UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934 (Amendment No.           )

 

Filed by the Registrant þ

 

Filed by a party other than the Registrant o

 

Check the appropriate box:

 

þ  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

EACO CORPORATION

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

common stock, par value $0.01 per share

 

 

117,641,742 shares of common stock

 

 

$0.06 (average of high and low prices on December 18, 2009)

 

 

$7,058,505

 

 

$503.27

 

 

 

 

 

 

 

 

 

 

 

EACO CORPORATION

1500 N. Lakeview Avenue

Anaheim, California 92807

 

NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD FEBRUARY 19, 2010

 

To the Shareholders of EACO Corporation:

 

You are cordially invited to attend the 2010 Annual Meeting of Shareholders (the “Annual Meeting”) of EACO Corporation (“EACO”) to be held on February 19, 2010 at 7:30 a.m. Pacific Time at the offices of Bisco Industries, Inc., located at 1500 N. Lakeview Avenue, Anaheim, California 92807, for the following purposes, as more fully described in the proxy statement accompanying this Notice:

 

1. To approve the Agreement and Plan of Merger dated December 22, 2009, by and among EACO, Bisco Acquisition Corp., a wholly-owned subsidiary of EACO, Bisco Industries, Inc. and Glen F. Ceiley, and the transactions contemplated thereby.

 

2. To approve a 1-for-25 reverse split of the common stock and the amendment of the articles of incorporation to effect such a reverse split.

 

3. To approve the amendment of the articles of incorporation to remove the 75% shareholder approval requirement for certain transactions with affiliated corporations.

 

4. To elect the following four nominees to serve on the Board of Directors until the next annual meeting of shareholders: Stephen Catanzaro, Glen F. Ceiley, Jay Conzen and William L. Means.

 

5. To ratify the appointment of Squar, Milner, Peterson, Miranda & Williamson, LLP as our independent registered public accounting firm for the fiscal year ending August 31, 2010.

 

6. To approve the adjournment of the Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes to approve Proposals 1, 2 and 3.

 

7. To transact any other business which may properly come before the Annual Meeting or any adjournment(s) or postponement(s) thereof.

 

The Board of Directors has fixed the close of business on January 6, 2010 as the record date for determining shareholders entitled to vote at the Annual Meeting. Only shareholders of record at the close of business on that date are entitled to notice of and to vote at the Annual Meeting, and at any postponement(s) or adjournment(s) thereof.

 

Your vote is very important, regardless of the number of shares you own. On behalf of the Board of Directors, we urge you to sign, date and return the enclosed proxy card as soon as possible, even if you currently plan to attend the meeting. If your shares are held in “street name,” that is, your shares are held in the name of a brokerage firm, bank or other nominee, in lieu of a proxy card you should receive from that institution an instruction form for voting by mail and you may also be eligible to vote your shares electronically over the Internet or by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please sign, date and return each proxy card or voting instruction form to ensure that all of your shares are voted. You may revoke your proxy at any time prior to the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you previously submitted will be revoked automatically and only your vote at the Annual Meeting will be counted.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

Glen F. Ceiley

Chairman of the Board

 

Date: January   , 2010

 

EACO CORPORATION

1500 N. Lakeview Avenue

Anaheim, California 92807

 

 

PROXY STATEMENT

FOR THE 2010 ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON FEBRUARY 19, 2010

 

 

 

These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of Directors of EACO Corporation (“EACO” or the “Company”) to be voted at the 2010 Annual Meeting of Shareholders (the “Annual Meeting”) to be held on February 19, 2010 and at any adjournment(s) or postponement(s) of the meeting. The Annual Meeting will be held at 7:30 a.m. Pacific Time at the offices of Bisco Industries, Inc. (“Bisco”), located at 1500 N. Lakeview Avenue, Anaheim, California 92807. The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of the Annual Meeting of Shareholders and are described in more detail in this proxy statement. These proxy materials and the form of proxy are expected to be mailed to our shareholders who are entitled to vote at the Annual Meeting on or about January 12, 2010.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON FEBRUARY 19, 2010: A complete set of proxy materials relating to the Annual Meeting of Shareholders is available on the Internet. These materials, consisting of the Notice of the Annual Meeting of Shareholders, the proxy statement, proxy card and Transition Report on Form 10-K for the eight months ended August 31, 2009 may be viewed at http://www.          .

 

The date of this proxy statement is January   , 2010.

EACO Corporation

 

ANNUAL MEETING OF SHAREHOLDERS

 

Table of Contents

 

 

 

This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “possible,” “project,” “should,” “will” and similar words or expressions. These statements are based on our current expectations, estimates and projections of future events and results and include, but are not limited to, statements regarding the proposed merger with Bisco Industries, Inc. and the expected benefits of such merger on EACO, its financial condition and its operations. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by this proxy statement. We encourage you to carefully review and consider the information discussed under the heading “Risk Factors” in this proxy statement as well as the other disclosures made by EACO in its filings with the Securities and Exchange Commission, including on Forms 10-K, 10-Q and 8-K. Forward-looking statements speak only as of the date on which the statements were made, and we undertake no obligation to revise or update publicly any forward-looking statement for any reason.

 

SUMMARY OF TERMS OF PROPOSED MERGER WITH BISCO

	•	the historical results of the business of both companies, as well as current economic conditions and expectations regarding the same;
	•	the long-term prospects and opportunities of both companies, as well as EACO’s future funding requirements;
	•	the ability of Bisco to use EACO’s existing liabilities (i.e., its net operating losses);
	•	the alternatives to the merger, including remaining as a separate independent company, the possibility and likelihood of continuing as a going concern without the financial support of Bisco or completing the proposed merger, as well as the potential values, benefits, risks and uncertainties to our shareholders associated with each such alternative and the timing and the likelihood of accomplishing such alternatives; and
	•	the opinion of our financial advisor, B. Riley & Co., LLC, (“B. Riley”), to the effect that, as of December 10, 2009, and based upon and subject to the factors and assumptions set forth in the opinion, the consideration to be paid to Bisco’s shareholder in the merger was fair, from a financial point of

		view, to the shareholders of EACO, as described in Proposal 1 under “The Merger — Opinion of Our Financial Advisor.”

	•	the approval of the merger and merger agreement by EACO’s shareholders at the Annual Meeting;
	•	the approval by our shareholders at the Annual Meeting of the amendment of our articles of incorporation to (i) effect a 1-for-25 reverse stock split and (ii) remove the 75% approval requirement for certain affiliate transactions;
	•	there is not in effect any law or order of a governmental entity enjoining or otherwise prohibiting the consummation of the merger or the other transactions contemplated by the merger agreement;
	•	there shall not have occurred any changes, individually or in the aggregate, constituting a material adverse effect on EACO or Bisco;
	•	all approvals of governmental entities and of each bank or other institutional lender with which the parties have a line of credit or an outstanding loan or mortgage and whose approval, waiver and consent is necessary for consummation of the merger shall have been obtained; and
	•	the parties shall have received from their respective tax advisors, satisfactory confirmation that the merger shall constitute a “tax-free reorganization” under the Internal Revenue Code, and confirmation that the net operating losses of EACO shall not be limited as a result of completion of the transactions contemplated by this merger agreement.

	•	the other party’s representations and warranties contained in the merger agreement must be true and correct in all respects as of the date of the merger agreement and as of the effective time of the merger

		(except for the representations and warranties that address matters only as of a particular date, which must remain true and correct as of such date);

	•	the other party shall have performed and complied in all material respects with its agreements and covenants required by the merger agreement; and
	•	the other party shall have deliver a certificate signed by one of its officers certifying as to the satisfaction of the two foregoing conditions.

	•	by mutual written consent of EACO and Bisco;
	•	By EACO or Bisco, as applicable, upon the breach by the other party of any representation, warranty, obligation or agreement under the merger agreement which breach shall not have been cured, or by its nature cannot be cured, within ten (10) days of receipt by such other party of written notice of such breach; provided that the party seeking to terminate the agreement has not breached any of its representations, warranties, obligations or agreements hereunder;
	•	by any party if any permanent injunction or other order of a court or other competent authority preventing the consummation of the merger shall have become final and nonappealable;
	•	by EACO in the event of any material adverse change in the condition, properties, assets, liabilities, business, operations, results of operations or prospects of Bisco since the date of the merger agreement; and
	•	by any party, if the necessary approvals of EACO’s shareholders have not been obtained by April 30, 2010.

 

In addition to the other information included in documents delivered with this proxy statement, you should carefully consider the risk factors described below in evaluating whether to approve the merger with Bisco and the related merger agreement. These factors should be considered in conjunction with the other information included or incorporated by reference by us in this proxy statement. To facilitate a reading of the risks that we believe will apply to EACO and Bisco as a combined company following completion of the merger, in these risk factors, references to “we,” “us,” “our” and similar terminology refer to the combined company, as it would exist following the merger. Words and phrases specifying EACO or Bisco, as the case may be, refer to such entity as a stand alone company, unless the context clearly indicates a different meaning. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also adversely affect our business, financial condition and operating results. If any of the following risks, or any other risks not described below actually occur, the results of operations of EACO and/or Bisco could suffer to a material extent. As a result, the market price of our shares of common stock may decline, and you could lose all or part of the money you paid to buy EACO common stock.

 

RISKS RELATING TO THE MERGER

 

The market price of EACO common stock after the merger may be affected by factors different from those affecting the shares of EACO currently.

 

After the merger, although Bisco will operate as a subsidiary of EACO, the business of EACO will primarily consist of the business of Bisco when considered on a consolidated basis, and the revenues of the consolidated entities will derive primarily from Bisco’s business. The business of Bisco differs significantly from that of EACO and, accordingly, the results of operations of the combined company and the market price of our common stock following the merger may be affected by factors different from those currently affecting the independent results of operations of Bisco and EACO. For a discussion of Bisco’s business and of certain factors to consider in connection with that business, see “— Risks Relating to Bisco’s Business” below and the other information regarding Bisco contained elsewhere in this proxy statement.

 

We may fail to realize some or all of the anticipated benefits of the merger, which may adversely affect the value of our common stock.

 

The success of the merger will depend, in part, on our ability to successfully integrate the two companies and realize the anticipated benefits from consolidation. Although Bisco has been handling the day-to-day operation of EACO for the past several years, Bisco and EACO have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the actual consolidation of the two companies, will be disruptive to the operations of either or both companies and have an adverse effect on our combined business and results of operations, which may affect the value of the shares of our common stock after the completion of the merger. In addition, any unforeseen restriction or delay on our ability to use, after the merger, the net operating loss carryforwards of EACO would prevent us from fully realizing the anticipated tax benefits from consolidation within the anticipated time frame and harm our financial results.

 

The actual integration may also result in additional and unforeseen expenses. Both companies have incurred costs and expenses in connection with the proposed merger, and we may incur additional costs and expenses to complete the merger and fully integrate the two companies.

 

The merger may not be accretive and may cause dilution to EACO’s earnings per share, which may negatively affect the market price of EACO’s common stock.

 

EACO currently anticipates that the merger will be accretive to earnings per share during the first full fiscal year after the merger. This expectation is based on preliminary estimates which may materially change. EACO could also encounter additional transaction and integration-related costs or other factors such as the failure to realize all of the benefits anticipated in the merger. All of these factors could cause dilution to EACO’s earnings per share or decrease or delay the expected accretive effect of the merger and cause a decrease in the price of EACO’s common stock.

The merger will be dilutive to EACO’s existing shareholders.

 

Pursuant to the merger agreement, EACO will be issuing 117,641,742 new (pre-split) shares of common stock to Mr. Ceiley. The issuance of these shares will cause immediate and significant dilution to existing EACO shareholders. As of the record date, and prior to the proposed new issuance, there were 3,910,264 shares of EACO’s common stock outstanding.

 

Following the closing of the merger, Glen Ceiley will hold almost all of the voting stock of EACO and the influence of EACO’s other public shareholders over the election of directors and significant corporate actions will be significantly limited.

 

After the closing of the merger, when combined with the shares of EACO common stock that he currently holds, Glen Ceiley will own approximately 99% of EACO’s outstanding voting stock. Mr. Ceiley will be able to exert significant influence over the outcome of almost all corporate matters, including significant corporate transactions requiring a shareholder vote, such as a merger or a sale of the combined company or its assets. This concentration of ownership and influence in management and board decision-making could also harm the price of EACO common stock following completion of the merger by, among other things, discouraging a potential acquirer from seeking to acquire shares of EACO common stock (whether by making a tender offer or otherwise) or otherwise attempting to obtain control of the combined company.

 

Sales of EACO common stock by Glen Ceiley could cause the price of EACO’s common stock to decline.

 

There is currently no established trading market for EACO’s common stock, and the volume of any sales is generally low. In addition, after the merger, assuming that we have effected the reverse stock split described in Proposal 2, the number of shares held by non-affiliates of Bisco is expected to be less than 55,000 shares. If Mr. Ceiley sells or seeks to sell a substantial number of his shares of EACO common stock in the future, the market price of EACO’s common stock could decline. The perception among investors that these sales may occur could produce the same effect.

 

RISKS RELATING TO BISCO’S BUSINESS

 

Changes and uncertainties in the economy have harmed and could continue to harm Bisco’s operating results.

 

As a result of the recent economic downturn and continuing economic uncertainties, Bisco’s operating results, and the economic strength of Bisco’s customers and suppliers, are increasingly difficult to predict. Purchases of Bisco’s products by its customers is affected by many factors, including, among others, general economic conditions, interest rates, inflation, liquidity in the credit markets, unemployment trends, geopolitical events, and other factors. Although Bisco sells its products to customers in a broad range of industries, the significant weakening of economic conditions on a global scale has caused some of Bisco’s customers to experience a slowdown that has adversely impacted Bisco’s sales and operating results. Changes and uncertainties in the economy also increase the risk of uncollectible accounts receivable. The pricing Bisco receives from suppliers may also be impacted by general economic conditions. Continued and future changes and uncertainties in the economic climate in the United States and elsewhere could have a similar negative impact on the rate and amounts of purchases by Bisco’s current and potential customers, create price inflation for Bisco’s products, or otherwise have a negative impact on Bisco’s expenses, gross margins and revenues, and could hinder Bisco’s growth.

