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 September 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.
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(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 November 10, 1997
----- -----------------------------------
Common Stock, $.01 par value 1,962,036
This report includes a total of 73 pages
Exhibit Index Appears on Page 16
<PAGE>
PROCEPT, INC.
INDEX
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Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
September 30, 1997 and December 31, 1996
Statements of Operations 4
Three months and nine months ended
September 30, 1997 and 1996
Statements of Cash Flows 5
Nine Months ended September 30, 1997 and 1996
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes In Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
<PAGE>
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
PROCEPT, INC.
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,419,333 $1,962,229
Marketable securities -- 4,001,625
Accounts receivable 81,250 172,812
Prepaid expenses and other current assets 113,634 111,237
----------- -----------
Total current assets $2,614,217 $6,247,903
Property and equipment, net 1,138,731 1,863,200
Restricted investment -- 469,000
Deposits 250,615 135,975
Other assets 311,806 201,188
----------- -----------
TOTAL ASSETS $4,315,369 $8,917,266
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $726,898 $773,501
Accrued compensation 166,386 122,712
Accrued contract research costs 447,216 438,513
Other current liabilities 92,518 196,610
Current portion of capital lease obligations 136,332 614,063
----------- -----------
Total current liabilities $1,569,350 $2,145,399
Capital lease obligations, less current portion -- 20,231
Other noncurrent liabilities 367,375 435,529
Commitments and contingencies
Stockholders' equity (Note 2):
Preferred stock, par value $.01 per share;
30,061 shares authorized, 30,060 shares issued
and outstanding at September 30, 1997
(Liquidation Preference; $4,208,400 at
September 30, 1997) 301 --
Common stock, par value $.01 per share;
30,000,000 shares authorized at September 30, 1997
and December 31,1996; 1,962,036 and 1,954,343 shares
issued and outstanding at September 30, 1997
and December 31, 1996, respectively 19,620 19,543
Additional paid-in capital 58,007,695 55,077,844
Receivable from sale of stock (73,242) (73,242)
Accumulated deficit (55,575,730) (48,703,200)
Unrealized (loss) on securities available for sale -- (4,838)
----------- -----------
Total stockholders' equity $2,378,644 $6,316,107
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,315,369 $8,917,266
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
3
<PAGE>
PROCEPT, INC.
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Research and development revenue
under collaborative arrangements $-- $425,000 $-- $1,275,000
Research and development revenue
under collaborative arrangements
with related party 118,750 202,187 389,062 352,187
Revenue from grant -- -- 55,811 ---
Interest income 23,493 160,611 124,414 307,747
------------ ------------ ------------ ------------
Total revenues $142,243 $787,798 $569,287 $1,934,934
------------ ------------ ------------ -----------
Costs and expenses:
Research and development 1,287,328 2,279,974 5,165,693 7,751,247
General and administrative 592,005 689,583 2,017,028 2,310,227
Restructuring charges 220,555 273,324 220,555 273,324
Interest expense 10,940 38,973 38,541 102,012
------------ ------------ ------------ ------------
Total costs and expenses $2,110,828 $3,281,854 $7,441,817 $10,436,810
------------ ------------ ------------ ------------
Net loss $ (1,968,585) $(2,494,056) $(6,872,530) $(8,501,876)
============ ============ ============ ============
Net loss per common share $ (0.80) $ (1.29) $ (3.23) $ (5.50)
============ ============ ============= =============
Weighted average number of common
shares outstanding 2,452,269 1,936,785 2,127,804 1,545,617
============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
4
<PAGE>
PROCEPT, INC.
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,872,530) $ (8,501,876)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 774,683 924,426
Non-cash related party revenue (112,500) (112,500)
Gain on sale of marketable securities -- (1,359)
Changes in operating assets and liabilities:
Accounts receivable 91,562 (158,687)
Prepaid expense and other current assets (2,397) 7,452
Deposits (114,640) (52,300)
Other assets 1,882 2,945
Accounts payable (46,603) (481,464)
Accrued compensation 43,674 124,853
Accrued contract research 8,703 (23,075)
Other current liabilities (104,092) (183,139)
Other noncurrent liabilities (68,154) 30,429
Deferred revenue -- (1,275,000)
------------ ------------
Net cash used in operating activities $ (6,400,412) $ (9,699,295)
------------ ------------
Cash flows from investing activities:
Capital expenditures (50,214) (101,510)
Proceeds from maturity of marketable securities 4,006,463 1,000,000
Proceeds from sale of marketable securities -- 2,004,070
Purchase of marketable securities -- (6,989,032)
Decrease in restricted investments 469,000 53,000
------------ ------------
Net cash provided by (used in)
investing activities $ 4,425,249 $ (4,033,472)
------------ ------------
Cash flows from financing activities:
Principal payments on capital lease obligations (497,962) (707,615)
Proceeds from issuance of common stock 410 4,982,941
Proceeds from Private Placement of stock 3,005,999 11,028,289
Expenses from Private Placement securities (131,381) --
Deferred financing charges -- 152,773
Proceeds from employee stock purchase plan 55,201 96,764
Proceeds from sale of common stock warrants -- 220
------------ ------------
Net cash provided by
financing activities $ 2,432,267 $ 15,553,372
------------ ------------
Net change in cash and cash equivalents 457,104 1,820,605
Cash and cash equivalents at beginning of period 1,962,229 565,521
------------ ------------
Cash and cash equivalents at end of period $ 2,419,333 $ 2,386,126
============ ============
Supplemental disclosures and non-cash transactions:
Interest paid $ 25,896 $ 110,225
============ ============
</TABLE>
The accompanying notes are an integral part of the Financial Statements.
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 $55.6 million through
September 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 nine-month periods
ended September 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 September 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 September 29, 1997, Procept's stockholders approved a one-for-seven reverse
split of the Company's common stock (the "Reverse Stock Split"). The Reverse
Stock Split was effected on October 14, 1997. Stockholders' equity has been
restated to give retroactive application to the Reverse Stock Split in prior
periods by reclassifying from Common Stock to additional paid in capital the par
value of
6
<PAGE>
the eliminated shares arising from the Reverse Stock Split. In addition, all
references in the financial statements to number of shares, per share amounts,
and stock warrant data of the Company's Common Stock have been restated.
On June 30, 1997, the Company completed a $3.0 million self-managed Private
Placement of its securities with The Aries Fund and The Aries Domestic Fund L.P.
(collectively the "Aries Funds"). The Company received proceeds of $2.8 million
for the issuance of 853,334 shares of Common Stock (the "Common Shares"). The
Common Shares contained certain contractual obligations including, but not
limited to, the right to convert the Common Shares into preferred stock upon
stockholder approval of such preferred stock. In addition to the Common Shares,
the Aries Funds received Class A and Class B warrants to purchase 1,477,834
shares of Common Stock. These warrants contained reset and conversion features
tied to the performance of the Company's Common Stock. The Company received an
additional $200,000 for the issuance of two convertible promissory notes. The
notes accrued interest at a rate of 12% per year and were 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 the securities issued in the June
1997 Private Placement exercised the right to convert their Common Stock to
shares of Series A Preferred. On August 22, 1997, the Aries Funds converted
their Common Stock holdings of 853,334 shares into 28,000 shares of Series A
Preferred. Accordingly, the weighted average shares outstanding includes the
Common Shares issued in the June 1997 Private Placement for the fifty-three (53)
day period from issuance to conversion (July 1, 1997 - August 22, 1997)
resulting in the weighted average shares outstanding being greater than the
shares outstanding at September 30, 1997. If these shares were excluded from the
weighted average shares outstanding calculation, the earnings per share for the
three- and nine-month periods ended September 30, 1997 and 1996 would have been
$1.00 and $3.51 respectively. On September 30, 1997, the Aries Funds converted
the convertible promissory notes and the corresponding accrued interest into
2,060 shares of Series A Preferred.
The Series A Preferred was initially convertible into Common Stock at a
conversion price equal to the price paid by the purchasers for the Common
Shares. As of September 30, 1997, the conversion price of the Series A Preferred
was $1.09, but remains subject to further conversion rate adjustments based on
future events. At September 30, 1997, the Series A Preferred was convertible
into 2,747,484 shares of Common Stock. Other significant features of the Series
A Preferred include (i) a per share cumulative annual dividend, payable in cash
or in kind, of 10% of the sum of $140 plus accrued but unpaid dividends, (ii)
the right to participate in most subsequent dividend distributions to Common ,
(iii) the right to vote the Series A Preferred shares on an as converted to
Common Stock basis reflecting the then effective conversion price, and (iv) the
right to a liquidation preference of $140 per share plus accrued but unpaid
dividends.
7
<PAGE>
Furthermore, on September 30, 1997 the Class A and Class B warrants issued in
the June 1997 Private Placement were exchanged for 3,283,132 new warrants at an
exercise price of $1.09. The Company incurred costs in the amount of $131,381
related to the June 1997 Private Placement and the subsequent conversion events
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 September 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.
In August 1997, Procept announced that it had entered into an agreement with
Abbott Laboratories, Inc. ("Abbott") in the area of NMR-based drug discovery.
Under the terms of the Agreement, Abbott and Procept will cooperate in the
screening by NMR of a specialized compound library against an undisclosed
Procept target. Based on the results of this collaboration, the companies may
negotiate the terms of a further agreement to license and develop any drug leads
first identified during the screening period. This represents the Company's
first agreement with a pharmaceutical partner involving NMR-based drug
discovery.
8
<PAGE>
4. RESTRUCTURING
-------------
In September 1996, the Company implemented a restructuring plan that resulted in
the elimination of twenty positions, mostly from the research organization. The
amount of termination benefits accrued and charged to restructuring costs in the
statement of operations for the three-month and nine-month periods ended
September 30, 1996 was $273,000.
In July 1997, the Company further reduced staffing in its research organization
through the elimination of six senior research positions. The amount of
termination benefits accrued and charged to restructuring costs in the statement
of operations for the three-month and nine-month periods ended September 30,
1997 was $221,000. The amount of termination benefits paid and charged against
the liability for the three months and nine months ended September 30, 1997 was
$126,000.
5. 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.
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 $55.6 million through September 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
9
<PAGE>
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.
Three Months Ended September 30, 1997 and 1996
The Company's total revenues decreased to $142,000 in the third quarter of 1997
from $788,000 during the same period of 1996, principally as a result of the
scheduled completion of the Sandoz Agreement. In the third quarter of 1997,
revenues consisted of $119,000 earned under the VacTex Agreement and $23,000 in
interest earned on invested funds. In 1996, third quarter revenues consisted of
$425,000 earned under the Sandoz Agreement, $202,000 earned under the VacTex
Agreement and $161,000 in interest earned on invested funds.
