<PAGE>
As Filed with the Securities and Exchange Commission on July 29, 1998
Registration No. 333-52685
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________
AMENDMENT NO. 1 TO FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
_______________
THE EASTWIND GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 23-2732753
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification
Organization) Number)
275 GEIGER ROAD
PHILADELPHIA, PENNSYLVANIA 19115
(215) 671-0606
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
PAUL A. DEJULIIS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
THE EASTWIND GROUP, INC.
275 GEIGER ROAD
PHILADELPHIA, PENNSYLVANIA 19115
(215) 671-0606
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
_______________
WITH A COPY TO:
DOUGLAS M. LURIO, ESQUIRE
ALLA PASTERNACK, ESQUIRE
LURIO & ASSOCIATES, P.C.
SUITE 1300, 1760 MARKET STREET
PHILADELPHIA, PA 19103
215-665-9300
_______________
Approximate date of commencement of proposed sale to public: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVENESS OF THIS REGISTRATION STATEMENT.
_______________
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
TITLE OF MAXIMUM MAXIMUM
SECURITIES AMOUNT OF SHARES OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE (2) PRICE (2) FEE
- -------------- ----------------- ---------- ----------- ------------
Common Stock 996,000(1) $2.00 $1,992,000 $597.60(3)
- ------------------------------------------------------------------------
Common Stock(4) 1,405,376(5) $1.25 $1,756,720 $579.72
- ------------------------------------------------------------------------
Total 2,401,376 $3,748,720 $1,177.32(6)
========================================================================
(1) INCLUDES 200,000 SHARES TO BE ISSUED UPON EXERCISE OF A COMMON STOCK
PURCHASE WARRANT. PURSUANT TO RULE 416 UNDER THE SECURITIES ACT OF 1933,
THIS REGISTRATION STATEMENT SHALL ALSO COVER SUCH INDETERMINATE NUMBER OF
ADDITIONAL SHARES OF COMMON STOCK AS MAY BECOME ISSUABLE UPON EXERCISE OF
THE WARRANT TO PREVENT DILUTION RESULTING FROM STOCK SPLITS, STOCK
DIVIDENDS OR SIMILAR TRANSACTIONS, OR BY REASON OF CHANGES IN THE EXERCISE
PRICE OF THE WARRANT IN ACCORDANCE WITH THE TERMS THEREOF.
(2) ESTIMATED PURSUANT TO RULE 457(c) UNDER THE SECURITIES ACT OF 1933
SOLELY FOR THE PURPOSE OF CALCULATING THE REGISTRATION FEE.
(3) THESE 996,000 SHARES WERE COVERED BY THE ORIGINAL REGISTRATION
STATEMENT FILED ON MAY 14, 1998, AND THE REGISTRATION FEE FOR THESE SHARES
WAS PAID FOR AT THAT TIME.
(4) THESE 1,405,376 SHARES WERE NOT COVERED BY THE ORIGINAL REGISTRATION
STATEMENT FILED ON MAY 14, 1998. ACCORDINGLY, THE REGISTRANT HAS PAID AN
ADDITIONAL FILING FEE OF $579.72.
(5) INCLUDES 75,000 SHARES TO BE ISSUED UPON EXERCISE OF A COMMON STOCK
PURCHASE WARRANT AND 665,188 SHARES ISSUABLE UPON CONVERSION OF SERIES C
CONVERTIBLE PREFERRED STOCK ASSUMING CONVERSION ON JUNE 24, 1998. ALSO
INCLUDES AN ADDITIONAL 665,188 SHARES WHICH MAY BECOME ISSUABLE UPON
EXERCISE OF THE WARRANT OR CONVERSION OF THE SERIES C CONVERTIBLE PREFERRED
STOCK TO PREVENT DILUTION RESULTING FROM STOCK SPLITS, STOCK DIVIDENDS OR
SIMILAR TRANSACTIONS, OR BY REASON OF CHANGES IN THE EXERCISE PRICE OF THE
WARRANT, OR THE CONVERSION PRICE OF THE SERIES C CONVERTIBLE PREFERRED
STOCK, IN ACCORDANCE WITH THE TERMS THEREOF.
(6) THE AMOUNT OF $597.60 WAS PREVIOUSLY PAID BY THE REGISTRANT AT THE
TIME OF FILING THE ORIGINAL REGISTRATION STATEMENT AND THE BALANCE OF
$579.72 IS BEING PAID AT THIS TIME.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
PROSPECTUS
THE EASTWIND GROUP, INC.
2,401,376 Shares
of
Common Stock
This Prospectus relates to the resale by certain stockholders named
herein (the "Selling Stockholders") of 2,401,376 shares ("Offered Shares") of
Common Stock, par value $0.10 per share (the "Common Stock"), of The Eastwind
Group, Inc., a Delaware corporation (the "Company"), including shares of Common
Stock which may be acquired upon the exercise of two outstanding warrants to
purchase shares of Common Stock (collectively "Warrants") and shares of Common
Stock which may be acquired upon conversion of outstanding shares of Series C
Convertible Preferred Stock ("Series C Preferred Stock"). The Company will pay
all expenses incurred in connection with this offering other than underwriting
fees, discounts and commissions, and certain counsel fees of the Selling
Stockholders. See "Plan of Distribution."
The Offered Shares, the Series C Preferred Stock, and the Warrants
were issued in connection with certain private placement transactions. See
"Description of Securities." This Prospectus has been prepared for the purpose
of registering the Offered Shares under the Securities Act of 1933, as amended
(the "Act"), to allow for future sales by the Selling Stockholders to the public
without restriction.
The Company will receive net proceeds from the exercise of the
Warrants but will not receive any part of the proceeds from the sale of the
Offered Shares by the Selling Stockholders. There is no assurance that the
Warrants will be exercised and, therefore, there is no assurance that the
Company will receive any proceeds as a result of the exercise of the Warrants.
See "Selling Stockholders" and "Plan of Distribution."
The sale of the Offered Shares by the Selling Stockholders or by their
pledgees, donees, transferees or other successors in interest, may be effected
from time to time directly by the Selling Stockholders acting as principals for
their own account or through brokers, agents, dealers or underwriters in one or
more transactions at market prices prevailing at the time of sale on any stock
exchange on which the Common Stock may be listed at the time of sale/or on the
OTC Bulletin Board, or in private sales at prices related to such prevailing
market prices at the time of sale or at prices otherwise negotiated. The Selling
Stockholders may pay commissions or other compensation to broker-dealers in
connection with such sales, which may be in excess of customary commissions
charged for national stock exchange transactions. The Selling Stockholders and
any brokers-dealers acting in connection with the sale of the Offered Shares may
be deemed to be "underwriters" within the meaning of the Act. Any commissions
received by a broker or dealer in connection with resales of the Offered Shares
may be deemed to be underwriting commissions or discounts under the Act. See
"Plan of Distribution."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
PROSPECTIVE PURCHASERS SHOULD CONSIDER THE RISKS SET FORTH UNDER "RISK
FACTORS" COMMENCING ON PAGE 3.
The Common Stock trades on the Nasdaq Small Cap Market under the
symbol "EWND." On July 13, 1998, the last sale price of the Common Stock as
reported by the Nasdaq SmallCap Market, was $1.25 per share.
The date of this Prospectus is July ____, 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") relating to the shares of
Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted pursuant to the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement for further information
with respect to the Company and the securities offered hereby. Any statements
contained herein concerning the provisions of any document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission are not
necessarily complete, and in each instance reference is made to the copy of such
document so filed. Each such statement shall be qualified in its entirety by
such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. Proxy statements concerning the Company, reports, and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission' s regional offices in New York (7
World Trade Center, Suite 1300, New York, New York 10048) and Chicago (Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511).
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, DC 20549 at prescribed rates.
In addition, registration statements and certain other filings made with the
Commission through its "EDGAR" system are publicly available through the
Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov. This Registration Statement, including all exhibits
thereto, has been filed with the Commission through EDGAR.
The Company will furnish, without charge, to any person to whom a copy
of this Prospectus is delivered, upon such person's written or oral request, a
copy of any and all of the documents that have been incorporated by reference in
this Prospectus (not including exhibits to such documents, unless such exhibits
are specifically incorporated by reference into such documents). Any such
request should be directed to William B. Miller, Senior Vice President and Chief
Financial Officer, The Eastwind Group, Inc., 275 Geiger Road, Philadelphia,
Pennsylvania 19115, telephone number: (215) 671-0606.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File
No. 0-27638) are incorporated in this Prospectus by reference:
(a) The Company's Annual Report on Form 10-KSB for the fiscal
year ended January 3, 1998;
(b) The Company's Quarterly Report on Form 10-QSB for the quarter
ended April 4, 1998;
(c) The Company's Current Report on Form 8-K filed March 9, 1998;
(d) The description of the Common Stock contained in the
Company's Registration Statement on Form 8-A dated January 29, 1996,
including any amendments or reports filed for the purpose of updating such
description; and
(e) All documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the
termination of the offering shall be deemed to be incorporated by reference
herein from their respective dates of filing.
Any statements contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is incorporated or deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
2
<PAGE>
CAUTIONARY STATEMENT
When used in this Prospectus and in other public statements by the
Company and officers of the Company, 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 are
described in detail below under "Risk Factors" and include, among others: (i)
the "going concern" qualification contained in the audit opinion to the
financial statements in the Company's Form 10-KSB for the fiscal year ended
January 3, 1998 issued by the Company's independent public accountants; (ii) the
possibility that the Company's Common Stock may be delisted from trading on the
Nasdaq SmallCap Market; (iii) the Company's ability to identify appropriate
acquisition candidates, complete acquisitions on satisfactory terms, and
successfully integrate acquired businesses; (iv) the intense competition and low
barriers to entry in the industries in which the Company competes; (v) 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; (vi) the sensitivity of the
Company's businesses to general economic conditions; (vii) the timing of orders
from, and shipments to, major customers; (viii) the timing of new product sales;
(ix) the introduction and market acceptance of new products; (x) 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; (xi) the Company's ability to remain in compliance with the numerous
environmental, health and safety requirements to which it is subject; (xii)
changes in accounting principles, policies or guidelines; and (xiii) 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 public reports filed with the Commission.
Investors 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.
RISK FACTORS
The securities offered hereby are speculative in nature and involve a
high degree of risk. An investment in the securities should not be made by any
investor who cannot afford the loss of his or her entire investment. Prior to
making an investment decision with respect to the securities offered by this
Prospectus, prospective investors should carefully consider, along with the
other matters discussed in this Prospectus, the following risk factors:
POSSIBLE DELISTING FROM NASDAQ SMALLCAP MARKET
On February 23, 1998, the Nasdaq Stock Market materially increased the
financial and other criteria necessary to qualify for continued listing on the
Nasdaq SmallCap Market. As of that date, the Company had net tangible assets
less than the $2,000,000 minimum required for continued listing on the Nasdaq
SmallCap Market. On February 26, 1998, the Nasdaq Stock Market, Inc. ("Nasdaq")
issued a delisting notification to the Company. On March 27, 1998, the Company
appealed such determination by written submission to Nasdaq supporting its
position that its securities should not be delisted, effectively staying the
delisting process until further Nasdaq review. On April 14, 1998, Nasdaq issued
to the Company a second delisting notification notice, notifying the Company
that it was not in agreement with the Company's position. On April 21, 1998, in
accordance with Nasdaq's delisting process, the Company timely requested an oral
hearing in front of a Nasdaq review panel, staying the delisting process until
final determination by Nasdaq. The oral hearing was held on July 2, 1998. At
the hearing the Company requested additional time to comply with the net
tangible asset requirement and requested that its Common Stock not be delisted
pending such additional period of time. As of the date hereof, the review panel
has not issued its determination.
No assurance can be given that the Company's appeal will be successful
or that the Nasdaq review panel will grant the Company any additional time to
comply with the net tangible asset requirement. If the Company's appeal is
unsuccessful, its Common Stock will be delisted from the Nasdaq SmallCap Market.
Trading, if any, in the Company's Common Stock thereafter would be conducted on
the OTC Electronic Bulletin Board which could substantially reduce the liquidity
of and the market for the Company's Common Stock, and consequently, could
materially adversely affect the trading price of such Common Stock.
3
<PAGE>
NO SIGNIFICANT INDEPENDENT HISTORY OF OPERATIONS; HISTORICAL NET LOSSES OF
OPERATING SUBSIDIARIES
The Company reported a net loss for its fiscal year ended January 3,
1998. The Company is a holding company which has only recently acquired its
operating subsidiaries and, as such, has a limited history of independent
operations. There can be no assurance that the Company's operations will
realize revenues and gross profits sufficient to achieve or sustain
profitability on a quarterly or annual basis in the future. In the event it
fails to do so, the Company's ability to raise additional financing could be
impaired. In addition, losses from operations will negatively affect the value
of stockholders' equity and, accordingly, the value of each share of Common
Stock.
AUDIT OPINION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Company experienced a significant net loss in the fiscal year
ended January 3, 1998. The cash resources of the Company will not be sufficient
to sustain such cash losses, should they continue to occur. In its audit report
to the financial statements contained in the Company's Form 10-KSB for the year
ended January 3, 1998, the Company's independent public accountants opined that
there was substantial doubt about the Company's ability to continue as a going
concern as a result of experiencing such significant losses from operations.
Management has taken steps to revise its operating and financial condition,
which it believes are sufficient to provide the Company with the ability to
continue as a going concern. The Company has closed down certain unprofitable
operations and has instituted certain revenue enhancing measures and cost-
cutting programs. In addition, the Company has been attempting to refinance its
senior debt in order to expand its lines of credit and borrowings on under-
leveraged assets to solve such cash difficulties. In July 1998, the Company
entered into a letter of intent with a proposed lender to refinance the senior
secured debt of Polychem and Centennial, and in connection therewith paid a
commitment fee of $92,000. The Company also entered into a letter of intent with
a potential lender in order to refinance the real estate mortgage on its
Polychem manufacturing and warehouse facility, and paid a commitment fee of
$21,300 to the proposed lender. The Company anticipates closing these
refinancings during the third quarter of fiscal year 1998. Closing under these
proposals is conditioned, among other things, upon satisfactory definitive legal
documentation and the lenders' due diligence. There can be no assurance that any
or all of the steps taken or to be taken by the Company will enable the Company
to continue as a going concern.
The outstanding line of credit in the amount of $2,500,000 from
Corestates Bank, N.A. to Centennial matured on June 30, 1998. The line of credit
is guaranteed by the Company and secured by substantially all of the assets of
Centennial. Corestates had agreed to forebear from demanding repayment of the
line of credit through July 17, 1998. As of the date hereof, the line of credit
has not been repaid. Corestates has not demanded repayment of the line as of the
date hereof, and the Company believes that repayment of the line will not be
demanded by Corestates pending its refinancing efforts. There can be no
assurance, however, that Corestates will forbear from demanding repayment of the
line of credit pending such refinancing efforts.
In order to overcome its liquidity problems and assure the development
of adequate resources for funding continuing operations, the Company has engaged
in several transactions subsequent to January 3, 1998, and through the date
hereof.
The Company's equity transactions subsequent to January 3, 1998,
consist of the following:(a) the sale of Common Stock through the exercise of
warrants generating cash of $300,000 in January 1998; (b) in April 1998, the
Company sold 400,000 shares of its Common Stock to Clifton Capital Ltd.
("Clifton") in a private placement for an aggregate of $500,000, of which
$100,000 was paid at the time of sale and the balance to be paid upon the
effectiveness of this registration statement; (c) in April 1998, the Company's
Chairman and CEO sold 301,000 shares of the Company's Common Stock, in a private
transaction and, with the entire proceeds, purchased 301,000 shares of the
Company's Common Stock, thus generating cash of $376,250; (d) the Company is
owed $762,000 for stock that was issued and for which a promissory note was
received. This amount is currently shown as a contra account to equity and,
thus, is not included in net tangible assets. The Company has received
marketable securities in partial satisfaction of the promissory note. The
marketable securities received will add approximately $300,000 to tangible net
worth and the Company expects to receive the remaining $500,000 in the third
quarter of 1998; and (e) in June 1998, the Company sold $750,000 of Series C
Convertible Preferred Stock to ProFutures Special Equity Fund, L.P.
("ProFutures").
Subsequent to January 3, 1998, the Company's corporate debt
refinancing transactions include closing down Premier Book Press effective April
13, 1998 in order to eliminate the cash drain created by Premier's pre-tax
losses of $1.5 million in the last 15 months and anticipated cash requirements
should operations have continued. The close down of Premier should make it
easier for the Company to refinance its senior debt.
The Company has reached an agreement with the Commonwealth of
Pennsylvania to pay the Centennial sales tax liability, which is still being
appealed, over a three year period, thus alleviating any immediate material cash
requirement. The Company believes that this agreement will also assist in its
attempts in refinancing of its senior debt.
In connection with the Company's ability to support its operations
during the next twelve months, the Company expects to realize net income during
the 1998 fiscal year of approximately $800,000, generating operating cash flow
and income before interest, income taxes, depreciation, and amortization in
excess of $3,000,000. This is based upon four months actual results and eight
months forecasted budget.
ADDITIONAL CAPITAL REQUIREMENTS; RELIANCE ON FURTHER ACQUISITIONS
Although the Company intends to devote significant efforts to
improving the profitability of its current subsidiaries, ultimately the
Company's growth depends upon the achievement of its goal of acquiring and
consolidating under performing middle-market manufacturing businesses. No
assurances can be made that the Company will be successful in identifying future
candidates for acquisition, that it will have the available resources to fund
such acquisitions, or, if such acquisitions are consummated, that they will
result in operating profits for the Company. In addition, any additional equity
financing may be dilutive to stockholders, and debt financing may impose
substantial restrictions on the Company's ability to operate and raise capital.
The Company is currently attempting to refinance its senior debt. There is no
assurance that such refinancing will occur.
The Company uses the term "under performing" in the context that the
target company is performing at historic levels which would not be considered
adequate by industry standards. Such less than acceptable performance might be
due to the target company bearing inordinate corporate overhead, having less
than appropriate operating economies of scale or other factors which could be
changed to achieve better results in a new corporate structure. Potential
acquisitions could include companies that are currently unprofitable.
