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
(Amendment No.1)
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for use of the Commission only (as permitted by
Rule 14c-5(d)(2))
[ ] Definitive Information Statement
FOUNTAIN PHARMACEUTICALS, INC.
-----------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] 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:
---------------------------------------------------------------------
4. Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Rule
0-11(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:
---------------------------------------------------------------------
FOUNTAIN PHARMACEUTICALS, INC.
505 South Westland Avenue, Suite D
Tampa, Florida 33606
---------------
Information Statement pursuant to sections 14(C) and 14(F)
of the securities and exchange act of 1934
---------------
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
----------------
This Information Statement (the "Information Statement") is being
mailed on or about August 2, 2002 to the holders of record at the close of
business on July 22, 2002, (the "Record Date") of the Class A and Class B common
stock, $.001 par value per share (unless otherwise specified, collectively the
"Common Stock") of Fountain Pharmaceuticals, Inc. (the "Company"), in connection
with the Company's acquisition of SiriCOMM, Inc. ("SiriCOMM") (the "SiriCOMM
Acquisition") and appointment of certain persons to the Board of Directors of
the Company other than at a meeting of the shareholders of the Company.
This Information Statement is also being mailed to the Company's
shareholders in connection with a proposed action by written consent to
authorize and approve:
1. An amendment and restatement of the Company's Certificate of
Incorporation which (a) changes the name of the Company to "SiriCOMM,
Inc."; (b) combines the outstanding shares of Common Stock into a
single class of Common Stock; (c) reverse splits the outstanding shares
of the Company's Common Stock one-for-sixty (the "Reverse Split"); (d)
decreases the par value of the Company's Common Stock resulting from
the Reverse Split to $.001; (e) increases the number of shares of
Common Stock the Company is authorized to issue to 50,000,000; and (f)
increases the number of shares of Preferred Stock, $.001 par value, the
Company is authorized to issue from 2,000,000 to 5,000,000.
2. The adoption of the Company's 2002 Equity Incentive Plan.
3. The approval of the acquisition of SiriCOMM, Inc.
The sole member of the Board of Directors, Mr. Brendon K. Rennert,
beneficially owns 3,500,000 shares of Class A Common Stock and 100,000 shares of
Class B Common Stock. These shareholdings represent approximately 59.6% and
95.7%, respectively, of the total outstanding votes of all issued and
outstanding Common Stock of the Company and was sufficient to take the proposed
action on the Record Date. Dissenting shareholders do not have any statutory
appraisal rights as a result of the action taken. Mr. Rennert, on behalf of Park
Street Acquisition Corp., executed a written consent on July 15, 2002 in favor
of the proposed action on behalf of the shares of the Company which he controls.
The Company does not intend to solicit any proxies or consents from any other
shareholders in connection with these actions.
1
Pursuant to the provisions of Delaware law and the Company's
Certificate of Incorporation, the amendments require the approval of a majority
of such shares. Accordingly, Mr. Rennert's vote is sufficient to approve these
matters, which he believes is in the best interests of the Company and its
shareholders. The corporate action will be effective 20 days after the mailing
of this Information Statement.
This Information Statement is being distributed pursuant to the
requirements of Sections 14(c) and 14(f) of the Securities Exchange Act of 1934.
The entire cost of furnishing this Information Statement will be borne
by the Company. The Company will request brokerage houses, nominees, custodians,
fiduciaries and other like parties to forward this Information Statement to the
beneficial owners of the Common Stock held of record by them and will reimburse
such persons for their reasonable charges and expenses in connection therewith.
INFORMATION RELATING TO THE COMPANY'S COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are the
only class of voting securities of the Company outstanding. The Company is
authorized to issue 50,000,000 shares of Class A common Stock and 5,000,000
shares of Class B Common Stock. Each share of Class A Common Stock is entitled
to one vote per share on all matters submitted to a vote of the shareholders.
Each share of Class B Common Stock is entitled to five (5) votes per share on
all matters submitted to a vote of the shares. As of the Record Date, the
Company had 5,875,795 shares of the Class A Common Stock outstanding, which is
the same number of votes this class is entitled to cast, and 104,505 shares of
Class B Common Stock outstanding, which entitles this class to have an aggregate
of 522,525 votes cast.
CHANGES OF CONTROL OF THE COMPANY
In order to provide working capital, the Company entered into a secured
credit arrangement with Mr. Schuchert as of December 31, 1998. The Secured
Credit Agreement provided for a secured line of credit of up to $1,500,000,
which was due on December 31, 2000, 180 days from written demand of Mr.
Schuchert as lender, or upon an event of default under the agreement. The
facility was secured by all of the assets of the Company (subject to any
existing liens). Additional funds were advanced in 1999, 2000, and 2001 on an
unsecured basis. As of December 29, 2001 the Company owed Mr. Schuchert
approximately $1,454,733 of principal and interest on an unsecured basis.
On June 21, 2001, Mr. Schuchert notified the Company that it was in
default under the Secured Credit Agreement dated December 31, 1998. Mr.
Schuchert requested immediate payment of the $1,500,000 principal and accrued
interest due and, in the event such payments were not forthcoming Mr. Schuchert
would take action to take possession of the Company's assets and other
2
collateral as defined in the Secured Credit Agreement. As the Company was not in
a financial position to make the required payment, the Company's Board of
Directors voted on June 28, 2001 to comply with the agreement and transfer the
assets of the Company at the close of business on July 6, 2001 to Mr. Schuchert.
As a result, the secured debt was satisfied through this transfer of assets,
although the unsecured facility remained outstanding.
As the Company had no significant assets subsequent to July 6, 2001, it
no longer had the ability to generate revenue to pay its unsecured liabilities;
therefore, the Company was not in the position to continue as a going concern.
Accordingly, the Company's Board of Directors suspended operations.
On December 31, 2001, Park Street acquired 3,500,000 shares of the
Company's Class A Common Stock and 100,000 shares of Class B Common Stock from
the Company for $180,000. The proceeds of this sale were utilized to pay the
remaining liabilities of the Company at December 31, 2001 except for the monies
owed to Mr. Schuchert. Simultaneously, Park Street acquired 2,000,000 shares of
Class A Preferred Stock from Fountain Holdings, LLC (a company controlled by
Joseph Schuchert) for $8,000 and all Common Stock Purchase Warrants (the
"Warrants") in the name of Fountain Holdings for $12,000. As of December 31,
2001, the Warrants entitled the holder to purchase an aggregate of 2,993,665
shares of Class A Common Stock at an exercise price of $.65 per share. Park
Street did not acquire any shares of the Company's Common Stock registered in
the name of Joseph Schuchert. No other consideration was paid to Mr. Schuchert.
Simultaneously with the closing, Park Street and the company agreed to retire
the Warrants. Park Street also returned the Preferred Stock to the Company. As
of the Record Date no shares of Preferred Stock are issued or outstanding.
As a result of these transactions, Park Street and Mr. Rennert became
"control persons" of the Company, as that term is defined in the Securities Act
of 1933, as amended (the "Act"). Pursuant to Rule 405 of the Act, the term
"control" (including the terms "controlling," "controlled by" and "under common
control with") means the possession, direct or indirect, of the power to direct
or cause the direction of the management and policies of a person, whether
through the ownership of voting securities, by contract, or otherwise. In
connection with these transactions, the Board of Directors of the Company
nominated Brendon K. Rennert to the Board of Directors and all former officers
and directors delivered their letters of resignation to the Company. Mr. Rennert
was named CEO, President and Secretary of the Company.
In connection with the acquisitions by Park Street and the payment to
Mr. Schuchert of an aggregate of $20,000 ($8,000 for Preferred Stock and $12,000
for the Warrants), Mr. Schuchert released and discharged the Company from its
obligations due to him pursuant to the credit agreement dated as of December 31,
1998, and from the unsecured line of credit of approximately $1,454,733,
inclusive of principal and interest, and any and all other debt or obligation
owed Mr. Schuchert or his affiliates by the Company.
As of July 31, 2002, the Company remains a "blank check" or "shell"
company with minimal assets and no operations.
3
As a result of the transactions described above, there are no shares of
Preferred Stock issued and outstanding and Park Street owns 95.7% of the Class B
Common Stock and 59.6% of the Class A Common Stock.
By virtue of Park Street's ownership of the Company's aforementioned
securities, it is able to elect new directors and officers either at a meeting
of the shareholders or by written consent. At the closing of the Acquisition,
Brendon K. Rennert and Park Street have agreed to elect the management of
SiriCOMM to the Company's board of directors and immediately thereafter Mr.
Rennert will resign all of his positions with the Company. There are no other
arrangements or understandings between Mr. Rennert and the new management team.
BOARD OF DIRECTORS
General
Management of the Company, prior to the Acquisition (collectively
referred to as "Prior Management") is set forth below:
Name Position
---- --------
Brendon K. Rennert President, Treasurer, Secretary
and Sole Director
Mr. Rennert was appointed CEO, President and Secretary of Fountain
Pharmaceuticals, Inc. ("Fountain") on December 31, 2001. Mr. Rennert became the
sole director of Fountain in January 2002. From December 2001 until present Mr.
Rennert also serves as President, sole director and sole shareholder of Park
Street Acquisition Corporation, a private Florida Corporation. From October 2001
until present Mr. Rennert also serves as Senior Account Executive for Qwest
Communications International, Inc., an internet broadband telecommunications
company with offices in Tampa, Florida. From January 1998 until December 1998
Mr. Rennert served as President, Secretary, Treasurer and director of Ybor City
Shuttle Service, Inc. a public company based in Tampa, Florida. From 1998 until
present Mr. Rennert also serves as President, Secretary, Treasurer and sole
director of BKR Investments, Inc. a Florida Corporation which provides
independent financial consulting for public and private companies. Mr. Rennert
previously served as Vice President of Finance and Director of Operations for
Bielski Management, Inc. a New York corporation, operating a taxicab company in
New York City, primarily in Manhattan, from January 1995 until November 1997.
Bielski Management owns and operates a fleet of over one hundred taxis. From May
1991 to January 1995, Mr. Rennert served as Marketing Director for Lintronics
Technologies, Inc. of Tampa, Florida, a research and development company
specializing in medical devices. Mr. Rennert is a graduate of the State
University College of New York at Fredonia with a BS degree in Business
Administration.
Prior Management will resign effective as of the closing of the
Acquisition and the following individuals (collectively referred to as "New
Management") will be nominated to assume the positions set forth next to their
names:
4
Name Age Position
---- --- --------
Henry P. (Hank) Hoffman 51 President, CEO and Chairman
David N. Mendez 41 Executive Vice President - Sales and
Marketing and a Director
Kory S. Dillman 31 Executive Vice President - Internet
Business Development and a Director
Tom Noland 45 Executive Vice President - Administration,
General Counsel, Secretary and a Director
Henry P. (Hank) Hoffman, President, CEO and Chairman
Mr. Hoffman co-founded SiriCOMM in January 2000 and has been its
President, CEO and Chairman since SiriCOMM's inception. Mr. Hoffman has over
twenty years experience in the transportation industry. From September 1, 1996
to January 21, 2000 Mr. Hoffman was President and Chief Operating Officer of
Hook Up, Inc. of Joplin, MO, a small niche motor carrier. From 1990 to 1995 Mr.
Hoffman was President and COO of Tri-State Motor Transit, the nation's largest
transporter of munitions for the U.S. Government.
Prior to his term at Tri-State, he served in several
Operations/Management positions with both Schneider National, Inc. and Viking
Freight System. As an industry leader he has been a Vice President of the
American Trucking Associations, President and Chairman of the Board of the
Munitions Carriers Conference, member of the Board of Directors of the National
Automobile Transporters Association, and Forum Co-Chairman of the National
Defense Transportation Association. Prior to his trucking industry career, Mr.
Hoffman served as an officer in the United States Army Field Artillery for six
years where he completed two command assignments. Mr. Hoffman earned a Bachelor
of Science degree from the United States Military Academy, West Point, NY and a
Master of Business Administration from the University of Wisconsin, Oshkosh, WI.
David N. Mendez, Executive Vice President - Sales and Marketing and a Director
Mr. Mendez co-founded SiriCOMM in April 2000 and has been its Executive
Vice President Sales and Marketing and a director since SiriCOMM's inception.
Mr. Mendez has over nine years experience in telecommunications sales and
marketing. Mr. Mendez's telecommunications expertise focuses on domestic and
international data communication networks including Frame Relay and ATM
infrastructures and Internet and intranet networks. From October 1998 to
February 2000 he was National Sales Manager for DRIVERNet where he managed such
national accounts as Ford, Kenworth, Peterbilt, Paccar Corporation, and Cue
Paging. From 1995 to 1998 Mr. Mendez worked as a Major Account Manager for
Sprint. Mr. Mendez graduated with a Bachelor of Science degree from Southwest
Missouri State University, Springfield, MO.
5
Kory S. Dillman, Executive Vice President - Internet Business Development and a
Director
Mr. Dillman co-founded SiriCOMM in April 2000 and has been its
Executive Vice President - Internet Business Development and a director since
SiriCOMM's inception. From 1996 to 1999 Mr. Dillman was Creative Director for
DRIVERNet. In that position he produced intranet and Internet applications for
DRIVERNet and its customers. He developed specific web-based products for Volvo
Trucks North America, Kenworth, Peterbilt, Ambest, Caterpillar Engines, and
TravelCenters of America. Prior to joining DRIVERNet Mr. Dillman was Art
Director for Wendfall Productions. In this position he managed development for
Sony Music and Ardent Records. Mr. Dillman earned a Bachelor of Fine Arts degree
from the University of Tulsa, Tulsa, OK.
Tom Noland, Executive Vice President - Administration, General Counsel,
Secretary and a Director
Mr. Noland joined SiriCOMM in November 2001 as its Executive Vice
President - Administration, General Counsel and a Director. Mr. Noland was in
private practice with the law firm of Spencer, Scott & Dwyer in Joplin for
eleven years, focusing on the representation of business and banking clients in
the areas of real estate transactions, creditors' rights and workers'
compensation defense. Prior to joining SiriCOMM, he served as General Counsel to
Hook Up, Inc. from 1997 through 2000. Mr. Noland received a Bachelor of Arts
degree in history from Missouri Southern State College and a Juris Doctorate
from the University of Tulsa.
6
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 31, 2002, 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.
Percent of Percent of
Amount of Beneficial Combined
Beneficial Ownership and Voting
Name and Address Class Ownership (1) Voting Power Power (2)
---------------- ----- ------------- ------------ ---------
Park Street Acquisition Corporation (3) A 3,500,000 59.6% 62.5%
P.O. Box 530246 B 100,000 95.7%
St. Petersburg, FL 33747
Brendon K. Rennert A 3,500,000 59.6% 62.5%
P.O. Box 530246 B 100,000 95.7%
St. Petersburg, FL 33747
Robert Smith (4) A 3,500,000 59.6% 62.5%
3865 E. Turtle Hatch B 100,000 95.7%
Springfield, MO 65809
John C. Walsh A 1,257,100 (5) 21.0% 19.6%
9 North Pelican Drive B -0- -0-
Avalon, NJ 08202
Joseph S. Schuchert, Jr. A -0- -0- -0-
Fountain Holdings, LLC B -0- -0-
c/o Eaglestone Capital Services, Inc.
400 Oceangate, Suite 1125
Long Beach, CA 90802
All Directors and Officers as a Group A 3,500,000 59.6% 62.5%
(1 Person) B 100,000 95.7%
-----------------------
(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 Securities Exchange Act of 1934. Also reflects
5,980,301 shares of the Company's Common Stock (including Class B Common
Stock) outstanding as of July 22, 2002.
(2) 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.
7
(3) Brendon K. Rennert is the officer, director and sole stockholder of Park
Street Acquisition Corp.
(4) On August 28, 2001, Park Street Acquisition Corporation and Brendon K.
Rennert entered into a Pledge and Escrow Agreement (the "Loan Agreement")
with Robert Smith to obtain the funds for the acquisition of the Class A
Common Stock, Class B Common Stock and the Class A Convertible Preferred
Stock (collectively the "Securities"). Pursuant to the terms of the Loan
Agreement, the Securities acquired by Park Street are collateral for the
collection of the $350,000 loan which was due March 31, 2002 with interest
at 6% per annum. Pursuant to the Loan Agreement, Robert Smith may become
the beneficial owner of the Securities following a default in the Loan
Agreement. Prior to such default, Mr. Smith does not have voting or
dispositive power with respect to the Securities. The loan is past due and
the parties have orally agreed to extend the maturity date of the loan to
December 31, 2001. Mr. Smith is a minority stockholder of SiriCOMM, and
has no other relationship with Park Street or the Company.
(5) Includes 6,000 shares of Common Stock issuable upon the exercise of
options at an exercise price of $.625 per share. Does not include Common
Stock options to purchase 18,000 shares at an exercise price of $.625 per
share which were granted September 23, 1999 and which have not vested. Mr.
Walsh has no connections with the Company, SiriCOMM or Park Street.
EXECUTIVE COMPENSATION
Executive Officers and Directors
We currently do not pay any compensation to any officers or directors.
Summary Compensation Table
The Summary Compensation Table shows certain compensation information
for services rendered in all capacities for the fiscal years ended December 31,
1999, 2000 and 2001. Other than as set forth herein, no executive officer's
salary and bonus exceeded $100,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted and certain other compensation, if any, whether paid or
deferred.
