<PAGE>
SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
[AMENDMENT NO. ]
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2)
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
The Eastwind Group, Inc.
- --------------------------------------------------------------------------------
(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):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid.
- --------------------------------------------------------------------------------
[_] 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:_________________________________________
2) Form, Schedule or Registration Statement No.:____________________
3) Filing Party:___________________________________________________
4) Date Filed:_____________________________________________________
<PAGE>
THE EASTWIND GROUP, INC.
May 7, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
The Eastwind Group, Inc. (the "Corporation"), which will be held on Thursday,
June 5, 1997, at the Eagle Lodge, Ridge Pike and Manor Road, Lafayette Hill,
Pennsylvania, 19444 commencing at 9:00 A.M. Your Board of Directors and
management look forward to greeting you.
At the meeting, stockholders will be asked to elect eight directors, to
approve certain amendments to the Corporation's Certificate of Incorporation, to
approve certain amendments to the Corporation's two stock option plans and to
consider such other matters as may properly come before the meeting. These
matters are discussed in greater detail in the accompanying proxy statement.
Your Board of Directors recommends a vote FOR the election of all
directors, FOR the amendments to the Certificate of Incorporation, and FOR the
amendments to the stock option plans.
Regardless of the number of shares you own or whether or not you plan to
attend, it is important that your shares be represented and voted at the
meeting. You are requested to sign, date and mail the enclosed proxy promptly.
The return of your proxy will not prevent you from voting in person if you
attend the meeting.
Your interest and participation in the affairs of the Corporation are most
appreciated.
Sincerely,
/s/ Paul A. DeJuliis
Paul A. DeJuliis
Chairman of the Board
and Chief Executive Officer
<PAGE>
THE EASTWIND GROUP, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 1997
May 7, 1997
To the Stockholders of THE EASTWIND GROUP, INC.
The Annual Meeting of Stockholders (the "Meeting") of The Eastwind Group,
Inc. (the "Corporation") will be held at the Eagle Lodge, Ridge Pike and Manor
Road, Lafayette Hill, Pennsylvania 19444 on Thursday, June 5, 1997, at 9:00 A.M.
for the following purposes:
(1) to elect eight directors;
(2) to approve an amendment of the Corporation's Certificate of
Incorporation to change the name and address of the Corporation's registered
agent and to make technical corrections;
(3) to approve an amendment to the Corporation's Certificate of
Incorporation to classify the Board of Directors of the Corporation;
(4) to approve amendments of the Stock Option Incentive Plan to (i)
increase the number of shares of Common Stock reserved for issuance thereunder,
(ii) modify the administration of the plan, and (iii) relax certain option
transfer restrictions;
(5) to approve amendments of the Non-Employee Directors Stock Option Plan
to (i) increase the number of shares of Common Stock reserved for issuance
thereunder and (ii) relax certain option transfer restrictions; and
to transact such other business as may properly come before the Meeting and
at any adjournments thereof.
The Board of Directors has fixed the close of business on April 30, 1997 as
the record date for determining the stockholders entitled to notice of and to
vote at the Meeting and at any adjournments or postponements thereof. Only
stockholders of record of the Corporation's Common Stock and Series B Preferred
Stock at the close of business on April 30, 1997 will be entitled to notice of
and to vote at the Meeting and at any adjournments or postponements thereof.
You are requested to fill in and sign the enclosed form of proxy which is
being solicited by the Board of Directors and to mail it promptly in the
enclosed postage-prepaid envelope. Any proxy may be revoked by delivery of a
later dated proxy. Stockholders of record who attend the Meeting may vote in
person, even if they have previously delivered a signed proxy.
By Order of the Board of Directors
/s/ William B. Miller
William B. Miller
Secretary
YOUR VOTE IS IMPORTANT
You are urged to sign, date and promptly
return your proxy in the enclosed reply envelope.
<PAGE>
THE EASTWIND GROUP, INC.
100 Four Falls Corporate Center, Suite 305
West Conshohocken, Pennsylvania 19428
_____________________________________
PROXY STATEMENT
_____________________________________
This proxy statement is furnished in connection with the solicitation
of proxies by the Board of Directors (the "Board") of The Eastwind Group, Inc.
(the "Corporation") to be voted at the Annual Meeting of Stockholders of the
Corporation on Thursday, June 5, 1997, and at any adjournments or postponements
thereof (the "Meeting") for the purposes described in the foregoing notice of
the Meeting. Proxies which are validly executed by stockholders and received by
the Corporation prior to the Meeting will be voted in accordance with the
instructions contained thereon. If no instructions are given, a proxy will be
voted for the election of the eight nominees proposed for election as directors,
and if the proposed amendment of the Corporation's Certificate of Incorporation
(the "Certificate") respecting the classification of the Board is approved, for
their election to the classes of the Board to which they are nominated; will be
voted for approval of certain amendments of the Certificate; and will be voted
for approval of the amendments to the Corporation's Stock Option Incentive Plan
and Non-Employee Directors Stock Option Plan.
The only securities entitled to vote at the Meeting consist of shares
of Common Stock and of Series B Preferred Stock. At the close of business on
April 30, 1997 (the "Record Date"), there were 2,786,019 shares of the
Corporation's Common Stock and 9,000 shares of the Corporation's Series B
Preferred Stock outstanding. Each share of Common Stock is entitled to one
vote, and each share of Series B Preferred Stock to one-tenth of a vote. Only
holders of record at the close of business on the Record Date will be entitled
to notice of and to vote at the Meeting. The holders of a majority of the
outstanding shares entitled to vote must be present in person or represented by
proxy at the Meeting in order to constitute a quorum for the transaction of
business. Abstentions and broker non-votes will be counted for the purpose of
determining a quorum but will not be counted in the election of directors.
Directors will be elected by a plurality of the votes of the shares present in
person or represented by proxy at the Meeting and entitled to vote. All other
proposals coming before the Meeting require the affirmative vote of the majority
of shares present in person or represented by proxy at the Meeting and entitled
to vote. For purposes of determining whether proposals other than the election
of directors have received a majority vote, abstentions will be counted in the
vote totals with the result that they have the same effect as a negative vote.
A broker non-vote on a matter is considered not entitled to vote on that matter
and thus is not counted in determining whether the affirmative vote of a
majority of the shares present and entitled to vote has been received.
A stockholder may revoke a proxy at any time before it has been
exercised by filing a written revocation with the Secretary of the Corporation;
by filing a duly executed proxy bearing a later date; or by appearing in person
and voting by ballot at the Meeting. The presence (without further action) of a
stockholder at the Meeting will not constitute revocation of a previously given
proxy.
A copy of the Corporation's Annual Report for the fiscal year ended
December 31, 1996 accompanies this proxy statement which, along with the
accompanying notice and form of proxy, were first mailed or given to
stockholders on or about May 7, 1997.
<PAGE>
1. ELECTION OF DIRECTORS
All of the nominees identified below, except Edward F. Sager, Jr. are
presently members of the Board. If the proposed amendments of the Corporation's
Certificate relating to the classification of the Board, which is to be voted
upon at the Meeting, is approved (see Proposal 3), a classified Board will be
established. The terms of all directors will expire at the Meeting, and the
Board has nominated the seven current directors named below for re-election to
either one, two or three year terms as set forth below and has nominated Mr.
Sager to a one year term. It is the intention of the persons named in the
accompanying form of proxy to vote such proxy for the election of these nominees
as directors for the terms specified below. In the event that any nominee is
unable to serve or will not serve as a director, it is intended that the proxies
solicited hereby will be voted for such other person or persons as may be
nominated by management. The stockholders of the Corporation do not presently
have the right of cumulative voting in the election of directors, nor is any
such cumulative voting requirement proposed.
There is a voting agreement between the Corporation, Messrs. Paul A.
DeJuliis and John R. Thach, Sector Associates, Ltd. ("Sector"), American Maple
Leaf Financial Corporation ("AMLF") and FAC Enterprises, Inc. ("FAC") which
provides that all parties will vote their shares of Common Stock so that one
director shall be nominated by Sector, one director shall be jointly nominated
by FAC and AMLF and five shall be nominated by Messrs. DeJuliis and Thach.
Sector, FAC and AMLF have nominated Messrs. Panzo and Bibb. Messrs. DeJuliis
and Thach have nominated, in addition to themselves, Messrs. Miller, Murray and
Mendicino. An agreement between the Corporation and Mentor Special Situation
Fund, L.P. ("MSSF") dated June 20, 1996 gives MSSF the right to nominate a
director to the Board. Mr. Sager is MSSF's nominee.
Position with the Corporation, Year in Which
Business Background Service as a
Name Age and Other Directorships Director Began
- ---- --- ------------------------------- --------------
DIRECTOR NOMINEES FOR TERMS WHICH EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS
IN 2000 (CLASS I):
Paul A. DeJuliis 41 Mr. DeJuliis is Chairman of the Board, 1993
Chief Executive Officer and a founder
of the Corporation. Prior to assuming
his current roles, he was a partner
in Phoenix Management Services, Inc., a
turnaround consulting firm (1989-91).
Previously, he was Vice-President,
Corporate Finance for Colmen & Co., a
national investment banking firm
(1987-89), and Manager, Corporate
Turnaround Consulting Group for Coopers &
Lybrand (1986-87). Mr. DeJuliis was a
director and officer of Lavelle Aircraft
Company, an aerospace manufacturing
company which filed for bankruptcy in
1994. Mr. DeJuliis has a B.S. in finance
and accounting from the University of
Delaware. He is also a certified public
accountant.
John R. Thach 46 Mr. Thach is President and a Director and 1993
a founder of the Corporation. Prior to
assuming his current roles, Mr. Thach
was an Associate, Vice President and Senior
Vice President for Butcher & Co. (1985 to
1987), Philadelphia First (1987 to 1989),
and Philadelphia Investment Banking (1989
to 1991), respectively, three regional
investment banking firms where he was
involved extensively in advisory roles to
a number of industrial companies.
2
<PAGE>
Position with the Corporation, Year in Which
Business Background Service as a
Name Age and Other Directorships Director Began
- ---- --- ------------------------------- --------------
Other experience includes Mr. Thach's
active participation (as an investor and
in management) in a number of successful
start-ups ranging from the creation of an
industrial chemical sales division of a
major U.S. corporation to the creation
of a municipal waste ash treatment company.
Mr. Thach was a director and officer of
Lavelle Aircraft Company, an aerospace
manufacturing company which filed for
bankruptcy in 1994. Mr. Thach holds an
undergraduate degree from the University of
Virginia, and an MBA from the Darden School
at the University of Virginia.
