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): July 17, 1997
FOUNTAIN PHARMACEUTICALS, INC.
------------------------------
(Exact name of Registrant as specified in charter)
Delaware 0-18399 62-1386759
-------- ------- ----------
(State or other (Commission File Number) (IRS Employer
jurisdiction of I.D. No.)
incorporation)
7279 Bryan Dairy Road
Largo, Florida 33777
--------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (813) 548-0900
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N/A
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(Former name or former address, if changed since last report)
<PAGE>
Item 1. Changes in Control of Registrant.
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On July 17, 1997, Fountain Pharmaceuticals, Inc. (the "Company") completed
the sale of 2,000,000 newly designated and issued shares of Series A Preferred
Stock (the "Preferred Stock") in a private transaction that has resulted in a
change of control of the Company.
1. Sale of Preferred Stock
-----------------------
The Preferred Stock was sold for $2.5 million in a private transaction to
Fountain Holdings, LLC ("Holdings"), a Wyoming limited liability company
controlled by Joseph S. Schuchert. The Preferred Stock was sold pursuant to the
terms of a Stock Purchase and Subscription Agreement dated July 11, 1997 (the
"Stock Purchase Agreement").
The material terms of the Preferred Stock, as contained within a
Certificate of Designation, Preferences and Rights of Series A Preferred Stock
filed with the Secretary of State of Delaware on July 17, 1997, are as follows:
o LIQUIDATION - The holders of the Preferred Stock (the "Holders") are
entitled to a preferred payment in the event of the liquidation, dissolution or
winding up of the Company of $2.5 million.
o CONVERSION - The Preferred Stock may be converted into shares of the
Company's Common Stock and Class B Common Stock representing one-half of the
approximately 50,566,049 issued and outstanding shares of stock as of July 17,
1997 (which include for that purpose 3,050,000 shares reserved for issuance
pursuant to certain common stock purchase warrants that permit exercise at a
price of $.04 per share). The conversion rate of the Preferred Stock is
adjustable for certain events such as a reclassification, reorganization,
combination and stock-split.
o VOTING RIGHTS - The Holders are entitled to vote that number of
shares equal to the total cast by all other holders, plus seven, in all
elections of directors; however, the Holders may only exercise their voting
rights to elect a majority of the members of the Board of Directors. In all
other matters presented to stockholders for a vote, the Holders shall vote as a
class, and no vote of stockholders shall be effective without the approval of
the holders of a majority of the Preferred Stock.
o PREEMPTIVE RIGHTS - The Holders have the right to purchase not less
than one-third of all shares of any class offered at the same price and terms
proposed by the Company in connection with any third party transaction.
The Stock Purchase Agreement also permits the Holder to acquire, on the
same price and terms, one-half of the 400,000 shares of Common Stock that may be
issued by the Company upon the exercise, if at all, of an existing series of
Common Stock Purchase Warrants which bear an exercise price of $.78.
<PAGE>
In conjunction with the sale of the Preferred Stock, the Company granted
certain demand and incidental registration rights to Holdings. Similar
registration rights were also granted to John C. Walsh, the Company's Chairman
and Chief Executive Officer.
2. Change in Board of Directors
----------------------------
Concurrent with the sale of the Preferred Stock, the Company accepted the
resignation of James Vatell and James Goddard, M.D., from its Board of
Directors. These vacancies were filled by the appointment to the Board of
Directors of Dr. Christopher Brown and Joseph Schuchert, nominees of Holdings.
As reconstituted, the Company's Board of Directors presently consists of John C.
Walsh, Chairman and Chief Executive Officer, James Fuchs, Dr. Christopher Brown
and Joseph Schuchert.
3. Proposed Recapitalization
-------------------------
In conjunction with the sale of the Preferred Stock, the Company and John
C. Walsh, as the holder of a majority of the Company's outstanding Common Stock,
agreed to effect a 10 for 1 reverse stock split. Effectiveness of the reverse
stock split will occur once the Company has complied with the regulatory
requirements of Delaware corporate law and the Securities and Exchange
Commission.
4. Change in Control
-----------------
Upon the effective date of the sale of Preferred Stock the Company had
47,516,049 shares outstanding, of which John C. Walsh was the beneficial owner
of 25,000,000 shares , or approximately 52.6% of the outstanding stock. Assuming
the conversion of the Preferred Stock and the completion of the proposed
recapitalization, the Company would have 7,279,907 shares outstanding, of which
Holdings would be the beneficial owner of 2,528,302 shares, or approximately
34.7%. Mr. Walsh would continue to be the beneficial owner of approximately
34.3% of the outstanding stock.
5. Source of Consideration
-----------------------
The Company has been advised that Holdings funded the purchase price of
the Preferred Stock out of its own working capital.
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
- ------- -------------------------------------------------------------------
(a) None.
(b) None.
(c) Exhibits
Exhibit Description Method of Filing
------- ----------- ----------------
3.5 Certificate of Designation, Preference Filed herewith
and Rights of Series A Preferred Stock
4.2 Form of Warrant Agreement granted to Filed herewith
James Goddard, M.D., Weldon Crow,
Francis Werner, James Fuchs and James
Vatell
4.3 Specimen of Stock Certificate of Filed herewith
Series A Preferred Stock
4.4 Registration Rights Agreement between Filed herewith
the Registrant and Fountain Holdings,
LLC dated July 11, 1997
4.5 Registration Rights Agreement by and Filed herewith
between the Registrant and John C.
Walsh dated July 11, 1997
10.4 Stock Purchase and Subscription Filed herewith
Agreement by and between the
Registrant and Fountain Holdings, LLC
dated July 11, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report on Form 8-K to be signed on its
behalf by the undersigned, hereunto duly authorized.
FOUNTAIN PHARMACEUTICALS, INC.
Dated: July 25, 1997 By: /s/ John C. Walsh
------------------------------------------
John C. Walsh
President and Chief Executive Officer
<PAGE>
EXHIBIT INDEX
Exhibit Description
------- -----------
3.5 Certificate of Designation, Preferences and Rights of
Series A Preferred Stock
4.2 Form of Warrant Agreement granted to James Goddard,
M.D., Weldon Crow, Francis Werner, James Fuchs and James
Vatell
4.3 Specimen of Stock Certificate of Series A Preferred
Stock
4.4 Registration Rights Agreement by and between the
Registrant and Fountain Holdings, LLC dated July 11,
1997
4.5 Registration Rights Agreement by and between the
Registrant and John C. Walsh dated July 11, 1997
10.4 Stock Purchase and Subscription Agreement between the
Registrant and Fountain Holdings, LLC dated July 11,
1997
================================================================================
Certificate of Designation, Preferences and Rights
of Series A Preferred Stock
================================================================================
FOUNTAIN PHARMACEUTICALS, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES A PREFERRED STOCK
Certificate of Designation, Preferences and Rights of Preferred Stock by
Resolution of the Board of Directors providing for an issue of 2,000,000 shares
from a class of Preferred Stock, par value $.001 per share, such shares to be
designated "Series A Preferred Stock," pursuant to Section 151 of the General
Corporation Law of the State of Delaware (the "Certificate of Designation").
________________________________________________________________________________
I, John C. Walsh, President and Assistant Secretary, of Fountain
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), in accordance
with the provisions of Section 151 of the Delaware General Corporation Law, do
HEREBY CERTIFY:
That pursuant to authority conferred upon the Board of Directors of the
Company (the "Board") by the Certificate of Incorporation of the Company, as
amended (the "Certificate of Incorporation"), as in effect on the date thereof,
the Board in an action taken as of July 11, 1997, duly adopted resolutions
providing for the issuance of 2,000,000 shares to be designated "Series A
Preferred Stock" from a class of authorized Preferred Stock, which resolutions
are as follows:
RESOLVED, that pursuant to the authority vested in the Board by the
Certificate of Incorporation, the Board does hereby provide, for the issue of a
series of Preferred Stock of the Company from the Company's class of 2,000,000
authorized shares of $.001 par value preferred stock, to be designated "Series A
Preferred Stock" (the "Series A Preferred Stock"), such issue to consist of
2,000,000 shares, and does hereby fix and herein state and express the voting
and other rights, designations, powers, preferences and relative participation,
optional or other special rights and the qualifications, limitations or
restrictions thereof, as follows (all terms used herein which are defined in the
Certificate of Incorporation shall be deemed to have the meanings provided
therein):
1. DIVIDENDS
---------
The holders of the Series A Preferred Stock (the "Holders") shall be
entitled to receive, the Board shall be required to declare and the Company
shall be required to pay, out of funds of the Company legally available
therefor, an amount of dividends that would be payable to the Series A Preferred
Stock following conversion as though then converted (as though a holder of the
correctly denominated number of shares of Common Stock and Class B Common Stock
in accordance with Paragraph 5 hereof) if, as and when any such dividends are
declared on any shares of Other Stock (as hereinafter defined).
<PAGE>
So long as any shares of Series A Preferred Stock shall remain
outstanding, without the prior approval of the majority in interest of the
Holders, (i) no dividend or other distribution whatsoever shall be declared or
paid upon or set apart for any class of Company capital stock, including but not
limited to Common Stock, Class B Common Stock, any other preferred stock or
series thereof, except the Series A Preferred Stock (all such other Company
stock of any class, except the Series A Preferred Stock shall be referred to
herein as the "Other Stock"); (ii) no shares of Other Stock shall be redeemed or
purchased by the Company or any subsidiary thereof; and (iii) no moneys shall be
paid to or made available for a sinking fund for the redemption or purchase of
Other Stock.
Cash dividends upon shares of the Series A Preferred Stock shall be
payable by wire transfer or check on the applicable Dividend Payment Dates to
the Holders at the address set forth in the books and records of the Company or
any transfer agent and/or registrar appointed for the Series A Preferred Stock.
2. PREFERENCE ON LIQUIDATION
-------------------------
The amount which the Holders shall be entitled to receive as a preferred
payment in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company shall be $1.25 per share (a total of $2,500,000 for
all 2,000,000 shares of Series A Preferred Stock), plus an amount equal to all
declared but unpaid dividends thereon to the date payment is made to the Holders
(the "Liquidation Value"). Such amount shall be paid to the Holders in cash and
prior to any distribution or payment to the holders of Other Stock. In the event
of any such voluntary or involuntary liquidation, dissolution or winding up, the
Series A Preferred Stock may within 10 days following receipt of notice of a
potential liquidation, dissolution or winding up of the business, which notice
shall be provided before any such liquidation, winding up or dissolution may be
effected, convert to Common Stock and Class B Common Stock in accordance with
Paragraph 5 hereof and thereupon participate in the liquidation proceeds
allocated among Common Stock and Class B Common Stock holders in lieu of the
foregoing liquidation preference.
A consolidation or merger of the Company with or into any other
corporation or corporations, or the sale, transfer, or lease of all or
substantially all of the assets or business of the Company shall not be deemed
to be a liquidation, dissolution or winding up of the Company within the meaning
of this Paragraph 2.
3. REDEMPTION BY THE COMPANY
-------------------------
The Company shall not have the right to redeem all or any part of the
outstanding shares of the Series A Preferred Stock.
4. REDEMPTION BY HOLDERS
---------------------
Holders shall not have the right to require the Company to redeem the
shares of Series A Preferred Stock.
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<PAGE>
5. CONVERSION
----------
The Series A Preferred Stock may be converted at such time, in such manner
and upon such terms and conditions as are set forth in this Paragraph 5 into
fully paid and nonassessable shares of the Common Stock and Class B Common Stock
of the Company. The conversion right provided by this Paragraph 5 must be
exercised with respect to all outstanding shares of the Series A Preferred Stock
at one time; conversions from time to time of part of the outstanding Series A
Preferred Stock shall not be allowed, notwithstanding the fact that the Series A
Preferred Stock may be held by more than one Holder.
Subject to the provisions for adjustment hereinafter set forth in this
Paragraph 5, the Series A Preferred Stock may be converted at any time at the
option of the Holders into shares of Common Stock and shares of Class B Common
Stock, representing one-half of the total number of currently issued and
outstanding shares of Common Stock (which shall include the 47,516,049 shares
currently issued and 3,050,000 shares reserved for issuance pursuant to warrants
to acquire Common Stock at a price of $.04 per share, a total of 50,566,049
shares) and one-half of the issued and outstanding shares of Class B Common
Stock and one-half of all warrants or other rights to subscribe to shares of
Class B Common Stock at the time of conversion. Conversion of the Series A
Preferred Stock may be undertaken at any time at the option of the Holders of
the Series A Preferred Stock into, stated on a per-share basis, 12.64151225
shares of Common Stock for each share of Series A Preferred Stock and also into
not less than .022525 shares of Class B Common Stock per share of Series A
Preferred Stock, subject to adjustments herein. The number of shares of Common
Stock and Class B Common Stock into which each share of Series A Preferred Stock
may be converted is hereinafter referred to as the "Conversion Rate."