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation
---------------------------- ----------------
Fiscal Year
Ended
Name and Principal Position September 30 Salary ($) Bonus ($) Options/SARS (#)
--------------------------- ------------ ---------- --------- ----------------
Gerald T. Simmons (1) 2001 $ 19,630 -0- -0-
Former Chief Executive Officer 2000 $ 77,782 -0- 4,636(5)
and President 1999 $104,500 $ 5,000 344,744(5)
Christopher J. Whitaker (2) 2001 $100,000 -0- -0-
Former Interim Chief Executive Officer 2000 $124,442 -0- -0-
and Vice President of Operations 1999 $110,962 $25,000 37,500(6)
Francis J. Werner (3) 2001 $ 97,750 -0- -0-
Interim Chief Executive & Financial Officer 2000 $ 97,991 -0- -0-
and Director of Finance and Administration 1999 $ 86,912 -0- -0-
John C. Walsh (4) 2001 -0- -0- -0-
Director, Former Chairman, Chief Executive 2000 -0- -0- -0-
Officer and President 1999 $130,962 -0- 24,000 (7)
--------------------
8
(1) Mr. Simmons resigned from his position as Chief Executive Officer and
President on November 30, 2000. Mr. Simmons did not receive a severance
arrangement. See Employment Arrangements and Change of Control.
(2) Mr. Whitaker was hired on March 30, 1998 as Director of Marketing. On
August 3, 1998, Mr. Whitaker was appointed Vice President of Operations.
Effective February 1, 2001 assumed the position as Interim Chief Executive
Officer and Vice President of Operations. Effective July 6, 2001, Mr.
Whitaker was terminated.
(3) Mr. Werner was hired on May 21, 1990 as Controller. On July 1, 1992 Mr.
Werner was appointed Director of Finance and Administration. Effective
February 1, 2001 assumed the position as Interim Chief Financial Officer
and Director of Finance and Administration. Effective July 6, 2001 he
assumed the position of Acting Chief Executive Officer. Effective December
31, 2001 Mr. Werner was terminated.
(4) Mr. Walsh resigned from his position as Chief Executive Officer and
President on December 1, 1998. As part of his severance arrangement, Mr.
Walsh received full salary and accompanying benefits through August 3,
1999. Mr. Walsh resigned from his position as a Director on December 31,
2001.
(5) Represents options to purchase Common Stock granted as of December 8, 1998,
as adjusted as of September 30, 1999 for certain anti-dilution provisions
pursuant to Mr. Simmons' employment agreement. The options have an exercise
price of $.56 per share and a term expiring on December 8, 2003. The
options vested 20% as of the date of grant with the balance vesting 20% on
each anniversary of the date of grant.
(6) Represents option to purchase Common Stock granted as of December 8, 1998.
The options have an exercise price of $.56 per share. 25,000 options vest
1/3 per year over a period of three years starting December 8, 1998 and
expire on December 8, 2003. 12,500 options vest 1/3 per year over a period
of three years starting December 8, 1999 and expire on December 8, 2003.
(7) Represents options to purchase Common Stock granted as of September 23,
1999. The options have an exercise price of $.625 per share. The options
vest 25% per year over a period of 4 years, and expire on September 23,
2004.
OPTION/SAR GRANTS TABLE
Option/SAR Grants in the Last Fiscal Year
Individual Grants
% of Total
Options/SARs
Granted to Exercise or
Fiscal Options/SARs Employees in Base Price Expiration
Name Year Granted (#) Fiscal Year ($/Sh) Date
---------------------------------------------- -------- ------------------ ----------------- -------------- --------------
Gerald T. Simmons 2001 -0-(1) 0.0% -0- -
Former Chief Executive Officer
and President
Christopher J. Whitaker 2001 -0-(1) 0.0% -0- -
Former Interim Chief Executive Officer
and Vice President of Operations
Francis J. Werner 2001 -0-(1) 0.0% -0- -
Interim Chief Executive & Financial Officer
and Director of Finance and Administration
John C. Walsh 2001 -0-(1) 0.0% -0- -
Director, Former Chairman, Chief Executive
Officer and President
---------------------
(1) No options were granted during fiscal year 2001.
9
OPTION/SAR EXERCISES AND YEAR-END VALUE TABLE
Aggregated Options/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Value
--------------------------------------------------------------------------------------------------------------------------
Value of
Unexercised
Number of Unexercised In-the-Money
Options/SARs at Options/SARs at
Shares Value FY-End (#) FY-End ($)(1)
Fiscal Acquired on Realized Exercisable / Exercisable /
Name Year Exercise (#) ($) Unexercisable Unexercisable
--------------------------------------------- ------- -------------- --------- ----------------------- -------------------
Gerald T. Simmons 2001 -0- -0- (E) -0- / (U) -0- (E)$0 / (U)$0
Former Chief Executive Officer
and President
Christopher J. Whitaker 2001 -0- -0- (E)20,832 /(U) 16,668 (E)$0 / (U)$0
Former Interim Chief Executive Officer
and Vice President of Operations
Francis J. Werner 2001 -0- -0- (E) 37,500 / (U) -0- (E)$0 / (U)$0
Interim Chief Executive & Financial Officer
and Director of Finance and Administration
John C. Walsh 2001 -0- -0- (E) 12,000 / (U) 12,000 (E)$0 / (U)$0
Director, Former Chairman, Chief Executive
Officer and President
----------------------
(1) Based upon the closing price of the Company's Common Stock of $.02 per
share as reported on the NASDAQ OTC Bulletin Board as of September 30,
2001.
In addition to the foregoing, Mr. Rennert approved the Company's 2002
Equity Incentive Plan (the "Plan"). Additional information concerning the Plan
is set forth under the caption "Approval of the 2002 Equity Incentive Plan,"
below.
APPROVAL OF AMENDMENT AND RESTATEMENT OF THE COMPANY'S
CERTIFICATE OF INCORPORATION
At present, the Company is authorized to issue 50,000,000 shares of
Class A Common Stock, 5,000,000 shares of Class B Common Stock and 2,000,000
shares of Preferred Stock. The Company's sole director approved an amendment and
restatement to the Company's Certificate of Incorporation to (a) change the name
of the Company to "SiriCOMM, Inc."; (b) combine the outstanding shares of Common
Stock into a single class of Common Stock; (c) reverse split the outstanding
shares of the Company's Common Stock one-for-sixty (the "Reverse Split"); (d)
10
reduce the par value of the Company's Common Stock resulting from the Reverse
Split to $.001; (e) increase the number of shares of Common Stock the Company is
authorized to issue after the reverse split to 50,000,000; and (f) increase the
number of shares of Preferred Stock, $.001 par value the Company is authorized
to issue from 2,000,000 to 5,000,000. Among the factors considered in
determining the amount by which the Common Stock would be Reverse Split was a
target price range of $2.00 and $2.50 and avoiding the loss of a significant
number of holders of at least 100 shares of Common Stock (a "Round Lot"). Based
on the most recent bid price of $.04 per share, a one-for-sixty Reverse Split
would result in a theoretical price per share of $2.40. The sole member of the
board of directors determined that a one-for-sixty reverse split adequately
balanced the objectives of reducing the number of outstanding shares and
maintaining a sufficient number of round lot holders. The theoretical price
ranges considered should not be interpreted an estimate of value or a prediction
of any market price. The sole board member, who holds approximately 59.6% of the
Company's Common Stock and who holds approximately 95.7% of the Class B Common
Stock has approved these actions and has consented to the taking of these
actions without a meeting. A copy of the restated and amended Certificate of
Incorporation substantially in the form it will be filed with the Secretary of
the State of Delaware is attached hereto as Appendix A.
Change of Corporate Name
The Company entered into a Securities Exchange Agreement ("Securities
Exchange Agreement") with shareholders owning 100% of SiriCOMM, Inc., a Missouri
corporation ("SiriCOMM") regarding acquisition by the Company of all of the
issued and outstanding common stock of SiriCOMM. It is anticipated that a
closing will occur no later than September 30, 2002 and the sole director
believes it is prudent to take the necessary corporate actions necessary to
consummate the Acquisition, including the Reverse Split. Information concerning
SiriCOMM is set forth under the caption "Approval of the SiriCOMM Acquisition,"
below. In the event the closing does not occur, the Company will maintain its
present name.
The change of corporate name will become effective upon the filing with
the Secretary of State of an amendment and restatement to the Company's
Certificate of Incorporation which states that, upon the filing of the
Certificate of Amendment the name of the Corporation will be "SiriCOMM, Inc."
Combination of Outstanding Shares of Common Stock into a Single Class
The Company has two classes of Common Stock authorized and outstanding.
At present the Company is authorized to issue 5,000,000 shares of Class A Common
Stock, of which there are 5,875,796 shares of Class A Common Stock issued and
outstanding. The company is authorized to issue 5,000,000 shares of Class B
Common Stock, of which 104,505 shares of Class B Common Stock issued and
outstanding. The Company's sole officer and director owns 59.6% and 95.7% of the
outstanding shares of Class A and Class B Common Stock, respectively. The two
classes have the same relative rights, except that the Class B Common Stock has
a disproportionate voting right whereby each share of Class B Common Stock
represents five votes. Regardless of the fact that each share of Class B Common
Stock has greater voting rights than the Class A Common Stock, each will be
worth the same number of shares of New Common Stock.
11
As a result of the combination each share of Class B Common Stock
outstanding at the effective time of the combination and Reverse Split will,
without any action on the part of the holder thereof become a yet to be
determined number of shares of New Common Stock, defined below.
The sole officer and director of the Company does not believe it is in
the Company's best interest to have a class of Common Stock with a
disproportionate voting right and is willing to surrender these disproportionate
rights and feels the elimination of the Class B Common Stock will simplify the
capitalization of the Company.
Reverse Split and Reduction of Par Value
As a result of the Reverse Split, each share of Common Stock
outstanding at the effective time of the Reverse Split, will, without any action
on the part of the holder thereof, each outstanding share will become
one-sixtieth of a share of Common Stock. The amendment will also decrease the
par value per share of the Company's common stock to $.001. The decrease in the
par value per share will reduce the Company's capital stock accounts. For
purposes of this description, the Common Stock, as presently constituted, is
referred to as the "Old Common Stock" and the Common Stock resulting from the
Reverse Split is referred to as the "New Common Stock." The bid price of the
Company's Common Stock on July 31, 2002 was $.04.
The Reverse Split will become effective upon the filing with the
Secretary of State of an amendment and restatement to the Company's Certificate
of Incorporation which states that, upon the filing of the Certificate of
Amendment, each share of Old Common Stock then issued and outstanding would
automatically become one-sixtieth of a share of New Common Stock. The Securities
Exchange Agreement requires the Company to issue 984.1678 shares of New Common
Stock for each outstanding SiriCOMM share, of which there are 9,778 outstanding
as of July 31, 2002, or approximately 9,623,193 shares of New Common Stock. In
addition, the Securities Exchange Agreement requires the Company to issue a
sufficient number of shares of New Common Stock at closing equal to 15.5% of the
Company's outstanding shares, after giving effect to such issuance, to the
holders of four outstanding convertible SiriCOMM notes. Such issuance is a
condition of closing the acquisition of SiriCOMM, so that there would not be any
securities convertible into a minority interest in the equity of SiriCOMM after
closing. If neither SiriCOMM nor the Company issues any additional securities
prior to the closing, the Company would have to issue 1,801,843 shares to the
note holders and the total number of shares of New Common Stock required to
complete the acquisition of SiriCOMM would be 11,425,036.
Principal Effects of the Reverse Split
The principal effects of the Reverse Split will be as follows:
Based upon the 5,980,301 shares of Old Common Stock (including the
shares of Class B Common Stock) outstanding on the Record Date, the Reverse
Split would decrease the outstanding shares of Old Common Stock by 98.3% or to
99,672 shares and, upon the effectiveness of the Reverse Split and the
completion of the Acquisition approximately 11,624,797 shares of New Common
Stock would be outstanding.
12
The Company will obtain a new CUSIP number for the New Common Stock at
the time of the Reverse Split. Following the effectiveness of the Reverse Split,
each yet to be determined number of shares of Old Common Stock, without any
action on the part of the holder, will represent one share of New Common Stock.
Subject to the provisions for elimination of fractional shares, as
described below, consummation of the Reverse Split will not result in a change
in the relative equity position or voting power of the holders of Old Common
Stock.
The Certificate of Restatement and Amendment of the Company's
Certificate of Incorporation will be filed with the Secretary of State of
Delaware ten days after the mailing of this Information Statement. The Reverse
Split would become effective as of the date of such filing (the "Effective
Date").
Purposes of the Reverse Stock Split
The Reverse Split will decrease the number of shares of Old Common
Stock outstanding and presumably increase the per share market price for the New
Common Stock. Theoretically, the number of shares outstanding should not, by
itself, affect the marketability of the stock, the type of investor who acquires
it, or the Company's reputation in the financial community, but in practice this
is not necessarily the case, as many investors look upon a stock trading at or
under $1.00 per share as unduly speculative in nature and, as a matter of
policy, avoid investment in such stocks.
Many leading brokerage firms are reluctant to recommend lower-priced
securities to their clients and a variety of brokerage house policies and
practices currently tend to discourage individual brokers within firms from
dealing in lower-priced stocks. Some of those policies and practices pertain to
the payment of brokers' commissions and to time-consuming procedures that make
the handling of lower priced stocks unattractive to brokers from an economic
standpoint. In addition, the structure of trading commissions also tends to have
an adverse impact upon holders of lower priced stocks because the brokerage
commission on a sale of a lower priced stock generally represents a higher
percentage of the sales price than the commission on a relatively higher priced
issue.
In addition, there are not a sufficient number of authorized but
unissued shares of Common Stock to consummate the Acquisition. The sole director
believes that the Reverse Split and Acquisition is in the best interest of the
Company and its shareholders because the potential acquisition will provide
shareholders with an operating business with the potential for rapid growth. The
Reverse Split is required to consummate the acquisition and, if the Reverse
Split is not consummated, the acquisition will not take place, and the Company
to remain a shell company with no significant assets or business. Additionally,
the reverse stock split would reduce the number of shares of its Common Stock
outstanding to amounts that the sole director believes are more reasonable in
13
light of its size and market capitalization. The Company requires additional
capital for its operations and does not believe that it will be able to raise
the necessary capital unless the price of the Common Stock is higher than the
current Common Stock price levels. However, no assurance can be given that the
Reverse Split will result in any increase in the Common Stock price or that the
Company will be able to complete any financing following the Reverse Split.
Exchange of Certificate and Elimination of Fractional Share Interests
On the Effective Date, shares of Old Common Stock will automatically be
combined and changed into one share of New Common Stock. No additional action on
the part of the Company or any shareholder will be required in order to effect
the Reverse Split. Shareholders will be requested to exchange their certificates
representing shares of Old Common Stock held prior to the Reverse Split for new
certificates representing shares of New Common Stock. Shareholders will be
furnished the necessary materials and instructions to effect such exchange
promptly following the Effective Date. Certificates representing shares of Old
Common Stock subsequently presented for transfer will not be transferred on the
books and records of the Company but will be returned to the tendering person
for exchange. Shareholders should not submit any certificates until requested to
do so. In the event any certificate representing shares of Old Common Stock is
not presented for exchange upon request by the Company, any dividends that may
be declared after the Effective Date of the Reverse Split with respect to the
Common Stock represented by such certificate will be withheld by the Company
until such certificate has been properly presented for exchange, at which time
all such withheld dividends which have not yet been paid to a public official
pursuant to relevant abandoned property laws will be paid to the holder thereof
or his designee, without interest.
No fractional shares of New Common Stock will be issued to any
shareholder. Accordingly, shareholders of record who would otherwise be entitled
to receive fractional shares of New Common Stock, will, upon surrender of their
certificates representing shares of Old Common Stock, receive a cash payment in
lieu thereof equal to the fair value of such fractional share. Holders of less
than sixty shares of Old Common Stock as a result of the Reverse Split will on
the Effective Date no longer be shareholders of the Company. The Board of
Directors had determined that the fair value of the Common Stock will be based
on the closing price of the Common Stock on the OTC-Bulletin Board on the
Effective Date (as adjusted to reflect the Reverse Split) or, if there are no
reported sales on the Effective Date, the average of the last reported high bid
and low ask price on the last date of reported sales shall be used.
Federal Income Tax Consequences of the Reverse Split
The combination of shares of the Old Common Stock into one share of New
Common Stock should be a tax-free transaction under the Internal Revenue Code of
1986, as amended, and the holding period and tax basis of the Old Common Stock
will be transferred to the New Common Stock received in exchange therefor.
Generally, cash received in lieu of fractional shares will be treated
as a sale of the fractional shares (although in unusual circumstances such cash
might possibly be deemed a dividend), and shareholders will recognize gain or
loss based upon the difference between the amount of cash received and the basis
in the surrendered fractional share.
14
This discussion should not be considered as tax or investment advice,
and the tax consequences of the Reverse Split may not be the same for all
shareholders. Shareholders should consult their own tax advisors to know their
individual Federal, state, local and foreign tax consequences.
Change in Authorized Capital Stock
The sole director has approved an amendment to the Company's
Certificate of Incorporation which would change the number of authorized shares
of Common Stock, and the par value to $.001 per share. The number of authorized
common shares would be increased to 50,000,000 shares. In addition, the
amendment will eliminate the Class A Preferred Stock and increase the number of
authorized shares of Preferred Stock from 2,000,000 to 5,000,000 shares. As of
the Record Date there were no shares of Preferred Stock issued or outstanding.
Discussion of the Amendment
Under the Company's Certificate of Incorporation, the Board of
Directors of the Company has authority to issue authorized and unissued shares
of Common and Preferred Stock without obtaining approval from the holders of the
Common Stock. The holders of the Company's Common Stock and Preferred Stock do
not have preemptive rights. The Preferred Stock provisions give the Board of
Directors broad authority to issue shares of Preferred Stock in one or more
series and to determine such matters as the dividend rate and preference, voting
rights, conversion privileges, redemption provisions, liquidation preferences
and other rights of each series. Each share of Common Stock is entitled to one
vote. The holders of any series of preferred stock issued in the future will be
entitled to such voting rights as may be specified by the Board of Directors.
It is not possible to determine the actual effect of the Preferred
Stock on the rights of the holders of Common Stock until the Board of Directors
determines the rights of the holders of a series of the Preferred Stock.
