SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-21134
Procept, Inc.
-------------
(Exact name of registrant as specified in its charter)
Delaware 04-2893483
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
840 Memorial Drive, Cambridge, Massachusetts 02139
- -------------------------------------------- -----
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (617) 491-1100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Number of shares outstanding of each of the issuer's classes of common stock, as
of latest practicable date.
Class Outstanding as of August 1, 1997
----- --------------------------------
Common Stock, $.01 par value 19,693,668
This report includes a total of 97 pages
Exhibit Index Appears on Page 15
<PAGE>
PROCEPT, INC.
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
June 30, 1997 and December 31, 1996
Statements of Operations 4
Three months and six months ended June 30, 1997 and 1996
Statements of Cash Flows 5
Six Months ended June 30, 1997 and 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 2. Changes in Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
PROCEPT, INC.
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,101,488 $1,962,229
Marketable securities -- 4,001,625
Accounts receivable 92,188 172,812
Prepaid expenses and other current assets 154,965 111,237
------------ ------------
Total current assets 4,348,641 6,247,903
Property and equipment, net 1,346,117 1,863,200
Restricted investment 469,000 469,000
Other assets 332,421 337,163
------------ ------------
TOTAL ASSETS $6,496,179 $8,917,266
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $772,486 $773,501
Accrued compensation 120,643 122,712
Accrued contract research costs 408,018 438,513
Other current liabilities 203,945 196,610
Current portion of capital lease obligations 274,755 614,063
Notes payable (Note 2) 200,000 --
------------ ------------
Total current liabilities 1,979,847 2,145,399
Capital lease obligations, less current portion -- 20,231
Other noncurrent liabilities 379,904 435,529
Commitments and contingencies
Stockholders' equity (Note 2):
Common stock, par value $.01 per share; 30,000,000
shares authorized at June 30, 1997 and
December 31,1996; 19,693,668 and 13,680,399
shares issued and outstanding at June 30, 1997
and December 31, 1996, respectively 196,937 136,804
Additional paid-in capital 57,619,878 54,960,583
Receivable from sale of stock (73,242) (73,242)
Accumulated deficit (53,607,145) (48,703,200)
Unrealized (loss) on securities available for sale -- (4,838)
------------ ------------
Total stockholders' equity 4,136,428 6,316,107
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,496,179 $8,917,266
============ ============
</TABLE>
3
<PAGE>
PROCEPT, INC.
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Research and development revenue
under collaborative arrangements $-- $425,000 $-- $850,000
Research and development revenue
under collaborative arrangements
with related party 129,687 75,000 270,312 150,000
Revenue from grant -- -- 55,811 --
Interest income 33,139 95,225 100,921 147,136
-------------- ------------- ------------- ------------
Total revenues 162,826 595,225 427,044 1,147,136
-------------- ------------- ------------- ------------
Costs and expenses:
Research and development 1,998,223 2,642,848 3,878,365 5,471,273
General and administrative 732,560 849,156 1,425,023 1,620,644
Interest expense 8,876 28,780 27,601 63,039
-------------- ------------- ------------- ------------
Total costs and expenses 2,739,659 3,520,784 5,330,989 7,154,956
-------------- ------------- ------------- ------------
Net loss $ (2,576,833) $ (2,925,559) $ (4,903,945) $(6,007,820)
============== ============= ============= ============
Net loss per common share $ (0.19) $ (0.26) $ (0.36) $ (0.64)
============== ============= ============== ============
Weighted average number of common
shares outstanding 13,785,975 11,082,916 13,740,401 9,435,193
============== ============= ============== =============
</TABLE>
4
<PAGE>
PROCEPT, INC.
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,903,945) $(6,007,820)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 567,297 607,562
Non-cash related party revenue (75,000) (75,000)
Gain on sale of marketable securities -- (1,359)
Changes in operating assets and liabilities:
Accounts receivable 80,624 (48,106)
Prepaid expense and other current assets (43,728) (50,197)
Other assets 79,742 2,945
Accounts payable (1,015) (182,226)
Accrued compensation (2,069) (4,995)
Accrued contract research (30,495) 174,063
Other current liabilities 7,335 (60,615)
Other noncurrent liabilities (55,625) 16,108
Note payable -- (115,851)
Deferred revenue -- (850,000)
------------- ------------
Net cash used in operating activities (4,376,879) (6,595,491)
------------- ------------
Cash flows from investing activities:
Capital expenditures (50,214) (101,510)
Proceeds from maturity of marketable securities 4,006,463 --
Proceeds from sale of marketable securities -- 2,004,070
Purchase of marketable securities -- (6,989,032)
Decrease in restricted investments -- 53,000
------------- ------------
Net cash provided by (used in)
investing activities 3,956,249 (5,033,472)
------------- ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (359,539) (489,057)
Proceeds from issuance of common stock 410 5,135,714
Proceeds from private placement of stock 2,800,000 10,403,289
Proceeds from private placement of note payable 200,000 --
Expenses from private placement securities (131,381) --
Proceeds from employee stock purchase plan 50,399 70,722
Proceeds from sale of common stock warrants -- 220
------------- ------------
Net cash provided by
financing activities 2,559,889 15,120,888
------------- ------------
Net change in cash and cash equivalents 2,139,259 3,491,925
Cash and cash equivalents at beginning of period 1,962,229 565,521
------------- ------------
Cash and cash equivalents at end of period $ 4,101,488 $ 4,057,446
============= ============
Supplemental disclosures and non-cash transactions:
Interest paid $20,556 $71,252
============= ============
</TABLE>
5
<PAGE>
PROCEPT, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
Plan of Operations
Since its inception Procept, Inc. ("Procept" or the "Company") has generated no
revenue from product sales. The Company has not been profitable since inception
and has incurred an accumulated deficit of approximately $53.6 million through
June 30, 1997. Losses have resulted principally from costs incurred in research
and development activities related to the Company's efforts to develop drug
candidates and from the associated administrative costs. The Company expects to
incur significant additional operating losses over the next several years and
expects cumulative losses to increase due to ongoing research and development
efforts and expanded preclinical and clinical testing.
Because of its continuing losses from operations, the Company will be required
to obtain additional funds in the short term to satisfy its ongoing capital
needs and to continue operations. Although management continues to pursue
additional funding arrangements and/or strategic partnering there can be no
assurance that additional funding will be available from any of these sources
or, if available, will be available on acceptable or affordable terms. If the
Company is unable to obtain financing on acceptable terms, it could be forced to
curtail or discontinue its operations. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
The accompanying financial statements for the three month and six month periods
ended June 30, 1997 and 1996 are unaudited and have been prepared by the Company
in accordance with generally accepted accounting principles. The interim
financial statements, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the results for the interim periods ended June 30, 1997 and 1996. The results
of operations for the interim periods are not necessarily indicative of the
results of operations to be expected for the fiscal year. These interim
financial statements should be read in conjunction with the audited financial
statements for the year ended December 31, 1996, which are contained in the
Company's 1996 Annual Report on Form 10-K.
2. STOCKHOLDERS' EQUITY
--------------------
On June 30, 1997, the Company completed a $3.0 million self-managed private
placement of its securities. The Company received proceeds of $2.8 million for
the issuance of 5,973,334 shares of Common Stock (the "Common Shares") and
warrants to purchase 10,344,828 shares of Common Stock, and an additional
$200,000 for the issuance of two convertible promissory notes. The notes accrue
interest at a rate of 12% per year and are due on or before September 30, 1997.
At the Company's 1997 annual meeting, its stockholders approved an amendment and
restatement of the Company's Restated Certificate of Incorporation which
authorized 1,000,000 shares of "blank-check" preferred stock. On August 1, 1997,
the Board of Directors established a series of 30,061 shares of Series A
Convertible Preferred Stock (the "Series A Preferred"). Upon the establishment
of this Series A Preferred, the purchasers of these securities obtained the
right to convert their common stock to shares of Series A Preferred.
6
<PAGE>
The Series A Preferred, when issued, is initially convertible into Common Stock
at a conversion price equal to the price paid by the purchasers for the Common
Shares, but is subject to conversion rate adjustments, based on future events.
Most significantly, upon the earlier of stockholder approval or September 30,
1997: (i) the conversion price of the Series A Preferred will be reduced to a
conversion price equal to the lesser of $.29 or 50% of a formula price based on
trading prices at various times (the "New Price"). Other significant features of
the Series A Preferred include (i) a per share annual dividend, payable in cash
or in kind, of 10% of the sum of $140 plus accrued but unpaid dividends, (ii)
the right to receive a $140 special per share dividend before dividends are paid
to holders of Common Stock, (iii) the right to participate in most subsequent
dividend distributions to Common Stock holders and (iv) the right to a
liquidation preference of $140 per share plus accrued but unpaid dividends.
Furthermore, upon the earlier of stockholder approval or September 30, 1997, the
warrants will be exchangeable for new warrants for the same aggregate number of
shares with an exercise price equal to the New Price. The Company incurred costs
in the amount of $131,381 related to this financing which were charged to
additional paid-in capital.
3. RESEARCH COLLABORATIONS
-----------------------
In September 1996, the Company's three-year sponsored research agreement with
Sandoz Pharma Ltd. ended as originally scheduled. Upon the completion of the
agreement all rights to compounds developed under the agreement reverted to the
company that originally supplied or developed the compound. Under the terms of
this agreement, Procept recorded $425,000 in revenue during the three-month
period ended June 30, 1996. No revenue related to this agreement was recorded
during 1997.
In January 1996, Procept entered into a Sponsored Research Agreement with
VacTex, Inc. ("VacTex"), an entity created by a group of executives and
scientists from leading biotechnology companies and academic institutions to
provide research services relating to the development of novel vaccines based on
discoveries licensed from the Brigham and Women's Hospital and Harvard Medical
School. These discoveries shed light on a previously unknown aspect of
immunology, the CD1 system of lipid antigen presentation. Under the Sponsored
Research Agreement, Procept will conduct specified research tasks on behalf of
VacTex for which Procept will receive a combination of cash and equity in VacTex
based on the number of full-time equivalent employees of Procept engaged in the
research, but subject to maximum cash and stock limits.
In July 1997, the Company announced that it had been awarded a Phase I Small
Business Innovation Research Grant from the National Institutes of Health to
support the development of novel vaccines for tuberculosis. Under the terms of
the Phase I Grant, Procept will receive $100,000 in financial support. The
Company proposes to identify and develop an effective tuberculosis vaccine by
utilizing the CD1 system of lipid antigen presentation. The Company plans to
apply for additional funding under a Phase II SBIR grant late in 1997.
7
<PAGE>
4. NEW ACCOUNTING PRONOUNCEMENT
----------------------------
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128), which is
effective for periods ending after December 15, 1997, including interim periods.
Earlier adoption is not permitted. However, an entity is permitted to disclose
pro forma earnings per share amounts computed under SFAS 128 in the notes to the
financial statements in periods prior to adoption. The statement requires
restatement of all prior period earnings per share data presented after the
effective date. SFAS 128 specifies the computation, presentation, and disclosure
requirements for earnings per share and is substantially similar to the standard
recently issued by the International Accounting Standards Committee entitled
International Accounting Standard 33, Earnings Per Share. The Company plans to
adopt SFAS 128 in 1997 and has determined its adoption will have no impact.
5. RESTRUCTURING
-------------
In July 1997, the Company implemented a restructuring plan that resulted in the
elimination of six senior research positions. Associated termination benefits
will be accrued and charged to restructuring expenses during the third quarter
of 1997. The exact termination benefits and potential long term cost savings
have not yet been determined.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
RESULTS OF OPERATIONS
Since its inception, the Company has generated no revenues from product sales.
The Company is dependent upon research and development collaborations, equity
financing and interest on invested funds to provide the working capital required
to pursue its intended business activities. The Company has incurred an
accumulated deficit of approximately $53.6 million through June 30, 1997. Losses
have resulted principally from costs incurred in research and development
activities related to the Company's efforts to develop drug candidates and from
the associated administrative costs. The Company expects to incur significant
additional operating losses over the next several years due to its ongoing
research and development efforts and expanded preclinical and clinical testing.
8
<PAGE>
Three Months Ended June 30, 1997 and 1996
The Company's total revenues decreased to $163,000 in the second quarter of 1997
from $595,000 during the same period of 1996, principally as a result of the
scheduled completion of the Sandoz Agreement. In the second quarter of 1997,
revenues consisted of $130,000 earned under the VacTex Agreement and $33,000 in
interest earned on invested funds. In 1996, second quarter revenues consisted of
$425,000 earned under the Sandoz Agreement, $75,000 earned under the VacTex
Agreement and $95,000 in interest earned on invested funds.
The Company's total operating expenses decreased to $2.7 million in the second
quarter of 1997, from $3.5 million during the same period in 1996. Research and
development expenses decreased 24% to $2.0 million in the second quarter of 1997
from $2.6 million in the second quarter of 1996. This expense decrease was due
primarily to a decrease in personnel in the Company's research and development
organization and their related research costs from the second quarter of 1996 to
the same period in 1997. The 14% decrease in general and administrative expenses
during the second quarter of 1997 to $733,000 from $849,000 in the second
quarter of 1996 reflects a decrease in administrative personnel as well as
reduced general and administrative expenses due to cost control measures.
Interest expense decreased to $9,000 in the second quarter of 1997 from $29,000
in the second quarter of 1996 as a result of the decrease in payments under the
Company's lease financing arrangements.
Six months ended June 30, 1997 and 1996
The Company's first half 1997 total revenues decreased to $427,000 from
$1,147,000 during the same period of 1996, principally as a result of the
scheduled completion of the Sandoz Agreement. In the first half of 1997,
revenues consisted of $270,000 earned under the VacTex Agreement, $56,000 under
a grant from the National Cooperative Drug Discovery Group and $101,000 in
interest earned on invested funds. In the first half of 1996, revenues consisted
of $850,000 earned under the Sandoz Agreement, $150,000 earned under the VacTex
Agreement and $147,000 in interest earned on invested funds.
The Company's total operating expenses decreased to $5.3 million in the first
half of 1997 from $7.2 million during the same period in 1996. Research and
development expenses decreased 29% to $3.9 million in the first half of 1997
from $5.5 million in the first half of 1996. This expense decrease was due
primarily to a decrease in personnel in the Company's research and development
organization and their related research costs from the second quarter of 1996 to
the same period in 1997. The 12% decrease in general and administrative expenses
during the first half of 1997 to $1.4 million from $1.6 million in the first
half of 1996 reflects a decrease in administrative personnel as well as reduced
general and administrative expenses due to cost control measures. Interest
expense decreased to $28,000 in the first half of 1997 from $63,000 in the first
half of 1996 as a result of the decrease in payments under the Company's lease
financing arrangements.
9
<PAGE>
FINANCIAL CONDITION
At June 30, 1997, the Company's aggregate cash and cash equivalents were $4.1
million, a net increase of $2.1 million since December 31, 1996. The increase in
cash is primarily attributable to the completion of the Company's private
placement in June 1997 resulting in net proceeds of $2.9 million and the
maturity of a marketable security of $4.0 million offset by $4.4 million used in
operations, principally to fund research and development activities and
principal payments on capital lease obligations of $360,000.
In July 1997, the Company implemented a restructuring plan that resulted in the
elimination of six senior research positions. As a result of this reduction in
force and other cost control measures, the Company expects that by year end its
cash burn rate will be reduced to approximately $500,000 per month.
The Company believes that its current funds, in conjunction with the net
proceeds from its Private Placement and interest income will be sufficient to
fund Procept's financial needs for the remainder of 1997. Although management
continues to pursue additional funding arrangements, no assurance can be given
that such financing will be available to the Company. If the Company is unable
to enter into additional corporate collaborations that produce revenue for the
Company, or secure additional financing, the Company's financial condition will
be materially adversely affected.
The Company's expectations regarding its rate of spending and the sufficiency of
its cash resources over future periods are forward-looking statements. The rate
of spending and sufficiency of such resources will be affected by numerous
factors including the rate of planned and unplanned expenditures by the Company
and the timing of achievement of various milestones in the Company's research
and development programs.
The Company's working capital and other cash needs will depend heavily on the
success of the Company's clinical trials. Success in early stage clinical trials
would lead to an increase in working capital requirements. The Company's actual
cash requirements may vary materially from those now planned because of results
of research and development, clinical trials, product testing, relationships
with strategic partners, changes in the focus and direction of the Company's
research and development programs, competitive and technological advances, the
process of obtaining United States Food and Drug Administration or other
regulatory approvals and other factors.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS 128), which is
effective for periods ending after December 15, 1997, including interim periods.
Earlier adoption is not permitted. However, an entity is permitted to disclose
pro forma earnings per share amounts computed under SFAS 128 in the notes to the
financial statements in periods prior to adoption. The statement requires
restatement of all prior period earnings per share data presented after the
effective date. SFAS 128 specifies the computation, presentation, and disclosure
requirements for earnings per share and is substantially similar to the standard
recently issued by the International Accounting Standards Committee entitled
International Accounting Standard 33, Earnings Per Share. The Company plans to
adopt SFAS 128 in 1997 and has determined its adoption will have no impact.
10
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
At the Company's 1997 annual meeting, its stockholders approved an amendment and
restatement of the Company's Restated Certificate of Incorporation which
authorized 1,000,000 shares of "blank-check" preferred stock. On August 1, 1997,
the Board of Directors established a series of 30,061 shares of Series A
Convertible Preferred Stock (the "Series A Preferred"). The Board of Directors,
subject to certain contractual limitations, has discretion, without further
stockholder action, to designate the terms of and issue the additional shares of
preferred stock.
Pursuant to a Securities Purchase Agreement dated as of June 30, 1997 (the
"Purchase Agreement") among the Company, The Aries Fund and The Aries Domestic
Fund, L.P. (together with The Aries Fund, the "Purchasers"), the Purchasers
invested an aggregate of $3 million in exchange for 5,973,334 shares of the
Company's Common Stock (the "Common Shares"), $200,000 in principal amount of
convertible notes (the "1997 Notes") and Class A and Class B Warrants (the "1997
Warrants") to purchase, at any time prior to June 30, 2002, 2,742,696 and
7,602,132 shares of Common Stock, respectively. The Purchasers have contractual
rights to acquire shares of the Series A Preferred. The Series A Preferred, when
issued, is initially convertible into Common Stock at a conversion price equal
to the price paid by the Purchasers for the Common Shares, but is subject to
conversion rate adjustments, based on future events. Most significantly, upon
the earlier of stockholder approval and September 30, 1997: (i) the conversion
price of the Series A Preferred will be reduced to a conversion price equal to
the lesser of $.29 or 50% of a formula price based on trading prices at various
times (the "New Price"). Furthermore, at such time, the Class A Warrants and the
Class B Warrants will be exchangeable for new warrants for the same aggregate
number of shares with an exercise price equal to the New Price.
Other significant features of the Series A Preferred include (i) a per share
annual dividend, payable in cash or in kind, of 10% of the sum of $140 plus
accrued but unpaid dividends, (ii) the right to receive a $140 special per share
dividend before dividends are paid to holders of Common Stock, (iii) the right
to participate in most subsequent
11
<PAGE>
dividend distributions to Common Stock holders and (iv) the right to a
liquidation preference of $140 per share plus accrued but unpaid dividends.
Generally, except as required by law, the holders of the shares of Series A
Preferred and the holders of the shares of Common Stock will vote together as
one class, with the holders of Series A Preferred entitled to a number of votes
equal to the number of shares of Common Stock into which their shares are then
convertible; however, the affirmative vote of at least 50% of the outstanding
Series Preferred, voting separately as a class, is needed to, among other
things, incur indebtedness in excess of $100,000 and authorize the issuance of
equity securities ranking prior to or on parity with the Series A Preferred.
Sales of Common Stock to directors, officers, employees and consultants have
been made in reliance upon the exemption form the registration requirements
afforded by Section 3(b) and Rule 701 of the Securities Act of 1933 (the
"Securities Act") as sales of an issuer's securities pursuant to a written
contract relating to the compensation of such individuals. Sales of the Common
Shares, the 1997 Notes and the 1997 Warrants were made in reliance upon the
exemption from registration under Section 4(2) of the Securities Act as
transactions not involving any public offering. The Company has reason to
believe that the Purchasers were familiar with or had access to information
concerning the operations and financial condition of the Company, and the
Purchasers were acquiring the securities for investment and not with a view to
the distribution thereof. No underwriter was engaged in connection with the
foregoing issuances of securities.
Item 4. Submission of Matters to a Vote of Security Holders:
The Company held its annual meeting of stockholders on Monday, June 16, 1997.
The following tabulates the results of the proposals submitted to a vote of the
stockholders:
<TABLE>
<CAPTION>
Votes Cast Abstentions and
Votes Cast For Against or Withheld Broker Non-Votes
-------------- ------------------- ----------------
<S> <C> <C> <C>
1) Election of Directors
Stanley C. Erck 11,687,065 256,862 0
Zola P. Horovitz, Ph.D. 11,687,565 256,362 0
Max Link, Ph.D. 11,687,565 256,362 0
Ellis L. Reinherz, MD. 11,687,065 256,862 0
12
<PAGE>
2) Proposal to amend the Company's
1989 Stock Plan to increase the
number of shares of Common Stock
covered by the plan by 500,000 shares 7,201,153 751,788 3,990,986
3) Proposal to amend the Company's
1994 Employee Stock Purchase Plan
to increase the number of shares of
Common Stock covered by the plan
by 250,000 shares 7,274,211 648,710 4,021,006
4) Proposal to amend the Company's
1994 Director Stock Option Plan
to increase the number of shares of
Common Stock covered by the plan
by 150,000 shares 7,224,304 713,192 4,006,431
5) Proposal to amend and restate the Company's
Restated Certificate of Incorporation to
authorize 1,000,000 shares of preferred stock 6,900,572 708,731 4,334,624
</TABLE>
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits.
---------
3.1 Amended and Restated Certificate of Incorporation of
the Company, as amended and restated by Certificate of
Amendment dated July 15, 1997. Filed herewith.
3.2 Certificate of Designation for Series A Convertible
Preferred Stock. Filed herewith.
4.1 Unit Purchase Warrant Agreement dated May 17, 1996,
issued to David Blech. Filed herewith.
4.2 Class B Warrant to Purchase Common Stock dated
June 30, 1997, issued to the Aries Fund. Filed
herewith.
4.3 Class B Warrant to Purchase Common Stock dated
June 30, 1997, issued to the Aries Domestic Fund L.P.
Filed herewith.
10.1 The 1989 Stock Plan, as amended. Filed herewith.
10.2 The 1994 Employee Stock Purchase Plan, as amended.
Filed herewith.
10.3 The 1994 Director Stock Option Plan, as amended.
Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K.
--------------------
Current Report dated June 30, 1997 filed with the Securities
and Exchange Commission on July 7, 1997 relating to the
Company's private placement of stocks, warrants and notes.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROCEPT, INC.