In case of any split, reverse stock split, or any other reclassification
or change of outstanding Common Stock or Class B Common Stock (other than a
change in par value as a result of a subdivision or combination), or in case of
any consolidation of the Company with any other corporation or any merger of the
Company into another corporation or of another corporation into the Company
(other than a consolidation or merger in which the Company is the continuing or
surviving company and which does not result in any such reclassification or
change in outstanding Common Stock or Class B Common Stock), or in case of any
sale or transfer to another corporation or entity of all or substantially all of
the properties or assets of the Company, the Company (or its successor in such
consolidation or merger) or the purchaser of such properties or assets shall
make appropriate provision so that the Holder of each share of Series A
Preferred Stock then outstanding shall have the right at any time thereafter to
convert such shares into the kind and amount of shares of stock and other
securities and property receivable upon such reclassification, change,
consolidation, merger, sale or transfer, by a holder of the number of shares of
Common Stock and Class B Common Stock into which such Series A Preferred Stock
might have been converted immediately prior to such reclassification, change,
consolidation, merger, sale or transfer; and effective provision shall be made
in the articles or certificate of incorporation of the resulting or surviving
corporation or otherwise, so that the provisions set forth herein for the
protection of the conversion rights of the Series A Preferred Stock shall
3
<PAGE>
thereafter be applicable, as nearly as reasonably may be, to any such other
shares of stock and other securities and property deliverable upon conversion of
the Series A Preferred Stock remaining outstanding; and provided, further, that
any such resulting or surviving corporation shall expressly assume the
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities or properties that the Holders of the Series A Preferred
Stock remaining outstanding shall be entitled to receive, pursuant to the
provisions hereof. In case securities or property other than Common Stock or
Class B Common Stock shall be issuable or deliverable upon conversion as
aforesaid, then all references in this Paragraph 5 shall be deemed to apply, so
far as appropriate and as nearly as may be, to such other securities or
property.
In the event that the Company shall fix a record date for the issuance of
rights and warrants to all holders of its Common Stock or Class B Common Stock
entitling them to subscribe for or purchase shares of Common Stock or Class B
Common Stock or any other securities of the Company at a price per share less
than the then-current market price per share of Common Stock or Class B Common
Stock, as applicable, on such record date, the Conversion Rate to be in effect
after such record date shall be determined by multiplying the Conversion Rate in
effect immediately prior to such record date by a fraction, the numerator of
which shall be the number of shares of Common Stock or Class B Common Stock, as
applicable, outstanding on such record date plus the number of additional shares
of Common Stock or Class B Common Stock, as applicable, to be offered for
subscription to purchase, and the denominator of which shall be the number of
shares of Common Stock or Class B Common Stock, as applicable, outstanding on
such record date plus the number of additional shares of Common Stock or Class B
Common Stock, as applicable, which the aggregate offering price of the total
number of shares so to be offered will purchase at the current market price.
Such adjustment shall be made successively whenever such a record date is fixed.
In case the Company shall fix a record date for the making of a
distribution to holders of Common Stock or Class B Common Stock (including any
such distribution made in connection with a consolidation or merger in which the
Company is the continuing corporation) of evidence of indebtedness or other
assets (excluding dividends paid in, or distributions of, cash to the extent
permitted by law) or subscription rights or warrants, then the Conversion Rate
applicable to either or both the Common Stock or Class B Common Stock, whichever
is effected, after such record date shall be determined by multiplying the
Conversion Rate in effect immediately prior to such record date by a fraction,
the numerator of which shall be the current market price per share of Common
Stock or Class B Common Stock, as applicable, on such record date, and the
denominator of which shall be the current market price per share of Common Stock
or Class B Common Stock, as applicable, less the Fair Market Value (as
determined by the Board of Directors whose determination shall be conclusive in
the absence of fraud) of the portion of the assets or evidence of indebtedness
so to be distributed.
For purposes of this Certificate of Designation, the "current market
price" for any class of securities shall refer to (i) in the event that the
particular class of securities is publicly traded on a recognized exchange or
regular trading market place, the average closing sale price for the prior seven
successive trading days, or (ii) in the event the applicable security is not
traded on any recognized exchange or regular trading market, the current market
price shall be determined by agreement between the Company and the applicable
party or, in the absence of such agreement, which agreement shall be required to
have been made within ten days of the applicable event requiring the
4
<PAGE>
determination of the current market price, determined by a recognized business
appraiser to be selected by agreement between the applicable parties or, in the
absence of such agreement, selected by the Company (provided that the holder or
other applicable party shall have the right to challenge the designation of any
such appraiser for cause within 10 days of the notice of the designation). For
purposes of the foregoing, a "recognized trading market" shall mean the NASDAQ
OTC Bulletin Board or any other marketplace on which securities of domestic
issuers of securities that are registered under Section 12 of the Securities
Exchange Act of 1934 are regularly traded. A challenge to an appraiser for
"cause" shall refer to a challenge based on a pre-existing business or personal
relationship between the appraiser and the Company or any other reasonable set
of definitively ascertainable facts questioning the ability of the applicable
appraiser to fairly value the applicable securities.
Whenever the conversion rate for Common Stock or Class B Common Stock
shall be adjusted as provided above, the Company shall promptly file with its
transfer agent a statement signed by the President and by its Treasurer,
disclosing the nature of such event, the Conversion Rate in effect immediately
thereafter and the kind and amount of stock or other securities or property into
which the Series A Preferred Stock shall be convertible after such event and a
notice containing a summary of the information set forth in said statement, to
be mailed to the Holders of record of Series A Preferred Stock.
The Company shall at all times reserve and keep available, out of its
authorized and unissued stock, solely for the purpose of effecting the
conversion of Series A Preferred Stock, such number of shares of Common Stock
and Class B Common Stock as shall from time to time be sufficient to effect the
conversion of all shares of Series A Preferred Stock into the correct
denominations of Common Stock and Class B Common Stock, respectively, from time
to time. Fractional shares of Common Stock and Class B Common Stock are to be
issued upon conversion. Such fractional shares shall not be redeemable.
The Holder of shares of Series A Preferred Stock desiring to convert the
same into Common Stock and Class B Common Stock shall surrender the certificate
or certificates for such shares of Series A Preferred Stock at the office of the
transfer agent therefor, or at such offices of the Company, if any, as the Board
of Directors may determine, which certificate or certificates shall be duly
endorsed or assigned to the Company or in blank, together with a written request
for conversion. The Company shall be responsible for indemnifying and paying all
taxes payable in respect of any transfer involved in the issue and delivery of
certificates for shares of Common Stock and Class B Common Stock in exchange for
Series A Preferred Stock so surrendered for conversion.
The Company will, upon such surrender for conversion of certificates for
shares of Series A Preferred Stock, issue and deliver at the office at which
such certificates for shares of Series A Preferred Stock shall have been
surrendered, to the person for whose account such shares of Series A Preferred
Stock were so surrendered, or their nominee or nominees, certificates for the
number of shares of Common Stock and Class B Common Stock to which such Holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made as of the date of such surrender of the certificates for shares of Series A
5
<PAGE>
Preferred Stock to be converted and the Holder of Series A Preferred Stock shall
be treated for all purposes as the record holder or holders of such appropriate
shares of Common Stock and Class B Common Stock on such date.
6. VOTING RIGHTS
-------------
(a) Holders of shares of Series A Preferred Stock shall be
entitled to a number of votes in total that equal the total number of votes to
be cast by holders of all then issued and outstanding shares of Common Stock and
Class B Common Stock, plus seven votes in all elections of directors, such
number of votes to be allocated among the shares of Series A Preferred Stock on
a pro rata and equivalent per share basis. Notwithstanding the foregoing,
recognizing that such number of votes shall represent the power to elect the
entire Board of Directors, the Series A Preferred Stock shall exercise such
votes in the election of directors only to elect a majority of the Board of
Directors, and shall otherwise vote its shares of stock for nominees that are
not designated by the Series A Preferred Stock Holders but who are appropriately
nominated. The Company shall not allow cumulative voting in the election of
directors.
(b) In all matters presented to stockholders of the Company
for a vote, whether required by applicable corporate law or otherwise, the
Series A Preferred Stock shall vote as a class and no vote of stockholders shall
be effective without the approval of the holders of a majority of the shares of
the Series A Preferred Stock. Without limiting the generality of the foregoing,
so long as the Series A Preferred Stock is outstanding, the Company shall not,
without the consent of the Holders of at least a majority of the aggregate
number of shares of Series A Preferred Stock, either in writing or by vote at a
meeting called for that purpose, at which the Holders of the Series A Preferred
Stock shall vote as a class:
(i) authorize or increase the authorized number of
shares of any class or series of stock;
(ii) amend the Articles of Incorporation of the Company
or adopt any Resolution of the Board of Directors establishing or
designating a series of preferred stock; or
(iii) undertake any other fundamental corporate change,
such as a merger, consolidation, sale of assets, reclassification of
shares or other material transaction.
7. PREEMPTIVE RIGHTS
-----------------
Shares of any class may not be sold for cash without first offering not
less than one-third of such shares to be offered or sold to the Series A
Preferred Stock Holders at the same price and terms proposed, excluding shares
sold to directors, employees and consultants pursuant to option or similar
benefit plans.
6
<PAGE>
In order to implement the foregoing preemptive rights, the Company shall
notify the holders of the Series A Preferred Stock of any proposed sale of
securities. Such notice shall be in writing and shall include the price and
terms pursuant to which the applicable securities are proposed to be sold and
the characteristics of the applicable securities. Following receipt of such
notice and within 15 days thereof, the holders of the Series A Preferred Stock
shall provide notice to the Company of whether and to the extent that Series A
Preferred Stockholders intend to exercise their preemptive right. The applicable
securities may be offered and sold at the price and on terms set forth in the
notice to the holders of the Series A Preferred Stock following the expiration
of this 15-day period. In the event the Company proposes to alter the price or
terms, or the characteristics of the security proposed to be sold from that set
forth in the notice, an additional notice shall be provided setting forth the
new price, terms or characteristics and the holders of the Series A Preferred
Stock shall have the opportunity, in accordance with the procedures set forth
above for notice and the right to exercise the preemptive right, to exercise the
preemptive right as the new price, terms or to acquire the securities with the
differing characteristics, as applicable.
8. SEVERABILITY OF PROVISIONS
--------------------------
If any right, preference or limitation of the Series A Preferred Stock set
forth in this Certificate is invalid, unlawful or incapable of being enforced by
reason of any rule of law or public policy, all of the rights, preferences and
limitations set forth in this Certificate (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall nevertheless remain in full force and effect and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein. Further,
any such invalid, unlawful or unenforceable right shall be enforced to the
fullest extent permissible for the benefit of the Holder.
Signed this 11th day of July, 1997.
--------------------------------------
JOHN C. WALSH, President and
Assistant Secretary
7
<PAGE>
STATE OF FLORIDA )
) ss.
County of Pinellas )
The foregoing document was acknowledged before me this 11th day
of July, 1997, by JOHN C. WALSH.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
--------------------------------------
Notary Public
My commission expires:
- ------------------------
8
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Form of Warrant Agreement granted to James Goddard, M.D., Weldon Crow,
Francis Werner, James Fuchs and James Vatell
================================================================================
FORM OF WARRANT
THIS WARRANT REPRESENTS THE ENTIRE AGREEMENT BETWEEN THE PARTIES AND SUPERSEDES
AND RENDERS NULL AND VOID ALL PRIOR AGREEMENTS, INSTRUMENTS OR DOCUMENTS
RELATING TO ANY AND ALL WARRANTS PREVIOUSLY GRANTED TO THE HOLDER
WARRANT TO PURCHASE
COMMON STOCK OF
FOUNTAIN PHARMACEUTICALS, INC.
Void after 5:00 p.m. Eastern Standard Time on December 20, 2000
This is to verify that, FOR VALUE RECEIVED, ________________, or
registered assigns (hereinafter referred to as the "Holder") is entitled to
purchase, subject to the terms and conditions hereof, from FOUNTAIN
PHARMACEUTICALS, INC., a Delaware corporation ("Company"), _______ shares of
Common Stock, par value $.001 per share of the Company (the "Common Stock") at
any time during the period commencing at 9:00 a.m., Eastern Standard Time on
December 20, 1995 (the "Commencement Date") and ending at 5:00 p.m. Eastern
Standard Time on December 20, 2000 (the "Termination Date") at an exercise price
of $.04 per share of Common Stock, subject to the vesting schedule set forth in
Paragraph 1 hereafter. The number of shares of Common Stock purchasable upon
exercise of this Warrant (the "Warrant(s)") and the exercise price per share
shall be subject to adjustment from time to time upon the occurrence of certain
events as set forth below.
The shares of Common Stock or any other shares or other units of stock or
other securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares". The exercise price per share as from time
to time in effect is referred to hereinafter as the "Exercise Price".
1. EXERCISE OF WARRANT: ISSUANCE OF EXERCISE SHARES.
(a) EXERCISE OF WARRANT. Subject to the vesting period set forth
hereafter, this Warrant may be exercised in whole or in part at any time or from
time to time on or after the Commencement Date and until and including the
Termination Date, upon surrender on any business day to the Company at its
principal office, presently located at the address of the Company set forth in
Paragraph 9 hereof, (or such other office of the Company, if any, as shall
theretofore have been designated by the Company by written notice to the
Holder), together with: (i) a completed and executed Notice of Warrant Exercise
in the form set forth in Appendix A hereto and made a part hereof and (ii)
payment of the full Exercise Price for the amount of Exercise Shares set forth
in the Notice of Warrant Exercise, in lawful money of the United States of
America by certified check or cashier's check, made payable to the order of the
Company.
<PAGE>
The Holder's right to purchase shares subject to this Warrant shall vest
at a rate of one-third of the shares on July 19, 1996, one-third of the shares
on July 19, 1997 and one-third of the shares on July 19, 1998. In the event of
any merger, sale or other significant change in the capital structure of the
Company, the Holder's right to purchase all of the shares subject to this
Warrant shall vest immediately.
In the event that this Warrant shall be duly exercised in part prior to
the Termination Date, the Company shall issue a new Warrant or Warrants of like
tenor evidencing the rights of the Holder thereof to purchase the balance of the
Exercise Shares purchasable under the Warrant so surrendered that shall not have
been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. The Company shall cancel Warrant
Certificates surrendered upon exercise of Warrants.
(b) ISSUANCE OF EXERCISE SHARES: DELIVERY OF WARRANT CERTIFICATE. The
Company shall, within ten (10) business days or as soon thereafter as is
practicable of the exercise of this Warrant, issue in the name of and cause to
be delivered to the Holder (or such other person or persons, if any, as the
Holder shall have designated in the Notice of Warrant Exercise) one or more
certificates representing the Exercise Shares to which the Holder (or such other
person or persons) shall be entitled upon such exercise under the terms hereof.
