<PAGE>
THE EASTWIND GROUP, INC.
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 1997
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from ____________ to ____________
Commission File Number: 0-27638
---------
The Eastwind Group, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2732753
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
100 Four Falls Corporate Center, Suite 305, West Conshohocken, PA 19428
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(610) 828-6860
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, $.10 par value 2,786,019 shares
- ---------------------------------- ------------------------------------
(Class) (Outstanding at May 12, 1997)
Transitional Small Business Disclosure format (check one)
Yes No X
------ ------
<PAGE>
THE EASTWIND GROUP, INC.
<TABLE>
<CAPTION>
Page Number
-----------
PART I.
- -------
<S> <C>
Item 1. - Financial Statements (unaudited)
Consolidated Balance Sheets as of
March 29, 1997 and December 31, 1996 4
Consolidated Statements of Operations for the
Quarter ended March 29, 1997 and March 31, 1996 5
Consolidated Statements of Cash Flows for the
Quarter ended March 29, 1997 and March 31, 1996 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial Condition 15
PART II.
- --------
Item 1 - Legal Proceedings 21
Item 2 - Changes in Securities 21
Item 3 - Defaults on Senior Securities 21
Item 4 - Submission of Matters to a
Vote of Securities Holders 21
Item 5 - Other Information 22
Item 6 - Exhibits and Reports on Form 8-K 22
</TABLE>
(2)
<PAGE>
THE EASTWIND GROUP, INC.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
- -----------------------------
The following financial information sets forth the operations of The Eastwind
Group, Inc. ("The Company") for the quarter ended March 29, 1997 and March 31,
1996. Certain information and footnote disclosures normally included with
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to SEC rules and regulations.
In the opinion of management, the following unaudited balance sheets and related
statements of operations and cash flows reflect all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the financial position
at March 29, 1997 and December 31, 1996, and the results of operations and cash
flows for the quarter ended March 29, 1997 and March 31, 1996.
(3)
<PAGE>
The Eastwind Group, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 29, December 31,
ASSETS 1997 1996
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 374,973 $ 709,697
Accounts receivable, net 7,422,943 7,655,763
Due from related parties - 1,047,354
Inventories 5,800,505 4,001,007
Prepaid expenses 312,369 203,820
Prepaid income taxes 23,431 91,500
-------------- --------------
Total current assets 13,934,221 13,709,141
Property, plant and equipment, net 8,607,699 7,024,393
Investment in investee companies - 700,000
Goodwill and other assets 8,342,833 7,024,489
-------------- --------------
$ 30,884,753 $ 28,458,023
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 4,102,632 $ 3,626,365
Currrent portion of long-term debt 968,396 880,012
Current portion of capitalized lease obligations 930,987 848,701
Accounts payable 4,621,542 3,775,002
Accrued expenses 2,424,375 2,718,391
Due to related parties - 276,260
Deferred income taxes 59,431 98,186
-------------- --------------
Total current liabilities 13,107,363 12,222,917
-------------- --------------
Long-term debt 5,460,833 5,537,523
-------------- --------------
Capitalized lease obligations 2,122,342 1,695,229
-------------- --------------
Accrued pension and postretirement benefits 224,675 218,510
-------------- --------------
Deferred credit, net 154,062 160,224
-------------- --------------
Other liabilities 217,459 -
-------------- --------------
Deferred income taxes 398,550 382,814
-------------- --------------
Minority interest in consolidated subsidiary 22,037 14,927
-------------- --------------
Redeemable Series B Preferred Stock 900,000 900,000
-------------- --------------
Stockholders' equity:
Series A Preferred stock, $.10 par value, 3,000,000 shares
authorized; 1,000 issued and outstanding at March 29, 1997
and December 31, 1996 100 100
Common stock, $.10 par value, 5,000,000 shares authorized,
2,686,019 and 2,411,482 issued and 2,651,019 and 2,376,482
outstanding at March 29, 1997 and December 31, 1996, respectively 268,602 241,148
Warrants outstanding 1,066,264 1,271,597
Additional paid-in capital 7,532,444 6,408,621
Accumulated deficit (6,369) (147,051)
-------------- --------------
8,861,041 7,774,415
Less-Common stock in treasury, 35,000 at cost (193,609) (193,609)
Notes receivable from sale of stock (390,000) (240,000)
Deferred compensation - (14,927)
-------------- --------------
Total stockholders' equity 8,277,432 7,325,879
-------------- --------------
$ 30,884,753 $ 28,458,023
============== ==============
</TABLE>
The accompanying notes and notes to the financial statements included in the
Annual Report on Form 10-KSB are an integral part of these financial
statements.
(4)
<PAGE>
The Eastwind Group, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 29, March 31,
1997 1996
------------- -------------
<S> <C> <C>
Net sales $ 13,655,284 $ 4,966,982
Cost of goods sold 10,299,194 3,688,753
------------- -------------
Gross profit 3,356,090 1,278,229
Selling, general and administrative expenses 2,612,320 926,696
------------- -------------
Operating income 743,770 351,533
Interest expense, net 448,078 150,293
------------- -------------
Income before income taxes and minority interest 295,692 201,240
Income taxes 98,400 56,500
------------- -------------
Income before minority interest 197,292 144,740
Minority interest in income of consolidated subsidiary (7,110) -
------------- -------------
Net income 190,182 144,740
Preferred stock dividends (49,500) -
------------- -------------
Net income available to Common stockholders $ 140,682 $ 144,740
============= =============
Earnings per share $ 0.06 $ 0.08
============= =============
Shares used in computing earnings per share 2,490,224 2,511,490
============= =============
</TABLE>
The accompanying notes and notes to the financial statements included in the
Annual Report on Form 10-KSB are an integral part of these financial
statements.
(5)
<PAGE>
The Eastwind Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
March 29, March 31,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 190,182 $ 144,740
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 385,001 82,861
Amortization of deferred credit (6,162) (6,162)
Imputed interest 10,980 -
Minority interest in income of consolidated subsidiary 7,110 -
Changes in assets and liabilities, net of effect from acquisitions:
(Increase) decrease in:
Accounts receivable 1,396,407 706,989
Inventories (479,725) 65,135
Prepaid expenses (8,370) (30,788)
Prepaid income taxes 54,339 -
Other assets (43,430) -
Increase (decrease) in:
Accounts payable (422,847) 200,526
Accrued expenses (1,217,387) (29,404)
Accrued income taxes - 56,100
Accrued pension and postretirement benefits 6,165 3,750
------------- -------------
Net cash provided by (used in) operating activities (127,737) 1,193,747
------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (99,783) (254)
Net cash acquired in purchase of Lavelle 172,550 -
Net payments from related party - 30,024
Purchase of subordinated note receivable - (450,000)
Other 20,631 -
------------- -------------
Net cash provided by (used in) investing activities 93,398 (420,230)
------------- -------------
Cash flows from financing activities:
Net repayments under lines of credit (101,475) (1,388,883)
Principal payments on term notes and capital leases (626,410) (102,521)
Net proceeds from exercise of warrants 450,000 1,046,000
Payment of preferred stock dividends (22,500) -
------------- -------------
Net cash used in financing activities (300,385) (445,404)
------------- -------------
Net increase (decrease) in cash and cash equivalents (334,724) 328,113
Cash and cash equivalents, beginning of period 709,697 426,377
------------- -------------
Cash and cash equivalents, end of period $ 374,973 $ 754,490
============= =============
</TABLE>
The accompanying notes and notes to the financial statements included in the
Annual Report on Form 10-KSB are an integral part of these financial
statements.
(6)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation
- ------- ---------------------
Effective January 1, 1997, the Company has elected to report its
results of operations on a fifty-two or fifty-three week fiscal year
basis. Accordingly, the first quarter of 1997 contains twelve weeks and
four days. Each subsequent fiscal quarter will contain thirteen weeks,
except for the final fiscal quarter of 1997, which will contain
fourteen weeks.
The unaudited consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations.
In the opinion of management, all adjustments, consisting of only
normal recurring adjustments necessary to present fairly the financial
position at March 29, 1997 and December 31, 1996, and the results of
operations and cash flows for the quarter ended March 29, 1997 and
March 31, 1996, have been made. The results of operations for the
quarter ended March 29, 1997 are not necessarily indicative of the
results for the year ending December 31, 1997. These financial
statements should be read in conjunction with the audited financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB which was filed for the year ended December 31,
1996.