However, such effect might include (i) restrictions on the payment of dividends
to the holders of the Common Stock; (ii) dilution of voting power to the extent
that the holder of the Preferred Stock are given voting rights; (iii) dilution
of the equity interests and voting powers if the Preferred Stock is convertible
into Common Stock; and (iv) restrictions upon any distribution of assets to the
holders of the Common Stock upon liquidation or dissolution and until the
satisfaction of any liquidation preference granted to the holders of Preferred
Stock. Because of the broad powers granted to the Board of Directors to issue
shares of Preferred Stock and determine the rights, preferences and privileges
of the holders of such series, the Board of Directors has the power to issue
shares of Preferred Stock in a manner which could be used as a defensive measure
against a hostile takeover or to keep the Board of Directors in power. However,
the Board of Directors has no present plans to issue shares for such purpose.
As a result of the amendment the Company will be authorized to issue
50,000,000 shares of Common Stock of which approximately 11,500,000 will be
issued and outstanding after the closing of the acquisition of SiriCOMM. The
issuance of additional shares of Common Stock will dilute shareholders equity
interests and voting power in the Company. The Board of Directors of the Company
15
believes it will benefit the shareholders to have additional unreserved shares
available for issuance in order that adequate shares may be available for the
possible issuance of Common Stock, convertible Preferred Stock or convertible
debt securities in connection with a possible financing of the Company's
business or an acquisition. The Company has no plans, arrangements,
understanding or commitments with respect to the issuance of such shares except
for the Securities Exchange Agreement with SiriCOMM and 100,000 New Common
Shares reserved for issuance upon the conversion of an outstanding convertible
debenture in the principal amount of $100,000. The debenture is convertible into
shares of new Common Stock at the rate of $1.00 per share. The Company received
$100,000 net from the debenture holder. The name of the debenture holder is
Finter Bank. Finter Bank has no relationship to Fountain, SiriCOMM, Park Street
or anyone else related to these entities. The debenture was not issued in
connection with the acquisition of SiriCOMM.
Approval Required
The approval of a majority of the outstanding stock entitled to vote
will be necessary to approve the proposed amendment. As discussed above, the
Company's sole director, who holds approximately 59.6% of the votes of the
Company's outstanding Common Stock and 95.7% of the outstanding Class B Common
Stock has consented to this amendment. He has executed a written consent voting
those shares in favor of the proposed amendment. The sole director does not
intend to solicit any proxies or consents from any other shareholders in
connection with this action.
APPROVAL OF THE COMPANY'S
2002 INCENTIVE STOCK OPTION PLAN
The Company's sole director adopted a 2002 Equity Incentive Plan (the
"Plan"). The written consent approved the Plan. The Plan designates a Stock
Option Committee appointed by the Board of Directors and authorizes the Stock
Option committee to grant or aware to eligible participants of the Company and
its subsidiaries and affiliates, until May 15, 2012, stock options, stock
appreciation rights, restricted stock performance stock awards and Bonus Stock
awards for up to 3,000,000 shares of the New Common Stock of the Company. The
initial members of the Stock Option Committee have not yet been appointed. There
are no awards outstanding under the Plan. A complete copy of the Plan is
attached hereto as Appendix B.
The following is a general description of certain features of the Plan:
1. Eligibility. Officers, other key employees and consultants of the
Company, its subsidiaries and its affiliates who are responsible for the
management, growth and profitability of the business of the Company, its
subsidiaries and its affiliates are eligible to be granted stock options, stock
appreciation rights, and restricted or deferred stock awards under the Plan.
Directors are eligible to receive Director Stock Options.
16
2. Administration. The Incentive Plan is administered by the Stock
Option Committee of the Company. The Stock Option Committee has full power to
select, from among the persons eligible for awards, the individuals to whom
awards will be granted, to make any combination of awards to any participants
and to determine the specific terms of each grant, subject to the provisions of
the Incentive Plan.
3. Stock Options. The Plan permits the granting of non-transferable
stock options that are intended to qualify as incentive stock options ("ISO's")
under section 422 of the Internal Revenue Code of 1986 and stock options that do
not so qualify ("Non-Qualified Stock Options"). The option exercise price for
each share covered by an option shall be determined by the Stock Option
Committee but shall not be less than 100% of the fair market value of a share on
the date of grant. The term of each option will be fixed by the Stock Option
Committee, but may not exceed 10 years from the date of the grant in the case of
an ISO or 10 years and two days from the date of the grant in the case of a
Non-Qualified Stock Option. In the case of 10% stockholders, no ISO shall be
exercisable after the expiration of five (5) years from the date the ISO is
granted.
4. Stock Appreciation Rights. Non-transferable stock appreciation
rights ("SAR's") may be granted in conjunction with options, entitling the
holder upon exercise to receive an amount in any combination of cash or
unrestricted common stock of the Company (as determined by the Stock Option
Committee), not greater in value than the increase since the date of grant in
the value of the shares covered by such right. Each SAR will terminate upon the
termination of the related option.
5. Restricted Stock. Restricted shares of the common stock may be
awarded by the Stock Option Committee subject to such conditions and
restrictions as they may determine. The Stock Option Committee shall also
determine whether a recipient of restricted shares will pay a purchase price per
share or will receive such restricted shares without, any payment in cash or
property. No Restricted Stock Award may provide for restrictions beyond ten (10)
years from the date of grant.
6. Performance Stock. Performance shares of Common Stock may be awarded
without any payment for such shares by the Stock Option Committee if specified
performance goals established by the Committee are satisfied. The designation of
an employee eligible for a specific Performance Stock Award shall be made by the
Committee in writing prior to the beginning of the period for which the
performance is based. The Committee shall establish the maximum number of shares
to stock to be issued to a designated Employee if the performance goal or goals
are met. The committee reserves the right to make downward adjustments in the
maximum amount of an Award if, in it discretion unforeseen events make such
adjustment appropriate. The Committee must certify in writing that a performance
goal has been attained prior to issuance of any certificate for a Performance
Stock Award to any Employee.
7. Bonus Stock. The committee may award shares of Common Stock to
Eligible Persons, without any payment for such shares and without any specified
performance goals. The Employees eligible for bonus Stock Awards are senior
officers and consultants of the Company and such other employees designated by
the Committee.
17
8. Transfer Restrictions. Grants under the Plan are not transferable
except, in the event of death, by will or by the laws of descent and
distribution.
9. Termination of Benefits. In certain circumstances such as death,
disability, and termination without cause, beneficiaries in the Plan may
exercise Options, SAR's and receive the benefits of restricted stock grants
following their termination or their employment or tenure as a Director as the
case may be.
10. Change of Control. The Plan provides that (a) in the event of a
"Change of Control" (as defined in the Plan), unless otherwise determined by the
Stock Option Committee prior to such Change of Control, or (b) to the extent
expressly provided by the Stock Option Committee at or after the time of grant,
in the event of a "Potential Change of Control" (as defined in the Plan), (i)
all stock options and related SAR's (to the extent outstanding for at least six
months) will become immediately exercisable: (ii) the restrictions and deferral
limitations applicable to outstanding restricted stock awards and deferred stock
awards will lapse and the shares in question will be fully vested: and (iii) the
value of such options and awards, to the extent determined by the Stock Option
Committee, will be cashed out on the basis of the highest price paid (or
offered) during the preceding 60-day period, as determined by the Stock Option
Committee. The Change of Control and Potential Change of Control provisions may
serve as a disincentive or impediment to a prospective acquirer of the Company
and, therefore, may adversely affect the market price of the common stock of the
Company.
11. Amendment of the Plan. The Plan may be amended from time to time by
majority vote of the Board of Directors provided as such amendment may affect
outstanding options without the consent of an option holder nor may the plan be
amended to increase the number of shares of common stock subject to the Plan
without stockholder approval.
Shareholders should note that certain disadvantages may result from the
adoption of the Plan. Pursuant to the plan the Company is reserving the right to
issue up to 3,000,000 shares of New Common Stock. Such issuances may be in the
form of stock options, stock appreciation rights, restrictive stock awards,
performance stock or bonus stock. Each of these issuances may be made at prices
below the then current market price of the Company's Common Stock or at the time
or exercise the exercise price may be below current market prices of the
Company's Common Stock. Accordingly, the sale of these shares may adversely
affect the market price of our Common Stock. The issuance of shares upon the
exercise of stock options may also result in substantial dilution to the
interests of other stockholders. Additionally, the issuance of shares under the
plan will result in the reduction of shareholder's interest of the Company with
respect to earnings per share, voting, liquidation and book value per share.
APPROVAL OF THE SIRICOMM ACQUISITION
The Company's sole director has approved the SiriCOMM Acquisition.
There is no requirement that the SiriCOMM Acquisition be approved by
stockholders of the Company, however, both the Reverse Split and the Amendment
of the Company's Certificate of Incorporation simplifying the Company's capital
structure by combining outstanding shares of Common Stock into a single class
and increasing the number of authorized shares to 50,000,000 facilitates such
acquisition.
18
Information About The Acquisition
In the proposed SiriCOMM Acquisition, the Company will acquire SiriCOMM
by exchanging shares of New Common Stock and SiriCOMM will be treated as the
acquirer for accounting purposes. (See "Anticipated Accounting Treatment,"
below). If the SiriCOMM Acquisition is completed, shares of SiriCOMM common
stock outstanding immediately prior to the merger will be exchanged for shares
of the Company's New Common Stock, as follows: On the Record Date, there were
5,980,301 shares of the Company's Common Stock outstanding, including 104,505
shares of Class B Common Stock. Pursuant to the Securities Exchange Agreement,
the Company is obligated to issue 9,623,195 shares of New Common Stock to the
SiriCOMM shareholders in exchange for 100% of the issued and outstanding shares
of SiriCOMM. Additionally, pursuant to the Securities Exchange Agreement, the
Company has agreed to issue 1,801,843 shares of New Common Stock to retire
$1,000,000 of convertible notes issued by SiriCOMM. These notes were issued in
two stages, an aggregate of $500,000 on November 16, 2001 and an aggregate of
$500,000 on April 5, 2002. The holders of these notes are Quest Capital Alliance
LLC ($500,000) and Jeff Wasson ($500,000). SiriCOMM received $1,000,000 in
connection with these issuances.
Accordingly, after the Reverse Split and closing with SiriCOMM, the new
combined entity will have 12,123,066 shares of New Common Stock issued and
outstanding. The SiriCOMM shareholders will own 99.2%, the existing Fountain
shareholders, exclusive of Brendon Rennert and Park Street, will own .3% and
Brendon Rennert and Park Street will collectively own .5% of the issued and
outstanding shares of the combined entity. As a result of this transaction,
SiriCOMM stockholders will become stockholders of the Company and will no longer
have any interest in SiriCOMM other than through their interests in shares of
the combined organization. We anticipate that the closing date of this
transaction will occur as promptly as practicable following all regulatory
approvals.
Information About SiriCOMM
SiriCOMM was organized under the laws of the State of Missouri in April
2000. SiriCOMM's principal executive office is located at 2900 Davis Boulevard,
Suite 130, Joplin, Missouri 64804. Its telephone number is (417) 626-9961.
SiriCOMM is engaged in the development of broadband wireless
applications service provider technologies serving the marine and highway
transportation industries. SiriCOMM's current development activities include
integrating multiple technologies including satellite communications, the
Internet (and intranets), wireless networking, and productivity enhancing
software into commercially viable products and services for its target
industries.
19
SiriCOMM's patent pending network architecture enables subscribers to
transmit data at speeds of 48,000 kilobits per second ("kbps") which is 20 to
100 times faster than other wireless solutions such as CDPD (19.2 kbps), GSM
(9.6 kbps), CDMA2000-1XRTT (144 kbps) or Qualcomm's point to point USAT (2
kbps). Moreover, SiriCOMM's unique software solutions leverage this ultra
high-speed data network to deliver significant cost reduction and productivity
improvement opportunities to users. From its central hub server co-located at
the satellite teleport SiriCOMM will receive and transmit data on a "point to
broadcast" high-speed network between multiple wireless local area networks
installed in strategic locations. For a flat, low monthly fee subscribers will
have access to a suite of productivity software, the Internet, e-mail,
proprietary company intranet information, etc. The network will support multiple
user devices to include 802.11b-compatible Palm OS(TM) wireless hand held
devices for the most mobile subscribers. SiriCOMM's technologies are expected to
become commercially available before the end of the year 2002.
Development of SiriCOMM's Business and Products
Since SiriCOMM's inception in April of 2000, its founders have focused
their efforts principally in three key areas - product development, pre-market
demonstrations to potential customers, and the formation of critical industry
alliances. The results of this disciplined approach are significant. First, a
working prototype of the broadband wireless network and applications software
was developed and refined into a highly marketable product. Patent applications
are on file for the entire end-to-end system. Second, demonstrations of the
prototype to qualified potential customers reaffirmed the feasibility of the
network and the solid need for its unique services. SiriCOMM has made technical
presentations to more than 30 communication, automobile, trucking and mobile
technology companies during the last 24 months and has received favorable
feedback at such demonstrations. Such demonstrations have not produced a firm
order or letter of intent to utilize SiriCOMM's services. However as a result of
such presentations, management has secured the solid support of key industry
decision-makers and technology leaders.
The first generation of SiriCOMM products can significantly improve the
availability, timeliness, and accuracy of communications and decision support
tools for most of the nation's law enforcement agencies, yachts, and trucks that
operate in North America. Ultimately, with minor modifications, the SiriCOMM
products will be applicable in any industry requiring mobile communications from
remote locations, such as recreational vehicles and construction sites.
SiriCOMM intends to charge a monthly subscription fee of $49.95 per
user per month for its services.
The five principal components of the SiriCOMM service include:
1. An I.E.E.E. 802.11 standard compatible wireless device (PC or
Palm OS(TM)) for the users. The 802.11 is a wireless standard
governed by the Institute of Electrical and Electronics
Engineers that operates in the 2.4 Gh unregulated frequency
spectrum;
20
2. Wireless transmission and receiving equipment installed in
strategic locations such as marinas, truck stops, weigh
stations, and major shipper facilities;
3. Access to the AMC-6 geo-synchronous satellite;
4. Proprietary software processes and applications; and
5. Broadband wireless channels that enable transmission of
extremely large amounts of data at speeds 20 to 100 times
faster than current wireless solutions.
Users will be able to connect to the SiriCOMM network whenever they are
within range (up to approximately one-half mile) of one of several planned
access locations SiriCOMM has test locations in Joplin, Missouri, Rock Hill and
South Carolina and plans to activate two additional locations near Columbia,
Missouri and El Paso, Texas within the next 30 days. While in range, the
subscriber will have wireless, universal access to the Internet and to the
marina, agency, or fleet intranet, if one exists. For a low, fixed monthly
subscription fee subscribers will be able to communicate unlimited amounts of
data and messages to their homes, offices, or client support centers using
SiriCOMM's high-speed wireless network.
At present SiriCOMM leases transponder access to the AMC-6 satellite on
a month to month basis for $350 per month per ground location pursuant to an
informal agreement with Sislunar, the satellite operator. SiriCOMM plans to
enter into a formal agreement for monthly transponder usage when the system is
offered commercially. At each ground location, the satellite receiver is linked
to the 2.4 Ghz wireless network utilizing a local server and SiriCOMM's
technology for rapidly cache and serve network requests. There are no
limitations or special licenses requires to operate local two-way data
communications at 2.4Ghz wireless frequencies.
SiriCOMM does not have a commercial network presently running
implementing its wireless data transmission technology. It plans to build a
network with the capacity to service up to 80,000 simultaneous users within 6
months of raising the needed capital. The construction of the initial network is
estimated to cost $4-6 million and is expected to be financed by the private
sale of the Company's securities following the SiriCOMM Acquisition. There are
no firm commitments on anyone's part to invest in the Company and if the Company
is unable to finance the acquisition through the private sale of its securities
or other financing, the SiriCOMM technology may never be commercially sold. In
addition, any sale of the Company's securities to finance the SiriCOMM
technology will dilute the interest of existing shareholders in the Company.
Anticipated Accounting Treatment
We expect to account for the SiriCOMM Acquisition as a recapitalization
of the equity of SiriCOMM, which in principle is equivalent to the issuance of
stock by SiriCOMM for the net monetary assets of the Company. We will apply this
accounting treatment because the Company is a non-operating public shell and
because SiriCOMM stockholders will own the majority of the outstanding common
stock of the combined company following the transaction.
21
Research and Development
The Company plans to finance research and development for SiriCOMM
through the possible private sale of securities following the acquisition,
although there are no present commitments or agreements concerning such
financing presently. SiriCOMM plans to spend approximately $30,000 on additional
research and development to improve and refine the previously developed suite of
wireless applications.
Distribution
SiriCOMM plans to rely on agents and value added resellers for its
sales and distribution. At present, SiriCOMM has informal agreements with
original equipment manufacturers, truck stop operators and other sales agents.
Competition
SiriCOMM and countless other companies have developed many data
transmission, location and network access products designed to meet the growing
demand for communications services by businesses and government organizations
that rely heavily on information technology. SiriCOMM's products will compete on
the basis of product features, price, quality, reliability, brand name
recognition, product breadth, developed sales channels, product documentation,
product warranties and technical support and service. SiriCOMM believes that it
will be generally competitive in each of these areas and that the data
transmission speed provides competitive advantages. SiriCOMM's existing and
potential competitors have significantly more financial, engineering, product
development, manufacturing and marketing resources than it has. There can be no
assurance that competitors will not introduce comparable or superior products
incorporating more advanced technology at lower prices, or that other changes in
market conditions or technology will not adversely affect SiriCOMM's ability to
compete successfully in the future.
Government Regulation and Industry Standards
SiriCOMM's planned products and services is presently not regulated by
the FCC or local governments. The regulatory process in the United States can be
time-consuming and can require the expenditure of substantial resources. There
can be no assurance that the FCC or state regulatory agencies will not seek to
regulate the use of frequencies utilized by SiriCOMM's planned services of if
such services are regulated, grant the requisite approvals for any of SiriCOMM's
products on a timely basis, or at all. The failure of SiriCOMM's products to
comply, or delays in compliance, with the various existing and evolving
standards could negatively impact SiriCOMM's ability to sell its products.
