the determination of Net Revenue and Net Income for any applicable period, the
Executive shall have the right to receive the information upon which such
determination was made, and shall, in the event of a dispute as to the amount or
method of calculation of such Net Revenue and Net Income, have the right to
review all work papers relating to the determination of Net Revenue and Net
Income. In the event that the Executive disputes such determination, the Company
and the Executive shall have the right to designate an independent certified
public accountant, as mutually agreed, to review such determination. Failing
such agreement, the parties shall apply to the American Arbitration Association
for the designation of such accountant. The final determination of such
independent certified public accountant shall be deemed conclusive. Set forth on
Schedule 1 attached hereto are hypothetical examples of computations of the
additional payments set forth herein.
"Net Revenue" of the Division, Tanon West, or Tanon East shall mean the
gross revenues derived from services provided, or products sold, by the
Division, Tanon West or Tanon East, as
2
<PAGE>
applicable, net of any volume or other discounts applicable to such revenues,
and net of any uncollectable portion of such revenues for the applicable period
as determined in accordance with generally accepted accounting principles, and
excluding revenues from or attributable to other companies or businesses
purchased by the Company after the date hereof.
"Net Income" shall mean Net Revenue less cost of sales, selling, general
and administrative expenses, Interest expense, and any other expenses of the
applicable entity.
(a) During the term of this Agreement, the Executive shall be entitled to
annual bonuses as follows:
o an amount equal to 2% of the Net Revenues of the Division for the
1998 Bonus Year.
o an amount equal to 2% of the Net Revenues of the Division for the
1999 Bonus Year.
o an amount equal to 2% of the Net Revenues of the Division for the
2000 Bonus Year.
o an amount equal to 2% of the Net Revenues of the Division for the
2001 Bonus Year.
(b) During the term of this Agreement, the Executive shall be entitled to
annual bonuses as follows:
o an amount equal to 3% of the Net Income of the Division for the
1998 Bonus Year.
o an amount equal to 3% of the Net Income of the Division for the
1999 Bonus Year.
o an amount equal to 3% of the Net Income of the Division for the
2000 Bonus Year.
o an amount equal to 3% of the Net Income of the Division for the
2001 Bonus Year.
(c) During the term of this Agreement, the Executive shall be entitled to
annual bonuses as follows:
o an amount equal to 0.5% of (x) the Net Revenues of Tanon East for the
1998 Bonus Year less (y) $32,000,000.
o an amount equal to 0.5% of (x) the Net Revenues of Tanon East for the
1999 Bonus Year less (y) $32,000,000.
o an amount equal to 0.5% of (x) the Net Revenues of Tanon East for the
2000 Bonus Year less (y) $32,000,000.
o an amount equal to 0.5% of (x) the Net Revenues of Tanon East for the
2001 Bonus Year less (y) $32,000,000.
(d) At the end of each quarter during the term of this Agreement, the
Executive and the president of the Tanon East shall compile a list of all
customers (the "Customers") of Tanon West which were introduced to the Company
by the Executive during the quarter. During the term of this Agreement, the
Executive shall be entitled to annual bonuses as follows:
o an amount equal to 0.5% of the Net Revenues of Tanon West derived from the
Customers during the 1998 Bonus Year.
o an amount equal to 0.5% of the Net Revenues of Tanon West derived from the
Customers during the 1999 Bonus Year.
3
<PAGE>
o an amount equal to 0.5% of the Net Revenues of Tanon West derived from the
Customers during the 2000 Bonus Year.
o an amount equal to 0.5% of the Net Revenues of Tanon West derived from the
Customers during the 2001 Bonus Year.
5. Expense Reimbursement. During the term of this Agreement, consistent
with the Company's policies and procedures as may be in effect from time to
time, the Company shall reimburse the Executive for all reasonable and necessary
out-of-pocket expenses incurred by him in connection with the performance of his
duties hereunder, upon the presentation of proper accounts therefor in
accordance with the Company's policies.
6. Other Benefits. (a) During the term of this Agreement, the Executive
shall be entitled to receive three (3) weeks paid vacation time per annum and
such other benefits, including, subject to meeting standard eligibility
requirements, participation in any 401(k) plan in which the Company's executives
are eligible to participate, customary medical insurance and continuing
education benefits, as are from time to time made available to other similarly
situated employees of the Company on the same terms as are available to such
similarly situated employees, it being understood that the Executive shall be
required to make the same contributions and payments in order to receive any of
such benefits as may be required of such similarly situated employees.
(b) The Company shall pay the Executive $400 per month as an automobile
allowance during the term of his employment. The Company shall reimburse the
Executive for any fuel costs incurred on Company business. All vehicle
maintenance costs, costs for customary insurance coverage, vehicle registration
charges, and any other costs associated with operating a vehicle shall be paid
by the Executive.
7. Termination of Employment.
7.1 Death. In the event of the death of the Executive during the term of
this Agreement, the Company shall pay to the estate or other legal
representative of the Executive the salary provided for in Section 3 (at the
annual rate then in effect) accrued to the Executive's date of death and not
theretofore paid, and the estate or other legal representative of the Executive
shall have no further rights under this Agreement. Rights and benefits of the
Executive, his estate or other legal representative under the Executive benefit
plans and programs of the Company, if any, will be determined in accordance with
the terms and provisions of such plans and programs.
7.2 Disability. If the Executive shall become incapacitated by reason of
sickness, accident or other physical or mental disability and shall for a period
of sixty (60) consecutive days, or for a cumulative total of ninety (90) days
during any twelve month period, be unable to perform his normal duties
hereunder, the employment of the Executive hereunder may be terminated by the
Company upon ten (10) days' prior written notice to the Executive. Within thirty
(30) days after such termination, the Company shall pay to the Executive the
salary provided for in Section 3 (at the annual rate then in effect) accrued to
the date of such termination and not theretofore paid. Rights and benefits of
the Executive, his estate or other
4
<PAGE>
legal representative under the employee benefit plans and programs of the
Company, if any, will be determined in accordance with the terms and provisions
of such plans and programs. Neither the Executive nor the Company shall have
further rights or obligations under this Agreement.
7.3 Due Cause. The employment of the Executive hereunder may be
terminated by the Company at any time during the term of this Agreement for Due
Cause (as hereinafter defined). In the event of such termination, the Company
shall pay to the Executive the salary provided for in Section 3 (at the annual
rate then in effect) accrued to the date of such termination and not theretofore
paid to the Executive, and, after the satisfaction of any claim of the Company
against the Executive arising as a direct and proximate result of such Due
Cause, neither the Executive nor the Company shall have any further rights or
obligations under this Agreement. Rights and benefits of the Executive, his
estate or other legal representative under the employee benefit plans and
programs of the Company, if any, will be determined in accordance with the terms
and provisions of such plans and programs. For purposes hereof, "Due Cause"
shall mean (a) a material breach of any of the Executive's obligations hereunder
(it being understood that any breach of the provisions of Section 2 hereof shall
be considered material) or under the Non-Competition and Confidentiality
Agreement dated the date hereof, or (b) performance which, in the good faith
judgment of the President of the Company, is unsatisfactory; or (c) that the
Executive, in carrying out his duties hereunder, has been guilty of (i) willful
or gross neglect or (ii) willful or gross misconduct, resulting in either case
in harm to any member of the Company Group (as hereinafter defined); or (d) that
the Executive has been charged with (i) a felony or (ii) any crime or offense
involving moral turpitude. In the event of an occurrence under this Section 7.3,
the Executive shall be given written notice by the Company that it intends to
terminate the Executive's employment for Due Cause under this Section, which
written notice shall specify the act or acts upon the basis of which the Company
intends so to terminate the Executive's employment. If the basis for such
written notice is an act or acts described in clause (a) or (b) above and not
involving moral turpitude, the Executive shall be given ten (10) days to cease
or correct the performance (or nonperformance) giving rise to such written
notice and, upon failure of the Executive within such ten (10) days to cease or
correct such performance (or nonperformance), the Executive's employment by the
Company shall automatically be terminated hereunder for Due Cause.
