SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 2, 1998
----------------
EA Industries, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey
----------------------------------------------
(State or other jurisdiction of incorporation)
1-4680 21-0606484
------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
185 Monmouth Parkway, West Long Branch, New Jersey 07764-9989
-------------------------------------------------------------
(Address of principal executive offices, including zip code)
(732) 229-1100
-------------------------------
(Registrant's telephone number)
N/A
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
Item 5. Other Events.
Sale of certain assets of Tanon Manufacturing, Inc.
On December 2, 1998, Tanon Manufacturing, Inc. ("Tanon"), the principal
operating subsidiary of EA Industries, Inc. (the "Registrant") entered into an
Agreement of Purchase and Sale pursuant to which Tanon (i) agreed to sell
certain assets (the "Assets") and (ii) granted certain rights to acquire other
assets (the "Rights") to Smartflex Systems, Inc. ("Smartflex"), a Delaware
corporation or a nominee which would be a wholly-owned subsidiary. Smartflex is
not related to the Registrant or Tanon. The Assets to be sold include (i) the
right to provide services to all customers of Tanon (ii) all work-in-process
inventory ("WIP") of Tanon at closing related to customers acquired by
Smartflex, and (iii) such contractual rights as are specified by Smartflex. The
Rights that were granted include the rights (i) to acquire equipment
("Equipment") leased or owned by Tanon for a purchase price equal to their fair
market values and (ii) to purchase raw materials ("Raw Materials") in the
inventory of Tanon for a ninety day period after closing at a price equal to
sixty percent (60%) of the lesser (a) of the cost to Tanon of such inventory or
(b) its market value. The purchase price would be payable three million dollars
($3,000,000) at Closing, additional payments for the Equipment, the WIP
Inventory and the Raw Materials acquired by Smartflex and with an additional
payment of up to three million dollars ($3,000,000) if the revenues of the
customers acquired by Smartflex exceed certain revenue targets in 1999. Tanon
would retain its accounts receivable, which currently exceed $6.1 million, net
of reserves, and would also retain any inventory or equipment which are not
sold to Smartflex. These assets would be sold by Tanon and the net proceeds of
the sale to Smartflex and the sale of such assets would be available to the
creditors of Tanon. Completion of the sale is subject to completion of due
diligence by Smartflex and other conditions.
Tanon Bankruptcy
In addition, on December 2, 1998, Tanon filed a voluntary proceeding (the
"Bankruptcy Case") under Chapter 11 of the United States Bankruptcy Code in the
United States Bankruptcy Court for the Northern District of California (the
"Court"). The sale to Smartflex of the Assets and Rights is subject to approval
of the Court. The process of such approval includes a court approved bidding
process. The filing by Tanon will include suggested bidding procedures and the
payment of a break-up fee payable by the successful bidder if it is not
Smartflex. These procedures and break-up fee are also subject to approval by the
Court.
Proceeds from Sale
Tanon's primary credit facility is an asset based credit facility provided
by IBJ Schroder Bank & Trust Company ("Schroder") ("Schroder Loan Facility") to
Tanon and guaranteed by the Registrant. Advances under the Schroder Loan are
secured by substantially all of the assets of Tanon and a guarantee by the
Company. At December 2, 1998, approximately $4.6 million was outstanding under
the Schroder Loan Facility. Schroder would be entitled to receive that amount
out of the purchase price paid by Smartflex before other creditors with
prepetition claims against Tanon were paid. The Registrant is currently a
creditor of Tanon with an outstanding claim exceeding $15 million. Tanon
currently owes approximately $21 million to its creditors in addition to the
amounts owed by Tanon to the Registrant and Schroder and excluding possible
claims by
-2-
equipment lessors and the lessor's of the real property leased by Tanon based on
future lease obligations. Payment of the Registrant's claim and the claims of
other creditors are subject to approval of the Court.
Sale of Methuen
In addition, the Registrant sold to Smartflex substantially all of the
assets of its business operations in Methuen, Massachusetts excluding cash and
accounts receivable. These assets were used to provide contract manufacturing
electronic assembly services, including the quick-turn, prototype and volume
assembly and testing of a range of products at a facility in Methuen,
Massachusetts (the "Methuen Division"). These assets were purchased from
Tri-Star Technologies, Co., Inc., a Massachusetts corporation ("Tri-Star"). The
purchase price paid by Smartflex for the Methuen Division was $2.5 million
subject to adjustments based on the level of inventory on hand present at
Closing, and to the net income and obligations of the Methuen Division as
specified in the Agreement. The Registrant would retain the accounts receivable
of the Methuen Division, which currently exceed $500,000, net of reserves, and
would also retain all of the liabilities associated with that business. The
Registrant intends to loan up to $500,000 of the sale proceeds to be used in the
operations of Tanon during the Bankruptcy Case.
The Plan
The Registrant has also been attempting to sell its interest in Service
Assembly, Inc. ("SAI") which it purchased in March 1998 for approximately $3.8
million. The Registrant proposes to sell SAI and to utilize the proceeds from
such sale together with the proceeds from the sale of the Methuen Division and
its other resources to commercialize the software products and services (the
"Products") under development by its subsidiary, SupplyPoint Solutions, Inc.
("Plan"). The Registrant currently owes in excess of $15 million to various
creditors, noteholders and debenture holders (collectively, the "Creditors").
Certain of the Creditors also hold a security interest in SAI and would be
legally entitled to the net proceeds from its sale. The Registrant's ability to
implement the Plan depends on its completing the sale of SAI at an adequate
price, and on reaching agreements with the Creditors to restructure the terms of
their loans to the Registrant. Such restructuring would likely result in
dilution of current shareholders of the Registrant or elimination of their
equity ownership. No assurance can be given that the Registrant will be
successful in achieving any or all of such results. In addition, no assurance
can be given that the Registrant may not voluntarily or involuntarily file a
bankruptcy or liquidation petition or the effects on the shareholders or the
Creditors.
-3-
Except for historical matters contained in this Report, statements made in
this Report are forward-looking and are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that these forward-looking statements reflect numerous assumptions
and involve risks and uncertainties which may affect the Company's business and
prospects and cause actual results to differ materially from these
forward-looking statements, including failure to close the sale to Smartflex, or
consummation of such sale with lower sale proceeds, failure to sell SAI, or
consummation of such sale with lower sale proceeds, failure to reach
satisfactory agreements with the Creditors, failure to develop the Products in a
timely manner, or increased costs to develop the Products, unsuccessful
marketing of the Products, economic, competitive, technological, governmental,
and other factors discussed in the Company's filings with the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
EA Industries, Inc.
Registrant
By: /s/ Howard P. Kamins
----------------------------------
Howard P. Kamins
Date: December 9, 1998 Vice President and General Counsel