AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1997
REGISTRATION NO. 333-32657
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EAC INDUSTRIES, INC.
(Exact name of small business issuer as specified in its charter)
NEW YORK 2752 21-0702336
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
22 BLACKSTONE AVENUE
BRANFORD, CONNECTICUT 06405
(203) 315-8020
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
PETER B. FRITZSCHE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
22 BLACKSTONE AVENUE
BRANFORD, CONNECTICUT 06405
(203) 315-8020
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
DANIEL O'ROURKE
VEDDER, PRICE, KAUFMAN & KAMMHOLZ
222 NORTH LASALLE STREET
CHICAGO, ILLINOIS 60601
(312) 609-7669
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 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 the delivery of the Prospectus is expected to be made pursuant to
Rule 434, please check the following box.[ ]
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
Title of each class of Number of Shares Proposed maximum Proposed maximum Amount of
securities to be registered to be registered offering price per unit aggregate offering price(1) registration fee
- --------------------------- ---------------- ----------------------- --------------------------- ----------------
Common Stock
$.10 par value 2,283,551 $.22 $502,381 $152
Common Stock Purchase 2,283,551 --- --- ---
Rights
(1) Estimated solely for purposes of Rule 457. No additional fee is
necessary for registration of the rights, as they have no value.
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 SAID SECTION 8(A),
MAY DETERMINE.
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PROSPECTUS, PROXY STATEMENT FOR THE 1997
ANNUAL MEETING AND ANNUAL
REPORT TO STOCKHOLDERS
2,283,551 SHARES OF COMMON STOCK
EAC INDUSTRIES, INC.
ISSUABLE UPON EXERCISE OF
RIGHTS TO SUBSCRIBE FOR SUCH SHARES
-------------------
EAC Industries, Inc. (the "Company") is issuing to certain of its
stockholders of record ("Recordholders") as of the close of business on November
10, 1997 (the "Rights Record Date") non-transferable rights ("Rights") entitling
Recordholders to purchase an aggregate of 2,283,551 shares (the "Underlying
Shares") of the Company's Common Stock, par value $.10 per share (the "Common
Stock") at an exercise price of $.22 per share (the "Exercise Price").
Recordholders who own at least 100 shares of Common Stock will receive and may
exercise one (1.0) Rights for each share of Common Stock held. No separate
certificate evidencing the Rights will be delivered to the Recordholders.
Pursuant to their subscription privilege, Recordholders may purchase one full
share of Common Stock for each share of Common Stock held (the "Subscription
Privilege"). No partial exercise is permitted; Recordholders must exercise all
of their Rights or none at all. The receipt or exercise of Rights is not
expected to be a taxable event.
The Rights will expire at 5:00 p.m., New York City time, on January 15,
1998, unless extended as described herein (the "Expiration Date"). A
Recordholder may exercise Rights by delivering his properly completed and
executed Rights Exercise agreement ("Rights Exercise Agreement"), together with
payment in full of the Exercise Price for each Underlying Share subscribed for
pursuant to the Subscription Privilege to the offices of the Company by the
Expiration Date. Subscription agreements will be irrevocable by Recordholders.
Stock certificates will be issued as soon as possible after subscriptions are
accepted following the Expiration Date; subscription funds will be held in
escrow without interest until such date.
At the Annual Meeting of Stockholders to be held on December 29, 1997,
the stockholders will vote on a proposal to reclassify the Company's Common
Stock, the effect of which would be to cash out all shares held by holders of 99
shares or less. See "Reclassification Proposal" at page D-5 hereof. Whether or
not this proposal is approved by the stockholders, odd-lot holders will not be
issued Rights.
Peter B. Fritzsche, the Chairman and Chief Executive Officer of the
Company and other members of the Board of Directors, as holders of approximately
22% of the currently outstanding shares of Common Stock, have agreed to exercise
their Subscription Privileges in full. Assuming the Reclassification Proposal is
approved, and no Rights held by Recordholders other than such persons are
exercised, members of the Board of Directors would own approximately 35% of the
Common Stock.
The Common Stock is traded on the over-the-counter market under the
symbol EACI. On July 31, 1997, the last full day of trading before the
announcement of the Rights Offering, the last reported bid and ask prices of the
Common Stock were $.1875 and $.3984, respectively. On November 7, 1997, the last
full day of trading before the date of this Prospectus, the last reported bid
and ask prices of the Common Stock were $.1875 and $.3125, respectively. The
Rights, being non-transferable, will not trade separately and will have no
independent value.
Questions or requests for assistance or for additional copies of this
Prospectus may be directed to the Company at (203) 315-8020.
-------------------
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
RECORDHOLDERS IN CONSIDERING AN INVESTMENT IN THE COMMON STOCK, SEE "RISK
FACTORS AT PAGES 7-9 HEREOF."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
EXERCISE PROCEEDS TO
PRICE COMPANY (1)
Per Share.................. $.22 $502,381
(1) Before deduction of estimated expenses of this offering, estimated at
$40,000. There is no minimum subscription amount of the offering if not
all of the Rights are not exercised.
The date of this Prospectus is November 10, 1997.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "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 may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549; Seven World Trade Center, 13th
Floor, New York, New York 10007; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. This information is also available
on the Internet at the Commission's website. The address for the website is:
http://www.sec.gov. In addition, material filed by the Company can be inspected
at the offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C., 20006.
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE HEREIN.
THE COMPANY
EAC Industries, Inc., the Company, was organized in 1958 as a New York
corporation. The Company is a holding company with three wholly-owned operating
subsidiaries, Goodren Products Corporation ("Goodren"), Flexible Printed
Products, Inc. ("Flexible") and Athena Packaging, Inc. ("Athena"). Goodren
designs and produces point-ofpurchase advertising displays and wall decorations
on semi-durable plastic. Goodren's major market is consumer product
manufacturers and one marketer of children's wall decorations. Flexible produces
and prints on plastic, pre-cure in-mold heat transfer labels for the
identification and decoration of rubber and silicone hoses, belts and tire
patches. Athena produces printed laminated, embossed and hot stamped labels,
wraps, seals and decals for the cosmetics, pharmaceutical and health and beauty
aids industries. Although separate corporate entities, Goodren and Athena have
effectively combined their operations. Each of these subsidiaries sells their
products to customers throughout the United States.
The following charts describe certain pertinent financial information
regarding the parent company and its subsidiaries:
PARENT GOODREN/
COMPANY ATHENA FLEXIBLE CONSOLIDATED
------- ------ -------- ------------
YEAR ENDED 1/31/97:
Current assets............... $ 132,000 $1,143,000 $ 337,000 $1,612,000
Fixed assets................. 117,000 287,000 306,000 710,000
Intangible assets............ -- 262,000 192,000 454,000
Total assets................. 759,000 1,721,000 835,000 3,315,000
Revenues..................... -- 4,516,000 1,472,000 5,988,000
Net income (loss)............ (127,000) 43,000 (77,000) (161,000)
6 MONTHS ENDED 7/31/97:
Current assets............... $ 56,000 $1,161,000 $ 392,000 $1,609,000
Fixed assets................. 105,000 246,000 295,000 646,000
Intangible assets............ -- 248,000 185,000 433,000
Total assets................. 671,000 1,685,000 872,000 3,228,000
Revenues..................... -- 2,404,000 768,000 3,172,000
Net income (loss)............ (184,000) 15,000 121,000 (48,000)
THE RECAPITALIZATION OF THE COMPANY
At the 1997 Annual Meeting, the stockholders will be asked to approve
two related and successive stock splits which will have the effect of cashing
out the approximately 28,136 shares of Common Stock owned by approximately 1,080
odd-lot holders (owners of fewer than 100 shares) of the Company's Common Stock
(the"Reclassification Proposal"). Such shares will be exchanged for the right to
receive cash in the amount of $.28125 per share (or approximately $7,913 in
total). Assuming approval of the Reclassification Proposal, there will be
2,283,551 shares of Common Stock outstanding held by approximately 1,500
stockholders. No Rights will attach to the shares of Common Stock held by
odd-lot holders, whether or not the Reclassification Proposal is approved.
3
THE RIGHTS OFFERING
Rights ............................ Each record holder of Common Stock of 100 shares or more at the close
of business on November 10, 1997 the Rights Record
Date ("Recordholders") will receive one (1.0) non-transferable Rights
for each share of Common Stock held. Each Right entitles the holder
thereof to purchase from the Company one (1.0) share of Common Stock
(an "Underlying Share"). An aggregate of approximately 2,283,551
shares of Common Stock will be sold in this offering upon the exercise
of Rights, assuming the exercise of all Rights. The distribution of
Rights and the sale of shares of Common Stock upon the exercise of
Rights are referred to herein as the "Rights Offering."
Exercise Price..................... $.22 per share of Common Stock (the "Exercise Price").
Subscription Privilege............. Recordholders are entitled to purchase for the Exercise Price one
Underlying Share for each Right held,
provided that they hold at least 100
Underlying Shares as of the Record Date.
See "The Rights Offering--Subscription
Privilege."
Potential Termination
of Subscription Privilege.......... If the Company believes that the issuance of Underlying Shares pursuant
to the Subscription Privilege will be unlawful under the laws of any
state, then the Company will have the right to terminate such privileges
upon receipt of advice of counsel to the Company. At the date of this
Prospectus, the Company believes that such privileges may be exercised
in all states where Recordholders reside. However, the Company's legal
counsel, in passing on the validity of the Common Stock (see "Legal
Matters") has not opined that the laws of all applicable states permit
exercise of Subscription Privileges.
Method of Exercising Rights........ A Recordholder may exercise Rights by properly completing and
signing the Rights Exercise Agreement and forwarding such, with
payment of the full Exercise Price for each Underlying Share subscribed
for on or prior to the Expiration Date. See "The Rights
Offering--Method of Exercising Rights." No interest will be paid on
funds delivered in payment of the Exercise Price.
Rights Record Date................. November 10, 1997.
Expiration Date.................... 5:00 p.m., New York City time, on January 15, 1998,
unless extended by the Company at its option.
No Revocation...................... HOLDERS WHO EXERCISE THEIR RIGHTS TO SUBSCRIBE FOR
SHARES WILL NOT BE ENTITLED TO REVOKE THEIR
SUBSCRIPTIONS.
Non-transferability................ Rights are non-transferable and no separate market for the Rights can
exist.
Amendments; Termination............ The Company reserves the right to amend the terms and conditions of
the offering made hereby or to terminate the Rights Offering at any time
prior to delivery of the shares of Common Stock offered hereby. See
"The Rights Offering--Amendments and Waivers; Termination."
4
Persons Holding Shares
Through Others...................... Persons holding shares of Common Stock and receiving the Rights
distributable with respect thereto through a broker, dealer, commercial
bank, trust company or other nominee should promptly contact the
appropriate institution or nominee and request it to effect the
transactions for them. See "The Rights Offering--Exercise of Rights."
Certain Tax Consequences........... Generally, Recordholders will not recognize any gain or loss upon
receipt or exercise of Rights. See "Certain Federal Income Tax
Consequences."
Shares Outstanding................. 2,311,687 as of November 10, 1997 and 2,283,551 shares
assuming completion of the Reclassification Proposal.
Shares Outstanding After the
Rights Offering.................... 4,567,102, assuming that all Rights are exercised (the "Maximum
Subscription"); 2,797,530, assuming that no holder other than the
members of the Board of Directors of the Company exercise Rights.
Exercise Agent..................... The Company is acting as its own exercise agent. See "The Rights
Offering--Exercise Agent" for addresses and information relating to the
delivery of Rights Exercise Agreement and the payment of the Exercise
Price.
Use of Proceeds.................... The purpose of the Rights Offering is to strengthen the Company's
capital structure and enhance its ability to obtain future financing so as
to enable the Company to grow through both internal means and
appropriate acquisitions. The net proceeds to the Company from the
sale of the Underlying Shares will be approximately $462,000 if all of
the Rights exercised.
Principal Stockholder
and the Board of Directors......... Peter B. Fritzsche, the Chairman of the Board and Chief Executive
Officer of the Company and the holder of approximately 20% of the
currently outstanding shares of Common Stock, and other members of
the Board of Directors have agreed to exercise their Subscription
Privileges in full.
Over-the-Counter
Trading Symbol..................... "EACI."
See "Risk Factors" for a discussion of certain factors that should be
considered by Recordholders in evaluating an investment in Common Stock.
5
SUMMARY SELECTED FINANCIAL DATA
YEAR ENDED JANUARY 31, SIX MONTHS ENDED JULY 31,
---------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net Sales........................................ $5,988,315 $7,659,689 $3,172,129 $3,448,400
Cost of products sold............................ 4,392,978 5,435,681 2,272,395 2,575,746
Selling, general and administrative expenses..... 2,054,633 2,092,565 931,133 1,010,470
Gain on sale of fixed assets..................... 242,000 -- -- --
---------- ---------- ---------- ----------
Net (loss) income............................ $ (161,270) $ 129,195 $ (48,041) $ (91,309)
=========== ========== =========== ===========
Loss (income) per common share................... $ (.07) $ .06 $ (.02) $ (.04)
=========== ========== =========== ===========
JULY 31, 1997
-------------
AS
ACTUAL ADJUSTED(1)
------ -----------
BALANCE SHEET DATA:
Working capital.................................. $ 655,895 $1,117,895
Total assets..................................... 3,227,615 3,689,615
Total liabilities................................ 1,457,029 1,457,029
Shareholder's equity............................. 1,770,586 2,232,586
- ----------
(1) To give effect to the Reclassification Proposal and the Rights
Offering, assuming the Maximum Subscription.
6
RISK FACTORS
In addition to the other information included in this Prospectus, the
following factors should be considered carefully by each prospective purchaser
of the Common Stock.
RECENT OPERATING LOSSES
The Company realized a $65,988 net loss during the three months ended
July 31, 1997 versus a net loss of $75,977 for the three months ended July 31,
1996. For the six months periods ended July 31, 1997 and 1996 respectively, the
net losses were $48,041 and $91,309. The Company incurred a $161,270 net loss in
fiscal 1997 against profits of $129,195 for its 1996 fiscal year. These losses
were primarily the result of operating losses due to a significant downturn in
orders, particularly to wall decoration customers and the cost of acquiring,
moving and integrating Athena's operations. At January 31, 1997, the Company had
an accumulated deficit of $8,867,082. See "Business--Financial Condition of the
Company." Although the Company is taking action to return itself to
profitability, there can be no assurance that the Company will be profitable in
future periods.
COMPETITION
The printing industry is highly fragmented and intensely competitive.
The Company competes with business owned by national organizations as well as
printers operated by local and regional concerns. A number of the Company's
competitors have substantially greater resources than the Company.
NEED FOR ADDITIONAL FINANCING
The Company's ability to execute its business strategy is dependent on
its ability to obtain substantial financing for the development of additional
product lines. However, no assurance can be given that the Company will obtain
this financing or that it and the proceeds of this Offering will provide the
Company with the funds required to develop such additional products. The Company
anticipates that future development and expansion will be financed through the
public or private sale of additional equity (including, potentially, Common
Stock) or debt securities, capital leases, and other credit facilities. There
can be no assurance that any additional funds will be available or that such
funds, if available, will be on terms acceptable to the Company. New investors
may seek and obtain substantially better terms than those available to
Recordholders purchasing in this offering and the Company's issuance of
securities in the future may result in substantial dilution.
LEVERAGE
The Company currently has a significant amount of outstanding
indebtedness. At July 31, 1997, the Company had long-term indebtedness
(excluding current maturities) of approximately $504,000 or approximately 21% of
total capitalization. The degree to which the Company is leveraged could have
important consequences to the Company, including: (i) increased vulnerability to
adverse general economic and industry conditions, (ii) impaired ability to
obtain additional financing for future working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes, and (iii) dedication
of a substantial portion of the Company's cash flow from operations to the
payment of principal and interest on indebtedness, thereby reducing the funds
available for operations and future business opportunities.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company will be largely dependent upon the efforts
and abilities of Peter B. Fritzsche, President and Chairman of the Board, and
Steven Mann, President of the Company's Goodren Products subsidiary. See
"Management" at page D-2 hereof. Mr. Fritzsche is the Company's largest
stockholder. The Company has an employment agreement with Mr. Mann.
Nevertheless, the loss of the services of Mr. Fritzsche or Mr. Mann could have a
material adverse effect on the Company.
