SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
CHECK THE APPROPRIATE BOX:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d) (2))
[ ] Definitive Information Statement
WINDSWEPT ENVIRONMENTAL GROUP, INC.
(Name of Registrant As Specified in Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11
1) Title of each class of securities to which transaction applies:
N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth in
the amount on which the filing fee is calculated and state
how it was determined): N/A
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: N/A
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: N/A
2) Form, Schedule or Registration Statement No.: N/A
3) Filing Party: N/A
4) Date Filed: N/A
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WINDSWEPT ENVIRONMENTAL GROUP, INC.
100 SWEENEYDALE AVENUE
BAY SHORE, NEW YORK 11706
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NOTICE OF STOCKHOLDER ACTION IN LIEU OF SPECIAL MEETING
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TO THE STOCKHOLDERS
OF WINDSWEPT ENVIRONMENTAL GROUP, INC.:
This information Statement is furnished to the stockholders of Windswept
Environmental Group, Inc. (the "Company") in connection with the following
corporate action approved by the written consent of a stockholder of the Company
which owns sufficient voting securities of the Company to approve such action:
An amendment to Article FOURTH of the Restated Certificate
of Incorporation of the Company to increase the number of
authorized shares of common stock, par value $.0001 per
share, of the Company from 50,000,000 shares to 100,000,000
shares.
We are not asking you for a proxy and you are requested not to send us a
proxy. Your vote or consent is not requested or required to approve the above
amendment. This Information Statement is provided solely for your information.
This Information Statement also serves as the notice required by Section 228 of
the Delaware General Corporation Law of the taking of a corporate action without
a meeting by less than unanimous written consent of the stockholders of the
Company.
By Order of the Board of Directors
Michael O'Reilly
Chairman, President and Chief Executive Officer
March ___, 2000
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WINDSWEPT ENVIRONMENTAL GROUP, INC.
100 Sweeneydale Avenue
Bay Shore, New York 11706
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INFORMATION STATEMENT
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GENERAL INFORMATION
This Information Statement is furnished by Windswept Environmental Group,
Inc., a Delaware corporation (the "Company"), in connection with the following
corporate action approved by a stockholder of the Company which owns sufficient
voting securities of the Company to approve such actions:
An amendment to Article FOURTH of the Restated Certificate
of Incorporation of the Company to increase the number of
authorized shares of common stock, par value $.0001 per
share, of the Company from 50,000,000 shares to 100,000,000
shares.
As more fully described in this Information Statement, the foregoing
corporate action is being taken in order to, among other things, allow the
Company to issue additional shares of its common stock, par value $.0001 per
share (the "Common Stock").
There are currently 38,443,254 shares of Common Stock issued and
outstanding and 11,556,746 shares of Common Stock reserved for issuance upon
exercise of options, warrants and similar rights to acquire shares of Common
Stock. On October 29, 1999, the Company entered into a Subscription Agreement
(the "Subscription Agreement") with Spotless Plastics (USA) Inc., a Delaware
corporation ("Spotless"), pursuant to which (i) Windswept Acquisition
Corporation, a Delaware corporation wholly owned by Spotless ("Acquisition
Corp."), purchased from the Company 22,284,683 shares of Common Stock and 9,346
shares of Series B Convertible Preferred Stock, par value $.01 per share, of the
Company (the "Series B Preferred"). Each share of Series B Preferred is
convertible into 1,000 shares of Common Stock. In addition, Spotless advanced to
the Company the sum of $2,000,000 pursuant to the terms of a Convertible
Promissory Note (the "Note"), which is convertible, subject to the terms and
conditions thereof, into either 25,304,352 shares of Common Stock (or, in the
event that certain approvals have not been obtained at the time of conversion,
into 25,305 shares of Series B Preferred). In connection with the equity and
debt financing provided by Acquisition Corp. and Spotless, the Company granted
options to Michael O'Reilly, the Chief Executive Officer and President of the
Company, to purchase an aggregate of 5,486,309 shares of Common Stock (the
"Stock Options") pursuant to the terms of two Stock Option Agreements dated
October 29, 1999 (the "Stock Option Agreements"). As more fully described in
this Information Statement, the foregoing corporate action is being taken in
order to, among other reasons, allow the Company to reserve shares of Common
Stock for issuance upon conversion of shares of Series B Preferred, conversion
of the Note and exercise of the Stock Options. If the number of authorized
shares of Common Stock were not increased, there would not be enough
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shares of Common Stock available for issuance upon conversion of shares of
Series B Preferred, conversion of the Note and exercise of the Stock Options,
among other things. See "The Transaction". In reviewing the equity and debt
financing provided by Acquisition Corp. and Spotless, stockholders should give
attention to the matters set forth under the caption "Certain Considerations"
commencing on page 12 of this Information Statement.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
The appropriate date upon which this Information Statement will first be
sent to stockholders is March __, 2000.
THE ACTIONS DESCRIBED HEREIN HAVE BEEN APPROVED
BY A STOCKHOLDER OF THE COMPANY WHICH OWNS
SUFFICIENT VOTING SECURITIES TO APPROVE SUCH
ACTIONS. YOUR VOTE OR CONSENT IS NOT REQUESTED
OR REQUIRED TO APPROVE SUCH ACTIONS. THIS
INFORMATION STATEMENT IS PROVIDED SOLELY FOR
YOUR INFORMATION.