Since its inception, the Company has made six acquisitions. To date,
the Company has sold one such acquisition and has closed down the operations of
two such acquisitions. Ivy Tygart Acquisition Corporation, acquired by the
Company on December 31, 1996, was sold in February 1998. Ivy Tygart was
profitable since acquisition and the Company realized an after tax gain of
$565,000 upon sale. In addition, Princeton Academic Press, Inc. (acquired on
March 10, 1995) and Wickersham Printing Co., Inc. (acquired January 3, 1997)
combined their operations as Premier Book Press in one facility in July 1997.
The expected economies of scale in such combinations were not able to be
realized and, consequently, the Company closed down these operations in April
1998. The Company's business is currently conducted through three such
acquisitions: Polychem Corporation, Centennial Printing Company, and Lavelle
Company.
The success of the Company's strategy to acquire and consolidate
underperforming middle-market manufacturing businesses will depend upon the
Company's ability to raise additional capital in amounts sufficient to fund
future acquisitions. There can be no assurance that additional capital will be
available to fund such future acquisitions or that, if available, it will be
obtainable on satisfactory terms.
NO ASSURANCE OF PROCEEDS
A significant source of potential capital to the Company is the
proceeds from the exercise of the Warrants and other outstanding warrants and
options. See "Description of Securities." The Company, however, has received no
firm commitment for the exercise of the Warrants and the current market price of
the Company's Common Stock is significantly below the exercise price of the
other outstanding warrants and options. Thus, there can be no assurances that
the Company will realize material proceeds, if any, from the exercise of the
warrants and options. As of the date hereof, there are an aggregate of 1,224,464
warrants outstanding (including the Warrants) and 507,500 options to acquire
shares of Common Stock outstanding (of which 351,668 are vested as of the date
hereof).
Although certain of the Company's outstanding warrants may be redeemed
if certain operating performance criteria are met, such warrants are for terms
lasting a number of years and warrant holders may prefer to hold
4
<PAGE>
them until expiration or earlier redemption, even if the market price of the
Common Stock rises above the exercise price of the warrants. See "Description of
Securities."
CONTROL BY CERTAIN STOCKHOLDERS
Management of the Company presently possesses, directly or
beneficially, control of 14.22% of the Company's outstanding voting securities
after giving effect to the issuance of shares of Common Stock pursuant to the
exercise of the Warrants and assuming conversion of the Series C Preferred Stock
into 665,188 shares of Common Stock, and after giving effect to the exercise of
507,500 outstanding options and warrants to acquire additional shares of Common
Stock which are held by management. Management is, therefore, and for the
foreseeable future, will likely be, in a position to elect or influence the
election of, at least, a majority of the directors, and direct the policies of
the Company without the concurrence of the Company's public stockholders.
ADEQUACY OF WORKING CAPITAL FINANCING
The Company has financed its working capital requirements and capital
expenditures through cash flows generated from operations, bank debt, sales of
Company securities and equipment leases. Each of the Company's operating
subsidiaries has established revolving lines of credit with commercial lenders
that currently serve to satisfy each subsidiary's working capital needs. The
Company is currently attempting to refinance its senior debt. In July 1998, the
Company entered into a letter of intent with a proposed lender to refinance the
senior secured debt of Polychem and Centennial, and in connection therewith paid
a commitment fee of $92,000. The Company also entered into a letter of intent
with a potential lender in order to refinance the real estate mortgage on its
Polychem manufacturing and warehouse facility, and paid a commitment fee of
$21,300 to the proposed lender. The Company anticipates closing these
refinancings during the third quarter of fiscal year 1998. Closing under these
proposals is conditioned, among other things, upon satisfactory definitive legal
documentation and the lenders' due diligence. The outstanding line of credit in
the amount of $2,500,000 from Corestates Bank, N.A. to Centennial matured on
June 30, 1998. Corestates had agreed to forebear from demanding repayment of the
line of credit through July 17, 1998. As of the date hereof, the line of credit
has not been repaid, and the Company believes that repayment of the line will
not be demanded by Corestates pending its refinancing efforts. In order to
satisfy the Company's long-term obligations and support its future growth, the
Company will require additional capital. Any additional equity financing may be
dilutive to stockholders, and debt financing may impose substantial restrictions
on the Company's ability to operate and raise additional funds. There can be no
assurance that additional capital will be available or that, if available, such
capital will be obtainable on satisfactory terms. The Company continues to work
towards raising additional capital through the private placement of securities.
In this regard, in June 1998, the Company completed a private placement offering
of the Company's Series C Preferred Stock to ProFutures, for an aggregate of
$750,000.
EFFECTS OF SECURED LIENS ON FUTURE FINANCING ACTIVITIES
A significant portion of the Company's assets has been pledged as
collateral to secure various debt obligations of the Company. In the event the
Company fails to comply with its obligations, its assets could be foreclosed
upon. Moreover, to the extent that the Company's assets continue to be pledged
to secure the obligations, such assets will be unavailable to secure additional
debt financing, which may adversely affect the Company's ability to borrow in
the future. The Company is currently attempting to refinance its senior debt. If
the Company cannot refinance its senior debt, the Company would be required to
raise additional equity capital in order to satisfy such senior debt. The
outstanding line of credit in the amount of $2,500,000 from Corestates Bank,
N.A. to Centennial matured on June 30, 1998. The line of credit is guaranteed by
the Company and secured by substantially all of the assets of Centennial.
Corestates had agreed to forebear from demanding repayment of the line of credit
through July 17, 1998. As of the date hereof, the line of credit has not been
repaid, and the Company believes that repayment of the line will not be demanded
by Corestates pending its refinancing efforts. There can be no assurance that
additional capital will be available or that, if available, such capital will be
obtainable on satisfactory terms. The Company continues to work towards raising
additional capital through the private placement of securities. In this regard,
in June 1998, the Company completed a private placement offering of the
Company's Series C Preferred Stock to ProFutures for an aggregate of $750,000.
HOLDING COMPANY RISKS
The Company, as a holding company without significant income from
operations, will be partially dependent upon the income from its operating
subsidiaries to meet its operating expenses. If its operating subsidiaries are
unable to pay dividends or otherwise distribute amounts to the Company
sufficient to cover its operating expenses, the Company may be subject to
liquidity problems, even if, on a consolidated basis, its operating subsidiaries
are profitable. The payment of dividends is presently prohibited under certain
restrictions in the loan agreements of the Company's subsidiaries, as certain
excess lending availability criteria are not met. The Company anticipates that
such criteria will not be satisfied for the foreseeable future.
EFFECT OF OUTSTANDING WARRANTS AND OPTIONS
As of the date hereof the Company had outstanding warrants (including
the Warrants) and options to purchase 1,731,964 shares of Common Stock. To the
extent that the warrants or options are exercised and the shares underlying such
warrants and options are issued, the price of the Common Stock in the market may
be substantially reduced. Moreover, for the term of the warrants and options
issued by the Company, the holders thereof are given an opportunity to profit
from a rise in the market price of the Common Stock, with a resulting dilution
in the interest of the other stockholders. Further, the terms on which the
Company may obtain additional financing during that period may be adversely
affected by the existence of such warrants and options. The holders of such
warrants and options may exercise them at a time when the Company might be
5
<PAGE>
able to obtain additional capital through a new offering of securities on terms
more favorable than those provided therein. Additionally, the outstanding
warrants generally contain anti-dilution protection. See "Description of
Securities." The Company has undertaken to file this Prospectus with the
Commission pursuant to certain registration rights enjoyed by the holder of the
Warrants and has agreed to register the Common Stock held by the other Selling
Stockholders for resale under the Act. The expense of registration of this
Prospectus will be borne by the Company.
DIVIDENDS NOT LIKELY
The Company does not intend to declare or pay cash dividends in the
foreseeable future. Earnings, if any, are expected to be retained to help
finance acquisitions and develop its business. Moreover, payment of dividends by
the Company is prohibited pursuant to the terms of a subordinated debenture
issued by the Company to Mentor Special Situation Fund, L.P. ("MSSF") and the
Series A Preferred Stock and Series C Preferred Stock of the Company, unless and
until all accrued dividends or interest is paid thereon. In addition, the loan
agreements of the Company's subsidiaries currently prohibit the payment of
dividends from such subsidiaries to the Company because certain excess lending
availability criteria are not met. The Company is also dependent, in part, upon
the earnings of its subsidiaries for cash which would be used to pay dividends.
See "Description of Securities."
DEPENDENCE ON KEY PERSONNEL
The Company's future success is dependent upon the continued efforts
of its management personnel at both the Company's operating subsidiaries and the
holding company level. The loss of the services of one or more of such key
personnel at either the parent or subsidiary level may have a material adverse
effect on the Company's business. The Company does not have any "key-man"
insurance on the lives of any of its employees and does not presently intend to
purchase any such insurance.
ANTI-TAKEOVER PROVISIONS; CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND DELAWARE LAW
The Company's Certificate of Incorporation classifies the Board of
Directors into three separate classes as follows: two directors presently
constitute the Class I Directors and are elected for a term expiring at the 2000
annual meeting; two directors presently constitute the Class II Directors and
are elected for a term expiring at the 1999 annual meeting; two directors
presently constitute the Class III Directors and are elected for a term expiring
at the 1998 annual meting. Successor directors will be elected for a term of 3
years.
The classified board 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
Company because its provisions would operate to delay the purchaser's ability to
obtain control of the board in a relatively short period of time because in the
context of a classified board it would generally take a purchaser of a majority
of the Company'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 the
classified board 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 Company
might otherwise believe to be in their best interests.
The Certificate of Incorporation 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 of Incorporation also provides that shares of preferred stock may be
issued in the future without stockholder approval and upon such terms and
conditions and with such rights, privileges and preferences as the Board of
Directors may determine.
The Company is governed by the provisions of Section 203 of the
General Corporation Law of the State of Delaware (the "DGCL"), an anti-takeover
law. In general, the law prohibits a public Delaware corporation from engaging
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person became an
interested stockholder, unless the business combination is approved in a
prescribed manner. "Business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with its affiliates and
associates, owns (or, within three years did own)
6
<PAGE>
15% or more of the corporation's voting stock. The supermajority voting
provisions in the Company's bylaws and the provisions regarding certain business
combinations under the DGCL could have the effect of delaying, deferring or
preventing a change in control of the Company or the removal of existing
management. This may have an anti-takeover effect and may delay, defer or
prevent a takeover attempt that a stockholder may consider in his best interest.
This may also adversely affect prevailing market prices for the Common Stock.
COMPETITION
Although the printing and publishing industries have historically been
highly fragmented, in recent years, consolidation of customers and competitors
within the Company's printing subsidiaries markets has increased competitive
pricing pressures. While most establishments are relatively small, several of
the Company's printing subsidiaries' competitors are considerably larger or are
affiliated with companies which are considerably larger and have greater
financial and other resources than the Company. Currently, the majority of the
Company's printing subsidiaries' projects are competitively bid in the
marketplace. The major competitive factors are prices, product quality, customer
service, availability of appropriate printing capacity, rapid turnaround,
scheduling flexibility and technology support. There can be no assurance that
the Company's printing subsidiaries' will be able to successfully compete in
their markets or that they will achieve operating profits.
The markets in which Polychem and Lavelle compete are also highly
competitive. Experienced competition exists in each of the major markets for
both companies, and many of their competitors maintain good working
relationships with their customers, produce quality products and have access to
significantly greater financial resources than Polychem, Lavelle and the
Company. Polychem may be further disadvantaged by its disassociation from The
Budd Company, a large multinational corporation, as customers may feel less
comfortable using a smaller supplier especially with regard to reliance on
product warranties. Additionally, consolidation in the waste water treatment
industry has resulted in competitors significantly larger than Polychem and has
increased competitive pricing pressures in such industry. There can be no
assurance that either Polychem or Lavelle will be able to keep pace with the
technological demands of the marketplace or successfully enhance their products
or develop new products which are demanded by the their respective industries.
SUBSTANTIAL RELIANCE ON KEY CUSTOMERS; CONTRACTUAL RELATIONSHIP WITH THE UNITED
STATES GOVERNMENT
Lavelle's customer base has been and continues to be highly concentrated,
with two customers, one being the United States government, accounting for
approximately 50% of the Company's sales. A significant reduction in orders from
either of these two customers would have a material and adverse effect on
Lavelle's results of operations. There can be no assurance that these key
customers will continue to place orders at their previous levels.
Lavelle has a contractual relationship with the United States government
pursuant to which it sells products used by the government in defense segments
of the aerospace industry. The contract is, however, subject to termination at
the election of the government for convenience. In addition, government funding
of the defense industry is subject to fluctuations and there can be no assurance
the government will not reduce spending in the defense segments of the aerospace
industry in the future.
THE COMPANY
GENERAL OVERVIEW
The Eastwind Group, Inc. (the "Company") is a holding company formed
in August 1993 to acquire and consolidate middle-market manufacturing businesses
on an industry by industry basis. The Company focuses on the acquisition of
entities that management believes are not performing to potential. Since its
inception, the Company has completed six acquisitions, three of which now
comprise the Company's operating business segments:
1. Polychem Corporation ("Polychem"), acquired March 10, 1995,
develops and manufactures engineered plastic molded products for wastewater
treatment facilities and other industrial uses.
2. TEAM Graphics, Inc. ("TEAM Graphics") through its operating
subsidiary Centennial Printing Company ("Centennial"), acquired October 16,
1996, is engaged in commercial printing, book manufacturing and the printing of
journals and manuals.
3. Lavelle Company ("Lavelle"), acquired January 3, 1997, fabricates
and manufactures sheet metal products for the aerospace industry.
Three of the Company's acquisitions since its inception in 1993 have
been dissolved or disposed of during fiscal year 1998. On February 23, 1998,
the Company sold its 92.5% ownership interest in Ivy-Tygart Acquisition Corp.
("Ivy"). Acquired December 31, 1996, as an operating business unit of the
Company, Ivy engaged in the manufacture of architectural moulding and picture
frame moulding.
7
<PAGE>
On March 10, 1995 and on January 3, 1997, respectively, the Company
acquired Princeton Academic Press ("Princeton") and Wickersham Printing Company
("Wickersham"), two entities which were engaged in the commercial printing and
book manufacturing industries. Jointly, Wickersham and Princeton conducted
operations as Premier Book Press ("Premier"). On April 13, 1998, the Company
decided to close the operations of Premier.
Each of the Company's operating business segments are described in
detail below. The Company's principal executive office is located at 275 Geiger
Road, Philadelphia, Pennsylvania and its telephone number is (215) 671-0606.
POLYCHEM CORPORATION
Polychem is a Pennsylvania corporation formed in March 1995 which
acquired substantially all of the operating assets and business of the Polychem
Division of The Budd Company. As a division of The Budd Company, Polychem
produced a wide array of engineered components for the automotive and other
industries for over 50 years. In recent years, Polychem has shifted its focus
to manufacturing products designed for the wastewater treatment market.
Currently, revenues from the wastewater treatment market account for
approximately 85% of Polychem's annual revenue. Polychem develops and
manufactures custom engineered plastic molded products at its 220,000 square
foot headquarters in Phoenixville, Pennsylvania. Its manufacturing capabilities
include injection, compression and transfer molding of engineered plastics,
reaction injection molded processing of cast nylon material, profile extrusion
of thermoset resins and a complete fabricating shop with computerized numerical
control equipment. Through these processes, Polychem engineers and produces an
extensive line of molded plastic products. Typical products include complete
non-metallic rectangular clarifier component systems for wastewater treatment
applications, cast nylon sprockets and wear shoes, cast nylon elevator buckets,
phenolic sprockets and pulleys, bearings and molded conveyor chains. Polychem
markets its plastic chain, engineered plastic components and plastic buckets
primarily through distributors. The balance of its products are sold by its own
sales force.
TEAM GRAPHICS, INC.
In January 1997, the Company formed TEAM Graphics, Inc. ("TEAM
Graphics"), as the principal entity for its operations in the printing industry.
The Company exchanged a combination of its investment in Centennial, Princeton
and Wickersham, which was acquired in January 1997, and cash for all of the
outstanding stock of TEAM Graphics.
In mid-1997, the operations of Princeton and Wickersham were
consolidated under the trade name Premier Book Press in two rented facilities in
Lancaster, Pennsylvania to eliminate overhead costs associated with running two
separate operations. Hiring and training new employees and implementing the
required management systems and controls at Wickersham to respond to the near
doubling in throughput resulting from the consolidation proved to be highly
problematic. Consequently, productivity fell, quality levels slipped, and
delivery schedules were not met. As a further consequence, market shares also
declined. During the second half of 1997, Premier's operations suffered
substantial financial losses. Despite improvements in productivity and the
narrowing of losses during the first quarter of 1998, the Company concluded that
it did not have the financial resources to continue these operations. The
Company decided to close the operations of Premier effective April 13, 1998. The
Company does not anticipate that it or any other of its subsidiaries will incur
any material liabilities or losses in connection with Premier.
Presently, TEAM Graphics conducts it operations in the printing
industry through its subsidiary, Centennial. Centennial's products include
annual reports, high-quality advertising brochures, pamphlets, and high-profile
marketing pieces. Centennial's customer base is primarily comprised of
pharmaceutical, financial, museum, manufacturing, service, and marketing
companies, which are located in the Eastern United States. The strategy of
Centennial is to grow through the purchase of additional printing equipment and
applications of computer technology that will increase its capabilities and
therefore, its product offerings and also enhance its competitive position
through lower costs. Because the customers of Centennial are different than
those of Premier, the Company does not anticipate any decline in the business
of Centennial as a result of the recent closing of Premier.
LAVELLE COMPANY
8
<PAGE>
Lavelle was incorporated to purchase the net assets of Lavelle
Aircraft which was liquidated under Chapter 11 of the U.S. Bankruptcy law.
Lavelle is a sheet metal fabricator and manufacturer of products for the
aerospace industry.
