SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement [_] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
PROCEPT, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
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[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PROCEPT, INC.
840 Memorial Drive, Cambridge, Massachusetts 02139
(617) 491-1100
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
A special meeting of the stockholders of Procept, Inc., a Delaware
corporation ("Procept"), will be held at the offices of Procept, 840 Memorial
Drive, Cambridge, Massachusetts, at 10:00 a.m. on Monday, September 29, 1997,
for the following purposes:
1. To ratify and approve the issuance of certain securities by the Company
in a private placement in June 1997, certain agreements entered into
by the Company in connection therewith and other matters related
thereto.
2. To approve the issuance of up to a maximum of 200 units to investors in
a private placement, with each unit consisting of 1,000 shares of Series
B Convertible Preferred Stock and warrants to purchase 333,333 shares
of common stock.
3. To approve an amendment of Procept's Restated Certificate of
Incorporation to consummate a one for seven reverse stock split (a
stock combination) of the outstanding shares of common stock.
4. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on August 25, 1997 will
be entitled to vote at the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. THEREFORE,
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE YOUR PROXY AND
RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE
UNITED STATES. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOUR PROXY
WILL NOT BE USED.
By order of the Board of Directors,
Lynnette C. Fallon, Secretary
September 6, 1997
<PAGE>
PROCEPT, INC.
840 Memorial Drive, Cambridge, Massachusetts 02139
(617) 491-1100
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Proxy Statement
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GENERAL INFORMATION
The enclosed proxy is solicited on behalf of the Board of Directors of
Procept, Inc. ("Procept" or the "Company") for use at a special meeting of
stockholders to be held at the offices of Procept, 840 Memorial Drive,
Cambridge, Massachusetts, at 10:00 a.m. on Monday, September 29, 1997, and at
any adjournments or postponements thereof.
The authority granted by an executed proxy may be revoked, at any time
before its exercise, by filing with the Secretary of Procept a written
revocation or a duly executed proxy bearing a later date or by voting in person
at the meeting. Shares represented by valid proxies will be voted in accordance
with the specifications in the proxies. If no specifications are made, the
proxies will be voted in accordance with the recommendations of the Board of
Directors.
On August 25, 1997, Procept had outstanding 13,722,334 shares of common
stock, $.01 par value (the "Common Stock") and 28,000 shares of Series A
Convertible Preferred Stock, $.01 par value (the "Series A Preferred Stock"),
which are its only outstanding classes of voting stock. Only stockholders of
record at the close of business on August 25, 1997 will be entitled to vote at
the meeting. The holders of Common Stock are entitled to one vote for each share
registered in their names on the record date with respect to all matters to be
acted upon at the meeting. The holders of Series A Preferred Stock are entitled
to 213.33 votes for each share registered in their names on the record date with
respect to all matters to be acted upon at the meeting, representing an
aggregate of 5,973,334 votes. The presence at the meeting, in person or by
proxy, of a majority in interest of the shares of Common Stock and Series A
Preferred Stock issued and outstanding and entitled to vote at the meeting shall
constitute a quorum for the transaction of business. Abstentions and broker
non-votes will be considered present for purposes of determining the presence of
a quorum.
The cost of preparing, assembling and mailing the material in
connection with the solicitation of proxies will be borne by the Company. In
addition to use of the mails, proxies may be solicited by officers and other
employees of the Company personally, by telephone, facsimile or other means. To
assist in the solicitation of proxies, the Company has engaged D.F. King for a
base fee of $3,500 plus an additional fee per contact made. The Company will
also request brokerage houses and other nominees of fiduciaries to forward
copies of its proxy material to beneficial owners of Common Stock held in their
names, and the Company will reimburse them for reasonable out-of-pocket expenses
incurred in doing so.
The approximate date on which this proxy statement and accompanying
proxy are first being sent or given to stockholders is September 6, 1997.
IMPORTANT
Please mark, date and sign the enclosed proxy and return it at your
earliest convenience in the enclosed postage-prepaid return envelope so that,
whether you intend to be present at the Special Meeting or not, your shares
can be voted. This will not limit your right to attend or vote at the
meeting.
<PAGE>
JUNE 1997 PRIVATE PLACEMENT
Pursuant to a Securities Purchase Agreement dated as of June 30, 1997
(the "Purchase Agreement") among the Company, The Aries Trust, a Cayman Island
trust (the "Trust"), and The Aries Domestic Fund, L.P., a Delaware limited
partnership (the "Fund" and, together with the Trust, the "Purchasers"), the
Purchasers invested an aggregate of $3 million of their respective general funds
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 "Notes") and
Class A and Class B Warrants (the "Warrants") to purchase, at any time prior to
June 30, 2002, 2,742,696 and 7,602,132 shares of Common Stock, respectively (the
"Series A Transaction").