Note 2: Accounts Receivable
- ------- -------------------
<TABLE>
<CAPTION>
March 29, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Trade receivables $ 7,576,826 $ 7,699,041
Retainage receivables 230,611 316,822
Bad debt reserves (231,473) (207,079)
------------ ------------
7,575,964 7,808,784
Less: Retainage receivables
due in over one year (153,021) (153,021)
------------ ------------
$ 7,422,943 $ 7,655,763
============ ============
</TABLE>
Note 3: Inventories
- ------- -----------
<TABLE>
<CAPTION>
March 29, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Raw Materials $ 1,636,453 $ 1,246,482
Work in Process 3,006,978 1,189,328
Finished Goods 1,466,552 1,565,197
------------ ------------
6,109,983 4,001,007
Less: Progress Payments (309,478) -
------------ ------------
$ 5,800,505 $ 4,001,007
============ ============
</TABLE>
(7)
<PAGE>
THE EASTWIND GROUP, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4: Property, Plant and Equipment
- ------- -----------------------------
<TABLE>
<CAPTION>
March 29, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Land $ 352,135 $ 368,916
Buildings 2,717,627 2,142,863
Machinery and Equipment 6,466,040 5,141,739
------------ ------------
9,535,802 7,653,518
Less: Accumulated depreciation (928,103) (629,125)
------------ ------------
$ 8,607,699 $ 7,024,393
============ ============
</TABLE>
Machinery and equipment includes $4,033,277 and $3,484,800 of
production equipment under capital leases at March 29, 1997 and
December 31, 1996, respectively. Accumulated depreciation on such
equipment was $319,778 and $205,509 at March 29, 1997 and December 31,
1996, respectively.
Note 5: Goodwill and Other Assets
- ------- -------------------------
<TABLE>
<CAPTION>
March 29, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Goodwill, net $ 7,278,692 $ 6,042,889
Covenant not to compete, net 477,083 489,583
Retainage receivables
due in over one year 153,021 153,021
Deferred financing, net 270,784 138,253
Cash surrender value
of officers' life insurance 90,423 92,496
Other 72,830 108,247
----------- -----------
$ 8,342,833 $ 7,024,489
=========== ===========
</TABLE>
(8)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6: Long-term Debt
- ------- --------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 29, December 31,
1997 1996
------------ -------------
<S> <C> <C>
Centennial notes payable to individuals,
interest at 12.5%, due on February 1, 1997 $ -- $ 105,000
Centennial term note payable to seller,
interest at 8%, due in 36 monthly installments
of principal and interest of $8,333,
beginning November 1996 232,689 251,235
Centennial term note payable to a vendor,
interest at 8% due in 24 semi-monthly
installments beginning January 1997 78,882 104,000
Princeton term note payable to bank,
secured by all of its assets, due in
60 monthly installments of $8,333,
plus interest at the bank's prime
rate plus 3.75% (12% at March 29, 1997) 133,338 158,341
Wickersham note payable to a bank,
interest at prime plus 1.75%
(10.25% at March 29, 1997),
due in monthly installments of
$5,000 and a balloon payment in
December 1997 164,935 --
Wickersham term notes payable to vendors
due in various monthly installments at
interest rates ranging up to 10% at
March 29, 1997 99,388 --
Polychem note payable to the Budd Company,
interest at 8%, principal payable in
20 quarterly installments of $81,315,
beginning March 31, 1998 1,626,093 1,626,093
</TABLE>
(continued)
(9)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6: Long-term Debt (continued)
- ------- --------------------------
<TABLE>
<CAPTION>
March 29, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Polychem note payable to bank,
interest at the bank's prime rate
plus 1.5% (9.75% at March 29, 1997),
payable in 18 monthly installments
of $21,155 and 41 monthly installments
of $29,617 plus interest, with a final
payment in March 2000 $ 1,218,513 $ 1,307,364
Ivy note payable to a bank, secured by certain
property, interest at 7.3%, due in 240 monthly
installments of principal and interest of
$5,909 beginning in April 1997 750,000 750,000
Ivy note payable to a bank, secured by
certain property, interest at the bank's
prime rate plus 2.0% (10.5% at March 29, 1997)
due in 240 monthly installments of principal
and interest of $10,487 beginning in April 1997 1,077,450 1,054,750
Ivy term note payable to a bank, secured by certain
property, interest at 9.4%, due in 240 monthly
installments of principal and interest of
$2,777 beginning in March 1997 298,709 300,000
Ivy term note payable to a finance company, secured
by substantially all of its assets, due in 35 monthly
installments of $7,500, with a final installment of
$187,500, plus interest at the bank's prime rate
plus 4.5% (13% at March 29, 1997) 427,500 450,000
Eastwind subordinated note payable to an investor,
interest at 12%, due in three equal installments
commencing June 30, 1999 321,732 310,752
----------- ------------
6,429,229 6,417,535
Less: current portion (968,396) (880,012)
----------- ------------
$ 5,460,833 $ 5,537,523
=========== ============
</TABLE>
(10)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6: Long-term Debt (continued)
- ------- --------------------------
Centennial has a $2,750,000 line of credit with a bank, with
outstanding borrowings of $1,949,136 at March 29, 1997.
Wickersham has a $1,000,000 line of credit with a finance company
through April 17, 1998. Outstanding borrowings were $530,879 at March
29, 1997.
Princeton has a $1,000,000 demand line of credit with a bank through
August 4, 1997, subject to renewal. Outstanding borrowings were
$423,744 and $343,812 at March 29, 1997 and December 31, 1996,
respectively.
Polychem entered into a loan and security agreement with a bank on
March 10, 1995, which provides for a three-year $9,000,000 revolving
line of credit and term note. Outstanding borrowings were $418,769 and
$310,139 at March 29, 1997 and December 31, 1996, respectively. As of
March 29, 1997, there was $1,605,750 available under the line.
Lavelle has a borrowing arrangement for up to $1,500,000 with a
financing institution through March 22, 1999, whereby it sells
substantially all of its accounts receivable to the institution and is
permitted to receive advances up to 80% of such receivables.
Ivy has a $1,500,000 line of credit with a finance company through
January 1, 2000. Outstanding borrowings were $780,104 at March 29,
1997.
Future maturities of long-term debt at March 29, 1997 are as follows:
<TABLE>
<S> <C>
March 31, 1998 $ 968,396
March 31, 1999 961,182
March 31, 2000 1,224,760
March 31, 2001 700,404
March 31, 2002 555,209
Thereafter 2,197,546
---------
6,607,497
Less: Unamortized interest (178,268)
---------
$6,429,229
=========
</TABLE>
(11)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7: Acquisitions
- ------- ------------
Lavelle
-------
In January 1997, the Company entered into an agreement to acquire all
of the outstanding common stock of Lavelle in exchange for 44,537
shares of the Company's Common Stock and forgiveness of certain
receivables due from Lavelle. The acquisition has been accounted for
using the purchase method of accounting. The purchase price was
allocated to the assets and liabilities acquired based on estimates
that may be revised at a later date. The purchase price, including
estimated transaction costs, exceeds the fair value of the net assets
acquired by approximately $680,000, which has been recorded as goodwill
and is being amortized over 20 years. Lavelle's results from operations
have been included in the Company's consolidated financial statements
from the date of acquisition.
Lavelle is a manufacturer of sheet metal products for the aerospace
industry.
Wickersham
----------
In January 1997, the Company entered into an agreement to acquire all
of the outstanding common stock of Wickersham in exchange for 30,000
shares of the Company's Common Stock. The acquisition has been
accounted for using the purchase method of accounting. The purchase
price was allocated to the assets and liabilities acquired based on the
fair values at the acquisition date. Such allocation has been based on
estimates that may be revised at a later date. The purchase price,
including estimated transaction costs, exceeded the fair value of the
net assets acquired by approximately $628,000, which has been recorded
as goodwill and is being amortized over 20 years. Wickersham's results
from operations have been included in the Company's consolidated
financial statements from the date of acquisition.
Wickersham is a printing and book manufacturer located in Lancaster,
Pennsylvania.
(12)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8: Pro forma Information as if Acquisitions of Centennial, Ivy,
- ------- ------------------------------------------------------------
Lavelle, and Wickersham Occurred on January 1, 1996
---------------------------------------------------
The following unaudited information is presented for the acquisitions
of Centennial, Ivy, Lavelle, and Wickersham as if such acquisitions had
occurred on January 1, 1996. The operating results for the quarter
ended March 29, 1997 are included in the Company's historical financial
consolidated statements of operations for the period then ended. The
pro forma information does not purport to be indicative of the results
that would have been attained if the operations had actually been
combined during the periods presented and is not necessarily indicative
of operating results to be expected in the future.
<TABLE>
<CAPTION>
Quarter Ended
March 31, 1996
------------------
<S> <C>
Net sales $ 14,165,000
Net loss $ (386,000)
Less Preferred Stock dividends $ ( 13,000)
------------
Net loss available
to Common stockholders $ (399,000)
============
Pro forma loss per share $ (.13)
Shares used in computing
pro forma net loss per share 2,716,905
</TABLE>
(13)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9: Earnings Per Share
- ------- ------------------
For the quarter ended March 29, 1997 and March 31, 1996, the Company's
total outstanding Common Stock options and warrants exceed 20% of the
total outstanding Common Stock. Therefore, the earnings per share
computations are required to be modified under Accounting Principles
Board Opinion No. 15 to assume that all outstanding Common Stock
options and warrants were exercised and the related proceeds were used
to repurchase up to 20% of the total outstanding Common Stock. Any
remaining proceeds are assumed to be used to reduce borrowings, thereby
reducing interest expense, net of tax, with any excess assumed to be
invested with income at a market rate of return.