United States and state regulations regarding the manufacture and sale of modems
and other data communications devices are subject to future change. We cannot
predict what impact, if any, such changes may have on SiriCOMM's business.
HISTORICAL FINANCIAL INFORMATION
The Historical Financial Statements required by Item 310 (c) of
Regulation S-B pertaining to SiriCOMM are part of this Information Statement.
22
PRO FORMA INFORMATION
The Pro Forma Financial Information required by Item 310(d) of
Regulation S-B showing the effect on the Company and SiriCOMM of the SiriCOMM
Acquisition are part of this Information Statement.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934 and, in accordance therewith, files reports and
other information with the Commission. The Registration Statement and such
reports and other information may be inspected without charge at the Public
Reference Room maintained by the Commission at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Office located at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may be obtained from the Public Reference Room of the Commission at 450
Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. Information on
the operation of the Public Reference Room is available by calling the
Commission at 1-800-SEC-0330. In addition, the Commission maintains an Internet
site where the Registration Statement and other information filed with the
Commission may be retrieved, and the address of such site is http://www.sec.gov.
Statements made in this Information Statement concerning the contents of any
document referred to herein are not necessarily complete.
23
INFORMATION ACCOMPANYING THIS INFORMATION STATEMENT
The following documents filed with the Commission are being mailed to
the Company's shareholders along with this Information Statement:
1. Form 10-KSB report for the year ended September 30, 2001.
2. Form 10-QSB report for the six months ended June 30, 2002.
Brendon K. Rennert
Sole Director
August ___, 2002
Attachments:
Appendix A - Form of Amended and Restated Certificate of Incorporation
Appendix B - 2002 Equity Incentive Plan
24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
SiriCOMM, Inc.
We have audited the accompanying balance sheet of SiriCOMM, Inc. (the
"Company"), a development stage enterprise, as of September 30, 2001, and the
related statements of operations, stockholders' deficit and cash flows for the
year ended September 30, 2001 and for the periods from inception (April 24,
2000) through September 30, 2001 and 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SiriCOMM, Inc. at September 30,
2001, and the results of its operations and its cash flows for the year ended
September 30, 2001 and for the periods from inception (April 24, 2000) through
September 30, 2001 and 2000, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 2, the Company is in the development stage and has not yet
earned revenues from operations, and has a working capital and equity
deficiencies of $797,020 and $865,903, respectively, at March 31, 2002
(unaudited). These conditions raise substantial doubt regarding the Company's
ability to continue as a going concern. Management's plans related to these
conditions are also discussed in Note 2. The financial statements do not include
any adjustments that may result from the outcome of this uncertainty.
/s/ Aidman, Piser & Company, P.A.
Tampa, Florida
June 11, 2002
F-1
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
ASSETS
March 31,
2002 September 30,
(Unaudited) 2001
-------------------- --------------------
Current assets:
Cash and cash equivalents $ 87,936 $ 895
Prepaid expenses and other current
assets 29,670 -
-------------------- --------------------
Total current assets 117,606 895
Furniture and equipment, net of accumulated
depreciation (2002, $12,179; 2001, $8,415) 68,953 30,558
-------------------- --------------------
$ 186,559 $ 31,453
==================== ====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of notes payable and long-term debt $ 741,070 $ 98,078
-------------------- --------------------
Accounts payable 38,497 55,993
Due to shareholders 26,000 29,471
Accrued expenses 109,059 38,346
-------------------- --------------------
Total current liabilities 914,626 221,888
Notes payable and long-term debt, less current maturities 137,836 -
-------------------- --------------------
Total liabilities 1,052,462 221,888
-------------------- --------------------
Commitments - -
Stockholders' deficit:
Common stock, $1 par value, 10,000 shares
authorized and issued 10,000 10,000
Additional paid-in capital 483,912 668,553
Accumulated deficit during the development stage (1,326,602) (868,988)
Treasury stock, 222 shares at cost (33,213) -
-------------------- --------------------
Total stockholders' deficit (865,903) (190,435)
-------------------- --------------------
$ 186,559 $ 31,453
==================== ====================
See notes to financial statements.
F-2
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
Six months ended March 31, From Inception (April 24, 2000) to
------------------------------ Year ended -----------------------------------
2002 2001 September 30, September 30, September 30,
(Unaudited) (Unaudited) 2001 2000 2001
-------------- -------------- ------------- -------------- ------------
Net sales $ - $ - $ - $ - $ -
Operating expenses:
General and administrative 74,242 43,188 160,748 74,156 234,904
Salaries and consulting fees 270,236 77,075 175,525 271,543 447,068
Research and development 46,066 28,132 73,787 50,205 123,992
Write-off of note receivable - 50,000 50,000 - 50,000
Depreciation 4,521 2,498 5,928 2,487 8,415
-------------- -------------- ------------- -------------- ------------
Total operating expenses 395,065 200,893 465,988 398,391 864,379
-------------- -------------- ------------- -------------- ------------
Operating loss (395,065) (200,893) (465,988) (398,391) (864,379)
Interest expense (12,549) (1,475) (4,609) - (4,609)
Loan costs (50,000) - - - -
Income tax expense - - - - -
-------------- -------------- ------------- -------------- ------------
Net loss ($457,614) ($202,368) ($470,597) ($398,391) ($868,988)
============== ============== ============= ============== ============
Net loss per share, basic and diluted ($48) ($20) ($47) ($112) ($104)
============== ============== ============= ============== ============
Weighted average shares, basic and diluted 9,530 9,906 9,945 3,572 8,396
============== ============== ============= ============== ============
Unaudited pro-forma presentation applicable
to conversion from an S Corporation
to C Corporation:
Net loss before proforma income tax expense ($457,614) ($202,368) ($470,597) ($398,391) ($868,988)
Pro-forma income tax expense - - - - -
-------------- -------------- ------------- -------------- ------------
Pro-forma net loss ($457,614) ($202,368) ($470,597) ($398,391) ($868,988)
============== ============== ============= ============== ============
Pro-forma net loss per share ($48) ($20) ($47) ($112) ($104)
============== ============== ============= ============== ============
See notes to financial statements.
F-3
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
Six months ended March 31, From Inception (April 24, 2000) to
--------------------------- Year Ended ----------------------------------
2002 2001 September 30, September 30, September 30,
(Unaudited) (Unaudited) 2001 2000 2001
---------- ---------- --------- ---------- ----------
Cash flows from operating activities:
Net loss $ (457,614) $ (202,368) $ (470,597) ($398,391) $ (868,988)
Adjustments to reconcile net loss to
net cash flows from operating activities:
Depreciation 4,521 2,498 5,928 2,487 8,415
Amortization of loan costs 50,000 - - - -
Stock-based compensation 9,000 - - - -
Settlement expense funded from debt
assumption - - 28,000 - 28,000
Write-off of note receivable - 50,000 50,000 - 50,000
Changes in assets and liabilities:
Current assets (3,000) 26,656 - - -
Current liabilities 53,217 (544) 11,403 54,936 66,339
---------- ---------- --------- ---------- ----------
Net cash flows from operating activities (343,876) (123,758) (375,266) (340,968) (716,234)
---------- ---------- --------- ---------- ----------
Cash flows from investing activities:
Acquisition of furniture and equipment (44,324) - (13,999) (24,974) (38,973)
Proceeds from sale of furniture and
equipment 1,408 - - - -
---------- ---------- --------- ---------- ----------
Net cash flows from investing activities (42,916) - (13,999) (24,974) (38,973)
---------- ---------- --------- ---------- ----------
Cash flows from financing activities:
Issuance of note receivable - (50,000) (50,000) - (50,000)
Borrowings under line of credit, net - - 97,043 - 97,043
Proceeds from long-term debt 527,304 72,500 - 1,035 1,035
Payment of loan costs (50,000) - - - -
Advances from officers (3,471) - 51,853 363,834 415,687
Proceeds from sale of common stock - 100,000 289,004 3,333 292,337
---------- ---------- --------- ---------- ----------
Net cash flows from financing activities 473,833 122,500 387,900 368,202 756,102
---------- ---------- --------- ---------- ----------
Change in cash 87,041 (1,258) (1,365) 2,260 895
Cash, beginning of period 895 2,260 2,260 - -
---------- ---------- --------- ---------- ----------
Cash, end of period $ 87,936 $ 1,002 $ 895 $ 2,260 $ 895
========== ========== ========= ========== ==========
See notes to financial statements.
F-4
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
Six months ended March 31, From Inception (April 24, 2000) to
--------------------------- Year Ended ----------------------------------
2002 2001 September 30, September 30, September 30,
(Unaudited) (Unaudited) 2001 2000 2001
---------- ---------- --------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 1,517 $ 1,474 $ 3,464 $ 3 $ 3,467
========== ========== ========= ========== ==========
SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Conversion of debt to 6,372.5 shares
of common stock $ - $ - $ - $ 386,220 $ -
========== ========== ========= ========== ==========
Acquisition of 1694.5 shares of treasury stock
for a note payable $ 253,524 $ - $ - $ - $ -
========== ========== ========= ========== ==========
Issuance of 889 shares of treasury common
stock for services $ 26,670 $ - $ - $ - $ -
========== ========== ========= ========== ==========
Issuance of 300 shares of treasury stock for
services $ 9,000 $ - $ - $ - $ -
========== ========== ========= ========== ==========
Advances from officers $ (3,471) $ - $ 51,853 $ 363,834 $ 415,687
========== ========== ========= ========== ==========
See notes to financial statements.
F-5
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDER'S DEFICIT
THE PERIOD FROM INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2000,
THE YEAR ENDED SEPTEMBER 30, 2001 AND THE SIX MONTHS ENDED MARCH 31, 2002
Additional Total
Common Stock Paid-in Treasury Accumulated Stockholders'
Shares Amount Capital Stock Deficit Deficit
------ ------ ------------ ---------- ------------- -------------
Issuance of founder shares at
inception 3,333 $ 3,333 $ - $ - $ - $ 3,333
Conversion of debt to equity 6,372 6,372 379,844 386,216
Net loss for the period - - - - (398,391) (398,391)
------ -------- ---------- --------- ------------ ----------
Balances, September 30, 2000 9,705 9,705 379,844 - (398,391) (8,842)
Issuance of common stock 295 295 288,709 - - 289,004
Net loss for the year - - - - (470,597) (470,597)
------ -------- ---------- --------- ------------ ----------
Balances, September 30, 2001 10,000 10,000 668,553 - (868,988) (190,435)
Treasury stock acquisition - - - (253,524) - (253,524)
Issuance of stock from treasury shares - - (184,641) 220,311 - 35,670
Net loss for the period - - - - (457,614) (457,614)
------ -------- ---------- --------- ------------ ----------
Balances, March 31, 2002 (unaudited) 10,000 $ 10,000 $ 483,912 $ (33,213) $ (1,326,602) $ (865,903)
====== ======== ========== ========= ============ ==========
See notes to financial statements.
F-6
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED),
THE YEAR ENDED SEPTEMBER 30, 2001, AND THE PERIOD FROM
INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2000
1. Nature of operations and summary of significant accounting policies:
Nature of operations:
SiriCOMM, Inc, (the Company), incorporated in the State of Missouri on
April 24, 2000, is engaged in the development of a broadband wireless
application service technologies intended for use in the marine and
transportation industries. The Company's development activities include
integrating multiple technologies including satellite communications, the
Internet, wireless networking, and productivity enhancing software into
commercially viable products and services. The Company expects to complete
development activities and commence revenue generating activities in 2002.
Reporting periods:
The Company operated under a calendar reporting year in 2000 and, in 2001,
changed its fiscal year to November 30. In connection with the merger
discussed in Note 9, the Company has presented its financial information on
a September 30 fiscal year and anticipates an adoption of that fiscal year
for future financial reporting purposes.
Use of estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Interim financial information:
The financial statements at March 31, 2002 and for the six months ended
March 31, 2002 and March 31, 2001, including related amounts in footnotes,
are unaudited, but in the opinion of management reflect all normal and
recurring adjustments necessary for a fair presentation of the results of
those periods. Operating results for the six months ended March 31, 2002
are not necessarily an indication of the results that may be expected for
the year ended September 30, 2002.
F-7
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED),
THE YEAR ENDED SEPTEMBER 30, 2001, AND THE PERIOD FROM
INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2000
1. Nature of operations and summary of significant accounting policies
(continued):
Financial instruments:
The carrying value of the Company's financial instruments, including cash,
accounts payable, and notes, approximate their fair market values.
Cash and cash equivalents:
SiriCOMM considers all securities purchased with original maturities of
three months or less to be cash equivalents.
Furniture and equipment:
Furniture and equipment is depreciated using the straight-line method over
the estimated useful life of 5 years.
Stock-based compensation:
The Company accounts for compensation costs associated with stock options
issued to employees under the provisions of Accounting Principles Board
Opinion No. 25 ("APB25") whereby compensation is recognized to the extent
the market price of the underlying stock at the grant exceeds the exercise
price of the option granted. Stock-based compensation to non-employees is
accounted for using the fair-value based method prescribed by Financial
Accounting Standard No. 123 - Accounting for Stock-Based Compensation.
Research and development costs:
The Company incurs costs, principally paid to outside consultants,
associated with computer software to be marketed in the future. Costs
incurred in connection with establishing technological feasibility have
been expensed as research and development costs. Costs incurred subsequent
to establishing technological feasibility, including coding and testing,
will be capitalized.
F-8
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED),
THE YEAR ENDED SEPTEMBER 30, 2001, AND THE PERIOD FROM
INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2000
1. Nature of operations and summary of significant accounting policies
(continued):
Pro forma income taxes:
The operations of the Company are included in the personal income tax
returns of the stockholders under Subchapter S of the Internal Revenue
Code. The unaudited pro forma income tax information assumes that the
Company was taxed as a C Corporation. For these purposes, the Company has
used the asset and liability method in accounting for income taxes,
prescribed in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected
to reverse. The transaction described in Note 8 will result in the
revocation of the S Corporation election.
Loss per share:
Basic and diluted loss per share is computed by dividing net loss by
weighted average number of common shares outstanding during the periods
presented.
2. Liquidity and managements' plans:
These financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the ordinary course of business.
The Company is in the development stage of operations, has a working
capital and net equity deficiency, is in default on $626,078 of its loan
agreements and has not yet generated revenues through June 11, 2002. These
conditions raise substantial doubt about the Company's ability to continue
as a going concern. Losses to date have been funded through short term
borrowings, $500,000 of which are convertible into stock.
The Company is focused on commercialization of its principal products,
which will require debt or equity financing in the near-term. Management is
currently in negotiations to obtain such funding and in the process of
finalizing a merger agreement with an existing public company shell.
F-9
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED),
THE YEAR ENDED SEPTEMBER 30, 2001, AND THE PERIOD FROM
INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2000
2. Liquidity and managements' plans (continued):
Subsequent to March 31, 2002, the Company has raised an additional $500,000
(unaudited), which it believes will be adequate to sustain operations
through September 15, 2002. Upon completion of an anticipated merger,
discussed in Note 8, management believes it will be able to raise an
additional $6 to $10 million, which will be used to finalize its
development stage activities and commence marketing activities. Management
anticipates revenue generating activities to commence in July 2002.
There can be no assurances that the Company will be successful in obtaining
additional debt or equity financing in order to achieve its financial
objectives or to commence revenue generating activities as outlined above.
The financial statements do not include any adjustments to the carrying
amounts of assets and the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.
3. Unaudited pro forma income taxes:
Unaudited pro forma income taxes consists of the following:
From Inception
Year Ended (April 24, 2000) to
Six months ended March 31, September 30, September 30,
2002 2001 2001 2000
------------ ------------- ---------------- -------------------
Current income taxes $ - $ - $ - $ -
Deferred income taxes:
Benefit of net operating loss
and start-up costs 182,100 57,100 147,250 149,400
Deferred income taxes 200 300 1,250 300
Change in valuation allowance (182,300) (57,400) (148,500) (149,700)
------------ ------------- ---------------- -------------------
$ - $ - $ - $ -
============ ============= ================ ===================
F-10
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED),
THE YEAR ENDED SEPTEMBER 30, 2001, AND THE PERIOD FROM
INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2000
3. Unaudited pro forma income taxes (continued):
Unaudited pro forma deferred tax assets consists of the following:
From Inception
Year Ended (April 24, 2000) to
Six months ended March 31, September 30, September 30,
2002 2001 2001 2000
------------ ------------- ---------------- -------------------
Net operating loss carryforward
and start-up costs $ 182,100 $ 57,100 $ 147,250 $ 149,400
Book depreciation in excess of
tax 200 300 1,250 300
Less: valuation allowance (182,300) (57,400) (148,500) (149,700)
------------ ------------- ---------------- -------------------
$ - $ - $ - $ -
============ ============= ================ ===================
4. Notes payable and long-term debt:
Notes payable and long-term debt consist of the following at:
March 31,
2002 September 30,
(unaudited) 2001
----------------- --------------
Note payable, former stockholder, bearing interest at 2.5%, unsecured,
interest and principal due in monthly installments of $10,000 through
May 2004. $ 252,828 $ -
Note payable, bearing interest at 4%, unsecured, interest due monthly,
principal due March 15, 2002; convertible into common shares equaling
4.25% of the Company's outstanding shares of stock on the date that
the holder exercises its option. 250,000 -
F-11
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED),
THE YEAR ENDED SEPTEMBER 30, 2001, AND THE PERIOD FROM
INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2000
4. Notes payable and long-term debt (continued):
March 31,
2002 September 30,
(unaudited) 2001
----------------- --------------
Note payable, bearing interest at 4%, unsecured, interest due monthly,
principal due March 15, 2002; convertible into common shares equaling
3.5% of the Company's outstanding shares of stock on the date that the
holder exercises its option. 250,000 -
Line of credit, interest at 7%, secured by receivables of the Company
(currently existing or thereafter acquired) and personally guaranteed
by the stockholders of the Company, due June 20, 2003, or upon demand
by the bank. 126,078 -
Line of credit, interest at prime plus .5% (6.5% at September 30,
2001), secured by receivables (currently existing or thereafter
acquired) of the Company and personally guaranteed by the stockholders
of the Company, refinanced in December 2001. - 98,078
----------------- --------------
878,906 98,078
Less: current maturities of notes payable and long-term debt (741,070) (98,078)
$ 137,836 $ -
================= ==============
F-12
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED),
THE YEAR ENDED SEPTEMBER 30, 2001, AND THE PERIOD FROM
INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2000
4. Notes payable and long-term debt (continued):
Original maturities of notes payable and long-term debt are as follows:
Year ending September 30,
2002 $ 741,070 $ 98,078
2003 58,584 -
2004 79,252 -
------------- -------------
$ 878,906 $ 98,078
============= =============
The Company was not in compliance with terms and provisions of its credit
agreements as of June 11, 2002. The Company has $626,078 of outstanding
debt currently in default. Management believes that $500,000 of this debt
will be liquidated through a conversion to equity in connection with the
merger discussed in Note 8.
