SCHEDULE 14C
(Rule 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement [ ] Confidential, for use of the
[x] Definitive Information Statement Commission only (as permitted
by Rule 14c-5(d)(2)
FOUNTAIN PHARMACEUTICALS, INC.
(Name of Registrant as Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
/ x / No fee required.
/ / Fee computed on table below per Exchange Act rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (Set forth the amount on which the filling
fee is calculated and state how it was determined)
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 1-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
FOUNTAIN PHARMACEUTICALS, INC.
7279 BRYAN DAIRY ROAD
LARGO, FLORIDA 33777
INFORMATION STATEMENT
This Information Statement is furnished to the holders of shares of
Common Stock, par value $.001 and Class B Common Stock, par value $.001 per
share (unless otherwise specified, collectively, the "Common Stock"), of
Fountain Pharmaceuticals, Inc., a Delaware corporation (the "Company"), in
connection with the adoption by the Board of Directors of the Company of the
Fountain Pharmaceuticals, Inc. 1998 Stock Option Plan (the "1998 Plan") as of
December 8, 1998. As of June 10, 1999, the 1998 Plan was approved by the holders
of a majority of the outstanding Common Stock and by the holder of all of the
Company's Series A Preferred Stock, par value $.001 (the "Preferred Stock") by
written consent in lieu of a special meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US
A PROXY.
Notice of the above action is hereby given to stockholders of record on
June 30, 1999 ("Record Date") in accordance with the provisions of Section 228
of the General Corporation Law of the State of Delaware ("GCL"). Copies of this
Information Statement are being sent or given to security holders on or about
July 1, 1999. For additional information concerning the Company, refer to the
Company's Form 10-KSB for the year ended September 30, 1998 and Quarterly
Reports on Form 10-QSB for the periods ended December 31, 1998 and March 31,
1999 (collectively, the "SEC Reports"). Copies of the SEC Reports will be
provided to any stockholder upon written request to the Secretary of the Company
at 7279 Bryan Dairy Road, Largo, Florida, 33777. The Company's SEC Reports are
not, however, to be considered part of this Information Statement or any
soliciting material of the Company.
Under Delaware law, stockholders are not entitled to dissenter's rights
with respect to the 1998 Plan.
REASON FOR INFORMATION STATEMENT
In order to ensure that the options granted under the 1998 Plan qualify
as incentive stock options under Section 422 of the Internal Revenue Code of
1986, as amended and to comply with other tax provisions relevant to such
options, the 1998 Plan must be approved by a majority of the stockholders of the
Company.
As of the Record Date, there were 2,380,301 shares of Common Stock
(including Class B Common Stock) outstanding. To accomplish stockholder approval
of the 1998 Plan, the Company obtained the written consent of the holder of
1,251,100 shares (52.2%) of the
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outstanding Common Stock and the holder of all of the Preferred Stock as of the
Record Date, as permitted under Section 228 of the GCL.
Under the rules and regulations of the Securities and Exchange
Commission (the "SEC"), an information statement complying with Regulation 14C
promulgated under Section 14(c) of the Securities Exchange Act of 1934 (the
"Exchange Act") must be sent to holders of Common Stock from whom the Company
did not obtain the written consent at least 20 calendar days prior to the time
the corporate action approved by the written consent may be taken. The date on
which this information statement is being sent to holders of Common Stock as of
the Record Date is on or about July 1, 1999 (the "Mailing Date"). Therefore, the
approval of the 1998 Plan by the stockholders of the Company will be effective
20 calendar days from the Mailing Date or on or about July 21, 1999.
In addition, Section 228 of the GCL requires the Company to provide
written notice of any corporate action taken by written consent to all
stockholders of the Company who are not parties to such written consent. This
information statement also shall constitute the notice required by Section 228
of the GCL with respect to the written consent.
DESCRIPTION OF THE STOCK OPTION PLAN
Fountain Pharmaceuticals, Inc. 1998 Stock Option Plan
-----------------------------------------------------
The following is a summary of the terms of the Company's 1998 Stock
Option Plan and is qualified in its entirety by the terms of the 1998 Plan, a
copy of which is attached hereto as Exhibit "A."
Purpose of the 1998 Plan
------------------------
The Board of Directors adopted the 1998 Plan as of December 8, 1998.
The purpose of the 1998 Plan is to encourage and enable the officers, employees,
directors and consultants of the Company and its subsidiaries upon whose
judgment, initiative and efforts the Company largely depends for the successful
conduct of its business to acquire a proprietary interest in the Company. It is
anticipated that providing such persons with a direct stake in the Company's
welfare will assure a closer identification of their interests with those of the
Company and its stockholders, thereby stimulating their efforts on the Company's
behalf and strengthening their desire to remain with the Company.
Administration of the 1998 Plan
-------------------------------
The 1998 Plan is administered by a committee of the Board of Directors
or the full Board of Directors (in either case, the "Plan Administrator"). The
Plan Administrator shall construe and interpret the 1998 Plan and establish such
rules as it deems necessary for the proper administration of the 1998 Plan. The
Plan Administrator has authority (subject to full Board of Directors review) to
determine which eligible individuals are to receive option grants, the number of
shares to be covered by each granted option, the date or dates on which the
option is to become exercisable, and the price of the option.