Earnings per share for the quarter ended March 29, 1997 is computed by
dividing net income available to Common stockholders by the weighted
average number of shares of Common Stock outstanding during the year
since the net effect of the modified treasury stock is antidilutive.
Earnings per share for the quarter ended March 31, 1996 is computed
using the modified treasury stock method.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", which provides changes in the calculation of earnings per
share. The statement is effective for fiscal years ending after
December 15, 1997 and, when adopted, will require restatement of prior
years' earnings per share. The effect of the adoption of SFAS No. 128
is included on a pro forma basis as presented below:
<TABLE>
<CAPTION>
Quarter ended
March 29, March 31,
1997 1996
--------- ---------
<S> <C> <C>
Earnings per share as reported $ .06 $ .08
Effect of SFAS No. 128 -- .01
------- -------
Pro forma basic earnings per share $ .06 $ .09
======= =======
Earnings per share as reported $ .06 $ .08
Effect of SFAS No. 128 (.01) (.01)
------- -------
Pro forma diluted earnings per share $ .05 $ .07
======= =======
</TABLE>
(14)
<PAGE>
THE EASTWIND GROUP, INC.
Item 2 - Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
-------------------------
RESULTS OF OPERATIONS
- ---------------------
QUARTER ENDED MARCH 29, 1997 AND MARCH 31, 1996
- -----------------------------------------------
Overview
- --------
The Company generated net income, before preferred stock dividends, of $190,000
for the quarter ended March 29, 1997, compared to $145,000 for the quarter ended
March 31, 1996. Operations for the first quarter of 1997 include results of
businesses acquired from October 1996 through January 1997, namely Centennial
Printing Corp. ("Centennial"), Ivy-Tygart Acquisition Corp. ("Ivy"), Lavelle
Company ("Lavelle"), and Wickersham Printing Co., Inc. ("Wickersham").
Accordingly, the results of operations of the Company are not readily
comparable. Centennial, Wickersham, and Princeton Academic Press, Inc.
("Princeton), wholly-owned subsidiaries, have been combined under a single
entity, Team Graphics, Inc. ("Team Graphics").
Net Sales
- ---------
Net sales for the quarter ended March 29, 1997 of $13,655,000 represents an
increase of $8,688,000 versus the quarter ended March 31, 1996. This increase is
the result of net sales from businesses acquired since October 15, 1996.
Accordingly, revenues of newly consolidated subsidiaries Ivy ($1,684,000),
Lavelle ($1,665,000) and increases in revenues of Team Graphics ($5,356,000)
account for the overall increase versus the comparable period of 1996. The
increase in net sales of Team Graphics was due to revenues from the newly
acquired businesses Centennial and Wickersham, offset by a small decrease in
Princeton revenues.
Cost of Good Sold
- -----------------
Cost of goods sold for the quarter ended March 29, 1997 of $10,299,000
represents an increase of $6,610,000 versus the quarter ended March 31, 1996.
The increase is attributable to the cost of goods sold of newly consolidated
subsidiaries Ivy ($1,017,000), Lavelle ($964,000), and Team Graphics
($4,406,000) together with an increase in Polychem's cost of sales of $223,000
and a reduction in Princeton's cost of sales of $205,000. Polychem's cost of
goods sold in the quarter ended March 29, 1997 increased over the comparable
period of 1996 by 6.3 percentage points because of an unfavorable mix of
manufactured versus purchased materials. Polychem's cost of goods sold mix is
expected to reverse during the remainder of 1997. Princeton's first quarter 1997
cost of sales decreased versus the comparable period of the prior year by 1.4
percentage points, due to operational efficiencies achieved despite lower sales
volume in 1997 versus the comparable 1996 period.
(15)
<PAGE>
THE EASTWIND GROUP, INC.
RESULTS OF OPERATIONS (continued)
- ---------------------------------
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the quarter ended March 29,
1997 were $2,619,000 or 19.2% of net sales, compared to the comparable period of
the prior year of $927,000 or 18.7% of net sales. The increase in selling,
general and administrative expenses was principally due to the inclusion of
newly consolidated subsidiaries of Ivy ($422,000), Lavelle ($217,000), and
increases in selling, general and administrative expenses of Team Graphics
($1,036,000), an increase in corporate overhead of the holding company
($37,000), offset by small decreases at Polychem ($20,000) and Princeton
($5,000). Management believes that the percentage of selling, general and
administrative expenses to net sales will decrease as the consolidation of Team
Graphics progresses and as fixed costs are spread over higher net sales for all
subsidiaries.
Interest Expense
- ----------------
Interest expense for the quarter ended March 29, 1997 was $448,000 or 3.3% of
net sales, versus $150,000 or 3.0% of net sales for the comparable period of
1996. Interest expense as a percentage of sales during the quarter ended March
29, 1997 was higher than the comparable period of 1996 due to the debt incurred
for the acquisition of Ivy and Lavelle, the former of which resulted from
significant leveraging of its purchase price and the latter due to the financing
of long-term government contracts.
Income Taxes
- ------------
Income tax expense for the quarter ended March 29, 1997 was $98,000. Federal
income tax expense for the quarter ended March 31, 1996 was partially offset by
the utilization of the Company's net operating loss carryover. The net operating
loss carryovers were fully utilized as of December 31, 1996.
(16)
<PAGE>
THE EASTWIND GROUP, INC.
Liquidity and Capital Resources
- -------------------------------
The Company has financed its working capital requirements and capital
expenditures through cash flows generated from operations, bank debt, sale of
common stock and warrants, and equipment leases. Net cash used in operating
activities for the first quarter of 1997 was $128,000 compared to net cash
provided by operating activities of $1,194,000 during the first quarter of 1996.
The change was principally attributable to a build-up of inventories at March
29, 1997 as compared to March 31, 1996 and payment of accounts payable and
accrued expenses during the first quarter of 1997, offset partially by decreases
in accounts receivable and increased depreciation and amortization. For the
quarter ended March 29, 1997, inventories increased $480,000 as compared to a
decrease in inventory for the quarter ended March 31, 1996 of $65,000. Accounts
payable and accrued expenses decreased $1,640,000 for the quarter ended March
29, 1997 as compared to a net increase in accounts payable and accrued expenses
of $171,000 for the quarter ended March 31, 1996. The Company funded the payment
of accounts payable and accrued expenses and the increase in inventories with
proceeds from significant collections of accounts receivable. Accounts
receivable decreased $1,396,000 for the quarter ended March 29, 1997 as compared
to a decrease in accounts receivable of $707,000 for the quarter ended March 31,
1996. The Company continues to focus on the management of accounts receivable
and inventories in order to reduce interest cost. Depreciation and amortization
was $385,000 for the quarter ended March 29, 1997 compared to $83,000 for the
quarter ended March 31, 1996. The decrease was principally due to amortization
and goodwill recorded in connection with the acquisitions of Centennial, Lavelle
and Wickersham and higher depreciation from fixed assets acquired in connection
with the acquisitions of Centennial, Lavelle, Wickersham and Ivy.
Net cash provided by investing activities for the quarter ended March 29, 1997
was $93,000, which compares to cash used in investing activities of $420,000 for
the quarter ended March 31, 1996. Cash flows from investing activities for the
quarter ended March 29, 1997 were due to cash acquired in the purchase of
Lavelle ($173,000), offset by cash used in the purchase of property and
equipment ($100,000). The components of cash used in investing activities during
the quarter ended March 31, 1996 were the receipts from related party ($30,000),
offset by the purchase of a subordinated note receivable from Lavelle.
Net cash used in financing activities during the quarter ended March 29, 1997
totalled $300,000, compared to cash used in financing activities for the quarter
ended March 31, 1996 of $445,000. Components of cash used in financing
activities for the quarter ended March 29, 1997 were the receipt of proceeds
from the exercise of certain warrants issued to Clifton Capital, Ltd.
($450,000), offset by repayments under lines of credit ($101,000),
(17)
<PAGE>
THE EASTWIND GROUP, INC.
Liquidity and Capital Resources (continued)
- -------------------------------------------
repayments of principal on term notes and capital leases ($626,000), and payment
of preferred stock dividends ($23,000). Components of cash used in financing
activities during the quarter ended March 31, 1996 were net proceeds from the
exercise of warrants ($1,046,000), offset by net repayments under lines of
credit ($1,389,000) and principal payments on term notes and capital leases
($102,000).