5. Stockholders' deficit:
At inception 3,333 shares of stock were issued to the founding stockholders
at par value. During 2000, 6,372.5 additional shares of stock were issued
to these same stockholders in satisfaction of then outstanding advances,
equivalent to $60 per share.
During 2001, the Company commenced equity raising activities and sold an
aggregate of 294.5 shares of stock at prices ranging from $500 to $2,000
per share.
In December 2001, the Company repurchased 1,694.5 shares of stock at an
aggregate cost of $150 per share in connection with a stockholder dispute,
which is further discussed in Note 7.
Subsequent to September 30, 2001, 283.5 treasury shares were reissued
pursuant to an anti-dilution clause, which stated that if the Company sells
shares in the Company to an investor that represents more than a 2.5%
interest in the Company and such investor pays an amount less than $2,000
per share, the Company shall issue additional shares to the investor so the
investor will own the number of shares that represent the investor's total
subscription amount divided by the valuation per share of the subsequent
sale of an equity interest in the Company.
F-13
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED),
THE YEAR ENDED SEPTEMBER 30, 2001, AND THE PERIOD FROM
INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2000
5. Stockholders' deficit (continued):
Subsequent thereto, 300 treasury shares of stock were issued for legal
services rendered and valued at $30 per share based on the value of stock
to be issued in connection with the pending merger discussed in Note 9.
Furthermore, 889 treasury shares were issued in exchange for services
associated with the aforementioned merger and have been reflected as
prepaid expenses in the accompanying 2002 unaudited balance sheet.
Cumulative stockholders' deficit information for the period from inception
(April 24, 2000) to March 31, 2002 (unaudited) is as follows:
Shares Amount
------ -------------
Issuance of founders share 3,333 $ 3,333
Conversion of debt to equity 6,372 386,216
Issuance of common stock 295 289,004
Treasury stock acquisition - (253,524)
Issuance of stock from treasury shares - 35,670
Net loss - (1,326,602)
------ -------------
10,000 $ (865,903)
====== =============
6. Related party transactions:
During 2001, the Company was a defendant in a suit filed by a founding
stockholder. This suit was settled on December 21, 2001. As part of the
settlement agreement the Company agreed to reimburse the former stockholder
$22,000 for out-of-pocket expenses and $15,000 in compensation for services
previously performed and repurchase all shares of common stock owned by
this stockholder. The Company paid $10,000 in December 2001 in connection
with the settlement and issued a note payable for the remaining balance
due, payable over a 29 month period. At September 30, 2001, the Company
accrued the out-of-pocket expenses and compensation expense, which is
included in accounts payable in the accompanying balance sheet.
In addition, as part of the settlement agreement the Company assumed a
$28,000 note payable which has been accrued as general and administrative
expense at September 30, 2001. On December 18, 2001, the existing bank line
of credit agreement and the note payable of $28,000 were consolidated into
a single line of credit.
F-14
SIRICOMM, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED MARCH 31, 2002 AND 2001 (UNAUDITED),
THE YEAR ENDED SEPTEMBER 30, 2001, AND THE PERIOD FROM
INCEPTION (APRIL 24, 2000) TO SEPTEMBER 30, 2000
7. Commitments:
In February 2002, the Company entered into five executive employee
agreements with certain officers/directors. As part of these agreements the
Company is obligated to pay these shareholders aggregate compensation of
$650,000 annually through February 2005.
8. Subsequent events:
During April 2002, the Company entered into a merger agreement with
Fountain Pharmaceuticals, Inc. (FPI), a public company shell corporation.
FPI will receive all of the outstanding shares of the Company in exchange
for the issuance of an aggregate of 9,623,195 post-split shares of FPI's
common stock, $.001 par value, representing approximately 77% of the
post-closing, post-split issued and outstanding shares of FPI stock. The
Company anticipates that the transaction will be consummated in July 2002.
F-15
FOUNTAIN PHARMACEUTICALS, INC. AND SIRICOMM, INC.
PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited proforma consolidated combined balance sheet
aggregates the balance sheet of Fountain Pharmaceuticals, Inc. (a
Delaware corporation) ("Parent") as of March 31, 2002 and the balance
sheet of SiriComm, Inc. (a Missouri corporation) ("Subsidiary") as of
March 31, 2002, accounting for the transaction as a recapitalization of
Subsidiary with the issuance of shares for the net assets of Parent (a
reverse acquisition) and using the assumptions described in the
following notes, giving effect to the transaction, as if the
transaction had occurred as of the end of the period. The transaction
was not completed as of March 31, 2002.
The following unaudited proforma condensed consolidated statement of
operations combine the results of operations of Parent and Subsidiary
for the year ended September 31, 2001 as if the transaction had
occurred as of the beginning of the period.
The following unaudited proforma condensed consolidated statement of
operations combine the results of operations of Parent and Subsidiary
for the six months ended March 31, 2002 as if the transaction had
occurred as of the beginning of the period.
The proforma condensed consolidated financial statements should be read
in conjunction with the separate financial statements and related notes
thereto of Parent and Subsidiary. These proforma financial statements
are not necessarily indicative of the consolidated financial position,
had the acquisition occurred on the date indicated above, or the
consolidated results of operations which might have existed for the
periods indicated or the results of operations as they may be in the
future.
Pro Forma Financials - 1
FOUNTAIN PHARMACEUTICALS, INC. AND
SIRICOMM, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2002
Pro Forma Pro Forma
Fountain Siricomm, Inc. Adjustments Consolidated
-------- -------------- ----------- ------------
Assets
Current assets:
Cash and cash equivalents $ 68,315 $ 87,936 [B] $ 500,000 $ 656,251
Prepaid expenses and other assets - 29,670 [B,C,E,F] (26,670) 3,000
------------- ------------ ------------- -----------
Total current assets 68,315 117,606 473,330 659,251
------------- ------------ ------------- -----------
Furniture and equipment, net of accumulated -
depreciation 68,953 - 68,953
------------- ------------ ------------- -----------
$ 68,315 $ 186,559 $ 473,330 $ 728,204
============= ============ ============= ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ - $ 147,556 [E] $ 50,000 $ 197,556
Current maturities of notes payable and long- -
term debt - 741,070 [B,D] (500,000) 241,070
Due to shareholders - 26,000 26,000
6% Convertible Debenture 100,000 - - 100,000
------------- ------------ ------------- -----------
Total current liabilities 100,000 914,626 (450,000) 564,626
------------- ------------ ------------- -----------
Note payable and long-term debt, less current - 137,836 137,836
------------- ------------ ------------- -----------
maturities
Stockholders' equity:
Preferred Stock 2,000 - 2,000
Common stock 5,981 10,000 [A,C,D,F] (4,321) 11,660
Additional paid-in capital 17,270,506 483,813 [A,B,D,E,F,G] (16,415,635) 1,338,684
Accumulated deficit (17,310,172) (1,326,602) [G] 17,310,172 (1,326,602)
Treasury stock, at cost - (33,114) [F] 33,114 -
------------- ------------ ------------- -----------
Total stockholders' equity (31,685) (865,903) 923,330 25,742
------------- ------------ ------------- -----------
$ 68,315 $ 186,559 $ 473,330 $ 728,204
============= ============ ============= ===========
Pro Forma Financials - 2
Fountain Pharmaceuticals, Inc. and Siricomm, Inc.
Pro Forms Condensed Consolidated Statement of Operations
For the six months ended March 31, 2002
Pro Forma Pro Forma
Fountain Siricomm Adjustments Consolidated
------------ ------------ ----------- -----------
Revenues $ - $ - $ - $ -
------------ ------------ ----------- -----------
Cost of sales - -
------------ ------------ ----------- -----------
Gross profit - - - -
------------ ------------ ----------- -----------
Operating expenses:
General and administrative 52,844 74,242 - 127,086
Salaries and consulting fees - 270,236 - 270,236
Research and Development - 46,066 46,066
Amortization of loan costs - 50,000 50,000
Depreciation and amortization - 4,521 4,521
Selling - - -
------------ ------------ ----------- -----------
Total operating expenses 52,844 445,065 - 497,909
------------ ------------ ----------- -----------
Loss from operations (52,844) (445,065) - (497,909)
------------ ------------ ----------- -----------
Other income (expense)
Interest income - -
Interest expense (22,667) (12,549) (35,216)
Other income (expense) 3,993 - - 3,993
------------ ------------ ----------- -----------
(18,674) (12,549) - (31,223)
------------ ------------ ----------- -----------
Net loss from continuing operations $ (71,518) $ (457,614) $ - $ (529,132)
============ ============ =========== ===========
Pro forma loss per common share $ (0.05)
===========
Weighted average number of shares 11,660,002
===========
Pro Forma Financials - 3
Fountain Pharmaceuticals, Inc. and Siricomm, Inc.
Pro Forms Condensed Consolidated Statement of Operations
For the year ended September 30, 2001
Pro Forma Pro Forma
Fountain Siricomm Adjustments Consolidated
----------- ----------- ----------- -----------
Revenues $ 666,754 $ - [H] $ (666,754) $ -
----------- ----------- ----------- -----------
Cost of sales 120,185 $ (120,185) -
----------- ----------- ----------- -----------
Gross profit 546,569 - (546,569) -
----------- ----------- ----------- -----------
Operating expenses:
General and administrative 290,826 160,748 [H] (90,826) 360,748
Salaries and consulting fees - 175,525 - 175,525
Research and Development 157,000 73,787 [H] (157,000) 73,787
Depreciation and amortization 194,387 5,928 [H] (194,387) 5,928
Selling 426,686 [H] (426,686) -
----------- ----------- ----------- -----------
Total operating expenses 1,068,899 415,988 (868,899) 615,988
----------- ----------- ----------- -----------
Loss from operations (522,330) (415,988) 322,330 (615,988)
----------- ----------- ----------- -----------
Other income (expense)
Interest income 7,000 7,000
Interest expense (269,061) (4,609) (273,670)
Other income (expense) 14,083 - - 14,083
----------- ----------- ----------- -----------
(247,978) (4,609) - (252,587)
----------- ----------- ----------- -----------
Loss from continuing operations (770,308) (420,597) 322,330 (868,575)
=========== =========== =========== ===========
Pro forma loss per common share $ (0.07)
===========
Weighted average number of shares 11,660,002
===========
Pro Forma Financials - 4
Fountain Pharmaceuticals, Inc. and Siricomm, Inc.
Preforma Adjustments
[A] Common Stock 5,881
Additional paid-in capital 5,881
To record 1 for 60 reverse split
and change in par value
[B] Cash 500,000
Convertible debt 500,000
To record proceeds received from
convertible debt subsequent to
March 31.
[C] Investment in subsidiary 9,623
Common stock 9,623
To record acquisition of subsidiary
through issuance of 9,623,195
post-split shares
[D] Convertible debentures 1,000,000
Common Stock 1,937
Additional Paid-in capital 998,063
To record converison of convertible
promissory notes into 1,937,136
shares
[E] Additional paid-in capital 76,670
Accounts payable 50,000
Stock offering costs 26,670
To record additional costs associated
with completing the reorganization
and reflect these costs as a
reduction of additional paid-in
capital
[F] Common stock 10,000
Treasury stock 33,114
Investment in subsidiary 9,623
Additional paid-in capital 32,737 -
To eliminate common and treasury stock
of subsidiary
[G] Additional paid-in capital 17,310,172
Accumulated deficit 17,310,172
To eliminate accumulated deficit of
parent at date of acquisition to
reflect the recapitalization of
subsidiary
[H] Revenue 666,754
Cost of sales 120,185
Research and development expenses 157,000
Selling 426,686
Depreciation and amortization 194,387
General and administrative 90,826
Loss from discontinued operations 322,330
To reclassify operations of parent as
discontinued operations
19,934,167 19,934,167
Pro Forma Financials - 5
FOUNTAIN PHARMACEUTICALS, INC. AND SIRICOMM, INC.
NOTES TO PROFORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Fountain Pharmaceuticals, Inc.
Fountain Pharmaceuticals, Inc. ("Parent"), a Delaware corporation, was
incorporated in 1989. All operations of the Parent were suspended in
July 2001 and the Company is currently inactive.
Note 2 - SiriComm, Inc.
SiriComm, Inc. ("Subsidiary"), a Missouri corporation, was incorporated
on April 24, 2000. The Company is engaged in the development of a
broadband wireless application service technologies intended for use in
the marine and highway transportation industries.
In August 2002, Parent entered into an agreement and plan of
reorganization wherein Parent would acquire 100% of Subsidiary through
the issuance of an estimated 9,623,195 shares (post-split) of
restricted common stock in a transaction wherein Subsidiary will become
a wholly-owned subsidiary of Parent. Consummation of the proposed
acquisition is anticipated to be completed in August or September of
2002.
Proforma adjustments on the attached pro-forma consolidated financial
statements include the following:
[A] To record 1 for 60 reverse common stock split and change in
par value of common stock.
[B] To record proceeds from issuance of convertible debt
associated with the transaction received subsequent to March
31, 2002.
[C] To record the acquisition of Subsidiary by Parent through the
issuance of 9,623,195 post-split shares of common stock. The
ownership interests of the former owners of Subsidiary in the
combined enterprise is greater than that of the ongoing
shareholders of Parent and, accordingly, the management of
Subsidiary will assume operating control of the combined
enterprise. Consequently, the acquisition is accounted for as
the recapitalization of Subsidiary, wherein Subsidiary
purchased the assets of Parent and accounted for the
transaction as a "Reverse Purchase" for accounting purposes.
[D] To record conversion of an aggregate $1,000,000 convertible
promissory notes into 1,937,136 shares of common stock
($500,000 received in November 2001, $500,000 recorded via [B]
for April 2002 proceeds).
Pro Forma Financials - 6
[E] The estimated costs incurred in completing the reorganization
have been treated as stock issuance costs by Parent and,
therefore, as a reduction of additional paid-in capital. These
estimated costs of $50,000 consist primarily of legal and
accounting fees. These are in addition to $26,670 previously
incurred.
[F] To eliminate the common stock of the Subsidiary in
consolidation.
[G] To eliminate discounted operations of Parent for the September
2001 fiscal year.
Note 3 - Proforma (loss) per share
The proforma (loss) per share is computed based on the number of shares
outstanding, after adjustment for shares issued in the acquisition, as
though all shares issued in the acquisition had been outstanding from
the beginning of the periods presented.
Dilutive earnings per share was not presented, as its effect was
anti-dilutive for the periods presented.
Pro Forma Financials - 7
Appendix A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FOUNTAIN PHARMACEUTICALS, INC.
Fountain Pharmaceuticals, Inc., a corporation organized and existing
under the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Fountain Pharmaceuticals, Inc. The
date of filing of its original Certificate of Incorporation with the Secretary
of State was March 23, 1989 and the name under which the corporation was
originally incorporated was DFW Technologies, Inc. The name of the corporation
was changed to Fountain Pharmaceuticals, Inc. on April 10, 1989. On November 13,
1989 the corporation restated its Certificate of Incorporation to authorize,
among other things, its Class B Common Stock.
2. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of this
corporation by:
(a) combining its Class A common stock, $.001 par value, and
Class B common stock, $.001 par value, into one single class of common stock.
(b) combining each _____ outstanding shares of common stock,
$.001 par value into one share of new common stock and reducing the resulting
par value of such stock to $.001.
(b) increasing the number of authorized shares of common
stock, $.001 par value, to 50,000,000;
(c) increasing the number of authorized shares of preferred
stock, $.001 par value, from 2,000,000 to 5,000,000; and
(d) setting forth certain matters relating to the designation
of the relative rights, powers and preferences of qualification, limitations and
restrictions of one or more series of preferred stock.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is further amended hereby to read as herein set forth in
full:
"ARTICLE 1
The name of this corporation is SIRICOMM, INC.
1
ARTICLE 2
The address of its registered offices in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE 3
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE 4
The total number of shares of stock of all classes which the
Corporation has authority to issue is 55,000,000 shares, of which 50,000,000
shares shall be common stock, with a par value of $.001 per share ("Common
Stock"), and 5,000,000 shares shall be preferred stock, with a par value of
$.001 per share ("Preferred Stock").
