<PAGE>
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): May 10, 1996
------------
THE EASTWIND GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-27638 23-2732753
-------- ------- ----------
State or other (Commission (I.R.S.Employer
jurisdiction of File Number) Identification No.)
incorporation or
organization
100 Four Falls Corporate Center
Suite 305
West Conshohocken, Pennsylvania 19428
-------------------------------------------
(Address of principal executive office)
Registrant's telephone number: (610) 828-6860
--------------
===============================================================================
<PAGE>
ITEM 5. OTHER EVENTS.
-------------
On May 10, 1996, The Eastwind Group, Inc. (the "Company") issued 1,000
shares of its newly-designated Series A Preferred Stock (the "Series A Preferred
Stock") to Odyssey Capital Group, L.P. for gross proceeds of $1,200,000. The
Series A Preferred Stock has a stated value of U.S. $1,000 per share and pays
quarterly dividends at the rate of 9% per annum until May 9, 1999, 15% per annum
thereafter until May 9, 2002, and 18% per annum thereafter. The Company may
redeem the Series A Preferred Stock at any time on thirty days' prior written
notice at the stated value per share plus accrued and unpaid dividends thereon
to the date of redemption. The holders of the Series A Preferred Stock are
entitled to payment of the stated value plus accrued and unpaid dividends
thereon, prior to payment in respect of any class of capital stock of the
Company, in the event of a liquidation or dissolution of the Company. The Series
A Preferred Stock is not entitled to any voting rights.
In connection with the issuance of the Series A Preferred Stock, the
Company issued 220,000 Common Stock Purchase Warrants which are each exercisable
to purchase one share of the Company's Common Stock at $6.00 per share until
they expire on May 10, 2003.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
----------------------------------
(a) Financial statements.
Not Applicable
(b) Proforma financial information.
See Pages F-1 to F-2
(c) Exhibits (referenced to Item 601 of Regulations S-B).
4.1 Certificate of Powers, Designations,
Preferences and Special Rights of
Series A Preferred Stock
4.2 Common Stock Purchase Warrant
Dated May 10, 1996
10.1 Securities Purchase Agreement by and
Between The Eastwind Group, Inc.
and Odyssey Capital Group, LP
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE EASTWIND GROUP, INC.
Dated: May 21, 1996 By: /s/ Paul A. DeJuliis
-----------------------------------
Paul A. DeJuliis,
Chairman and CEO
(Chief Executive Officer)
<PAGE>
The Eastwind Group, Inc.
Consolidated Balance Sheets
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, Proforma
ASSETS 1996 (Note 1)
---------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 754,490 $ 1,754,490
Accounts receivable, net 3,779,832 3,779,832
Due from related party 47,976 47,976
Inventories 1,846,834 1,846,834
Prepaid expenses 94,700 94,700
---------- -----------
Total current assets 6,523,832 7,523,832
---------- -----------
Property, plant and equipment:
Land 56,221 56,221
Building and improvements 963,180 963,180
Furniture and equipment 956,880 956,880
---------- -----------
1,976,281 1,976,281
Less--Accumulated depreciation and amortization (287,495) (287,495)
---------- -----------
Net property, plant and equipment 1,688,786 1,688,786
---------- -----------
Other Assets:
Subordinated note receivable 450,000 450,000
Deferred income taxes 128,312 128,312
Other assets 482,627 482,627
Goodwill, net 167,200 167,200
---------- -----------
Total other assets 1,228,139 1,228,139
---------- -----------
$9,440,757 $10,440,757
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 746,213 $ 746,213
Current portion of long-term debt 513,608 513,608
Accounts payable 1,771,536 1,771,536
Accrued expenses 367,784 367,784
Accrued income taxes 83,323 83,323
Deferred income taxes 146,494 146,494
---------- -----------
Total current liabilities 3,628,958 3,628,958
---------- -----------
Long-term debt 3,209,975 3,209,875
---------- -----------
Accrued pension and postretirement benefits 204,260 204,260
---------- -----------
Deferred credit, net 178,712 178,712
---------- -----------
Stockholders' equity:
Preferred stock, $.10 par value, 3,000,000 shares
authorized and none issued and outstanding at
March 31, 1996; 1,000 shares issued and
outstanding for pro forma --- 100
Common stock, $.10 par value, 5,000,000 shares
authorized, 1,683,250 issued and outstanding
at March 31, 1996 168,325 168,325
Warrants outstanding 139,836 139,836
Additional paid-in capital 2,129,465 3,129,365
Accumulated deficit (218,674) (218,674)
---------- -----------
Total stockholders' equity 2,218,952 3,218,952
---------- -----------
$9,440,757 $10,440,757
========== ===========
</TABLE>
<PAGE>
Note 1 - Proforma Balance Sheet
The proforma balance sheet reflects the issuance of the Company's Series A
Preferred Stock as described in Item 5. There may be certain apportionments of
warrant values and/or transaction costs which may be at variance from that
reflected in the proforma balance sheet, but such adjustments are deemed by
management to be immaterial to the gross proceeds of the transactions.
<PAGE>
EXHIBIT INDEX
Numbers Description Method of Filing
- ------- ----------- ----------------
4.1 Certificate of Powers, Designations, Filed herewith
Preferences and Special Rights of
Series A Preferred Stock
4.2 Common Stock Purchase Warrant Filed herewith
Dated May 10, 1996
10.1 Securities Purchase Agreement by and Filed herewith
Between The Eastwind Group, Inc.
and Odyssey Capital Group, LP
<PAGE>
CERTIFICATE OF POWERS, DESIGNATIONS, PREFERENCES
AND SPECIAL RIGHTS OF SERIES A PREFERRED STOCK
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The Eastwind Group, Inc. (the "Corporation"), 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
Corporation, by action taken on May 8, 1996, adopted the following resolution,
which 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 Corporation pursuant to the Act and the Corporation's Certificate of
Incorporation, the Corporation is authorized to issue, out of the 3,000,000
shares of Preferred Stock of the Corporation authorized in its Certificate of
Incorporation, a series of Preferred Stock to be designated as "Series A
Preferred Stock," $.10 par value per share, with the following powers,
designations, preferences and special rights:
1. Designation, Amount and Rank. 1,000 shares of a preferred stock,
$.10 par value per share, shall constitute a series of such preferred stock
designated as "Series A Preferred Stock" (the "Series A Preferred Stock"). With
respect to dividend rights, redemption rights and rights on liquidation, winding
up and dissolution, for so long as any shares of Series A Preferred Stock shall
remain outstanding, the Corporation shall not create any other class of capital
stock or series of preferred stock hereafter senior to the Series A Preferred
Stock.
2. Dividends.
2.1 The holder of each issued and outstanding share of Series A
Preferred Stock shall be entitled to receive, out of the funds of the
Corporation legally available for such purpose, when, as and if declared by the
Board of Directors of the Corporation, before any dividend shall be declared,
paid or set aside, or any other distribution shall be declared or made, upon the
Common Stock or any other class or series of stock of the Corporation,
cumulative dividends in cash payable quarterly in arrears in accordance with
this Section 2, on March 31, June 30, September 30 and December 31 of each year
("Dividend Payment Date") commencing on June 30, 1996. The amount of dividends
payable per share of Series A Preferred Stock shall be based on a dividend rate
of nine percent (9%) per annum of the Stated Value (as hereinafter defined) from
the date of original issuance until May 9, 1999, fifteen percent (15%) per annum
of the Stated Value from May 10, 1999 until May 9, 2002, and eighteen percent
(18%) per annum thereafter. The amount of dividends payable for the initial
dividend period and any period shorter than a full quarterly period shall be
computed on a pro-rata basis, based on the number of days elapsed.
<PAGE>
2.2 Dividends shall be payable on each Dividend Payment Date to the
holders of record of the Series A Preferred Stock at the close of business on
the date specified by the Board of Directors of the Corporation; provided,
however, that no such record date shall be more than thirty (30) days nor less
than ten (10) days prior to the respective Dividend Payment Date. Dividends on
shares of Series A Preferred Stock shall accrue from the date of original issue
of such shares of Series A Preferred Stock. Such dividends will accrue whether
or not they have been declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of dividends.
2.3 The term "Stated Value" per share means one thousand dollars
($1,000) plus all accrued and unpaid dividends, if any, added thereto.
3. Rights on Liquidation, Dissolution or Winding-Up. In the event of any
liquidation, dissolution or winding-up of the Corporation (including, without
limitation, a liquidation or reorganization under Chapter 7 or 11 of Title 11 of
the United States Code, as amended), the holders of shares of the Series A
Preferred Stock then issued and outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders,
before any payment shall be made to the holders of Common Stock or of shares of
any other class or series of stock of the Corporation, an amount equal to the
Stated Value per share, plus an amount equal to any dividends thereon unpaid and
accrued to and including the date of distribution with respect to such shares.
4. Voting Rights. Except as herein provided or otherwise provided by
law, the entire voting power for the election of directors and for all other
purposes shall be vested exclusively in the holders of the outstanding Common
Stock, and the holders of the Series A Preferred Stock shall not be entitled to
vote. Upon any corporate action which would alter or change the rights and
preferences so as to adversely affect the holders of the Series A Preferred
Stock, the vote of a majority of the holders of Series A Preferred Stock, voting
as a series, shall be required to approve such action. The holders of the
Series A Preferred Stock shall be entitled to notice of and to attend all
meetings of stockholders.
5. Redemption.
Except as set forth below, the holders of the Series A Preferred Stock
shall have no redemption rights.
5.1 Upon the occurrence of an Event of Default under the Securities
Purchase Agreement dated May 10, 1996 between Odyssey Capital Group, L.P. and
the Corporation (the "Purchase Agreement"), each holder of Series A Preferred
Stock shall have the right to require that the Corporation redeem, to the
extent the Corporation lawfully may do so, all or a portion of the shares of
Series A Preferred Stock held by such holder, at a redemption price in cash
equal to the Stated Value per share (plus all dividends thereon accrued and
unpaid to the redemption date). If the redemption price is not paid in full
upon redemption, the unpaid balance shall be evidenced by a promissory note of
the Corporation payable in full within 30 days of the Redemption Date (as
hereinafter defined).
2
<PAGE>
5.2 Within five business days following any Event of Default under
the Purchase Agreement, as set forth below, the Corporation will mail to each
holder of Series A Preferred Stock a notice (the "Redemption Notice"), the time
of mailing of which shall be deemed the time of delivery, (i) stating that an
Event of Default has occurred; (ii) setting forth a purchase date (the
"Redemption Date"), which shall be no earlier than 20 business days nor later
than 30 business days from the date the Redemption Notice is mailed; and (iii)
setting forth the instructions reasonably determined by the Corporation,
consistent with this Section 5 and applicable law, that a holder must follow in
order to require the redemption of his Series A Preferred Stock. Holders of
Series A Preferred Stock seeking to require that the Corporation redeem their
shares will be required to surrender their certificates representing their
shares to the Corporation prior to the close of business on the third business
day prior to the Redemption Date. In the event that a Redemption Notice is not
mailed by the Corporation, the Redemption Date shall be no earlier than 20
business days nor later than 30 business days from five business days following
the date of the Event of Default.
5.3 An "Event of Default" under the Purchase Agreement and hereunder
shall mean any one of the following events:
(a) default shall be made by the Corporation with respect to
any evidence of indebtedness or liability for borrowed money of the Corporation
(which indebtedness or liability is individually in excess of $100,000 or in the
aggregate in excess of $200,000) if the effect of such default is to permit the
holder or holders thereof to accelerate the maturity of such evidence of
indebtedness or liability, or any such indebtedness, after the expiration of any
applicable grace period, shall not be paid as and when due and payable;
(b) the Corporation shall (i) apply for or consent to the
appointment of a receiver, trustee or liquidator of itself or all or a
substantial part of its property, (ii) admit to creditors generally its
inability to pay its debts as they mature, (iii) make a general assignment for
the benefit of creditors, (iv) be adjudicated a bankrupt or insolvent or (v)
file a voluntary petition in bankruptcy, or a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or
liquidation law or statute, or an answer admitting the material allegations of a
petition filed against it in any proceeding under any such law, or if corporate
action shall be taken by the Corporation or any of its subsidiaries for the
purpose of effecting any of the foregoing;
(c) an order, judgment or decree shall be entered, without the
application, approval or consent of the Corporation by any court of competent
jurisdiction, approving a petition seeking reorganization of the Corporation, or
of all or a substantial part of the assets of the Corporation, or appointing a
receiver, trustee or liquidator of the Corporation, and such order, judgment or
decree shall continue unstayed and in effect for any period of 60 days; or
(d) an uninsured final judgment (A) for equitable relief
against the Corporation which has, or could have, a Material Adverse Effect (as
defined in the Purchase Agreement) or (B) for the payment of money in excess of
10% of the Corporation's total assets, shall
3
<PAGE>
be rendered against the Corporation, and the same shall remain undischarged for
a period of 60 consecutive days during which execution shall not be effectively
stayed; or
(e) the Corporation shall fail to pay any dividend payment with
respect to the Series A Preferred Stock which it is obligated to pay hereunder
within 15 days of the Dividend Payment Date with respect to the dividend
payment, whether or not such payment is legally permissible or conflicts with
any other agreement to which the Corporation is party; or
(f) a breach by the Corporation of any covenant, agreement,
term or condition in the Purchase Agreement or hereunder, if such breach is not
cured within a period of 30 days after delivery of a written notice thereof to
the Corporation; or
(g) the Corporation shall fail to redeem and pay the
redemption price of the shares of Series A Preferred Stock within 90 days of the
Optional Redemption Notice given pursuant to Section 5.7(b), unless the
Corporation has deposited the requisite monies with a bank or trust company as
set forth in Section 5.7(c) hereof.