Working capital was $820,000 and $1,486,000 as of March 29, 1997 and December
31, 1996, respectively. Working capital decreased by $666,000 due to the impact
on working capital of the acquisition of Centennial, Ivy, Lavelle, and
Wickersham. The Company is continuing to focus on improving the management of
accounts receivable and inventories and is currently working toward refinancing
its diverse debt structure to reduce its cost and increase availability.
Also, in October 1996, the Company purchased the stock of Centennial for
$2,850,000, of which $450,000 of cash was paid. The former owner of Centennial
also received $500,000 for his agreement not to compete. In addition, the
Company agreed to redeem for cash up to 1,800 shares per quarter of the
Company's Series B Preferred Stock held by the former owner of
Centennial at $100 per share commencing April 1, 1997. The initial redemption of
1,800 shares was requested as of April 1, 1997. The Company has instituted
arbitration proceedings against the former owner of Centennial pursuant to the
indemnification provisions of the Amended and Restated Agreement and Plan of
Merger between the Company, Centennial, and Centennial Acquisition Corp. Due to
the significance of the Company's claims, the Company has not redeemed such
preferred shares.
Ivy acquired substantially all of the assets and business of Tygart Moulding
Corp. on December 31, 1996, for a purchase price of approximately $3,764,000, of
which approximately $3,304,000 was financed as follows: a 20-year term note of
approximately $1,804,000 which bears interest at rates ranging from 7.3% to
10.25%; a 20-year term note of $300,000 which bears interest at 9.4%; a 3-year
term note of $450,000 which bears interest at 4-1/2% over the prime rate; and a
line of credit of $750,000 which bears interest at 3-1/2% over the prime rate.
In addition, pursuant to the terms of this asset purchase agreement, Ivy assumed
liabilities of Tygart Moulding Corp. relating to trade payables, accrued
expenses, and capital leases totalling approximately $450,000. At the time of
acquisition the fair market value of the assets, based upon independent
appraisals, exceeded their purchase price by $1,843,000. This excess was
accounted for as a reduction in the net book value of the assets.
In January 1997, the Company acquired all of the outstanding Common Stock of
each of Lavelle and Wickersham through an exchange of Eastwind Common Stock.
(18)
<PAGE>
THE EASTWIND GROUP, INC.
Liquidity and Capital Resources (continued)
- -------------------------------------------
The Company has no other significant capital spending or purchase commitments,
other than normal commitments under facility and capital leases. There are no
commitments to purchase significant property, plant and equipment during the
remainder of 1997.
The $9,000,000 credit facility at Polychem includes a term loan with an
outstanding balance of $1,219,000 at March 29, 1997, leaving an aggregate
availability of $7,781,000 as of that date under the credit facility, dependent
upon eligible collateral assets. As of March 29, 1997, availability under the
line of credit, based upon available eligible collateral assets, was $2,025,000,
and outstanding borrowings were $419,000.
As of March 29, 1997, Princeton's line of credit balance outstanding was
$424,000 against the total credit facility of $1,000,000.
As of March 29, 1997, the Company had outstanding Class A-1, C, C-3, C-4, C-5, D
and Clifton Common Stock purchase warrants. During the quarter ended March 29,
1997, exercises of Class C and Clifton warrants to purchase 50,000 and 150,000
shares of Common Stock, respectively, generated gross capital proceeds to the
Company of $600,000, of which $150,000 is represented by a note receivable.
During April 1997, the remainder of the Clifton warrants (100,000) were
exercised. The remaining Class A-1, C, C-3, C-4, C-5, and D warrants, if fully
exercised, would generate additional net capital to the Company of $4,644,500 on
the issuance of 866,500 shares of common stock. The Company currently
anticipates using any such funds, if received, for working capital, including
potential acquisitions.
The Company believes that its current cash and available resources, cash
generated from operations, and the availability under its lines of credit will
be sufficient to fund the Company's operations and expected capital expenditures
for the twelve months from March 29, 1997.
The Company intends to aggressively pursue potential acquisitions. The Company
will require additional capital to fund its expansion plans, which may be in the
form of, among other things, private placements or public offerings of debt,
equity or convertible securities.
(19)
<PAGE>
THE EASTWIND GROUP, INC.
Cautionary Statement
- --------------------
When used in this Quarterly Report on Form 10-QSB and in other public
statements by the Company and Company officers, the words "estimate",
"project", "intend", "believe", "anticipate" and similar expressions
are intended to identify forward-looking statements regarding events
and financial trends which may affect the Company's future operating
results and financial position. Such statements are subject to risks
and uncertainties that could cause the Company's actual results and
financial position to differ materially. Such factors include, among
others: (i) the Company's ability to identify appropriate acquisition
candidates, complete acquisitions on satisfactory terms, or
successfully integrate acquired businesses; (ii) the intense
competition and low barriers to entry in the industries in which the
Company competes; (iii) the Company's ability to obtain financing on
satisfactory terms and the degree to which the Company is leveraged,
including the extent to which currently outstanding options and
warrants are exercised; (iv) the sensitivity of the Company's
businesses to general economic conditions; (v) the timing of orders
from, and shipments to, major customers; (vi) the timing of new product
sales; (vii) the introduction and market acceptance of new products;
(viii) factors associated with international sales such as the relative
strength of the dollar when compared to the currencies of the countries
into which the Company exports product; (ix) the Company's ability to
remain in compliance with the numerous environmental, health and safety
requirements to which it is subject; (x) changes in accounting
principles, policies or guidelines; and (xi) other economic,
competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices.
Additional factors are described in the Company's other public reports
filed with the Securities and Exchange Commission. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date made. The Company
undertakes no obligation to publicly release the result of any revision
of these forward-looking statements to reflect events or circumstances
after the date they are made or to reflect the occurrence of
unanticipated events.
(20)
<PAGE>
THE EASTWIND GROUP, INC.
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
- ------- -----------------
The Company initiated binding arbitration proceedings before the
American Arbitration Association on March 31, 1997 against Bruce K.
Worrall, the former stockholder of Centennial Printing Company
("Centennial") alleging various breaches of representations, warranties
and covenants in the Amended and Restated Agreement and Plan of Merger
among the Company, Centennial and Centennial Acquisition Corp. ("Merger
Agreement"), and seeking indemnification thereunder, including damages
of $4.5 million and other relief. The defendant in such proceeding has
asserted a counterclaim against the Company, alleging breach of the
covenant under the Merger Agreement requiring the Company to redeem a
portion of the Series B Preferred Stock held by Worrall on April 1,
1997. The arbitration panel has not yet been chosen, nor have hearings
before a panel yet been scheduled.
Item 2: Change in Securities
- ------- --------------------
Pursuant to a Stock Exchange Agreement between the Company and the
former shareholders of Wickersham dated January 3, 1997, the Company
issued an aggregate of 30,000 shares of its Common Stock to the former
shareholders of Wickersham in exchange for all of their shares in
Wickersham. Based upon the limited nature of this acquisition
transaction, the Company relied upon Section 4(2) of the Securities Act
as an exemption from registration.
Pursuant to a Stock Exchange Agreement between the Company and the
former shareholders of Lavelle dated as of January 3, 1997, the Company
issued an aggregate of 44,537 shares of its Common Stock and certain
other consideration to the former shareholders of Lavelle in exchange
for all of their shares in Lavelle. Based upon the limited nature of
this acquisition transaction, the Company relied upon Section 4(2) of
the Securities Act as an exemption from registration.
During the quarter ended March 29, 1997, certain of the outstanding
warrants issued to Clifton Capital, Ltd. were exercised by their
holders. Such holders received 150,000 shares of the Company's Common
Stock for an aggregate consideration of $600,000, including $450,000 in
cash and a $150,000 promissory note. Based upon the limited nature of
the warrant offering and exercise, and the accredited status of the
exercising holders, the Company relied upon Section 4(2) of the
Securities Act as an exemption from registration.
Item 3: Defaults on Senior Securities
- ------- -----------------------------
none
Item 4: Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
none
(21)
<PAGE>
THE EASTWIND GROUP, INC.
PART II - OTHER INFORMATION
Item 5: Other Information
- ------- -----------------
none
Item 6: Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
----------- ----------- ----------------
<S> <C> <C>
2.1 Wickersham Stock Exchange Incorporated by
Agreement dated as of reference to Exhibit 2.1
January 3, 1997. of the Registrant's
Form 8-K filed
April 2, 1997.
2.2 Lavelle Stock Exchange Filed herewith.
Agreement dated as of
January 3, 1997.
10.1 Loan Plan for Officers Filed herewith.
and Key Employees.
10.2 Employment Agreement Filed herewith.
between the Company and
Anthony J. Mendicino.
27 Financial Data Schedule. In electronic format only.
</TABLE>
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on January 14, 1997 in
connection with the Asset Purchase Agreement between the Company and
Tygart Moulding Corporation dated November 12, 1996 whereby the Company
acquired substantially all of the assets of Tygart Moulding
Corporation. Such acquisition was consummated December 31, 1996. An
amendment to Form 8-K was filed on March 17, 1997 which included the
financial statements of Tygart Moulding Corporation.
