As Filed with the Securities and Exchange Commission on March 20, 1998
Registration No. 333-21605
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
Amendment No. 2
to
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. [_]
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<TABLE>
<CAPTION>
Calculation of Registration Fee
================================= ==================== ===================== ==================== ====================
Title of each class of Proposed Maximum Proposed maximum
securities to be Amount to be offering price per aggregate offering Amount of
registered registered (4) unit price Registration Fee
- --------------------------------- -------------------- --------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Common Stock 50,000(2) (1)
- --------------------------------- -------------------- --------------------- -------------------- --------------------
Common Stock 1,418,262(3) (1)
- --------------------------------- -------------------- --------------------- -------------------- --------------------
Common Stock 28,917(4) (1)
- --------------------------------- -------------------- --------------------- -------------------- --------------------
Common Stock 8,000(5) (1)
================================= ==================== ===================== ==================== ====================
Total Registration Fee $3,896*
================================= ==================== ===================== ==================== ====================
</TABLE>
* Previously paid.
(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 8, 1998.
(2) Represents 50,000 shares of Common Stock of the Company which may be
acquired upon exercise of a Warrant, dated as of January 6, 1997, held by a
Selling Securityholder. In accordance with Rule 416 under the Securities
Act, this registration statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon exercise of
such Warrant to prevent dilution resulting from stock splits, stock
dividends or similar transactions.
(3) Represents 1,418,262 shares of the Company's Common Stock into which
certain 6% Convertible Notes due April 30, 1999 in the aggregate principal
amount of $4,815,000 (the "6% Convertible Notes"), issued by the Company in
April 1997 to certain of the Selling Securityholders, are convertible. For
purposes of determining the number of shares of the Company's Common Stock
issuable upon conversion of the 6% Convertible Notes to include in this
registration statement, the Company assumed a conversion price of $3.395
per share. The actual number of shares of Common Stock to be issued upon
the conversion of the 6% Convertible Notes will be equal to: the principal
amount of the 6% Convertible Notes converted divided by 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 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. Accordingly, the
actual number of shares included in this registration statement equals that
number of shares of Common Stock issued upon conversion of the 6%
Convertible Notes 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 6%
Convertible Notes to prevent dilution resulting from stock splits, stock
dividends or similar transactions or by reason of changes in the conversion
price as aforesaid.
(4) Represents 28,917 shares of Common Stock issued to one of the Selling
Stockholders for services provided to the Company.
(5) Represents 8,000 shares of Common Stock issued to one of the Selling
Stockholders in a private sale transaction.
(6) The Rights associated with the shares of Common Stock are not exercisable
or transferable apart from the Shares of Common Stock at the present time
and no additional consideration has been, or will be, received by the
Company in connection with the granting of such Rights upon issuance of the
Common Stock. Accordingly, no material independent value is attributable to
the Rights and no separate registration fee is required with respect to
such Rights pursuant to Rule 457.
--------------------------------------------
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933
or until the Registration Statement shall become effective on such date
as the Commission, acting pursuant to Section 8(a), may determine.
ii
<PAGE>
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY FORM S-3
FILED AS PART OF REGISTRATION STATEMENT
<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>
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, 1997, Proxy Statement dated July 23, 1997 filed in connection with the
Company's 1997 Annual Meeting of Stockholders, Proxy Statement dated March 9,
1998, filed on March 13, 1998, 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 Company will provide, without charge, to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the oral or written
request of such person, a copy (without exhibits, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates) of any and all information that has been incorporated by reference
in this Prospectus. Written or telephone requests for such information should be
directed to Shareholder Relations, EA Industries, Inc., 185 Monmouth Parkway,
West Long Branch, New Jersey 07764-9989, telephone: (732) 229-1100.
iv
<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 MARCH 20, 1998
Prospectus
1,505,179
EA INDUSTRIES, INC.
Common Stock
This Prospectus relates to the offer for sale of 1,505,179 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 6% Convertible Notes
(hereinafter defined) (the "6% Holders"), a warrant holder (the "Warrant
Holder") and certain holders of Common Stock (the "Stock Owners") (the 6%
Holders, the Warrant Holder and Stock Owners are collectively referred to as the
"Selling Securityholders" and individually as a "Selling Securityholder"). 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 SEVEN 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 March 17,
1998, the last reported sale price of the Common Stock as reported by the NYSE
was $6.50.
The expenses relating to the offering are estimated to be $39,896 all
of which will be paid by the Company.
The Date of this Prospectus is March 20, 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
THE COMPANY 6
USE OF PROCEEDS 14
SELECTED CONSOLIDATED FINANCIAL DATA 15
DESCRIPTION OF CAPITAL STOCK 16
PLAN OF DISTRIBUTION AND SELLING SHAREHOLDERS 17
LEGAL MATTERS 18
EXPERTS 18
INDEMNIFICATION OF DIRECTORS AND OFFICERS 19
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.