7.4 Other Termination. (a) The Company may terminate the Executive's
employment prior to the expiration of the term of this Agreement for whatever
reason it deems appropriate; provided, however, that in the event that such
termination is not pursuant to Sections 7.1, 7.2 or 7.3, the Company shall pay
to the Executive:
(i) on the date of termination, the base salary provided for in
Section 3 (at the annual rate then in effect) accrued to the date of
termination and not theretofore paid to the Executive:
(ii) severance pay, in the form of salary continuation for the lesser
of (i) the remaining term of this Agreement or (ii) a period of twenty four
months commencing on the date of termination, at a rate equal to the base salary
provided for in Section 3 (at the annual rate then in effect). In addition, the
Executive shall be entitled to payment of bonuses computed in accordance with
the provisions of Section 4 of this Agreement based on the
5
<PAGE>
results of operations of the Division, Tanon West and Tanon East for a period
equal to the lesser of (i) the remaining term of this Agreement or (ii) a period
of twenty four months commencing on the date of termination, and provided that
for purposes of computing such bonuses Net Revenue shall only include entities
which were customers of Tanon, or to which Tanon had made a formal proposal or
quote to provide services, before the date of such termination. During the
severance pay period, the Employee shall diligently seek other full-time
employment which is suitable and appropriate in light of his background,
experience, seniority and stature. Amounts payable to the Employee pursuant to
Section 7.4(a) (ii) shall be offset by amounts earned from other employment
(whether as an employee, a consultant or otherwise) during the severance pay
period.
(c) In the event of a termination pursuant to this paragraph 7.4(a),
rights and benefits of the Executive, his estate or other legal representative
under the employee benefit plans and programs of the Company, if any, will be
determined in accordance with the terms and provisions of such plans and
programs and neither the Executive nor the Company shall have any further rights
or obligations under this Agreement.
8. Successors and Assigns.
8.1 Assignment by the Company. The Company shall require any successors
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform if no such succession had taken
place. As used in this Section, the "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law and this Agreement shall be binding upon, and
inure to the benefit of, the Company, as so defined.
8.2 Assignment by the Executive. The Executive may not assign this
Agreement or any part thereof without the prior written consent of the President
of the Board of the Company; provided, however, that nothing herein shall
preclude one or more beneficiaries of the Executive from receiving any amount
that may be payable following the occurrence of his legal incompetency or his
death and shall not preclude the legal representative of his estate from
receiving such amount or from assigning any right hereunder to the person or
persons entitled thereto under his will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to his
estate. The term "beneficiaries," as used in this Agreement, shall mean a
beneficiary or beneficiaries so designated to receive any such amount or, if no
beneficiary has been so designated, the legal representative of the Executive
(in the event of his incompetency) or the Executive's estate.
9. Notices. All notices, requests or instructions hereunder shall be in
writing and delivered personally, sent by telecopy, sent by nationally
recognized courier service, or sent by registered or certified mail, postage
prepaid, as follows:
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If to the Executive:
21 Green Valley Road
Midway, MA 02053
Telecopy No.: (508)__________
Telephone No.: (508) 533-8312
with a copy to:
Telephone No.: (508)
If to the Company:
Tanon Manufacturing, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764
Attention: Frank Brandenberg., President
Telecopy No.: (908) 229-6162
Telephone No.: (908) 229-1100
with a copy to:
Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street
Philadelphia, PA 19103
Attention: Richard P. Jaffe, Esquire
Telecopy No.: (215) 994-1111
Telephone No.: (215) 994-1046
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be effective on the earlier of (i) the date
of delivery to the addressee or (ii), four business days after it has been
mailed, telecopied or delivered to such nationally recognized courier service.
10. Entire Agreement. This Agreement contains the entire agreement among
the parties hereto with respect to the matters contemplated hereby, and no
modification hereof shall be effective unless in writing and signed by the party
against which it is sought to be enforced.
11. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or any breach hereof, shall be settled by arbitration in
accordance with the rules of the American Arbitration Association then in effect
and judgment upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The arbitration shall be held in the
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Philadelphia, Pennsylvania area. THE UNDERSIGNED MUTUALLY CONSENT TO THE
RESOLUTION BY FINAL AND BINDING ARBITRATION OF ALL CLAIMS OF ANY NATURE (I)
RELATED TO THIS AGREEMENT OR (II) ARISING OUT OF, CONNECTED WITH, OR RELATING TO
THE EMPLOYMENT BY THE EXECUTIVE BY THE COMPANY, ITS PARENTS, SUBSIDIARIES OR
AFFILIATES, INCLUDING BUT NOT LIMITED TO CLAIMS RELATING TO TERMINATION, AGE,
SEX OR OTHER ALLEGED DISCRIMINATION, SEXUAL HARASSMENT, CIVIL RIGHTS VIOLATIONS,
AND QUESTIONS OF ARBITRABILITY. BOTH PARTIES WAIVE ANY RIGHT TO JURY TRIAL OF
ALL CLAIMS OF ANY NATURE (I) RELATED TO THIS AGREEMENT OR (II) ARISING OUT OF,
CONNECTED WITH, OR RELATING TO THE EMPLOYMENT BY THE EXECUTIVE BY THE COMPANY,
ITS PARENTS, SUBSIDIARIES OR AFFILIATES, INCLUDING BUT NOT LIMITED TO CLAIMS
RELATING TO TERMINATION, AGE, SEX OR OTHER ALLEGED DISCRIMINATION, SEXUAL
HARASSMENT, CIVIL RIGHTS VIOLATIONS, AND QUESTIONS OF ARBITRABILITY. The
prevailing part in any such arbitration, shall be entitled to reimbursement of
all of its out of pocket expenses and reasonable attorneys' fees, incurred in
connection with such proceeding.
12. Invalidity. Should any provision of this Agreement be held by a court
or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as modified by the court or the arbitration panel
shall be binding upon and enforceable against each of them. In any event, should
one or more of the provisions of this Agreement be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions hereof, and if such provision or
provisions are not modified as provided above, this Agreement shall be construed
as if such invalid, illegal or unenforceable provisions had never been set forth
herein.
13. No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
14. Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
15. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New Jersey without giving
effect to any choice or conflict of
8
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law provision or rule (whether of the State of New Jersey or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of New Jersey.
16. Amendments and Waivers. No amendment, modification or termination of
any provision of this Agreement shall be valid unless the same shall be in
writing and signed by the Parties hereto. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
17. Expenses. Each of the Parties will bear his or its own costs and
expenses (including legal and accounting fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
18. Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
19. Cooperation. Both during and after the term of this Agreement, the
Executive shall cooperate with the Company and with any legal counsel, expert
or consultant it may retain to assist it in connection with any judicial
proceeding, governmental investigation or inquiry or internal audit in which
Company, its parents, subsidiaries or affiliates may be or become involved,
including full disclosure to the Company of all relevant information, and
testifying at Company's request in connection with any such proceeding or
investigation.
20. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
21. Withholding. Anything to the contrary notwithstanding, all payments
required to be made by the Company hereunder to the Executive or his
beneficiaries, including his estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company, may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion
9
<PAGE>
that all requirements of law affecting its responsibilities to withhold such
taxes have been satisfied.
22. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
* * *
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
Tanon Manufacturing, Inc.