5.4 In case any one or more of the Events of Default specified in
Section 5.3 hereof shall have occurred and be continuing, any holder of the
Series A Preferred Stock may proceed to protect and enforce its rights either by
suit in equity and/or by action at law, whether for the specific performance of
any covenant or agreement contained in the Purchase Agreement or hereunder, or
in aid of the exercise of any power granted in the Purchase Agreement or
hereunder, or proceed to enforce any other legal or equitable right of the
holder.
5.5 No remedy herein conferred is intended to be exclusive of any
other remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute or otherwise.
5.6 No course of dealing between the Corporation or any of its
subsidiaries and each of the holders of the Series A Preferred Stock or any
delay on the part of any such holder in exercising any rights under the Purchase
Agreement or hereunder shall operate as a waiver of any rights of any such
person hereunder or under the Series A Preferred Stock.
5.7 (a) At any time, all, but not less than all, of the shares of
Series A Preferred Stock may be redeemed by the Corporation at its sole option
and election at a redemption price equal to the Stated Value plus accrued
dividends thereon.
(b) Notice of any redemption under this Section 5.7 of shares of
Series A Preferred Stock ("Optional Redemption Notice") shall be given in
writing by the Corporation to all holders of record by mail at such holder's
address as it appears on the transfer books of the Corporation, and the time of
mailing such notice shall be deemed the time of delivery. The Optional
Redemption Notice shall set forth the date of redemption. Such notice shall be
given to the holders not less than thirty (30) days prior to the date of
redemption. The Corporation shall redeem, no
4
<PAGE>
sooner than 30 days nor later than 90 days after the date of the Optional
Redemption Notice, all of the outstanding shares of Series A Preferred Stock by
paying therefor in cash the Stated Value per share plus any unpaid dividends
prorated from the most recent dividend payment date to the date of redemption.
(c) Notice having been given pursuant to paragraph (b) of this Section
5.7, from and after the date of redemption, as specified in the Optional
Redemption Notice, unless default shall be made by the Corporation in providing
for the payment of the applicable redemption price, all dividends on the Series
A Preferred Stock shall cease to accrue. If the Corporation so elects, the
Corporation shall provide for the payment of the redemption price by depositing
the requisite monies, or other consideration, as applicable, with a bank or
trust company of adequate capitalization of its choice as paying agent on the
date of redemption (provided the Optional Redemption Notice shall state the name
and address of such bank or trust company and the availability of the monies).
All rights of the holders thereof as stockholders of the bank or trust company
and the Corporation, except the right to receive the applicable redemption price
(without interest) shall cease and terminate. Any interest allowed on the
monies so deposited shall be paid to the Corporation until the date of
redemption. Any monies so deposited which shall remain unclaimed by the holder
of such Series A Preferred Stock at the end of three (3) years after the
redemption date shall become the property of, and be paid by such bank or trust
company to, the Corporation.
6. Conversion Rights.
-----------------
The holders of the Series A Preferred Stock shall have no conversion
rights.
7. Notices of Corporate Action.
---------------------------
In the event of
7.1 any taking by the Corporation 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 dividends payable with respect to
the Series A Preferred Stock) or other distribution, 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, or
7.2 any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation or
any consolidation or merger involving the Corporation and any other person or
any transfer of all or substantially all of the assets of the Corporation to any
other person, or
7.3 any voluntary or involuntary dissolution, liquidation or winding-
up of the Corporation,
5
<PAGE>
the Corporation will mail to each holder of shares of Series A Preferred Stock a
notice specifying (i) the date or expected date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right, and (ii) the date or
expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock (or other securities of the
Corporation) shall be entitled to exchange their shares of Common Stock (or
other securities of the Corporation) for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, dissolution, liquidation or winding-up.
8. Retirement of Redeemed Shares.
-----------------------------
No share or shares of Series A Preferred Stock acquired by the
Corporation by reason of redemption, or otherwise shall be re-issued and all
such shares shall be cancelled, retired and eliminated from the shares which the
Corporation shall be authorized to issue. The Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce the
authorized number of shares of Series A Preferred Stock accordingly.
FURTHER RESOLVED, that, before the Corporation shall issue any shares of
Series A Preferred Stock, a certificate pursuant to Section 151 of the DGCL
shall be made, executed, acknowledged, filed, and recorded in accordance with
the provisions of Sections 103 and 151 of the DGCL, and the proper officers of
the Corporation be, and they hereby are, authorized and directed to do all acts
and things which 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 Corporation has caused this Certificate to be
signed in its name and on its behalf and attested on this 10th day of May, 1996
by a duly authorized officer of this Corporation.
THE EASTWIND GROUP, INC.
By: /s/ William B. Miller
-----------------------------------------------
William B. Miller, Senior Vice President & CFO
6
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT
AND ANY APPLICABLE STATE SECURITIES LAWS.
THE EASTWIND GROUP, INC.
------------------------
COMMON STOCK PURCHASE WARRANT
West Conshohocken, Pennsylvania
May 10 ,1996
----------------------
The Eastwind Group, Inc. (the "Company"), a Delaware corporation, for value
received, hereby certifies that Odyssey Capital Group, L.P. ("Odyssey"), or
registered assigns, is entitled to purchase from the Company, prior to the
expiration as provided in Section 16 hereof, 220,000 duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock, par value $.10 per
share (the "Common Stock"), of the Company at the purchase price per share of
$6.00, subject to adjustment pursuant to Section 2 (the "Exercise Price") and,
further, subject to the terms, conditions and adjustments set forth below in
this Warrant.
This Warrant is being issued by the Company in connection with Odyssey's
purchase of the Series A Preferred Stock pursuant to the Purchase Agreement
dated as of May 10, 1996 by and between the Company and Odyssey (the "Purchase
Agreement"). Certain capitalized terms used in this Warrant are defined in
Section 11.
1. Exercise of Warrant.
-------------------
1.1 Manner of Exercise. This Warrant may be exercised by the holder
hereof, in whole or in part, during normal business hours on any business day,
by surrender of this Warrant to the Company at its principal office, accompanied
by a subscription substantially in the form attached to this warrant (or a
reasonable facsimile thereof) duly executed by such holder and accompanied by
payment, in cash, by certified or official bank check payable to the order of
the Company, or in the manner provided in Section 1.5, in the amount obtained by
multiplying (a) the number of shares of Common Stock designated in such
subscription by (b) the Exercise Price.
<PAGE>
1.2 When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
business day on which this warrant shall have been surrendered to the Company as
provided in Section 1.1, and at such time the person or persons in whose name or
names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise as provided in section 1.3
shall be deemed to have become the holder or holders of record thereof.
1.3 Delivery of Stock Certificates, etc. As soon as practicable after
each exercise of this Warrant, in whole or in part, and in any event within five
business days thereafter, the Company at its expense (including the payment by
it of any applicable issue taxes) will cause to be issued in the name of and
delivered to the holder hereof or, subject to Section 5, as such holder (upon
payment by such holder of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(or Other Securities) to which such holder shall be entitled upon such exercise
plus, in lieu of any fractional share to which such holder would otherwise be
entitled, cash in an amount equal to the same fraction of the Market Price per
share on the business day next preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces thereof
for the number of shares of Common Stock equal to the number of such shares
called for on the face of this Warrant minus the number of such shares
designated by the holder to be exercised as provided in Section 1.1.
1.4 Company to Reaffirm Obligations. The Company will, at the time of
each exercise of this Warrant, upon the request of the holder hereof,
acknowledge in writing its continuing obligation to afford to such holder all
rights (including, without limitation, any rights to registration, pursuant to
the Purchase Agreement, of Common Stock or Other Securities issued upon such
exercise) to which such holder shall continue to be entitled after such exercise
in accordance with the terms of this Warrant, provided that if the holder of
this Warrant shall fail to make any such request, such failure shall not affect
the continuing obligation of the Company to afford such rights to such holder.
1.5 Net Issuance Payment by Surrender of Shares Otherwise Issuable.
Upon any exercise of this Warrant, the holder hereof may, at its option,
instruct the Company, by written notice accompanying the surrender of this
Warrant at the time of such exercise, to apply to the payment required by
Section 1.1 such number of the shares of Common Stock valued at the Current
Market Price otherwise issuable to such holder upon such exercise as shall be
specified in such notice, in which case an amount equal to the excess of the
aggregate Current Market Price of such specified number of shares on the date of
exercise over the payment required by Section 1.1 attributable to such shares
shall be deemed to have been paid to the Company and the number of shares
issuable upon such exercise shall be reduced by such specified number.
2
<PAGE>
2. Protection Against Dilution.
---------------------------
The Exercise Price and the number of shares deliverable hereunder
shall be adjusted as hereinafter set forth:
2.1 Stock Dividends, Subdivisions and Combinations. In case after the
date hereof the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock, or
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then 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 (i) the numerator of which shall be the total number of outstanding
shares of Common Stock of the Company immediately prior to such event, and (ii)
the denominator of which shall be that total number of outstanding shares of
Common Stock of the Company immediately after such event.
2.2 Issuance of Additional Shares of Common Stock. In case after the
date hereof the Company shall issue any Additional Shares of Common Stock for a
consideration less than the then effective Exercise Price, then the Exercise
Price upon each such issuance 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 shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Shares of
Common Stock plus the number of shares of Common Stock which the aggregate
consideration for the total number of such Additional Shares of Common Stock so
issued would purchase at the then effective Exercise Price, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such Additional
Shares of Common Stock plus the number of such Additional Shares of Common Stock
so issued.
The provisions of this subparagraph shall not apply to any Additional
Shares of Common Stock which are distributed to holders of Common Stock as a
stock dividend, distribution or subdivision, for which an adjustment is provided
for under Section 2.1 above. No adjustment of the Exercise Price shall be made
under this Section 2.2 upon the issuance of any Additional Shares
3
<PAGE>
of Common Stock which are issued pursuant to the exercise of any warrants or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights or upon the issuance of such Convertible Securities (or upon the
issuance of any warrants or other rights therefor) pursuant to Section 2.3 or
was not required pursuant to Section 2.3.
2.3 Issuance of Warrants or Other Rights, Convertible Securities. In case,
after the date hereof, the Company shall issue any warrants or other rights to
subscribe for or purchase any Additional Shares of Common Stock or issue
Convertible Securities and the consideration per share for which Additional
Shares of Common Stock may at any time thereafter be issuable pursuant to such
warrants or other rights or pursuant to the terms of such Convertible Securities
shall be less than the Exercise Price as of the date of issuance of such
warrants, rights or Convertible Securities, then the Exercise Price shall be
adjusted as provided in Section 2.2 above on the basis that:
(a) the maximum number of Additional Shares of Common Stock issuable
pursuant to all such warrants or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the date of actual issuance of such warrants, other
rights or Convertible Securities, and
(b) the aggregate consideration of such maximum number of Additional
Shares of Common Stock shall be deemed to be the minimum consideration received
and receivable by the Company for the issuance of such Additional Shares of
Common Stock pursuant to such warrants or other rights or pursuant to the terms
of such Convertible Securities.
No adjustment of the Exercise Price shall be made under this Section
2.3 upon the issuance of any Convertible Securities which are issued pursuant to
the exercise of any warrants or other subscription or purchase rights therefor,
if any such adjustment shall previously have been made upon the issuance of such
warrants or other rights or was not required pursuant to this Section 2.3.