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 seven
years and for the year ended December 31, 1997, resulting in an accumulated
deficit of approximately $91 million as of December 31, 1997. In addition, the
Company had negative cash flows from continuing operations in each of the last
seven years.
2
<PAGE>
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 January 1998, 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 January 1998. The NYSE has indicated that continued listing is
dependent, among other factors, upon the Company achieving the results set forth
in the business plan submitted to the NYSE. The Company has achieved such
results in all material respects to date, although no assurance can be given
that it will continue to meet such results in the future. If the Company's
Common Stock is delisted from the NYSE, it could have a material adverse effect
on the price and liquidity of the Company's Common Stock and the Company's
ability to raise capital from the sale of equity.
In the event that the Company's Common Stock is delisted from the NYSE,
it could seek to list its Common Stock on the National Association of Securities
Dealers Inc.'s Automated Quotation System ("NASDAQ") or on another exchange.
Although the Company believes that it is currently eligible for listing on the
NASDAQ Small-Cap Market System (but not on the NASDAQ National Market System),
there can be no assurance that the Company would be eligible for listing its
Common Stock on NASDAQ or any exchange at such time. If the Company would be
ineligible to list its Common Stock on NASDAQ or any other exchange at such
time, there would be no established trading market for the Company's Common
Stock except as may be established in the National Association of Securities
Dealers Inc.'s OTC Bulletin Board Service or in the "pink sheets," which could
have a material adverse effect on the price and liquidity of the Company's
Common Stock. In addition, the Company's Common Stock could then become subject
to the Commission's "penny stock" rules which regulate broker-dealer sales
practices. Such rules could restrict the ability of broker-dealers to sell the
Company's Common Stock, which could also have a material adverse effect on the
price and liquidity of the Company's Common Stock.
Working Capital Needs and Liquidity Problems
As described above, the Company has incurred significant losses and had
negative cash flows from operations in each of the last seven 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 $37 million from December 31, 1995 through the date of this
prospectus, from the issuance of Common Stock, the exercise of stock options and
warrants, the sale of its shares of Common Stock of Aydin Corporation,
borrowings, and the sale of convertible notes and debentures.
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. See "The Company -- Results of Operations."
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.
3
<PAGE>
Dependence on a Limited Number of Customers and the Electronics
Industry
Approximately eighty three percent (83%) of the Company's net sales
during the year ended December 31, 1997 were derived from customers which were
also customers of the Company during 1996. In 1997, the customers which
accounted for more than 10% of the Company's net sales were Advanced Fibre
Communications, Inc. ("AFC"), and Dialogic Corporation, which accounted for 35%,
and 13% of net sales, respectively. None of the customers of the Company have a
long term contractual obligation to make purchases from the Company. 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. The loss of one or more of these customers
could have a material adverse effect on its operations.
Potential Loss of Largest Customer
The Company has been informed by its largest customer, AFC, that it
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. During
1997, approximately $26.6 million of revenue from that customer was included in
the Company's Net Sales. If AFC is successful in implementing a move offshore,
sales to that customer of the product lines currently assembled by Tanon will
decrease significantly in the second and third quarter of 1998, and will
continue to decrease into 1999. See "The Company -- Results of Operations."
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
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.
4
<PAGE>
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 $66.1 million as of
December 31, 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 March 8, 1997, the Company had approximately 10.5 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 600,000 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 $1.50 per share to $32.50 per share, (iii) approximately 3.3 million
outstanding options at prices ranging from $2.25 to $30.80 per share, under
various vesting schedules, (iv) up to approximately 1.1 million shares issuable
in connection with the purchase of Service Assembly, Inc. ("SAI"), and
(v) warrants and convertible notes, exercisable or convertible subject to
shareholder approval, representing approximately 2 million shares of Common
Stock. 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.
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 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.
5
<PAGE>
THE COMPANY
General
The Company, through its wholly-owned subsidiary, Tanon Manufacturing,
Inc. ("Tanon"), is engaged principally in the business of providing contract
electronic manufacturing services ranging from the assembly of printed circuit
boards to the complete procurement, production, assembly, test and delivery of
entire electronic products and systems. Tanon was acquired by the Company on
January 4, 1995. References to the Company with respect to any time period after
January 3, 1995 shall be deemed to include Tanon unless the context otherwise
requires.
The Company manufactures over 1,500 different assemblies which are
incorporated into product lines of over 30 different companies. The Company
provides its services primarily to manufacturers of: micro, mini and mainframe
computers; computer peripheral equipment; high quality graphic equipment; office
equipment; telecommunications equipment; consumer appliances, industrial tools
and measuring devices.