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<PAGE>
Eligibility
-----------
Under the 1998 Plan, directors, officers, full-time employees and
consultants of the Company or its subsidiaries are eligible to receive options
pursuant to the 1998 Plan, if selected. The 1998 Plan provides for the authority
to issue options covering up to 750,000 shares of the Company's Common Stock;
provided, however, that options to purchase no more than 500,000 shares shall be
granted to any one participant.
Type of Options, Price and Exercisability
-----------------------------------------
Nonqualified and incentive stock options may be granted under the 1998
Plan. The term of options granted under the 1998 Plan will be fixed by the Plan
Administrator provided, however, that the maximum option term may not exceed ten
(10) years from the grant date and the exercise price per share may not be less
than the fair market value per share of the Common Stock on the grant date. The
exercise price may be paid in cash, or in the discretion of the Plan
Administrator, in shares of Common Stock; provided however that shares of Common
Stock used to pay the exercise price must have been owned by the participant for
at least a six-month period prior to the exercise date or such longer period as
determined by the Plan Administrator, or, in the discretion of the Plan
Administrator, through an election to have shares of Common Stock otherwise
payable to the optionee withheld to pay the exercise price of such option. No
optionee is to have any stockholder rights with respect to the option shares
until such optionee has exercised the option and paid the exercise price for the
purchased shares. Options are not assignable or transferable other than by will
or the laws of descent and pursuant to a domestic relations order; and during
the optionee's lifetime, the option may be exercised only by such optionee
(except with respect to options transferred pursuant to a domestic relations
order).
Termination of Employment
-------------------------
If the employee to whom an option is granted shall cease to be employed
by the Company or its subsidiaries for any reason, other than death or for cause
(as defined in the 1998 Plan), then within three (3) months next succeeding such
termination of employment, but in any event not later than the expiration date
of the option, the option holder may exercise the option rights granted to the
option holder under the option, but only to the extent that the option holder
was entitled to exercise the same on the date of such termination of employment.
Notwithstanding the foregoing, the Plan Administrator may, in its discretion,
extend the post-termination exercise period to a date not later than the
original expiration date of such option. If termination of employment was for
cause, than all options held by such participants shall forthwith terminate.
If the employee to whom an option is granted shall cease to be employed
by the Company or its subsidiaries by reason of death, disability or retirement,
then within the six (6) months next succeeding such termination of employment,
but in any event not later than the expiration date of the option, the option
holder, the option holder's executor, administrator, or any person or persons to
whom the option holder's rights under the option shall pass by testamentary
transfer, bequest or by the operation of the laws of descent and distribution,
may exercise the option rights granted to the option holder under the option,
but only to the extent that the option holder was entitled to exercise the same
on the date of such termination of employment. Notwithstanding the
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foregoing, the Plan Administrator may, in its discretion, extend the post-death
exercise period to a date not later than the original expiration date of such
option.
Amendment and Termination
-------------------------
The Board of Directors may modify, amend, or terminate the 1998 Plan at
any time provided that no such action shall deprive a participant of any rights
under a grant previously made to him without the consent of such participant.
Adjustments
-----------
In the event of a stock dividend, stock split or other change affecting
the shares or share price of Common Stock, such proportionate adjustments, if
any, as the Board of Directors deems appropriate, will be made with respect to:
(i) the aggregate number of shares of Common Stock that may be issued under the
1998 Plan; (ii) each outstanding award made under the 1998 Plan; (iii) the
exercise price per share for any outstanding stock option awards under the 1998
Plan; and (iv) such other proportionate adjustments as are customary.
Federal Tax Consequences
------------------------
A participant receiving nonqualified stock options will not recognize
taxable income at the time the non-qualified stock option is granted. At the
time the non-qualified stock option is exercised, the participant will recognize
ordinary taxable income in an amount equal to the difference between the
exercise price and the fair market value of the Common Stock on the date of
exercise. The Company generally will be entitled to a concurrent deduction equal
to the ordinary income recognized by the participant.
An employee granted an incentive stock option will not recognize
taxable income at the time of grant or, subject to certain conditions, at the
time of exercise (although the employee will have income for purposes of
alternative minimum tax). If stock acquired upon exercise of an incentive stock
option is held for a minimum of two years from the date of grant of the stock
option and one year from the date of exercise, the gain or loss (in an amount
equal to the difference between the sales price and the exercise price) upon
disposition of the stock will be treated as long-term capital gain or loss, and
the Company will not be entitled to any deduction.
If the holding period requirement is not met, the employee will
recognize ordinary income in an amount equal to the lesser of (1) the excess of
the fair market value of Common Stock on the date of exercise over the exercise
price or (2) the excess of the amount realized on the sale of the stock over the
exercise price. In the event that the incentive stock option holding periods are
not satisfied and the employee recognizes ordinary income, the Company will
generally receive an income tax deduction equal to the ordinary income
recognized by the employee.
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<PAGE>
1998 STOCK OPTION PLAN
The following table sets forth the stock options previously granted
under the 1998 Plan to the persons and groups specified below.