By:
-------------------------------
Frank Brandenberg, President
-------------------------------
Colin Reddy
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EXHIBIT VI (B)(i)(c)
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of February__, 1998, by and
among EA Industries, Inc. (the "Company"), Don DeSantis (the "Shareholders'
Agent"), and Mesirov Gelman Jaffe Cramer & Jamieson (the "Escrow Agent").
Recitals
A. Simultaneously with the execution of this Agreement, the Company and the
shareholders of Service Assembly, Inc. ("SAI") have entered into an Agreement of
Purchase and Sale, dated as of the date hereof (the "Purchase Agreement"),
pursuant to which the Company has purchased all of the issued and outstanding
shares of SAI. All initially capitalized terms not otherwise defined herein
shall have the meanings as set forth in the Purchase Agreement.
B. The Escrow Agent is willing to act as escrow agent pursuant to the terms
of this Agreement.
NOW, THEREFORE, IT IS AGREED:
1. A. Deposits by the Company. The Company has delivered to the Escrow Agent
(i)__________shares of its Common Stock, which constitutes the Grace Period
Shares, and (ii) __________shares of its Common Stock, which constitutes the
NonSale Shares.
B. Deposits by the Shareholders' Agent. The Shareholders' Agent has
delivered to the Escrow Agent 935,600 shares of the Common Stock of SAI,
constituting the Shares, together with a fully executed assignment separate from
certificate for each stock certificate.
C. Joint Deposits. The Shareholders' Agent and the Company have deposits
with the Escrow Agent at least two fully executed copies of employment
agreements executed by Colin Reddy and Don R. DeSantis, Non-Competition
Agreements executed by each of Colin Reddy, Don R. DeSantis, James M Ayars and
David A. Goble (collectively, the "Agreements").
2. Terms of Escrow.
A. Upon receipt of a written request or requests from time to time signed
by an officer of the Company and by the Shareholders' Agent, the Escrow Agent
shall deliver the number of the Grace Period Shares specified in the request in
the manner specified in the request.
B. Upon receipt of a written notice signed by an officer of the Company and
by the Shareholders' Agent, certifying that (i) the Grace Period has ended or
the Company has received the Notification and (ii) the aggregate proceeds of
sales of the Grace Period Shares equal or exceed the Grace Period Purchase
Price, the Escrow Agent shall deliver (a) the remaining Grace Period Shares to
the Company, (b) the NonSale Shares to the Shareholders'
<PAGE>
Agent, (c) the Shares to the Company, and (d) at least one copy of each of the
Agreements to the Company and to the Shareholders' Agent.
C. Upon receipt of a written notice signed by an officer of the Company and
by the Shareholders' Agent, certifying that (i) the Grace Period has ended or
the Company has received the Notification, (ii) the aggregate proceeds of sales
of the Grace Period Shares do not equal or exceed the Grace Period Purchase
Price, and (iii) the Shareholders' Agent has elected not to rescind the sale of
the Shares, the Escrow Agent shall deliver (a) the remaining Grace Period Shares
to the Shareholders' Agent, (b) the NonSale Shares to the Shareholders' Agent,
(c) the Shares to the Company and (d) at least one copy of each of the
Agreements to the Company and to the Shareholders' Agent.
D. If the Shareholders' Agent elects to rescind the share of the Shares as
permitted by the terms of the Purchase Agreement, the Shareholders' Agent shall
deliver to the Escrow Agent the amount of the aggregate proceeds of sales of the
Grace Period Shares (hereinafter, the "Funds") by wire transfer to a bank
account designated in writing by the Escrow Agent. Upon receipt of a written
notice signed by an officer of the Company and by the Shareholders' Agent,
certifying that (i) the Grace Period has ended or the Company has received the
Notification, (ii) the amount of the aggregate proceeds of sales of the Grace
Period Shares, (iii) the Funds do not equal or exceed the Grace Period Purchase
Price, and (iv) the Shareholders' Agent has elected to rescind the sale of the
Shares, and upon receipt of the Funds, the Escrow Agent shall deliver (a) the
remaining Grace Period Shares to the Company, (b) the NonSale Shares to the
Company, (c) the Funds to the Company and (d) the Shares to the Shareholders'
Agent and the Escrow Agent shall destroy all copies of each of the Agreements.
E. If the Escrow Agent, prior to delivering or causing to be delivered the
deliveries set forth in B, C or D in accordance herewith, receives notice of
objection, dispute, or other assertion in accordance with any of the provisions
of this Agreement, the Escrow Agent shall continue to hold everything he then
holds until such time as the Escrow Agent shall receive (i) written instructions
jointly executed by the Shareholders' Agent and the Company, directing
distribution of such items, or (ii) a certified copy of a judgment, order or
decree of a court of competent jurisdiction, final beyond the right of appeal,
directing the Escrow Agent to distribute said items to any party hereto or as
such judgment, order or decree shall otherwise specify (including any such order
directing the Escrow Agent to deposit such items into the court rendering such
order, pending determination of any dispute between any of the parties). In
addition, the Escrow Agent shall have the right to deposit any of the items with
a court of competent jurisdiction pursuant to applicable law without liability
to any party, if said dispute is not resolved within 30 days of receipt of any
such notice of objection, dispute or otherwise.
3. Duties and Obligations of the Escrow Agent.
The parties hereto agree that the duties and obligations of the Escrow
Agent are only such as are herein specifically provided and no other. The Escrow
Agent's duties are as a depository only, and the Escrow Agent shall incur no
liability whatsoever, except as a direct result of its willful misconduct or
gross negligence.
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<PAGE>
A. The Escrow Agent may consult with counsel of its choice, at the
Company's expense, and shall not be liable for any action taken, suffered or
omitted by it in accordance with the advice of such counsel.
B. The Escrow Agent shall not be bound in any way by the terms of any other
agreement to which the Shareholders' Agent and the Company are parties, whether
or not it has knowledge thereof, and the Escrow Agent shall not in any way be
required to determine whether or not any other agreement has been complied with
by the Shareholders' Agent and the Company, or any other party thereto. The
Escrow Agent shall not be bound by any modification, amendment, termination,
cancellation, rescission or suppression of this Agreement unless the same shall
be in writing and signed jointly by each of the Shareholders' Agent and the
Company, and agreed to in writing by the Escrow Agent.
C. In the event that the Escrow Agent shall be uncertain as to its duties
or rights hereunder or shall receive instructions, claims or demands which, in
its opinion, are in conflict with any of the provisions of this Agreement, it
shall be entitled to refrain from taking any action, other than to keep safely,
all property held in escrow until it shall jointly be directed otherwise in
writing by the Shareholders' Agent and the Company or by a final judgment of a
court of competent jurisdiction.
D. The Escrow Agent shall be fully protected in relying upon any written
notice, demand, certificate or document which it, in good faith, believes to be
genuine. The Escrow Agent shall not be responsible for the sufficiency or
accuracy of the form, execution, validity or genuineness of documents or
securities now or hereafter deposited hereunder, or of any endorsement thereon,
or for any lack of endorsement thereon, or for any description therein; nor
shall the Escrow Agent be responsible or liable in any respect on account of the
identity, authority or rights of the persons executing or delivering or
purporting to execute or deliver any such document, security or endorsement.
E. The Escrow Agent shall not be required to institute legal proceedings of
any kind and shall not be required to defend any legal proceedings which may be
instituted against it or in respect of the items it holds in escrow.