2.4 Other Provisions Applicable to Adjustments Under this Section. The
following provisions shall be applicable to the making of adjustments in the
Exercise Price hereinbefore provided in this Section 2:
(a) Computation of Consideration. To the extent that any Additional
Shares of Common Stock or any Convertible Securities or any warrants or other
rights to subscribe for or purchase any Additional Shares of Common Stock or any
Convertible Securities shall be issued for a cash consideration, the
consideration received by the Company therefor shall be deemed to be the amount
of the cash received by the Company therefor, or, if such Additional Shares of
Common Stock or Convertible Securities or warrants or other rights are offered
by the Company for subscription, the subscription price, or, if such Additional
Shares of Common Stock or Convertible Securities or warrants or other rights are
sold to underwriters or dealers for public offering without a subscription
offering, the public offering price, in any such case excluding any amounts paid
or
4
<PAGE>
receivable for accrued interest or accrued dividends and without deduction of
any compensation, discounts or expenses paid or incurred by the Company for and
in the underwriting thereof, or otherwise in connection with the issuance
thereof. To the extent that such issuance shall be for a consideration other
than cash, then, except as herein otherwise expressly provided, the amount of
such consideration shall be deemed to be the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of Directors
of the Company. The consideration for any Additional Shares of Common Stock
issuable pursuant to any warrants or other rights to subscribe for or purchase
the same shall be the consideration received by the Company for issuing such
warrants or other rights plus the additional consideration payable to the
Company upon the exercise of such warrants or other rights. The consideration
for any Additional Shares of Common Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received by the Company for
issuing any warrants or other rights to subscribe for or purchase such
Convertible Securities plus the consideration paid or payable to the Company in
respect of the subscription for or purchase of such Convertible Securities plus
the additional consideration, if any, payable to the Company upon the exercise
of the right of conversion or exchange of such Convertible Securities. In case
of the issuance at any time of any Additional Shares of Common Stock or
Convertible Securities in payment or satisfaction of any dividend upon any class
of equity securities other than Common Stock, the Company shall be deemed to
have received for such Additional Shares of Common Stock or Convertible
Securities a consideration equal to the amount of such dividend so paid or
satisfied.
(b) Readjustment of Exercise Price. Upon expiration of the right of
conversion or exchange of any Convertible Securities, or upon the expiration of
any rights, options or warrants, or upon any increase in the minimum
consideration receivable by the Company for the issuance of Additional Shares of
Common Stock pursuant to such Convertible Securities, rights, options or
warrants, if any such Convertible Securities shall not have been converted or
exchanged, or if any such rights, options or warrants shall not have been
exercised, the number of shares of Common Stock deemed to be issued and
outstanding by reason of the fact that they were issuable upon conversion or
exchange of any such Convertible Securities or upon exercise of any such rights,
options or warrants shall no longer be computed as set forth above, and the
Exercise Price shall forthwith be readjusted and thereafter be the price which
it would have been (but reflecting any other adjustments in the Exercise Price
made pursuant to the provisions of this Section 2 after the issuance of such
Convertible Securities, rights, options or warrants) had the adjustment of the
Exercise Price made upon the issuance or sale of such Convertible Securities or
the issuance of such rights, options or warrants been made on the basis of the
issuance only of the number of Additional Shares of Common Stock actually issued
upon conversion or exchange of such Convertible Securities or upon the exercise
of such rights, options or warrants, or upon the basis of such increased minimum
consideration, as the case may be, and thereupon only the number of Additional
Shares of Common Stock actually so issued or the number thereof issuable upon
the basis of such increased minimum consideration shall be deemed to have been
issued and only the consideration actually received or such increased minimum
consideration receivable by the Company (computed in accordance with Section
2.4(a)) shall be deemed to have been received by the Company.
5
<PAGE>
2.5 Extraordinary Dividends. In case the Company shall declare a
dividend upon its Common Stock (except a dividend payable in shares of Common
Stock referred to in Section 2.1(a) or a dividend payable in warrants, rights or
Convertible Securities referred to in Section 2.3) payable otherwise than out of
earnings or surplus, the Exercise Price in effect immediately prior to the
declaration of such dividend shall be reduced by an amount equal, in the case of
a dividend in cash, to the amount thereof payable per share of Common Stock or,
in the case of any other dividend, to the fair value thereof per share of Common
Stock or, as determined in good faith by the Board of Directors of the Company.
For the purposes of the foregoing, a dividend payable other than in cash shall
be considered payable out of earnings or surplus only to the extent that such
earnings or surplus are charged an amount equal to the fair value of such
dividend as determined by the Board of Directors of the Company. Such reduction
shall take effect as of the date on which a record is taken for the purpose of
such dividend, or if a record is not taken, the date as of which the holders of
the Common Stock of record entitled to such dividend are to be determined.
Appropriate readjustment of the Exercise Price shall be made in the event that
any dividend referred to in this Section 2.5 shall be lawfully abandoned.
2.6 Adjustment of Number of Shares Purchasable. Upon each adjustment
of the Exercise Price pursuant to this Section 2, the number of shares of Common
Stock purchasable hereunder shall be adjusted to equal the result obtained by
dividing the aggregate Exercise Price of this Warrant prior to the adjustment by
the per share Exercise Price in effect immediately following such adjustment.
2.7 Minimum Adjustment. Except as hereinafter provided, no adjustment
of the Exercise Price hereunder shall be made if such adjustment results in a
change of the Exercise Price then in effect of less than $.10. Any adjustment of
less than $.10 shall be carried forward and shall be made at the time of and
together with any subsequent adjustment which, together with the adjustment or
adjustments so carried forward, amounts to $.10 or more of the Exercise Price
then in effect. However, upon the exercise of this Warrant, the Company shall
make all necessary adjustments not theretofore made to the Exercise Price up to
and including the date upon which this Warrant is exercised.
2.8 Officers' Certificate. Whenever the Exercise Price shall be
adjusted as required by the provisions of Section 2, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office an officer's certificate showing the adjusted Exercise Price and adjusted
number of Shares of Common Stock issuable hereunder determined as herein
provided, setting forth in reasonable detail the facts requiring such adjustment
and the manner of computing such adjustment. Each such officer's certificate
shall be signed by the chairman, president or chief financial officer of the
Company and by the secretary or any assistant secretary of the Company. Each
such officer's certificate shall be made available at all reasonable times for
inspection by the holder of a Warrant.
3. Reclassification, Reorganization, Consolidation or Merger. In the
event of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of
6
<PAGE>
the Company (other than a subdivision or combination of the outstanding Common
Stock and other than a change in the par value of the Common Stock) or in the
event of any consolidation or merger of the Company with or into another
corporation (other than a merger in which the Company is the continuing
corporation and that does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in the event of any sale,
lease, transfer or conveyance to another corporation of the property and assets
of the Company as an entirety or substantially as an entirety, the Company
shall, as a condition precedent to such transaction, cause effective provisions
to be made so that the Holder shall have the right thereafter, by exercising
this Warrant, to purchase the kind and amount of shares of stock and other
securities and property (including cash) receivable upon such reclassification,
capital reorganization and other change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock that might have
been received upon exercise of this Warrant immediately prior to such
reclassification, capital reorganization, change, consolidation, merger, sale or
conveyance. Any such provision shall include provisions for adjustments in
respect of such shares of stock and other securities and property that shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Warrant. The foregoing provisions of this Section 3 shall similarly apply
to successive reclassifications, capital reorganizations and changes of shares
of Common Stock and to successive consolidations, mergers, sales or conveyances.
In the event that in connection with any such capital reorganization, or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for, or of, a security of the Company other than
Common Stock, any such issuance shall be treated as an issuance of Common Stock
covered by the provisions of Section 2.1.
4. Notices of Corporate Action.
---------------------------
4.1 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 regular periodic
dividend payable in cash out of earned surplus in an amount not exceeding the
amount of the immediately preceding cash dividend for such period) or other
distribution, 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, or
4.2 any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other person or any transfer of all or
substantially all the assets of the Company to any other person, or
4.3 any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
the Company shall promptly mail to each holder of a Warrant a notice specifying
(i) the date or expected date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right, and (ii) the date or
7
<PAGE>
expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place and the time, if any such time is to be fixed, as of
which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their shares of Common Stock (or Other Securities) for the
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 45
days prior to the date therein specified.
5. Restrictions on Transfer.
------------------------
5.1 Restrictive Legends. Except as otherwise permitted by this
Section 5, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE WARRANT REPRESENTED BY THIS CERTIFICATE (AND THE SHARES OF COMMON
STOCK OR OTHER SECURITIES ISSUABLE UPON EXERCISE OF SUCH WARRANT) HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE IN RELIANCE ON CERTAIN EXEMPTIONS FROM
REGISTRATION THEREUNDER. THE SALE, PLEDGE, HYPOTHECATION OR OTHER TRANSFER
OF SUCH WARRANT (AND OF SUCH SHARES OF COMMON STOCK OR OTHER SECURITIES) IS
SUBJECT TO COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND REGULATIONS AND
CERTAIN RESTRICTIONS AND CONDITIONS CONTAINED IN A CERTAIN PURCHASE
AGREEMENT DATED AS OF MAY 10, 1996."
Except as otherwise permitted by this Section 5, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAWS OF ANY STATE IN RELIANCE ON CERTAIN EXEMPTIONS FROM REGISTRATION
THEREUNDER. THE SALE, PLEDGE, HYPOTHECATION OR OTHER TRANSFER OF SUCH
SHARES IS SUBJECT TO COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND
REGULATIONS AND CERTAIN RESTRICTIONS AND CONDITIONS CONTAINED IN A CERTAIN
SECURITIES PURCHASE AND EXCHANGE AGREEMENT DATED AS OF MAY 10, 1996. A COPY
OF THE PURCHASE AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY."
8
<PAGE>
6. Availability of Information.
---------------------------
The Company shall timely file the reports required to be filed by it
under the securities Act and the Exchange Act (including but not limited to the
reports under sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act)
and the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, will, upon the request of any
holder of Registrable Securities, make publicly available other information) and
will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the request
of any holder of Registrable Securities, the Company will deliver to such holder
a written statement as to whether it has complied with the requirements of this
Section 6.
7. Reservation of Stock, etc.
-------------------------
The Company shall at all times reserve and keep available, solely for
issuance and delivery upon exercise of the Warrants, the number of shares of
Common Stock (or Other Securities) from time to time issuable upon exercise of
all Warrants at the time outstanding. All shares of Common Stock (or Other
Securities) issuable upon exercise of any Warrants shall be duly authorized and,
when issued upon such exercise, shall be validly issued and, in the case of
shares, fully paid and nonassessable with no liability on the part of the
holders thereof.
8. Transfer and Exchange of Warrants.
---------------------------------
Upon surrender of any Warrant for registration of transfer or for
exchange to the Company at its principal office, the Company at its expense will
execute and deliver in exchange therefor a new Warrant or Warrants of like
tenor, in the name of such holder or as such holder (upon payment by such holder
of any applicable transfer taxes) may direct, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock called for on the
face or faces of the Warrant or Warrants so surrendered.
9. Replacement of Warrants.
-----------------------
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of any Warrant and, in the case of any
such loss, theft or destruction of any Warrant, upon delivery of an indemnity
bond in such reasonable amount as the Company may determine or, in the case of
any such mutilation, upon the surrender of such Warrant for cancellation to the
Company at its principal office, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9
<PAGE>
10. Registration Rights.
-------------------
The Purchaser or any assignee of this Warrant shall be entitled to all
rights and benefits regarding the registration of the shares of Common Stock
issuable upon exercise of this Warrant, as set forth in the Purchase Agreement.
11. Definitions.
-----------
As used herein, unless the context otherwise requires, the following
terms have the following respective meanings:
"Additional Shares of Common Stock" All shares (including treasury
shares) of Common Stock issued or sold (or, pursuant to Section 2.3 or 2.4,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) shares (subject to equitable adjustment in the event of any
combination, reclassification, stock split, dividend or recapitalization of the
Company) issued upon the exercise of options granted and currently outstanding
under the Company's stock option plans as in effect on the date hereof and all
warrants and Convertible Securities outstanding on the date hereof, as set forth
in Exhibit A hereto,
(c) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing clauses (a)
and (b) by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities as in effect on the date hereof, but only if and
to the extent that such adjustments are required as the result of the original
issuance of this Warrant, and
(d) such additional number of shares as may become issuable upon
the exercise of any of the securities referred to in the foregoing clauses (a)
or (b) by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities as in effect on the date hereof, in order to
reflect any subdivision or combination of Common Stock, by reclassification or
otherwise, or any dividend on Common Stock payable in Common Stock.