Such certificate or certificates shall be deemed to have been issued and the
Holder (or such other person or persons so designated) shall be deemed to have
become the record holder of the Exercise Shares as of the date of the due
exercise of this Warrant.
(c) EXERCISE SHARES FULLY PAID AND NON-ASSESSABLE. The Company agrees and
covenants that all Exercise Shares issuable upon the due exercise of the Warrant
represented by this Warrant Certificate will, upon issuance in accordance with
the terms hereof, be duly authorized, validly issued, fully paid and
non-assessable and free and clear of all taxes (other than taxes which, pursuant
to Paragraph 2 hereof, the Company shall not be obligated to pay) or liens,
charges, and security interests created by the Company with respect to the
issuance thereof.
(d) RESERVATION OF EXERCISE SHARES. At the time of or before taking any
action which would cause an adjustment pursuant to Paragraph 6 hereof increasing
the number of shares of capital stock constituting the Exercise Shares, the
Company will take any corporate action which may, in the opinion of its counsel,
be necessary in order that the Company have remaining, after such adjustment, a
number of shares of such capital stock unissued and unreserved for other
purposes sufficient to permit the exercise of all the then outstanding Warrants
of like tenor immediately after such adjustment; the Company will also from time
to time take action to increase the authorized amount of its capital stock
constituting the Exercise Shares if at any time the number of shares of capital
stock authorized but remaining unissued and unreserved for other purposes shall
be insufficient to permit the exercise of the Warrants then outstanding. The
Company may but shall not be limited to reserve and keep available, out of the
aggregate of its authorized but unissued shares of capital stock, for the
purpose of enabling it to satisfy any obligation to issue Exercise Shares upon
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<PAGE>
exercise of Warrants, through the Termination Date, the number of Exercise
Shares deliverable upon the full exercise of this Warrant and all other Warrants
of like tenor then outstanding.
At the time of or before taking any action which would cause an adjustment
pursuant to Paragraph 6 hereof, reducing the Exercise Price below the then par
value (if any) of the Exercise Shares issuable upon exercise of the Warrants,
the Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order to assure that the par value per share of the
Exercise Shares is at all times equal to or less than the Exercise Price per
share and so that the Company may validly and legally issue fully paid and
non-assessable Exercise Shares at the Exercise Price, as so adjusted; the
Company will also from time to time take such action if at any time the Exercise
Price is below the then par value of the Exercise Shares.
(e) FRACTIONAL SHARES. The Company shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, the Company shall pay to the Holder exercising the Warrant an amount in
cash equal to such fraction multiplied by the current market value of the
Exercise Share. For purposes of this subparagraph (e), the current market value
shall be determined as follows:
(i) if the Exercise Shares are traded in the over-the-counter market
and not on any national securities exchange and not in the NASDAQ Reporting
System, the average of the mean between the last bid and asked prices per share,
as reported by the National Quotation Bureau, Inc., or an equivalent generally
accepted reporting service, for the last business day prior to the date on which
this Warrant is exercised, or if not so reported, the average of the closing bid
and asked prices for an Exercise Share as furnished to the Company by any member
of the National Association of Securities Dealers, Inc., selected by the Company
for that purpose; or
(ii) if the Exercise Shares are listed or traded on a national
securities exchange or in the NASDAQ National Market System, the closing price
on the principal national securities exchange on which they are so listed or
traded or in the NASDAQ National Market System, as the case may be, on the last
business day prior to the date of the exercise of this Warrant. The closing
price referred to in this clause (ii) shall be the last reported sales price or,
in case no such reported sale takes place on such day, the average of the
reported closing bid and asked prices, in either case on the national securities
exchange on which the Exercise Shares are then listed or in the NASDAQ Reporting
System; or
(iii) if no such closing price or closing bid and asked prices are
available, as determined in any reasonable manner as may be prescribed by the
Board of Directors of the Company.
2. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes, if
any, attributable to the initial issuance of Exercise Shares upon the exercise
of this Warrant; provided, however, that the Company shall not be required to
pay any tax or taxes which may be payable in respect of any transfer involved in
the issue of any Warrant Certificates or any certificates for Exercise Shares in
a name other than that of the Holder of a Warrant Certificate surrendered upon
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<PAGE>
the exercise of a Warrant, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
3. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any Warrant Certificate
shall be mutilated, lost, stolen or destroyed, the Company may in its discretion
issue, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate or Warrant
Certificates of like tenor and in the same aggregate denomination, but only (i)
in the case of loss, theft or destruction, upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant Certificate
and indemnity or bond, if requested, also satisfactory to them and (ii) in the
case of mutilation, upon surrender of the mutilated Warrant. Applicants for such
substitute Warrant Certificates shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company or its counsel
may prescribe.
4. RIGHTS OF HOLDER. The Holder shall not, by virtue of anything contained in
this Warrant Certificate or otherwise, be entitled to any right whatsoever,
either in law or equity, of a stockholder of the Company, including without
limitation, the right to receive dividends or to vote or to consent or to
receive notice as a shareholder in respect of the meetings of shareholders or
the election of directors of the Company or any other matter.
5. REGISTRATION OF TRANSFERS AND EXCHANGES. The Warrant shall be
transferable, subject to the provisions of Paragraph 7 hereof, only upon the
books of the Company, if any, to be maintained by it for that purpose, upon
surrender of the Warrant Certificate to the Company at its principal office
accompanied (if so required by it) by a written instrument or instruments of
transfer in form satisfactory to the Company and duly executed by the Holder
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer. In all cases of transfer by an
attorney, the original letter of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited and remain with the Company. In case
of transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and remain with the Company in its
discretion. Upon any such registration of transfer, a new Warrant Certificate
shall be issued to the transferee named in such instrument of transfer, and the
surrendered Warrant Certificate shall be canceled by the Company.
Any Warrant Certificate may be exchanged, at the option of the Holders
thereof and without change, when surrendered to the Company at its principal
office, or at the office of its transfer agent, if any, for another Warrant
Certificate or other Warrant Certificates of like tenor and representing in the
aggregate the right to purchase from the Company a like number and kind of
Exercise Shares as the Warrant Certificate surrendered for exchange or transfer,
and the Warrant Certificate so surrendered shall be canceled by the Company or
transfer agent, as the case may be.
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<PAGE>
6. ADJUSTMENT OF EXERCISE SHARES AND EXERCISE PRICE. The Exercise Price and
the number and kind of Exercise Shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the happening of
certain events as hereinafter provided. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend or make a distribution
on its shares of Common Stock in shares of Common Stock, (ii) subdivide or
classify its outstanding Common Stock into a greater number of shares, or (iii)
combine or reclassify its outstanding Common Stock into a smaller number of
shares, the Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be proportionally adjusted so that the
Holder of this Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of shares which, if this Warrant had been
exercised by such Holder immediately prior to such date, he would have owned
upon such exercise and been entitled to receive upon such dividend, subdivision,
combination or reclassification. For example, if the Company declares a 2 for 1
stock dividend or stock split and the Exercise Price immediately prior to such
event was $5.00 per share, the adjusted Exercise Price immediately after such
event would be $2.50 per share. Such adjustment shall be made successively
whenever any event listed above shall occur.
(b) In case the Company shall hereafter issue rights or warrants to all
holders of its Common Stock entitling them to subscribe for or purchase shares
of Common Stock (or securities convertible into Common Stock) at a price (or
having a conversion price per share) less than the current market price of the
Common Stock (as defined in subsection (d) below) on the record date mentioned
below, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall be the
sum of the number of shares of Common Stock outstanding on the record date
mentioned below and the number of additional shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered (or the aggregate conversion price of the convertible securities so
offered) would purchase at such current market price per share of the Common
Stock, and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding on such record date and the number of additional shares
of Common Stock offered for subscription or purchase (or into which the
convertible securities so offered are convertible). Such adjustment shall be
made successively whenever such rights or warrants are issued and shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants; and to the extent that
shares of Common Stock are not delivered (or securities convertible into Common
Stock are not delivered) after the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or warrants
been made upon the basis of delivery of only the number of shares of Common
Stock (or securities convertible into Common Stock) actually delivered.
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<PAGE>
(c) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to subsection (a) and (b) above, the number of Exercise Shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted by
multiplying the number of Exercise Shares initially issuable upon exercise of
this Warrant by the Exercise Price in effect on the date hereof and dividing the
product so obtained by the Exercise Price, as adjusted.
(d) For the purpose of any computation under subsection (b) above, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for thirty (30) consecutive business
days before such date. The closing price for each day shall be the last sale
price regular way or, in case no such reported sale takes place on such day, the
average of the last reported bid and lowest reported asked prices as reported by
NASDAQ, or other similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price as determined by the
Board of Directors.
(e) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents ($0.10)
in such price; provided, however, that any adjustments which by reason of this
subsection (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Paragraph 6 shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Paragraph
6 to the contrary notwithstanding, the Company shall be entitled, but shall not
be required, to make such changes in the Exercise Price, in addition to those
required by this Paragraph 6, as it, in its sole discretion, shall determine to
be advisable in order that any dividend or distribution in shares of Common
Stock, subdivision, reclassification or combination of Common Stock, issuance of
Warrants to Purchase Common Stock or distribution of evidences of indebtedness
or other assets (excluding cash dividends) referred to hereinabove in this
Paragraph 6 hereafter made by the Company to the holders of its Common Stock
shall not result in any tax to the holders of its Common Stock or securities
convertible into Common Stock.
(f) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Exercise Shares issuable upon exercise of each Warrant to
be mailed to the Holders, at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Paragraph 6, and a certificate signed by such firm shall be conclusive evidence
of the correctness of such adjustment.
(g) In the event that at any time, as a result of an adjustment made
pursuant to subsection (a) above, the Holder of this Warrant thereafter shall
become entitled to receive any Exercise Shares of the Company, other than Common
Stock, thereafter the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in subsections (a) to (e), inclusive, above.
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<PAGE>
(h) Irrespective of any adjustments in the Exercise Price or the number
or kind of Exercise Shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant.
(i) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Paragraph 6, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts as
shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder.
7. RESTRICTIONS ON TRANSFERABILITY: RESTRICTIVE LEGEND. Neither this
Warrant nor the Exercise Shares shall be transferable except in accordance
with the provisions of this Paragraph.
(a) RESTRICTIONS ON TRANSFER; INDEMNIFICATION. Neither this Warrant nor
any Exercise Share may be offered for sale or sold, or otherwise transferred or
sold in any transaction which would constitute a sale thereof within the meaning
of the Securities Act of 1933, as amended (the "1933 Act"), unless (i) such
security has been registered for sale under the 1933 Act and registered or
qualified under applicable state securities laws relating to the offer and sale
of securities, or (ii) exemptions from the registration requirements of the 1933
Act and the registration or qualification requirements of all such state
securities laws are available and the Company shall have received an opinion of
counsel satisfactory to the Company that the proposed sale or other disposition
of such securities may be effected without registration under the 1933 Act and
would not result in any violation of any applicable state securities laws
relating to the registration or qualification of securities for sale, such
counsel and such opinion to be satisfactory to the Company.
The Holder agrees to indemnify and hold harmless the Company against any
loss, damage, claim or liability arising from the disposition of this Warrant or
any Exercise Share held by such holder or any interest therein in violation of
the provisions of this Paragraph 7.
(b) RESTRICTIVE LEGENDS. Unless and until otherwise permitted by this
Paragraph 7, this Warrant Certificate, each Warrant Certificate issued to the
Holder or to any transferee or assignee of this Warrant Certificate, and each
Certificate representing Exercise Shares issued upon exercise of this Warrant or
to any transferee of the person to whom the Exercise Shares were issued, shall
bear a legend setting forth the requirements of subparagraph (a) of this
Paragraph 7, together with such other legend or legends as may otherwise be
deemed necessary or appropriate by counsel to the Company.
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<PAGE>
(c) NOTICE OF PROPOSED TRANSFERS. Prior to any transfer, offer to
transfer or attempted transfer of this Warrant or any Exercise Share, the holder
of such security shall give written notice to the Company of such holder's
intention to effect such transfer. Each such notice shall (x) describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall contain an undertaking by the person giving such notice to furnish such
other information as may be required, to enable counsel to render the opinions
referred to below, and shall (y) designate the counsel for the person giving
such notice, such counsel to be satisfactory to the Company. The person giving
such notice shall submit a copy thereof to the counsel designated in such notice
and the Company shall submit a copy thereof to its counsel, and the following
provisions shall apply:
(i) If, in the opinion of each such counsel, the proposed transfer of
this Warrant or Exercise Share, as appropriate, may be effected without
registration of such security under the 1933 Act, the Company shall, as promptly
as practicable, so notify the holder of such security and such holder shall
thereupon be entitled to transfer such security in accordance with the terms of
the notice delivered by such holder to the Company. Each certificate evidencing
the securities thus to be transferred (and each certificate evidencing any
untransferred balance of the securities evidenced by such certificate) shall
bear the restrictive legends referred to in subparagraph (b) above, unless in
the opinion of each such counsel such legend is not required in order to insure
compliance with the 1933 Act.
(ii) If, in the opinion of either of such counsel, the proposed transfer
of securities may not be effected without registration under the 1933 Act, the
Company shall, as promptly as practicable, so notify the holder thereof.
However, the Company shall have no obligation to register such securities under
the 1933 Act, except as otherwise provided herein.
The holder of the securities giving the notice under this subparagraph (c)
shall not be entitled to transfer any of the securities until receipt of notice
from the Company under paragraph (i) of this subparagraph (c) or registration of
such securities under the 1933 Act has become effective.