The Company acquired all of the outstanding common stock of Lavelle
from its shareholders pursuant to a Stock Exchange Agreement dated as of January
3, 1997. In return for their Lavelle common stock, the shareholders of Lavelle
received from the Company, in accordance with their percentage ownership of
Lavelle common stock prior to the acquisition, an aggregate of 44,537 shares of
the Common Stock of the Company.
Lavelle fabricates and manufactures sheet metal products according to
design criteria established by its customers in the aerospace industry. In
general, the products manufactured by Lavelle are highly specific in design and
low in volume quantities. Lavelle's customer base consists of the United States
Government (who, with one other customer comprised approximately 50% of sales in
fiscal 1997), who purchase products used in defense applications and contractors
and subcontractors in the aerospace industry, who purchase products for the
commercial and defense segments of such industry.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Offered
Shares by the Selling Stockholders. See "Selling Stockholders."
The gross proceeds that would be realized by the Company upon full
exercise of the Clifton Warrant (which is not exercisable until September 30,
1998) is $250,000 and upon full exercise of the Profutures Warrant is $123,750.
The Company has received no firm commitments for exercise of the Warrants, and
there can be no assurance that the Warrants will be exercised.
Management cannot predict the amount of proceeds, if any, that may be
generated from the exercise of the Warrant. The net proceeds that may be
realized by the Company upon exercise of the Warrant will not be utilized for
any specific purpose other than to contribute to the Company's working capital
and to continue the operations of the Company in accordance with the business
strategy identified by management.
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock by the Selling Stockholders as of July
13, 1998. Unless otherwise indicated, the Selling Stockholders possess sole
voting and investment power with respect to the shares listed. Clifton Capital
Ltd. and SPH Equities, Inc. will not beneficially own any Common Stock after
this offering, assuming that they sell all of the Offered Shares. Mr. DeJuliis
would beneficially own 375,000 shares of Common Stock after this offering
assuming that he sold all of the Offered Shares. Mr. Worrall would beneficially
own 75,930 shares of Common Stock after this offering assuming that he sells
all of the Offered Shares. Profutures Special Equities Fund, L.P. will not
beneficially own any Common Stock after this offering, assuming that they sell
all of the Offered Shares.
Number of Shares
Beneficially Owned Number of
Prior to Shares
Registration Registered
------------------ ----------
Clifton Capital Ltd. 600,000 600,000 (1)
SPH Equities, Inc. 50,000 50,000
Bruce K. Worrall 120,930 45,000
Paul A. DeJuliis 609,334 301,000
Profutures Special
Equities Fund, L.P. 806,707 806,707 (2)
(1) Includes 200,000 shares of Common Stock that may be acquired upon exercise
of the Clifton Warrant.
(2) Includes 75,000 shares of Common Stock that may be acquired upon the
exercise of Profutures Warrant and 731,707 shares that may be acquired upon
the conversion of the Series C Preferred Stock on July 13, 1998. The
Company agreed to register an additional 598,669 shares of Common Stock in
order to provide for additional shares of Common Stock which may be
issuable upon conversion of the Series C Preferred Stock in the future.
9
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 7,000,000 shares of Common Stock,
$.10 par value per share. As of the date hereof including the 796,000 shares of
Common Stock issued to the Selling Stockholders by the Company, 4,521,019 shares
were issued and outstanding. An additional 1,585,000 shares of Common Stock are
reserved for issuance upon the exercise of the Warrants and other vested and
outstanding Common Stock purchase warrants and options. All outstanding shares
of Common Stock are fully paid and non-assessable.
The holders of Common Stock have equal rights to receive dividends
when, as and if declared by the Board of Directors, out of funds legally
available therefore. However, the Company has no current plans to pay dividends
with respect to its shares of Common Stock and, in addition, certain
restrictions limiting or prohibiting payment of such dividends are contained in
a subordinated debenture issued to Mentor Special Situation Fund, L.P. ("MSSF"),
the terms of the Company's Series A Preferred Stock and Series C Preferred
Stock, and loan agreements to which the Company or its operating subsidiaries
are currently obligated. Holders of Common Stock have one vote for each share
held of record and do not have cumulative voting rights.
Holders of Common Stock are entitled upon liquidation of the Company
to share ratably in the net assets available for distribution. Shares of Common
Stock are not redeemable and have no preemptive or similar rights under the
Company's Certificate of Incorporation. However, MSSF has nonassignable
contractual rights of first refusal to purchase, pro rata, all or any part of
new securities which the Company may from time to time propose to sell and
issue. For this purpose, new securities do not include shares issued upon
exercise of the Warrants, shares issuable upon conversion of the Series C
Preferred Stock, or shares issued by the Company to the Selling Stockholders.
MSSF's right expires at the earlier of June 30, 2001 or the Company's repayment
of a $500,000 subordinated debenture issued to MSSF.
On June 17, 1998, the Company issued 400,000 shares of Common Stock to
Clifton Capital Ltd. for an aggregate of $500,000, or $1.25 per share. The
amount of $100,000 was paid at the time of sale and the balance of $400,000 is
due upon the effectiveness of this registration statement. On April 10, 1998,
the Company issued the Clifton Warrant to Clifton Capital Ltd. The Clifton
Warrant entitles the holder thereof to purchase up to 200,000 shares of Common
Stock at $1.25 per share at any time on or after September 30, 1998 and on or
before September 30, 2001. These shares and the Clifton Warrant were issued
pursuant to the private placement exemption in Section 4(2) of the Act.
On June 17, 1998, the Company issued 50,000 shares of Common Stock to
SPH Equities, Inc. as compensation for investment banking services rendered to
the Company in connection with the Clifton Capital Ltd. transaction. The shares
were issued to SPH Equities, Inc. pursuant to the private placement exemption in
Section 4(2) of the Act.
On April 30, 1998, Mr. DeJuliis purchased an aggregate of 301,000
shares of Common Stock from the Company for an aggregate of $376,250, or for
$1.25 per share. On April 21, 1998, Mr. DeJuliis sold 301,000 shares of
Common Stock then owned by him to FAC Enterprises, Inc., for an aggregate of
$376,250, or at $1.25 per share. The shares issued by the Company to Mr.
DeJuliis were issued pursuant to the private placement exemption in Section
4(2) of the Act.
On May 11, 1998, the Company and Mr. Worrall executed a Settlement
Agreement pursuant to which among other things, the Company agreed to issue to
Mr. Worrall an aggregate of 45,000 additional shares of Common Stock. The
Settlement Agreement provides that the Company will register these shares for
resale under the Act. The shares were issued by the Company to Mr. Worrall on
June 2, 1998, pursuant to the private placement exemption in Section 4(2) of the
Act. The Settlement Agreement also provides for the cancellation by the Company
of all the Series B Preferred Voting Stock of the Company held by Mr. Worrall,
including any accrued dividends thereon.
SERIES C CONVERTIBLE PREFERRED STOCK
On June 25, 1998, the Company issued to Profutures Special Equities Fund,
L.P. ("Profutures") 750 shares of Series C Convertible Preferred Stock, $.10 par
value, for gross proceeds of $750,000. The Series C Preferred Stock is
convertible into that number of shares of Common Stock equal to the aggregate
purchase price of $750,000 divided by 82% of the average of the closing bid
price of the Common Stock for the five trading days preceding the date of
conversion. The Series C Preferred Stock earns a 6% annual cumulative dividend,
payable in either cash or Common Stock at the election of the Company. On the
same date, the Company also issued a warrant to Profutures ("ProFutures
Warrant"). The Profutures Warrant entitles the holder to purchase up to 75,000
shares of Common Stock, $.10 par value, at an exercise price of $1.65 per share
at any time on or before June 24, 2003. The number of shares of Common Stock
issuable upon exercise of the Profutures Warrant is subject to adjustment in the
event of stock splits, stock dividends and the like. The Series C Preferred
Stock and Profutures' Warrant were issued pursuant to the private placement
exemption in Section 4(2) of the Act.
CLIFTON COMMON STOCK PURCHASE WARRANT
The Clifton Warrant entitles the holder thereof to purchase, subject
to adjustment in the event of stock splits, stock dividends and the like, up to
200,000 shares of Common Stock for an exercise price of $1.25 per share. The
exercise price and the amount of shares of Common Stock underlying the Warrant
are also subject to adjustment in certain instances. The Warrant is not
exercisable until September 30, 1998, after which date it is exercisable until
September 30, 2001, the date on which it expires.
10
<PAGE>
LIMITED GRANT OF REGISTRATION RIGHTS
The Company has granted registration rights to the Selling
Stockholders who acquired the above shares in private placement transactions.
The Company has similarly granted registration rights to the holder of the
Clifton Warrant who acquired such Clifton Warrant in a private placement
transaction. Accordingly, the Company has agreed to include such shares of
Common Stock held or issuable upon exercise of the Warrant in the Registration
Statement of which this Prospectus is a part. The Company has granted
registration rights to Profutures in connection with the 75,000 shares of Common
Stock underlying the Warrant and the Common Stock into which the Series C
Preferred Stock is convertible. The Company agreed to register the 665,188
shares of Common Stock into which the Series C Preferred Stock were convertible
on June 24, 1998, as well as 665,188 additional shares to cover additional
shares which may be issuable by the Company on the actual date of conversion.
The costs of filing the Registration Statement will be borne entirely by the
Company.
TRANSFER AGENT
Stock Trans, Inc. of Ardmore, Pennsylvania, serves as Transfer Agent
for the Common Stock.
PLAN OF DISTRIBUTION
The Registration Statement, of which this Prospectus is a part, has
been filed with the Commission by the Company in accordance with an agreement
between the Company and the Selling Stockholders pursuant to which the Company
has agreed to pay the filing fees, costs and expenses associated with the
Registration Statement (other than underwriting fees, discounts and
commissions).
SELLING STOCKHOLDERS
The Selling Stockholders are offering the Offered Shares for their own
account, and not for the account of the Company. The Company will not receive
any proceeds from the sale of the Offered Shares by the Selling Stockholders.
The sale of the Offered Shares by the Selling Stockholders or by their
pledgees, donees, transferees or other successors in interest may be effected
from time to time to purchasers directly by any of the Selling Stockholders
acting as principals for their own accounts in one or more transactions on the
Nasdaq SmallCap Market, or on any other national stock exchange upon which the
Company is listed, or on the OTC Bulletin Board, in private sales at prices
related to such prevailing market prices at the time of sale or at prices
otherwise negotiated. Alternatively, the Offered Shares may be offered from
time to time through agents, brokers, dealers or underwriters designated from
time to time, and such agents, brokers, dealers or underwriters may receive
compensation in the form of commissions or concessions from the Selling
Stockholders or the purchasers of the Common Stock which may be in excess of
customary commissions charged for national stock exchange transactions. The
Selling Stockholders and any brokers-dealers acting in connection with the sale
of the Offered Shares may be deemed to be "underwriters" within the meaning of
the Act. Any commissions received by a broker or dealer in connection with
resales of the Offered Shares may be deemed to be underwriting commissions or
discounts under the Act.
Under the Exchange Act, and the regulations thereunder, any person
engaged in a distribution of the shares of Common Stock of the Company offered
by this Prospectus may not simultaneously engage in market making activities
with respect to the Common Stock of the Company during the applicable "cooling
off" periods prior to the commencement of such distribution. Each Selling
Stockholder may be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder including, without limitation, Rule 102 of
Regulation M, which provisions may limit the timing of purchases of Common Stock
by the Selling Stockholders. There are possible limitations upon trading
activities and restrictions upon broker-dealers effecting transactions in
certain securities which may also materially affect the value of, and an
investor's ability to dispose of, the Company's securities. See "Risk Factors."
The exercise price of the Warrants and the sales price of the Common
Stock issued by the Company to the Selling Stockholders was determined through
arm's length negotiations with the holders thereof. The conversion price of the
Series C Preferred Stock was determined through arm's length negotiations with
the holder thereof. The purchase price of the shares of Common Stock sold to Mr.
DeJuliis by the Company were at the same price at which Mr. DeJuliis sold his
shares of Common Stock to FAC Enterprises, Inc., and no profit was made by Mr.
DeJuliis in connection with the transaction.
11
<PAGE>
There can be no assurance that the Selling Stockholders will sell any
or all of the Offered Shares of Common Stock. The Company will receive no
proceeds from any sales of the Offered Shares of Common Stock.
LEGAL OPINION
The validity of the Offered Shares has been passed upon for the
Company by Lurio & Associates, P.C., Philadelphia, Pennsylvania.
EXPERTS
The consolidated financial statements of the Company as of January 3,
1998 and for the fiscal year then ended, included in the Company's Annual Report
on Form 10-KSB, incorporated by reference in this Registration
Statement/Prospectus, have been audited by Grant Thornton LLP, independent
certified public accountants, whose report thereon appears, and are incorporated
by reference herein in reliance upon such report of Grant Thornton LLP, given
upon the authority of such firm as experts in auditing and accounting.
The consolidated financial statements of the Company as of December
31, 1996, and for the fiscal year then ended, included in the Company's Annual
Report on Form 10-KSB, incorporated by reference in this Registration
Statement/Prospectus, have been audited by Arthur Andersen LLP, independent
certified public accountants, whose report thereon appears, and are incorporated
by reference herein in reliance upon such report of Arthur Andersen LLP, given
upon the authority of such firm as experts in auditing and accounting.
12
<PAGE>
===================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this Prospectus in
connection with the offer made hereby, and, if given or made, such information
or representations must not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, the securities offered hereby to any person in any state or
other jurisdiction in which such offer or solicitation is unlawful. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, imply that information contained herein is correct as of any time
subsequent to its date or that there has not been any change in the facts set
forth in this Prospectus or in the affairs of the Company since the date hereof.
____________________
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION............ 2
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE....... 2
CAUTIONARY STATEMENT............. 3
RISK FACTORS..................... 3
THE COMPANY...................... 7
USE OF PROCEEDS.................. 9
SELLING STOCKHOLDERS............. 9
DESCRIPTION OF SECURITIES........ 10
PLAN OF DISTRIBUTION............. 11
LEGAL OPINION.................... 12
EXPERTS.......................... 12
================================================================================
================================================================================
2,401,376 Shares
THE EASTWIND GROUP, INC.
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
July ___, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
Securities and Exchange Commission Registration Fee... $ 1,177.32
Legal fees and expenses............................... $ 12,000
Accountants' fees and expenses........................ $ 8,000
Miscellaneous......................................... $ 5,000
TOTAL............................................ $26,177.32
----------
- --------------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company has adopted the provisions of Section 102(b)(7) of the
General Corporation Law of the State of Delaware (the "DGCL") which eliminate or
limit the personal liability a director to the Company or its stockholders for
monetary damages for breach of fiduciary duty under certain circumstances. The
elimination or limitation does not apply where there has been a breach of the
duty of loyalty, failure to act in good faith, engaging in intentional
misconduct or knowingly violating a law, paying a dividend or approving a stock
repurchase which was deemed illegal or obtaining an improper personal benefit.
Further, Section 145 of the DGCL provides, in general, that a
corporation incorporated under the laws of the State of Delaware, such as the
Company, may indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. In the case of
an action by or in the right of the corporation, a Delaware corporation may
indemnify any such person against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court determines such person is fairly and reasonably entitled to indemnity for
such expenses.
The directors and officers of the Company and its subsidiaries are
covered by policies of insurance under which they are insured, within limits and
subject to certain limitations, against certain expenses in connection with the
defense of actions, suits or proceedings, and certain liabilities which might be
imposed as a result of such actions, suits or proceedings, in which they are
parties by reason of being or having been directors or officers. The Company is
similarly insured, with respect to certain payments it might be required to make
to its directors or officers under applicable statutes and its charter
provisions.
Reference is made to Item 17 of this Registration Statement for
additional information regarding indemnification of directors and officers.
<PAGE>
ITEM 16. EXHIBITS
4.1 Specimen Common Stock certificate of the Company (incorporated by reference
to exhibit 4.1 to the Company's Registration Statement on Form SB-2, File
no. 33-94252).
4.2 Specimen form of Class A-1 Common Stock Purchase Warrant of the Company
(incorporated by reference to exhibit 4.2 to the Company's Registration
Statement on Form SB-2, File no. 33-94252).
4.3 Specimen form of Class C Common Stock Purchase Warrant of the Company
(incorporated by reference to exhibit 4.5 to the Company's Registration
Statement on Form SB-2, File no. 33-94252).
4.4 Specimen form of Class D Common Stock Purchase Warrant of the Company
(incorporated by reference to exhibit 4.6 to the Company's Registration
Statement on Form SB-2, File no. 33-94252).
4.5 Common Stock Purchase Warrant issued to Clifton Capital Ltd.
4.6 Specimen form of Class C-4 Common Stock Purchase Warrant (incorporated by
reference to exhibit 4.7 to the Company's Registration Statement on
Form S-3 , File No. 333-34697).
4.7 Specimen form of Class C-5 Common Stock Purchase Warrant (incorporated by
reference to exhibit 4.8 to the Company's Registration Statement on
Form S-3 , File No. 333-34697).
4.8 Specimen form of QSFC Common Stock Purchase Warrant (incorporated by
reference to exhibit 4.9 to the Company's Registration Statement on
Form S-3 , File No. 333-34697).
4.9 Specimen form of Canterbury Common Stock Purchase Warrant (incorporated by
reference to exhibit 4.10 to the Company's Registration Statement on
Form S-3 , File No. 333-34697).
4.10 Certificate of Designation of Series A Preferred Stock (incorporated by
reference to exhibit 4.1 to the Company's Form 8-K dated May 10, 1996, File
no. 0-27638).
4.11 Common Stock Purchase Warrant issued to Profutures Special Equity Fund,
L.P.
4.12 Certificate of Designation of Series C Convertible Preferred Stock
5 Opinion of Lurio & Associates, P.C.
10.1 Securities Purchase Agreement between Clifton Capital Ltd. and the Company
dated April 10, 1998.
10.2 Registration Rights Agreement between Clifton Capital Ltd. and the Company
dated April 10, 1998.