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TABLE OF CONTENTS
Page
INFORMATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 1
General Information . . . . . . . . . . . . . . . . . . . . . . . . 1
AMENDMENT TO THE CERTIFICATE OF INCORPORATION. . . . . . . . . . . . . . 4
Proposed Amendment. . . . . . . . . . . . . . . . . . . . . . . . . 4
Reason for Adoption . . . . . . . . . . . . . . . . . . . . . . . . 4
The Transaction - Potential Advantages and Disadvantages. . . . . . 5
THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Factors Considered by the Board of Directors. . . . . . . . . . . . 8
Certain Considerations. . . . . . . . . . . . . . . . . . . . . . . 10
Change in Control of Company. . . . . . . . . . . . . . . . . . . . 11
No Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . 11
Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . 12
CERTAIN INFORMATION CONCERNING THE COMPANY . . . . . . . . . . . . . . . 13
Description of Common Stock . . . . . . . . . . . . . . . . . . . . 13
Information Relating to the Company's Voting Securities . . . . . . 13
Securities Ownership of Certain Beneficial Owners and Management. . 13
APPENDIX A
3
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INFORMATION STATEMENT
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PROPOSED AMENDMENT
The Board of Directors of the Company (the "Board of Directors") has
unanimously approved the following amendment to the Company's Certificate of
Incorporation, as amended, and directed that such amendment be submitted to the
Company's stockholders for their approval:
RESOLVED, that paragraph (a) of Article FOURTH of the
Restated Certificate of Incorporation of the Corporation be
amended by deleting such paragraph in its entirety and
substituting, in lieu thereof, the following:
"(a) Common Stock: One Hundred Million (100,000,000) shares
of Common Stock, par value $.0001 per share."
Windswept Acquisition Corporation, a Delaware corporation ("Acquisition
Corp."), owns a majority of the issued and outstanding shares of common stock,
par value $.0001 per share, of the Company (the "Common Stock") and has executed
a written consent approving the proposed amendment to Article FOURTH of the
Company's Certificate of Incorporation, as amended.
ACCORDINGLY, THE VOTE OR CONSENT OF THE OTHER STOCKHOLDERS
OF THE COMPANY IS NOT REQUESTED OR REQUIRED TO APPROVE SUCH
AMENDMENT.
REASON FOR ADOPTION
As of the date of this Information Statement, there are 38,443,254 shares
of Common Stock issued and outstanding. The Company's Certificate of
Incorporation, as amended, currently authorizes a maximum of 50,000,000 shares
of Common Stock. The purposes of this amendment to increase the authorized
shares of Common Stock from 50,000,000 shares to 100,000,000 shares are to
provide sufficient available shares of Common Stock: (i) to permit the Company
to issue shares of Common Stock to Acquisition Corp. and its affiliates upon the
conversion of certain securities issued in connection with the Transaction (as
defined below); (ii) to permit the Company to issue shares of Common Stock upon
the exercise of stock options granted to Michael O'Reilly, the Chief Executive
Officer and President of the Company, in connection with the Transaction; and
(iii) for issuance in any private or public offerings, any acquisitions or any
other issuances of shares of Common Stock by the Company as they may be
authorized pursuant to the actions of the Board of Directors. See "The
Transaction."
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THE TRANSACTION - POTENTIAL ADVANTAGES AND DISADVANTAGES
The amendment to the Certificate of Incorporation was approved in
connection with the equity and debt financing (the "Transaction") provided to
the Company by Acquisition Corp. and Spotless Plastics (USA) Inc., a Delaware
corporation which owns all the issued and outstanding shares of capital stock of
Acquisition Corp. ("Spotless"), pursuant to the terms of a Subscription
Agreement dated October 29, 1999 (the "Subscription Agreement"), as more fully
described below under the caption "The Transaction." In connection with its
approval of the Transaction, the Board of Directors considered and reviewed
various factors, including, without limitation, the financial position of the
Company, the fairness opinion (the "Fairness Opinion") delivered by Donald & Co.
Securities Inc. ("Donald & Co."), the Company's results of operations, the
prospects for alternative transactions, the possible synergistic and expansion
opportunities associated with the Transaction, and the ability of the Company to
secure alternative equity or debt financing, either through prospective
investors or strategic alliances. In reaching its decision to approve the
Transaction, the Board of Directors identified the following potential benefits
of the Transaction:
The determination that the Transaction is fair, from a
financial point of view, to the Company's stockholders as
determined by Donald & Co. and set forth in the Fairness
Opinion.
The determination that the Company would be refinancing its
outstanding indebtedness to Business Alliance Capital
Corporation ("BACC") at a significantly lower interest cost.
The determination that, as a result of such refinancing, the
Company would remedy outstanding defaults with respect
to its borrowings and would not be at risk with respect to
any acceleration of its outstanding borrowings and
foreclosure on substantially all of the assets of the Company
pursuant to security interests granted by the Company to
BACC.
The belief that it is unlikely that the Company would have
adequate capital and other resources if it did not complete
the Transaction or an alternative transaction, based on the
then existing financial condition of the Company and its
inability under the Loan and Security Agreement (the "Loan
Agreement") with BACC to borrow additional funds.
The belief that the Company will be able to achieve
synergistic benefits through its association with Spotless,
including increased financial resources and an ability to
attract additional capital in the future.