F. If the Escrow Agent at any time, in its sole discretion, deems it
necessary or advisable to relinquish custody of the items it holds in escrow, it
may do so by delivering the same to any other escrow agent mutually agreeable to
the Shareholders' Agent and the Company and, if no such escrow agent shall be
selected within three days of the Escrow Agent's notification to the
Shareholders' Agent and the Company of its desire to so relinquish custody of
the items it holds in escrow, then the Escrow Agent may do so by delivering the
items it holds in escrow (a) to any bank or trust company in the City of
Philadelphia, which is willing to act as escrow agent thereunder in place and
instead of the Escrow Agent, or (b) to the clerk or other proper officer of a
court of competent jurisdiction as may be permitted by law within the City of
Philadelphia. The fee of any such bank or trust company or court officer shall
be borne by one-half by the Shareholders' Agent and one-half by the Company.
Upon such delivery, the Escrow Agent shall be discharged from any and all
responsibility or liability with respect to the items it holds in escrow and the
Company and the Shareholders' Agent shall promptly pay to the
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<PAGE>
Escrow Agent all monies which may be owed it for its services hereunder,
including, but not limited to, reimbursement of its out-of-pocket expenses
pursuant to paragraph (i) below.
G. This Agreement shall not create any fiduciary duty on the Escrow Agent's
part to the Shareholders, the Shareholders' Agent or the Company, nor disqualify
the Escrow Agent from representing either party hereto in any dispute with the
other, including any dispute with respect to the items it holds in escrow. The
parties understand that the Escrow Agent has acted and will continue to act as
counsel to the Company.
H. The reasonable out-of-pocket expenses paid or incurred by the Escrow
Agent in the administration of its duties hereunder, including, but not limited
to, all counsel and advisors' and agents' fees and all taxes or other
governmental charges, if any, shall be paid by one-half by the Shareholders'
Agent and one-half by the Company.
4. Indemnification. The Shareholders' Agent and the Company, jointly and
severally, hereby indemnify and hold the Escrow Agent harmless from and against
any and all losses, damages, taxes, liabilities and expenses that may be
incurred by the Escrow Agent, arising out of or in connection with its
acceptance of appointment as the Escrow Agent hereunder and/or the performance
of its duties pursuant to this Agreement, including, but not limited to, all
legal costs and expenses of the Escrow Agent incurred defending itself against
any claim or liability in connection with its performance hereunder.
5. Miscellaneous.
A. Notices. All notices, requests or instructions hereunder shall be in
writing and delivered.
The parties hereto agree that the duties and obligations of the Escrow
Agent are only such as are herein specifically provided and no other. The Escrow
Agent's duties are as a depository only, and the Escrow Agent shall incur no
liability whatsoever, except as a direct result of its willful misconduct or
gross negligence.
If to the Shareholders' Agent
Service Assembly, Inc.
18 Kendrick Road
Wareham, MA 02571
Attention: Donald R. DeSantis, President
Telecopy No.: (508) 291-1720
Telephone No.: (508) 291-3803
4
<PAGE>
with a copy to:
E. Colby Cameron, Esq.
Cameron & Mittelman
56 Exchange Terrace
Providence, RI 02903
Telecopy No.: (401) 331-5787
Telephone No.: (401) 331-5700
If to the Company:
EAI Industries, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764
Attention: Frank Brandenberg., President
Telecopy No.: (732) 229-6162
Telephone No.: (732) 229-1100
If to the Escrow Agent:
Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street
Philadelphia, PA 19103
Attention: Richard P. Jaffe, Esquire
Telecopy No.: (215) 994-1111
Telephone No.: (215) 994-1046
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be effective on the earlier of (i) the date
of delivery to the addressee or (ii), four business days after it has been
mailed, telecopied or delivered to such nationally recognized courier service.
B. Entire Agreement. This Agreement and the documents referred to herein
contain the entire agreement among the parties hereto with respect to the
transactions contemplated hereby, and no modification hereof shall be effective
unless in writing and signed by the party against which it is sought to be
enforced.
C. No Third-Party Beneficiaries. This Agreement shall not confer any rights
or remedies upon any person other than the Parties and their respective
successors and permitted assigns.
D. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New Jersey without giving
effect to any choice or conflict of law provision or rule (whether of the State
of New Jersey or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New Jersey.
5
<PAGE>
E. Amendments and Waivers. No amendment, modification or termination of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by the Parties hereto. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
F. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed the day and year first above written.
COMPANY EA INDUSTRIES, INC.
By:
------------------------------------
Frank Brandenberg, President
and Chief Executive Officer
SHAREHOLDERS' AGENT
-----------------------------------
Don R. DeSantis
ESCROW AGENT MESIROV GELMAN JAFFE CRAMER & JAMIESON
By:
------------------------------------
A Member of the Firm
6
<PAGE>
Exhibit VI(B)(ii)(g)
NON-COMPETITION AND CONFIDENTIALITY AGREEMENT
THIS NON-COMPETITION AND CONFIDENTIALITY AGREEMENT (this "Agreement"), made
and effective as of this _____ day of ______, 1998, by and among EA Industries,
Inc., a New Jersey corporation ("EA"), Tanon Manufacturing, Inc., a California
corporation ("Tanon"), Donald R. DeSantis ("DeSantis"), Colin Reddy ("Reddy"),
James M. Ayars ("Ayars"), and David A. Goble ("Goble").
BACKGROUND
Pursuant to the terms of an Acquisition Agreement by and among EA, Tanon,
Service Assembly, Inc., a Massachusetts corporation ("SAI") and all of the
shareholders of SAI, dated the date hereof (the "Acquisition Agreement"),
effective as of the date hereof, EA has acquired all of the issued and
outstanding shares of stock of SAI. SAI, EA and Tanon are sometimes hereafter
collectively referred to as the "Company". Any term not otherwise defined herein
shall have the meaning ascribed to such term in the Acquisition Agreement.
SAI is engaged in the business of providing contract manufacturing
services, including designing and building electronic prototypes, and quick turn
assembly and testing of a wide range of products at a facility (the "Facility")
in Wareham, Massachusetts (such activities being hereinafter referred to as the
"SAI Business").
Tanon is engaged in the business of providing contract manufacturing
services (including assembly and testing of a wide range of products) at
facilities in California and New Jersey (such activities being hereinafter
referred to as the "Tanon Business"); Pursuant to the terms of the Acquisition
Agreement, the SAI Business and the Tanon Business will be operated as an
integrated business (hereinafter the "Business"). DeSantis, Reddy, Ayars and
Goble (collectively, the "Executives") were key executives of, and major
shareholders in, SAI prior to the Closing and, pursuant to and following the
closing, shall continue to be key executives of the Business.
The Executives each possess unique knowledge of the business and operations
of the SAI and the future prospects of the Business and of SAI are dependent in
significant part on the knowledge, contacts and efforts of the Executives. The
Executives, in the course of their employment with SAI, represented SAI, and
will continue to represent SAI and/or Tanon, in their dealings with customers,
suppliers and employees, and the competitive survival and goodwill of SAI and
its successors with respect to the Business will be dependent upon its
maintaining favorable relations with customers, suppliers and employees. The
provisions contained in this Agreement are required to preserve for EA, Tanon
and SAI the substantial rights and goodwill acquired upon consummation of the
acquisition of SAI. The execution and delivery of this Agreement is a condition
to Tanon and EA's obligations under the Acquisition Agreement.
NOW, THEREFORE, as a material inducement for EA and Tanon to enter into the
Acquisition Agreement, and to carry out the transactions contemplated thereby,
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by each of the Executives, and intending to be
legally bound, the parties agree as follows:
<PAGE>
Section 1. Company Information and Customer Information.
1.1 During the term of and the two year period following the date of the
termination of his employment with Tanon or SAI, each of the Executives agrees
that he shall not, directly or indirectly, disclose or use in any manner
whatsoever, except as may be required by law, any Company Information or
Customer Information, as defined below, that he may possess on the date hereof
or at any time hereafter.
