As Filed with the Securities and Exchange Commission on March 19, 1998
Registration No. 333-44883
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT NO. 1 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
(908) 229-1100
---------------------------------------
(Address, including zip code, and
telephone number, including area
code, of registrant's principal
executive offices)
Richard P. Jaffe, Esquire
Mesirov Gelman Jaffe
Cramer & Jamieson
1735 Market Street, 38th Floor
Philadelphia, PA 19103-7598
(215) 994-1046
-------------------------------
(Name, address, including
zip code, and telephone number,
including area code, of agent
for service)
---------------------------------------------
Approximate date of commencement of proposed sale to public: From time to time
after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.[ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box.[X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<PAGE>
<TABLE>
<CAPTION>
Calculation of Registration Fee
======================================================================================================================
Title of each class of Proposed Maximum Proposed maximum
securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit price Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 188,065 (2) (1)
- ----------------------------------------------------------------------------------------------------------------------
Common Stock 1,069,257 (3) (1)
- ----------------------------------------------------------------------------------------------------------------------
Common Stock 480,000 (4) - N/A N/A
- ----------------------------------------------------------------------------------------------------------------------
Total Registration Fee $4,544.39
======================================================================================================================
</TABLE>
(1) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as
amended ("Securities Act"), solely for purposes of calculation of the
registration fee, based upon the average of the high and low prices
reported in the consolidated reporting system on January 22, 1998.
(2) Represents 188,065 shares of the Company's Common Stock into which
certain convertible subordinated debentures (the "9% Debentures") in the
aggregate principal amount of $282,098 issued by the Company in May and
June 1996 to the named Selling Securityholders (or to other persons who
have transferred their Convertible Debentures to the named Selling
Securityholders) are convertible. For purposes of determining the number of
shares of the Company's Common Stock issuable upon conversion of the
Convertible Debentures to include in this registration statement, the
Company assumed a conversion price of $1.50 per share. The actual number of
shares of Common Stock to be issued upon conversion of the Convertible
Debentures will be equal to: the principal amount of the Convertible
Debentures converted divided by a conversion price per share equal to the
lesser of (i) eighty percent (80%) of the average the closing price of the
Company's Common Stock as traded on the NYSE for the five days immediately
preceding the date of notice of conversion to the Company, or (ii) $1.50.
The actual number of shares included in this registration statement equals
that number of shares of Common Stock issued upon conversion of the
Convertible Debentures in accordance with the conversion price described
above. In accordance with Rule 416 under the Securities Act, this
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon the conversion of the 9%
Debentures to prevent dilution resulting from stock splits, stock dividends
or similar transactions by reason of changes in the conversion price as
aforesaid.
(3) Represents the maximum shares issuable in connection with the purchase of
Service Assembly, Inc. by the Company. The actual number of shares issued
in connection with such purchase will be determined based on the trading
price of the Company's Common Stock at closing of the acquisition of SAI
and the guarantee described in "The Company - Other Developments -
Acquisition of SAI."
(4) Represents 480,000 shares of Common Stock into which certain 10% Series B
Convertible Notes are convertible and interest thereon which may be paid in
stock. The notes are convertible at the option of the holder after January
1, 1998, into shares of Common Stock of the Company at a conversion price
of $2.50 per share. In accordance with Rule 416 under the Securities Act,
this Registration Statement also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon the
conversion of the 9% Debentures to prevent dilution resulting from stock
splits, stock dividends or similar transactions by reason of changes in the
conversion price as aforesaid.
------------------------
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 19, 1998
Prospectus
1,737,322 Shares
EA INDUSTRIES, INC.
Common Stock
This Prospectus relates to the offer for sale of shares of common stock (the
"Shares") of EA Industries, Inc. (the "Company" or "EAI") from time to time
after the date hereof by the holder of certain 10% Series B Convertible Notes
(hereinafter defined) (the "Series B Holder"), certain holders of 9% Convertible
Subordinated Debentures (hereinafter defined) (the "9% Holders") and certain
shareholders of Service Assembly, Inc. ("SAI") who will be receiving shares of
Common Stock of the Company in connection with the Company's acquisition of SAI
(the "SAI Holders") (the Series B Holders, the 9% Holders and SAI Holders 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 $15,044.39 all of
which will be paid by the Company.
The Date of this Prospectus is March 19, 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 9
USE OF PROCEEDS 18
SELECTED CONSOLIDATED FINANCIAL DATA 19
DESCRIPTION OF CAPITAL STOCK 20
PLAN OF DISTRIBUTION AND SELLING SHAREHOLDERS 21
LEGAL MATTERS 23
EXPERTS 23
INDEMNIFICATION OF DIRECTORS AND OFFICERS 23
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, 1997. Proxy Statement dated July 23,
1997, and Quarterly Reports on Form 10-Q for the quarterly periods ended March
29, 1997, June 28, 1997 and September 27, 1997.
2
<PAGE>
Absence of Profitable Operations
The Company has not had a profitable year since 1990. There can be no assurance
that the Company's results of operations will improve or that the Company will
be profitable in the future.