William B. Miller 56 Mr. Miller has been a Senior Vice 1995
President, Chief Financial Officer,
Secretary, Treasurer and a Director of the
Corporation since 1995. Mr. Miller is a
certified public accountant and founder, in
1976, of the public accounting firm of
Kreischer, Miller & Co. which he left in 1987.
Prior to the formation of that firm, he was
with Price Waterhouse in Philadelphia (1966-71).
Mr. Miller also served as Vice President and
Treasurer of WPHL-TV, Inc. in Philadelphia
(1971-75); President of Marian Financial
Services Corp. in Philadelphia, the real estate
finance affiliate of a private bank (1987-92);
Chief Financial Officer of Worlco, Inc.
(1990-91), a holding company for an insurance,
equipment leasing and commercial mortgage
brokerage companies which filed for bankruptcy
in 1993; and President of Schulmerich Carillons,
Inc. (1992-94). Mr. Miller holds an accounting
and economics degree from Muhlenberg College.
DIRECTOR NOMINEES FOR TERMS WHICH EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS
IN 1999 (CLASS II):
Anthony J. Mendicino 49 Mr. Mendicino has been Senior Vice President 1995
and Chief Operating Officer since January
1997 and is a Director of the Corporation.
Mr. Mendicino was Senior Vice President,
Chief Financial Officer and a director of UTI
Energy Corp., a diversified oil field service
company listed on the American Stock Exchange,
from 1987 through 1996. Prior thereto, since
1981, Mr. Mendicino served in various
capacities for UGI Corporation, initially as
Director of Corporate Development and, from
1984, as Treasurer. He holds a degree in
engineering from Lehigh University and an
MBA from the Wharton School of the University
of Pennsylvania.
Bruce P. Murray 51 Mr. Murray is a Director of the Corporation. 1995
He is a founder and President of the Bannock
Burn Group, Ltd., a management consulting firm
with a national practice specializing in
assisting businesses in transition. Prior to
the founding of his firm in 1987, he was part
of a senior operating turnaround team
3
<PAGE>
Position with the Corporation, Year in Which
Business Background Service as a
Name Age and Other Directorships Director Began
- ---- --- ------------------------------- --------------
recruited by The Sun Company to manage
Sun Ship in Chester, Pennsylvania and
thereafter part of the senior management
group at Sun Carriers, a trucking
subsidiary of the Sun Company. Prior
to that, Mr. Murray was employed by the
U.S. Maritime Administration as the
on-site representative at the Bath
Ironworks in Maine, where he was
responsible for managing the Maritime
Administration's interests in major
ship construction contracts. He is a
graduate of the United States Merchant
Marine Academy and has a masters degree
from Rensselaer Polytechnic Institute.
He was formerly Chairman and a Director
of the Board of EA Industries, Inc., the
stock of which is traded on the New York
Stock Exchange.
DIRECTOR NOMINEES FOR TERMS WHICH EXPIRE AT THE ANNUAL MEETING OF STOCKHOLDERS
IN 1998 (CLASS III):
Andrew Panzo 32 Mr. Panzo is a Director of the Corporation. 1995
He is the managing 1995 director of American
Maple Leaf Financial Corporation, an
investment banking advisor to the Corporation
which specializes in emerging growth companies.
He was the President and is also a director
of Sector Associates, Ltd., a publicly-held
company. Mr. Panzo was a director of Florida
West Airlines, Inc. from July through December
1993. Mr. Panzo was formerly Executive Vice
President of HMA Investments, Inc., an
investment banking firm where he managed
certain diversified securities investments.
He is formerly an associate with Venture
Partners, Ltd., a venture capital firm.
Mr. Panzo is a graduate of the University of
Connecticut and has a masters degree in
international business and finance from Temple
University.
Porter Bibb 59 Mr. Bibb is a Director of the Corporation. 1996
He has been with Ladenburg Thalmann & Co.,
Inc., an investment bank, since 1984 and is
currently serving as a Principal and its Co-
Director of Corporate Finance. Mr. Bibb was
formerly a Managing Director of Bankers'
Trust Company and Director of Corporate
Development of New York Times Company and
President and Co-Founder of Financial
Management, Inc. Mr. Bibb is a director of
PMC International, a publicly-held asset
management company. He is a graduate of
Yale University and has studied in graduate
programs at New York University, the London
School of Economics and Harvard Business School.
4
<PAGE>
Position with the Corporation, Year in Which
Business Background Service as a
Name Age and Other Directorships Director Began
- ---- --- ------------------------------- --------------
Edward F. Sager, Jr. 49 Mr. Sager has been the President of
Mentor Management Company since 1994,
general partner of Mentor Special
Situation Fund, L.P., an investment
fund, and President of Mentor Capital
Partners, Ltd., a venture capital firm
since 1994. From 1985 to 1994 Mr. Sager
was President of Sager & Associates,
a merchant banking firm providing access
to venture capital for small to medium
size companies. He is a graduate of
Lafayette College with a B. S. degree in
Mechanical Engineering and he received
an MBA in Finance from New York University.
Your Board recommends that stockholders vote FOR all of the director
nominees for the terms to which they have been nominated.
BOARD MEETINGS AND COMMITTEES
There are currently seven members of the Board. The Board held three
meetings in 1996. All members of the Board have attended more than seventy-five
percent of the meetings of the Board and of all committees on which they serve.
The following committees of the Board have primary responsibility for audit
and compensation matters:
Audit Committee: This committee has primary responsibility to review
accounting procedures and methods employed in connection with audit programs and
related management policies. The Audit Committee is the principal liaison
between the Board and the independent auditors for the Corporation. The Audit
Committee recommends the independent auditors to report on the Corporation's
annual financial statements. Messrs. Mendicino (Chairman), Murray and Bibb
compose the Audit Committee, which held no meetings in 1996.
Compensation Committee: It is the responsibility of this committee to make
a continuing review of the Corporation's compensation and benefit programs, to
consider its organizational structure, including management development and
succession, and to make recommendations to the Board regarding such programs and
structure. The Compensation Committee consists of Mr. Murray. Mr. Mendicino
resigned from the Compensation Committee effective December 31, 1996 because he
became an employee of the Corporation on January 1, 1997. The Compensation
Committee held three meetings in 1996.
The Corporation does not have a Nominating Committee. The Board has
nominated its current members and one other person for election as directors at
the Meeting pursuant to provisions in the Corporation's Certificate. The
Corporation's By-laws provide that a stockholder may nominate a person for
election as a director if written notice of the stockholder's intent to nominate
a person for election as a director at a meeting is received by the Secretary of
the Corporation not less than 50 days nor more than 75 days prior to the meeting
of stockholders at which directors are to be elected. The notice must contain
specified information about the stockholder and the nominee, including such
information as would be required to be included in a proxy statement pursuant to
the rules and regulations established by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended (the "1934 Act").
EXECUTIVE COMPENSATION
The following table discloses for the fiscal years ended December 31, 1994,
1995, and 1996, individual compensation information relating to the chief
executive officer of the Corporation and the executive officers of the
Corporation who earned in excess of $100,000 during 1996 (the "Named Executive
Officers").
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------- -------------------------------
Restricted
Other Annual Stock Options/ LTIP All Other
Name and Salary Bonus Compensation Awards SARS Payouts Compensation
Principal Position ($) ($) ($) ($) (#) ($) ($)
- -------------------- ------ ----- ------------ ----------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul A. DeJuliis/(1)/
Chief Executive Officer
1996 204,167 0 4,812 0 75,000 0 0
1995 157,917 0 3,661 0 125,000 0 0
1994 64,500 0 0 0 0 0 0
John R. Thach/(1)/
President
1996 190,321 0 3,841 0 75,000 0 0
1995 161,167 0 1,916 0 70,000 0 0
1994 77,500 0 0 0 0 0 0
William B. Miller
Chief Financial Officer
1996 103,500 0 2,765 0 35,000 0 0
1995 70,000 0 1,814 0 70,000 0 0
1994 0 0 0 0 0 0 0
</TABLE>
- -------------------
(1) Mr. DeJuliis and Mr. Thach received no compensation or other benefits from
the Corporation during fiscal year 1994. The amounts reported above for
that year were paid to them by Princeton Academic Press, which is presently
a wholly owned subsidiary of the Corporation but, during 1994, was owned by
a corporation not related to the Corporation.
5
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year and F/Y End
---------------------------------------------------------------
Option/SAR Values
-----------------
The following table sets forth information with respect to option
exercises and fiscal year-end option values for the Named Executive Officers.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of
Shares Acquired Value Unexercised Options/ Unexercised in-the-money
On Exercise Realized SARS at FY-End (#) Options/SARS at FY-End ($1)
Name (#) ($) Exercisable/Unexercisable Exerciseable/Unexercisable
- ----------------- --------------- -------- ------------------------- --------------------------
<S> <C> <C> <C> <C>
Paul A. DeJuliis 0 --- 41,667 / 158,333 0 / $9,375
John R. Thach 0 --- 23,333 / 121,667 0 / $9,375
William B. Miller 0 --- 23,333 / 81,667 0 / $4,375
</TABLE>
- -------------------
(1) Based upon the closing price of the Corporation's Common stock on
December 31, 1996 of $4.625.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
-------------------------------------
The following table sets forth information with respect to option grants
during 1996 to the Named Executive Officers.
<TABLE>
<CAPTION>
Number of Percent of
Securities Underlying Total Options/
Options/SARs SARs Granted Exercise
Granted to Employees Price Expiration
Name (#) in Fiscal Year ($/sh.) Date
- ------------------ ---------------------- -------------- -------- ----------
<S> <C> <C> <C> <C>
Paul A. DeJuliis 75,000 26% $4.50 2006
John R. Thach 75,000 26% $4.50 2006
William B. Miller 35,000 12% $4.50 2006
</TABLE>
6
<PAGE>
EMPLOYMENT ARRANGEMENTS
- -----------------------
Effective as of January 1, 1995, the Corporation entered into employment
agreements with Paul A. DeJuliis and John R. Thach. Each of these agreements
provides, based on recently consummated significant acquisitions, for a base
salary of $250,000 annually with certain automatic adjustments in the event
certain targets relating to the financial performance of the Corporation are
satisfied (incremental increases of $25,000 for each $1.0 million increase in
annual pre-tax net income over a base of $1.5 million), together with
discretionary bonuses, if any, to be declared by the Board, but with a provision
that at such time as each of their equity stock ownership in the Corporation is
reduced to 10% or less of the total issued and outstanding shares of all classes
of equity stock, then such employee shall be entitled to annual minimum
incentive compensation equal to 3% of the Corporation's annual pre-tax net
income. These agreements also provide for certain benefits, including vacation,
health and medical insurance, reimbursement of certain expenses and stock option
plan participation, but only to the extent such benefits are offered to
comparable employees by the Board. Such agreements contain covenants regarding
confidentiality of proprietary information of the Corporation and a restrictive
covenant in favor of the Corporation under certain circumstances. Each agreement
has an initial term of five years, and thereafter is annually renewable for
successive two-year periods. Such agreements will earlier terminate as a result
of the employee's death, permanent disability or dismissal for just cause. If
the termination results from death or permanent disability, the agreements
provide for continuation of base compensation and fringe benefits for a period
of six months, but if the termination results from any reason other than death,
permanent disability, termination for just cause, or where the employee
terminates his employment for good reason, then his base compensation and all
existing fringe benefits shall be continued for the balance of the unexpired
term of his employment agreement, but in no event for less than one year, after
which the employee shall be entitled to all earned and accrued incentive
compensation. Moreover, if his termination follows a change of control and the
employee owns no more than 20% of the total issued and outstanding securities of
the Corporation, he shall be entitled to a lump sum severance benefit equal to
500% of his annual base compensation.