The belief that Spotless could offer strategic relationships
and enhance the Company's ability to market its emergency
response and environmental remediation services to the
Northeast market.
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In the course of its deliberations, the Board of Directors also reviewed
and considered several possible risks associated with the Transaction, including
the following:
The Board of Directors recognized that as a result of the
Transaction, Spotless could determine the outcome of the
election of the directors and thereby control the Company.
Under Delaware General Corporate Law, the Company's
stockholders were not entitled to appraisal rights in
connection with the Transaction.
For additional information with respect to the foregoing factors, see "The
Transaction Factors Considered by the Board" and "The Transaction Certain
Considerations."
6
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THE TRANSACTION
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GENERAL
On October 29, 1999, Spotless provided certain debt and equity financing to
the Company pursuant to the Subscription Agreement. The Company issued to
Acquisition Corp. 22,284,683 shares of Common Stock, representing 58.0% of the
issued and outstanding shares of Common Stock, and 9,346 shares of Series B
Convertible Preferred Stock, par value $.01 per share, of the Company (the
"Series B Preferred"). The purchase price was $0.07904 per share of Common Stock
and $79.04 per share of Series B Preferred. In addition, Spotless advanced to
the Company the sum of $2,000,000 pursuant to a Convertible Promissory Note
dated October 29, 1999 (the "Note") which is convertible, at the option of
Spotless, into 25,304,352 shares of Common Stock (or, in the event that certain
approvals have not been obtained at the time of conversion, into 25,305 shares
of Series B Preferred). Each share of Series B Preferred is convertible into
1,000 shares of Common Stock. In addition, since the holders of Series B
Preferred are entitled to one vote on all matters presented to stockholders for
each share of Common Stock issuable upon conversion of each share of Series B
Preferred, Acquisition Corp. currently holds 64.4% of the Company's voting
power. Upon conversion of the shares of Series B Preferred issued to Acquisition
Corp., Acquisition Corp. will hold 66.2% of the issued and outstanding shares of
Common Stock, and upon conversion of the Note into shares of Common Stock,
Acquisition Corp. and Spotless will hold in the aggregate 77.9% of the issued
and outstanding shares of Common Stock. As a result of the Transaction, Spotless
has sufficient voting power to approve or disapprove amendments to the Company's
Certificate of Incorporation, to elect a majority of the Board of Directors, to
control the direction and policies of the Company, including dividends,
acquisitions, mergers and consolidations, and to prevent or cause a change in
control of the Company.
All of the funds required for the Transaction were obtained from Spotless's
existing working capital line of credit with Bank One Corporation.
In connection with Transaction, the Company increased the size of its Board
of Directors, effective as of October 26, 1999, from five (5) to nine (9)
directors and accepted, with effect as of October 26, 1999, the resignation of
JoAnn O'Reilly as a Director of the Company. The Board of Directors appointed
each of Peter A. Wilson, Charles L. Kelly, Jr., Ronald B. Evans and Brian S.
Blythe as new Directors. The Board of Directors also appointed, effective as of
the date which is ten (10) days after the filing with the Securities and
Exchange Commission (the "SEC") and transmission to the stockholders of the
Company of an Information Statement pursuant to Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
promulgated thereunder, John J. Bongiorno as a Director of the Company. The
continuing directors are Michael O'Reilly, Kevin Phillips, Anthony Towell and
Samuel Sadove.
The Company has granted to Mr. O'Reilly an option to purchase 2,674,714
shares of Common Stock, which vests and becomes exercisable in equal
installments on each of the first, second and third anniversaries of October 29,
1999. The Company has also granted to Mr. O'Reilly
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an option to purchase 2,811,595 shares of Common Stock which is exercisable
on or after October 29, 2006 (the "Conversion Date Option"); provided, that the
exercisability of such option will be accelerated if and to the extent that
Spotless converts or exchanges the Note. Mr. O'Reilly currently holds 177,333
shares of Common Stock, vested options to purchase 3,350,000 shares of Common
Stock and options which have not yet vested to purchase 5,486,309 shares of
Common Stock. The vested options to purchase 3,350,000 shares of Common Stock
include the option to purchase 2,000,000 shares of Common Stock, exercisable at
$.01 per share, granted to Mr. O'Reilly on September 12, 1996 which vested and
became exercisable because a change in control of the Company occurred as a
result of the Transaction.
In connection with the execution and delivery of the Subscription
Agreement, the Company also entered into an Amended and Restated Employment
Agreement (the "Employment Agreement") with Mr. O'Reilly pursuant to which he
will be employed by the Company as Chief Executive Officer and President for a
term of five years, subject to renewal of successive periods of one year each,
at a salary of $260,000 per year plus an Annual Bonus equal to 2.5% of the
Company's Pre- Tax Income (as that term is defined in the Employment Agreement).
Pursuant to the Employment Agreement, the Company has also agreed to purchase
(unless such purchase would impair the capital of the Company) in a single
transaction any or all shares of Common Stock held by Mr. O'Reilly on October
29, 1999 and any shares issuable to him pursuant to options outstanding on
October 29, 1999 (to the extent vested) (the "O'Reilly Shares") (i) upon the
expiration of the Employment Agreement, (ii) if Mr. O'Reilly is terminated by
the Company other than for cause, death or disability or (iii) if Mr. O'Reilly
terminates the Employment Agreement by reason of Resignation for Good Reason (as
that term is defined in the Employment Agreement). The purchase price applicable
to any such purchase shall be at a price mutually agreed upon. If the parties
are not able to agree upon a purchase price, then the purchase price will be
determined based upon a procedure using the appraised value of the Company at
the time such obligation to purchase arises.