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions of the shares of each class of stock
are as follows:
PREFERRED STOCK
Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more series. Subject to the provisions hereof and
the limitations prescribed by law, the Board of Directors is hereby vested with
the authority and is expressly authorized, prior to issuance, by adopting
resolutions providing for the issuance of, or providing for a change in the
number of, shares of any particular series and, if and to the extent from time
to time required by law, by filing a certificate pursuant to the General
Corporation Law of the State of Delaware (or other law hereafter in effect
relating to the same or substantially similar subject matter), to establish or
change the number of shares to be included in each such series and to fix the
designation and powers, preferences and rights and the qualifications and
limitations or restrictions thereof relating to the shares of each such series,
all to the maximum extent permitted by the General Corporation Law of the State
of Delaware as in effect on the date hereof or as hereafter amended. The vested
authority of the Board of Directors with respect to each series shall include,
but not be limited to, the determination of the following:
(a) the distinctive serial designation of such series
and the number of shares constituting such series (provided that the
aggregate number of shares constituting all series of Preferred Stock
shall not exceed 5,000,000);
(b) the annual dividend rate, if any, on shares of
such series and the preferences, if any, over any other series (or of
any other series over such series) with respect to dividends, and
whether dividends shall be cumulative and, if so, from which date or
dates;
2
(c) whether the shares of such series shall be
redeemable and, if so, the terms and conditions of such redemption,
including the date or dates upon and after which such shares shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(d) the obligation, if any, of the Corporation to
purchase or redeem shares of such series pursuant to a sinking fund or
purchase fund and, if so, the terms of such obligation;
(e) whether shares of such series shall be
convertible into, or exchangeable for, shares of stock of any other
class or classes, any stock of any series of the same class or any
other class or classes or any evidence of indebtedness and, if so, the
terms and conditions of such conversion or exchange, including the
price or prices or the rate or rates of conversion or exchange and the
terms of adjustment, if any;
(f) whether the shares of such series shall have
voting rights in addition to the voting rights provided by law, and, if
so, the terms of such voting rights, including, without limitation,
whether such shares shall have the right to vote with the Common Stock
on issues on an equal, greater or lesser basis;
(g) the rights of the shares of such series in the
event of a voluntary or involuntary liquidation, dissolution, winding
up or distribution of assets of the Corporation;
(h) whether the shares of such series shall be
entitled to the benefit of conditions and restrictions upon (i) the
creation of indebtedness of the Corporation or any subsidiary, (ii) the
issuance of any additional stock (including additional shares of such
series or of any other series) or (iii) the payment of dividends or the
making of other distributions on the purchase, redemption or other
acquisition by the Corporation or any subsidiary of any outstanding
stock of the Corporation; and
(i) any other relative rights, powers, preferences,
qualifications, limitations or restrictions thereof, including, but not
limited to, any that may be determined in connection with the adoption
of any stockholder rights plan after the date hereof, relating to any
such series.
Except where otherwise set forth in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of any series of
Preferred Stock, the number of shares comprising such series may be increased or
decreased (but not below the number of shares then outstanding) from time to
time by like action of the Board of Directors.
Shares of any series of Preferred Stock that have been redeemed
(whether through the operation of a sinking fund or otherwise) or purchased by
the Corporation, or which, if convertible or exchangeable, have been converted
into, or exchanged for, shares of stock of any other class or classes or any
evidences of indebtedness shall have the status of authorized and unissued
3
shares of Preferred Stock and may be reissued as a part of the series of which
they were originally a part or may be reclassified and reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors or as part of any other series of Preferred Stock, all
subject to the conditions or restrictions on issuance set forth in the
resolution or resolutions adopted by the Board of Directors providing for the
issuance of any series of Preferred Stock and to any filing required by law.
COMMON STOCK
Subject to all of the rights of the Preferred Stock, and except as may
be expressly provided with respect to the Preferred Stock herein, by law or by
the Board of Directors pursuant to this Article 4:
(a) dividends may be declared and paid or set apart
for payment upon Common Stock out of any assets or funds of the
Corporation legally available for the payment of dividends and may be
payable in cash, stock or otherwise;
(b) the holders of Common Stock shall have the
exclusive right to vote for the election of directors (other than in
the case of newly created directorships and vacancies, which shall be
filled solely by the remaining directors as set forth in Article 6
hereof) and on all other matters requiring stockholder action, each
share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the net assets of the
Corporation shall be distributed pro rata to the holders of Common
Stock in accordance with their respective rights and interests.
DENIAL OF PREEMPTIVE RIGHTS AND CUMULATIVE VOTING
No holder of any stock of the Corporation shall be entitled as such, as
a matter of right, to subscribe for or purchase any part of any new or
additional issue of stock of any class whatsoever of the Corporation, or of
securities convertible into stock of any class whatsoever, whether now or
hereafter authorized, or whether issued for cash or other consideration or by
way of dividend.
No holder of any stock of the Corporation shall have the right of
cumulative voting at any election of directors or upon any other matter.
ARTICLE 5
The Corporation is to have perpetual existence.
ARTICLE 6
All power of the Corporation shall be vested in and exercised by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.
4
For the management of the business and for the conduct of the affairs
of the Corporation, and in further creation, definition, limitation and
regulation of the power of the Corporation and of its directors and
stockholders, it is further provided:
A. ELECTIONS OF DIRECTORS. Elections of Directors need not be by
written ballot unless the Bylaws of the Corporation shall so provide.
B. NUMBER, ELECTION AND TERMS OF DIRECTORS. Except as otherwise fixed
pursuant to the provisions of Article 4 hereof relating to the rights of the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation to elect additional directors under
specified circumstances, the number of directors of the Corporation shall be
fixed from time to time pursuant to the Bylaws. The directors, other than those
who may be elected by the holders of any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation, shall hold
office until the next annual meeting at which their successors are elected and
qualified or until their earlier resignation or removal.
C. REMOVAL OF DIRECTORS. Subject to the rights of any class or series
of stock having preference over Common Stock as to dividends or upon liquidation
to elect directors under specified circumstances, at any regular meeting or
special meeting called expressly for that purpose, any director or the entire
Board of Directors may be removed with or without cause and a successor or
successors appointed by vote of the holders of in excess of fifty percent (50%)
of the shares then issued and outstanding and entitled to vote at an election of
directors.
Except as may otherwise be provided by law, cause for removal shall be
construed to exist only if during a director's term as a director of the
Corporation: (a) the director whose removal is proposed has been convicted of a
felony by a court of competent jurisdiction and such conviction is no longer
subject to direct appeal; (b) such director has been adjudicated by a court of
competent jurisdiction to be liable for gross negligence, recklessness or
misconduct in the performance of his or her duty to the Corporation in a manner
of substantial importance to the Corporation and such adjudication is no longer
subject to direct appeal; or (c) such director has been adjudicated by a court
of competent jurisdiction to be mentally incompetent, which mental incompetence
directly affects his or her ability as a director of the Corporation, and such
adjudication is no longer subject to direct appeal.
D. STOCKHOLDER ACTION. Any action required or permitted to be taken by
the stockholders of the corporation must be effected at a duly called annual or
special meeting of such holders or by consent in writing of the holders required
to take such action. Except as otherwise required by law and subject to the
rights of holders of any class or series of stock having a preference over
Common Stock as to dividends or upon liquidation, special meetings of
stockholders of the Corporation may be called only by the Chairman of the Board,
the Chief Executive Officer or the Board of Directors pursuant to a resolution
approved by a majority of the entire Board of Directors.
5
E. BYLAW AMENDMENTS. The Board of Directors shall have the power to
make, alter, amend and repeal the Bylaws (except so far as the Bylaws adopted by
the stockholders shall otherwise provide). Any Bylaws made by the Board of
Directors under the powers conferred hereby may be altered, amended or repealed
by the directors or by the stockholders.
F. LIABILITY OF DIRECTORS.
1. No director of the Corporation shall be liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director; provided that this Article 6 shall not eliminate
or limit the liability of a director of the Corporation: (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit.
2. If the General Corporation Law of the State of Delaware
hereafter is amended to authorize the further elimination or limitation of the
liability of directors of the Corporation, then the liability of a director of
the Corporation shall be limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended, and such limitation of
liability shall be in addition to, and not in lieu of, the limitation on the
liability of a director of the Corporation provided by the provisions of this
Section F of this Article 6.
3. Any amendment, repeal or modification of this Section F of
this Article 6 shall be prospective only and shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such amendment, repeal or modification.
4. The Corporation shall be obligated at all times to maintain
the effectiveness of Bylaw provisions providing for the mandatory
indemnification of the directors of the Corporation to the maximum extent
permitted by the General Corporation Law of the State of Delaware.
ARTICLE 7
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute and this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation."
4. This Amended and Restated Certificate of Incorporation was duly
adopted by written consent of the stockholders in accordance with the applicable
provisions of Section 228, 242 and 245 of the General Corporation Law of the
State of Delaware and written notice of the adoption of this Amended and
Restated Certificate of Incorporation has been given as provided by Section 228
of the General Corporation Law of the State of Delaware to every stockholder
entitled to such notice.
6
5. As of the date of this Certificate, there are outstanding 5,875,796
shares of common stock, $.001 par value, 104,505 shares of Class B Common Stock,
$.001 par value and no shares of the Corporation's preferred stock, $.001 par
value. Upon filing of this Certificate of Amendment and Restatement, each share
of Class A and Class B common stock, $.001 par value, outstanding shall be
converted into ____ shares of new common stock, $.001 par value.
IN WITNESS WHEREOF, said Fountain Pharmaceuticals, Inc. has caused this
Certificate to be signed by Brendon K. Rennert, its President this ____ day of
May, 2002.
FOUNTAIN PHARMACEUTICALS, INC.
By:
------------------------------
Name: Brendon K. Rennert
Title: President
7
Appendix B
FOUNTAIN PHARMACEUTICALS, INC.
2002 EQUITY INCENTIVE PLAN
ARTICLE I - PLAN
1.1 PURPOSE. This Plan is a plan for key Employees (including officers
and employee directors) and Consultants of the Company and its Affiliates and is
intended to advance the best interests of the Company, its Affiliates, and its
stockholders by providing those persons who have substantial responsibility for
the management and growth of the Company and its Affiliates with additional
incentives and an opportunity to obtain or increase their proprietary interest
in the Company, thereby encouraging them to continue in the employ of the
Company or any of its Affiliates.
1.2 RULE 16B-3 PLAN. The Plan is intended to comply with all applicable
conditions of Rule 16b-3 (and all subsequent revisions thereof) promulgated
under the Securities Exchange Act of 1934, as amended (the "1934 Act"). To the
extent any provision of the Plan or action by the Board of Directors or
Committee fails to so comply, it shall be deemed null and void, to the extent
permitted by law and deemed advisable by the Committee. In addition, the Board
of Directors may amend the Plan from time to time as it deems necessary in order
to meet the requirements of any amendments to Rule 16b-3 without the consent of
the shareholders of the Company.
1.3 EFFECTIVE DATE OF PLAN. The Plan shall be effective May 15, 2002
(the "Effective Date"), provided that within one year of the Effective Date, the
Plan shall have been approved by at least a majority vote of stockholders. No
Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted
Stock Award or Performance Stock Award shall be granted pursuant to the Plan ten
years after the Effective Date.
ARTICLE II - DEFINITIONS
The words and phrases defined in this Article shall have the meaning
set out in these definitions throughout this Plan, unless the context in which
any such word or phrase appears reasonably requires a broader, narrower, or
different meaning.
2.1 "AFFILIATE" means any parent corporation and any subsidiary
corporation. The term "parent corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the Company if, at the
time of the action or transaction, each of the corporations other than the
Company owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain. The term
"subsidiary corporation" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the time of the
action or transaction, each of the corporations other than the last corporation
in the unbroken chain owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations in the
chain.
1
2.2 "AWARD" means each of the following granted under this Plan:
Incentive Option, Nonqualified Option, Stock Appreciation Right, Restricted
Stock Award or Performance Stock Award.
2.3 "BONUS STOCK AWARD" means an Award of Bonus Stock.
2.4 "BOARD OF DIRECTORS" means the board of directors of the Company.
2.5 "CHANGE IN CONTROL" shall mean and include the following
transactions or situations:
(a) A sale, transfer, or other disposition by the Company through a
single transaction or a series of transactions of securities of the Company
representing thirty (30%) percent or more of the combined voting power of the
Company's then outstanding securities to any "Unrelated Person" or "Unrelated
Persons" acting in concert with one another. For purposes of this definition,
the term "Person" shall mean and include any individual, partnership, joint
venture, association, trust corporation, or other entity (including a "group" as
referred to in Section 13(d)(3) of the 1934 Act). For purposes of this
definition, the term "Unrelated Person" shall mean and include any Person other
than the Company, a wholly-owned subsidiary of the Company, or an employee
benefit plan of the Company; provided however, a sale to underwriters in
connection with a public offering of the Company's securities pursuant to a firm
commitment shall not be a Change of Control.
(b) A sale, transfer, or other disposition through a single transaction
or a series of transactions of all or substantially all of the assets of the
Company to an Unrelated Person or Unrelated Persons acting in concert with one
another.
(c) A change in the ownership of the Company through a single
transaction or a series of transactions such that any Unrelated Person or
Unrelated Persons acting in concert with one another become the "Beneficial
Owner," directly or indirectly, of securities of the Company representing at
least thirty (30%) percent of the combined voting power of the Company's then
outstanding securities. For purposes of this definition, the term "Beneficial
Owner" shall have the same meaning as given to that term in Rule 13d-3
promulgated under the 1934 Act, provided that any pledgee of voting securities
is not deemed to be the Beneficial Owner thereof prior to its acquisition of
voting rights with respect to such securities.
(d) Any consolidation or merger of the Company with or into an
Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of the Company immediately prior to the
consolidation or merger are the beneficial owners of securities of the surviving
corporation representing at least fifty (50%) percent of the combined voting
power of the surviving corporation's then outstanding securities.
2
(e) During any period of two years, individuals who, at the beginning
of such period, constituted the Board of Directors of the Company cease, for any
reason, to constitute at least a majority thereof, unless the election or
nomination for election of each new director was approved by the vote of at
least two-thirds of the directors then still in office who were directors at the
beginning of such period.
(f) A change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the 1934 Act, or any successor regulation of similar
importance, regardless of whether the Company is subject to such reporting
requirement.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended.
2.7 "COMMITTEE" means the Compensation Committee of the Board of
Directors or such other committee designated by the Board of Directors. The
Committee shall be comprised solely of at least two members who are both
Disinterested Persons and Outside Directors or by the Board of Directors in its
entirety.
2.8 "COMPANY" means Fountain Pharmaceuticals, Inc.
2.9 "CONSULTANT" means any person, including an advisor, engaged by the
Company or Affiliate to render services and who is compensated for such
services.
2.10 "DISINTERESTED PERSON" means a "disinterested person" as that term
is defined in Rule 16b-3 under the 1934 Act.
2.11 "ELIGIBLE PERSONS" shall mean, with respect to the Plan, those
persons who, at the time that an Award is granted, are (i) key personnel
(including officers and directors) of the Company or Affiliate, or (ii)
Consultants or independent contractors who provide valuable services to the
Company or Affiliate as determined by the Committee.
2.12 "EMPLOYEE" means a person employed by the Company or any Affiliate
to whom an Award is granted.
2.13 "FAIR MARKET VALUE" of the Stock as of any date means (a) the
average of the high and low sale prices of the Stock on that date on the
principal securities exchange on which the Stock is listed; or (b) if the Stock
is not listed on a securities exchange, the average of the high and low sale
prices of the Stock on that date as reported on the Nasdaq National Market
System; or (c) if the Stock is not listed on the Nasdaq National Market System,
the average of the high and low bid quotations for the Stock on that date as
reported by the National Quotation Bureau Incorporated; or (d) if none of the
foregoing is applicable, an amount at the election of the Committee equal to
(x), the average between the closing bid and ask prices per share of Stock on
the last preceding date on which those prices were reported or (y) that amount
as determined by the Committee in good faith.
3
2.14 "INCENTIVE OPTION" means an option to purchase Stock granted under
this Plan which is designated as an "Incentive Option" and satisfies the
requirements of Section 422 of the Code.
2.15 "NONQUALIFIED OPTION" means an option to purchase Stock granted
under this Plan other than an Incentive Option.
2.16 "OPTION" means both an Incentive Option and a Nonqualified Option
granted under this Plan to purchase shares of Stock.
2.17 "OPTION AGREEMENT" means the written agreement by and between the
Company and an Eligible Person which sets out the terms of an Option.
2.18 "OUTSIDE DIRECTOR" means a member of the Board of Directors
serving on the Committee who satisfies Section 162(m) of the Code.
2.19 "PLAN" means the Fountain Pharmaceuticals, Inc. 2002 Equity
Incentive Plan, as set out in this document and as it may be amended from time
to time.
2.20 "PLAN YEAR" means the Company's fiscal year.
2.21 "PERFORMANCE STOCK AWARD" means an award of shares of Stock to be
issued to an Eligible Person if specified predetermined performance goals are
satisfied as described in Article VII.
2.22 "RESTRICTED STOCK" means Stock awarded or purchased under a
Restricted Stock Agreement entered into pursuant to this Plan, together with (i)
all rights, warranties or similar items attached or accruing thereto or
represented by the certificate representing the stock and (ii) any stock or
securities into which or for which the stock is thereafter converted or
exchanged. The terms and conditions of the Restricted Stock Agreement shall be
determined by the Committee consistent with the terms of the Plan.
2.23 "RESTRICTED STOCK AGREEMENT" means an agreement between the
Company or any Affiliate and the Eligible Person pursuant to which the Eligible
Person receives a Restricted Stock Award subject to Article VI.
2.24 "RESTRICTED STOCK AWARD" means an Award of Restricted Stock.
2.25 "RESTRICTED STOCK PURCHASE PRICE" means the purchase price, if
any, per share of Restricted Stock subject to an Award. The Restricted Stock
Purchase Price shall be determined by the Committee. It may be greater than or
less than the Fair Market Value of the Stock on the date of the Stock Award.
2.26 "STOCK" means the common stock of the Company, $.001 par value or,
in the event that the outstanding shares of common stock are later changed into
or exchanged for a different class of stock or securities of the Company or
another corporation, that other stock or security.
4
2.27 "STOCK APPRECIATION RIGHT" and "SAR" means the right to receive
the difference between the Fair Market Value of a share of Stock on the grant
date and the Fair Market Value of the share of Stock on the exercise date.