In May 1995, the Corporation entered into an employment agreement with William
B. Miller. Such agreement provides for a base salary in the first year of
$84,000 per year, together with discretionary bonuses, if any, to be declared by
the Board. The base salary will automatically increase to $102,000 per year upon
the completion of a significant acquisition by the Corporation. The agreement
also provides for certain benefits, including vacation, health and medical
insurance, reimbursement of certain expenses and stock option plan
participation, if such are implemented for comparable employees by the Board.
The agreement contains covenants regarding confidentiality of proprietary
information of the Corporation and a restrictive covenant in favor of the
Corporation. The agreement is for a term of one year, and thereafter is annually
renewable for successive one year periods, although either party may terminate
the agreement upon six months written notice to the other and the Corporation
may discharge the employee at any time with or without cause. If the employee is
terminated without cause, the Corporation shall pay to the employee a severance
allowance equal to six months base compensation.
As of January 1, 1997, the Corporation entered into an Employment Agreement with
Anthony J. Mendicino. Such Agreement provides for a base salary in the first
year of $150,000 together with discretionary bonuses, if any, to be declared by
the Board. The base salary will be reviewed at least annually. The Agreement
also provides for certain benefits, including vacation, health and medical
insurance, reimbursement of certain expenses and Stock Option Plan
participation, if such are implemented for comparable employees by the Board.
The Corporation agreed to grant the employee options to purchase 55,000 shares
of its Common Stock at market price on December 31, 1996. The Agreement contains
covenants regarding confidentiality of proprietary information of the
Corporation and a restrictive covenant in favor of the Corporation. The
Agreement is for a term of one year, and thereafter is annually renewable for
successive one year periods, although either party may terminate the Agreement
upon six months written notice to the other and the Corporation may discharge
the employee at any time with or without cause. However, if the employee is
discharged without cause the Corporation will provide him with severance
compensation by continuing to pay him his monthly base salary and by continuing
coverage under group insurance programs in which he is then enrolled, for a
period of six months following the date of termination.
7
<PAGE>
COMPENSATION OF DIRECTORS
- -------------------------
Non-employee directors receive no cash compensation, but they participate in a
non-qualified stock option plan, under which Messrs. Panzo and Murray received
an option to purchase 40,000 shares of Common Stock in 1995 and Mr. Bibb
received an option to purchase 40,000 shares of Common Stock in 1996. Prior to
his employment by the Corporation, Mr Mendicino also received an option to
purchase 40,000 shares of Common Stock in 1995. Employee directors receive no
compensation in connection with their services as director. See Proposal 5 for a
description of the Non-Employee Directors Stock Option Plan.
8
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 30, 1997, information with
respect to the beneficial ownership of the Corporation's Common Stock by all
persons who may be deemed the beneficial owners of 5% or more of the
Corporation's outstanding Common Stock, by all officers and directors and the
non-director nominee, individually, and all officers and directors as a
group.
<TABLE>
<CAPTION>
AMOUNT & NATURE OF
BENEFICIAL
STOCKHOLDER OWNERSHIP % OF OWNERSHIP
- ----------------- ------------------- ----------------
<S> <C> <C>
Paul A. DeJuliis 517,667/1/ 17.2%
John R. Thach 499,333/2/ 16.7%
William B. Miller 48,333/3/ 1.7%
Anthony J. Mendicino 31,333/4/ 1.1%
Edward F. Sager, Jr. 30,000/5/ 1.1%
Andrew Panzo 23,333/4/ *
Bruce P. Murray 13,333/4/ *
Porter Bibb 13,333/4/ *
All Officers and Director
as a group (7 persons) 1,146,667/6/ 34.8%
</TABLE>
- ------------------
* Less than 1%
1 Includes 216,667 shares which may be obtained through currently exercisable
warrants and options.
2 Includes 198,333 shares which may be obtained through currently exercisable
warrants and options.
3 Includes 38,333 shares which may be obtained through currently exercisable
options.
4 Includes 13,333 shares which may be obtained through currently exercisable
warrants and options.
5 Represents shares underlying currently exercisable warrants held by Mentor
Management Company.
6 Includes 506,665 shares which may be obtained through currently exercisable
warrants and options.
The address of Messrs. DeJuliis, Thach, Mendicino, and Miller is 100 Four
Falls Corporate Center, Suite 305, West Conshohocken, PA 19428. The address of
Mr. Panzo is 401 City Avenue, Suite 725, Bala Cynwyd, PA 19004. The address of
Mr. Bibb is c/o Ladenburg Thalmann & Co., Inc. 540 Madison Avenue, New York, NY
10022. The address of Mr. Murray is c/o Bannock Burn Group, 712 Pheasant Run,
Suite Two, Kennett Square, PA 19348. The address of Mr. Sager is 570 Nottingham
Drive, Yardley, PA 19067.
There are 9,000 shares of the Corporation's Series B Preferred Stock
outstanding all of which are currently held by Bruce K. Worrall. The Series B
Preferred Stock is entitled to vote with the Common Stock and each share is
entitled to one-tenth of a vote. Mr. Worrall's address is 48 Collins Lane,
Schwenksville, Pennsylvania 19473.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Equity Infusion from Sector Associates, Ltd.
Effective on March 10, 1995, pursuant to a Securities Purchase Agreement
(the "Securities Purchase Agreement") dated January 25, 1995, Sector purchased
securities from the
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Corporation consisting of 200,000 shares of its Common Stock, 250,000 Class A
Common Stock Purchase Warrants, 187,500 Class B Common Stock Purchase Warrants
and 250,000 Class C Common Stock Purchase Warrants for an aggregate purchase
price in cash of $500,000. The prompt registration of such securities was a
requirement of the Securities Purchase Agreement, and following the
effectiveness of this registration statement, Sector distributed such securities
to its stockholders on a pro rata basis. Pursuant to the Securities Purchase
Agreement, Sector was given the unilateral right to determine how to equitably
apportion fractional shares and warrants in such distribution. In November
1995, the exercise prices of the Class A, B and C Warrants were reduced to
$3.00, $4.00, and $6.00 per share from their original exercise prices of $4.00,
$5.50, and $8.00 per share, respectively.
The Securities Purchase Agreement contains customary representations,
warranties and covenants of the Corporation for the benefit of Sector and its
shareholder distributees of the Corporation's securities, including customary
indemnification provisions. In addition, the Corporation's By-laws were amended
pursuant to the Securities Purchase Agreement to ensure that there shall be a
minimum of seven directors and the parties to the Securities Purchase Agreement
entered into a separate voting agreement concerning the election of such
directors. Pursuant to that voting agreement, Sector was guaranteed the ability
to elect at least one of the seven directors. The Corporation's By-laws were
further amended pursuant to the Securities Purchase Agreement and the voting
agreement to require the approval of 75% of the outstanding voting securities
for certain fundamental transactions. By an Agreement of Amendment and Waiver
dated April 25, 1997, the parties to the Securities Purchase Agreement and the
voting agreement agreed to waive and/or amend certain provisions of such
agreements relating to the specification of the number of directors on the Board
and the supermajority voting requirements applicable to certain fundamental
transactions. The Corporation's By-laws were concurrently modified to reflect
such waivers and amendments.
Description of Investment Banking Advisor Agreements
The Corporation entered into an Investment Banking Advisor Agreement on
January 25, 1995 with FAC and AMLF (collectively, the "Investment Advisors").
Pursuant to such agreement, the Investment Advisors are required to provide
certain consulting services of an investment banking and financial relations
nature to the Corporation in exchange for which the Corporation issued 40,000
shares of its Common Stock to FAC and 10,000 shares to Andrew Panzo on March 10,
1995.
Pursuant to the agreement, the Corporation was also obligated to issue an
aggregate of 100,000 additional shares of its Common Stock and an aggregate of
100,000 Class A-1 Warrants to the Investment Advisors, but only upon the
satisfaction of certain conditions tied to their performance. The agreement was
amended on December 15, 1995 to accelerate delivery of all of these conditional
shares and warrants provided that all of the Class A Warrants were exercised
before December 31, 1995. As of December 31, 1995, all Class A Warrants had
been exercised. Accordingly, the conditional Class A-1 Warrants and Common Stock
were issued as of that date.
The Investment Advisors are granted similar registration rights with
respect to the Common Stock issued and the conditional shares and warrants
issuable to them under the Investment Banking Advisory Agreement as have been
granted to Sector. The Investment Advisors are also given similar rights of
first refusal, similar indemnification and similar tag-along rights as those
given to Sector. The Investment Advisors, acting jointly, retain the right to
nominate one director of the Corporation.
In addition, the Investment Banking Advisor Agreement further provided that
the Corporation will pay the Investment Advisors a monthly fee of $6,000 (the
allocation of such aggregate fee between the two investment advisors to be
determined by them). Payment of such fee has been discontinued as of December
31, 1996.
The Investment Banking Advisor Agreement was the product of arm's length
negotiation, and the Corporation believes that the terms of such agreement are
not less favorable than could otherwise have been obtained as of the date of the
agreement.
Transactions with DTF Media, Inc.
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The Corporation acquired the shares of Princeton Academic Press, Inc.