Additionally, pursuant to a letter agreement, dated as of October 29, 1999,
between Michael O'Reilly and Spotless (the "Letter Agreement"), Mr. O'Reilly has
the right, upon receipt of notice that Spotless and its affiliates has acquired
a beneficial ownership of more than seventy-five percent (75%) of the
outstanding shares of Common Stock (on a fully diluted basis), to require
Spotless to purchase, in a single transaction, the O'Reilly Shares. As a
condition precedent to requiring the Company or Spotless, as the case may be, to
repurchase the O'Reilly Shares, Mr. O'Reilly must forfeit the Conversion Date
Option, except to the extent that the Conversion Date Option is at that time
vested and exercisable. The purchase price applicable to any such purchase would
be determined in the same manner as provided in the Employment Agreement.
FACTORS CONSIDERED BY THE BOARD OF DIRECTORS
In connection with approval of the Transaction, the Board of Directors has
considered the relative values of the Company, the financial condition of the
Company, the Company's relationship with BACC, the Company's need for additional
capital before it can accept additional projects, the potential benefits of the
Transaction and the risks of the Transaction to the Company's existing
stockholders. The Board of Directors has identified several potential benefits
of the Transaction, including the following:
The Board of Directors determined that the amount paid by Spotless to
acquire the shares of Common Stock and Series B Preferred pursuant to the
Subscription Agreement and the
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terms and conditions of the Note are fair, from a financial point of view,
to the Company's stockholders. The arms-length negotiation with Spotless
resulted in the Company selling to Spotless the shares of Common Stock for
$.07904 per share and Series B Preferred for $79.04 per share. The Board of
Director's determination that the Transaction is fair, from a financial point of
view, to the Company's stockholders was supported by the Fairness Opinion
prepared by Donald & Co. obtained by the Company for purposes of valuing the
Transaction. The Fairness Opinion concluded that the Transaction is fair, from a
financial point of view, to the Company and its stockholders. Based on the
foregoing, and after giving consideration to the Company's business and
operations prior to the Transaction and the market for the Common Stock, the
Board of Directors determined that the Transaction is fair, from a financial
point of view, to the stockholders of the Company. The full text of the Fairness
Opinion is attached as Appendix A to this Information Statement. STOCKHOLDERS
ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY.
Prior to the Transaction, the Company was in default under certain
provisions of the Loan Agreement with BACC. At that time, the total amount of
funds available under the Loan Agreement had been borrowed by the Company. As a
result of the default, the aggregate interest and fees the Company was paying to
BACC under the Loan Agreement amounted to approximately 29% per annum of the
outstanding balance. Additionally, such default entitled BACC to exercise
certain rights under the Loan Agreement, including the legal right to foreclose
on the Company's assets and to accelerate payment of the outstanding balance of
the Loan Agreement, which could have forced the Company out of business
(although, as of the date of Transaction, BACC had not exercised such right).
Prior to the Transaction, there was no assurance that BACC would continue to
forebear the exercise of its rights under the Loan Agreement. In addition, the
Company declined certain projects where the high cost of financing would have
reduced the profit to minimal amounts or eliminate any such profit.
In early 1999, in an attempt to bolster the Company's deteriorating
financial position, the Board of Directors directed Michael O'Reilly to
investigate alternative sources of financing for the Company. Under the Loan
Agreement, the Company was unable to incur any additional indebtedness. The
level of the Company's indebtedness had important consequences to the
stockholders of the Company. Those consequences included the following: (i) the
Company was unable to obtain necessary debt financing for working capital,
capital expenditure or other purposes; (ii) cash flow from operations dedicated
to payment of principal and interest on its indebtedness was not available for
other purposes; (iii) the Company's level of indebtedness limited its
flexibility in planning for or reacting to changes in its business; (iv) the
Company's high level of indebtedness made it more vulnerable in the event of a
downturn in its business or the economy in general; and (v) had the Company been
unable to service its debt requirements, BACC could have foreclosed on
substantially all of the Company's assets or required the Company to sell its
assets in order to meet its debt service requirements, which sales could have
been made at prices below the then market value of such assets. Had the Company
been unable to generate cash flow from operations or obtain additional financing
for debt service requirements, the Company faced substantial liquidity problems.
Based on the foregoing, the Board of Directors has determined that the
Transaction eliminated or substantially reduced the foregoing consequences
associated with the Loan Agreement with BACC.
The Board of Directors believes that the Company will be able to
achieve synergistic benefits through its association with Spotless which has
prior and current experience in the
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management and operation of service-oriented businesses. The long-term
strategy of the Company is expected to focus on environmental, emergency and
disaster response-related activities. The Company expects to benefit from
Spotless's experience and expertise with service oriented businesses. In
addition, pursuant to the Letter Agreement, Spotless has agreed that it will
present to the Company any acquisition opportunities of environmental
remediation or disaster remediation businesses, in the United States or its
territories, before making such acquisition on its own behalf.