History of Losses
The Company has incurred significant losses in each of the last 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.
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 goals 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
3
<PAGE>
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 1995 through the date of this prospectus, from the
issuance of Common Stock, the exercise of stock options and warrants, the sale
of shares of common stock of Aydin Corporation, borrowings, and the sale of
convertible notes and debentures.
While operating losses and negative cash flows were substantial through the
first half of 1997, the Company's results improved in the second half of 1997.
The Company's 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.
4
<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
5
<PAGE>
The Company is continually assessing and evaluating its management team. The
Company is and will continue to be dependent upon the ability and experience of
its executive officers and key managers of Tanon, its operating subsidiary. In
addition, over the past few years, a number of executives and directors have
resigned from time to time (see "The Company - Other Developments -
Resignations; Election of New Board of Directors"). There can be no assurance
that the Company will be able to retain experienced management. If, for any
reason, the Company is unable to retain such management, the Company's
operations could be adversely affected.
Possible Volatility of Stock Price
The trading price of the Company's Common Stock has historically been volatile
and in the future could be subject to significant fluctuations in response to
variations in quarterly operating results, general conditions in the electronics
industry, general conditions in the economy and other factors, including the
relatively small number of shares held publicly.
Limitation of Net Operating Loss Carry-forward
An annual limitation of approximately $4.9 million on the ability to utilize a
portion of the Company's net operating loss carry forward for Federal income tax
purposes, which amounted to approximately $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 1.4 million shares of Common Stock (see "The Company - Recent
Developments - Capital Raised" for a more complete discussion of such Debentures
and Notes), (ii) approximately 1.8 million outstanding warrants at exercise
prices ranging from $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 and (iv) 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.
6
<PAGE>
Possible Issuances of Preferred Stock
Shares of Preferred Stock of the Company may be issued by the Board of Directors
of the Company, without shareholder approval, on such terms as the Board of
Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. Moreover, although the ability
to issue Preferred Stock may provide flexibility in connection with possible
acquisitions and other corporate purposes, such issuance may make it more
difficult for a third party to acquire, or may discourage a third party from
acquiring, control of the Company. The Company has no outstanding Preferred
Stock.
7
<PAGE>
Provisions with Possible Anti-Takeover Effect
The provisions of New Jersey law, the Company's Certificate of Incorporation and
By-Laws 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. See "Description of Capital
Stock - Provisions with Possible Anti-Takeover Effect."
8
<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.
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In October 1996, the Company adopted a plan to refocus on its core business of
contract manufacturing, and the Company has continued to update and implement
that plan. The key elements of that plan are (i) concentrating the capital
resources of the Company in Tanon, (ii) selling or otherwise disposing of the
Company's interests in BarOn and ITI, (iii) using the Company's holdings in
Aydin Corporation to provide funding for Tanon and the Company and (iv)
attempting to increase revenues and improve profit margins in Tanon by focusing
on sales and margins, improving purchasing and inventory management and
expanding the range of services provided by Tanon. BarOn is currently in
liquidation proceedings and a receiver has been appointed in Israel to direct
those proceedings.
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 $8.3 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.
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. The
Company's consolidated backlog at December 31, 1996 was approximately $28
million.
The Company typically receives orders from its customers on a flexible schedule
to meet the sales/delivery schedule to the ultimate consumer. These purchase
orders specify delivery of product over periods ranging from as short as 30 days
or as long as a year and are adjusted as the sales by the Company's customers to
ultimate consumers change. The amount of inventory produced and stored on behalf
of customers also varies from time to time. Consequently, the Company's backlog
at the end of a period is not necessarily indicative of future shipments to
those customers.
The shares of the Company's Common Stock have been continuously listed for
trading on the NYSE since 1962; however, the Common Stock presently does not
meet the NYSE's requirements for continued listing. See "Risk Factors."
The Company's principal executive offices are located at 185 Monmouth Parkway,
West Long Branch, New Jersey 07764-9989, and its telephone number is (732)
229-1100.
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Other Developments
On January 16, 1995, the Company acquired an equity interest in BarOn, a
privately-owned Israeli corporation based in Haifa, Israel. BarOn is a
development stage company which has developed and was in the process of
commercializing an electronic computer input device that can directly digitize
handwriting in a variety of languages, from any surface. During the fourth
quarter of 1996 the Company determined that its investment and advances to BarOn
were unrecoverable and charged those amounts to expense. BarOn is currently in
liquidation proceedings and a receiver has been appointed in Israel to direct
those proceedings.
On August 8, 1995, the Company, through a 52.3% owned subsidiary, EATI, entered
into a Joint Venture Agreement with IAI to review, develop and exploit
non-classified technological applications developed by IAI. The Company has
decided to sell or otherwise dispose of its interest in the Joint Venture. The
Joint Venture has been classified as an unconsolidated subsidiary held for sale.