(d) REMOVAL OF LEGEND. The Company shall, at the request of any
registered holder of a Warrant or Exercise Share, exchange the certificate
representing such security for a certificate representing the same security not
bearing the restrictive legend required by subparagraph (b) if, in the opinion
of counsel to the Company, such restrictive legend is no longer necessary.
8. REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Holder(s) of the
Warrants may cause the Exercise Shares to be registered by the Company as
follows:
(a) The Company shall advise the Holder by written notice prior to the
filing of a registration statement under the 1933 Act (excluding registration on
Forms S-8, S-4, or any successor forms thereto), covering securities of the
Company to be offered and sold to the public generally and shall, upon the
request of the Holder given at least three (3) business days prior to the filing
of such registration statement, include in any such registration statement such
information as may be required to permit a public offering of the Exercise
Shares. The Company shall supply prospectuses, qualify the Exercise Shares for
sale in such states as the Company qualifies its securities and furnish
indemnification in the manner as set forth in subsection (b)(ii) of this
8
<PAGE>
Paragraph 8; PROVIDED, HOWEVER, that the Company will not be required to
maintain the registration of the Exercise Shares for any longer period than it
shall require for its own purposes. The Holder shall furnish such information as
may be reasonably requested by the Company in order to include such Exercise
Shares in the registration statement. In the event that any registration
pursuant to this Paragraph 8 shall be, in whole or in part, an underwritten
public offering of Common Stock, the number of Exercise Shares to be included in
such underwriting may be reduced if and to the extent the managing underwriter
shall be of the opinion that such inclusion would adversely affect the marketing
of the securities to be sold by the Company therein. Notwithstanding the
foregoing, the Company may withdraw any registration statement referred to in
this Paragraph 8 without thereby incurring liability to the holders of the
Exercise Shares.
(b) The following provisions of this Paragraph 8 shall also be
applicable:
(i) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under subsection (a) of this
Paragraph 8 notwithstanding that Exercise Shares subject to this Warrant may be
included in any such registration. The Holder whose Exercise Shares are included
in any such registration statement pursuant to this Paragraph 8 shall, however,
bear the fees of its own counsel and any registration fees, transfer taxes or
underwriting discounts or commissions applicable to the Exercise Shares sold by
it pursuant thereto and bear any other costs imposed by applicable federal or
state securities laws, rules or regulations.
(ii) The Company shall indemnify and hold harmless the Holder and
each underwriter, within the meaning of the Act, who may purchase from or sell
for the Holder any Exercise Shares from and against any and all losses, claims,
damages and liabilities caused by any untrue statement or alleged untrue
statement of a material fact contained in any registration statement under the
Act filed by or at the direction of the Company or any prospectus included
therein required to be filed or furnished by reason of this Paragraph 8 or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished or required to be furnished in
writing to the Company by the Holder or underwriter expressly for use therein,
which indemnification shall include each person, if any, who controls any such
underwriter within the meaning of such Act; PROVIDED, HOWEVER, that the Company
shall not be obliged so to indemnify the Holder or underwriter or controlling
person unless the Holder or underwriter shall at the same time indemnify the
Company, its directors, each officer signing the related registration statement
and each person, if any, who controls the Company within the meaning of such
Act, from and against any and all losses, claims, damages and liabilities caused
by any untrue statement or alleged untrue statement of a material fact contained
in any registration statement or any prospectus required to be filed or
furnished by reason of this Paragraph 8 or caused by any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or alleged untrue statement or
omission based upon information furnished in writing to the Company by the
Holder or underwriter expressly for use therein.
9
<PAGE>
9. NOTICES. All notices or other communications under this Warrant
Certificate shall be in writing and shall be deemed to have been given if
delivered by hand or mailed by certified mail, postage prepaid, return receipt
requested, addressed as follows:
If to the Company:
Fountain Pharmaceuticals, Inc.
7279 Bryan Dairy Road
Largo, FL 33777
Attention: Chief Executive Officer, John C. Walsh
and to the Holder at the address of the Holder appearing on the
books of the Company or the Company's transfer agent, if any.
Either of the Company or the Holder may from time to time change the
address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of this Paragraph 9.
10. SUPPLEMENTS AND AMENDMENTS. The Company may from time to time supplement
or amend this Warrant Certificate without the approval of any holders of
Warrants in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provision, or to make any other provisions in regard to matters or questions
herein arising hereunder which the Company may deem necessary or desirable and
which shall not materially adversely affect the interests of the Holder.
11. SUCCESSORS AND ASSIGNS. This Warrant shall inure to the benefit of and be
binding on the respective successors, assigns and legal representatives of the
Holder and the Company.
12. SEVERABILITY. If for any reason any provision, paragraph or terms of this
Warrant Certificate is held to be invalid or unenforceable, all other valid
provisions herein shall remain in full force and effect and all terms,
provisions and paragraphs of this Warrant shall be deemed to be severable.
13. GOVERNING LAW. This Warrant shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of said State.
14. HEADINGS. Paragraph and subparagraph headings used herein are included
herein for convenience of reference only and shall not affect the construction
of this Warrant Certificate nor constitute a part of this Warrant Certificate
for any other purpose.
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IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed the 10th day of July, 1997 defined herein as the "Commencement Date."
Fountain Pharmaceuticals, Inc.
By:_________________________________
John C. Walsh
Chief, Executive Officer
Acknowledged and Agreed to by the undersigned this 10th day of July 1997.
_______________________
________________
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<PAGE>
APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the undersigned and Fountain
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), dated as of
December 20, 1995, and subject to the vesting periods set forth therein, the
undersigned hereby irrevocably elects to exercise its warrant to the extent of
purchasing _______________ shares of Common Stock, $.001 par value (the "Warrant
Shares"), of the Company as provided for therein.
The undersigned hereby represents and agrees that the Warrant Shares
purchased pursuant hereto are being purchased for investment and not with a view
to the distribution or resale thereof, and that the undersigned understands that
said Warrant Shares have not been registered under the Securities Act of 1933,
as amended.
Payment of the full Purchase Price of the Warrant Shares is enclosed
herewith, in the form of a check made payable to the Company.
The undersigned requests that a certificate for the Warrant Shares be
issued in the name of:
__________________________________________________
__________________________________________________
__________________________________________________
(Please print name, address and social security number)
Dated:__________________________________, 199__
Address:___________________________________________________
___________________________________________________
___________________________________________________
Signature:_________________________________________________
12
================================================================================
Specimen of Stock Certificate of Series A Preferred Stock
================================================================================
SPECIMEN STOCK CERTIFICATE
FOUNTAIN PHARMACEUTICALS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
50,000 SHARES COMMON STOCK 5,000,000 SHARES CLASS B COMMON STOCK
Par Value $.001 Per Share Par Value $.001 Per Share
2,000,000 SHARES SERIES A PREFERRED STOCK
Par Value $.001 Per Share
THIS CERTIFIES THAT __________________________________________________________
is the owner of _____________________________________________ shares of the
SERIES A PREFERRED STOCK OF FOUNTAIN PHARMACEUTICALS, INC., fully paid and
non-assessable, transferable only on the books of the Corporation in person or
by Attorney upon surrender of this Corporation in person or by Attorney upon
surrender of this Certificate properly endorsed.
The corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ________________________ day of ________________________________,
A.D. 19_______.
_______________________ _________________________
SECRETARY PRESIDENT
<PAGE>
LEGEND INSERTS
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE
SECURITIES LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL
OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.
TRANSFERABILITY IS FURTHER LIMITED BY THE TERMS OF A STOCK PURCHASE AND
SUBSCRIPTION AGREEMENT AS OF JULY 11, 1997 TO WHICH THE COMPANY IS A PARTY.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A CERTIFICATE OF
DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A PREFERRED STOCK ("CERTIFICATE OF
DESIGNATION"), WHICH WAS FILED WITH THE DELAWARE SECRETARY OF STATE ON JULY 17,
1997, AS SUPPLEMENTED OR AMENDED. A COPY OF THE CERTIFICATE OF DESIGNATION AS
MAY BE SO SUPPLEMENTED OR AMENDED SHALL BE PROVIDED TO THE HOLDER HEREOF WITHOUT
CHARGE UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY AT THE PRINCIPAL
OFFICE OF THE COMPANY.
================================================================================
Registration Rights Agreement by and between the Registrant
and Fountain Holdings, LLC dated July 11, 1997
================================================================================
REGISTRATION RIGHTS AGREEMENT
July 11, 1997
In connection with the purchase by the undersigned Purchaser of 2,000,000
shares (the "Preferred Shares") of Series A Preferred Stock, $.001 par value
(the "Series A Preferred Stock"), of Fountain Pharmaceuticals, Inc., a Delaware
corporation (the "Company"), pursuant to the Stock Purchase and Subscription
Agreement of even date herewith (the "Purchase Agreement") between the Company
and the Purchaser and as an inducement to the Purchaser to consummate the
transactions contemplated by the Purchase Agreement, the Company covenants and
agrees with the Purchaser as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"CLASS B STOCK" shall mean the Class B Common Stock of the Company,
$.001 par value per share.
"COMMISSION" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the Common Stock of the Company, $.001 par
value per share.
"CONVERSION SHARES" shall mean shares of Common Stock and Class B
Stock issued upon conversion of the Preferred Shares.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, 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.
"PREFERRED SHARES" shall mean the Series A Preferred Shares sold
pursuant to the Purchase Agreement.
"PREFERRED STOCK" shall mean the Series A Preferred Stock.
"REGISTRATION EXPENSES" shall mean the expenses so described in
Section 8.
<PAGE>
"RESTRICTED STOCK" shall mean the Conversion Shares, excluding
Conversion Shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder or (b)
publicly sold pursuant to Rule 144 under the Securities Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
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.
"SELLING EXPENSES" shall mean the expenses so described in Section
8.
2. RESTRICTIVE LEGEND. Each certificate representing Preferred Shares
and Conversion Shares shall, except as otherwise provided in this Section 2 or
in Section 3, be stamped or otherwise imprinted with a legend substantially in
the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT
AND ALL SUCH APPLICABLE STATE LAWS OR AN EXEMPTION FROM REGISTRATION
IS AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company the securities represented thereby may be publicly
sold without registration under the Securities Act and any applicable state
securities laws.
3. CONVERSION. Pursuant to a Certificate of Designation duly adopted by
the board of directors of the Company, the Preferred Shares are convertible into
shares of the Common Stock and Class B Stock from time to time at the discretion
of the holder of Preferred Shares. It is acknowledged that the registration
rights set forth in this Agreement extend to all shares of Common Stock and
Class B Stock acquired upon conversion of the Preferred Shares to the extent
they are at any such time Restricted Stock within the meaning of this Agreement.
Notwithstanding the foregoing and by way of expression, the registration rights
contemplated by this Agreement shall extend to the holders of Preferred Stock
who may at any time exercise such rights prior to conversion of the Preferred
Shares; in such event, conversion of the Preferred Shares may be made contingent
upon the registration in accordance with the terms and conditions of this
Agreement of the shares to be acquired upon such conversion. For purposes of
this Agreement, shares to be acquired upon conversion of Preferred Shares and
for which registration is to be effected in accordance with this Agreement prior
to conversion (with conversion contingent upon registration) shall for purposes
hereof be deemed to be "Conversion Shares" and "Restricted Stock" as the context
requires.
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4. REQUIRED REGISTRATION. (a) At any time following the conversion of
Preferred Shares or subject to conversion if conversion is made contingent upon
registration by the holder of Preferred Shares, the holders of the resultant
Conversion Shares constituting at least 50% of the total number of Conversion
Shares then outstanding may, by written notice to the Company, request the
Company to register under the Securities Act all or any portion of the
Conversion Shares held by such requesting holder or holders for sale in the
manner specified in such notice. For purposes of this Section 4 and Sections 5,
6, 13(a) and 13(d), the term "Restricted Stock" shall be deemed to include the
number of shares of Restricted Stock which would be issuable to a holder of
Preferred Shares upon conversion of all Preferred Shares held by such holder at
such time. Notwithstanding anything to the contrary contained herein, no request
may be made under this Section 4 within 180 days after the effective date of a
registration statement filed by the Company covering a firm commitment
underwritten public offering.
(a) Following receipt of any notice under this Section 4, the Company
shall promptly notify all holders of Restricted Stock from whom notice to
register has not been received and shall use its best efforts to register under
the Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in all notices received by the
Company from such other holders within 30 days after the giving of such notice
by the Company). If such method of disposition shall be an underwritten public
offering, the holders of a majority of the shares of Restricted Stock to be sold
in such offering may designate the managing underwriter of such offering,
subject to the approval of the Company, which approval shall not be unreasonably
withheld or delayed. If such method of disposition is an underwritten public
offering and in the opinion of the managing underwriter inclusion of all shares
of Restricted Stock for which registration has been requested would adversely
affect the marketing of the shares to be sold, the number of shares of
Restricted Stock to be included may be reduced pro rata among requesting holders
based on the number of shares of Restricted Stock owned by such holders. The
Company shall be obligated to register Restricted Stock pursuant to demand made
in this Section 4 on two occasions only, PROVIDED, HOWEVER, that such obligation
shall be deemed satisfied only when a registration statement covering all shares
of Restricted Stock specified in notices received as aforesaid for sale in
accordance with the method of disposition specified by the requesting holders,
shall have (i) become effective and, if such method of disposition is a firm
commitment underwritten public offering, all such shares shall have been sold
pursuant thereto, or (ii) been withdrawn at the request of holders of Restricted
Stock requesting such registration (other than solely as a result of material
information concerning the business or financial condition of the Company which
is made known to such holders after the date on which such registration was
requested).
(b) Except for registration statements on Form S-8 or any successor form
thereto, the Company will not file with the Commission any other registration
statement with respect to its Common Stock or Class B Stock, whether for its own
account or that of other stockholders, from the date of receipt of a notice from
requesting holders pursuant to this Section 4 until the completion of the period
of distribution of the registration contemplated thereby.