1.2 The term "Company Information" as used in this Non-Competition
Agreement means secret, confidential, or proprietary information not released to
the public by the Company in the ordinary course of its business, including,
without limitation, technical, financial, compensation and marketing information
and information respecting customers (including customer lists), prices,
strategies, markets, methods of operation or doing business, suppliers, business
forecasts, selling procedures, "know-how", software, drawings, and new product
and engineering information and any other technical data relating to the Company
or the Business, all of the above including, without limitation, information
received from third parties under confidential conditions; provided, however,
that "Company Information" does not include information that has become publicly
known other than as a result of a breach of this Non-Competition Agreement by
any of the Executives, or information that has been disclosed by the Company to
a third party without a similar restriction on the third party.
1.3 The term "Customer Information" as used in this Agreement means secret,
confidential, or proprietary information, relating to the customers of the
Company not released to the public by the Company in the ordinary course of its
business, including, without limitation, technical, marketing and financial
information and customer lists, received by the Company or any of the Executives
from any person or entity who, during the one year prior to the date hereof or
at any time during the period covered by this Agreement, was a customer or with
or to whom SAI, EA, Tanon or any of the Executives made a proposal or offer as a
potential customer of the Company; provided, however, that the term "Customer
Information" does not include information that has become publicly known other
than as a result of a breach by any of the Executives of this Non-Competition
Agreement, or information that has been disclosed by the Company to a third
party without a similar restriction on the third party.
Section 2. Non-Competition; Customer and Employee Solicitation. Except as
provided below, for a period commencing on the date hereof and ending, with
respect to each Executive, on the second anniversary of the date such Executive
ceases to be an employee of EA, Tanon, SAI and their subsidiaries, successors,
and assigns (the "Termination Date"), such Executive shall not, without the
prior written consent of the President of EA, either directly, indirectly,
separately or in association with others:
(A) within a one hundred and fifty mile (150 mile) radius of the Facility
and any other location or facility operated by the Company at which the
Executive provided services or had an office (either on or before the date
hereof or on or before the Termination Date) engage in the operation of or have
any financial interest in, whether as an officer, employee, partner, owner,
lender, shareholder, operator, consultant or otherwise, any person, firm,
corporation or
2
<PAGE>
business that itself engages in, or through a subsidiary or affiliate engages
in, the Business as conducted on the date hereof or on the Termination Date; or
(B) solicit, accept, or conduct any business of the type or nature
described in clause (A) above with any person or entity who, during the one year
prior to the date hereof or at any time during the period covered by this
Agreement, was a customer or with or to whom SAI, EA, Tanon or any of the
Executives made a proposal or offer as a potential customer of the Company; or
(C) employ, attempt to employ or otherwise interfere or attempt to
interfere, directly or indirectly, with the employment, contractual or other
business relationships between the Company on the one hand, and any of its
officers, directors, employees, customers, suppliers or agents, on the other
hand for the purpose of engaging in the geographic area described in clause (A)
above, in any business of the type or nature described in clause (A) above.
Nothing in this Agreement shall prohibit any of the Executives from each owning
one percent (1%) or less of the issued and outstanding securities of a company
which is engaged in the business described in clause (A) above whose securities
are listed on a national securities exchange or listed on the NASDAQ National
Market System;
If any portion of the covenants set forth in Subsection 2(A)(B) or (C) above
shall be held unreasonable because of the term, geographic zones, activities or
services, or other matters covered thereby, the covenants shall nevertheless be
enforced in such reduced scope or form as may be determined by an arbitrator
appointed as specified in Section 10 hereof or by a court of competent
jurisdiction.
Section 3. Remedy. It is acknowledged and agreed that each of the
Executives talents, knowledge and background are unusual and extraordinary and
that the restrictions contained in Sections 1 and 2 of this Non-Competition
Agreement are necessary and reasonable in order to protect the legitimate
interests of EA, Tanon and SAI. Therefore, the parties agree that any violation
thereof would result in irreparable injury to the Company and that therefore the
remedy at law for the breach of any covenants contained in this Non-Competition
Agreement would be inadequate and that the Company shall be entitled to
injunctive relief with respect to any such breach in addition to any other
rights or remedies to which the Company may be entitled, and each of the
Executives hereby waives any argument that an adequate remedy exists at law for
the Company for any breach of Sections 1 and 2 of this Non-Competition
Agreement.
Section 4. Assignment. This Non-Competition Agreement may be assigned by EA
and/or Tanon to any successor in interest of EA or Tanon or any position of
either, by merger, consolidation, stock sale, transfer of assets or otherwise,
without the consent of any of the Executives.
Section 5. Binding Effect. This Non-Competition Agreement shall be binding
upon and inure to the benefit of the parties hereto, their respective heirs,
executors, administrators, successors and assigns.
3
<PAGE>
Section 6. Delivery of Material. Promptly upon the request of the Company
after the Termination Date, each of the Executives shall deliver to EA all
Company Information or Customer Information in his possession without retaining
a copy thereof, unless, in the opinion of counsel for EA either returning such
confidential material or failing to retain a copy thereof would violate any
applicable Federal, state, local or foreign law, in which event such material
shall be returned without retaining any copies thereof as soon as practicable
after such counsel advises that the same may be lawfully done.
Section 7. Response to Subpoena. In the event that any of the Executives is
required, by oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar process, to disclose
any Company Information or Customer Information, such Executive shall provide EA
with prompt notice thereof so that EA may seek an appropriate protective order
and/or waive compliance by such Executive with the provisions hereof; provided,
however, that if in the absence of a protective order or the receipt of such a
waiver, such Executives is, in the opinion of counsel for EA, compelled to
disclose confidential material not otherwise disclosable hereunder to any
legislative, judicial or regulatory body, agency or authority, or else be
exposed to liability for contempt, fine or penalty or to other censure, such
material may be so disclosed.
Section 8. Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
Section 9. Notices. All notices, requests or instructions hereunder shall
be in writing and delivered personally, sent by telecopy, sent by nationally
recognized courier service, or sent by registered or certified mail, postage
prepaid, as follows:
If to any of the Executives:
Service Assembly, Inc.
18 Kendrick Road
Wareham, MA 02571
Attention: Donald R. DeSantis, President
Telecopy No.: (508) 291-1720
Telephone No.: (508) 291-3803
4
<PAGE>
with a copy to:
Telephone No.: (508)
If to EA or Tanon:
EAI Industries, Inc.
185 Monmouth Parkway
West Long Branch, NJ 07764
Attention: Frank Brandenberg., President
Telecopy No.: (908) 229-6162
Telephone No.: (908) 229-1100
with a copy to:
Mesirov Gelman Jaffe Cramer & Jamieson
1735 Market Street
Philadelphia, PA 19103
Attention: Richard P. Jaffe, Esquire
Telecopy No.: (215) 994-1111
Telephone No.: (215) 994-1046
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices, requests or instructions
given in accordance herewith shall be effective on the earlier of (i) the date
of delivery to the addressee or (ii), four business days after it has been
mailed, telecopied or delivered to such nationally recognized courier service.
Section 10. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof, shall be settled by
arbitration in accordance with the rules of the American Arbitration Association
then in effect and judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The arbitration shall be held
in the Philadelphia, Pennsylvania area.