On May 6, 1996, the Company purchased 596,927 shares of the common stock of
Aydin Corporation ("Aydin") (NYSE; ASD), representing approximately 11.64% of
the outstanding common shares of Aydin. During May 1996, the Company initiated
discussions with the Board of Directors of Aydin concerning a possible merger or
other combination with Aydin. After due diligence and numerous discussions, the
Company made an offer to merge with Aydin, however, Aydin's Board of Directors
rejected the Company's final offer. The Company withdrew its offer on October 8,
1996 and terminated discussions with Aydin. During the fourth quarter of 1996
the Company decided to sell its investment in Aydin and wrote down the
investment to its estimated net realizable value of $5,605,000. At that time,
the approximate trading price for the Aydin common stock was $9.375 per share.
In May and June 1997, the Company sold its entire investment in Aydin for
approximately $6,425,000.
On December 23, 1996, the Company's contract manufacturing subsidiary, Tanon,
signed a binding letter of intent to acquire Tri-Star Technologies, Inc.
("TriStar") and in January, 1997 placed an initial non-refundable deposit of
$1.0 million toward the purchase of Tri-Star. In May, 1997 the Company and
Tri-Star mutually agreed to terminate the acquisition discussions and the $1.0
million deposit was written off to Other Expenses.
As a result of the decisions to sell its interest in the Joint venture with
IAI, cease making advances to BarOn Technologies, Ltd. (in which the Company
owns a one-third interest), discontinue the business combination discussions
with Aydin and to refocus its resources on the business of providing contract
manufacturing services, the Company determined in the second quarter of 1997
that it would be necessary to restructure its senior management and Board of
Directors. In addition, the Company has closed its Philadelphia office and
consolidated the activities previously handled at such office, and the staff at
such office, with the offices of Tanon in West Long Branch, New Jersey.
Acquisition of SAI. The Company has agreed to purchase Service Assembly, Inc.
("SAI"), which is based in Wareham, Massachusetts, outside of Boston. The
Company has agreed to pay $3,742,000 (the "Purchase Price") for SAI by
delivering shares of its common stock to the owners of SAI (the "SAI
Shareholders") and has agreed to register such shares on this Form S-3 for
resale by the SAI Shareholders.
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The Company has agreed to guarantee that the aggregate proceeds received by the
SAI Shareholders during the twenty trading days after effectiveness of this
Registration Statement is 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.
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
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Common Stock of the Company for every four (4) shares of no par value
Common Stock held by such person on the Record Date (the "Reverse Stock Split").
All references in this Prospectus to shares, share prices, per share amounts and
stock options or warrants have been adjusted to give retroactive effect to the
Reverse Stock Split.
Capital Raised. The Company has incurred significant losses and had negative
cash flows from operations in each of the last 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 has incurred
significant losses and had negative cash flows. The Company has raised
approximately $37 million from December, 1995 through February 28, 1998, from
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 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.
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To fund a portion of the purchase price of the Aydin common stock, on May 3,
1996, the Company sold certain 9% convertible subordinated debentures in the
aggregate principal amount of $7,000,000. The balance of the purchase price was
funded with existing cash of the Company. The Company sold additional 9%
convertible subordinated debentures in the aggregate principal amount of
$1,100,000 during the remainder of May and June 1996 (such convertible
subordinated debentures in the aggregate principal amount of $8,100,000 are
collectively referred to herein as the "Original Convertible Debentures"). The
Company paid a placement fee equal to 5% of the proceeds raised in the sale of
the Original Convertible Debentures in cash of $50,000 during August and
September 1996 and by delivery of 125,000 shares of Common Stock of the Company.
These Original Convertible Debentures had a maturity date of May 3, 1998 and
were convertible into shares of the Company's Common Stock at a conversion price
per share equal to the lesser of (i) four dollars ($4) per share or (ii) 80% of
the average closing price of the Company's Common Stock as traded on the NYSE
for the five (5) days preceding the date of the notice to the Company that the
holder wished to exercise its conversion right. The Company agreed to adjust the
ceiling price of each of the Debentures if the holder of such debenture
refrained from conversions and short sales from approximately the middle of
January through April 11, 1997. As a result, the conversion price of each of the
Original Convertible Debentures has been reduced from $4.00 per share
(pre-Reverse Stock Split price) to $1.50 per share (post-Reverse Stock Split
price) (as amended, the "9% Debentures"). As of the date hereof, $6,165,962
principal amount of such Original Convertible Debentures have been converted
into 3,901,275 shares of Common Stock (post-Reverse Stock Split Shares).