("Princeton") in a share exchange with DTF Media, Inc. ("DTF"), a company formed
by Messrs. DeJuliis and Thach, officers and principal stockholders of the
Corporation, and the other founding stockholders, Graeme Frazier IV and Robert
Spahr, who owned the shares of Princeton. Messrs. DeJuliis, Thach and Frazier
each received 66,000 shares of Common Stock and Mr. Spahr received 22,000 shares
of Common Stock in exchange for all of the outstanding shares of Princeton. In
addition, the Corporation assumed certain specific liabilities of DTF, including
certain liabilities for professional fees ($26,000), and an intercompany
obligation payable to Princeton in a principal amount of $283,005. The
aggregate cost of the shares of Princeton in June 1993 was approximately
$596,000. Inasmuch as the share exchange reflected the initial organization of
the Corporation, there was no issue of valuation of the Princeton shares and,
for accounting purposes, the Princeton shares were accounted for on the basis of
the initial acquisition of the Princeton assets from PUP.
Investment in Lavelle Company
In March 1996, the Corporation invested $450,000 in Lavelle Company
("Lavelle") in the form of a subordinated debenture. The debenture matures in
March 2001 and pays quarterly interest at a rate of 20% per year. In connection
with its investment, the Corporation has guaranteed the indebtedness of Lavelle
under a $900,000 equipment facility. The Corporation's debenture is subordinate
to the equipment facility indebtedness. In addition, the Corporation has
pledged a $100,000 security interest in favor of the equipment facility lender.
Lavelle was incorporated to purchase the net assets of Lavelle Aircraft which
was liquidated under Chapter 11 of the U.S. Bankruptcy Law. Lavelle Aircraft is
owned by DTM Aerospace, Inc. of which Messrs. DeJuliis and Thach are directors,
officers and principal stockholders.
The $450,000 debenture has been recorded as a non-current asset on the
balance sheet of the Corporation. Because of the Corporation's guarantee and
pledge relating to Lavelle's equipment facility, any loss of Lavelle will be
recognized by the Corporation in its statement of operations and recorded as a
reduction in the carrying amount of its investment. To the extent Lavelle's
losses exceed the amount of the investment, a liability will be recorded on the
Corporation's balance sheet. In 1996, the Corporation provided working capital
advances to Lavelle of $366,000 and earned interest of $121,000 on its debenture
investment and such advances.
In January 1997, the Corporation entered into a stock exchange agreement
with all of the stockholders of Lavelle and exchanged an aggregate of 44,537
shares of the Corporation's Common Stock for all of the issued and outstanding
shares of Lavelle, aggregating 156,700 shares. As a result of such exchange,
Lavelle became a wholly owned subsidiary of the Corporation. None of the
stockholders of Lavelle were officers, directors or other affiliates of the
Corporation or of its officers, directors or significant stockholders.
Transactions with Mentor Special Situation Fund, L.P.
In June 1996, the Corporation, in a private placement, sold and issued to
MSSF a 12% Subordinated Debenture in an aggregate principal amount of $500,000
and a common stock purchase warrant to purchase up to 80,000 shares of the
Corporation's Common Stock at an exercise price of $6.00 per share, in exchange
for a cash payment by MSSF to the Corporation of $500,080. Concurrently
therewith, the Corporation entered into a Registration Rights Agreement with
MSSF granting MSSF certain registration rights with respect to the common stock
purchase warrants and the underlying shares of Common Stock at the same time as
the Corporation files its next Registration Statement. Edward F. Sager, Jr., a
nominee to the Board, is the president of Mentor Management Company, the general
partner of MSSF.
LEGAL PROCEEDINGS
Centennial Printing Corporation, a subsidiary of the Corporation,
("Centennial") instituted a Demand for Arbitration with the American Arbitration
Association on March 31, 1997, through the Corporation, against the former owner
of Centennial, who presently owns all of the outstanding Series B Preferred
Stock of the Corporation, pursuant to
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the indemnification provisions of the Merger Agreement between Centennial and
the Corporation executed in October 1996 (the "Merger Agreement"). The Demand
for Arbitration asserts
various theories of recovery and seeks damages of at least $4.5 million as well
as an order terminating obligations of Centennial to an employee under a
purported employment agreement between Centennial and such employee. The former
owner of Centennial has responded to the Corporation's Demand for Arbitration
and claimed certain amounts purportedly due under the Merger Agreement. At this
time, management is unable to state whether an outcome favorable to the
Corporation is either probable or remote, nor can management assess the amount
or range of expected recovery in the event of a favorable outcome.
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2. PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION TO CHANGE NAME AND ADDRESS OF
CORPORATION'S REGISTERED AGENT AND TO MAKE TECHNICAL CORRECTIONS
Article Two of the current Certificate identifies the Corporation's
registered agent. The Board has approved, subject to stockholder approval at
the Meeting, the change in the Corporation's registered agent. The Corporation's
proposed new registered agent is PHS Corporate Services, Inc., which is a
company affiliated with the Corporation's primary outside counsel. The
Corporation believes that utilization of PHS Corporate Services, Inc. will
enable the Corporation to eliminate certain annual fees presently charged to it
and its subsidiary corporations and will also foster greater control and
responsiveness to service of process in connection with litigation matters
involving the Corporation or its subsidiaries.
Due to an oversight upon filing, the current Certificate does not contain
an Article Three which defines generally the purpose of the Corporation. A new
Article Three is proposed to be inserted which articulates the Corporation's
purpose to be any lawful purpose. Such purpose was contained in the
Corporation's original Certificate of Incorporation and has remained the purpose
of the Corporation throughout its existence.
The text of the proposed amendments to Articles Two and Three of the
Certificate are set forth in full in Exhibit I hereto and reference is made
thereto for a complete statement thereof. If this proposal is approved by the
stockholders, the Corporation intends to include such amendments in a Second
Amended and Restated Certificate of Incorporation and to file such document with
the Secretary of the State of Delaware promptly after the Meeting.
Your Board believes that these amendments are in the best interests of the
Corporation and its stockholders and recommends that stockholders vote FOR this
proposal.
3. PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION TO CLASSIFY THE BOARD
Article Seven of the Corporation's current Certificate provides for a Board
numbering such persons as determined from time to time by a majority of the
Board. It further provides that all members of the Board are to be elected
annually for a term of one year. Under the proposed amendments to the
Certificate respecting classification of the Board, approximately one-third of
the directors would be elected each year. Initially, however, all members of
the Board will be elected at the Meeting with assigned terms of from one to
three years. If the proposed amendments are adopted, the slate of eight
directors proposed for election at the Meeting would be elected to three
separate classes as follows: three directors constituting the Class I Directors
would be elected for a term expiring at the 2000 annual meeting; two directors
constituting the Class II Directors would be elected for a term expiring at the
1999 annual meeting; and three directors constituting the Class III Directors
would be elected for a term expiring at the 1998 annual meeting. At each annual
meeting of stockholders after the 1997 annual meeting, directors would be
elected to succeed those persons whose terms expired at such annual meeting,
with each newly elected director to serve for a three year term. The
classification of the Board in this manner is permitted under Section 141(d) of
the Delaware General Corporate Law. See "Election of Directors" above for
information regarding the individual nominees for election as a director in 1997
and the class in which they will initially serve. If the proposed amendment is
not adopted, the eight nominees for election as directors will be nominated for
election to a term of one year each.
Under the proposed amendments, vacancies in the Board may be filled by a
majority vote of the directors then in office or by the sole remaining director
and the directors so chosen will hold office for a term expiring at the annual
meeting of stockholders at which the term of the class to which they have been
elected expires and until their successors are duly elected and qualified.
Adoption of the proposed amendments may have a significant effect on the
ability of stockholders to change the composition of an incumbent Board and to
benefit from certain business transactions which are opposed by an incumbent
Board. It may therefore discourage accumulations by third parties of voting
stock in the Corporation because its provisions would operate to delay the
purchaser's ability to obtain control of the Board in a relatively short period
of time. This delay arises because in the context of a classified Board, as
proposed, it would generally take a purchaser of a
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majority of the Corporation's stock at least two annual meetings of stockholders
to elect a majority of the Board, and the purchaser would need to obtain the
affirmative vote of the holders of at least a majority of the voting power of
the outstanding shares entitled to vote in an election of directors in order to
remove any directors, and then only for cause. Consequently, the effect of these
amendments may be to enhance the longevity of present management and discourage
certain mergers, tender offers, proxy contests or other potential takeover
proposals which some or a majority of the stockholders of the Corporation might
otherwise believe to be in their best interests.
The Corporation's current Certificate contains provisions that may be
considered to have an anti-takeover effect including provisions which state that
directors may only be removed for cause and that prohibit stockholders from
calling a special meeting or from voting by unanimous written consent. The
Certificate authorizes the issuance of 3,000,000 shares of preferred stock, par
value $.10 per share, issuable in one or more series, and, to date, two series
have been authorized by the Board. The Series A Preferred Stock consists of
1,000 shares, all of which have been issued. The Series B Preferred Stock
consists of 9,000 shares, all of which have been issued. The Series A Preferred
Stock does not provide for any special rights for the holders to elect any
directors, or vote upon any proposal presented at the Meeting. However, the
Series B Preferred Stock permits the holders to vote upon the election of
directors and any other matters requiring stockholder approval at a weighting of
one vote per share of Series B Preferred Stock equal to one-tenth of a vote per
share of Common Stock. If any preferred stock were to be issued in the future,
it is possible that such stock would be given special rights as a class to elect
one or more directors. If that were the case, the proposed amendments respecting
classification of the Board would not apply to any such directors.
The Board has no knowledge of any present effort to gain control of the
Corporation, either through acquisition of stock or by means of a proxy contest
or otherwise. Moreover, there has been no concern in the past or at the present
time with management continuity or stability. However, particularly in view of
the current environment of stock accumulations, hostile takeovers and proxy
contests facing public companies, the Board believes that it is prudent and in
the interest of stockholders generally to provide the advantage of greater
assurance of continuity of Board composition which will result from the adoption
of the proposed amendments to classify the Board. The Board believes such
advantage outweighs any disadvantage relating to discouraging potential
acquirors from making an effort to obtain control of the Corporation.
If the proposed amendments are adopted, the Board could not be declassified
without the approval of the holders of a majority of the voting power of the
outstanding shares entitled to vote in an election of directors.
If the amendments are not adopted, then the present Certificate will remain
in effect, and all of the nominees for election to the Board would instead
automatically be nominated only for a term of one year expiring at the 1998
annual meeting of stockholders.
The proposed amendments to classify the Board are not part of a plan by
management to adopt a series of amendments that may be considered to have an
anti-takeover effect and, while it reserves the right to do so, management has
no present intention to propose any other anti-takeover measures in future proxy
solicitations.