The Trust purchased 3,882,667 shares of Common Stock, a $130,000 Note
initially convertible into 277,333 shares of Common Stock and Warrants to
purchase 6,724,138 additional shares of Common Stock; the Fund purchased
2,090,667 shares of Common Stock, a $70,000 Note initially convertible into
149,333 shares of Common Stock and Warrants to purchase 3,620,690 additional
shares of Common Stock. The 5,973,334 shares of Common Stock acquired on June
30, 1997, represented approximately 30% of the outstanding Common Stock of
Procept upon consummation of the Series A Transaction. At June 30, 1997, the
securities acquired by the Purchasers in the Series A Transaction, on an as
converted basis, represented more than 50% of the Company's outstanding Common
Stock. Prior to the transactions contemplated by the Purchase Agreement, no
single stockholder held 10% or more of the outstanding Common Stock. The
securities purchased in the Series A Transaction are subject to significant
anti-dilution adjustments.
At the Company's annual meeting, the 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 Stock"). On August 22,
1997, the Purchasers exchanged the Common Shares for 28,000 shares of the Series
A Preferred Stock. Such Series A Preferred Stock is initially convertible back
into Common Stock at a conversion price of $.46875 per share, which is the same
price paid by the Purchasers for each Common Share in the Series A Transaction
and is subject to significant conversion rate adjustments, based on future
events. Most significantly, upon the earlier of this meeting (if a vote in
favor of this proposal is obtained) or September 30, 1997 (the "Approval Date"):
(i) the conversion price of the Series A Preferred Stock and the Notes
will be reduced to a conversion price equal to the lesser of $0.29 or 50% of a
formula price based on trading prices at various times (the "New Price"); and
(ii) the Class A Warrants and Class B Warrants will be exchangeable for
new warrants (the "New Warrants") to acquire, at an exercise price per share
equal to the New Price, the number of shares determined by dividing the sum of
the aggregate of the exercise price of the Class A Warrants and the Class B
Warrants by the New Price.
Please refer to the following share ownership table for more detail
concerning the aggregate and percentage beneficial ownership positions of the
Purchasers and their affiliates.
Other significant features of the Series A Preferred Stock 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. Generally, except as required by law, the
holders of the shares of Series A Preferred Stock and the holders of the shares
of Common Stock will vote together as one class, with the holders of Series A
Preferred Stock entitled to a number of votes equal to the number of shares of
Common Stock into which their shares are then convertible. However, until the
Approval Date, the holders of the Series A Preferred Stock are not entitled to
vote in any election of directors of the Company except that they may appoint up
to three directors of the Company. In addition, the affirmative vote of at least
50% of the outstanding Series A Preferred Stock, voting separately as a class,
is needed, among other things, to incur indebtedness in excess of $100,000 and
to authorize the issuance of equity securities ranking prior to or on parity
with the Series A Preferred Stock.
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<PAGE>
Pursuant the terms of the Purchase Agreement, the Purchasers have a
right, for a period of five years, to nominate a majority of the voting members
of Procept's Board of Directors. However, until the Approval Date, the
Purchasers may only nominate up to three members of the Board. Procept has
agreed to use its best efforts, including by the voting of proxies it is
entitled to vote, to elect such designees. Michael S. Weiss has been elected as
a member and as Chairman of the Board of Directors of Procept as a designee of
the Purchasers. The Purchasers hold numerous other control rights on the
activities of the Company under the Purchase Agreement, including but not
limited to, rights over issuance of equity securities, borrowing of money,
expenditures and acquisitions.
The Company's Board of Directors unanimously approved the Series A
Transaction based upon Procept's need to raise funds in order to finance
continuing activities, the lack of attractive alternative opportunities and the
Purchasers' experience with financially-troubled biotechnology companies. In
addition, at the time of the Series A Transaction, a placement agent affiliated
with the Purchasers was engaged for a proposed private offering of between 25
and 200 units, each consisting of 1,000 shares of Series B Preferred Stock and
five-year warrants to purchase 333,333 shares of Common stock. Such offering
would occur, if at all, after October 1, 1997. See "Proposal 2 - Approval of the
Series B Unit Offering."
Under a letter of intent with the Purchasers, the Company agreed to
enter into a non-exclusive financial advisory agreement with a financial advisor
affiliated with the Purchasers. Such engagement will provide that the financial
advisor receive (i) a monthly retainer of $4,000 (minimum engagement of 24
months), (ii) out-of-pocket expenses and (iii) standard cash and equity success
fees in the event the financial advisor assists the Company in connection with
certain financings, business combinations, technology acquisitions and strategic
transactions. In addition, upon the completion of a subsequent equity financing,
the Company has agreed to sell to the financial advisor and/or its designees,
for $.001 per warrant, warrants to purchase a number of securities equal to 15%
of the securities sold in such subsequent financing, exercisable for a period of
five years commencing six months after the final closing date of the subsequent
financing at an exercise price equal to 110% of the initial offering price of
the securities sold in such financing.