The Company's total operating expenses decreased to $2.1 million in the third
quarter of 1997, from $3.3 million during the same period in 1996. Research and
development expenses decreased 44% to $1.3 million in the third quarter of 1997
from $2.3 million in the third 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 third quarter of 1996 to
the same period in 1997. The 14% decrease in general and administrative expenses
during the third quarter of 1997 to $592,000 from $690,000 in the third quarter
of 1996 reflects a decrease in administrative personnel as well as reduced
general and administrative expenses due to cost control measures. The Company
incurred charges of $273,000 and $221,000 related to the restructuring of its
research operations during the third quarter of 1996 and 1997 respectively.
Interest expense decreased to $11,000 in the third quarter of 1997 from $39,000
in the third quarter of 1996 as a result of the decrease in payments under the
Company's lease financing arrangements.
Nine months ended September 30, 1997 and 1996
The Company's nine month 1997 total revenues decreased to $569,000 from
$1,935,000 during the same period of 1996, principally as a result of the
scheduled completion of the Sandoz Agreement. In the nine-month period of 1997,
revenues consisted of $389,000 earned under the VacTex Agreement, $56,000 under
a grant from the National Cooperative Drug Discovery Group and $124,000 in
interest earned on invested funds. In the nine-month period of 1996, revenues
consisted of $1,275,000 earned under the Sandoz Agreement, $352,000 earned under
the VacTex Agreement and $308,000 in interest earned on invested funds.
The Company's total operating expenses decreased to $7.4 million in the
nine-month period of 1997 from $10.4 million during the same period in 1996.
Research and development expenses decreased 33% to $5.2 million in the first
nine months of 1997 from $7.8 million in the first nine
10
<PAGE>
months 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 third quarter of 1996 to the same period in
1997. The 13% decrease in general and administrative expenses during the first
nine months of 1997 to $2.0 million from $2.3 million in the first nine months
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 $39,000 in the first nine months of 1997 from $102,000 in
the first nine months of 1996 as a result of the decrease in payments under the
Company's lease financing arrangements.
FINANCIAL CONDITION
At September 30, 1997, the Company's aggregate cash and cash equivalents were
$2.4 million, a net increase of $.5 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 $2.8 million, the
maturity of a marketable security of $4.0 million and the conversion of a
restricted investment to cash of $.5 million offset by $6.4 million used in
operations, principally to fund research and development activities and
principal payments on capital lease obligations of $.5 million.
In July 1997, the Company reduced staffing in its research organization through
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 June 1997 Private Placement and interest income will be
sufficient to fund Procept's financial needs for the remainder of 1997.
Additional financing will be required in order to fund the Company's operations
through 1998 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 an 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.
11
<PAGE>
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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 23, 1997, Commonwealth Associates ("Commonwealth") filed a Complaint
with the United States District Court for the Southern District of New York
naming the Company as a defendant (the "Complaint"). The Complaint alleges that
the Company breached obligations to Commonwealth under the Underwriting
Agreement between Commonwealth and the Company dated February 8, 1996, giving
Commonwealth a right of first refusal to act as co-lead underwriter or
co-managing agent of a public offering or Private Placement of the Company's
securities during the period ended August 8, 1997. In the Complaint,
Commonwealth seeks aggregate compensatory damages in the amount of $750,000,
incidental and consequential damages in an amount to be proven at trial, costs,
disbursements and accrued interest and such other and further relief as the
court deems proper. The Company was served the Complaint on November 3, 1997 and
must respond by November 23, 1997 or face judgment by default. The Company
believes that Commonwealth's claims are without factual or legal merit. The
Company does not believe this action will have a material adverse effect on the
Company's business and it intends to vigorously defend this action. However,
given the early stage of this litigation, no assurance may be given that the
Company will be successful in its defense. A decision by the court in
Commonwealth's favor or any other conclusion of this litigation in a manner
adverse to the Company could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company is not a party to any material legal proceedings, except as set
forth above.
12
<PAGE>
Item 2. Changes in Securities
(a) Issuance of Series A Convertible Preferred Stock and New Warrants. On August
22, 1997, the Aries Funds exchanged outstanding shares of the Company's Common
Stock for an aggregate of 28,000 shares of the Company's Series A Preferred. On
September 30, 1997, the Aries Funds converted outstanding Senior Convertible
Notes issued by the Company in the aggregate principal amount of $200,000 for an
additional aggregate of 2,060 shares of Series A Preferred.
In addition, on September 30, 1997, outstanding warrants for an aggregate of
1,477,834 shares of the Company's Common Stock held by the Aries Funds
converted, in accordance with their terms, to "New" warrants (the "New
Warrants") exercisable for an aggregate of 3,283,132 shares of the Company's
Common Stock at an exercise price of $1.09, subject to future adjustments.
The issuance of the shares of Series A Preferred and New Warrants were made in
reliance upon the exemption from registration under Section 4(2) of the
Securities Act of 1933 as transactions not involving any public offering. The
Company has reason to believe that the Aries Funds were familiar with or had
access to information concerning the operations and financial condition of the
Company, and that the Aries Funds 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.
(b) Reverse Stock Split. At a special meeting of shareholders held on September
29, 1997, the Company's stockholders approved an amendment of the Company's
Restated Certificate of Incorporation that authorized a one-for-seven reverse
stock split. The split was effected on October 14, 1997.
13
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders:
The Company held a special meeting of stockholders on Monday, September 29,
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) Proposal to ratify and approve June 1997
Agreements. 10,196,916 1,508,398 4,592,206
2) Proposal 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 Series B Preferred Stock
and warrants to purchase 333,333 shares
of Common Stock. 9,989,262 1,674,323 4,633,935
3) Proposal to authorize and issue the
Series B Preferred Stock. 5,053,440 848,214 71,860
4) Proposal to approve an amendment of the
Company's Certificate of Incorporation
to effect a one-for seven reverse stock
split. 15,611,400 610,049 76,071
</TABLE>
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits.
--------
3.1 Certificate of Amendment of the Restated Certificate of
Incorporation, filed with the Secretary of State of Delaware on
October 7, 1997 to be effective as of October 14, 1997. Filed
herewith.
4.1 "New Warrant" dated September 30, 1997 issued to The Aries Fund.
Filed herewith.
4.2 "New Warrant" dated September 30, 1997 issued to The Aries
Domestic Fund. Filed herewith.
10.1 Executive Severance and Indemnification Agreement between the
Company and Stanley C. Erck dated as of June 25, 1997.
Filed herewith.
10.2 Executive Severance and Indemnification Agreement between the
Company and Michael J. Higgins dated as of June 25, 1997.
Filed herewith.
10.3 Form of Indemnification Agreement. Filed herewith.
27 Financial Data Schedule. Filed herewith.
(b) Reports on Form 8-K.
--------------------
None
14
<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: November 14, 1997 by: /s/ Michael J. Higgins
---------------------------------
Michael J. Higgins
Vice President, Finance
Chief Financial Officer
(Principal Accounting Officer)
15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3.1 Certificate of Amendments to the Certificate of
Incorporation, filed with the Secretary of State of Delaware
on October 14, 1997. Filed herewith.
4.1 "New Warrant" dated September 30, 1997 issued to The Aries
Fund. Filed herewith.
4.2 "New Warrant" dated September 30, 1997 issued to The Aries
Domestic Fund. Filed herewith.
10.1 Executive Severance and Indemnification Agreement between the
Company and Stanley C. Erck dated as of June 25, 1997. Filed herewith.
10.2 Executive Severance and Indemnification Agreement between the
Company and Michael J. Higgins dated as of June 25, 1997.
Filed herewith.
10.3 Form of Indemnification Agreement. Filed herewith.
27 Financial Data Schedule. Filed herewith.
16
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
PROCEPT, INC.
PROCEPT, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Procept, Inc.,
resolutions were duly adopted setting forth a proposed amendment of the Restated
Certificate of Incorporation of the Corporation, and declaring that such
amendment is advisable and that such amendment should be submitted to the
stockholders of the Corporation for approval. The resolution setting forth the
proposed amendment is as follows:
VOTED: That the first paragraph of Article Fourth of
the Restated Certificate of Incorporation of this Corporation be amended to read
in its entirety as follows:
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. At the time this
amendment becomes effective, each seven (7) shares of the Common Stock, $0.01
par value per share, issued and outstanding at such time shall be, and hereby
are, reduced and converted into one fully paid and nonassessable share of Common
Stock, $0.01 par value of the corporation as herein authorized. Each outstanding
stock certificate of this Corporation which immediately prior to the time this
amendment becomes effective represented one or more shares of Common Stock, par
value shall thereafter represent the number of whole shares of Common Stock,
$0.01 par value per share, determined by dividing the number of shares
represented by such certificate immediately prior to the time this amendment
becomes effective by seven (7) and rounding such number up to the next whole
integer. The amount of capital represented by the new shares in the aggregate at
the time this Certificate of Amendment becomes effective shall be adjusted by
the transfer of One Cent ($.01) from the capital account of the Common Stock to
the additional paid in capital account for each new share issued (except for new
shares issued as the result of rounding up fractional shares in which case no
capital adjustment shall be made), such transfer to be made at such time. The
Corporation shall not be required to issue or deliver any fractional shares of
Common Stock. There shall be designated as capital in respect of such new shares
an amount equal to the aggregate par value of such shares. Upon surrender by a
holder of Common Stock of a certificate or certificates for Common Stock, $0.01
par value per share, duly endorsed, at the office of the Corporation or its
agent for
<PAGE>
such purpose, the Corporation shall, as soon as practicable thereafter, issue
and deliver at such office to such holder of Common Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock, $0.01 par value per share, to which such holder shall be
entitled as aforesaid."
SECOND: Thereafter, pursuant to resolutions of the Corporation's Board
of Directors, the amendment was submitted to the stockholders of the Corporation
for approval at a Meeting of Stockholders, and such meeting was called and held
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware. The necessary number of shares as required by statute were
voted in favor of the amendment.
THIRD: The said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: The said amendment is to become effective at 12:01 a.m.,
Eastern Daylight Time, on Tuesday, October 14, 1997.
IN WITNESS WHEREOF, said corporation has caused this certificate to be
signed by its duly authorized officers, as of this 6th day of October, 1997.
PROCEPT, INC.