 

If Bisco fails to develop and maintain an effective system of internal controls over financial reporting or is not able to adequately address certain identified material weaknesses in its system of internal controls or comply with Section 404 of the Sarbanes-Oxley Act of 2002, we may not be able to report our financial results accurately or timely or detect fraud, which could have a material adverse effect on the market price of our common stock and our business.

 

Bisco has from time to time had material weaknesses in their internal controls over financial reporting due to a lack of process related to the preparation of its financial statements and the lack of segregation of

duties. If we fail to adequately address these material weaknesses or experience additional material weaknesses in the future, we may not be able to improve our system of internal control over financial reporting to comply with the reporting requirements applicable to public companies in the United States. Furthermore, because we have not completed the testing of the operation of our internal controls, it is possible that we or our auditors will identify additional material weaknesses and/or significant deficiencies in the future in our system of internal control over financial reporting. Our failure to address any deficiencies or weaknesses in our internal control over financial reporting or to properly maintain an effective system of internal control over financial reporting could impact our ability to prevent fraud or to issue our financial statements in a timely manner that presents fairly (in accordance with accounting principles generally accepted in the United States of America) our financial condition and results of operations. The existence of any such deficiencies and/or weaknesses, even if cured, may also lead to the loss of investor confidence in the reliability of our financial statements, could harm our business and negatively impact the trading price of our common stock. Such deficiencies or material weaknesses may also subject us to lawsuits, investigations and other penalties.

 

Bisco is currently not in compliance with its covenants under its credit agreement with its senior lender and, as a result, the lender may be able to pursue remedies, which could include the acceleration of the obligation’s maturity date and foreclosure on Bisco’s assets if Bisco cannot obtain a waiver of such noncompliance.

 

As of August 31, 2009 and 2008, Bisco had outstanding $8,467,400 and $6,267,400, respectively, under its revolving credit agreement with Community Bank, which loan is secured by substantially all of Bisco’s assets and is guaranteed by Mr. Ceiley. The credit agreement with Community Bank contains certain financial and nonfinancial covenants, and we believe Bisco is not currently in compliance with one or more of such covenants, including the $1,000,000 limit on the liability for short sale trading. While Bisco is currently negotiating a waiver of the same with the lender, and believes such a waiver will be obtained, we cannot assure you that such waiver will be obtained on a timely basis, or at all, or that the lender will not exercise any of its remedies with respect to such noncompliance. Such remedies could include the acceleration of the obligation’s maturity date and possible foreclosure on Bisco’s assets, either of which could have a material adverse effect on Bisco’s business and operations.

 

Bisco relies heavily on its internal information systems, which, if not properly functioning, could materially and adversely affect its business.

 

Bisco’s information systems have been in place for many years, and are subject to system failures as well problems caused by human error, which could have a material adverse effect on Bisco’s business. Many of Bisco’s systems consist of a number of legacy or internally developed applications, which can be more difficult to upgrade to commercially available software. It may be time consuming for Bisco to retrieve data that is necessary for management to evaluate its systems of control and information flow. In the future, management may decide to convert Bisco’s information systems to a single enterprise solution. Such a conversion, while it would enhance the accessibility and reliability of Bisco’s data, could be costly and would not be without risk of data loss, delay or business interruption. Maintaining and operating these systems requires continuous investments. Failure of any of these internal information systems or material difficulties in upgrading these information systems could have material adverse effects on Bisco’s business and our timely compliance with our reporting obligations after the merger.

 

Bisco may not be able to attract and retain key personnel.

 

Bisco’s future performance will depend to a significant extent upon the efforts and abilities of certain key management and other personnel, including Glen Ceiley, Bisco’s Chairman of the Board and Chief Executive Officer, as well as other executive officers and senior management. The loss of service of one or more of Bisco’s key management members could have a material adverse effect on Bisco’s business.

Bisco does not have long-term supply agreements or guaranteed price or delivery arrangements with the majority of its suppliers.

 

In most cases, Bisco has no guaranteed price or delivery arrangements with its suppliers. Consequently Bisco may experience inventory shortages on certain products. Furthermore, Bisco’s industry occasionally experiences significant product supply shortages and customer order backlogs due to the inability of certain manufacturers to supply products as needed. We cannot assure you that suppliers will maintain an adequate supply of products to fulfill Bisco’s orders on a timely basis, or at all, or that Bisco will be able to obtain particular products on favorable terms or at all. Additionally, we cannot assure you that product lines currently offered by suppliers will continue to be available to Bisco. A decline in the supply or continued availability of the products of Bisco’s suppliers, or a significant increase in the price of those products, could reduce Bisco’s sales and negatively affect our operating results.

 

Bisco’s supply agreements are generally terminable at the suppliers’ discretion.

 

Substantially all of the agreements Bisco has with its suppliers, including its authorized distributor agreements, are terminable with little or no notice and without any penalty. Suppliers that currently sell their products through Bisco could decide to sell, or increase their sales of, their products directly or through other distributors or channels. Any termination, interruption or adverse modification of Bisco’s relationship with a key supplier or a significant number of other suppliers would likely adversely affect Bisco’s operating income, cash flow and future prospects.

 

The competitive pressures Bisco faces could have a material adverse effect on Bisco’s business.

 

The market for Bisco’s products and services is very competitive. Bisco competes for customers with other distributors, as well as with many of Bisco’s suppliers. A failure to maintain and enhance its competitive position could adversely affect Bisco’s business and prospects. Furthermore, Bisco’s efforts to compete in the marketplace could cause deterioration of gross profit margins and, thus, overall profitability. Some of Bisco’s competitors may have greater financial, personnel, capacity and other resources or a more extensive customer base than Bisco does.

 

Bisco’s estimate of the potential for opening offices in new geographic areas could be incorrect.

 

One of Bisco’s primary growth strategies is to grow its business through the introduction of sales offices into new geographic markets. Based on its analysis of demographics in the United States, Canada and Mexico, Bisco currently estimates there is potential market opportunity in North America to support additional sales offices. Bisco cannot guarantee that Bisco’s estimates are accurate or that Bisco will open enough offices to capitalize on the full market opportunity. In addition, a particular local market’s ability to support a sales office may change because of a change due to competition, or local economic conditions.

 

Bisco may be unable to meet its goals regarding new office openings.

 

Bisco’s growth, in part, is primarily dependent on Bisco’s ability to attract new customers. Historically, the most effective way to attract new customers has been opening new sales offices. Bisco’s current business strategy focuses on opening a specified number of new sales offices each year, and quickly growing each new sales office. Given the current economic slowdown, Bisco may not be able to open or grow new offices at its projected rates. Failure to do so could negatively impact Bisco’s long-term growth.

 

Opening sales offices in new markets presents increased risks that may prevent Bisco from being profitable in these new locations, and/or may adversely affect Bisco’s operating results.

 

Bisco’s new sales offices do not typically achieve operating results comparable to its existing offices until after several years of operation. The added expenses relating to payroll, occupancy, and transportation costs can impact Bisco’s ability to leverage earnings. In addition, offices in new geographic areas face additional challenges to achieving profitability. In new markets, Bisco has less familiarity with local customer preferences and customers in these markets are less familiar with Bisco’s name and capabilities. Entry into new markets

may also bring Bisco into competition with new, unfamiliar competitors. These challenges associated with opening new offices in new markets may have an adverse effect on Bisco’s business and operating results.

 

Bisco may not be able to identify new products and products lines, or obtain new product on favorable terms and prices.

 

Bisco’s success depends in part on its ability to develop product expertise and identify future products and product lines that complement existing products and product lines and that respond to Bisco’s customers’ needs. Bisco may not be able to compete effectively unless its product selection keeps up with trends in the markets in which Bisco competes.

 

Bisco’s ability to successfully attract and retain qualified sales personnel is uncertain.

 

Bisco’s success depends in large part on its ability to attract, motivate, and retain a sufficient number of qualified sales employees, who understand and appreciate Bisco’s strategy and culture and are able to adequately represent Bisco to its customers. Qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in some areas, and the turnover rate in the industry is high. If Bisco is unable to hire and retain personnel capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for Bisco’s culture and product knowledge, Bisco’s sales could be materially adversely affected. Additionally, competition for qualified employees could require Bisco to pay higher wages to attract a sufficient number of employees. An inability to recruit and retain a sufficient number of qualified individuals in the future may also delay the planned openings of new offices. Any such delays, material increases in existing employee turnover rates, or increases in labor costs, could have a material adverse effect on Bisco’s business, financial condition or operating results.

 

Bisco generally does not have long-term sales contracts with its customers.

 

Most of Bisco’s sales are made on a purchase order basis, rather than through long-term sales contracts. A variety of conditions, both specific to each customer and generally affecting each customer’s industry, may cause customers to reduce, cancel or delay orders that were either previously made or anticipated, go bankrupt or fail, or default on their payments. Significant or numerous cancellations, reductions, delays in orders by customers, losses of customers, and/or customer defaults on payment could materially adversely affect Bisco’s business.

 

Increases in energy costs and the cost of raw materials used in Bisco’s products could impact Bisco’s cost of goods and distribution and occupancy expenses, which would result in lower operating margins.

 

Costs of raw materials used in Bisco’s products and energy costs have been rising during the last several years, which has resulted in increased production costs for Bisco’s suppliers. These suppliers typically look to pass their increased costs along to Bisco through price increases. The shipping costs for Bisco’s distribution operation have risen as well. While Bisco typically tries to pass increased supplier prices and shipping costs through to its customers or to modify its activities to mitigate the impact, Bisco may not be successful. Failure to fully pass these increased prices and costs through to its customers or to modify its activities to mitigate the impact would have an adverse effect on Bisco’s operating margins.

 

Inclement weather and other disruptions to the transportation network could impact Bisco’s distribution system.

 

Bisco’s ability to provide efficient shipment of products to its customers is an integral component of Bisco’s overall business strategy. Disruptions at distribution centers or shipping ports may affect Bisco’s ability to both maintain core products in inventory and deliver products to its customers on a timely basis, which may in turn adversely affect its results of operations. In addition, severe weather conditions could adversely impact demand for Bisco’s products in particularly hard hit regions.

Bisco’s advertising and marketing efforts may be costly and may not achieve desired results.

 

Bisco incurs substantial expense in connection with its advertising and marketing efforts. Postage represents a significant advertising expense for Bisco because Bisco generally mails fliers to current and potential customers through the U.S. Postal Service. Any future increases in postal rates will increase Bisco’s mailing expenses and could have a material adverse effect on Bisco’s business, financial condition and results of operations.

 

Bisco may not have adequate or cost-effective liquidity or capital resources.

 

Bisco’s ability to satisfy its cash needs depends on its ability to generate cash from operations and to access to the capital markets, both of which are subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond Bisco’s control. Bisco may need to satisfy its cash needs through external financing. However, external financing may not be available on acceptable terms or at all.

 

Date, Time and Place of Meeting

 

These proxy materials and the enclosed proxy card are being furnished in connection with the solicitation of proxies by the Board of Directors of EACO Corporation (“EACO”, “we”, “our”, “us” or the “Company”) to be voted at the 2010 Annual Meeting of Shareholders (the “Annual Meeting”) to be held on February 19, 2010 and at any adjournment(s) or postponement(s) of the Annual Meeting. The Annual Meeting will be held at 7:30 a.m. Pacific Time at the offices of Bisco Industries, Inc., located at 1500 N. Lakeview Avenue, Anaheim, California 92807. These proxy materials and the form of proxy are expected to be mailed to our shareholders who are entitled to vote at the Annual Meeting on or about January 12, 2010.

 

Purpose of Meeting

 

The specific proposals to be considered and acted upon at the Annual Meeting are summarized in the accompanying Notice of the Annual Meeting of Shareholders and are described in more detail in this proxy statement.

 

Record Date; Shares Entitled to Vote; Quorum

 

The record date for determining those shareholders who are entitled to notice of, and to vote at, the Annual Meeting has been fixed as January 6, 2010. At the close of business on the record date, 3,910,264 shares of our common stock were outstanding. Holders of our common stock are entitled to one vote for each share of common stock held by such shareholder as of the record date with respect to each matter to be voted on at the meeting.

 

The presence in person or by proxy of the holders of a majority of the outstanding shares entitled to vote will constitute a quorum for the transaction of business at the Annual Meeting. If a quorum is not present, the Annual Meeting will be adjourned until a quorum is obtained.

 

Voting Requirements and Procedure

 

As a Florida corporation, EACO is subject to the Florida Business Corporation Act (the “FBCA”) with respect to voting requirements and procedures. In addition, pursuant to Section 2115 of the California General Corporation Law (the “CGCL”), EACO is currently subject to certain provisions of the CGCL, including those that affect the approvals necessary for the merger and the election of directors.

 

With regard to Proposal 1, under the terms of our articles of incorporation as currently in effect (the “Current Articles”), because of our affiliations with Bisco, the affirmative vote of the holders of at least 75% of our outstanding common stock is required to approve the merger and the merger agreement.

With regard to Proposal 2, the affirmative vote of the holders of a majority of our outstanding common stock is required to approve the reverse stock split and the amendment to the articles of incorporation to effect such reverse split.

 

With regard to Proposal 3, the affirmative vote of the holders of at least 75% of our outstanding common stock is required for the amendment of the articles of incorporation to delete Article V thereof, which imposes a 75% shareholder approval requirement for certain transactions with affiliated corporations.

 

In the election of directors under Proposal 4, directors will be elected by a plurality of the common stock entitled to vote and present in person or represented by proxy at the Annual Meeting, unless cumulative voting is in effect. Under the FBCA, directors are elected by a plurality of the votes cast. Shareholders are also entitled to cumulate votes pursuant to the provisions of the CGCL applicable to EACO. As such if any shareholder has given notice prior to commencement of voting of his or her intention to cumulate votes, then each shareholder may cumulate votes by multiplying the number of shares of common stock the shareholder is entitled to vote by the number of directors to be elected. The number of cumulative votes thus determined may be voted all for one candidate or distributed among several candidates, at the discretion of the shareholder. The candidates receiving the highest number of votes, up to the number of directors to be elected, will be elected. If cumulative voting is in effect, the persons named in the accompanying proxy will vote the shares of common stock covered by proxies received by them (unless authority to vote for directors is withheld) among the named candidates as they determine. No shareholder is entitled to cumulate his or her votes for candidates other than those whose names have been placed in nomination prior to the commencement of voting.