The Series A Transaction and the above-referenced agreements are
referred to herein as the "June 1997 Agreements."
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<PAGE>
SHARE OWNERSHIP
The following table and footnotes set forth certain information
regarding the beneficial ownership of Procept's Common Stock as of August 22,
1997 by (i) persons known by Procept to be beneficial owners of more than 5% of
the Common Stock, (ii) the Chief Executive Officer and all other executive
officers whose 1996 salary and bonus exceeded $100,000, (iii) each director of
Procept, and (iv) all current executive officers and directors of Procept as a
group:
<TABLE>
<CAPTION>
Shares
Beneficially Owned (1)
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Beneficial Owner Shares Percent
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<S> <C> <C>
The Aries Trust...................................................... 22,727,330(2) 62.4%
The Aries Domestic Fund
Paramount Capital Asset Management, Inc.
Dr. Lindsay A. Rosenwald
c/o Paramount Capital Asset Management, Inc.
787 Seventh Avenue
New York, NY 10019
Aeneas Venture Corporation........................................... 1,184,393 6.0%
600 Atlantic Avenue
Boston, MA 02110
Stanley C. Erck...................................................... 262,648(3) 1.3%
James C. Jenson, Ph.D................................................ 79,365(4) *
Michael J. Higgins................................................... 40,649(5) *
Michael S. Weiss..................................................... 0(6) *
Zola P. Horovitz, Ph.D............................................... 30,000(7) *
Max Link, Ph.D....................................................... 30,000(8) *
Ellis L. Reinherz, M.D............................................... 26,412(9) *
All current executive officers and directors as
a group (7 persons)............................................. 469,074(10) 2.3%
</TABLE>
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* Indicates less than 1%
(1) Numbers of shares and percentages assume the conversion of the outstanding
shares of Series A Preferred Stock at the lowest conversion rate which the
Company knows will be in effect at any point in the 60 day period
commencing on August 22, 1997. Unless otherwise indicated in these
footnotes, each stockholder has sole voting and investment power with
respect to the shares of Common Stock shown as beneficially owned by such
stockholder, subject to community property laws where applicable. Shares of
Common Stock issuable upon the conversion of Series A Preferred Stock or on
the exercise of options or warrants currently exercisable or exercisable
within 60 days of August 22, 1997 are treated as outstanding solely for
the purpose of calculating the amount and percentage of shares beneficially
owned by the holder of such options or warrants.
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<PAGE>
(2) Represents the following shares which are issuable on conversion or
exercise of outstanding convertible securities within 60 days after
August 22, 1997 and assuming a conversion price of $0.29 which
represents the highest possible conversion price on the Approval Date:
(i) 6,275,862 shares of Common Stock issuable on conversion of 18,200
outstanding shares of Series A Preferred Stock held by The Aries Trust,
(ii) 448,275 shares of Common Stock issuable upon conversion of
outstanding Notes in the principal amount of $130,000 held by The Aries
Trust, assuming a conversion rate of $0.29, (iii) 8,048,628 shares of
Common Stock issuable upon exercise of outstanding warrants held by The
Aries Trust, assuming an exercise price of $0.29, (iv) assuming an
exercise price of $0.29, 3,379,310 shares of Common Stock issuable on
conversion of 9,800 outstanding shares of Series A Preferred Stock held
by The Aries Domestic Fund, L.P., (v) 241,379 shares of Common Stock
issuable upon conversion of outstanding Notes in the principal amount of
$70,000 held by The Aries Domestic Fund, L.P., assuming a conversion
rate of $0.29, and (vi) 4,333,876 shares of Common Stock issuable upon
exercise of outstanding warrants held by The Aries Domestic Fund, L.P.,
assuming an exercise price of $0.29. A lower conversion price will result
in a higher number of shares being issuable to the Purchasers on
conversion or exercise of the above securities. The Conversion Price on
the Approval Date shall be reset to equal the lesser of $0.29 or 50% of
the market-based price. The conversion rate of the Preferred Stock and
the Notes and the number of shares issuable pursuant to the Warrants
held by the Purchasers are subject to increase in accordance with the
terms of such securities. A lower conversion price will result in a
higher number of shares being issuable to the Purchasers on conversion
or exercise of the above securities. Paramount Capital Asset Management,
Inc. ("PCAM"), Dr. Lindsay A. Rosenwald, The Aries Trust and The Aries
Domestic Fund, L.P. (the "Purchasers") filed a Statement on Schedule 13D
with the Securities and Exchange Commission reflecting the Purchasers'
acquisition of these securities on June 30, 1997 (the "Schedule 13-D").