10.3 Settlement Agreement dated May 11, 1998 by and between the Company, Bruce
K. Worrall, Centennial Printing Corporation, and Centennial Racing
Corporation.
10.4 Securities Purchase Agreement between the Company and Mentor Special
Situation Fund, L.P. dated June 20, 1996 (incorporated by reference to
Exhibit 10.28 to the Company's Registration Statement on form SB-2, File
No. 333-08227).
10.5 Subscription Agreement dated June 24, 1998 between the Company and
Profutures Special Equity Fund, L.P.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Lurio & Associates (included in Exhibit 5).
24 Power of Attorney (included on signature page).
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement;
2
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective amendment
by those clauses is contained in periodic reports filed with or furnished to the
Commission by the Company pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this pre-effective
amendment to such Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Philadelphia, Commonwealth of
Pennsylvania, on July 29, 1998.
THE EASTWIND GROUP, INC.
By: /s/ Paul A. DeJuliis
----------------------------------
Paul A. DeJuliis, Chief Executive
Officer and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Paul A. DeJuliis, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities to sign any
and all amendments (including, without limitation, post-effective amendments) to
this Registration Statement on Form S-3 and any registration statement to which
the prospectus contained herein relates and any registration statement filed
under Rule 462 under the Securities Act, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agents or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this post-
effective amendment to the Company's Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
Date: July 29, 1998 /s/ Paul A. DeJuliis
---------------------------------
Paul A. DeJuliis, Chief Executive
Officer and Chairman of the Board
Date: July 29, 1998 /s/ Anthony J. Mendicino
---------------------------------
Anthony J. Mendicino, President,
Chief Operating Officer and Director
Date: July 29, 1998 /s/ William B. Miller
---------------------------------
William B. Miller, Chief Financial
Officer, Principal Financial and
Accounting Officer, Treasurer and
Director
Date: July 29, 1998 /s/ Bruce Murray
---------------------------------
Bruce Murray, Director
Date: July 29, 1998 /s/ Andrew Panzo
---------------------------------
Andrew Panzo, Director
Date: July 29, 1998 /s/ Edward F. Sager
---------------------------------
Edward F. Sager, Director
<PAGE>
EXHIBIT INDEX
4.11 Common Stock Purchase Warrant Issued to Profutures Special Equity
Fund, L.P.
4.12 Certificate of Designation of Series C Convertible Preferred Stock.
5.1 Opinion of Lurio & Associates.
10.5 Subscription Agreement dated June 24, 1998 between the Company and
Profutures Special Equity Fund, L.P.
23.1 Consent of Grant Thornton LLP.
23.2 Consent of Arthur Andersen LLP.
<PAGE>
EXHIBIT 4.11
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES
LAWS (THE "ACTS"). NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK
PURCHASABLE HEREUNDER MAY BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THIS WARRANT OR COMMON
STOCK PURCHASABLE HEREUNDER, AS APPLICABLE, UNDER THE ACTS, OR (B) AN OPINION
OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACTS.
THE EASTWIND GROUP, INC.
WARRANT
Issue Date: June 24, 1998
1. Basic Terms. This Warrant (as it may be amended from time to time, the
-----------
"Warrant") certifies that, for value received, the registered holder specified
below or its registered assigns ("Holder"), is the owner of warrants of The
Eastwind Group, Inc., a Delaware corporation (the "Corporation"), and is
entitled, subject to the terms and conditions of this Warrant, including
adjustments as provided herein, to purchase Seventy Five Thousand (75,000)
shares of Common Stock, par value $0.10 per share (the "Common Stock"), of the
Corporation from the Corporation at the price per share shown below (the
"Exercise Price").
Holder: ProFutures Special Equities Fund, L.P.
Exercise Price per share: One Dollar and Sixty Five Cents ($1.65)
Except as specifically provided otherwise, all references in this Warrant to the
Exercise Price and the number of shares of Common Stock purchasable hereunder
shall be to the Exercise Price and number of shares after any adjustments are
made thereto pursuant to this Warrant.
2. Corporation's Representations/Covenants. The Corporation represents
----------------------------------------
and covenants that the shares of Common Stock issuable upon the exercise of
this Warrant shall at delivery be fully paid and non-assessable and free from
taxes, liens, encumbrances and charges with respect to their purchase. The
Corporation shall take any necessary actions to assure that the par value per
share of the Common Stock is at all times equal to or less than the then current
Exercise Price per share of Common Stock issuable pursuant to this Warrant. The
Corporation shall at all times reserve and hold available sufficient shares of
Common Stock to satisfy all conversion and purchase rights of outstanding
convertible securities, options and warrants of the Corporation, including this
Warrant.
-1-
<PAGE>
3. Method of Exercise; Fractional Shares. This Warrant is exercisable at the
-------------------------------------
option of the Holder in whole at any time or in part from time to time by
surrendering this Warrant, on any business day during the period (the "Exercise
Period") beginning on the issue date of this Warrant specified above and ending
at 5:00 p.m. (Philadelphia, Pennsylvania time) five (5) years after the issue
date. To exercise this Warrant, the Holder shall surrender this Warrant at the
principal office of the Corporation or that of the duly authorized and acting
transfer agent for its Common Stock, together with the executed exercise form
(substantially in the form of that attached hereto) and together with payment
for the Common Stock purchased under this Warrant. The principal office of the
Corporation is located at the address specified on the signature page of this
Warrant; provided, however, that the Corporation may change its principal office
upon notice to the Holder. At the option of the Holder payment shall be made
either in cash (by wire) or by certified or bank cashier's check payable to the
order of the Corporation. The Corporation shall, immediately upon receipt of
such notice, issue and deliver to or upon the order of such Holder a certificate
or certificates for the number of shares of Common Stock to which such Holder
shall be entitled and such certificate or certificates shall not bear any
restrictive legend; provided (A) the Common Stock evidenced thereby are sold
pursuant to an effective registration statement under the Act, (B) the holder
provides the Corporation with an opinion of counsel reasonably acceptable toe
the Corporation to the effect that a public sale of such shares may be made
without registration under the Act, or (C) such holder provides the Corporation
with reasonable assurance that such shares can be sold free of any limitations
imposed by Rule 144, promulgated under the Act. The Corporation shall cause such
issuance and delivery to be effected within three (3) business days and shall
transmit the certificates by messenger or overnight delivery service to reach
the address designated by such holder within three (3) business days after the
receipt of such notice. This Warrant is not exercisable with respect to a
fraction of a share of Common Stock. In lieu of issuing a fraction of a share
remaining after exercise of this Warrant as to all full shares covered by this
Warrant, the Corporation shall either at its option (a) pay for the fractional
share cash equal to the same fraction at the fair market price for such share;
or (b) issue scrip for the fraction in the registered or bearer form which shall
entitle the Holder to receive a certificate for a full share of Common Stock on
surrender of scrip aggregating a full share. As compensation to the Holder when
the Corporation has failed with respect to such Holder to comply with the
Corporation's obligations hereunder, and not as a penalty, the Corporation shall
pay to such holder liquidated damages of $500 per day until the certificates are
delivered as instructed. Such damages shall be paid to the Holder by cashier's
check or wire transfer in immediately available funds to such account as shall
be designated in writing by the Holder at the end of each month in which such
amounts have accrued. Holder shall be entitled to an injunction or injunctions
to prevent or cure breaches of the provisions of hereof and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which Holder may be entitled by law or equity.
4. Protection Against Dilution. The number of shares of Common Stock
---------------------------
purchasable under this Warrant, and the Exercise Price, shall be adjusted as set
forth below. If at any time or from time to time after the date of this Warrant,
the Corporation:
(a) takes a record of the holders of its outstanding shares of Common
Stock for the purposes of entitling them to receive a dividend payable in, or
other distribution of, Common Stock,
(b) subdivides its outstanding shares of Common Stock into a larger
number of shares of Common Stock; or
(c) combines its outstanding shares of Common Stock into a smaller
number of shares of Common Stock;
then, and in each such case, the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect immediately prior to such
event by a fraction (A) the numerator of which is the total number of
outstanding shares of Common Stock immediately prior to such event and (B) the
denominator of which is the total
-2-
<PAGE>
number of outstanding shares of Common Stock immediately after such event. Upon
each adjustment in the Exercise Price under this Warrant such number of shares
of Common Stock purchasable under this Warrant shall be adjusted by multiplying
the number of shares of Common Stock by a fraction, the numerator of which is
the Exercise Price immediately prior to such adjustment and the denominator of
which is the Exercise Price in effect upon such adjustment.
5. Adjustment for Reorganization, Consolidation, Merger, Etc.
----------------------------------------------------------
(a) During the Exercise Period, the Corporation shall, prior to
consummation of a consolidation with or merger into another corporation, or
conveyance of all or substantially of its assets to any other corporation or
corporations, whether affiliated or unaffiliated (any such corporation being
included within the meaning of the term "successor corporation"), or agreement
to so consolidate, merge or convey assets, require the successor corporation to
assume, by written instrument delivered to the Holder, the obligation to issue
and deliver to such Holder such shares of stock, securities or property as the
Holder shall be entitled to purchase or receive in accordance with the positions
of paragraph 5(b) hereof.
(b) In the case of any capital reorganization or reclassification of the
Common Stock of the Corporation (or any other corporation the stock or other
securities of which are at the time receivable on the exercise of this Warrant)
during the Exercise Period or in case, during the Exercise Period, the
Corporation (or any such other corporation) shall consolidate with or merge into
another corporation or convey all or substantially all its assets to another
corporation, the Holder, upon exercise, at any time after the consummation of
such reorganization, consolidation, merger or conveyance, shall be entitled to
receive, in lieu of the Common Stock of the Corporation (or such other
corporation), the proportionate share of all stock, securities or other property
issued, paid or delivered for or on all of the Common Stock of the Corporation
(or such other corporation) as is allocable to the shares of Common Stock then
called for by this Warrant as if the Holder had exercised the Warrant
immediately prior thereto, all subject to further adjustment as provided in
paragraph 4 of this Warrant.
6. Notice of Adjustment. On the happening of an event requiring an
--------------------
adjustment of the Exercise Price or the shares purchasable under this Warrant,
the Corporation shall immediately give written notice to the Holder stating the
adjusted Exercise Price and the adjusted number and kind of securities or other
property purchasable under this Warrant resulting from the event and setting
forth in reasonable detail the method of calculation and the facts upon which
the calculation is based.
7. Dissolution; Liquidation. In case the voluntary or involuntary
------------------------
dissolution, liquidation or winding up of the Corporation (other than in
connection with a reorganization, consolidation, merger, or other transaction
covered by paragraph 5 above) is at any time proposed, the Corporation shall
give at least thirty days prior written notice to the Holder. Such notice shall
contain: (a) the date on which the transaction is to take place; (b) the record
date (which shall be at least thirty (30) days after the giving of the notice)
as of which holders of Common Stock will be entitled to receive distributions as
a result of the transaction; (c) a brief description of the transaction, (d) a
brief description of the distributions to be made to holders of Common Stock as
a result of the transaction; and (d) an estimate of the fair value of the
distributions. On the date of the transaction, if it actually occurs, this
Warrant and all rights under this Warrant shall terminate.
8. Rights of Holder. The Corporation shall deliver to the Holder all
----------------
notices and other information provided to its holders of shares of Common Stock
or other securities which may be issuable hereunder concurrently with the
delivery of such information to the holders. This Warrant does not entitle the
Holder to any voting rights or, except for the foregoing notice provisions, any
other rights as a shareholder of the Corporation. No dividends are payable or
will accrue on this Warrant or the Shares purchasable under this Warrant until,
and except to the extent that, this Warrant is exercised. Upon the surrender of
this Warrant and payment of the Exercise Price as provided above,
-3-
<PAGE>
the person or entity entitled to receive the shares of Common Stock issuable
upon such exercise shall be treated for all purposes as the record holder of
such shares as of the close of business on the date of the surrender of this
Warrant for exercise as provided above. Upon the exercise of this Warrant, the
Holder shall have all of the rights of a shareholder in the Corporation.
9. Exchange for Other Denominations. This Warrant is exchangeable, on
--------------------------------
its surrender by the Holder to the Corporation, for a new Warrant of like tenor
and date representing in the aggregate the right to purchase the balance of the
number of shares purchasable under this Warrant in denominations and subject to
restrictions on transfer contained herein, in the names designated by the Holder
at the time of surrender.
10. Substitution. Upon receipt by the Corporation of evidence
------------
satisfactory (in the exercise of reasonable discretion) to it of the ownership
of and the loss, theft or destruction or mutilation of the Warrant, and (in the
case or loss, theft or destruction) of indemnity satisfactory (in the exercise
of reasonable discretion) to it, and (in the case of mutilation) upon the
surrender and cancellation thereof, the Corporation will issue and deliver, in
lieu thereof, a new Warrant of like tenor.
11. Restrictions on Transfer. Neither this Warrant nor the shares of
------------------------
Common Stock issuable on exercise of this Warrant have been registered under the
Securities Act or any other securities laws (the "Acts"). Neither this Warrant
nor the shares of Common Stock purchasable hereunder may be sold, transferred,
pledged or hypothecated in the absence of (a) an effective registration
statement for this Warrant or Common Stock purchasable hereunder, as applicable,
under the Acts, or (b) an opinion of counsel reasonably satisfactory to the
Corporation that registration is not required under such Acts. In addition, this
Warrant may be transferred or assigned only if such transferee or assignee shall
be an "accredited investor", as that term is defined in Rule 501 of Regulation
D, promulgated under the Securities Act, and such transfer or assignment is made
expressly subject to the terms and conditions of this Warrant. If the Holder
seeks an opinion as to transfer without registration from Holder's counsel, the
Corporation shall provide such factual information to Holder's counsel as
Holder's counsel reasonably request for the purpose of rendering such opinion.
Each certificate evidencing shares of Common Stock purchased hereunder will bear
a legend describing the restrictions on transfer contained in this paragraph
unless, in the opinion of counsel reasonably acceptable to the Corporation, the
shares need no longer to be subject to the transfer restrictions.
12. Transfer. Except as otherwise provided in this Warrant, this Warrant
--------
is transferable only on the books of the Corporation by the Holder in person or
by attorney, on surrender of this Warrant, properly endorsed.
13. Recognition of Holder. Prior to due presentment for registration of
---------------------
transfer of this Warrant, the Corporation shall treat the Holder as the person
exclusively entitled to receive notices and otherwise to exercise rights under
this Warrant. All notices required or permitted to be given to the Holder shall
be in writing and shall be given by first class mail, postage prepaid, addressed
to the Holder at the address of the Holder appearing in the records of the
Corporation.
14. Payment of Taxes. The Corporation shall pay all taxes and other
----------------
governmental charges, other than applicable income taxes and transfer taxes, if
any, which shall be payable by Holder, that may be imposed with respect to the
issuance of shares of Common Stock pursuant to the exercise of this Warrant.
15. Headings. The headings in this Warrant are for purposes of
--------
convenience in reference only, shall not be deemed to constitute a part of this
Warrant and shall not affect the meaning or construction of any of the
provisions of this Warrant.
-4-
<PAGE>
16. Governing Law. This Warrant shall be governed by and construed and
-------------
enforced in accordance with the internal laws of the State of Texas without
regard to such state's principles of conflict of laws.
The Corporation and the Holder each (i) hereby irrevocably submits to
the jurisdiction of the United States District Court and other courts of the
United States sitting in the State of Texas for the purposes of any suit, action
or proceeding arising out of or relating to this Warrant and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim that
it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. The Corporation and the Holder each
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Warrant and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing in this paragraph
shall affect or limit any right to serve process in any other manner permitted
by law.
17. Miscellaneous. This Warrant may not be changed, waived, discharged or
-------------
terminated except by an instrument in writing signed by the Corporation and the
Holder. This Warrant shall inure to the benefit of and shall be binding upon the
successors and assigns of the Corporation and the Holder.
THE EASTWIND GROUP, INC., a Delaware corporation
By: /s/ Paul A. DeJuliis
--------------------------------
Authorized Officer
Printed Name: PAUL A. DEJULIIS
----------------------
Title: CHAIRMAN & CEO
-----------------------------
100 Four Falls Corporate Center, Suite 305
West Conshohocken, Pennsylvania 19428
-5-
<PAGE>
THE EASTWIND GROUP, INC.,
FORM OF TRANSFER
(To be executed by the Holder to transfer the Warrant)
For value received the undersigned registered holder of the attached Warrant
hereby sells, assigns, and transfers the Warrant to the Assignee(s) named below:
Name of
Assignee:____________________________________
Address:_____________________________________
_____________________________________
Assignee's Taxpayer ID No.:__________________
Number of shares
subject to transferred Warrant:______________
The undersigned registered holder further irrevocably appoints ______________ as
its attorney-in-fact (with full power of substitution) to transfer this Warrant
as aforesaid on the books of the Corporation.
Date:____________________________ ______________________________
Signature
-6-
<PAGE>
THE EASTWIND GROUP, INC.
EXERCISE FORM
(To be executed by the Holder to purchase
Common Stock pursuant to the Warrant)
The undersigned holder of the attached Warrant hereby: (1) irrevocably
elects to exercise purchase rights represented by such Warrant for, and to
purchase, _________ shares of Common Stock of The Eastwind Group, Inc., a
Delaware corporation, pursuant to the Warrant and encloses payment of $______
therefor (in cash, by wire, or by certified or bank cashier's check); (2)
requests that a certificate for the shares to be issued in the name of the
undersigned; and (3) if such number of shares is not all of the shares
purchasable under this Warrant, that a new Warrant of like tenor for the balance
of the remaining shares purchasable under this Warrant be issued under the terms
and conditions of the Warrant.