 

With regard to Proposals 5 and 6, the affirmative vote of the holders of a majority of our common stock present or represented by proxy and entitled to vote at the Annual Meeting is being sought.

 

All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes, abstentions, and broker non-votes. Broker non-votes occur when brokers who hold stock in “street name” return proxy cards stating that they do not have authority to vote the stock which they hold on behalf of beneficial owners. Under Florida law, abstentions and shares referred to as “broker non-votes” (i.e., shares held by brokers or nominees as to which instructions have not been received from the beneficial owners entitled to vote and the broker or nominee does not have discretionary authority to vote on a particular matter) are treated as shares that are present and entitled to vote for purposes of determining the presence of a quorum. Shares voted as abstentions on a matter are considered shares entitled to vote on that matter. In contrast, shares represented by proxy which reflect a broker non-vote on a particular proposal are treated as not present and not entitled to vote on that proposal and therefore will not be considered when counting votes cast on the matter (even though those shares are considered entitled to vote for quorum purposes and may be entitled to vote on other matters). Accordingly, abstentions and broker non-votes will have no effect on the election of directors and Proposals 5 and 6, but will have the effect of a vote against the Proposals 1, 2 and 3.

 

Appraisal and Dissenter’s Rights

 

Appraisal rights under Florida law or dissenters’ rights under California law may be available to our shareholders with respect to the proposed merger described in Proposal 1. Although EACO is a Florida corporation, pursuant to Section 2115 of the California General Corporation Law, we may be subject to California dissenters’ rights law, to the exclusion of the Florida appraisal remedy. Important details concerning the requirements to perfect appraisal and dissenters’ rights under Florida and California law, respectively, are set forth below. In view of the complexity of these provisions of Florida and California law and because it cannot be known with certainty whether a court would apply Florida and California law to determine the rights available to dissenting shareholders in the merger, any shareholder who is considering exercising appraisal or dissenters’ rights, or who wishes to preserve the right to do so, should consult his or her legal advisor.

 

This notice is being provided to you in satisfaction of Sections 607.1320 of the FBCA and Section 1301 of the CGCL. The summary below is not a complete statement of the Florida or California law pertaining to

appraisal or dissenters’ rights, respectively, and is qualified in its entirety by reference to the relevant sections of the FBCA and CGCL. Failure to follow the procedures required by Sections 607.1301 through 607.1333 of the FBCA for perfecting appraisal rights, or by Chapter 13 (Sections 1300 through 1313) of the CGCL for perfecting dissenters’ rights, may result in the loss, termination or waiver of such rights. A copy of Sections 607.1301-607.1333 of the FBCA and a copy of Sections 1300-1304 of the CGCL are attached as Annex C-1 and Annex C-2, respectively. Because of the complexity of the provisions and the need to strictly comply with various technical requirements, you should read Annex C-1 and Annex C-2 in their entirety.

 

Shareholders are not entitled to appraisal or dissenters’ rights with respect to any other proposal described in this proxy statement.

 

Florida Appraisal Rights

 

When the merger is completed, holders of our capital stock who do not consent to and who comply with the procedures prescribed in Sections 607.1301 through 607.1333 of the FBCA may be entitled to a judicial appraisal of the fair value of their shares, exclusive of any element of value arising from the consummation or expectation of the merger, and to receive payment of the fair value of their shares in cash, together with interest. The following is a brief summary of the statutory procedures that must be followed by a shareholder in order to perfect appraisal rights under Florida law.

 

Under Florida law, a shareholder who wishes to assert appraisal rights with respect to any class or series of shares:

 

(a) Must deliver to the corporation before the vote is taken written notice of the shareholder’s intent to demand payment if the proposed action is effectuated.

 

(b) Must not vote, or cause or permit to be voted, any shares of his or her common stock in favor of the proposed action.

 

Withholding consent to the merger will not in and of itself constitute a sufficient written demand. A shareholder’s failure to deliver the demand notice described above before the vote with respect to Proposal 1 is taken will constitute a waiver of such appraisal rights. The demand notice must be sent or delivered to our Corporate Secretary at 1500 N. Lakeview Avenue, Anaheim, California 92807.

 

A shareholder who wishes to exercise his or her appraisal rights must hold such shares of record on the date the Florida Demand Notice is delivered and must hold such shares continuously through the effective time of the merger. Only a holder of record of shares of the common stock will be entitled to assert appraisal rights for such shares. A demand for appraisal in respect of shares of our common stock should be executed by or on behalf of the holder of record, fully and correctly, as such holder’s name appears on such holder’s stock certificates, and must state that such person intends thereby to demand appraisal of such holder’s shares in connection with the merger. Shareholders who hold their shares of common stock in brokerage accounts or other nominee forms and who wish to exercise appraisal rights are urged to consult with their brokers to determine the appropriate procedures for the making of a demand for appraisal by such a nominee.

 

We will send to any shareholder who has timely delivered the required notice of intent to demand payment a written appraisal notice and form (the “Florida Notice”) within 10 days after the date the merger becomes effective. The Florida Notice will specify the date that the merger became effective, indicate our estimate of the fair value of the shares, and include an offer to pay the estimated fair value. We will also include a form which the shareholder can complete and return to indicate whether such shareholder will accept our estimated fair value for the shares or whether the shareholder demands payment of a different fair value estimated by the shareholder (the “Florida Demand Form”). The notice will also state where and by when certificates for certificated shares must be deposited, as well as a date by which we must receive the completed Florida Demand Form, which date may not be fewer than 40 nor more than 60 days after the date the notice is sent.

If a shareholder makes demand for payment by timely submitting the form described above, and the matter remains unsettled, we must commence a proceeding within 60 days after receiving the payment demand in the appropriate court of the county in which our registered office in Florida is located, and petition the court to determine the fair value of the shares and accrued interest. If we do not commence the proceeding within the 60-day period, any shareholder who has made a demand for payment may commence the proceeding. We must pay each such shareholder the amount determined by the court to be due within 10 days after final determination of the proceedings. Upon payment of the judgment, the shareholder shall cease to have any interest in the shares. The court in an appraisal proceeding will determine all costs of the proceeding and may assess fees and expenses of counsel and experts for the respective parties, in amounts the court finds equitable:

 

California Dissenters’ Rights

 

A Florida corporation that meets the tests set forth in Section 2115 of the CGCL may be subject to California dissenters’ rights requirements. We may meet the tests set forth in Section 2115 of the CGCL and therefore, under Section 2115, our shareholders may be entitled to California dissenters’ rights under Chapter 13 of the CGCL, to the exclusion of Florida appraisal rights under Sections 607.1301-607.1333 of the FBCA. However, it is not certain that a court would uphold such an application of Section 2115. We recommend that any shareholder who is considering exercising his or her rights as a dissenting shareholder consult legal counsel.

 

If the merger is consummated, our shareholders who are entitled to vote on, but who do not approve, the merger, and who have fully complied with all applicable provisions of Chapter 13, may have the right to require us to purchase the shares of our common stock held by them at the fair market value of those shares on the day before the terms of the merger were first announced, excluding any appreciation or depreciation of the value of such shares because of the merger. For shares of stock to qualify as dissenting shares under Chapter 13, the following conditions must be satisfied: (i) the holder of such shares must not have voted in favor of the merger, (ii) the holder of such shares must demand, in accordance with Chapter 13 and as more fully described below, that we purchase the shares, and (iii) the holder of such shares must submit his or her share certificate(s) for endorsement (as described below).

 

If the merger is approved by holders of the requisite number of shares, we will, within ten (10) days after the date of such approval, mail to any holder of its capital stock who may be entitled to dissenters’ rights, a notice that the required shareholder or shareholder approval of the merger was obtained (the “California Notice”), accompanied by a copy of Sections 1300-1304 of the CGCL. The California Notice will set forth the price determined by us to represent the fair market value of any dissenting shares (which shall constitute an offer by us to purchase properly dissenting shares at such stated price) and will set forth a brief description of the procedures to be followed by any shareholder who wishes to exercise his or her dissenters’ rights.

 

Within 30 days after the date on which the California Notice is mailed (i) we must receive the demand of the dissenting shareholder that we purchase such shares, which demand must state the number and class of shares held of record and which the shareholder demands that we purchase, as well as a statement of the shareholder’s claim of the fair market value of those shares as of the day immediately prior to the announcement of the merger (such statement of fair market value constitutes an offer by the shareholder or shareholder, as applicable, to sell the shares at that price); and (ii) the shareholder must submit the share certificate(s) representing the shares to the address specified in the California Notice. The certificate(s) will be stamped or endorsed with a statement that the shares are dissenting shares or will be exchanged for certificates of appropriate denomination so stamped or endorsed.

 

If we and a dissenting shareholder agree that the shares are dissenting shares and agree upon the price to be paid for the shares, the dissenting shareholder or shareholder will be entitled, with certain exceptions, to be paid such price (together with interest thereon at the legal rate on judgments from the date of the agreement) within 30 days after such agreement or within 30 days after any statutory or contractual conditions to the merger are satisfied, whichever is later, subject to the surrender of the certificates therefor.

If we deny that the shares qualify as dissenting shares under Chapter 13 or if we and a shareholder disagree as to the fair market value of such shares, such shareholder may, within six months after the California Notice is mailed, file a complaint in the superior court of the proper California county requesting the court to make such determinations or, alternatively, may intervene in any action pending on such a complaint. Costs of such an action (including compensation of any court-appointed appraisers) shall be assessed as the court considers equitable, but must be assessed against us if the appraised value exceeds the price offered by us.

 

Any court action to determine whether shares qualify as dissenting shares or to determine the fair market value of such shares will be suspended if litigation is instituted to test the sufficiency or regularity of the votes of the shareholders in authorizing the merger. Furthermore, subject to the provisions of Chapter 13, no shareholder who has the right to demand payment for their shares under Chapter 13 shall have any right in law or equity to attack the validity of the merger or to have the merger set aside or rescinded, except in an action to test whether the number of shares required to authorize or approve the merger have been legally voted in favor of the merger.

 

Dissenting shares may lose their status as such and the right to demand payment will terminate if (i) the merger is abandoned (in which case we will pay on demand to any dissenting shareholder who has in good faith initiated proceedings under Chapter 13 all necessary expenses incurred in such proceedings and reasonable attorneys’ fees); (ii) the shares of our common stock are transferred prior to being submitted for endorsement or are surrendered for conversion into shares of another class; (iii) the dissenting shareholder does not agree upon the status of the shares as dissenting shares or upon the price of such shares and neither files suit or intervenes in a pending action within six months following the date on which the California Notice was mailed to the shareholder; or (iv) the dissenting shareholder with our consent withdraws his or her demand for the purchase of the dissenting shares.

 

Voting

 

If you are a “registered holder,” that is, your shares are registered in your own name through our transfer agent, you may vote by returning a completed proxy card in the enclosed postage-paid envelope. If your shares are held in “street name,” that is, your shares are held in the name of a brokerage firm, bank or other nominee, in lieu of a proxy card you should receive a voting instruction form from that institution by mail. The voting instruction form should indicate whether the institution has a process for beneficial holders to vote over the Internet or by telephone. Shareholders who vote over the Internet or by telephone need not return a proxy card or voting instruction form by mail, but may incur costs, such as usage charges, from telephone companies or Internet service providers. If your voting instruction form does not reference Internet or telephone information, please complete and return the paper voting instruction form in the self-addressed, postage-paid envelope provided.

 

If you are a registered holder, you may also vote your shares in person at the Annual Meeting. If your shares are held in street name and you wish to vote in person at the meeting, you must obtain a proxy issued in your name from the record holder and bring it with you to the Annual Meeting. We recommend that you vote your shares in advance as described above so that your vote will be counted if you later decide not to attend the Annual Meeting.

 

Proxies

 

Please use the enclosed proxy card to vote by mail. If your shares are held in street name, then in lieu of a proxy card you should receive from the brokerage firm, bank or other nominee an instruction form for voting by mail, the Internet or by telephone. Should you receive more than one proxy card or voting instruction form because your shares are held in multiple accounts or registered in different names or addresses, please be sure to complete, sign, date and return each proxy card or voting instruction form to ensure that all of your shares will be voted. Only proxy cards and voting instruction forms that have been signed, dated and timely returned (or otherwise properly voted by Internet or telephone) will be counted in the quorum and voted. Properly executed proxies will be voted in the manner directed by the shareholders. If the proxy does not specify how

the shares represented thereby are to be voted with respect to each of the proposals, in the absence of any contrary instruction on the proxy, the proxy will be voted FOR the election of each of the persons nominated by the Board under Proposal 4 and FOR the approval of all other proposals described in this proxy statement.

 

The enclosed proxy also grants the proxy holders discretionary authority to vote on any other business that may properly come before the Annual Meeting as well as any procedural matters. We have not been notified by any shareholder of his or her intent to present a shareholder proposal at the Annual Meeting.

 

If your shares are held in your name, you may revoke or change your vote at any time before the Annual Meeting by filing a notice of revocation or another signed proxy card with a later date with our Corporate Secretary at our principal executive offices. If your shares are held in street name, you should contact the record holder to obtain instructions if you wish to revoke or change your vote before the Annual Meeting. If you attend the Annual Meeting and vote by ballot, any proxy that you submitted previously to vote the same shares will be revoked automatically and only your vote at the Annual Meeting will be counted. Please note, however, that if your shares are held in street name, your vote in person at the Annual Meeting will not be effective unless you have obtained and present a proxy issued in your name from the record holder. Attendance at the Annual Meeting will not, by itself, revoke a proxy.

