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Stock Purchase and Subscription Agreement by and between the Registrant
and Fountain Holdings, LLC dated July 11, 1997
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STOCK PURCHASE AND SUBSCRIPTION AGREEMENT
BETWEEN
FOUNTAIN HOLDINGS, L.L.C.
AND
FOUNTAIN PHARMACEUTICALS, INC.
July 11, 1997
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.
"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
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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.
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"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").
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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
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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.
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(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;
12
(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;
13
(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
14
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).
15
(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.
16
(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");
17
(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.
18
(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 Xx. Xxxx X. Xxxxx an amount equal to 50% of the Company's
outstanding obligations to Xx. Xxxxx, including the loans and defined
compensation set forth in Schedule 5(g) hereto (the "Xxxxx 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.
19
(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 Xx.
Xxxxx an amount equal to 25% of the Xxxxx 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 Xxxxx 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
20
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
21
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).
22
(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 Xx. Xxxxxx X. Xxxxxxxxx
Eaglestone Capital Services, Inc.
000 Xxxxxxxxx, Xxxxx 0000
Xxxx Xxxxx, Xxxxxxxxxx 00000
With a copy to: Xxxxxxx X. Xxxxxx
Xxxxxx, Xxxxxxx & Xxxxxxx L.L.P.
00 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxx 00000
If to Company: Fountain Pharmaceuticals, Inc.
0000 Xxxxx Xxxxx Xxxx
Xxxxx, Xxxxxxx 00000
Attention: Xx. Xxxx X. Xxxxx
23
With a copy to: Xxxxxxx X. Xxxxx
Xxxxxxxx Xxxxxxxxx
Eleven Penn Center, 14th Floor
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
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.
24
(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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Xxxx X. Xxxxx, President