(Registrant)
Date: August 14, 1997 by: /s/ Michael J. Higgins
----------------------
Michael J. Higgins
Vice President, Finance
Chief Financial Officer
(Principal Accounting Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1 Amended and Restated Certificate of Incorporation
of the Company as amended and restated by
Certificate of Amendment dated July 15, 1997
3.2 Certificate of Designation for Series A Convertible
Preferred Stock.
4.1 Unit Purchase Warrant Agreement dated May 17, 1996,
issued to David Blech.
4.2 Class B Warrant to Purchase Common Stock dated
June 30, 1997, issued to the Aries Fund.
4.3 Class B Warrant to Purchase Common Stock dated
June 30, 1997, issued to the Aries Domestic Fund L.P.
10.1 The 1989 Stock Plan, as amended.
10.2 The 1994 Employee Stock Purchase Plan, as amended.
10.3 The 1994 Director Stock Option Plan, as amended.
27 Financial Data Schedule
15
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
PROCEPT, INC.
Incorporated Pursuant to an Original
Certificate of Incorporation
filed with the Secretary of State
of Delaware on May 8, 1992
--------------------------
The undersigned, for the purpose of amending and restating the
Certificate of Incorporation, as amended, of Procept, Inc. (the "Corporation")
under the laws of the State of Delaware, hereby certifies as follows:
FIRST: The name of the Corporation is Procept, Inc.
SECOND: The address of the Corporation's registered office in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington,
County of New Castle, State of Delaware. The name of its registered agent at
such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted are:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of Delaware or by any other law of
Delaware or by this Restated Certificate of Incorporation, together with any
powers incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the business or purposes
of the Corporation.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is Thirty Million (30,000,000) shares of Common Stock
with a par value of $0.01 per share and One Million (1,000,000) shares of
Preferred Stock with a par value of $0.01 per share.
The following is a statement of the designations, preferences, voting
powers, qualifications, special or relative rights and privileges in respect of
the authorized capital stock of the Corporation.
Preferred Stock
---------------
The Board of Directors is authorized, subject to limitations prescribed
by law and the provisions of this Article FOURTH, to provide by resolution for
the issuance of the shares of Preferred Stock in one or more series, and by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, and to fix the designations, powers, preferences and rights of the
shares of each such series and the qualifications, limitations or restrictions
thereof.
<PAGE>
The authority of the Board of Directors with respect to each series
shall include, but shall not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate, if any, on the shares of that series, whether
dividends shall be cumulative, and if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of the
series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and
if so, the terms and conditions of such redemption, including the date or dates
upon or after which they 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;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
(h) Any other relative rights, preferences and limitations of that
series.
Common Stock
------------
The Common Stock is subject to the rights and preferences of the
Preferred Stock as hereinbefore set forth or authorized.
Subject to the provisions of any applicable law or of the by-laws of
the Corporation, as from time to time amended, with respect to the fixing of a
record date for the determination of stockholders entitled to vote, and except
as otherwise provided herein or by law or by the resolution or resolutions
providing for the issue of any series of Preferred Stock, the holders of
outstanding shares of Common Stock shall have exclusive voting rights for the
election of directors and for all other purposes, each holder of record of
shares of Common Stock being entitled to one vote for each share of Common Stock
standing in his name on the books of the Corporation.
Subject to the rights of any one or more series of Preferred Stock, the
holders of Common Stock shall be entitled to receive such dividends from time to
time as may be declared by the Board of Directors out of any funds of the
Corporation legally available for the payment of such dividends.
- 2 -
<PAGE>
In the event of the liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, after payment shall have been
made to the holders of the Preferred Stock of the full amount to which they are
entitled, the holders of Common Stock shall be entitled to share ratably
according to the number of shares of Common Stock held by them in all remaining
assets of the Corporation available for distribution to its stockholders.
Issuance
--------
Subject to the provisions of this Certificate of Incorporation and
except as otherwise provided by law, the shares of stock of the Corporation,
regardless of class, may be issued for such consideration and for such corporate
purposes as the Board of Directors may from time to time determine.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The Board of Directors is expressly authorized to exercise all
powers granted to the Directors by law except insofar as such powers are limited
or denied herein or in the by-laws of the Corporation. In furtherance of such
powers, the Board of Directors shall have the right to make, alter or repeal the
by-laws of the Corporation.
SEVENTH: Meetings of Stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the Corporation may
be kept outside the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the by-laws of the
Corporation. Elections of Directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
EIGHTH: The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, as amended
from time to time, indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was, or has agreed to become, a director or officer of
the Corporation, or is or was serving, or has agreed to serve, at the request of
the Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of any undertaking by the person indemnified
to repay such payment if it is ultimately determined that such person is not
entitled to indemnification under this Article, which undertaking may be
accepted without reference to the financial ability of such person to make such
repayments.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
- 3 -
<PAGE>
The indemnification rights provided in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
NINTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to authorize a further limitation or elimination of the liability of
directors or officers, then the liability of a director or officer of the
Corporation shall, in addition to the limitation on personal liability provided
herein, be limited or eliminated to the fullest extent permitted by the Delaware
General Corporation Law, as from time to time amended. No amendment to or repeal
of this Article Ninth shall apply to or have any effect on the liability or
alleged liability of any director or officer of the Corporation for or with
respect to any acts or omissions of such director or officer occurring prior to
such amendment or repeal.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
The amendments and the restatement of the Certificate of Incorporation
herein certified have been approved by the Board of Directors of the Corporation
and duly adopted by the holders of a majority of the outstanding shares of
Common Stock in accordance with the provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
Signed this 15th day of July, 1997.
/s/ Stanley C. Erck
--------------------------
Stanley C. Erck, President
Attest:
/s/ Lynnette C. Fallon
- -----------------------------
Lynnette C. Fallon, Secretary
- 4 -
Exhibit 3.2
CERTIFICATE OF DESIGNATION
for
SERIES A CONVERTIBLE PREFERRED STOCK
of
PROCEPT, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
PROCEPT, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), does hereby certify that, pursuant to
the authority conferred on the board of directors of the Corporation (the "Board
of Directors") by the Restated Certificate of Incorporation, as amended to date
(the "Certificate of Incorporation"), of the Corporation and in accordance with
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors adopted the following resolution establishing a series of 30,061
shares of Preferred Stock of the Corporation designated as "Series A Convertible
Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors by the Certificate of Incorporation, a series of
Preferred Stock, par value $.01 per share, of the Corporation is hereby
established and created, and that the designation and number of shares
thereof and the voting and other powers, preferences and relative
participating, optional or other special rights of, the shares of such
series and the qualifications, limitations and restrictions thereof are
as follows:
Series A Convertible Preferred Stock
------------------------------------
I. Designation and Amount and Definitions.
A. There shall be a series of Preferred Stock designated as
"Series A Convertible Preferred Stock" and the number of shares constituting
such series shall be 30,061. Such series is referred to herein as the "Series A
Preferred Stock." Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, however, that no decrease shall
reduce the number of shares of Series A Preferred Stock to fewer than the number
of shares then issued and outstanding.
B. As used in this Certificate of Designation, the following
terms shall have the following meanings:
1. The "Closing Bid Price" for any security for each
trading day shall be the reported per share closing bid price
of such security regular way on the Stock Market on such
trading day, or, if there were no transactions on such trading
day, the average of the reported closing bid and asked prices,
regular way, of such security on the relevant Stock Market on
such trading day.
<PAGE>
2. "Fair Market Value" of any asset (including any
security) means the fair market value thereof as mutually
determined by the Corporation and the holders of a majority of
the Series A Preferred Stock then outstanding. If the
Corporation and the holders of a majority of the Series A
Preferred Stock then outstanding are unable to reach agreement
on any valuation matter, such valuation shall be submitted to
and determined by a nationally recognized independent
investment bank selected by the Board of Directors and the
holders of a majority of the Series A Preferred Stock then
outstanding (or, if such selection cannot be agreed upon
promptly, or in any event within ten days, then such valuation
shall be made by a nationally recognized independent
investment banking firm selected by the American Arbitration
Association in New York City in accordance with its rules),
the costs of which valuation shall be paid for by the
Corporation.
3. "Market Price" shall mean the average Closing Bid
Price for twenty (20) consecutive trading days, ending with
the trading day prior to the date as of which the Market Price
is being determined (with appropriate adjustments for
subdivisions or combinations of shares effected during such
period), provided that if the prices referred to in the
definition of Closing Bid Price cannot be determined for such
period, "Market Price" shall mean Fair Market Value.
4. "Registered Holders" shall mean, at any time, the
holders of record of the Series A Preferred Stock.
5. The "Stock Market" shall mean, with respect to any
security, the principal national securities exchange on which
such security is listed or admitted to trading or, if such
security is not listed or admitted to trading on any national
securities exchange, shall mean The Nasdaq National Market
System ("NNM") or The Nasdaq SmallCap Market ("SCM" and,
together with NNM, "Nasdaq") or, if such security is not
quoted on Nasdaq, shall mean the OTC Bulletin Board or, if
such security is not quoted on the OTC Bulletin Board, shall
mean the over-the-counter market as furnished by any NASD
member firm selected from time to time by the Corporation for
that purpose.
6. A "trading day" shall mean a day on which the
relevant Stock Market is open for the transaction of business.
7. "Trading Price" shall mean the lower of (i) the
average Closing Bid Price of the Common Stock (with
appropriate adjustments for subdivisions or combinations of
shares effected during such period) for the thirty (30)
consecutive trading days immediately preceding the date as of
which the Trading Price is being determined, (ii) the average
Closing Bid Price of the Common Stock (with appropriate
adjustments for subdivisions or combinations of shares
effected during such period) for five (5) consecutive trading
days, immediately preceding the date as of which the Trading
Price is being determined, and (iii) the average Closing Bid
Price of the Common Stock (with appropriate adjustments for
subdivisions or combinations of shares effected during such
period) for five (5) consecutive trading days, immediately
succeeding the date as of which the Trading Price is
- 2 -
<PAGE>
being determined, provided that if the prices referred to in
the definition of Closing Bid Price cannot be determined for
any of such periods, "Trading Price" shall mean Fair Market
Value.
II. Dividends and Distributions.
A. Commencing on the Reset Date (as defined in Subsection
4(a)), the holders of the Series A Preferred Stock shall be entitled to receive
cumulative dividends on each share of Series A Preferred Stock, at the rate of
10% per annum (computed on the basis of a 360-day year of twelve 30 day months)
of the Dividend Base Amount (as defined below), payable annually in arrears or
at such time as the conversion of, and with respect to, any shares of Series A
Preferred Stock that are converted. Such dividends shall be paid in cash, or at
the option of the Company, in kind, with duly authorized, fully paid and non-
assessable shares of Series A Preferred Stock. Such dividends shall accrue
monthly and accumulate whether or not they have been declared and whether or not
there are profits, surplus or other funds of the Corporation legally available
for the payment of dividends. The "Dividend Base Amount" shall be $140.00 plus
all accrued but unpaid dividends (subject to appropriate adjustment to reflect
any stock split, combination, reclassification or reorganization of the Series A
Preferred Stock).
B. In addition to the foregoing, subject to the rights of the
holders of any shares of any series or class of capital stock ranking prior, and
superior to, or pari passu with, the shares of Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred Stock shall be
entitled to receive, as, when and if declared by the Board of Directors, out of
assets legally available for that purpose, dividends or distributions in cash,
stock or otherwise.
C. The Corporation shall not declare any dividend or
distribution on any Junior Stock (as defined below) of the Corporation unless
and until a special dividend or distribution of $140.00 per share (subject to
appropriate adjustment to reflect any stock split, combination, reclassification
or reorganization of the Series A Preferred Stock) has been declared and paid on
the Series A Preferred Stock. In the event that such special dividend or
distribution is declared and paid on the Series A Preferred Stock, an aggregate
per share dividend or distribution equal to (i) $140.00 divided by (ii) the
effective Conversion Rate (as defined below) at the time of such special
dividend or distribution on the Series A Preferred Stock may be declared and
paid on the Common Stock. Except as aforesaid, the Corporation shall not declare
any dividend or distribution on any Junior Stock or stock on a parity with the
Series A Preferred Stock, unless the Corporation shall, concurrently with the
declaration of such dividend or distribution on the Junior Stock or stock on a
parity with the Series A Preferred Stock, declare a like dividend or
distribution, as the case may be, on the Series A Preferred Stock.
D. Any dividend or distribution (other than that referenced in
the first sentence of Subsection II.C.) payable to the holders of the Series A
Preferred Stock pursuant to this Section II shall be paid to such holders at the
same time as the dividend or distribution on the Junior Stock or any other
capital stock of the Corporation by which it is measured is paid.
- 3 -
<PAGE>
E. All dividends or distributions declared upon the Series A
Preferred Stock shall be declared pro rata per share.
F. Any reference to "distribution" contained in this Section
II shall not be deemed to include any distribution made in connection with or in
lieu of any Liquidation Event (as defined below).
G. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series A Preferred
Stock which may be in arrears.
H. So long as any shares of the Series A Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, on a parity with the Series A
Preferred Stock, for any period unless all dividends have been or
contemporaneously are declared and paid, or declared and a sum sufficient for
the payment thereof set apart for such payment, on the Series A Preferred Stock.
When dividends are not paid in full or a sum sufficient for such payment is not
set apart, as aforesaid, upon the shares of the Series A Preferred Stock and any
other class or series of stock ranking on a parity as to dividends with the
Series A Preferred Stock, all dividends declared upon such other stock shall be
declared pro rata so that the amounts of dividends per share declared on the
Series A Preferred Stock and such other stock shall in all cases bear to each
other the same ratio that accrued dividends per share on the shares of the
Series A Preferred Stock and on such other stock bear to each other.
I. So long as any shares of the Series A Preferred Stock are
outstanding, no other stock of the Corporation ranking on a parity with the
Series A Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund or
otherwise for the purchase or redemption of any shares of any such stock) by the
Corporation unless the dividends, if any, accrued on all outstanding shares of
the Series A Preferred Stock shall have been paid or set apart for payment.
J. "Junior Stock" shall mean the Common Stock and any shares
of preferred stock of any series or class of the Corporation, whether presently
outstanding or hereafter issued, which are junior to the shares of Series A
Preferred Stock with respect to (i) the distribution of assets on any voluntary
or involuntary liquidation, dissolution or winding up of the Corporation, (ii)
dividends or (iii) voting.
III. Liquidation Preference.
A. In the event of a (i) liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, (ii) a sale or other
disposition of all or substantially all of the assets of the Corporation or
(iii) any consolidation, merger, combination, reorganization or other
transaction in which the Corporation is not the surviving entity or shares of
Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into stock or securities of another
entity, cash and/or any other property (a "Merger Transaction") (items (i), (ii)
and (iii) of this sentence being collectively
- 4 -
<PAGE>
referred to as a "Liquidation Event"), after payment or provision for payment of
debts and other liabilities of the Corporation the holders of the Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, whether such
assets are capital, surplus, or earnings, before any payment or declaration and
setting apart for payment of any amount shall be made in respect of any Junior
Stock of the Corporation, an amount equal to $140.00 per share plus an amount
equal to all declared and/or accrued unpaid dividends thereon; provided,
however, in the case of a Merger Transaction, such $140.00 per share may be paid
in cash, property (valued as provided in Subsection III.B. and/or securities
(valued as provided in Subsection III.B. of the entity surviving such Merger
Transaction. In the case of property or in the event that any such securities
are subject to an investment letter or other similar restriction on
transferability, the value of such property or securities shall be determined by
agreement between the Corporation and the holders of a majority of the Series A
Preferred Stock then outstanding. If upon any Liquidation Event, whether
voluntary or involuntary, the assets to be distributed to the holders of the
Series A Preferred Stock shall be insufficient to permit the payment to such
shareholders of the full preferential amounts aforesaid, then all of the assets
of the Corporation to be distributed shall be so distributed ratably to the
holders of the Series A Preferred Stock on the basis of the number of shares of
Series A Preferred Stock held. Notwithstanding item (iii) of the first sentence
of this Subsection III.A. any consolidation, merger, combination, reorganization
or other transaction in which the Corporation is not the surviving entity but
the stockholders of the Corporation immediately prior to such transaction own in
excess of 50% of the voting power of the corporation surviving such transaction
and own such interest in substantially the same proportions as prior to such
transaction, shall not be considered a Liquidation Event provided that the
surviving corporation shall make appropriate provisions to ensure that the terms
of this Certificate of Designation survive any such transaction as provided in
Subsection IV.C.2. All shares of Series A Preferred Stock shall rank as to
payment upon the occurrence of any Liquidation Event senior to the Common Stock
as provided herein and, unless the terms of such series shall provide otherwise,
senior to all other series of the Corporation's preferred stock.
B. Any securities or other property to be delivered to the
holders of the Series A Preferred Stock pursuant to Subsection III.A. hereof
shall be valued as follows:
1. Securities not subject to an investment letter or other
similar restriction on free marketability:
(a) If actively traded on a Stock Market, the value
shall be deemed to be the Market Price as of the third day
prior to the date of valuation.
(b) If not actively traded on a Stock Market, the value
shall be the Fair Market Value.
2. For securities for which there is an active public
market but which are subject to an investment letter or other
restrictions on free marketability, the value shall be the
Fair Market Value thereof, determined by discounting
appropriately the Market Price thereof.
- 5 -
<PAGE>
3. For all other securities, the value shall be the Fair
Market Value thereof.
IV. Conversion.
A. Right of Conversion. The shares of Series A Preferred Stock
shall be convertible, in whole or in part, at the option of the holder thereof
and upon notice to the Corporation as set forth in Subsection IV.B., into fully
paid and nonassessable shares of Common Stock and such other securities and
property as hereinafter provided. The initial conversion price per share of
Common Stock shall be equal to $0.48675 (the "Conversion Price") and shall be
subject to adjustment as provided herein. The rate at which each share Series A
Preferred Stock is convertible at any time into Common Stock (the "Conversion
Rate") shall be determined by dividing the then existing Conversion Price into
$100.00.
The Conversion Price is subject to adjustment immediately
upon the earliest of (i) the approval by the holders of Common Stock of the
Corporation of the transactions contemplated by the Purchase Agreement (as
defined below) and the Letter of Intent between the Corporation and Paramount
Capital, Inc., dated June 29, 1997 (the "Letter of Intent"), to the extent such
approval is necessary pursuant to Rule 4460(i) of the National Association of
Securities Dealers' Marketplace Rules, (ii) any event which renders such
stockholder approval unnecessary or which renders such rule inapplicable and
(iii) September 30, 1997 (such earliest date, the "Approval Date"). In such
event, the Conversion Price shall be reduced to equal the lesser of (x) $0.29
and (y) 50% of the Trading Price at such Approval Date. The Conversion Price is
further subject to adjustment, upon the Series B Final Closing Date (as defined
in the Letter of Intent), if the conversion price of the preferred stock (the
"Series B Preferred Stock") sold in the Series B Offering (as defined in the
Letter of Intent) is less than two times the Conversion Price. In such event,
the Conversion Price shall be reduced to equal 50% of the conversion price of
such Series B Preferred Stock as in effect on any of the respective closing
dates in the Series B Offering. In the event that there is no Series B Final
Closing Date, or the above referenced Series B Offering is not commenced or
otherwise terminated, if the price per share of Common Stock (or the effective
price, conversion price or exercise price per share of Common Stock, as the case
may be, of a security convertible into or exchangeable for Common Stock) offered
to investors in the next offering or series of related offerings of equity
securities of the Corporation (or any securities convertible into or exercisable
for equity securities), whether in a public offering or a private placement,
following the offering of Series A Units which yields gross proceeds to the
Corporation in excess of $2,000,000 in the aggregate (a "Qualified Offering")
shall be less than two times the Conversion Price then in effect, the Conversion
Price shall be reduced to equal 50% of the lowest of any such offering price (or
effective price, conversion price or exercise price, as the case may be) per
share of Common Stock to investors in such Qualified Offering.
The Board of Directors, or a committee designated by it for
such purpose, may specify an initial conversion price applicable to the shares
of Series A Preferred Stock issued at any closing lower than the initial
conversion price that would otherwise obtain pursuant to the preceding
paragraphs of this Subsection IV.A. and, in the event an initial conversion
price is so specified, it shall be applicable to all shares of the Series A
Preferred Stock.
- 6 -
<PAGE>
The Corporation shall prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Corporation setting forth the
Conversion Rate as of the Final Closing Date, showing in reasonable detail the
facts upon which such adjusted Conversion Rate is based, and such certificate
shall forthwith be filed with the transfer agent of the Series A Preferred
Stock. A notice stating that the Conversion Rate has been adjusted pursuant to
the second preceding paragraph of this Subsection IV.A., or that no adjustment
is necessary, and setting forth the Conversion Rate in effect as of the Series B
Final Closing Date (as defined in the Letter of Intent), the final closing date
of any Qualified Offering or the Approval Date shall be mailed as promptly as
practicable after the Series B Final Closing Date, the final closing date of any
Qualified Offering or the Approval Date by the Corporation to all record holders
of the Series A Preferred Stock at their last addresses as they shall appear in
the stock transfer books of the Corporation.
The Conversion Price (subject to adjustment pursuant to the
provisions of Subsection IV.C. in effect immediately prior to June 30, 1998 (the
"Reset Date") shall be adjusted and reset effective as of the Reset Date if the
Market Price as of the Reset Date (the "12-Month Trading Price") is less than
140% of the then applicable Conversion Price (a "Reset Event"). Upon the
occurrence of a Reset Event, the Conversion Price shall be reduced to be equal
to the greater of (A) the 12-Month Trading Price divided by 1.40, and (B) 25% of
the then applicable Conversion Price. If there is any change in the Conversion
Price as a result of the preceding sentence, then the Conversion Rate shall be
changed accordingly as set forth above. The Corporation shall prepare a
certificate signed by the principal financial officer of the Corporation setting
forth the Conversion Rate as of the Reset Date, showing in reasonable detail the
facts upon which such Conversion Rate is based, and such certificate shall
forthwith be filed with the transfer agent of the Series A Preferred Stock. A
notice stating that the Conversion Rate has been adjusted pursuant to this
paragraph, or that no adjustment is necessary, and setting forth the Conversion
Rate in effect as of the Reset Date shall be mailed as promptly as practicable
after the Reset Date by the Corporation to all record holders of the Series A
Preferred Stock at their last addresses as they shall appear in the stock
transfer books of the Corporation.