According to the Schedule 13D, Dr. Rosenwald and PCAM may be deemed to
have shared voting and investment power over the shares of Common Stock
that may be deemed to be beneficially owned by the Purchasers. Pursuant
to the Securities Purchase Agreement dated June 30, 1997 with the
Company, the Purchasers have the right to appoint a majority of the
members of the Board of Directors of the Company; provided, however,
that until the Approval Date, the Purchasers have the contractual right
to appoint only three directors. As of the date of this Proxy Statement,
the Purchasers have only nominated one director to the Board of
Directors, Michael S. Weiss. On the Approval Date the Warrants will be
exchangeable for new Warrants to acquire, at an exercise price per share
equal to the New Price, the number of shares determined by dividing the
sum of the aggregate of the exercise price of the Class A Warrants and
the Class B Warrants by the New Price.
(3) Includes 184,371 shares issuable to Mr. Erck upon the exercise of options
currently exercisable or exercisable within 60 days of August 22, 1997.
(4) Includes 40 shares held by Dr. Jenson's sons and 74,569 shares issuable
to Dr. Jenson upon the exercise of options currently exercisable or
exercisable within 60 days of August 22, 1997; these options, however,
will terminate on September 29, 1997.
(5) Includes 36,030 shares issuable to Mr. Higgins upon the exercise of
options currently exercisable or exercisable within 60 days of August
22, 1997 and 100 shares held in a trust for the benefit of Mr.
Higgins' daughter.
(6) Does not include shares held of record or issuable to the Purchasers. Mr.
Weiss is a Senior Managing Director of Paramount Capital, Inc., an
affiliate of PCAM, which is the investment manager of The Aries Fund and
the General Partner of the Aries Domestic Fund, L.P. Mr. Weiss disclaims
beneficial ownership of the shares held by the Purchasers.
(7) Consists solely of shares issuable to Dr. Horovitz upon the exercise of
options currently exercisable or exercisable within 60 days of August
22, 1997.
(8) Includes 15,000 shares issuable to Dr. Link upon the exercise of options
currently exercisable or exercisable within 60 days of August 22, 1997.
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<PAGE>
(9) Includes 2,500 shares held by Dr. Reinherz's son.
(10) See notes (3) through (9).
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<PAGE>
PROPOSAL 1 -- RATIFICATION AND APPROVAL OF THE JUNE 1997 AGREEMENTS
Nasdaq Requirements
The Company's shares of Common Stock are listed on the National Market
operated by The Nasdaq Stock Market, Inc. ("Nasdaq"), a subsidiary of the
National Association of Securities Dealers (the "NASD"). In the Company's Nasdaq
National Market Listing Agreement (the "Listing Agreement"), the Company agreed
to obtain shareholder approval for certain transactions and acknowledged that
the NASD may remove the Company's securities from the National Market if the
Company fails to comply with its agreement. Rule 4460 of the Nasdaq Marketplace
Rules requires issuers listed on the Nasdaq National Market to obtain
shareholder approval prior to the issuance of (i) securities resulting in a
change in control of the issuer and (ii) common stock (or securities convertible
into or exercisable for common stock) at a price less than market value if such
issuance equals 20% or more of the common stock or voting power outstanding
before the issuance, except in a public offering.
The Company believes that the Nasdaq Marketplace Rules require approval
of certain of the transactions and agreements contemplated by the June 1997
Agreements. Failure to obtain such approval, moreover, could result in the NASD
notifying the Company that its Common Stock will no longer be quoted on the
Nasdaq National Market. The Board of Directors believes that such a delisting
could adversely affect the ability of the Company to attract new investors, may
result in decreased liquidity of the outstanding shares of Common Stock and,
consequently, could reduce the price at which such shares trade and the
transactions costs inherent to trading such shares. As a result, the Board of
Directors is seeking ratification and approval of the June 1997 Agreements. See
"June 1997 Private Placement." There can be no assurance, however, that such
ratification and approval of the June 1997 Agreements will prevent Nasdaq from
delisting the Common Stock.
Vote Required
The Nasdaq Marketplace Rules provide that the minimum vote which
constitutes stockholder approval is a majority of the total votes cast on the
proposal in person or by proxy. The Common Stock and Series A Preferred Stock
will vote together as a single class on an as-converted basis. Broker non-votes
will not be counted as present or represented for this purpose. Abstentions will
be counted as present and entitled to vote and, accordingly, will have the
effect of a negative vote.