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5. INCIDENTAL REGISTRATION. If the Company at any time (other than
pursuant to Section 4 or Section 6) proposes to register any of its securities
under the Securities Act for sale to the public, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Form S-8 or another form not available for
registering the Restricted Stock for sale to the public), each such time it will
give written notice to all holders of outstanding Restricted Stock of its
intention so to do. Upon the written request of any such holder, received by the
Company within 20 days after the giving of any such notice by the Company, to
register any of its Restricted Stock, the Company will use its best efforts to
cause the Restricted Stock as to which registration shall have been so requested
to be included in the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent requisite to permit the
sale or other disposition by the holders of such Restricted Stock so registered.
In the event that any registration pursuant to this Section 5 shall be, in whole
or in part, an underwritten public offering of Common Stock, the number of
shares of Restricted Stock to be included in such an underwriting may be reduced
pro rata among the requesting holders to the extent of the pro rata interests of
such requesting holders in the outstanding stock of the Company (assuming
conversion of the Series A Preferred Stock) if and to the extent that the
managing underwriter shall be of the opinion that such inclusion would adversely
affect the marketing of the securities to be sold by the Company therein.
Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 5 without thereby incurring
any liability to the holders of Restricted Stock.
6. REGISTRATION ON FORM S-3. If at any time (i) a holder or holders of
Restricted Stock request that the Company file a registration statement on Form
S-3 or any successor thereto for a public offering of all or any portion of the
shares of Restricted Stock held by such requesting holder or holders, the
reasonably anticipated aggregate price to the public of which would exceed
$500,000, and (ii) the Company is a registrant entitled to use Form S-3 or any
successor thereto to register such shares, then the Company shall use its best
efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of shares of Restricted Stock specified in such
notice. Whenever the Company is required by this Section 6 to use its best
efforts to effect the registration of Restricted Stock, each of the procedures
and requirements of Section 4 (including but not limited to the requirement that
the Company notify all holders of Restricted Stock from whom notice has not been
received and provide them with the opportunity to participate in the offering)
shall apply to such registration, PROVIDED, HOWEVER, that there shall be no
limitation on the number of registrations on Form S-3 which may be requested and
obtained under this Section 6.
7. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-1 or other form of general applicability satisfactory to the
holders of Restricted Stock or the managing underwriter selected) with respect
to such securities and use its best efforts to cause such registration statement
to become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);
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<PAGE>
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for the period
specified in paragraph (a) above and comply with the provisions of the
Securities Act with respect to the disposition of all Restricted Stock covered
by such registration statement in accordance with the sellers' intended method
of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each underwriter
such number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or other disposition of the
Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
PROVIDED, HOWEVER, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained 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 statements therein
not misleading in light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any seller of
Restricted Stock, use its best efforts to furnish on the date that Restricted
Stock are delivered to the underwriters for sale pursuant to such registration:
(i) an opinion dated such date of counsel representing the Company for the
purposes of such registration, addressed to the underwriters, stating that such
registration statement has become effective under the Securities Act and that
(A) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the Securities Act, (B) the
registration statement, the related prospectus and each amendment or supplement
thereof comply as to form in all material respects with the requirements of the
Securities Act (except that such counsel need not express any opinion as to
financial statements or other financial or statistical data contained therein)
and (C) to such other effects as reasonably may be requested by counsel for the
underwriters and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters and to such
seller, stating that they are independent public accountants within the meaning
of the Securities Act and that, in the opinion of such accountants, the
financial statements of the Company included in the registration statement or
the prospectus, or any amendment or supplement thereof, comply as to form in all
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<PAGE>
material respects with the applicable accounting requirements of the Securities
Act, and such letter shall additionally cover such other financial matters
(including information as to the period ending no more than five business days
prior to the date of such letter) with respect to such registration as such
underwriters reasonably may request; and
(h) make available for inspection by each seller of Restricted Stock,
any underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all financial and other records, pertinent corporate documents
and properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period of
distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 120 days
after the effective date thereof.
In connection with each registration hereunder, the sellers of Restricted
Stock will furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them as reasonably shall be
necessary in order to assure compliance with federal and applicable state
securities laws.
If the Company has delivered preliminary or final prospectuses to the
sellers of Restricted Stock and after having done so the prospectus is amended
to comply with the requirements of the Securities Act, the Company shall
promptly notify such sellers and, if requested, such sellers shall immediately
cease making offers of Restricted Stock and return all prospectuses to the
Company. The Company shall promptly provide the sellers with revised
prospectuses and, following receipt of the revised prospectuses, the sellers
shall be free to resume making offers of the Restricted Stock.
In connection with each registration pursuant to Sections 4, 5 or 6
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. EXPENSES. All expenses incurred in complying with Sections 4, 5 and
6, including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including counsel fees) incurred in
connection with complying with state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance and reasonable fees and
disbursements of one counsel for the sellers of Restricted Stock, but excluding
any Selling Expenses, are called "Registration Expenses". All underwriting
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<PAGE>
discounts and selling commissions applicable to the sale of Restricted Stock are
called "Selling Expenses". The Company will pay all Registration Expenses in
connection with each registration statement under Sections 4, 5 or 6.
9. INDEMNIFICATION AND CONTRIBUTION. (a) In the event of a registration
of any of the Restricted Stock under the Securities Act pursuant to Sections 4,
5 or 6, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person 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 any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock were registered under the Securities Act
pursuant to Sections 4, 5 or 6, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability (or action in respect thereof) arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by any such seller, any such
underwriter or any such controlling person in writing specifically for use in
such registration statement or prospectus.
(a) In the event of a registration of any of the Restricted Stock under
the Securities Act pursuant to Sections 4, 5 or 6, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person 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 any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
were registered under the Securities Act pursuant to Sections 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
PROVIDED, HOWEVER, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability (or action
in respect thereof) arises out of or is based upon an untrue statement or
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<PAGE>
alleged untrue statement or omission or alleged omission made in reliance upon
and in conformity with information pertaining to such seller, as such, furnished
in writing to the Company by such seller specifically for use in such
registration statement or prospectus, and PROVIDED, FURTHER, HOWEVER, that the
liability of each seller hereunder shall be limited to the proceeds received by
such seller from the sale of Restricted Stock covered by such registration
statement.
(b) Promptly after receipt by an indemnified party hereunder of notice
of the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder, notify
the indemnifying party in writing thereof, but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
such indemnified party other than under this Section 9 and shall only relieve it
from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
PROVIDED, HOWEVER, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the indemnified party is advised by counsel that the interests of
the indemnified party reasonably may be deemed to conflict with the interests of
the indemnifying party, the indemnified party shall have the right to select a
separate counsel and to assume such legal defenses and otherwise to participate
in the defense of such action, with the expenses and fees of such separate
counsel and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred. The indemnifying party shall not, however, in
connection with any action or related action in the same jurisdiction be liable
for the fees and expenses of more than one separate law firm at any one time for
all such indemnified parties. No indemnifying party shall be liable for any
settlement of any proceeding effected without its written consent, which consent
shall not be unreasonably withheld, but if settled with such consent, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement.
(c) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
8
<PAGE>
person in circumstances for which indemnification is provided under this Section
9; then, and in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; PROVIDED, HOWEVER, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the public offering price of all
such Restricted Stock offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11 (f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
10. CHANGES IN COMMON STOCK AND CLASS B STOCK. If, and as often as,
there is any change in the Common Stock, Class B Stock or the Series A Preferred
Stock by way of a stock split, stock dividend, combination or reclassification,
or through a merger, consolidation, reorganization or recapitalization, or by
any other means, appropriate adjustment shall be made in the provisions hereof
so that the rights and privileges granted hereby shall continue with respect to
the Common Stock, Class B Stock or the Series A Preferred Stock as so changed.
11. RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon request a
written statement by the Company as to its compliance with the reporting
requirements of such Rule 144 and of the Securities Act and the Exchange Act, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents so filed by the Company as such holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing such holder to sell any Restricted Stock without
registration.
12. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate in any material respect any provision of law, any order of any court or
other agency of government, the Certificate of Incorporation or By-laws of the
Company, each as amended, or in any material respect any provision of any
indenture, agreement or other instrument to which it or any or its properties or
assets is bound, conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any such indenture, agreement
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or other instrument (except those which would not have a material adverse affect
on the business of the company) or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the properties
or assets of the Company.
(b) This Agreement has been duly executed and delivered by the Company
and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except to the extent that the
enforceability of the indemnification and contribution provisions hereof may be
limited by applicable laws.
13. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto.
(b) All notices, requests, consents and other communications hereunder
shall be in writing and shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier or telex,
addressed as follows:
if to the Company or any other party hereto, at the address of such
party set forth in the Purchase Agreement;
if to any subsequent holder of Preferred Shares or Restricted Stock
or to a Related Party, to it at such address as may have been furnished to
the Company in writing by such holder or Related Party.
(c) This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the holders
of at least a majority of the outstanding shares of Series A Preferred Stock.
(e) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) The obligations of the Company to register shares of Restricted
Stock under Sections 4, 5 or 6 shall terminate on the tenth anniversary of the
date of this Agreement.
(g) Notwithstanding the provisions of Section 7, the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended (i) for a period
not to exceed 90 days in any 24-month period if there exists at the time
material non-public information relating to the Company which, in the reasonable
opinion of the Company, should not be disclosed or (ii) if at the time of a
request to register securities pursuant to Section 4 or 6 the Company is engaged
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or has fixed plans to engage within 30 days of the time of the request in a firm
commitment underwritten registered public offering as to which holders of
Restricted Stock may include shares pursuant to Section 5, for a period of up to
180 days from the effective date of the registration statement relating to such
offering.
(h) The Company shall not grant to any third party any registration
rights more favorable than or inconsistent with any of those contained herein,
so long as any of the registration rights under this Agreement remains in
effect.
(i) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be a
binding agreement between the Company and you.
Very truly yours,
FOUNTAIN PHARMACEUTICALS, INC.
By:_________________________________
John C. Walsh, President
AGREED TO AND ACCEPTED as of the date first above written.
Purchaser:
____________________________________
By:_________________________________
Title:______________________________
11
================================================================================
Registration Rights Agreement by and between the Registrant
and John C. Walsh dated July 11, 1997
================================================================================
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement is dated as of July 11, 1997 by and
among FOUNTAIN PHARMACEUTICALS, INC., a Delaware corporation (the "Company") and
JOHN C. WALSH (the "Holder").
W I T N E S S E T H:
--------------------
WHEREAS, the Holder owns certain shares of the Company's Common Stock;
WHEREAS, the parties hereto desire to set forth their agreement concerning
the registration of the Company's Common Stock under the Securities Act of 1933,
as amended.
NOW, THEREFORE, the parties hereto agree as follows:
AGREEMENT
---------
1. DEFINITIONS.
(a) "Company" shall mean Fountain Pharmaceuticals, Inc.
(b) "Holder" shall mean John C. Walsh.
(c) "Restricted Stock" shall mean 25,000,000 shares of the Common
Stock of the Company acquired by the Holder from the Company in December 1995.
(e) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar or successor federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
any relevant time.
(f) "SEC" shall mean the United States Securities and Exchange
Commission.
2. MANDATORY REGISTRATION.
(a) The Company has agreed to prepare and file a Registration
Statement with the SEC no later than January 31, 1998 for the purpose of
facilitating the public resale of the Restricted Stock. The Company shall use
its best efforts to have such Registration Statement declared effective.
(b) The Company shall be entitled to include in any Registration
Statement referred to in Subparagraph (a) of this Paragraph 2, shares of Common
Stock to be sold by the Company for its own account (or by other holders of
Common Stock, if all shares which the Company wishes to register for its own
account have been included).
<PAGE>
(c) The Company's obligation in Subparagraph 2(a) above extends
only to the use of all reasonable efforts to register such shares pursuant to a
Registration Statement. The Company shall have no obligation whatsoever to
indemnify or hold harmless the Holder or any underwriter or managing underwriter
designated by the Holder, to cooperate with such underwriter, or to obtain a
commitment from an underwriter relative to the sale of such shares, whether in a
public offering or private placement transaction. Furthermore, should the
Company elect to include certain shares for its own account or for the account
of other shareholders in such Registration Statement pursuant to Subparagraph
2(b) above, and should such shares be subject to a commitment from an
underwriter relative to a public or private offering, the Company shall have no
obligation to include the shares of Restricted Stock being registered pursuant
to Subparagraph 2(a) hereof in such underwritten offerings. Furthermore, the
Holder registering his shares hereby agrees, as a condition precedent to such
registration, to provide the Company with a certificate or certificates
evidencing compliance with the Securities Act and all applicable rules and
regulations thereunder.
3. INCIDENTAL REGISTRATION.
(a) If the Company at any time (other than pursuant to Paragraph 2
hereof) proposes to register any of its securities under the Securities Act for
sale, whether for its own account or for the account of other securityholders or
both (except with respect to Registration Statements on Form S-8, Form S-4, or
another form not available for registering the Restricted Stock for sale to the
public), it will each such time give written notice to the Holder of its
intention so to do. Upon the written request of the Holder, given within 20 days
after receipt of any such notice, to register any of its Restricted Stock (which
request shall state the intended method of disposition thereof), the Company
will cause the Restricted Stock as to which registration shall have been so
requested to be included in the securities to be covered by the Registration
Statement to permit the sale or other disposition by such Holder (in accordance
with their written request).