By: /s/ Stanley C. Erck
------------------------------
Stanley C. Erck, President
Attest:
/s/ Lynnette C. Fallon
- --------------------------------
Lynnette C. Fallon, Secretary
Exhibit 4.1
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.
New Warrant for the Purchase of Shares of
-----------------------------------------
Common Stock
------------
No. N-2 2,134,036 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, $.01 par value, of the Company ("Common Stock"), at
an exercise price of $1.09375 per share of Common Stock for an aggregate
exercise price of Two Million Three-Hundred Thirty-Four Thousand One Hundred
One Dollars and Eighty-Eight Cents ($2,334,101.88) (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.
This Warrant was issued in exchange for Class A and Class B Warrants
issued to the original holder hereof on June 30, 1997.
<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 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
2
<PAGE>
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 securities, cash or other property which the
Holder would have owned
3
<PAGE>
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(d) 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
4
<PAGE>
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 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
5
<PAGE>
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. Special Adjustments.
(a) The per share exercise price of this Warrant 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 this Warrant. In such event the per share exercise price
hereof 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.
(b) In addition to the foregoing, on June 30, 1998 (the "Reset Date")
the exercise price per share shall be adjusted and reset effective as of the
Reset Date if the Market Price (as defined below) of the Common Stock as of the
Reset Date (the "12-Month Trading Price") is less than 140% of the then
applicable exercise price (a "Reset Event"). Upon the occurrence of a Reset
Event, the exercise 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
exercise price. "Market Price" shall mean the average reported per share closing
bid price of the Common Stock regular way on the Stock Market for twenty (20)
consecutive trading days, ending with the trading day prior to the Reset Date
or, if there were no transactions on any such trading day, the average of the
reported closing bid and asked prices, regular way, of the Common Stock on the
relevant Stock Market on such trading day (with appropriate adjustments for
subdivisions or combinations of shares effected during such period), provided
that if such trading prices cannot be determined for such period, "Market Price"
shall mean Fair Market Value (as defined below). The "Stock Market" shall mean
the principal national securities exchange 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, 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 Company for that purpose. "Fair Market Value"
means the fair market value thereof as mutually determined by the Company and
the holder of this Warrant. If the Company and the holder of this Warrant 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 holder of this Warrant (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
7
<PAGE>
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 Company.
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 President and its corporate seal to be hereunto affixed and attested by its
Secretary this 30th day of September 1997.
PROCEPT, INC.
By: /s/ Stanley C. Erck
----------------------------------
Name: Stanley C. Erck
Title: President
ATTEST:
/s/ Lynnette C. 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:_____________________________
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.
New Warrant for the Purchase of Shares of
-----------------------------------------
Common Stock
------------
No. N-1 1,149,096 Shares
FOR VALUE RECEIVED, PROCEPT, INC., a Delaware corporation (the
"Company"), hereby certifies that the Aries Domestic Fund, L.P. 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 $1.09375 per share of Common Stock for an aggregate
exercise price of One Million Two-Hundred Fifty-Six Thousand Eight Hundred
Twenty-Three Dollars and Seventy-Five Cents ($1,256,823.75) (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.
This Warrant was issued in exchange for Class A and Class B Warrants
issued to the original holder hereof on June 30, 1997.
<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 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
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<PAGE>
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 securities, cash or other property which the
Holder would have owned
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<PAGE>
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(d) 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
4
<PAGE>
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 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
5
<PAGE>
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
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<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. Special Adjustments.
(a) The per share exercise price of this Warrant 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 this Warrant. In such event the per share exercise price
hereof 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.
(b) In addition to the foregoing, on June 30, 1998 (the "Reset Date")
the exercise price per share shall be adjusted and reset effective as of the
Reset Date if the Market Price (as defined below) of the Common Stock as of the
Reset Date (the "12-Month Trading Price") is less than 140% of the then
applicable exercise price (a "Reset Event"). Upon the occurrence of a Reset
Event, the exercise 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
exercise price. "Market Price" shall mean the average reported per share closing
bid price of the Common Stock regular way on the Stock Market for twenty (20)
consecutive trading days, ending with the trading day prior to the Reset Date
or, if there were no transactions on any such trading day, the average of the
reported closing bid and asked prices, regular way, of the Common Stock on the
relevant Stock Market on such trading day (with appropriate adjustments for
subdivisions or combinations of shares effected during such period), provided
that if such trading prices cannot be determined for such period, "Market Price"
shall mean Fair Market Value (as defined below). The "Stock Market" shall mean
the principal national securities exchange 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, 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 Company for that purpose. "Fair Market Value"
means the fair market value thereof as mutually determined by the Company and
the holder of this Warrant. If the Company and the holder of this Warrant 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 holder of this Warrant (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
7
<PAGE>
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 Company.
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 President and its corporate seal to be hereunto affixed and attested by its
Secretary this 30th day of September 1997.
PROCEPT, INC.
By: /s/ Stanley C. Erck
------------------------------
Name: Stanley C. Erck
Title: President
ATTEST:
/s/ Lynnette C. 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:_____________________________
Exhibit 10.1
EXECUTIVE SEVERANCE AND INDEMNIFICATION AGREEMENT
-------------------------------------------------
This Executive Severance Agreement (the "Agreement") is entered into
effective as of June 25, 1997 between Procept, Inc. (the "Company"), a Delaware
corporation with its principal executive offices at 840 Memorial Drive,
Cambridge, Massachusetts 02139, and Stanley C. Erck (the "Executive") residing
at 954 Centre Street, Jamaica Plain, Massachusetts 02130.
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined in
subsection 3(a) hereof) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control, to
encourage the Executive's full attention and dedication to the Company currently
and in the event of any threatened or pending Change of Control, and to provide
the Executive with compensation arrangements upon a Change of Control which
provide the Executive with individual financial security and which are
competitive with those of other corporations and, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.
Accordingly, the parties agree as follows:
A. SEVERANCE
1. Severance Benefits. In order to induce the Executive to remain in
the employ of the Company and in consideration of the Executive's agreement set
forth in subsection 3(c) of this Section A, the Company agrees that the
Executive shall receive the severance benefits set forth in this Agreement in
the event his employment with the Company is terminated subsequent to a Change
in Control under the circumstances described below.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through December 31, 1999; provided, however, that
commencing on December 31, 1999 and each December 31 thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than September 30 of such year, the Company shall have given notice
that it does not wish to extend this Agreement (provided that no such notice may
be given during the pendency of a Potential Change in Control, as defined in
subsection 3(b) of this Section A). If a Change in Control shall have occurred
during the original or extended term of this Agreement, this Agreement shall
continue in effect for a period of thirty-six (36) months beyond the month in
which the Change in Control occurred. Notwithstanding anything provided herein
to the contrary, the term of this Agreement shall not extend beyond the end of
the month in which the Executive
<PAGE>
attains "normal retirement age" under the provisions of the Company's benefit
plans (the "Benefit Plans") or, if the Benefit Plans do not so provide, the
Executive reaches age sixty-five (65).
3. Change in Control; Potential Change in Control.
a. No benefits shall be payable hereunder unless there shall
have been a Change in Control, as set forth below. For purposes of this
Agreement, a "Change in Control" shall mean a change in control of the Company
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is in fact
required to comply therewith; provided, that, without limitation, a Change in
Control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than the Company, any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 30%
or more of the combined voting power of the Company's then outstanding
securities;
(ii) during any period of twenty-four (24)
consecutive months (not including any period prior to the date of this
Agreement), individuals who at the beginning of such period constitute
the Board and any new director (other than a director designated by a
person who has entered into an agreement with the Company to effect a
transaction described in paragraphs (i), (iii) or (iv) of this
subsection 3(a)) whose election by the Board or nomination for election
by the Board or by the stockholders of the Company was approved by a
vote of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
(iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than (1) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 50%
of the combined voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or
(2) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires 30% or more of the combined voting power
of the Company's then outstanding securities; or
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<PAGE>
(iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
b. For purposes of this Agreement, a "Potential Change in
Control" shall be deemed to have occurred if:
(i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control;
(ii) any person (as hereinabove defined), including
the Company, publicly announces an intention to take or consider taking
actions which if consummated would constitute a Change in Control;
(iii) any person (as hereinabove defined), other than
the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company (1) is or
becomes the beneficial owner, (2) discloses directly or indirectly to
the Company or publicly a plan or intention to become the beneficial
owner, or (3) makes a filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to securities to
become the beneficial owner, directly or indirectly, of securities
representing 30% or more of the combined voting power of the
outstanding voting securities of the Company; or
(iv) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in Control of
the Company has occurred.
c. The Executive agrees that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in Control, he
will remain in the employ of the Company until the earliest of (1) a date which
is one (1) year from the occurrence of such Potential Change in Control, (2) the
termination by the Executive of his employment after he attains "normal
retirement age" or by reason of death or Disability as defined in subsection
4(a), (3) the date of the occurrence of a Change in Control or (4) the
determination in good faith by the Board that the event creating such Potential
Change of Control has ceased to exist.
4. Termination Following Change in Control. If any of the events
constituting a Change in Control shall have occurred during the term of this
Agreement, the Executive shall be entitled to the benefits provided in
subsection 5(c) of this Section A upon the subsequent termination of his
employment unless such termination is (a) because of the Executive's death or
Disability, (b) by the Company for Cause or (c) by the Executive other than for
Good Reason. In the event the Executive's employment with the Company is
terminated for any reason and subsequently a Change in Control shall occur, the
Executive shall not be entitled to any benefits hereunder.