In light of the Purchasers' participation in the transactions for which
approval is sought, the Purchasers have informed the Company that they intend to
vote their shares on this proposal in the same proportion in favor, against and
abstain as the votes cast by the other stockholders of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 1.
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<PAGE>
PROPOSAL 2 -- APPROVAL OF THE SERIES B UNIT OFFERING
The Company will require substantial additional capital to continue its
operations and has entered into a letter of intent (the "Letter of Intent") with
a placement agent (the "Placement Agent") for a private placement of its equity
securities (the "Series B Unit Offering"). However, such Letter of Intent does
not constitute a legal commitment by the Placement Agent and there can be no
assurance that such offering will be consummated, in which event the Company
will require alternative financing to continue its operations or that the terms
of the proposed offering will not change as a result of negotiation between the
Company and the Placement Agent.
It is anticipated that the Series B Unit Offering will be for a maximum
of up to 200 units (each a "Series B Unit") with each unit consisting of 1,000
shares of Series B Preferred Stock (a series of preferred stock to be created by
the Board of Directors) and B Unit Warrants ("Series B Unit Warrants") to
purchase 333,333 shares of Common Stock. There can be no assurance that the
maximum number of Series B Units, or any, will be sold.
Series B Preferred Stock
Procept currently anticipates that the terms of the Series B Preferred
Stock will be substantially similar to the Series A Preferred Stock, with the
initial conversion price to Common Stock set at a substantial discount
(currently estimated to be 25%) to market at the closing of the Series B Unit
Offering. Such terms, however, are subject to negotiation with the Placement
Agent.
The conversion price for the Series B Preferred Stock will be subject
to adjustment upon the occurrence of certain events, such as below market or
conversion price issuances or stock dividends or stock splits of the Common
Stock. In addition, the conversion price will be subject to certain reset
features in the event the Common Stock price at certain dates is less than the
then effective conversion price or fails to achieve certain agreed upon levels.
Additionally, an adjustment in the conversion price is expected to be made in
the case of the reclassification or exchange of the Common Stock, consolidation
or merger of the Company with or into another corporation or sale of all or
substantially all of the assets of the Company.
Series B Unit Warrants
The following is a summary of the currently proposed terms of the
Series B Unit Warrants. Such terms are subject to negotiation with the Placement
Agent.
Each Series B Unit Warrant will be exercisable, initially, for one
share of Common Stock at an exercise price equal to a substantial discount to
the then current market-based price. As proposed, the Series B Unit Warrants
will be exercisable prior to the fifth anniversary of the final closing date of
the Series B Unit Offering, but will be subject to earlier redemption based on
market prices. No fractional shares will be issued upon exercise of the Series B
Unit Warrants, and the Company will pay cash in lieu of fractional shares.
The exercise price and the number of shares of Common Stock purchasable
upon the exercise of the Series B Unit Warrants are expected
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<PAGE>
to be subject to adjustment upon the occurrence of certain events, such as below
market or conversion price issuances or stock dividends or stock splits of the
Common Stock. Additionally, an adjustment is expected to be made in the case of
the reclassification or exchange of the Common Stock, consolidation or merger of
the Company with or into another corporation or sale of all or substantially all
of the assets of the Company, in order to enable warrant holders to acquire the
kind and number of shares of Common Stock that might otherwise have been
purchased upon the exercise of the B Unit Warrants. No adjustment to the
exercise price of the shares subject to the B Unit Warrants will be made for
dividends (other than dividends in the form of stock), if any, paid on the
Common Stock.
The Placement Agent
The Company anticipates that it will enter into a Placement Agency
Agreement (the "Placement Agency Agreement") with the Placement Agent whereby
the Placement Agent will act as placement agent in connection with a "best
efforts" offering of the Series B Units in the Series B Unit offering.
Under the proposed terms, the Placement Agent will receive cash
commissions of 9% of the gross proceeds from the sale of all units in the Series
B Unit Offering. The Company is also expected to cover the Placement Agent's
expenses including without limitation, payment of a non-accountable expense
allowance equal to 4% of the gross proceeds from the sale of all of the units in
the Series B Unit Offering. Furthermore, it is anticipated that upon the final
closing of the Series B Unit Offering, the Company will grant the Placement
Agent or its designees warrants to purchase securities equal to 10% of the
Series B Units sold in the Series B Unit Offering at an exercise price per
Series B Unit of 110% the offering price of such Series B Units in the Series B
Offering.
Dilution
The issuance of shares of Series B Preferred Stock, and Common Stock
upon the exercise of Series B Unit Warrants will cause substantial dilution to
the voting power and ownership interest of the current stockholders of the
Company.