Furthermore, in the event that the terms of the Series B
Preferred Stock or of any Qualified Offering Security requires that such
security's conversion price, exercise price or effective price (the "B or
Qualified Share Price") be reduced in a manner analogous to the above described
reset (a "B or Qualified Reset"), the Conversion Price then in effect shall be
adjusted on the date of such B or Qualified Reset (the "Second Reset Date") to
be the lesser of (a) the product of (i) the Conversion Price at such time
multiplied by (ii) a fraction, the numerator of which shall be the B or
Qualified Share Price immediately succeeding such B or Qualified Reset and the
denominator of which shall be the B or Qualified Share Price immediately
preceding such B or Qualified Reset and (b) the B or Qualified Share Price
immediately following such B or Qualified Reset. In addition, if there is no B
or Qualified Reset by June 30, 1999, then the Conversion Price in effect
immediately prior to June 30, 1999 (the "Alternative Second Reset Date") shall
be adjusted and reset effective as of the Alternative Second Reset Date if the
Market Price as of the Second Reset Date (the "24-Month Trading Price") is less
than 200% of the applicable Conversion Price (a "Second Reset Event") provided,
however, that there shall be no reset of the Conversion Price pursuant to this
paragraph if (i)
- 7 -
<PAGE>
the Company conducts a B or Qualified Offering; (ii) the securities issued by
the Company in such B or Qualified Offering contain a reset provision analogous
to the one described in the previous paragraph and (iii) no B or Qualified Reset
is required pursuant to the terms of such B or Qualified securities because the
Market Price is in excess of the applicable target price as of the date
prescribed for such reset pursuant to the terms of the B or Qualified
securities. Upon the occurrence of a Second Reset Event, the Conversion Price
shall be reduced to be equal to the greater of (A) the 24-Month Trading Price
divided by 2.00, and (B) 25% of the then applicable Conversion Price. If there
is any change in the Conversion Price as a result of the preceding sentence,
then the Conversion Rate shall be changed accordingly as set forth above. The
Corporation shall prepare a certificate signed by the principal financial
officer of the Corporation setting forth the Conversion Rate as of the Second
Reset Date or the Alternative Second Reset Date as the case may be, showing in
reasonable detail the facts upon which such Conversion Rate is based, and such
certificate shall forthwith be filed with the transfer agent of the Series A
Preferred Stock. A notice stating that the Conversion Rate has been adjusted
pursuant to this paragraph, or that no adjustment is necessary, and setting
forth the Conversion Rate in effect as of the Second Reset Date or the
Alternative Second Reset Date as the case may be shall be mailed as promptly as
practicable after the Second Reset Date or the Alternative Second Reset Date as
the case may be by the Corporation to all record holders of the Series A
Preferred Stock at their last addresses as they shall appear in the stock
transfer books of the Corporation.
B. Conversion Procedures. Any holder of shares of Series A
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Series A
Preferred Stock at the office of the transfer agent for the Series A Preferred
Stock, which certificate or certificates, if the Corporation shall so require,
shall be duly endorsed to the Corporation or in blank, or accompanied by proper
instruments of transfer to the Corporation or in blank, accompanied by
irrevocable written notice to the Corporation that the holder elects so to
convert such shares of Series A Preferred Stock and specifying the name or names
(with address) in which a certificate or certificates evidencing shares of
Common Stock are to be issued. The Corporation need not deem a notice of
conversion to be received unless the holder complies with all the provisions
hereof. The Corporation will instruct the transfer agent (which may be the
Corporation) to make a notation of the date that a notice of conversion is
received, which date shall be deemed to be the date of receipt for purposes
hereof.
The Corporation shall, as soon as practicable after such
deposit of certificates evidencing shares of Series A Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the person
for whose account such shares of Series A Preferred Stock were so surrendered,
or to the nominee or nominees of such person, certificates evidencing the number
of full shares of Common Stock to which such person shall be entitled as
aforesaid, together with a cash adjustment of any fraction of a share as
hereinafter provided. Subject to the following provisions of this paragraph,
such conversion shall be deemed to have been made as of the date of such
surrender of the shares of Series A Preferred Stock to be converted, and the
person or persons entitled to receive the Common Stock deliverable upon
conversion of such Series A Preferred Stock shall be treated for all purposes as
the record holder or holders of such Common Stock on such date; provided,
however, that the Corporation shall not be required to
- 8 -
<PAGE>
convert any shares of Series A Preferred Stock while the stock transfer books of
the Corporation are closed for any purpose, but the surrender of Series A
Preferred Stock for conversion during any period while such books are so closed
shall become effective for conversion immediately upon the reopening of such
books as if the surrender had been made on the date of such reopening, and the
conversion shall be at the conversion rate in effect on such date. No
adjustments in respect of any dividends on shares surrendered for conversion or
any dividend on the Common Stock issued upon conversion shall be made upon the
conversion of any shares of Series A Preferred Stock.
All notices of conversion shall be irrevocable; provided,
however, that if the Corporation has sent notice of an event pursuant to
Subsection IV.G. hereof, a holder of Series A Preferred Stock may, at its
election, provide in its notice of conversion that the conversion of its shares
of Series A Preferred Stock shall be contingent upon the occurrence of the
record date or effectiveness of such event (as specified by such holder),
provided that such notice of conversion is received by the Corporation prior to
such record date or effective date, as the case may be.
C. Adjustment of Conversion Rate and Conversion Price.
1. Except as otherwise provided herein, in the event the
Corporation shall, at any time or from time to time after the
date hereof, (1) sell or issue any shares of Common Stock for
a consideration per share less than either (i) the Conversion
Price in effect on the date of such sale or issuance or (ii)
the Market Price of the Common Stock as of the date of the
sale or issuance, (2) issue any shares of Common Stock as a
stock dividend to the holders of Common Stock, or (3)
subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such sale,
issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further
Change of Shares, the Conversion Price in effect immediately
prior to such Change of Shares shall be changed to a price
(rounded to the nearest cent) determined by multiplying the
Conversion Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding immediately prior
to the sale or issuance of such additional shares or such
subdivision or combination and the number of shares of Common
Stock which the aggregate consideration received (determined
as provided in Subparagraph IV.C.4.(e)) for the issuance of
such additional shares would purchase at the greater of (i)
the Conversion Price in effect on the date of such issuance or
(ii) the Market Price of the Common Stock as of such date, and
the denominator of which shall be the number of shares of
Common Stock outstanding immediately after the sale or
issuance of such additional shares or such subdivision or
combination. Such adjustment shall be made successively
whenever such an issuance is made.
2. In case of any reclassification, capital reorganization
or other change of outstanding shares of Common Stock, or in
case of any consolidation or merger of the Corporation with or
into another entity (other than a consolidation or merger in
which the Corporation is the continuing entity and
- 9 -
<PAGE>
which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common
Stock other than the number thereof), or in case of any sale
or conveyance to another entity of the property of the
Corporation as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the
Corporation shall cause effective provision to be made so that
each holder of a share of Series A Preferred Stock shall be
entitled to receive, upon conversion of such share of Series A
Preferred Stock, the kind and number of shares of stock or
other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock into which such share of
Series A Preferred Stock was convertible immediately prior to
such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance. Any such provision
shall include provision for adjustments that shall be as
nearly equivalent as may be practicable to the adjustments
provided for in this Subsection IV.C. The Corporation shall
not effect any such consolidation, merger or sale unless prior
to or simultaneously with the consummation thereof the
successor (if other than the Corporation) resulting from such
consolidation or merger or the entity purchasing assets or
other appropriate entity shall assume, by written instrument
executed and delivered to the transfer agent for the Series A
Preferred Stock (the "Transfer Agent"), the obligation to
deliver to the holder of each share of Series A Preferred
Stock such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holders may be
entitled to receive and the other obligations under this
Agreement. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations and
other changes of outstanding shares of Common Stock and to
successive consolidations, mergers, sales or conveyances.
3. After each adjustment of the Conversion Price pursuant
to this Subsection IV.C., the Corporation will promptly
prepare a certificate signed by the Chairman or President, and
by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary, of the Corporation setting forth: (i)
the Conversion Price as so adjusted, (ii) the Conversion Rate
corresponding to such Conversion Price and (iii) a brief
statement of the facts accounting for such adjustment. The
Corporation will promptly file such certificate with the
Transfer Agent and cause a brief summary thereof to be sent by
ordinary first class mail to each registered holder of Series
A Preferred Stock at his or her last address as it shall
appear on the registry books of the Transfer Agent. No failure
to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of such adjustment. The
affidavit of an officer of the Transfer Agent or the Secretary
or an Assistant Secretary of the Corporation that such notice
has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. The Transfer Agent may
rely on the information in the certificate as true and correct
and has no duty or obligation to independently verify the
amounts or calculations set forth therein.
- 10 -
<PAGE>
4. For purposes of Subsection IV.C.1 hereof, the following
provisions (a) to (e) shall also be applicable:
(a) No adjustment of the Conversion Price shall be made
unless such adjustment would require an increase or
decrease of at least $.01 in such price; provided that any
adjustments which by reason of this Subparagraph (a) are
not required to be made shall be carried forward and shall
be made at the time of and together with the next
subsequent adjustment which, together with adjustments so
carried forward, shall require an increase or decrease of
at least $.01 in the Conversion Price then in effect
hereunder.
(b) In case of (i) the sale or other issuance by the
Corporation (including as a component of a unit) of any
rights or warrants to subscribe for or purchase, or any
options for the purchase of, Common Stock or any securities
convertible into or exchangeable for Common Stock (such
securities convertible, exercisable or exchangeable into
Common Stock being herein called "Convertible Securities"),
or (ii) the issuance by the Corporation, without the
receipt by the Corporation of any consideration therefor,
of any rights or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or
Convertible Securities, whether or not such rights,
warrants or options, or the right to convert or exchange
such Convertible Securities, are immediately exercisable,
and the consideration per share for which Common Stock is
issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the
minimum aggregate consideration, as set forth in the
instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, payable to the
Corporation upon the exercise of such rights, warrants or
options, plus the consideration received by the Corporation
for the issuance or sale of such rights, warrants or
options, plus, in the case of such Convertible Securities,
the minimum aggregate amount, as set forth in the
instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, of additional
consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number, as set forth in
the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, of shares of Common
Stock issuable upon the exercise of such rights, warrants
or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than either the
Conversion Price or the Market Price of the Common Stock as
of the date of the issuance or sale of such rights,
warrants or options, then such total maximum number of
shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or
exchange of
- 11 -
<PAGE>
such Convertible Securities (as of the date of the issuance
or sale of such rights, warrants or options) shall be
deemed to be "Common Stock" for purposes of Subsection
IV.C.1. and shall be deemed to have been sold for an amount
equal to such consideration per share and shall cause an
adjustment to be made in accordance with Subsection IV.C.1.
(c) In case of the sale by the Corporation of any
Convertible Securities, whether or not the right of
conversion or exchange thereunder is immediately
exercisable, and the price per share for which Common Stock
is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the
total amount of consideration received by the Corporation
for the sale of such Convertible Securities, plus the
minimum aggregate amount, as set forth in the instrument
relating thereto without regard to any antidilution or
similar provisions contained therein for a subsequent
adjustment of such amount, of additional consideration, if
any, other than such Convertible Securities, payable upon
the conversion or exchange thereof, by (y) the total
maximum number, as set forth in the instrument relating
thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of
such amount, of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is
less than either the Conversion Price or the Market Price
of the Common Stock as of the date of the sale of such
Convertible Securities, then such total maximum number of
shares of Common Stock issuable upon the conversion or
exchange of such Convertible Securities (as of the date of
the sale of such Convertible Securities) shall be deemed to
be "Common Stock" for purposes of Subsection IV.C.1 and
shall be deemed to have been sold for an amount equal to
such consideration per share and shall cause an adjustment
to be made in accordance with Subsection IV.C.1.
(d) In case the Corporation shall modify the rights of
conversion, exchange or exercise of any of the securities
referred to in (b) and (c) above or any other securities of
the Corporation convertible, exchangeable or exercisable
for shares of Common Stock, for any reason other than an
event that would require adjustment to prevent dilution
pursuant to the terms of any such convertible, exchangeable
or exercisable instrument, so that the consideration per
share received by the Corporation after such modification
is less than either the Conversion Price or the Market
Price as of the date prior to such modification, then such
securities, to the extent not theretofore exercised,
converted or exchanged, shall be deemed to have expired or
terminated immediately prior to the date of such
modification and the Corporation shall be deemed for
purposes of calculating any adjustments pursuant to this
Subsection IV.C. to have issued such new securities upon
such new terms on the date of modification. Such adjustment
shall become effective as of the date upon which such
modification shall take effect. On the expiration or
cancellation of any such right, warrant or option or the
termination or
- 12 -
<PAGE>
cancellation of any such right to convert or exchange any
such Convertible Securities, the Conversion Price then in
effect hereunder shall forthwith be readjusted to such
Conversion Price as would have obtained (i) had the
adjustments made upon the issuance or sale of such rights,
warrants, options or Convertible Securities been made upon
the basis of the issuance of only the number of shares of
Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such
rights, warrants or options or upon the conversion or
exchange of such Convertible Securities and (ii) had
adjustments been made on the basis of the Conversion Price
as adjusted under clause (i) of this sentence for all
transactions (which would have affected such adjusted
Conversion Price) made after the issuance or sale of such
rights, warrants, options or Convertible Securities.
(e) In case of the sale of any shares of Common Stock,
any Convertible Securities, any rights or warrants to
subscribe for or purchase, or any options for the purchase
of, Common Stock or Convertible Securities, the
consideration received by the Corporation therefor shall be
deemed to be the gross sales price therefor without
deducting therefrom any expense paid or incurred by the
Corporation or any underwriting discounts or commissions or
concessions paid or allowed by the Corporation in
connection therewith. In the event that any securities
shall be issued in connection with any other securities of
the Corporation, together comprising one integral
transaction in which no specific consideration is allocated
among the securities, then each of such securities shall be
deemed to have been issued for such consideration as the
Board of Directors of the Corporation determines in good
faith; provided, however that if the Registered Holders of
in excess of 10% of the then outstanding Series A Preferred
Stock disagree with such determination, the Corporation
shall retain, at its own expense, an independent investment
banking firm for the purpose of obtaining an appraisal.
5. Notwithstanding any other provision hereof, no
adjustment to the Conversion Price will be made:
(a) upon the exercise of any of the options or warrants
outstanding on the date hereof under the Corporation's
existing stock option plans; or
(b) upon the issuance or exercise of options which may
hereafter be granted with the approval of the Board of
Directors, or exercised, under any employee benefit plan of
the Corporation to officers, directors, consultants or
employees, but only with respect to such options as are
exercisable at prices no lower than the Closing Bid Price
(or, if the price referenced in the definition of Closing
Bid Price cannot be
- 13 -
<PAGE>
determined, the Fair Market Value) of the Common Stock as
of the date of grant thereof; or
(c) upon the issuance of stock which may hereafter be
purchased or sold with the approval of the Board of
Directors, under the 1993 Employee Stock Purchase Plan of
the Corporation to officers, directors, consultants or
employees, but only with respect to such shares as are
purchased and/or sold in accordance with the current plan
and at prices no lower than 85% of the Closing Bid Price
(or, if the prices referenced in the definition of Closing
Bid Price cannot be determined, 85% of the Fair Market
Value) of the Common Stock as of the date of purchase
and/or sale thereof; or
(d) upon issuance or exercise of the Placement Warrants,
or the Advisory Warrants, (as defined in the Letter of
Intent between the Corporation, Paramount Capital, Inc.
(the "Placement Agent"), the Aries Domestic Fund, L.P. and
The Aries Trust, dated as of June 29, 1997 (the "Letter of
Intent")) (collectively, the "Paramount Warrants"), upon
the exercise or conversion of the Class A and Class B
Warrants (as defined in the Securities Purchase Agreement
dated as of June 30, 1997 (the "Purchase Agreement")) or
any A Notes (as defined in the Purchase Agreement) or upon
the issuance, conversion or exercise of the Series B
Preferred Stock or the Class C Warrants to be issued (i) on
or prior to the Series B Final Closing Date or (ii)
pursuant to the exercise of the Paramount Warrants, or upon
the issuance, conversion or exercise of any Series A or
Series B Preferred Stock or Class A, Class B or Class C
Warrants approved in writing by the Placement Agent, or
upon the issuance of any other equity securities of the
Corporation to the extent that such issuance causes an
adjustment to the Conversion Price pursuant to the second
paragraph of Subsection IV.A.; or
(e) upon the issuance or sale of Common Stock or
Convertible Securities pursuant to the exercise of any
rights, options or warrants to receive, subscribe for or
purchase, or any options for the purchase of, Common Stock
or Convertible Securities, whether or not such rights,
warrants or options were outstanding on the date of the
original issuance of the Series A Preferred Stock or were
thereafter issued or sold, provided that an adjustment was
either made or not required to be made in accordance with
Subsection IV.C.1 in connection with the issuance or sale
of such securities or any modification of the terms
thereof; or
(f) upon the issuance or sale of Common Stock upon
conversion or exchange of any Convertible Securities,
provided that any adjustments required to be made upon the
issuance or sale of such Convertible Securities or any
modification of the terms thereof were so made, and whether
or not such Convertible Securities were outstanding on
- 14 -
<PAGE>
the date of the original sale of the Series A Preferred
Stock or were thereafter issued or sold.
Subparagraph IV.C.4.(d) shall nevertheless apply to any modification of the
rights of conversion, exchange or exercise of any of the securities referred to
in Subparagraphs (a), (b), (c), (e), (f) and, to the extent effected with
respect to fewer than all of such securities, Subparagraph (c) of this Paragraph
IV.C.5. Notwithstanding the foregoing, IV.C.4.(d) shall not apply to any
modification of the exercise price of, or number of shares of Common Stock
subject to, the Class A, Class B or Class C Warrants that are required by the
terms of those respective instruments.
6. As used in this Subsection IV.C., the term "Common
Stock" shall mean and include the Corporation's Common Stock
authorized on the date of the original issue of the Series A
Preferred Stock and shall also include any capital stock of
any class of the Corporation thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the
rights of the holders thereof to participate in dividends and
in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Corporation; provided,
however, that the shares issuable upon conversion of the
Series A Preferred Stock shall include only shares of such
class designated in the Certificate of Incorporation as Common
Stock on the date of the original issue of the Series A
Preferred Stock or (i), in the case of any reclassification,
change, consolidation, merger, sale or conveyance of the
character referred to in Subsection IV.C.2 hereof, the stock,
securities or property provided for in such section or (ii),
in the case of any reclassification or change in the
outstanding shares of Common Stock issuable upon conversion of
the Series A Preferred Stock as a result of a subdivision or
combination or consisting of a change in par value, or from
par value to no par value, or from no par value to par value,
such shares of Common Stock as so reclassified or changed.
7. Any determination as to whether an adjustment in the
Conversion Price in effect hereunder is required pursuant to
Subsection IV.A. or IV.C, or as to the amount of any such
adjustment, if required, shall be binding upon the holders of
the Series A Preferred Stock and the Corporation if made in
good faith by the Board of Directors of the Corporation.
D. No Fractional Shares. No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon conversion
of Series A Preferred Stock. If more than one certificate evidencing shares of
Series A Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series A Preferred
Stock so surrendered. Instead of any fractional share of Common Stock which
would otherwise be issuable upon conversion of any shares of Series A Preferred
Stock, the Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the same fraction of the Market Price as of the
close of business on the day of conversion.
- 15 -
<PAGE>
E. Concurrent Grant. If, at any time or from time to time, the
Corporation shall issue or distribute to the holders of shares of Common Stock
evidence of its indebtedness, any other securities of the Corporation or any
cash, property or other assets (excluding an issuance or distribution governed
by Subsection IV.C. and also excluding cash dividends or cash distributions paid
out of net profits legally available therefor in the full amount thereof (any
such non-excluded event being herein called a "Special Dividend")), then in each
case the holders of the Series A Preferred Stock shall be entitled to a
proportionate share of any such Special Dividend as though they were the holders
of the number of shares of Common Stock of the Corporation into which their
shares of Series A Preferred Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Corporation entitled
to receive such Special Dividend.
F. Reservation of Shares; Transfer Taxes, Etc. The Corporation
shall at all times reserve and keep available, out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Stock, such number of shares of its Common
Stock free of preemptive rights as shall be sufficient to effect the conversion
of all shares of Series A Preferred Stock from time to time outstanding
(including, without limitation, shares of Common Stock issuable upon conversion
of the Series A Preferred Stock in the case of a Reset Event). The Corporation
shall use its best efforts from time to time, in accordance with the laws of the
State of Delaware to increase the authorized number of shares of Common Stock if
at any time the number of shares of authorized, unissued and unreserved Common
Stock shall not be sufficient to permit the conversion of all the
then-outstanding shares of Series A Preferred Stock.
The Corporation shall pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of the Series A Preferred Stock. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock (or other securities
or assets) in a name other than that in which the shares of Series A Preferred
Stock so converted were registered. and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Corporation
the amount of such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
G. Prior Notice of Certain Events. In case:
1. the Corporation shall declare any dividend (or any other
distribution); or
2. the Corporation shall authorize the granting to the
holders of Common Stock of rights or warrants to subscribe for
or purchase any shares of stock of any class or of any other
rights or warrants; or
3. of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or
a change in par value, or from par value to no par value, or
from no par value to par value); or
- 16 -
<PAGE>
4. of any consolidation or merger (including, without
limitation, a Merger Transaction) to which the Corporation is
a party and for which approval of any stockholders of the
Corporation shall be required, or of the sale or transfer of
all or substantially all of the assets of the Corporation or
of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or other property; or
5. of the voluntary or involuntary dissolution, liquidation
or winding up of the Corporation (including, without
limitation, a Liquidation Event);
then the Corporation shall cause to be filed with the transfer agent for the
Series A Preferred Stock, and shall cause to be mailed to the Registered
Holders, at their last addresses as they shall appear upon the stock transfer
books of the Corporation, at least 20 days prior to the applicable record date
hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend, distribution or granting of
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution,
rights or warrants are to be determined and a description of the cash,
securities or other property to be received by such holders upon such dividend,
distribution or granting of rights or warrants or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up or other Liquidation Event is expected to
become effective, the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such exchange, dissolution,
liquidation or winding up or other Liquidation Event and the consideration,
including securities or other property, to be received by such holders upon such
exchange; provided, however, that no failure to mail such notice or any defect
therein or in the mailing thereof shall affect the validity of the corporate
action required to be specified in such notice.
H. Other Changes in Conversion Rate. The Corporation from time
to time may increase the Conversion Rate by any amount for any period of time if
the period is at least 20 days and if the increase is irrevocable during the
period. Whenever the Conversion Rate is so increased, the Corporation shall mail
to the Registered Holders a notice of the increase at least 15 days before the
date the increased Conversion Rate takes effect, and such notice shall state the
increased Conversion Rate and the period it will be in effect.