The Company has invested in new manufacturing equipment to accommodate
the increased business for surface mount technology ("SMT") equipment. The SMT
process is increasingly replacing the older, through-hole technology previously
utilized in the assembly of printed circuit boards. SMT allows for production of
a smaller circuit board, with greater component and circuit density, resulting
in increased performance. Management believes that SMT will continue to
constitute an increasing percentage of printed circuit board production and
assembly.
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 1997, the Company's sales decreased to approximately
$76,511,000 from approximately $81,625,000 in 1996. The year to year decrease is
attributable to decreased sales in the first half of 1997, which decreased
approximately $15,111,000 (33%) from the sales during the first half of 1996.
Revenues for the second half of 1997 increased approximately $9,997,000 (28%)
from the sales during the second half of 1996. Cost of sales decreased in total
value but increased 0.2% as a percentage of sales to 99.6% of sales. Selling,
general and administrative expenses also decreased both in total value and as a
percentage of sales.
The Company had a net loss of approximately $18,062,000 for 1997,
which included non-recurring charges of approximately $7,600,000, an inventory
adjustment of approximately $1,500,000 and a gain on the sale of common stock of
Aydin Corporation of approximately $821,000. This compared with a net loss of
approximately $29,954,000 for 1996, which included non-recurring charges of
approximately $12,400,000.
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.
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A substantial portion of the convertible securities issued by the Company
are currently payable on demand or are due within one year. This includes
certain 6% Notes, the Convertible Notes and the Amended Series A Notes (See
Capital Raised), representing approximately $10.8 million in debt. The Company
has filed a registration statement covering the shares issuable upon conversion
of the 6% Notes. When that registration statement is declared effective, such
notes will no longer be payable upon demand, and the Company expects those notes
to be converted into equity in accordance with their terms. The Company has also
scheduled a meeting of its shareholders for March 31, 1998 to approve of the
revised terms of the Convertible Notes and the Amended Series A Notes. Assuming
that the shareholders approve of such terms, such notes will no longer be
payable upon demand, and the Company expects those notes to be converted into
equity in accordance with their terms.
The Company is forecasting a significant increase in sales for 1998 over
1997 based on improved sales and marketing including sales to new customers
representing contracts signed in the second half of 1997, sales to existing
customers and additional new customers. Management believes this increase will
result in an improvement in cash flows from operations. In the past few years,
the Company has extended the time in which it pays its payable to conserve its
capital resources and to allow the Company to concentrate such resources on the
costs associated with growth. Management of the Company has concluded that it
would be advisable to increase its capital resources that would be available for
contingencies and to bring the Company's timing on payment of payables to a
level more consistent with standard practice in its industry. The Company may
seek to raise additional debt or equity in the second or third quarters of 1998
to accomplish these goals. The Company expects, however, that available funds
under the Schroder Loan Facility together with its available capital resources
would be sufficient to fund its ongoing operations in a fashion consistent with
its past practices, excluding any acquisitions made with cash. . In addition,
continued expansion of the Company's customer base and execution of its strategy
to become a full service provider by expanding "Tanon Express", internal
development of additional service offerings, and select national and/or
international acquisitions would also enhance cash flow. The Company's
independent public accountants have issued their opinion in respect to the
Company's 1997 Financial Statements modified with respect to uncertainties
regarding the ability of the Company to continue as a going concern. The
Financial Statements do not incorporate any adjustments relating to the
recoverability of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern. There can be no assurance that management will be successful in
implementing its plans, obtaining additional capital or achieving the results
contained in their current plans and forecasts.
Except for historical matters contained in this Prospectus, statements made
in this Prospectus are forward-looking 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 affect the Company's business and
prospects and cause actual results to differ materially from these
forward-looking statements, including loss of current customers, reductions 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, unfavorable results in litigation against the Company,
economic, competitive, technological, governmental, and other factors discussed
in the Company's filings with the Securities and Exchange Commission.
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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.
Approximately eighty three percent (83%) of the Company's net sales
during the year ended December 31, 1997 were derived from customers which were
also customers of the Company during 1996. In 1997, the customers which
accounted for more than 10% of the Company's net sales were Advanced Fibre
Communications, Inc. ("AFC"), and Dialogic Corporation, which accounted for 35%,
and 13% of net sales, respectively. The Company has been successful in 1997 in
broadening its customer base, thereby reducing its dependence on a few large
customers. None of the customers of the Company have a long term contractual
obligation to make purchases from the Company. 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. The loss
of one or more of these customers could have a material adverse effect on its
operations. The Company maintains continuous dialog with all of 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. In 1997, the
Company expanded its customer base from 18 to 29 customers.
The Company has been informed by its largest customer, AFC, that it
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 ,
but has been unsatisfied with the quality, timeliness or responsiveness of the
contract manufacturers that it used. During 1997, approximately $26.6 million of
revenue from that customer was included in the Company's Net Sales. If AFC is
successful in implementing a move offshore, sales to that customer of the
product lines currently assembled by Tanon will decrease significantly in the
second and third quarter of 1998, and will continue to decrease into 1999. The
Company has been conducting discussions with this customer to obtain additional
new business from this customer. 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 AFC, however, no assurance can be given that the
expected increases in sales will occur and be reflected in the Company's
operating results.