"Commission" The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Convertible Securities" Any evidences of indebtedness, shares of
stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
10
<PAGE>
"Current Market Price" On any date specified herein, the average
daily Market Price during the period of the most recent 10 days, ending on such
date, on which the national securities exchanges were open for trading, except
that if no Common Stock is then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current Market
Price shall be the Market Price on such date.
"Exchange Act" The Securities Exchange Act of 1934, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Market Price" On any date specified herein, the amount per share of
the Common Stock, equal to (a) the last sale price of such Common Stock, regular
way, on such date or, if no such sale takes place on such date, the average of
the closing bid and asked prices thereof on such date, in each case as
officially reported on the principal national securities exchange on which such
Common Stock is then listed or admitted to trading, or (b)if such Common Stock
is not then listed or admitted to trading on any national securities exchange
but is designated as a national market system security by the NASD, the last
trading price of the Common Stock on such date, or (c) if there shall have been
no trading on such date or if the Common Stock is not so designated, the average
of the closing bid and asked prices of the Common Stock on such date as shown by
the NASD automated quotation system, or (d) if such Common Stock is not then
listed or admitted to trading on any national exchange or quoted in the over-
the-counter market, the value as determined by a firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company, and approved by Odyssey Capital Group, L.P.
"NASD" The National Association of Securities Dealers, Inc.
"Other Securities" Any stock (other than Common Stock) and other
securities of the Company or any other person (corporate or otherwise) which the
holders of the Warrant at any time shall be entitled to receive, or shall have
received, upon the exercise of the Warrant, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities pursuant to
Section 3 or otherwise.
"Purchase Agreement" The Purchase Agreement, dated as of May 10, 1996,
by and between the Company and Odyssey Capital Group, L.P.
"Securities Act" The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
12. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate and that, to the fullest extent permitted by law, such
terms may be specifically enforced by a decree for the specific performance of
any
11
<PAGE>
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
13. No Rights or Liabilities as Stockholder. Nothing contained in this
Warrant shall be construed as conferring upon the holder hereof any rights as a
stockholder of the Company or as imposing any obligation on such holder to
purchase any securities or as imposing any liabilities on such holder as a
stockholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
14. Notices. All notices and other communications under this Warrant
shall be in writing and shall be delivered, or mailed by registered or certified
mail, return receipt requested, by a nationally recognized overnight courier,
postage prepaid, addressed (a) of to any holder of any Warrant, at the
registered address of such holder as set forth in the register kept at the
principal office of the Company, or (b) if to the Company, to the attention of
its President at its principal office, provided that the exercise of any Warrant
shall be effective in the manner provided in Section 1.
15. Amendments. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
16. Expiration. The right to exercise this Warrant shall expire at 5:00
p.m., Philadelphia time, on May 10, 2003.
17. Description Headings. The headings in this Agreement are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof.
18. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
19. Judicial Proceedings; Waiver of Jury. Any judicial proceeding brought
against the Company with respect to this Warrant may be brought in any court of
competent jurisdiction in the Commonwealth of Pennsylvania or of the United
States of America for the Eastern District of Pennsylvania and, by execution
and delivery of this Agreement, the Company (a) accepts, generally and
unconditionally, the nonexclusive jurisdiction of such courts and any related
appellate court, and irrevocably agrees to be bound by any judgment rendered
thereby in connection with this Warrant, subject to any rights of appeal, and
(b) irrevocably waives any objection the Company may now or hereafter have as to
the venue of any such suit, action or proceeding brought in such a court or that
such court is an inconvenient forum. The Company hereby waives personal service
of process and consents, that service of process upon it may be made by
certified or registered mail, return receipt requested, at its address specified
or determined in accordance with the provisions of Section 14, and service so
made shall be deemed completed on the third business day after such service is
deposited
12
<PAGE>
in the mail or, if earlier, when delivered. Nothing herein shall affect the
right to serve process in any other manner permitted by law or shall limit the
right of any holder of any Warrant to bring proceedings against the Company in
the courts of any other jurisdiction. THE COMPANY HEREBY WAIVES TRIAL BY JURY
IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY, OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH THIS WARRANT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER.
THE EASTWIND GROUP, INC.
By: /s/ William B. Miller
-----------------------------------------------
William B. Miller, Senior Vice President & CFO
13
<PAGE>
SUBSCRIPTION
------------
THE EASTWIND GROUP, INC.
THE UNDERSIGNED, ______________________________, pursuant to the provisions
of the within Warrant, hereby elects to purchase ___________________________
shares of Common Stock of The Eastwind Group, Inc. covered by the within
Warrant.
___________________________________________
By: _______________________________________
Dated: ___________________ Print Name: ________________________
14
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, ____________________________________________ hereby
sells, assigns and transfers unto _____________________________________________
the within Warrant and all rights evidenced thereby and does irrevocably
constitute and appoint _____________________________________________________,
attorney, to transfer the said Warrant on the books of the within named Company.
___________________________________________
By: _______________________________________
Dated: ____________________ Print Name: _________________________
PARTIAL ASSIGNMENT
------------------
FOR VALUE RECEIVED, ____________________________________________ hereby
sells, assigns and transfers unto _____________________________________________
that portion of the within Warrant and the rights evidenced thereby which will
on the date hereof entitle the holder to purchase _____________________ shares
of Common Stock of ________________________________________, irrevocably
constitute and appoint _________________________________________, attorney, to
transfer that part of the said Warrant on the books of the within named Company.
___________________________________________
By: _______________________________________
Dated: ____________________ Print Name: _________________________
15
<PAGE>
SECURITIES PURCHASE AGREEMENT
-----------------------------
AGREEMENT dated the 10th day of May 1996, by and between ODYSSEY CAPITAL
GROUP, L.P. ("Investor"), a Pennsylvania limited partnership, and THE EASTWIND
GROUP, INC., a Delaware corporation (the "Company").
In consideration of the premises and of the mutual covenants, conditions
and agreements herein contained, the parties hereto, each intending to be
legally bound hereby, agree as follows:
SECTION 1. ISSUANCE OF THE PREFERRED STOCK AND WARRANTS.
--------------------------------------------
Subject to the terms and conditions hereof, the Company has authorized the
issuance to the Investor of (A) 1,000 shares of Series A Preferred Stock, $.10
par value per share (the "Series A Shares"), which shall have the rights and
preferences set forth in the Certificate of Powers, Designations, Preferences
and Special Rights of Series A Preferred Stock (the "Certificate") attached
hereto as Exhibit A, and made a part hereof, and (B) a Common Stock Purchase
Warrant (the "Warrant") entitling the holder thereof to purchase 220,000 shares
of the Company's Common Stock, par value $.10 per share (the "Common Stock"),
which Warrant shall be in the form of Exhibit B, attached hereto and made a part
hereof. The shares of Common Stock issued upon exercise of the Warrant are
referred to herein collectively as the "Warrant Shares." The Series A Shares,
Warrant and Warrant Shares are referred to herein collectively as the
"Restricted Securities."
SECTION 2. AGREEMENT TO SELL AND PURCHASE THE SERIES A SHARES AND WARRANT.
--------------------------------------------------------------
At the Closing (as hereinafter defined), the Company shall sell to the
Investor and the Investor shall purchase from the Company the Series A Shares
and the Warrant as follows:
2.1 The Company shall sell to the Investor and the Investor shall
purchase from the Company, upon the terms and conditions hereinafter set forth,
the Series A Shares for a purchase price of $1,000,000, payable in cash by wire
transfer of immediately-available funds.
2.2 The Company shall sell to the Investor and the Investor shall
purchase from the Company, upon the terms and conditions hereinafter set forth,
the Warrant for a purchase price of $220, payable in cash by wire transfer of
immediately-available funds.
SECTION 3. DELIVERY OF THE SERIES A SHARES AND THE WARRANT.
-----------------------------------------------
The Series A Shares and the Warrant shall be delivered as follows:
3.1 The Closing. The closing (the "Closing") hereunder with respect
to the Series A Shares and the Warrant shall take place concurrently with the
execution and delivery of this Agreement. At the Closing, the Company shall
deliver to the Investor certificates
<PAGE>
representing 1,000 shares of Series A Shares and the Warrant, registered in the
name of Investor. Delivery shall be made against receipt by the Company of the
full amounts of the purchase price of the 1,000 Series A Shares and the Warrant.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
-------------------------------------------------
The Company hereby represents and warrant as follows:
4.1 Organization. The Company is a company duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company has all requisite corporate power and authority to own and lease its
properties, to carry on its business as presently conducted and as proposed to
be conducted and to carry out the transactions contemplated hereby. The Company
is qualified as a foreign corporation in all jurisdictions wherein the character
of the property owned or leased or the nature of the activities conducted by it
makes such qualification necessary. The Investor has been provided true and
correct copies of the Certificate of Incorporation and the By-laws of the
Company, as amended to the date hereof.
4.2 Capitalization. The authorized capital stock of the Company
consists of (i) 5,000,000 shares of Common Stock, of which 1,683,250 shares
(excluding shares held in treasury) are outstanding, and 3,000,000 shares of
preferred stock, par value $.10 per share (the "Preferred Stock"), none of which
are outstanding. All of the outstanding shares of Common Stock have been duly
authorized and validly issued, and are fully paid and nonassessable.
Immediately following the Closing, (i) 1,683,250 shares of Common Stock will be
outstanding; and (ii) 1,000 shares of Series A Shares will be outstanding.
Except as set forth in Section 4.2 of the disclosure schedule delivered by the
Company to the Investor concurrently with the execution and deliver of this
Agreement (the "Disclosure Schedule"), there are no outstanding preemptive,
conversion or other rights, options, warrants or agreements granted or issued by
or binding upon the Company for the purchase or acquisition of any shares of
capital stock of the Company or any other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of such
capital stock. The Company is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of the
capital stock of the Company or any convertible securities, rights or options.
4.3 Equity Investments. Except as disclosed in the SEC Reports (as
hereinafter defined), the Company has never had, nor does it presently have, any
subsidiaries, nor has it owned, nor does it presently own, any capital stock or
other proprietary interest, directly or indirectly, in any Company, association,
trust, partnership, joint venture or other entity.
4.4 Authority; Enforceability; No Conflict. The Company has all
requisite corporate power and authority to enter into this Agreement and the
Warrant, to issue and sell the Series A Shares and the Warrant, and to carry out
its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and the Warrant by the Company and the issuance
and sale of the Series A Shares and the Warrant by the Company have been duly
and validly authorized by all requisite corporate proceedings on the part of the
Company. This
2
<PAGE>
Agreement is, and when issued and sold the Warrant will be, a valid and binding
obligation of the Company, enforceable against it in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium, rehabilitation, liquidation, conservatorship,
receivership or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. Subject to the receipt of the consents or approvals set forth in
Section 4.4 of the Disclosure Schedule, the execution and delivery of this
Agreement and the Warrant by the Company do not, and the consummation by the
Company of the transactions contemplated hereby and thereby will not, the
issuance and sale of the Series A Shares and the Warrant will not, and the
performance by the Company of its obligations under the terms of the Series A
Shares and the Warrant will not, result in or constitute: (i) a default,
breach or violation of or under the Certificate of Incorporation or the By-laws
of the Company, or (ii) a default, breach or violation of or under any mortgage,
deed of trust, indenture, note, bond, license, lease agreement or other
instrument or obligation to which the Company is a party or by which any of
their properties or assets are bound, except for any defaults, breaches or
violations which would not have, individually or in the aggregate, a material
adverse effect on the business condition (financial or otherwise), prospects or
results of operation of the Company and its subsidiaries, taken as a whole
("Material Adverse Effect"), or (iii) a violation of any statute, rule,
regulation, order, judgment or decree of any court, public body or authority by
which the Company or any of its properties or assets are bound, except for any
violations which would not have, individually or in the aggregate, a Material
Adverse Effect, or (iv) an event which (with notice or lapse of time or both)
would permit any person to terminate, accelerate the performance required by, or
accelerate the maturity of, any indebtedness or obligation of the Company under
any agreement or commitment to which the Company is a party or by which the
Company is bound or by which any of its proper ties or assets are bound, except
for any accelerations or terminations which would not have, individually or in
the aggregate, a Material Adverse Effect, or (v) the creation or imposition of
any lien, charge or encumbrance on any property of the Company under any
agreement or commitment to which the Company is a party or by which the Company
is bound or by which any of its respective properties or assets are bound,
except for any liens, charges or encumbrances which would not have, individually
or in the aggregate, a Material Adverse Effect, or (vi) an event which would
require any consent under any agreement to which the Company is a party or by
which the Company is bound or by which any of its respective properties or
assets are bound, except for any consents which, if not received, would not
have, individually or in the aggregate, a Material Adverse Effect.