The text of the proposed amendments to Article Seven of the Certificate is
set forth in full in Exhibit II hereto and reference is made thereto for a
complete statement thereof. If this proposal is approved by the stockholders,
the Corporation intends to include such amendments in Article Six of a Second
Amended and Restated Certificate of Incorporation and to file such document with
the Secretary of the State of Delaware promptly after the Meeting.
Your Board believes that the proposed amendments are in the best interests
of the Corporation and its stockholders and recommends that stockholders vote
FOR this proposal.
4. AMENDMENTS TO THE EMPLOYEE STOCK OPTION INCENTIVE PLAN
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The Corporation's Stock Option Incentive Plan (the "Employee Option Plan")
was approved by the Board on August 6, 1995 and by the stockholders on August
24, 1995. The Employee Option Plan is a stock option plan for management and
other key employees of the Corporation and its subsidiaries, including a limited
number of outside consultants and advisors. A total of 750,000 shares of Common
Stock have been reserved for issuance under the Employee Option Plan, the
purpose of which is to attract and retain qualified personnel and provide
additional incentives to employees, officers and a limited number of others who
are not also serving as directors. To date, 585,000 non-qualified stock options
are currently outstanding under the Employee Option Plan, of which 113,334 have
vested. The following persons have received options under the Employee Option
Plan (with the underlying share amounts immediately following each person or
group): Mr. DeJuliis (200,000); Mr. Thach (145,000); Mr. Miller (105,000); Mr.
Mendicino (55,000); all current executive officers as a group (505,000); all
other employees as a group (80,000). The closing price of the Common Stock on
April 30, 1997 was $5.00 per share.
Of the aggregate number of shares reserved for issuance under the Employee
Option Plan, there are 165,000 shares available for grant. This effectively
limits the number of awards which may be made to any one person under such plan
and the number of employees eligible to receive awards under the plan.
Accordingly, the Board has recommended that the number of shares of Common Stock
reserved for issuance under the Plan be increased by 750,000 to 1,500,000
shares.
The Employee Option Plan is currently administered by the Compensation
Committee. The terms of the plan require that the Compensation Committee
consist of two or more members. Presently, the Board's Compensation Committee
consists of only one member since Mr. Mendicino resigned from such committee
concurrently with his becoming an employee of the Corporation on January 1,
1997. In order to provide greater flexibility in granting awards pursuant to
the Employee Option Plan and to more readily assure that such grants remain
exempt under the regulations under Section 16 of the 1934 Act which govern
short-swing profit liability imposed by that section and which require, among
other things, that the Compensation Committee be composed of two or more "non-
employee directors," the Board recommends that the Employee Option Plan be
modified (i) to require that the Compensation Committee administering the plan
be composed solely of two or more "non-employee directors" as that term is
defined in Rule 16b-3(b)(3) under the 1934 Act and, (ii) to enable the Board to
make grants of awards and perform other administrative duties under the Plan if
the composition of the Compensation Committee differs from the prescribed
composition by reason of resignation, termination, ineligibility or other
reason. Such amendments will allow the Board to effectively co-administer the
Employee Option Plan and would eliminate any potential problems associated with
the composition of the Compensation Committee at any given time.
The Employee Option Plan, as currently composed, permits certain transfers
of options upon the death of an option recipient as provided in his will or by
applicable laws of descent and distribution, but otherwise places significant
transfer restrictions on options. The Corporation believes that this unduly
restricts an employee's estate planning flexibility with respect to options, and
notes that limited transfers to immediate family members or to trusts for the
benefit of such family members would be useful for an option recipient's estate
planning purposes and are customarily permitted in other publicly-held
companies' stock option plans. Accordingly, the Board recommends that the
Employee Option Plan be amended to permit limited transfer of options to
immediate family members or trusts for their benefit in order to enhance an
option recipient's estate planning flexibility.
The proposed amendments to the Employee Option Plan are set forth in full
in Exhibit III hereto and reference is made thereto for a complete statement
thereof.
It should be noted that the officers of the Corporation who serve on the
Board, which recommended these amendments, potentially may benefit from such
amendments, both as to the number of stock options which may be granted to them
in the future and with respect to the increased estate planning flexibility
permitting limited transfer of options to immediate family members.
SUMMARY OF MATERIAL FEATURES OF THE EMPLOYEE OPTION PLAN
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The Employee Option Plan provides for the granting to eligible employees,
outside consultants and advisors of incentive stock options ("ISOs"),
nonqualified stock options ("NQOs") and stock appreciation rights ("SARs"),
which SARs may either be awarded in tandem with stock options ("Tandem SARs") or
independently ("Non-Tandem SARs"). There are 35 employees of the Corporation and
its subsidiaries eligible to receive such awards. Presently, the Compensation
Committee administers the plan. If the proposed amendments to the plan are
approved, either the Board or the Compensation Committee may administer the
plan. The Compensation Committee determines the terms of all options or SARs
granted, their exercise price, the number of shares subject to the options or
SARs and when they may be exercised. No option can be granted at an exercise
price which is less than the fair market value of the Common Stock on the date
of grant. ISOs may only be granted to employees who are then employees of the
Corporation or one of its subsidiaries for a term not to exceed ten years from
the date of grant, and the aggregate fair market value (determined with respect
to each ISO at the time it is granted) of the shares of Common Stock with
respect to which the ISO is exercisable for the first time by an employee during
any calendar year shall not exceed $100,000. Additional restrictions apply in
the case of the grant of an ISO to any employee who owns Common Stock possessing
more than 10% of the total combined voting power of all classes of stock of the
Corporation (including requirements that the option price be at least equal to
110% of the fair market value of the Common Stock at the date of grant and that
no such ISO may be exercised after five years from the date of grant). As
presently composed, the Employee Option Plan provides that no option or SAR may
be transferred by the employee other than by will or the laws of descent or
distribution. During the lifetime of the employee, the option or the SAR may be
exercised only by him or his legally appointed guardian or representative.
Payment of the exercise price of an option may be made in cash, by delivery of
Common Stock or with such other consideration as is approved by the Compensation
Committee. The Compensation Committee determines at the time of grant the terms
under which options and SARs shall vest and become exercisable. Tandem SARs are
exercisable only to the extent that the related option is exercisable and only
for the period determined by the Compensation Committee. Options and SARs may be
exercised within three months following the termination of an employee's
employment with, or a consultant's provision of active consulting services to,
the Corporation (other than by death or total disability) but in no case later
than the term specified in the grant. Upon the death or total disability of an
employee or consultant while employed by the Corporation or during the term of
the consultant's active role with the Corporation (or upon the death of the
employee or consultant within three months after such termination), options and
SARs shall remain exercisable for one year following such employee's or
consultant's death, for nine months following the date the employee first
receives benefits under the Corporation's Long Term Disability Plan (and with
respect to a consultant, nine months following the determination of total
disability of such consultant).
Shares of Common Stock attributable to unexercised options which expire or
are terminated, surrendered or canceled (other than in connection with the
exercise of an SAR) may become available for subsequent award under the Employee
Option Plan at the Compensation Committee's discretion. The number of shares
available under the Employee Option Plan may be adjusted by the Compensation
Committee to prevent dilution or enlargement of rights in the event of various
changes in the capitalization of the Corporation. The Board may suspend, amend,
modify or terminate the Employee Option Plan; provided, however, that the
Corporation's stockholders must approve any amendment that would materially
increase the aggregate number of shares issuable under such Plan, materially
increase the benefits accruing to employees under such plan, or materially
modify the requirements for eligibility to participate in such Plan. Awards
granted prior to termination of the Employee Option Plan shall continue in
accordance with their terms following such termination. No amendment,
suspension or termination of the Employee Option Plan shall adversely affect the
rights of any employee in awards previously granted without such employee's
consent.
On February 12, 1997, the Corporation adopted a loan plan for officers,
directors and key employees (the "Loan Plan") designed to provide interest-free
loans to those officers, directors and other key employees of the Corporation
who are subject to certain restrictions on the purchase and sale of Common Stock
imposed under Section 16(b) of the 1934 Act, or in other cases where exercise of
stock options granted could impose a hardship upon the optionee wishing to
exercise such options. The loans are granted in lieu of SARs and are designed
to eliminate the borrowing costs of holding stock for the six-month holding
period required by Section 16(b). The Loan Plan is administered by the
Compensation Committee. The terms of the plan provide, in general, for the
loans to become due and payable after the six-month holding period elapses
unless the market price of the stock at the end of that period is below the
market price of the stock on the date of exercise. In that event, the loan term
may continue for a greater period
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of time, not to exceed five years unless extended by the Compensation Committee.
Loan amounts are limited to the amount required for the exercise of stock
options. Each loan is secured by a pledge of all of the shares of Common Stock
acquired pursuant to such exercise, and is made with full recourse against the
individual participant obtaining the loan. The Compensation Committee has
complete discretion in determining whether or not to make a loan in a particular
case. To date, no loans have been made under the Loan Plan.
See "Federal Income Tax Consequences Relevant to Stock Option Plans" below
for a discussion of the tax consequences relevant to the Employee Option Plan.
Your Board of Directors believes that the proposed amendments of the
Employee Option Plan are in the best interests of the Corporation and its
stockholders, and recommends that stockholders vote FOR this proposal.
5. AMENDMENTS TO THE NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
The Board and the stockholders approved the Non-Employee Directors Stock
Option Plan (the "Directors Option Plan") on August 24, 1995. A total of
250,000 shares of Common Stock have been reserved for issuance under the
Directors Option Plan. The purpose of this Plan is to attract, retain and
motivate highly qualified individuals to serve as directors of the Corporation.
To date, options for a total of 160,000 shares of Common Stock have been
granted under the Directors Option Plan, of which, options for 53,333 shares are
currently vested and exercisable. Messrs. Mendicino, Murray, Panzo and Bibb have
each received an option to purchase 40,000 shares of Common Stock under the
Directors Option Plan. Under the formula provision of the Directors Option
Plan, Messrs. Murray, Panzo and Bibb, if re-elected as directors at the Meeting,
will each receive such additional options to purchase an amount of shares of
Common Stock to be determined by dividing $10,000 by the fair market value of a
share of Common Stock on the day after the Meeting (as further described below
under "Summary of Material Features of Directors Option Plan") with an exercise
price equivalent to such fair market value. Additionally, Mr. Sager, if elected,
will receive an option to purchase 40,000 shares of Common Stock plus a formula
grant identical to the other directors. Accordingly, the Board has recommended
that the number of shares reserved for issuance under the Plan be increased by
250,000 to 500,000 shares.