-3-
<PAGE>
a. Disability. If, as a result of the Executive's incapacity
due to physical or mental illness, he shall have been absent from the full-time
performance of his duties with the Company for six (6) consecutive months, and
within thirty (30) days after written notice of termination is given he shall
not have returned to the full-time performance of his duties, the Executive's
employment may be terminated for "Disability".
b. Cause. Termination by the Company of the Executive's
employment for "Cause" shall mean termination upon (1) the willful and continued
failure by him to substantially perform his duties with the Company (other than
any such failure resulting from his incapacity due to physical or mental illness
or any such actual or anticipated failure after the issuance of a Notice of
Termination by him for Good Reason, as defined in subsections 4(c) and 4(d),
respectively, of this Section A) after a written demand for substantial
performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that he has not
substantially performed his duties, or (2) the willful engaging by the Executive
in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this subsection, no act, or failure to
act, on the Executive's part shall be deemed "willful" unless done, or omitted
to be done, by him not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice to the Executive and an opportunity for
him, together with his counsel, to be heard before the Board), finding that in
the good faith opinion of the Board the Executive was guilty of conduct set
forth above in this subsection and specifying the particulars thereof in detail.
c. Good Reason. The Executive shall be entitled to terminate
his employment for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean (1) during the nine (9) month period following a Change in Control, a
good faith determination by the Executive that as a result of such Change in
Control, he is not able to discharge his duties effectively or (2) without the
Executive's express written consent, the occurrence after a Change in Control of
any of the following circumstances:
(i) the assignment to the Executive of any duties
inconsistent (except in the nature of a promotion) with the position in
the Company that he held immediately prior to the Change in Control or
a substantial adverse alteration in the nature or status of his
position or responsibilities or the conditions of his employment from
those in effect immediately prior to the Change in Control;
(ii) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same may
be increased from time to time;
(iii) the Company's requiring the Executive to be
based more than twenty-five (25) miles from the Company's offices at
which he was principally employed immediately prior to the date of the
Change in Control except for required
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travel on the Company's business to an extent substantially consistent
with his present business travel obligations;
(iv) the failure by the Company to pay to the
Executive any portion of his current compensation or compensation under
any deferred compensation program of the Company, within seven (7) days
of the date such compensation is due;
(v) the failure by the Company to continue in effect
any material compensation or benefit plan in which the Executive
participates immediately prior to the Change in Control unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the
level of his participation relative to other participants, than existed
at the time of the Change in Control;
(vi) the failure by the Company to continue to
provide the Executive with benefits substantially similar to those
enjoyed by him under any of the Company's pension, life insurance,
medical, health and accident, or disability plans in which he was
participating at the time of the Change in Control, the taking of any
action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by him at the time of the Change in Control, or
the failure by the Company to provide the Executive with the number of
paid vacation days to which he is entitled on the basis of his years of
service with the Company in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control;
(vii) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree to
perform this Agreement, as contemplated in Section 5 hereof; or
(viii) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of subsection (d) below (and, if
applicable, the requirements of subsection (b) above), which purported
termination shall not be effective for purposes of this Agreement.
The Executive's right to terminate his employment pursuant to this
subsection shall not be affected by his incapacity due to physical or mental
illness. The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.
d. Notice of Termination. Any purported termination of the
Executive's employment by the Company or by the Executive shall be communicated
by written Notice of Termination to the other party hereto in accordance with
Section C.2 hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in
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reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
e. Date of Termination, Etc. "Date of Termination" shall mean
(1) if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such thirty (30) day
period), and (2) if the Executive's employment is terminated pursuant to
subsection (b) or (c) above or for any other reason (other than Disability), the
date specified in the Notice of Termination (which, in the case of a termination
pursuant to subsection (b) above shall not be less than thirty (30) days, and in
the case of a termination pursuant to subsection (c) above shall not be less
than fifteen (15) nor more than sixty (60) days from the date such Notice of
Termination is given); provided that if within fifteen (15) days after any
Notice of Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this proviso), the party receiving such Notice
of Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties or by a
binding arbitration award; and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. During the pendency of any such dispute, (1) the
Executive shall not be required to report for work or otherwise continue to
perform his duties with the Company and (2) the Company will continue to pay to
the Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue the
Executive and his dependents as participants in all compensation, benefit and
insurance plans in which he or they were participating when the notice giving
rise to the dispute was given, until the dispute is finally resolved in
accordance with this subsection. Amounts paid under this subsection are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
5. Compensation Upon Termination or During Disability Following a
Change of Control. Following a Change in Control, upon either termination of the
Executive's employment or during a period of disability, he shall be entitled to
the following benefits:
a. During any period that the Executive fails to perform his
full-time duties with the Company as a result of incapacity due to physical or
mental illness, he shall continue to receive his base salary at the rate in
effect at the commencement of any such period, together with all compensation
payable to him under the Company's disability plan or program or other similar
plan during such period, until this Agreement is terminated pursuant to
subsection 4(a) of this Section A. Thereafter, or in the event the Executive's
employment shall be terminated by reason of his death, the Executive's benefits
shall be determined under the Company's retirement, insurance and other
compensation programs then in effect in accordance with the terms of such
programs.
b. If the Executive's employment shall be terminated by the
Company for Cause or by the Executive other than for Good Reason, the Company
shall pay him his full base salary through the Date of Termination at the rate
in effect at the time Notice of
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Termination is given, plus all other amounts to which he is entitled under any
compensation or benefit plan of the Company at the time such payments are due
and the Company shall have no further obligations to the Executive under this
Agreement.
c. If the Executive's employment by the Company shall be
terminated (1) by the Company other than for Cause or Disability or (2) by the
Executive for Good Reason, then he shall be entitled to the benefits provided
below:
(i) the Company shall pay the Executive his full base
salary through the Date of Termination at the rate in effect at the
time the Notice of Termination is given, plus all other amounts to
which he is entitled under any compensation or benefit plan of the
Company, at the time such payments are due, except as otherwise
provided below;
(ii) the Company shall make severance payments to the
Executive equal to the greater of (1) his annual rate of base salary in
effect on the Date of Termination or (2) his annual rate of base salary
in effect immediately prior to the Change in Control (together with the
payments provided in paragraphs (iv) and (vi) below, the "Severance
Payments"), which amount shall be payable during the twelve (12) month
period following the Date of Termination and in substantially equal
installments in accordance with Company practice, as in effect from
time to time, for the payment of salaries. Amounts payable pursuant to
this subsection 5(c)(ii) shall be reduced to the extent the Executive
actually receives, during such time period, salary, consulting or other
similar payments from an organization other than the Company in excess
of the amounts of such payments received prior to the Date of
Termination, and any such payments actually received by him shall be
reported to the Company;
(iii) the Company shall also pay to the Executive,
within five (5) days after any such fees or expenses are incurred, all
legal fees and expenses incurred by him as a result of or in connection
with such termination, including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking
to obtain or enforce any right or benefit provided by this Agreement
(other than any such fees or expenses incurred in connection with any
such claim which is determined by arbitration to be frivolous);
(iv) for a twelve (12) month period after such Date
of Termination, the Company shall arrange to provide, at its cost, the
Executive and his dependents with life, disability, accident and health
insurance benefits substantially similar to those which he and they are
receiving immediately prior to the Notice of Termination. Benefits
otherwise receivable by the Executive pursuant to this subsection
5(c)(iv) shall be reduced to the extent comparable benefits are
actually received by him from a subsequent employer during the twelve
(12) month period following his termination, and any such benefits
actually received by him shall be reported to the Company;
(v) the retirement benefits to which the Executive is
entitled under any Company benefit plans, any supplemental retirement
or excess benefit plan
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maintained by the Company or any of its subsidiaries or any successor
plans thereto; and
(vi) should the Executive move his residence in order
to pursue other business opportunities within one (1) year of the Date
of Termination, the Company shall pay him, within five (5) days after
any such expenses are incurred, an amount equal to the expenses
incurred by him in connection with such relocation (including expenses
incurred in selling his home to the extent such expenses were
customarily reimbursed by the Company to transferred executives prior
to the Change in Control) and which are not reimbursed by another
employer.
d. Except as otherwise specifically provided, the payments
provided for in this Section A shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Company, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the
"Code") as soon as the amount thereof can be determined but in no event later
than the thirtieth day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to the
Executive payable on the fifth day after demand therefor by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
B. INDEMNIFICATION
1. Definitions. For purposes of this Agreement, the following terms
shall have the meanings hereafter assigned to them:
a. "Claim" shall mean any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation, whether conducted
by the Company or any other party, that the Indemnitee in good faith believes
might lead to the institution of any such action, suit or proceeding, whether
civil, criminal, administrative, investigative or other.
b. "Expenses" shall include attorneys' fees and all other
costs, expenses and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in, any Claim
relating to any Indemnifiable Event.
c. "Indemnifiable Event" shall mean any event or occurrence
related to the fact that the Executive is or was a director, officer, employee,
agent or fiduciary of the Company, or is or was serving at the request of the
Company as a director, officer, employee, trustee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of anything done or not done by the Executive in any
such capacity.
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<PAGE>
d. "Indemnitee" shall mean Executive and any partnership,
corporation, trust or other entity of which Executive is or was a partner, a
partner of the general partner of, shareholder, trustee, director, officer,
member, employee or agent and any other entity or person that may be subject to
a Claim by reason of (or arising in part out of) an Indemnifiable Event, and the
references to Indemnitee in this Indemnification Agreement shall be understood
to refer severally to each Indemnitee.
e. "Reviewing Party" shall mean the person or body appointed
by the Company's Board of Directors pursuant to subsection 2(b) of this Section
B, which shall not be or include a person who is a party to the particular Claim
for which the Indemnitee is seeking indemnification.
2. Basic Indemnification Arrangement
a. In the event that the Indemnitee was or is a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim by reason of (or arising in part out
of) an Indemnifiable Event, the Company shall indemnify the Indemnitee to the
fullest extent permitted by law as soon as practicable but in any event no later
than thirty days after written demand is presented to the Company, against all
Expenses, judgments, fines, penalties and amounts paid in settlement (including
all interest, assessments and other charges paid or payable in respect of such
Expenses, judgments, fines, penalties or amounts paid in settlement) of such
Claim. If so requested by the Indemnitee, the Company shall advance (within two
business days of such request) all Expenses to the Indemnitee (an "Expense
Advance"). Notwithstanding anything in this Agreement to the contrary, prior to
a Change in Control, the Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Claim initiated by the
Indemnitee against the Company or any director or officer of the Company
(otherwise than to enforce his rights under this Agreement) unless the Company
has consented to the initiation of such Claim.
b. In the event of any demand by the Indemnitee for
indemnification hereunder or under the Company's Amended and Restated
Certificate of Incorporation or By-laws, the Board of Directors of the Company
shall designate a Reviewing Party, who shall, if there has been a Change of
Control of the Company, be the special independent counsel referred to in
Section 3 hereof. The obligations of the Company under subsection 2(a) of this
Section B shall be subject to the condition that the Reviewing Party shall not
have determined (in a written opinion, in any case in which the special
independent counsel referred to in subsection 3 of this Section B hereof is
involved) that the Indemnitee is not permitted to be indemnified under
applicable law, and the obligation of the Company to make an Expense Advance
pursuant to subsection 2(a) shall be subject to the condition that, if, when and
to the extent that the Reviewing Party determines that the Indemnitee is not
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by the Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid. If the Indemnitee has commenced
legal proceedings in a court of competent jurisdiction to secure a determination
that the Indemnitee may be indemnified under applicable law, any determination
made by the Reviewing Party that the Indemnitee is not permitted to be
indemnified under applicable law shall not be binding, and the Indemnitee
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shall not be required to reimburse the Company for any Expense Advance until a
final judicial determination is made with respect hereto (as to which all rights
of appeal therefrom have been exhausted or lapsed). If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
the Indemnitee is not permitted to be indemnified in whole or in part under
applicable law, the Indemnitee shall have the right to commence litigation in
any court in the State of Delaware having subject matter jurisdiction thereof
and in which venue is proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect thereof,
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and the Indemnitee.