2.28 "10% STOCKHOLDER" means an individual who, at the time the Option
is granted, owns Stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or of any Affiliate. An individual
shall be considered as owning the Stock owned, directly or indirectly, by or for
his brothers and sisters (whether by the whole or half blood), spouse,
ancestors, and lineal descendants; and Stock owned, directly or indirectly, by
or for a corporation, partnership, estate, or trust, shall be considered as
being owned proportionately by or for its stockholders, partners, or
beneficiaries.
ARTICLE III - ELIGIBILITY
The individuals who shall be eligible to receive Awards shall be those
Eligible Persons of the Company or any of its Affiliates as the Committee shall
determine from time to time. However, no member of the Committee shall be
eligible to receive any Award or to receive Stock, Options, Stock Appreciation
Rights or any Performance Stock Award under any other plan of the Company or any
of its Affiliates, if to do so would cause the individual not to be a
Disinterested Person or Outside Director. The Board of Directors may designate
one or more individuals who shall not be eligible to receive any Award under
this Plan or under other similar plans of the Company.
ARTICLE IV - GENERAL PROVISIONS RELATING TO AWARDS
4.1 AUTHORITY TO GRANT AWARDS. The Committee may grant to those
Eligible Persons of the Company or any of its Affiliates as it shall from time
to time determine, Awards under the terms and conditions of this Plan. Subject
only to any applicable limitations set out in this Plan, the number of shares of
Stock to be covered by any Award to be granted to an Eligible Person shall be
determined by the Committee.
4.2 SHARES SUBJECT TO PLAN. The total number of shares of Stock set
aside for Awards may be granted under the Plan shall be 3,000,000 shares. The
shares may be treasury shares or authorized but unissued shares. The maximum
number of shares subject to options or stock appreciation rights which may be
issued to any eligible person under the plan during each plan year shall be
determined by the Committee. The maximum number of shares subject to restricted
stock awards which may be granted to any eligible person under the plan during
each plan year shall be determined by the Committee. The maximum number of
shares subject to performance stock awards which may be granted to any eligible
person during each plan year shall be determined by the Committee. The number of
5
shares stated in this Section 4.2 shall be subject to adjustment in accordance
with the provisions of Section 4.5. In the event that any outstanding Award
shall expire or terminate for any reason or any Award is surrendered, the shares
of Stock allocable to the unexercised portion of that Award may again be subject
to an Award under the Plan.
4.3 NON-TRANSFERABILITY. Awards shall not be transferable by the
Eligible Person otherwise than by will or under the laws of descent and
distribution, and shall be exercisable, during the Eligible Person's lifetime,
only by him. Restricted Stock shall be purchased by and/or become vested under a
Restricted Stock Agreement during the Eligible Person's lifetime, only by him.
Any attempt to transfer an Award other than under the terms of the Plan and the
Agreement shall terminate the Award and all rights of the Eligible Person to
that Award.
4.4 REQUIREMENTS OF LAW. The Company shall not be required to sell or
issue any Stock under any Award if issuing that Stock would constitute or result
in a violation by the Eligible Person or the Company of any provision of any
law, statute, or regulation of any governmental authority. Specifically, in
connection with any applicable statute or regulation relating to the
registration of securities, upon exercise of any Option or pursuant to any
Award, the Company shall not be required to issue any Stock unless the Committee
has received evidence satisfactory to it to the effect that the holder of that
Option or Award will not transfer the Stock except in accordance with applicable
law, including receipt of an opinion of counsel satisfactory to the Company to
the effect that any proposed transfer complies with applicable law. The
determination by the Committee on this matter shall be final, binding and
conclusive. The Company may, but shall in no event be obligated to, register any
Stock covered by this Plan pursuant to applicable securities laws of any country
or any political subdivision. In the event the Stock issuable on exercise of an
Option or pursuant to an Award is not registered, the Company may imprint on the
certificate evidencing the Stock any legend that counsel for the Company
considers necessary or advisable to comply with applicable law. The Company
shall not be obligated to take any other affirmative action in order to cause
the exercise of an Option or vesting under an Award, or the issuance of shares
pursuant thereto, to comply with any law or regulation of any governmental
authority.
4.5 CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.
(a) The existence of outstanding Options or Awards shall not affect in
any way the right or power of the Company or its stockholders to make or
authorize any or all adjustments, recapitalizations, reorganizations or other
changes in the Company's capital structure or its business, or any merger or
consolidation of the Company, or any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting the Stock or its rights, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding,
whether of a similar character or otherwise. If the Company shall effect a
subdivision or consolidation of shares or other capital readjustment, the
payment of a Stock dividend, or other increase or reduction of the number of
shares of the Stock outstanding, without receiving compensation for it in money,
services or property, then (a) the number, class, and per share price of shares
of Stock subject to outstanding Options under this Plan shall be appropriately
adjusted in such a manner as to entitle an Eligible Person to receive upon
exercise of an Option, for the same aggregate cash consideration, the equivalent
6
total number and class of shares he would have received had he exercised his
Option in full immediately prior to the event requiring the adjustment; and (b)
the number and class of shares of Stock then reserved to be issued under the
Plan shall be adjusted by substituting for the total number and class of shares
of Stock then reserved, that number and class of shares of Stock that would have
been received by the owner of an equal number of outstanding shares of each
class of Stock as the result of the event requiring the adjustment.
(b) If the Company is merged or consolidated with another corporation
and the Company is not the surviving corporation, or if the Company is
liquidated or sells or otherwise disposes of substantially all its assets while
unexercised Options remain outstanding under this Plan:
(i) subject to the provisions of clause (c) below, after
the effective date of the merger, consolidation,
liquidation, sale or other disposition, as the case
may be, each holder of an outstanding Option shall be
entitled, upon exercise of the Option, to receive, in
lieu of shares of Stock, the number and class or
classes of shares of stock or other securities or
property to which the holder would have been entitled
if, immediately prior to the merger, consolidation,
liquidation, sale or other disposition, the holder
had been the holder of record of a number of shares
of Stock equal to the number of shares as to which
the Option shall be so exercised;
(ii) the Board of Directors may waive any limitations set
out in or imposed under this Plan so that all
Options, from and after a date prior to the effective
date of the merger, consolidation, liquidation, sale
or other disposition, as the case may be, specified
by the Board of Directors, shall be exercisable in
full; and
(iii) all outstanding Options may be canceled by the Board
of Directors as of the effective date of any merger,
consolidation, liquidation, sale or other
disposition, if (i) notice of cancellation shall be
given to each holder of an Option and (ii) each
holder of an Option shall have the right to exercise
that Option in full (without regard to any
limitations set out in or imposed under this Plan or
the Option Agreement granting that Option) during a
period set by the Board of Directors preceding the
effective date of the merger, consolidation,
liquidation, sale or other disposition and, if in the
event all outstanding Options may not be exercised in
full under applicable securities laws without
registration of the shares of Stock issuable on
exercise of the Options, the Board of Directors may
limit the exercise of the Options to the number of
shares of Stock, if any, as may be issued without
registration. The method of choosing which Options
may be exercised, and the number of shares of Stock
for which Options may be exercised, shall be solely
within the discretion of the Board of Directors.
7
(c) After a merger of one or more corporations into the Company or
after a consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each Eligible Person shall be
entitled to have his Restricted Stock and shares earned under a Performance
Stock Award appropriately adjusted based on the manner the Stock was adjusted
under the terms of the agreement of merger or consolidation.
(d) In each situation described in this Section 4.5, the Committee will
make similar adjustments, as appropriate, in outstanding Stock Appreciation
Rights.
(e) The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services either upon direct sale or upon the exercise of rights
or warrants to subscribe for them, or upon conversion of shares or obligations
of the Company convertible into shares or other securities, shall not affect,
and no adjustment by reason of such issuance shall be made with respect to, the
number, class, or price of shares of Stock then subject to outstanding Awards.
4.6 ELECTION UNDER SECTION 83(B) OF THE CODE. No Employee shall
exercise the election permitted under Section 83(b) of the Code without written
approval of the Committee. Any Employee doing so shall forfeit all Awards issued
to him under this Plan.
ARTICLE V - OPTIONS AND STOCK APPRECIATION RIGHTS
5.1 TYPE OF OPTION. The Committee shall specify at the time of grant
whether a given Option shall constitute an Incentive Option or a Nonqualified
Option. Incentive Stock Options may only be granted to Employees.
5.2 OPTION PRICE. The price at which Stock may be purchased under an
Incentive Option shall not be less than the greater of: (a) 100% of the Fair
Market Value of the shares of Stock on the date the Option is granted or (b) the
aggregate par value of the shares of Stock on the date the Option is granted.
The Committee in its discretion may provide that the price at which shares of
Stock may be purchased under an Incentive Option shall be more than 100% of Fair
Market Value. In the case of any 10% Stockholder, the price at which shares of
Stock may be purchased under an Incentive Option shall not be less than 110% of
the Fair Market Value of the Stock on the date the Incentive Option is granted.
The price at which shares of Stock may be purchased under a Nonqualified Option
shall be such price as shall be determined by the Committee in its sole
discretion but in no event lower than the par value of the shares of Stock on
the date the Option is granted.
5.3 DURATION OF OPTIONS AND SARS. No Option or SAR shall be exercisable
after the expiration of ten (10) years from the date the Option or SAR is
granted. In the case of a 10% Stockholder, no Incentive Option shall be
exercisable after the expiration of five years from the date the Incentive
Option is granted.
8
5.4 AMOUNT EXERCISABLE -- INCENTIVE OPTIONS. Each Option may be
exercised from time to time, in whole or in part, in the manner and subject to
the conditions the Committee, in its sole discretion, may provide in the Option
Agreement, as long as the Option is valid and outstanding, and further provided
that no Option may be exercisable within six (6) months of the date of grant,
unless otherwise stated in the Option Agreement. To the extent that the
aggregate Fair Market Value (determined as of the time an Incentive Option is
granted) of the Stock with respect to which Incentive Options first become
exercisable by the optionee during any calendar year (under this Plan and any
other incentive stock option plan(s) of the Company or any Affiliate) exceeds
$100,000, the portion in excess of $100,000 of the Incentive Option shall be
treated as a Nonqualified Option. In making this determination, Incentive
Options shall be taken into account in the order in which they were granted.
5.5 EXERCISE OF OPTIONS. Each Option shall be exercised by the delivery
of written notice to the Committee setting forth the number of shares of Stock
with respect to which the Option is to be exercised, together with:
(a) cash, certified check, bank draft, or postal or express money order
payable to the order of the Company for an amount equal to the option price of
the shares,
(b) Stock at its Fair Market Value on the date of exercise, (if
approved in advance by the Committee),
(c) an election to make a cashless exercise through a registered
broker-dealer (if approved in advance by the Committee),
(d) an election to have shares of Stock, which otherwise would be
issued on exercise, withheld in payment of the exercise price (if approved in
advance by the Committee), and/or
(e) any other form of payment which is acceptable to the Committee,
including without limitation, payment in the form of a promissory note, and
specifying the address to which the certificates for the shares are to be
mailed.
As promptly as practicable after receipt of written notification and
payment, the Company shall deliver to the Eligible Person certificates for the
number of shares with respect to which the Option has been exercised, issued in
the Eligible Person's name. If shares of Stock are used in payment, the
aggregate Fair Market Value of the shares of Stock tendered must be equal to or
less than the aggregate exercise price of the shares being purchased upon
exercise of the Option, and any difference must be paid by cash, certified
check, bank draft, or postal or express money order payable to the order of the
Company. Delivery of the shares shall be deemed effected for all purposes when a
stock transfer agent of the Company shall have deposited the certificates in the
United States mail, addressed to the Eligible Person, at the address specified
by the Eligible Person.
9
Whenever an Option is exercised by exchanging shares of Stock owned by
the Eligible Person, the Eligible Person shall deliver to the Company
certificates registered in the name of the Eligible Person representing a number
of shares of Stock legally and beneficially owned by the Eligible Person, free
of all liens, claims, and encumbrances of every kind, accompanied by stock
powers duly endorsed in blank by the record holder of the shares represented by
the certificates (with signature guaranteed by a commercial bank or trust
company or by a brokerage firm having a membership on a registered national
stock exchange). The delivery of certificates upon the exercise of Options is
subject to the condition that the person exercising the Option provide the
Company with the information the Company might reasonably request pertaining to
exercise, sale or other disposition.
5.6 STOCK APPRECIATION RIGHTS. All Eligible Persons shall be eligible
to receive Stock Appreciation Rights. The Committee shall determine the SAR to
be awarded from time to time to any Eligible Person. The grant of an SAR to be
awarded from time to time shall neither entitle such person to, nor disqualify
such person, from participation in any other grant of awards by the Company,
whether under this Plan or any other plan of the Company. If granted as a
stand-alone SAR Award, the terms of the Award shall be provided in a Stock
Appreciation Rights Agreement.
5.7 STOCK APPRECIATION RIGHTS IN TANDEM WITH OPTIONS. Stock
Appreciation Rights may, at the discretion of the Committee, be included in each
Option granted under the Plan to permit the holder of an Option to surrender
that Option, or a portion of the part which is then exercisable, and receive in
exchange, upon the conditions and limitations set by the Committee, an amount
equal to the excess of the Fair Market Value of the Stock covered by the Option,
or the portion of it that was surrendered, determined as of the date of
surrender, over the aggregate exercise price of the Stock. The payment may be
made in shares of Stock valued at Fair Market Value, in cash, or partly in cash
and partly in shares of Stock, as the Committee shall decide in its sole
discretion. Stock Appreciation Rights may be exercised only when the Fair Market
Value of the Stock covered by the Option surrendered exceeds the exercise price
of the Stock. In the event of the surrender of an Option, or a portion of it, to
exercise the Stock Appreciation Rights, the shares represented by the Option or
that part of it which is surrendered, shall not be available for reissuance
under the Plan. Each Stock Appreciation Right issued in tandem with an Option
(a) will expire not later than the expiration of the underlying Option, (b) may
be for no more than 100% of the difference between the exercise price of the
underlying Option and the Fair Market Value of a share of Stock at the time the
Stock Appreciation Right is exercised, (c) is transferable only when the
underlying Option is transferable, and under the same conditions, and (d) may be
exercised only when the underlying Option is eligible to be exercised.
5.8 CONDITIONS OF STOCK APPRECIATION RIGHTS. All Stock Appreciation
Rights shall be subject to such terms, conditions, restrictions or limitations
as the Committee deems appropriate, including by way of illustration but not by
way of limitation, restrictions on transferability, requirement of continued
employment, individual performance, financial performance of the Company or
payment of any applicable employment or withholding taxes.
10
5.9 PAYMENT OF STOCK APPRECIATION RIGHTS. The amount of payment to
which the Eligible Person who reserves an SAR shall be entitled upon the
exercise of each SAR shall be equal to the amount, if any by which the Fair
Market Value of the specified shares of Stock on the exercise date exceeds the
Fair Market Value of the specified shares of Stock on the date of grant of the
SAR. The SAR shall be paid in either cash or Stock, as determined in the
discretion of the Committee as set forth in the SAR agreement. If the payment is
in Stock, the number of shares to be paid shall be determined by dividing the
amount of such payment by the Fair Market Value of Stock on the exercise date of
such SAR.
5.10 EXERCISE ON TERMINATION OF EMPLOYMENT. Unless it is expressly
provided otherwise in the Option or SAR agreement, Options and SAR granted to
Employees shall terminate one day less than three months after severance of
employment of the Employee from the Company and all Affiliates for any reason,
with or without cause, other than death, retirement under the then established
rules of the Company, or severance for disability. Whether authorized leave of
absence or absence on military or government service shall constitute severance
of the employment of the Employee shall be determined by the Committee at that
time.
5.11 DEATH. If, before the expiration of an Option or SAR, the Eligible
Person, whether in the employ of the Company or after he has retired or was
severed for disability, or otherwise dies, the Option or SAR shall continue
until the earlier of the Option's or SAR's expiration date or one year following
the date of his death, unless it is expressly provided otherwise in the Option
or SAR agreement. After the death of the Eligible Person, his executors,
administrators or any persons to whom his Option or SAR may be transferred by
will or by the laws of descent and distribution shall have the right, at any
time prior to the Option's or SAR's expiration or termination, whichever is
earlier, to exercise it, to the extent to which he was entitled to exercise it
immediately prior to his death, unless it is expressly provided otherwise in the
Option or SAR's agreement.
5.12 RETIREMENT. Unless it is expressly provided otherwise in the
Option Agreement, before the expiration of an Incentive Option, the Employee
shall be retired in good standing from the employ of the Company under the then
established rules of the Company, the Incentive Option shall terminate on the
earlier of the Option's expiration date or one day less than one year after his
retirement; provided, if an Incentive Option is not exercised within specified
time limits prescribed by the Code, it will become a Nonqualified Option by
operation of law. Unless it is expressly provided otherwise in the Option
Agreement, if before the expiration of a Nonqualified Option, the Employee shall
be retired in good standing from the employ of the Company under the then
established rules of the Company, the Nonqualified Option shall terminate on the
earlier of the Nonqualified Option's expiration date or one day less than one
year after his retirement. In the event of retirement, the Employee shall have
the right prior to the termination of the Nonqualified Option to exercise the
Nonqualified Option, to the extent to which he was entitled to exercise it
immediately prior to his retirement, unless it is expressly provided otherwise
in the Option Agreement. Upon retirement, an SAR shall continue to be
exercisable for the remainder of the term of the SAR agreement.
11
5.13 DISABILITY. If, before the expiration of an Option or SAR, the
Employee shall be severed from the employ of the Company for disability, the
Option or SAR shall terminate on the earlier of the Option's or SAR's expiration
date or one day less than one year after the date he was severed because of
disability, unless it is expressly provided otherwise in the Option or SAR
agreement. In the event that the Employee shall be severed from the employ of
the Company for disability, the Employee shall have the right prior to the
termination of the Option or SAR to exercise the Option, to the extent to which
he was entitled to exercise it immediately prior to his retirement or severance
of employment for disability, unless it is expressly provided otherwise in the
Option Agreement.