 

Solicitation

 

The enclosed proxy is being solicited by our Board of Directors. We will bear the entire cost of proxy solicitation, including the costs of preparing, assembling, printing and mailing this proxy statement, the proxy card and any additional material furnished to the shareholders. Copies of the solicitation materials will be furnished to brokerage houses, fiduciaries and custodians holding shares in their names that are beneficially owned by others so that they may forward this solicitation material to such beneficial owners. In addition, we may reimburse such persons for their reasonable expenses in forwarding the solicitation materials to the beneficial owners. The original solicitation of proxies by mail may be supplemented by a solicitation by personal contact, telephone, facsimile, email or any other means by our directors, officers or employees. No additional compensation will be paid to these individuals for any such services.

 

In the discretion of management, we reserve the right to retain a professional firm of proxy solicitors to assist in solicitation of proxies. Although we do not currently expect to retain such a firm, it estimates that the fees of such firm would range from $5,000 to $20,000 plus out-of-pocket expenses, all of which would be paid by us.

PROPOSAL 1:

 

APPROVAL OF THE MERGER AND

MERGER AGREEMENT

 

EACO has entered into a merger agreement with Bisco Acquisition Corp., Bisco Industries, Inc. and Glen F. Ceiley, pursuant to which Bisco Acquisition Corp. a newly created, wholly-owned subsidiary of EACO, would be merged with and into Bisco, with Bisco surviving the merger and becoming a wholly-owned subsidiary of EACO. The Board of Directors believes that the merger is in the best interests of EACO and its shareholders and is seeking shareholder approval of the merger and the related merger agreement.

 

The following is a discussion of the merger and the merger agreement, including the background information thereto. This is a summary only and may not contain all of the information that is important to you. A copy of the merger agreement is attached to this proxy statement as Annex A. You are urged to read this entire proxy statement, including the merger agreement, for a more complete understanding of the merger.

 

The Companies

 

EACO Corporation

 

The current operations of EACO, a Florida corporation, consist mainly of managing rental properties it owns and leases in Florida and California. EACO owns three restaurant properties in Florida, which it leases to third parties, and an income producing real estate property held for investment in California. EACO’s business previously consisted of operating restaurants in the State of Florida, but EACO sold all of its operating restaurants to Banner Buffets LLC in June 2005. Banner Buffets declared bankruptcy in September 2007, and this resulted in certain leased properties reverting back to EACO. Our principal executive offices are located at 1500 N. Lakeview Avenue, Anaheim, California 92807. Our telephone number is (714) 876-2490. See also the accompanying Transition Report on Form 10-K for the eight months ended August 31, 2009 for additional information about EACO.

 

Bisco Acquisition Corp.

 

Bisco Acquisition Corp. is a Delaware corporation and a wholly-owned subsidiary of EACO. It was incorporated in December 2009 and organized solely for the purpose of entering into the merger agreement with Bisco and completing the merger. Merger Sub has not conducted any business operations other than in connection with the transactions contemplated by the merger agreement, and its existence will cease upon the merger. Merger Sub’s principal executive offices are located at 1500 N. Lakeview Avenue, Anaheim, California 92807. Its telephone number is (714) 876-2490.

 

Bisco Industries, Inc.

 

Bisco Industries, Inc., an Illinois corporation, is a distributor of electronic components and fasteners serving a broad range of industries, including the aerospace, circuit board, communication, computer, fabrication, instrumentation, industrial equipment and marine industries. See “Information Regarding Bisco’s Business.” Bisco’s principal executive offices are located at 1500 N. Lakeview Avenue, Anaheim, California 92807. Its telephone number is (714) 693-2901.

 

The Merger

 

Background to the Merger

 

As described above, EACO sold its operating restaurants in June 2005 and its current operations primarily consist of managing several rental properties that it owns and leases. As a part of the continuous evaluation of the business and strategies to maximize shareholder value, the Board of Directors of EACO has periodically considered strategic transactions, including a transaction with Bisco.

In December 2008, Bisco submitted an offer letter to the Board of Directors of EACO, proposing that EACO merge with Bisco. On January 8, 2009, the Board held a special meeting to discuss Bisco’s offer and to meet with executives from Bisco. Glen Ceiley, Bisco’s sole shareholder and President who is also the Chairman and Chief Executive Officer of EACO, presented the merger offer to the Board. In order to properly consider Bisco’s offer, EACO established an independent Special Committee of the Board of Directors comprised of Jay Conzen and Stephen Catanzaro, independent directors with no financial interest in the transaction other than as a shareholder of EACO, to review and evaluate Bisco’s offer and negotiate and approve the terms and conditions of any merger. The Special Committee was authorized to engage its own financial and legal advisors, as the committee deemed necessary, to assist them in performing its tasks.

 

Subsequently, the Special Committee met with and interviewed a number of investment banking firms in order to hire a financial advisor that would assist the Special Committee in evaluating the offer and determining the terms of any merger. The Special Committee selected B. Riley & Co., LLC to, among other things, provide financial advisory services, prepare valuations of both EACO and Bisco and to render a fairness opinion with respect to the proposed transaction. EACO also retained Dorsey & Whitney LLP as its legal counsel to advise the Board with respect to its fiduciary duties and, if required, to represent EACO in connection with the merger transaction. The Special Committee also met with Bisco several times to discuss the proposed merger.

 

On April 23, 2009, B. Riley presented to the Special Committee its valuation analysis of EACO and Bisco, which were prepared by B. Riley after multiple meetings with the Special Committee and Bisco’s management. After a full discussion, the committee members unanimously voted to decline the offer by Bisco but agreed to continue discussions with Bisco regarding a possible transaction.

 

On May 15, 2009, Bisco submitted a revised merger proposal to the Board. The Special Committee met several times thereafter to consider the revised offer and to consult with its financial and legal advisors. On June 30, 2009, the Special Committee unanimously approved the form of a letter of intent to be submitted to Bisco, setting forth the terms and conditions of a merger transaction which would be acceptable to the Special Committee. The letter of intent was submitted to Bisco on July 6, 2009.

 

On July 29, 2009, the Board of Directors of EACO held a meeting with its financial and legal advisors and discussed the terms of the proposed merger. B. Riley presented its analyses and recommendations regarding the transaction and reviewed with the Board its conclusions with respect to the fairness of the transaction. After further discussion and consideration, including a review of the initial valuation and draft fairness opinion previously prepared by B. Riley, the Board approved the principal terms of the proposed transaction with Bisco, with Mr. Ceiley abstaining from the vote, the execution and delivery of the letter of intent, and the commencement of documentation and the taking of other actions necessary to advance the transaction.

 

On October 28, 2009, the Board discussed the form of merger agreement that had been prepared and distributed to the Board prior to the meeting and consulted with its legal counsel regarding its terms. The members of the Special Committee indicated that they had reviewed the form of agreement and was satisfied with such form. After a full discussion regarding the matter, the Board directed the Special Committee to meet with B. Riley to obtain an updated fairness opinion regarding the merger and its terms and to make a final recommendation to the Board regarding the merger and the related merger agreement.

 

On November 18, 2009, the Special Committee met with its financial and legal advisors to review the revised form of merger agreement and updated information regarding both companies. B. Riley presented the Special Committee with its updated analysis and recommendations. Thereafter, on November 24, 2009, at a meeting of the Board, the directors consulted with B. Riley and Dorsey & Whitney regarding the terms of the merger and the updated fairness opinion and valuation analysis of B. Riley. After a full discussion, the Board instructed B. Riley to update and finalize its fairness opinion and determined to continue the discussion at the next meeting to consider and finalize the terms for the completion of the merger.

 

On December 10, 2009, the Board held a meeting to consider the final terms of the merger and the merger agreement. At the meeting, the Board reviewed the analyses performed by B. Riley, which was

subsequently confirmed in writing that, as of December 10, 2009 and based on and subject to the factors and assumptions set forth in its written opinion, the consideration to be paid to Bisco’s shareholder in the merger was fair, from a financial point of view, to the shareholders of EACO. The full text of B. Riley’s written opinion is attached as Annex B to this proxy statement. See “— Opinion of Our Financial Advisor” below. After further deliberation, the Board, with the recommendation of the members of the Special Committee, unanimously approved the terms of the merger and concluded that the merger was fair to and in the best interests of the shareholders of EACO, and recommended that the shareholders vote all shares held by them in favor of the merger. The Board of Directors approved a 1-for-25 reverse stock split and requested that the merger agreement be revised to reflect the proposed reverse split.

 

On December 21, 2009, the Board of Directors approved the revised form of the merger agreement, which was executed by EACO, Merger Sub, Bisco and Mr. Ceiley on December 22, 2009.

 

Recommendation of the Board of Directors of EACO; Reasons for the Merger

 

Our Board of Directors unanimously recommends that you vote “FOR” the proposal to approve the merger agreement and the transactions contemplated thereby. At a special meeting on December 10, 2009, our Board of Directors, after careful consideration, including consultation with financial and legal advisors, determined that the merger was advisable and in the best interests of EACO’s shareholders and discussed and corrected the merger agreement. On December 21, 2009, the Board subsequently approved the final form of the merger agreement. In addition to approval by our Board of Directors, the merger and merger agreement were separately approved by the Special Committee of our Board of Directors, comprised solely of independent directors, who have no interest in the transaction other than as shareholders of EACO. In the course of reaching its decision over several board meetings, our Board of Directors and the Special Committee consulted with financial advisors and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others, the following:

 

 

 

The foregoing discussion of the information and factors considered by our Board of Directors is not intended to be exhaustive. In view of the variety of factors considered in connection with its evaluation of the merger and the merger agreement, our Board of Directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination and recommendation. In addition, individual directors may have given differing weights to different factors. After weighing all of the different factors, our Board of Directors unanimously determined to recommend that our shareholders vote in favor of the merger and the merger agreement.

 

Opinion of Our Financial Advisor

 

We engaged B. Riley as our financial advisor in connection with the proposed merger. We selected B. Riley based on B. Riley’s qualifications, experience and reputation. B. Riley is a leading investment banking firm which provides mergers and acquisitions, capital formation and financial advisory services to middle market and emerging growth companies and is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions and other types of transactions. We have agreed to pay B. Riley a fee, which was negotiated by EACO and B. Riley, for its services in connection with the merger, which fee was not dependent upon the consummation of the merger.

 

On December 10, 2009, B. Riley delivered its opinion, which was subsequently confirmed in writing, to our Board of Directors that, as of such date and based upon and subject to the assumptions and qualifications set forth in the opinion, the consideration to be issued to the shareholder of Bisco in connection with the merger was fair, from a financial point of view, to the holders of our common stock. The full text of the written opinion of B. Riley issued on December 10, 2009, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement. You are encouraged to read B. Riley’s opinion carefully and in its entirety.

 

In arriving at its opinion, B. Riley, among other things:

 

 

In preparing its opinion to our Board of Directors, B. Riley performed a variety of analyses, including the financial analyses described below. The summary of the analyses described below is not a complete description of the analyses underlying B. Riley’s opinion. The preparation of a fairness opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytic methods employed and the adaptation and application of these methods to the

unique facts and circumstances presented. As a consequence, neither a fairness opinion nor its underlying analyses are readily susceptible to partial analysis or summary description. B. Riley arrived at its opinion based on the results of all analyses undertaken by it and assessed such analyses as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, analytic method or factor. Accordingly, B. Riley believes that its analyses must be considered as a whole and that selecting portions of its analyses, analytic methods and factors, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying its analyses and opinion.

 

Bisco Valuation

 

Selected Precedent Transactions Analysis

 

B. Riley performed a precedent transactions analysis as part of the evaluation of the merger of EACO and Bisco. This analysis is based on transaction values expressed as multiples of a company’s revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for a latest twelve-month (“LTM”) period. B. Riley selected these particular transactions based upon the relative size of each transaction in comparison to Bisco, the timing of when each transaction occurred, the relative financial condition of each target company and whether the target served similar industry segments and markets to Bisco. Then using publicly available information, B. Riley reviewed and analyzed certain financial and operating data relating to the selected transactions.

 

B. Riley did not prepare a “Selected Precedent Transaction Analysis” for EACO because B. Riley determined that EACO cannot be fairly compared to any similar companies.

 

Comparable Public Company Analysis

 

B. Riley performed a comparable public companies analysis as part of its evaluation of Bisco based on various financial multiples of selected comparable public companies in comparable industries. B. Riley selected the comparable companies based upon the relative size of each company in relationship to Bisco, the relative financial conditions and strength of each company and the industry segment and markets served by each public company in relationship to Bisco.

 

In performing this analysis, B. Riley reviewed certain financial information relating to Bisco and compared such information to the corresponding financial information of other publicly traded companies which B. Riley deemed to be generally comparable. B. Riley used the ratio of enterprise value to revenue and enterprise value to EBITDA as of November 2, 2009 for the selected comparable public companies to estimate the fair value of Bisco.

 

EACO Valuation

 

In B. Riley’s valuation of EACO, it analyzed EACO’s balance sheet due to the fact that EACO has no significant operations and primarily acts as a holder of specific real estate assets. In analyzing the balance sheet, B. Riley valued EACO-owned properties and other assets and liabilities. The property valuation included an evaluation of comparable transactions of similar properties and a valuation based on the income generated by the property for recent third-party transactions. In addition, B. Riley reviewed and relied on appraisals prepared by a third party on the individual properties. Other assets included cash and certificates of deposits which were valued at cost. EACO’s liabilities included notes to a related party, workers compensation liability, long-term debt on the properties, and obligations under capital leases. The obligations associated with these liabilities were valued at an estimated market value based upon assumptions outlined by management. The potential benefit of EACO’s net operating losses (NOLs) was valued based on an applicable tax rate and appropriate discount. The value of the NOLs is fully applicable if Bisco merges with EACO due to the common ownership. Based upon the advice given to EACO by its tax advisors, no other entity may fully utilize the benefits of the NOLs.

Scope of Review and Analysis

 

In connection with its review, B. Riley did not independently verify any of the information provided regarding EACO and Bisco and assumed and relied on such information being complete and accurate in all material respects. With respect to financial forecasts, B. Riley assumed that such forecasts were reasonably prepared on bases reflecting the best currently available estimates and judgments of the respective management as to the future financial performance of the applicable company. B. Riley did not make any physical inspection or independent appraisal of any of the properties or assets of either company.