3. Change in Control. The Company agrees that if there is a Change in
Control of the Company, then with respect to all matters thereafter arising
concerning the rights of the Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under the Company's
Amended and Restated Certificate of Incorporation or By-laws now or hereafter in
effect relating to Claims for Indemnifiable Events, the Company shall seek legal
advice only from special independent counsel selected by the Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld) who
has not otherwise performed services for the Company within the last ten years
(other than in connection with such matters) or for the Indemnitee. Such counsel
among other things, shall render its written opinion to the Company and the
Indemnitee as to whether and to what extent the Indemnitee is permitted to be
indemnified under applicable law. The Company agrees to pay the reasonable fees
of the special independent counsel and to indemnify such counsel against any and
all expenses (including attorneys' fees), claims, liabilities and damages
relating to this Agreement or its engagement pursuant hereto.
4. Establishment of Trust. In the event of a Potential Change in
Control, the Company may create a Trust for the benefit of the Indemnitee
(either alone or together with one or more other indemnitees) and from time to
time fund such Trust in such amounts as the Company's Board of Directors may
determine to satisfy Expenses reasonably anticipated to be incurred in
connection with investigating, preparing for and defending any Claim relating to
an Indemnifiable Event, and all judgments, fines, penalties and settlement
amounts of all Claims relating to an Indemnifiable Event from time to time paid
or claimed, reasonably anticipated or proposed to be paid. The terms of any
Trust established pursuant hereto shall provide that upon a Change in Control
(a) the Trust shall not be revoked or the principal thereof invaded, without the
written consent of the Indemnitee, (b) the Trustee shall advance, within two
business days of a request by the Indemnitee, all Expenses to the Indemnitee
(and the Indemnitee hereby agrees to reimburse the Trust under the circumstances
under which the Indemnitee would be required to reimburse the Company under
subsection 2(b) of this Agreement), (c) the Trustee shall promptly pay to the
Indemnitee all amounts for which the Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise, and (d) all unexpended
funds in such Trust shall revert to the Company upon a final determination by
the Reviewing Party or a court of competent jurisdiction, as the case may be,
that the Indemnitee has been fully indemnified under the terms of this
Agreement. The Trustee shall be a person or entity satisfactory to the
Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its
obligations under this Agreement.
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5. Indemnification for Additional Expenses. The Company shall indemnify
the Indemnitee against all expenses (including attorneys' fees) and, if
requested by the Indemnitee, shall (within two business days of such request)
advance such expenses to the Indemnitee, which are incurred by the Indemnitee in
connection with any claim asserted against or action brought by the Indemnitee
for (i) indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company By-law or provision of the Company's
Amended and Restated Certificate of Incorporation now or hereafter in effect
relating to Claims for Indemnifiable Events or (ii) recovery under any
directors' and officers' liability insurance policies maintained by the Company,
regardless of whether the Indemnitee ultimately is determined to be entitled to
such indemnification, advance expense payment or insurance recovery, as the case
may be.
6. Partial Indemnity, Etc. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties and amounts paid in settlement of a
Claim but not for the total amount thereof, the Company shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is entitled.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of Claims
relating to an Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that the Indemnitee is not so entitled.
7. No Presumption. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that the
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
8. Non-exclusivity, Etc. The rights of the Indemnitee hereunder shall
be in addition to any other rights the Indemnitee may have under the Company's
Amended and Restated Certificate of Incorporation and By-laws or the Delaware
General Corporation Law or otherwise. To the extent that a change in the
Delaware General Corporation Law (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Company's Amended and Restated Certificate of Incorporation and
By-laws and this Agreement, it is the intent of the parties hereto that the
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change.
9. Liability Insurance. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, the Executive shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent to the coverage
available for any Company director or officer.
10. Subrogation. In the event of payment under this Section B, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the
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Indemnitee, who shall execute all such papers and do all such things as may be
necessary or desirable to secure such rights.
11. No Duplication of Payments. The Company shall not be liable under
this Section B to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise received payment (under
any insurance policy, the Company's Amended and Restated Certificate of
Incorporation, or the Company's By-laws or otherwise) of the amounts otherwise
indemnifiable hereunder.
C. GENERAL
1. Successors; Binding Agreement.
a. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company or its successor in
the same amount and on the same terms as he would be entitled to hereunder if he
terminates his employment for Good Reason following a Change in Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
b. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributes, devisees and legatees. If the
Executive should die while any amount would still be payable to him hereunder if
he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to his devisee,
legatee or other designee or, if there is no such designee, to his estate.
2. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
3. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No
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waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Massachusetts, without giving effect to the conflicts of law
principles thereof. All references to sections of the Exchange Act or the Code
shall be deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of the Company under
subsection 5 of Section A and Section B shall survive the expiration of the term
of this Agreement.
4. Validity. The invalidity or unenforceability or any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
5. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
conducted before a panel of three arbitrators in the Commonwealth of
Massachusetts in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that the Executive shall be
entitled to seek specific performance of his right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
7. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of the Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto with respect to the subject matter hereof.
8. Effective Date. This Agreement shall become effective as of the date
set forth above.
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IN WITNESS WHEREOF, the Company, pursuant to due authorization by its
Board of Executives, and the Executive have caused this Agreement to be duly
executed under seal as of the date first written above.
PROCEPT, INC.
By /s/ Michael J. Higgins
--------------------------
Name: Michael J. Higgins
Title: Vice President, Finance and
Chief Financial Officer
Attest:
--------------------------
EXECUTIVE
/s/ Stanley C. Erck
----------------------------------
Stanley C. Erck
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Exhibit 10.2
EXECUTIVE SEVERANCE AND INDEMNIFICATION AGREEMENT
-------------------------------------------------
This Executive Severance Agreement (the "Agreement") is entered into
effective as of as of June 25, 1997 between Procept, Inc. (the "Company"), a
Delaware corporation with its principal executive offices at 840 Memorial Drive,
Cambridge, Massachusetts 02139, and Michael J. Higgins (the "Executive")
residing at 79 North Hancock Street, Lexington, Massachusetts 02173.
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined in
subsection 3(a) hereof) of the Company. The Board believes it is imperative to
diminish the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control, to
encourage the Executive's full attention and dedication to the Company currently
and in the event of any threatened or pending Change of Control, and to provide
the Executive with compensation arrangements upon a Change of Control which
provide the Executive with individual financial security and which are
competitive with those of other corporations and, in order to accomplish these
objectives, the Board has caused the Company to enter into this Agreement.
Accordingly, the parties agree as follows:
A. SEVERANCE
1. Severance Benefits. In order to induce the Executive to remain in
the employ of the Company and in consideration of the Executive's agreement set
forth in subsection 3(c) of this Section A, the Company agrees that the
Executive shall receive the severance benefits set forth in this Agreement in
the event his employment with the Company is terminated subsequent to a Change
in Control under the circumstances described below.
2. Term of Agreement. This Agreement shall commence on the date hereof
and shall continue in effect through December 31, 1999; provided, however, that
commencing on December 31, 1999 and each December 31 thereafter, the term of
this Agreement shall automatically be extended for one additional year unless,
not later than September 30 of such year, the Company shall have given notice
that it does not wish to extend this Agreement (provided that no such notice may
be given during the pendency of a Potential Change in Control, as defined in
subsection 3(b) of this Section A). If a Change in Control shall have occurred
during the original or extended term of this Agreement, this Agreement shall
continue in effect for a period of thirty-six (36) months beyond the month in
which the Change in Control occurred. Notwithstanding anything provided herein
to the contrary, the term of this Agreement shall not extend beyond the end of
the month in which the Executive
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attains "normal retirement age" under the provisions of the Company's benefit
plans (the "Benefit Plans") or, if the Benefit Plans do not so provide, the
Executive reaches age sixty-five (65).
3. Change in Control; Potential Change in Control.
a. No benefits shall be payable hereunder unless there shall
have been a Change in Control, as set forth below. For purposes of this
Agreement, a "Change in Control" shall mean a change in control of the Company
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company is in fact
required to comply therewith; provided, that, without limitation, a Change in
Control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than the Company, any
trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same proportions
as their ownership of stock of the Company is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 30%
or more of the combined voting power of the Company's then outstanding
securities;
(ii) during any period of twenty-four (24)
consecutive months (not including any period prior to the date of this
Agreement), individuals who at the beginning of such period constitute
the Board and any new director (other than a director designated by a
person who has entered into an agreement with the Company to effect a
transaction described in paragraphs (i), (iii) or (iv) of this
subsection 3(a)) whose election by the Board or nomination for election
by the Board or by the stockholders of the Company was approved by a
vote of at least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of such period or whose
election or nomination for election was previously so approved, cease
for any reason to constitute a majority thereof; or
(iii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than (1) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 50%
of the combined voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation or
(2) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
hereinabove defined) acquires 30% or more of the combined voting power
of the Company's then outstanding securities; or
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(iv) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
b. For purposes of this Agreement, a "Potential Change in
Control" shall be deemed to have occurred if:
(i) the Company enters into an agreement, the
consummation of which would result in the occurrence of a Change in
Control;
(ii) any person (as hereinabove defined), including
the Company, publicly announces an intention to take or consider taking
actions which if consummated would constitute a Change in Control;
(iii) any person (as hereinabove defined), other than
the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company or a corporation owned, directly
or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company (1) is or
becomes the beneficial owner, (2) discloses directly or indirectly to
the Company or publicly a plan or intention to become the beneficial
owner, or (3) makes a filing under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, with respect to securities to
become the beneficial owner, directly or indirectly, of securities
representing 30% or more of the combined voting power of the
outstanding voting securities of the Company; or
(iv) the Board adopts a resolution to the effect
that, for purposes of this Agreement, a Potential Change in Control of
the Company has occurred.
c. The Executive agrees that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in Control, he
will remain in the employ of the Company until the earliest of (1) a date which
is one (1) year from the occurrence of such Potential Change in Control, (2) the
termination by the Executive of his employment after he attains "normal
retirement age" or by reason of death or Disability as defined in subsection
4(a), (3) the date of the occurrence of a Change in Control or (4) the
determination in good faith by the Board that the event creating such Potential
Change of Control has ceased to exist.