<TABLE>
<CAPTION>
Number of Shares
Name and Position Subject to Options Dollar Value($)(4)
- ----------------- ------------------ ------------------
<S> <C> <C>
Gerald T. Simmons, Chief Executive Officer 173,121(1) $86,560.50
John C. Walsh, former Chief Executive Officer -0- -0-
Executive Officers as a Group (1) 173,121 $85,560.50
Non-Executive Directors as a Group (5) 25,000(2) $12,500.00
Non-Executive Officer Employees as a Group (10 persons) 170,000(3) $85,000.00
</TABLE>
- ----------------
(1) Includes options to purchase 173,121 shares at an exercise price of
$.56 per share granted as of December 8, 1998, 34,624 of which have
vested. The options vest 20% per year commencing with the date of grant
and have a term of 5 years.
(2) Includes options to purchase 25,000 shares at an exercise price of $.56
per share granted as of December 8, 1998 which are fully vested. The
options expire as of December 20, 2003, unless earlier terminated.
(3) Represents options to purchase 170,000 shares at an exercise price of
$.56 per share granted as of December 8, 1998. The options generally
vest one-third each year on the anniversary of the date of grant
commencing December 8, 1999. The options generally have a term of 5
years, unless earlier terminated.
(4) Represents the value of the stock options upon exercise of the options
based upon the closing price of the Company's Common Stock on June 28,
1999 of $1.06 per share as reported on the Over-the-Counter Bulletin
Board Quotation System.
Also assumes that all options are vested and exercisable.
Grants under the 1998 Plan are discretionary. The Company cannot
determine as of the date hereof the options which may be granted in the future
under the 1998 Plan.
Because executive officers and directors of the Company are eligible to
receive awards under the 1998 Plan, each of them had a personal interest in the
approval of the 1998 Plan.
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<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following sets forth the total compensation awarded to, earned by
or paid to the Company's Chief Executive Officer and its four most highly
compensated executive officers (receiving $100,000 or more) who were serving as
executive officers at the end of the Company's last completed fiscal year.
<TABLE>
<CAPTION>
========================================================================== =================== =============================
Long Term
Annual Compensation Compensation
- --------------------------------------------------- ---------------------- ------------------- -----------------------------
Fiscal Year
Ended
Name and Principal Position September 30 Salary ($) Options/SARS (#)
- --------------------------------------------------- ---------------------- ------------------- -----------------------------
<S> <C> <C> <C>
John C. Walsh(1) (2) 1998 $181,731 -0-
Director, Former Chairman, Chief Executive 1997 $118,269 -0-
Officer and President 1996 $137,308 -0-
=================================================== ====================== =================== =============================
</TABLE>
(1) Pursuant to the Company's Plan of Reorganization, Mr. Walsh was
entitled to receive aggregate payments of $21,615 payable commencing
February 1996 and ending August 1998 as accrued and unpaid salary and
expenses. As of September 30, 1998, the obligation was satisfied in
full. Mr. Walsh resigned from his position as Chief Executive Officer
and President as of December 1, 1998, and his position as the Company's
Chairman of the Board as of June 10, 1999. He remains a Director of the
Company. As part of his severance arrangement, Mr. Walsh will continue
to receive full salary and accompanying benefits through August 3,
1999.
(2) As of December 1, 1998, Mr. Simmons was appointed Chief Executive
Officer and President pursuant to an employment agreement. See
"Employment Arrangements and Change of Control."
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<PAGE>
OPTION/SAR GRANTS TABLE
<TABLE>
<CAPTION>
Option/SAR Grants in the Last Fiscal Year
========================================================================================================================
Individual Grants
- --------------------------------- ------------ ------------------- -------------------- ---------------- ---------------
% of Total
Options/SARs
Granted to Exercise or
Fiscal Year Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date
- --------------------------------- ------------ ------------------- -------------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
John C. Walsh 1998(1) -0- -0- -0- -0-
Director, Former Chairman,
Chief Executive Officer and
President
================================= ============ =================== ==================== ================ ===============
</TABLE>
(1) No options were granted during Fiscal Year 1998.
<TABLE>
<CAPTION>
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
========================================================================================================================
Aggregated Options/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Value
- ---------------------------------------------------------------------------- ----------------------- -------------------
Value of
Number of Unexercised Unexercised
Options/SARs at In-the-Money
FY-End (#) Options/SARs at
FY-End ($)
- ------------------------------- ----------- ------------------ ------------- ----------------------- -------------------
Shares Value
Fiscal Acquired on Realized Exercisable/ Exercisable/
Name Year Exercise (#) ($) Unexercisable Unexercisable
- ------------------------------- ----------- ------------------ ------------- ----------------------- -------------------
<S> <C> <C> <C> <C> <C>
John C. Walsh 1998(1) -0- -0- (U)0/(E)-0- (E)$0/(U)-0-
Director, Former Chairman,
Chief Executive Officer, and
President
=============================== =========== ================== ============= ======================= ===================
</TABLE>
(1) Mr. Walsh does not have any stock options.
Employment Arrangements and Change of Control
---------------------------------------------
As of December 1, 1998, the Company entered into an Employment
Agreement with Mr. Gerald T. Simmons to serve as President and Chief Executive
Officer of the Company. Mr. Simmons is provided with an annual salary of
$130,000. The Agreement provides for a term of one year with successive
year-to-year renewals unless either party shall elect not to renew upon
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thirty days prior written notice. The Agreement contains a non-competition and
non-solicitation provision that survives his actual employment for a term of two
years. Mr. Simmons was also granted options to purchase 173,121 shares of Common
Stock (5% of the outstanding Common Stock of the Company including outstanding
options and warrants) at an exercise price of $.56 per share. The options
include certain anti-dilution protection provisions for securities issued by the
Company prior to December 31, 1999, including the conversion, if at all, of the
outstanding Series A Convertible Preferred Stock held by Holdings. Provided that
Mr. Simmons continues to be employed by the Company, the options vest 20% each
year commencing on the date of grant. All options vest in the event of a change
in control of the Company as set forth in the Agreement.