 

In addition, B. Riley was not requested to make, and did not make, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of either company. B. Riley’s opinion addressed only the fairness, from a financial point of view, to the holders of our common stock of the consideration to be paid to Bisco’s shareholder in the merger and did not address any other aspect or implication of the merger, or any other agreement, arrangement or understanding entered into in connection with the merger or otherwise. B. Riley’s opinion was necessarily based upon information made available to it as of the date of the opinion and financial, economic, market and other conditions as they existed and could be evaluated on such date. B. Riley’s opinion did not address the merits of the merger as compared to alternative transactions or strategies that may be available to EACO nor did it address EACO’s underlying decision to proceed with the merger. B. Riley was not requested to, and did not, solicit third party indications of interest in acquiring all or any part of EACO.

 

B. Riley’s opinion and analyses were provided to our Board of Directors in connection with its consideration of the proposed merger and were among many factors considered by our Board of Directors in evaluating the proposed merger. Neither B. Riley’s opinion nor its analyses were determinative of the merger consideration or of the views of our Board of Directors or our management with respect to the merger or the merger consideration. B. Riley’s opinion does not constitute advice or a recommendation to any holder of our common stock as to how such holder should vote or act on any matter relating to the proposed merger or otherwise.

 

Interests of Directors and Executive Officers in the Merger

 

Certain members of EACO’s Board of Directors have interests in the merger and relationships with entities involved in the merger, including those described below. These interests may be different from, or in conflict with, your interests as EACO shareholders. The members of our Board of Directors were aware of these additional interests, and considered them, when they approved the merger agreement.

 

Glen Ceiley, Bisco’s sole shareholder, is EACO’s Chairman of the Board, Chief Executive Officer and controlling shareholder. Under the terms of the merger agreement, if the merger is completed, Mr. Ceiley will receive 117,641,742 shares of our common stock (4,705,670 shares after giving effect to the proposed 1-for-25 reverse stock split described in Proposal 2 if such proposal is approved by the shareholders) in exchange for his shares of Bisco capital stock and, when those shares are added to the shares of common stock he currently holds, he will own 98.9% of our outstanding common stock. As of November 30, 2009, 3,910,264 shares of our common stock were outstanding, of which Mr. Ceiley owns, directly or indirectly, 2,563,039 shares, or 65.5% of the outstanding common stock. After the merger, 121,552,006 shares of our common stock (approximately 4,862,080 shares on a post-reverse split basis) will be outstanding, of which Mr. Ceiley will own 120,204,781 shares of common stock (approximately 4,808,191 shares on a post reverse split basis), or 98.9% of the outstanding common stock. Mr. Ceiley also owns 36,000 shares of EACO’s non-voting Series A Cumulative Convertible Preferred Stock, which will remain outstanding after the merger. See also “Security Ownership of Certain Beneficial Owners and Management.”

 

In addition, under a management agreement with EACO, Bisco handles the day to day operations of EACO and provides administration and accounting services through a steering committee. The steering committee consists of Mr. Ceiley and certain senior executives of Bisco, including William L. Means, the Vice President of Information Technology of Bisco, who also serves as a director of EACO.

Appraisal/Dissenters’ Rights

 

Appraisal rights under Florida law or dissenters’ rights under California law may be available to our shareholders with respect to the merger if they fully comply with all applicable statutory requirements. Although EACO is a Florida corporation, pursuant to Section 2115 of the California General Corporation Law, we may be subject to California dissenters’ rights laws, to the exclusion of the Florida appraisal remedy. Failure to follow the steps and procedures required by Sections 607.1301 through 607.1333 of the FBCA for perfecting appraisal rights, or by Chapter 13 of the CGCL for perfecting dissenters’ rights, may result in the loss, termination or waiver of such rights. In view of the complexity of these provisions of Florida and California law and because it cannot be known with certainty whether a court would apply Florida and California law to determine the rights available to dissenting shareholders in the merger, any shareholder who is considering exercising appraisal or dissenters’ rights should consult his or her legal advisor. See “Appraisal and Dissenter’s Rights.” A copy of Sections 607.1301 through 607.1333 of the FBCA and a copy of Sections 1300 through 1304 of the CGCL are attached as Annex C-1 and Annex C-2, respectively.

 

ANY EACO SHAREHOLDER WHO WISHES TO EXERCISE APPRAISAL OR DISSENTERS’ RIGHTS OR WHO WISHES TO PRESERVE HIS OR HER RIGHT TO DO SO SHOULD REVIEW ANNEX C-1 AND ANNEX C-2 CAREFULLY AND SHOULD CONSULT HIS OR HER LEGAL ADVISOR, SINCE FAILURE TO TIMELY COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN THE LOSS OF SUCH RIGHTS.

 

Certain Material U.S. Federal Income Tax Consequences of the Merger

 

The merger is not expected to be a taxable transaction to our shareholders for U.S. federal income tax purposes. However, a holder of our common stock who exercises dissenters’ and/or appraisal rights with respect to their shares and receives payment for such share in cash will recognize gain or loss for U.S. federal income tax purposes measured by the difference between the holder’s basis in such share and the amount of cash received.

 

Tax matters can be complicated, and the tax consequences of the merger to you will depend on the facts of your own situation. We strongly recommend that you consult your own tax advisor to fully understand the tax consequences of the merger to you and your exercise of appraisal or dissenters’ rights, if you choose to exercise such rights.

 

The Merger Agreement

 

The following summary describes certain material provisions of the merger agreement. This summary is not complete and is qualified in its entirety by reference to the complete text of the merger agreement, which is attached to this proxy statement as Annex A and incorporated into this proxy statement by reference. We urge you to read carefully the merger agreement in its entirety because this summary may not contain all of the information about the merger agreement that is important to you.

 

The representations and warranties described below and included in the merger agreement were made as of specific dates and may be subject to important qualifications, limitations and supplemental information agreed to by us and Bisco in connection with negotiating the terms of the merger agreement. In addition, the representations and warranties may have been included in the merger agreement for the purpose of allocating risk between the companies rather than to establish matters as facts. The merger agreement is described in this proxy, and included as Annex A hereto, only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding either company or their respective businesses. Accordingly, the representations and warranties and other provisions of the merger agreement should not be read alone, and you should read the information provided elsewhere in this document and in the documents incorporated by reference into this document for information regarding the companies and their respective businesses.

Effective Time of the Merger

 

The merger will become effective upon the filing of an articles of merger with the Secretary of State of the State of Illinois or at such later time as is agreed upon by us and Bisco and specified in such articles of merger. The filing of the articles of merger will occur at the closing, which will take place on a date agreed upon by the parties after satisfaction or waiver of the conditions to the closing of the merger set forth in the merger agreement and described in this proxy statement. We currently anticipate the merger to be completed by the end of February 2010.

 

The Merger Structure and Consideration

 

In the proposed transaction, Merger Sub, which is a wholly-owned subsidiary of EACO, will merge with and into Bisco, with Bisco surviving the merger and becoming a wholly-owned subsidiary of EACO. Upon consummation of the merger, the outstanding shares of Bisco will be converted into the right to receive an aggregate of 117,641,742 shares of EACO common stock (4,705,670 shares after giving effect to the proposed 1-for-25 reverse stock split described in Proposal 2 if such proposal is approved by the shareholders), and all outstanding shares of the Merger Sub will be converted into shares of Bisco. The officers and directors of Bisco will continue in such positions after the merger.

 

Representations and Warranties

 

Subject to certain exceptions, EACO and Merger Sub made certain representations and warranties to Bisco relating to, among other things:

 

 

Subject to certain exceptions, Mr. Ceiley made certain representations and warranties to us relating to, among other things:

 

 

Subject to certain exceptions, Bisco made a number of representations and warranties to us relating to, among other things:

 

 

 

Conditions to the Closing of the Merger

 

Each party’s obligation to effect the merger is subject to the satisfaction or, to the extent permitted, waiver of various conditions, which include the following:

 

 

Neither EACO and Merger Sub on the one hand and Bisco on the other will be obligated to effect the merger unless, among other things, the following conditions are satisfied or waived:

 

 

Termination of the Merger Agreement

 

The merger agreement may be terminated under certain circumstances, including:

 

 

Even if the shareholders approve the merger and the merger agreement, at any time before the merger is effective, the Board of Directors may abandon the transaction and terminate the merger agreement, at its sole discretion, subject to the contractual rights of other parties to the merger agreement.

 

Shareholder Approval

 

In accordance with our Current Articles, the affirmative vote of the holders of at least 75% of our common stock outstanding as of the record date will be required for approval of the merger with Bisco and the merger agreement.

 

Recommendation of the Board of Directors

 

The Board of Directors recommends that the shareholders vote “FOR” the approval of the merger with Bisco and the merger agreement.

PROPOSAL 2:

 

APPROVE A REVERSE SPLIT AND

AMENDMENT OF THE ARTICLES OF INCORPORATION

 

The Board of Directors has approved a proposed amendment to EACO’s articles of incorporation to effect a 1-for-25 reverse stock split of our issued and outstanding common stock (the “Reverse Split”). If the Reverse Split is approved by the shareholders, we expect to implement the Reverse Split in connection with, or immediately prior to, effecting the merger with Bisco. You are being asked to approve the Reverse Split and the amendment of the articles of incorporation to effect such Reverse Split.

 

Reasons for the Reverse Split

 

Our Board of Directors believes that the Reverse Split is desirable for a number of reasons. First, the Board expects that a reverse stock split will increase the market price of the common stock. Such an increase may also enable EACO to ultimately achieve the initial listing requirements to be listed on a national stock exchange. Second, Board of Directors believes that the increased market price of our common stock expected as a result of implementing a reverse stock split will improve the marketability and liquidity of our common stock and will encourage interest and trading in our common stock. Because of the trading volatility often associated with low-priced stocks, many brokerage houses and institutional investors have internal policies and practices that either prohibit them from investing in low-priced stocks or tend to discourage individual brokers from recommending low-priced stocks to their customers. Some of those policies and practices may function to make the processing of trades in low-priced stocks economically unattractive to brokers.

 

The Reverse Split is also necessary to effect the proposed merger with Bisco for which we are seeking shareholder approval in Proposal 1. The merger requires the issuance of 117,641,742 shares of common stock on a pre-Reverse Split basis. We currently do not have enough shares of common stock authorized to consummate the merger. Effecting the Reverse Split will reduce the number of shares of our common stock outstanding as well as the number of shares of our common stock which must be issued in the merger (4,705,670 shares after giving effect to the proposed Reverse Split if such proposal is approved by the shareholders), and allow us to consummate the merger without increasing the number of shares authorized for issuance under our articles of incorporation.

 

It should be noted, however, notwithstanding our current expectations, there can be no assurance that the Reverse Split will have the desired effects of increasing the market price of our common stock or improving its marketability and liquidity. There also can be no assurance that the price per share of the common stock immediately after the Reverse Split will be sustained for any period of time following the Reverse Split. The liquidity of our common stock may also be harmed by the proposed Reverse Split given the reduced number of shares that would be outstanding after the Reverse Split or the reduced number of shares held by non-affiliates after the merger.

 

Principal Effects of Reverse Split

 

After the effective date of the Reverse Split, each shareholder will own a reduced number of shares of our common stock. However, the proposed Reverse Split will affect all of our shareholders uniformly and will not affect any shareholder’s percentage ownership interests in EACO, except to the extent that the Reverse Split results in any of our shareholders owning a fractional share as described below. For example, a holder of 2% of the voting power of the outstanding shares of our common stock immediately prior to the Reverse Split would continue to hold 2% of the voting power of the outstanding shares of common stock immediately after the Reverse Split. The number of shareholders of record will not be affected by the proposed Reverse Split (except to the extent that any shareholder holds only a fractional share interest and receives cash for such interest after the proposed Reverse Split).

 

Upon effecting the Reverse Split, each outstanding share of common stock will automatically be converted into four one-hundredth (0.04) of a share of common stock. With respect to any shareholder, the total number of shares of common stock held by such shareholder will be automatically converted into a number of shares of common stock obtained by multiplying 0.04 by the number of shares held by such

shareholder immediately before the effective time of the Reverse Split. No fractional shares will be issued in connection with the Reverse Split. As such, if the foregoing calculation does not result in a whole number for any shareholder, that shareholder will not receive a fractional share but will instead receive a cash payment equal to the fair market value (as determined in good faith by the Board) of the fractional share that such shareholder otherwise would have been entitled to receive.

 

Based on the number of shares outstanding on the record date for the Annual Meeting, the number of outstanding shares of our common stock will be reduced from 3,910,264 shares to approximately 156,410 shares, and the total number of shares of our common stock into which the outstanding shares of Series A Cumulative Convertible Preferred Stock will convert will be reduced from 1,000,000 shares to 40,000 shares (not including any accrued dividends on such shares which may be converted). Similarly, the aggregate number of shares of common stock reserved for issuance under EACO’s 2002 Long-Term Incentive Plan would decrease from 200,000 shares to 8,000 shares.

 

The Reverse Split will not affect the number or par value of the authorized shares of common stock, which will remain at 8,000,000 shares of common stock, $0.01 par value per share. As a result, another effect of the Reverse Split will be to effectively increase the proportion of authorized shares which are unissued relative to those which are issued. This could result in EACO being able to issue more shares without further shareholder approval. Other than the shares of our common stock which will be issued pursuant to the merger described in Proposal 1 and shares which may be issued under EACO’s equity plans, EACO currently does not have any plans to issue any new shares of common stock as a result of the Reverse Split.

 

In addition, the Reverse Split will not affect the number or par value of the authorized shares of EACO’s preferred stock, which will remain at 10,000,000 shares of preferred stock, $0.01 par value per share, of which 40,000 shares are designated Series A Cumulative Convertible Preferred Stock. However, the Reverse Split will increase the conversion price of the outstanding Series A Cumulative Convertible Preferred Stock from $0.90 to $22.50, and reduce the number of shares of common stock into which the outstanding shares of preferred stock may be converted.