4.5 Status of Shares. When issued and paid for as provided in this
Agreement, the Series A Shares will be validly issued and outstanding, fully
paid and nonassessable, and the issuance of such Series A Shares is not and
will not be subject to preemptive rights of any other stockholder of the
Company. The shares of Common Stock to be issued upon exercise of the Warrant
have been duly authorized by all necessary corporate action on the part of the
Company and, as of the Closing, will be duly reserved for issuance. When the
shares of Common Stock are issued and paid for upon exercise of the Warrant,
such shares will be validly issued and
3
<PAGE>
outstanding, fully paid and nonassessable and the issuance of such shares will
not be subject to preemptive rights of any other stockholder of the Company.
4.6 Financial Statements. (1) The Company has heretofore delivered
or made available to the Investor the audited consolidated balance sheets at
December 31, 1995 and 1994 of the Company and the related consolidated
statements of income, stockholders' equity and cash flows for the years then
ended, including the related notes and auditor's report thereon (the "Financial
Statements"). The Financial Statements (i) present fairly the consolidated
financial condition of the Company at the dates thereof and present fairly its
consolidated results of operations and cash flows for the years then ended and
(ii) have been prepared in conformity with generally accepted accounting
principles ("GAAP") applied consistently with respect to the immediately
preceding fiscal year period except as set forth in the notes to the Financial
Statements or in the auditor's report thereon.
(2) The Company has heretofore delivered or made available to the
Investor the unaudited consolidated balance sheet at March 31, 1996 of the
Company (the "March Balance Sheet") and the related consolidated statements of
income and cash flows for the three months then ended (such March Balance Sheet
and related consolidated statements, collectively, the "March Financial
Statements"), each of which (i) presents fairly, in all material respects, the
consolidated financial condition of the Company at March 31, 1996, and presents
fairly its consolidated results of operations and cash flows for the three
months then ended and (ii) has been prepared in compliance with all of the
requirements of Section 15(d) of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") and the applicable rules and regulations
thereunder.
4.7 SEC Filings. The Company has furnished to the Investor its (i)
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1995, (ii)
Registration Statement on Form SB-2, which was declared effective on November
13, 1995, including the Prospectus dated November 13, 1995, and (iii) all other
reports or registration statements (other than on Form S-8) filed by the Company
or any of the subsidiaries with the Securities and Exchange Commission (the
"SEC") since January 1, 1995, each as filed with the SEC (collectively, the "SEC
Reports"). As of their respective dates, such reports and statements complied
in all material respects with the applicable requirements of the Securities Act
and the Exchange Act, and the rules and regulations thereunder, and did not on
the date of effectiveness or filing, as the case may be, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The Company has made
all filings required to be made under the Exchange Act as of the date hereof.
4.8 Absence of Undisclosed Liabilities; Past Due Liabilities. Except
as disclosed in the March Financial Statements or arising in the ordinary course
of business since March 31, 1996 or listed in Section 4.8 of the Disclosure
Schedule, (a) the Company had no material liability of any nature (matured or
unmatured, fixed or contingent), required to be provided for or disclosed on a
balance sheet prepared in accordance with generally accepted
4
<PAGE>
accounting principles, which was not provided for or disclosed in the March
Financial Statements, and (b) all liability reserves established by the Company
in the March Financial Statements were adequate in all material respects.
Except as listed in Section 4.8 of the Disclosure Schedule, there were no loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in March,
1975) which were not adequately provided for in all material respects in the
Financial Statements. Section 4.8 of the Disclosure Schedule contains a list of
(i) the Company's past due liabilities and (ii) the Company's liabilities to be
paid effective as of the Closing.
4.9 Absence of Changes. Except as disclosed in this Agreement
(including any Section of the Disclosure Schedule), since March 31, 1996 there
has not been (a) any material adverse change in the financial condition, results
of operations, assets, liabilities or business of the Company, (b) any borrowing
or agreement to borrow any funds or any material liability or obligation of any
nature whatsoever (contingent or otherwise) incurred by the Company, other than
current liabilities or obligations incurred in the ordinary course of business,
(c) any asset or property of the Company made subject to any lien of any kind
material to the business, property or assets of the Company, (d) except for
adequate consideration, any waiver of any valuable right of the Company, which
waiver or cancellation of any debt or claim held by the Company, is disclosed in
Section 4.9 of the Disclosure Schedule, (e) any payment of dividends on, or
other distributions with respect to, or any direct or indirect redemption or
acquisition of, any shares of the capital stock of the Company, or any agreement
or commitment therefor, (f) any issuance of any stock, bonds or other securities
of the Company or options, warrants or rights or agreements or commitments to
purchase or issue such securities or grant such options, warrants or rights, (g)
any mortgage, pledge, sale, assignment or transfer of any tangible or intangible
assets of the Company, except with respect to tangible assets, in the ordinary
course of business, (h) any loan by the Company to any officer, director,
employee or shareholder of the Company, or any agreement or commitment therefor,
(i) any damage, destruction or loss (whether or not covered by insurance)
materially and adversely affecting the assets, property or business of the
Company, (j) any extraordinary increase, direct or indirect, in the compensation
paid or payable to any officer, director, employee or agent of the Company or
(k) any change in the accounting methods or practices followed by the Company.
4.10 Tax Matters. Except as provided in Section 4.10 of the
Disclosure Schedule, all federal, state and local tax returns and tax reports
required to be filed by the Company have been filed with the appropriate
governmental agencies in all jurisdictions in which such returns and reports are
required to be filed and all of the foregoing are true, correct and complete.
All federal, state, local and foreign income, profits, franchise, sales, use,
occupation, property, excise, payroll, withholding and other taxes (including
interest and penalties) required to have been paid or accrued by the Company
have been fully paid or are adequately provided for in the March Financial
Statements. No issues have been raised (and are currently pending) by the
Internal Revenue Service or any other taxing authority in connection with any of
the returns and reports referred to above. The Company has not waived any
statute of limitations with respect to taxes or agreed to any extension of time
with respect to any tax assessment or deficiency. All tax deficiencies asserted
or assessments (including interest and penalties) made have been fully
5
<PAGE>
paid or are adequately provided for in the Financial Statements and no proposed
(but unassessed) additional taxes, interest or penalties have been asserted.
The provisions for taxes in the March Financial Statements are sufficient for
the payment of all accrued and unpaid federal, state or local and foreign taxes
as of such date. The Company has not made any election or filed any consent
pursuant to Section 341(f) of the Code relating to collapsible companies.
4.11 Encumbrances. Except as disclosed in the SEC Reports, the
Company owns outright all of its material property and assets, real, personal or
mixed, tangible or intangible, subject to no mortgages, liens, security
interests, pledges, charges or other encumbrances of any kind.
4.12 Burdensome Restrictions. The Company is not obligated under any
contract or agreement or subject to any charter or other corporate restriction
which would have a Material Adverse Effect.
4.13 Litigation. Except as disclosed in the SEC Reports, there are
no actions, suits, claims, investigations or legal or administrative or
arbitration proceedings (collectively, "Claims") pending or threatened against
or affecting the Company, whether at law or in equity, whether civil or criminal
in nature or whether before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, and, to the knowledge of the Company, there is no basis for
any such action, suit, claim, investigation or proceeding. Except as set forth
Section 4.11 of the Disclosure Schedule, there are no orders, judgments or
decrees of any court or governmental agency which apply to the Company.
4.14 Projected Plan. The Company has previously presented and
delivered to Investor certain projected financial information, as identified in
Section 4.14 of the Disclosure Schedule, which in the judgment of the Company's
management, was prepared on a reasonable basis in light of the circumstances
existing at the time of its preparation.
4.15 Compliance. Except as set forth in Section 4.15 of the
Disclosure Schedule, the Company has all governmental approvals, authorizations,
consents, licenses and permits necessary or required to conduct its business as
presently conducted or as proposed to be conducted which if not obtained could
reasonably be expected to have a Material Adverse Effect on the Company. The
Company is in material compliance with all federal, state, local and foreign
laws, ordinances, regulations and orders applicable to it, its assets or its
business as currently conducted; and all such licenses and permits are in full
force and effect and no violations exist in respect of any such licenses or
permits and no proceeding is pending or, to the best of the Company's knowledge,
threatened to revoke or limit any thereof. All real property used in the
conduct of the Company's business (the "Real Property"), and the use and
occupancy thereof, are in material compliance with all governmental regulations
and applicable leases and insurance requirements. The Company is in compliance
with the provisions of all federal, state and local laws relating to pollution
or protection of the environment applicable to it or to real property leased by
it or to the use, operation or occupancy thereof, except for violations or
liabilities which
6
<PAGE>
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect. The Company has not engaged in any activity in
violation of any provision of any federal, state or local law relating to
pollution or protection of the environment, which violation could reasonably be
expected to have a Material Adverse Effect. The Company has no liability,
absolute or contingent, under any federal, state or local law relating to
pollution or protection of the environment, except for liabilities which
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
4.16 Related Transactions. Except as set forth in the SEC Reports,
no current or former partner, shareholder, director, officer or key employee of
the Company and no affiliate or member of the Immediate Family (as hereinafter
defined) of any such person, is directly or indirectly, through his affiliation
with any other person or entity, a party to any transaction with the Company
(other than as an employee) providing for the furnishing of services by or to,
or rental of real or personal property from or to, or otherwise requiring cash
payments to or by any such person or any such person's affiliates or members of
his Immediate Family (any such transaction being hereinafter referred to as a
"Related Transaction"). As used herein, the term "Immediate Family" shall have
the meaning given thereto in Item 404 of Regulation S-K promulgated under the
Securities Act.
4.17 Agreements. The SEC Reports contain a list of each agreement or
instrument (including any and all amendments thereto) to which the Company is a
party as of the date hereof and which is or, immediately following the
consummation of the transactions contemplated by this Agreement, will be,
material to the business, condition or results of operations of the Company.
Each such agreement or instrument (including any and all amendments thereto) is
in full force and effect and constitutes a legal, valid and binding obligation
of (i) the Company and (ii) to the best knowledge of the Company, the other
respective parties thereto, and, to the best knowledge of the Company, no person
is in default or breach of (with or without the giving of notice or the passage
of time) any such agreement or instrument.
4.18 Intellectual Property. (i) Section 4.18 of the Disclosure
Schedule sets forth a true and complete list and summary description of all
patents, registered or common law trademarks, trade names, service marks,
licenses and copyrights and applications for any of the foregoing (collectively,
"Intellectual Property") owned by or licensed to the Company or its
subsidiaries, which constitutes all the Intellectual Property necessary for use
in the United States and in such other jurisdictions as is necessary for the
conduct of the business of the Company and its subsidiaries as presently
conducted. Except as disclosed in Section 4.18 of the Disclosure Schedule, the
Company owns, or has the right to use for the term set forth in Section 4.18 of
the Disclosure Schedule, without payment to or interference from any other
party, all Intellectual Property listed in Section 4.18 of the Disclosure
Schedule and has not authorized any person in any jurisdiction to use any such
Intellectual Property. All Intellectual Property listed in Section 4.18 of the
Disclosure Schedule which may be so registered or filed has been duly registered
and filed in or issued by the appropriate governmental agency in the
jurisdictions indicated, all necessary affidavits of continuing use have been
filed, and al necessary maintenance fees have been paid to continue all such
rights in effect. Except as set forth in Section 4.18 of the
7
<PAGE>
Disclosure Schedule, the Company has no notice or knowledge of any objection or
claim being asserted by any person with respect to the ownership, validity,
enforceability or use of any Intellectual Property listed in Section 4.18 of the
Disclosure Schedule or challenging or questioning the validity or effectiveness)
of any such license, and has not received any such notice within the last five
years.
(i) Section 4.18 of the Disclosure Schedule also sets forth each
agreement, whether oral or in writing, pursuant to which the Company is
obligated to pay any person, in consideration of a license of or other agreement
with respect to Intellectual Property.
4.19 ERISA. Section 4.19 of the Disclosure Schedule contains a true
and complete list of each employee benefit plan, as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
any other bonus, severance or termination pay, stock option or stock purchase,
incentive pay or other plan, program or arrangement covering present or former
employees of the Company which is maintained or contributed to by the Company or
any of its subsidiaries (the "Plans"). None of the Plans is subject to the
provisions of Title IV of ERISA, and none of the Plans is a multi-employer Plan
as defined in Section 3(37) of ERISA (a "Multiemployer Plan"). The Company has
not incurred (directly or indirectly) any liability to the Pension Benefit
Guaranty Corporation or with respect to a Multiemployer Plan. None of the Plans
is subject to the minimum funding standards set forth in Section 302 of ERISA or
Section 412 of the Internal Revenue Code of 1986, as amended (the "Code"). None
of the Company or any of its officers or employees has engaged in a "prohibited
transaction" as defined in Section 406 of ERISA or Section 4975 of the Code with
respect to any Plan which would subject any of such parties to a civil penalty
under Section 502(i) of ERISA or an excise tax under Section 4975 of the Code.