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 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 1997 was approximately
$54 million as compared to approximately $28 million at the end of 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
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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.
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 a Form S-3 (the "SAI
Registration Statement") for resale by the SAI Shareholders.
The Company has agreed to guarantee that the aggregate proceeds
received by the SAI Shareholders during the twenty trading days after
effectiveness of the SAI Registration Statement is equal to the Purchase Price.
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.
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SAI's net sales for the fiscal year ended October 31, 1997 were
approximately $3,700,000 and its net income was approximately $178,000 including
deductions for compensation and other payments to shareholders. 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 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 seven 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 $37 million from December 1995 through February 28, 1998 from the
issuance of Common Stock, the exercise of stock options and warrants, the sale
of 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
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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. The notes and warrants are nondetachable and may not be sold, given or
transferred separately. 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 Company would be obligated to make
a payment of $3,048,000 to the noteholders. The holders of the Notes were also
granted demand and piggyback registration rights for the Convertible Notes and
these warrants.
In May and June 1996, the Company raised an additional $8,100,000 from
the sale of 9% convertible debentures which was used in part, in purchasing
approximately 11.64% of the outstanding shares of common stock of Aydin
Corporation.
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. The notes and warrants are
nondetachable and may not be sold, given or transferred separately. 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 penalty. The Company would be obligated to make such payment to the
noteholders. This payment would have been $4,678,000 as of December 31, 1997.
The holders of the Notes were also granted demand and piggyback registration
rights for the Series A Notes and these warrants.
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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.
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
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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.
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.
Lemco has provided the Company with a statement of its remediation
costs to December 18, 1997, as well as an estimate of future remediation costs
associated with the contamination for which it seeks recovery in the Lemco Suit.
Specifically, Lemco claims that it has expended approximately $635,000 in
remediation costs, including fees for legal oversight and consultation and
estimates that its future remediation costs will amount to approximately
$6,316,000. 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.
13
<PAGE>
Management of the Company believes that the range of possible loss by
the Company in this matter is approximately $250,000 to $10,300,000. 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 of $250,000 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 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.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated financial data
of the Company for the five-year period ended December 31, 1997. The
selected historical consolidated financial data for each of the years presented
below were derived from the consolidated financial statements of the Company,
which were audited by Arthur Andersen LLP, independent public accountants. The
report of Arthur Andersen LLP on the financial statements referred to above
contains a modification in which Arthur Andersen LLP raised substantial doubt
about the Company's ability to continue as going concern. No adjustment to the
financial data has been made to reflect any adjustments that might result if the
Company were unable to continue as a going concern or that might result from a
restructuring. See "Risk Factors - Working Capital Needs and Liquidity
Problems." 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, 1997, and Forms 10-Q filed for each of the
quarters ended March 29, 1997, June 28, 1997, and September 27, 1997,
respectively.
<TABLE>
<CAPTION>
(Thousands of Dollars Except for Per Share Amounts, Common
Shares Outstanding and Other Data)
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
[Note 1]
[--------Note 4--------]
<S> <C> <C> <C> <C> <C>
Operating Results:
Net Sales from Continuing Operations $ 76,511 $ 81,625 $ 77,085 $ 30,539 $ 26,024
Provision for Restructuing $ -- $ -- $ -- $ 2,400 $ --
Loss from Continuing Operations before Taxes $ (18,062) $ (29,954) $ (30,894) $ (4,784) $ (5,348)
Loss from Continuing Operations, Net $ (18,062) $ (29,954) $ (30,894) $ (4,784) $ (4,664)
Income from Discontinued Operations, Net $ -- $ -- $ -- $ -- $ 1,327
Net Loss $ (18,062) $ (29,954) $ (30,894) $ (4,784) $ (3,337)
Income (Loss) Per Common Share:
Continuing Operations (Note 3) $ (2.15) $ (6.24) $ (10.01) $ (3.79) $ (7.04)
Discontinued Operations $ -- $ -- $ -- $ -- $ 2.00
Net Loss (Notes 3 and 5) $ (2.15) $ (6.24) $ (10.01) $ (3.79) $ (5.04)
- ------------------------------------------------------------------------------------------------------------------
Financial Position:
Current Assets $ 27,317 $ 22,319 $ 37,022 $ 16,969 $ 7,355
Current Liabilities $ 44,104 $ 31,485 $ 25,834 $ 12,603 $ 8,614
Long Term Obligations $ 4,859 $ 12,400 $ 16,028 $ 2,998 $ 4,694
Working Capital $ (16,787) $ (9,166) $ 11,188 $ 4,366 $ (1,259)
Net Equipment and Leasehold Improvements $ 10,804 $ 10,522 $ 8,048 $ 2,719 $ 3,603
Total Assets $ 47,862 $ 50,971 $ 61,252 $ 22,845 $ 12,762
Shareholders' Equity (Deficit) $ (1,101) $ 7,086 $ 19,390 $ 7,244 $ (546)
Common Shares Outstanding (Note 3) 9,431 5,601 4,011 2,027 665
Book Value per Common Share (Notes 3and 5) $ (0.12) $ 1.27 $ 4.84 $ 3.56 $ (0.84)
- ------------------------------------------------------------------------------------------------------------------
Other Data:
Number of Shareholders of Record 3,897 4,152 4,254 4,447 4,600
Number of Employees 474 449 514 334 315
Orders Received (Note 2) $ 102,142 $ 62,400 $ 105,150 $ 30,326 $ 18,805
Sales Backlog at Year-End $ 53,589 $ 27,958 $ 47,305 $ 19,240 $ 19,453
</TABLE>
Note 1- 1995 amounts include the impact of the Tanon Acquisition and the
investments in BarOn and the Joint Venture (See Note 3 of the Notes to
Consolidated Financial Statements at Part II, Item 8 of this Annual Report Form
10-K).