4. Termination Following Change in Control. If any of the events
constituting a Change in Control shall have occurred during the term of this
Agreement, the Executive shall be entitled to the benefits provided in
subsection 5(c) of this Section A upon the subsequent termination of his
employment unless such termination is (a) because of the Executive's death or
Disability, (b) by the Company for Cause or (c) by the Executive other than for
Good Reason. In the event the Executive's employment with the Company is
terminated for any reason and subsequently a Change in Control shall occur, the
Executive shall not be entitled to any benefits hereunder.
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a. Disability. If, as a result of the Executive's incapacity
due to physical or mental illness, he shall have been absent from the full-time
performance of his duties with the Company for six (6) consecutive months, and
within thirty (30) days after written notice of termination is given he shall
not have returned to the full-time performance of his duties, the Executive's
employment may be terminated for "Disability".
b. Cause. Termination by the Company of the Executive's
employment for "Cause" shall mean termination upon (1) the willful and continued
failure by him to substantially perform his duties with the Company (other than
any such failure resulting from his incapacity due to physical or mental illness
or any such actual or anticipated failure after the issuance of a Notice of
Termination by him for Good Reason, as defined in subsections 4(c) and 4(d),
respectively, of this Section A) after a written demand for substantial
performance is delivered to the Executive by the Board, which demand
specifically identifies the manner in which the Board believes that he has not
substantially performed his duties, or (2) the willful engaging by the Executive
in conduct which is demonstrably and materially injurious to the Company,
monetarily or otherwise. For purposes of this subsection, no act, or failure to
act, on the Executive's part shall be deemed "willful" unless done, or omitted
to be done, by him not in good faith and without reasonable belief that his
action or omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters (3/4) of
the entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice to the Executive and an opportunity for
him, together with his counsel, to be heard before the Board), finding that in
the good faith opinion of the Board the Executive was guilty of conduct set
forth above in this subsection and specifying the particulars thereof in detail.
c. Good Reason. The Executive shall be entitled to terminate
his employment for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean (1) during the nine (9) month period following a Change in Control, a
good faith determination by the Executive that as a result of such Change in
Control, he is not able to discharge his duties effectively or (2) without the
Executive's express written consent, the occurrence after a Change in Control of
any of the following circumstances:
(i) the assignment to the Executive of any duties
inconsistent (except in the nature of a promotion) with the position in
the Company that he held immediately prior to the Change in Control or
a substantial adverse alteration in the nature or status of his
position or responsibilities or the conditions of his employment from
those in effect immediately prior to the Change in Control;
(ii) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as the same may
be increased from time to time;
(iii) the Company's requiring the Executive to be
based more than twenty-five (25) miles from the Company's offices at
which he was principally employed immediately prior to the date of the
Change in Control except for required
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travel on the Company's business to an extent substantially consistent
with his present business travel obligations;
(iv) the failure by the Company to pay to the
Executive any portion of his current compensation or compensation under
any deferred compensation program of the Company, within seven (7) days
of the date such compensation is due;
(v) the failure by the Company to continue in effect
any material compensation or benefit plan in which the Executive
participates immediately prior to the Change in Control unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue the Executive's participation therein (or in such
substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the
level of his participation relative to other participants, than existed
at the time of the Change in Control;
(vi) the failure by the Company to continue to
provide the Executive with benefits substantially similar to those
enjoyed by him under any of the Company's pension, life insurance,
medical, health and accident, or disability plans in which he was
participating at the time of the Change in Control, the taking of any
action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by him at the time of the Change in Control, or
the failure by the Company to provide the Executive with the number of
paid vacation days to which he is entitled on the basis of his years of
service with the Company in accordance with the Company's normal
vacation policy in effect at the time of the Change in Control;
(vii) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree to
perform this Agreement, as contemplated in Section 5 hereof; or
(viii) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of Termination
satisfying the requirements of subsection (d) below (and, if
applicable, the requirements of subsection (b) above), which purported
termination shall not be effective for purposes of this Agreement.
The Executive's right to terminate his employment pursuant to this
subsection shall not be affected by his incapacity due to physical or mental
illness. The Executive's continued employment shall not constitute consent to,
or a waiver of rights with respect to, any circumstance constituting Good Reason
hereunder.
d. Notice of Termination. Any purported termination of the
Executive's employment by the Company or by the Executive shall be communicated
by written Notice of Termination to the other party hereto in accordance with
Section C.2 hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in
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reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
e. Date of Termination, Etc. "Date of Termination" shall mean
(1) if the Executive's employment is terminated for Disability, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not have
returned to the full-time performance of his duties during such thirty (30) day
period), and (2) if the Executive's employment is terminated pursuant to
subsection (b) or (c) above or for any other reason (other than Disability), the
date specified in the Notice of Termination (which, in the case of a termination
pursuant to subsection (b) above shall not be less than thirty (30) days, and in
the case of a termination pursuant to subsection (c) above shall not be less
than fifteen (15) nor more than sixty (60) days from the date such Notice of
Termination is given); provided that if within fifteen (15) days after any
Notice of Termination is given, or, if later, prior to the Date of Termination
(as determined without regard to this proviso), the party receiving such Notice
of Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties or by a
binding arbitration award; and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. During the pendency of any such dispute, (1) the
Executive shall not be required to report for work or otherwise continue to
perform his duties with the Company and (2) the Company will continue to pay to
the Executive his full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue the
Executive and his dependents as participants in all compensation, benefit and
insurance plans in which he or they were participating when the notice giving
rise to the dispute was given, until the dispute is finally resolved in
accordance with this subsection. Amounts paid under this subsection are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
5. Compensation Upon Termination or During Disability Following a
Change of Control. Following a Change in Control, upon either termination of the
Executive's employment or during a period of disability, he shall be entitled to
the following benefits:
a. During any period that the Executive fails to perform his
full-time duties with the Company as a result of incapacity due to physical or
mental illness, he shall continue to receive his base salary at the rate in
effect at the commencement of any such period, together with all compensation
payable to him under the Company's disability plan or program or other similar
plan during such period, until this Agreement is terminated pursuant to
subsection 4(a) of this Section A. Thereafter, or in the event the Executive's
employment shall be terminated by reason of his death, the Executive's benefits
shall be determined under the Company's retirement, insurance and other
compensation programs then in effect in accordance with the terms of such
programs.
b. If the Executive's employment shall be terminated by the
Company for Cause or by the Executive other than for Good Reason, the Company
shall pay him his full base salary through the Date of Termination at the rate
in effect at the time Notice of
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Termination is given, plus all other amounts to which he is entitled under any
compensation or benefit plan of the Company at the time such payments are due
and the Company shall have no further obligations to the Executive under this
Agreement.
c. If the Executive's employment by the Company shall be
terminated (1) by the Company other than for Cause or Disability or (2) by the
Executive for Good Reason, then he shall be entitled to the benefits provided
below:
(i) the Company shall pay the Executive his full base
salary through the Date of Termination at the rate in effect at the
time the Notice of Termination is given, plus all other amounts to
which he is entitled under any compensation or benefit plan of the
Company, at the time such payments are due, except as otherwise
provided below;
(ii) the Company shall make severance payments to the
Executive equal to one-half of the greater of (1) his annual rate of
base salary in effect on the Date of Termination or (2) his annual rate
of base salary in effect immediately prior to the Change in Control
(together with the payments provided in paragraphs (iv) and (vi) below,
the "Severance Payments"), which amount shall be payable during the six
(6) month period following the Date of Termination and in substantially
equal installments in accordance with Company practice, as in effect
from time to time, for the payment of salaries. Amounts payable
pursuant to this subsection 5(c)(ii) shall be reduced to the extent the
Executive actually receives, during such time period, salary,
consulting or other similar payments from an organization other than
the Company in excess of the amounts of such payments received prior to
the Date of Termination, and any such payments actually received by him
shall be reported to the Company;
(iii) the Company shall also pay to the Executive,
within five (5) days after any such fees or expenses are incurred, all
legal fees and expenses incurred by him as a result of or in connection
with such termination, including all such fees and expenses, if any,
incurred in contesting or disputing any such termination or in seeking
to obtain or enforce any right or benefit provided by this Agreement
(other than any such fees or expenses incurred in connection with any
such claim which is determined by arbitration to be frivolous);
(iv) for a six (6) month period after the Date of
Termination, the Company shall arrange to provide, at its cost, the
Executive and his dependents with life, disability, accident and health
insurance benefits substantially similar to those which he and they are
receiving immediately prior to the Notice of Termination. Benefits
otherwise receivable by the Executive pursuant to this subsection
5(c)(iv) shall be reduced to the extent comparable benefits are
actually received by him from a subsequent employer during the twelve
(12) month period following his termination, and any such benefits
actually received by him shall be reported to the Company;
(v) the retirement benefits to which the Executive is
entitled under any Company benefit plans, any supplemental retirement
or excess benefit plan
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maintained by the Company or any of its subsidiaries or any successor
plans thereto; and
(vi) should the Executive move his residence in order
to pursue other business opportunities within one (1) year of the Date
of Termination, the Company shall pay him, within five (5) days after
any such expenses are incurred, an amount equal to the expenses
incurred by him in connection with such relocation (including expenses
incurred in selling his home to the extent such expenses were
customarily reimbursed by the Company to transferred executives prior
to the Change in Control) and which are not reimbursed by another
employer.
d. Except as otherwise specifically provided, the payments
provided for in this Section A shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the amounts of
such payments cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined in good faith
by the Company, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Internal Revenue Code of 1986, as amended (the
"Code") as soon as the amount thereof can be determined but in no event later
than the thirtieth day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to the
Executive payable on the fifth day after demand therefor by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
B. INDEMNIFICATION
1. Definitions. For purposes of this Agreement, the following terms
shall have the meanings hereafter assigned to them:
a. "Claim" shall mean any threatened, pending or completed
action, suit or proceeding, or any inquiry or investigation, whether conducted
by the Company or any other party, that the Indemnitee in good faith believes
might lead to the institution of any such action, suit or proceeding, whether
civil, criminal, administrative, investigative or other.
b. "Expenses" shall include attorneys' fees and all other
costs, expenses and obligations paid or incurred in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in, any Claim
relating to any Indemnifiable Event.
c. "Indemnifiable Event" shall mean any event or occurrence
related to the fact that the Executive is or was a director, officer, employee,
agent or fiduciary of the Company, or is or was serving at the request of the
Company as a director, officer, employee, trustee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of anything done or not done by the Executive in any
such capacity.