7
DEPENDENCY ON A KEY CUSTOMER
One of the Company's customers, the Priss Prints division of ERO
Industries, accounted for 39% of net sales for each of the years ended January
31, 1997 and 1996. The relationship is not evidenced by a written contract. The
Company believes its relationship with this customer is ongoing, but a downturn
in orders from this customer would have a material adverse effect on the
Company's business.
CONTINUATION OF NET OPERATING LOSS CARRYFORWARDS
The Company currently has net operating loss carryforwards for Federal
income tax purposes of approximately $7 million. Acquisitions of Common Stock by
persons who are not currently holders of Common Stock, could result in an
"ownership change" within the meaning of section 382 of the Internal Revenue
Code of 1986, as amended (the "Code"), thereby imposing an annual limitation
(the "Section 382 Limitation") on the Company's ability to utilize the net
operating loss carryforward to reduce future taxable income. Specifically, in
the event of an "ownership change," the Company's utilization of its net
operating loss carryforwards would be limited to an annual amount equal to the
product of the equity value of the Company at the time of such "ownership
change" (subject to reduction with respect to certain recent increases in value)
multiplied by the long-term tax-exempt rate as published monthly by the Internal
Revenue Service, without extending the expiration date of the net operating loss
carryforwards. The long-term tax-exempt rate is currently 5.64%; such rate,
however, is subject to change and it is impossible to predict whether the equity
value of the Company and such rate will increase or decrease, and to what
extent. See "Certain Federal Income Tax Consequences--Tax Consequences to
Company."
The Company does not believe that the issuance of Underlying Shares
pursuant to the Subscription Privilege will cause an "ownership change."
Notwithstanding the foregoing, the Rights Offering may increase the likelihood
that an "ownership change" will occur in the future, and it is impossible for
the Company to ensure that such "ownership change," will not occur, in part
because the Company has no ability to restrict the acquisition or disposition of
Common Stock by persons whose ownership could cause an "ownership change." In
addition, the Company may in the future take certain actions which could give
rise to an ownership change, if in the exercise of the business judgment of the
Company such actions are necessary or appropriate. If an "ownership change" were
to occur subsequent to the Rights Offering, the Section 382 Limitation could
have a material adverse impact upon the Company's earnings and upon the
Company's cash flow.
DILUTION OF OWNERSHIP
Recordholders who do not exercise their Rights face the possibility
that their percentage of ownership in the Company will be diluted by the Rights
Offering.
PRINCIPAL STOCKHOLDER
Peter B. Fritzsche, the Chairman of the Board and CEO of the Company,
owns approximately 20% of the currently outstanding shares of Common Stock and
has agreed that he will exercise its Subscription Privilege in full.
Accordingly, upon consummation of the Rights Offering, Mr. Fritzsche will
continue to own at least 20% of the outstanding shares of Common Stock.
Depending upon the number of shares subscribed for by others, the percentage of
the outstanding Common Stock owned by Mr. Fritzsche upon completion of the
Rights Offering will range from approximately 20% (in the event that all
stockholders exercise their Rights in full) to approximately 34% if only the
members of the Board of Directors other than Mr. Fritzsche exercise.
NO DIVIDENDS
The Company has not paid dividends on the Common Stock for more than
ten years. The Company does not expect to pay any cash dividends in the
foreseeable future and intends to continue to retain any earnings for the
Company's operations. See "Price Range of Common Stock and Dividends" and
"Description of Capital Stock--Common Stock."
8
PRICE RANGE OF SECURITIES
Trading activity with respect to the Company's Common Stock has been
very limited with trading being sporadic and infrequent. A public trading market
having the characteristics of depth, liquidity and orderliness depends upon the
existence of market makers as well as the presence of willing buyers and
sellers, which are circumstances over which the Company does not have control.
The Common Stock is quoted in the National Daily Quotation Service
("Pink Sheets") published daily by the National Quotation Bureau, Inc. under the
symbol EACI. See "Market For Company's Common Stock and Related Stockholder
Matters" at p. B-3 hereof for additional information.
MARKET CONSIDERATIONS
There can be no assurance that the market price of the Common Stock
will not decline during the subscription period or that, following the issuance
of the Rights and the sale of the Underlying Shares upon exercise of Rights, a
subscribing Recordholder will be able to sell shares purchased in the Rights
Offering at a price equal to or greater than the Exercise Price. The election of
a Recordholder to exercise Rights in the Rights Offering is irrevocable.
Moreover, until certificates are delivered, subscribing Recordholders may not be
able to sell the shares of Common Stock that they have purchased in the Rights
Offering. Certificates representing shares of Common Stock purchased will be
delivered as soon as practicable after consummation of the Rights Offering.
No interest will be paid to Recordholders on funds delivered to the
Company pursuant to the exercise of Rights pending delivery of Underlying
Shares.
POSSIBLE APPLICATION OF THE "PENNY STOCK RULES"
The Securities and Exchange Commission has adopted certain rules
governing the trading of securities issues with trading prices of less than
$5.00 where the issuer does not meet with certain net worth, earning and other
criteria. The Company does not believe its Common Stock currently meets these
criteria but cannot predict it will be able to keep the Common Stock exempt from
these rules. These rules include the requirement that a broker-dealer deliver a
risk disclosure statement and provide market and trading-related information to
purchasers of penny stocks. The potential application of these rules could have
a negative impact on the trading in the Common Stock by making brokers less
willing to make a market in, or recommended purchase of, the Common Stock.
ENVIRONMENTAL MATTERS
Goodren is included in a threatened claim concerning environmental
cleanup costs. Goodren is included among a large number of companies involved,
and is not one of the major parties. The amount, if any, that Goodren may
ultimately have to pay, is not considered material, is subject to change and is
uncertain at this time. It is management's opinion that the Company is
adequately reserved for this matter and the ultimate resolution of this case
should not have a material impact on the financial condition of the Company.
POSSIBLE DISCRIMINATORY TREATMENT OF ODD-LOT HOLDERS
The Company has issued the Rights with the provision that they may not
be exercised by odd-lot holders, those EAC stockholders who own fewer than 100
shares. This action is consistent with the Reclassification Proposal, which
calls for the buy-out of holders without a significant financial stake in the
Company. The Company believes this action is in accordance with the New York
Business Corporation Law, while acknowledging that there is no controlling legal
precedent supporting its position. In the event an odd-lot holder or holders
might successfully contest such position, which the Company believes is
unlikely, any damages such stockholder may be entitled to are anticipated to be
minimal. For example, the $.22 per share purchase price in the Rights Offering,
when multiplied by the 29,000 (approximate) shares held by odd-lot holders, when
compared to the recent approximately $.40 per share ask price for the stock in
the over-the-counter market, produces aggregated damages of only $5,200,
disregarding brokerage commissions.
9
THE COMPANY
EAC Industries, Inc. is a holding company with three operating
subsidiaries: Goodren Products Corporation ("Goodren"), Athena Packaging, inc.
("Athena") and Flexible Printed Products, Inc. ("Flexible"). Goodren designs and
provides point-of-purchase advertising displays and wall decorations on
semi-durable plastic. Athena produces printed, laminated embossed and
hot-stamped labels, wraps, seals and decals for the cosmetics, pharmaceutical
and health and beauty aids industries. Flexible produces and prints on plastic,
pre-cure in-mold heat transfer labels for the identification and decoration of
rubber and silicone hoses, belts and tire patches.
The Company was incorporated in 1958 under the laws of the State of New
York. Its executive offices are located at 22 Blackstone Avenue, Branford,
Connecticut 06405, and its telephone number is (203) 315-8020. Further
information on the business of the Company is contained in the Annual Report to
Stockholders attached hereto and made a part hereof.
THE RECLASSIFICATION PROPOSAL
At the 1997 Annual Meeting, the stockholders will be asked to approve
two related and successive stock splits which will have the effect of cashing
out the 28,136 shares of Common Stock owned by 1,080 odd-lot holders (fewer than
100 shares) of the Company's Common Stock (the"Reclassification Proposal"). Such
shares will be exchanged for the right to receive cash of $.28125 per share
($7,913 in total). Assuming approval of the Reclassification Proposal, there
will be 2,283,551 shares of Common Stock outstanding. Whether or not such
proposal is approved, the odd-lot holders will NOT be entitled to receive or
exercise Rights in the Rights Offering.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
See page B-5 hereof for such information.
10
CAPITALIZATION
The following table sets forth the capitalization of the Company and
its consolidated subsidiaries as of July 31, 1997, and as adjusted to reflect
the effectuation of the Reclassification Proposal and the Rights Offering,
assuming the Maximum Subscription. This table should be read in conjunction with
the Consolidated Financial Statements of the Company and related Notes thereto
attached to this Prospectus at pages B-8 to B-22 and pages C-2 to C-6 hereof.
AS OF JULY 31, 1997
-------------------
ACTUAL AS ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
Current maturities of long-term debt............................................ $ 91,558 $ 91,558
Long-term debt.................................................................. 503,778 503,778
Stockholders' equity:
Common Stock, $.10 par value; 20,000,000 shares authorized; 2,311,687
shares issued and outstanding (and 4,567,102 shares as adjusted)............ 231,169 456,710
Capital in excess of par value.................................................. 10,454,540 10,690,999
Retained earnings (deficit)..................................................... (8,915,123) (8,915,123)
----------- -----------
Total stockholders' equity............................................... $ 1,770,586 $ 2,232,586
=========== ===========
Total capitalization..................................................... $ 2,365,922 $ 2,827,922
=========== ===========
USE OF PROCEEDS
The purpose of the Rights Offering is to strengthen the Company's
capital structure and enhance its ability to obtain future financing so as to
enable the Company to grow through both internal means and appropriate
acquisitions. The Company currently has no written or oral agreements with
respect to any pending acquisitions. In the event of the Maximum Subscription,
the net proceeds to the Company are estimated to be approximately $462,000. The
Company intends to use the net proceeds from the sale of the Underlying Shares
to add to working capital. The Company may temporarily repay all or a portion of
the indebtedness under the Company's credit agreement (Credit Agreement"). The
Credit Agreement is a one-year, secured, revolving line with The Chase Manhattan
Bank in the aggregate amount of $500,000. Interest is computed at prime, plus
2%. At July 31, 1997, $35,000 was borrowed under the Credit Agreement.
The agreement expires on March 31, 1998.
11
DILUTION
At July 31, 1997, the net tangible book value of the Company was
$1,337,601 or $.58 per share. Net tangible book value per share represents the
Company's tangible assets less total liabilities. Net tangible book value
dilution per share represents the difference between the amount per share of
Common Stock paid by the Recordholders in the Rights Offering and the pro forma
net tangible book value per share of Common Stock immediately after completion
of the Rights Offering (and assuming the Maximum Subscription). After giving
effect to: (i) the sale by the Company of the 2,283,551 Shares of Common Stock
offered hereby and (ii) the effectiveness of the Recapitalization Proposal, the
pro forma net tangible book value of the Company at July 31, 1997, would have
been $1,799,601, or $.39 per share. This represents an immediate decrease in net
tangible book value of $.19 per share to Recordholders as illustrated by the
following table:
Price to Recordholders................................... $.22
Net tangible book value at July 31, 1997................. $.58
Decrease in net tangible book value attributable to
new stock issued pursuant the Rights Offering(1)...... .19
Net tangible book value after the Rights Offering
and the Recapitalization Proposal(2).................. $.39
- ----------
(1) Assuming the Maximum Subscription and after deduction of offering
expenses of approximately $40,000 pa able by the Company.
(2) There is no dilution in the aggregate net asset value of the Common
Stock held by a Recordholder exercising his Rights.
12
SELECTED HISTORICAL FINANCIAL DATA
The following selected financial data of the Company for the fiscal
years ended January 31, 1997 and 1996 are derived from the financial statements,
physically incorporated into this Prospectus by the Company's Annual Report to
Stockholders being attached hereto, which financial statements have been audited
by Lazar, Levine & Company, LLP, independent public accountants, as indicated in
their report included therein. The selected financial data as of July 31, 1997
and for the six (6) months ended July 31, 1997 and 1996 have been derived from
the Company's unaudited financial statements, which are included herein at pages
C-2 to C-6 and which, in the opinion of the Company's management, contain all
adjustments, consisting of normal adjustments necessary for a fair presentation
of the financial position and results of operations. The operating results for
the three (3) and six (6) months ended July 31, 1997 are not necessarily
indicative of the results for the full year of operations. The Selected
Historical Financial Data should be read in conjunction with the financial
statements and related notes thereto and "Management's Discussion and Analysis
of Operations" included herein at pages B-5 to B-22 and pages C-2 to C-9.
YEAR ENDED JANUARY 31, SIX MONTHS ENDED JULY 31,
---------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net Sales......................................... $5,988,315 $7,659,689 $3,172,129 $3,448,400
Cost of products sold............................. 4,392,978 5,435,681 2,272,395 2,575,746
Selling, general and administrative expenses...... 2,054,633 2,092,565 931,133 1,010,470
Gain on Sale of Fixed Assets...................... 242,000 0 -- --
---------- ---------- ---------- ----------
Net (loss) income............................. $ (161,270) $ 129,195 $ (48,041) $ (91,309)
========== ========== ========== ==========
Loss (income) per common share.................... $ (.07) $ .06 $ (.02) $ (.04)
========== ========== ========== ==========
JULY 31, 1997
-------------
AS
ACTUAL ADJUSTED(1)
------ -----------
BALANCE SHEET DATA:
Working capital................................... $ 655,895 $1,117,895
Total assets...................................... 3,227,615 3,689,615
Total liabilities................................. 1,457,029 1,457,029
Shareholder's equity.............................. 1,770,586 2,232,586
(1) To give effect to the Reclassification Proposal and the Rights
Offering, assuming the Maximum Subscription.
13
THE RIGHTS OFFERING
THE RIGHTS
The Company is issuing the Rights to Recordholders at no charge to such
Recordholders. The Company is issuing one (1.00) Right for each share of Common
Stock held on the Rights Record Date to all stockholders of record other than
odd-lot holders (holders of fewer than 100 shares) of record. The Rights are not
evidenced by any certificate, rather are set forth in the books of the Company.
Such rights are not transferable.
EXPIRATION DATE
The Rights will expire at 5:00 p.m., New York City time, on January 15,
1998, subject to extension in the discretion of the Company. After the
Expiration Date, unexercised Rights will be null and void. The Company will not
be obligated to honor any purported exercise of Rights received by the Company
after the Expiration Date, regardless of when the documents relating to that
exercise were sent.
SUBSCRIPTION PRIVILEGE
Each Right entitles the holder thereof to purchase at the Exercise
Price one Underlying Share (the " Subscription Privilege"). The Right has been
established on the books of the Company. The Right is non-transferable.
Certificates representing Underlying Shares purchased pursuant to the
Subscription Privilege will be delivered to subscribers as soon as practicable
after the Expiration Date.
EXERCISE OF RIGHTS
Holders may exercise their Rights by delivering to the Company, at the
address specified below, at or prior to the Expiration Date, the properly
completed and executed Rights Exercise Agreement together with payment in full
of the Exercise Price for each Underlying Share subscribed for. Payment may only
be made by check or bank draft drawn upon a U.S. bank payable to the Company. If
paying by uncertified personal check, please note that the funds paid thereby
may take at least five business days to clear. Accordingly, holders of Rights
who wish to pay the Exercise Price by means of uncertified personal check are
urged to make payment sufficiently in advance of the Expiration Date to ensure
that such payment is received and clears by such time. All funds received in
payment of the Exercise Price shall be held by the Company in an escrow account
with an independent bank pending the Expiration Date and invested at the
direction of the Company in short-term certificates of deposit, short-term
obligations of the United States, any state or any agency thereof, or money
market mutual funds investing in the foregoing instruments. Earnings on such
funds will be retained by the Company.
THE ADDRESS TO WHICH THE RIGHTS EXERCISE AGREEMENT AND PAYMENT OF THE
EXERCISE PRICE SHOULD BE DELIVERED IS:
EAC INDUSTRIES, INC.
22 BLACKSTONE AVENUE
BRANFORD, CONNECTICUT 06405
THE COMPANY'S TELEPHONE NUMBER IS (203)315-8020.