(b) The Company's obligation in Subparagraph 3(a) above shall
extend only to the inclusion of the shares of Restricted Stock in a Registration
Statement, and not as to the determination of the manner of disposition. The
Company shall have no obligation to include the shares requested in Subparagraph
2(a) above in any underwritten offering, to otherwise assure the terms and
conditions of distribution, to indemnify and hold harmless the Holder or any
underwriter or managing underwriter, to locate or cooperate with any such
underwriter or managing underwriter, or to obtain a commitment from an
underwriter relative to the sale of such shares of Restricted Stock.
Furthermore, the Holder registering his shares pursuant to Subparagraph 2(a)
above, hereby agrees, as a condition precedent to such registration, to provide
the Company with a certificate or certificates evidencing compliance with the
Securities Act, and all applicable rules and regulations thereunder.
4. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of Paragraphs 2 and 3 hereof to effect the registration of
any of the Restricted Stock under the Securities Act, the Company will use
all reasonable efforts to:
(a) prepare and file with the Commission a Registration Statement
with respect to such securities and use its best efforts to cause such
Registration Statement to become and remain effective for the period of the
distribution contemplated thereby or as required under the Securities Act;
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<PAGE>
(b) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective for
the period specified in Subparagraph 4(a) above and as comply with the
provisions of the Securities Act with respect to the disposition of all
Restricted Stock covered by such Registration Statement in accordance with the
sellers' intended method of disposition set forth in such Registration Statement
for such period;
(c) furnish to each seller and to each underwriter such number of
copies of the Registration Statement and the prospectus included therein
(including each preliminary prospectus), as such persons may reasonably request
in order to facilitate the public sale or other disposition of the Restricted
Stock covered by such Registration Statement;
(d) use its best efforts to register or qualify the Restricted
Stock covered by such Registration Statement under the securities or blue sky
laws of such jurisdictions as the sellers, or, in the case of an underwritten
public offering, the managing underwriter shall reasonably request; provided,
however, that the Company shall not for any such purpose be required to qualify
generally to transact business as a foreign corporation in any jurisdiction
where it is not so qualified or to consent to general service of process in any
such jurisdiction;
(e) immediately notify each seller under such Registration
Statement and each underwriter, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required or necessary to be stated therein in
order to make the statements contained therein not misleading in light of the
circumstances then existing;
(f) make available for inspection by each seller, any underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such Registration
Statement;
(g) for purposes of Subparagraphs 4(a) and 4(b) above, the period
of distribution of Restricted Stock shall be deemed to extend for nine months
(120 days in the case of registration on Form S-3) or such earlier date as (A)
in an underwritten public offering, each underwriter has completed the
distribution of all securities purchased by it; and (B) in any other
registration, all shares of Restricted Stock covered thereby shall have been
sold; and
(h) if the Common Stock of the Company is listed on any securities
exchange or automated quotation system, the Company shall use its best efforts
to list (with the listing application being made at the time of the filing of
such Registration Statement or as soon thereafter as is reasonably practicable)
the Restricted Stock covered by such Registration Statement on such exchange or
automated quotation system.
3
<PAGE>
5. EXPENSES.
(a) For the purposes of this Paragraph 5, the term "Registration
Expenses" shall mean: all expenses incurred by the Company in complying with
Paragraphs 2 and 3 of this Agreement, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company (other than the
expenses of any special audit as described below), fees of the National
Association of Securities Dealers, Inc. ("NASD"), fees and expenses of listing
shares of Restricted Stock on any securities exchange or automated quotation
system on which the Company's shares are listed and fees of transfer agents and
registrars. The term "Selling Expenses" shall mean: all underwriting discounts
and selling commissions applicable to the sale of Restricted Stock and all
accountable or non-accountable expenses paid to any underwriter in respect of
the sale of Restricted Stock.
(b) Except as otherwise provided herein or in Subparagraph 5(c)
hereof, the Company will pay all Registration Expenses in connection with the
Registration Statement(s) filed pursuant to Paragraphs 2 and 3 of this
Agreement. All Selling Expenses in connection with any Registration Statement
filed pursuant to Paragraphs 2 or 3 of this Agreement shall be borne by the
Holder in proportion to the number of shares sold by him, or by such persons
other than the Company (except to the extent the Company shall be a seller) as
they may agree.
6. OBLIGATIONS OF HOLDER.
(a) In connection with each registration hereunder, each selling
Holder will furnish to the Company in writing such information with respect to
such seller and the securities held by such seller, and the proposed
distribution by them as shall be reasonably requested by the Company in order to
assure compliance with federal and applicable state securities laws, as a
condition precedent to including such seller's Restricted Stock in the
Registration Statement. The Holder also shall agree to promptly notify the
Company of any changes in such information included in the Registration
Statement or prospectus as a result of which there is an untrue statement of
material fact or an omission to state any material fact required or necessary to
be stated therein in order to make the statements contained therein not
misleading in light of the circumstances then existing.
(b) In connection with each registration pursuant to Paragraph 2
or 3 of this Agreement, the Holder included therein will not effect sales
thereof until notified by the Company of the effectiveness of the Registration
Statement, and thereafter will suspend such sales after receipt of telegraphic
or written notice from the Company to suspend sales to permit the Company to
correct or update a Registration Statement or prospectus. At the end of any
period during which the Company is obligated to keep a Registration Statement
current, the Holder included in said Registration Statement shall discontinue
sales of shares pursuant to such Registration Statement upon receipt of notice
from the Company of its intention to remove from registration the shares covered
by such Registration Statement which remain unsold, and such Holder shall notify
the Company of the number of shares registered which remain unsold immediately
upon receipt of such notice from the Company.
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<PAGE>
7. MISCELLANEOUS PROVISIONS.
(a) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
(b) COUNTERPARTS. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
(c) AMENDMENTS AND WAIVERS. Except as otherwise provided herein,
the provisions of this Agreement may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given without the written consent of the Company and the Holders.
(d) NOTICES. All communications under this Agreement shall be
sufficiently given if delivered by hand or by overnight courier or mailed by
registered or certified mail, postage prepaid, addressed,
(i) if to the Company, to:
Fountain Pharmaceuticals, Inc.
7279 Bryan Dairy Drive
Largo, FL 33777
Attention: Chief Executive Officer
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
Eleven Penn Center
1835 Market Street, 14th Floor
Philadelphia, PA 19103
or, in the case of the Holders, at such address as each such Holder shall
have furnished in writing to the Company; or at such other address as any of the
parties shall have furnished in writing to the other parties hereto.
(e) SUCCESSORS AND ASSIGNS; HOLDERS AS BENEFICIARIES. This
Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and assigns, and the agreements of the Company
herein shall inure to the benefit of all Holders and their respective successors
and assigns.
5
<PAGE>
(f) HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(g) ENTIRE AGREEMENT; SURVIVAL; TERMINATION. This Agreement is
intended by the parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
Very truly yours,
FOUNTAIN PHARMACEUTICALS, INC.
By:
--------------------------------
John C. Walsh
Chief Executive Officer
Agreed and accepted this
11th day of July, 1997:
By:
-------------------------
John C. Walsh
6
================================================================================
Stock Purchase and Subscription Agreement by and between the Registrant
and Fountain Holdings, LLC dated July 11, 1997
================================================================================
STOCK PURCHASE AND SUBSCRIPTION AGREEMENT
BETWEEN
FOUNTAIN HOLDINGS, L.L.C.
AND
FOUNTAIN PHARMACEUTICALS, INC.
July 11, 1997
<PAGE>
STOCK PURCHASE AND SUBSCRIPTION AGREEMENT
Agreement entered into on July 11, 1997, by and between Fountain Holdings,
L.L.C., a Wyoming limited liability company (the "Buyer"), and Fountain
Pharmaceuticals, Inc., a Delaware corporation (the "Company"). The Buyer and the
Company are referred to collectively herein as the "Parties."
This Agreement contemplates a transaction in which the Buyer will purchase
from the Company, and the Company will sell to the Buyer, all of the authorized
shares of Preferred Stock of the Company in return for cash.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Rule 501 of Regulation
D promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Section 2(c) below.
"Closing Date" has the meaning set forth in Section 2(c) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the businesses
and affairs of the Company that is not already generally available to the
public, including the Intellectual Property, proprietary information and trade
secrets.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
<PAGE>
"Employee Benefit Plan" means any (a) nonqualified deferred compensation
or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multi-employer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Extremely Hazardous Substance" has the meaning set forth in ss.302 of the
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA ss.3(21).
"Financial Statements" has the meaning set forth in Section 4(g) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Intellectual Property" means (a) all inventions, technology and creations
(whether patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (b)
all trademarks, service marks, trade dress, logos, trade names, and corporate
names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
2
<PAGE>
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (d) all mask works and all applications,
registrations, and renewals in connection therewith, (e) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (f) all computer software (including data and related
documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments of all of the above (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4(g)
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(g)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and
Code ss.4975.
"Purchase Price" has the meaning set forth in Section 2(b) below.
"Reportable Event" has the meaning set forth in ERISA ss.4043.
"Securities Act" or "Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" or "Exchange Act" means the Securities Exchange
Act of 1934, as amended.
3
<PAGE>
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable [or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings], (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code ss.59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(d) below.
2. PURCHASE AND SALE OF SHARES OF COMPANY PREFERRED STOCK.
(a) BASIC TRANSACTION. On and subject to the terms and conditions
of this Agreement, the Buyer agrees to and hereby does purchase from the Company
and the Company agrees to and hereby does sell to the Buyer, all of the
2,000,000 authorized shares of preferred stock of the Company, to be designated
"Series A Preferred Stock" (the "Shares") and having the characteristics set
forth in the Certificate of Designation attached hereto as Exhibit 2(a) and
incorporated by reference herein (the "Certificate of Designation") for the
consideration specified below in this Section 2.
(b) PURCHASE PRICE. The Buyer agrees to pay to the Company at the
Closing $2,500,000 (the "Purchase Price") by delivery of cash payable by wire
transfer or delivery of other immediately available funds.
(c) THE CLOSING. The issuance of the Shares and the consummation
of the other transactions contemplated by this Agreement (the "Closing") shall
take place simultaneously with the execution hereof at the offices of the
Company in Largo, Florida, or such other date as the Buyer and the Company may
mutually determine (the "Closing Date").
4
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents
and warrants to the Company that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement except as set forth in
Schedule 3 attached hereto.
(i) ORGANIZATION OF THE BUYER. The Buyer is a limited liability
company duly organized and validly existing under the laws of the State of
Wyoming.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer acting by and through
the undersigned signatory has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement, except applicable filings with the Securities and Exchange
Commission to report the acquisition of the Shares.
(iii) NONCONTRAVENTION. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is
subject or any provision of its charter or bylaws or (B) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the Buyer is a
party or by which it is bound or to which any of its assets is subject.
(iv) BROKERS' FEES. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) INVESTMENT. The Buyer represents and warrants that it is
purchasing the Shares for its own account, for investment purposes and not
with a view to the distribution thereof. The Buyer agrees that it will
not, directly or indirectly, offer, transfer, sell, assign, pledge,
hypothecate or otherwise dispose of any of the Shares (or solicit any
offers to buy, purchase, or otherwise acquire or take a pledge of any of
such securities), except in compliance with the Act, the rules and
regulations thereunder and any applicable state securities laws.
The Buyer recognizes that investing in the Shares or the shares of
Common Stock or Class B Common Stock issuable upon conversion of the
Shares involves a high degree of risk, and that it is in a financial
position to hold such securities indefinitely and is able to bear the
economic risk and withstand a complete loss of its investment in such
shares. The Buyer is a sophisticated investor and is capable of evaluating
the merits and risks of investing in the Company. The Buyer has reviewed
the Company's SEC Reports. The Buyer has had an opportunity to discuss the
5
<PAGE>
Company's business, management and financial affairs with the Company's
management. Buyer has had the opportunity to ask questions of, and receive
answers from the management of the Company concerning the agreements and
transactions contemplated hereby, and to obtain additional information as
the Buyer may have requested and which was provided to Buyer in making its
investment decision. Buyer is an "accredited investor," as defined by
Regulation D promulgated under the Act. Buyer understands that the Shares
have not been, and will not be registered under the Securities Act by
reason of their issuance by the Company in a transaction exempt from the
registration requirements of the Act; and that such securities must be
held by the Buyer indefinitely unless a subsequent disposition thereof is
registered under the Act or is exempt from registration.
Buyer has conducted a diligence review and is not, based on the
review of the information provided by the Company, aware of any document
that would require further qualification to the Company's representations
or warranties in Section 4. However, notwithstanding anything to the
contrary in this Agreement, no investigation by the Buyer shall affect the
representations and warranties of the Company under this Agreement or
contained in any document, certificate or other writing furnished or to be
furnished to Buyer in connection with the transactions contemplated
hereby.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Buyer that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement, except as
set forth in the disclosure schedule delivered by the Company to the Buyer on
the date hereof and initialed by the Parties to be attached hereto as Schedule 4
(the "Disclosure Schedule"). Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Disclosure Schedule identifies the exception with
particularity and describes the relevant facts in detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company
is a corporation duly organized, validly existing, and in good standing under
the laws of Delaware, the jurisdiction of its incorporation. The Company is also
duly authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required (except for jurisdictions
where such failure to so qualify or to be in good standing would not have a
material adverse affect on the Company). The Company has full corporate power
and authority and all licenses, permits, and authorizations necessary to carry
on the businesses in which it is engaged and in which it presently proposes to
engage and to own and use the properties owned and used by it. Section 4(a) of
the Disclosure Schedule lists the directors and officers of the Company as of
immediately prior to the Closing. The Company has delivered to the Buyer correct
and complete copies of the charter and bylaws of the Company (as amended to
date). The minute books (containing the records of meetings of the stockholders,
the board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of each of the Company are correct
and complete in all material respects. The Company is not in default under or in
violation of any provision of its charter or bylaws.