 

If the proposed Reverse Split is implemented, it will increase the number of shareholders of EACO who own “odd lots” of less than 100 shares of EACO common stock. Brokerage commission and other costs of transactions in odd lots are generally higher than the costs of transactions of more than 100 shares of common stock. Accordingly, the Reverse Split may not achieve the desired results of increasing marketability and liquidity of EACO common stock that have been outlined above.

 

EACO will obtain a new CUSIP number for the common stock effective at the time of the Reverse Split. Following the effectiveness of the Reverse Split, EACO will provide each record holder of common stock information to enable such holder to obtain replacement stock certificates.

 

Implementation of the Reverse Split

 

The Reverse Split will become effective upon the filing of an articles of amendment to the articles of incorporation or an amended and restated articles of incorporation with the Secretary of State of Florida (the “Effective Time”), which adds the following paragraph, or a substantial equivalent, to the end of Article IV(A) of EACO’s articles of incorporation:

 

“Upon the Effective Time, each outstanding share of Common Stock shall be automatically converted into four one-hundredth (0.04) of a share of Common Stock. No fractional shares shall be issued upon such automatic conversion of the Common Stock. If any fractional share of Common Stock would be delivered upon such conversion to any shareholder, the Corporation shall pay to the shareholder entitled to such fractional share an amount in cash equal to the fair market value of such fractional share as of the Effective Time, as determined in good faith by the Board of Directors of the Corporation.”

 

If Proposal 3 is approved by the shareholders, and EACO determines to proceed with the Reverse Split, EACO will use its discretion to determine when to file the articles of amendment to the articles of incorporation (or an amended and restated articles of incorporation articles of incorporation) to effect such Reverse Split. We currently expect to effect the Reverse Split in connection with the consummation of the

merger with Bisco. Notwithstanding approval of the Reverse Stock Split by the shareholders, our Board may, in its sole discretion, abandon the proposed Reverse Split prior to the effectiveness of any filing with the Secretary of State of the State of Florida and determine not to effect the Reverse Split.

 

Exchange of Certificates

 

After the Reverse Split is effected, shareholders will be furnished the necessary materials and instructions to exchange any certificated shares representing shares of common stock held prior to the Reverse Split for new certificates representing shares of common stock issued as a result of the Reverse Split. No scrip or fractional shares of common stock will be issued to any shareholder in connection with the Reverse Split. In lieu of issuance of any fractional shares that would otherwise result from the Reverse Split, EACO will pay in cash the fair market value of such fractional share of common stock.

 

Federal Income Tax Consequences of the Reverse Split

 

The following is a summary of certain material federal income tax consequences of the Reverse Split, does not purport to be a complete discussion of all of the possible federal income tax consequences of the Reverse Split and is included for general information only. Further, it does not address any state, local or foreign income or other tax consequences. Also, it does not address the tax consequences to holders that are subject to special tax rules, such as banks, insurance companies, regulated investment companies, personal holding companies, foreign entities, nonresident alien individuals, broker-dealers and tax-exempt entities. The discussion is based on the provisions of the U.S. federal income tax law as of the date hereof, which is subject to change retroactively as well as prospectively. This summary also assumes that the shares of common stock were held before the Reverse Split, and after the Reverse Split will be held, as a “capital asset,” as defined in the Internal Revenue Code of 1986, as amended (i.e., generally, property held for investment). The tax treatment of a shareholder may vary depending upon the particular facts and circumstances of such shareholder. Each shareholder is urged to consult with such shareholder’s own tax advisor with respect to the tax consequences of the Reverse Split.

 

Other than the cash payments for any fractional shares, no gain or loss should be recognized by a shareholder as a direct consequence of the Reverse Split. The aggregate tax basis of the shares of common stock held by the shareholder after the Reverse Split will be the same as the shareholder’s aggregate tax basis in the shares prior to the Reverse Split (excluding any portion of the holder’s basis allocated to fractional shares), and the holding period of the shares on a post-Reverse Split basis will include the holding period of the shares prior to the Reverse Split. In general, shareholders who receive cash in exchange for their fractional share interests as a result of the Reverse Split will recognize gain or loss based on their adjusted basis in the fractional share interests redeemed.

 

Accounting Consequences

 

The par value per share of EACO common stock would remain unchanged at $0.01 per share after the Reverse Split. As a result, on the effective date of the Reverse Split, the stated capital on EACO’s balance sheet attributable to the common stock will be reduced proportionally, based on the 1-for-25 exchange ratio of the Reverse Split, from its present amount, and the additional paid-in capital account shall be credited with the amount by which the stated capital is reduced. The per share common stock net income or loss and net book value will be increased because there will be fewer shares of our common stock outstanding. EACO does not anticipate that any other accounting consequences would arise as a result of the Reverse Split.

 

Shareholder Approval

 

The affirmative vote of the holders of a majority of our outstanding common stock is required to approve the Reverse Split and the related amendment of the articles of incorporation to implement such Reverse Split.

 

Recommendation of the Board of Directors

 

The Board of Directors recommends that the shareholders vote “FOR” the Reverse Split and the amendment of EACO’s articles of incorporation to implement such Reverse Split.

PROPOSAL 3:

 

AMENDMENT OF THE ARTICLES OF INCORPORATION TO

REMOVE 75% APPROVAL REQUIREMENT FOR CERTAIN TRANSACTIONS

 

You are being asked to approve the amendment of EACO’s articles of incorporation to remove the 75% approval requirement for certain transactions with affiliated corporations. This amendment is specifically required by the terms of the merger agreement discussed in Proposal 1.

 

Article V of the Current Articles requires that holders of at least 75% of the outstanding shares entitled to vote approve certain transactions with a “related corporation.” This provision defines a related corporation as a corporation and its affiliates that individually or in the aggregate are directly or indirectly the beneficial owner of more than 10% of the total voting power of EACO’s outstanding shares. The transactions which may not be consummated without 75% approval (defined as “Business Combinations” in Article V) include mergers or consolidations with the related corporation, sales or exchanges of all or a substantial part of EACO’s assets with the related corporation, or the issuance of EACO’s securities in exchange for any properties, assets or securities of the related corporation.

 

The 75% vote is not required under Article V if certain conditions were met. These conditions include that (a) the transaction was approved by a 75% vote of the directors who were directors before the acquisition of ownership by the related corporation and (b) all of the following conditions are met: (i) each shareholder receives consideration in the transaction that is no less than the highest price paid by the related corporation determined as set forth in this provision, (ii) EACO has not failed to pay or changed the rate of dividends or provided any loans, guarantees, or financial or tax advantages to the related corporation after the related corporation became a more than 10% owner, and (iii) EACO provides a proxy or information statement to all shareholders describing the proposed transaction with the related corporation.

 

The Board of Directors recommends the deletion of Article V from the Current Articles. The Board of Directors believes that elimination of such provision would provide additional flexibility to EACO in considering different alternatives for EACO. Complying with the provision also adds significant costs and expenses for EACO without providing a corresponding additional level of protection for shareholders.

 

Interests of Directors in the Proposals Related to the Amendment of the Articles of Incorporation.

 

Mr. Ceiley and his affiliates, including Bisco, are more than 10% shareholders of EACO and thus, may be defined as a “related corporation” under Article V of the Current Articles. As a result, Mr. Ceiley, Bisco and their affiliates have a personal interest in the adoption of this proposal. The proposed merger with Bisco described in Proposal 1 would constitute a Business Combination described in Article V; however, we are currently seeking shareholder approval of such transaction in accordance with Article V as it currently exists.

 

Shareholder Approval

 

The affirmative vote of the holders of at least 75% of our common stock outstanding as of the record date is being sought for the amendment of the articles of incorporation to delete Article V, which imposes a 75% shareholder approval requirement for certain transactions with affiliated corporations.

 

Recommendation of the Board of Directors

 

The Board of Directors recommends that the shareholders vote “FOR” the amendment of the articles of incorporation to delete Article V, which imposes a 75% shareholder approval requirement for certain transactions with affiliated corporations.

PROPOSAL 4:

 

ELECTION OF DIRECTORS

 

Four directors are to be elected at the Annual Meeting. All directors are elected annually and hold office until the next annual meeting of shareholders and until their successors are duly elected and qualified. Our Board of Directors selected and approved the following persons as nominees for election at the Annual Meeting to serve until the next annual meeting of shareholders, or until their successors are duly elected and qualified or until their earlier resignation, removal or death: Stephen Catanzaro, Glen F. Ceiley, Jay Conzen and William L. Means.

 

Each nominee for election is currently a member of our Board of Directors and has agreed to serve if elected. We have no reason to believe that any of the nominees will be unavailable to serve. In the event any of the nominees named herein is unable to serve or declines to serve at the time of the Annual Meeting, the persons named in the enclosed proxy will exercise discretionary authority to vote for substitutes. Unless otherwise instructed, the proxy holders will vote the proxies received by them FOR the nominees named above.

 

Shareholder Approval

 

The four candidates receiving the highest number of affirmative votes, present in person or represented by proxies and entitled to vote at the Annual Meeting, will be elected as our directors. However, if cumulative voting is in effect, the proxy holders will have the right to cumulate and allocate votes among those nominees standing for election as such proxy holders in their discretion elect.

 

Recommendation of the Board of Directors

 

Our Board of Directors recommends a vote “FOR” each of the four director nominees listed above.

 

Directors and Nominees

 

The following table sets forth certain information, as of November 30, 2009, concerning our directors and director nominees.

 

 

 

 

Stephen Catanzaro has served as the Controller of Allied Business Schools, Inc., a company that provides home study courses and distance education, since April 2004. Prior to that, Mr. Catanzaro was the Chief Financial Officer of V&M Restoration, Inc., a building restoration company, from September 2002 to February 2004, and the Chief Financial Officer of Bisco Industries, Inc., an international distributor of electronic components, from September 1995 to March 2002. Mr. Catanzaro has served as a director of EACO since 1999.

 

Glen F. Ceiley has served as EACO’s Chief Executive Officer and Chairman of the Board since 1999. Mr. Ceiley is also the Chief Executive Officer, President and Chairman of the Board of Bisco, and has held those positions since he founded Bisco in 1973. In addition, Mr. Ceiley is a former director of Data I/O Corporation, a publicly-held company that provides programming systems for electronic device manufacturers.

Jay Conzen has served as the President of Old Fashioned Kitchen, Inc., a national food distributor, since April 2003. Prior to that, from October 1992 to April 2003, Mr. Conzen was the principal of Jay Conzen Investments, an investment advisor. Mr. Conzen also served as a consultant to EACO from August 1999 until January 2001 and from October 2001 to April 2003.

 

William L. Means has served as the Vice President of Information Technology of Bisco since 2001. Prior to that, from 1997 to 2001, Mr. Means was Vice President of Corporate Development of Bisco.

 

Family Relationships; Arrangements for Selection

 

There are no family relationships among any of our directors, director nominees or executive officers, and there are no arrangements or understandings between any director nominee and any other person pursuant to which the nominee was selected.

PROPOSAL 5:

 

RATIFICATION OF SELECTION OF

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

The accounting firm of Squar, Milner, Peterson, Miranda & Williamson, LLP (“Squar Milner”) was engaged to serve as our independent registered public accounting firm for the eight month period ended August 31, 2009. The Audit Committee of the Board of Directors has selected that firm to continue in this capacity for the fiscal year ending August 31, 2010. We are asking our shareholders to ratify the selection by the Audit Committee of Squar Milner as our independent registered public accounting firm to audit our consolidated financial statements for the fiscal year ending August 31, 2010 and to perform other appropriate services. Shareholder ratification of the selection of Squar Milner as our independent registered public accounting firm is not required by our bylaws or otherwise. In the event that the shareholders fail to ratify the appointment, the Audit Committee will reconsider its selection. Even if the selection is ratified, the Audit Committee, in its sole discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the committee feels that such a change would be in the best interests of us and our shareholders.

 

A representative of Squar Milner is expected to be present at the Annual Meeting to respond to shareholders’ questions, and that representative will have the opportunity to make a brief presentation to the shareholders if he or she so desires and will be available to respond to appropriate questions from shareholders.

 

Shareholder Approval

 

The affirmative vote of the holders of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for ratification of the selection of Squar Milner as our independent registered public accounting firm for the fiscal year ending August 31, 2010.

 

Recommendation of the Board of Directors

 

The Board of Directors recommends that the shareholders vote “FOR” the ratification of the selection of Squar Milner as our independent registered public accounting firm for the fiscal year ending August 31, 2010.

PROPOSAL 6:

 

ADJOURNMENT OF MEETING

 

Although it is not currently expected, if there are not sufficient votes to approve Proposals 1, 2 and 3, we may propose to adjourn the Annual Meeting for a period of not more than 30 days for the purpose of soliciting additional proxies to approve such proposals. We currently do not intend to propose adjournment at the Annual Meeting if there are sufficient votes to approve Proposals 1, 2 and 3. If our shareholders approve the adjournment proposal, we could adjourn the meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from shareholders that have previously returned properly executed proxies or authorized a proxy by telephone or via the Internet.

 

Shareholder Approval

 

The affirmative vote of the holders of a majority of the common stock, present or represented by proxy and entitled to vote at the Annual Meeting, will be required for approval of the adjournment.

 

Recommendation of the Board of Directors

 

The Board of Directors recommends that the shareholders vote “FOR” the adjournment of the Annual Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposals 1, 2 and 3.

 

Principal Accountant Fees

 

Audit Fees.  The aggregate fees billed by Squar Milner for the eight months ended August 31, 2009 and the year ended December 31, 2008 for professional services rendered for the audit of EACO’s annual consolidated financial statements and for the reviews of the unaudited condensed financial statements included in EACO’s quarterly reports on Form 10-Q for those periods the quarters ended during the eight month period ended August 31, 2009 and the first three quarters of the year ended December 31, 2008 were $109,500 and $101,500, respectively.

 

Audit-Related Fees.  EACO was billed no audit-related fees by Squar Milner for the eight months ended August 31, 2009 and 2008.

 

Tax Fees.  No fees were billed by Squar Milner for the eight months ended August 31, 2009 and 2008 for tax compliance, advice or planning services.