In the event of a change in control prior to the end of the initial
term, Mr. Simmons may elect to receive a severance payment of six months salary
and insurance premiums, and the term of the non-compete and non-solicitation
provision would be reduced to six months from the date of termination. The
Agreement also provides Mr. Simmons with various benefits including medical,
dental, life and disability insurance and reimbursement of expenses including up
to $6,000 per month of commuting expenses during the first year of the Agreement
and certain relocation expenses thereafter, as applicable.
Mr. John Walsh resigned from his position as Chief Executive Officer
and President of the Company as of December 1, 1998 and his position as Chairman
of the Board as of June 10, 1999. He remains a Director of the Company. As part
of his severance arrangement with the Company, he will continue to receive full
salary from December 1, 1998 through August 3, 1999 which is estimated at
approximately $101,539, and accompanying benefits.
Directors' Compensation
-----------------------
The Company has a policy of not granting fees to directors who attend a
regularly scheduled or special meeting of its Board of Directors. However, the
Company may reimburse outside directors for their cost of travel and lodging to
attend such meetings.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 30, 1999, information with
respect to the securities holdings of all persons which the Company, pursuant to
filings with the Securities and Exchange Commission, has reason to believe may
be deemed the beneficial owners of more than 5% of the Company's outstanding
Common Stock and Class B Common Stock. The following table indicates the
beneficial ownership of such individuals numerically calculated based upon the
total number of shares of Common Stock and Class B Common Stock outstanding and
alternatively calculated based upon the percentage voting power allocated to
such share ownership taking into account the disproportionate voting rights
attributed to the Class B Common Stock. Also set forth in the table is the
beneficial ownership of all shares of the Company's outstanding stock, as of
such date, of all officers and directors, individually and as a group.
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<TABLE>
<CAPTION>
Amount of Percent of Percent of
Name and Address Beneficial Ownership(1) Beneficial Ownership Voting Power(3)
---------------- ----------------------- -------------------- ---------------
<S> <C> <C> <C>
Gerald T. Simmons 34,624(2) 1.4% 1.4%
7279 Bryan Dairy Road
Largo, FL 33777
James Fuchs 25,000(4) 1.0% 1.0%
565 Park Avenue
New York, NY 10021
Dr. Christopher Brown 12,218(5) * *
240 Keystone Road
Sheridan, WY 82801
Carol Rae 0 0 0
13117 North Creekview Road
Rapid City, SD 57702
Joseph S. Schuchert, Jr./ 2,827,338(6) 54.3% 54.2%(7)
Fountain Holdings, LLC
c/o Eaglestone Capital Services, Inc.
400 Oceangate, Suite 1125
Long Beach, CA 90802
John C. Walsh 1,251,100 52.6% 52.2%
9 North Pelican Drive
Avalon, NJ 08202
All Directors and Officers as a Group 4,150,280 78.8% 78.6%
(6 Persons)
</TABLE>
- ---------------------
* Represents less than 1%
(1) Except as otherwise indicated, includes total number of shares
outstanding and the number of shares which each person has the right to
acquire within 60 days through the exercise of warrants or the
conversion of Preferred Stock pursuant to Item 403 of Regulation S-B
and Rule 13d-3(d)(1), promulgated under the Exchange Act. Also reflects
2,380,301 shares of the Company's Common Stock (including Class B
Common Stock) outstanding as of June 30, 1999.
(2) Does not include common stock purchase options to purchase 138,497
shares at an exercise price of $.56 per share which were granted
December 8, 1998 but which have not vested.
(3) This column takes into account the disproportionate voting rights
granted to the holders of the Class B Common Stock. Holders of Class B
Common Stock are entitled to five (5) votes for every share held.
(4) Includes 25,000 shares of Common Stock issuable upon the exercise of
options at an exercise price of $.56 per share.
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<PAGE>
(5) Includes 1,363 shares of Common Stock held by Dr. Brown's spouse,
Elizabeth G. Brown, and 3,196 shares of Common Stock held by Dr. Brown
as custodian for his children.
(6) Includes 1,264,151 shares of Common Stock and 2,252 shares of Class B
Common Stock issuable upon conversion of the Preferred Stock held by
Holdings. Holdings is held 50% by Mr. Schuchert and 50% by his spouse,
Ms. Karalyn R. Schuchert. Mr. Schuchert is the managing member of
Holdings. Also includes 1,560,935 shares of Common Stock issuable upon
the exercise of a common stock purchase warrant at an exercise price of
$.65 per share.
(7) Assumes the conversion of the Preferred Stock into shares of Common
Stock and Class B Common Stock. See "Voting Rights of Preferred Stock."