Date:____________________________ ________________________________
Signature
-7-
<PAGE>
EXHIBIT 4.12
CERTIFICATE OF POWERS, DESIGNATIONS AND PREFERENCES
FOR SERIES C CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The Eastwind Group, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware (the "Act"),
does hereby certify that pursuant to the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Company, by action taken on June 24, 1998, adopted the following resolution,
each resolution remains in full force and effect as of the date hereof:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Company pursuant to the Act and the Corporation's Certificate of
Incorporation, the Company is authorized to issue, out of the 3,000,000 shares
of Preferred Stock of the Company authorized in its Certificate of
Incorporation, a series of Preferred Stock to be designated as "Series C
Convertible Preferred Stock", $.10 par value per share, with the following
powers, designations, preferences and special rights:
1. Designation, and Amount. 750 shares of preferred stock, $.10 par
-----------------------
value per share, shall constitute a series of such preferred stock designated as
"Series C Convertible Preferred Stock" (the "Series C Convertible Preferred
Stock").
2. Dividends.
---------
(a) The holders of the Series C Convertible Preferred Stock shall be
entitled to receive out of any assets legally available therefor cumulative
dividends at the rate of $60 per share per annum, accrued daily and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year, in preference and priority to any payment of any dividend on the Common
Stock or any other class or series of stock of the Corporation, subject to the
rights of the Series A Preferred Stock, $.10 par value per share (the "Series A
Shares"), set forth in the Certificate of Powers, Designations, Preferences And
Special Rights of Series A Preferred Stock filed with the Secretary of State of
the State of Delaware (the "Series A Certificate") on May 10, 1996, pursuant to
Section 151 of the General Corporation Law of the State of Delaware. Such
dividends shall accrue on any given share from the day of original issuance of
such share and shall accrue from day to day whether or not earned or declared.
If at any time dividends on the outstanding Series C Convertible Preferred Stock
at the rate set forth above shall not have been paid or declared and set apart
for payment with respect to all preceding periods, the amount of the deficiency
shall be fully paid or declared and set apart for payment but without interest,
before any distribution, whether by way of dividend or otherwise, shall be
declared or paid upon or set apart for the shares of any other class or series
of stock of the Company.
(b) Any dividend payable on a dividend payment date may be paid, at
the option of the Company, either (i) in cash or (ii) in shares of Series C
Convertible Preferred Stock, valued at
<PAGE>
$1,000.00 per share, if the Common Stock issuable upon conversion of such shares
has been registered for resale under the Securities Act of 1933, as amended (the
"Act"), and the registration statement including a current prospectus with
respect thereto remains in effect at the date of delivery of such shares, and if
the Company shall have given written notice of its intention to pay such
dividend in stock to all holders of the Series C Convertible Preferred Stock at
least ten (10) days before the record date for such dividend.
3. Liquidation Preference; Redemption.
----------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company, either voluntary or involuntary, the holders of the Series C
Convertible Preferred Stock shall be entitled to receive prior and in preference
to any distribution of any assets of the Company to the holders of any other
class or series of shares, subject to the rights of the Series A Shares as set
forth in the Series A Certificate, the amount of $1,000 per share plus any
accrued but unpaid dividends (the "Liquidation Preference").
(b) A consolidation or merger of the Company with or into any other
corporation or corporations, or a sale of all or substantially all of the assets
of the Company (other than a sale or transfer to a wholly-owned subsidiary or
the Company), shall, at the option of the holders of the Series C Convertible
Preferred Stock, be deemed a liquidation, dissolution or winding up within the
meaning of this Section 3 if the shares of stock of the Company outstanding
immediately prior to such transaction represent immediately after such
transaction less than a majority of the voting power of the surviving
corporation (or of the acquirer of the Company's assets in the case of a sale of
assets). Such option may be exercised by the vote or written consent of holders
of a majority of the Series C Convertible Preferred Stock at any time within
thirty (30) days after written notice (which shall be given promptly) of the
essential terms of such transaction shall have been given to the holders of the
Series C Convertible Preferred Stock in the manner provided by law for the
giving of notice of meetings of shareholders.
(c) The Company may, at its option, cause all or part of the
outstanding shares of the Series C Convertible Preferred Stock to be redeemed at
$1,200 per share of Series C Convertible Preferred Stock plus all accrued but
unpaid dividends; provided the Company has given notice of its intention to
redeem to the holders of the Series C Convertible Preferred Stock at least five
(5) days prior to the redemption date. Promptly after the end of such period,
the Company shall pay such holders by cashier's check or wire transfer in
immediately available funds such amount and the holders shall thereupon
surrender the certificate or certificates representing the Series C Convertible
Preferred Stock to be redeemed, duly endorsed, at the office of the Company or
of any transfer agent for such shares, or at such other place designated by the
Company.
(d) If any conversion of Series C Convertible Preferred Stock, when
aggregated with all prior conversions will cause the Company to issue a number
of shares of Common Stock which exceeds twenty percent (20%) of the shares of
Common Stock then issued and outstanding the Company shall redeem such number of
shares of Series C Convertible Preferred Stock as is
2
<PAGE>
necessary to limit such issuance of Common Stock to twenty percent (20%) of the
shares of Common Stock then issued and outstanding, unless the Company has
previously obtained stockholder approval to issue in excess of twenty percent
(20%) of the shares of Common Stock then issued and outstanding. If a redemption
will occur pursuant to the foregoing, the Company shall pay such holders by
cashier's check or wire transfer in immediately available funds the amount of
$1,200 per share of Series C Convertible Preferred Stock plus all accrued but
unpaid dividends. Promptly thereafter, the holders shall surrender the
certificate or certificates representing the Series C Convertible Preferred
Stock, duly endorsed at the office of the Company or of any transfer agent for
such shares, or at such other place designated by the Company.
4. Series C Convertible Preferred Stock - Forced Conversion
--------------------------------------------------------
(a) The Company may, at its option, cause all outstanding shares of
the Series C Convertible Preferred Stock to be converted into Common Stock at
any time beginning on July 1, 2000, on at least twenty (20) days' advance
notice, at a conversion price determined as set forth in Section 5 hereof (the
"Conversion Price") as of the date specified in such notice (the "Conversion
Date") and otherwise on the terms set forth in Section 5 hereof; provided, that
the Company may not exercise such right of conversion unless (i) the Closing
Price (last trade price) of the Common Stock as reported by NASDAQ for the
twenty (20) consecutive trading days prior to the date the Conversion Notice is
mailed has not on any day been less than one hundred forty percent (140%) of the
last trade price of the Company's Common Stock on the day of Closing (subject to
adjustment for stock dividends, stock splits and reverse stock splits), and (ii)
the shares issuable upon conversion of the Series C Convertible Preferred Stock
are registered for resale by an effective Registration Statement which became
effective not more than one hundred twenty (120) days after the date of issuance
of the Series C Convertible Preferred Stock, and a current prospectus meeting
the requirements of Section 10 of the Act is available for delivery at the
Conversion Date.
(b) At least twenty (20) days prior to the Conversion Date, written
notice (the "Conversion Notice") shall be mailed, first class postage prepaid,
by the Company to each holder of record of the Series C Convertible Preferred
Stock, at the address last shown on the records of the Company for such holder,
notifying such holder of the conversion which is to be effected, specifying the
Conversion Date and calling upon each such holder to surrender to the Company,
in the manner and at the place designated, a certificate or certificates
representing the number of shares of Series C Convertible Preferred Stock held
by such holder. Subject to the provisions of the following subsection (c), on
or after the Conversion Date, each holder of Series C Convertible Preferred
Stock shall surrender to the Company the certificate or certificates
representing the shares of Series C Convertible Preferred Stock owned by such
holder as of the Conversion Date, in the manner and at the place designated in
the Conversion Notice, and thereupon the shares issuable upon such conversion
shall be delivered as provided in Section 5 (b) hereof.
(c) If, on the Conversion Date, the registration condition specified
in clause (ii) of subsection (a) shall not be satisfied, then no shares shall be
converted and the Conversion Notice shall be deemed to be withdrawn. In such
event, any certificates for Series C Convertible Preferred
3
<PAGE>
Stock which have been surrendered for conversion shall be returned to the
persons surrendering the same; provided, however, that if a holder has received
shares of Common Stock upon conversion of Series C Convertible Preferred Stock
after the Conversion Notice was given but before the Conversion Date, such
holder may elect either to retain such Common Stock or rescind such conversion
by tendering such shares of Common Stock to the Company.
(d) On the second anniversary of the issuance of the Series C
Convertible Preferred Stock, all then outstanding shares of Series C Convertible
Preferred Stock shall be automatically converted into Common Stock at the
Conversion Price and otherwise pursuant to the applicable provisions set forth
in Section 5 hereof.
5. Series C Convertible Preferred Stock - Optional Conversion. The holders
----------------------------------------------------------
of the Series C Convertible Preferred Stock shall have optional conversion
rights as follows:
(a) Right to Convert. Shares of Series C Convertible Preferred Stock
----------------
shall become convertible, at the option of the holder thereof, into such number
of fully paid and non-assessable shares of Common Stock as is determined by
dividing (A) the Liquidation Preference of the Series C Convertible Preferred
Stock determined pursuant to Section 3 hereof on the date the notice of
conversion is given, by (B) the Conversion Price determined as hereinafter
provided in effect on the applicable conversion date.
(b) Mechanics of Conversion. To convert shares of Series C
-----------------------
Convertible Preferred Stock into shares of Common Stock, the holder shall give
written notice to the Company (which notice may be given by facsimile
transmission) that such holder elects to convert the shares and shall state
therein date of the conversion, the number of shares to be converted and the
name or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. Promptly thereafter, the holder shall
surrender the certificate or certificates representing the shares to be
converted, duly endorsed, at the office of the Company or of any transfer agent
for such shares, or at such other place designated by the Company; provided,
that the holder shall not be required to deliver the certificates representing
such shares if the holder is waiting to receive all or part of such certificates
from the Company. The Company shall, immediately upon receipt of such notice
issue and deliver to or upon the order of such holder, against delivery of the
certificates representing the shares which have been converted, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled and such certificate or certificates shall not bear any restrictive
legend; provided (A) the Common Stock evidenced thereby are sold pursuant to an
effective registration statement under the Act, (B) the holder provides the
Company with an opinion of counsel reasonably acceptable to the Company to the
effect that a public sale of such shares may be made without registration under
the Act, or (C) such holder provides the Company with reasonable assurance that
such shares can be sold free of any limitations imposed by Rule 144, promulgated
under the Act. The Company shall cause such issuance and delivery to be
effected within three (3) business days and shall transmit the certificates by
messenger or overnight delivery service to reach the address designated by such
holder within three (3) business days after the receipt of such notice. The
notice of conversion may be given by a holder at any time during the day up to
4
<PAGE>
5:00 p.m., Philadelphia, Pennsylvania time, and such conversion shall be deemed
to have been made immediately prior to the close of business on the date such
notice of conversion is given (a "conversion date"). The person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock at the close of business on such date.
(c) Conversion, Redemption and Note Delivery Required. The Company
-------------------------------------------------
acknowledges and understands that a delay in the issuance of the Common Stock
upon conversion or pursuant to a redemption according to the provisions hereof
could result in economic loss to the holders of the Series C Convertible
Preferred Stock. As compensation to any holder when the Company has failed with
respect to such holder to comply with the Company's obligations hereunder, and
not as a penalty, the Company shall pay to such holder liquidated damages of an
amount equal to: (i) two percent (2%) of the total Purchase Price of Shares for
the first thirty (30) day period after the date on which the Common Stock should
have been issued by the Company (i.e., the end of the three (3) business day
period described in Subsection (b)), shares of Series C Convertible Preferred
Stock redeemed by the Company or Promissory Note delivered to holder (i.e. the
end of the three (3) business day period described in Subsection (d)), as
applicable; plus (ii) an amount equal to three percent (3%) of the total
Purchase Price of Shares for each subsequent thirty (30) day period thereafter.
Amounts payable shall be pro-rated daily as to a period of less than thirty (30)
days. Such amounts shall be paid to the holder at the end of each month in
which such amounts have accrued. Payment shall be made immediately by cashier's
check or wire transfer in immediately available funds to such account as shall
be designated in writing by the holder. Each holder shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions hereof
and to enforce specifically the terms and provisions hereof, this being in
addition to any other remedy to which a holder may be entitled by law or equity.
(d) Determination of Conversion Price.
---------------------------------
(i) The "Conversion Price" for purposes of hereof shall be equal
to eighty two percent (82%) of the average of the closing bid prices of the
Common Stock as reported by NASDAQ during the five (5) consecutive trading days
preceding the conversion date (but not including such date); provided however,
---
that in no event may the Conversion Price be more than two dollars ($2.00) per
share (the "Maximum Conversion Price") or less than eighty-four cents ($0.84)
per share of Common Stock (the "Minimum Conversion Price"). If, but for this
Section 5 (d)(i), the Conversion Price would have been below eighty-four cents
($0.84) per share, the Company shall pay the holder by delivering to holder a
Promissory Note, in the form attached hereto as Schedule I and incorporated
herein by reference, bearing the principal amount equal to the difference
between (A) the number of shares of Common Stock that would have been issued at
the amount the Conversion Price would have been but for this Section 5 (d)(i)
multiplied by 100% of the closing bid price of the Common Stock on the trading
day immediately preceding the conversion date as determined in accordance with
the Subsection (d) (the later amount being referred to herein as the "Conversion
Date Price"), minus (B) the number of shares of Common Stock actually issued
pursuant to the conversion multiplied by the Conversion Date Price.
5
<PAGE>
(ii) The "closing bid price" of the Common Stock on a trading day
shall be the closing bid price of the Common Stock on the NASDAQ Small Cap
Market or any other principal securities price quotation system or market on
which prices of the Common Stock are reported. The term "trading day" means a
day on which trading is reported on the principal quotation system or market on
which prices of the Common Stock are reported.
(e) Distributions. If the Company shall at any time or from time to
-------------
time make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Company or any of its subsidiaries other than additional
shares of Common Stock, then in each such event provision shall be made so that
the holders of Series C Convertible Preferred Stock shall receive, upon the
conversion thereof, the securities of the Company which they would have received
had they been the owners on the date of such event of the number of shares of
Common Stock issuable to them upon conversion.
(f) Certificates as to Adjustments. Upon the occurrence of any
------------------------------
adjustment or readjustment of the Conversion Price, the Company at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and cause the independent public accountants regularly employed to
audit the financial statements of the Company to verify such computation and
prepare and furnish to each holder of Series C Convertible Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Company
shall, upon the written request at any time of any holder of Series C
Convertible Preferred Stock, furnish or cause to be furnished to such holder a
like certificate prepared by the Company setting forth (i) such adjustments and
readjustments and (ii) the number of other securities and the amount, if any, of
other property which at the time would be received upon the conversion of Series
C Convertible Preferred Stock with respect to each share of Common Stock
received upon such conversion.
(g) Notice of Record Date. In the event of any taking by the Company
---------------------
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution, any security or right convertible
into or entitling the holder thereof to receive additional shares of Common
Stock, or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to receive any
other right, the Company shall mail to each holder of Series C Convertible
Preferred Stock at least ten (10) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right and the amount and
character of such dividend, distribution, security or right.
(h) Issue Taxes. The Company shall pay any and all issue and other
-----------
taxes, excluding any income, franchise or similar taxes, that may be payable in
respect of any issue or delivery of shares of Common Stock on conversion of
shares of Series C Convertible Preferred Stock pursuant hereto; provided,
however, that the Company shall not be obligated to pay any transfer taxes
6
<PAGE>
resulting from any transfer requested by any holder in connection with any such
conversion.
(i) Reservation of Stock Issuable Upon Conversion. The Company shall
---------------------------------------------
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series C Convertible Preferred Stock, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series C Convertible Preferred
Stock, and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then outstanding
shares of the Series C Convertible Preferred Stock, the Company will take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose, including, without limitation, engaging in best efforts to obtain any
requisite shareholder approval.
(j) Fractional Shares. No fractional shares shall be issued upon the
-----------------
conversion of any share or shares of Series C Convertible Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon conversion of
more than one share of Series C Convertible Preferred Stock by a holder thereof
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion would result in the issuance of a fraction of a
share of Common Stock the Company shall, in lieu of issuing any fractional
share, pay the holder otherwise entitled to such fraction a sum in cash equal to
the fair market value of such fraction on the date of conversion (as determined
in good faith by the Board of Directors of the Company or an authorized
Committee thereof).
(k) Notices. Any notice required by the provisions of this Section to
-------
be given to the holders of shares of Series C Convertible Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at its address appearing on the books of the
Company.
(l) Reorganization or Merger. In case of any reorganization or any
------------------------
reclassification of the capital stock of the Company or any consolidation or
merger of the Company with or into any other corporation or corporations or a
sale of all or substantially all of the assets of the Company to any other
person (other than a sale or transfer to a wholly owned subsidiary of the
Company), and the holders of Series C Convertible Preferred Stock do not elect
to treat such transaction as a liquidation, dissolution or winding up as
provided in Section 3 hereof, then, as part of such reorganization,
consolidation, merger or sale, provision shall be made so that each share of
Series C Convertible Preferred Stock shall thereafter be convertible into the
number of shares of stock or other securities or property (including cash) to
which a holder of the number of shares of Common Stock deliverable upon
conversion of such share of Series C Convertible Preferred Stock would have been
entitled upon the record date of (or date of, if no record date is fixed) such
event, and, in any case, appropriate adjustment (as determined by the Board of
Directors) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holders of the Series
C Convertible Preferred Stock, to the end that the provisions set forth herein
shall thereafter
7
<PAGE>
be applicable as nearly as equivalent as is practicable, in relation to any
shares of stock or the securities or property (including cash) thereafter
deliverable upon the conversion of the shares of Series C Convertible Preferred
Stock.
6. Re-issuance of Certificates. In the event of a conversion (or, if
---------------------------
applicable, redemption) of Series C Convertible Preferred Stock in which less
than all of the shares of Series C Convertible Preferred Stock of a particular
certificate are converted or redeemed, as the case may be, the Company shall
promptly without delay cause to be issued and delivered to the holder of such
certificate, a certificate representing the remaining shares of Series C
Convertible Preferred Stock which have not been so converted or redeemed.