 

All Other Fees.  There were no other fees billed by Squar Milner for the eight months ended August 31, 2009 and 2008 for services rendered to EACO, other than the services described above.

 

Determination of Independence

 

The Audit Committee considers whether the provision by its independent registered public accounting firm of any non-audit related services is compatible with maintaining the independence of such firm. Squar Milner did not provide any non-audit related services for the eight months ended August 31, 2009 and for the year ended December 31, 2008.

 

Audit Committee Pre-Approval Policies and Procedures

 

The Audit Committee is required to pre-approve all auditing services and permissible non-audit services, including related fees and terms, to be performed for EACO by its independent registered public accounting firm, subject to the de minimus exceptions for non-audit services described under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are approved by the Audit Committee prior to the

completion of the audit. For the eight months ended August 31, 2009, the Audit Committee pre-approved all services performed for EACO by Squar Milner.

 

The following is the report of the Audit Committee with respect to our audited consolidated financial statements for the eight months ended August 31, 2009 included in our Transition Report on Form 10-K for that period.

 

Review with Management

 

The Audit Committee has reviewed and discussed the audited consolidated financial statements with our management.

 

Review and Discussions with Independent Registered Public Accounting Firm

 

The Audit Committee has discussed with our independent registered public accounting firm, Squar, Milner, Peterson, Miranda & Williamson, LLP, the matters required to be discussed by Statement of Auditing Standards (“SAS”) No. 60 (entitled Communication of Internal Control Related Matters Noted in an Audit) and SAS No. 61 (entitled Communication with Audit Committees) as amended, which includes, among other items, matters related to the conduct of the audit of our consolidated financial statements.

 

The Audit Committee has received the written disclosures and the letter from Squar, Milner, Peterson, Miranda & Williamson, LLP required by PCAOB Rule 3520, and has discussed with Squar, Milner, Peterson, Miranda & Williamson, LLP the independence of Squar, Milner, Peterson, Miranda & Williamson, LLP from EACO.

 

Conclusion

 

Based on the review and discussions referred to above in this report, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in our Transition Report on Form 10-K for the eight months ended August 31, 2009 for filing with the SEC.

 

Submitted by the Audit Committee

of the Board of Directors:

 

Jay Conzen (Chairman)

Stephen Catanzaro

William L. Means

 

The information contained under the caption “Audit Committee Report” above and under the caption “Executive Compensation Committee Report,” appearing later in this proxy statement, shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor will such information be incorporated by reference into any future SEC filing except to the extent that EACO specifically incorporates it by reference into such filing.

 

Code of Ethics and Business Conduct

 

EACO has adopted a financial code of ethics applicable to EACO’s senior executive and financial officers. You may receive, without charge, a copy of the Financial Code of Ethical Conduct by contacting our Corporate Secretary at 1500 N. Lakeview Avenue, Anaheim, California 92807.

Director Independence.

 

EACO’s Board consists of the following directors: Stephen Catanzaro, Glen Ceiley, Jay Conzen and William L. Means. The Board has determined that Messrs. Catanzaro and Conzen each satisfies the requirements for “independence” under the NASDAQ Stock Market’s Marketplace Rules. In addition to such rules, the Board considered transactions and relationships between each director (and his immediate family) and EACO to determine whether any such relationships or transactions were inconsistent with a determination that the director is independent. Based on such considerations, the Board determined that Messrs. Ceiley and Means are not independent, as they are employees of Bisco and members of Bisco’s steering committee. Bisco’s steering committee handles the day to day operations of EACO, and Messrs. Ceiley and Means are intimately involved with decision-making that directly affects the financial statements of EACO. Bisco is an affiliate of EACO.

 

Board Meetings and Committees

 

In accordance with the Bylaws of EACO, which empower the Board to appoint such committees as it deems necessary and appropriate, the Board has established an Audit Committee and an Executive Compensation Committee. During the eight months ended August 31, 2009 (“fiscal 2009”), the Board of Directors and the various committees of the Board held the following number of meetings: Board of Directors — three; Audit Committee — three; and Executive Compensation Committee — one meeting. During fiscal 2009, no director attended fewer than 75% of the aggregate of the total number of meetings of the Board of Directors and the total number of meetings of any committees of the Board held while he was serving on the Board or such committee.

 

Audit Committee

 

The Audit Committee’s basic functions are to assist the Board in discharging its fiduciary responsibilities to the shareholders and the investment community in the preservation of the integrity of the financial information published by EACO, to maintain free and open means of communication between EACO’s directors, independent auditors and financial management, and to ensure the independence of the independent auditors. Currently, the members of the Audit Committee are Messrs. Catanzaro, Conzen (Chairman) and Means. Messrs. Catanzaro and Conzen are “independent” as defined by the NASDAQ Stock Market’s Marketplace Rules. Mr. Means is not “independent,” as he is employed by Bisco, and is a member of Bisco’s steering committee which handles the day to day operations of EACO. Also, Mr. Means is intimately involved with decision-making that directly affects the financial statements of EACO. The Board has adopted a written charter for the Audit Committee which is attached as Annex E to this proxy statement. The Audit Committee charter is not available on EACO’s website.

 

EACO does not currently have an audit committee financial expert. EACO believes that the members of the Board have demonstrated that they are capable of understanding generally accepted accounting principles and financial statements, analyzing and evaluating EACO’s financial statements, and understanding internal controls and procedures for financial reporting. In addition, EACO believes that retaining a director who would qualify as an audit committee financial expert would be costly and burdensome and is not warranted under the circumstances.

 

Executive Compensation Committee

 

The Executive Compensation Committee administers EACO’s equity incentive plans and is responsible for granting stock options to officers and managerial employees of EACO. It is also responsible for establishing the salary and annual bonuses paid to executive officers of EACO. The Executive Compensation Committee has not adopted a formal charter. The current members of the Executive Compensation Committee are Directors Ceiley and Means.

 

EACO does not utilize any compensation consultant, or otherwise delegate its authority, in determining the amount or form of executive compensation. Messrs. Ceiley is the sole executive officer of EACO and plays a significant role in determining and recommending the amount and form of compensation. Please refer to the

“Compensation Discussion and Analysis” section of this Information Statement regarding the functions and operations of the Executive Compensation Committee.

 

Nomination of Directors

 

The Board does not have a Nominating Committee, but each director participates in the consideration of director nominees. Given the size of EACO and its resources, the Board believes that this is appropriate. The Board believes that having a separate committee would not enhance the nomination process. EACO has not adopted a charter relating to the director nomination process, nor does it have a formal policy regarding the consideration of any director candidates recommended by shareholders or specific minimum qualifications for director nominees. The Board believes this is appropriate since any such recommendations may be informally submitted to and considered by EACO’s directors. The Board periodically reviews the performance of each Board member and concludes whether or not the member should continue in their current capacity. Recommendations by shareholders of director nominees should be directed to EACO’s Corporate Secretary at 1500 N. Lakeview Avenue, Anaheim, California 92807, and should include the name and address of the candidate; a brief biographical description, including the candidate’s occupation for at least five years; a statement of the qualifications of the candidate; and the candidate’s signed consent to be named in any applicable information statement or proxy statement and to serve as director, if elected. Directors should possess qualities such as understanding the business and operations of EACO and corporate governance principles.

 

Communications to Board of Directors

 

The Board has established a process by which shareholders may send written communications to the attention of the Board, any committee of the Board or any individual Board member, care of our Corporate Secretary. The name of any specific intended Board recipient should be noted in the communication. Our Corporate Secretary will be primarily responsible for collecting, organizing and monitoring communications from shareholders and, where appropriate depending on the facts and circumstances outlined in the communication, providing copies of such communications to the intended recipients. Communications will be forwarded to directors if they relate to appropriate and important substantive corporate or Board matters. Communications that are of a commercial or frivolous nature or otherwise inappropriate for the Board’s consideration will not be forwarded to the Board. Shareholders who wish to communicate with the Board can write to the Corporate Secretary at EACO Corporation, 1500 N. Lakeview Avenue, Anaheim, California 92807.

 

Annual Meeting Attendance

 

We do not have a formal policy regarding attendance by members of our Board of Directors at annual meetings of our shareholders; however, directors are encouraged to attend all such meetings. Two of our current directors attended our 2008 Annual Meeting of Shareholders. No meeting of shareholders was held in 2009.

 

Executive Officers

 

Glen F. Ceiley currently serves as our Chairman of the Board and Chief Executive Officer. Biographical information of Mr. Ceiley appears earlier in this proxy statement. See Proposal 4, “Election of Directors.”

 

Compensation Discussion and Analysis

 

The Executive Compensation Committee (the “Committee”), currently consisting of Messrs. Ceiley and Means, uses the following objectives as guidelines for its executive compensation decisions:

 

 

 

The Committee determined that there would be no executive compensation during fiscal 2009 for EACO’s executive officer.

 

In general, base salary levels are set at the minimum levels believed by EACO’s executive officers to be sufficient to attract and retain qualified executives when considered with the other components of EACO’s compensation structure.

 

The Committee adjusts salary levels for executive officers based on achievement of specific annual performance goals, including personal, departmental and overall Company goals depending upon each officer’s specific job responsibilities. The Committee also uses its subjective judgment, based upon such criteria as the executive’s knowledge of and importance to EACO’s business, willingness and ability to accomplish the tasks for which he or she was responsible, professional growth and potential, EACO’s operating earnings and an evaluation of individual performance, in making salary decisions. Compensation paid to executive officers in prior years is also taken into account. No particular weighting is applied to these factors.

 

The Committee may determine that EACO’s financial performance and individual achievements merit the payment of annual bonuses.

 

The Committee also determines stock option grants to the executive officers. The Committee determines annual stock option grants to other employees based on recommendations of the Chief Executive Officer. Stock options are intended to encourage key employees to remain employed by EACO by providing them with a long-term interest in EACO’s overall performance as reflected by the market price of EACO’s common stock. No stock option grants were made in the last three fiscal years.

 

The Committee will consider any federal income tax limitations on the deductibility of executive compensation in reaching compensation decisions and will seek shareholder approval where such approval will eliminate any limitations on deductibility.

 

Summary Compensation Table

 

The following table sets forth information regarding compensation earned during the eight months ended August 31, 2009 and the year ended December 31, 2008 by our Chief Executive Officer, who was the only executive officer of EACO as of August 31, 2009 and may be referred to in this report as the “named executive officer.”

 

 

 

 

Due to the current nature of EACO’s operations and related results from the last two years, the Committee and Mr. Ceiley have agreed that the position of Chief Executive Officer is not justified in receiving any salary or benefits from EACO. This structure is reviewed periodically by the Committee and will be reviewed again, should EACO’s operations or results change.

Grants of Plan-Based Awards; Outstanding Equity Awards at Fiscal Year-End

 

EACO’s named executive officer did not receive, nor was granted option awards to purchase EACO’s Common Stock during fiscal 2009. Further, there were no outstanding equity awards held by EACO’s named executive officer at August 31, 2009

 

Director Compensation

 

EACO pays $10,000 in cash to each director per calendar year as compensation for his services. In addition, directors who are not employees of EACO receive a fee of $500 for each Board meeting attended. No fees are awarded to directors for attendance at meetings of the Audit Committee or the Executive Compensation Committee of the Board.

 

In addition, although there is no formal program to grant such options, directors are eligible to receive option grants pursuant to the 2002 Long-Term Incentive Plan. In general, each option granted under that plan will have an exercise price equal to the fair market value of the common stock on the grant date and a maximum term of ten years, subject to earlier termination following the optionee’s cessation of service as a Board member.

 

The following table sets forth a summary of the compensation earned in fiscal 2009 by each person who served as a director during such period, who is not a named executive officer.

 

 

 

 

We have reviewed and discussed with the management of EACO Corporation the Compensation Discussion and Analysis to be included in the proxy statement on Schedule 14A for the 2010 Annual Meeting of Shareholders. Based on the reviews and discussions referred to above, we recommended to the Board of Directors that the Compensation Discussion and Analysis referred to above be included in such proxy statement and incorporated by reference into EACO’s Transition Report on Form 10-K for the eight months ended August 31, 2009.

 

Submitted by the Executive Compensation

Committee of the Board of Directors:

 

Glen Ceiley

William Means

 

The following table provides information as of August 31, 2009 with respect to shares of our common stock that may be issued under existing equity compensation plans.

 

 

The table below sets forth, as of November 30, 2009, certain information regarding beneficial ownership of our common stock by (i) each shareholder known to us to own, or have the right to acquire within sixty (60) days of November 30, 2009, more than five percent (5%) of the outstanding common stock, (ii) each named executive officer and director of EACO, and (iii) all of our executive officers and directors as a group. To our knowledge, except as otherwise indicated, each of the persons named in this table has sole voting and investment power with respect to the common stock shown as beneficially owned, subject to community property and similar laws, where applicable. The table below does not give effect to the Reverse Stock Split set forth in Proposal 2 herein.

 

 

 

 

Since January 1, 2009, other than the agreements and transactions described in Proposal 1 and those described below, there has not been, nor is there any proposed transaction, where we (or any of our subsidiaries) were or will be a party in which the amount involved exceeded or will exceed the lesser of $120,000 or the average of EACO’s total assets as of December 31, 2008 and August 31, 2009, and in which any director, director nominee, executive officer, holder of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest.

 

Transactions with Bisco/Glen Ceiley

 

EACO currently has a management agreement with Bisco Industries, Inc., which was entered into in March 2006, whereby Bisco provides administration and accounting services. Bisco’s sole shareholder and President is Glen Ceiley, EACO’s Chief Executive Officer and Chairman of the Board. For the eight months ended August 31, 2009, the amounts due to Bisco for these services was $143,500, of which $85,400 has been paid.

 

EACO has taken a number of bridge loans from Bisco. The loans were made pursuant to note agreements that accrue interest at a rate of 7.5% per annum but do not provide for regularly scheduled payments; however, any remaining outstanding principal balance plus accrued interest are due six months from the date of each note. The loans can be extended at Bisco’s option and have been extended beyond six months to March 2010. Since January 1, 2009, EACO received bridge loans from Bisco totaling $4,452,500, of which $1,729,100 was repaid and of which repayment $140,200 was applicable to interest. Bisco’s sole shareholder and President is Glen F. Ceiley, EACO’s Chief Executive Officer and Chairman of the Board.