Recordholders who hold shares of Common Stock for the account of
others, such as brokers, trustees or depositaries for securities, should contact
the respective beneficial owners of such shares as soon as possible to ascertain
those beneficial owners' intentions and to obtain instructions with respect to
their Rights. If a beneficial owner so instructs, the record holder of that
beneficial owner's Rights should complete a Rights Exercise Agreement and submit
it to the Exercise Agent with the proper payment. In addition, beneficial owners
of Common Stock or Rights held through such a nominee holder should contact the
nominee holder and request the nominee holder to effect transactions in
accordance with the beneficial owner's instructions.
14
The Instructions accompanying the Rights Exercise Agreement should be
read carefully and followed in detail. RIGHTS EXERCISE AGREEMENTS SHOULD BE SENT
WITH PAYMENT TO THE COMPANY. DO NOT SEND RIGHTS EXERCISE AGREEMENTS TO THE
TRANSFER AGENT.
THE METHOD OF DELIVERY OF RIGHTS EXERCISE AGREEMENTS AND PAYMENT OF THE
EXERCISE PRICE TO THE COMPANY ARE AT THE ELECTION AND RISK OF THE RECORDHOLDERS.
IF SENT BY MAIL, RECORDHOLDERS ARE URGED TO SEND RIGHTS EXERCISE AGREEMENTS AND
PAYMENTS BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED,
AND ARE URGED TO ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE
COMPANY AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION DATE. BECAUSE
UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR,
RECORDHOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF A
CERTIFIED OR CASHIER'S CHECK.
All questions concerning the timeliness, validity, form and eligibility
of any exercise of Rights will be determined by the Company, whose
determinations will be final and binding. The Company, in its sole discretion,
may waive any defect or irregularity, or permit a defect or irregularity to be
corrected within such time as it may determine, or reject the purported exercise
of any Right. Rights Exercise Agreements will not be deemed to have been
received or accepted until all irregularities have been waived or cured within
such time as the Company determines, in its sole discretion. The Company Agent
will not be under any duty to give notification of any defect or irregularity in
connection with the submission of Rights Exercise Agreements or incur any
liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus, the
Instructions or the Rights Exercise Agreement should be directed to the Company
at its address set forth above (telephone (203) 315-8020).
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS PROPERLY EXERCISED THE SUBSCRIPTION
PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED.
NO TRANSFERRING RIGHTS
Rights may not be transferred or purchased or sold.
AMENDMENTS AND WAIVERS; TERMINATION
The Company reserves the right to extend the Expiration Date and to
amend the terms and conditions of the Rights Offering, whether the amended terms
are less or more favorable to the Recordholders. In the event that the Company
amends the terms of the Rights Offering, the Registration Statement of which
this Prospectus forms a part will be amended, a new definitive Prospectus will
be distributed to all Recordholders who have theretofore exercised Rights and to
holders of record of unexercised Rights on the date the Company amends such
terms. All Recordholders who have theretofore exercised Rights shall
simultaneously be provided with a form of Consent to Amended Rights Offering
Terms, on which they may confirm their exercise of Rights under the terms of the
Rights Offering as amended by the Company; any Recordholder who has theretofore
exercised any Rights and who does not return such Consent within 10 business
days after the mailing thereof by the Company shall be deemed to have canceled
his or her exercise of Rights, and the full amount of the Exercise Price
theretofore paid by such Recordholder will be returned promptly by mail, without
interest or deduction. Any completed Rights Exercise Agreement received by the
Company five or more business days after the date of the amendment will be
deemed to constitute the consent of the Recordholder who completed such Rights
Exercise Agreement to the amended terms. The Company reserves the right, in its
sole discretion, at any time prior to delivery of the Underlying Shares to
terminate the Rights Offering by making a public announcement thereof. If the
Rights Offering is so terminated, all funds received from Recordholders and held
in the escrow account will be promptly refunded without interest.
15
DETERMINATION OF EXERCISE PRICE
The Exercise Price was determined by the Company, based on a number of
factors. The Company believes that the Exercise Price reflects the Company's
objective of achieving the maximum net proceeds obtainable from the Rights
Offering while providing the holders of Common Stock with an opportunity to make
an additional investment in the Company, and thus avoid an excessive dilution of
their ownership position in the Company.
In approving the Exercise Price, the Board of Directors considered such
factors as the alternatives available to the Company for raising capital, the
market price of the Common Stock, the business prospects for the Company and the
general condition of the securities markets at the time of the meeting of the
Board of Directors at which the Rights Offering was approved. There can be no
assurance however, that the market price of the Common Stock will not decline
during the subscription period to a level equal to or below the Exercise Price,
or that, following the issuance of the Rights and of the Common Stock upon
exercise of Rights, a subscribing Recordholder will be able to sell shares
purchased in the Rights Offering at a price equal to or greater than the
Exercise Price.
SUBSCRIPTION BY PRINCIPAL STOCKHOLDER
Peter B. Fritzsche owns approximately 20% of the Common Stock currently
outstanding and has agreed to exercise his Subscription Privilege in full. Other
members of the Board of Directors own 42,775 shares of Common Stock and they
intend to fully exercise their Subscription Privileges. Depending upon the
exercise of Subscription Privileges by other Recordholders, the percentage of
the outstanding Common Stock owned by Mr. Fritzsche upon completion of the
Rights Offering will range from approximately 20% (in the event that all
Recordholders exercise their Rights in full) to approximately 34% (assuming that
only members of the Board of Directors other than Mr. Fritzsche also exercise
Rights).
NO BOARD RECOMMENDATION
AN INVESTMENT IN THE COMMON STOCK MUST BE MADE PURSUANT TO EACH
INVESTOR'S EVALUATION OF ITS, HIS OR HER BEST INTERESTS. ACCORDINGLY, ALTHOUGH
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY APPROVED THE RIGHTS OFFERING,
IT MAKES NO RECOMMENDATION TO HOLDERS REGARDING WHETHER THEY SHOULD EXERCISE
THEIR RIGHTS.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $.10 per share. The following summary description of the
material terms of capital stock of the Company does not purport to be complete
and is qualified in its entirety by reference to the Company's Restated
Certificate of Incorporation, a copy of which is available without charge from
the offices of the Company, and to New York corporate law.
The holders of Common Stock are entitled to receive, pro rata,
dividends, when, if and as declared by the Board of Directors out of any funds
lawfully available therefor. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to
participate ratably in the distribution of assets remaining after payment of
liabilities. The issued and outstanding shares of Common Stock are, and the
Common Stock issued upon the exercise of Rights will be, fully paid and
nonassessable. See "Capitalization."
Holders of Common Stock are entitled to vote at all meetings of
stockholders of the Company for the election of directors and for other
purposes. Holders have one vote for each share of Common Stock held. The Common
Stock does not have cumulative voting rights. Therefore, holders of more than
50% of the shares voting can elect all directors.
16
WARRANTS
On January 31, 1994 and in settlement of certain litigation, the
Company entered into warrant agreements (the "Warrant Agreements") covering
400,000 Shares of Common Stock pursuant to which the Company issued Warrants to
purchase shares of Common Stock (the "Warrant Shares"), representing
approximately a 15% equity interest in the Company on a fully-diluted basis, at
a price of $4 per share (the "Warrant Price"). The Warrants may be exercised at
any time before their expiration on January 31, 1999. The number of Warrant
Shares is subject to adjustment upon the occurrence of certain events, including
stock split and stock dividends, but not in the case of the issuance of Common
Stock to be sold pursuant to the exercise of Rights.
CERTAIN PROVISIONS OF THE RESTATED CERTIFICATE OF INCORPORATION AND THE NEW YORK
CORPORATE LAW
Certain provisions of the Restated Certificate of Incorporation and New
York law may delay, deter or prevent a stockholder or group of stockholders from
taking corporate action or gaining control of the Company. For example, Article
Thirteen of the Company's Restated Certificate of Incorporation imposes certain
voting and other requirements on certain mergers and other combinations with
certain affiliated parties of the Company. Section 912 of the New York
Corporation Law imposes essentially the same limitations on such transactions.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation and indemnification
agreements with its directors provide that the Company shall indemnify and
advance expenses to its currently acting and its former directors, officers,
employees or agents to the fullest extent permitted by the New York Corporation
Law (the "NYCL"), whenever they are defendants or threatened to be made
defendants in any legal or administrative proceeding by reason of their
relationship with the Company. Section 722 of the NYCL provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceedings whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Company) by reason of the fact that such
person is or was a director, officer, employee or agent of the Company or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had not reasonable cause to believe was unlawful. A similar standard
of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred ln
connection with defense or settlement of such an action and then, where the
person is adjudged to be liable to the Company, only if and to the extent that
any court of proper jurisdiction or the court in which such action was brought
determines that such person is fairly and reasonably entitled to such indemnity
and then only for such amounts as the court shall deem proper.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company 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.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Code
applicable Treasury Regulations, judicial authority and administrative rulings
and practice. Legislative, judicial or administrative changes and
interpretations may be forthcoming that could alter or modify the statements and
conclusions set forth herein. Any such changes or interpretations may or may not
be retroactive and could affect the tax consequences to holders of Rights or
Underlying Shares.
17
TAX CONSEQUENCES TO COMPANY
The Company currently has net operating loss carryforwards for Federal
income tax purposes of approximately $7 million. Acquisitions of Common Stock by
persons who are not currently holders of Common Stock, or by persons whose
acquisition would increase or maintain their equity ownership in the Company
above five percent, could result in an "ownership change" within the meaning of
section 382 of the Code, thereby imposing a Section 382 Limitation on the
Company's ability to utilize the net operating loss carryforward to reduce
future taxable income.
In general, an ownership change occurs for purposes of section 382 if
the percentage of stock ownership of any one or more "5 percent shareholder(s)"
(as determined under Federal income tax regulations) increases in the aggregate
by more than 50 percentage points during a running three-year period. For this
purpose, the term "5 percent shareholder" includes certain public groups of
shareholders of the Company who may own, directly or indirectly, less than five
percent of the Company's stock.
If the Company believes that the issuance of Underlying Shares pursuant
to the Subscription Privilege will cause an ownership change, then the Company
will have the right to reduce the number of Underlying Shares issuable to all
holders exercising the Subscription Privilege, pro rata, or to any individual
holder or holders whose exercise of the Subscription Privilege may cause an
ownership change, to the extent necessary in the sole discretion of the Company
to prevent such ownership change. Notwithstanding the foregoing, the Rights
Offering increases the likelihood that an ownership change will occur in the
future, and it is impossible for the Company to ensure that such ownership
change will not occur, in part because the Company has no ability to restrict
the acquisition or disposition of Common Stock by persons whose ownership could
cause an ownership change. In addition, the Company may in the future take
certain actions which could give rise to an ownership change, if in the exercise
of the business judgment of the Company such actions are necessary or
appropriate. If an "ownership change" were to occur subsequent to the Rights
Offering, the Section 382 Limitation could have a material adverse impact upon
the Company's earnings and upon the Company's cash flow. See "Risk
Factors--Continuation of Net Operating Loss Carryforwards."
TAX CONSEQUENCES TO HOLDERS
Neither distribution nor exercise of the Rights will be a taxable event
for Federal income tax purposes to U.S. individual citizens or residents or to
U.S. corporations.
Except as provided below, a holder of Rights must allocate the tax
basis of the Common Stock between the Common Stock and the Rights in proportion
to the fair market value of each on the date of the distribution of the Rights
where the value of the Rights on the date of the distribution is equal to or
greater than 15% of the fair market value of the Common Stock owned by such
holder on the date of the distribution. Where the value of the Rights is less
than 15% of the value of such Common Stock at the time of distribution, the
holder will be treated as having no basis in the Rights unless a special
election is made to allocate the basis in the manner described above. In any
event, no portion of the basis of a holder's Common Stock will be allocated to
the Rights in accordance with these allocation rules unless such Rights are
exercised.
If a Holder exercises Rights pursuant to this offering, the tax basis
of the Underlying Shares will be equal to the Exercise Price plus any tax basis
the holder has in the Rights.
If a holder allows the Rights to lapse without exercise or sale, such
holder will realize no gain or loss since no basis will be allocated to the
Rights, and such holder's basis in the Common Stock will remain the same as such
basis was prior to the distribution of the Rights.
THE FOREGOING SUMMARY OF THE MATERIAL TAX CONSEQUENCES OF THE OFFERING
DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO
A PARTICULAR PROSPECTIVE HOLDER OF RIGHTS OR UNDERLYING SHARES. EACH PROSPECTIVE
HOLDER OF RIGHTS OR UNDERLYING SHARES SHOULD CONSULT HIS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO HIM OF RECEIVING AND EXERCISING THE RIGHTS,
OR
18
UNDERLYING SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS.
PLAN OF DISTRIBUTION
The Company has not employed any brokers, dealers or underwriters in
connection with the solicitation of exercise of Rights, and no commissions, fees
or discounts will be paid in connection with the Rights Offering. Certain
employees of the Company may solicit responses from holders, but such employees
will not receive any commissions or compensation for such services other than
their normal employment compensation.
DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
See pages D-3 to D-4 and page D-9 herein for information on these
topics.
EXECUTIVE COMPENSATION
See page D-4 and page D-9 hereof for this information.
SECURITIES OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
See pages D-3 to D-4 and page D-9 hereof for information on these
topics.
LEGAL MATTERS
The validity of the Common Stock will be passed upon for the Company by
Vedder, Price, Kaufman & Kammholz, Chicago, Illinois.
EXPERTS
The consolidated balance sheets of the Company as of January 31, 1997
and 1996 and the related consolidated statements of operations, stockholders'
equity and cash flows for the years ended January 31, 1997 and 1996 incorporated
in this prospectus by the attached 1997 Annual Report to Shareholders of the
Company have been incorporated herein in reliance on the report of Lazar, Levine
& Company LLP, independent public accountants, given on the authority of that
firm as experts in accounting and auditing.
19
================================================================================
ANNUAL REPORT
TO
STOCKHOLDERS
OF
EAC INDUSTRIES, INC.
FOR
THE FISCAL YEAR ENDED
JANUARY 31, 1997
================================================================================
20
[LETTER OF PETER FRITZSCHE TO THE STOCKHOLDERS]
[TO COME]
BUSINESS
The Registrant (also referred to as "EAC" or "the Company") was organized in
1958 as a New York corporation. The common stock of the Company is currently
traded on the over-the-counter market and the principal market makers are Bishop
Rosen & Company and Troster, Singer Corporation.
The Company has three operating subsidiaries, Goodren Products Corporation
("Goodren"), Athena Packaging, Inc. ("Athena") and Flexible Printed Products,
Inc. ("Flexible"). Goodren designs and provides point-of-purchase advertising
displays and wall decorations on semi-durable plastic. Goodren's major market is
consumer product manufacturers and one marketer of children's wall decorations.
One customer, the Priss Prints division of ERO Industries, accounted for 39% of
the Company's net sales in fiscal 1997 and 1996. This relationship is not
pursuant to a written agreement. Goodren's sales were backlogged at
approximately $218,000 and $191,000 at January 31, 1997 and 1996 respectively.
The business and all of the outstanding common shares of Athena were acquired on
September 27, 1996. Athena produces printed, laminated, embossed and hot stamped
labels, wraps, seals and decals for the cosmetics, pharmaceutical and health and
beauty aids industries. Athena's production equipment and administrative
operations were moved to Goodren's facility in Englewood, New Jersey in January
1997. Athena's sales were backlogged at approximately $65,000, at January 31,
1997. Athena believes that it can fulfil the 1997 backlog on a timely basis.
Goodren and Athena both face strong competition in their respective businesses,
based mainly on quality, service and price. Goodren and Athena combined, employ
30 persons of whom 12 are represented by unions.
The business and certain of the assets of Flexible were acquired on December 11,
1994. Flexible produces and prints on plastic, pre-cure in-mold heat transfer
labels for the identification and decoration of rubber and silicone hoses, belts
and tire patches. Flexible's sales were backlogged at approximately $80,000 at
January 31, 1997 and $75,000 at January 31, 1996. Flexible believes that it can
fulfill its 1997 backlog on a timely basis.
Flexible also faces strong competition in its business and its competition has
been mainly on the basis of quality, service and price. Flexible employs 14
persons, none of whom are represented by unions.
FINANCIAL CONDITION OF THE COMPANY
The following is a discussion concerning the Company, Goodren, Athena and
Flexible.