Section 11. Invalidity. Should any provision of this Agreement be held by a
court or arbitration panel of competent jurisdiction to be enforceable only if
modified, such holding shall not affect the validity of the remainder of this
Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification to become a part hereof and treated as though
originally set forth in this Agreement. The parties further agree that any such
court or arbitration panel is expressly authorized to modify any such
unenforceable provision of this Agreement in lieu of severing such unenforceable
provision from this Agreement in its entirety, whether by rewriting the
offending provision, deleting any or all of the offending provision, adding
additional language to this Agreement, or by making such other modifications as
it deems warranted to carry out the intent and agreement of the parties as
embodied herein to the maximum extent permitted by law. The parties expressly
agree that this Agreement as
5
<PAGE>
modified by the court or the arbitration panel shall be binding upon and
enforceable against each of them. In any event, should one or more of the
provisions of this Agreement be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provisions hereof, and if such provision or provisions are not
modified as provided above, this Agreement shall be construed as if such
invalid, illegal or unenforceable provisions had never been set forth herein.
Section 11. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the successors and assigns of EA, SAI, and Tanon,
respectively, and the legal representatives and heirs of the Executives. None of
the Executives Party may assign either this Agreement or any of his or its
rights, interests, or obligations hereunder without the prior written approval
of EA and Tanon.
Section 12. No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
Section 13. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 14. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New Jersey
without giving effect to any choice or conflict of law provision or rule
(whether of the State of New Jersey or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of New
Jersey.
Section 15. Amendments and Waivers. No amendment, modification or
termination of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by the Parties hereto. No waiver by any Party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
Section 16. Expenses. Each of the Parties will bear his or its own costs
and expenses (including legal and accounting fees and expenses) incurred in
connection with this Agreement and the transactions contemplated hereby.
Section 17. Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the
6
<PAGE>
same subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
Section 18. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
TANON MANUFACTURING, INC. EA INDUSTRIES, INC.
By: By:
------------------------------ -------------------------------
Frank Brandenberg, President Frank Brandenberg, President
EXECUTIVES
- ----------------------------------
Donald R. DeSantis
- ----------------------------------
Colin Reddy
- ----------------------------------
James M. Ayars
- ----------------------------------
David A. Goble
THIS DEBENTURE, AND ANY SHARES ACQUIRED UPON CONVERSION HEREOF, HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(THE "ACT") OR ANY STATE SECURITIES LAWS, EXCEPT AS EXPRESSLY PROVIDED HEREIN,
AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL
ACCEPTABLE TO COUNSEL FOR THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED AND
THAT THE PROPOSED TRANSFER MAY BE MADE WITHOUT VIOLATION OF THE ACT AND ANY
APPLICABLE STATE SECURITIES LAW.
No.
$ , 1997
------- --------
EA INDUSTRIES, INC.
9% CONVERTIBLE SUBORDINATED DEBENTURE
DUE MAY 3, 1998
EA INDUSTRIES, INC. (the "Company"), a New Jersey corporation, for value
received, and intending to be legally bound, hereby promises to pay to the order
of ___________________________, or registered assigns, the principal amount of
_____________________________________ on May 3, 1998 or such earlier date as
provided in Paragraph (a) under the heading "Conversion of Debenture" below
("Maturity Date"), with interest from the date hereof (computed on the basis of
a 360-day year of twelve 30-day months) payable quarterly on the first day of
each calendar quarter, commencing July 1, 1996 on the unpaid principal balance
at the rate of 9% per annum until such unpaid principal balance shall become due
and payable (whether at maturity or by acceleration or otherwise). Overdue
principal payments and (to the extent permitted by applicable law) any overdue
interest shall accrue interest at the foregoing rate per annum until paid, which
interest shall be payable on demand.
Payments of principal and interest on this Debenture shall be made in
lawful money of the United States of America by delivery of a check payable in
New York Clearing House funds to the address provided by the payee as shown on
the Debenture Register. The Company may treat the person in whose name this
Debenture is registered (the "Holder") on the Debenture Register kept by the
Company as the owner of this Debenture for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary. This Debenture is transferable only (i) in accordance with the
terms hereof and (ii) by surrender thereof at an office or agency of the Company
where this Debenture is payable, duly endorsed or accompanied by a written
instrument duly executed by the Holder of this Debenture or his attorney duly
authorized in writing.
Conversion Of Debenture. This Debenture may be converted into shares of
Common Stock of the Company, as follows:
(a) Conversion. Subject to and upon compliance with the provisions of
this section captioned "Conversion of Debenture", at the option of the Holder,
at any time following the date hereof and prior to the close of business on the
Maturity Date, the unpaid principal balance of the Debenture may be converted in
whole, or from time to time in part, into fully-paid and non-assessable shares
of Common Stock, of the Company (the "Shares"), at a conversion price per Share
equal to the lesser of (i) eighty percent (80%) of the average closing price of
the Common Stock of the Company as traded on the New York Stock Exchange for the
five days immediately preceding the date of Holder's notice to Company of
Holder's intention to exercise its right of conversion as set forth herein, or
(ii) $4.00 per share (the "Conversion Price"), provided that in no event shall
Holder convert less than $100,000 unpaid principal balance of the Debenture at
<PAGE>
any one time. The conversion as set forth herein shall be subject to such
adjustment or adjustments, if any, of such Conversion Price and of the
securities or other property issuable upon such conversion as set forth below,
upon delivery of the Debenture to the offices of the Company, together with the
form of conversion notice attached thereto (the "Conversion Notice"), duly
executed by the Holder thereof. The Conversion Notice shall state the principal
amount thereof to be so converted and shall include or be accompanied by
representations as to the Holder's investment intent substantially similar to
those contained in this Debenture. Shares issuable upon conversion of the
Debenture shall be issued in the name of the Holder and shall be transferable
only in accordance with all of the terms and restrictions contained herein and
in the Subscription Agreement of even date hereof to which the original Holder
hereof is a party. Upon such conversion, Company shall pay, in cash, all accrued
and unpaid interest through the conversion date on the Debenture or such part
thereof delivered for conversion. No fractional Shares shall be issued or
delivered upon conversion of the Debenture. In case the Debenture shall be
surrendered for the conversion of only a portion of the principal amount
thereof, the Company shall, at the time of issuing the Shares of Common Stock
issuable upon the conversion of such portion, execute and deliver to the Holder
of the Debenture so surrendered a new note equal in principal amount to the
unconverted portion of the surrendered Debenture, dated the most recent date to
which interest shall have been paid on the surrendered Debenture. The Company
shall use its best efforts to file, within six months of the date hereof, and
cause to be declared effective, within eight months of the date hereof, a
registration statement under the Securities Act of 1933, as amended, covering
the shares of Common Stock underlying this Debenture (the "Registration"). In
addition, Holder shall have such piggyback registration rights as Holder and
Company shall reasonably agree upon. NOTWITHSTANDING THE FOREGOING, THE
CONVERSION OF THE DEBENTURE INTO SHARES OF COMMON STOCK IS EXPRESSLY CONDITIONED
UPON (i) THE LISTING OF THE SHARES INTO WHICH THE DEBENTURE IS CONVERTIBLE ON
THE NEW YORK STOCK EXCHANGE ("LISTING"), AND (ii) IF CONVERSION RESULTS IN THE
ISSUANCE OF SHARES IN AN AMOUNT EQUAL TO OR EXCEEDING 20% OF THE HOLDER'S THEN
ISSUED AND OUTSTANDING SHARES, APPROVAL OF A MAJORITY OF THE HOLDER'S
STOCKHOLDERS. IN THE EVENT THE LISTING OR STOCKHOLDER APPROVAL DOES NOT OCCUR,
THIS DEBENTURE SHALL NOT BE CONVERTIBLE AS AFORESAID. THE COMPANY SHALL USE ITS
BEST EFFORTS TO AFFECT THE LISTING AND THE SHAREHOLDER APPROVAL, IF NECESSARY,
WITHIN SIX MONTHS AFTER THE DATE HEREOF. FURTHER, IN THE EVENT THAT EITHER
LISTING, SHAREHOLDER APPROVAL, IF NECESSARY, OR REGISTRATION HAS NOT OCCURRED
WITHIN EIGHT MONTHS FROM THE DATE HEREOF, THEN AN AMOUNT EQUAL TO TEN PERCENT
(10%) OF THE OUTSTANDING PRINCIPAL DUE HEREUNDER SHALL IMMEDIATELY BE DUE AND
PAYABLE TO HOLDER. IN ADDITION, IN SUCH EVENT HOLDER MAY AT ITS OPTION (i)
DECLARE ALL UNPAID PRINCIPAL AND ACCRUED INTEREST HEREUNDER IMMEDIATELY DUE AND
PAYABLE OR (ii) WAIVE ITS RIGHTS TO SUCH ACCELERATION AND CONTINUE TO HOLD THE
DEBENTURES, WHICH SHALL THEN CONTINUE TO BE CONVERTIBLE IN ACCORDANCE WITH THEIR
TERMS. IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS BEST EFFORTS TO AFFECT
SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF NECESSARY AND HOLDER
SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS. FURTHER, IN THE EVENT
THAT THE LISTING OR SHAREHOLDER APPROVAL HAS NOT OCCURRED OR THE REGISTRATION IS
NOT EFFECTIVE WITHIN NINE MONTHS FROM THE DATE HEREOF, THEN AN ADDITIONAL AMOUNT
EQUAL TO FIFTEEN PERCENT (15%) OF THE OUTSTANDING PRINCIPAL DUE HEREUNDER SHALL
IMMEDIATELY BE DUE AND PAYABLE TO HOLDER. IN ADDITION, IN SUCH EVENT HOLDER MAY
AT ITS OPTION (i) DECLARE ALL UNPAID PRINCIPAL AND ACCRUED INTEREST HEREUNDER
IMMEDIATELY DUE AND PAYABLE OR (ii) WAIVE ITS RIGHTS TO SUCH ACCELERATION AND
CONTINUE TO HOLD THE DEBENTURES, WHICH SHALL THEN CONTINUE TO BE CONVERTIBLE IN
ACCORDANCE WITH THEIR TERMS. IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS
BEST EFFORTS TO AFFECT SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF
NECESSARY, AND HOLDER SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS.