In addition to the synergistic benefits, the Board of Directors
believes that the Company will be able to achieve other benefits through its
association with Spotless. Included in such benefits are (a) increased financial
resources, and (b) an ability of Spotless to finance additional capital at
competitive rates in the future. The Board of Directors believes that the
capital contribution, the increase in the Company's capital base, and the
relationship with Spotless, will improve the Company's ability to explore
potential future acquisitions, and thereby enhance the Company's long-term
growth prospects. The Board of Directors believes that it is unlikely that the
Company would have had adequate resources or capital to implement its business
plan if it did not complete the Transaction, based on the then existing
financial condition of the Company.
The Board of Directors believes that a strategic relationship with
Spotless may provide increased recognition in the services industry and other
benefits accruing from an association with a company whose businesses are
similar in nature to the Company's business. These factors were in the view of
the Board of Directors supportive of the fairness to stockholders of the
Transaction.
The Board of Directors also reviewed and considered several possible risks
associated with the Transaction, including, among others, the assumption of debt
and the change in control that will result from the Transaction. For a
description of such possible risks, see "- Certain Considerations" immediately
below. Based on the foregoing considerations as well as those discussed
elsewhere herein, the Board of Directors determined that the transactions
contemplated by the Transaction were fair and in the best interest of the
Company and its stockholders.
CERTAIN CONSIDERATIONS
In addition to the other information contained in this Information
Statement, the Company's stockholders should be aware of the following risks
related to the Transaction and the Company.
Losses from Operations and Need for Financing. The Company has
historically sustained losses from operations. The Company incurred net losses
of $1,307,476 and $5,609,795 during the last two fiscal years ended April 30,
1999 and 1998, respectively. The Company expects to require additional financing
in order to fully implement the Company's business strategy. To raise such
additional financing, the Company may have to seek such funds through
alternative public or private equity or debt financing. Should the Company raise
capital through an equity financing arrangement, the then existing stockholders
may experience substantial dilution in their investment in the Company. Should
such alternative financing not be obtained, the Company may have to decline
certain projects where the cost of financing would reduce the profit to minimal
amounts. There is no assurance that any such alternative financing is available
to the Company on competitive terms. At the present time, there are no
agreements, understandings or arrangements with any parties with respect to
additional financing for the Company.
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Competition. The Company's business is highly competitive. The
Company's environmental, emergency and disaster response business competes with,
among other persons, approximately twenty environmental remediation companies of
similar size and approximately fifty construction firms of all sizes in its area
of operations, some of which have substantially greater financial and other
resources than the Company. In addition, to the extent that the Company seeks to
implement its business plan, the Company will be required to compete with
additional environmental remediation companies and construction firms, some of
which have greater sales and financial resources than the Company. While the
Company believes that few of its competitors in the markets in which it competes
provide the full array of services that the Company performs as an emergency
response firm and that the Company's turnkey approach to the emergency response
business provides a distinct advantage over its competition, no assurance can be
given that the Company will be able to compete with such other contractors.
No Appraisal Rights. Under the applicable provisions of the Delaware
General Corporation Law, the Company's stockholders are not entitled to any
dissenters' appraisal rights in connection with the Transaction or any other
transaction described in this Information Statement.
No Dividends. Due to sustained losses, the Company has not paid any
cash dividends on the Common Stock, and does not anticipate paying any cash
dividends in the foreseeable future. Rather, the Company intends to retain
earnings, if any, to provide funds for general corporate purposes and the
expansion of the Company's business. The payment of any future dividends by the
Company will be dependent upon the earnings of the Company, its financial
requirements and other relevant factors. The Company is required to pay
quarterly dividends on the Series A Convertible Preferred Stock, par value $.01
per share, of the Company (the "Series A Preferred"). To the extent permissible
under Delaware General Corporation Law, the Company will pay the Series A
Preferred quarterly dividends. Except that, upon conversion of the Series A
Preferred into Common Stock, dividends shall no longer accrue and all accrued
and unpaid dividends, and any accrued and unpaid interest thereon, as of the
date of such conversion, shall be made in cash. Any future dividends by the
Company on the Common Stock will be distributed after payment of all accrued
quarterly dividends on the Series A Preferred.
Control by Principal Stockholder. Acquisition Corp. currently holds
approximately 58.0% of the issued and outstanding shares of Common Stock and,
upon conversion of the Series B Preferred and the Note, Spotless and Acquisition
Corp. will own approximately 77.9% of the issued and outstanding shares of
Common Stock. As a result, Acquisition Corp. and Spotless are in a position to
determine the outcome of the election of directors and thereby control the
Company.
CHANGE IN CONTROL OF COMPANY
A change in control of the Company occurred upon the closing of the
Transaction. See "The Transaction General." As discussed above, Acquisition
Corp. and Spotless are in a position to determine the outcome of the election of
directors and thereby control the Company.
NO APPRAISAL RIGHTS
Under the applicable provisions of the Delaware General Corporation Law,
the Company's stockholders are not entitled to any dissenters' appraisal rights
in connection with the Transaction or any other transaction described in this
Information Statement.
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REGULATORY REQUIREMENTS
The Company is not aware of any federal or state regulatory requirements
that must be complied with or regulatory approval that must be obtained in
connection with the Transaction, other than the filing of: (i) a Certificate of
Amendment to the Company's Certificate of Incorporation pursuant to the
applicable provisions of the Delaware General Corporation Law; (ii) this
Information Statement on Schedule 14C with the SEC; and (iii) an Information
Statement pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder as a result of a change in majority of directors of the
Board of Directors.