The Company's financial condition has declined from January 31, 1996. The
primary reasons for this decline were: (a) the operating loss of the Company for
the 1997 fiscal year, (b) the costs of acquiring, moving and integrating
Athena's operations and (c) the purchase of additional capital equipment for
Flexible. The combination of the above factors has resulted in the Company's
average secured debt obligations being higher in 1997 as compared to 1996. The
Company's secured debt obligations were $175,000 at January 31, 1997 as compared
to zero at January 31, 1996. The Company's current assets decreased to
$1,611,936 in 1997 from $2,029,001 in 1996, while its total current liabilities
increased to $1,055,524 as of January 31, 1997 from $934,716 as of January 31,
1996. Working capital decreased to $556,412 as of January 31, 1997 from
$1,094,285 on January 31, 1996.
The Company's and Goodren's credit line and Note Agreement with Chemical Bank of
New Jersey, N.A., which was originally entered into on September 29, 1994,
expired on January 12, 1997. The Company is currently negotiating a new
borrowing facility.
POINT-OF-PURCHASE ADVERTISING
Goodren designs and produces point-of-purchase advertising and sales aids such
as signs, posters, decals and product identifiers. These products are used in
retail stores on shelves, price channels and display cases. Other products
include wall decorations. Goodren's products are produced on semi-durable
plastic through processes known as flexographic, lithographic and silk screen
printing.
B-2
Goodren's products are sold nationwide to manufacturers of consumer products by
both an in-house sales force as well as regional, independent manufacturers'
representatives. Goodren is a service business which competes on the basis of
its ability to produce high quality printing on very short notice. The following
table summarizes the percentage of sales attributable to major classes of
products:
FOR THE FISCAL YEARS
ENDED JANUARY 31,
1997 1996
---- ----
Point-of-Purchase........... 45% 41%
Wall coverings.............. 55% 59%
--- ---
100% 100%
--- ---
Management estimates that Goodren has a 5% share in its portion of the printed
on plastic point-of-purchase ("P.O.P.") advertising industry. Overall, the
P.O.P. industry is a $16 billion business with over 200 manufacturing companies
involved. Products for the entire industry range from a wide variety of counter
displays and large end-of-aisle displays to small printed products produced by
Goodren. The total printed-on-plastic portion of the industry in which Goodren
competes, represents approximately $40 million. The Company estimates that
approximately ten companies compete directly with Goodren.
PRESSURE SENSITIVE LABELS, WRAPS, SEALS AND DECALS
Athena produces and markets primarily pressure sensitive labels for the premium
cosmetics, pharmaceutical, health and beauty aids industries. Other products
include non-pressure sensitive labels, soap wraps, decals and seals. Athena's
products are sold primarily in the Northeast by manufacturer's representatives
as well as in-house sales personnel.
IN-MOLD HEAT TRANSFER LABELS
Flexible produces and markets in-mold, pre-cure heat transfer labels to the
rubber and silicone industry primarily for identification and decoration of
hoses and belts. Other products include post cure heat transfer labels for
rubber patches, tires and other rubber and silicone products. Flexible's
products are sold nationwide primarily to rubber and silicone hose and belt
manufacturers, principally by its in-house sales personnel. The remainder is
sold by a limited number of manufacturers' representatives.
Management believes that the total in-mold decal/label market for decorating
rubber hoses and belts is approximately $8 million with Flexible's share
estimated at approximately 18%. The Company estimates that approximately five
companies compete directly with Flexible, including the parent company of one of
its customers. Flexible is a service business which competes on the basis of its
ability to produce and deliver high quality printing on short notice.
PROPERTIES
The following table shows the location of each plant or facility of the Company
and its subsidiaries and sets forth related information. The properties listed
below are believed adequate to serve the Company's needs for the foreseeable
future.
B-3
APPROX. LEASE
AREA EXPIRATION ANNUAL
(SQ.FT.) DATE RENTAL PRINCIPAL USE
-------- ---- ------ -------------
101 W. Forest Avenue 20,000 6/2000 $57,000 Manufacturing and general offices
Englewood, New Jersey for Goodren and Athena
15237 Proctor Avenue 12,000 Month to $60,000 Manufacturing and general office
City of Industry, California Month for Flexible
2923 South Pullman 500 Month to $6,000 Sales office for Flexible
Santa Ana, California Month
22 Blackstone Avenue 500 Month to $4,800 Office space and headquarters for
Branford, Connecticut Month the Company
LEGAL PROCEEDINGS
Goodren is included in a threatened claim concerning environmental cleanup
costs. Goodren is included among a large number of companies involved, and is
not one of the major parties. Goodren previously settled the Federal claims
related to such cleanup costs and is in the process of settling the State of New
Jersey claims related thereto. The amount, if any, that Goodren may ultimately
have to pay, is subject to change and is uncertain at this time. It is
management's opinion that the Company is adequately reserved for this matter and
the ultimate resolution of this case should not have a material impact on the
financial condition of the Company.
Goodren has withdrawn from its prior participation in the District 65 Union
Pension Plan (the "Plan"). The withdrawal resulted in the assessment of a
withdrawal liability owed to the Plan by Goodren. During the year ended January
31, 1995, the Company accrued a reserve for an estimated liability of $560,000
which the Company believed would be payable over a period of approximately 22
years beginning approximately one year from the withdrawal date. In March of
1996, the Company signed an agreement with the Plan whereby it would make
quarterly payments of $7,548. On September 30, 1996, the Company and Goodren
entered into a settlement agreement with the trustees of the union pension plan
whereby Goodren's pension fund liability was reduced to $360,000, payable in 80
equal quarterly payments of $8,752 including annual interest at a rate of 8%.
The Company thereafter applied for and receive a waiver as a hardship case
pursuant to the settlement agreement, whereby the Company may reduce its
quarterly obligations until such time as the Company is out of hardship. The
Company's waiver request having been granted, its proposed payment plan of
$3,000 per quarter for the first four quarters, $4,000 for the second four
quarters, and $5,000 thereafter until the hardship period expires is being
contested by the trustees before an arbitrator. The trustees have proposed a
payment schedule of $3,000 per quarter for three years and $10,611 per quarter
thereafter, plus accrued and unpaid interest. A decision by the arbitrator is
pending. Regardless of the outcome of the arbitration, the Company believes that
the payment plan imposed will not materially adversely affect its results of
operation or cash flow. Goodren is also potentially liable for excise taxes of
approximately $5,000 under provisions of the Internal Revenue Code.
MARKET FOR COMPANY'S COMMON
STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the over-the-counter market. Bishop
Rosen & Company and Troster, Singer Corporation are the principal market makers.
As of April 15, 1997, the Company believes there were approximately 2,500
shareholders of record. No dividends have been declared or paid during the past
two fiscal years. The following table sets forth, by fiscal quarters, the
closing bid prices of the Company's Common Stock per share for 1996 and 1997:
B-4
1996 1997
- ------------------------------------- -------------------------------------
First Quarter 3/8 First Quarter 3/8
Second Quarter 7/16 Second Quarter 1/4
Third Quarter 5/8 Third Quarter 3/16
Fourth Quarter 5/8 Fourth Quarter 3/16
The volume of trading is sporadic and infrequent and the prices quoted may not
be representative.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
INTRODUCTION
EAC Industries, Inc. (the "Company"), is a holding company with three operating
subsidiaries: Goodren Products Corporation ("Goodren"), Athena Packaging, Inc.
("Athena") and Flexible Printed Products, Inc. ("Flexible"). Goodren designs and
prints point-of-purchase advertising displays and wall decorations on
semi-durable plastic. Flexible produces and prints on plastic, pre-cured in-mold
heat transfer labels for the identification and decoration of rubber and
silicone hoses, belts and tire patches.
On September 27, 1996, the Company acquired the business and all of the
outstanding shares of Athena and its operations are included in the consolidated
operations of the Company from the date of acquisition. Athena produces printed,
laminated, embossed and hot-stamped labels, wraps, seals and decals for the
cosmetics, pharmaceutical and health and beauty aids industries. In January
1997, Athena's production equipment and administrative functions were moved from
New York to Goodren's facility in New Jersey. Even though these companies retain
their separate corporate identities, the operations are being considered as one.
The financial information presented herein includes: (i) consolidated balance
sheets as of January 31, 1997 and 1996; (ii) consolidated statements of
operations for the years ended January 31, 1997 and 1996; (iii) consolidated
statements of cash flows for the years ended January 31, 1997 and 1996; and (iv)
consolidated statement of changes in shareholders' equity for the years ended
January 31, 1997 and 1996.
RESULTS OF OPERATIONS
Consolidated sales for the year ended January 31, 1997 were $5,988,000 as
compared to $7,660,000 for the prior year, reflecting a decrease of $1,672,000
or 21.8%. The primary reason for the decrease in sales was a decrease in the
sales generated by the Goodren group (which now includes Athena).
Combined sales for Goodren and Athena for the years ended January 31, 1997 and
1996 were $4,517,000 (including Athena's sales of $238,000) and $6,254,000,
respectively. The decrease of $1,737,000 (27.7%) is due to decreases in the wall
decoration and point-of-purchase segment of Goodren's business.
Sales for the Company's Flexible subsidiary for the years ended January 31, 1997
and 1996 were $1,471,000 and $1,406,000, respectively. Management believes that
this increase of less than 5% was due to additional sales to existing customers.
Consolidated gross profit as a percentage of sales for the years ended January
31, 1997 and 1996 was 26.6% and 29.0%, respectively.
Combined gross profit percentage for Goodren and Athena for the year ended
January 31, 1997 was 25.5%. For the year ended January 31, 1996 (prior to the
acquisition of Athena), the gross profit percentage of Goodren was 27.5%.
Management attributes this decline in the gross profit percentages to higher
material costs.
B-5
Gross profit percentages realized by Flexible for the years ended January 31,
1997 and 1996 were 30.3% and 35.7%, respectively. Management believes that this
decline in the gross profit percentages was also due to higher material costs.
Consolidated selling, general and administrative expenses decreased by $37,000
when comparing the years ended January 31, 1997 to 1996.
Selling, general and administrative expenses for the combined operations of
Goodren and Athena for the years ended January 31, 1997 and 1996 were $1,315,000
and $1,671,000, respectively. The Company believes that this decrease of
$356,000 (21%) is primarily due to a reduction in payroll and related costs
resulting from the decreased sales as discussed above as well as the monitoring
of costs more effectively.
Selling, general and administrative expenses for Flexible for the years ended
January 31, 1997 and 1996 were $517,000 and $439,000, respectively. This
increase is primarily attributable to increased marketing efforts associated
with the increase in sales as discussed earlier.
Administrative expenses for the parent company, EAC, increased by $241,000, when
comparing the years ended January 31, 1997 to 1996, since EAC is now absorbing a
portion of the corporate overhead previously reflected in the operations of the
individual subsidiaries.
Consolidated interest expense increased in 1997 over 1996 as a result of higher
average borrowings for the year. The Company's outstanding debt was $664,504 at
January 31, 1997 compared to $642,706 at January 31, 1996.
The 1997 and 1996 income tax provisions are offset in their entirety by net
operating loss carryforwards from prior years. The Company has a loss
carryforward of approximately $7,000,000 at January 31, 1997, which is available
to offset future operating earnings. These carryforward losses will expire in
years after 2005.
For the year ended January 31, 1997, the Company reflected a net loss of
$161,270 ($.07 per share). For the year ended January 31, 1996, the Company
reflected net income of $129,195 ($.06 per share). This decrease in the net
income was primarily due to the decreased sales and gross profit as mentioned
above as well as the costs incurred by EAC in acquiring and integrating Athena.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition declined somewhat in 1997 from 1996. The
Company had working capital of $556,412 as of January 31, 1997 compared to
$1,094,285 as of January 31, 1996. This reduction resulted from the operating
loss experienced in 1997 as well as the costs of acquiring and moving and
integrating Athena's operations into Goodren as well as the purchase of
additional capital equipment for Flexible.
For the year ended January 31, 1997, the Company utilized cash of $22,000 for
operating activities as compared to $61,000 for the previous year. As a result
of the decreased sales in 1997, accounts receivable and inventories also
decreased in 1997 as compared to 1996. The Company experienced a decline of
approximately 33% in accounts receivable due to the decrease in sales of almost
22% (as discussed earlier) as well as increased collection efforts during the
current period.
For the year ended January 31, 1997, the Company was provided cash from
investing activities of $18,402 primarily due to proceeds from the sale of fixed
assets of $242,000 net of capital expenditures and the investment in the new
Athena subsidiary. For the year ended January 31, 1996, the Company utilized
$144,102 for the purchase of manufacturing equipment.
Cash flows used in financing activities (debt repayment) aggregated $30,680
during the year ended January 31, 1997 as compared to $154,702 during the prior
year.
B-6
In March 1996, the Company entered into an agreement to make quarterly payments
of $7,548 against a union pension withdrawal liability/shortfall (see Note 12d
of Notes to the Consolidated Financial Statements). Subsequently, on September
30, 1996, the Company and Goodren entered into a Settlement Agreement with the
Trustees of the union pension plan whereby Goodren's pension fund liability was
reduced from $560,000 to $360,000 payable in 80 equal quarterly payments of
$8,752 including annual interest at a rate of 8%. The Company has applied for a
hardship case pursuant to the Settlement Agreement, whereby the Company would
reduce its quarterly obligations to $3,000 until such time as the Company is out
of hardship.
In May 1997, Goodren entered into an agreement with its bank providing for a
line of credit in the aggregate amount of $500,000 through March 31, 1998.
Interest is payable at 2% above the bank's prime rate. Borrowings under this
line are secured by all assets of Goodren, and guaranteed by EAC, Athena and
Flexible.
The Company believes that its cash on hand as well as the availability of a new
borrowing facility will be sufficient to fund planned operations for at least
the next 12-month period. The Company is anticipating capital expenditures of
approximately $200,000, during the next year, in order to expand the operations
of Goodren, Athena and Flexible.
Management believes that these expenditures can be funded from existing
resources.
There are no known trends, events or uncertainties that are reasonably likely to
have an impact on the Company's short-term or long-term liquidity or on its
operations. The Company does not believe that its business is seasonal.
INFLATION
The Company expects inflation to be moderate and to be offset by cost reduction
programs and price increases.
OTHER
This report contains forward-looking statements and information that is based on
management's beliefs and assumptions, as well as information currently available
to management. When used in this document, the words "anticipate," "estimate,"
"expect," "intend" and similar expressions are intended to identify
forward-looking statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. Such statements are
subject to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those anticipated,
estimated or expected. Among the key factors that may have a direct bearing on
the Company's operating results are fluctuations in the economy, the degree and
nature of competition, the risk of delay in product development and release
dates and acceptance of, and demand for, the Company's products.
B-7
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
EAC Industries, Inc.