During the period beginning on October 25, 1996 and ending on April 10, 1997,
the Company borrowed a total of $3,520,000 from the then Chairman of its Board
of Directors, certain trusts benefiting his family and unaffiliated investors
(the "Series A Holders"). These loans are represented by certain 10% Series A
Convertible Notes (the "Series A Notes") issued by the Company. The 10% Series A
Notes will mature on January 22, 1999 and were originally convertible at the
option of the holder (i) after January 1, 1998, into shares of Common Stock of
the Company at a conversion price of $3.50 per share, or (ii) into shares of
Common Stock of Tanon after completion of an initial public offering of shares
of Common Stock of Tanon at a conversion price equal to the quotient of (a)
twenty five million dollars ($25 million), divided by (b) the number of shares
of Common Stock of Tanon that were issued and outstanding at the close of
business on the day immediately prior to the effective date of the registration
statement covering the shares of Common Stock of Tanon offered in such initial
public offering, without giving effect to the number of shares of Common Stock
of Tanon being offered in such initial public offering. The Company and the
Series A Holders have agreed to amend the terms of the Series A Notes (i) to
provide for interest payments in cash or stock at the conversion price at the
option of the holders and the Company, and (ii) to increase the conversion price
to the lesser of (a) eighty percent (80%) of the average of the volume weighted
average price per share of the Company's Common Stock (as reported by Bloomberg
Business Services in its Volume at Price Service) for the five days immediately
preceding the date of notice of conversion to the Company, or (b) $5.00. In
consideration of this amendment the Company has agreed to issue warrants with an
exercise price of $5.00 per share, with five year terms for an aggregate of
632,700 shares to the holders of the Series A Notes. These 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
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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.
In April and July 1997, the Company borrowed a total of $1,000,000 from an
unaffiliated investor. These loans are represented by certain 10% Series B
Convertible Notes (the "10% Series B Notes") issued by the Company. The Series B
Notes will mature on January 22, 1999 and are convertible at the option of the
holder (i) after January 1, 1998, into shares of Common Stock of the Company at
a conversion price of $2.50 per share, or (ii) into shares of Common Stock of
Tanon after completion of an initial public offering of shares of Common Stock
of Tanon at a conversion price equal to the quotient of (a) twenty five million
dollars ($25 million), divided by (b) the number of shares of Common Stock of
Tanon that were issued and outstanding at the close of business on the day
immediately prior to the effective date of the registration statement covering
the shares of Common Stock of Tanon offered in such initial public offering,
without giving effect to the number of shares of Common Stock of Tanon being
offered in such initial public offering. The Series B Notes bear interest at the
rate of 10% per annum, payable annually in arrears on January 15, 1998 and
January 22, 1999. Interest is payable at the option of the Company in cash or
stock of the Company at the conversion prices described above.
In addition, in April 1997 the Company borrowed a total of $4.5 million from
unaffiliated investors. These loans are represented by certain 6% Convertible
Notes due April 30, 1999 (the "6% Convertible Notes"). The 6% Convertible Notes
bear interest at 6% per annum, payable quarterly and mature on April 30, 1999.
The 6% Convertible Notes are convertible at a conversion price per share equal
to the lesser of (i) seventy-six and one-half percent (76.5%) of the average of
the volume weighed average price per share of the Company's Common Stock (as
reported by Bloomberg Business Services in its Volume at Price Service) for the
five days immediately preceding the date of notice of conversion to the Company,
or (ii) $3.395. In addition, the Company issued a 6% Convertible Note which is
non-interest bearing in the principal amount of $315,000 as a placement fee to
an unaffiliated party. The Company had agreed to list the shares issuable upon
conversion of the 6% Convertible Notes on the NYSE and to cause them to be
covered by an effective registration statement under the Securities Act by
December 1, 1997, or to pay a cash penalty equal to ten percent (10%) of the
outstanding principal and to pay interest from that date through the effective
date of the registration statement at eighteen percent (18%) per annum. The
Company has asked the holders of the 6% Convertible Notes to waive or reduce
these penalties.
In addition, during January 1997, the Company borrowed $1,000,000 from each of
two unrelated parties. In consideration for such loans, the Company also granted
a warrant to purchase 50,000 shares of Common Stock of the Company at an
exercise price of $1.50 per share to each of the lenders, Ace Foundation, Inc.
(the "Ace Warrant") and Millenco, LP (the "Millenco Warrant") (collectively, the
"Warrants"). These loans were repaid in May and June 1997 in connection with the
sale of the shares of common stock of Aydin held by the Company. Pursuant to a
provision contained in the Millenco Warrant, the Company has repurchased that
warrant for approximately $176,000 in cash.
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Legal Proceedings
Lemco Associates. The Company on a regular basis reviews and updates its public
disclosure with respect to this litigation. As previously reported, in October,
1992, Lemco Associates L.P., a limited partnership ("Lemco"), the owner of
property previously owned by EAI, initiated an action (the "Lemco Suit") against
EAI and others alleging, among other things, that the defendants created
environmental contamination at the property and seeking damages in unspecified
amounts. EAI filed a response to the complaint in which it denied Lemco's
allegations, asserted numerous defenses to the claims asserted and asserted a
counterclaim against Lemco and crossclaims against co-defendants and others for
indemnification and contribution.