The Corporation may make such increases in the Conversion
Rate, in addition to those required or allowed by this Section IV, as shall be
determined by it, as evidenced by a resolution of the Board of Directors, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
Notwithstanding anything to the contrary herein, in no case
shall the Conversion Price be adjusted to an amount less than $.01 per share,
the current par value of the Common Stock into which the Series A Preferred
Stock is convertible.
- 17 -
<PAGE>
I. Ambiguities/Errors. The Board of Directors of the
Corporation shall have the power, subject to the approval of the Placement
Agent, to resolve any ambiguity or correct any error in the provisions relating
to the convertibility of the Series A Preferred Stock.
V. Mandatory Conversion. At any time on or after the Reset Date,
the Corporation at its option, may cause the Series A Preferred Stock to be
converted in whole or in part, on a pro rata basis, into fully paid and
nonassessable shares of Common Stock at the then effective Conversion Rate if
the Closing Bid Price (or, if the price referenced in the definition of Closing
Bid Price cannot be determined, the Fair Market Value) of the Common Stock shall
have exceeded 300% of the then applicable Conversion Price for the 20
consecutive trading days ending three days prior to the date of notice of
conversion. Any shares of Series A Preferred Stock so converted shall be treated
as having been surrendered by the holder thereof for conversion pursuant to
Section IV on the date of such mandatory conversion (unless previously converted
at the option of the holder).
No greater than 60 nor fewer than 20 days prior to the date of
any such mandatory conversion, notice by first class mail, postage prepaid,
shall be given to the holders of record of the Series A Preferred Stock to be
converted, addressed to such holders at their last addresses as shown on the
stock transfer books of the Corporation. Each such notice shall specify the date
fixed for conversion, the place or places for surrender of shares of Series A
Preferred Stock, and the then effective Conversion Rate pursuant to Section IV.
Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given by the Corporation on the date
deposited in the mail, whether or not the holder of the Series A Preferred Stock
receives such notice; and failure properly to give such notice by mail, or any
defect in such notice, to the holders of the shares to be converted shall not
affect the validity of the proceedings for the conversion of any other shares of
Series A Preferred Stock. On or after the date fixed for conversion as stated in
such notice, each holder of shares called to be converted shall surrender the
certificate evidencing such shares to the Corporation at the place designated in
such notice for conversion. Notwithstanding that the certificates evidencing any
shares properly called for conversion shall not have been surrendered, the
shares shall no longer be deemed outstanding and all rights whatsoever with
respect to the shares so called for conversion (except the right of the holders
to convert such shares upon surrender of their certificates therefor) shall
terminate.
VI. [Reserved]
VII. Voting Rights.
A. General. Except as otherwise provided herein, in the
Certificate of Incorporation or the By-laws of the Corporation or as required by
applicable law, the holders of shares of Series A Preferred Stock, the holders
of shares of Common Stock and the holders of any other class or series of shares
entitled to vote with the Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation. In any such
vote, each share of Series A Preferred Stock shall entitle the holder thereof to
cast the number of votes equal to the number of votes which could be cast in
such vote by a holder of the Common Stock into which such share of Series A
Preferred Stock is convertible on the record date for such vote, or if no record
date has been established, on the date such vote is taken. Any
- 18 -
<PAGE>
shares of Series A Preferred Stock held by the Corporation or any entity
controlled by the Corporation shall not have voting rights hereunder and shall
not be counted in determining the presence of a quorum. Notwithstanding the
above, until the Approval Date, the holders of Series A Preferred Stock shall
not be entitled to vote in any election of directors of the Corporation, except
to the extent that exercise of such voting rights would not cause a violation of
Rule 4460(i) of the National Association of Securities Dealers Market Place
Rules.
B. Class Voting Rights. In addition to any vote specified in
Section VII.A., so long as at least 5% of the shares of Series A Preferred Stock
shall be outstanding, the Corporation shall not, without the affirmative vote or
consent of the holders of at least 50% of all outstanding Series A Preferred
Stock, voting separately as a class, (i) amend, alter or repeal any provision of
the Certificate of Incorporation or the Bylaws of the Corporation so as
adversely to affect the relative rights, preferences, qualifications,
limitations or restrictions of the Series A Preferred Stock, (ii) approve the
alteration or change to the rights, preferences or privileges of the Series A
Preferred Stock, (iii) incur or voluntarily repay prior to the maturity thereof
any indebtedness in excess of $100,000 or (iv) authorize or issue, or increase
the authorized amount of, any equity security ranking prior to, or on a parity
with, the Series A Preferred Stock (other than additional Series A Preferred
Stock approved in writing by the holders of greater than 50% of the outstanding
shares of Series A Preferred Stock) (A) upon a Liquidation Event, (B) with
respect to the payment of any dividends or distributions or (C) with respect to
voting rights (except for class voting rights required by law).
VIII. Outstanding Shares. For purposes of this Certificate of
Designation, a share of Series A Preferred Stock, when issued, shall be deemed
outstanding except (i) from the date, or the deemed date, of surrender of
certificates evidencing shares of Series A Preferred Stock, all shares of Series
A Preferred Stock converted into Common Stock and (ii) from the date of
registration of transfer, all shares of Series A Preferred Stock held of record
by the Corporation or any subsidiary of the Corporation.
IX. Status of Acquired Shares. Shares of Series A Preferred Stock
received upon conversion pursuant to Section IV or Section V or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Series A Preferred Stock.
X. Preemptive Rights. The Series A Preferred Stock is not
entitled to any preemptive or subscription rights in respect of any securities
of the Corporation.
XI. Severability of Provisions. Whenever possible, each provision
hereof shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such changes as
shall be necessary to render the provision in question effective and valid under
applicable law.
- 19 -
<PAGE>
XII. No Amendment nor Impairment. The Corporation shall not amend
its Certificate of Incorporation nor participate in any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the rights of the holders of the Series A Preferred Stock
against impairment.
XIII. Repurchase Requirement. The holders of Series A Preferred
Stock may, pursuant to the Non-Approval Put (as defined and contained in the
Purchase Agreement), elect to require the Corporation to repurchase any or all
of their respective shares of the Series A Preferred Stock under the
circumstances set forth in Section 7.27 of the Purchase Agreement.
IN WITNESS WHEREOF, Stanley C. Erck, President of the
Corporation, acting for and on behalf of the Corporation, has hereunto
subscribed his name on August 1, 1997.
PROCEPT, INC.
By /s/ Stanley C. Erck
------------------------
Name: Stanley C. Erck
Title: President
- 20 -
Exhibit 4.1
"THE WARRANTS REPRESENTED BY THIS UNIT PURCHASE WARRANT AGREEMENT AND
THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION; AND SUCH WARRANTS
AND OTHER SECURITIES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT UNDER SUCH ACT, OR (ii) AN OPINION OF COUNSEL, IF SUCH
OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE."
UNIT PURCHASE WARRANT AGREEMENT
UNIT PURCHASE WARRANT dated as of May 17, 1996 between Procept, Inc., a
Delaware corporation (the "Company"), and David Blech (the "Holder").
W I T N E S S E T H
WHEREAS, pursuant to the terms of a Consulting Agreement dated April 1, 1996
between the Holder and the Company, the Company proposes to issue to the Holder
warrants (the "Warrants") to purchase units, each comprised of one share of the
common stock, $0.01 par value, of the Company ("the Common Stock") and a warrant
to purchase one share of Common Stock in the form attached hereto as Exhibit A
(an "Underlying Warrant"); and
NOW, THEREFORE, in consideration of the premises, and the agreements
herein set forth, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Grant. The Holder is hereby granted the right to purchase (the
"Warrants"), at any time from May 17, 1997, until 5:30 p.m., New York time, on
May 16, 2001 (the "Exercise Period"), up to an aggregate of 394,914 units (the
"Units"), each Unit comprised of a share of Common Stock and an Underlying
Warrant exercisable for one share of Common Stock (the Common Stock issued or
issuable on exercise of this Warrant or the Underlying Warrants hereinafter
referred to as "Warrant Shares") at an initial exercise price (subject to
adjustment as provided in Section 6 hereof) of $3.05 per Unit of Common Stock
(the "Exercise Price") subject to the terms and conditions of this Agreement.
2. Transferability of Warrants. The Warrants may not be sold,
transferred, assigned or hypothecated until May 17, 1997, after which they may
be transferred, in whole or in part, to not more than 20 transferees; and
subject to the provisions of Section 3.3 below, the term the "Holder" as used
herein shall include any transferee to whom any of the Warrants have been
transferred in accordance with the above. To effect any such
- 1 -
<PAGE>
transfer, the Holder shall execute and deliver to the Company the Form of
Assignment in the form of Exhibit B hereto duly executed, together with this
Warrant Agreement. In all cases of transfer by an attorney, executor,
administrator, guardian or other legal representative, duly authenticated
evidence of his or its authority shall be produced. Upon any registration of
transfer, the Company shall deliver a new Warrant to the person entitled
thereto. Warrants may be exchanged, at the option of the Holder thereof, for
other Warrants of different denominations, of like tenor and representing in the
aggregate the right to purchase a like number of Units (or portions thereof),
upon surrender to the Company or its duly authorized agent. Notwithstanding the
foregoing, the Company shall have no obligation to cause Warrants to be
transferred on its books to any person if, in the reasonable opinion of counsel
to the Company, such transfer does not comply with the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
thereunder.
3. Exercise of Warrants.
3.1 Warrants may be exercised during the Exercise Period, as to the
whole or any lesser number of the Warrant Shares covered thereby, by the
surrender of this Warrant (with the election in the form of Exhibit B hereto
duly executed) to the Company at its office at 840 Memorial Drive, Cambridge,
Massachusetts, or at such other place as may be designated in writing by the
Company, together with a certified or bank cashier's check payable to the order
of the Company in an amount equal to the Exercise Price multiplied by the number
of Units for which such Warrants are being exercised.
3.2 Upon each exercise of the Holder's rights to purchase Units, the
Holder shall be deemed to be the holder of record of the Warrant Shares and
Underlying Warrants issuable upon such exercise, notwithstanding that the
transfer books of the Company shall then be closed or certificates representing
such Warrant Shares and Underlying Warrants shall not then have been actually
delivered to the Holder. As soon as practicable after each such exercise of a
Warrant, the Company shall issue and deliver to the Holder a certificate or
certificates for the Warrant Shares and Underlying Warrants issuable upon such
exercise, registered in the name of the Holder or its designee. If a Warrant
should be exercised in part only, the Company shall, upon surrender of the
Warrant evidencing such Warrant for cancellation, execute and deliver a new
Warrant Certificate evidencing the right of the Holder to purchase the balance
of the Units (or portions thereof) subject to purchase thereunder.
3.3 Any new Warrant issued upon the transfer or exercise in part of
any Warrants shall be numbered and shall be registered in a Warrant Register as
they are issued. The Company shall be entitled to treat the registered holder of
a new Warrant on the Warrant Register as the owner in fact of the Warrants
evidenced thereby for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrants on the part of any
other person, and shall not be liable for any registration or transfer of
Warrants which are registered or to be registered in the name
- 2 -
<PAGE>
of a fiduciary or the nominee of a fiduciary unless made with the actual
knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith.
4. Authorized Shares. The Company shall at all times reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of providing for the exercise of the Warrants, such number of shares of
Common Stock as shall, from time to time, be sufficient therefor. The Company
covenants that all shares of Common Stock issuable upon exercise of the
Warrants, upon receipt by the Company of the full payment therefor, shall be
validly issued, fully paid, nonassessable, and free of preemptive rights.
5. Adjustment of Exercise Price. Subject to the provisions of this
Section 5, the Exercise Price in effect from time to time shall be subject to
adjustment as follows:
5.1 In case the Company shall at any time after the date hereof (i)
declare a dividend on the outstanding Common Stock payable in shares of its
Common Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its Common Stock by reclassification in connection with a
consolidation or merger in which the Company is the continuing corporation),
then, in each case, the Exercise Price in effect, and the number of Units
issuable upon exercise of the Warrants outstanding, at the time of the record
date for such dividend or of the effective date of such subdivision, combination
or reclassification, shall be proportionately adjusted so that the holders of
the Warrants after such time shall be entitled to receive the aggregate number
and kind of Units which, if such Warrants had been exercised immediately prior
to such time, such holders would have owned upon such exercise and been entitled
to receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
5.2 All calculations under this Section 5 shall be made to the nearest
cent or to the nearest one-thousandth of a share, as the case may be.
5.3 In any case in which this Section 5 shall require that an
adjustment in the number of Units be made effective as of a record date for a
specified event (an "Event"), the Company may elect to defer, until the
occurrence of such Event, issuing to the Holder, if the Holder exercised this
Warrant after such record date, the Units, if any, issuable upon such exercise
over and above the number of Units, if any, issuable upon such exercise on the
basis of the number of Units in effect prior to such adjustment; provided,
however, that the Company shall deliver to the Holder a due bill or other
appropriate instrument evidencing the Holder's right to receive such additional
Units upon the occurrence of the Event requiring such adjustment.
- 3 -
<PAGE>
5.4 Whenever there shall be an adjustment as provided in this Section
5, the Company shall within 15 days thereafter cause written notice thereof to
be sent by registered mail, postage prepaid, to the Holder, at its address as it
shall appear in the Warrant Register, which notice shall be accompanied by an
officer's certificate setting forth the number of Units issuable hereunder and
the exercise price thereof after such adjustment and setting forth a brief
statement of the facts requiring such adjustment and the computation thereof,
which officer's certificate shall be conclusive evidence of the correctness of
any such adjustment absent manifest error.
5.5 The Company shall not be required to issue fractions of shares of
Common Stock or other capital stock of the Company or Underlying Warrants
exercisable for fractions of shares of Common Stock upon the exercise of the
Warrants. If any fraction of a share would be issuable on the exercise of the
Warrants (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the Current Market
Price (as hereinafter defined) of such share of Common Stock on the date of
exercise of the Warrants. If any Underlying Warrant exercisable for a fraction
of a share would otherwise be issuable on the exercise of the Warrants (or
specified portions thereof), the number of shares for which such Underlying
Warrant being issued shall be exercisable shall be rounded up or down to the
nearest whole share.
5.6 The Current Market Price per share of Common Stock on any date
shall be deemed to be the average of the daily closing prices for the 30
consecutive trading days immediately preceding the date in question. The closing
price for each day shall be the last reported sales price regular way or, in
case no such reported sale takes place on such day, the closing bid price
regular way, in either case on the principal national securities exchange
(including, for purposes hereof, the NASDAQ National Market System) on which the
Common Stock is listed or admitted to trading or, if the Common Stock is not
listed or admitted to trading on any national securities exchange, the highest
reported bid price of the Common Stock as furnished by the National Association
of Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ
is no longer reporting such information. If on any such date the Common Stock is
not listed or admitted to trading on any national securities exchange and is not
quoted by NASDAQ or any similar organization, the fair value of a share of
Common Stock on such date, as determined in good faith by the board of directors
of the Company, whose determination shall be conclusive absent manifest error,
shall be used.
5.7 No adjustment in the Exercise Price shall be required if such
adjustment is less that $.05; provided, however, that any adjustments which by
reason of this Section 5 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
- 4 -
<PAGE>
6. Mergers; Reorganizations.
6.1 In case of any consolidation with or merger of the Company with or
into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation and which does not result in
any reclassification of the outstanding shares of Common Stock or the conversion
of such outstanding shares of Common Stock into shares of other stock or other
securities or property), or in case of any sale, lease or conveyance to another
corporation of the property and assets of any nature of the Company as an
entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of the Warrants (in lieu of the number of Units
theretofore deliverable) the kind and amount of shares of stock or other
securities or property to which a holder of the number of Units, which would
otherwise have been deliverable upon the exercise of the Warrants upon such
Reorganization if the Warrants had been exercised in full immediately prior to
such Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, shall be made
in the application of the provisions herein set forth with respect to the rights
and interests of the Holder so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of the Warrants. Any such
adjustment shall be made by and set forth in a supplemental agreement between
the Company, or any successor thereto, and the Holder and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The Company shall
not effect any such Reorganization unless upon or prior to the consummation
thereof the successor corporation, or if the Company shall be the surviving
corporation in any such Reorganization and is not the issuer of the shares of
stock or other securities or property to be delivered to holders of shares of
the Common Stock outstanding at the effective time thereof, then such issuer,
shall assume by written instrument the obligation to deliver to the Holder such
shares of stock, securities, cash or other property as the Holder shall be
entitled to purchase in accordance with the foregoing provisions.
6.2 In case of any reclassification or change of the shares of Common
Stock issuable upon exercise of the Warrants (other than a change in par value
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder shall have the right
thereafter to receive upon exercise of the Warrants solely the kind and amount
of shares of stock and other securities, property, cash, or any combination
thereof receivable upon such reclassification, change,
- 5 -
<PAGE>
consolidation, or merger by a holder of the number of Units for which the
Warrants might have been exercised immediately prior to such reclassification,
change, consolidation, or merger. Thereafter, appropriate provision shall be
made for adjustments which shall be as nearly equivalent as practicable to the
adjustments in Section 5.
6.3 The above provisions of this Section 6 shall similarly apply to
successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases, or conveyances.
7. Notice of Certain Events. In case at any time the Company shall
propose:
(a) to pay any dividend or make any distribution on shares of
Common Stock in shares of Common Stock or make any other distribution
(other than regularly scheduled cash dividends which are not in a
greater amount per share than the most recent such cash dividend) to
all holders of Common Stock; or
(b) to issue any rights, warrants or other securities to all
holders of Common Stock entitling them to purchase any additional
shares of Common Stock or any other rights, warrants or other
securities; or
(c) to effect any reclassification or change of outstanding shares
of Common Stock or any consolidation, merger, sale, lease or conveyance
of property, described in Section 6; or
(d) to effect any liquidation, dissolution or winding-up of the
Company;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to (i) the date as of which the holders of record of shares of Common
Stock to be entitled to receive any such dividend, distribution, rights,
warrants or other securities are to be determined or (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up is expected to become effective and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up.
8. Sales and Transfer Taxes. The issuance of any shares or other
securities upon the exercise of the Warrants and the delivery of certificates or
other instruments representing such shares or other securities shall be made
without charge to the Holder for any tax or other charge (other than payment of
the Exercise Price) in respect of such issuance. The Company shall not, however,
be required to pay any tax which may be
- 6 -
<PAGE>
payable in respect of any transfer involved in the issue and delivery of any
certificate in a name other than that of the Holder and the Company shall not be
required to issue or deliver any such certificate unless and until the person or
persons requesting the issue thereof shall have paid to the Company the amount
of such tax or shall have established of the satisfaction of the Company that
such tax has been paid.
9. Registration Rights.
9.1 If, at any time during the four-year period commencing on May 17,
1997, the Company shall file a registration statement (other than on Form S-4,
Form S-8, or any successor form) to register shares of Common Stock for its own
account with the Securities and Exchange Commission (the "Commission") while any
Warrant Shares are outstanding or issuable upon outstanding Warrants or
Underlying Warrants and any such outstanding Warrant Shares or issuable Warrant
Shares are not either (i) the subject of an effective Registration Statement
filed with the Commission or (ii) eligible for sale under the provisions of the
Commission's Rule 144 without regard to volume limitations ("Registrable
Shares"), the Company shall give all the then holders of any Registrable Shares
(the "Eligible Holders") at least 45 days prior written notice of the filing of
such registration statement. If requested by any Eligible Holder in writing
within 30 days after receipt of any such notice, the Company shall, at the
Company's sole expense (other than the fees and disbursements of counsel for the
Eligible Holders and the underwriting discounts, if any, payable in respect of
the Registrable Shares sold by any Eligible Holder), register or qualify all or,
at each Eligible Holder's option, any portion of the Registrable Shares of any
Eligible Holders who shall have made such request, concurrently with the
registration of such other securities, all to the extent requisite to permit the
public offering and sale of the Registrable Shares through the facilities of all
appropriate securities exchanges and the over-the-counter market, and will use
its best efforts through its officers, directors, auditors, and counsel to cause
such registration statement to become effective as promptly as practicable.
Notwithstanding the foregoing, if the managing underwriter of any such offering
shall advise the Company in writing that, in its opinion, the distribution of
all or a portion of the Registrable Shares requested to be included in the
registration concurrently with the securities being registered by the Company
would materially adversely affect the distribution of such securities by the
Company for its own account, then the number of Registrable Shares held by such
Eligible Holder to be included in such registration statement shall be reduced
to the extent advised by such managing underwriter, but not in greater
proportion than the smallest proportionate reduction in the number of shares of
Common Stock included in the registration statement for the account of any
person other than the Company.
9.2 (a) Unless the Company receives notice from all of the Eligible
Holders that they do not intend to dispose of the Registrable Shares, the
Company shall prepare and file on or before May 17, 1997 with the Commission a
registration statement sufficient to permit the public offering and sale of the
Registrable Shares through all securities exchanges and over-the-counter markets
on which the Common Stock is then traded, and
- 7 -
<PAGE>
will use its best efforts through its officers, directors, auditors and counsel
to cause such registration statement to become effective as promptly as
practicable (provided such effectiveness need not be prior to May 17, 1997);
provided, that the Company shall be obligated to pay all expenses (other than
the fees and disbursements of counsel for the Eligible Holders and underwriting
discounts, if any, payable in respect of the Warrant Shares sold by the Eligible
Holders) in connection with any such registration statement.
(b) (i) If, the Eligible Holders give the notice described in
Section 9.2(a) then on any one occasion during the four-year period commencing
on May 17, 1997, Eligible Holders who in the aggregate own (or upon exercise of
all Warrants then outstanding would own) a majority of the total number of
Registrable Shares may request in writing that the Company register the sale of
all or part of such Registrable Shares. Upon receipt of such request, the
Company shall, as promptly as practicable, prepare and file with the Commission
a registration statement sufficient to permit the public offering and sale of
the Registrable Shares through all securities exchanges and the over-the-counter
markets on which the Company's Common Stock is then traded, and will use its
best efforts through its officers, directors, auditors and counsel to cause such
registration statement to become effective as promptly as practicable; provided,
that the Company shall be obligated to pay all expenses (other than the fees and
disbursements of counsel for the Eligible Holders and underwriting discounts, if
any, payable in respect of the Warrant Shares sold by the Eligible Holders) in
connection with such registration statement. Within three business days after
receiving any request contemplated by this Section 9.2(b), the Company shall
give written notice to all other Eligible Holders, advising each of them that
the Company is proceeding with such registration and offering to include therein
all or any portion of any such other Eligible Holder's Registrable Shares,
provided that the Company receives a written request to do so from such Eligible
Holder within 30 days after receipt by him or it of the Company's notice.
(c) If, in connection with any underwritten registration initiated
pursuant to this Section 9.2 in which the Company or other stockholders of the
Company seek to include shares, the underwriter of such registration advises the
Eligible Holders that marketing factors require a limitation of the number of
shares to be underwritten, no Registrable Shares requested by an Eligible Holder
to be included in such registration shall be excluded from the underwriting
unless all securities other than Registrable Shares are first excluded.