Note 2- Orders received in 1995 include $15,710,000 of Tanon backlog at December
31, 1994.
Note 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.
Note 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 in the Company's Consolidated Financial
Statements. 1995 amounts have been reclassified to conform to the 1996
presentation.
Note 5- In 1997, the Company adopted Statement No. 128, "Earnings Per Share".
(See Note 9 to the Consolidated Financial Statements included in the Form 10-K
for the year ended December 31, 1997 for further information).
15
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000
shares of Common Stock and 25,000,000 shares of Preferred Stock. As of March 6,
1998, there were 10,457,410 shares of Common Stock outstanding and no shares of
Preferred Stock were outstanding.
Common Stock
The holders of Common Stock are entitled to one vote per share on
matters to be decided by the stockholders and do not have cumulative voting
rights. Accordingly, the holders of a majority of the Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
office. The holders of the Common Stock have no preemptive, redemption or
conversion rights. The holders of the Common Stock would be entitled to receive
ratably such dividends, if any, as the Board of Directors may declare from time
to time out of funds legally available for such purpose. In the event of
liquidation, dissolution or winding up of the affairs of the Company, after
payment or provision for payment of all of the Company's debts and obligations
and any preferential distributions to holders of Preferred Stock, if any, the
holders of the Common Stock would be entitled to share ratably in the Company's
remaining assets.
Preferred Stock
The Board of Directors is entitled, without further action by
stockholders, to provide for the issuance of shares of Preferred Stock as a
class without series or in one or more series, to establish the number of shares
in each such class or series, and to fix the designation, powers, preferences
and rights of each such class or series and the qualifications, limitations or
restrictions thereof. Because the Board of Directors has such power, it may
afford the holders of Preferred Stock preferences, rights and powers, voting or
otherwise, senior to the rights of the holders of Common Stock. The issuance of
Preferred Stock could have the effect of delaying or preventing a change of
control of the Company. As of the date of this Prospectus, the Company has not
authorized the issuance of any Preferred Stock and the Company has no plans,
agreements or understandings for the issuance of any shares of 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.
16
<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 March 8, 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(2)(3) Offered(2)(3) Offering(2) Offering
- --------------- --------------- ---------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Broadway Partners 8,000 8,000 -0- -0-
Ace Foundation, Inc. 50,000(4) 50,000(4) -0- -0-
Lawrence Poster 28,917(5) 28,917(5) -0- -0-
Leonard Adams 44,183(6) 44,183(6) -0- -0-
Birdsall Corp. N.V. 147,275(6) 147,275(6) -0- -0-
Congregation Ahavas Tzdokah 132,548(6) 132,548(6) -0- -0-
Jules Nordlicht 250,368(6) 250,368(6) -0- -0-
Mueller & Company 92,784(6) 92,784(6) -0- -0-
Mark Nordlicht 117,820(6) 117,820(6) -0- -0-
Priority Investments, Inc. 73,638(6) 73,638(6) -0- -0-
Richcourt $ Strategies,
Inc. 73,638(6) 73,638(6) -0- -0-
Wayne Saker 44,183(6) 44,183(6) -0- -0-
Warburg, Pincus Small
Company Fund 1,120,026(7) 441,826(6) 678,200 6,22%
</TABLE>
17
<PAGE>
- --------------------------------------
(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.
(2) Assumes that all Shares which are registered are sold in the
Offering. Also, calculation is based on approximately 10,457,410 shares of EAI
Common Stock outstanding at March 8, 1998.
(3) The number of shares depicted have been adjusted for the Reverse
Stock Split.