In 1947, the Company purchased land in North Long Branch, New Jersey on which it
subsequently built a number of buildings and conducted a number of industrial
operations. In 1954 it built a building known as Building 11 on that land. From
the mid-1950's through 1977, the Company conducted finishing operations such as
metal plating and painting on that site using, among other machinery, a
degreaser to clean metal components using a variety of solvents. In 1977, EAI
leased Building 11 to a company called Comax, Inc. ("Comax") which then began
operations in the building. In 1977, Comax, with technical advice from EAI
filled the degreaser with solvents and used it at least once. Comax then capped
the degreaser without removing the solvents and did not use it again. In 1979,
EAI sold the property and all the buildings on the site to Lemco for
approximately $400,000. Comax continued to operate on the site until 1984 under
a lease from Lemco.
Between 1977 and the time it ceased operations on the site, Comax was cited by
local authorities for a range of environmental violations. Building 11 was
demolished in or about 1991. Evidence indicates that at the time of the removal
the degreaser was empty. EAI believes that, between the time it was capped in
1977 and the time of its removal the chemicals leached out gradually over time
or the chemicals were spilled at the site before or after the removal of the
degreaser.
The Company believes that Lemco was aware at the time of its purchase of the
site from EAI that some of the underground gasoline storage tanks on the site
had leaked and that there had been previous spills of hazardous materials on the
site.
Lemco's environmental consultants have analyzed the data from test wells on the
site and have concluded using a mathematical analysis and a modeling analysis
that TCE contamination occurred between 1959 and 1974 and that PCE contamination
occurred no later than 1968. The Company's environmental consultants have
analyzed the data from the same test wells on the site and have concluded that
based on a similar modeling analysis an initial TCE release to the aquifer
occurred in the mid 1970's to the late 1980's and a release of PCE occurred from
the mid 70's to the mid 80's. Their mathematical analysis also indicates that
TCE was most likely released to the aquifer in the mid 1980's and unlikely to
have been released before 1977. In addition, the evidence that would be
presented at trial by EAI is consistent with that conclusion.
The damages sought in the Lemco Suit are (i) recovery for the decreased value of
the property, (ii) recovery for the cost to remediate the contamination on the
property, and (iii) prejudgement interest and expert fees.
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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 through
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 expected 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.
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
17
<PAGE>
given that the costs incurred by the Company, or a potential award of
damages against the Company, will not exceed Management's current estimates, or
that the insurance recovery, if any, and available resources of the Company will
not be less than the current estimates of Management.
Discovery in the Lemco Suit is ongoing.
USE OF PROCEEDS
The Company will not receive any portion of the proceeds of the resale of the
Shares by the Selling Securityholders.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth historical consolidated financial data of the
Company for each of the years in the five-year period ended December 31, 1997.
The selected historical consolidated financial data 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 a 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).
19
<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.
20
<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 Offered Offering(2) Offering(2)
- --------------- --------------- ---------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Chanie Lerner 586,667(3) 546,667(3) 40,000 *
Millenco, LP 121,398(4) 121,398(4) -0- -0-
Don R. DeSantis 285,714(5) 285,714(5) -0- -0-
Colin Reddy 285,714(5) 285,714(5) -0- -0-
COMTEC Information 285,714(5) 285,714(5) -0- -0-
Systems, Inc.
21
<PAGE>
<CAPTION>
Percentage of
Number of Common
Number of Shares Shares Owned Stock Owned
Name of Selling Relationship to Owned Prior to Number of Shares After After
Securityholder Company(1) Offering Offered Offering(2) Offering(2)
- --------------- --------------- ---------------- ---------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
James M. Ayars 114,286(5) 114,286(5) -0- -0-
David A. Goble 62,857(5) 62,857(5) -0- -0-
Arthur Demaggio 5,714(5) 5,714(5) -0- -0-
Marilyn A. Machado 8,000(5) 8,000(5) -0- -0-
Sandra A. Medeiros 2,286(5) 2,286(5) -0- -0-
Diane Mercier 2,286(5) 2,286(5) -0- -0-
Darlene B. Metivier 2,971(5) 2,971(5) -0- -0-
Debra Mitchell 2,286(5) 2,286(5) -0- -0-
Holly Shurtleff 2,286(5) 2,286(5) -0- -0-
Linda Snow 2,286(5) 2,286(5) -0- -0-
Candice Silvia 2,286(5) 2,286(5) -0- -0-
Lorraine Lobo 2,286(5) 2,286(5) -0- -0-
Christine L. Medeiros 2,286(5) 2,286(5) -0- -0-
</TABLE>
- -------------------------
* Less than 1%
(1) Except as expressly set forth in the table or this note, none of the Selling
Securityholders has had any relation to the Company within the past three years
except for their relationship as holders of securities issued by the Company.
Mr. DeSantis and Mr. Reddy will become employees of Tanon upon closing of the
acquisition of SAI. Broad Capital Associates, Inc. ("Broad Capital") has
provided investment advisory services and has introduced potential investors to
the Company on a number of occasions during the past three years. Ms. Lerner is
an employee of, or contractor to, Broad Capital.
(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.