6
<PAGE>
(b) CAPITALIZATION. The entire authorized capital stock of the
Company consists of 50,000,000 Common Shares of which 47,516,049 are issued and
outstanding; 5,000,000 Class B Common Shares of which 90,100 are issued and
outstanding; and 2,000,000 Preferred Shares, all of which will be issued in
these transactions. The only warrants, options, or other rights to subscribe for
shares of any security of the Company, and the holder of such rights and the
denominations thereof are set forth in Section 4(b) of the Disclosure Schedule.
All of the issued and outstanding shares of the Company have been duly
authorized, are validly issued, fully paid, and nonassessable. Except as set
forth in Section 4(b) of the Disclosure Schedule, there are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
the Company to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Company.
(c) NONCONTRAVENTION. Except as set forth in Section 4(c) of the
Disclosure Schedule, neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which the Company is subject or any provision of the charter
or bylaws of any of the Company or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument, or other arrangement
to which the Company is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest upon any
of its assets). Except as expressly set forth in this Agreement, the Company
does not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(d) BROKERS' FEES. The Company does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(e) TITLE TO ASSETS. The Company has good and marketable title to,
or a valid leasehold interest in, the properties and assets used by it, located
on its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet.
(f) SUBSIDIARIES. The Company has no subsidiaries, nor any
interest in any other corporation.
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(g) FINANCIAL STATEMENTS. Attached hereto as Exhibit 4(g) are the
following financial statements (collectively the "Financial Statements"): (i)
audited balance sheets and statements of income, changes in stockholders'
equity, and cash flow as of and for the fiscal years ended September 30, 1992,
1993, 1995, and 1996 (the "Most Recent Fiscal Year End") for the Company; and
(ii) unaudited balance sheets and statements of income, changes in stockholders'
equity, and cash flow (the "Most Recent Financial Statements") as of and for the
eight months ended May 31, 1997 (the "Most Recent Fiscal Month End") for the
Company. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Company
as of such dates and the results of operations of the Company for such periods,
are correct and complete in all material respects, and are consistent with the
books and records of the Company (which books and records are correct and
complete). The Financial Statements for the Most Recent Fiscal Year End are
those included in the Company's most recent annual report or Form 10-KSB as
filed with the Securities and Exchange Commission (the "Commission") and the
same are accurate and complete in all material respects and not subject to any
adjustment or restatement.
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the
Most Recent Fiscal Year End, there has not been any adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Company. Except as set forth in Section 4(h) of the Disclosure
Schedule, without limiting the generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other than for a fair
consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement,
contract, lease, or license (or series of related agreements, contracts,
leases, and licenses) either involving more than $25,000 or outside the
Ordinary Course of Business;
(iii) no person (including the Company) has accelerated,
terminated, modified, or canceled any agreement, contract, lease, or
license (or series of related agreements, contracts, leases, and licenses)
involving more than $25,000 to which the Company is a party or by which it
is bound;
(iv) the Company has not imposed any Security Interest
upon any of its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or
series of related capital expenditures) either involving more than $25,000
or outside the Ordinary Course of Business;
(vi) the Company has not issued any note, bond, or other
debt security or created, incurred, assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligation;
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(vii) the Company has not delayed or postponed the
payment of accounts payable and other Liabilities outside the Ordinary
Course of Business;
(viii) the Company has not granted any license or
sublicense of any rights under or with respect to any Intellectual
Property;
(ix) there has been no change made or authorized in the
charter or bylaws of the Company;
(x) the Company has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion, exchange,
or exercise) any of its capital stock;
(xi) the Company has not declared, set aside, or paid
any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired
any of its capital stock;
(xii) the Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property;
(xiii) the Company has not made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees, whether outside the Ordinary Course of Business or otherwise;
(xiv) the Company has not granted any increase in the
base compensation of any of its directors, officers, and employees;
(xv) the Company has not made any other change in
employment terms for any of its directors, officers, and employees outside
the Ordinary Course of Business; and
(xvi) there has not been any other occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Company.
(i) UNDISCLOSED LIABILITIES, PAYABLES. The Company does not
have any liability (and there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or demand
against any of them giving rise to any liability), except for (i) liabilities
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto), (ii) liabilities which have arisen after the Most Recent Fiscal Month
End in the Ordinary Course of Business (none of which results from, arises out
of, relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law) and (iii) as
disclosed in the Company's Forms 10-KSB and Forms 10-Q as filed with the
Commission. Notwithstanding the foregoing, the Company has furnished a current
listing of all accounts payable as of the date no more than 8 days prior to
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Closing which listing is true and correct as of such date. As of the Closing the
accounts payable do not exceed $35,000, each of which payable is valid and arose
in the ordinary course of business as payment for goods or services rendered of
equal value.
(j) LEGAL COMPLIANCE. The Company has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or notice
has been filed or commenced against any of them alleging any failure so to
comply, except to the extent such failure to comply would not have a material
adverse impact upon the Company.
(k) TAX MATTERS.
(i) The Company has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed (whether or not shown on any Tax Return) have
been paid. The Company currently is not the beneficiary of any extension
of time within which to file any Tax Return. No claim has ever been made
by an authority in a jurisdiction where the Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on any of the assets of the Company that
arose in connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or
other third party.
(iii) No officer or employee responsible for Tax matters
of the Company expects any authority to assess any additional Taxes for
any period for which Tax Returns have been filed. There is no dispute or
claim concerning any Tax Liability either (A) claimed or raised by any
authority in writing or (B) as to which the Company and officers and
employees responsible for Tax matters of the Company has Knowledge based
upon personal contact with any agent of such authority. Section 4(k) of
the Disclosure Schedule lists all federal, state, local, and foreign
income Tax Returns filed with respect to the Company for taxable periods
ended on or after September 30, 1992, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that currently are the
subject of audit. The Company has delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by the
Company since September 30, 1992.
(iv) The Company has not waived any statute of
limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(v) Section 4(k) of the Disclosure Schedule sets forth
the following information with respect to the Company as of the most
recent practicable date (as well as on an estimated pro forma basis as of
the Closing giving effect to the consummation of the transactions
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contemplated hereby): (A) the basis of the Company in its assets; and (B)
the amount of any net operating loss, net capital loss, unused investment
or other credit, unused foreign tax, or excess charitable contribution
allocable to the Company.
(l) REAL PROPERTY.
(i) The Company owns no real property.
(ii) Section 4(l)(ii) of the Disclosure Schedule lists
and describes briefly all real property leased or subleased to the
Company. The Company has no subleases. The Company has delivered to the
Buyer correct and complete copies of the leases listed in Section 4(l)(ii)
of the Disclosure Schedule (as amended to date). With respect to each
lease listed in Section 4(l)(ii) of the Disclosure Schedule:
(A) the lease is legal, valid, binding, enforceable, and
in full force and effect;
(B) the lease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(C) the Company is not and, to the Company's knowledge,
no other party to the lease is in breach or default, and no event
has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification, or
acceleration thereunder;
(D) the Company is not and, to the Company's knowledge,
no other party to the lease has repudiated any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease; and
(F) during the Company's tenancy, all facilities leased
or subleased thereunder have received all approvals of governmental
authorities (including licenses and permits) required in connection
with the operation thereof and have been operated and maintained in
accordance with applicable laws, rules, and regulations.
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(m) INTELLECTUAL PROPERTY.
(i) The Company owns or has the unencumbered and
exclusive right to use pursuant to license, sublicense, agreement, or
permission all Intellectual Property which is or has been used in the
operation of the business of the Company and as presently proposed to be
conducted, including those items of Intellectual Property described on
Section 4(m)(i) of the Disclosure Schedule. Each item of Intellectual
Property owned or used by the Company immediately prior to the Closing
hereunder will be owned or available for use by the Company on identical
terms and conditions immediately subsequent to the Closing hereunder. The
Company has taken all necessary action to maintain and protect each item
of Intellectual Property that it owns or uses.
(ii) Except as set forth in Section 4(m)(ii) of the
Disclosure Schedule, the Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the directors and officers
(and employees with responsibility for Intellectual Property matters) of
the Company has ever received any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Company must license or refrain
from using any Intellectual Property rights of any third party). To the
Knowledge of the Company and the directors and officers (and employees
with responsibility for Intellectual Property matters) of the Company, no
third party has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with any Intellectual Property rights of the
Company.
(iii) Section 4(m)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to the
Company with respect to any of its Intellectual Property, identifies each
pending patent application or application for registration which the
Company has made with respect to any of its Intellectual Property, and
identifies each license, agreement, or other permission which the Company
has granted to any third party with respect to any of its Intellectual
Property or any that it uses (together with any exceptions). The Company
has delivered to the Buyer correct and complete copies of all such
patents, registrations, applications, licenses, agreements, and
permissions (as amended to date) and has made available to the Buyer
correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. Section
4(m)(iii) of the Disclosure Schedule also identifies each trade name or
unregistered trademark used by the Company in connection with any of its
businesses. With respect to each item of Intellectual Property required to
be identified in Section 4(m)(iii) of the Disclosure Schedule:
(A) the Company possesses all right, title, and interest
in and to the item, free and clear of any Security Interest,
license, or other restriction;
(B) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
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(C) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or is threatened
which challenges the legality, validity, enforceability, use, or
ownership of the item; and
(D) except as set forth on Section 4(m)(iii)(D) of the
Disclosure Schedule, the Company has not ever agreed to indemnify
any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(m)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third party owns
and that the Company uses pursuant to license, sublicense, agreement, or
permission.
(v) To the Knowledge of any of the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company the Company's business will not interfere with,
infringe upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued
operation of business as presently conducted and as presently proposed to
be conducted.
(vi) None of the directors and officers (and employees
with responsibility for Intellectual Property matters) of the Company had
any Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties
have developed which reasonably could be expected to supersede or make
obsolete any product or process of the Company.
(n) TANGIBLE ASSETS. The Company owns or leases all buildings,
machinery, equipment, and other tangible assets set forth on Section 4(n) to the
Disclosure Schedule. Each such tangible asset has been maintained in accordance
with normal industry practice and is in good operating condition and repair
(subject to normal wear and tear).
(o) INVENTORY. The Company owns the inventory set forth on
Section 4(o) of the Disclosure Schedule, which is subject only to the reserve
for inventory writedown set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto).
(p) CONTRACTS. Section 4(p) of the Disclosure Schedule lists
the following contracts and other agreements to which the Company is a party:
(i) any agreement (or group of related agreements) for
the lease of personal property to or from any Person providing for lease
payments in excess of $12,000 per annum;
(ii) any agreement (or group of related agreements) for
the purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a material loss to the Company, or involve consideration in
excess of $25,000;
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(iii) any agreement concerning a partnership or joint
venture;
(iv) any agreement (or group of related agreements)
under which it has created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation or
under which it has imposed a Security Interest on any of its assets,
tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement with any Affiliates of the Company;
(vii) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual
on a full-time, part-time, consulting, or other basis providing annual
compensation in excess of $60,000 or providing severance benefits;
(x) any agreement under which it has advanced or loaned
any amount to any of its directors, officers, and employees outside the
Ordinary Course of Business; or
(xi) any agreement under which the consequences of a
default or termination could have a material adverse effect on the
business, financial condition, operations, results of operations, or
future prospects of the Company.
The Company has delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 4(p) of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 4(p) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C)
neither the Company nor to its knowledge any other party is in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has repudiated any provision
of the agreement.
(q) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Company are reflected properly on their books and records, are
valid receivables subject to no setoffs or counterclaims, are current and
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collectible, and will be collected in accordance with their terms at their
recorded amounts, subject only to the reserve for bad debts set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date.
(r) POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of the Company.
(s) INSURANCE. Section 4(s) of the Disclosure Schedule sets
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which the Company has been a
party, a named insured, or otherwise the beneficiary of coverage at any time
since September 30, 1994:
(i) the name, address, and telephone number of the
agent;
(ii) the name of the insurer, the name of the
policyholder, and the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are calculated
and operate) of coverage; and
(v) a description of any retroactive premium
adjustments or other loss-sharing arrangements.
(t) LITIGATION. Section 4(t) of the Disclosure Schedule sets
forth each instance in which the Company or any of its Affiliates (i) is subject
to any outstanding injunction, judgment, order, decree, ruling, or charge or
(ii) is a party or is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in Section 4(t) of the Disclosure
Schedule could result in any adverse change in the business, financial
condition, operations, results of operations, or future prospects of the
Company.
(u) PRODUCT WARRANTY. Each product manufactured, sold,
leased, or delivered by the Company has been in conformity with all applicable
contractual commitments and all express and implied warranties, and the Company
has no Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
the Company giving rise to any Liability) for replacement thereof or other
damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto).
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(v) PRODUCT LIABILITY. The Company has no Liability (and
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against the Company giving
rise to any Liability) arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by the Company.
(w) EMPLOYEES. To the Knowledge of any of the Company and
its directors and officers (and employees with responsibility for employment
matters), no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor experienced any strikes, grievances,
claims of unfair labor practices, or other collective bargaining disputes.
(x) EMPLOYEE BENEFITS.
(i) Section 4(x) of the Disclosure Schedule lists each
Employee Benefit Plan of the Company.
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form and in
operation in all material respects with the applicable requirements
of ERISA, the Code, and other applicable laws.
(B) All required reports and descriptions (including
Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and
Summary Plan Descriptions) have been filed or distributed
appropriately with respect to each such Employee Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan which is an
Employee Pension Benefit Plan and all contributions for any period
ending on or before the Closing Date which are not yet due have been
paid to each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice.
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a "qualified plan"
under Code ss.401(a) and has received, within the last two years, a
favorable determination letter from the Internal Revenue Service.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than
any Multi-employer Plan) equals or exceeds the present value of all
vested and nonvested Liabilities thereunder determined in accordance
with PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on the date for
determination.