7. Other Provisions. For all purposes of this Resolution, the term "date
----------------
of issuance" and the terms "Closing" of "Closing Date" shall mean the day on
which shares of the Series C Convertible Preferred Stock are first issued by the
Company. Any provision herein which conflicts with or violates any applicable
usury law shall be deemed modified to the extent necessary to avoid such
conflict or violation. The term "NASDAQ" herein refers to the principal market
on which the Common Stock of the Company is traded. If the Common Stock is
listed on a securities exchange, or if another market becomes the principal
market on which the Common Stock is traded or through which price quotations for
the Common Stock are reported, the term "NASDAQ" shall be deemed to refer to
such exchange or other principal market.
8. Restrictions and Limitations. The Company shall not undertake the
----------------------------
following actions without the consent of the holders of a majority of the Series
C Convertible Preferred Stock: (i) modify its Certificate of Incorporation or
Bylaws so as to amend or change any of the rights, preferences, or privileges of
the Series C Convertible Preferred Stock, (ii) authorize or issue any other
preferred equity security senior to or on a parity with the Series C Convertible
Preferred Stock as to dividends, liquidation preferences, conversion rights,
redemption rights or other rights, preferences or privileges for a period of one
hundred twenty (120) days after Closing, as applicable, or (iii) purchase or
otherwise acquire for value any Common Stock or other equity security of the
Company either junior or senior to or on a parity with the Series C Convertible
Preferred Stock while there exists any arrearage in the payment of cumulative
dividends hereunder other than redemptions of stock from terminating employees
pursuant to contractual rights in favor of the Company, subject to the rights of
the Series A Shares as set forth in the Series A Certificate.
9. Voting Rights Except as provided herein or as provided for by law,
-------------
the Series C Convertible Preferred Stock shall have no voting rights.
10. Attorneys' Fees. Any holder of Series C Convertible Preferred Stock
---------------
shall be entitled to recover from the Company the reasonable attorneys' fees and
expenses incurred by such holder in connection with enforcement by such holder
of any obligation of the Company hereunder.
11. No Adverse Actions. The Company shall not in any manner, whether by
------------------
amendment of the Certificate of Incorporation (including, without limitation,
any vote establishing a class or series
8
<PAGE>
of stock), merger, reorganization, re-capitalization, consolidation, sales of
assets, sale of stock, tender offer, dissolution or otherwise, take any action,
or permit any action to be taken, solely or primarily for the purpose of
increasing the value of any class of stock of the Company if the effect of such
action is to reduce the value or security of the Series C Convertible Preferred
Stock.
FURTHER RESOLVED, that, before the Company shall issue any shares of Series
C Convertible Preferred Stock, a certificate pursuant Section 151 of the General
Corporation Law of the State of Delaware shall be made, executed and
acknowledged, filed and recorded in accordance with the provisions of Section
103 and 151 of the General Corporation Law of the State of Delaware, and the
proper officers of the Company be, and hereby are, authorized and directed to
do all acts and things that may be necessary or proper in their opinion to carry
into effect the purposes and intent of this and the foregoing resolutions.
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed in
its name and on its behalf and attested on this 24th day of June, 1998 by a duly
authorized officer of this Company.
THE EASTWIND GROUP, INC.
By: /s/ William B. Miller
-------------------------------------
William B. Miller, Senior Vice President
and CFO
9
<PAGE>
SCHEDULE I
TO RESOLUTIONS
PROMISSORY NOTE (the "Note")
DATE:_______________, 199__
MAKER: The Eastwind Group, Inc.
MAKER'S MAILING ADDRESS: 100 Four Falls Corporate Center, Suite 305
West Conshohocken, Pennsylvania 19428
PAYEE:
PLACE FOR PAYMENT:
PRINCIPAL AMOUNT: $__________________________
ANNUAL INTEREST RATE ON UNPAID PRINCIPAL FROM DATE: Twelve percent (12%).
ANNUAL PAST DUE INTEREST RATE ON UNPAID PRINCIPAL FROM MATURITY TO PAYMENT:
Eighteen percent (18%).
TERMS OF PAYMENT: Principal and interest shall be due and payable in six (6)
equal consecutive monthly payments of $____________ (based on a six (6) month
amortization) with the first payment being due and payable on the first day of
______________.
The Maker promises to pay to the order of Payee at the place for payment and
according to the terms of payment the outstanding principal and accrued interest
at the rates stated above. All unpaid amounts owing on this Note shall be due by
the final scheduled payment date of ________________.
ADDITIONAL PROVISIONS:
If Maker defaults in the payment of this Note, or in any instrument
securing or collateral to it, then Payee may declare the unpaid principal
balance of this Note and all accrued interest immediately due and payable. Maker
and each surety, endorser, and guarantor or other party liable for the payment
of any sums of money payable on this Note severally waive all demands for
payment, presentations for payment, notices of dishonor, notices of intention to
accelerate maturity, notices of acceleration of maturity, protests, and notices
of protest, to the extent permitted by law.
If this Note or any instrument securing or collateral to it is given to an
attorney for collection or enforcement, or if suit is brought for collection or
enforcement, or if it is collected or enforced through probate, bankruptcy, or
other judicial proceeding then Maker shall pay Payee all costs of collection
and enforcement, including reasonable attorneys fees and court costs, in
addition to other amounts due.
Interest on the debt evidenced by this Note shall not exceed the maximum
amount of non-usurious interest that may be contracted for, taken, reserved,
charged or received under law, any interest in excess of that maximum amount
shall be credited on the principal of the debt or, if that has been paid,
refunded. On any
1
<PAGE>
acceleration or required or permitted prepayment, any such excess shall be
canceled automatically as of the acceleration or prepayment or, if already paid,
credited on the principal of the debt or, if the principal of the debt has been
paid, refunded. This provision overrides other provisions in this and all other
instruments concerning the debt.
When the context requires, singular nouns and pronouns include the plural.
This Note is to be governed and construed in accordance with the laws of
the State of Texas.
MAKER, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF
WHICH ARE HEREBY ACKNOWLEDGED, (i) hereby irrevocably submits to the
jurisdiction of the United States District Court and other courts of the United
States sitting in Texas for the purposes of any suit, action or proceeding
arising out of or relating to this Agreement and (ii) hereby waives, and agrees
not to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. MAKER consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to MAKER at the
address and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall affect
or limit any right to serve process in any other manner permitted by law.
Executed as of date first above written.
The Eastwind Group, Inc., a Delaware corporation
By:____________________________________________________
Name of Authorized Officer:____________________________
Title:_________________________________________________
2
<PAGE>
Exhibit 5.1
- -----------
July 29, 1998
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: The Eastwind Group, Inc. - Form S-3
Registration Statement No. 333 - 52685
------------------------------------------------------
Dear Sir or Madam:
Reference is made to an Amendment No. 1 to Form S-3 Registration Statement
of the Eastwind Group, Inc. (the "Company") which is being filed with the
Securities and Exchange Commission on the date hereof (the "Registration
Statement"). Capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Registration Statement.
The Registration Statement covers 2,401,376 shares of Common Stock, $.10
par value per share, of the Company ("Shares"), 2,126,376 of which may be sold
by certain stockholders of the Company as identified in the Registration
Statement, and up to 275,000 of which may be issued by the Company upon exercise
of outstanding warrants (the "Warrants").
We have examined the Registration Statement, including the exhibits
thereto, the Company's Amended and Restated Certificate of Incorporation, the
Company's Amended and Restated By-laws, the Warrants, and such other documents
as we have deemed appropriate. In the foregoing examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals and the authenticity of all documents submitted to us as copies of
originals. For purposes hereof, we have assumed that the Shares have been fully
paid for by the Selling Stockholders in accordance with their respective
agreements with the Company, and the Shares have been issued to the Selling
Stockholders by the Company.
Based on the foregoing we are of the opinion that the Shares, when sold,
and with respect to the Shares underlying the Warrants, when issued and paid for
in accordance with the terms of, and upon exercise of the Warrants, will be
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to all references to our firm included in the
Prospectus.
Sincerely,
LURIO & ASSOCIATES, P.C.
<PAGE>
EXHIBIT 10.5
SUBSCRIPTION AGREEMENT
THE EASTWIND GROUP, INC.
THE SECURITIES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION AGREEMENT (AS IT MAY
BE AMENDED FROM TIME TO TIME, THE "AGREEMENT") HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER THE
APPLICABLE SECURITIES LAWS OF ANY STATE AND WILL BE OFFERED AND SOLD IN RELIANCE
ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THESE LAWS BY VIRTUE OF THE
EASTWIND GROUP, INC.'S INTENDED COMPLIANCE WITH SECTIONS 3(b), 4(2) AND 4(6) OF
THE SECURITIES ACT, THE PROVISIONS OF REGULATION D UNDER SUCH ACT AND SIMILAR
EXEMPTIONS UNDER STATE LAW. THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION ("SEC"), ANY STATE
SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The undersigned purchaser (hereafter, the "Purchaser") hereby offers to
purchase certain Series C Convertible Preferred Stock, $0.10 par value per share
(referred to herein as a "Share" or collectively as "Shares"), and Warrants of
The Eastwind Group, Inc. (the "Company"), a publicly-held corporation formed
under the laws of the State of Delaware. This offer to purchase may, for any
reason whatsoever, be revoked by the Purchaser or rejected by the Company prior
to acceptance of this offer by the Company.
Section 1.1 PURCHASE AND SALE OF SHARES AND WARRANTS. Upon the following
-----------------------------------------
terms and conditions, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase from the Company, the following:
(a) the number of Shares indicated on the signature page to this Agreement,
which Shares shall have the rights, designations and preferences set forth in
EXHIBIT A, attached hereto and incorporated herein by reference; and
(b) Warrants for the purchase of 75,000 shares of the Company's Common
Stock, $0.10 par value per share (the "Common Stock"), which shall be
represented in the form of a single Warrant, as shown in EXHIBIT B, attached
hereto and incorporated herein by reference.
Section 1.2 PURCHASE PRICE. The purchase price for the Shares shall be
--------------
One Thousand Dollars ($1,000) per Share and $0.0001 per Warrant ($7.50 in the
aggregate for the Warrants) (collectively, the "Purchase Price").
Section 1.3 THE CLOSING.
-----------
(a) The closing of the purchase and sale of the Shares and Warrants (the
"Closing"), shall take place at the law offices of Lurio & Associates, 1760
Market Street -- Suite 1300, Philadelphia, PA 19103, counsel for the Company, at
10:00 a.m., local time, on the later of the following: (i) the date on which the
last to be fulfilled or waived of the conditions set forth in Section 4.1 and
4.2 hereof and applicable to the Closing shall be fulfilled or waived in
accordance herewith; or (ii) such other time and place and/or on such other date
as the Purchaser and the Company may agree. The date on which the Closing occurs
is referred to herein as the "Closing Date."
(b) On the Closing Date, the Company shall deliver to the Purchaser a
certificate representing the Shares registered in the name of the Purchaser and
the Warrants or deposit such Shares and Warrants into accounts designated by the
Purchaser. The Purchaser shall on the Closing Date deliver to the Company the
Purchase Price for all the Shares and Warrants by cashier's check or wire
transfer in immediately available funds to such account as shall be designated
in writing by the Company. In addition, each party shall deliver all documents,
instruments and writings required to be delivered by such party pursuant to this
Agreement at or prior to the Closing.
1
<PAGE>
Section 1.4 COVENANT TO REGISTER.
--------------------
(a) For purposes of this Section, the following definitions shall apply:
(i) The terms "register," "registered," and "registration" refer to
a registration under the Securities Act, effected by preparing and filing a
registration statement or similar document in compliance with the Securities
Act, and the declaration or ordering of effectiveness of such registration
statement, document or amendment thereto.
(ii) The term "Registrable Securities" means the shares of the
Company's Common Stock issuable upon conversion of shares of the Shares or
upon conversion of any other stock issued in payment of dividends on the Shares
or otherwise issuable pursuant to this Agreement or the provisions of EXHIBIT A
hereto, shares of the Company's Common Stock issuable upon exercise of the
Warrants, and any securities of the Company or securities of any successor
corporation issued as, or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
Shares.
(iii) The term "holder of Registrable Securities" means the Purchaser
and any permitted assignee of registration rights pursuant to Section 1.4(h).
(b) (i) No later than fifteen (15) days after the Closing Date, the
Company shall file with the SEC an amendment to its registration statement on
Form S-3 (filed with the SEC on May 14, 1998) covering at least 200% of the
number of Registrable Securities which would then be issuable upon conversion of
the Shares at the conversion price then in effect, and shall use its best
efforts to cause such registration statement to become effective on or before
ninety (90) days after the date such registration statement is filed (the
"Initial Registration"). If such Initial Registration is not declared effective
by the end of such period or does not include all Registrable Securities, or the
Company is not in compliance with its obligations under Subsection (d) of this
Section 1.4, a holder of Registrable Securities shall have the right to require
by notice in writing that the Company register all or any part of the
Registrable Securities held by such holder (a "Demand Registration") and the
Company shall thereupon effect such registration in accordance herewith (which
may include adding such shares to an existing shelf registration). The parties
agree that if the holder of Registrable Securities demands registration of less
than all of the Registrable Securities, the Company, at its option, may
nevertheless file a registration statement covering all of the Registrable
Securities. If the Initial Registration statement or a Demand Registration
statement is declared effective with respect to all Registrable Securities and
the Company is in compliance with its obligations under Subsection (d) of this
Section 1.4, the Demand Registration rights granted pursuant to this Subsection
(b)(i) shall cease. If such Initial Registration statement is not declared
effective with respect to all Registrable Securities or if the Company is not in
compliance with such obligations, the Demand Registration rights described
herein shall remain in effect.
(ii) The Company shall not be obligated to effect a Demand
Registration under Subsection (b)(i) above: (A) if all of the Registrable
Securities held by the holder of Registrable Securities which are demanded to be
covered by the Demand Registration are, at the time of such demand, included in
an effective registration statement and the Company is in compliance with its
obligations under Subsection (d) of this Section 1.4, (B) if all of the
Registrable Securities may be sold under Rule 144(k) of the Securities Act and
the Company's transfer agent has accepted an instruction from the Company to
such effect; or (C) at any time after two (2) years from the Closing Date.
(iii) Subject to Subsection (iv)(B) hereof, the Company may suspend
the effectiveness of any such registration effected pursuant to this Subsection
(b)in the event and for such period of time as, such a suspension is required by
the rules and regulations of the Securities and Exchange Commission ("SEC"). The
Company will use its best efforts to cause such suspension to terminate at the
earliest possible date.
(iv) (A) If the Company is advised by the SEC that a registration
statement filed hereunder is subject to a "no-review" and such registration
statement is not declared effective within five (5) business days thereafter
(an "Acceleration Date") or, irrespective of the SEC review, a registration
statement is not declared effective by the ninety first (91/st/) day after the
filing date (the "Target Date"), the Company shall pay Purchaser as liquidated
damages an amount
2
<PAGE>
equal to: (I) one half of one percent (0.5%) of the total Purchase Price of the
Shares for the first thirty (30) day period following the earlier of the
Acceleration Date or Target Date, as applicable; plus (II) one percent (1%) of
the total Purchase Price of the Shares for the following thirty (30) day period;
plus (III) two percent (2%) of the total Purchase Price of the Shares for each
thirty (30) day period thereafter, until such time as a registration statement
covering all Registrable Securities is declared effective by the SEC. The
payment set forth above shall be pro-rated daily as to any period of less than
thirty (30) days. Such payment shall be made to the Purchaser by cashier's
check or wire transfer in immediately available funds to such account as shall
be designated in writing by the Purchaser. The foregoing amount shall be paid
irrespective of the amount of Registrable Securities then held by Purchaser.
(B) If, following effectiveness of a registration,
either the effectiveness of the registration statement is suspended or a current
prospectus meeting the requirements of Section 10 of the Securities Act is not
available for delivery by the Purchaser for any reason (either referred to
herein as a "suspension"), the Company shall thereupon pay to Purchaser as
liquidated damages an amount equal to two percent (2%) of the Purchase Price of
the Shares for each thirty (30) day period of the suspension. The payment set
forth above shall be pro-rated daily as to periods of less than thirty (30)
days. Such payment shall be made to the Purchaser by cashier's check or wire
transfer in immediately available funds to such account as shall be designated
in writing by the Purchaser, and shall be paid irrespective of the amount of
Registrable Securities held by Purchaser on or after the date following the
suspension.
(C) Any amount payable pursuant to the foregoing
provisions of this Subsection (iv) shall be delivered on or before the fifth
(5th) day following the end of the calendar month in which such payment
obligation arose. The "Purchase Price" of Registrable Securities shall be (I) if
derived from conversion or substitution of Shares, the Purchase Price of the
Shares, and (II) if received in satisfaction of a Company obligation, the dollar
amount of such obligation.
(D) This Subsection (b) is in addition to the
provisions of Section 7.2(a) hereof.
(c) If the Company proposes to register (including for this purpose a
registration effected by the Company for shareholders other than the Purchaser)
any of its stock or other securities under the Securities Act in connection with
a public offering of such securities (other than a registration on Form S-4,
Form S-8 or other limited purpose form) and all Registrable Securities have not
theretofore been included in a registration statement under Subsection (b) of
this Section 1.4 which remains effective, the Company shall, at such time,
promptly give all holders of Registrable Securities written notice of such
registration. Upon the written request of any holder of Registrable Securities
given within twenty (20) days after receipt of such notice by the holder of
Registrable Securities, the Company shall use its best efforts to cause to be
registered under the Securities Act all Registrable Securities that such holder
of Registrable Securities requests to be registered. However, the Company shall
have no obligation under this Subsection (c) if (i) the Registrable Securities
may be sold without registration under Rule 144(k) and the Company's transfer
agent has accepted an instruction from the Company to such effect, (ii) the
Registration Statement is filed more than two (2) years after the Closing Date,
or (iii) to the extent that, with respect to any underwritten offering initiated
by the Company later than one calendar year following the Closing, the managing
underwriter of such offering reasonably notifies such holder(s) in writing of
its determination that the Registrable Securities or a portion thereof shall be
excluded therefrom.