Each of the Plans has been operated in all material respects in accordance with
applicable law, including ERISA and the Code. None of the Plans is an employee
welfare plan, as defined in Section 3(1) of ERISA, which provides health or life
insurance benefits to employees of the Company following their retirement (other
than coverage mandated by applicable law). Each Plan that is intended to be
qualified under Section 401(a) of the Code is so qualified.
4.20 Use of Proceeds. The net cash proceeds received by the Company
from the sale of the Series A Shares and the Warrant shall be used for general
working capital and to provide funding for acquisitions and investments by the
Company or any of its subsidiaries.
4.21 No Consent or Approval Required.
-------------------------------
(a) No consent of any person and (b) except for approvals
required under state securities or blue sky laws (all of which have been
obtained), no consent, approval or authorization of, or declaration to or filing
with, any governmental or regulatory authority is required for the valid
authorization, execution and delivery by the Company of this Agreement, the
Series A Shares, or the Warrant or for the valid authorization, issuance, sale
and delivery of the Series A Shares, the Warrant or the Warrant Shares pursuant
hereto or thereto other than those consents, approvals, authorizations,
declarations or filings which have been obtained or made.
8
<PAGE>
4.22 Disclosure. Neither this Purchase Agreement nor any other
document, certificate or written statement furnished to the Investor by or on
behalf of the Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein and therein not
misleading in light of the circumstances in which they were made. There is no
fact which materially adversely affects, or in the future may, insofar as the
Company now foresees, materially adversely affect the business, operations,
affairs, prospects, condition, properties or assets of the Company which has not
been set forth in this Agreement or in the other documents, certificates,
instruments or statements furnished to Investor by or on behalf of the Company
pursuant hereto.
4.23 Brokers. The Company has not, nor have any of the officers,
directors, employees or stockholders of the Company, employed any broker or
finder in connection with the transactions contemplated by this Purchase
Agreement.
4.24 Private Offering. Assuming the accuracy of the Investor's
representations set forth in Section 5 herein, the offer and sale of the Series
A Shares and the Warrant hereunder is exempt from the registration and
prospectus delivery requirements of the Securities Act. Neither the Company nor
any person acting on behalf of it has taken or will take any action which would
subject the offering and issuance of any of such securities to the provisions of
Section 5 of the Securities Act or to the provisions of any securities law, rule
or regulation of any applicable jurisdiction.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
----------------------------------------------
The Investor represents and warrants to the Company as follows:
5.1 Accredited Investor. The Investor is now and was at the time it
was offered the Series A Shares and Warrant an "accredited investor" within the
meaning of Rule 501 under the Securities Act and was not organized for the
specific purpose of acquiring the Series A Shares and Warrant. The Investor
acknowledges that it is able to financially bear the risks associated with an
investment in the Series A Shares and the Warrant.
5.2 Acquisition of Investment. The Series A Shares and the Warrant
being purchased by it are being acquired by it, and the Warrant Shares, when and
if issued to it, will be acquired by it for its own account, for the purpose of
investment, and not with a view to a sale in connection with any distribution
thereof. The Investor understands that (i) the Series A Shares and the Warrant
have not been registered under the Securities Act by reason of their issuance in
a transaction exempt from the registration provisions of the Securities Act
pursuant to Section 4(2) thereof or Rule 506 promulgated under the Securities
Act; (ii) the Series A Shares, the Warrant and the Warrant Shares issuable upon
exercise of the Warrant, must be held indefinitely unless a subsequent
disposition thereof is registered under the Securities Act, is exempt from such
registration, or is sold under and in accordance with Rule 144 under the
Securities Act; (iii) the Series A Shares, the Warrant, and the Warrant Shares
issuable upon exercise of the Warrant will bear a legend to such effect; (iv)
the Company will make notations on its transfer books to such
9
<PAGE>
effect; (v) an exemption from the registration provisions of the Securities Act
pursuant to Rule 144 thereunder is not presently available with respect to the
resale of any of the Series A Shares, the Warrant or the Warrant Shares; and
(vi) except as set forth herein, the Company has not agreed to make available an
exemption from the registration requirements of the Securities Act pursuant to
Rule 144 or any successor rule for resale of any of the shares of Series A
Shares, the Warrant, or the Warrant Shares under the Securities Act or any state
securities law.
5.3 Blue Sky Exemption. Investor's principal place of business is
located in the Commonwealth of Pennsylvania and Investor is an "institutional
investor" as that term is defined in the Pennsylvania Securities Act of 1972,
and the rules promulgated thereunder.
5.4 Organization and Good Standing of the Investor. The Investor is
a limited partnership duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization.
5.5 Authority; Enforceability; No Conflict. The Investor has all
requisite power and authority (corporate or otherwise) to enter into this
Agreement and to carry out its obligations hereunder. The execution, delivery
and performance of this Agreement by the Investor have been duly and validly
authorized by all requisite partnership proceedings on the part of the Investor.
This Agreement is a valid and binding obligation of the Investor, enforceable
against it in accordance with its terms, except that (i) such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium, rehabilitation,
liquidation, conservatorship, receivership or other similar laws now or
hereafter in effect relating to creditors' rights generally and (ii) the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought. The execution and delivery of this
Agreement by the Investor do not, and consummation by the Investor of the
transactions contemplated hereby will not, result in or constitute (i) a
default, breach or violation of or under the organizational documents of the
Investor, or (ii) a default, breach or violation of or under any mortgage, deed
of trust, indenture, note, bond, license, lease agreement or other instrument or
obligation to which the Investor is a party or by which any of its properties or
assets are bound, except for any defaults, breaches or violations which would
not, individually or in the aggregate, have a Material Adverse Effect on the
Investor or prevent or materially delay the consummation by the Investor of the
transactions contemplated hereby, or (iii) a violation of any statute, rule,
regulation, order, judgment or decree of any court, public body or authority,
except for any violations which would not, individually or in the aggregate,
have a Material Adverse Effect on the Investor or prevent or materially delay
the consummation by the Investor of the transactions contemplated hereby.
5.6 Access to Information. Investor acknowledges that it has had the
opportunity to ask questions of and receive answers from, and to obtain
additional information from, representatives of the Company concerning the terms
and conditions of the acquisition of the Restricted Securities and the present
and proposed business and financial condition of the Company and has had all
such questions answered to its satisfaction and has been supplied all
information requested.
10
<PAGE>
5.7 Review of Securities and Exchange Commission Filings. Investor
acknowledges that it has been provided with and has reviewed the SEC Reports
including, without limitation, the description of the business of the Company
and the "Risk Factors" contained therein.
5.8 Review of Mentor Agreement. Investor has received and reviewed
the terms of a draft dated May 8, 1996 of a certain Securities Purchase
Agreement ("Mentor Agreement") by and between the Company and Mentor Special
Situation Fund, L.P., a Pennsylvania limited partnership, and the draft of the
form of Debenture attached as Exhibit A to the Mentor Agreement, the form of
Warrant attached as Exhibit B to the Mentor Agreement and the Registration
Rights Agreement attached as Exhibit C to the Mentor Agreement. The Company and
the Investor agree that the Company shall not pay any financial advisory fee to
Mentor Management Company during the 12 months following the closing of the
purchase and sale of the securities pursuant to the Mentor Agreement unless such
payment shall be acceptable to the Investor.
5.9 Understanding of Investment Risks. Investor acknowledges and
understands that the Restricted Securities offered hereby have not been approved
or disapproved by the SEC, or any state securities commissions, nor has the SEC
or any state securities commission passed upon the adequacy or accuracy of this
Purchase Agreement or any exhibit hereto.
SECTION 6. CONDITIONS PRECEDENT TO CLOSING.
The obligation of the Investor to purchase and pay for the Series A Shares
and the Warrant is subject to the following conditions precedent:
6.1 Corporate Proceedings. All corporate and other proceedings to be
taken and all waivers and consents to be obtained in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be satisfactory in form and substance to Investor and to its counsel,
McCausland, Keen & Buckman, each of which shall have received all such
originals, or certified or other copies of such documents, as either may
reasonably request. The Company shall have filed the Certificate in such places
and accompanied by all fees required by the Delaware General Corporation Law.
6.2 Blue Sky Matters. All consents, permits, approvals,
qualifications and/or registrations required to be obtained or effected under
any state securities or blue sky laws of any jurisdiction (in the reasonable
judgment of counsel for the Investor) shall have been obtained or effected.
6.3 No Adverse Change. No material adverse change (as determined in
the sole judgment of Investor) shall have occurred and be continuing in the
business, assets, financial condition or prospects of the Company.
11
<PAGE>
6.4 Certificate of Officer. The Investor shall have received a
certificate of an officer of the Company stating that, to the best of his
knowledge upon due inquiry and investigation, each of the representations and
warranties of the Company contained herein and in the other agreements,
instruments and documents executed and delivered by the Company in connection
with this Agreement and the transactions contemplated hereby are true and
correct in all material respects as of the date of Closing, and the Company has
performed all covenants and agreements and satisfied all conditions on the part
of the Company to be performed or satisfied hereunder or thereunder at or prior
to Closing.
6.5 Certificate of General Partner of Investor. The Company shall
have received a certificate of an officer of the general partner of Investor
with respect to the execution and delivery of the Purchase Agreement.
SECTION 7. ADDITIONAL AGREEMENTS OF THE COMPANY.
7.1 Access to Records. So long as the Investor shall own all or any
portion of the Series A Shares, the Company shall afford to Investor and its
authorized employees, counsel, accountants and other representatives, free and
full access, at all reasonable times, to all of the books, records and
properties of the Company and each of its subsidiaries (if any) and to all
officers and directors of the Company and each of its subsidiaries (if any) and
those other employees of the Company and its subsidiaries (if any) having
responsibility for financial or accounting matters generally, for any reasonable
purpose whatsoever.
7.2 Affirmative Covenants. So long as the Investor shall own all or
any portion of the Series A Shares, the Company covenants and agrees with the
Investor as follows:
7.2.1 Financial Reports. For purposes of this Section 7.2.1,
the financial statements to be delivered pursuant hereto shall be the
consolidated financial statements of the Company and any subsidiary of the
Company whose accounts are consolidated with those of the Company. The Company
shall furnish to each Investor:
(a) as soon as available and in any event within (a) as soon as
available and in any event within 50 days after the end of each quarterly period
(other than the last quarterly period) in each fiscal year, a consolidated
statement of income and a consolidated statement of cash flows of the Company
and its subsidiaries for the period from the beginning of the then current
fiscal year to the end of such quarterly period, and a consolidated balance
sheet of the Company and its subsidiaries as of the end of such quarterly
period, setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable detail and
certified by an authorized financial officer of the Company, subject to changes
resulting from year-end adjustments; provided, however, that delivery pursuant
to clause (c) below of a copy of the Quarterly Report on Form 10-QSB or Form
10-Q (or successor forms) of the Company for such quarterly period filed with
the SEC shall be deemed to satisfy the requirements of this clause (a);
12
<PAGE>
(b) as soon as available and in any event within 105 days after
the end of each fiscal year, a consolidated statement of income and a
consolidated statement of cash flows of the Company and its subsidiaries as of
the end of such year, setting forth in each case in comparative form
corresponding consolidated figures from the preceding annual audit, all in
reasonable detail and together with an opinion directed to the Company of
independent accountants of recognized standing selected by the Company;
provided, however, that delivery pursuant to clause (c) below of a copy of the
Annual Report on Form 10-KSB or Form 10-K (or successor forms) of the Company
for such fiscal year filed with the SEC shall be deemed to satisfy the
requirements of this clause (b); and
(c) promptly upon transmission thereof, copies of all press
releases, such financial statements, proxy statements, notices and reports as it
shall send to its public stockholders and copies of all registration statements
(without exhibits), other than on Form S-8 or any similar successor form, and
all reports which it files with the SEC.
7.2.2 Annual Budgets. With respect to each fiscal year of the
Company, the Company shall prepare and deliver to the Investor a budget with
monthly breakdowns for each fiscal year not less than 30 days prior to the
beginning of such fiscal year, which budget shall include projected balance
sheets, projected profit and loss and projected cash flow statements on a
monthly basis for the ensuing fiscal year, together with a description of all
underlying assumptions made in or with respect to such budget and a brief
qualitative description of the budget by the Company's Chief Financial Officer
in support thereof. The budget shall be accepted as the budget for such fiscal
year when it has been approved by the Board of Directors of the Company. The
budget shall be reviewed by the Company periodically and all material changes
therein shall be resubmitted to the Board of Directors in advance and shall be
accepted when approved by the Board of Directors. The budget for the current
fiscal year and the budgets to be hereafter delivered to the Investor under this
Section 7.2.2 are sometimes referred to herein as the "Annual Budget."