The conversion price of the Series A Preferred Stock and the Notes is
subject to adjustment in the event that the initial conversion price of the
Series B Preferred Stock is less than two times the then current conversion
price of the Series A Preferred Stock. In such event, the conversion price of
the Series A Preferred Stock and the Notes will be reduced to an amount equal to
50% of the initial conversion price of the Series B Preferred Stock. A similar
adjustment will be effected if the exercise price of the Series B Unit Warrants
or the effective price of the Common Stock underlying the Series B Units are
less than two times the then current exercise price of the New Warrants. Such
adjustments in the conversion and exercise prices of the Series A Preferred
Stock, the Notes and the New Warrants (the "Series A Securities") will result
in further dilution to the voting power and ownership interest of the
current stockholders of the Company. In the event there is no Series B
Offering, the conversion and exercise prices of the Series A Securities will be
subject to similar adjustments based on the prices of the next equity
financing of the Company raising more than $2,000,000.
Vote and Recommendation
Approval of the Series B Unit Offering requires (i) the affirmative
vote of the holders of a majority of the votes entitled to be cast thereon
present in person or by proxy at the Special Meeting (with the Common Stock and
the Series A Preferred Stock voting together as a single class on an as
converted basis) and (ii) the affirmative vote of the holders of at least 50% of
the outstanding Series A Preferred Stock to authorize and issue the Series B
Preferred Stock.
The Purchasers have informed the Company that they intend to vote their
shares on the proposal in the same proportion in favor, against and abstain as
the votes cast by the stockholders of the Company, except with regard to the
creation and issuance of the Series B Preferred Stock of which the Purchasers,
being the only shareholders with a right to vote on such matters, have indicated
they will vote in favor of such creation and issuance.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 2.
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<PAGE>
PROPOSAL 3 -- APPROVAL OF AN AMENDMENT TO PROCEPT'S
CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
Proposed Reverse Split
The Company's Board of Directors has unanimously approved and
determined to submit to the stockholders of the Company an amendment to the
Company's Restated Certificate of Incorporation (the "Restated Certificate of
Incorporation"), to effect a one for seven reverse stock split (a stock
combination) of the Company's outstanding Common Stock (the "Reverse Split
Amendment"). The Reverse Split Amendment would not affect the number of shares
of Series A Preferred Stock outstanding, although the conversion rate of the
Series A Preferred Stock to Common Stock would be proportionally adjusted. The
Company is currently authorized to issue 30,000,000 shares of Common Stock, of
which 13,722,334 were outstanding on August 25, 1997. If the Reverse Split
Amendment is effected, the number of authorized shares would remain the same,
but the number of shares outstanding would be decreased to approximately
1,960,333. The relative rights and preferences of the Common Stock and Series A
Preferred Stock would be unaffected by the reverse split. Furthermore, the
stockholders' percentage ownership of the Company and the number of Company
stockholders should not materially change as a result of the Reverse Split
Amendment being effected. The par value per share of Common Stock would remain
at $0.01 following the reverse stock split; as a consequence, the aggregate
capital in excess of par value attributable to the outstanding Common Stock for
statutory and accounting purposes would be increased.
Nasdaq Minimum Bid Price
As amended effective August 22, 1997, Rule 4450 of the Nasdaq
Marketplace Rules provides that issuers listed on the Nasdaq National Market
maintain a minimum bid price of $1.00 per share for the listed stock. Nasdaq has
informally indicated that it will begin to review issuers for compliance with
the requirement in February 1998.
The Company's shares of Common Stock have continuously traded below
$1.00 since March 25, 1997 and may be delisted from the Nasdaq National Market
unless such shares achieve a minimum bid price of $1.00 or more. The Board of
Directors believes that such a delisting could adversely affect the ability of
the Company to attract new investors, may result in decreased liquidity of the
outstanding shares of Common Stock and, consequently, could reduce the price at
which such shares trade and the transaction costs inherent to trading such
shares. The Company believes that, if the Reverse Split Amendment is approved,
there is a greater likelihood that the minimum bid price of the Common Stock
will be maintained at a level over $1.00 per share.
Even though a reverse stock split, by itself, does not impact a
corporation's assets or prospects, reverse stock splits can result in a decrease
in the aggregate market value of a corporation's equity capital. The Board of
Directors, however, believes that this risk is off-set by the prospect that the
reverse stock split will improve the likelihood that the Company will be able to
maintain its Nasdaq National Market listing and may, by increasing the per share
price, make an investment in the Common Stock more attractive for certain
investors. There can be no assurance, however, that approval of the Reverse
Split Amendment will succeed in raising the bid price of the Company's Common
Stock above $1.00 per share, that such minimum price, if achieved, would be
maintained, or that even if the Nasdaq's minimum bid price requirement were
satisfied, the Company's Common Stock would not be delisted by the Nasdaq for
other reasons.