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d. "Indemnitee" shall mean Executive and any partnership,
corporation, trust or other entity of which Executive is or was a partner, a
partner of the general partner of, shareholder, trustee, director, officer,
member, employee or agent and any other entity or person that may be subject to
a Claim by reason of (or arising in part out of) an Indemnifiable Event, and the
references to Indemnitee in this Indemnification Agreement shall be understood
to refer severally to each Indemnitee.
e. "Reviewing Party" shall mean the person or body appointed
by the Company's Board of Directors pursuant to subsection 2(b) of this Section
B, which shall not be or include a person who is a party to the particular Claim
for which the Indemnitee is seeking indemnification.
2. Basic Indemnification Arrangement
a. In the event that the Indemnitee was or is a party to or
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, a Claim by reason of (or arising in part out
of) an Indemnifiable Event, the Company shall indemnify the Indemnitee to the
fullest extent permitted by law as soon as practicable but in any event no later
than thirty days after written demand is presented to the Company, against all
Expenses, judgments, fines, penalties and amounts paid in settlement (including
all interest, assessments and other charges paid or payable in respect of such
Expenses, judgments, fines, penalties or amounts paid in settlement) of such
Claim. If so requested by the Indemnitee, the Company shall advance (within two
business days of such request) all Expenses to the Indemnitee (an "Expense
Advance"). Notwithstanding anything in this Agreement to the contrary, prior to
a Change in Control, the Indemnitee shall not be entitled to indemnification
pursuant to this Agreement in connection with any Claim initiated by the
Indemnitee against the Company or any director or officer of the Company
(otherwise than to enforce his rights under this Agreement) unless the Company
has consented to the initiation of such Claim.
b. In the event of any demand by the Indemnitee for
indemnification hereunder or under the Company's Amended and Restated
Certificate of Incorporation or By-laws, the Board of Directors of the Company
shall designate a Reviewing Party, who shall, if there has been a Change of
Control of the Company, be the special independent counsel referred to in
Section 3 hereof. The obligations of the Company under subsection 2(a) of this
Section B shall be subject to the condition that the Reviewing Party shall not
have determined (in a written opinion, in any case in which the special
independent counsel referred to in subsection 3 of this Section B hereof is
involved) that the Indemnitee is not permitted to be indemnified under
applicable law, and the obligation of the Company to make an Expense Advance
pursuant to subsection 2(a) shall be subject to the condition that, if, when and
to the extent that the Reviewing Party determines that the Indemnitee is not
permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by the Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid. If the Indemnitee has commenced
legal proceedings in a court of competent jurisdiction to secure a determination
that the Indemnitee may be indemnified under applicable law, any determination
made by the Reviewing Party that the Indemnitee is not permitted to be
indemnified under applicable law shall not be binding, and the Indemnitee
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shall not be required to reimburse the Company for any Expense Advance until a
final judicial determination is made with respect hereto (as to which all rights
of appeal therefrom have been exhausted or lapsed). If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
the Indemnitee is not permitted to be indemnified in whole or in part under
applicable law, the Indemnitee shall have the right to commence litigation in
any court in the State of Delaware having subject matter jurisdiction thereof
and in which venue is proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect thereof,
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and the Indemnitee.
3. Change in Control. The Company agrees that if there is a Change in
Control of the Company, then with respect to all matters thereafter arising
concerning the rights of the Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under the Company's
Amended and Restated Certificate of Incorporation or By-laws now or hereafter in
effect relating to Claims for Indemnifiable Events, the Company shall seek legal
advice only from special independent counsel selected by the Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld) who
has not otherwise performed services for the Company within the last ten years
(other than in connection with such matters) or for the Indemnitee. Such counsel
among other things, shall render its written opinion to the Company and the
Indemnitee as to whether and to what extent the Indemnitee is permitted to be
indemnified under applicable law. The Company agrees to pay the reasonable fees
of the special independent counsel and to indemnify such counsel against any and
all expenses (including attorneys' fees), claims, liabilities and damages
relating to this Agreement or its engagement pursuant hereto.
4. Establishment of Trust. In the event of a Potential Change in
Control, the Company may create a Trust for the benefit of the Indemnitee
(either alone or together with one or more other indemnitees) and from time to
time fund such Trust in such amounts as the Company's Board of Directors may
determine to satisfy Expenses reasonably anticipated to be incurred in
connection with investigating, preparing for and defending any Claim relating to
an Indemnifiable Event, and all judgments, fines, penalties and settlement
amounts of all Claims relating to an Indemnifiable Event from time to time paid
or claimed, reasonably anticipated or proposed to be paid. The terms of any
Trust established pursuant hereto shall provide that upon a Change in Control
(a) the Trust shall not be revoked or the principal thereof invaded, without the
written consent of the Indemnitee, (b) the Trustee shall advance, within two
business days of a request by the Indemnitee, all Expenses to the Indemnitee
(and the Indemnitee hereby agrees to reimburse the Trust under the circumstances
under which the Indemnitee would be required to reimburse the Company under
subsection 2(b) of this Agreement), (c) the Trustee shall promptly pay to the
Indemnitee all amounts for which the Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise, and (d) all unexpended
funds in such Trust shall revert to the Company upon a final determination by
the Reviewing Party or a court of competent jurisdiction, as the case may be,
that the Indemnitee has been fully indemnified under the terms of this
Agreement. The Trustee shall be a person or entity satisfactory to the
Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its
obligations under this Agreement.
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5. Indemnification for Additional Expenses. The Company shall indemnify
the Indemnitee against all expenses (including attorneys' fees) and, if
requested by the Indemnitee, shall (within two business days of such request)
advance such expenses to the Indemnitee, which are incurred by the Indemnitee in
connection with any claim asserted against or action brought by the Indemnitee
for (i) indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company By-law or provision of the Company's
Amended and Restated Certificate of Incorporation now or hereafter in effect
relating to Claims for Indemnifiable Events or (ii) recovery under any
directors' and officers' liability insurance policies maintained by the Company,
regardless of whether the Indemnitee ultimately is determined to be entitled to
such indemnification, advance expense payment or insurance recovery, as the case
may be.
6. Partial Indemnity, Etc. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties and amounts paid in settlement of a
Claim but not for the total amount thereof, the Company shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is entitled.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of Claims
relating to an Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that the Indemnitee is not so entitled.
7. No Presumption. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
contendere, or its equivalent, shall not create a presumption that the
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
8. Non-exclusivity, Etc. The rights of the Indemnitee hereunder shall
be in addition to any other rights the Indemnitee may have under the Company's
Amended and Restated Certificate of Incorporation and By-laws or the Delaware
General Corporation Law or otherwise. To the extent that a change in the
Delaware General Corporation Law (whether by statute or judicial decision)
permits greater indemnification by agreement than would be afforded currently
under the Company's Amended and Restated Certificate of Incorporation and
By-laws and this Agreement, it is the intent of the parties hereto that the
Indemnitee shall enjoy by this Agreement the greater benefits afforded by such
change.
9. Liability Insurance. To the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, the Executive shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent to the coverage
available for any Company director or officer.
10. Subrogation. In the event of payment under this Section B, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the
-11-
<PAGE>
Indemnitee, who shall execute all such papers and do all such things as may be
necessary or desirable to secure such rights.
11. No Duplication of Payments. The Company shall not be liable under
this Section B to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise received payment (under
any insurance policy, the Company's Amended and Restated Certificate of
Incorporation, or the Company's By-laws or otherwise) of the amounts otherwise
indemnifiable hereunder.
C. GENERAL
1. Successors; Binding Agreement.
a. The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Executive to compensation from the Company or its successor in
the same amount and on the same terms as he would be entitled to hereunder if he
terminates his employment for Good Reason following a Change in Control, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
b. This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributes, devisees and legatees. If the
Executive should die while any amount would still be payable to him hereunder if
he had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to his devisee,
legatee or other designee or, if there is no such designee, to his estate.
2. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
3. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by the Executive and such officer as may be specifically
designated by the Board. No
-12-
<PAGE>
waiver by either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Massachusetts, without giving effect to the conflicts of law
principles thereof. All references to sections of the Exchange Act or the Code
shall be deemed also to refer to any successor provisions to such sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of the Company under
subsection 5 of Section A and Section B shall survive the expiration of the term
of this Agreement.
4. Validity. The invalidity or unenforceability or any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
5. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration
conducted before a panel of three arbitrators in the Commonwealth of
Massachusetts in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that the Executive shall be
entitled to seek specific performance of his right to be paid until the Date of
Termination during the pendency of any dispute or controversy arising under or
in connection with this Agreement.
7. Entire Agreement. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and during
the term of the Agreement supersedes the provisions of all prior agreements,
promises, covenants, arrangements, communications, representations or
warranties, whether oral or written, by any officer, employee or representative
of any party hereto with respect to the subject matter hereof.
8. Effective Date. This Agreement shall become effective as of the date
set forth above.
-13-
<PAGE>
IN WITNESS WHEREOF, the Company, pursuant to due authorization by its
Board of Executives, and the Executive have caused this Agreement to be duly
executed under seal as of the date first written above.
PROCEPT, INC.
By /s/ Stanley C. Erck
------------------------------
Name: Stanley C. Erck
Title: President
Attest:
- --------------------------------------
EXECUTIVE
/s/ Michael J. Higgins
-----------------------------
Michael J. Higgins
-14-
Exhibit 10.3
Schedule of Individuals Who Are
Parties to an Indemnification Agreement
Zola P. Horovitz
Max Link
Ellis L. Reinherz
<PAGE>
INDEMNIFICATION AGREEMENT
[Director Name]
This Agreement dated as of [_________________] is between Procept, Inc.
(the "Company"), a Delaware corporation, and [Director Name] ("Director"), who
is a director of the Company. Its purpose is to provide the maximum protection
for the Director against personal liability arising out of his service to the
Company so as to encourage the continuation of such service and the effective
exercise of his business judgment in connection herewith.