Voting Rights of Preferred Stock
--------------------------------
As of June 30, 1999, there were 2,000,000 shares of Preferred Stock,
$.001 par value per share, authorized and outstanding, all of which is held by
Holdings. Prior to the conversion of the Preferred Stock, the holders of the
Preferred Stock are entitled to the number of votes to be cast by the holders of
all of the then issued and outstanding Common Stock and Class B Common Stock
plus seven (7) votes in all elections of directors, which enables such holders
to elect a majority of the Board of Directors. In all other matters presented to
stockholders for a vote, whether required by applicable corporate law or
otherwise, the holders of Preferred Stock vote as a class and no vote of the
stockholders will be effective without the approval of the holders of a majority
of the shares of the Preferred Stock. Dr. Christopher Brown, Mr. Joseph S.
Schuchert, Jr. and Ms. Carol Rae were appointed to the Board of Directors as
nominees of Holdings. As of June 30, 1999, the shares of Preferred Stock were
convertible into approximately 1,264,151 shares of Common Stock and 2,252 shares
of Class B Common Stock.
Effective Date
--------------
The effective date of the shareholder approval of the 1998 Plan is on
or about July 21, 1999.
AVAILABLE INFORMATION
---------------------
The Company is subject to the information requirements of the Exchange
Act, and in accordance therewith file periodic reports, proxy statements and
other information with the SEC. Such reports, proxy statements and other
information, as well as the Information Statement, including the exhibits and
schedules thereto, may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the SEC
located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from such offices, upon payment of the fees prescribed
by the SEC. The SEC maintains a web site (http://www.sec.gov) that contains
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reports, proxy and information statements and other information regarding
registrants, such as the Company that submit electronic filings to the SEC.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Gerald T. Simmons
--------------------------------------
Gerald T. Simmons
President and Chief Executive Officer
Dated: July 1, 1999
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EXHIBIT "A"
Fountain Pharmaceuticals, Inc.
1998 STOCK OPTION PLAN
Section 1. General Purpose of the Plan; Definitions. The name of the
plan is the Fountain Pharmaceuticals, Inc. 1998 Stock Option Plan (the "Plan").
The purpose of the Plan is to encourage and enable the officers, employees,
directors and consultants of Fountain Pharmaceuticals, Inc. (the "Company") and
its subsidiaries upon whose judgment, initiative and efforts the Company largely
depends for the successful conduct of its business to acquire a proprietary
interest in the Company. It is anticipated that providing such persons with a
direct stake in the Company's welfare will assure a closer identification of
their interests with those of the Company and its shareholders, thereby
stimulating their efforts on the Company's behalf and strengthening their desire
to remain with the Company.
The following terms shall be defined as set forth below:
"Act" means the Securities Exchange Act of 1934, as amended.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Effective Date" means the date on which the Plan is approved by the
Board as set forth in Section 14.
"Fair Market Value" of the Stock on any given date means (i) if the
Stock is admitted to quotation on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), the Fair Market Value on any given date
shall be the average of the highest bid and lowest asked prices of the Stock
reported for such date or, if no bid and asked prices were reported for such
date, for the last day preceding such date for which such prices were reported,
or (ii) if the Stock is admitted to trading on a United States securities
exchange or the NASDAQ National Market System, the Fair Market Value on any date
shall be the closing price reported for the Stock on such exchange or system for
such date or, if no sales were reported for such date, for the last day
preceding such date for which a sale was reported; and (iii) if the Fair Market
Value cannot be determined on the basis previously set forth in this definition
on the date that Fair Market Value is to be determined, the Board shall in good
faith determine the Fair Market Value of the Stock on such date.
"Incentive Stock Option" means any Stock Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
<PAGE>
"Independent Director" means a member of the Board who is not an
employee or officer of the Company or any Subsidiary.
"Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Option" or "Stock Option" means any Option to purchase shares of Stock
granted pursuant to Section 6.
"Stock" means the Common Stock, par value $.001 per share, of the
Company, subject to adjustments pursuant to Section 9.
"Subsidiary" means any corporation or other entity (other than the
Company) in any unbroken chain of corporations or other entities, beginning with
the Company, if each of the corporations or entities (other than the last
corporation or entity in the unbroken chain) owns stock or other interests
possessing 50% or more of the economic interest or the total combined voting
power of all classes of stock or other interests in one of the other
corporations or entities in the chain.
Section 2. Administration. The Plan shall be administered by the full
Board of Directors of the Company or a committee of such Board of Directors
comprised of two or more "Non-Employee Directors" within the meaning of Rule
16b-3(a)(3) promulgated under the Act (the "Plan Administrator"). Subject to the
provisions of the Plan, the Plan Administrator is authorized to:
(a) construe the Plan and any Option under the Plan;
(b) select the directors, officers, employees and consultants of
the Company and its Subsidiaries to whom Options may be
granted;
(c) determine the number of shares of Stock to be covered by any
Option;
(d) determine and modify from time to time the terms and
conditions, including restrictions, of any Option and to
approve the form of written instrument evidencing Options;
(e) accelerate at any time the exercisability or vesting of all
or any portion of any Option and/or to include provisions in
options providing for such acceleration;
(f) impose limitations on Options, including limitations on
transfer and repurchase provisions;
(g) extend the exercise period within which Stock Options may be
exercised; and
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(h) determine at any time whether, to what extent, and under
what circumstances Stock and other amounts payable with
respect to an Option shall be deferred either automatically
or at the election of the participant and whether and to
what extent the Company shall pay or credit amounts
constituting interest (at rates determined by the Plan
Administrator) or dividends or deemed dividends on such
deferrals.