(22)
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 16, 1997
THE EASTWIND GROUP, INC.
(Registrant)
/s/ Paul A. DeJuliis
--------------------------------
Paul A. DeJuliis
Chairman and CEO
/s/ William B. Miller
---------------------------------
William B. Miller
Senior Vice President and CFO
(Principal financial and accounting officer)
<PAGE>
EXHIBIT 2.2
STOCK EXCHANGE AGREEMENT
------------------------
THIS AGREEMENT is made as of this 3rd day of January 1997, by and among The
Eastwind Group, Inc., a Delaware corporation ("Eastwind"); C.D.L. Perkins
("PerkinsC"), an individual residing at 325 Charmian Road, Richmond, VA 23226
and the owner of 15,615 Shares of common stock of Lavelle Company, a Delaware
corporation ("Lavelle"); Steven Perkins ("PerkinsS"), an individual residing at
609 South Valley Forge Road, Wayne, PA 19087 and the owner of 15,615 shares of
the common stock of Lavelle; Dorothy P. Gilbert ("Gilbert"), an individual
residing at 10 Welwyn Road, Wayne, PA 19087 and the owner of 7,807 shares of
common stock of Lavelle; Edward H. Merves ("Merves"), an individual residing at
339 Winding Way, Merion Station, PA 19066 and the owner of 15,615 shares of
common stock of Lavelle; Samuel R. Foster ("Foster"), an individual residing at
29 Greentree Lane, Malvern, PA 19355 and the owner of 7,807 shares of common
stock of Lavelle; John W. Burrows ("Burrows"), an individual residing at 1165
Lafayette Road, Wayne, PA 19087 and the owner of 15,615 shares of common stock
of Lavelle; Albert C. Bailey, Jr. ("Bailey"), an individual residing at 735
Tranquility Drive, Lansdale, PA 19446 and the owner of 22,898 shares of common
stock of Lavelle; Michael L. Schlupp ("Schlupp"), an individual residing at 30
Brandywine Drive, Marlton, NJ 08053 and the owner of 9,989 shares of common
stock of Lavelle; Patricia Medvic ("Medvic"), an individual residing at 301
Windsor Lane, Southampton, PA 18966 and the owner of 7,037 shares of common
stock of Lavelle; Barbara Marks ("Marks"), an individual residing at 933 Unruh
Avenue, Philadelphia, PA 19111 and the owner of 3,518 shares of common stock of
Lavelle; and that certain irrevocable charitable trust of which Alexander
Hartell is Settlor and Trustee dated June 8, 1996 known as the Lavelle
Charitable Trust ("Trust") and the owner of 35,184 shares of common stock of
Lavelle (PerkinsC, PerkinsS, Gilbert, Merves, Foster, Burrows, Bailey, Schlupp,
Medvic, Marks and Trust hereinafter collectively referred to as "Stockholders").
THE PARTIES HERETO AGREE AS FOLLOWS:
(1) Each of the Stockholders wishes to sell and exchange all of his or its
shares of the common stock of Lavelle (totalling in the aggregate 156,700 shares
and collectively, the "Lavelle Shares") to Eastwind in exchange for a total of
44,537 shares of Eastwind common stock, par value $.10 per share in the
aggregate (the "Eastwind Shares").
(2) The exchange of the Eastwind Shares for the Lavelle Shares shall occur
at a Closing held at Eastwind as soon as reasonably practicable following the
date of execution and delivery of this Agreement by the parties. It shall be a
condition to Closing for the benefit of Eastwind that a sufficient number of
stockholders shall have delivered enough of their Lavelle Shares on or before
February 28, 1997 so that Eastwind shall have received more than eighty (80%)
percent of the total issued and outstanding Lavelle Shares in exchange for the
proportionate number of Eastwind Shares, but the delivery and exchange of the
remaining Lavelle Shares by the other Stockholders shall not be an absolute
condition to the effectiveness
<PAGE>
of this Agreement, and Eastwind shall have the option to proceed with the
exchange of shares with those who have delivered their Lavelle Shares even if
one or more of the other Stockholders fail to deliver their certificates of
Lavelle Shares in exchange for their proportionate number of Eastwind Shares on
or before such date.
(3) The Eastwind Shares shall be delivered to the Stockholders upon receipt
of their Lavelle Shares offered in exchange therefor in the following amounts:
<TABLE>
<S> <C> <C>
C.D.L. Perkins 4,438 Eastwind Shares
Steven Perkins 4,438 Eastwind Shares
Dorothy P. Gilbert 2,219 Eastwind Shares
Edward H. Merves 4,438 Eastwind Shares
Samuel R. Foster 2,219 Eastwind Shares
John W. Burrows 4,438 Eastwind Shares
Albert C. Bailey, Jr. 6,508 Eastwind Shares
Michael L. Schlupp 2,839 Eastwind Shares
Patricia Medvic 2,000 Eastwind Shares
Barbara Marks 1,000 Eastwind Shares
Lavelle Charitable Trust 10,000 Eastwind Shares
</TABLE>
No fractional shares of Eastwind shall be issued in exchange for the Lavelle
Shares, and the allocation of the Eastwind Shares has been apportioned in an
equitable manner, rounding up or down to the nearest whole share.
(4) The Stockholders represent and warrant to Eastwind that the 156,700
Lavelle Shares owned by them, in the aggregate, constitute all of the currently
issued and outstanding common stock of Lavelle and each of them owns both legal
and beneficial title and all rights of ownership to the number of Lavelle Shares
set forth above in his or its own name, free and clear of all liens,
restrictions, encumbrances, adverse rights or other obligations impairing the
ability of the Stockholders to transfer the Lavelle Shares free and clear to
Eastwind in exchange for the Eastwind Shares.
(5) Eastwind represents and warrants to the Stockholders that the Eastwind
Shares, when delivered in accordance with the terms hereof and for the
consideration expressed herein, will be duly and validly issued, fully paid and
non-assessable and will be issued in compliance with all applicable federal and
state securities laws. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state, local or provincial governmental authority on the part of
Eastwind is required in connection with the consummation of the transactions
contemplated by this Agreement other than the filing by Eastwind of a Form 203-D
with respect thereto with the Pennsylvania Securities Commission together with
any other applications for similar exemption in other states in which the
Lavelle stockholders reside, if any, to the extent required.
2
<PAGE>
(6) Eastwind has provided the Stockholders with all information which they
have reasonably requested in order for them to determine whether or not to
accept the Eastwind Shares in exchange for the Lavelle Shares pursuant to the
terms hereof and all other information which Eastwind believes is reasonably
necessary to enable them to make such determination. Neither this agreement nor
any other information, statement or certificates provided, made or delivered in
connection herewith or in connection with the Stockholders' due diligence
investigation regarding Eastwind contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements herein
not misleading.
(7) The Stockholders understand that the Eastwind Shares are characterized
as "restricted securities" under the federal securities laws in as much as they
are being acquired from Eastwind in a transaction not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the federal securities laws only in certain
limited circumstances. It is further understood that the certificates
evidencing the Eastwind Shares will bear the following legend, in addition to
any additional legend that may be required by any applicable state securities
laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS.
EXCEPT AS OTHERWISE SET FORTH IN A STOCK EXCHANGE AGREEMENT DATED AS
OF JANUARY 3, 1997, THEY MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SUCH ACT OR UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS
OR AN EXEMPTION THEREFROM."
Without in any way limiting the provisions set forth above, as a condition of
the issuance of the Eastwind Shares in exchange for the Lavelle Shares, each
Stockholder, by his or its execution and delivery of this Agreement represents
that he or it will hold such Eastwind Shares for investment for his or its own
account and not with a view to the resale or distribution of any part thereof
and in the case of any Stockholder resident within the Commonwealth of
Pennsylvania will not sell the Eastwind Shares for at least twelve months,
except and until:
(a) There is then in effect a Registration Statement under the
Securities Act of 1933, as amended ("Securities Act"), covering such proposed
resale or distribution and such resale or distribution is made in accordance
with such Registration Statement; or
(b) The Stockholders, or any of them, shall have delivered to Eastwind
an opinion of counsel, such counsel and opinion each being reasonably
satisfactory to Eastwind, that such resale or distribution will not require
registration of such Eastwind Shares under the Securities Act; provided
however, that the parties agree that transfers to family members of the
Stockholders may be made without delivery of such an opinion if pursuant to the
laws of descent and distribution or for other family estate planning purposes;
or
3
<PAGE>
(c) Such Eastwind Shares are to be sold or otherwise transferred
pursuant to Rule 144 under the Securities Act of 1933.
Each such Stockholder further represents that:
(i) He or it has received and carefully read such information
concerning Eastwind, including reports publicly filed by it with the Securities
and Exchange Commission, to the extent that he or it is familiar with Eastwind
and has based his or its decision to invest in Eastwind on such information as
publicly filed, but has not been furnished with any other offering literature,
investment memorandum or prospectus not generally on file with the Commission.