Branford, Connecticut
We have audited the accompanying consolidated balance sheets of EAC Industries,
Inc. and subsidiaries as of January 31, 1997 and 1996 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the two year period ended January 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EAC Industries, Inc.
and subsidiaries as of January 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/LAZAR, LEVINE & COMPANY LLP
------------------------------
LAZAR, LEVINE & COMPANY LLP
New York, New York
April 4, 1997
B-8
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1997 AND 1996
-------------------------------
- ASSETS (NOTE 6) -
1997 1996
---------- -----------
CURRENT ASSETS:
Cash (Notes 2d and 2h) $ 594,412 $ 628,380
Accounts receivable - net of allowance for doubtful accounts of $45,566
and $45,980 for 1997 and 1996, respectively (Note 2d) 666,379 996,132
Inventories (Notes 2e and 4) 300,238 302,840
Prepaid taxes and expenses 50,907 101,649
---------- -----------
TOTAL CURRENT ASSETS 1,611,936 2,029,001
---------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET (NOTES 2F, 5 AND 8) 710,166 563,619
---------- -----------
OTHER ASSETS:
Costs in excess of net assets acquired (Notes 2g and 3) 453,601 367,967
Deferred taxes (Notes 2i and 9) 510,000 510,000
Other assets (Note 2h) 29,182 52,500
---------- -----------
992,783 930,467
---------- -----------
$3,314,885 $ 3,523,087
========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 247,152 $ 246,897
Accrued expenses (Note 7) 579,441 571,960
Capital lease obligations - current portion (Note 8b) 34,589 -
Long-term liabilities - current portion (Note 8a) 14,181 34,232
Deferred income - 75,268
Acquisition note payable (Note 3) 175,000 -
Income taxes payable (Notes 2i and 9) 5,161 6,359
----------- -----------
TOTAL CURRENT LIABILITIES 1,055,524 934,716
----------- -----------
LONG-TERM DEBT - NET OF CURRENT PORTION (NOTE 8):
Capital lease obligations 81,377 -
Other liabilities 359,357 608,474
----------- ------------
440,734 608,474
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 10, 11 AND 12)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value; 20,000,000 shares authorized;
2,319,285 shares issued 231,929 231,929
Capital in excess of par value 10,504,380 10,504,380
Accumulated deficit (8,867,082) (8,705,812)
----------- -----------
1,869,227 2,030,497
Less: Common stock in treasury, 7,598 shares at cost (50,600) (50,600)
----------- -----------
1,818,627 1,979,897
----------- -----------
$ 3,314,885 $ 3,523,087
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
B-9
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
Year Ended January 31,
1997 1996
NET SALES (NOTE 11) $5,988,315 $7,659,689
---------- ----------
COSTS AND EXPENSES:
Cost of products sold 4,392,978 5,435,681
Selling, general and administrative expenses 2,054,633 2,092,565
---------- ----------
TOTAL COSTS AND EXPENSES 6,447,611 7,528,246
---------- ----------
OPERATING (LOSS) INCOME (459,296) 131,443
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (22,176) (14,295)
Gain on sale of fixed assets 242,000 -
Interest and other income 99,072 22,809
---------- ----------
318,896 8,514
---------- ----------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES (140,400) 139,957
Income taxes, net of operating loss carryforwards (Notes 2i and 9) 20,870 10,762
---------- ----------
NET (LOSS) INCOME $ (161,270) $ 129,195
========== ==========
(LOSS) INCOME PER SHARE (NOTE 2J) $ (.07) $ .06
========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
B-10
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
---------------------------------------------------------
CAPITAL IN COMMON TOTAL
NUMBER OF COMMON EXCESS ACCUMULATED STOCK IN STOCKHOLDERS'
SHARES STOCK OF PAR DEFICIT TREASURY EQUITY
------ ----- ------ ------- -------- ------
Balance at January 31, 1995 2,319,285 $231,929 $10,504,380 ($8,835,007) ($50,600) $1,850,702
Net income for the year -- -- -- 129,195 -- 129,195
--------- -------- ----------- ------------ --------- ----------
Balance at January 31, 1996 2,319,285 231,929 10,504,380 (8,705,812) (50,600) 1,979,897
Net loss for the year -- -- -- (161,270) -- (161,270)
--------- -------- ----------- ------------ --------- ----------
BALANCE AT 2,319,285 $231,929 $10,504,380 ($8,867,082) ($50,600) $1,818,627
JANUARY 31, 1997 ========= ======== =========== ============ ========= ==========
The accompanying notes are an integral part of these consolidated
financial statements.
B-11
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Year Ended January 31,
----------------------
1997 1996
---- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(161,270) $ 129,195
Adjustments to reconcile net (loss) income to cash (utilized) by operating
activities:
Depreciation and amortization 141,035 105,201
Allowance for doubtful accounts 75,000 30,000
Amortization of deferred rental income (75,268) (103,938)
Gain on sale of fixed assets (242,000) -
Changes in assets and liabilities:
Decrease (increase) in accounts and notes receivable 461,728 (209,509)
Decrease in inventories 105,166 215,480
Decrease (increase) in prepaid expenses 116,880 (35,622)
(Decrease) in accounts payable, accrued expenses and accrued income
taxes (442,961) (167,130)
(Decrease) in other, net - (25,000)
--------- ----------
NET CASH (UTILIZED) BY OPERATING ACTIVITIES (21,690) (61,323)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 242,000 -
Capital expenditures (48,598) (144,102)
Investment in new subsidiary (175,000) -
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 18,402 (144,102)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in short-term debt - (150,000)
Payments of capital lease obligations (25,870) -
Payments of long-term debt (4,810) (4,702)
--------- ---------
NET CASH (USED BY) FINANCING ACTIVITIES (30,680) (154,702)
--------- ---------
(DECREASE) IN CASH AND CASH EQUIVALENTS (33,968) (360,127)
Cash and cash equivalents, at beginning of year 628,380 988,507
--------- ---------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 594,412 $ 628,380
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 17,906 $ 14,295
Income taxes paid 6,260 50,070
The accompanying notes are an integral part of these consolidated
financial statements.
B-12
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
-------------------------------------
NOTE 1 - DESCRIPTION OF THE COMPANY:
EAC Industries, Inc., the Company, was organized in 1958 as a New
York corporation. The Company is a holding company with three
wholly-owned operating subsidiaries, Goodren Products Corporation
("Goodren"), Flexible Printed Products, Inc. ("Flexible") and
Athena Packaging, Inc. ("Athena"), see Note 3. Goodren designs and
produces point-of-purchase advertising displays and wall
decorations on semi- durable plastic. Goodren's major market is
consumer product manufacturers and one marketer of children's wall
decorations. Flexible produces and prints on plastic, pre-cure
in-mold heat transfer labels for the identification and decoration
of rubber and silicone hoses, belts and tire patches. Athena
produces printed laminated, embossed and hot stamped labels,
wraps, seals and decals for the cosmetics, pharmaceutical and
health and beauty aids industries. Each of these subsidiaries
sells their products to customers throughout the United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with generally
accepted accounting principles. Outlined below are those policies
considered particularly significant.
(a) Use of Estimates:
In preparing financial statements in accordance with
generally accepted accounting principles, management makes
certain estimates and assumptions, where applicable, that
effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date
of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. While
actual results could differ from those estimates, management
does not expect such variances, if any, to have a material
effect on the financial statements.
(b) Basis of Consolidation:
The consolidated financial statements include the accounts of
the Company and its operating subsidiaries. All material
intercompany balances and transactions have been eliminated
in consolidation.
B-13
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
-------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(c) Statements of Cash Flows:
For purposes of the statements of cash flows, the Company
considers all investments purchased with a remaining maturity
of three months or less to be a cash equivalent.
(d) Concentration of Credit Risk:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash
investments and accounts receivable.
The Company and its subsidiaries maintain, at times,
deposits, in federally insured financial institutions, in
excess of federally insured limits. Management attempts to
monitor the soundness of these financial institutions and
feels the Company's risk is negligible.
Concentrations of credit risk with respect to accounts
receivable are limited due to the large customer base
maintained by the operating subsidiaries.
(e) Inventories:
Inventories are stated at the lower of cost or market,
determined on a first-in, first-out basis.
(f) Property, Plant and Equipment:
Fixed assets are reflected at cost. The Company principally
uses the straight-line method to compute depreciation of
fixed assets. Depreciation lives generally range from three
to ten years for furniture and fixtures, machinery and
equipment and transportation equipment. Buildings are being
amortized over 20 years and leasehold improvements are
amortized over the useful life of the asset or the term of
the lease, whichever is shorter. Major renewals and
betterments of fixed assets are capitalized while maintenance
and repairs are expensed as incurred. Upon retirement of
fixed assets, the related cost and accumulated depreciation
are written off and any gain or loss is reflected in income.
B-14
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
-------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(g) Goodwill:
Costs in excess of net assets acquired are considered
goodwill and are being amortized over periods ranging from 15
to 40 years on a straight line basis. Amortization costs were
$24,208 and $24,833 for the years ended January 31, 1997 and
1996, respectively. Accumulated amortization as of January
31, 1997 and 1996 aggregated $257,250 and $243,042,
respectively.
The Company periodically reviews the valuation and
amortization of goodwill to determine possible impairment by
comparing the carrying value to the undiscounted future cash
flows of the related assets in accordance with Statement of
Financial Accounting Standard No. 121 - Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed of.
(h) Restricted Cash:
Cash balances required to be maintained in a severance fund
($25,000) as per Goodren's contract with a labor union, is
considered as restricted cash, and is included in non-current
assets.
(i) Income Taxes (see also Note 9):
The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No.
109") effective February 1, 1993. The standards of SFAS No.
109 require that the Company utilize an asset and liability
approach for financial accounting and reporting for income
taxes. The primary objectives of accounting for income taxes
under SFAS No. 109 are to (a) recognize the amount of tax
payable for the current year and (b) recognize the amount of
deferred tax liability or asset based on management's
assessment of the tax consequences of events that have been
reflected in the Company's financial statements or tax
returns.
(j) Income Per Share:
Net (loss) income per share has been computed based upon the
weighted average number of common and common equivalent
shares outstanding during each period presented.
B-15
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
-------------------------------------
NOTE 3 - ACQUISITION:
On September 27, 1996, the Company purchased all of the
outstanding capital stock of Athena Packaging, Inc. ("Athena"),
for $350,000. The acquisition agreement required that 50% of the
purchase price be paid at closing and the balance paid on March 1,
1997. The acquisition was accounted for as a purchase,
accordingly, the acquired assets and liabilities assumed through
this purchase have been recorded at their estimated fair market
values at the date of acquisition. The cost of the acquisition
exceeded the fair market value of the assets acquired by $124,050,
which amount was assigned to goodwill and is being amortized on a
straight-line basis over 15 years (see Note 2g).
The Company's consolidated statements of operations include the
revenues and expenses of Athena beginning September 27, 1996, the
date of acquisition. The following pro forma results were
developed assuming the acquisition had occurred at the beginning
of the earliest period presented (February 1, 1995).
Year Ended January 31,
----------------------
1997 1996
---- ----
(UNAUDITED) (Unaudited)
Net sales $6,541,000 $8,512,000
Net (loss) earnings $(135,000) $127,000
(Loss) earnings per share $(.06) $.05
NOTE 4 - INVENTORIES:
Inventories at January 31, 1997 and 1996 consisted of the
following:
1997 1996
---- ----
Raw materials $234,768 $250,005
Work in process 60,470 48,435
Finished goods 5,000 4,400
-------- --------
$300,238 $302,840
======== ========
B-16
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
-------------------------------------
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Fixed assets and accumulated depreciation at January 31, 1997 and
1996 consisted of the following:
1997 1996
---- ----
Building and improvements $ 343,874 $ 388,973
Machinery and equipment 1,093,170 1,100,347
Label artwork 150,000 150,000
Transportation equipment 22,275 47,812
Furniture and fixtures 65,977 45,528
---------- ----------
1,675,296 1,732,660
Less: accumulated depreciation
and amortization 1,002,630 1,206,541
---------- ----------
672,666 526,119
Add: Land 37,500 37,500
---------- ----------
$ 710,166 $ 563,619
========== ==========
For the years ended January 31, 1997 and 1996, depreciation
expense aggregated $116,827 and $80,368, respectively.
NOTE 6 - SHORT-TERM DEBT:
The Company established a new loan facility, effective in January
1996 which offered a maximum line of credit of $750,000, provided
for advances of up to 80% of eligible accounts receivable and 50%
of finished goods inventory (for a maximum of $350,000) and was
collateralized by all of the assets of the Company and its
subsidiaries. This line of credit expired in January 1997.
Interest accrued at the annual rate of prime plus 2%. As of
January 31, 1997 and 1996 there were no outstanding borrowings
under this agreement. The Company is in the process of negotiating
a new credit facility with its bank.
B-17
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
-------------------------------------
NOTE 7 - ACCRUED EXPENSES:
At January 31, 1997 and 1996 accrued expenses consisted of the
following:
1997 1996
-------- --------
Salaries and wages $ 47,649 $ 37,776
Workers' compensation 20,000 20,000
Union welfare benefits 20,000 20,000
Litigation reserve (Note 12c) 159,000 159,000
Accrued pension costs 155,000 142,876
Accrued payroll taxes 11,118 18,761
Accrued interest payable - 82,154
Other operating expenses 166,674 91,393
-------- --------
$579,441 $571,960
======== ========
NOTE 8 - LONG-TERM DEBT:
(a) Other Liabilities:
At January 31, 1997 and 1996 long-term liabilities included
the following:
1997 1996
-------- --------
9% equipment note payable in monthly
installments of $427, inclusive of interest,
maturing in April 1998 $ 5,283 $ 10,092
Union pension withdrawal liability/shortfall,
presently payable in quarterly installments of
$8,752 (including interest at 8% per annum
(see Note 12d) 368,255 632,614
-------- --------
373,538 642,706
Less: current portion 14,181 34,232
-------- --------
$359,357 $608,474
======== ========
Aggregate maturities of long-term liabilities for the next five
and in the aggregate are $14,181, $9,525, $10,194 $10,911, $11,678
and $317,049 thereafter.
B-18
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
-------------------------------------
NOTE 8 - LONG-TERM DEBT (CONTINUED):
(b) Capital Lease Obligations:
The Company and its subsidiaries are the lessees of machinery
and equipment under leases expiring at various dates through
July 2001. The assets and liabilities are recorded at the
lower of the present value of the minimum lease payments or
the fair market value of the assets. The assets are
depreciated over their estimated useful lives. Depreciation
of assets under capital leases included in depreciation
expense for the year ended January 31, 1997, aggregated
$4,440.
Minimum future lease payments under capital leases as of
January 31, 1997 and for each of the next five years are as
follows:
1998 $ 48,593
1999 40,978
2000 33,228
2001 17,448
2002 8,724
--------
Total minimum lease payments 148,971
Less: amount representing interest (33,005)
--------
$115,966
========
NOTE 9 - INCOME TAXES:
The provision for income taxes consisted of the following for the
years ended January 31, 1997 and 1996:
1997 1996
-------- -------
Current:
Federal (net of benefit of operating
loss carryforward) $ - $ -
State and local 20,870 10,762
------- -------
20,870 10,762
------- -------
Deferred:
Federal - -
State and local - -
------- -------
- -
------- -------
PROVISION FOR INCOME TAXES $20,870 $10,762
======= =======
B-19
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
-------------------------------------
NOTE 9 - INCOME TAXES (CONTINUED):
The components of the net deferred income tax asset, pursuant to
SFAS 109, as of January 31, 1997 and 1996 are as follows:
1997 1996
---------- ----------
Deferred tax assets:
Accounts receivable $ 5,400 $ 5,400
Inventory 1,800 1,800
Operating loss carryforward 2,040,000 2,040,000
---------- ----------
Total deferred tax asset 2,047,200 2,047,200
Valuation allowance 1,537,200 1,537,200
---------- ----------
NET DEFERRED INCOME TAX ASSET $ 510,000 $ 510,000
========== ==========
The Company has available operating loss carryforwards for federal
tax purposes of approximately $7,000,000. These losses expire in
various years beginning in 2005 and may result in deferred tax
assets. The Company has recognized this asset but has provided a
valuation allowance based on the portion of the asset considered
realizable over the next three years. This allowance will be
evaluated at the end of each year, considering both positive and
negative evidence concerning the realizability of the asset, and
will be increased or reduced accordingly.
Reconciliation of the statutory Federal income tax rate to the
Company's negative effective tax rate for the years ended January
31, 1997 and 1996 is not provided due to the utilization of net
operating losses and the recognition of the deferred tax asset
above.
NOTE 10 - RETIREMENT PLANS:
Goodren has a defined contribution profit sharing plan covering a
substantial portion of its employees. Contributions are based on a
percentage of each participant's compensation or a fixed annual
contribution for union employees based on a collective bargaining
agreement. The cost of the plan amounted to $35,000 and $44,000 in
1997 and 1996. See also Note 12d.
B-20
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
-------------------------------------
NOTE 11 - ECONOMIC DEPENDENCY:
One of the Company's customers accounted for 39% of net sales for
each of the years ended January 31, 1997 and 1996.
NOTE 12 - COMMITMENTS AND CONTINGENCIES:
(a) Operating Leases:
The Company and its subsidiaries lease certain administrative
and manufacturing facilities and equipment under operating
leases expiring at various times through 2000. Other
locations are rented on a month to month basis. Rental and
lease expense aggregated approximately $146,512 and $147,000
for the years ended January 31, 1997 and 1996, respectively.