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CERTAIN INFORMATION CONCERNING THE COMPANY
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DESCRIPTION OF COMMON STOCK
Holders of the Common Stock are entitled to one vote for each share held by
them of record on the books of the Company in all matters to be voted on by the
Company's stockholders. No cumulative voting of the Common Stock is permitted.
Holders of the Common Stock do not have any conversion, preemptive or
preferential rights with respect to the Common Stock. The holders of the Common
Stock are entitled to receive ratably such dividends, if any, as may be declared
by the Board of Directors out of funds legally available for the payment of
dividends. There are no redemptive or sinking fund provisions applicable to the
Common Stock. The Common Stock is eligible for trading on the Over the Counter
Bulletin Board under the symbol WEGI.
INFORMATION RELATING TO THE COMPANY'S VOTING SECURITIES
The outstanding voting securities of the Company include the Common Stock,
the Series A Preferred and the Series B Preferred. As of January 31, 1999, there
were 38,443,254 shares of Common Stock, 1,300,000 shares of Series A Preferred
and 9,346 shares of Series B Preferred issued and outstanding. Shares of Series
A Preferred are convertible, on a share-for-share basis, into shares of Common
Stock, and each share of Series B Preferred is convertible into 1,000 shares of
Common Stock. Holders of the Common Stock are entitled to one vote on all
matters presented to stockholders for each share registered in their respective
names, and holders of the Series A Preferred and the Series B Preferred are
entitled to one vote on all matters presented to stockholders for each share of
Common Stock issuable upon conversion of each share of Series A Preferred and
Series B Preferred, respectively, registered in their respective names.
Cumulative voting is not permitted.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 31, 1999, certain information
concerning the beneficial ownership of each class of the Company's voting stock
by (i) each beneficial owner of 5% or more of the Company's voting stock, based
on reports filed with the SEC and certain other information; (ii) each of the
Company's executive officers and (iii) all executive officers and directors of
the Company as a group:
13
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Beneficially Owned and Percent of Class (1)
------------------------------------------------------------
Percent Pro % of Pro
of Percent Percent Forma Forma
Directors, Named Executive Common Series A of Series B of Voting Voting
Officers and 5% Stockholders Common Stock Stock Preferred Series A Preferred Series B Power Power
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Spotless Group Limited (2) . . . 22,284,683 (3) 58.0% - - 9,346 100% 31,630,683 (4) 64.4%
Michael O'Reilly (5) . . . . . . 3,527,333 (6) 9.2% - - - - 3,527,333 7.2%
Samuel Sadove (5). . . . . . . . 461,000 (7) 1.2% - - - - 461,000 *
Anthony Towell (5) . . . . . . . 1,352,667 (8) 3.5% - - - - - 2.8%
Brian S. Blythe (9). . . . . . . 0 (10) 0 - - - - - -
John J. Bongiorno (9). . . . . . 0 (11) 0 - - - - - -
Ronald B. Evans (9). . . . . . . 0 (12) 0 - - - - - -
Charles L. Kelly, Jr,. (9) . . . 0 (13) 0 - - - - - -
Peter a. Wilson (9). . . . . . . 0 (14) 0 - - - - - -
Dr. Kevin Phillips (15). . . . . 650,839 (16) 1.7% 650,000 50% - - 1,300,839 2.7%
All directors, director nominees 5,991,839 (17) 15.6% 650,000 50% - - 6,641,839 (18) 13.5%
and executive officers as a group
(the 9 persons named above).
<FN>
* Less than 1%
** Mr. Bongiorno will become a director 10 days after the date that
an Information Statement meeting the requirements of Section
14(f) of the Exchange Act and Rule 14f-1 thereunder, is filed
with the SEC and transmitted to the Company's stockholders.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to options
or warrants held by that person that are currently exercisable or will become
exercisable within 60 days after January 31, 1999 are deemed outstanding, while
such shares are not deemed outstanding for purposes of computing percentage
ownership of any other person. Unless otherwise indicated in the footnotes
below, the persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
(2) The address of Spotless Group Limited is c/o Spotless Plastics (USA)
Inc., 150 Motor Parkway, Suite 413, Hauppauge, New York 11788.
(3) Represents the 22,284,683 shares of Common Stock sold to Acquisition
Corp. pursuant to the Subscription Agreement. The Company does not currently
have a sufficient number of authorized, unissued and unreserved shares of Common
Stock to issue upon conversion of the Series B Preferred or the Note. The Board
of Directors has approved an amendment (the "Amendment") to the Company's
Certificate of Incorporation increasing the number of authorized shares of
Common Stock from 50,000,000 to 100,000,000, but the Amendment has not yet been
approved by the stockholders of the Company. Accordingly, the number of shares
of Common Stock reported herein does not include (a) 9,346,000 shares of Common
Stock issuable upon conversion of the 9,346 shares of Series B Preferred held by
Acquisition Corp. or (b) 25,304,352 shares of Common Stock issuable upon
conversion of the Note.
14
<PAGE>
Spotless Group, Spotless and Acquisition Corp. may be deemed to share
the voting and investment power over the 22,284,683 shares of Common Stock
directly held by Acquisition Corp.