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(y) GUARANTIES. The Company is not a guarantor or otherwise liable
for any Liability or obligation (including indebtedness) of any other Person.
(z) ENVIRONMENT, HEALTH, AND SAFETY.
(i) The Company has complied with all Environmental, Health,
and Safety Laws, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced
against any of them alleging any failure so to comply.
(ii) The Company has no liability for damage to any site,
location, or body of water (surface or subsurface), for any illness of or
personal injury to any employee or other individual, or for any reason
under any Environmental, Health, and Safety Law.
(iii) All properties and equipment used in the business of the
Company and its Affiliates have been free of asbestos, PCB's, methylene
chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(aa) DISCLOSURE. The representations and warranties contained in
this ss.4 do not contain any untrue statement of fact or omit to state any fact
necessary in order to make the statements and information contained in this ss.4
not misleading.
(bb) SEC REPORTS. The Company has timely filed, since March, 1996,
all periodic and other reports required to be filed with the Commission and each
exchange and state securities authority with which reports, notices and other
materials are required to be filed. The Company has furnished to the Buyer true
and correct copies of all such reports filed during the last three years.
5. INCIDENTAL TRANSACTIONS. In addition to the purchase of the Shares
on terms and conditions outlined herein, the following incidental transactions
shall also be undertaken and effected at the Closing.
(a) AMENDMENT TO ARTICLES AND RECAPITALIZATION. In order to enable
the conversion of shares of Series A Preferred Stock, it is acknowledged that
the capital structure of the Company must be reorganized. In this regard,
simultaneously with the execution of this Agreement at the Closing, the Company
will deliver the following documents:
(i) Minutes of the Board of Directors of the Company approving
an amendment to the Articles of Incorporation in the form of Exhibit
5(a)(i) attached hereto and incorporated by reference herein, which form
will be approved by the Buyer as the Series A Preferred Stockholder at the
Buyer's discretion (which thereupon, after compliance with applicable
securities laws, shall be filed as an amendment to the Company's Articles
with the Delaware Secretary of State) (the "Articles of Amendment");
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(ii) A consent action signed by the holder of a majority of
the Common Stock and Class B Common Stock in the aggregate approving the
Articles of Amendment;
(iii) The Articles of Amendment duly executed by the president
and secretary of the Company and ready for filing, subject only to
approval of the Holders of the Shares by delivery of a consent action
authorizing the filing of the Amendment and to compliance with applicable
securities laws which the Company is bound hereby to immediately
undertake; and
(iv) Such other documents as the Buyer and its counsel
determine are reasonable and necessary to effect the recapitalization
contemplated by the Articles of Amendment (the "Recapitalization").
It is acknowledged that in connection with the Recapitalization the
Company will be required to provide to each holder of Common Stock and Class B
Common Stock an information statement in compliance with Section 14 of the
Securities Exchange Act. In this connection, promptly following the Closing of
the transactions, the Company will undertake to prepare such information
statement so as to fulfill each and every legal requirement in order to effect
the Recapitalization, subject only to the delivery of a consent action signed by
holders of a majority of the Shares.
(b) BOARD OF DIRECTORS. As of the Closing, and effective
immediately thereafter, the Board of Directors of the Company shall consist of
not less than five (5) nor more than seven (7) directors including the nominees
of the Buyer specifically identified on Schedule 5(b) attached hereto and
incorporated by reference herein who shall fill vacancies created by
resignations or increases in the size of the Board, all undertaken in a manner
acceptable to the Buyer and its counsel simultaneously herewith, including
ratification by the majority of the Common Stock holders and Class B Common
Stock holders in the aggregate. As of the Closing, the Buyer shall have
nominated and seated on the Board of the Company up to three directors, but not
a majority of the Board. As soon as practicable following the Closing, the
Company shall prepare and provide to all its stockholders (i) the Information
Statement (as defined in Section 6(d) below) complying with Section 14 of the
Exchange Act and the rules thereunder, and (ii) the notification required by
Rule 14f-1 adopted under the Exchange Act, each of which shall be filed with the
Commission in accordance with applicable rules. At such time as the applicable
notice requirements have been fulfilled, the Buyer shall have the right to
designate additional directors such that Buyer shall have at its sole discretion
designated and have had elected to the Board a majority of the directors.
(c) REGISTRATION RIGHTS. The Shares being acquired pursuant to
this Agreement are being acquired in transactions exempt from the registration
requirements of the Securities Act, specifically the transactional exemption of
Section 4(2) adopted under the Securities Act. However, it is acknowledged that
the Shares to be acquired hereunder are convertible into shares of the Common
Stock and Class B Common Stock of the Company. Following conversion, the Buyer
shall have the demand and other registration rights set forth in the form of
Registration Rights Agreement executed simultaneously with this Agreement
providing for the registration under the Securities Act of the Common Stock and
Class B Common Stock to be acquired.
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(d) NASDAQ NATIONAL MARKET LISTING. At such point in time as the
Company meets the quantitative criteria for initial listing on the Nasdaq
National Market, the Company shall use its best efforts to list the Company's
Common Stock on the Nasdaq National Market.
(e) SUBSEQUENT FINANCING. The Parties acknowledge that the Company
may require additional financing to continue to expand its business. In this
regard, the Buyer has agreed to undertake in a commercially reasonable manner
such efforts as may be necessary to assist the Company in obtaining additional
financing. Notwithstanding the foregoing, the Buyer's commitment shall be
limited to undertaking those acts that are reasonable and appropriate given the
financial and other capacity of the Buyer and shall not require the Buyer to
make any further or additional investment in the Company. In addition, nothing
herein shall prohibit or restrict the Company's right or ability to seek
additional financing from such other sources the Company shall deem appropriate.
(f) RIGHT TO PURCHASE WARRANT SHARES. The Company currently has
warrants for 400,001 shares of Common Stock at an exercise price of $.78 per
share outstanding (the "$.78 Warrants"). In addition to the conversion and
preemptive rights attendant to the ownership of the Shares as set forth in the
Certificate of Designation, the Buyer shall have the right to acquire additional
shares of Common Stock upon the exercise of the $.78 Warrants or any other
warrants or rights to subscribe to additional shares of stock not designated on
Schedule 4(b) ("Other Warrants"). If and when any of the $.78 Warrants or Other
Warrants, if any, are exercised, the Buyer shall (i) be notified by the Company,
within 5 days of the date of exercise, in writing of the exercise and the number
of Shares to be sold, and (ii) the Buyer shall thereupon have 30 days from the
date of such notice to acquire shares of Common Stock totaling one-half of the
number to be issued upon exercise of the $.78 Warrants or Other Warrants, if
any, at the same price per share as the respective holder of the applicable
warrants. The shares of Common Stock so acquired shall be subject to the
Registration Rights Agreement, if not then registered under the Act.
(g) REPAYMENT OF LOANS AND COMPENSATION. At the Closing, the
Company shall pay to Mr. John C. Walsh an amount equal to 50% of the Company's
outstanding obligations to Mr. Walsh, including the loans and defined
compensation set forth in Schedule 5(g) hereto (the "Walsh Obligations").
6. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing.
(a) GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
(b) TRANSITION. The persons identified on Schedule 6(c) will not
take any action that is designed or intended to have the effect of discouraging
any lessor, licensor, licensee, customer, supplier, or other business associate
of the Company from maintaining the same business relationships with the Company
after the Closing as it maintained with the Company prior to the Closing.
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(c) CONFIDENTIALITY. At the Closing, agreements shall be executed
by those persons identified in Schedule 6(c), binding such persons to treat and
hold in confidence all of the confidential information, refrain from using any
of the Confidential Information except in connection with this Agreement, and
deliver promptly to the Buyer or destroy, at the request and option of the
Buyer, all tangible embodiments (and all copies) of the Confidential Information
which are in their possession.
(d) INFORMATION STATEMENT, AMENDMENT. Promptly following the
Closing (within 45 days thereof), the Company shall prepare and file with the
Commission and thereupon, in accordance with applicable rules, deliver to its
stockholders of record an Information Statement (the "Information Statement")
complying with Section 14 of the Exchange Act and the rules thereunder in order
to effect the Amendment approved by the Buyer as the holder of all Shares of
Series A Preferred Stock (and previously approved as of the Closing by the
Common and Class B Common stockholders and the Board of the Company). Such
Information Statement shall be coupled with the notice required by Rule 14f-1
adopted under the Exchange Act (referred to in Section 5(b) hereof) and
otherwise be in form and substance acceptable to Buyer's counsel.
(e) REPAYMENT OF LOANS AND COMPENSATION. The Company shall pay Mr.
Walsh an amount equal to 25% of the Walsh Obligations within 90 days after the
Closing Date (in addition to the amounts paid at the Closing) and an amount
equal to 25% of the Walsh Obligations within 180 days after the Closing Date.
(f) REGISTRATION STATEMENT. Promptly after the Closing Date, but
in any event no later than 20 days after the delivery of the audited financial
statements for the year ended September 30, 1997, the Company shall use its best
efforts to file with the Commission and to have declared effective a
Registration Statement on Form S-1 covering the resale of the shares of Common
Stock set forth on Schedule 6(f).
7. INVESTMENT REPRESENTATIONS.
The Buyer is purchasing the Shares to be acquired pursuant to this
Agreement for investment purposes only and not with a view to the subsequent
resale or distribution thereof. The Buyer acknowledges that the Shares to be
acquired are "restricted securities" within the meaning of such term under Rule
144 adopted under the Securities Act and that such securities will not be
capable of being freely resold. The certificates representing the Shares of
Series A Preferred Stock shall include a legend substantially as follows:
THE SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED ("SECURITIES ACT"), OR ANY STATE SECURITIES LAWS,
AND UNLESS SO REGISTERED, THESE SHARES MAY NOT BE OFFERED OR SOLD
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EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS. TRANSFERABILITY IS FURTHER LIMITED
BY THE TERMS OF A SUBSCRIPTION AGREEMENT.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Parties contained in this Agreement shall
survive the Closing hereunder and continue in full force and effect forever
thereafter (subject to any applicable statutes of limitations).
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE Buyer. In the
event the Company breaches (or in the event any third party alleges facts that,
if true, would mean the Company has breached) any of its representations,
warranties, and covenants contained herein then the Company agrees to indemnify
the Buyer from and against the entirety of any Adverse Consequences the Buyer
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Buyer may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE Company. In the
event the Buyer breaches (or in the event any third party alleges facts that, if
true, would mean the Buyer has breached) any of its representations, warranties,
and covenants contained herein, then the Buyer agrees to indemnify the Company
from and against the entirety of any Adverse Consequences the Company may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Company may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other Party
(the "Indemnifying Party") under this ss.8, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing;
provided, however, that no delay on the part of the Indemnified Party in
notifying any Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15
days after the Indemnified Party has given notice of the Third Party Claim
that the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
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suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, and (D)
the Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 8(d)(ii)
above, (A) the Indemnified Party may retain separate co-counsel at its
sole cost and expense and participate in the defense of the Third Party
Claim, (B) the Indemnified Party will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnifying Party (not to
be withheld unreasonably), and (C) the Indemnifying Party will not consent
to the entry of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(d)(ii)
above is or becomes unsatisfied, however, (A) the Indemnified Party may
defend against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for
any Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third
Party Claim to the fullest extent provided in this Section 8.
(e) OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation or in lieu
of, any statutory, equitable, or common law remedy any Party may have for breach
of representation, warranty, or covenant. In no event will the Buyer seek
indemnity hereunder until Buyer's indemnity claims in the aggregate exceed
$50,000.
9. MISCELLANEOUS.
(a) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Other than the
initially agreed to release attached as Schedule 9(a), no Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of the other Party; PROVIDED,
HOWEVER, that either Party may make any public disclosure they believe in good
faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its reasonable best efforts to advise the other Party prior to making
the disclosure).
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(b) NO THIRD PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns.
(e) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) HEADINGS. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) NOTICES. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Buyer: Fountain Holdings, L.L.C.
c/o Mr. Joseph S. Schuchert
Eaglestone Capital Services, Inc.
400 Oceangate, Suite 1125
Long Beach, California 90802
With a copy to: Jeffrey D. Warren
Squire, Sanders & Dempsey L.L.P.
40 North Central Avenue, Suite 2700
Phoenix, Arizona 85004
If to Company: Fountain Pharmaceuticals, Inc.
7279 Bryan Dairy Road
Largo, Florida 33777
Attention: Mr. John C. Walsh
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With a copy to: Stephen M. Cohen
Buchanan Ingersoll
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pennsylvania 19103-2895
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient against
verifiable proof of such receipt by whatever customary means. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
(h) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Delaware without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Delaware.
(i) AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Company. Unless specifically provided in writing signed by the
Party, no waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(j) SEVERABILITY. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) EXPENSES. Each of the Parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(l) CONSTRUCTION. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties. The word "including" shall mean including
without limitation. The Parties intend that each representation, warranty and
covenant contained herein shall have independent significance. If any Party has
breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty or covenant.
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(m) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
(n) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and
agrees that the other Party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each Party agrees that the other
Party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the Parties and the
matter, in addition to any other remedy to which they may be entitled, at law or
in equity.
(o) SUBMISSION TO JURISDICTION. Each of the Parties submits to the
jurisdiction of any state or federal court sitting in the State of Delaware in
any action or proceeding arising out of or relating to this Agreement or the
relationship of Buyer to the Company, and agrees that all claims in respect of
the action or proceeding may be heard and determined in any such court. Each
Party also agrees not to bring any action or proceeding arising out of or
relating to this Agreement or the relationship created hereby, in any other
court. Each of the Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety,
or other security that might be required of any other Party with respect
thereto.
*****
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first above written.
FOUNTAIN HOLDINGS, L.L.C.
By:
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Title:
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FOUNTAIN PHARMACEUTICALS, INC.
By:
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John C. Walsh, President