IN THE EVENT THAT (i) A COURT WITH JURISDICTION OVER THE MATTER RENDERS A
JUDGMENT THAT, OR (ii) THE HOLDER PRESENTS THE COMPANY WITH A WRITTEN OPINION OF
COUNSEL DEMONSTRATING TO THE REASONABLE SATISFACTION OF THE COMPANY THAT,
ADDITIONAL PAYMENTS OF TEN PERCENT AND 15% ARE UNENFORCEABLE, SUCH PROVISIONS
SHALL BE INAPPLICABLE AND THE CONVERSION PRICE SHALL BE REDUCED BY FIFTY PERCENT
(2)
<PAGE>
(50%). IN SUCH EVENT, COMPANY SHALL CONTINUE TO USE ITS BEST EFFORTS TO AFFECT
SUCH REGISTRATION, LISTING AND SHAREHOLDER APPROVAL, IF NECESSARY, AND HOLDER
SHALL CONTINUE TO HAVE SUCH PIGGYBACK REGISTRATION RIGHTS.
(b) Adjustments.
(i) Shares Included in Computation. The number of shares of Common
Stock at any time outstanding for any purpose hereunder shall not include any
shares of Common Stock then owned or held by or for the account of the Company.
(ii) Subdivision or Combination. Whenever the Company shall
subdivide or combine the outstanding shares of Common Stock issuable upon
conversion of this Debenture, including stock dividends and stock splits, the
Conversion Price in effect immediately prior to such subdivision or combination
shall be proportionately decreased in the case of subdivision or increased in
the case of combination effective at the time of such subdivision or
combination.
(iii) Reclassification or Change. Whenever any reclassification or
change of the outstanding shares of Common Stock shall occur (other than a
change in par value, or from par value to no par, or from no par to par value,
or as a result of a subdivision or combination) effective provision shall be
made whereby the Holder shall have the right, at any time thereafter, to receive
upon conversion of this Debenture the kind of stock, other securities or
property receivable upon such reclassification or change by a holder of the
number of shares of Common Stock issuable upon conversion of this Debenture
immediately prior to such reclassification or change. Thereafter, the rights of
the Holder with respect to the adjustment of the amount of securities or other
property obtainable upon conversion of this Debenture shall be appropriately
continued and preserved, so as to afford as nearly as may be possible protection
of the nature afforded by this paragraph (b). The provisions of this clause
(iii) shall apply to successive transactions of the nature to which it relates.
(c) Notices of Record Date. In case
(i) the Company shall declare a dividend (or make any other
distribution) on its shares of Common Stock payable otherwise than in cash out
of its earned surplus; or
(ii) the Company shall grant the holders of its Common Stock the
right to subscribe for or purchase any shares of its capital stock of any class;
or
(iii) the Company shall make any distribution on or in respect of
the Common Stock in connection with the dissolution, liquidation or winding up
of the Company; or
(iv) there is to be a reclassification or change of the Common
Stock of the Company (other than the subdivision or combination of its
outstanding shares of Common Stock), a consolidation or merger to which the
Company is a party and in connection with which approval of any class of
stockholders of the Company is required, or a sale or conveyance of the property
of the Company as an entirety or substantially as an entirety,
then and in each such event, the Company shall mail or cause to be mailed to the
Holder a notice specifying the date on which any record is to be taken for the
purpose of such dividend, distribution or granting of rights, or the date on
which such reclassification, consolidation or merger is expected to become
effective, and the time, if any, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization or reclassification. Such
notice shall be mailed at least 30 days prior to the record or effective date
therein specified.
(d) Notice of Adjustment of Conversion Price, etc. If there shall be
any adjustment as provided in (b) hereof, or if securities or property other
than shares of Common Stock of the Company shall become issuable or deliverable
(3)
<PAGE>
in lieu of shares of such Common Stock upon the conversion of this Debenture,
the Company shall forthwith cause written notice thereof to be sent by
registered or certified mail, postage prepaid, to the Holder, which notice shall
be accompanied by a certificate of the principal financial officer of the
Company setting forth in reasonable detail the facts requiring any such
adjustment and the Conversion Price and number of shares issuable upon the
conversion of this Debenture after such adjustment, or the kind and amount of
any such securities or property so issuable or deliverable upon the conversion
of this Debenture, as the case may be.
Subordination.
Senior Debt. As used in this Debenture, the term "Senior Debt" shall
mean all amounts due and owing by the Company to banks and other financial
institutions regardless of whether such amounts were incurred on, before or
after the date of this Debenture and any renewals or extensions of any such
debt.
Subordination. The Company covenants and agrees and the Holder, by
acceptance hereof, covenants, expressly for the benefit of the present and
future holders of Senior Debt, that the payment of the principal and interest on
this Debenture is expressly subordinated in right of payment to the payment in
full of principal and interest of the Senior Debt of the Company in accordance
with the provisions of this Section. There are no restrictions on the Company's
ability to issue additional Senior Debt. Accordingly, all present and future
Senior Debt of the Company will be superior to this Debenture and may be
incurred without the consent of Holder. In addition, the Company may issue
additional subordinated debt which is senior to the debentures under this
Debenture without the prior written consent of the holders of the principal
amount of such debentures.