(4) Represents shares of the Company's Common Stock which may be
acquired upon exercise of the Ace Warrant dated as of January 6, 1997 at an
exercise price of $1.50 per share granted by the Company to Ace Foundation, Inc.
as additional consideration in connection with a loan of $1 million by Ace
Foundation, Inc. to the Company. In accordance with Rule 416 under the
Securities Act, this registration statement also covers such indeterminate
number of additional shares of Common Stock as may become issuable upon exercise
of such warrant to prevent dilution resulting from stock splits, stock dividends
or similar transactions.
(5) Represents 28,917 shares issued by the Company in payment for
services provided by the Selling Shareholder.
(6) Represents shares of the Company's Common Stock into which the 6%
Convertible Notes in the aggregate principal amount of $4,815,000, issued by the
Company in April 1997 to certain of the Selling Securityholders, are
convertible. For purposes of determining the number of shares of the Company's
Common Stock issuable upon conversion of the 6% Convertible Notes to include in
this registration statement, the Company assumed a conversion price of $3.395
per share. The actual number of shares of Common Stock to be issued upon the
conversion of the 6% Convertible Notes will be equal to: the principal amount of
the 6% Convertible Notes converted divided by 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 per share of the Company's Common Stock (as reported
by Bloomberg Business Service 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. The actual number of shares included in this registration statement
equals that number of shares of Common Stock issued upon conversion of the 6%
Convertible Notes 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 6% Convertible Notes to prevent
dilution resulting from stock splits, stock dividends or similar transactions or
by reason of changes in the conversion price as aforesaid.
(7) Represents 691,455 shares of Common Stock which were beneficially
owned as of January 12, 1998 and 441,826 shares of Common Stock into which the
6% Convertible Notes are convertible.
LEGAL MATTERS
The validity of the shares being offered hereby will be passed upon for
the Company by Mesirov Gelman Jaffe Cramer & Jamieson, 1735 Market Street,
Philadelphia, Pennsylvania 19103-7598. Richard P. Jaffe, a partner of such law
firm, is the Secretary of the Company.
EXPERTS
The audited financial statements and schedules of EA Industries, Inc.,
incorporated by reference in this Prospectus and in the Registration Statement
of which the Prospectus is a part, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and have been included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports. The report of
Arthur Andersen LLP on the financial statements referred to above contains a
modification in which Arthur Andersen LLP raised substantial doubt about the
Company's ability to continue as a going concern.
18
<PAGE>
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
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.
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
SEC registration fee $ 3,896
Legal fees and expenses $ 15,000*
Accounting fees and expenses $ 15,000*
Blue sky fees and expenses $ 2,500*
Printing expenses $ 2,500*
Miscellaneous $ 1,000*
---------
TOTAL $ 39,896*
=========
-------------------
*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 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
20
<PAGE>
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.
21
<PAGE>
Item 16. Exhibits
Exhibit No. Description
----------- -----------
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., the Company and the
shareholders of Service Assembly was filed as Exhibit 2.3 to
the Company's Form S-3 (File No. 333-44883) and is hereby
incorporated by reference.
4.1 Specimen of Common Stock share certificate, was filed as an
exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and is hereby incorporated
herein by reference.
4.2 Form of Subscription Agreement and Form of 9% Convertible
Subordinated Debenture issued in May and June 1996 in
connection with the investment in Aydin Corporation was filed
as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the Quarter ended March 30, 1996 and is hereby incorporated
by reference.
4.3 Form of Subscription Agreement and Form of 10% Series A
Convertible Notes issued by the Company was filed as Exhibit
10.39 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and is hereby incorporated by
reference.
22
<PAGE>
4.4 Warrant dated January 6, 1997 to purchase 50,000 shares of
Company's Common Stock issued to ACE Foundation, Inc. was filed
as Exhibit 10.51 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and is hereby incorporated
by reference.
4.5 Form of Class A Warrant issued to each purchaser in connection
with the private sale of the Company's securities in January
1994, was filed as Exhibit 10(X) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, and is
hereby incorporated by reference.
4.6 Form of Class B Warrant issued to each purchaser in connection
with the private sale of the Company's securities in January
1994, was filed as Exhibit 10(y) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, and is
hereby incorporated by reference.
4.7 Agreement to Issue Warrants, dated January 28, 1994, between
the Company and Norcross Securities, Inc. together with a
Warrant issued by the Company and a form of a Warrant issuable
under certain circumstances, comprising Exhibits to the
Agreement to Issue Warrants, was filed as Exhibit 10(z) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, and is hereby incorporated by reference.
23
<PAGE>
4.8 Form of Class C Warrant issued to each purchaser in connection
with the private placement of the Company's securities which
was commenced in June 1994, was filed as Exhibit 10.29 to the
Company's Registration Statement on Form S-1, No. 33-81892, as
amended, and is hereby incorporated by reference.