9.3 In the event of a registration pursuant to the provisions of this
Section 9, the Company shall use its best efforts to cause the Registrable
Shares so registered to be registered or qualified for sale under the securities
or blue sky laws of such jurisdictions as the Eligible Holders may reasonably
request; provided, however, that the Company shall not be required to qualify to
do business in any state by reason of this Section 9.3 in which it is not
otherwise required to qualify to do business.
9.4 The Company shall use its best efforts to keep effective any
registration or
- 8 -
<PAGE>
qualification contemplated by this Section 9 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document and communication for such period of
time as shall be required to permit the Eligible Holders to complete the offer
and sale of the Registrable Shares covered thereby. Except in the case of a
registration pursuant to Section 9.2(b)(i), the Company shall in no event be
required to keep any such registration or qualification in effect for a period
in excess of nine months from the date on which the Eligible Holders first agree
to sell such Registrable Shares; provided, however, that, if the Company is
required to keep any such registration or qualification in effect as its relates
to securities other than the Registrable Shares beyond such period, the Company
shall keep any such qualification or registration in effect as it relates to the
Registrable Shares for so long as such registration or qualification remains or
is required to remain in effect in respect of such other securities. In the case
of a registration pursuant to Section 9.2(b)(i), the Company shall use its best
efforts to keep effective such registration or qualification in effect until all
Registrable Shares have been sold thereunder or May 17, 2001, whichever is
earlier.
9.5 In the event of a registration pursuant to the provisions of this
Section 10, the Company shall furnish to each Eligible Holder such number of
copies of the registration statement and of each amendment and supplement
thereto (in each case, including all exhibits), such reasonable number of copies
of each prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of which shall
conform to the requirements of the Act and the rules and regulations thereunder,
and such other documents, as any Eligible Holder may reasonably request to
facilitate the disposition of the Registrable Shares included in such
registration.
9.6 In the event of an underwritten registration pursuant to the
provision of this Section 9, the Company shall enter into a reasonable and
customary underwriting agreement with such underwriter, containing conventional
representations, warranties, allocation of expenses and customary closing
conditions, including, without limitation, opinions of counsel and accountants'
cold comfort letter.
9.7 The Company agrees that until all the Registrable Shares have been
sold under a registration statement or pursuant to Rule 144 under the Act, it
shall keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit holders of the Registrable
Shares to sell such securities under Rule 144.
10. Indemnity.
10.1 Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless each Eligible Holder, its officers, directors,
partners, employees, agents and counsel, and each person, if any, who controls
any such person within the meaning
- 9 -
<PAGE>
of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), from and against any and all loss,
liability, charge, claim, damage and expense whatsoever (which shall include,
for all purposes of this Section 10, without limitation, attorneys' fees and any
and all expense whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with any untrue statement
or alleged untrue statement of a material fact contained (A) in any registration
statement, preliminary prospectus or final prospectus (as from time to time
amended and supplemented), or any amendment or supplement thereto, relating to
the sale of any of the Warrant Shares, or (B) in any application or other
document or communication (in this Section 10 collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to register or qualify any of the Registrable Shares under the
securities or blue sky laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, unless such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company with respect to
such Eligible Holder by or on behalf of such person expressly for inclusion in
any registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. The
foregoing agreement to indemnify shall be in addition to any liability the
Company may otherwise have, including liabilities arising under this Warrant
Agreement.
If any action is brought against any Eligible Holder or any of its
officers, directors, partners, employees, agents or counsel, or any controlling
persons of such person (an "indemnified party") in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in writing of the
institution of such action (but the failure so to notify shall not relieve the
Company from any liability other than pursuant to this Section 10.1) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party or
parties) and payment of expenses. Such indemnified party or parties shall have
the right to employ its or their own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of such indemnified party or
parties unless the employment of such counsel shall have been authorized in
writing by the Company in connection with the defense of such action or the
Company shall not have promptly employed counsel reasonably satisfactory to such
indemnified party or parties to have charge of the defense of such action or
such indemnified party or parties shall have reasonably concluded that there may
be one or more legal defenses available to it or them or to other indemnified
parties which are different from or additional to those available to the
Company, in any of which events such fees and expenses shall be borne by the
Company, and the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties.
- 10 -
<PAGE>
Anything in this Section 10 to the contrary notwithstanding, the Company shall
not be liable for any settlement of any such claim or action effected without
its written consent, which shall not be unreasonably withheld. The Company shall
not, without the prior written consent of each indemnified party that is not
released as described in this sentence, settle or compromise any action, or
permit a default or consent to the entry of judgment in or otherwise seek to
terminate any pending or threatened action, in respect of which indemnity may be
sought hereunder (whether or not any indemnified party is a party thereto),
unless such settlement, compromise, consent or termination includes an
unconditional release of each indemnified party from all liability in respect of
such action. The Company agrees promptly to notify the Eligible Holders of the
commencement of any litigation or proceedings against the Company or any of its
officers or directors in connection with the sale of any Registrable Shares or
any preliminary prospectus, prospectus, registration statement or amendment or
supplement thereto, or any application relating to any sale of any Registrable
Shares.
10.2 Each Eligible Holder participating in any such registration shall
indemnify and hold harmless the Company, each director of the Company, each
officer of the Company who shall have signed the registration statement covering
Warrant Shares held by the Eligible Holder, each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, and its or their respective counsel, to the same
extent as the foregoing indemnity from the Company to the Eligible Holders in
Section 10.1, but only with respect to statements or omissions, if any, made in
any registration statement, preliminary prospectus or final prospectus (as from
time to time amended and supplemented), or any amendment or supplement thereto,
or in any application, in reliance upon and in conformity with written
information furnished to the Company with respect to such Eligible Holder by or
on behalf of such Eligible Holder expressly for inclusion in any such
registration statement, preliminary prospectus or final prospectus, or any
amendment or supplement thereto, or in any application, as the case may be. If
any action shall be brought against the Company or any other person so
indemnified based on any such registration statement, preliminary prospectus or
final prospectus, or any amendment or supplement thereto, or in any application,
and in respect of which indemnity may be sought against such Eligible Holder
pursuant to this Section 10.2, such Eligible Holder shall have the rights and
duties given to the Company and the Company and each other person so indemnified
shall have the rights and duties given to the indemnified parties, by the
provisions of Section 10.1.
10.3 To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Section 10.1 or
10.2 (subject to the limitations thereof) but it is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration
- 11 -
<PAGE>
statement, any controlling person of the Company, and its or their respective
counsel), as one entity, and the Eligible Holders of the Warrant Shares included
in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an indemnified party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be subject, on the basis of relevant equitable
considerations such as the relative fault of the Company and such Eligible
Holders in connection with the facts which resulted in such losses, liabilities,
claims, damages and expenses. The relative fault, in the case of an untrue
statement, alleged untrue statement, omission or alleged omission, shall be
determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by the Company or
by such Eligible Holders, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission. The Company and the Holder agree that
it would be unjust and inequitable if the respective obligations of the Company
and the Eligible Holders for the contribution were determined by pro rata or per
capita allocation of the aggregate losses, liabilities, claims, damages and
expenses (even if the Eligible Holder and the other indemnified parties were
treated as one entity for such purpose) or by any other method of allocation
that does not reflect the equitable considerations, referred to in this Section
10.3. In no case shall any Eligible Holder be responsible for a portion of the
contribution obligation imposed on all Eligible Holders in excess of its pro
rata share based on the number of Registrable Shares of by it and included in
such registration as compared to the number of Registrable Shares owned by all
Eligible Holders and included in such registration. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this Section 10.3, each person, if
any, who controls any Eligible Holder within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act and each officer, director, partner,
employee, agent and counsel of each such Eligible Holder or control person shall
have the same rights to contribution as such Eligible Holder or control person
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, each officer of the Company
who shall have signed any such registration statement, each director of the
Company and its or their respective counsel shall have the same right to
contribution as the Company, subject in each case to the provisions of this
Section 10.3. Anything in this Section 10.3 to the contrary notwithstanding, no
party shall be liable for contribution with respect to the settlement of any
claim or action effected without its written consent. This Section 10.3 is
intended to supersede any right to contribution under the Act, the Exchange Act
or otherwise.
11. Miscellaneous.
11.1 Unless registered pursuant to the provisions of Section 10 hereof,
the Warrant Shares shall be subject to a stop transfer order and the certificate
or certificates evidencing such Warrant Shares shall bear the following legend:
- 12 -
<PAGE>
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION; HOWEVER, SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) A REGISTRATION STATEMENT UNDER SUCH ACT, OR (ii) AN
OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT IS AVAILABLE."
11.2 Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Warrant (and upon surrender of any
Warrant if mutilated), and upon reimbursement of the Company's reasonable
incidental expenses, the Company shall execute and deliver to the Holder thereof
a new Warrant of like date, tenor and denomination.
11.3 The Holder of any Warrant shall not have, solely on account of
such status, any rights of a stockholder of the Company, either at law or in
equity, or to any notice of meetings of stockholders or of any other proceedings
of the Company, except as provided in this Agreement.
11.4 This Agreement shall be construed in accordance with the laws of
the State of New York applicable to contracts made and performed within such
State, without regard to principles of conflicts of law.
- 13 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
PROCEPT, INC.
By: /s/ Michael J. Higgins
------------------------------
Title: Vice President, Finance
Attest:
/s/ Lynnette C. Fallon
- ----------------------
Assistant Secretary
/s/ David Blech
------------------------------
David Blech
- 14 -
<PAGE>
Exhibit A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO A REGISTRATION
STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE ARE FURTHER RESTRICTED AS DESCRIBED HEREIN.
PROCEPT, INC.
Common Stock Purchase Warrants
394,914 Shares
EXERCISABLE UNTIL 5:00 P.M., BOSTON TIME, MAY 17, 2001
This Warrant Certificate certifies that David Blech or his registered
assigns, is the registered holder of Warrants to purchase initially up to
394,914 fully-paid and non-assessable shares (the "Warrant Shares") of common
stock, $0.01 par value ("Common Stock") of Procept, Inc., a Delaware corporation
(the "Company"), at any time from November 17, 1996 until 5:00 p.m. Boston time
on May 17, 2001 (the "Expiration Date"), unless sooner redeemed pursuant to
Section 8 hereof, at the initial exercise price (the "Exercise Price") of $2.50
per share of Common Stock, subject to the conditions set forth herein. The
number of Warrant Shares issuable hereunder and the Exercise Price are each
subject to adjustment as provided herein. No Warrant may be exercised after 5:00
p.m., Boston time, on the Expiration Date, after which time all Warrants
evidenced hereby, unless exercised prior thereto, shall be void.
1. Certain Definitions. As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
1.1 The term "Company" shall include Procept, Inc. and any corporation that
shall succeed or assume the obligations of Procept, Inc. hereunder.
1.2 The terms "Warrant" or "Warrants" mean these Warrants and any other
warrant or warrants issued in exchange or substitution for, or upon partial
exercise of, these Warrants.
1.3 The term "Holder" means the registered holder(s) of this Warrant
Certificate.
2. Exercise of Warrants.
2.1 Warrants may be exercised by the Holder hereof, at any time until 5:00
p.m. Boston time on the Expiration Date or 5:00 p.m. Boston Time on the last
business day before the Redemption Date (as defined in Section 8), as the case
may be, as to the whole or any lesser number of the Warrant Shares covered
hereby, by the surrender of this Warrant Certificate (with the election at the
end hereof duly executed) to the Company at its main office at 840 Memorial
Drive, Cambridge, Massachusetts ("Main Office"), or at such other place as may
be designated in writing by the Company, together with a certified or bank check
payable to the order of the Company in an amount equal to the Exercise Price
multiplied by the number of Warrant Shares for which such Warrants are being
exercised.
2.2 Upon each exercise of the Holder's rights to purchase Warrant Shares,
the Holder shall be deemed to be the holder of record of the Warrant Shares
issuable upon such exercise, notwithstanding that the transfer books of the
Company shall then be closed or certificates representing such Warrant Shares
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of a Warrant, the Company shall issue and
deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the
<PAGE>
name of the Holder or its designee. If a Warrant should be exercised in part
only, the Company shall, upon surrender of the Warrant Certificate evidencing
such Warrant for cancellation, execute and deliver a new Warrant Certificate
evidencing the right of the Holder to purchase the balance of the Warrant Shares
(or portions thereof) subject to purchase hereunder.
2.3 The issuance of any shares or other securities upon the exercise of
Warrants and the delivery of certificates or other instruments representing such
shares or other securities shall be made without charge to the Holder for any
tax or other charge (other than payment of the Exercise Price) in respect of
such issuance. The Company shall not, however, be required to pay any tax that
may be payable in respect of any transfer involved in the issue and delivery of
any certificate in a name other than that of the Holder, and the Company shall
not be required to issue or deliver any such certificate unless and until the
person or persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established of the satisfaction of the
Company that such tax has been paid.
3. Adjustment of Exercise Price. Subject to the provisions of this Section 3,
the Exercise Price in effect from time to time shall be subject to adjustment as
follows:
3.1 If the Company shall at any time after the date hereof (i) declare a
dividend on the outstanding Common Stock payable in shares of its Common Stock,
(ii) subdivide the outstanding Common Stock, (iii) combine the outstanding
Common Stock into a smaller number of shares, or (iv) issue any shares of its
Common Stock by reclassification in connection with a consolidation or merger in
which the Company is the continuing corporation, then, in each such case, the
Exercise Price in effect and the number of Warrant Shares issuable upon exercise
hereof at the time of the record date for such dividend or of the effective date
of such subdivision, combination or reclassification, shall be proportionately
adjusted so that the Holder hereof after such time shall be entitled to receive
upon exercise hereof the aggregate number and kind of shares that such Holder
would have owned upon exercise of this Warrant immediately before such time and
been entitled to receive by virtue of such dividend, subdivision, combination or
reclassification.
3.2 If the Company shall distribute to all holders of Common Stock
(including any such distribution made to the shareholders of the Company in
connection with a consolidation or merger in which the Company is the continuing
corporation) (i) evidences of its indebtedness, cash or assets (other than
ordinary cash dividends paid out of the net profits of the Company for its most
recent fiscal year), (ii) rights, options or warrants to subscribe for or
purchase Common Stock, or (iii) any equity securities of the Company (other than
Common Stock), including any securities convertible into or exchangeable for
shares of Common Stock, then, in each case, the Exercise Price shall be adjusted
by multiplying the Exercise Price in effect immediately before the record date
for the determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which shall be the Current Market Price (as
determined pursuant to Section 3.6 hereof) per share of Common Stock on such
record date, less the fair market value (as determined in good faith by the
board of directors of the Company, whose determination shall be conclusive
absent manifest error) of the portion of the evidences of indebtedness or assets
so to be distributed, or of such securities, rights, options, or warrants, or
the amount of such cash, applicable to one share, and the denominator of which
shall be such Current Market Price per share of Common Stock. Such adjustment
shall become effective at the close of business on such record date.
3.3 In any case in which this Section 3 shall require that an adjustment in
the number of Warrant Shares be made effective as of a record date for a
specified event (an "Event"), the Company may elect to defer, until the
occurrence of such Event, issuing to the Holder, if the Holder exercised this
Warrant after such record date, the shares of Common Stock, if any, issuable
upon such exercise over and above the number of Warrant Shares, if any, issuable
upon such exercise on the basis of the number of Warrant Shares in effect prior
to such adjustment; provided, however, that the Company shall deliver to the
Holder a due bill or other appropriate instrument evidencing the Holder's right
to receive such additional shares upon the occurrence of the Event requiring
such adjustment.
3.4 Whenever there shall be an adjustment as provided in this Section 3, the
Company shall within 15 days thereafter cause written notice thereof to be sent
by registered or certified mail, postage prepaid, to the Holder, at its address
as it shall appear in the Warrant Register, which notice shall be accompanied by
an officer's certificate setting forth the number of Warrant Shares issuable
hereunder and the Exercise
-2-
<PAGE>
Price thereof after such adjustment and setting forth a brief statement of the
facts requiring such adjustment and the computation thereof, which officer's
certificate shall be conclusive evidence of the correctness of any such
adjustment absent manifest error.
3.5 All calculations under this Section 3 shall be made to the nearest cent
or to the nearest one-thousandth of a share, as the case may be. No adjustment
in the Exercise Price shall be required if such adjustment is less than $.05;
provided, however, that any adjustments that by reason of this Section 3.5 are
not required to be made shall be carried forward and taken into account in any
subsequent adjustment. The Company shall not be required to issue fractions of
shares of Common Stock or other capital stock of the Company upon the exercise
of Warrants. If any fraction of a share would be issuable on the exercise of
Warrants, the Company shall purchase such fraction for an amount in cash equal
to the same fraction of the Current Market Price (as hereinafter defined) of
such share of Common Stock on the date of exercise of the Warrants.
3.6 The Current Market Price per share of Common Stock as of any date shall
be the average of the daily closing prices for the 20 consecutive trading days
immediately preceding the date in question. The closing price for each day shall
be the last reported sales price regular way or, in case no such reported sale
takes place on such day, the closing bid price regular way, in either case on
the principal national securities exchange (including, for purposes hereof, the
Nasdaq National Market) on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or admitted to trading on any
national securities exchange, the highest reported bid price of the Common Stock
as furnished by the National Association of Securities Dealers, Inc. through
Nasdaq, or a similar organization if Nasdaq is no longer reporting such
information. If on any such date the Common Stock is not listed or admitted to
trading on any national securities exchange and is not quoted by Nasdaq or any
similar organization, the fair value of a share of Common Stock on such date, as
determined in good faith by the board of directors of the Company, whose
determination shall be conclusive absent manifest error, shall be used.
4. Mergers; Reorganizations.
4.1 In each case of a consolidation with or merger of the Company with or
into another corporation (other than a merger or consolidation in which the
Company is the surviving or continuing corporation and that does not result in
any reclassification of the outstanding shares of Common Stock or the conversion
of such outstanding shares of Common Stock into shares of other stock or other
securities or property), or in case of any sale, lease or conveyance to another
corporation of the property and assets of any nature of the Company as an
entirety or substantially as an entirety (such actions being hereinafter
collectively referred to as "Reorganizations"), there shall thereafter be
deliverable upon exercise of the Warrants (in lieu of the number of Warrant
Shares theretofore deliverable) the kind and amount of shares of stock or other
securities or property to which a holder of the number of Warrant Shares that
would otherwise have been deliverable upon the exercise hereof upon such
Reorganization if the Warrants had been exercised in full immediately before
such Reorganization. In case of any Reorganization, appropriate adjustment, as
determined in good faith by the Board of Directors of the Company, shall be made
in the application of the provisions herein set forth with respect to the rights
and interests of the Holder so that the provisions set forth herein shall
thereafter be applicable, as nearly as possible, in relation to any shares or
other property thereafter deliverable upon exercise of the Warrants. Any such
adjustment shall be made by and set forth in a supplemental agreement between
the Company, or any successor thereto, and the Holder and shall for all purposes
hereof conclusively be deemed to be an appropriate adjustment. The Company shall
not effect any such Reorganization unless upon or before the consummation
thereof the successor corporation or, if the Company shall be the surviving
corporation in any such Reorganization and is not the issuer of the shares of
stock or other securities or property to be delivered to holders of shares of
the Common Stock outstanding at the effective time thereof, then such issuer,
shall assume by written instrument the obligation to deliver to the Holder such
shares of stock, securities, cash or other property as the Holder shall be
entitled to purchase in accordance with the foregoing provisions.
4.2 In each case of a reclassification or change of the shares of Common
Stock issuable upon exercise of the Warrants (other than a change in par value
or from no par value to a specified par value, or as a result of a subdivision
or combination, but including any change in the shares into two or more classes
or series of shares), an in each case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
-3-
<PAGE>
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from no par value to a specified par value, or as
a result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), the Holder shall have the right
thereafter to receive upon exercise of the Warrants solely the kind and amount
of shares of stock and other securities, property, cash, or any combination
thereof receivable upon such reclassification, change, consolidation, or merger
by a holder of the number of shares of Common Stock for which the Warrants might
have been exercised immediately before such reclassification, change,
consolidation, or merger. Thereafter, appropriate provision shall be made for
adjustments that shall be as nearly equivalent as practicable to the adjustments
required by Section 3.
5. Notice of Certain Events. In case at any time the Company shall propose:
(a) to pay any dividend or make any distribution on shares of Common Stock
in shares of Common Stock or make any other distribution (other than regularly
scheduled cash dividends that are not in a greater amount per share than the
most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants or other securities to all holders of
Common Stock entitling them to purchase any additional shares of Common Stock or
any other rights, warrants or other securities; or
(c) to effect any reclassification or change of outstanding shares of Common
Stock or any consolidation, merger, sale, lease or conveyance of property
described in Section 4; or
(d) to effect any liquidation, dissolution or winding-up of the Company;
then, and in any one or more of such cases, the Company shall give written
notice thereof by registered or certified mail, postage prepaid, to the Holder
at the Holder's address as it shall appear in the Warrant Register, mailed at
least 15 days before (i) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such dividend, distribution, rights,
warrants or other securities are to be determined or (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up is expected to become effective and the date as of
which it is expected that holders of record of shares of Common Stock shall be
entitled to exchange their shares for securities or other property, if any,
deliverable upon such reclassification, change of outstanding shares,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution or winding-up.
6. Warrant Register; Transfers of Warrants.
6.1 This Warrant Certificate and any new Warrant Certificate issued upon the
transfer or exercise in part of any Warrants shall be numbered and shall be
registered in a Warrant Register as it is issued. The Company shall be entitled
to treat the holder of this Warrant Certificate registered on the Warrant
Register as the owner in fact of the Warrants evidenced hereby for all purposes,
shall not be bound to recognize any equitable or other claim to or interest in
such Warrants on the part of any other person, and shall not be liable for any
registration or transfer of a Warrant Certificate that is registered or to be
registered in the name of a fiduciary or the nominee of a fiduciary unless made
with the actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration or transfer, or with the knowledge of such
facts that its participation therein amounts to bad faith. Warrants shall be
transferable only in the Warrant Register upon delivery of the Warrant
Certificate evidencing such Warrants duly endorsed by the Holder or by his or
its duly authorized attorney or representative, or accompanied by proper
evidence of succession, assignment, or authority to transfer. In all cases of
transfer by an attorney, executor, administrator, guardian or other legal
representative, duly authenticated evidence of his or its authority shall be
produced.