(ii) He or it has, together with his or its Purchaser Representative,
if any, such knowledge and experience in financial and business matters that he
or it is capable of evaluating the merits and risks of the prospective
investment.
(iii) He is at least twenty-one years of age; has adequate means of
providing for his current needs and personal contingencies; has no need for
liquidity in his investment in the Eastwind Shares; maintains his domicile and
is not a transient or temporary resident at the address shown above; and that
his overall commitment to investments which are not readily marketable is not
disproportionate to his net worth, nor will his investment in the Eastwind
Shares cause such overall commitment to become excessive.
(iv) He or it understands that Eastwind has no obligation or current
intention to register the Eastwind Shares for resale under any federal or state
securities laws.
(v) He acknowledges that if he is purchasing the Eastwind Shares in
a fiduciary capacity, all of the representations in this Section (7) shall be
deemed to have been made on behalf of the person, persons or entities for whom
he has made such investment.
(8) Pursuant to the laws and regulations of the Commonwealth of
Pennsylvania, within two (2) business days from the date of execution of this
Agreement, the Stockholders, or any of them, may elect to withdraw from this
Stock Exchange Agreement, which withdrawal shall be without further liability to
Eastwind or any other person. To accomplish such a withdrawal, such Stockholder
need only send a letter or telecopy to Eastwind indicating its intention to
withdraw. Such letter or telecopy should be sent and postmarked prior to the
end of the aforementioned second business day. If sending a letter, it is
prudent to send it by certified mail return receipt requested, first class, to
insure that it is received and also to evidence the time when it was mailed.
Should any Stockholder make such request verbally, it should ask for written
confirmation that such request has been received.
(9) The parties hereto intend that the transactions contemplated by this
Stock Exchange Agreement shall constitute a tax-free reorganization as the
acquisition of "substantially
4
<PAGE>
all" of the voting stock of Lavelle in exchange "solely for voting stock of
Eastwind" as further set forth in Section 368(a)(1)(B) of the Internal Revenue
Code of 1986, as amended. Each of the parties hereto agrees with each of the
other parties hereto to do all such things as are necessary to qualify the
transactions contemplated by this Stock Exchange Agreement as such a tax-free
reorganization. Each of the parties hereto further covenants with each of the
other parties hereto that he or it shall treat the transactions set forth in
this Stock Exchange Agreement in such a fashion for each of his or its own
federal tax purposes as is consistent with such characterization.
(10) The parties further agree as follows:
(a) No party to this Agreement, without the prior written consent of
each of the other parties thereto, may assign its rights under this Agreement,
in whole or in part, and the terms and conditions of this Agreement shall enure
to the benefit of and be binding upon the respective successors, permitted
assigns, personal representatives and beneficiaries of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties thereto or their respective successors, permitted assigns,
personal representatives and beneficiaries, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as otherwise expressly
provided for herein.
(b) Unless otherwise provided, any notice required or permitted under
this Agreement shall be given in writing and shall be deemed effectively given
upon receipt by the party to be notified or upon three (3) days following
deposit with the United States Post Office, by registered or certified mail,
first class postage pre-paid and addressed to the party to be notified:
If to Eastwind:
The Eastwind Group, Inc.
100 Four Falls Corporate Center
Suite 305
West Conshohocken, PA 19428
Attention: Chairman
If to the Stockholders, then to their individual addresses as set
forth at the beginning of this Agreement.
(c) Any term of this Agreement may be amended and the observance of
any term may be waived (either generally or in a particular instance, and either
retroactively or prospectively), only with the prior written consent of all of
the parties hereto.
(d) If any one or more provisions of this Agreement are held to be
unenforceable or without effect under applicable law, such provision or
provisions shall be
5
<PAGE>
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
(e) This Agreement shall be governed by and construed under the laws
of the Commonwealth of Pennsylvania without regard to the body of law
controlling conflicts of laws.
(f) This Agreement may be executed in two or more counterparts, each
of which shall be deemed a duplicate original thereof, but all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
THE EASTWIND GROUP, INC.
By:
---------------------------------
Title:
(SEAL)
------------------------------
C.D.L. Perkins
(SEAL)
------------------------------
Steven Perkins
(SEAL)
------------------------------
Dorothy Gilbert
(SEAL)
------------------------------
Edward Merves
(SEAL)
------------------------------
Samuel Foster
(SEAL)
------------------------------
John Burrows
6
<PAGE>
(SEAL)
------------------------------
Albert C. Bailey, Jr.
(SEAL)
------------------------------
Michael L. Schlupp
(SEAL)
------------------------------
Patricia Medvic
(SEAL)
------------------------------
Barbara Marks
(SEAL)
------------------------------
Lavelle Charitable Trust, by
Alexander Hartell, Sole Settlor
and Sole Trustee
7
<PAGE>
EXHIBIT 10.1
THE EASTWIND GROUP, INC.
LOAN PLAN FOR OFFICERS AND KEY EMPLOYEES
A. WHEREAS, The Eastwind Group, Inc. (the "Company") has implemented its
Stock Option Incentive Plan ("Employee Plan") and its Non-Employee Directors
Stock Option Plan ("Directors Plan") , both in 1995 (collectively the "Plans");
B. WHEREAS, the Plans have been approved by the Company's Stockholders;
C. WHEREAS, the Directors Plan only provides for the granting of non-
qualified stock options, but the Employee Plan provides for the granting of both
stock options and stock appreciation rights ("SARs") to officers and key
employees of the Company;
D. WHEREAS, the granting of SARs may have an adverse effect on the
Company's financial and operating results;
E. WHEREAS, certain officers and key employees of the Company also
currently hold Warrants for the purchase of common stock of the Company which
were not issued pursuant to the Plans and which require a cash payment in order
to exercise such Warrants;
F. WHEREAS, it is in the best interests of the Company and its
Stockholders to make loans to certain of its optionees for the purpose of
allowing them to exercise stock options
<PAGE>
granted under the Employee Plan in lieu of granting such optionees SARs, and for
the purpose of allowing its officers and key employees to exercise Warrants held
by them; and
G. WHEREAS, the Company is permitted to make loans to its officers and
key employees pursuant to the General Corporation Law of Delaware, and is not
prohibited from doing so under the Company's Bylaws.
NOW, THEREFORE, the Company hereby establishes the following Loan Plan for
officers and key employees (the "Loan Plan") in order, among other reasons, to
enable the Company to provide its officers and key employees who are or may be
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Act"), with financial assistance in the exercise of stock options under the
Employee Plan and in the exercise of Warrants held by them.
ARTICLE I
ADMINISTRATION
The Loan Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company (the "Committee"). The Committee shall be
appointed by the Board of Directors of the Company and shall consist of at least
two disinterested and independent directors (unless there is a vacancy on such
committee as a result of resignation or ineligibility, in which case the
remaining member may act alone until a new member or members has been
2
<PAGE>
appointed). Members of the Committee shall not be eligible to participate in
the Loan Plan and shall serve at the pleasure of the Board of Directors.
The Committee shall have full and exclusive power and authority (within the
limitations described herein) to adopt such rules, regulations, agreements,
guidelines and instruments as it deems necessary or appropriate for the proper
administration of the Loan Plan. The Committee's interpretation of the Loan
Plan, all actions taken and all determinations made by the Committee with
respect to any issues or matters which may arise thereunder shall be final and
binding on all interested parties.
ARTICLE II
ELIGIBILITY FOR FINANCIAL ASSISTANCE
Any present or future officer or key employee of the Company who has been,
or may in the future be, granted a stock option under the Employee Plan, and any
officer or key employee who now holds, or may in the future hold, Warrants, and
who at the time of exercise of such option or Warrant is or may be subject to
Section 16(b) of the Act, or who requires temporary financial assistance in the
exercise of such option or Warrant for good and sufficient reason, may apply to
the Committee for a loan from the Company in accordance with the provisions of
this Loan Plan. The Committee shall have complete discretion in determining
whether to approve the loan application in whole or in part.
3
<PAGE>
ARTICLE III
EXTENSION OF LOANS
The Company shall, upon the Committee's recommendation, extend one or more
loans to an eligible officer or key employee, but provided any such loan shall
--------
be subject to all of the following terms and conditions:
1. The principal of the loan shall not exceed the amount required to
be paid to the Company upon the optionee's exercise of one or more options under
the Employee Plan, or upon the officer's or key employee's exercise of one or
more Warrants, and the loan proceeds shall be paid directly to the Company in
consideration of such exercise.
2. The loan shall be due and payable as stated herein provided that
the term of the loan shall not exceed a period of five years unless the
Committee, in its sole and absolute discretion, authorizes the extension of time
for repayment of the loan upon such terms and conditions as the Committee may
determine.