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<PAGE>
Uses for Available Shares of Common Stock
As of August 25, 1997 there were (i) 13,722,334 shares of Common Stock
outstanding; (ii) 28,000 shares of Series A Preferred Stock outstanding,
currently convertible into 5,973,332 shares of Common Stock; (iii) 1,055,740
options granted and not expired, cancelled nor exercised; and (iv) warrants
granted to purchase 16,569,688 shares of Common Stock. As of August 25, 1997,
the Company also had 517,862 shares reserved for issuance upon exercise of
options not yet granted under the 1989 Stock Plan, 200,000 shares reserved for
issuance upon exercise of options not yet granted under the Director Plan and
327,560 shares reserved for issuance under its 1994 Employee Stock Purchase
Plan. In addition, as of the Approval Date, an additional 3,681,840 shares of
Common Stock will be issuable on conversion of the outstanding Series A
Preferred Stock and an additional 262,988 shares will be issuable on conversion
of outstanding Notes, assuming, in each case, a conversion price of $0.29.
However, since the conversion price of the Series A Preferred Stock will be
adjusted to the lesser of $.29 and several market-based prices, there can be no
assurance that such conversion price will obtain. Further, if and when the
conversion rates and anti-dilution adjustments of the Series A Preferred Stock
and anti-dilution adjustments on certain of the outstanding warrants are
triggered by future events as set forth in such instruments, the numbers of
shares of Common Stock issuable upon conversion or exercise of such instruments
may change.
The Board of Directors believes that it is important to ensure that the
Company will continue to have an adequate number of authorized and unissued
shares of Common Stock to cover its current obligations to issue such shares and
otherwise to be available for future use. If the Reverse Split Amendment is
adopted by the stockholders, the increase in the portion of authorized shares
that would be unissued (the "Increased Available Portion of Shares") would be
available for issuance by the Board of Directors from time to time in the future
for any proper corporate purpose, including for such corporate purposes as
financings, acquisitions, employee benefit plans, stock splits and stock
dividends, as the Board of Directors may deem appropriate, without the necessity
of further amendment to the Restated Certificate of Incorporation or further
stockholder action. Any issuance of additional shares of Common Stock at prices
lower than prices paid by current stockholders for their shares of Common Stock
would have a dilutive effect on such existing stockholders.
The Board of Directors anticipates that the Company will need to issue
additional shares of Common Stock (or securities convertible into shares of
Common Stock) during 1997 and 1998 to raise working capital. In this connection,
the Company is a party to the Letter of Intent which contemplates the private
placement of Series B Units after October 1, 1997. See "Proposal 2 - Approval of
the Series B Unit Offering." Neither the Company nor the Placement Agent is
obligated to proceed with the Series B Unit offering, and there can be no
assurance that this transaction will be consummated, nor can the number of
securities proposed to be issued or the pricing thereof be determined at this
time. However, the Series B Unit Offering will not proceed if the Company has
insufficient authorized capital. The Increased Available Portion of Shares would
provide the Company with the flexibility to proceed with the Series B Unit
Offering or to issue shares in connection with other future financings. If the
Reverse Split Amendment is approved at the Meeting, stockholders of the Company
would not need to be solicited for a vote on the Series B Unit Offering or any
other financing transaction in order for such authorized Common Stock to be
sold. Furthermore, the Purchasers have certain put rights with respect to
convertible securities which cannot be converted due to insufficient authorized
but unissued shares of Common Stock.
The issuance of additional shares of Common Stock, while providing
desirable flexibility in carrying out corporate purposes, could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of the outstanding voting stock of the
Company, thereby having an anti-takeover effect. The Company could use the
Increased Available Portion of Shares to frustrate persons seeking to effect a
takeover or otherwise gain control of the Company by, for example, privately
placing shares with purchasers who might side with the Board of Directors in
opposing a hostile
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<PAGE>
takeover bid. Shares of Common Stock could also be issued to a holder that would
thereafter have sufficient voting power to assure that any proposal to amend or
repeal the By-Laws or certain provisions of the Restated Certificate of
Incorporation would not receive the requisite vote. Such uses of the Common
Stock could render more difficult, or discourage, an attempt to acquire control
of the Company, if such transaction were opposed by the Board of Directors.
Exchange of Stock Certificates
If the Reverse Split Amendment is approved by the Company's
stockholders, the Company will instruct its transfer agent to act as its
exchange agent (the "Exchange Agent") in implementing the exchange of
certificates representing outstanding Common Stock.
Commencing on the effective date of the Reverse Split Amendment (the
"Effective Date"), holders of Common Stock will be notified and requested to
surrender their certificates representing shares of Common Stock to the Exchange
Agent in exchange for certificates representing post-reverse split Common Stock.