6.2 Upon any registration of transfer, the Company shall deliver to the
person entitled thereto a new Warrant Certificate of like tenor and evidencing
in the aggregate a like number of Warrants in exchange for this Warrant
Certificate, subject to the limitations provided herein. This Warrant
Certificate may be exchanged, at the option of the Holder hereof, for another
Warrant Certificate, or other Warrant Certificates of different denominations,
of like tenor and representing in the aggregate the right to purchase a like
number of
-4-
<PAGE>
Warrant Shares (or portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person if, in
the reasonable opinion of counsel to the Company, such transfer does not comply
with the provisions of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations thereunder, or with any other restrictions set forth
herein.
6.3 The Warrants and Warrant Shares shall be subject to a stop transfer
order and the certificate or certificates evidencing the Warrant Shares shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND SUCH SHARES MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE."
7. Authorized Shares. The Company shall at all times reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of the Warrants, such number of shares of Common
Stock as shall, from time to time, be sufficient therefor. The Company covenants
that all shares of Common Stock issuable upon exercise of the Warrants shall,
upon receipt by the Company of the full payment therefor, be validly issued,
fully paid, nonassessable, and free of preemptive rights.
8. Redemption of Warrants. The Company may, at its option, upon not less than 30
days' nor more than 60 days' prior notice, call for redemption of all (but not
less than all) of the outstanding Warrants at a redemption price of $0.01 per
Warrant (the "Redemption Price"), effective on any date (the "Redemption Date")
on or after May 17, 1998, provided that the Current Market Price (as defined in
Section 3.6) as of any date before the Redemption Date has exceeded 150% of the
Exercise Price. The Warrants may be exercised until 5:00 p.m. Boston time on the
business day immediately preceding the Redemption Date. If any Warrant called
for redemption is not exercised before that time, such Warrant shall thereupon
cease to be exercisable. The Company will pay the Redemption Price to or as
directed by the Holder upon presentation and surrender of this Warrant
Certificate at its Main Office, or at such other place as may be designated in
writing by the Company.
9. Miscellaneous.
9.1 Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Warrant Certificate (and upon surrender of any
Warrant Certificate if mutilated), upon issuance of an indemnity bond if
required by the Company, and upon reimbursement of the Company's incidental
expenses, the Company shall execute and deliver to the Holder hereof a new
Warrant Certificate of like date, tenor and denomination.
9.2 The Holder hereof shall not have, solely on account of such status, any
rights of a stockholder of the Company, either at law or in equity, or to any
notice of meetings of stockholders or of any other proceedings of the Company,
except as provided herein.
9.3 This Warrant Certificate and the Warrants shall be construed in
accordance with the laws of the State of Delaware applicable to contracts made
and performed within such State, without regard to principles of conflicts of
law.
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed as an instrument under seal as of ___________ ___, 1996.
PROCEPT, INC.
By: ________________________________
Title:
Attest:
____________________________________
Secretary
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO PROCEPT, INC.:
The undersigned, the holder of the within Warrant, hereby irrevocably elects
to exercise this Warrant for, and to purchase thereunder, _______________ shares
of Common Stock of Procept, Inc. and herewith makes payment of $____________
therefor, and requests that the certificates for such shares be issued in the
name of, and delivered to
_____________________________________________________________________, whose
address is ______________________________________________________________.
Dated: __________
..............................................................
(Signature must conform to the name of holder as specified on
the face of the Warrant)
..............................................................
(Address)
--------------------
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers
unto __________________________________________ the right represented by the
within Warrant to purchase ______________________ shares of Common Stock of
Procept, Inc. to which the within Warrant relates, and appoints
___________________________________ attorney to transfer such right on the books
of Procept, Inc. with full power of substitution in the premises.
Dated: ___________
..............................................................
(Signature must conform to name of the holder as specified on
the face of the Warrant)
..............................................................
(Address)
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Warrant Agreement.)
FOR VALUE RECEIVED, ______________ hereby sells, assigns, and transfers
unto __________________ Warrant(s) to purchase __ Units (as defined therein), of
Procept, Inc. (the "Company") as evidenced by the attached Warrant Agreement,
together with all right, title, and interest therein, and does hereby
irrevocably constitute and appoint attorney to transfer such Warrants on the
books of the Company, with full power of substitution.
Dated:___________________
_______________________________
Signature
NOTICE
The signature on the foregoing Assignment must correspond to the name
as written upon the face of the attached Warrant Agreement in every particular,
without alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT C
ELECTION TO EXERCISE
To: Procept, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
The undersigned hereby exercises his or its rights to purchase __ Units
evidenced by the attached Warrant Agreement and tenders payment herewith in the
amount of $_______ in accordance with the terms thereof, and requests that
certificates for such securities be issued in the name of, and delivered to:
(Print Name, Address and Social Security
or Tax Identification Number)
and, if such number of Units shall not be all the Units covered by the attached
Warrant Agreement, that a new Warrant Agreement for the balance of the Units
covered by the attached Warrant Agreement be registered in the name of, and
delivered to, the undersigned at the address stated below.
Dated: Name:____________________________
(Print)
Address:_____________________________
_____________________________ ____________________________
(Signature)
_____________________________
Exhibit 4.2
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN EXEMPTION THEREFROM. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE
STATE SECURITIES LAWS.
PROCEPT, INC.
Class B Warrant for the Purchase of Shares of
---------------------------------------------
Common Stock
------------
No. CB-2 4,941,386 Shares
FOR VALUE RECEIVED, PROCEPT, INC., a Delaware corporation (the
"Company"), hereby certifies that the Aries Fund, a Cayman Islands Trust or its
registered assigns (the "Holder") is entitled to purchase from the Company,
subject to the provisions of this Warrant (the "Warrant"), at any time
commencing upon the date hereof (the "Initial Exercise Date"), and prior to 5:00
P.M., New York City time, on the date which is five (5) years from the date
hereof (the "Termination Date"), June 30, 2002 fully paid and non-assessable
shares of the Common Stock, $0.01 par value, of the Company ("Common Stock"), at
an exercise price of $0.5859 per share of Common Stock for an aggregate exercise
price of Two Million Eight Hundred Ninety-Five Thousand One Hundred Fifty-Eight
Dollars and Six Cents ($2,895,158.06) (the aggregate purchase price payable for
the Warrant Shares hereunder is hereinafter sometimes referred to as the
"Aggregate Exercise Price"). The number of shares of Common Stock to be received
upon exercise of this Warrant and the price to be paid for each share of Common
Stock are subject to possible adjustment from time to time as hereinafter set
forth. The shares of Common Stock or other securities or property deliverable
upon such exercise as adjusted from time to time is hereinafter sometimes
referred to as the "Warrant Shares." The exercise price of a share of Common
Stock in effect at any time and as adjusted from time to time is hereinafter
sometimes referred to as the "Per Share Exercise Price." The Per Share Exercise
Price is subject to adjustment as hereinafter provided; in the event of any such
adjustment, the number of Warrant Shares shall be adjusted by dividing the
Aggregate Exercise Price by the Per Share Exercise Price in effect immediately
after such adjustment. The Aggregate Exercise Price is not subject to
adjustment.
<PAGE>
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part, at any
time by the Holder commencing on the Initial Exercise Date and prior to the
Termination Date, by presentation and surrender of this Warrant, together with
the duly executed subscription form attached at the end hereof, at the address
set forth in subsection 8(a) hereof, together with payment, by certified or
official bank check or wire transfer payable to the order of the Company, of the
Aggregate Exercise Price or the proportionate part thereof if exercised in part.
(b) If this Warrant is exercised in part only, the Company
shall, upon presentation of this Warrant upon such exercise, execute and deliver
(along with the certificate for the Warrant Shares purchased) a new Warrant
evidencing the rights of the Holder hereof to purchase the balance of the
Warrant Shares purchasable hereunder upon the same terms and conditions as
herein set forth. Upon proper exercise of this Warrant, the Company promptly
shall deliver certificates for the Warrant Shares to the Holder duly legended as
authorized by the subscription form. No fractional shares or scrip representing
fractional shares shall be issued upon exercise of this Warrant; provided that
the Company shall pay to the holders of the Warrant cash in lieu of such
fractional shares.
2. Reservation of Warrant Shares; Fully Paid Shares; Taxes.
The Company hereby represents that it has, and until expiration of this Warrant
agrees that it shall, reserve for issuance or delivery upon exercise of this
Warrant, such number of shares of the Common Stock as shall be required for
issuance and/or delivery upon exercise of this Warrant in full, and agrees that
all Warrant Shares so issued and/or delivered will be validly issued, fully paid
and non-assessable, and further agrees to pay all taxes and charges that may be
imposed upon such issuance and/or delivery.
3. Protection Against Dilution.
(a) In the event the Company shall, at any time or from time
to time after the date of issuance of this Warrant, issue or distribute to all
of the holders of its shares of Common Stock evidence of its indebtedness, any
other securities of the Company or any cash, property or other assets (any such
event being herein called a "Special Dividend"), the Per Share Exercise Price
shall be adjusted by multiplying the Per Share Exercise Price then in effect by
a fraction, the numerator of which shall be the then Current Market Price (as
defined in paragraph 3(k) below) of the Common Stock, less the Current Market
Price of the Special Dividend issued or distributed in respect of one share of
Common Stock, and the denominator of which shall be the Current Market Price of
the Common Stock. Such adjustment shall be made successively whenever such a
record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such distribution
unless such distribution is not ultimately made.
(b) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common
2
<PAGE>
Stock into a greater number of shares, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares or (iv) issue by reclassification
of its Common Stock any shares of capital stock of the Company, the Per Share
Exercise Price shall be adjusted to be equal to a fraction, the numerator of
which shall be the Aggregate Exercise Price and the denominator of which shall
be the number of shares of Common Stock or other capital stock of the Company
issuable upon exercise of this Warrant assuming this Warrant had been exercised
immediately prior to such action. An adjustment made pursuant to this subsection
3(b) shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
(c)(i) Except as provided in subsections 3(a) and 3(b)(i), in
the event the Company shall hereafter issue or sell any Common Stock, any
securities convertible into Common Stock or any rights, options or warrants to
purchase Common Stock or securities convertible into Common Stock, in each case
for a price per share or entitling the holders thereof to purchase Common Stock
at a price per share (determined by dividing (i) the total amount, if any,
received or receivable by the Company in consideration of the issuance or sale
of such securities plus the consideration, if any, payable to the Company upon
exercise or conversion thereof (collectively, the "Total Consideration") by (ii)
the number of additional shares of Common Stock issued, sold or issuable upon
exercise or conversion of such securities) which is less than the then Current
Market Price of the Common Stock (as defined below) but not below the current
Per Share Exercise Price (which event is governed by subsection 3(c)(ii)), the
Per Share Exercise Price shall be adjusted as of the date of such issuance or
sale by multiplying the Per Share Exercise Price then in effect by a fraction,
the numerator of which shall be (x) the sum of (A) the number of shares of
Common Stock outstanding on the record date of such issuance or sale plus (B)
the Total Consideration divided by the Current Market Price of the Common Stock,
and the denominator of which shall be (y) the number of shares of Common Stock
outstanding on the record date of such issuance or sale plus the maximum number
of additional shares of Common Stock issued, sold or issuable upon exercise or
conversion of such securities.
(ii) Except as provided in subsection 3(a) and 3(b)(i), in the
event the Company shall hereafter issue or sell any Common Stock, any securities
convertible into Common Stock or any rights, options or warrants to purchase
Common Stock or securities convertible into Common Stock, in each case for a
price per share or entitling the holders thereof to purchase Common Stock at a
price per share (the "Issue Price"), (determined by dividing (i) the Total
Consideration by (ii) the number of additional shares of Common Stock issuable
upon exercise or conversion of such securities) which is less than the then
current Per Share Exercise Price in effect on the record date of such issuance,
the Per Share Exercise Price shall be adjusted to equal the Issue Price.
(d) In the event of any capital reorganization or
reclassification, or any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another entity of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), the Holder of this Warrant shall have the right
thereafter to receive on the exercise of this Warrant the kind and amount of
3
<PAGE>
securities, cash or other property which the Holder would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had this Warrant been exercised immediately prior to the effective date of such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance and in any such case, if necessary, appropriate adjustment
shall be made in the application of the provisions set forth in this Section 3
with respect to the rights and interests thereafter of the Holder of this
Warrant to the end that the provisions set forth in this Section 3 shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock or other securities or property thereafter
deliverable on the exercise of this Warrant. The above provisions of this
subsection 3(e) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, statutory exchanges, sales or
conveyances. The issuer of any shares of stock or other securities or property
thereafter deliverable on the exercise of this Warrant shall be responsible for
all of the agreements and obligations of the Company hereunder. Notice of any
such reorganization, reclassification, consolidation, merger, statutory
exchange, sale or conveyance and of said provisions so proposed to be made,
shall be mailed to the Holders of the Warrants not less than 30 days prior to
such event. A sale of all or substantially all of the assets of the Company for
a consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(e) In case any event shall occur as to which the other
provisions of this Section 3 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Warrants representing
the right to purchase a majority of the Warrant Shares subject to all
outstanding Warrants may appoint a firm of independent public accountants of
recognized national standing reasonably acceptable to the Company, which shall
give their opinion as to the adjustment, if any, on a basis consistent with the
essential intent and principles established herein, necessary to preserve the
purchase rights represented by the Warrants. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this Warrant and
shall make the adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
(f) Whenever the Per Share Exercise Price payable upon
exercise of each Warrant is adjusted pursuant to this Section 3, the number of
shares of Common Stock underlying a Warrant shall simultaneously be adjusted to
equal the number obtained by dividing the Aggregate Exercise Price by the
adjusted Per Share Exercise Price.
(g) No adjustment in the Per Share Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.01 per share of Common Stock; provided, however, that any adjustments
which by reason of this subsection 3(g) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 3 shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be. Anything in this Section 3 to
the contrary notwithstanding, the Company shall be entitled to make such
reductions in the Per Share Exercise Price, in addition to those required by
this Section 3, as it in its discretion shall deem to be advisable in order that
any stock dividend, subdivision of shares or distribution of rights to purchase
stock or securities
4
<PAGE>
convertible or exchangeable for stock hereafter made by the Company to its
stockholders shall not be taxable.
(h) Whenever the Per Share Exercise Price is adjusted as
provided in this Section 3 and upon any modification of the rights of a Holder
of Warrants in accordance with this Section 3, the Company shall promptly
obtain, at its expense, a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular auditors of the Company) setting forth the Per Share Exercise
Price and the number of Warrant Shares after such adjustment or the effect of
such modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause copies of such
certificate to be mailed to the Holders of the Warrants.
(i) If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Common Stock, the Company
shall mail notice thereof to the Holders of the Warrants not less than 30 days
prior to the record date fixed for determining stock holders entitled to
participate in such dividend or other distribution.
(j) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Per Share Exercise Price between
or among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
(k) For the purpose of any computation under Section 3 above,
the then Current Market Price per share (the "Current Market Price") shall be
deemed to be the last sale price of the Common Stock on the trading day prior to
such date or, in case no such reported sales take place on such day, the average
of the last reported bid and asked prices of the Common Stock on such day, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on any such exchange, the representative closing bid price of the Common Stock
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ"), or other similar organization if NASDAQ is no
longer reporting such information, or, if the Common Stock is not reported on
NASDAQ, the high per share bid price for the Common Stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, or if not so available, the fair market value of the Common Stock
as determined by agreement between the Company's Board of Directors, on the one
part, and the Holders of Warrants representing the right to purchase a majority
of the Warrant Shares subject to all outstanding Warrants, on the second part.
If the Board of Directors and such Holders fail to agree on the Current Market
Price within 60 days of the date of the action giving rise to any adjustment
pursuant to this Section 3, such Holders shall be entitled to appoint a firm of
independent public accountants or appraisers of recognized national standing
reasonably acceptable to the Company, which shall give their opinion as to such
Current Market Price on a basis consistent with the essential intent and
principles established herein. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder of this
5
<PAGE>
Warrant and shall make the adjustments described therein. The fees and expenses
of such independent public accountants or appraisers shall be borne by the
Company.
4. Registration Under Securities Act of 1933 . The resale of
the Warrant Shares shall be registered on the Shelf Registration Statement (as
defined in Article 8 of the Securities Purchase Agreement (the "Purchase
Agreement") dated as of June 30, 1997, by and among the Company, The Aries Fund,
a Cayman Island Trust, and The Aries Domestic Fund, L.P., a Delaware limited
partnership) and certain purchasers and the Holder of this Warrant shall have
the registration rights as provided in Article 8 of the Purchase Agreement. If
the Holder is not a party to the Purchase Agreement, by acceptance of this
Warrant the Holder agrees to comply with provisions of Article 8 of the Purchase
Agreement to the same extent as if it were a party thereto.
5. Limited Transferability. This Warrant may not be sold,
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Securities Act of 1933 (the "Act") and the applicable
state securities "blue sky" laws, and is so transferable only upon the books of
the Company which it shall cause to be maintained for such purpose. The Company
may treat the registered Holder of this Warrant as he or it appears on the
Company's books at any time as the Holder for all purposes. The Company shall
permit any Holder of a Warrant or his duly authorized attorney, upon written
request during ordinary business hours, to inspect and copy or make extracts
from its books showing the registered holders of Warrants. All Warrants issued
upon the transfer or assignment of this Warrant will be dated the same date as
this Warrant, and all rights of the holder thereof shall be identical to those
of the Holder.
6. Loss, etc., of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Warrant, if
mutilated, the Company shall execute and deliver to the Holder a new Warrant of
like date, tenor and denomination.
7. Status of Holder. This Warrant does not confer upon the
Holder any right to vote or to consent to or receive notice as a stockholder of
the Company, as such, in respect of any matters whatsoever, or any other rights
or liabilities as a stockholder, prior to the exercise hereof.
8. Notices. No notice or other communication under this
Warrant shall be effective unless, but any notice or other communication shall
be effective and shall be deemed to have been given if, the same is in writing
and is mailed by first-class mail, postage prepaid, addressed to:
(a) the Company at 840 Memorial Drive, Cambridge,
Massachusetts, Attention: Stanley C. Erck, or such other address as the Company
has designated in writing to the Holder; or
6
<PAGE>
(b) the Holder at the address indicated in the notice
provisions to the Purchase Agreement, or other such address as the
Holder has designated in writing to the Company.
9. Optional Conversion. This Warrant shall be converted (the
"New Warrant Conversion") into a New Warrant (as hereinafter defined) with an
adjusted exercise price as set forth in this Section 9. "New Warrants" shall
mean a new class of warrants entitling the holders thereof to purchase, at any
time on or before the date which is five (5) years from the date hereof, one
share of Common Stock at an exercise price, subject to adjustment, equal to the
lesser of (a) $.29 and (b) fifty percent (50%) of the average closing bid price
of the Common Stock for either (i) the thirty (30) consecutive trading days
preceding the date of the Required Shareholder Approval (the "Approval Date"),
if any, or September 30, 1997, (ii) the five (5) consecutive trading days
preceding the Approval Date, if any, or September 30, 1997 or (iii) the five (5)
consecutive trading days immediately succeeding the Approval Date, if any, or
September 30, 1997 whichever is lowest. Other than the per share exercise
prices, the New Warrants shall have the same terms as the Class A and B Warrants
held by such Holder respectively (including, without limitation, an Aggregate
Exercise Price equal to the Aggregate Exercise Price of the sum of the Class A
and B Warrants Aggregate Exercise Prices prior to the New Warrant Conversion)
and all adjustments required upon an adjustment to the exercise price of the New
Warrants pursuant to the terms thereof shall be made in connection with the New
Warrant Conversion. To the extent that there is no Required Shareholder Approval
(as defined in the Purchase Agreement) necessary, the Initial Warrants shall be
converted into New Warrants on September 30, 1997, with an adjusted exercise
price equal to the lesser of (a) $.29 and (b) fifty percent (50%) of the average
closing bid price of the Common Stock for either (i) the thirty (30) consecutive
trading days preceding September 30, 1997, (ii) the five (5) consecutive trading
days preceding September 30, 1997 or (iii) the five (5) consecutive trading days
immediately succeeding September 30, 1997, whichever is lowest.
Notwithstanding the foregoing, the New Warrants' per share
exercise price shall be adjusted at the time of the Series B Final Closing Date
or the closing of the Company's next Qualified Offering (as these terms are
defined in the Letter of Intent between the Company and Paramount Capital Inc.,
dated June 30, 1997) if (i) the per share exercise price of the Offering
Warrants (as defined below) or (ii) the quotient of (a) the price per unit sold
in the Series B Offering or other Qualified Offering divided by (b) the quantity
of Common Stock (or any securities other than Common Stock viewed on a Common
Stock equivalent basis, collectively, the "Other Securities") included in each
unit sold in such Series B Offering or other Qualified Offering, is less than
twice the per share exercise price of the New Warrants. In such event the New
Warrants per share exercise price shall be reduced to equal 50% of the then
current per share exercise price of the Offering Warrants (as hereafter defined)
or per share exercise or offering price of the Other Securities (viewed on a
Common Stock equivalent basis). "Offering Warrants" shall mean the warrants
described in paragraph 8 of the Letter of Intent between the Company the
Holders, and Paramount Capital, Inc. dated June 30, 1997.
10. Headings. The headings of this Warrant have been inserted
as a matter of convenience and shall not affect the construction hereof.
7
<PAGE>
11. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to principles of conflicts of law thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its _______________________ and its corporate seal to be hereunto
affixed and attested by its Secretary this June 30, 1997.
PROCEPT, INC.
By: /s/ Stanley C. Erck
-------------------------------
Name: Stanley C. Erck
Title: President
ATTEST: /s/ Lynnette Fallon
- --------------------
Secretary
[Corporate Seal]
8
<PAGE>
SUBSCRIPTION
The undersigned, ____________________________, pursuant to the
provisions of the foregoing Warrant, hereby elects to exercise the within
Warrant to the extent of purchasing _____________________ shares of Common Stock
thereunder and hereby makes payment of $_______________ by certified or official
bank check in payment of the per share exercise price therefor.
Dated:_______________ Signature:_____________________________
Address:_______________________________
ASSIGNMENT
FOR VALUE RECEIVED _______________________________________
hereby sells, assigns and transfers unto _____________________________________
the foregoing Warrant and all rights evidenced thereby, and does irrevocably
constitute and appoint _____________________________, attorney, to transfer said
Warrant on the books of Procept, Inc.
Dated:_______________ Signature:_____________________________
Address:______________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns
and transfers unto _________________________ the right to purchase __________
shares of the Common Stock, no par value per share, of Procept Inc. covered by
the foregoing Warrant, and a proportionate part of said Warrant and the rights
evidenced thereby, and does irrevocably constitute and appoint
__________________________, attorney, to transfer that part of said Warrant on
the books of Procept, Inc.
Dated:_______________ Signature:___________________________
Address:_____________________________
9
Exhibit 4.3
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN EXEMPTION THEREFROM. ANY SUCH TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE
STATE SECURITIES LAWS.
PROCEPT, INC.