7.2.3 Miscellaneous. Any other financial or other information
that Investor shall have reasonably requested shall be provided to Investor on a
timely basis and financial or other information furnished to members of the
Board of Directors shall be provided to Investor at the same time it is
furnished to the members of the Board of Directors.
7.2.4 Material Events, Etc. Within 10 days of the occurrence
thereof, notice of (i) any default by the Company under this Agreement or under
any other agreement with Investor, (ii) any event which has had, or may have, a
Material Adverse Effect. In each case such notice shall be executed by the
President and Chief Financial Officer of the Company and shall be delivered
together with a reasonably detailed description of the action taken or proposed
to be taken by the Company with respect thereto.
7.3 Negative Covenants. So long as the Investor shall own all or any
of the Series A Shares, the Company shall not cause or permit, nor shall it
permit any subsidiary to, without the prior written consent or approval of
Investor:
13
<PAGE>
(i) amend, alter or repeal any of the provisions of its
Certificate of Incorporation or By-laws in any manner which impairs the rights
of the Investor hereunder;
(ii) voluntarily dissolve, liquidate or wind up or carry out
any partial liquidation or distribution or transaction in the nature of a
partial liquidation or distribution; or
(iii) sell, lease or otherwise dispose of its properties or
assets (other than sales or leases of products in the ordinary course of
business) or merge or consolidate with or into any other company, companies,
entity or entities, other than a merger in which the Company is the surviving
corporation.
7.3.1 Restriction on Dividends and Redemptions. The Company,
without the prior written consent of the Investor, shall not declare or pay any
dividends on its Common Stock (other than in shares of capital stock of the
Company), or make any other distribution (whether in cash or in property) on
shares of its Common Stock (other than in shares of capital stock of the
Company), or redeem any shares of its Common Stock.
7.3.2 Attendance at Board of Directors. The Investor shall have
the right to attend all special and regular meetings of the Board of Directors
solely for the purpose of observing the proceedings. The Company shall give the
Investor no less than the same prior notice of the time and place of all
meetings of the Board of Directors as is given to members of the Board of
Directors. The Company shall promptly furnish Investor with copies of the
minutes of all meetings of the Board of Directors.
SECTION 8. TRANSFER OF SECURITIES.
8.1 Restrictive Legends. Unless and until permitted by this Section
8, each certificate for the Series A Shares, the Warrant and the Warrant Shares
(collectively, the "Restricted Securities") and any shares of capital stock
received in respect thereof, whether by reason of a stock split or share
reclassification thereof, a stock dividend thereon or otherwise, be stamped or
otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE IN
RELIANCE ON CERTAIN EXEMPTIONS FROM REGISTRATION THEREUNDER. THE SALE,
PLEDGE, HYPOTHECATION OR OTHER TRANSFER OF SUCH SECURITIES IS SUBJECT TO
COMPLIANCE WITH APPLICABLE SECURITIES LAWS AND REGULATIONS AND CERTAIN
RESTRICTIONS CONTAINED IN THE PURCHASE AGREEMENT DATED AS OF MAY 10, 1996,
BETWEEN ODYSSEY CAPITAL GROUP, L.P. AND THE EASTWIND GROUP, INC. A COPY OF
THE PURCHASE AGREEMENT IS ON FILE WITH THE SECRETARY OF THE EASTWIND GROUP,
INC."
14
<PAGE>
The Restricted Securities may not be transferred (the "Transfer") unless
either (i) the Company has received an opinion of counsel satisfactory to it
that the Transfer is exempt from registration under the Securities Act of 1933
(the "Securities Act"), and the applicable state securities laws or (ii) the
Restricted Securities are sold pursuant to an effective registration statement
under the Securities Act and an effective registration statement or
qualification under applicable state securities laws.
8.2 Removal of Legends, Etc. Notwithstanding the foregoing
provisions of this Section 8, the restrictions imposed by Section 8 upon the
transferability of any Restricted Securities shall cease and terminate with
respect to any such Restricted Securities when they are sold or otherwise
disposed of in accordance with the intended method of disposition by the seller
or sellers thereof set forth in an effective registration statement or pursuant
to a Transfer made in compliance with Rule 144 promulgated under the Securities
Act (or any similar successor rule). Whenever the restrictions imposed by this
Section 8 shall terminate as a result of Rule 144(k), the holder of any
Restricted Securities as to which such restrictions have terminated shall be
entitled to receive from the Company, without expense, a new certificate not
bearing the restrictive legends set forth in Section 8.1 hereof and not
containing any other reference to the restrictions imposed by this Section 8,
upon receipt of an opinion reasonably satisfactory to the Company that such
restrictions have so terminated.
SECTION 9. REGISTRATION RIGHTS.
9.1 Piggyback Registration. If the Company at any time commencing 18
months after the date of the issuance of the Warrant proposes for any reason to
register any of its equity securities under the Securities Act (other than
pursuant to a registration statement on Forms S-8 or S-4 or similar or successor
form which is not available for registering the Common Stock for sale to the
public (collectively, the "Excluded Forms")), it shall each such time promptly
give written notice to all holders of outstanding Restricted Securities of its
intention so to do, and, upon the written request, given within 30 days after
receipt of any such notice, of the holder of any such Restricted Securities to
register any Warrant Shares which have not been sold to the public pursuant to a
registration statement under the Securities Act or Rule 144 (or successor rule)
promulgated under the Securities Act the Company shall use its best efforts to
cause all such Warrant Shares to be registered under the Securities Act promptly
upon receipt of the written request of such holders for such registration, all
to the extent requisite to permit the sale or other disposition (in accordance
with the intended methods thereof, as aforesaid) by the prospective seller or
sellers of the Warrant Shares so registered. In the event that the proposed
registration by the Company is, in whole or in part, an underwritten public
offering of securities of the Company, any request pursuant to this Section 9.1
to register Warrant Shares may specify that such shares are to be included in
the underwriting on the same terms and conditions as the shares of Common Stock,
if any, otherwise being sold through underwriters under such registration;
provided, however, that (i) if the managing underwriter determines and advises
in writing that the
15
<PAGE>
inclusion of all Warrant Shares proposed to be included in the underwritten
public offering and other issued and outstanding shares of Common Stock proposed
to be included therein by persons other than holders of Restricted Securities
(the "Other Shares") would interfere with the successful marketing of such
securities, then the number of Warrant Shares and Other Shares shall be reduced,
first, pro rata based on the number of Other Shares (on a fully diluted basis)
requested by the holders thereof to be registered and thereafter, if necessary,
among the holders of Restricted Securities (pro rata based upon the number of
Warrant Shares requested by the holders thereof to be registered in such
underwritten public offering). In each case those Warrant Shares which are
excluded from the underwritten public offering shall be withheld from the market
by the holders thereof for a period, not to exceed 90 days, which the managing
underwriter reasonably determines as necessary in order to effect the
underwritten public offering.
9.2 Preparation and Filing. If and whenever the Company is under an
obligation pursuant to the provisions of this Section 9 to use its reasonable
best efforts to effect the registration of any Warrant Shares, the Company
shall, as expeditiously as practicable:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its reasonable best efforts to cause
such registration statement to become and remain effective;
(b) prepare and file with the Commission such amendments and
supplements to such registration statements and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for at least two years and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all Warrant
Shares covered by such registration statement;
(c) furnish to each selling stockholder such number of copies of
a summary prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as such seller may reasonably request in order to facilitate the public sale or
other disposition of such Warrant Shares;
(d) use its best efforts to register or qualify the Warrant
Shares covered by such registration statement under the securities or blue sky
laws of all such jurisdictions (provided, however, that the Company shall not be
required to consent to general service of process for all purposes in any
jurisdiction where it is not then qualified), and do any and all other acts or
things which may be necessary or advisable, to enable such seller to consummate
the public sale or other disposition in such jurisdictions of such Restricted
Shares;
(e) notify each seller of Warrant Shares covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Securities
Act within the appropriate period mentioned in clause (b) of this Section 9.2,
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
a material fact or omits to state a material fact required to be stated therein
or necessary to make the
16
<PAGE>
statements therein not misleading in the light of the circumstances then
existing and, at the request of such seller, prepare and furnish to such seller
a reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus, as so supplemented or amended, shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; and
(f) furnish, at the request of any holder or holders whose Warrant
Shares are being registered pursuant to this Section 9, on the date that such
Warrant Shares are delivered to the underwriters for sale in connection with a
registration pursuant to this Section 9, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the holder or holders
making such request; and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the holder or holders making such request.
9.3 Expenses. All expenses incurred by the Company in effecting all
registrations for holders of Restricted Securities pursuant to this Section 9,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the National Association of Securities Dealers,
Inc.), fees and expenses of complying with securities and blue sky laws,
printing expenses and fees and disbursements of not more than one counsel for
all the holders of Restricted Securities requesting registration thereunder, and
of the independent certified public accountants (including the expenses of any
special audits in connection with any such registration) (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company), shall be paid by the Company; provided, however, that all
underwriting discounts and selling commissions applicable to the Warrant Shares
covered by such registration shall be borne by the seller or sellers thereof;
provided, further, that anything in this Agreement to the contrary
notwithstanding, if any jurisdiction in which the securities shall be qualified
shall require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling stockholders, then such
expenses shall be payable by such selling stockholders pro rata based on the
number of securities being registered, to the extent required by such
jurisdiction.
9.4 Indemnification.
---------------
9.4.1 Indemnification of Investor and Underwriters. In the event of
any registration of any Warrant Shares under the Securities Act pursuant to this
Section 9 or registration or qualification of any Warrant Shares pursuant to
Section 9.2(d) hereof, the Company shall indemnify and hold harmless the seller
of such shares, each underwriter (if any) of such
17
<PAGE>
shares, each broker or any other person acting on behalf of such seller, and
each other person (if any) who within the meaning of the Securities Act controls
any of the foregoing persons, against any losses, claims, damages or
liabilities, joint or several, to which any of the foregoing persons may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (a) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such Restricted Shares were
registered under the Securities Act, in any preliminary prospectus or final
prospectus contained therein, in any amendment or supplement thereto, or in any
document prepared and/or furnished by the Company incident to the registration
or qualification of any Restricted Shares pursuant to Section 9.2 hereof, (b)
any omission or alleged omission to state, in any such registration statement, a
material fact that is required to be stated therein, that is necessary to make
the statements therein not misleading or, with respect to any prospectus
contained therein, that is necessary to make the statements therein not
misleading in light of the circumstances under which they were made or (c) any
violation by the Company of the Securities Act or state securities or blue sky
laws applicable to the Company and relating to action or inaction required of
the Company in connection with such registration or qualification under such
state securities or blue sky laws. The Company in addition shall reimburse such
seller, such underwriter, broker or other person acting on behalf of such seller
and each such controlling person for any legal, accounting or other fees or
expenses reasonably incurred by any of them in connection with investigating or
defending any such loss, claim, damage, liability or action. In no event shall
the Company be liable, however, to the extent that any such loss, claim, damage
or liability arises out of or is based upon any untrue statement or alleged
untrue statement or any omission or alleged omission (a) made in the aforesaid
registration statement, preliminary prospectus or final prospectus, or amendment
or supplement or (b) made in any document prepared and/or furnished by the
Company incident to the registration or qualification of any Warrant Shares
pursuant to Section 9.2(d) hereof and (c) made, in any such document referred to
in the foregoing clauses (a) and (b), in reliance upon and in conformity with
written information furnished or confirmed to the Company through an instrument
duly executed by such seller or such underwriter specifically for use in the
preparation thereof.
9.4.2 Indemnification of Company. Before Warrant Shares held by any
prospective seller shall be included in any registration pursuant to this
Section 9, such prospective seller and any underwriter acting on its behalf
shall have agreed to indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 9.4.1 hereof) the Company, each director of
the Company, each officer of the Company who shall sign such registration
statement and any person who within the meaning of the Securities Act controls
the Company, with respect to any untrue statement in or omission from such
registration statement, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, if such untrue statement or
omission was made in reliance upon and in conformity with written information
furnished or confirmed to the Company through an instrument duly executed by
such seller or such underwriter specifically for use in the preparation of such
registration statement, preliminary prospectus, final prospectus or amendment or
supplement. In the case of each prospective seller, however, the maximum amount
of liability in respect of such
18
<PAGE>
indemnification shall be limited to an amount equal to the net proceeds actually
received by such prospective seller from the sale of Restricted Shares effected
pursuant to such registration.