4.9 Form of Placement Agent's Warrant Agreement entered into
between the Company and Neidiger/Tucker/Bruner, Inc., together
with a Form of Warrant issued by the Company comprising an
Exhibit to the Placement Agent's Warrant Agreement, was filed
as Exhibit 10.35 to the Company's Registration Statement on
Form S-1, No. 33-81892, as amended, and is hereby incorporated
by reference.
*4.10 Form of 6% Convertible Notes Issued in April 1997.
4.11 Form of Amended GFL Note was filed as Attachment A to the
Company's Preliminary Proxy Statement filed on February 17, 1998
and is hereby incorporated by reference.
24
<PAGE>
4.12 Form of Warrant issued in connection with Amended GFL Notes was
filed as Attachment B to the Company's Preliminary Proxy
Statement filed on February 17, 1998 and is hereby incorporated
by reference.
4.13 Form of Amended 10% Series A Note was filed as Attachment C to
the Company's Preliminary Proxy Statement filed on February 17,
1998 and is hereby incorporated by reference.
4.14 Form of Warrant issued in connection with Amended 10% Series A
Notes was filed as Attachment D to the Company's Preliminary
Proxy Statement filed on February 17, 1998 and is hereby
incorporated by reference.
4.15 Form of Warrant issued in connection with Stand-by financing
commitment was filed as Exhibit 10.38 to the Company's Report on
Form 10-K for the year ended December 31, 1997 and is hereby
incorporated by reference.
4.16 Form of 10% Series B Convertible Notes was filed as Exhibit 4.16
to the Company's Registration Statement on Form S-3 (File No.
333-44883) and is hereby incorporated by reference.
5. Opinion of Mesirov Gelman Jaffe Cramer & Jamieson
23.1 Consent of Arthur Andersen, LLP, Independent Public Accountants of
EA Industries, Inc.
23.2 Consent of Mesirov Gelman Jaffe Cramer & Jamieson is included in
their opinion filed as Exhibit 5 hereto.
- ---------
* Previously Filed
25
<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 15 of this registration statement,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
26
<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 Amendment No. 2 to
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 20th day of
March, 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 March 20, 1998
- --------------------------- Officer and Director
Frank G. Brandenberg (Principal Executive
Officer)
/s/ James Crofton Treasurer, Vice President March 20, 1998
- ----------------- Finance and
James Crofton Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Edward A, Blechschmidt Director March 20, 1998
- --------------------------
Edward A. Blechschmidt
/s/ Kenneth W. Cannestra Director, Chairman of the March 20, 1998
- ------------------------ Board
Kenneth W. Cannestra
/s/ Bryan I. Finkel Director March 20, 1998
- -------------------
Bryan I. Finkel
/s/ Ross Manire Director March 20, 1998
- ---------------
Ross Manire
/s/ Shrawan K. Singh Director March 20, 1998
- --------------------
Shrawan K. Singh
/s/ Ronald Verdoorn Director March 20, 1998
- -------------------
Ronald Verdoorn
</TABLE>
27
<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., the Company and the
shareholders of Service Assembly was filed as Exhibit 2.3 to
the Company's Form S-3 (File No. 333-44883) and is hereby
incorporated by reference.
4.1 Specimen of Common Stock share certificate, was filed as an
exhibit to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and is hereby incorporated herein
by reference.
4.2 Form of Subscription Agreement and Form of 9% Convertible
Subordinated Debenture issued in May and June 1996 in
connection with the investment in Aydin Corporation was filed
as Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q
for the Quarter ended March 30, 1996 and is hereby incorporated
by reference.
4.3 Form of Subscription Agreement and Form of 10% Series A
Convertible Notes issued by the Company was filed as Exhibit
10.39 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and is hereby incorporated by
reference.
4.4 Warrant dated January 6, 1997 to purchase 50,000 shares of
Company's Common Stock issued to ACE Foundation, Inc. was filed
as Exhibit 10.51 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and is hereby incorporated
by reference.
4.5 Form of Class A Warrant issued to each purchaser in connection
with the private sale of the Company's securities in January
1994, was filed as Exhibit 10(X) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, and is
hereby incorporated by reference.
4.6 Form of Class B Warrant issued to each purchaser in connection
with the private sale of the Company's securities in January
1994, was filed as Exhibit 10(y) to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, and is
hereby incorporated by reference.
4.7 Agreement to Issue Warrants, dated January 28, 1994, between
the Company and Norcross Securities, Inc. together with a
Warrant issued by the Company and a form of a Warrant issuable
under certain circumstances, comprising Exhibits to the
Agreement to Issue Warrants, was filed as Exhibit 10(z) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993, and is hereby incorporated by reference.