Future minimum rental commitments for existing operating
leases and in the aggregate are as follows:
Fiscal year ending January 31, 1998 - $ 70,699
1999 - 66,032
2000 - 66,032
2001 - 27,513
--------
$230,276
(b) Employment Contracts:
The Company has an employment contract (the "Contract") with
the President of Goodren which expired on January 31, 1994
and which is subject to automatic renewals for successive one
year terms. The contract specifies base compensation of
$155,000 for the initial term and is subject to annual
increases based on changes in the consumer price index. The
contract also provides for additional compensation equal to
5% of the operating income of Goodren provided such operating
income exceeds $650,000 for the fiscal year. In December
1994, Goodren entered into a further agreement with this
executive whereby the proceeds of a newly purchased term life
insurance policy in the amount of $250,000 will be paid to
the spouse upon the death of this executive.
B-21
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
-------------------------------------
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
(b) Employment Contracts (continued):
Flexible has entered into an employment contract with its
President for a three year period ending December 15, 1997,
which is subject to renewals for successive one year terms.
The base compensation under this contract is $75,000 with
adjustments to be made annually based on changes in the
consumer price index. The contract also provides for
additional compensation based on annual sales revenue and/or
gross profit performance of Flexible. The contract also
encompasses non-compete provisions, availability of medical
benefits and the use of an automobile.
(c) Litigation:
Goodren is included in a threatened claim concerning
environmental cleanup costs. Goodren is included among a
large number of companies involved, and is not one of the
major parties. The amount, if any, that Goodren may
ultimately have to pay, is not considered material, is
subject to change and is uncertain at this time. It is
management's opinion that the Company is adequately reserved
for this matter and the ultimate resolution of this case
should not have a material impact on the financial condition
of the Company.
(d) Other:
Goodren has withdrawn from participating in the District 65
Union Pension Plan (the "Plan"), see Note 10. The withdrawal
has resulted in the assessment of a withdrawal liability owed
to the Plan by Goodren. During the year ended January 31,
1995, the Company accrued a reserve for an estimated
liability of $560,000 which counsel to the Company believed
would be payable over a period of approximately 22 years
beginning approximately one year from the withdrawal date. In
March of 1996, subsequent to the balance sheet, the Company
signed an agreement with the Plan whereby they will make
quarterly payments of $7,548. A September 30, 1996, the
Company and Goodren entered into a Settlement Agreement with
the Trustees of the union pension plan whereby Goodren's
pension fund liability was reduced to $360,000 payable in 80
equal quarterly payments of $8,752 including annual interest
at a rate of 8%. The Company has applied for a hardship case
pursuant to the Settlement Agreement, whereby the Company
would reduce its quarterly obligations to $3,000 until such
time as the Company is out of hardship. Goodren is also
potentially liable to the Internal Revenue Service ("IRS")
for excise taxes of approximately $5,000 under paragraph 4971
of the Internal Revenue Code, which states that an employer
who contributes to a qualified plan will be subject to an
excise tax liability, of approximately 10%, for failing to
contribute the amount determined to be an accumulated funding
deficiency.
B-22
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1997
OF
EAC INDUSTRIES, INC.
C-1
ITEM I. FINANCIAL STATEMENTS:
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
- ASSETS (NOTE 2) -
JULY 31, January 31,
1997 1997
---- ----
(UNAUDITED)
CURRENT ASSETS:
Cash $ 463,808 $ 594,412
Notes and accounts receivable - net of allowance for doubtful accounts
of $45,566 at July 31, and January 31, 1997, respectively 739,534 666,379
Inventories 336,244 300,238
Prepaid taxes and expenses 69,560 50,907
----------- -----------
TOTAL CURRENT ASSETS 1,609,146 1,611,936
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 646,302 710,166
----------- -----------
OTHER ASSETS:
Costs in excess of net assets acquired - net 432,985 453,601
Deferred income taxes 510,000 510,000
Other assets 29,182 29,182
----------- -----------
972,167 992,783
----------- -----------
$ 3,227,615 $ 3,314,885
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Bank line of credit (Note 2) $ 35,000 $ -
Accounts payable 257,360 247,152
Accrued expenses 568,133 579,441
Long-term liabilities - current portion 91,558 223,770
Income taxes payable 1,200 5,161
----------- -----------
TOTAL CURRENT LIABILITIES 953,251 1,055,524
----------- -----------
LONG-TERM LIABILITIES - NET OF CURRENT PORTION 503,778 440,734
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value; 20,000,000 shares authorized,
2,319,285 shares issued 231,929 231,929
Capital in excess of par value 10,504,380 10,504,380
Accumulated deficit (8,915,123) (8,867,082)
----------- -----------
1,821,186 1,869,227
Less: Common stock in treasury, 7,598 shares at cost (50,600) (50,600)
----------- -----------
1,770,586 1,818,627
----------- -----------
$ 3,227,615 $ 3,314,885
=========== ===========
The accompanying notes are an integral part of these consolidated statements.
C-2
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
For The Three Months For The Six Months
Ended July 31, Ended July 31,
-------------- --------------
1997 1996 1997 1996
---- ---- ---- ----
NET SALES $1,429,473 $1,742,596 $3,172,129 $3,448,400
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of products sold 1,032,142 1,381,521 2,272,395 2,575,746
Selling, general and administrative expenses 455,097 461,217 931,133 1,010,470
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 1,487,239 1,842,738 3,203,528 3,586,216
---------- ---------- ---------- ----------
OPERATING (LOSS) (57,766) (100,142) (31,399) (137,816)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSES):
Interest expense (8,629) (2,296) (19,185) (2,439)
Interest and other income 407 26,461 2,543 48,946
---------- ---------- ---------- ----------
(8,222) 24,165 (16,642) 46,507
---------- ---------- ----------- ----------
(LOSS) BEFORE INCOME TAXES (65,988) (75,977) (48,041) (91,309)
Income taxes, net of operating loss carryforwards - - - -
---------- ---------- ---------- ----------
NET (LOSS) $ (65,988) $ (75,977) $ (48,041) $ (91,309)
========== ========== ========== ==========
(LOSS) PER SHARE (NOTE 3) $( .03) $(.03) $(.02) $(.04)
====== ===== ===== =====
The accompanying notes are an integral part of these consolidated statements.
C-3
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
For The Six Months
Ended July 31,
--------------
1997 1996
---- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (48,041) $ (91,309)
Adjustments to reconcile net (loss) to cash provided from operating activities:
Depreciation and amortization 81,530 53,424
Amortization of deferred rental income - (37,634)
Change in assets and liabilities:
(Increase) decrease in accounts and notes receivable (73,155) 66,826
(Increase) decrease in inventories (36,006) 120,292
(Increase) in prepaid expenses and other assets (22,614) (2,081)
Increase (decrease) in accounts payable, accrued expenses and accrued
income taxes 107,997 (46,569)
--------- ---------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 9,711 62,949
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,520) (12,853)
--------- ---------
NET CASH (USED BY) INVESTING ACTIVITIES (1,520) (12,853)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from bank line of credit 35,000 -
Payments of long-term debt (173,795) (13,579)
--------- ---------
NET CASH (USED BY) FINANCING ACTIVITIES (138,795) (13,579)
--------- ---------
NET (DECREASE ) INCREASE IN CASH AND CASH EQUIVALENTS (130,604) 36,517
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 594,412 628,380
--------- --------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 463,808 $664,897
========= ========
The accompanying notes are an integral part of these consolidated statements.
C-4
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
------------------------------------------------------------
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited interim
consolidated condensed financial statements of EAC Industries, Inc.
(the "Company") and its subsidiaries, contain all adjustments
necessary (consisting of normal recurring accruals or adjustments
only) to present fairly the Company's financial position as of July
31, 1997, the results of its operations for the three and six month
periods ended July 31, 1997 and 1996 and cash flows for the six
month periods ended July 31, 1997 and 1996.
The accounting policies followed by the Company are set forth in
Note 2 to the Company's consolidated financial statements included
in its Annual Report on Form 10-KSB for the year ended January 31,
1997, which is incorporated herein by reference. Specific reference
is made to this report for a description of the Company's
securities and the notes to consolidated financial statements.
The results of operations for the three and six month periods ended
July 31, 1997 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - BANK LINE OF CREDIT:
In May 1997, Goodren entered into an agreement with its bank
providing for a line of credit in the aggregate amount of $500,000
through March 31, 1998. Interest is payable at 2% above the bank's
prime rate. Borrowings under this line are secured by all assets of
Goodren, and guaranteed by EAC, Athena and Flexible.
NOTE 3 - EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share has been computed on the basis of the
weighted average number of common shares and common equivalent
shares outstanding during each period presented.
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128 - Earnings Per Share, which pronouncement changes the
method for calculating earnings per share. SFAS 128 requires
presentation of "basic " and "diluted" earnings per share as
opposed to "primary" and "fully diluted" earnings per share, and is
effective for periods ending after December 15, 1997. Early
adoption is not permitted. Management does not believe that SFAS
128 will result in earnings per share that is materially different
from that currently reported.
C-5
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
------------------------------------------------------------
(UNAUDITED)
NOTE 4 - CONTINGENCY:
Goodren has withdrawn from participating in the District 65 Union
Pension Plan (the "Plan"). This withdrawal resulted in the
assessment of a withdrawal liability owed to the Plan by Goodren.
During the year ended January 31, 1995, the Company accrued a
reserve for an estimated liability of $560,000 which counsel to the
Company believed would be payable over a period of approximately 22
years beginning approximately one year from the withdrawal date. In
March of 1996, the Company signed an agreement with the Plan
whereby they will make quarterly payments of $7,548. On September
30, 1996, the Company and Goodren entered into a Settlement
Agreement with the Trustees of the union pension plan whereby
Goodren's pension fund liability was reduced to $360,000 payable in
80 equal quarterly payments of $8,752 including annual interest at
a rate of 8%. The Company has applied for a hardship case pursuant
to the Settlement Agreement, whereby the Company would reduce its
quarterly obligations to $3,000 until such time as the Company is
out of hardship. Goodren is also potentially liable to the Internal
Revenue Service ("IRS") for excise taxes of approximately $5,000
under paragraph 4971 of the Internal Revenue Code.
C-6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
INTRODUCTION:
EAC Industries, Inc., the Company, is a holding company with three
operating subsidiaries: Goodren Products Corporation ("Goodren"),
Athena Packaging, Inc. ("Athena") and Flexible Printed Products,
Inc. ("Flexible"). Goodren designs and prints point-of-purchase
advertising displays and wall decorations on semi-durable plastic.
Athena produces printed, laminated embossed and hot-stamped labels,
wraps, seals and decals for the cosmetics, pharmaceutical and
health and beauty aids industries. Flexible produces and prints on
plastic, pre-cure in-mold heat transfer labels for the
identification and decoration of rubber and silicone hoses, belts
and tire patches.
The financial information presented herein includes: (i)
Consolidated condensed balance sheets as of July 31, 1997 and
January 31, 1997; (ii) Consolidated condensed statements of
operations for the three and six month periods ended July 31, 1997
and 1996 and (iii) Consolidated condensed statements of cash flows
for the six month periods ended July 31, 1997 and 1996.
RESULTS OF OPERATIONS:
Consolidated sales for the three-month period ended July 31, 1997
were $1,430,000 as compared to $1,743,000 for the comparable period
of the prior year, reflecting a decrease of $313,000 or 18%.
Consolidated sales for the six-month period ended July 31, 1997
were $3,172,000 as compared to $3,448,000 for the comparable period
of the prior year, reflecting a decrease of $276,000 or 8%. The
primary reason for the decrease in sales was due to a decrease in
the sales generated by the Goodren group, which now includes
Athena.
Combined sales for Goodren and Athena for the three and six month
periods ended July 31, 1997 were $1,050,000 and $2,404,000,
respectively. For the comparable periods of the previous year
(prior to the acquisition of Athena by EAC), sales were $1,415,000
and $2,746,000, respectively. The decrease of $365,000 for the
three-month period is due to a 60% drop in Goodren's sales to the
wall decoration segment of its business net of a 38% increase in
point-of-purchase sales. The decline in sales for the six-month
period of $342,000 was due to decreased sales in both the point of
purchase (31%) and wall decoration (26%) segments of Goodren's
business.
Sales for the Company's Flexible subsidiary for the three and six
month periods ended July 31, 1997 were $379,000 and $769,000,
respectively, as compared to $328,000 and $702,000, respectively,
for the same periods of the prior year. Management believes that
these increases were due to additional sales to existing customers.
Consolidated gross profit as a percentage of sales for the
three-month periods ended July 31, 1997 and 1996 was 27.8% and
20.7%, respectively. Consolidated gross profit as a percentage of
sales for the six-month periods ended July 31, 1997 and 1996 was
28.4% and 25.3%, respectively.
C-7
Combined gross profit percentage for Goodren and Athena for the
three and six month periods ended July 31, 1997 were 24.1% and
25.4%, respectively. For the comparable periods of the previous
year (prior to the acquisition of Athena by EAC), gross profit
percentages of Goodren were 19.6% and 24.5%, respectively.
Management attributes this improvement in the gross profit
percentages to lower material costs and reduced manufacturing labor
costs associated with the reduced sales as mentioned above.
Gross profit percentage realized by Flexible for the three and six
month periods ended July 31, 1997 were 38.2% and 37.5%,
respectively, as compared to 25.7% and 29.1%, respectively, for the
same periods of the prior year. Management believes that the
increased gross profit percentages experienced by Flexible were
largely due to a decline in raw materials cost.
Consolidated selling, general and administrative expenses decreased
by $79,000 or 7.8% when comparing the six month periods ended July
31, 1997 to the same period in 1996. The Company reflected a small
decrease of approximately 1% in selling, general and administrative
expenses for the three-month period ended July 31, 1997 when
compared to the three-month period ended July 31, 1996.
Selling, general and administrative expenses for the combined
operations of Goodren and Athena for the three and six month
periods ended July 31, 1997 were $293,000 and $582,000,
respectively. For the comparable periods of the prior year, such
expenses were $294,000 and $662,000, respectively. The Company
believes that this decrease is due a reduction in payroll and
related costs resulting from the decreased sales as discussed above
as well as the monitoring of costs more effectively.
Selling, general and administrative expenses for Flexible for the
three and six month periods ended July 31, 1997 were $82,000 and
$164,000, respectively. For the comparable periods of the prior
year, such expenses were $100,000 and $216,000, respectively. These
decreases are attributable to the monitoring of costs more
effectively.
For the three months ended July 31, 1997 and 1996, the Company
reflected net losses of $65,988 ($.03 per share) and $75,977 ($.03
per share), respectively. For the six months ended July 31, 1997
and 1996, the Company reflected net losses of $48,041 ($.02 per
share) and $91,309 ($.04 per share), respectively. These decreases
in the net loss were primarily due to the decrease in cost of sales
and reduced operating overhead net of the decreases in sales as
mentioned above.
LIQUIDITY AND CAPITAL RESOURCES:
At July 31, 1997, the Company's working capital was $656,000
compared to working capital of $556,000 at its year ended January
31, 1997. Cash amounted to $464,000 at July 31, 1997 compared to
$594,000 at January 31, 1997.
In May 1997, Goodren entered into an agreement with its bank
providing for a line of credit in the aggregate amount of $500,000
through March 31, 1998. Interest is payable at 2% above the bank's
prime rate. Borrowings under this line are secured by all assets of
Goodren, and guaranteed by EAC, Athena and Flexible. The line is
only available to Goodren for its use.
C-8
The Company is anticipating capital expenditures of approximately
$200,000, during the next year, in order to expand the operations
of Goodren, Athena and Flexible. Management believes that these
expenditures can be funded from existing resources.
The Company believes that its cash flows from operations will be
sufficient to meet its financial requirements over the next twelve
months.
OTHER:
This report contains forward-looking statements and information
that is based on management's beliefs and assumptions, as well as
information currently available to management. When used in this
document, the words "anticipate," "estimate," "expect," "intend"
and similar expressions are intended to identify forward- looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct.
Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties
materialize, or should the underlying assumptions prove incorrect,
actual results may vary materially from those anticipated,
estimated or expected. Among the key factors that may have a direct
bearing on the Company's operating results are fluctuations in the
economy, the degree and nature of competition, the risk of delay in
product development and release dates and acceptance of, and demand
for, the Company's products.
C-9
EAC INDUSTRIES, INC.