The Directors Option Plan, as currently composed, permits certain
transfers upon the death of an option recipient as provided in his will or by
applicable laws of descent and distribution but otherwise places significant
transfer restrictions on options. The Corporation believes that this unduly
restricts a director's estate planning flexibility with respect to options, and
notes that limited transfers to immediate family members or to trusts for the
benefit of such family members would be useful for an option recipient's estate
planning purposes and are customarily permitted in other publicly-held
companies' stock option plans. Accordingly, the Board recommends that the
Directors Option Plan be amended to permit limited transfer of options to
immediate family members or trusts for their benefit in order to enhance an
employee option recipient's estate planning flexibility.
The proposed amendments to the Directors Option Plan are attached as
Exhibit IV to this Proxy Statement.
It should be noted that the non-employee members of the Board who
recommended these amendments, potentially may benefit from such amendments, both
as to the number of stock options which may be granted to them in the future and
with respect to the increased estate planning flexibility permitting limited
transfer of options to immediate family members.
SUMMARY OF MATERIAL FEATURES OF THE DIRECTORS OPTION PLAN
The number of NQOs granted annually (the exercise price of which will be
the fair market value of the Common Stock on the date of grant) to each eligible
director is determined by dividing $10,000 by the fair market value of a share
of Common Stock on the first Friday following the Corporation's annual meeting
of stockholders (the "Valuation Date"). In addition, upon joining the Board,
each director is awarded 40,000 options with an exercise price equal to the
fair market value of the Common Stock. For these purposes, the fair market
value of the Common Stock
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shall be determined by the higher of (i) the simple average of the high and low
prices at which the Common Stock traded on the date of grant, as quoted on the
NASDAQ reporting system or other principal exchange on which such Common Stock
is traded or (ii) the price of the last sale of Common Stock on that date as
quoted by the NASDAQ reporting system or such other principal exchange, which
price shall then be rounded up to the next higher multiple of $.125 (unless that
figure is already a multiple of $.125). NQOs granted under the Directors Option
Plan generally become exercisable at the rate of one-third for each full year of
the director's continued service following the date of grant and shall expire
ten years after the date of grant. In no event may shares of Common Stock
issued upon exercise of such NQOs be sold or otherwise disposed of within six
months following the date of grant. Upon a director's cessation of service as a
director (except as a result of reaching a mandatory retirement age, death or
disability) only those NQOs immediately exercisable at such date may be
exercised, and they must be exercised within six months following cessation of
service or they shall be forfeited. If the director is terminated as a director
by reason of a permanent disability, all unexercised NQOs, whether or not then
vested, shall be exercisable, but must be exercised within six months following
such retirement date, date of death or termination as a director by reason of
disability, or they shall be forfeited.
The Directors Option Plan is administered by the Board or by a committee of
the Board comprised of those directors not eligible to receive options under the
Directors Option Plan. As presently composed, NQOs granted under the Directors
Option Plan may not be transferred other than by will or the laws of descent and
distribution, and, during the director's lifetime, an NQO may only be exercised
by him or his legally appointed guardian or representative. The Directors
Option Plan requires that the Corporation's stockholders approve any amendment
that would materially increase the aggregate number of shares issuable under
such plan, materially increase the benefits accruing to optionees under such
plan, or materially modify the requirements for eligibility to participate in
such plan.
Options granted under the Directors Option Plan are also subject to the
Loan Plan described above under "Summary of Material Features of the Employee
Option Plan."
See "Federal Income Tax Consequences Relevant to Stock Option Plans" below
for a discussion of the tax consequences relevant to the Directors Option Plan.
Your Board of Directors believes that the proposed amendments to the
Directors Option Plan are in the best interests of the Corporation and its
stockholders, and recommends that stockholders vote FOR this proposal.
FEDERAL INCOME TAX CONSEQUENCES RELEVANT TO STOCK OPTION PLANS
The following is intended only as a brief summary of the federal income tax
rules relevant to stock options issued and supplemental cash payments made under
the Employee Option Plan and the Directors Option Plan. These rules are highly
technical and subject to change in the future. In particular, the discussion of
ISOs is based, in part, on temporary or proposed regulations which may be
amended substantially before they are adopted in final form.
A publicly held corporation may not, subject to limited exceptions, deduct
for federal income tax purposes certain compensation paid to an executive who is
the chief executive or one of the four other highest paid executives in excess
of $1 million in any taxable year (the "$1 million cap"). Compensation
attributable to the exercise of options could be counted in determining whether
the $1 million cap has been exceeded in any taxable year. Whether the $1
million cap with respect to such an executive will be exceeded, and whether the
Corporation's deductions for compensation are in excess of the $1 million cap
will be denied, will depend on the resolution of various factual and legal
issues that cannot be determined at this time.
Loans granted pursuant to the Loan Plan may be subject to the original
issue discount rules (the "OID Rules") or the below-market loan rules (the
"Below-Market Rules") of the Federal tax law. If loans are subject to the OID
Rules or the Below-Market Rules, the Corporation may recognize taxable interest
income without the receipt of cash and may receive a compensation expense
deduction subject to various rules. Whether such loans would be subject to the
OID Rules or the Below-Market Rules, and the tax consequences thereof, will
depend upon the resolution of various factual and legal issues that cannot be
determined generally at this time.
Nonqualified Stock Options
In general, an optionee will not recognize any taxable income, and the
Corporation will not be entitled to a deduction, upon the grant of an NQO. Upon
the exercise of an NQO where the exercise price is paid in cash, the optionee
will recognize ordinary income (subject to wage and employment tax withholding)
equal to the excess of the
18
<PAGE>
fair market value of the shares acquired over the option exercise price. The
amount of such excess is generally determined by reference to the fair market
value of the Common Stock on the date of exercise. However, in the case of an
optionee subject to six month short-swing profit liability under Section 16(b)
of the 1934 Act (a "16(b) Person") -- typically, officers, directors and major
stockholders of the Corporation, such excess is determined by using the fair
market value on the later of the date of exercise or the date six months after
the date of grant, unless such optionee elects to be taxed based on the fair
market value of the Common Stock on the date of exercise by filing an
appropriate election with the Internal Revenue Service within 30 days after the
exercise date. An optionee's basis in the stock received will equal such
stock's fair market value on the date of exercise (or on the date six months
after the date of grant, if later, in the case of an optionee who is a 16(b)
Person and who makes no such election). The Corporation will be entitled to a
deduction (subject to the $1 million cap) equal to the compensation taxable to
the optionee.
Upon the sale of shares of Common Stock acquired pursuant to the exercise
of an NQO, such optionee will recognize capital gain or loss equal to the
difference between the selling price of the shares and the optionee's basis in
the shares. Such capital gain or loss will be long-term gain or loss if the
optionee has held the shares for more than one year. In the case of an optionee
who is a 16(b) Person and who does not make the election described above, any
such capital gain will be long-term only if the stock has been held for more
than one year after the later of the exercise date or the date six months after
the date of grant. The Corporation will not be entitled to any deduction with
respect to any capital gain recognized by the optionee.
Incentive Stock Options
An optionee will not recognize taxable income on the grant or exercise of
an ISO. However, the excess of the Common Stock's fair market value on the
exercise date (the fair market value on the exercise date or six months after
the date of grant, whichever is later, is likely to govern in the case of a
16(b) Person) over the option exercise price will be included in the optionee's
alternative minimum taxable income and thereby may subject the optionee to an
alternative minimum tax. Such alternative minimum tax may be payable even though
the optionee receives no cash upon the exercise of his or her ISO with which to
pay such tax. Upon the disposition of shares of Common Stock acquired pursuant
to the exercise of an ISO (i) more than one year after the date of exercise, and
(ii) more than two years after the date of grant (the "Required Holding
Periods"), the optionee will recognize long-term capital gain or loss, as the
case may be, measured by the difference between the stock's selling price and
the exercise price. The Corporation will not be entitled to any tax deduction by
reason of the grant or exercise of an ISO, or a disposition of stock received
upon the exercise of an ISO after the Required Holding Periods have been
satisfied.
If an optionee disposes of the shares of Common Stock acquired pursuant to
the exercise of an ISO before the expiration of the Required Holding Periods (a
"Disqualifying Disposition"), the difference between the exercise price of such
shares and the lesser of (i) the fair market value of the shares upon the date
of exercise (the fair market value on the exercise date or six months after the
date of grant, whichever is later, is likely to govern in the case of a 16(b)
Person), or (ii) the selling price, will constitute compensation taxable to the
optionee as ordinary income. The Corporation will be entitled to a corresponding
tax deduction (subject to the $1 million cap) equal to the amount of
compensation taxable to the optionee. If the selling price of the stock exceeds
the fair market value on the exercise date (or six months after the date of
grant, if later, in the case of a 16(b) Person), the excess will be taxable to
the optionee as a capital gain (long-term or short-term, depending upon whether
the optionee held the stock for more than one year). The Corporation will not be
entitled to a deduction with respect to any such capital gain recognized by the
optionee.
If the proposed amendments to the Employee Option Plan permitting certain
transfers of options to family members are approved, such may preclude an option
grant qualifying as an ISO unless the particular operative agreement granting
the option reimposes the restrictions upon lifetime transfers which applied
generally under the Employee Option Plan prior to such amendments.
SARs
The grant of SARs will normally not result in taxable income to the
optionee. At the time of exercise, an optionee should recognize ordinary
compensation income in an amount equal to the cash and the fair market value of
the Common Stock the optionee receives to satisfy the optionee's SAR. The tax
basis of any such shares of Common Stock received by the optionee pursuant to a
SAR should be equal to the amount includable in the optionee's gross income as
compensation in respect of such shares, and the optionee's holding period
thereafter should normally commence on the
19
<PAGE>
day on which the optionee receives such shares. The Corporation will be
entitled to a deduction with respect to any compensation income recognized by
the optionee.
Use of Common Stock to Pay Option Price
If an optionee delivers previously-acquired Common Stock, however acquired,
in payment of all or part of the option exercise price of an NQO, the optionee
will not, as a result of such delivery, recognize gain or loss for federal
income tax purposes on the shares surrendered. The optionee's tax basis in, and
holding period for, the previously acquired stock surrendered will carry over to
an equal number of the option shares received on a share-for-share basis. The
fair market value of the shares received in excess of the shares surrendered
will constitute compensation taxable to the optionee as ordinary income. Such
fair market value will be determined on the date of exercise except in the case
of 16(b) Persons as discussed above. The tax basis for the shares received in
excess of the Shares surrendered will equal their fair market value as so
determined, and such shares' holding period begins on the date on which the fair
market value of such shares is determined. The Corporation will be entitled to a
tax deduction (subject to the $1 million cap) equal to the compensation income
recognized by the optionee. The Corporation will not be entitled to a deduction
with respect to any capital gain recognized by the optionee.