4.8 Form of Class C Warrant issued to each purchaser in connection
with the private placement of the Company's securities which
was commenced in June 1994, was filed as Exhibit 10.29 to the
Company's Registration Statement on Form S-1, No. 33-81892, as
amended, and is hereby incorporated by reference.
4.9 Form of Placement Agent's Warrant Agreement entered into
between the Company and Neidiger/Tucker/Bruner, Inc., together
with a Form of Warrant issued by the Company comprising an
Exhibit to the Placement Agent's Warrant Agreement, was filed
as Exhibit 10.35 to the Company's Registration Statement on
Form S-1, No. 33-81892, as amended, and is hereby incorporated
by reference.
*4.10 Form of 6% Convertible Notes Issued in April 1997.
4.11 Form of Amended GFL Note was filed as Attachment A to the
Company's Preliminary Proxy Statement filed on February 17, 1998
and is hereby incorporated by reference.
4.12 Form of Warrant issued in connection with Amended GFL Notes was
filed as Attachment B to the Company's Preliminary Proxy
Statement filed on February 17, 1998 and is hereby incorporated
by reference.
4.13 Form of Amended 10% Series A Note was filed as Attachment C to
the Company's Preliminary Proxy Statement filed on February 17,
1998 and is hereby incorporated by reference.
4.14 Form of Warrant issued in connection with Amended 10% Series A
Notes was filed as Attachment D to the Company's Preliminary
Proxy Statement filed on February 17, 1998 and is hereby
incorporated by reference.
4.15 Form of Warrant issued in connection with Stand-by financing
commitment was filed as Exhibit 10.38 to the Company's Report
on Form 10-K for the year ended December 31, 1997.
4.16 Form of 10% Series B Convertible Notes.
5. Opinion of Mesirov Gelman Jaffe Cramer & Jamieson
23.1 Consent of Arthur Andersen, LLP, Independent Public Accountants of
EA Industries, Inc.
23.2 Consent of Mesirov Gelman Jaffe Cramer & Jamieson is included in
their opinion filed as Exhibit 5 hereto.
- ----------
* Previously Filed
28
March __, 1998
SECURITIES AND EXCHANGE COMMISSION
Judiciary Plaza
450 Fifth Street, NW
Washington DC 20549
Re: EA Industries, Inc.
Dear Gentlemen::
This firm is counsel to EA Industries, Inc. (the "Company"). In such
capacity, we have assisted in the preparation of the Company's Registration
Statement on Form S-3 (Registration No. 333-21605) ("Registration Statement"),
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, covering 1,505,179 shares of the Company's Common Stock
("Shares") to be sold by certain securityholders named in the Registration
Statement (the "Selling Securityholders"). Of the 1,505,179 shares, (i) 50,000
Shares ("Warrant Shares") are issuable by the Company to a certain Selling
Securityholder upon the exercise of a certain Warrant dated January 6, 1997 (the
"Warrant"), (ii) 1,418,262 Shares ("6% Convertible Note Shares") are issuable by
the Company upon the conversion of certain 6% Convertible Notes dated April 18,
1997 ("6% Convertible Notes"), (iii) 28,917 Shares have been issued to one of
the Selling Securityholders for services provided to the Company (the "Poster
Shares"), and (iv) 8,000 Shares have been issued to one of the Selling
Securityholders in a private transaction (the "Broadway Shares").
In connection with this opinion, we have made such inquiry of the
Company and examined and considered the original or copies, certified or
otherwise identified to our satisfaction, of the Company's Certificate of
Incorporation, as amended ("Certificate of Incorporation"), its By-Laws, as
amended, resolutions of its Board of Directors, the Warrant, 6% Convertible
Notes, and such other documents and corporate records relating to the Company
and the issuance and sale of the Shares, as we deemed necessary or appropriate
for purposes of rendering this opinion.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
March __, 1998
Page 2
Based upon the foregoing, it is our opinion that:
1. The Warrant Shares, when issued in accordance with the terms of, and for
the consideration set forth in, the Warrant, will be validly issued, fully paid
and non-assessable.
2. The 6% Convertible Note Shares, when issued upon conversion of the 6%
Convertible Notes in accordance with the terms of, and for the consideration set
forth in, the 6% Convertible Notes, will be validly issued, fully paid and
non-assessable.
3. The Poster Shares and the Broadway Shares are validly issued, fully paid
and non-assessable.
We hereby expressly consent to the reference to our firm in the
Registration Statement under the Prospectus caption "Legal Matters," to the
inclusion of this opinion as an exhibit to the Registration Statement, and to
the filing of this opinion with any other appropriate governmental agency.
Richard P. Jaffe, a Partner of this firm, is the Secretary of the Company.
Yours very truly,
JJD/ls
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To EA Industries, Inc.:
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-3 Registration Statement of our report dated March 13,
1998 included in EA Industries, Inc.'s Form 10-K for the year ended December 31,
1997, and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