5.14 SUBSTITUTION OPTIONS. Options may be granted under this Plan from
time to time in substitution for stock options held by employees of other
corporations who are about to become employees of or affiliated with the Company
or any Affiliate as the result of a merger or consolidation of the employing
corporation with the Company or any Affiliate, or the acquisition by the Company
or any Affiliate of the assets of the employing corporation, or the acquisition
by the Company or any Affiliate of stock of the employing corporation as the
result of which it becomes an Affiliate of the Company. The terms and conditions
of the substitute Options granted may vary from the terms and conditions set out
in this Plan to the extent the Committee, at the time of grant, may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted.
5.15 RELOAD OPTIONS. Without in any way limiting the authority of the
Board of Directors or Committee to make or not to make grants of Options
hereunder, the Board of Directors or Committee shall have the authority (but not
an obligation) to include as part of any Option Agreement a provision entitling
the Eligible Person to a further Option (a "Reload Option") in the event the
Eligible Person exercises the Option evidenced by the Option Agreement, in whole
or in part, by surrendering other shares of Stock in accordance with this Plan
and the terms and conditions of the Option Agreement. Any such Reload Option (a)
shall be for a number of shares equal to the number of shares surrendered as
part or all of the exercise price of such Option; (b) shall have an expiration
date which is the greater of (i) the same expiration date of the Option the
exercise of which gave rise to such Reload Option or (ii) one year from the date
of grant of the Reload Option; and (c) shall have an exercise price which is
equal to one hundred percent (100%) of the Fair Market Value of the Stock
subject to the Reload Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Reload Option which is an Incentive Option and
which is granted to a 10% Stockholder, shall have an exercise price which is
equal to one hundred ten percent (110%) of the Fair Market Value of the Stock
subject to the Reload Option on the date of exercise of the original Option and
shall have a term which is no longer than five (5) years.
Any such Reload Option may be an Incentive Option or a Nonqualified
Option, as the Board of Directors or Committee may designate at the time of the
grant of the original Option; provided, however, that the designation of any
Reload Option as an Incentive Option shall be subject to the one hundred
thousand dollar ($100,000) annual limitation on exercisability of Incentive
Stock Options described in the Plan and in Section 422(d) of the Code. There
shall be no Reload Options on a Reload Option. Any such Reload Option shall be
subject to the availability of sufficient shares under Section 4.2 herein and
shall be subject to such other terms and conditions as the Board of Directors or
Committee may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
12
5.16 NO RIGHTS AS STOCKHOLDER. No Eligible Person shall have any rights
as a stockholder with respect to Stock covered by his Option until the date a
stock certificate is issued for the Stock.
ARTICLE VI - RESTRICTED STOCK AWARDS
6.1 RESTRICTED STOCK AWARDS. The Committee may issue shares of Stock to
an Eligible Person subject to the terms of a Restricted Stock Agreement. The
Restricted Stock may be issued for no payment by the Eligible Person or for a
payment below the Fair Market Value on the date of grant. Restricted Stock shall
be subject to restrictions as to sale, transfer, alienation, pledge or other
encumbrance and generally will be subject to vesting over a period of time
specified in the Restricted Stock Agreement. The Committee shall determine the
period of vesting, the number of shares, the price, if any, of Stock included in
a Restricted Stock Award, and the other terms and provisions which are included
in a Restricted Stock Agreement.
6.2 RESTRICTIONS. Restricted Stock shall be subject to the terms and
conditions as determined by the Committee, including without limitation, any or
all of the following:
(a) a prohibition against the sale, transfer, alienation, pledge or
other encumbrance of the shares of Restricted Stock, such prohibition to lapse
(i) at such time or times as the Committee shall determine (whether in annual or
more frequent installments, at the time of the death, disability or retirement
of the holder of such shares, or otherwise);
(b) a requirement that the holder of shares of Restricted Stock
forfeit, or in the case of shares sold to an Eligible Person, resell back to the
Company at his cost, all or a part of such shares in the event of termination of
the Eligible Person's employment during any period in which the shares remain
subject to restrictions;
(c) a prohibition against employment of the holder of Restricted Stock
by any competitor of the Company or its Affiliates, or against such holder's
dissemination of any secret or confidential information belonging to the Company
or an Affiliate;
(d) unless stated otherwise in the Restricted Stock Agreement,
(i) if restrictions remain at the time of severance of
employment with the Company and all Affiliates, other
than for reason of disability or death, the
Restricted Stock shall be forfeited; and
(ii) if severance of employment is by reason of disability
or death, the restrictions on the shares shall lapse
and the Eligible Person or his heirs or estate shall
be 100% vested in the shares subject to the
Restricted Stock Agreement.
13
6.3 STOCK CERTIFICATE. Shares of Restricted Stock shall be registered
in the name of the Eligible Person receiving the Restricted Stock Award and
deposited, together with a stock power endorsed in blank, with the Company. Each
such certificate shall bear a legend in substantially the following form:
"The transferability of this certificate and the shares of
Stock represented by it is restricted by and subject to the
terms and conditions (including conditions of forfeiture)
contained in the Fountain Pharmaceuticals, Inc. 2002 Equity
Incentive Plan, and an agreement entered into between the
registered owner and the Company. A copy of the Plan and
agreement is on file in the office of the Secretary of the
Company."
6.4 RIGHTS AS STOCKHOLDER. Subject to the terms and conditions of the
Plan, each Eligible Person receiving a certificate for Restricted Stock shall
have all the rights of a stockholder with respect to the shares of Stock
included in the Restricted Stock Award during any period in which such shares
are subject to forfeiture and restrictions on transfer, including without
limitation, the right to vote such shares. Dividends paid with respect to shares
of Restricted Stock in cash or property other than Stock in the Company or
rights to acquire stock in the Company shall be paid to the Eligible Person
currently. Dividends paid in Stock in the Company or rights to acquire Stock in
the Company shall be added to and become a part of the Restricted Stock.
6.5 LAPSE OF RESTRICTIONS. At the end of the time period during which
any shares of Restricted Stock are subject to forfeiture and restrictions on
sale, transfer, alienation, pledge, or other encumbrance, such shares shall vest
and will be delivered in a certificate, free of all restrictions, to the
Eligible Person or to the Eligible Person's legal representative, beneficiary or
heir; provided the certificate shall bear such legend, if any, as the Committee
determines is reasonably required by applicable law. By accepting a Stock Award
and executing a Restricted Stock Agreement, the Eligible Person agrees to remit
when due any federal and state income and employment taxes required to be
withheld.
6.6 RESTRICTION PERIOD. No Restricted Stock Award may provide for
restrictions continuing beyond ten (10) years from the date of grant.
ARTICLE VII - PERFORMANCE STOCK AWARDS
7.1 AWARD OF PERFORMANCE STOCK. The Committee may award shares of
Stock, without any payment for such shares, to designated Eligible Persons if
specified performance goals established by the Committee are satisfied. The
14
terms and provisions herein relating to these performance based awards are
intended to satisfy Section 162(m) of the Code and regulations issued
thereunder. The designation of an employee eligible for a specific Performance
Stock Award shall be made by the Committee in writing prior to the beginning of
the period for which the performance is measured (or within such period as
permitted by IRS regulations). The Committee shall establish the maximum number
of shares of Stock to be issued to a designated Employee if the performance goal
or goals are met. The Committee reserves the right to make downward adjustments
in the maximum amount of an Award if in its discretion unforeseen events make
such adjustment appropriate.
7.2 PERFORMANCE GOALS. Performance goals determined by the Committee
may be based on specified increases in cash flow, net profits, Stock price,
Company, segment or Affiliate sales, market share, earnings per share, return on
assets, and/or return on stockholders' equity.
7.3 ELIGIBILITY. The employees eligible for Performance Stock Awards
are the senior officers (i.e., chief executive officer, president, vice
presidents, secretary, treasurer, and similar positions) of the Company and its
Affiliates, and such other employees of the Company and its Affiliates as may be
designated by the Committee.
7.4 CERTIFICATE OF PERFORMANCE. The Committee must certify in writing
that a performance goal has been attained prior to issuance of any certificate
for a Performance Stock Award to any Employee. If the Committee certifies the
entitlement of an Employee to the Performance Stock Award, the certificate will
be issued to the Employee as soon as administratively practicable, and subject
to other applicable provisions of the Plan, including but not limited to, all
legal requirements and tax withholding. However, payment may be made in shares
of Stock, in cash, or partly in cash and partly in shares of Stock, as the
Committee shall decide in its sole discretion. If a cash payment is made in lieu
of shares of Stock, the number of shares represented by such payment shall not
be available for subsequent issuance under this Plan.
ARTICLE VII - BONUS STOCK AWARDS
8.1 AWARD OF BONUS STOCK. The committee may award shares of Stock to
Eligible Persons, without any payment for such shares and without any specified
performance goals. The Committee reserves the right to issue such amount of
shares to Eligible Persons as the Committee deems fit.
8.2 ELIGIBILITY. The Employees eligible for Bonus Stock Awards are the
senior officers (i.e., chief executive officer, chief operating officer, chief
financial officer, president, vice presidents, secretary, treasurer, and similar
positions) and consultants of the Company and its Affiliates, and such other
employees of the Company and its Affiliates as may be designated by the
Committee.
15
ARTICLE IX - ADMINISTRATION
The Plan shall be administered by the Committee. All questions of
interpretation and application of the Plan and Awards shall be subject to the
determination of the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members. Any decision or determination reduced to writing and
signed by a majority of the members shall be as effective as if it had been made
by a majority vote at a meeting properly called and held. This Plan shall be
administered in such a manner as to permit the Options which are designated to
be Incentive Options to qualify as Incentive Options. In carrying out its
authority under this Plan, the Committee shall have full and final authority and
discretion, including but not limited to the following rights, powers and
authorities, to:
(a) determine the Eligible Persons to whom and the time or times at
which Options or Awards will be made,
(b) determine the number of shares and the purchase price of Stock
covered in each Option or Award, subject to the terms of the Plan,
(c) determine the terms, provisions and conditions of each Option and
Award, which need not be identical,
(d) accelerate the time at which any outstanding Option or SAR may be
exercised, or Restricted Stock Award will vest,
(e) define the effect, if any, on an Option or Award of the death,
disability, retirement, or termination of employment of the Employee,
(f) prescribe, amend and rescind rules and regulations relating to
administration of the Plan, and
(g) make all other determinations and take all other actions deemed
necessary, appropriate, or advisable for the proper administration of this Plan.
The actions of the Committee in exercising all of the rights, powers,
and authorities set out in this Article and all other Articles of this Plan,
when performed in good faith and in its sole judgment, shall be final,
conclusive and binding on all parties.
ARTICLE X - AMENDMENT OR TERMINATION OF PLAN
The Board of Directors of the Company may amend, terminate or suspend
this Plan at any time, in its sole and absolute discretion; provided, however,
that to the extent required to qualify this Plan under Rule 16b-3 promulgated
under Section 16 of the Securities Exchange Act of 1934, as amended, no
amendment that would (a) materially increase the number of shares of Stock that
may be issued under this Plan, (b) materially modify the requirements as to
eligibility for participation in this Plan, or (c) otherwise materially increase
16
the benefits accruing to participants under this Plan, shall be made without the
approval of the Company's stockholders; provided further, however, that to the
extent required to maintain the status of any Incentive Option under the Code,
no amendment that would (a) change the aggregate number of shares of Stock which
may be issued under Incentive Options, (b) change the class of employees
eligible to receive Incentive Options, or (c) decrease the Option price for
Incentive Options below the Fair Market Value of the Stock at the time it is
granted, shall be made without the approval of the Company's stockholders.
Subject to the preceding sentence, the Board of Directors shall have the power
to make any changes in the Plan and in the regulations and administrative
provisions under it or in any outstanding Incentive Option as in the opinion of
counsel for the Company may be necessary or appropriate from time to time to
enable any Incentive Option granted under this Plan to continue to qualify as an
incentive stock option or such other stock option as may be defined under the
Code so as to receive preferential federal income tax treatment.
ARTICLE XI - MISCELLANEOUS
11.1 NO ESTABLISHMENT OF A TRUST FUND. No property shall be set aside
nor shall a trust fund of any kind be established to secure the rights of any
Eligible Person under this Plan. All Eligible Persons shall at all times rely
solely upon the general credit of the Company for the payment of any benefit
which becomes payable under this Plan.
11.2 NO EMPLOYMENT OBLIGATION. The granting of any Option or Award
shall not constitute an employment contract, express or implied, nor impose upon
the Company or any Affiliate any obligation to employ or continue to employ any
Eligible Person. The right of the Company or any Affiliate to terminate the
employment of any person shall not be diminished or affected by reason of the
fact that an Option or Award has been granted to him.
11.3 FORFEITURE. Notwithstanding any other provisions of this Plan, if
the Committee finds by a majority vote after full consideration of the facts
that an Eligible Person, before or after termination of his employment with the
Company or an Affiliate for any reason (a) committed or engaged in fraud,
embezzlement, theft, commission of a felony, or proven dishonesty in the course
of his employment by the Company or an Affiliate, which conduct damaged the
Company or Affiliate, or disclosed trade secrets of the Company or an Affiliate,
or (b) participated, engaged in or had a material, financial or other interest,
whether as an employee, officer, director, consultant, contractor, stockholder,
owner, or otherwise, in any commercial endeavor in the United States which is
competitive with the business of the Company or an Affiliate without the written
consent of the Company or Affiliate, the Eligible Person shall forfeit all
outstanding Options and all outstanding Awards, and including all exercised
Options and other situations pursuant to which the Company has not yet delivered
a stock certificate. Clause (b) shall not be deemed to have been violated solely
by reason of the Eligible Person's ownership of stock or securities of any
publicly owned corporation, if that ownership does not result in effective
control of the corporation.
17
The decision of the Committee as to the cause of an Employee's
discharge, the damage done to the Company or an Affiliate, and the extent of an
Eligible Person's competitive activity shall be final. No decision of the
Committee, however, shall affect the finality of the discharge of the Employee
by the Company or an Affiliate in any manner.
11.4 TAX WITHHOLDING. The Company or any Affiliate shall be entitled to
deduct from other compensation payable to each Eligible Person any sums required
by federal, state, or local tax law to be withheld with respect to the grant or
exercise of an Option or SAR, lapse of restrictions on Restricted Stock, or
award of Performance Stock. In the alternative, the Company may require the
Eligible Person (or other person exercising the Option, SAR or receiving the
Stock) to pay the sum directly to the employer corporation. If the Eligible
Person (or other person exercising the Option or SAR or receiving the Stock) is
required to pay the sum directly, payment in cash or by check of such sums for
taxes shall be delivered within 10 days after the date of exercise or lapse of
restrictions. The Company shall have no obligation upon exercise of any Option
or lapse of restrictions on Stock until payment has been received, unless
withholding (or offset against a cash payment) as of or prior to the date of
exercise or lapse of restrictions is sufficient to cover all sums due with
respect to that exercise. The Company and its Affiliates shall not be obligated
to advise an Eligible Person of the existence of the tax or the amount which the
employer corporation will be required to withhold.
11.5 WRITTEN AGREEMENT. Each Option and Award shall be embodied in a
written agreement which shall be subject to the terms and conditions of this
Plan and shall be signed by the Eligible Person and by a member of the Committee
on behalf of the Committee and the Company or an executive officer of the
Company, other than the Eligible Person, on behalf of the Company. The agreement
may contain any other provisions that the Committee in its discretion shall deem
advisable which are not inconsistent with the terms of this Plan.
11.6 INDEMNIFICATION OF THE COMMITTEE AND THE BOARD OF DIRECTORS. With
respect to administration of this Plan, the Company shall indemnify each present
and future member of the Committee and the Board of Directors against, and each
member of the Committee and the Board of Directors shall be entitled without
further act on his part to indemnity from the Company for, all expenses
(including attorney's fees, the amount of judgments and the amount of approved
settlements made with a view to the curtailment of costs of litigation, other
than amounts paid to the Company itself) reasonably incurred by him in
connection with or arising out of any action, suit, or proceeding in which he
may be involved by reason of his being or having been a member of the Committee
and/or the Board of Directors, whether or not he continues to be a member of the
Committee and/or the Board of Directors at the time of incurring the expenses,
including, without limitation, matters as to which he shall be finally adjudged
in any action, suit or proceeding to have been found to have been negligent in
the performance of his duty as a member of the Committee or the Board of
Directors. However, this indemnity shall not include any expenses incurred by
any member of the Committee and/or the Board of Directors in respect of matters
as to which he shall be finally adjudged in any action, suit or proceeding to
have been guilty of gross negligence or willful misconduct in the performance of
his duty as a member of the Committee and the Board of Directors. In addition,
no right of indemnification under this Plan shall be available to or enforceable
by any member of the Committee and the Board of Directors unless, within 60 days
after institution of any action, suit or proceeding, he shall have offered the
18
Company, in writing, the opportunity to handle and defend same at its own
expense. This right of indemnification shall inure to the benefit of the heirs,
executors or administrators of each member of the Committee and the Board of
Directors and shall be in addition to all other rights to which a member of the
Committee and the Board of Directors may be entitled as a matter of law,
contract, or otherwise.
11.7 GENDER. If the context requires, words of one gender when used in
this Plan shall include the others and words used in the singular or plural
shall include the other.
11.8 HEADINGS. Headings of Articles and Sections are included for
convenience of reference only and do not constitute part of the Plan and shall
not be used in construing the terms of the Plan.
11.9 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation or benefit plans
in effect for the Company or any Affiliate, nor shall the Plan preclude the
Company from establishing any other forms of incentive or other compensation for
employees of the Company or any Affiliate.
11.10 OTHER OPTIONS OR AWARDS. The grant of an Option or Award shall
not confer upon the Eligible Person the right to receive any future or other
Options or Awards under this Plan, whether or not Options or Awards may be
granted to similarly situated Eligible Persons, or the right to receive future
Options or Awards upon the same terms or conditions as previously granted.
11.11 GOVERNING LAW. The provisions of this Plan shall be construed,
administered, and governed under the laws of the State of Delaware.
19