22
<PAGE>
(3) Represents (a) 66,667 shares of the Company's Common Stock into which
certain convertible subordinated debentures (the "9% Debentures") in the
aggregate principal amount of $100,000 issued by the Company in May and June
1996 to Ms. Lerner are convertible and (b) represents 480,000 shares of Common
Stock into which certain 10% Series B Convertible Notes (the "Series B Notes")
are convertible plus interest on such notes which may be paid in stock. For
purposes of determining the number of shares of the Company's Common Stock
issuable upon conversion of the 9% Debentures to include in this registration
statement, the Company assumed a conversion price of $1.50 per share. The actual
number of shares of Common Stock to be issued upon conversion of the 9%
Debentures will be equal to: the principal amount of the Convertible Debentures
converted divided by a conversion price per share equal to the lesser of (i)
eighty percent (80%) of the average the closing price of the Company's Common
Stock as traded on the NYSE for the five days immediately preceding the date of
notice of conversion to the Company, or (ii) $1.50. The actual number of shares
included in this registration statement equals that number of shares of Common
Stock issued upon conversion of the 9% Debentures in accordance with the
conversion price described above. The Series B Notes are convertible at the
option of the holder after January 1, 1998, into shares of Common Stock of the
Company at a conversion price of $2.50 per share. In accordance with Rule 416
under the Securities Act, this Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon the conversion of the 9% Debentures and Series B Notes to prevent dilution
resulting from stock splits, stock dividends or similar transactions by reason
of changes in the conversion price as aforesaid.
(4) Represents shares of the Company's Common Stock into which certain
convertible subordinated debentures (the "9% Debentures") in the aggregate
principal amount of $100,000 issued by the Company in May and June 1996 to
Millenco are convertible. For purposes of determining the number of shares of
the Company's Common Stock issuable upon conversion of the 9% Debentures to
include in this registration statement, the Company assumed a conversion price
of $1.50 per share. The actual number of shares of Common Stock to be issued
upon conversion of the 9% Debentures will be equal to: the principal amount of
the Convertible Debentures converted divided by a conversion price per share
equal to the lesser of (i) eighty percent (80%) of the average the closing price
of the Company's Common Stock as traded on the NYSE for the five days
immediately preceding the date of notice of conversion to the Company, or (ii)
$1.50. The actual number of shares included in this registration statement
equals that number of shares of Common Stock issued upon conversion of the 9%
Debentures. In accordance with Rule 416 under the Securities Act, this
Registration Statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon the conversion of the 9%
Debentures to prevent dilution resulting from stock splits, stock dividends or
similar transactions by reason of changes in the conversion price as aforesaid.
(5) Represents the maximum shares issuable in connection with the purchase of
SAI by the Company. The actual number of shares issued in connection with such
purchase will be determined based on the trading price of the Company's Common
Stock at closing of the acquisition of SAI and the guarantee described in "The
Company - Other Developments - Acquisition of SAI."
LEGAL MATTERS
The validity of the shares being offered hereby will be passed upon for the
Company by Mesirov Gelman Jaffe Cramer & Jamieson, 1735 Market Street,
Philadelphia, Pennsylvania 19103-7598. Richard P. Jaffe, a partner of such law
firm, is the Secretary of the Company.
EXPERTS
The audited financial statements and schedules of EA Industries, Inc.,
incorporated by reference in this Prospectus and in the Registration Statement
of which the Prospectus is a part, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and have been included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports. 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.
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
23
<PAGE>
monetary damages for violations of the Federal Securities laws. These
provisions do not have any effect on the availability of equitable remedies
(such as an injunction or rescission) for breach of fiduciary duty. However, as
a practical matter, equitable remedies may not be available in particular
circumstances.
Article 37 of the Company's By-laws ("Article 37") provides, among other things,
that the Company shall, to the fullest extent permitted by the laws of the State
of New Jersey as from time to time in effect, indemnify any person who is or was
made a party or is threatened to be made a party to any proceeding by reason of
the fact that he is or was a director or officer of the Company or, while
serving as a director or officer of the Company, is or was serving at the
request of the Company as a director, officer, trustee, employee or agent of
another corporation, partnership, trust, employee benefit plan or other
enterprise against all expenses and liabilities. Article 37 further provides
that the Company shall, from time to time, reimburse or advance to any such
director or officer the funds necessary for payment of expenses incurred in
connection with any proceeding, upon receipt of a written undertaking by or on
behalf of such director or officer to repay such amount unless it shall
ultimately be determined that he is entitled to indemnification. The rights and
authority conferred in Article 37 are not exclusive of any other right which an
indemnified party may have or acquire under any statute, provision of the
Company's By-laws, agreement, vote of the shareholders or directors or
otherwise. The Company's By-laws specify that the right to indemnification is a
contract right, enforceable against the Company with respect to any act or
omission which occurs while such By-law provision is in effect, even if such
By-law provision is not in effect when the claim for indemnification is made.