(d) Whenever required under this Section 1.4 to effect the
registration of any Registrable Securities including, without limitation, the
Initial Registration, the Company shall, as expeditiously as reasonably
possible:
(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and cause such registration to become
effective as provided in Section 1.4(b)(i), and keep such registration statement
effective for so long as any holder of Registrable Securities desires to dispose
of the securities covered by such registration statement; provided, however,
that in no event shall the Company be required to keep the Registration
Statement effective for a period greater than two (2) years from the Closing
Date;
3
<PAGE>
(ii) Respond to comments made by the SEC with respect to a
registration statement filed pursuant to this Agreement promptly, but no later
than fifteen (15) days after the date of the comment letter, and prepare and
file with the SEC such amendments and supplements to such registration statement
and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement
(provided, that the Company may not amend the registration statement for the
purpose of registering securities of selling shareholders other than holders of
Shares) and immediately notify the holders of the Shares of filing and
effectiveness of such Registration Statement and any amendments or supplements;
(iii) Furnish to each holder of Registrable Securities such numbers of
copies of a current prospectus, including a preliminary prospectus, conforming
with the requirements of the Securities Act, copies of the registration
statement any amendment or supplement to any thereof and any documents
incorporated by reference therein and such other documents, all free of charge,
such holder of Registrable Securities may reasonably require in order to
facilitate the disposition of Registrable Securities owned by such holder of
Registrable Securities;
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or "Blue
Sky" laws of such jurisdictions as shall be reasonably requested by the holder
of Registrable Securities;
(v) Notify each holder of Registrable Securities immediately of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact of omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and use its best efforts to promptly update and/or
correct such prospectus;
(vi) Furnish, at the request of any holder of Registrable Securities
in connection with any underwritten public offering, (A) an opinion of counsel
of the Company, dated the effective date of the registration statement, in form
and substance reasonably satisfactory to the holder and its counsel and
covering, without limitation, such matters as the due authorization and issuance
of the securities being registered and certain matters pertaining to disclosure
under and compliance with securities laws by the Company in connection with the
registration thereof and/or (B) a "comfort" letter or letters of the Company's
independent public accountants provided at the Company's expense in form and
substance reasonably satisfactory to the holder and its counsel;
(vii) Use its best efforts to list the Registrable Securities covered
by such registration statement with any national market or securities exchange
on which the Registrable Securities are then listed;
(viii) Make available for inspection by the holders of Registrable
Securities, upon request, all SEC Documents (as defined below) filed subsequent
to the Closing and require the Company's officers, directors and employees to
supply all information reasonably requested by any holder of Registrable
Securities in connection with such registration statement; and
(ix) Furnish to each holder of Registrable Securities prompt notice of
the commencement of any stop-order proceedings under the Securities Act,
together with copies of all documents in connection therewith, and use its best
efforts to obtain withdrawal of any such stop as soon as possible.
(e) Upon request of the Company, each holder of Registrable Securities
will furnish to the Company in connection with any registration under this
Section such information regarding itself, the Registration Securities and other
securities of the Company held by it, and the intended method of disposition of
such securities as shall be reasonably required to effect the registration of
the Registrable Securities held by such holder of Registrable Securities. The
intended method of disposition (Plan of Distribution) of such securities as so
provided by Purchaser shall be included without alteration in the Registration
Statement covering the Registrable Securities and shall not be changed without
the prior written consent of the Purchaser.
4
<PAGE>
(f) (i) The Company shall indemnify, defend and hold harmless each holder
of Registrable Securities which are included in a registration statement
pursuant to the provisions of Subsections (b) or (c) hereof and each of its
officers, directors, employees, agents, partners or controlling persons (within
the meaning of the Securities Act) (each, an "indemnified party") from and
against, and shall reimburse such indemnified party with respect to, any and all
claims, suits, demands, causes of action, losses, damages, liabilities, costs or
expenses ("Liabilities") to which such indemnified party may become subject
under the Securities Act or otherwise, arising from or relating to (A) any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or any amendment
or supplement thereto, or (B) the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading; provided, however, that the Company shall not be liable in any such
case to the extent that any such Liability arises out of or is based upon an
untrue statement or omission so made in strict conformity with information
furnished by such indemnified party in writing specifically for use in a
registration statement.
(ii) In the event of any registration under the Securities Act of
Registrable Securities pursuant to Subsections (b) or (c), each holder of such
Registrable Securities hereby severally agrees to indemnity, defend and hold
harmless the Company, and its officers, directors, employees, agents, partners,
or controlling persons (within the meaning of the Securities Act) (each, an
"indemnified party") from and against, and shall reimburse such indemnified
party with respect to, any and all Liabilities to which such indemnified party
may become subject under the Securities Act or otherwise, arising from or
relating to (A) any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, any prospectus contained
therein or any amendment or supplement thereto, or (B) the omission or alleged
omission to sate therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that (X) such holders will be
liable in any such case to the extent and only to the extent, that any such
Liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
prospectus or amendment or supplement thereto in reliance upon and in conformity
with written information furnished by such holder specifically for use in the
preparation thereof and (Y) the indemnification obligation of any holder shall
not exceed the purchase price of the Shares.
(iii) Promptly after receipt by any indemnified party of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against another party (the "indemnifying party")
hereunder, notify such party in writing thereof, but the omission so to notify
such party shall not relieve such party from any Liability which it may have to
the indemnified party other than under this Section and shall only relieve it
from any Liability which it may have to the indemnified party under this section
if and to the extent an indemnifying party is materially prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and such indemnified party shall notify an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense thereof
with counsel reasonably satisfactory to such indemnified party, and, after
notice from the indemnifying party to the indemnified party of its election so
to assume and undertake the defense thereof, the indemnifying party shall not be
liable to the indemnified party under this section for any legal expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation and of liaison with counsel
so selected; provided, however, that if the defendants in any such action
include both parties and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to them which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified party shall have the right to select
a separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of one such separate counsel and other reasonable expenses related to such
participation to be reimbursed by the indemnifying party as incurred.
(g) (i) With respect to the inclusion of Registrable Securities in a
registration statement pursuant to Subsections (b) or (c), all fees, cost and
expenses of and incidental to such registration, inclusion and public offering
shall be borne by the Company; provided, however, that any securityholders
participating in such registration shall bear
5
<PAGE>
their pro-rata share of the underwriting discounts and commissions, if any,
incurred by them in connection with such registration.
(ii) The fees, costs and expenses of registration to be borne by the
Company as provided in this Subsection (g) shall include, without limitation,
all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accounts for the Company, and all legal fees and
disbursements and other expenses of complying with state securities or Blue Sky
laws of any jurisdiction or jurisdictions in which securities to be offered are
to be registered and qualified. Subject to appropriate agreements as to
confidentiality, the Company shall make available to the holders of Registrable
Securities and their counsel its documents and personnel for due diligence
purposes. Except as otherwise provided herein, fees and disbursements of counsel
and accountants for the selling security holders and discounts and commissions,
if any, payable in connection with any such sales shall be borne by the
respective selling security holders.
(h) The rights to cause the Company to register all or any portion of
Registrable Securities pursuant to this Section 1.4 may be assigned by Purchaser
to a transferee or assignee. Within a reasonable time after such transfer, the
Purchaser shall notify the Company of the name and address of such transferee or
assignee, and the securities with respect to which such registration rights are
being assigned. Such assignment shall be effective only if, immediately
following such transfer, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act. Any transferee
asserting registration rights hereunder shall be bound by the applicable
provisions of this Agreement.
(i) The Company shall not agree to allow the holders of any securities of
the Company to include any of their securities in any registration statement
filed by the Company pursuant to Subsection (b) unless such inclusion will not
reduce the amount of the Registrable Securities included therein.
Section 1.5 COMPANY STANDOFF. Except in a corporate reorganization,
----------------
business combination, stock or asset purchase, merger or consolidation, under
existing employee stock incentive or purchase plans or pursuant to this
Agreement, the Company shall not for its own account effect any public sale or
distribution of any securities similar to the Registrable Securities or any
securities exercisable for or convertible or changeable into the Registrable
Securities during the thirty (30) days prior to, and during the one hundred
eighty (180) days immediately following the effective date of any registration
statement filed pursuant to Section 1.4(b); provided, however, that the Company
may effect such public sale or distribution during the ninety (90) days
immediately following the effective date of such registration statement if such
sale or distribution of securities is at a price equal to or greater than 135%
of the last trade price of the Company's Common Stock on the day of Closing.
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
-----------------------------------------------
Purchaser makes the following representations and warranties to the Company.
(a) Accredited Investor. The Purchaser is an "accredited investor"
-------------------
under the definition set forth in Rule 501(a) of Regulation D, promulgated under
the Securities Act.
(b) Speculative Investment. The Purchaser is aware that an investment
----------------------
in the Shares is highly speculative and subject to substantial risks. The
Purchaser is capable of bearing the high degree of economic risk and the burden
of this venture, including, but not limited to, the possibility of complete loss
of the Purchaser's investment in the Shares and underlying Common Stock which
make liquidation of this investment of this impossible for the indefinite
future.
(c) Disposition. The Purchaser understands that (i) except as
-----------
provided for in Section 1.4, the Shares, Warrants and underlying Common Stock of
the Company (the "Securities"), have not been and are not being registered under
the Securities Act or any applicable state securities laws, and may not be
transferred unless (A) subsequently registered thereunder, or (B) the Securities
may be sold or transferred pursuant to an exemption from securities registration
under the Securities Act and any applicable state securities laws or (C) sold
pursuant to Rule 144, promulgated under the Securities Act (or any successor
Rule), or (ii) any sale of such Securities made in reliance on Rule 144 may be
made only in accordance with the terms of such Rule and further, if such Rule is
not applicable, any resale of such Securities under
6
<PAGE>
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the Securities
Act) may require compliance with another exemption under the Securities Act or
the rules of the SEC thereunder. Notwithstanding any provision to the contrary
containes herein, a holder may pledge such Securities as collateral for a
revolving credit note pursuant to a loan and security agreement with a lending
institution.
(d) Privately Offered. The offer to acquire the Shares and Warrants
-----------------
was directly communicated to the Purchaser in such manner that the Purchaser was
able to ask questions of and receive answers concerning the terms and conditions
of this transaction. At no time was the Purchaser presented with or solicited by
or through any leaflet, public promotional meeting, television advertisement, or
any other form of general advertising.
(e) Purchase for Investment. The Securities are being acquired solely
-----------------------
for the Purchaser's own account, for investment, and are not being purchased
with view to the resale, distribution, subdivision or fractionalization thereof
without proper registration with applicable securities administrators
(f) Access to Information. Purchaser or Purchaser's professional
---------------------
advisor has been granted the opportunity to ask questions or and receive answers
from representatives of the Company, its officers, directors, employees and
agents concerning the terms and conditions of the offering of Shares and
Warrants, the Company, its business and prospects, and to obtain any additional
information which Purchaser or Purchaser's professional advisor deems necessary
to verify the accuracy and completeness of the information received.
(g) Reliance on Own Advisors. Purchaser has relied on the advice of,
------------------------
or has consulted with, Purchaser's own tax, investment, legal or other advisors
and has not relied on the Company or any of it affiliates, officers, directors,
attorneys, accountants or any affiliates of any thereof and each other person,
if any, who controls any thereof, within the meaning of Section 15 of the
Securities Act for any tax or legal advice (other than reliance on information
in the SEC Documents). The foregoing, however, does not limit or modify
Purchaser's right to rely upon representations and warranties of the Company in
Section 2.2 of this Agreement and any representations of any placement agent.
(h) Capability to Evaluate. Purchaser has such knowledge and
----------------------
experience in financial and business matters so as to enable such Purchaser to
utilize the information made available to it in connection with the offer of
Shares and Warrants in order to evaluate the merits and risks of the prospective
investment, which are substantial, including without limitation those set forth
in the SEC Documents (as defined herein).
(i) Disclosure Documents. Purchaser, in making Purchaser's investment
--------------------
decision to subscribe for the Shares and Warrants hereunder, represents that
Purchaser has received and had an opportunity to review the SEC Documents.
(j) Authority. Purchaser has full power and authority to execute and
---------
deliver this Agreement and each other document included herein for which a
signature is required in such capacity and on behalf of the subscribing
individual, partnership, trust, estate, corporation or other entity for whom or
which Purchaser is executing this Agreement.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
hereby makes the following representations and warranties to the Purchaser:
(a) Organization and Qualification. The Company is a corporation duly
------------------------------
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company and each of its
subsidiaries, if any, is duly qualified as a foreign corporation to do business
and is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification necessary
other than those in which the failure so to qualify would not have a Material
Adverse Effect. "Material Adverse Effect", for purposes of this Agreement, means
any adverse effect on the business, operations, properties, prospects, or
financial condition of the entity with respect to which such term is used and
which is material to such entity and other entities controlled by such entity
taken as a whole.
7
<PAGE>
(b) Authorization; Enforcement. (i) The Company has the requisite
--------------------------
corporate power and authority to enter into and perform this Agreement and to
issue the Shares and Registrable Securities in accordance with the terms hereof,
(ii) the execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, (iv) this Agreement constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application) and (v) prior to the Closing
Date, any necessary amendment to the Company's Articles of Incorporation
authorizing Company to issue all of the Shares and Registerable Securities, in
accordance with Exhibit A, will have been filed with the Delaware Secretary of
State and will be in full force and effect, enforceable against the Company in
accordance with the terms of such amended Articles of Incorporation.
(c) Authorized Capital; Rights or Commitments to Stock. The authorized
--------------------------------------------------
capital stock of the Company consists of 7,000,000 shares of Common Stock and
3,000,000 shares of Preferred Stock; there are 4,521,019 shares of Common Stock
and 1,000 shares of Series A Preferred Stock issued and outstanding; and, upon
issuance of the Shares in accordance with the terms hereof, there will be
4,521,019 shares of Common Stock, 1,000 shares of Series A Preferred Stock
issued and outstanding, no Series B Preferred Stock issued and outstanding, and
750 shares of Series C Convertible Preferred Stock issued and outstanding.
All of the outstanding shares of the Company's Common Stock have been
validly issued and are fully paid and non-assessable. Except as set forth in
EXHIBIT C hereto, no shares of Common Stock are entitled to registration rights
or preemptive rights, and there are no outstanding options, warrants, scrip,
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company, or contracts, commitments, understandings, or arrangements
by which the Company is or may become bound to issue additional shares of
capital stock of the Company or options, warrants, scrip, rights to subscribe
to, or commitments to purchase or acquire, any shares, or securities or rights
convertible into shares, of capital stock of the Company. EXHIBIT C shall
specifically indicate registration rights associated with any such securities
and whether the Company intends to register such securities or capital stock
underlying such securities within one (1) year after the Closing Date.
(d) Issuance of Shares. The issuance of the Shares has been duly
------------------
authorized and, when paid for and issued in accordance with the terms hereof,
the Shares shall be validly issued, fully paid and non-assessable and entitled
to the rights and preferences set forth in EXHIBIT A hereto. The Registrable
Securities will be duly authorized and reserved for issuance and, upon
conversion, will be validly issued, fully paid and non-assessable and the
holders shall be entitled to all rights and preferences accorded to a holder of
Common Stock.
(e) No Conflicts. The Company has furnished or made available to the
------------
Purchaser true and correct copies of the Company's Articles of Incorporation as
in effect on the date hereof (the "Articles"), and the Company's By-Laws, as in
effect on the date hereof (the "By-Laws"). The execution, delivery and
performance of this Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby do not and will not (i) result in a
violation of the Company's Articles or By-Laws or (ii) conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its subsidiaries is a party, or result
in a violation of any federal, state, local or foreign law, rule, regulation,
order, judgment or decree (including Federal and state securities laws and
regulations) applicable to the Company or any of its subsidiaries or by which
any property or assets of the Company or any of its subsidiaries is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect); provided that, for purposes of such
representation as to Federal, state, local or foreign law, rule or regulation,
no representation is made herein with respect to any of the same applicable
solely to the Purchaser and not to the Company. The business of the Company is
not being conducted in violation of any law, ordinance or regulations of any
governmental entity, except for violations which either singly or in the
aggregate do not and will not have a Material
8
<PAGE>
Adverse Effect. The Company is not required under Federal, state or local law,
rule or regulation in the United States to obtain any consent, authorization or
order of, or make any filing (other than any filing of a vote establishing a
class or series of stock with the Delaware Secretary of State) or registration
with, any court or governmental agency in order for it to execute, deliver or
perform any of its obligations under this Agreement or issue and sell the Shares
in accordance with the terms hereof (other than any SEC, NASD, NASDAQ or state
securities filings which may be required to be made by the Company subsequent to
the Closing, and any registration statement which may be filed pursuant hereto);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Purchaser herein.
(f) SEC Documents, Financial Statements. The Common Stock of the Company
-----------------------------------
is registered pursuant to Section 12(g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and the Company has filed on a timely basis all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Exchange Act,
including material filed pursuant to Section 13(a) or 15(d), in addition to one
or more registration statements and amendments thereto heretofore filed by the
Company with the SEC under the Securities Act (all of the foregoing including
filings incorporated by reference therein being referred to herein as the "SEC
Documents"). The Company directly or through its agent has delivered to the
Purchaser true and complete copies of the SEC Documents except for the exhibits
and incorporated documents. The Company has not provided to the Purchaser any
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by the Company but which has not been so disclosed,
other than with respect to the transactions contemplated by this Agreement.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act as the
case may be and the rules and regulations of the SEC promulgated thereunder and
other federal, state and local laws, rules and regulations applicable to such
SEC Documents, and none of the SEC Documents have contained any untrue statement
of a material fact or have omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents comply as to form in all
material respects with applicable accounting requirements and the published
rules and regulations of the SEC or other applicable rules and regulations with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may not include footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
(g) No Material Adverse Change. Since the date through which the most
--------------------------
recent quarterly report of the Company on Form 10-QSB has been prepared and
filed with the SEC, a copy of which is included in the SEC Documents, no
Material Adverse Effect has occurred or exists with respect to the Company or
any of its subsidiaries.