If an optionee delivers previously-acquired Common Stock (other than stock
acquired upon exercise of an ISO and not held for the Required Holding Periods)
in payment of all or part of the option price of an ISO, the optionee will not
recognize gain or loss for federal income tax purposes on the shares
surrendered. The optionee's tax basis in, and holding period (for capital gain
purposes, but not for the purpose of the Disqualifying Disposition rules) for,
the previously-acquired stock surrendered will carry over to an equal number of
the option shares received on a share-for-share basis. Shares received in excess
of the shares surrendered will have a tax basis equal to the amount paid (if
any) in excess of the previously-acquired shares used to pay the exercise price,
and such shares' holding period will begin on the date of exercise (with the
possible exception of a 16(b) Person). Proposed regulations provide that where
an ISO is exercised using previously-acquired stock, a later Disqualifying
Disposition of the shares received will be deemed to have been a disposition of
the shares having the lowest basis first. The Corporation will not be entitled
to a deduction with respect to any capital gain recognized by the optionee.
If an optionee pays the exercise price of an ISO in whole or in part with
previously-acquired Common Stock that was acquired upon the exercise of an ISO
and that has not been held for the Required Holding Periods, the optionee will
recognize ordinary income (but not capital gain) under the rules applicable to
Disqualifying Dispositions. The Corporation will be entitled to a corresponding
deduction (subject to the $1 million cap). The optionee's basis in the shares
received in exchange for the shares surrendered will be increased by the amount
of ordinary income the optionee recognizes.
OTHER MATTERS
The Board does not know of any other matter which is intended to be brought
before the meeting, but if such matter is presented, the persons named in the
enclosed proxy intend to vote the same according to their best judgment.
The Corporation's auditors are Arthur Andersen LLP. A representative of
Arthur Andersen LLP has been invited and is expected to attend the Meeting. Such
representative will be given an opportunity to make a statement if so desired
and is expected to be available to respond to appropriate questions.
EXPENSES OF SOLICITATION
The cost of this proxy solicitation will be borne by the Corporation. In
addition to the use of mail, proxies may be solicited in person or by telephone
by employees of the Corporation without additional compensation. The Corporation
will reimburse brokers and other persons holding stock in their names or in the
names of nominees for their expenses incurred in sending proxy material to
principals and obtaining their proxies.
1998 STOCKHOLDER PROPOSALS
20
<PAGE>
In order for stockholder proposals for the 1998 Annual Meeting of
Stockholders to be eligible for inclusion in the Corporation's proxy statement,
they must be received by the Corporation at its principal office in West
Conshohocken, Pennsylvania, on or before February 5, 1998.
PLEASE DATE, SIGN AND RETURN THE PROXY CARD AT YOUR EARLIEST CONVENIENCE IN
THE ENCLOSED REPLY ENVELOPE.
THE EASTWIND GROUP, INC.
May 7, 1997
21
<PAGE>
EXHIBIT I
Proposed New Article Two will read as follows:
ARTICLE TWO
REGISTERED OFFICE
-----------------
The address of the Corporation's registered office in the state of Delaware
is Suite 1600, 1201 Market Street, P.O. Box 1709, Wilmington, Delaware 19899-
1709 in the County of New Castle. The name of its registered agent at such
address is PHS Corporate Services, Inc.
----------------------------------
Proposed New Article Three will read as follows:
ARTICLE THREE
PURPOSES
--------
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
<PAGE>
EXHIBIT II
The proposed amendments to current Article Seven if adopted, will be contained
in proposed new Article Six of the Corporation's Second Amended and Restated
Certificate of Incorporation and will read as follows:
ARTICLE SIX
The following provisions are inserted for the management of the business
and the conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its Directors
and Stockholders:
(a) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors, and the Board of Directors is
empowered to delegate such of its duties and authority as it shall determine to
an Executive Committee of such Board of Directors provided such delegation is in
accord with the General Corporation Law of the State of Delaware.
(b) The exact number of directors of the Corporation shall be
determined from time to time by resolution of the Board of Directors.
(c) The Board of Directors shall be divided into three classes. Each
class shall consist, as nearly as possible, of one-third of the total number of
directors constituting the entire Board of Directors, and the term of office of
one class shall expire each year. At the first annual meeting of stockholders
at which this Certificate of Amendment of this Corporation's Certificate of
Incorporation shall be duly and properly approved by the requisite vote of
stockholders (the "Approval Date"), directors of the first class shall be
elected to hold office for a term expiring at the next succeeding annual
meeting, directors of the second class shall be elected to hold office for a
term expiring at the second succeeding annual meeting and directors of the third
class shall be elected to hold office for a term expiring at the third
succeeding annual meeting, provided that such Certificate of Amendment to the
Certificate of Incorporation of this Corporation shall be promptly filed with
the office of the Secretary of State of the State of Delaware following the
Approval Date. Subject to the foregoing, at each annual meeting of stockholders
after the Approval Date, the stockholders shall elect directors of the class
whose term then expires, to hold office until the third succeeding annual
meeting. Each director shall hold office for the term for which elected and
until his or her successor shall be elected and shall qualify.
(d) Any director, any class of directors or the entire Board of
Directors may be removed by majority stockholder vote at any time, but only for
cause. Vacancies in the Board of Directors, including newly created
directorships resulting from any increase in the authorized number of directors,
may be filled by a majority vote of the directors then in office, though less
than a quorum or by a sole remaining director. The directors so chosen shall
hold office for a term expiring at the annual meeting of stockholders at which
the term of the class to which they have been elected expires and until their
successors are duly elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of an
incumbent director.
(e) Whenever the holders of any class or series of preferred stock
shall have the right, voting separately as a class, to elect one or more
directors of the Corporation, none of the foregoing provisions of this Article
Six shall apply with respect to the director or directors elected by such
holders of preferred stock.
(f) In addition to the power and authority herein before or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the General
Corporation Law of the State of Delaware, this Certificate of Amendment to the
Certificate of Incorporation and any Bylaws adopted by the Stockholders;
provided, however, that no Bylaws hereafter adopted by the Stockholders shall
invalidate any prior act of the directors which would have been valid if such
Bylaws had not been adopted.
<PAGE>
(g) Special meetings of Stockholders, for any purpose or purposes, may
be called only by either the Chairman, if there be one, or the President and
shall be called by the Secretary or any Assistant Secretary, if there be one, at
the request in writing of majority of the Board of Directors.
(h) No action required or permitted to be taken at any annual or
special meeting of Stockholders of the Corporation may be taken without a
meeting, and Stockholders of the Corporation may not take action by written
consent.
(i) The Corporation expressly elects to be governed by Section 203 of
the General Corporation Law of the State of Delaware.
<PAGE>
EXHIBIT III
THE EASTWIND GROUP, INC.
AMENDMENT NO. 1 TO
STOCK OPTION INCENTIVE PLAN
Whereas, The Eastwind Group, Inc. (the "Corporation") first established its
Stock Option Incentive Plan by adoption by its Board of Directors on August 6,
1995, subsequently approved by its Stockholders on August 24, 1995.
Now, as of this 12th day of February, 1997, the Corporation, by proper
action of its Board of Directors, desires to amend the Plan in certain respects
and further intends to submit such amendments for approval by its stockholders
at its next Annual Meeting of Stockholders and will disseminate information to
such stockholders regarding such proposed amendments in its proxy materials:
WHEREAS, the Corporation has determined that it does not have
sufficient remaining shares available under the Plan and wishes to increase the
maximum number of shares available;
WHEREAS, the Corporation wishes to provide additional flexibility in
administration of the Plan in order to cover changes in the composition of the
committee administering the Plan and to further assure compliance with the Rules
under (S)16 of the Securities Exchange Act of 1934; and
WHEREAS, the Corporation has determined that in some cases optionees
may wish to engage in estate planning activities regarding the shares subject to
option, but under the current provisions of the Plan are limited to transfers of
such options upon death, and would like additional flexibility for inter vivos
gifting of such options to immediate members of the optionee's family, and also
to incorporate provisions of ERISA relating to qualified domestic relations
orders.
NOW, THEREFORE, the Plan is amended in the following respects:
(1) Section 2.2 of the Plan is amended to increase the maximum
aggregate number of shares of Common Stock available for award under the Plan
from 750,000 shares to 1,500,000 shares.
(2) Section 3.1 of the Plan, which governs the composition of the
administering committee, is hereby amended in its entirety, as follows:
"The Plan shall be administered by a Compensation Committee (the
"Committee") appointed by the Board and consisting solely of two or more "non-
employee directors" as that term is defined in Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended (the "1934 Act"). Should the
composition of the Committee at any time be different than as prescribed above,
by reason of resignation, ineligibility or for any other reason, then the
remaining member(s) of the Committee may continue to serve as the Committee for
the administration of the Plan until the Board has appointed an additional
member or members of such Board to the Committee who are qualified to serve
thereon under the provisions of this Section, but during such intervening
period, grants of Options or Stock Appreciation Rights, if any, must be made by
the entire Board of Directors."
(3) Section 3.2 of the Plan, which governs the powers of the
administering committee is amended by adding new language in the forepart of
that section to read as follows:
"Subject to the express provisions of the Plan, the Committee (but if
the composition of the Committee at any time differs from that prescribed in
Section 3.1 above for any reason, then the full Board of Directors) shall have
the power and authority . . ."
<PAGE>
(4) Article 8 of the Plan is hereby amended in its entirety as
follows:
"Nontransferability of Options and Stock Appreciation Rights
-----------------------------------------------------------
(a) No Option or Stock Appreciation Right may be transferred,
assigned, sold, pledged, encumbered or hypothecated by an employee or other
optionee (whether by operation of law or otherwise), except (a) as provided
by will or by applicable laws of descent and distribution, or (b) in the
case of a Nonstatutory Stock Option, (i) pursuant to a "domestic relations
order" as defined in (S)414 of the Code or (S)206 of ERISA, or (ii) by
transfer without consideration by an optionee, subject to such rules as the
Committee may adopt to preserve the purposes of the Plan, (including
limiting such transfers to transfers by optionees who are directors or
senior executives), to
(A) a member of his or her Immediate Family,
(B) a trust solely for the benefit of the optionee and his or
her Immediate Family, or
(C) a partnership or limited liability company whose only
partners or shareholders are the optionee and his or her Immediate Family
members, (each transferee described in (i)-(ii) is hereafter referred to as
a "Permitted Transferee"), provided that the Committee is notified in
advance in writing of the terms and conditions of any proposed transfer
intended to be described in (i) or (ii) and it determines that the proposed
transfer complies with the requirements of the Plan and the applicable
option agreement. Any purported assignment, alienation, pledge,
attachment, sale, transfer or encumbrance that does not qualify under (i)
or (ii) shall be void and unenforceable against the Company. For this
purpose, "Immediate Family" means, with respect to a particular optionee,
the optionee's spouse, children or grandchildren (including adopted and
stepchildren and grandchildren).