One share of new Common Stock will be issued in exchange for each seven
presently issued and outstanding shares of Common Stock. Beginning on the
Effective Date, each certificate representing shares of the Company's Common
Stock will be deemed for all corporate purposes to evidence ownership of one
seventh as many shares of post-reverse split Common Stock.
Fractional Shares
No scrip or fractional certificates will be issued in connection with
the Reverse Split Amendment. Stockholders who would otherwise be entitled to
receive fractional shares because they hold a number of shares of Common Stock
not evenly divisible by seven will be entitled, upon surrender to the Exchange
Agent of certificates representing such shares, to receive one additional share
of Common Stock for any fractional share to which they would otherwise be
entitled. As a result of the Reverse Split Amendment, stockholders who now own
"round lots" may hold "odd lots" and, as a result, may be subject to increased
transaction costs on the sale of their Common Stock.
Stockholders are encouraged to surrender their certificates to the
Exchange Agent for certificates evidencing whole shares of the Common Stock due
them for fractional interests.
Federal Income Tax Consequences
The Reverse Split Amendment should not result in the recognition of
gain or loss. The holding period of the shares of postsplit Common Stock will
include the stockholder's respective holding periods for the shares of
pre-reverse split Common Stock exchanged therefor, provided that the shares of
Common Stock were held as a capital asset. The adjusted basis of the shares of
post-reverse split Common Stock will be the same as the adjusted basis of the
Common Stock exchanged therefor.
Although not free from doubt, the above treatment should also apply
with respect to additional shares received for fractional shares. However, it is
possible that the receipt of additional shares could be wholly or partly
taxable. Holders should consult with their own tax advisors.
No Dissenter's Rights
Under Delaware law, stockholders are not entitled to dissenter's rights
of appraisal with respect to the Reverse Split Amendment.
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<PAGE>
Vote Required
The Reverse Split Amendment must be approved by the holders of a
majority of the outstanding shares of Common Stock and Series A Preferred Stock,
voting together as a single class on an as-converted basis. Accordingly,
abstentions and broker non-votes will have the same effect as a vote against the
Amendment.
The Purchasers have informed the Company that they intend to vote their
shares in favor of this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR PROPOSAL 3.
DEADLINE FOR STOCKHOLDER PROPOSALS
In order for a stockholder proposal to be considered for inclusion in Procept's
proxy materials for the 1998 annual meeting, it must be received by Procept at
840 Memorial Drive, Cambridge, Massachusetts 02139, Attention: Michael J.
Higgins, Chief Financial Officer, no later than December 31, 1997.
OTHER MATTERS
The Board of Directors does not know of any business to come before the meeting
other than the matters described in the notice. If other business is properly
presented for consideration at the meeting, the enclosed proxy authorizes the
persons named therein to vote the shares in their discretion.
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<PAGE>
(FRONT OF PROXY CARD)
PROCEPT, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR THE SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 29, 1997
The undersigned stockholder of Procept, Inc. (the "Company") hereby
appoints Stanley C. Erck, Michael J. Higgins and Lynnette C. Fallon, and each of
them acting singly, the attorneys and proxies of the undersigned, with full
power of substitution, to vote on behalf of the undersigned all of the shares of
capital stock of the Company that the undersigned is entitled to vote at the
Special Meeting of Stockholders of the Company to be held September 29, 1997,
and at all adjournments thereof, hereby revoking any proxy heretofore given with
respect to such shares.
This proxy when properly executed will be voted in the manner directed
by the undersigned stockholder(s). If no specification is made, this proxy will
be voted FOR all proposals. In their discretion, the proxies are also authorized
to vote upon such matters as may properly come before the meeting.
PLEASE SIGN AND MAIL PROXY TODAY
Mark Here For Address Change and Note on Reverse [ ]
(Continued and to be signed on reverse side.)
[SEE REVERSE SIDE]
<PAGE>
(REVERSE OF PROXY CARD)
[ X ] Please mark your votes as this example.
The Board of Directors recommends a vote "For" proposals 1, 2 and
3 below.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. To ratify and approve [ ] [ ] [ ]
the June 1997 Agreements.
2. To approve the issuance [ ] [ ] [ ]
of a maximum of 200
units, to investors under
a private placement to be
conducted by the Company,
with each unit consisting
of 1,000 shares of Series
B Preferred Stock and
warrants to purchase
333,333 shares of Common
Stock.
3. To approve an amendment of [ ] [ ] [ ]
the Company's Certificate of
Incorporation to effect a
one-for-seven reverse stock
split.
</TABLE>
Signature:___________________________________________ Date:______________, 1997
Signature if held jointly:___________________________ Date:______________, 1997
NOTE: Please sign exactly as name appears on stock certificate. When shares
are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
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