Upon any default by the Company in the payment of all or any portion of
principal or of interest on any Senior Debt when due and payable, no payment may
be made on or in respect of this Debenture unless or until such default has been
cured or is waived. Upon any insolvency proceedings, receivership,
conservatorship, reorganization, readjustment of debt, marshaling or assets and
liabilities or similar proceedings or any liquidation or winding-up of the
Company, whether voluntary or involuntary, the Holder of this Debenture shall
not be entitled to receive thereafter, any amount in respect of the principal
and interest of this Debenture unless and until the above Senior Debt shall have
been paid or otherwise discharged. In the event of such proceeding, and after
payment in full of all sums owing with respect to such Senior Debt, Holder shall
be entitled to be paid from the remaining assets of the Company the unpaid
principal of, and the unpaid interest due on, this Debenture. Such payment will
be made before any payment or other distribution, whether in cash, property or
otherwise shall be made on account of any capital stock of any obligations of
the Company ranking junior to this Debenture.
Rights Against the Company and Others. It is understood that the
provisions of this Section captioned "Subordination" are, and are intended to be
solely for the purpose of defining the relative rights of the Holder of this
Debenture on the one hand and the holder of the Senior Debt of the Company on
the other hand. Nothing contained in this Section or elsewhere in this Debenture
shall or is intended to impair, as between the Company, its creditors other than
the holder of the Senior Debt, and the Holder of this Debenture, the
unconditional and absolute obligation of the Company to pay the Holder of the
Debenture the principal of and interest on the Debenture as and when the same
shall become due and payable in accordance with its terms or affect the relative
rights of the holder of the Debenture and the creditors of the Company, other
than the holder of such Senior Debt nor shall anything herein prevent the Holder
of this Debenture from exercising all remedies otherwise permitted by applicable
law upon default under this Debenture, subject to the rights, if any, of the
holder of Senior Debt in respect to cash, property or securities of the Company
received upon the exercise of any such remedy. The subordination herein provided
applies to payments or distributions by the Company only and shall not affect
the right of the Holder to collect and retain payment from any co-obligor,
guarantor or surety. Upon any payment or distribution of assets of the Company
referred to in this Section captioned "Subordination," the Holder of this
Debenture shall be entitled to rely upon any order or decree made by any court
of competent jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or upon a certificate of the liquidating
(4)
<PAGE>
trustee or agent or other person making any distribution to the Holder of this
Debenture, for the purpose of ascertaining the persons entitled to participate
in such distributions, the holders of Senior Debt and other debt of the Company,
the amounts thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Section.
By accepting this Debenture, the Holder hereby acknowledges that,
except as expressly set forth herein, neither this Debenture nor any shares
issuable upon conversion hereof have been, or will be at the time of acquisition
of any shares upon conversion hereof, registered under the Securities Act of
1933, as amended, or any state securities laws and represents for himself and
his legal representative that he is acquiring this Debenture, and will acquire
any shares issued upon conversion hereof, for his own account, for investment
purposes only and not with a view to, or for sale in connection with, any
distribution of such securities, and agrees to reaffirm in writing this
investment representation at the time of exercise of the conversion right set
forth above.
If any of the following conditions or events ("Events of Default")
shall occur and be continuing:
(a) if the Company shall default in the payment of principal of this
Debenture when the same becomes due and payable, whether at maturity or by
declaration of acceleration or otherwise; or
(b) if the Company shall default in the payment of any interest on this
Debenture and shall fail to cure such default within ten days after written
notice thereof from the Holder to the Company; or
(c) if the Company shall materially default in the performance of or
compliance with any term contained herein and such default shall not have been
remedied within thirty days after written notice thereof from the Holder to the
Company; or
(d) if the Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or a voluntary petition for reorganization under Title 11 of the
United States Code ("Title 11") shall be filed by the Company or an order shall
be entered granting relief to the Company under Title 11 or a petition shall be
filed by the Company in bankruptcy, or the Company shall be adjudicated a
bankrupt or insolvent, or shall file any petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, or shall file any answer admitting or not contesting the material
allegations of a petition filed against the Company in any such proceeding, or
shall seek or consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company or if the Company or its directors or majority
shareholders shall take any action looking to the dissolution or liquidation of
the Company; or
(e) if within 120 days after the commencement of an action against the
Company seeking a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such action shall not have been dismissed or nullified or all
orders or proceedings thereunder affecting the operations or the business of the
Company stayed, or if the stay of any such order or proceeding shall thereafter
be set aside, or if, within 120 days after the appointment without the consent
or acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company such
appointment shall not have been vacated;
then, and in any such event, the Holder may at any time (unless such Event of
Default shall theretofore have been remedied) at its option, by written notice
to the Company, declare the Debenture to be due and payable, whereupon the
Debenture shall forthwith mature and become due and payable, together with
interest accrued thereon, and thereafter interest shall be due, at the rate per
annum hereinabove provided, on the entire principal balance until the same is
fully paid, and on any overdue interest (but only to the extent permitted by
law), without presentment, demand, protest or notice, all of which are hereby
waived.
(5)
<PAGE>
In case of a default in the payment of any principal of or interest on
the Debenture, the Company will pay to the Holder such further amount as shall
be sufficient to cover the cost and expenses of collection, including, without
limitation, reasonable attorneys' fees, expenses and disbursements. No course of
dealing and no delay on the part of Holder in exercising any right shall operate
as a waiver thereof or otherwise prejudice such Holder's rights, powers or
remedies. No right, power or remedy conferred by this Debenture upon Holder
shall be exclusive of any other right, power or remedy referred to herein or now
or hereafter available at law, in equity, by statute or otherwise.
Notwithstanding any provision contained in this Debenture to the
contrary, the Company's liability for payment of interest shall not exceed the
limits imposed by applicable usury law. If any provision hereof requires
interest payments in excess of the then legally permitted maximum rate, such
provision shall automatically be deemed to require such payment at the then
legally-permitted maximum rate.
All notices required or permitted to be given under this Debenture
shall be in writing (delivered by hand or sent certified or registered mail,
return receipt requested) addressed to the following addresses:
If to Holder: At its address on the Debenture
Register of the Company
If to Company: 185 Monmouth Parkway
West Long Branch, NJ 07764-9989
Attn: Stanley O. Jester
All notices shall be deemed given upon personal delivery or upon deposit of such
notice in the United States mails, with all postage affixed.
(6)
<PAGE>
This Debenture has been made and delivered in West Long Branch, New
Jersey and shall be governed by the laws of the State of New Jersey.
EA INDUSTRIES, INC.
ATTEST:
By:
- --------------------------------- ------------------------------------
Assistant Secretary
(SEAL)
(7)
<PAGE>
CONVERSION NOTICE
TO: EA INDUSTRIES, INC.
185 Monmouth Parkway
West Long Branch, NJ 07764-9989
The undersigned Holder of this Debenture hereby irrevocably exercises his
right to convert [all] [or $___________] of this Debenture into ___________
shares of Common Stock of EA INDUSTRIES, INC. at the Conversion Price of
$_________________ per share in accordance with the terms of this Debenture, and
directs that the Shares issuable and deliverable upon such conversion be
registered in the name of the undersigned and delivered to the undersigned,
together with a Debenture for the balance of the principal amount of this
Debenture, if any.
The undersigned hereby acknowledges that the Shares (i) have not been and
will not be at the time of acquisition by the undersigned registered under the
Securities Act of 1933, as amended, or under any state securities laws, except
as set forth in this Debenture, and hereby represents and warrants to the
Company that he is acquiring the Shares for his own account, for investment, and
not with a view to, or for sale in connection with, any distribution of such
Shares; and (ii) are transferable only in accordance with all the terms and
restrictions contained in the Debenture and in the Subscription Agreement
pursuant to which the Holder purchased this Debenture and to which the Holder
is, or hereby agrees to become, a party.
Dated: 19
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Witness Signature of Holder
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(Print Name of Holder)
Social Security Number or
Taxpayer ID Number:
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Address