(4) Includes 22,284,683 shares of Common Stock sold to Acquisition Corp.
pursuant to the Subscription Agreement and the 9,346,000 shares of Common Stock
issuable upon conversion of the 9,346 shares of Series B Preferred held by
Acquisition Corp.
(5) The address for this person is c/o Windswept Environmental Group, Inc.,
100 Sweeneydale Ave., Bay Shore, New York 11706.
(6) Includes 177,333 shares of Common Stock directly held by Mr. O'Reilly
and options under which he may purchase 3,350,000 shares of Common Stock which
are exercisable within 60 days. Does not include 11,000 shares of Common Stock
directly held by JoAnn O'Reilly, the wife of Michael O'Reilly, options under
which she may purchase 300,000 shares of Common Stock which are exercisable
within 60 days, as to each of which Mr. O'Reilly disclaims beneficial ownership,
and the shares of Common Stock issuable upon conversion of the Closing Date
Option and the Conversion Date Option. The Closing Date Option and the
Conversion Date Option have not yet vested and are not exercisable within 60
days. In addition, should such options vest and become exercisable, as discussed
in footnote 3 above, the Company does not have sufficient number of authorized,
unissued and unreserved shares of Common Stock to issue upon conversion of such
options.
(7) Includes 11,000 shares of Common Stock directly by held by Mr. Sadove
and options under which he may purchase 450,000 shares of Common Stock which are
exercisable within 60 days.
(8) Includes (a) 36,000 shares of Common Stock directly held by Mr. Towell,
(b) options under which he may purchase 650,000 shares of Common Stock which are
exercisable within 60 days, and (c) 666,667 shares of Common Stock issuable upon
conversion of a $100,000 demand convertible note directly held by Mr. Towell
which is convertible within 60 days.
(9) The address for this person is c/o Spotless Enterprises Inc., 150 Motor
Parkway, Suite 413, Hauppauge, New York 11788.
(10) Excludes shares beneficially held by Spotless Group. Mr. Blythe is a
director and executive officer of Spotless Group and may be deemed to share
voting or investment power with respect to these shares. Mr. Blythe disclaims
beneficial ownership of these shares.
(11) Excludes shares beneficially held by Spotless Group. Mr. Bongiorno is
a director and executive officer of Spotless Group and may be deemed to share
voting or investment power with respect to these shares. Mr. Bongiorno disclaims
beneficial ownership of these shares.
(12) Excludes shares beneficially held by Spotless Group. Mr. Evans is a
director and executive officer of Spotless Group and may be deemed to share
voting or investment power with
15
<PAGE>
respect to these shares. Mr. Evans disclaims beneficial ownership of these
shares.
(13) Excludes shares held of record by Acquisition Corp. and beneficially
held by Spotless. Mr. Kelly is an executive officer of Acquisition Corp. and
Spotless and may be deemed to share voting or investment power with respect to
these shares. Mr. Kelly disclaims beneficial ownership of these shares.
(14) Excludes shares beneficially held by Spotless Group. Mr. Wilson is a
director and executive officer of Spotless Group and may be deemed to share
voting or investment power with respect to these shares. Mr. Wilson disclaims
beneficial ownership of these shares.
(15) The address for Mr. Phillips is c/o Fanning, Philips & Molnar, 909
Marconi Avenue, Ronkonkoma, New York 11779.
(16) Includes (a) 245,839 shares of Common Stock directly held by Dr.
Philips, and (b) options under which he may purchase 405,000 shares of Common
Stock which are exercisable within 60 days. Does not include 650,000 shares of
Common Stock issuable upon conversion of 650,000 shares of Series A Preferred
directly held by Dr. Phillips.
(17) Includes options under which members of the group may purchase an
aggregate of 4,855,000 shares of Common Stock which are exercisable within 60
days and 666,667 shares of Common Stock issuable upon conversion of a demand
convertible note held by a member of the group. Does not include (a) any shares
of Common Stock issuable upon conversion of any shares of Series A Preferred
held by a member of the group, (b) any shares of Common Stock issuable upon
exercise of the Closing Date Option or the Conversion Date Option, and (c)
shares of Common Stock directly held by JoAnn O'Reilly and the options under
which JoAnn O'Reilly may purchase shares of Common Stock, as to each of which
Michael O'Reilly disclaims beneficial ownership.
(18) Includes options under which members of the group may purchase an
aggregate of 4,855,000 shares of Common Stock which are exercisable within 60
days and 1,316,667 shares of Common Stock issuable upon conversion of a demand
convertible note held by a member of the group and shares of Series A Preferred
held by a member of the group. Does not include (a) any shares of Common Stock
issuable upon exercise of the Closing Date Option or the Conversion Date Option,
and (b) shares of Common Stock directly held by JoAnn O'Reilly and the options
under which JoAnn O'Reilly may purchase shares of Common Stock, as to each of
which Michael O'Reilly disclaims beneficial ownership.
</FN>
</TABLE>
WINDSWEPT ENVIRONMENTAL GROUP, INC.
By: /s/ Michael O'Reilly
Name: Michael O'Reilly
Title: Chief Executive Officer and President
16
<PAGE>
APPENDIX A
Donald & Co. Securities Inc.
Park Avenue Tower
65 East 55th Street
New York, New York 10022
October 26, 1999
Board of Directors
Windswept Environmental Group, Inc.