(h) No Undisclosed Liabilities. The Company and its subsidiaries have no
--------------------------
material liabilities or obligations not disclosed in the SEC Documents, other
than those incurred in the ordinary course of the Company's or any of its
subsidiaries' respective businesses since the date of the most recently filed
SEC Documents which, individually or in the aggregate, do not or would not have
a Material Adverse Effect on the Company or any of its subsidiaries.
(i) No Undisclosed Events or Circumstances. No event or circumstance has
--------------------------------------
occurred or exists with respect to the Company or any of its subsidiaries or
their respective businesses, properties, prospects, operations or financial
condition which, under applicable law, rule or regulation, requires public
disclosure or announcement by the Company but which has not been so publicly
announced or disclosed.
(j) No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, or, to the best of its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) in connection with the offer
or sale of the Shares.
9
<PAGE>
(k) No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any of the Company's securities or
solicited any offers to buy any of such securities, under circumstances that
would require registration of the Shares under the Securities Act.
Section 3.1 SECURITIES COMPLIANCE. The Company shall notify the SEC, NASD
---------------------
and NASDAQ, in accordance with their respective requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Shares, and the Common
Stock issuable upon conversion thereof, to the Purchaser.
Section 3.2 REGISTRATION AND LISTING. Until at least two (2) years after
------------------------
all Shares have been converted into Registrable Securities, the Company will
cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, will comply in all respects with its reporting and
filing obligations under such Exchange Act, will comply with all requirements
related to any registration statement filed pursuant to this Agreement and will
not take any action or file any document (whether or not permitted by the
Securities Act or the Exchange Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said Acts, except as permitted herein. Until at least two (2)
years after all Shares have been converted into Common Stock, the Company will
take all action within its power to continue the listing or trading of its
Common Stock on the NASDAQ Small Cap Market (or other principal market) and will
comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and NASDAQ. The covenants set
forth in this Section 3.2 shall not be deemed to prohibit a merger, sale of all
assets or other corporate reorganization if the entity surviving or succeeding
to the Company is bound by this Agreement with respect to its securities issued
in exchange for or in replacement of the Shares or Common Stock or the
consideration received for or in replacement of the Shares or Common Stock is
cash.
Section 3.3 RIGHT OF FIRST REFUSAL. If at any time during the period
----------------------
beginning on the fifth (5th) day prior to (but not including) the Closing Date
and ending ninety (90) days immediately following the effective date of the
Initial Registration, the Company proposes to issue Common Stock or securities
convertible into or exercisable for Common Stock or other convertible
securities, pursuant to an offering exempt from registration under the Act, the
Company shall provide to Purchaser reasonable advance notice of all the terms of
such proposed issuance. The Purchaser shall have the right to purchase or refuse
to purchase all or any part of such securities proposed to be issued in such
offering, and shall have at least seventy two (72) hours after receipt of such
notice to review the terms of the proposed issuance.
Section 3.4 MOST-FAVORED-NATION CLAUSE. If the Company issues Common Stock
--------------------------
or securities convertible into or exercisable for Common Stock or other
convertible securities, at a time when any of the Shares remain outstanding,
at an effective price per share of Common Stock which is lower than the
conversion price of the Shares at that time, then the Company shall, within five
(5) business days, deliver to each holder upon conversion an additional number
of shares of Common Stock necessary to reduce the effective conversion price to
such lower issue price. This Section shall not be applicable to issuances of
Common Stock pursuant to (a) any business combination, acquisition transaction,
stock or asset purchase undertaken by the Company or (b) any shareholder-
approved option plan covering not more than 10% of the Company's outstanding
stock.
Section 3.5 NON-PUBLIC INFORMATION. The Company shall in no event disclose
----------------------
non-public information to the Purchaser, advisors to or representatives of the
Purchaser unless prior to disclosure of such information the Company marks such
information as "Non-Public Information - Confidential" and provides the
Purchaser, such advisors and representatives with a reasonable opportunity to
accept or refuse to accept such non-public information for review. Nothing
herein shall require the Company to disclose non-public information to the
Purchaser or its advisors or representatives, and the Company represents that it
does not disseminate non-public information to any Purchasers who purchase stock
in the Company in a public offering, to money managers or to securities
analysts; provided, however, that notwithstanding anything herein to the
contrary, the Company will, as hereinabove provided, immediately notify the
advisors and representatives of the Purchaser and, if any, underwriters, of any
event or the existence of any circumstance (without any obligation to disclose
the specific event or circumstance) of which it becomes aware, constituting non-
public information (whether or not requested of the Company specifically or
generally during the course of due diligence by such
10
<PAGE>
persons or entities), which, if not disclosed in the prospectus included in the
registration statement, would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein, in light of the circumstances in which they
were made, not misleading. Nothing herein shall be construed to mean that such
persons or entities other than the Purchaser (without the written consent of the
Purchaser prior to disclosure of such information) may not obtain non-public
information in the course of conducting due diligence in accordance with the
terms of this Agreement and nothing herein shall prevent any such persons or
entities from notifying the Company of their opinion that based on such due
diligence by such persons or entities, that the Registration Statement contains
an untrue statement of a material fact or omits a material fact required to be
stated in the Registration Statement or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
Section 3.6 DUE DILIGENCE. The Company shall make available for
-------------
inspection and review by the Purchaser, advisors to and representatives of the
Purchaser (who may or may not be affiliated with the Purchaser), any underwriter
participating in any disposition of Registrable Securities on behalf of the
Purchaser, any registration statement filed hereunder, or any amendment or
supplement thereto, or any filing made to any state securities administrator,
NASDAQ or NASD Regulation, Inc., all financial and other records, all SEC
Documents and the other filings with the SEC, and all other corporate documents
and properties of the Company as may be reasonably necessary for the purpose of
such review, and cause the Company's officers, directors and employees to supply
all such information reasonably requested by the Purchaser, or any such advisor,
representative, or underwriter in connection with such registration statement
(including, without limitation, in response to all questions and other inquiries
reasonably made or submitted by any of them), through the two years after the
effective date of a registration statement filed hereunder, for the purpose of
enabling the Purchaser and such advisors, representatives and underwriters and
their respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company to confirm the accuracy of the disclosures
made in a registration statement filed hereunder.
Section 3.7 USE OF PROCEEDS. The proceeds from the sale of the Shares
---------------
shall be used by the Company to acquire a plastic materials business.
Section 4.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
--------------------------------------------------------
SELL THE SHARES AND WARRANTS. The obligation hereunder of the Company to issue
- ----------------------------
and/or sell the Shares and Warrants to the Purchaser is subject to the
satisfaction, at or before the Closing, of each of the conditions set forth
below. These conditions may be waived by the Company at any time in its sole
discretion.
(a) Accuracy of the Purchaser's Representations and Warranties. The
----------------------------------------------------------
representations and warranties of the Purchaser shall be true and correct as of
the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a particular date).
(b) Performance by the Purchaser. The Purchaser shall have performed all
----------------------------
agreements and satisfied all conditions required to be performed or satisfied by
the Purchaser at or prior to the Closing.
(c) No Injunction. No statute, rule, regulation, executive order, decree,
-------------
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(d) Legal Action. No legal action, suit or proceeding shall be pending or
------------
threatened which seeks to restrain or prohibit the transactions contemplated by
this Agreement.
(e) Execution. The Purchaser shall have executed this Agreement, and
---------
delivered such Agreement to the Company.
(f) Purchase Price. The Purchaser shall have delivered the Purchase Price
--------------
in accordance with Section 1.2 above.
11
<PAGE>
Section 4.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE PURCHASER TO
----------------------------------------------------------
PURCHASE THE SHARES. The obligation hereunder of the Purchaser to acquire and
- -------------------
pay for the Shares is subject to the satisfaction, at or before the Closing, of
each of the conditions set forth below. These conditions may be waived by the
Purchaser at any time in its sole discretion.
(a) Accuracy of the Company's Representations and Warranties. The
--------------------------------------------------------
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
particular date).
(b) Performance by the Company. The Company shall have performed all
--------------------------
agreements and satisfied all conditions required to be performed or satisfied by
the Company pursuant to this Agreement at or prior to the Closing, unless any
such agreement or condition is waived by the Purchaser in writing at or prior to
Closing.
(c) Trading and Listing. From the date hereof to the Closing Date,
-------------------
trading in the Company's Common Stock shall not have been suspended by the SEC
or a national securities exchange (currently the NASDAQ Small Cap Market)
(except for any suspension of trading of limited duration agreed to between the
Company and the principal exchange on which the Common Stock is traded solely to
permit dissemination of material information regarding the Company), and trading
in securities generally as reported by such exchange shall not have been
suspended or limited or minimum prices shall not have been established on
securities whose trades are reported by such exchange.
(d) No Injunction. No statute, rule, regulation, executive order, decree,
-------------
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction which prohibits
the consummation of any of the transactions contemplated by this Agreement.
(e) Opinion of Counsel, Etc. The Purchaser shall have received before or
-----------------------
at the Closing an opinion of counsel to the Company (covering, without
limitation, such of the matters set forth in Section 2.2(a) through (e)), as are
in form and substance reasonably satisfactory to the Purchaser and its counsel,
and such other certificates and documents as the Purchaser or its counsel shall
reasonably require incident to the Closing.
(f) Execution. The Company shall have executed this Agreement, and
---------
delivered such Agreement to the Purchaser.
Section 5.1 LEGEND ON STOCK. Each certificate representing the Shares
---------------
and, if necessary, the Registrable Securities, shall be stamped or otherwise
imprinted with a legend substantially in the following form:
THESE SECURITIES [AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
CONVERSION HEREOF] HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR
OFFERED FOR SALE UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAW OR, IN THE OPINION OF
COUNSEL, REGISTRATION UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAW IS
NOT REQUIRED IN CONNECTION WITH SUCH SALE OR OFFER, AND SUCH OPINION IS
REASONABLE SATISFACTORY TO THE COMPANY.
Each such certificate shall bear no other legend. The Company agrees to
reissue certificates representing the Shares or, if applicable, the Registrable
Securities, without the legend set forth above at such time as (a) the holder
thereof is permitted to dispose of such Shares (or securities issued upon
conversion thereof) pursuant to Rule 144(k) under the Securities Act, (b) the
securities are sold to a purchaser or purchasers who (in the opinion of counsel
to such holders, in form and substance reasonably satisfactory to the Company
and its counsel) are able to dispose of such securities publicly without
registration under the Securities Act, or (iii) such securities are registered
under the Securities Act.
12
<PAGE>
Section 6.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
-----------------------------
terminated at any time prior to the Closing by the mutual written consent of the
Company and the Purchaser.
Section 6.2 OTHER TERMINATION. This Agreement may be terminated by action
-----------------
of the respective Board of Directors or other governing body of the Purchaser or
the Company at any time if the Closing shall not have been consummated by the
fifth (5th) business day following the date of this Agreement, provided that the
party seeking to terminate the Agreement is not in breach of the Agreement.
Section 6.3 AUTOMATIC TERMINATION. This Agreement shall automatically
---------------------
terminate without any further action of either party hereto if the Closing shall
not have occurred by the seventh (7th) business day following the date of this
Agreement, provided, however, that any such termination shall not terminate the
liability of any party which is then in breach of the Agreement.
Section 7.1 FEES AND EXPENSES. Except as otherwise set forth in Section
-----------------
1.4 hereof with respect to the registration of Registrable Securities, the
Company shall pay the fees, commissions and expenses of its advisers, brokers,
finders, counsel, accountants and other experts, if any, and all other expenses
associated therewith. The Company shall, on the Closing Date, reimburse
ProFutures Special Equities Fund, L.P. up to $7,500 for fees and expenses of its
counsel in connection with the preparation, negotiation and coordination of this
Agreement. The Company shall pay all stamp and other taxes and duties levied in
connection with the issuance of the Shares and Common Stock pursuant hereto.
Section 7.2 SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
---------------------------------------------
(a) The Company and the Purchaser acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, this
being in addition to any other remedy to which either of them may be entitled
by law or equity.
(b) The Company and the Purchaser each (i) hereby irrevocably submits to
the jurisdiction of the United States District Court and other courts of the
United States sitting in the State of Texas for the purposes of any suit, action
or proceeding arising out of or relating to this Agreement and (ii) hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such court, that
the suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. The Company and the
Purchaser each consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other manner
permitted by law.
Section 7.3 ENTIRE AGREEMENT: AMENDMENT. This Agreement contains the
---------------------------
entire understanding of the parties with respect to the matters covered hereby
and, except as specifically set forth herein, neither the Company nor the
Purchaser makes any representation, warranty, covenant or undertaking with
respect to such matters. No provision of this Agreement may be waived or
amended other than by a written instrument signed by the party against whom
enforcement of any such amendment or waiver is sought.
Section 7.4 NOTICES. Any notice or other communication required or
-------
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second (2nd) business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur.
13
<PAGE>
The addresses for such communications shall be:
to the Company: Paul A. Dejuliis, Chairman and Chief Executive Officer
The Eastwind Group, Inc.
100 Four Falls Corporate Center, Suite 305
West Conshohocken, Pennsylvania 19428
FAX: 610-828-6980
to the Purchaser: At the address set forth at the foot of this Agreement or as
specified in writing by Purchaser.
Any party hereto may from time to time change its address for notices by giving
at least ten (10) days' written notice of such changed address to the other
party hereto.
Section 7.5 WAIVERS. No waiver by either party of any default with respect
-------
to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any other provision,
condition or requirement hereof, nor shall any delay or omission of either party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
Section 7.6 HEADINGS. The headings herein are for convenience only, do
--------
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
Section 7.7 GOVERNING LAW. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the internal laws of the present state
of incorporation of the Company without regard to such state's principles of
conflict of laws.
Section 7.8 SURVIVAL. The representations and warranties of the Company
--------
and the Purchaser contained in herein and the agreements and covenants set
forth in Sections 1.1 through 1.4, 3.2 through 3.7, and 7.1 through 7.16 shall
survive the Closing for a period of two (2) years.
Section 7.9 PUBLICITY. The Company agrees that it will not disclose, and
---------
will not include in any public announcement, the name of the Purchaser without
its consent, unless and until such disclosure is required by law or applicable
regulation, and then only to the extent of such requirement.
Section 7.10 NASDAQ. The term "NASDAQ" or "NASDAQ Small Cap Market" herein
------
refers to the principal market on which the Common Stock of the Company is
traded. If the Common Stock is listed on a securities exchange, or if another
market becomes the principal market on which the Common Stock is traded or
through which price quotations for the Common Stock are reported, the term
"NASDAQ" or "NASDAQ Small Cap Market" shall be deemed to refer to such exchange
or other principal market.
Section 7.11 ACCEPTANCE. Execution and delivery of this Agreement shall
----------
constitute an offer to purchase the Shares, which offer, unless previously
revoked by the Purchaser, may be accepted or rejected by the Company, in its
sole discretion for any cause or for no cause and without liability to the
Purchaser. The Company shall indicate acceptance of this Agreement by signing
as indicated on the signature page hereof.
Section 7.12 BINDING AGREEMENT. Upon acceptance of this Agreement by the
-----------------
Company, the Purchaser agrees that he may not cancel, terminate or revoke any
agreement of the Purchaser made hereunder, and that this Agreement shall survive
the death or disability of the Purchaser and shall be binding upon heirs,
successors, assigns, executors, administrators, guardians, conservators or
personal representatives of the Purchaser.
Section 7.13 INCORPORATION BY REFERENCE. All information set forth on the
--------------------------
signature page is incorporated as integral terms of this Agreement.
14
<PAGE>
Section 7.14 COUNTERPARTS. This Agreement may be signed in multiple
------------
counterparts, which counterparts shall constitute one and the same original
instrument.
Section 7.15 SEVERABILITY. If any portion of this Agreement shall be held
------------
illegal, unenforceable, void or voidable by any court, each of the remaining
terms hereof shall nevertheless remain in full force and effect as a separate
contract.
Section 7.16 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
[This space has been left blank intentionally. The signature page follows.]
15
<PAGE>
IN WITNESS WHEREOF, the Purchaser has executed this Agreement on the date set
forth below.
For the purchase price of $1,000 per Share and $0.0001 per Warrant, the
Purchaser tenders herewith the full purchase price of:
$750,007.50
-----------
The exact name(s) (Including correct, legible spelling) and the information
under which title to the Shares will be taken is as follows (Please print or
type):
PROFUTURES SPECIAL EQUITIES FUND, L.P.
c/o Gary D. Halbert, President
ProFutures Fund Management, Inc.
1310 Highway 620 SOuth -- Suite 200
Austin, Texas 78734
Social Security or IRS Employer Identification Number(s):
74-2786952
----------
SIGNATURE OF PURCHASER: Dated: June 24, 1998
PROFUTURES SPECIAL EQUITIES FUND, L.P.
By: ProFutures Fund Management, Inc., a General Partner
By: /s/ Debi B. Halbert
_______________________________________________________
Debi B. Halbert, Chief Financial Officer/Treasurer
ACCEPTED BY:
THE EASTWIND GROUP, INC., a Delaware corporation
By: /s/ Paul A. DeJuliis
------------------------------
(Signature)
Name: PAUL A. DEJULIIS
----------------------------
Title: CHAIRMAN & CEO
---------------------------
<PAGE>
Exhibit 23.1
- ------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We have issued our report dated April 17, 1998, accompanying the consolidated
financial statements of The Eastwind Group, Inc. and Subsidiaries appearing in
the 1998 Annual Report of the Company on Form 10-KSB for the fiscal year ended
January 3, 1998 which is incorporated by reference in this Registration
Statement and Prospectus. We consent to the incorporation by reference of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Philadelphia, Pennsylvania
July 27, 1998
<PAGE>
Exhibit 23.2
- ------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-3 Registration Statement of our report dated March 26,
1997, included in The Eastwind Group, Inc.'s Form 10-KSB for the year ended
January 3, 1998, and to all references to our Firm included in this
Registration Statement.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
July 29, 1998