3. The loan shall be with full recourse to the officer or key
employee, shall be evidenced by the officer's or key employee's promissory note
and shall bear such interest rate or be interest free as determined by the
Committee. The note shall be substantially in the form approved by the
Committee and shall contain such other terms and conditions, which are not
4
<PAGE>
inconsistent with the provisions of the Loan Plan, as the Committee shall
determine in its sole and absolute discretion.
4. Except as otherwise provided in clause (c) of the first sentence
of Section 5 hereof, payment of the note shall be secured by a pledge of all the
shares of Company common stock acquired by the officer or key employee upon the
particular exercise of the option or Warrant to which the loan relates, provided
that the Company common stock pledged as security for the note shall be adequate
for compliance purposes with all applicable federal or state laws or
regulations. The officer or key employee shall effect such pledge by delivering
to the Company (i) the certificate for the acquired shares, accompanied by a
duly executed stock power, and (ii) a properly executed stock pledge agreement
in such form as is approved by the Committee.
5. In the event of the sale or transfer of any of the pledged shares
except for (a) a transfer effected in connection with a consolidation,
reorganization, recapitalization or merger of the Company, in which case such
newly acquired shares shall be pledged to the Company as substitute security,
(b) a transfer to the Company in payment of the exercise price of one or more
options outstanding under the Employee Plan, or of one or more Warrants, in
which case the shares issued upon such exercise shall be pledged to the Company
as substitute security or (c) a sale in which the proceeds are used, or are to
be used, for the payment of federal or state income taxes, including withholding
taxes, incurred in connection with the exercise of options granted under the
Employee Plan or with the exercise of a Warrant, in respect of which a loan
hereunder has been made, the unpaid principal balance of the note shall become
immediately due
5
<PAGE>
and payable to the extent of the proceeds (net of brokerage fees) realized from
such sale or transfer. The Company shall release shares to be sold from the
pledge only if the officer or key employee first pays the Company the
accelerated portion of the note covering the exercise price of the shares (plus
withholding tax obligations, if any and if not yet satisfied) or otherwise
enters into a satisfactory arrangement with the Company to provide for prompt
payment of such amount upon consummation of the sale.
6. If on any date which is six months or more after the date of a
loan, the Company (upon direction of the Committee) notifies an officer or key
employee to whom the loan was made that the average market price of the Company
common stock for the 15 trading days prior to such date is at least equal to or
greater than the market price of such stock on the date the loan was made, then
the loan shall become due and payable in full on the 10th trading day after
receipt of such notice if such officer or key employee may then sell shares of
the Company common stock without incurring any liability under Section 16(b) of
the Act. If such officer or key employee would incur liability under Section
16(b) of the Act, he or she shall, within five days after receiving notice from
the Company, furnish the Company with a written explanation of the facts causing
such liability and the note shall not be due or payable if acceptable to the
Company. In such event the Company may give another notice to such officer or
key employee pursuant to this paragraph 6 at such time as it would appear from
the facts set forth in the officer's or key employee's letter that the officer
or key employee could sell Company common stock without incurring any liability
under Section 16(b) of the Act, subject to the provisions of the first sentence
of this paragraph. The Committee may, in its sole discretion,
6
<PAGE>
determine not to send such notice, in which case the accelerated maturity of the
loan shall not apply. For purposes of this Loan Plan the term "market price" on
any date shall mean the simple average of the high and low prices of the Company
common stock traded on such date (or on the last date on which traded) as
reported on the principal stock exchange on which such stock is traded, or if
such stock is not traded on a stock exchange, the average of the closing bid and
ask prices as reported by the National Association of Securities Dealers.
7. In the event an officer or key employee terminates employment for
any reason other than death or disability, the unpaid principal balance of the
note shall become due and payable on the 10th trading day after such termination
date; provided, however, that if a sale of shares of the Company common stock
underlying the loan would cause such officer or key employee to incur liability
under Section 16(b) of the Act, the unpaid balance shall become due and payable
on the 10th trading day after the first day on which such sale can be made
without incurring such liability. In the event an officer or key employee
terminates employment as a result of disability, or upon the death of an officer
or key employee, the unpaid principal balance of the note shall become due and
payable six months after the date of such termination or death, as the case may
be.
8. The Committee may provide in the note of any officer or key
employee that if, on the date the note becomes due and payable, the market price
of the Company common stock is below the exercise price of the option to which
the loan relates and such officer or key employee has sold stock acquired
pursuant to the exercise of such option at a lower market price
7
<PAGE>
in order to repay such note, the Company shall forgive a portion of the
principal on the note equal to the difference between such exercise price and
the lower market price at which such stock was sold; provided that this
paragraph 8 shall not apply if the note has become due and payable pursuant to
paragraphs 5 or 6.
ARTICLE IV
AMENDMENT AND TERMINATION
The Committee may at any time, and from time to time, suspend or terminate
the operation of the Loan Plan and the extension of Company loans hereunder and
may amend or modify the provisions of the Loan Plan, including the terms and
conditions upon which loans are to be made to eligible employees. Under no
circumstances, however, shall any such amendment, termination or suspension of
the Loan Plan adversely affect the rights and obligations of any optionee with
respect to any loans at the time outstanding under the Loan Plan except as
otherwise expressly provided herein.
ARTICLE V
MISCELLANEOUS PROVISIONS
1. No optionee or other person shall have any claim or right to
receive a loan under the Loan Plan, and no optionee shall have any right to be
retained in the employ of the Company.
8
<PAGE>
2. No loan shall be made hereunder unless counsel for the Company
shall be satisfied that such loan will be in compliance with applicable federal,
state and local laws.
3. The expenses of the Loan Plan shall be borne by the Company.
4. The Loan Plan shall be unfunded, and the Company shall not be
required to establish any special or separate fund or to make any other
segregation of assets to assure the making of any loan under the Loan Plan.
5. By accepting any loan under the Loan Plan, each optionee shall be
conclusively deemed to have indicated his or her acceptance and ratification of,
and consent to, any action taken under the Loan Plan by the Company, the Board
of Directors of the Company or the Committee.
6. The appropriate officers of the Company shall cause to be filed
any reports, returns or other information regarding loans hereunder as may be
required by any applicable statute, rule or regulation.
First Adopted: February 12, 1997
--------------------------------
9
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
--------------------
This Agreement, made as of December ___, 1996 by and between Anthony J.
Mendicino (hereinafter called "Employee"), and The Eastwind Group, Inc.
("Eastwind"), a corporation incorporated under the laws of the State of
Delaware. In consideration of the mutual promises and covenants contained
herein, the parties agree as follows:
1. Eastwind will employ the Employee as Senior Vice-President and Chief
Operating Officer, or in such other comparable position as Eastwind's Board of
Directors may reasonably determine. The Employee accepts such employment and
will render such services as assigned to him from time to time by the Chairman,
or Board of Directors of Eastwind, and generally he will be responsible for
overseeing the operations of the subsidiary companies owned by Eastwind. The
presidents of each subsidiary company will report to Employee and Employee will
report directly to the Chairman and Chief Executive Officer of Eastwind. In
addition, the Employee agrees to render such services upon all of the terms and
conditions set forth in this Agreement and agrees to devote his best efforts on
a full time basis in performing such duties.
2. This Agreement will be for a term of one year beginning on January 1,
1997 and shall automatically renew thereafter for consecutive twelve (12) month
periods unless terminated by either party upon written notice at least six
months prior to the beginning of the next renewal year or unless earlier
terminated as hereinafter set forth.
3. Employee agrees that except for vacation periods, illnesses or as
otherwise provided herein, he shall devote his whole and undivided working time,
energies and attention during normal business hours of Eastwind, with the best
of his skills and abilities in the furtherance of the business of Eastwind.
Provided, however, Employee may devote a reasonable amount of time to his own
personal, investment, charitable and civic activities, including service on
Boards of Directors or Committees of other companies in which he has been
involved (even if compensated for such service). Employee shall be entitled to
four (4) weeks vacation annually and all holidays recognized by Eastwind.
4. The base salary in the first year commencing January 1, 1997 will be
$150,000 annually ($12,500 per month, payable semi-monthly). This salary will
be reviewed annually under Eastwind's salary program in effect at that time.
5. During the term of this Agreement the Employee will participate in
Eastwind's Performance Bonus Program (the "Bonus") to be established and as in
effect from time to time.
6. During the term of this Agreement, Eastwind fringe benefits including
health, pension, life and disability insurance benefits made available to other
comparable salaried employees will be made available to the Employee.
-1-
<PAGE>
7. If Employee becomes disabled during the term of this Agreement as such
is defined in Eastwind's disability plan, Employee will be entitled to
Eastwind's applicable disability insurance benefits in place at the time of
disability. This Agreement shall terminate as of the date Employee is eligible
for disability benefits and Eastwind shall have no further obligations
hereunder.
8. Employee will be reimbursed by Eastwind for expenses incurred by him
in connection with its business according to policies promulgated by it and upon
presentation by Employee of customary and appropriate substantiation for such
expenses.