The NJBCA generally provides that a corporation may, and in certain
circumstances, shall, indemnify its officers, directors, employees and agents
("Corporate Agents"), Corporate Agents of constituent corporations that it has
absorbed by merger or consolidation, and Corporate Agents of other corporations
if such Corporate Agents serve at the indemnifying corporation's request. A
corporation may indemnify such Corporate Agent in a civil proceeding if the
Corporate Agent acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and, in a criminal
proceeding, if he had no reasonable cause to believe his conduct was unlawful,
except that indemnification is not permitted in an action by or in the right of
the corporation if the Corporate Agent is adjudged to be liable to the
corporation, unless the court in which the proceeding was brought shall have
determined that indemnification is appropriate in light of the circumstances of
the case.
The Company has purchased and maintains insurance for its officers and directors
against certain liabilities, including liabilities under the Securities Act. The
effect of such insurance is to indemnify any officer or director of the Company
against expenses, judgments, fines, attorney's fees and other amounts paid in
settlements incurred by him, subject to certain exclusions. Such insurance does
not insure against any such amount incurred by an officer or director as a
result of his own dishonesty.
These provisions of the Company's Certificate of Incorporation and By-laws apply
only to claims against a director or officer arising out of his service in such
a capacity. Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and therefore is unenforceable.
24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
SEC registration fee $ 4,544.39
Legal fees and expenses $ 5,000*
Accounting fees and expenses $ 3,500*
Blue sky fees and expenses $ 0*
Printing expenses $ 1,000*
Miscellaneous $ 1,000*
-----------
TOTAL $15,044.39*
===========
- -------------------
*Estimated.
Item 15. Indemnification of Directors and Officers
As authorized under New Jersey law, the Company's Certificate of Incorporation
eliminates the personal liability of directors and officers to the Company and
its shareholders for monetary damages for acts or omissions (including negligent
and grossly negligent acts or omissions) in violation of directors' and
officer's fiduciary duties of care. The duty of care refers to the fiduciary
duty of directors and officers to manage the affairs of the corporation with the
same degree of care as would be applied by an "ordinarily prudent person under
similar circumstances." The Certificate of Incorporation does not, however, in
any way eliminate or limit the liability of a director or officer for breaching
his duty of loyalty (i.e., the duty to refrain from fraud, self-dealing, and
transactions involving improper conflicts of interest) to the Company or its
shareholders, failing to act in good faith, knowingly violating law or obtaining
an improper personal benefit. The Certificate of Incorporation does not affect
the right to bring a lawsuit or to recover monetary damages for violations of
the Federal Securities laws. These provisions do not have any effect on the
availability of equitable remedies (such as an injunction or rescission) for
breach of fiduciary duty. However, as a practical matter, equitable remedies may
not be available in particular circumstances.
Article 37 of the Company's by-laws ("Article 37") provides, among other things,
that the Company shall, to the fullest extent permitted by the laws of the State
of New Jersey as from time to time in effect, indemnify any person who is or was
made a party or is threatened to be made a party to any proceeding by reason of
the fact that he is or was a director or officer of the Company or, while
serving as a director or officer of the Company, is or was serving at the
request of the Company as a director, officer, trustee, employee or agent of
another corporation, partnership, trust, employee benefit plan or other
enterprise against all expenses and liabilities. Article 37 further provides
that the Company shall, from time to time, reimburse or advance to any such
director or officer the funds necessary for payment of expenses incurred in
connection with any proceeding, upon receipt of a written undertaking by or on
behalf of such director or officer to repay such amount unless it shall
ultimately be determined that he is entitled to indemnification. The rights and
authority conferred in Article 37 are not exclusive of any other right which an
indemnified
25
<PAGE>
party may have or acquire under any statute, provision of the Company's
by-laws, agreement, vote of the shareholders or directors or otherwise. The
Company's By-laws specify that the right to indemnification is a contract right,
enforceable against the Company with respect to any act or omission which occurs
while such By-law provision is in effect, even if such By-law provision is not
in effect when the claim for indemnification is made.
The NJBCA generally provides that a corporation may, and in certain
circumstances, shall, indemnify its officers, directors, employees and agents
("Corporate Agents"), Corporate Agents of constituent corporations that it has
absorbed by merger or consolidation, and Corporate Agents of other corporations
if such Corporate Agents serve at the indemnifying corporation's request. A
corporation may indemnify such Corporate Agent in a civil proceeding if the
Corporate Agent acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation and, in a criminal
proceeding, if he had no reasonable cause to believe his conduct was unlawful,
except that indemnification is not permitted in an action by or in the right of
the corporation if the Corporate Agent is adjudged to be liable to the
corporation, unless the court in which the proceeding was brought shall have
determined that indemnification is appropriate in light of the circumstances of
the case.
The Company has purchased and maintains insurance for its officers and directors
against certain liabilities, including liabilities under the Securities Act. The
effect of such insurance is to indemnify any officer or director of the Company
against expenses, judgments, fines, attorney's fees and other amounts paid in
settlements incurred by him, subject to certain exclusions. Such insurance does
not insure against any such amount incurred by an officer or director as a
result of his own dishonesty.
26
<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.
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,
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.
27
<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.