9.4.3 Indemnification Procedure and Rights. Promptly after receipt by an
indemnified party of notice of the commencement of any action involving a claim
referred to in Section 9.4.1 or 9.4.2 hereof, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action. In case any
such action is brought against an indemnified party, the indemnifying party will
be entitled to participate in and to assume the defense thereof, jointly (to the
extent that it may wish) with any other indemnifying party similarly notified,
with counsel reasonably satisfactory to such indemnified party, and after notice
from such indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall be responsible for any
legal, accounting or other fees or expenses subsequently incurred by the latter
in connection with the defense thereof. Such indemnifying party shall not have
the right to assume the defense of such action on behalf of such indemnified
party, however, if such indemnified party shall have reasonably concluded either
(a) that there may be one or more legal defenses available to it which are
different from or additional to and are inconsistent with those available to the
indemnifying party or (b) that such claim or litigation involves or could have
an effect upon matters beyond the scope of the indemnity agreement provided in
Section 9.4.1 or 9.4.2 hereof. In each such instance contemplated by the
immediately preceding sentence, such indemnifying party shall reimburse such
indemnified party and any person controlling such indemnified party for that
portion of the fees and expenses of any counsel retained by such indemnified
party which are reasonably related to the matters covered by the indemnity
agreement provided in Section 9.4.1 or 9.4.2 hereof.
The indemnifying party shall not make any settlement of any claims
indemnified against hereunder without the written consent of the indemnified
party or parties, which consent shall not be unreasonably withheld.
9.4.4 Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section 9.4 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Company or a seller on grounds of public policy
or otherwise, the Company and each seller shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or defending the same) to
which the Company and each seller or underwriter (and any person who controls
any of the foregoing persons, and any person acting on behalf of any of the
foregoing persons in connection with such registration, including, without
limitation, any officer, director, broker, employee, agent, attorney and
accountant, and in the case of a partnership, each of its partners, as the case
may be), in such proportion as is appropriate to reflect the relative fault of
the Company and such seller or underwriter (and any person, who controls any of
the foregoing persons, and any person acting on behalf of any of the foregoing
in connection with such registration, including, without limitation, any
officer, director, broker, employee, agent, attorney and accountant, and in the
case of a partnership, each of its partners), as the case may be, in connection
with the statements or omissions which resulted in
19
<PAGE>
such losses, claims, damages or liabilities, as well as all other relevant
equitable considerations; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation; and provided further, that in the case of each
seller, the maximum amount of such contribution shall be limited to an amount
equal to the net proceeds actually received by such seller from the sale of
Restricted Shares effected pursuant to such registration. Any party entitled to
contribution under this paragraph shall, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect of
which a claim for contribution may be made against another party or parties
under this paragraph, notify such party or parties from whom contribution may be
sought, but the omission to so notify such party or parties shall not relieve
the party or parties from whom contribution may be sought from any other
obligation it or they may have hereunder or otherwise than under this paragraph.
9.4.5 Alternative Indemnification. Notwithstanding the foregoing
provisions of this Section 9.4, if the Company, the selling stockholders and the
underwriters, pursuant to an underwritten public offering of the Common Stock,
enter into an underwriting or purchase agreement relating to such offering which
contains provisions covering indemnification or contribution among the parties
thereto in connection with such offering, then the indemnification or
contribution provisions of this Section 9.4 shall be deemed inoperative for
purposes of such offering.
9.5 Assignability. Notwithstanding anything to the contrary contained
herein other than in Section 8.1 with respect to the transfer of Restricted
Securities, the rights contained in this Section 9 shall be freely transferable
and assignable by the Investor to any subsequent holders of the Warrant or the
Warrant Shares, or other securities issued in respect thereof which have not
theretofore been sold to the public pursuant to a registration statement under
the Securities Act or Rule 144 (or any similar or successor rule) promulgated
under the Securities Act.
9.6 Information from Investor. In connection with any registration
effected pursuant to this Section 9, each holder of the Warrant or the Warrant
Shares included in any registration effected pursuant to this Section 9 shall
furnish to the Company such information with respect to it and its proposed
distribution as the Company shall reasonably request in writing on a timely
basis and as shall be required by federal or state securities or blue sky laws
applicable to such registration.
9.7 Rule 144. The Company shall comply with all reporting requirements
of the Exchange Act (whether or not it shall otherwise be required to do so),
and shall comply with all other public information reporting requirements of the
SEC as a condition to the availability of an exemption from the Securities Act
(under Rule 144 thereof, as amended from time to time, or successor rule thereto
or otherwise) for the sale of the Warrant Shares. The Company shall cooperate
with Investor in supplying such information as may be necessary for Investor to
complete and file any reporting forms required by the Commission as a condition
to the availability of an exemption from the Securities Act (under Rule 144
thereof or otherwise) for the sale of the Warrant Shares by Investor.
20
<PAGE>
9.8 Granting of Registration Rights. From and after the date
of this Agreement as long as Investor owns or has the right to own any Warrant
Shares, the Company shall not, without the prior written consent of Investor,
grant any rights to any persons to register any shares of capital stock or other
securities of the Company if such rights are superior to the rights of Investor
granted pursuant to this Agreement.
SECTION 10. FEES.
----
The Company will pay, and save the Investor harmless against, all
liability for the payment of up to $10,000 of (i) the fees and disbursements of
McCausland, Keen & Buckman, counsel to the Investor, for its services in
connection with this financing and the transactions contemplated hereby, which
fees and disbursements shall be paid at the Closing, and (ii) the fees and
disbursements of McCausland, Keen & Buckman or other counsel for services
rendered after the date hereof in connection with (a) any modification,
amendment or alteration of any of the terms or provisions of this Agreement, the
Series A Shares, the Warrant, or any future investment made by the Investor in
the Company, or (b) the enforcement of the rights of the Investor pursuant to
this Agreement, the Series A Shares, or the Warrant.
The Company further agrees that it will pay, and will save the
Investor harmless from, any and all liability with respect to any stamp or
similar taxes which may be determined to be payable in connection with the
execution and delivery of this Agreement, the Series A Shares, the Warrant or
the Warrant Shares or any modification, amendment or alteration of the terms or
provisions thereof, and that it will similarly pay and hold the Investor
harmless from all issue taxes in respect of the issuance of the Series A Shares
and the Warrant.
SECTION 11. EXCHANGES; LOST, STOLEN OR MUTILATED CERTIFICATES.
-------------------------------------------------
Upon surrender by the Investor to the Company of any certificate or
certificates representing the Series A Shares, the Warrant or the Warrant
Shares, the Company, at its expense shall issue in exchange therefor, and
deliver to the Investor, a new certificate or certificates representing such
security, in such denomination or denominations as may be requested by the
Investor. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any certificate representing any such
security, and in case of any such loss, theft or destruction, upon delivery of
any indemnity agreement satisfactory to the Company, or in case of any such
mutilation, upon surrender and cancellation of such certificate, the Company at
its expense shall issue and deliver to the Investor a new certificate for such
security, of like tenor, in lieu of such lost, stolen or mutilated certificate.
SECTION 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
------------------------------------------
All representations and warranties contained herein shall survive the
Closing. All covenants and agreements contained herein to be performed by the
Company hereunder shall survive indefinitely until, by their respective terms,
they are no longer operative.
21
<PAGE>
SECTION 13. REMEDIES.
--------
In case any one or more of the covenants and/or agreements set forth in
this Agreement shall have been breached by any party, the party or parties for
whose benefit the covenant and/or agreement has been provided may proceed to
protect and enforce its or their rights either (a) by suit at law limited to an
action for damages in an amount, with respect to the Investor, up to the
Investor's purchase price of the Series A Shares and the Warrant under Section 2
hereof, accrued and unpaid dividends on the Series A Shares and expenses
(including reasonable attorneys', consultants' and other professional fees and
disbursements incurred by the Investor in connection with such action) and, with
respect to the Company, for actual out-of-pocket costs incurred or monies
actually paid (including reasonable attorneys', consultants' and other
professional fees and expenses incurred by the Company in connection with such
action) that the party may sustain, suffer or incur as a result of any such
breach and/or (b) by an action in equity for specific performance of any such
covenant or agreement contained in this Agreement.
SECTION 14. INDEMNIFICATION.
---------------
Each party (the "Indemnifying Party") shall indemnify, defend and hold the
other party (the "Indemnified Party") harmless against all liability, loss or
damage, subject to Section 13, suffered by the Indemnified Party, together with
all reasonable costs and expenses related thereto, including legal and
accounting fees and expenses, arising from any misrepresentation or breach of
warranty or agreement of the Indemnifying Party. Without limiting the
generality of the foregoing and subject to Section 13, the Indemnified Party
shall be deemed to have suffered liability, loss or damage as a result of any
misrepresentation or warranty or the breach of any warranty or agreement of the
Indemnifying Party contained in or made in connection with this Agreement or the
transactions contemplated hereby, if such liability, loss or damage shall be
suffered by the Indemnified Party as a result of such inaccuracy or breach. No
claim for indemnification pursuant to this Section 14 shall be made unless
asserted within one year of the Closing.
SECTION 15. SUCCESSORS AND ASSIGNS.
----------------------
This Agreement shall bind and inure to the benefit of the Company, the
Investor and each other person who shall become a registered holder of one of
shares of the Series A Shares, the Warrant or a holder of Warrant Shares, and
the respective successors, assigns, heirs and personal representatives of the
Company, the Investor and each such other person. In the event that the Investor
shall transfer any part of the Series A Shares, the Warrant or any Warrant
Shares, the rights of the Investor hereunder shall be exercisable by those
persons and entities who own a majority in interest of the Series A Shares and
the Warrant Shares at the time outstanding (assuming for such purpose the
exercise of the Warrant), as the case may be, and all references to the term
"Investor" shall be deemed to be made to the "Investors," provided that the
Investor's rights under Sections 7.1, 7.2 (except Section 7.2.4) and 7.3.2 shall
not be assignable.
22
<PAGE>
SECTION 16. ENTIRE AGREEMENT.
----------------
This Agreement and the other written agreements referred to herein contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior arrangements or understandings with respect thereto.
SECTION 17. NOTICES.
-------
All notices, requests, consents and other communications hereunder to any
party shall be deemed to be sufficient if contained in a written instrument and
shall be deemed to be duly given when delivered in person or, if mailed, five
days after such notice has been duly sent by first-class registered or certified
mail, postage prepaid, addressed to such party at the address set forth below or
such other address as may hereafter be designated in writing by the addressee to
the addressor listing all parties:
(i) if to the Company:
The Eastwind Group, Inc.
100 Four Falls Corporate Center, Suite 305
West Conshohocken, Pennsylvania 19428
with a copy to:
Joseph P. Galda, Esquire
Buchanan Ingersoll, P.C.
Two Logan Square
18th and Arch Streets
Philadelphia, Pennsylvania 19103
and to:
Peter O. Clauss, Esquire
Clark, Ladner, Fortenbaugh & Young
One Commerce Square, 22nd Floor
2005 Market Street
Philadelphia, Pennsylvania 19103
(ii) if to the Investor, the notice shall be sufficient if
addressed to:
Odyssey Capital Group, L.P.
950 West Valley Road, Suite 2902
Wayne, Pennsylvania 19087
with a copy to:
23
<PAGE>
Nancy D. Weisberg, Esquire
McCausland, Keen & Buckman
Five Radnor Corporate Center, Suite 500
100 Matsonford Road
Radnor, Pennsylvania 19087
SECTION 18. Changes.
-------
The terms and provisions of this Agreement may not be modified or amended,
nor any of the provisions hereof waived, temporarily or permanently, except
pursuant to the written consent of the Company and the Investor.
SECTION 19. Headings.
--------
The headings of the various sections of this Agreement have been inserted
for convenience of reference only and shall not be deemed to be a part of this
Agreement.
SECTION 20. Governing Law.
-------------
This Agreement shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Pennsylvania.
SECTION 21. Counterparts.
------------
This Agreement may be executed in any number of counterparts, and each such
counterpart hereof shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
THE EASTWIND GROUP, INC.
By: /s/ William B. Miller
-------------------------------------------------
William B. Miller, Senior Vice President & CFO
ODYSSEY CAPITAL GROUP, L.P.
By: Odyssey Capital Group, Inc., General Partner
By: /s/ John P. Kirwin, III
---------------------------------------------
John P. Kirwin, III, President of the
General Partner
24