The determination of the Plan Administrator on any such matters shall be
conclusive.
Section 3. Delegation of Authority to Grant Options. The Plan
Administrator, in its discretion, may delegate to the Chief Executive Officer
and President of the Company all or part of the Plan Administrator's authority
and duties with respect to granting Options to individuals who are not subject
to the reporting provisions of Section 16 of the Act or "covered employees"
within the meaning of Section 162(m) of the Code. The Plan Administrator may
revoke or amend the terms of such a delegation at any time, but such revocation
shall not invalidate prior actions of the Co-Chairmen that were consistent with
the terms of the Plan.
Section 4. Eligibility. Directors, officers, full-time employees and
consultants of the Company or its Subsidiaries who, in the opinion of the Plan
Administrator, are mainly responsible for the continued growth and development
and future financial success of the business shall be eligible to participate in
the Plan.
Section 5. Shares Subject to the Plan. The number of shares of Stock
which may be issued pursuant to the Plan shall be 750,000. For purposes of the
foregoing limitation, the shares of Stock underlying any Options which are
forfeited, canceled, reacquired by the Company, satisfied without the issuance
of Stock or otherwise terminated (other than by exercise) shall be added back to
the number of shares of Stock available for issuance under the Plan.
Notwithstanding the foregoing, on and after the date that the Plan is subject to
Section 162(m) of the Code, Stock Options with respect to no more than 500,000
shares of Stock may be granted to any one individual participant. Common Stock
to be issued under the Plan may be either authorized and unissued shares or
shares held in treasury by the Company.
Section 6. Stock Options. Options granted pursuant to the Plan may be
either Options which are Incentive Stock Options or Non-Qualified Stock Options.
Incentive Stock Options and Non-Qualified Stock Options shall be granted
separately hereunder. The Plan Administrator, shall determine whether and to
what extent Options shall be granted under the Plan and whether such Options
granted shall be Incentive Stock Options or Non-Qualified Stock Options;
provide, however, that: (a) Incentive Stock Options may be granted only to
employees of the Company or any Subsidiary that is a "subsidiary corporation"
within the meaning of Section 424(f) of the Code; and (b) No Incentive Stock
Option may be granted following the tenth anniversary of the effective date of
the Plan. The provisions of the Plan and any stock Option agreement pursuant to
which Incentive Stock Options shall be issued shall be construed in a manner
consistent with Section 422 of the Code (or any successor provision) and rules
and regulations promulgated thereunder.
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Section 7. Terms of Options. Each Option granted under the Plan shall
be evidenced by an agreement between the Company and the person to whom such
Option is granted and shall be subject to the following terms and conditions:
(a) Subject to adjustment as provided in Section 9 of this Plan,
the price at which each share covered by an Option may be
purchased shall be determined in each case by the Plan
Administrator; provided, however, that such price shall not,
in the case of an Incentive Stock Option, be less than the
Fair Market Value of the underlying Stock at the time the
Option is granted. If an optionee owns (or is deemed to own
under applicable provisions of the Code and rules and
regulations promulgated thereunder) more than ten percent
(10%) of the combined voting power of all classes of the
stock of the Company and an Option granted to such optionee
is intended to qualify as an Incentive Stock Option, the
Option price shall be no less than 110% of the Fair Market
Value of the Common Stock covered by the Option on the date
the Option is granted.
(b) The aggregate Fair Market Value of shares of Stock with
respect to which Incentive Stock Options are first
exercisable by the optionee in any calendar year (under all
plans of the Company) shall not exceed the limitations, if
any, imposed by Section 422(d) of the Code (or any successor
provision). If any Option designated as an Incentive Stock
Option, either alone or in conjunction with any other Option
or Options, exceeds the foregoing limitation, the portion of
such Option in excess of such limitation shall automatically
be reclassified (in whole share increments and without
fractional share portions) as a Non-Qualified Stock Option,
with later granted Options being so reclassified first.
(c) Options shall not be transferable by the participant
otherwise than by will or by the laws of descent and
distribution or pursuant to a domestic relations order.
(d) Options may be exercised in whole at any time, or in part
from time to time, within such period or periods as may be
determined by the Plan Administrator and set forth in the
agreement (such period or periods being hereinafter referred
to as the "Option Period"), provided that such period may
not exceed ten years, unless the agreement provides
otherwise:
(i) If a participant who is an employee of the Company
shall cease to be employed by the Company, all Options
which the employee is then entitled to exercise may be
exercised only within three months after the
termination of employment and within the Option Period
or, if such termination was due to death, disability or
retirement (as hereinafter defined), within six months
after termination of employment and within the Option
Period. Notwithstanding the foregoing: (a) in the event
that any termination of employment shall
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be for Cause (as defined herein) or the participant
becomes an officer or director of, a consultant to or
employed by a Competing Business (as defined herein),
during the Option Period, then any and all Options held
by such participant shall forthwith terminate; and(b)
the Plan Administrator may, in its sole discretion,
extend the post termination Option Period of any Option
provided that such extension does not extend beyond the
original Option Period.