NOTICE OF 1997 ANNUAL MEETING OF SHAREHOLDERS
DECEMBER 29, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders of
EAC INDUSTRIES, INC., a New York corporation (the "Company"), will be held at
Suite 2600, 222 North LaSalle Street, Chicago, Illinois 60601, on December 29,
1997 at 8:30 a.m., local time, for the following purposes:
1. To elect four (4) Directors.
2. To amend the Company's Restated Certificate of Incorporation to effect
a 1 for 100 share reverse stock split of the Common Stock and to pay
cash in lieu of fractional shares and to immediately thereafter to
reclassify such resulting whole, or partial, shares on a 100 for 1
basis.
3. To transact such other business as may properly come before said Annual
Meeting and any and all adjournments thereof.
The Board of Directors has fixed the close of business on November 10,
1997 as the record date for the determination of shareholders who are entitled
to notice of, and to vote at, the meeting or any adjournments thereof.
The transfer books of the Company will not be closed.
By Order of the Board of Directors
PETER B. FRITZSCHE
Chairman of the Board and CEO
November 17, 1997
D-1
EAC INDUSTRIES, INC.
22 BLACKSTONE AVENUE
BRANFORD, CT 06405
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
This Proxy Statement, which is being mailed to shareholders on or about
November 17, 1997, is furnished in connection with the solicitation of proxies
by the Board of Directors of EAC Industries, Inc., a New York corporation ("EAC"
or the "Company"), to be used at the 1997 Annual Meeting of Shareholders of the
Company to be held at the time and place and for the purposes specified in the
foregoing Notice.
You are requested to complete, date and sign the accompanying proxy and
return it promptly to the Company in the enclosed envelope. Proxies duly
executed and received in time for the meeting will be voted at the meeting in
accordance with the instructions thereof. Such proxies may, nevertheless, be
revoked at any time prior to the voting thereof.
The Board of Directors has fixed the close of business on November 10,
1997 as the record date for the determination of shareholders who are entitled
to notice of, and to vote at, the meeting or any adjournments thereof. The
transfer books of the Company will not be closed. As of November 10, 1997 there
were 2,311,687 shares of common stock outstanding, the holders of which are
entitled to one vote per share on all matters presented at the meeting.
Directors are elected by a plurality of votes cast. Under the law of New York,
EAC's state of incorporation, "votes cast" at a meeting of stockholders by the
holders of shares entitled to vote are determinative of the outcome of the
matter subject to vote. Abstentions, broker non-votes, and withheld votes will
not be considered "votes cast" based on EAC's understanding of state law
requirements. To the best knowledge of the Company, there is one shareholder
owning more than 5% of the Company's Common Stock. See "Principal Holders of
Securities."
D-2
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Proxies in the accompanying form, which are properly executed, marked,
duly returned and not revoked, will be voted as directed. Unless otherwise
indicated, such proxies will be voted in favor of the election of the four
nominees for directors of EAC whose names appear below. If any of the nominees
for directors becomes unavailable to serve prior to the meeting date, an event
which the Board of Directors does not presently anticipate, the proxies will be
voted for substitute nominees who will be persons designated by the Board of
Directors of EAC. Directors of EAC are to be elected at its Annual Meeting to
hold office until the next Annual Meeting of Shareholders and until the election
of their respective successors.
The following table sets forth the names of the nominees for the
election to the Board of Directors, their business experience during the past
five years, their positions, if any, with EAC, their previous terms as directors
and the number of shares of Common Stock of EAC owned beneficially by each of
them as of November 10, 1997. Each nominee's Common Stock ownership represents
less than 1% of the aggregate amount of Common Stock outstanding, except for
Peter B. Fritzsche whose beneficial ownership represents approximately 20% of
the outstanding Common Stock of the Company.
COMMON STOCK
OWNED
BENEFICIALLY
DIRECTOR AS OF
NAME PRINCIPAL OCCUPATION SINCE 11/10/97
Peter B. Fritzsche(1) Chairman of the Board of Directors President 1991 and from 471,604(2)
and CEO and Assistant Secretary, EAC - July 1978-1990
Age 62 1992 to present; Chairman of the Board of
Directors and Assistant Secretary, EAC - December
1991 to July 1992; Yale University Development
Office, New Haven, CT - January 1992 to July 1994;
consultant -1990 to 1991; Director of EAC - 1989 to
1990; Chairman of the Board Of Directors, President
and CEO, EAC - 1979 to 1989
E. Donald McKenzie, Jr. President and CEO, The Mailhouse, Inc. 1944 500
-January, 1997 to present; Vice President -
Age 43 Sales and Marketing, Health Tour, Inc.
-January 1996 to January 1997; President
Graphic Systems West, Irvine, CA - 1991 to
1995; President, Collin Printing Systems,
North Andover, MA - 1987 to 1991.
John B. Millet, Jr. President and Owner of Mohawk Metal 1994 23,275
Products Co., Utica, NY - since 1977.
Age 56
P. Bartley Fritzsche(1) Regional Account Manager-Institutional 1994 19,000
Services, Neuberger & Berman Management
Age 28 Inc., Chicago, IL - May 1997; John Marshall
Law School 1993 to 1997(J.D.); Account
Representative, John Nuveen & Co.,
Chicago, IL - 1991 to 1993; Wittenberg
University, Springfield, OH (B.A. 1990)
D-3
(1) Peter B. Fritzsche and P. Bartley Fritzsche are father and son.
(2) Includes 471,204 shares held directly or through an IRA and 400 shares held
of record by Mr. Fritzsche's spouse, whose beneficial ownership may be
attributable to Mr. Fritzsche, but which he disclaims.
Set forth below is the compensation paid to the executive officers of
the Company and its Goodren Products Corporation subsidiary and for all such
persons as a group;
NAME AND PRINCIPAL ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1)
- ---------------------------- ---- ------ ----- ---------------
Peter B. Fritzsche FY1997 $132,000 $ -0- $ -0-
Chairman and CEO FY 1996 $132,000 $ -0- $ -0-
FY 1995 $117,000 $ -0- $ -0-
Steven Mann(2) FY 1997 $177,398 $ -0- $ -0-
President and CEO FY 1996 $179,970 $24,342 $ -0-
Goodren Products Corp. FY 1995 $179,314 $33,255 $9,576
(1) Includes contributions by Goodren Products under its profit sharing plan.
(2) Mr. Mann has an employment contract, renewable annually, which calls for
base compensation of $155,000 (subject to annual inflation adjustments) and
a bonus equal to 5% of Goodren's total operating income, provided that
operating income is in excess of $650,000 in the pertinent fiscal year. Mr.
Mann was not paid a discretionary bonus in fiscal 1997.
Board members are paid fees equal to $4,000 per year, plus $1,250 for each board
or committee meeting attended. Board members who are not employees of the
Company also receive options to acquire 2,500 shares of Common Stock each year.
See "1995 Stock Option Plan" below for additional information.
D-4
PROPOSAL NO. 2
PROPOSAL TO AMEND THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION TO
ELIMINATE ODD-LOT HOLDERS OF SHARES BY EFFECTING A REVERSE STOCK SPLIT
OF THE COMMON STOCK AND A SUBSEQUENT FORWARD STOCK SPLIT OF THE
COMMON STOCK AND BY PAYING FRACTIONAL SHARES AT THE RATE OF
$.28125 PER SHARE
Summary and Purpose of the Proposal
Summary. The Board of Directors has approved, and has directed that the
same be presented to shareholders for their approval, a proposal to amend the
Company's Restated Certificate of Incorporation (the "Reclassification
Amendment") to (a) effect a 100 to 1 reverse stock split (the "Reverse Stock
Split") of the Company's Common Stock, $.10 par value, through a
reclassification of the Common Stock pursuant to which each 100 shares of Common
Stock outstanding as of the close of business on the effective date of the
amendment would be reclassified into one (1) new share of Common Stock, $.10 par
value, and (b) authorize an immediately subsequent reclassification with a
forward split of the new Common Stock (the "Forward Stock Split") pursuant to
which each holder of the reclassified Common Stock at such moment would receive
99 additional shares (or a proportionately appropriate smaller number for
holding not divisible by 100) of reclassified Common Stock for each one (1)
share of reclassified Common Stock held as of such moment. No fractional shares
would be issued pursuant to the reclassification and certain holders who would
otherwise be entitled to receive a fractional share in the Reverse Stock Split
will receive cash at the rate of $.28125 per share in lieu of their fractional
share interests. At the date hereof, the bid and asked prices for the Common
Stock were $.1875 and $.3125, respectively; on July 31, 1997, the day before the
announcement of the proposed Reclassification Amendment, the prices were $.1875
and $.3984, respectively. If the holders hold less than 100 shares, their
holdings are to be converted into the right to receive cash; if their holdings
are 100 shares or more, any fractional shares otherwise due would be temporarily
established on the books of the Company. The Reverse Stock Split and the Forward
Stock Split are herein referred to collectively as the "Reclassification
Proposal." The effect of the Reclassification Proposal is that all holders of
100 shares of Common Stock or more would have NO change in their holdings;
holders of less than 100 shares ("odd-lot holders") would only be entitled to
cash in lieu of fractional shares. At the same time, the Company is offering the
right to purchase one (1) additional share of Common Stock to each stockholder
of record of the Company as of [October 1, 1997] (the "Rights Offering"), but
only to those stockholders holding at least 100 shares. Whether or not the
Reclassification Proposal is approved, odd-lot holders will have their stock
ownership in the Company extinguished and they will NOT receive rights in the
Rights Offering.
The text of the proposed amendment to the Company's Restated
Certificate of Incorporation and the resolutions relating to the
Reclassification Proposal to be adopted by shareholders are set forth in Exhibit
A to this Proxy Statement and are hereby incorporated herein by reference.
Purpose of the Proposed Reverse Stock Split and Forward Stock Split. As
of the Record Date for the Annual Meeting, the Company estimates that
approximately 994 recordholders and 86 beneficial holders, or approximately 44%
of the record/beneficial holders of Common Stock, owned fewer than 100 shares of
Common Stock. Of these 1,080 holders, the Company estimates that approximately
350 held nine or fewer shares of Common Stock as of the Record Date. The small
holdings of such shareholders with fewer than 100 shares, however, represented,
in the aggregate, less than 1.3% of the Company's outstanding Common Stock. The
cost of administering each shareholder's account and the amount of time spent by
management in responding to shareholder requests is the same regardless of the
number of shares held in the account. Accordingly, the cost to the Company of
maintaining many small accounts is disproportionately high when compared with
the total number of shares involved. In view of the disproportionate cost to the
Company of maintaining small shareholder accounts, management believes it would
be beneficial to the Company and its shareholders as a whole to eliminate the
administrative burden and cost associated with the many accounts containing
fewer than 100 shares (and in many cases, 10 shares) of the Company's Common
Stock. The Company anticipates that the Reclassification Proposal will reduce
the number of shareholders of the Company by 1,080, to approximately 1,200. It
is anticipated that the cost of administering shareholder accounts will be
reduced by up to $6,500 per year as a result of the Reclassification Proposal.
The costs associated with such accounts in the future are difficult to determine
but the Company believes they could greatly exceed the value of such shares.
Based on the aggregate
D-5
number of shares owned by record holders with fewer than 100 shares, and the
price to be received in lieu of fractional shares of the Common Stock, the
Company's payments for fractional shares resulting from the Reverse Stock Split
will aggregate approximately $7,913. The Company intends to use its existing
cash, including a portion of the proceeds from the issuance of Common Stock
pursuant to the Rights Offering, for such purpose.
Based upon the last reported "bid" price of the Common Stock on the
over-the-counter on the Record Date of $.1875, the market value of 99 shares of
Common Stock was $18.56. The Reclassification Proposal will enable shareholders
holding of record fewer than 100 shares to receive cash in lieu of their shares
and, in effect, avoid brokerage fees on the transaction. Shareholders owning
fewer than 100 shares of Common Stock would, if they chose to sell their shares,
incur large commission expenses (generally at least $25) in relation to the
market value of their shares. Certain of such shareholders would, if they chose
to sell their shares, incur commission expenses greater than the market value of
their shares. In some cases, it might be difficult to find a broker to handle
such small transactions, although the Company believes that the Company's market
makers would handle the sale.
The Company is proposing the reclassification in lieu of a tender offer
for shares held by holders with fewer than 100 shares because of the large
number of shareholders with small holdings and as a means of reducing the
administrative and transactional cost that would be involved for the Company to
acquire such shares through a self tender offer or a Company sponsored odd-lot
shareholder program. The reclassification also permits the Company to eliminate
all odd-lot shareholdings, which would not be possible through a self tender
offer or an odd-lot shareholder program. Although the proposed reclassification
will eliminate the shareholdings of all shareholders who hold fewer than 100
shares of record, the Company believes that the reclassification is fair to such
shareholders in that it provides them with cash for their shares in an amount
equal to or greater than the market price thereof without the necessity of such
shareholder incurring brokerage fees therefor. The Company's Board of Directors
considered a number of factors in determining the price of $.28125 per share
paid in lieu of fractional shares including the historic trading prices, the
substantial lack of liquidity in the market for the Company's Common Stock, and
the trends for the Company's business, both short- and long-term. Given
significant weight in the analysis was the fact that a stockholder would only
receive $.1875 per share if he sold the shares in the public market on the day
the Board made its decision, disregarding brokerage commissions. As noted, the
Company's Board of Directors believes this price to be fair; however, it did not
seek an independent financial analysis of this view due to the prohibitive cost,
relatively speaking, of such analysis. Also, $.1875 per share is the highest
publicly reported bid price for the shares since October 21, 1996. The
uncertainty of the Company's future prospects were also weighed by the Board of
Directors in this regard. See "Risk Factors" above at p. 6-8 hereof.
The 100 for 1 stock split immediately following the reclassification
(the Forward Stock Split) is intended to continue to permit the Company to
maintain a sufficient number of issued and outstanding shares of its Common
Stock so as not to adversely affect the availability of trading in the
over-the-counter market. The Reverse Stock Split will temporarily reduce the
number of issued and outstanding shares of the Common Stock to approximately
22,835. The Company estimates that the number of issued and outstanding shares
of Common Stock after giving effect to the Forward Stock Split will be
2,283,551.
Shareholders should note that the Board of Directors cannot predict
what effect the proposed Reverse Stock Split and Forward Stock Split will have
on the market price of the Common Stock. With the number of outstanding shares
of Common Stock reduced by only 28,136, the effect may be minimal.
Description and Effect of the Proposal
The Company's Restated Certificate of Incorporation currently authorize
the issuance of 20,000,000 shares of Common Stock, $.10 par value. As of the
Record Date for the Annual Meeting, the Company had outstanding 2,311,687 shares
of Common Stock and 7,598 shares held in treasury. As of the Record Date, there
was also reserved for issuance upon the conversion or exercise of various
outstanding warrants or stock options of the Company 630,000 shares of Common
Stock, leaving a total of 17,058,313 authorized, unissued and unreserved shares
of Common Stock available for future issuances.
D-6
Under the Recapitalization proposal, (i) one (1) new share of Common
Stock, $.10 par value, would be exchanged for every 100 shares of Common Stock,
$.10 par value, outstanding as of the close of business on the date on which the
amendment to the Company's Restated Certificate of Incorporation is filed with
the Secretary of State of the State of New York (the "Effective Date") and (ii)
each whole (or partial) share of the reclassified Common Stock held by
stockholders owning 100 shares or more would immediately thereafter be again
reclassified on a 100 for 1 basis so that 99 additional shares of Common Stock
would be issued with respect to each whole share of previously reclassified
Common Stock held with proportionately fewer issued with respect to fractional
shares. There would be NO effect of the Reclassification proposal on holders of
100 or more shares of Common Stock with respect to their holdings, in that there
will be no change in their stock ownership. Based upon information as of the
Record Date, it is anticipated that the number of outstanding shares of Common
Stock after giving effect to the Reclassification Proposal would be
approximately 2,283,551 shares.
No fractional shares of new Common Stock will be issued for any
fractional new share interest resulting from the Reverse Stock Split due to
holders of fewer than 100 shares. Rather, each such shareholder will receive
$.28125 per share, in lieu of such fractional share interest, which is an amount
of cash equal to .28125 multiplied by the number of shares of Common stock held
by such holder that would otherwise have been exchanged for such fractional
share interest. Based on the aggregate number of shares owned by record and
beneficial holders with fewer than 100 shares and $.28125 price to be used to
pay fractional share interests, the Company's payments for fractional shares
resulting from the Reverse Stock Split will aggregate approximately $7,913.