9. Employee will be reimbursed for automobile lease and maintenance
expenses not to exceed, in the aggregate, $500 per month.
10. Employee will be eligible to participate in Eastwind's stock option
program for key employees known as its Incentive Stock Plans. The Eastwind
Board of Directors has granted Employee options to purchase 55,000 shares of its
Common Stock at market price on December 31, 1996, all as set forth in more
detail in the Option Agreement attached hereto.
11. If Employee should die during the term of this Agreement, this
Agreement shall terminate as of the date of his death and Eastwind shall have no
further obligations hereunder.
12. Employee expressly covenants, warrants and agrees that during the term
of this Agreement and for a period of one year thereafter, Employee shall not,
without the prior written consent of Eastwind, directly or indirectly, as an
owner, partner, shareholder or beneficial owner, agent, principal, consultant or
in any other capacity:
(a) engage in or acquire any financial or beneficial interest in the
operation of any business (except as a stockholder in a public
corporation or other entity in which his aggregate investment does
not exceed 2% of the total equity investments in such entity)
involving the sale, distribution and handling of products or
services that directly competes with the businesses of Eastwind
(i) within the United States and (ii) in any foreign area where
Eastwind has operated its businesses, or
(b) divert or attempt to divert any business of, or any of the
customers or suppliers of Eastwind or its businesses, by direct or
indirect inducements or otherwise, or
(c) hire, attempt to hire or encourage the resignation of any employee
of Eastwind by direct or indirect inducements or otherwise.
The parties expressly agree and acknowledge that they are familiar
with the businesses of Eastwind and believe that the covenants set forth in this
Section 12 are reasonable.
-2-
<PAGE>
If, notwithstanding such agreement and acknowledgment, a final, non-appealable
judgement of a court of competent jurisdiction determines that any such covenant
is unenforceable, then such covenant shall be reformed by reducing the time
period, geographical area, or both, to make the covenant enforceable.
13. Employee recognizes and acknowledges that the operations, methods,
customer lists, trade secrets and other confidential or proprietary information
of Eastwind (or otherwise related to its businesses) are valuable, special and
unique. Employee shall keep confidential any trade secrets, confidential or
proprietary information of Eastwind (or otherwise related to its businesses)
which are now known to Employee or which hereafter may become known to Employee
as a result of Employee's employment with Eastwind and shall not at any time,
directly or indirectly, disclose any such information to any person, firm or
corporation. For purposes of this Section 13, "trade secrets or other
confidential or proprietary information" shall mean information (i) which is
unique to Eastwind and which has a significant business purpose and is not known
or generally available from sources outside Eastwind or from typical industry
practice, or (ii) the disclosure of which would have a material adverse effect
on its businesses.
14. The parties acknowledge that a breach of paragraphs 12 or 13 of this
Agreement may cause substantial injury to Eastwind which may be irreparable
and/or in amounts difficult or impossible to ascertain. Employee hereby
covenants and agrees that in the event that he breaches this Agreement, Eastwind
shall have, in addition to all other remedies, the right to injunctive and other
equitable relief.
15. Employee may voluntarily terminate employment with Eastwind at any
time. Eastwind may discharge Employee at any time with Cause or without Cause.
Cause shall mean habitual intoxication, drug addiction, willful violation of any
significant rule or regulation established by Eastwind, dishonesty, fraud or
malfeasance in office; the willful and continued failure by Employee to
substantially perform his duties (other than any such failure resulting from his
incapacity due to a permanent disability); or the willful and continuous
engaging by Employee in conduct which is demonstrably and materially injurious
to Eastwind, monetarily or otherwise; and after a written demand for substantial
performance is delivered to Employee by the Board of Directors of Eastwind,
which demand shall specifically identify the manner in which the Board of
Directors believes that Employee has not substantially performed his duties. Any
of the foregoing to the contrary notwithstanding, no act, or failure to act, on
the part of Employee shall be considered "willful" unless he has acted or failed
to act, with an absence of good faith and without a reasonable belief that his
action or failure to act was in the best interests of Eastwind; and the Employee
shall not be deemed to have been terminated for Cause unless and until there
shall have been delivered to him a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board of Directors of Eastwind at a meeting of such Boards called and held for
that purpose, and following reasonable notice to Employee and an opportunity for
him, to be heard before the full Board of Directors, finding that in the good
faith opinion of the Board of Directors he was guilty of the conduct set forth
above in the first sentence of this subsection and specifying the particulars
thereof in detail.
-3-
<PAGE>
Upon such voluntary termination by Employee or termination for Cause by
Eastwind, this Agreement shall terminate and Eastwind shall have no further
obligations hereunder, except as required by law. If Employee is discharged by
Eastwind without Cause, this Agreement will terminate upon discharge and
Eastwind will provide Employee with severance compensation by continuing to pay
Employee his monthly base salary at the rate in effect at the time of his
termination of his employment and by continuing his coverage under all Eastwind
group insurance programs in which he is then enrolled, for a period of six
months from the date of termination. This six month severance allowance is
offered under the condition that Employee enter into the Non-Compete and
confidentiality provisions contained in this Agreement.
16. The parties hereto do not intend, and nothing in this Agreement shall
be construed, to give any person other than the parties hereto and their
respective successors and assigns, any legal or equitable benefit, right, remedy
or claim, and no person other than the parties hereto and their respective
successors and assigns shall have standing to assert the same.
17. This Agreement constitutes the entire understanding of the parties
hereto with respect to the matters referred to herein and supersedes all prior
arrangements or understandings, written or oral, with respect thereto. Except
as expressly set forth herein, the parties make no representation, warranty,
covenant or agreement, whether express or implied, of any kind whatsoever.
18. This Agreement is personal to the Employee. Employee specifically
acknowledges and agrees that Eastwind may assign this Agreement to one or more
of its successors in interest, subsidiaries, affiliates or any other person or
organization which may hereafter acquire all or substantially all of the assets
or business of Eastwind and such assignment shall be binding upon Employee and
such assignee or successor in interest and shall be enforceable by them.
19. All notices, disclosures or other communications which are required or
permitted hereunder shall be deemed sufficiently given by one party to another
party only if in writing and if and when actually received if hand delivered,
personally or by a nationally recognized overnight delivery service, or
international courier, which provides for a signed receipt, or as of five
business days after deposit in the United States mail in a sealed envelope,
registered or certified, with postage prepaid, addressed as follows:
If to Eastwind:
The Eastwind Group, Inc.
100 Four Falls Corporate Center
Suite 305
West Conshohocken, PA 19428
-4-
<PAGE>
If to Employee:
Anthony J. Mendicino
212 South Spring Mill Road
Villanova, PA 19085
or to such other address as shall have been previously designated by written
notice in accordance with this Section.
20. This Agreement will be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania without giving effect to conflict
of laws principles thereof. Eastwind and Employee each hereby consent to
personal jurisdiction in any action brought with respect to this Agreement in
any Federal or State court within the Commonwealth of Pennsylvania.
21. Employee expressly acknowledges that the Non-Compete provisions herein
are a material consideration for the benefits provided by Eastwind under this
Agreement and without the agreement of employee to be bound by such Non-Compete
provisions, Eastwind would not enter into this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
Attest: THE EASTWIND GROUP, INC.
- ---------------------------- ------------------------------------
Witness: By:
-------------------- --------------------------------
Employee: Anthony J. Mendicino
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> OTHER YEAR
<FISCAL-YEAR-END> JAN-03-1998 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-29-1997 MAR-31-1996
<CASH> 374,973 709,697
<SECURITIES> 0 0
<RECEIVABLES> 7,422,943 7,655,763
<ALLOWANCES> 0 0
<INVENTORY> 5,800,505 4,001,007
<CURRENT-ASSETS> 13,934,221 13,709,141
<PP&E> 9,535,802 7,653,518
<DEPRECIATION> (928,103) (629,125)
<TOTAL-ASSETS> 30,884,753 28,458,023
<CURRENT-LIABILITIES> 13,107,363 12,222,917
<BONDS> 0 0
900,000 900,000
100 100
<COMMON> 268,602 241,148
<OTHER-SE> 8,008,730 7,084,631
<TOTAL-LIABILITY-AND-EQUITY> 30,884,753 28,458,023
<SALES> 13,655,284 4,966,982
<TOTAL-REVENUES> 13,655,284 4,966,982
<CGS> 10,299,194 3,688,753
<TOTAL-COSTS> 10,299,194 3,688,753
<OTHER-EXPENSES> 2,619,430 926,696
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 448,078 150,293
<INCOME-PRETAX> 288,582 201,240
<INCOME-TAX> 98,400 56,500
<INCOME-CONTINUING> 190,182 144,740
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 190,182 144,740
<EPS-PRIMARY> .06 .08
<EPS-DILUTED> .05 .07
</TABLE>