For purposes of this Plan, the term "Cause" shall mean
(a) with respect to an individual who is party to a
written agreement with the Company which contains a
definition of "cause" or "for cause" or words of
similar import for purposes of termination of
employment thereunder by the Company, "cause" or "for
cause" as defined in such agreement; (b) in all other
cases (I) the willful commission by an employee of a
criminal or other act that causes substantial economic
damage to the Company or substantial injury to the
business reputation of the Company; (II) the commission
of an act of fraud in the performance of such person's
duties to or on behalf of the Company; or (III) the
continuing willful failure of a person to perform the
duties of such person to the Company (other than a
failure to perform duties resulting from such person's
incapacity due to illness) after written notice thereof
(specifying the particulars thereof in reasonable
detail) and a reasonable opportunity to cure such
failure are given to the person by the Board of
Directors of the Company or the Plan Administrator. For
purposes of the Plan, no act, or failure to act, on the
part of any person shall be considered "willful" unless
done or omitted to be done by the person other than in
good faith and without reasonable belief that the
person's action or omission was in the best interest of
the Company.
(ii) If a participant who is a director of the Company shall
cease to serve as a director of the Company, any
Options then exercisable by such director may be
exercised only within three months after the cessation
of service and within the Option Period unless such
cessation was due to death or disability, in which case
such optionee may exercise such Option within six
months after cessation of service and within the Option
Period. Notwithstanding the foregoing (a) if any
cessation of service as a director was the result of
removal for cause (as determined under the corporation
laws of Delaware) any Options held by such participant
shall forthwith terminate; and (b) the Plan
Administrator may in its sole discretion extend the
post service Option Period of any Option provided that
such extension does not extend beyond the original
Option Period;
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(iii) Options may not be exercised for more shares (subject
to adjustment as provided in Section 9) after the
termination of the participant's employment, cessation
of service as a director or the participant's death, as
the case may be, than the participant was entitled to
purchase thereunder at the time of the termination of
the participant's employment or the participant's
death; and
(iv) If a participant owns (or is deemed to own under
applicable provisions of the Code and regulations
promulgated thereunder) more than 10% of the combined
voting power of all classes of stock of the Company (or
any parent or subsidiary corporation of the Company)
and an Option granted to such participant is intended
to qualify as an Incentive Stock Option, the Option by
its terms may not be exercisable after the expiration
of five years from the date such Option is granted.
(e) The Option exercise price of each share purchased pursuant
to an Option shall be paid in full at the time of each
exercise (the "Payment Date") of the Option (i) in cash;
(ii) by delivering to the Company a notice of exercise with
an irrevocable direction to a broker-dealer registered under
the Act to sell a sufficient portion of the shares and
deliver the sale proceeds directly to the Company to pay the
exercise price; (iii) in the discretion of the Plan
Administrator, through the delivery to the Company of
previously-owned shares of Common Stock having an aggregate
Fair Market Value equal to the Option exercise price of the
shares being purchased pursuant to the exercise of the
Option; provided, however, that shares of Common Stock
delivered in payment of the Option price must have been held
by the participant for at least six (6) months in order to
be utilized to pay the Option price; (iv) in the discretion
of the Plan Administrator, through an election to have
shares of Common Stock otherwise issuable to the optionee
withheld to pay the exercise price of such Option; or (v) in
the discretion of the Plan Administrator, through any
combination of the payment procedures set forth in
subsections (i)-(iv) of this Section 7(e).
(f) The Plan Administrator, in its discretion, may authorize
"stock retention Options" which provide, upon the exercise
of an Option previously granted under this Plan (a "prior
Option"), using previously owned shares, for the automatic
issuance of a new Option under this Plan with an exercise
price equal to the current Fair Market Value and for up to
the number of shares equal to the number of previously-owned
shares delivered in payment of the exercise price of the
prior Option. Such stock retention Option shall have the
same Option Period as the prior Option.
(g) Nothing contained in the Plan nor in any Option agreement
shall confer upon any participant any right with respect to
the continuance of employment by the Company nor interfere
in any way with the right of the
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Company to terminate his employment or change his
compensation at any time.
(h) The Plan Administrator may include such other terms and
conditions not inconsistent with the foregoing as the Plan
Administrator shall approve. Without limiting the generality
of the foregoing sentence, the Plan Administrator shall be
authorized to determine that Options shall be exercisable in
one or more installments during the term of the Option,
subject to the attainment of performance goals and
objectives and the right to exercise may be cumulative as
determined by the Plan Administrator.
Section 8. Tax Withholding.
(a) Whenever shares are to be issued under the Plan, the Company
shall have the right to require the participant to remit to
the Company an amount sufficient to satisfy federal, state
and local tax withholding requirements prior to the delivery
of any certificate for shares or any proceeds. If a
participant makes a disposition of shares acquired upon the
exercise of an Incentive Stock Option within either two
years after the Option was granted or one year after its
exercise by the participant, the participant shall promptly
notify the Company and the Company shall have the right to
require the participant to pay to the Company an amount
sufficient to satisfy federal, state and local tax
withholding requirements.