28
<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 was filed as
Exhibit 4.5 to the Company's Form S-3A (File No. 333-21605) and
is hereby incorporated by reference.
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.
29
<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.
4.16 Form of 10% Series B Convertible Notes.
5.0 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.
30
<PAGE>
Item 17. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement:
PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the undersigned Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions discussed in Item 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
31
<PAGE>
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of West Long Branch, New Jersey on the 19th 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 19, 1998
- ------------------------------ Officer and Director
Frank G. Brandenberg (Principal Executive
Officer)
/s/ James Crofton Treasurer, Vice President March 19, 1998
- ------------------------------ Finance and
James Crofton Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Edward A. Blechschmidt Director March 19, 1998
- ------------------------------
Edward A. Blechschmidt
/s/ Kenneth W. Cannestra Director, Chairman of the March 19, 1998
- ------------------------------ Board
Kenneth W. Cannestra
/s/ Bryan I. Finkel Director March 19, 1998
- ------------------------------
Bryan I. Finkel
/s/ Ross Manire Director March 19, 1998
- ------------------------------
Ross Manire
/s/ Shrawan K. Singh Director March 19, 1998
- ------------------------------
Shrawan K. Singh
/s/ Ronald Verdoorn Director March 19, 1998
- ------------------------------
Ronald Verdoorn
</TABLE>
33
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
2.1 Form of Pre-Incorporation Agreement in connection with the IAI
Joint Venture was filed as Exhibit 2.1 to the Company's Current
Report on Form 8-K (Date of Report: August 3, 1995) and is
hereby incorporated herein by reference.
2.2 Form of Joint Venture Agreement in connection with IAI Joint
Venture was filed as Exhibit 2.2 to the Company's Current
Report on Form 8-K (Date of Report: August 3, 1995) and is
hereby incorporated herein by reference.
*2.3 Agreement of Purchase and Sale dated as of December 23, 1997 by
and among Service Assembly, Inc., the Company and the
shareholders of Service Assembly.
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,
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 was filed as
Exhibit 4.5 to the Company's Form S-3A (File No. 333-21605) and
is hereby incorporated by reference.
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.
4.16 Form of 10% Series B Convertible Notes.
5.0 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
<PAGE>
EXHIBIT 5
March ___, 1998
SECURITIES AND EXCHANGE COMMISSION
Judiciary Plaza
450 Fifth Street, NW
Washington, DC 20549
Re: EA Industries, Inc. - Registration Statement on Form S-3 - No. 333-44883
------------------------------------------------------------------------
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. 333-44883 ("Registration Statement"),
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended, covering 1,737,322 shares of the Company's Common Stock
("Shares") to be sold by certain securityholders named in the Registration
Statement (the "Selling Securityholders"). Of the 1,737,322 Shares, (i) 188,065
Shares ("Additional Debenture Shares") are those additional shares of Company
Common Stock into which certain amended 9% Convertible Subordinated Debentures
dated May 3, 1996 ("Amended 9% Convertible Debentures") are convertible as a
result of certain amendments thereto, (ii) 1,069,257 Shares ("SAI Shares") have
been issued and are being held in escrow pursuant to that certain Agreement of
Purchase and Sale dated December 23, 1997 by and among Service Assembly, Inc.,
the Company and the shareholders of Service Assembly, Inc. (the "SAI Purchase
Agreement") and that certain Escrow Agent dated March 17, 1998 between the
Company, Don DeSantis and this firm (the "SAI Escrow Agreement") in connection
with the purchase of Service Assembly, Inc. by the Company and (iii) 480,000
Shares ("Note Shares") are those shares of Company Common Stock into which
certain 10% Series B Convertible Notes dated July 30, 1997 (the "10% Series B
Convertible Notes") are convertible.
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 Amended 9% Convertible Debentures,
10% Series B Convertible Notes, the SAI Purchase Agreement and SAI Escrow
Agreement, 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 of 3
Based upon the foregoing, it is our opinion that:
1. The Additional Debenture Shares, when issued upon conversion of the
Amended 9% Convertible Debentures in accordance with the terms of, and for the
consideration set forth in, the Amended Convertible Debentures, will be validly
issued, fully paid and non-assessable.
2. The SAI Shares, when released from escrow to certain of the Selling
Securityholders in accordance with the terms of the SAI Escrow Agreement and the
SAI Purchase Agreement, will be validly issued, fully paid and non-assessable.
3. The Note Shares, when issued upon conversion of the 10% Series B
Convertible Notes in accordance with the terms of, and for the consideration set
forth in, the 10% Series B Convertible Notes, will be validly issued, fully paid
and non-assessable.
We hereby expressly consent to the reference to our firm in the
Registration Statement under the Prospectus caption "Legal Matters," to the
inclusion of this opinion as an exhibit to the Registration Statement, and to
the filing of this opinion with any other appropriate governmental agency.
Richard P. Jaffe, a partner of this firm, is the Secretary of the Company. This
firm is also acting as the Escrow Agent under the SAI Escrow Agreement.
Very truly yours,
JJD/sah
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