Class B Warrant for the Purchase of Shares of
---------------------------------------------
Common Stock
------------
No. CB-1 2,660,746 Shares
FOR VALUE RECEIVED, PROCEPT, INC., a Delaware corporation (the
"Company"), hereby certifies that the Aries Domestic Fund, LP or its registered
assigns (the "Holder") is entitled to purchase from the Company, subject to the
provisions of this Warrant (the "Warrant"), at any time commencing upon the date
hereof (the "Initial Exercise Date"), and prior to 5:00 P.M., New York City
time, on the date which is five (5) years from the date hereof (the "Termination
Date"), June 30, 2002 fully paid and non-assessable shares of the Common Stock,
$.01 par value, of the Company ("Common Stock"), at an exercise price of $0.5859
per share of Common Stock for an aggregate exercise price of One Million Five
Hundred Fifty-Eight Thousand Nine Hundred Thirty One Dollars and Eight Cents
($1,558,931.08) (the aggregate purchase price payable for the Warrant Shares
hereunder is hereinafter sometimes referred to as the "Aggregate Exercise
Price"). The number of shares of Common Stock to be received upon exercise of
this Warrant and the price to be paid for each share of Common Stock are subject
to possible adjustment from time to time as hereinafter set forth. The shares of
Common Stock or other securities or property deliverable upon such exercise as
adjusted from time to time is hereinafter sometimes referred to as the "Warrant
Shares." The exercise price of a share of Common Stock in effect at any time and
as adjusted from time to time is hereinafter sometimes referred to as the "Per
Share Exercise Price." The Per Share Exercise Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Warrant
Shares shall be adjusted by dividing the Aggregate Exercise Price by the Per
Share Exercise Price in effect immediately after such adjustment. The Aggregate
Exercise Price is not subject to adjustment.
<PAGE>
1. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part, at any
time by the Holder commencing on the Initial Exercise Date and prior to the
Termination Date, by presentation and surrender of this Warrant, together with
the duly executed subscription form attached at the end hereof, at the address
set forth in subsection 8(a) hereof, together with payment, by certified or
official bank check or wire transfer payable to the order of the Company, of the
Aggregate Exercise Price or the proportionate part thereof if exercised in part.
(b) If this Warrant is exercised in part only, the Company
shall, upon presentation of this Warrant upon such exercise, execute and deliver
(along with the certificate for the Warrant Shares purchased) a new Warrant
evidencing the rights of the Holder hereof to purchase the balance of the
Warrant Shares purchasable hereunder upon the same terms and conditions as
herein set forth. Upon proper exercise of this Warrant, the Company promptly
shall deliver certificates for the Warrant Shares to the Holder duly legended as
authorized by the subscription form. No fractional shares or scrip representing
fractional shares shall be issued upon exercise of this Warrant; provided that
the Company shall pay to the holders of the Warrant cash in lieu of such
fractional shares.
2. Reservation of Warrant Shares; Fully Paid Shares; Taxes.
The Company hereby represents that it has, and until expiration of this Warrant
agrees that it shall, reserve for issuance or delivery upon exercise of this
Warrant, such number of shares of the Common Stock as shall be required for
issuance and/or delivery upon exercise of this Warrant in full, and agrees that
all Warrant Shares so issued and/or delivered will be validly issued, fully paid
and non-assessable, and further agrees to pay all taxes and charges that may be
imposed upon such issuance and/or delivery.
3. Protection Against Dilution.
(a) In the event the Company shall, at any time or from time
to time after the date of issuance of this Warrant, issue or distribute to all
of the holders of its shares of Common Stock evidence of its indebtedness, any
other securities of the Company or any cash, property or other assets (any such
event being herein called a "Special Dividend"), the Per Share Exercise Price
shall be adjusted by multiplying the Per Share Exercise Price then in effect by
a fraction, the numerator of which shall be the then Current Market Price (as
defined in paragraph 3(k) below) of the Common Stock, less the Current Market
Price of the Special Dividend issued or distributed in respect of one share of
Common Stock, and the denominator of which shall be the Current Market Price of
the Common Stock. Such adjustment shall be made successively whenever such a
record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of shareholders entitled to receive such distribution
unless such distribution is not ultimately made.
(b) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide its outstanding shares of Common
2
<PAGE>
Stock into a greater number of shares, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares or (iv) issue by reclassification
of its Common Stock any shares of capital stock of the Company, the Per Share
Exercise Price shall be adjusted to be equal to a fraction, the numerator of
which shall be the Aggregate Exercise Price and the denominator of which shall
be the number of shares of Common Stock or other capital stock of the Company
issuable upon exercise of this Warrant assuming this Warrant had been exercised
immediately prior to such action. An adjustment made pursuant to this subsection
3(b) shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
(c)(i) Except as provided in subsections 3(a) and 3(b)(i), in
the event the Company shall hereafter issue or sell any Common Stock, any
securities convertible into Common Stock or any rights, options or warrants to
purchase Common Stock or securities convertible into Common Stock, in each case
for a price per share or entitling the holders thereof to purchase Common Stock
at a price per share (determined by dividing (i) the total amount, if any,
received or receivable by the Company in consideration of the issuance or sale
of such securities plus the consideration, if any, payable to the Company upon
exercise or conversion thereof (collectively, the "Total Consideration") by (ii)
the number of additional shares of Common Stock issued, sold or issuable upon
exercise or conversion of such securities) which is less than the then Current
Market Price of the Common Stock (as defined below) but not below the current
Per Share Exercise Price (which event is governed by subsection 3(c)(ii)), the
Per Share Exercise Price shall be adjusted as of the date of such issuance or
sale by multiplying the Per Share Exercise Price then in effect by a fraction,
the numerator of which shall be (x) the sum of (A) the number of shares of
Common Stock outstanding on the record date of such issuance or sale plus (B)
the Total Consideration divided by the Current Market Price of the Common Stock,
and the denominator of which shall be (y) the number of shares of Common Stock
outstanding on the record date of such issuance or sale plus the maximum number
of additional shares of Common Stock issued, sold or issuable upon exercise or
conversion of such securities.
(ii) Except as provided in subsection 3(a) and 3(b)(i), in the
event the Company shall hereafter issue or sell any Common Stock, any securities
convertible into Common Stock or any rights, options or warrants to purchase
Common Stock or securities convertible into Common Stock, in each case for a
price per share or entitling the holders thereof to purchase Common Stock at a
price per share (the "Issue Price"), (determined by dividing (i) the Total
Consideration by (ii) the number of additional shares of Common Stock issuable
upon exercise or conversion of such securities) which is less than the then
current Per Share Exercise Price in effect on the record date of such issuance,
the Per Share Exercise Price shall be adjusted to equal the Issue Price.
(d) In the event of any capital reorganization or
reclassification, or any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another entity of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected
3
<PAGE>
in connection with a merger of a third corporation into the Company), the Holder
of this Warrant shall have the right thereafter to receive on the exercise of
this Warrant the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Warrant been exercised immediately prior to the
effective date of such reorganization, reclassification, consolidation, merger,
statutory exchange, sale or conveyance and in any such case, if necessary,
appropriate adjustment shall be made in the application of the provisions set
forth in this Section 3 with respect to the rights and interests thereafter of
the Holder of this Warrant to the end that the provisions set forth in this
Section 3 shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, in relation to any shares of stock or other securities or
property thereafter deliverable on the exercise of this Warrant. The above
provisions of this subsection 3(e) shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, statutory
exchanges, sales or conveyances. The issuer of any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant
shall be responsible for all of the agreements and obligations of the Company
hereunder. Notice of any such reorganization, reclassification, consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holders of the Warrants not less
than 30 days prior to such event. A sale of all or substantially all of the
assets of the Company for a consideration consisting primarily of securities
shall be deemed a consolidation or merger for the foregoing purposes.
(e) In case any event shall occur as to which the other
provisions of this Section 3 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Warrants representing
the right to purchase a majority of the Warrant Shares subject to all
outstanding Warrants may appoint a firm of independent public accountants of
recognized national standing reasonably acceptable to the Company, which shall
give their opinion as to the adjustment, if any, on a basis consistent with the
essential intent and principles established herein, necessary to preserve the
purchase rights represented by the Warrants. Upon receipt of such opinion, the
Company will promptly mail a copy thereof to the Holder of this Warrant and
shall make the adjustments described therein. The fees and expenses of such
independent public accountants shall be borne by the Company.
(f) Whenever the Per Share Exercise Price payable upon
exercise of each Warrant is adjusted pursuant to this Section 3, the number of
shares of Common Stock underlying a Warrant shall simultaneously be adjusted to
equal the number obtained by dividing the Aggregate Exercise Price by the
adjusted Per Share Exercise Price.
(g) No adjustment in the Per Share Exercise Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.01 per share of Common Stock; provided, however, that any adjustments
which by reason of this subsection 3(g) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 3 shall be made to the nearest cent or to the
nearest 1/100th of a share, as the case may be. Anything in this Section 3 to
the contrary notwithstanding, the
4
<PAGE>
Company shall be entitled to make such reductions in the Per Share Exercise
Price, in addition to those required by this Section 3, as it in its discretion
shall deem to be advisable in order that any stock dividend, subdivision of
shares or distribution of rights to purchase stock or securities convertible or
exchangeable for stock hereafter made by the Company to its stockholders shall
not be taxable.
(h) Whenever the Per Share Exercise Price is adjusted as
provided in this Section 3 and upon any modification of the rights of a Holder
of Warrants in accordance with this Section 3, the Company shall promptly
obtain, at its expense, a certificate of a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular auditors of the Company) setting forth the Per Share Exercise
Price and the number of Warrant Shares after such adjustment or the effect of
such modification, a brief statement of the facts requiring such adjustment or
modification and the manner of computing the same and cause copies of such
certificate to be mailed to the Holders of the Warrants.
(i) If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Common Stock, the Company
shall mail notice thereof to the Holders of the Warrants not less than 30 days
prior to the record date fixed for determining stock holders entitled to
participate in such dividend or other distribution.
(j) If, as a result of an adjustment made pursuant to this
Section 3, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock or
shares of Common Stock and other capital stock of the Company, the Board of
Directors (whose determination shall be conclusive and shall be described in a
written notice to the Holder of any Warrant promptly after such adjustment)
shall determine the allocation of the adjusted Per Share Exercise Price between
or among shares or such classes of capital stock or shares of Common Stock and
other capital stock.
(k) For the purpose of any computation under Section 3 above,
the then Current Market Price per share (the "Current Market Price") shall be
deemed to be the last sale price of the Common Stock on the trading day prior to
such date or, in case no such reported sales take place on such day, the average
of the last reported bid and asked prices of the Common Stock on such day, in
either case on the principal national securities exchange on which the Common
Stock is admitted to trading or listed, or if not listed or admitted to trading
on any such exchange, the representative closing bid price of the Common Stock
as reported by the National Association of Securities Dealers, Inc. Automated
Quotations System ("NASDAQ"), or other similar organization if NASDAQ is no
longer reporting such information, or, if the Common Stock is not reported on
NASDAQ, the high per share bid price for the Common Stock in the
over-the-counter market as reported by the National Quotation Bureau or similar
organization, or if not so available, the fair market value of the Common Stock
as determined by agreement between the Company's Board of Directors, on the one
part, and the Holders of Warrants representing the right to purchase a majority
of the Warrant Shares subject to all outstanding Warrants, on the second part.
If the Board of Directors and such Holders fail to agree on the Current Market
Price within 60 days of the date of the action giving rise to any adjustment
pursuant to this Section 3, such Holders shall
5
<PAGE>
be entitled to appoint a firm of independent public accountants or appraisers of
recognized national standing reasonably acceptable to the Company, which shall
give their opinion as to such Current Market Price on a basis consistent with
the essential intent and principles established herein. Upon receipt of such
opinion, the Company will promptly mail a copy thereof to the Holder of this
Warrant and shall make the adjustments described therein. The fees and expenses
of such independent public accountants or appraisers shall be borne by the
Company.
4. Registration Under Securities Act of 1933 . The resale of
the Warrant Shares shall be registered on the Shelf Registration Statement (as
defined in Article 8 of the Securities Purchase Agreement (the "Purchase
Agreement") dated as of June 30, 1997, by and among the Company, The Aries Fund,
a Cayman Island Trust, and The Aries Domestic Fund, L.P., a Delaware limited
partnership) and certain purchasers and the Holder of this Warrant shall have
the registration rights as provided in Article 8 of the Purchase Agreement. If
the Holder is not a party to the Purchase Agreement, by acceptance of this
Warrant the Holder agrees to comply with provisions of Article 8 of the Purchase
Agreement to the same extent as if it were a party thereto.
5. Limited Transferability. This Warrant may not be sold,
transferred, assigned or hypothecated by the Holder except in compliance with
the provisions of the Securities Act of 1933 (the "Act") and the applicable
state securities "blue sky" laws, and is so transferable only upon the books of
the Company which it shall cause to be maintained for such purpose. The Company
may treat the registered Holder of this Warrant as he or it appears on the
Company's books at any time as the Holder for all purposes. The Company shall
permit any Holder of a Warrant or his duly authorized attorney, upon written
request during ordinary business hours, to inspect and copy or make extracts
from its books showing the registered holders of Warrants. All Warrants issued
upon the transfer or assignment of this Warrant will be dated the same date as
this Warrant, and all rights of the holder thereof shall be identical to those
of the Holder.
6. Loss, etc., of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Warrant, if
mutilated, the Company shall execute and deliver to the Holder a new Warrant of
like date, tenor and denomination.
7. Status of Holder. This Warrant does not confer upon the
Holder any right to vote or to consent to or receive notice as a stockholder of
the Company, as such, in respect of any matters whatsoever, or any other rights
or liabilities as a stockholder, prior to the exercise hereof.
8. Notices. No notice or other communication under this
Warrant shall be effective unless, but any notice or other communication shall
be effective and shall be deemed to have been given if, the same is in writing
and is mailed by first-class mail, postage prepaid, addressed to:
6
<PAGE>
(a) the Company at 840 Memorial Drive, Cambridge,
Massachusetts, Attention: Stanley C. Erck, or such other address as
the Company has designated in writing to the Holder; or
(b) the Holder at the address indicated in the notice
provisions to the Purchase Agreement, or other such address as the
Holder has designated in writing to the Company.
9. Optional Conversion. This Warrant shall be converted (the
"New Warrant Conversion") into a New Warrant (as hereinafter defined) with an
adjusted exercise price as set forth in this Section 9. "New Warrants" shall
mean a new class of warrants entitling the holders thereof to purchase, at any
time on or before the date which is five (5) years from the date hereof, one
share of Common Stock at an exercise price, subject to adjustment, equal to the
lesser of (a) $.29 and (b) fifty percent (50%) of the average closing bid price
of the Common Stock for either (i) the thirty (30) consecutive trading days
preceding the date of the Required Shareholder Approval (the "Approval Date"),
if any, or September 30, 1997, (ii) the five (5) consecutive trading days
preceding the Approval Date, if any, or September 30, 1997 or (iii) the five (5)
consecutive trading days immediately succeeding the Approval Date, if any, or
September 30, 1997 whichever is lowest. Other than the per share exercise
prices, the New Warrants shall have the same terms as the Class A and B Warrants
held by such Holder respectively (including, without limitation, an Aggregate
Exercise Price equal to the Aggregate Exercise Price of the sum of the Class A
and B Warrants Aggregate Exercise Prices prior to the New Warrant Conversion)
and all adjustments required upon an adjustment to the exercise price of the New
Warrants pursuant to the terms thereof shall be made in connection with the New
Warrant Conversion. To the extent that there is no Required Shareholder Approval
(as defined in the Purchase Agreement) necessary, the Initial Warrants shall be
converted into New Warrants on September 30, 1997, with an adjusted exercise
price equal to the lesser of (a) $.29 and (b) fifty percent (50%) of the average
closing bid price of the Common Stock for either (i) the thirty (30) consecutive
trading days preceding September 30, 1997, (ii) the five (5) consecutive trading
days preceding September 30, 1997 or (iii) the five (5) consecutive trading days
immediately succeeding September 30, 1997, whichever is lowest.
Notwithstanding the foregoing, the New Warrants' per share
exercise price shall be adjusted at the time of the Series B Final Closing Date
or the closing of the Company's next Qualified Offering (as these terms are
defined in the Letter of Intent between the Company and Paramount Capital Inc.,
dated June 30, 1997) if (i) the per share exercise price of the Offering
Warrants (as defined below) or (ii) the quotient of (a) the price per unit sold
in the Series B Offering or other Qualified Offering divided by (b) the quantity
of Common Stock (or any securities other than Common Stock viewed on a Common
Stock equivalent basis, collectively, the "Other Securities") included in each
unit sold in such Series B Offering or other Qualified Offering, is less than
twice the per share exercise price of the New Warrants. In such event the New
Warrants per share exercise price shall be reduced to equal 50% of the then
current per share exercise price of the Offering Warrants (as hereafter defined)
or per share exercise or offering price of the Other Securities (viewed on a
Common Stock equivalent basis). "Offering Warrants"
7
<PAGE>
shall mean the warrants described in paragraph 8 of the Letter of Intent between
the Company the Holders, and Paramount Capital, Inc. dated June 30, 1997.
10. Headings. The headings of this Warrant have been inserted
as a matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to principles of conflicts of law thereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its _______________________ and its corporate seal to be hereunto
affixed and attested by its Secretary this June 30, 1997.
PROCEPT, INC.
By: /s/ Stanley C. Erck
-------------------------------
Name: Stanley C. Erck
Title: President
ATTEST: /s/ Lynnette Fallon
- --------------------
Secretary
[Corporate Seal]
8
<PAGE>
SUBSCRIPTION
The undersigned, ____________________________, pursuant to the
provisions of the foregoing Warrant, hereby elects to exercise the within
Warrant to the extent of purchasing _____________________ shares of Common Stock
thereunder and hereby makes payment of $_______________ by certified or official
bank check in payment of the per share exercise price therefor.
Dated:_______________ Signature:_____________________________
Address:_______________________________
ASSIGNMENT
FOR VALUE RECEIVED _______________________________________
hereby sells, assigns and transfers unto _____________________________________
the foregoing Warrant and all rights evidenced thereby, and does irrevocably
constitute and appoint _____________________________, attorney, to transfer said
Warrant on the books of Procept, Inc.
Dated:_______________ Signature:_____________________________
Address:______________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED __________________________ hereby assigns
and transfers unto _________________________ the right to purchase __________
shares of the Common Stock, no par value per share, of Procept Inc. covered by
the foregoing Warrant, and a proportionate part of said Warrant and the rights
evidenced thereby, and does irrevocably constitute and appoint
__________________________, attorney, to transfer that part of said Warrant on
the books of Procept, Inc.
Dated:_______________ Signature:___________________________
Address:_____________________________
9
Exhibit 10.1
PROCEPT, INC.
1989 Stock Plan
As amended through April 16, 1996 and
As further amended by the Board of Directors on
March 17, 1997 and approved by the Stockholders
on June 16, 1997
1. Purpose. This 1989 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of Procept, Inc. (the
"Company"), its parent (if any) and any present or future subsidiaries of the
Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which do not qualify as ISOs ("Non-Qualified Option"
or "Non-Qualified Options"); (c) to officers, employees and consultants of the
Company and Related Corporations by providing them with awards of stock in the
Company ("Awards"); and (d) to officers, employees and consultants of the
Company and Related Corporations by providing them with opportunities to make
direct purchases of Stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options". Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights". As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation", respectively, as those terms are defined in Section 424 of the
Code.
2. Administration of the Plan.
A. Board or Committee Administration. The Plan shall be
administered by the Board of Directors of the Company (the "Board"). The Board
may appoint a Stock Plan Committee (the "Committee") of three or more of its
members to administer this Plan. The members of such Committee shall be
"disinterested" within the meaning of Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. Hereinafter, all references in this
Plan to the "Committee" shall mean the Board if no Committee has been appointed.
Subject to ratification of the grant or authorization of each Stock Right by the
Board (if so required by applicable state law), and subject to the terms of the
Plan, the Committee shall have the authority to (i) determine the employees of
the Company and Related Corporations (from among the class of employees eligible
under paragraph 3 to receive ISOs) to whom ISOs may be granted, and to determine
(from among the class of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make Purchases) to whom Non-
Qualified Options, Awards and authorizations to make Purchases may be granted;
(ii) determine the time or times at which Options or Awards may be granted or
Purchases made; (iii) determine the option price of shares subject to each
Option, which price shall not be less than the minimum price specified in
paragraph 6, and the purchase price of shares subject to each Purchase; (iv)
determine whether each Option granted shall be an ISO or a Non-Qualified Option;
(v) determine (subject to paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise period; (vi) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to Options, Awards and Purchases and the nature of such restrictions, if
any, and (vii) interpret the Plan and prescribe and rescind rules and
regulations relating to it. If the Committee determines to issue a Non-
Qualified Option, it shall take whatever actions it deems necessary, under
Section 422 of the Code and the regulations promulgated thereunder, to ensure
that such Option is not treated as an ISO. The
<PAGE>
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of its members
as its chairman, and shall hold meetings at such time and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or approved
in writing by a majority of the members of the Committee, shall be the valid
acts of the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
3. Eligible Employees and Others. ISOs may be granted to any employee
of the Company or any Related Corporation. Those officers of the Company who are
not employees may not be granted ISOs under the Plan. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any employee or
officer (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant an ISO, a Non-Qualified
Option, an Award or an authorization to make a Purchase. Granting of any Stock
Right to any individual or entity shall neither entitle that individual or
entity to, nor disqualify such individual or entity from, participating in any
other grant of Stock Rights.
4. Stock. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company, par value $.01
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 1,887,118. The aggregate number of shares which may be
issued pursuant to the Plan is subject to further adjustment as provided in
paragraph 13. Any such shares may be issued as ISOs, Non-Qualified Options or
Awards, or to persons or entities making Purchases, so long as the number of
shares so issued does not exceed such number, as adjusted. If any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole or in
part, or if the Company shall reacquire any unvested shares issued pursuant to
Options, Awards or Purchases, the unpurchased shares subject to such Options and
any unvested shares so reacquired by the Company shall again be available for
grants of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the
Plan at any time on or after April 18, 1989 and prior to April 18, 1999. The
date of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Rights; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. The Committee shall have the right, with the consent of the optionee, to
convert an ISO granted under the Plan to a Non-Qualified Option pursuant to
paragraph 16.
6. Minimum Option Price; ISO Limitations.
A. Price for Non-Qualified Options. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted under
the Plan shall in no event be less than the lesser of (i) the book value per
share of Common Stock as of the end of the fiscal year of the
- 2 -
<PAGE>
Company immediately preceding the date of such grant, or (ii) fifty percent
(50%) of the fair market value per share of Common Stock on the date of such
grant.