(b) The terms of the Nonqualified Stock Option shall apply to the
beneficiaries, executors and administrators of the optionee and of the
Permitted Transferees of the optionee (including the beneficiaries,
executors and administrators of the Permitted Transferees), including the
right to agree to any amendment of the applicable option agreement, except
that Permitted Transferees shall not transfer any Nonqualified Stock Option
other than by will or by the laws of descent and distribution.
(c) A Nonqualified Stock Option shall be exercised only by the
optionee (or his or her attorney in fact or guardian) (including, in the
case of a transferred option, by a Permitted Transferee), or, in the case
of the optionee's death, by the optionee's executor or administrator
(including, in the case of a transferred option, by the executor or
administrator of the Permitted Transferee), and no shares shall be issued
by the Company unless the exercise of a Nonqualified Stock Option is
accompanied by sufficient payment, as determined by the Company, to meet
its withholding tax obligations on such exercise or by other arrangements
satisfactory to the Committee to provide for such payment."
(5) Each of Sections 9.1, 9.2 and 9.3 hereof shall be amended by
adding the following sentence at the end thereof:
"In such event, any Option or Stock Appreciation Right made the
subject of a permitted gift or domestic relations order pursuant to Article 8
hereof may be exercised by such donee or transferee at any time within the
original period for which such Option or Stock Appreciation Right was
exercisable under the original terms of its grant."
(6) Article 10 of the Plan shall be amended by adding the following
sentence at the end thereof:
"In such event, any Option or Stock Appreciation Right made the
subject of a permitted gift or domestic relations order pursuant to Article 8
hereof may be exercised by such donee or transferee at any time within the
original period for which such Option or Stock Appreciation Right was
exercisable under the original terms of its grant."
(7) In all other respects, the remaining provisions of the Plan not
specifically changed or amended hereby shall remain in full force and effect.
These amendments were duly adopted by the Board of Directors of the
Corporation on February 12, 1997 and will be presented to the Stockholders for
approval at the next Annual Meeting of Stockholders of this Corporation.
THE EASTWIND GROUP, INC.
By: /s/ WILLIAM B. MILLER
<PAGE>
the original period for which such Option or Stock Appreciation Right was
exercisable under the original terms of its grant."
(7) In all other respects, the remaining provisions of the Plan not
specifically changed or amended hereby shall remain in full force and effect.
These amendments were duly adopted by the Board of Directors of the
Corporation on February 12, 1997 and will be presented to the Stockholders for
approval at the next Annual Meeting of Stockholders of this Corporation.
THE EASTWIND GROUP, INC.
By: /s/ William B. Miller
----------------------------------
William B. Miller, Secretary
<PAGE>
EXHIBIT IV
THE EASTWIND GROUP, INC.
AMENDMENT NO. 1 TO
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Whereas, The Eastwind Group, Inc. (the "Corporation") first established its
Non-Employee Directors Stock Option Plan by adoption by its Board of Directors
and Stockholders on August 24, 1995.
Now, as of this 12th day of February, 1997, the Corporation, by proper
action of its Board of Directors, desires to amend the Plan in certain respects
and further intends to submit such amendments for approval by its stockholders
at its next Annual Meeting of Stockholders and will disseminate information to
such stockholders regarding such proposed amendments in its proxy materials:
WHEREAS, the Corporation has determined that it does not have
sufficient remaining shares available under the Plan and wishes to increase the
number of maximum shares available; and
WHEREAS, the Corporation has determined that in some cases optionees
may wish to engage in estate planning activities regarding the shares subject to
option, but under the current provisions of the Plan are limited to transfers of
such options upon death, and would like additional flexibility for inter vivos
gifting of such options to immediate members of the optionee's family, and also
to incorporate provisions of ERISA relating to qualified domestic relations
orders.
NOW, THEREFORE, the Plan is amended in the following respects:
(1) Section 3(a) of the Plan is amended to increase the maximum
aggregate number of shares of Common Stock available for award under the Plan
from 250,000 shares to 500,000 shares.
(2) Each of Sections 8, 9, 10 and 11 of the Plan, dealing with the
cessation of service, retirement, death or disability of a director,
respectively shall be amended by adding the following sentence at the end
thereof:
"In such event, any NQSO made the subject of a permitted gift or
domestic relations order pursuant to Section 15 hereof may be exercised by
such donee or transferee at any time within the original period for which such
NQSO was exercisable under the original terms of its grant."
(3) Section 15 of the Plan is hereby amended in its entirety as
follows:
"Non-transferability
-------------------
(a) No Stock Option granted under this Plan may be transferred,
assigned, sold, pledged, encumbered or hypothecated by a Director (whether
by operation of law or otherwise), except (a) as provided by will or by
applicable laws of descent and distribution, or (b) in the case of a NQSO,
(i) pursuant to a "domestic relations order" as defined in (S)414 of the
Code or (S)206 of ERISA, or (ii) by transfer without consideration by a
Director, subject to such rules as the Committee may adopt to preserve the
purposes of the Plan, to
(A) a member of his or her Immediate Family,
(B) a trust solely for the benefit of the Director and his
or her Immediate Family, or
<PAGE>
(C) a partnership or limited liability company whose only
partners or shareholders are the Director and his or her Immediate Family
members, (each transferee described in (i)-(ii) is hereafter referred to as
a "Permitted Transferee"), provided that the Committee is notified in
advance in writing of the terms and conditions of any proposed transfer
intended to be described in (i) or (ii) and it determines that the proposed
transfer complies with the requirements of the Plan and the applicable
option agreement. Any purported assignment, alienation, pledge, attachment,
sale, transfer or encumbrance that does not qualify under (i) or (ii) shall
be void and unenforceable against the Company. For this purpose, "Immediate
Family" means, with respect to a particular Director, the Director's
spouse, children or grandchildren (including adopted and stepchildren and
grandchildren).
(b) The terms of the NQSO shall apply to the beneficiaries,
executors and administrators of the Director and of the Permitted
Transferees of the Director (including the beneficiaries, executors and
administrators of the Permitted Transferees), including the right to agree
to any amendment of the applicable option agreement, except that Permitted
Transferees shall not transfer any NQSO other than by will or by the laws
of descent and distribution.
(c) A NQSO shall be exercised only by the Director (or his or her
attorney in fact or guardian) (including, in the case of a transferred
option, by a Permitted Transferee), or, in the case of the Director's
death, by the Director's executor or administrator (including, in the case
of a transferred option, by the executor or administrator of the Permitted
Transferee), and no shares shall be issued by the Company unless the
exercise of a NQSO is accompanied by sufficient payment, as determined by
the Company, to meet its withholding tax obligations on such exercise or by
other arrangements satisfactory to the Committee to provide for such
payment."
(4) In all other respects, the remaining provisions of the Plan not
specifically changed or amended hereby shall remain in full force and effect.
These amendments were duly adopted by the Board of Directors of the
Corporation on February 12, 1997 and will be presented to the Stockholders for
approval at the next Annual Meeting of Stockholders of this Corporation.
THE EASTWIND GROUP, INC.
By: /s/ William B. Miller
------------------------------------
William B. Miller, Secretary
<PAGE>
ANNUAL MEETING
OF
THE EASTWIND GROUP, INC.
THURSDAY, JUNE 5, 1997
9:00 A.M.
EAGLE LODGE
RIDGE PIKE AND MANOR ROAD
LAFAYETTE HILL, PA 19444
AGENDA
------
. Election of Directors
. Amendment of Certificate of Incorporation to change
registered agent, registered address and make technical
corrections
. Amendment of the Certificate of Incorporation to
classify the Board of Directors
. Amendments to the Stock Option Incentive Plan
. Amendments to the Non-Employees Directors
Stock Option Plan
THE EASTWIND GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Paul A. DeJuliis, John R. Thach and
Anthony J. Mendicino, and each of them, Proxies with power to appoint a
substitute and hereby authorizes them to represent and to vote all shares of
Common Stock of The Eastwind Group, Inc. held of record by the undersigned on
April 30, 1997 at the Annual Meeting of Stockholders of The Eastwind Group,
Inc. to be held on June 5, 1997, and at any adjournments thereof, and to vote as
directed on the reverse side of this card and, in their discretion, upon such
other matters not specified as may come before said meeting.
Election of Directors Change of Address and Comments
Paul A. DeJuliis _____________________________
John R. Thach
William B. Miller
Anthony J. Mendicino _____________________________
Bruce P. Murray
Andrew Panzo (If you have written in the above
Porter Bibb space, please mark the corresponding
Edward F. Sager, Jr. box on the reverse side of this card.)
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICE BY MARKING THE APPROPRIATE BOX, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOX IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS.
THE PROXIES CANNOT VOTE YOUR SHARES
UNLESS YOU SIGN AND RETURN THIS CARD
SEE REVERSE SIDE
<PAGE>
THE EASTWIND GROUP, INC.
DIRECTORS RECOMMEND A VOTE FOR ALL NOMINEES AND FOR THE AMENDMENTS TO THE
CERTIFICATE OF INCORPORATION AND FOR THE AMENDMENTS TO THE STOCK OPTION
INCENTIVE PLAN AND FOR THE AMENDMENTS TO THE NON-EMPLOYEE DIRECTOR STOCK OPTION
PLAN
1. Election of Directors
For Withheld
FOR, except vote withheld from the following nominee(s):
2. Amendment of the Certificate of Incorporation to change the name and address
of the Corporation's registered agent and to make other technical corrections
For Against Abstain
3. Amendment to the Certificate of Incorporation to classify the board of
directors
For Against Abstain
4. Amendment of the Stock Option Incentive Plan
For Against Abstain
5. Amendment of the Non-Employee Director Stock Option Plan
For Against Abstain
Change of Address/Comments on Reverse Side
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE REQUIRED IF MAILED IN THE UNITED STATES
NOTE: Please sign name(s) exactly as printed
hereon. Joint owners should each sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such.
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE REQUIRED IF MAILED IN THE UNITED STATES.