(b) A participant who is obligated to pay the Company an amount
required to be withheld under applicable tax withholding
requirements may pay such amount (i) in cash; (ii) in the
discretion of the Plan Administrator, through the delivery
to the Company of previously-owned shares of Common Stock
having an aggregate Fair Market Value on the relevant date
equal to the tax obligation provided that the previously
owned shares delivered in satisfaction of the withholding
obligations must have been held by the participant for at
least six (6) months; or (iii) in the discretion of the Plan
Administrator, through a combination of the procedures set
forth in subsections (i) and (ii) of this Section 8(b).
(c) A participant who is obligated to pay to the Company an
amount required to be withheld under applicable tax
withholding requirements in connection with either the
exercise of a Non-Qualified Stock Option, in the discretion
of the Plan Administrator, elect to satisfy this withholding
obligation, in whole or in part, by requesting that the
Company withhold shares of stock otherwise issuable to the
participant having a Fair Market Value on the relevant date
equal to the amount of the tax required to be withheld. Any
fractional amount shall be paid to the Company by the
participant in cash or shall be withheld from the
participant's next regular paycheck.
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(d) An election by a participant to have shares of stock
withheld to satisfy federal, state and local tax withholding
requirements pursuant to Section 8(c) must be in writing and
delivered to the Company prior to the relevant date.
Section 9. Adjustment of Number and Price of Shares.
Any other provision of the Plan notwithstanding:
(a) If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the
Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split or other
similar transaction, the outstanding shares of Stock are
increased or decreased or are exchanged for a different
number or kind of shares or other securities of the Company,
or additional shares or new or different shares or other
securities of the Company or other non-cash assets are
distributed with respect to such shares of Stock or other
securities, the Plan Administrator shall make an appropriate
or proportionate adjustment in (i) the number of Stock
Options that can be granted to any one individual
participant, (ii) the number and kind of shares subject to
any then outstanding Options Plan, and (iii) the price for
each share subject to any then outstanding Stock Options
under the Plan, without changing the aggregate exercise
price (i.e., the exercise price multiplied by the number of
shares) as to which such Stock Options remain exercisable.
The adjustment by the Plan Administrator shall be final,
binding and conclusive.
(b) In the event that, by reason of a corporate merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation, the Board of Directors shall
authorize the issuance or assumption of a Stock Option or
Stock Options in a transaction to which Section 424(a) of
the Code applies, then, notwithstanding any other provision
of the Plan, the Plan Administrator may grant an Option or
Options upon such terms and conditions as it may deem
appropriate for the purpose of assumption of the old Option,
or substitution of a new Option for the old Option, in
conformity with the provisions of Code Section 424(a) and
the rules and regulations thereunder, as they may be amended
from time to time.
(c) No adjustment or substitution provided for in this Section 9
shall require the Company to issue or to sell a fractional
share under any stock Option agreement or share award
agreement and the total adjustment or substitution with
respect to each stock Option and share award agreement shall
be limited accordingly.
(d) In the case of (i) the dissolution or liquidation of the
Company, (ii) a merger, reorganization or consolidation in
which the Company is acquired by another person or entity
(other than a holding company formed by the
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Company), (iii) the sale of all or substantially all of the
assets of the Company to an unrelated person or entity, or
(iv) the sale of all of the stock of the Company to a
unrelated person or entity (in each case, a "Fundamental
Transaction"), the Plan and all Options granted hereunder
shall terminate, unless provision is made in connection with
the Fundamental Transaction for the assumption of the
Options heretofore granted, or the substitution of such
Options with new awards of the successor entity, with
appropriate adjustment as to the number and kind of shares
and, if appropriate, the per share exercise price as
provided in Subsections (a) and (b) of this Section 9. In
the event of such termination each participant shall be
notified of such proposed termination and permitted to
exercise for a period of at least 15 days prior to the date
of such termination all Options held by such participant
which are then exercisable.
Section 10. Amendment and Discontinuance. The Board of Directors may
alter, amend, suspend or discontinue the Plan at any time, provided that no such
action shall deprive any person without such person's consent of any rights
theretofore granted pursuant hereto.
Section 11. Compliance with Governmental Regulations. Notwithstanding
any provision of the Plan or the terms of any agreement entered into pursuant to
the Plan, the Company shall not be required to issue any shares hereunder prior
to registration of the shares subject to the Plan under the Securities Act of
1933 or the Act, if such registration shall be necessary, or before compliance
by the Company or any participant with any other provisions of either of those
acts or of regulations or rulings of the Securities and Exchange Commission
thereunder, or before compliance with other federal and state laws and
regulations and rulings thereunder, including the rules of any applicable
exchange or of the Nasdaq Stock Market. The Company shall use its best efforts
to effect such registrations and to comply with such laws, regulations and
rulings forthwith upon advice by its counsel that any such registration or
compliance is necessary.
Section 12. Compliance with Section 16. With respect to persons subject
to Section 16 of the Act, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3 (or its successor rule and shall be
construed to the fullest extent possible in a manner consistent with this intent
). To the extent that any Option fails to so comply, it shall be deemed to be
modified to the extent permitted by law and to the extent deemed advisable by
the Plan Administrator in order to comply with Rule 16b-3.
Section 13. Participation by Foreign Nationals. The Plan Administrator
may, in order to fulfill the purposes of the Plan and without amending the Plan,
modify grants to foreign nationals or United States citizens employed abroad in
order to recognize differences in local law, tax policy or custom.
Section 14. Effective Date of Plan. The Plan became effective on
December 8, 1998.
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