B. Price of ISOs. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.
C. $100,000 Annual Limitation on ISOs. Each eligible employee may
be granted ISOs only to the extent that, in the aggregate under this Plan and
all incentive stock option plans of the Company and any Related Corporation,
such ISOs do not become exercisable for the first time by such employee during
any calendar year in a manner which would entitle the employee to purchase more
than $100,000 in fair market value (determined at the time the ISOs were
granted) of Common Stock in that year. Any options granted to an employee in
excess of such amount will be granted as Non-Qualified Options.
D. Determination of Fair Market Value. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date such
Option is granted and shall mean (i) the average (on that date) of the high and
low prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ National Market System, if the Common
Stock is not then traded on a national securities exchange; or (iii) the closing
bid price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the Common
Stock is not reported on the NASDAQ National Market System. However, if the
Common Stock is not publicly traded at the time an Option is granted under the
Plan, "fair market value" shall be deemed to be the fair value of the Common
Stock as determined by the Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and offer
prices of the Common Stock in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non- Qualified Option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9 and
through 12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The option shall either be fully exercisable on the
date of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
- 3 -
<PAGE>
B. Full Vesting of Installments. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
accelerate the date of exercise or vesting of any installment of any Option;
provided that the Committee shall not, without the consent of an optionee,
accelerate the exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to paragraph 16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in paragraph
6(C).
9. Termination of Employment. If an ISO optionee ceases to be employed
by the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of such
optionee's ISOs shall become exercisable or vested, and such optionee's ISOs
shall terminate after the passage of ninety (90) days from the date of
termination of such optionee's employment, but in no event later than on their
specified expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
paragraph 16. Employment shall be considered as continuing uninterrupted during
any bona fide leave of absence (such as those attributable to illness, military
obligations or governmental service) provided that the period of such leave does
not exceed 90 days or, if reemployment is guaranteed by statute. A bona fide
leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. Death; Disability.
A. Death. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of such optionee's death, any ISO of such
optionee may be exercised, to the extent of the number of shares with respect to
which such optionee could have exercised it on the date of such optionee's
death, by such optionee's estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and distribution, at any time
prior to the earlier of the specified expiration date of the ISO or 180 days
from the date of such optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of such optionee's disability,
such optionee shall have the right to exercise any ISO held by such optionee on
the date of termination of employment, to the extent of the number of shares
with respect to which such optionee could have exercised it on that date, at any
time prior to the earlier of the specified expiration date of the ISO or 180
days from the date of the termination of such optionee's employment. For the
purposes of the Plan, the term "disability" shall mean "permanent and total
disability" as defined in Section 22(e)(3) of the Code or successor statute.
- 4 -
<PAGE>
11. Assignability. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by such
optionee.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. Consolidation or Mergers. If the Company is to be consolidated
with or acquired by another entity in a merger, sale of all or substantially all
of the Company's assets or otherwise (an "Acquisition"), the Committee or the
board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either (i)
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the shares then subject to such Options the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition; or (ii) upon written notice to the optionees,
provide that all Options must be exercised, to the extent then exercisable,
within a specified number of days of the date of such notice, at the end of
which period the Options shall terminate; or (iii) terminate all Options in
exchange for a cash payment equal to the excess of the fair market value of the
shares subject to such Options (to the extent then exercisable) over the
exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities such optionee
would have received if such optionee had exercised such optionee's Option prior
to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall
be made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a
- 5 -
<PAGE>
"modification" of such ISOs (as that term is defined in Section 424 of the Code)
or would cause any adverse tax consequences for the holders of such ISOs. If the
Committee determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments.
E. Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
F. Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued under
the Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. Adjustments. Upon the happening of any of the foregoing events
described in subparagraphs A, B or C above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise of a
Stock Right made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs A, B or C above as a
result of owning such restricted Common Stock, such shares or securities or cash
shall be subject to all of the conditions and restrictions applicable to the
restricted Common Stock with respect to which such shares or securities or cash
were issued, unless otherwise determined by the Committee or the Successor
Board.
14. Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Stock Right, or (c) at the discretion of the Committee, by delivery
of the grantee's personal recourse note being interest payable not less than
annually at no less than 100% of the lowest applicable Federal rate, as defined
in Section 1274(d) of the Code, or (d) at the discretion of the Committee, by
any combination of (a), (b) and (c) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b), (c), or (d) of the preceding sentence, such
discretion shall be exercised in writing at the time of the grant of the ISO in
question. The holder of a Stock Right shall not have the rights of a shareholder
with respect to the shares covered by such holder's Stock Right until the date
of issuance of a stock certificate to such holder for such shares. Except as
expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
- 6 -
<PAGE>
15. Term and Amendment of Plan. This Plan was adopted by the Board on
April 18, 1989, subject (with respect to the validation of ISOs granted under
the Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained by April 18, 1990, any grants of ISOs under the
Plan made prior to that date will be rescinded. The Plan shall expire on April
18, 1999 (except as to Options outstanding on that date). Subject to the
provisions of paragraph 5 above, Stock Rights may be granted under the Plan
prior to the date of stockholder approval of the Plan. The Board may terminate
or amend the Plan in any respect at any time, except that, without the approval
of the stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may action of the Board or
stockholders alter or impair the rights of a grantee, without such grantee's
consent, under any Stock Right previously granted to such grantee.
16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs.
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under this Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
19. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock, for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includable in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes.
- 7 -
<PAGE>
20. Notice to Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. Governing Law; Construction. The validity and construction of the
Plan and instruments evidencing Stock Rights shall be governed by the laws of
the State of Delaware, or the laws of any jurisdiction in which the Company or
its successors in interest may be organized. In construing this Plan, the
singular shall include the plural.
- 8 -
Exhibit 10.2
PROCEPT, INC.
1994 Employee Stock Purchase Plan
As amended by the Board of Directors on March 17, 1997 and approved by the
Stockholders on June 16, 1997.
1. Purpose.
The purpose of this 1994 Employee Stock Purchase Plan (the "Plan") is to
provide employees of Procept, Inc. (the "Company"), and its subsidiaries, who
wish to become shareholders of the Company an opportunity to purchase Common
Stock of the Company (the "Shares"). The Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Eligible Employees.
Subject to the provisions of Sections 7, 8 and 9 below, any individual who
is a full-time employee (as defined below) of the Company, or any of its
subsidiaries (as defined in Section 424(f) of the Code) the employees of which
are designated by the Board of Directors as eligible to participate in the Plan,
is eligible to participate in any Offering of Shares (as defined in Section 3
below) made by the Company hereunder. Full-time employees shall include all
employees whose customary employment is:
(a) 20 hours or more per week and
(b) more than five months
in the calendar year during which said Offering Date occurs or in the calendar
year immediately preceding such year.
3. Offering Dates.
From time to time, the Company, by action of the Board of Directors, will
grant rights to purchase Shares to employees eligible to participate in the Plan
pursuant to one or more offerings (each of which is an "Offering" on a date or
series of dates (each of which is an "Offering Date") designated for this
purpose by the Board of Directors.
4. Prices.
The price per share for each grant of rights hereunder shall be the lesser
of:
(a) eighty-five percent (85%) of the fair market value of a Share on the
Offering Date on which such right was granted; or
(b) eighty-five percent (85%) of the fair market value of a Share on the
date such right is exercised.
At its discretion, the Board of Directors may determine a higher price for a
grant of rights under the Plan.
<PAGE>
5. Exercise of Rights and Method of Payment.
(a) Rights granted under the Plan will be exercisable periodically on
specified dates as determined by the Board of Directors.
(b) The method of payment for Shares purchased upon exercise of rights
granted hereunder shall be through regular payroll deductions or by lump sum
cash payment or both, as determined by the Board of Directors. No interest shall
be paid upon payroll deductions unless specifically provided for by the Board of
Directors.
(c) Any payments received by the Company from a participating employee and
not utilized for the purchase of Shares upon exercise of a right granted
hereunder shall be promptly returned to such employee by the Company after
termination of the right to which the payment relates.
6. Term of Rights.
The total period from an Offering Date to the last date on which rights
granted on that Offering Date are exercisable (the "Offering Period") shall in
no event be longer than twenty-seven (27) months. The Board of Directors when it
authorizes an Offering may designate one or more exercise periods during the
Offering Period. Rights granted on an Offering Date shall be exercisable in full
on the Offering Date or in such proportion on the last day of each exercise
period as the Board of Directors determines.
7. Shares Subject to the Plan.
No more than Five Hundred Thousand (500,000) Shares may be sold pursuant to
rights granted under the Plan. Appropriate adjustments in the above figure, in
the number of Shares covered by outstanding rights granted hereunder, in the
exercise price of the rights and in the maximum number of Shares which an
employee may purchase (pursuant to Section 9 below) shall be made to give effect
to any mergers, consolidations, reorganizations, recapitalizations, stock
splits, stock dividends or other relevant changes in the capitalization of the
Company occurring after the effective date of the Plan, provided that no
fractional Shares shall be subject to a right and each right shall be adjusted
downward to the nearest full Share. Any agreement of merger or consolidation
will include provisions for protection of the then existing rights of
participating employees under the Plan. Either authorized and unissued Shares or
issued Shares heretofore or hereafter reacquired by the Company may be made
subject to rights under the Plan. If for any reason any right under the Plan
terminates in whole or in part, Shares subject to such terminated right may
again be subjected to a right under the Plan.
8. Limitations on Grants.
(a) No employee shall be granted a right hereunder if such employee,
immediately after the right is granted, would own stock or rights to purchase
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company, or of any subsidiary, computed in
accordance with Section 423(b)(3) of the Code.
(b) No employee shall be granted a right which permits his right to purchase
shares under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) (or such other maximum as may be prescribed from time to time by the
Code) of the fair market value of such Shares (determined at the time such right
is granted) for
- 2 -
<PAGE>
each calendar year in which such right is outstanding at any time in accordance
with the provisions of Section 423(b)(8) of the Code.
(c) No right granted to any participating employee under an Offering, when
aggregated with rights granted under any other Offering still exercisable by the
participating employee, shall cover more Shares than may be purchased at an
exercise price equal to fifteen percent (15%) of the employee's annual rate of
compensation on the date the employee elects to participate in the Offering or
such lesser percentage as the Board of Directors may determine.
9. Limit on Participation.
Participation in an Offering shall be limited to eligible employees who
elect to participate in such Offering in the manner, and within the time
limitations, established by the Board of Directors when it authorizes the
Offering.
10. Cancellation of Election to Participate.
An employee who has elected to participate in an Offering may cancel such
election as to all (but not part) of the unexercised rights granted under such
Offering by giving written notice of such cancellation to the Company before the
expiration of any exercise period. Any amounts paid by the employee for the
Shares or withheld for the purchase of Shares from the employee's compensation
through payroll deductions shall be paid to the employee, without interest,
unless otherwise determined by the Board of Directors, upon such cancellation.
11. Termination of Employment.
Upon the termination of employment for any reason, including the death of
the employee, before the date on which any rights granted under the Plan are
exercisable, all such rights shall immediately terminate and amounts paid by the
employee for the Shares or withheld for the purchase of Shares from the
employee's compensation through payroll deductions shall be paid to the employee
or to the employee's estate, without interest, unless otherwise determined by
the Board of Directors.
12. Employees' Rights as Shareholders.
No participating employee shall have any rights as a shareholder in the
Shares covered by a right granted hereunder until such right has been exercised,
full payment has been made for the corresponding Shares and the Share
certificate is actually issued.
13. Rights Not Transferable.
Rights under the Plan are not assignable or transferable by a participating
employee and are exercisable only by the employee.
14. Amendments to or Discontinuation of the Plan.
The Board of Directors of the Company shall have the right to amend, modify
or terminate the Plan at any time without notice; provided, however, that the
then existing rights of all participating employees shall not be adversely
affected thereby, and provided further that, subject to the provisions of
Section 7 above, no such amendment to the Plan shall, without the approval of
the shareholders of the Company, increase the total number of Shares which may
be offered under the Plan.
- 3 -
<PAGE>
15. Effective Date and Approvals.
This Plan became effective on March 2, 1994, the date it was adopted by the
Board of Directors, provided that it is approved by the shareholders of the
Company within twelve (12) months before or after the date of adoption.
The Company's obligation to offer, sell and deliver its Shares under the
Plan is subject to (i) the approval of any governmental authority required in
connection with the authorized issuance or sale of such Shares, (ii)
satisfaction of the listing requirements of any national securities exchange on
which the Shares are then listed and (iii) compliance, in the opinion of the
Company's counsel with, all applicable federal and state securities and other
laws.
16. Term of Plan.
No rights shall be granted under the Plan after March 2, 2004.
17. Administration of the Plan.
The Board of Directors or any committee or person(s) to whom it delegates
its authority (the "Administrator") shall administer, interpret and apply all
provisions of the Plan as it deems necessary to meet special circumstances not
anticipated or covered expressly by the Plan. Nothing contained in this Section
shall be deemed to authorize the Administrator to alter or administer the
provisions of the Plan in a manner inconsistent with the provisions of Section
423 of the Code.
- 4 -
Exhibit 10.3
PROCEPT, INC.
1994 Director Stock Option Plan
As Amended by the Board of Directors on January 20, 1997 (no stockholder
approval required) and as further amended by the Board of Directors on March 17,
1997 and approved by the Stockholders on June 16, 1997.
1. Purpose.
The purpose of this 1994 Director Stock Option Plan (the "Plan") of Procept,
Inc. (the "Company") is to attract and retain highly qualified non-employee
directors of the Company and to encourage ownership of stock of the Company by
such directors so as to provide additional incentives to promote the success of
the Company.
2. Administration of the Plan.
Grants of stock options under the Plan shall be automatic as provided in
Section 7. However, all questions of interpretation with respect to the Plan and
options granted under it shall be determined by the Board of Directors of the
Company (the "Board") or by a committee consisting of one or more directors
appointed by the Board and such determination shall be final and binding upon
all persons having an interest in the Plan.
3. Persons Eligible to Participate in the Plan.
Each director of the Company who is not any one of:
(a) an employee of the Company or of any subsidiary of the Company,
(b) an employee, or otherwise a representative, of an institutional venture
capital investor in the Company, or
(c) subject to any law, contract or other obligation (including obligations
arising from such director's professional institutional affiliation)
which prohibits or restricts such director's ownership of shares in the
Company (including any restriction which would require a director to
transfer options granted under the Plan in violation of Section 7(h)),
shall be eligible to participate in the Plan unless such director irrevocably
elects not to participate.
4. Shares Subject to the Plan.
(a) The aggregate number of shares of the Company's common stock, $.01 par
value ("Common Stock") which may be optioned under this Plan is Three Hundred
Thousand (300,000) shares. Shares issued under the Plan may consist in whole or
in part of authorized but unissued shares or treasury shares.
(b) In the event of a stock dividend, split-up, combination or
reclassification of shares, recapitalization or other similar capital change
relating to the Company's Common Stock, the maximum
<PAGE>
aggregate number and kind of shares or securities of the Company as to which
options may be granted under this Plan and as to which options then outstanding
shall be exercisable, and the option price of such options shall be
appropriately adjusted so that the proportionate number of shares or other
securities as to which options may be granted and the proportionate interest of
holders of outstanding options shall be maintained as before the occurrence of
such event.
(c) In the event of a consolidation or merger of the Company with another
corporation where the Company's stockholders do not own a majority in interest
of the surviving or resulting corporation, or the sale or exchange of all or
substantially all of the assets of the Company, or a reorganization or
liquidation of the Company, any deferred exercise period shall be automatically
accelerated and each holder of an outstanding option shall be entitled to
receive upon exercise and payment in accordance with the terms of the option the
same shares, securities or property as he would have been entitled to receive
upon the occurrence of such event if he had been, immediately prior to such
event, the holder of the number of shares of Common Stock purchasable under his
or her option; provided, however, that in lieu of the foregoing the Board may
upon written notice to each holder of an outstanding option or right under the
Plan, provide that such option or right shall terminate on a date not less than
20 days after the date of such notice unless theretofore exercised.
(d) Whenever options under this Plan lapse or terminate or otherwise become
unexercisable the shares of Common Stock which were subject to such options may
again be subjected to options under this Plan. The Company shall at all times
while this Plan is in force reserve such number of shares of Common Stock as
will be sufficient to satisfy the requirements of this Plan.
5. Non-Statutory Stock Options.
All options granted under this Plan shall be non-statutory options not
entitled to special tax treatment under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code").
6. Form of Options.
Options granted hereunder shall be in such form as the Board or any
committee appointed pursuant to Section 2 above may from time to time determine.
7. Grant of Options and Option Terms.
(a) Automatic Grant of Options. Each eligible director as of January 20,
1997 shall be automatically granted options on such date to purchase Twenty
Thousand (20,000) shares of Common Stock. Each director who becomes eligible by
election (whether by the Board or the stockholders and whether to fill a vacancy
or otherwise) or otherwise after January 20, 1997 shall be automatically granted
options on the date of first eligibility to purchase Twenty Thousand (20,000)
shares of Common Stock. Each eligible director as of any annual meeting of
stockholders after January 20, 1997 who does not then hold options granted under
this Plan which are not fully exercisable, shall be automatically granted
options on such date to purchase Twenty Thousand (20,000) shares of Common
Stock.
(b) Date of Grant. The "Date of Grant" for options granted under this Plan
shall be (i) the actual date of grant for options granted prior to January 20,
1997, (ii) January 20, 1997 for options granted on January 20, 1997, (iii) the
date of first eligibility for options granted upon a director first becoming
eligible under this Plan or (iv) the date of an annual meeting of stockholders
for options granted on such date.
- 2 -
<PAGE>
(c) Option Price. The option price for each option granted under this Plan
shall be the current fair market value of a share of Common Stock of the Company
as determined by the last sale price for the Company's Common Stock as reported
by the Nasdaq National Market for the business day immediately preceding the
Date of Grant.
(d) Term of Option. The term of each option granted under this Plan shall be
ten years from the Date of Grant.
(e) Exercisability of Options. Except as otherwise provided in this Plan,
options granted under this Plan on or after January 20, 1997 shall be
exercisable as to Ten Thousand (10,000) shares of Common Stock on the date of
each of the next two annual meetings of the stockholders of the Company
following the Date of Grant if and only if the option holder is a member of the
Board at the opening of business on that date.
(f) General Exercise Terms. Directors holding exercisable options under this
Plan who cease to serve as members of the Board may, during their lifetime,
exercise the rights they had under such options at the time they ceased being a
director for the full unexpired term of such option. Any rights that have not
yet become exercisable shall terminate upon cessation of membership on the
Board. Upon the death of a director, those entitled to do so shall have the
right, at any time within twelve months after the date of death, to exercise in
whole or in part any rights which were available to the director at the time of
his or her death. The rights of the option holder may be exercised by the
holder's guardian or legal representative in the case of disability and by the
beneficiary designated by the holder in writing delivered to the Company or, if
none has been designated, by the holder's estate or his or her transferee on
death in accordance with this Plan, in the case of death. Options granted under
the Plan shall terminate, and no rights thereunder may be exercised, after the
expiration of the applicable exercise period. Notwithstanding the foregoing
provisions of this section, no rights under any options may be exercised after
the expiration of ten years from their Date of Grant.
(g) Method of Exercise and Payment. Options may be exercised only by written
notice to the Company at its principal office accompanied by payment of the full
option price for the shares of Common Stock as to which they are exercised. The
option price shall be paid in cash or by check or in shares of Common Stock of
the Company, or in any combination thereof. Shares of Common Stock surrendered
in payment of the option price shall have been held by the person exercising the
option for at least six months, unless otherwise permitted by the Board. The
value of shares delivered in payment of the option price shall be their fair
market value, as determined in accordance with Section 7(c) above, as of the
date of exercise. Upon receipt of such notice and payment, the Company shall
promptly issue and deliver to the optionee (or other person entitled to exercise
the option) a certificate or certificates for the number of shares as to which
the exercise is made.
(h) Limitations on Transferability. Options granted under this Plan shall
not be transferable by the recipient other than by will or the laws of descent
and distribution and are exercisable during such person's lifetime only by such
person or by such person's guardian or legal representative, provided that the
Board or any committee appointed by the Board may in its discretion waive such
restriction in any case.
8. Limitation of Rights.
(a) No Right to Continue as a Director. Neither the Plan, nor the granting
of an option or any other action taken pursuant to the Plan, shall constitute an
agreement or understanding, express or
- 3 -
<PAGE>
implied, that the Company will retain an option holder as a director for any
period of time or at any particular rate of compensation.
(b) No Stockholders' Rights for Options. A director shall have no rights as
a stockholder with respect to the shares covered by options until the date the
director exercises such options and pays the option price to the Company, and no
adjustment will be made for dividends or other rights for which the record date
is prior to the date such option is exercised and paid for.
9. Amendment or Termination.
The Board may amend or terminate this Plan at any time. The Board may amend
or modify any outstanding option in any respect, provided that the optionee's
consent to such action shall be required unless the Board determines that the
action, taking into account any related action, would not materially and
adversely affect the optionee.
10. Stockholder Approval.
This Plan was approved by the stockholders of the Company on June 6, 1995
and the amendments hereto approved by the Board of Directors on January 20, 1997
shall not require approval by the stockholders. Further amendments shall be
subject to stockholder approval to the extent (i) required by law, (ii) required
by Nasdaq or stock exchange listing requirements, as determined by the Board of
Directors, or (iii) as desirable, as determined by the Board of Directors, to
comply with Rule 16b-3 under the Securities Exchange Act of 1934, as amended. In
the event any such approval is not obtained, all options granted under this Plan
after such further amendment shall be void and without effect.
11. Governing Law.
This Plan shall be governed by and interpreted in accordance with the laws
of the State of Delaware.
- 4 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from balance
sheet at June 30, 1997 and the statement of operations for the three months and
six months ended June 30, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 4,101,488 4,101,488
<SECURITIES> 0 0
<RECEIVABLES> 92,188 92,188
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,348,641 4,348,641
<PP&E> 5,755,123 5,755,123
<DEPRECIATION> 4,409,006 4,409,006
<TOTAL-ASSETS> 6,496,179 6,496,179
<CURRENT-LIABILITIES> 1,979,847 1,979,847
<BONDS> 0 0
0 0
0 0
<COMMON> 196,937 196,937
<OTHER-SE> 3,939,491 3,939,491
<TOTAL-LIABILITY-AND-EQUITY> 6,496,179 6,496,179
<SALES> 0 0
<TOTAL-REVENUES> 162,826 427,044
<CGS> 0 0
<TOTAL-COSTS> 2,739,659 5,330,989
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 8,876 27,601
<INCOME-PRETAX> (2,576,833) (4,903,945)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,576,833) (4,903,945)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,576,833) (4,903,945)
<EPS-PRIMARY> (0.19) (0.36)
<EPS-DILUTED> (0.19) (0.36)
</TABLE>