If the Reclassification Proposal is approved, the Company will notify
the odd-lot holders of the filing of the Articles of Amendment with the
Secretary of State of the State of New York and will furnish such holders with
any additional information necessary to complete the enclosed letter of
transmittal for use in exchanging certificates. The odd-lot holders of the
Common Stock, promptly after the Reclassification Amendment becomes effective,
will be required to mail their certificates representing their shares of Common
Stock to the Company in order that the settlement of fractional interests may be
delivered promptly. As noted above, whether or not the Reclassification Proposal
is approved, odd-lot holders will NOT receive rights in the Rights Offering.
The proposed amendment to the Restated Certificate of Incorporation of
the Company provide that the cash issuable to certain shareholders of the
Company in connection with a reclassification of stock which are not claimed by
the shareholders entitled thereto within one (1) year after the cash becomes
payable, despite reasonable efforts by the Company to deliver the cash within
such time, will, at the expiration of such time, revert in full ownership to the
Company and the Company's obligation to pay such cash will thereupon cease.
The Company estimates that the entire interest of approximately 1,080
odd-lot holders (those holding fewer than 100 shares) will be eliminated
pursuant to the Reclassification Amendment. Such shareholders will enjoy the
benefit of liquidating their relatively small holdings without paying brokers'
commissions. However, because such transaction would be mandatory, such
shareholders who wish to retain their existing equity interest in the Company
would be adversely affected. Fractional shares settled by the Company are
expected to aggregate approximately 23,136 shares, or approximately 1.2 percent
of those currently outstanding. Shares no longer outstanding as a result of the
fractional share settlement procedure will be returned to authorized by unissued
shares of the Company.
It is not anticipated that the Reclassification Proposal will affect
the registration of the Common Stock under the Securities Exchange Act of 1934
(the "Exchange Act").
After giving effect to the settlement of fractional shares of Common
Stock for odd-lot holders, there will be no differences between the shares of
Common Stock outstanding prior to the Reclassification Proposal and those to be
outstanding after the Reclassification Proposal is effected.
Shareholders of the Company will have no appraisal rights with respect
to the Reclassification Amendment under New York law or the Company's Restated
Certificate of Incorporation and no such rights will be afforded to such
shareholders by the Company.
D-7
In the Reclassification Proposal, cash proceeds received from the
settlement of fractional shares may result in (i) the realization by a
shareholder whose interest in the Company is completely terminated of taxable
gain or loss to the extent of the difference between such proceeds and the cost
or other basis applicable to the fractional shares and (ii) dividend income to a
shareholder whose interest in the Company is not completely terminated. No
officer, director, associate or affiliate of the Company is expected to derive
any material benefit in the Reclassification Proposal other than the benefits
that would be enjoyed by any other person holding the same number of shares.
Vote Required and Recommendation for Approval
The Board of Directors Recommends a Vote FOR this Proposal. Such
persons, holding approximately 22% of the shares of Common Stock as of the
Record Date, intend to vote for the Proposal. The affirmative vote of the
holders of at least 50% of the outstanding shares of Common Stock as of the
Record Date is necessary for the approval of the Reclassification Amendment. The
enclosed form of proxy provides a means for shareholders to vote for the
approval of this proposal, to vote against the approval of this proposal or to
abstain from voting with regard to the approval of this proposal. Each properly
executed proxy received in time for the meeting will be voted as specified
therein. IF A SHAREHOLDER EXECUTES AND RETURNS A PROXY BUT DOES NOT SPECIFY
OTHERWISE, THE SHARES REPRESENTED BY SUCH SHAREHOLDER'S PROXY WILL BE VOTED
"FOR" THE APPROVAL OF THIS PROPOSAL.
D-8
1995 STOCK OPTION PLAN
The Company has a stock option plan (the"Plan"). As of November 10,
1997 there are unqualified options outstanding under the plan to purchase 15,000
shares of Common Stock of the Company, which unqualified options expire at
various dates through August, 2005 and are exercisable at prices between $.1875
and $.4375 per share of Common Stock. 2,500 of such unqualified options were
granted pursuant to the Plan to each Non-Employee Director of the Company on
August 2, 1995 at $.4375 per share. During the fiscal year ended January 31,
1997, unqualified options to acquire 2,500 shares were granted to each
Non-Employee Director of the Company, on August 13, 1996 at $.1875 per share.
During the fiscal year ended January 31, 1997, no options were granted to key
employees of the Company or its subsidiaries under the Plan.
PROFIT SHARING PLANS
The Company maintains a deferred profit sharing plan ("Profit Sharing
Plan") which is intended to qualify under Section 401(a) of the Internal Revenue
Code of 1954, as amended ("Code"). The Profit Sharing Plan covers full-time
employees of the Company and its subsidiary, Goodren Products Corporation, who
have completed one (1) year of eligibility service and who are not covered under
any other tax qualified retirement plan. Employer contributions to the Profit
Sharing Plan are made at the discretion of the Company's Board of Directors and
are allocated among participating employees based on their compensation. The
Profit Sharing Plan benefits, subject to a vesting schedule, become payable
following a separation of service from the Company.
The Profit Sharing Plan also provides for employees to defer a portion
of their eligible compensation, pursuant to Section 401(k) of the Internal
Revenue Code. There is no provision for matching contributions to be made by the
Company. No contributions were made to the Profit Sharing Plan by the Company or
Goodren for the fiscal years 1995, 1996 and 1997 respectively.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee,
Compensation and Audit Committee, in accordance with the by-laws and New York
law. The members of the Executive Committee are Messrs. Peter Fritzsche and John
Millet. The members of the Compensation and Audit Committees are Messrs. Millet
and McKenzie. Each Director attended all meetings of the Board of Directors and
Committees on which they served during fiscal 1997.
PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of EAC, as of November 10, 1997, the only
beneficial owners of 5% or more of EAC's Common Stock is:
AMOUNT
PRINCIPLE NAME AND ADDRESS BENEFICIALLY PERCENT
CLASS OF BENEFICIAL OWNER OWNED OF CLASS
----- ------------------- ----- --------
Common Stock Peter B. Fritzsche 471,204 20%
22 Blackstone Avenue
Branford, CT 06405
As of that date, all directors and officers as a group owned 513,979 shares
(22%).
D-9
INDEPENDENT AUDITORS
The Board of Directors reviews the selection of independent auditors
subsequent to the Annual Meeting of Shareholders. The firm of Lazar, Levine &
Company was EAC's independent auditor for the fiscal year ended January 31,
1997. A representative of Lazar, Levine & Company will be present at the Annual
Meeting, will be afforded an opportunity to make a statement, if he or she so
desires, and will be available to respond to appropriate questions from
shareholders.
OTHER MATTERS
The Board of Directors does not intend to bring any other matters
before the meeting and does not know of any other matters which are expected to
be brought before it. However, if any other matters do come before the meeting,
the persons named in the enclosed proxy will vote in accordance with their
proper judgement.
In addition to solicitation of proxies by mail, directors or employees
(who may be officers of the Company) may solicit proxies in person and by
telephone. The Company is requesting brokers and other custodians, nominees and
fiduciaries to forward proxy soliciting materials to the beneficial owners of
shares held of record by such persons. The cost of soliciting proxies shall be
borne by the Company, but any director or employee of the Company who solicits
proxies will not receive any additional compensation therefore.
Shareholder proposals for the 1998 Annual Meeting of Shareholders of
EAC must be received by the office of EAC Industries, Inc., 22 Blackstone
Avenue, Branford, Connecticut 06405, no later than January 15, 1998 for
inclusion in the Proxy Statement for the 1998 Annual Meeting of Shareholders.
By Order of the Board of Directors
PETER B. FRITZSCHE
Chairman of the Board and CEO
D-10
EXHIBIT A
TEXT OF PROPOSED SHAREHOLDER RESOLUTIONS
APPROVING THE REVERSE STOCK SPLIT AND
THE FORWARD STOCK SPLIT
RESOLVED, that the Board of Directors of the Corporation is hereby
authorized to cause to be filed Articles of Amendment to this Corporation's
Restated Certificate of Incorporation amending the first paragraph of the Fourth
Article of the Corporation's Restated Certificate of Incorporation in its
entirety to read as follows:
"FOURTH: The aggregate number of shares which the Corporation
shall have the authority to issue is 20,000,000 shares of Common Stock,
par value $.10 per share. No shareholder shall have any preemptive or
other right to subscribe for or purchase any additional shares of
capital stock of the Corporation or any securities convertible into
such shares or representing a right or option to purchase any such
shares."
RESOLVED, that the Board of Directors of the Corporation is hereby
authorized to implement the following procedures in connection with the two,
successive reclassifications of the Corporation's Common Stock, $.10 par value
("Old Stock"), to Common Stock, $.10 par value ("New Stock"):
a. Immediately upon the amendment to the Corporation's
Restated Certificate of Incorporation authorizing the reclassification
becoming effective, every 100 shares of Old Stock issued and
outstanding, and each share held in the corporate treasury, shall be
converted into one (1) share of fully-paid and non-assessable New
Stock, subject to the required settlement of fractional shares. The
Corporation shall (i) issue one (1) share of New Stock for every 100
shares of Old Stock outstanding and (ii) pay cash in lieu of any
fraction of a share of New Stock which any shareholder who owns fewer
than 100 shares would otherwise receive. Fractional shares of New Stock
due with respect to other holders (including treasury stock) shall be
temporarily established on the books and records of the Corporation.
The settlement amount for those fractional shares of New Stock which
are not issued but are converted into the right to receive cash shall
be equal to the product obtained by multiplying (i) $.28125 per share
for the Old Stock by (ii) the number of shares of Old Stock that would
otherwise have been exchanged for such fractional share interest of New
Stock. Immediately after such reclassification and conversion has
occurred and right to payment for fractional shares with respect to
certain holders has been created, each then existing whole share (or
fraction thereof) of New Stock shall again be reclassified 100 shares
for one (1), with the issuance of 99 additional shares for each share
of New Stock then existing (or such number properly corresponding to
the fractional shares of New Stock then temporarily existing), so that
the number of shares of New Stock, except for shares as to which
fractional share payment obligations for the Old Stock have been
created, shall be exactly equal to the number of shares of Old Stock
existing prior to such action. From and after the time the amendment
becomes effective, certificates representing shares of Old Stock shall
be deemed to represent shares of New Stock, and cash in lieu of any
fractional share of New Stock with respect to certain holders, to which
an individual shareholder would otherwise be entitled.
b. No shareholder shall be required to deliver the
certificates representing their shares of the Old Stock outstanding
immediately prior to the time the reclassification amendment becomes
effective, which certificate shall continue to represent the New Stock.
The Corporation shall deliver a check for the amount necessary to pay
such shareholder for any fraction of a whole share of New Stock
converted into cash only upon submission by such holder of the stock
certificate representing such shares.
c. Any cash to be paid in lieu of fractional share interests
of New Stock to certain holders shall revert in full ownership to the
Corporation one year after the reclassification amendment becomes
effective if such cash is not claimed by the persons entitled thereto.
D-11
RESOLVED, that the Board of Directors of the Corporation is hereby
authorized to adopt a resolution adjusting the capital accounts of the
Corporation as, in their judgment, shall be in the best interests of the
Corporation in light of the adoption of the foregoing resolutions; and
RESOLVED, that the Board of Directors of the Corporation is hereby
authorized and directed to adopt any or all changes to the By-laws of the
Corporation, and the officers of the Corporation are hereby authorized and
directed to do all other things and execute and file all documents, including
amendments to the Corporation's Restated Certificate of Incorporation, which in
their sole judgment are deemed to be necessary and proper to carry out the
intent of the foregoing resolutions.
D-12
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 OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THOSE SPECIFICALLY OFFERED HEREBY OR OF ANY
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT EAC INDUSTRIES
TO ITS DATE.
___________________ 2,283,551 SHARES OF
COMMON STOCK ISSUABLE
TABLE OF CONTENTS UPON EXERCISE OF RIGHTS TO
SUBSCRIBE FOR SUCH SHARES
PAGE
Available Information.....................................2
Prospectus Summary........................................3
The Company...............................................3 ___________________
The Recapitalization of the Company.......................3
The Rights Offering.......................................4 PROSPECTUS
Summary Selected Financial Data...........................6 ___________________
Risk Factors..............................................7
The Company..............................................10
The Reclassification Proposal............................10
Price Range of Common Stock and Dividends................10
Capitalization...........................................11 ANNUAL REPORT TO STOCKHOLDERS
Use of Proceeds..........................................11 FOR YEAR ENDED JANUARY 31, 1997
Dilution ................................................12
Selected Historical Financial Data.......................13 PROXY STATEMENT FOR THE
The Rights Offering......................................14 1997 ANNUAL MEETING OF STOCKHOLDERS
Description of Capital Stock.............................16
Certain Federal Income Tax Consequences..................17
Plan of Distribution.....................................19
Directors, Executive Officers and Principal
Stockholders..........................................19
Executive Compensation...................................19
Securities Ownership of Certain Beneficial Owners
and Management........................................19
Certain Transactions.....................................19
Legal Matters............................................19
Experts ................................................19
Annual Report to Stockholders for Fiscal Year
Ended January 31, 1997...............................B-1
Form 10-QSB for the Six Months Ended
July 31, 1997........................................C-1
Proxy Statement for the 1997 Annual Meeting.............D-1
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation and Indemnification
Agreements with its directors provide that the Company shall indemnify and
advance expenses to its currently acting and its former directors, officers,
employees or agents to the fullest extent permitted by the New York Corporation
Law (the "NYCL"), whenever they are defendants or threatened to be made
defendants in any legal or administrative proceeding by reason of their
relationship with the Company. Section 722 of the NYCL provides that a
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceedings whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Company) by reason of the fact that such
person is or was a director, officer, employee or agent of the Company or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if such person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had not reasonable cause to believe was unlawful. A similar standard
of care is applicable in the case of derivative actions, except that
indemnification only extends to expenses (including attorneys' fees) incurred ln
connection with defense or settlement of such an action and then, where the
person is adjudged to be liable to the Company, only if and to the extent that
any court of proper jurisdiction or the court in which such action was brought
determines that such person is fairly and reasonably entitled to such indemnity
and then only for such amounts as the court shall deem proper.
The Company maintains an insurance policy under which directors and
officers are insured, within the limits and subject to the limitations of the
policies, against expenses in connection with the defense of actions, suits or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings, to which they are parties by reason of being or
having been directors or officers of the Company.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission registration fee.......................... $ 152
Fees and expenses of the Company as Exercise Agent, including printing 4,000*
expenses............................................................
Legal Fees................................................................... 25,000
Accounting Fees and expenses................................................. 10,000*
Miscellaneous................................................................ 848
Total............................................................... $40,000
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* Estimated
II-1
ITEM 27. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------ -----------
5.1 Opinion of Vedder, Price, Kaufman & Kammholz regarding the
legality of the Rights Offering.*
23.2 Consent of Vedder, Price, Kaufman & Kammholz (included as part
of Exhibit 5.1). *
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* Filed herewith.
II-2
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, in the
City of Branford, State of Connecticut on November 1, 1997.
EAC Industries, Inc.
By: /s/ PETER B. FRITZSCHE
--------------------------
Peter B. Fritzsche
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Peter B. Fritzsche, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully for all intents and purposes as he might or could do in person, hereby
ratifying and confirming any and all such acts said attorney-in-fact and agent
or his substitute may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement was signed by the following persons in
the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the Board and President
PETER B. FRITZSCHE (Principal Executive, Financial and
- -------------------------------------------
Peter B. Fritzsche Accounting Officer ) November 7, 1997
E. DONALD MCKENZIE, JR.*
- -------------------------------------------
E. Donald McKenzie, Jr. Director November 7, 1997
JOHN B. MILLET, JR.*
- -------------------------------------------
John B. Millet, Jr. Director November 7, 1997
P. BARTLEY FRITZSCHE*
- -------------------------------------------
P. Bartley Fritzsche Director November 7, 1997
/s/ PETER B. FRITZSCHE
- ----------------------
*by Peter B. Fritzsche
Attorney-in-fact
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
5.1 Opinion of Vedder, Price, Kaufman & Kammholz regarding the
legality of the Rights Offering.*
23.2 Consent of Vedder, Price, Kaufman & Kammholz (included as part
of Exhibit 5.1). *
- ----------
* Filed herewith.
II-4