100 Sweeneydale Avenue
Bay Shore, New York, 11706
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to Windswept Environmental Group, Inc.
("Windswept" or the "Company") and its shareholders, of the proposed equity and
debt financing (the "Financing") of the Company by Spotless Plastics (USA), Inc.
("Spotless"). We assume for purposes of our opinion that the Financing as
ultimately embodied in the final versions of the Financing Documentation
(hereinafter defined) will not materially differ from the terms set forth in the
October 25, 1999 drafts of such documentation.
Pursuant to the Financing Documentation, the Financing is to consist of the
following equity and debt components:
Equity: In consideration of an aggregate purchase price of $2.5
million, Spotless is to receive (i) all shares of the Company's common
stock which are authorized but not issued and not reserved for issuance
pursuant to outstanding options, warrants, rights, securities or
commitments, constituting 22,284,683 shares of common stock; and (ii)
9,346 shares of Series B Convertible Preferred Stock, each share of which
would have powers, preferences, privileges and voting and economic rights
equivalent to that number of shares of common stock into which it is
convertible, and each share of which would be convertible at any time at
the option of Spotless pursuant to the formula set forth in the
Certificate of Designation respecting such preferred stock into a minimum
of one thousand shares of common stock. As a result of the equity
investment, Spotless will have beneficial ownership of a majority of the
issued and outstanding shares of common stock of the Company.
Debt: Spotless is loaning to the Company $2 million through a secured,
convertible promissory note bearing interest at the rate of LIBOR plus 1%.
The proceeds of the equity and debt financings are to be utilized by the
Company to repay
<PAGE>
outstanding indebtedness to Business Alliance Capital Corporation, amounts
due to taxing authorities for sales tax and payroll tax liabilities, suppliers
and other creditors and for working capital purposes.
In connection with rendering our opinion, we have reviewed and analyzed,
among other things, (i) the Letter of Intent dated September 13, 1999 between
Windswept and Spotless; (ii) drafts, dated October 25, 1999, consisting of (A)
Subscription Agreement (without schedules appended) between Windswept and
Spotless, (B) Form of Convertible Note made by Windswept, Trade-Winds
Environmental Restoration, Inc., North Atlantic Laboratories, Inc. and New York
Testing Laboratories, Inc. for the benefit of Spotless, (C) Security Agreement,
(D) Stock Option Agreement between Windswept and Michael O'Reilly relative to
2,811,595 shares of common stock of Windswept, (E) Stock Option Agreement
between Windswept and Michael O'Reilly relative to 2,674,714 shares of common
stock of Windswept, (F) Employment Agreement between Windswept and Michael
O'Reilly, (G) Letter Agreement between Spotless and Michael O'Reilly respecting
sale of the common stock of Windswept and corporate opportunities and (H)
Certificate of the Designation, Powers, Preferences and Rights of the Series B
Convertible Preferred Stock (all of such documents collectively referred to
herein as the "Financing Documents"); (ii) certain publicly available
information concerning the Company, including its annual report on Form 10-KSB
for the year ended April 30, 1999 and its quarterly report on Form 10-QSB/A for
the quarter ended July 31, 1999; (iii) certain financial forecasts concerning
the business and organization of the Company; (iv) certain publicly available
information with respect to certain other companies that we believe to be
comparable in certain respects to the Company and the trading markets for such
other companies' securities; and (v) certain publicly available information
concerning the nature and terms of certain other transactions that we consider
relevant to our inquiry. We have discussed the foregoing items and issues,
including business operations, financial conditions and prospects of the
Company, with certain officers and employees of the Company, as well as other
matters we believe relevant to our inquiry. We have conducted such other
studies, analysis, inquiries and investigations, and considered such other
matters, as we deemed relevant and appropriate.
In our review and in rendering our opinion, we have assumed and relied upon
the accuracy and completeness of all information provided to us or publicly
available. We have neither independently verified or assumed responsibility for
verifying any of such information. We have assumed that the financial
projections we have received have been reasonably prepared on a basis reflecting
the best currently available estimates and judgments of management as to future
financial performance. We have not made, obtained, or assumed any responsibility
for making or obtaining, any independent evaluations or appraisals of any of the
assets or liabilities of the Company including, without limitation, assets or
liabilities related to the environmental operations of the Company.
Our opinion is necessarily based on financial, economic, market and other
conditions as they exist on, and information made available to us as of the date
hereof. It should be understood that, although subsequent developments may
affect this opinion, we do not have any obligation to update, revise or reaffirm
this opinion. Furthermore, our opinion does not address the Company's underlying
business decision to effect the Financing, and should not be read as implying
any conclusion as to the price or trading range of the stock of the
post-Financing entity. Our opinion is based on the assumption that agreements to
be entered into will conform in all material respects to
2
<PAGE>
the Financing Documentation.
The opinion expressed herein was prepared for use of the Board of Directors
and does not constitute a recommendation to any stockholder as to how such
stockholder should vote. This letter and our opinion expressed herein are not to
be quoted, summarized or referred to, in whole or in part, without our prior
written consent.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the Financing is fair, from a financial point of view, to the
Company and its stockholders.
Very truly yours,
DONALD & CO. SECURITIES INC.
By: /s/ Stephen A. Blum
Stephen A. Blum, President