 

Approval Policies and Procedures

 

EACO does not have a written or formal policy specifying policies and procedures with respect to review, approval or ratification of related party transactions. In general, all material transactions are reviewed and approved by the Board of Directors. The merger agreement and the transactions contemplated thereby that are the subject of Proposal 1 was approved by a Special Committee comprised of only members of the Board who had no personal interest in such matters.

 

Section 16(a) of the Exchange Act requires EACO’s directors, certain of its officers, and persons who beneficially own more than ten percent of any registered class of EACO’s equity securities to file reports of

ownership in such securities and changes in ownership in such securities with the SEC. Specific due dates for these reports have been established, and we are required to report any failure to file by such dates. Based solely on our review of reports and written representations provided to EACO by the above referenced persons, except as indicated in our prior proxy statements, we believe that all filing requirements applicable to our directors, executive officers and greater than ten percent beneficial owners were timely satisfied.

 

The following description of our securities and provisions of our Current Articles and bylaws is only a summary. You should refer to the copies of our Current Articles and bylaws which have been filed with the SEC for a full description of the rights and restrictions relating to our capital stock. Except where specifically noted, the following information does not give effect to the proposed 1-for-25 reverse stock split described in Proposal 2.

 

Common Stock

 

Currently EACO is authorized to issue 8,000,000 shares of common stock, par value $0.01 per share. At January 6, 2010, [3,910,264] shares of common stock were outstanding and held of record by [1,176] holders. Under the articles of incorporation and bylaws, holders of common stock do not have cumulative voting rights. However, we are currently subject to certain provisions of the California General Corporation Law, including those relating to cumulative voting. As such if any shareholder has given notice prior to commencement of voting of his or her intention to cumulate votes, then each shareholder may cumulate votes by multiplying the number of shares of common stock the shareholder is entitled to vote by the number of directors to be elected. No shareholder is entitled to cumulate his or her votes for candidates other than those whose names have been placed in nomination prior to the commencement of voting.

 

Holders of the common stock are entitled to elect all of the directors unless eight consecutive quarterly dividend payments on the Series A Cumulative Convertible Preferred Stock is in arrears and unpaid. In such an event, the holders of Series A Preferred Stock are entitled to vote at any meeting of shareholders on an as-converted to common stock basis. The shares of common stock are not be subject to any redemption or sinking fund provisions. Holders of common stock do not have any preemptive, subscription or conversion rights.

 

Holders of common stock are entitled to receive dividends declared by the board of directors out of legally available funds, subject to the rights of preferred shareholders, if any, and the terms of any existing or future agreements between us and our lenders. In the event of our liquidation, dissolution or winding up, common shareholders are entitled to share ratably in all assets legally available for distribution after payment of all debts and other liabilities, and subject to the prior rights of any holders of outstanding shares of preferred stock, if any.

 

Preferred Stock

 

10,000,000 shares of preferred stock, par value $0.01 per share, are authorized under our Current Articles. Of such shares, 40,000 have been designated Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”). As of January   , 2010, 36,000 shares of Series A Preferred Stock were issued and outstanding. All shares of the Series A Preferred Stock are held by Mr. Ceiley.

 

The Board of Directors is authorized to issue from time to time the shares of authorized preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions of the shares of each of these series, including the dividend rights, dividend rates, conversion rights, voting rights, term of redemption, including sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of a series without further vote or action by the shareholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of us without further action by the shareholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting

and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control. We currently have no plans to issue any additional shares of preferred stock.

 

We believe that the ability to issue preferred stock without the expense and delay of a special shareholders’ meeting will provide us with increased flexibility in structuring possible future financings and acquisitions, and in meeting other corporate needs that might arise. This also permits the Board of Directors to issue preferred stock containing terms which could impede the completion of a takeover attempt, subject to limitations imposed by the securities laws. The Board will make any determination to issue these shares based on its judgment as to the best interests of EACO and our shareholders at the time of issuance. This could discourage an acquisition attempt or other transaction which shareholders might believe to be in their best interests or in which they might receive a premium for their stock over the then market price of the stock.

 

Rights and Preferences of the Series A Preferred Stock

 

Dividends.  The holders of the Series A Preferred Stock are entitled to receive cumulative dividends of 8.5% per year, based on the liquidation preference of the Series A Preferred Stock, in preference to the holders of common stock, when declared by the Board. The dividends accrue whether or not declared.

 

Liquidation.  Upon any liquidation, dissolution or wind-up of EACO, the holders of Series A Preferred Stock are entitled to receive, in preference to any distribution to the holders of common stock, an amount equal to $25.00 per share of Series A Preferred Stock plus an amount equal to all dividends accrued thereon.

 

Conversion.  The holders of Series A Preferred Stock may convert their shares of Series A Preferred Stock at any time into shares of common stock. The number of shares to be received upon any such conversion is equal to the liquidation preference of the shares divided by the conversion price, which is initially $0.90 (or $22.50 after giving effect to the Reverse Split discussed in Proposal 2). All accrued dividends may also be converted into shares of common stock.

 

Voting.  The holders of Series A Preferred Stock do not have any voting rights, except as required by applicable law or in the event that eight consecutive quarterly dividend payments shall be in arrears and unpaid.

 

Redemption.  The shares of Series A Preferred Stock may be redeemed at the option of EACO, in whole or in part, at any time upon prior written notice of at least 30 but not more than 90 days, at a price of $27.50 per share plus all accrued dividends on such share.

 

Anti-Takeover Provisions

 

Florida and California Law

 

As a Florida corporation, we are subject to the Florida Business Corporation Law, which includes certain provisions which are intended to provide protection from unsolicited takeover attempts. Subject to certain exceptions, including the approval of a majority of “disinterested directors” (as such term is defined in the statute), Section 607.0901 of the FBCA requires approval of 66% of the voting shares for a corporation to engage in transactions with a 10% shareholder. In addition, Section 607.0902 of the FBCA limits the voting rights of shares of EACO which are deemed to be acquired in a control-share acquisition, and provides full voting rights for such shares only upon meeting certain procedural and approval requirements.

 

Pursuant to Section 2115 of the California General Corporation Law, we may also be subject to certain provisions of the CGCL, including those that may delay or discourage takeover attempts. Section 1203 of the CGCL includes provisions that requires a fairness opinion in the event an “interested person” makes an offer to purchase the shares of some or all of our existing shareholders. An “interested person” is defined as a person who directly or indirectly controls EACO, or is controlled by one of our officers or directors or is an entity in which one of our officers or directors holds a material financial interest. In addition, Section 1101 and 1001(d) of the CGCL restricts certain transactions with affiliated entities.

 

Such statutory provisions could make it significantly more difficult for a third-party to acquire control of our Company by preventing a possible acquirer from cashing out minority shareholders or selling substantially

all of our assets to a related party and therefore could discourage a hostile bid, or delay, prevent or deter entirely a merger, acquisition or tender offer in which our shareholders could receive a premium for their shares, or effect a proxy contest for control or other changes in our management

 

Articles of Incorporation

 

Under the terms of our Current Articles, our Board of Directors is authorized to issue, without shareholder approval, up to 10,000,000 shares of preferred stock with voting, conversion and other rights and preferences superior to those of our common stock. Our future issuance of preferred stock could be used to discourage an unsolicited acquisition proposal. See “Description of Capital Stock — Preferred Stock” above. As discussed in Proposal 3, our Current Articles also contains a provision which requires the approval of the holders of 75% of the outstanding common stock for certain transactions with affiliated corporations. These provision could prohibit or delay the accomplishment of mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us.

 

EACO Common Stock

 

Our common stock is quoted on the OTC Bulletin Board (“OTCBB”) under the trading symbol “EACO,” however, there is no established public trading market for our common stock. As of December 22, 2009, the last full trading day before the public announcement of the merger, the closing sale price for our common stock was $0.06 per share and as of January   , 2010, the latest practicable trading day before the filing of this proxy statement with the SEC, the closing sale price for our common stock was $           per share. As of January   , 2010, there were           shareholders of record of our common stock, not including individuals holding shares in street names.

 

The quarterly high and low bid price information regarding EACO’s common stock as quoted on the OTCBB are set forth below. These quoted prices represent inter-dealer prices, without retail markup, markdown or commission, and may not necessarily represent actual transactions:

 

 

 

 

EACO has never paid cash dividends on its common stock, and we presently intend to retain future earnings, if any, for use in the operation and expansion of our business.

 

Bisco Capital Stock

 

Bisco is a private company owned by one shareholder. Its shares are not traded on any market and it has not paid cash dividends on its capital stock during Bisco’s last two fiscal years.

 

The following selected financial data is derived from EACO’s audited financial statements. The selected statement of operations data for the eight months ended August 31, 2009 and the selected balance sheet data as of December 31, 2008 and August 31, 2009 are derived from the audited financial statements and related notes thereto contained in EACO’s Transition Report on Form 10-K for the eight months ended August 31, 2009 accompanying this proxy statement. The financial statements referenced in the preceding sentence have been audited by Squar, Milner, Peterson, Miranda & Williamson, LLP, EACO’s independent registered public accounting firm. The selected statement of operations data for the years ended December 28, 2005, December 27, 2006, January 2, 2008 and December 31, 2008 and the selected balance sheet data as of December 28, 2005, December 27, 2006, January 2, 2008 are derived from audited consolidated financial statements and related notes, not included or incorporated by reference in this proxy statement. Effective August 31, 2009, EACO changed its fiscal year end from December 31 to August 31. The information in this table is based on, and should be read together with, the financial statements of EACO and its “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in EACO’s Transition Report on Form 10-K for the eight months ended August 31, 2009.

 

 

 

The following selected financial data for each of the years during the five-year period ended August 31, 2009 are derived from Bisco’s audited consolidated financial statements. The selected statement of operations data for the years ended 2008 and 2009 and the selected balance sheet data as of August 31, 2008 and 2009 are derived from the consolidated financial statements and related notes thereto included in Annex D to the proxy statement; such financial statements have been audited by Squar, Milner, Peterson, Miranda & Williamson, LLP, Bisco’s independent public accounting firm. The selected statement of operations data for the years ended August 31, 2005, 2006 and 2007 and the selected balance sheet data as of August 31, 2005, 2006 and 2007 are derived from audited financial statements and related notes, not included or incorporated by reference in this proxy statement. The information in this table is based on, and should be read together with, the audited consolidated financial statements of Bisco attached as Annex D to this proxy statement and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Bisco” below. Historical results are not necessarily indicative of future results.

 

 

EACO CORPORATION

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

Except where specifically noted, the following information and all other information contained in this proxy statement does not give effect to the proposed 1-for-25 reverse stock split described in Proposal 2.

 

Introduction

 

On December 22, 2009, EACO, Bisco, Merger Sub and Glen Ceiley (the sole shareholder of Bisco) entered into the merger agreement, pursuant to which Bisco will be merged with and into Merger Sub, and Bisco will become the wholly-owned subsidiary of the Company. This merger is subject to certain closing conditions, including, among others, the approval of the merger by the affirmative vote of the holders of at least 75% of EACO’s outstanding common stock. In connection with the proposed merger, EACO will issue to Bisco’s sole shareholder an aggregate of 4,705,670 shares of EACO’s common stock after giving effect to the Reverse Split (117,641,742 pre-split shares) in exchange for all of the outstanding shares of Bisco’s capital stock.

 

Mr. Glen Ceiley is the sole shareholder of Bisco and is the holder of 63% of EACO’s outstanding common stock. As a result, Mr. Ceiley has majority voting control over both entities. Accordingly, the unaudited pro forma condensed combined financial statements were prepared in accordance with Accounting Standards Codification (“ASC”) 805-50, Transactions Between Entities Under Common Control, which specifies that in a combination of entities under common control, the entity that receives the assets or the equity interests shall initially recognize the assets and liabilities transferred at their carrying amounts at the date of transfer (“as-if pooling-of-interests” accounting).

 

The unaudited pro forma condensed combined balance sheet as of August 31, 2009 combines the historical EACO and Bisco balance sheets as of August 31, 2009 as if the merger and related events had been consummated on August 31, 2009. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2008 and the eight months ended August 31, 2009 combine the historical EACO and Bisco statements of operations for the twelve months ended December 31, 2008 and the eight months ended August 31, 2009 as if the merger and related events had been consummated on January 1, 2008.

 

The unaudited pro forma condensed combined financial statements presented below should be read in conjunction with the section of this proxy statement entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Bisco”, the historical financial statements and accompanying notes of Bisco for the fiscal years ended August 31, 2009 and 2008 (contained elsewhere in this proxy statement), and EACO’s historical financial statements and the accompanying notes appearing in its periodic SEC filings on Forms 10-K and 10-Q. The historical financial statements of Bisco and EACO have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) in all material respects.

 

The unaudited pro forma financial statements are presented for informational purposes only and are not intended to represent or be indicative of the results of operations that would have been achieved if the merger had been completed as of the dates indicated, and should not be taken as representative of future consolidated results of operations or financial condition of post-merger EACO. Preparation of the unaudited pro forma financial statements for all periods presented required management to make certain judgments and estimates to determine the pro forma adjustments such as the estimated utilization of EACO net operating loss carryforwards (“NOL”) and resulting recognition of other deferred tax assets and liabilities; however, the ultimate realization of the NOLs is dependent upon satisfactory confirmation from the Company’s tax advisors that the merger will constitute a “tax free reorganization” and the NOLs will not be limited as a result of the proposed merger.

 

The pro forma financial statements do not reflect any cost savings, operating synergies or revenue enhancements that may result from the merger or the expenses required to achieve any such cost savings, operating synergies and revenue enhancements.

EACO CORPORATION

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF AUGUST 31, 2009

 

ASSETS

 

 

See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements.

EACO CORPORATION

 

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF AUGUST 31, 2009

 

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

 

 

See accompanying notes to Unaudited Pro Forma Condensed Combined Financial Statements.

EACO CORPORATION

 

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2008