The parties hereto agree as follows:
1. Definitions. For purposes of this Agreement, the following terms shall
have the meanings hereafter assigned to them:
(a) "Change in Control" shall mean a change in control of the Company
of a nature that would be required to be reported in response to Item 6(e)
of Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), whether or not the Company is
in fact required to comply therewith; provided, that, without limitation, a
Change in Control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company
or a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing 30% or more of the combined voting power of the
Company's then outstanding securities;
(ii) during any period of twenty-four (24) consecutive months (not
including any period prior to the date of this Agreement), individuals who
at the beginning of such period constitute the Board and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in paragraphs
(i), (iii) or (iv) of this subsection 3(a)) whose election by the Board or
nomination for election by the Board or by the stockholders of the Company
was approved by a vote of at least two-thirds (2/3) of the directors then
still in office who either were directors at the beginning of such period
or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (1) a
merger or
<PAGE>
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the combined voting securities of the
Company or such surviving entity outstanding immediately after such merger
or consolidation or (2) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires 30% or more of the combined
voting power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
(b) "Claim" shall mean any threatened, pending or completed action,
suit or proceeding, or any inquiry or investigation, whether conducted by
the Company or any other party, that the Indemnitee in good faith believes
might lead to the institution of any such action, suit or proceeding,
whether civil, criminal, administrative, investigative or other.
(c) "Expenses" shall include attorneys' fees and all other costs,
expenses and obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to defend, be a witness in or participate in, any Claim relating
to any Indemnifiable Event.
(d) "Indemnifiable Event" shall mean any event or occurrence related
to the fact that the Director is or was a director, officer, employee,
agent or fiduciary of the Company, or is or was serving at the request of
the Company as a director, officer, employee, trustee, agent or fiduciary
of another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise, or by reason of anything done or not done by the
Director in any such capacity.
(e) "Indemnitee" shall mean the Director and any partnership,
corporation, trust or other entity of which the Director is or was a
partner, a partner of the general partner of, shareholder, trustee,
director, officer, member, employee or agent and any other entity or person
that may be subject to a Claim by reason of (or arising in part out of) an
Indemnifiable Event, and the references to Indemnitee in this
Indemnification Agreement shall be understood to refer severally to each
Indemnitee.
(f) "Potential Change in Control" shall be deemed to have occurred if:
(i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
(ii) any person (as hereinabove defined), including the Company,
publicly announces an intention to take or consider taking actions which if
consummated would constitute a Change in Control;
- 2 -
<PAGE>
(iii) any person (as hereinabove defined), other than the Company,
any trustee or other fiduciary holding securities under an employee benefit
plan of the Company or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company (1) is or becomes the beneficial owner,
(2) discloses directly or indirectly to the Company or publicly a plan or
intention to become the beneficial owner, or (3) makes a filing under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, with
respect to securities to become the beneficial owner, directly or
indirectly, of securities representing 30% or more of the combined voting
power of the outstanding voting securities of the Company; or
(iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control of the Company
has occurred.
(g) "Reviewing Party" shall mean the person or body appointed by the
Company's Board of Directors pursuant to Section 2(b) hereof, which shall
not be or include a person who is a party to the particular Claim for which
the Indemnitee is seeking indemnification.
2. Basic Indemnification Arrangement.
(a) In the event that the Indemnitee was or is a party to or witness
or other participant in, or is threatened to be made a party to or witness
or other participant in, a Claim by reason of (or arising in part out of)
an Indemnifiable Event, the Company shall indemnify the Indemnitee to the
fullest extent permitted by law as soon as practicable but in any event no
later than thirty days after written demand is presented to the Company,
against all Expenses, judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in respect of such Expenses, judgments, fines, penalties or amounts
paid in settlement) of such Claim. If so requested by the Indemnitee, the
Company shall advance (within two business days of such request) all
Expenses to the Indemnitee (an "Expense Advance"). Notwithstanding anything
in this Agreement to the contrary, prior to a Change in Control, the
Indemnitee shall not be entitled to indemnification pursuant to this
Agreement in connection with any Claim initiated by the Indemnitee against
the Company or any director or officer of the Company (otherwise than to
enforce his rights under this Agreement) unless the Company has consented
to the initiation of such Claim.
(b) In the event of any demand by the Indemnitee for indemnification
hereunder or under the Company's Amended and Restated Certificate of
Incorporation or By-laws, the Board of Directors of the Company shall
designate a Reviewing Party, who shall, if there has been a Change of
Control of the Company, be the special independent counsel referred to in
Section 3 hereof. The obligations of the Company under Section 2(a) shall
be subject to the condition that the Reviewing Party shall not have
determined (in a written opinion, in any case in which the special
independent counsel referred to in Section 3 hereof is involved) that the
Indemnitee is not permitted to be indemnified under applicable law, and the
obligation of the
- 3 -
<PAGE>
Company to make an Expense Advance pursuant to Section 2(a) shall be
subject to the condition that, if, when and to the extent that the
Reviewing Party determines that the Indemnitee is not permitted to be so
indemnified under applicable law, the Company shall be entitled to be
reimbursed by the Indemnitee (who hereby agrees to reimburse the Company)
for all such amounts theretofore paid. If the Indemnitee has commenced
legal proceedings in a court of competent jurisdiction to secure a
determination that the Indemnitee may be indemnified under applicable law,
any determination made by the Reviewing Party that the Indemnitee is not
permitted to be indemnified under applicable law shall not be binding, and
the Indemnitee shall not be required to reimburse the Company for any
Expense Advance until a final judicial determination is made with respect
hereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has been no determination by the Reviewing Party or if
the Reviewing Party determines that the Indemnitee is not permitted to be
indemnified in whole or in part under applicable law, the Indemnitee shall
have the right to commence litigation in any court in the State of Delaware
having subject matter jurisdiction thereof and in which venue is proper
seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, and the Company
hereby consents to service of process and to appear in any such proceeding.
Any determination by the Reviewing Party otherwise shall be conclusive and
binding on the Company and the Indemnitee.
3. Change in Control. The Company agrees that if there is a Change in
Control of the Company, then with respect to all matters thereafter arising
concerning the rights of the Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under the Company's
Amended and Restated Certificate of Incorporation or By-laws now or hereafter in
effect relating to Claims for Indemnifiable Events, the Company shall seek legal
advice only from special independent counsel selected by the Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld) who
has not otherwise performed services for the Company within the last ten years
(other than in connection with such matters) or for the Indemnitee. Such counsel
among other things, shall render its written opinion to the Company and the
Indemnitee as to whether and to what extent the Indemnitee is permitted to be
indemnified under applicable law. The Company agrees to pay the reasonable fees
of the special independent counsel and to indemnify such counsel against any and
all expenses (including attorneys' fees), claims, liabilities and damages
relating to this Agreement or its engagement pursuant hereto.
4. Establishment of Trust. In the event of a Potential Change in Control,
the Company may create a Trust for the benefit of the Indemnitee (either alone
or together with one or more other indemnitees) and from time to time fund such
Trust in such amounts as the Company's Board of Directors may determine to
satisfy Expenses reasonably anticipated to be incurred in connection with
investigating, preparing for and defending any Claim relating to an
Indemnifiable Event, and all judgments, fines, penalties and settlement amounts
of all Claims relating to an Indemnifiable Event from time to time paid or
claimed, reasonably anticipated or proposed to be paid. The terms of any Trust
established pursuant hereto shall provide that upon a Change in Control (i) the
Trust shall not be revoked or the principal thereof invaded, without the written
consent of the Indemnitee, (ii) the Trustee shall advance, within two business
days of a request by the Indemnitee, all Expenses to the
- 4 -
<PAGE>
Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the
circumstances under which the Indemnitee would be required to reimburse the
Company under Section 2(b) of this Agreement), (iii) the Trustee shall promptly
pay to the Indemnitee all amounts for which the Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise, and (iv) all unexpended
funds in such Trust shall revert to the Company upon a final determination by
the Reviewing Party or a court of competent jurisdiction, as the case may be,
that the Indemnitee has been fully indemnified under the terms of this
Agreement. The Trustee shall be a person or entity satisfactory to the
Indemnitee. Nothing in this Section 4 shall relieve the Company of any of its
obligations under this Agreement.
5. Indemnification for Additional Expenses. The Company shall indemnify the
Indemnitee against all expenses (including attorneys' fees) and, if requested by
the Indemnitee, shall (within two business days of such request) advance such
expenses to the Indemnitee, which are incurred by the Indemnitee in connection
with any claim asserted against or action brought by the Indemnitee for (i)
indemnification or advance payment of Expenses by the Company under this
Agreement or any other agreement or Company By-law or provision of the Company's
Amended and Restated Certificate of Incorporation now or hereafter in effect
relating to Claims for Indemnifiable Events or (ii) recovery under any
directors' and officers' liability insurance policies maintained by the Company,
regardless of whether the Indemnitee ultimately is determined to be entitled to
such indemnification, advance expense payment or insurance recovery, as the case
may be.
6. Partial Indemnity, Etc. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for a portion of
the Expenses, judgments, fines, penalties and amounts paid in settlement of a
Claim but not for the total amount thereof, the Company shall indemnify the
Indemnitee for the portion thereof to which the Indemnitee is entitled.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee has been successful on the merits or otherwise in defense of Claims
relating to an Indemnifiable Event or in defense of any issue or matter therein,
including dismissal without prejudice, the Indemnitee shall be indemnified
against all Expenses incurred in connection therewith. In connection with any
determination by the Reviewing Party or otherwise as to whether the Indemnitee
is entitled to be indemnified hereunder, the burden of proof shall be on the
Company to establish that the Indemnitee is not so entitled.
7. No Presumption. For purposes of this Agreement, the termination of any
claim, action, suit or proceeding by judgment, order, settlement (whether with
or without court approval) or conviction, or upon a plea of nolo contendere, or
its equivalent, shall not create a presumption that the Indemnitee did not meet
any particular standard of conduct or have any particular belief or that a court
has determined that indemnification is not permitted by applicable law.
8. Non-exclusivity, Etc. The rights of the Indemnitee hereunder shall be in
addition to any other rights the Indemnitee may have under the Company's Amended
and Restated Certificate of Incorporation and By-laws or the Delaware General
Corporation Law or otherwise. To the extent that a change in the Delaware
General Corporation Law (whether by statute or judicial decision) permits
greater indemnification by agreement than would be afforded currently under the
Company's Amended and Restated Certificate of
- 5 -
<PAGE>
Incorporation and By-laws and this Agreement, it is the intent of the parties
hereto that the Indemnitee shall enjoy by this Agreement the greater benefits
afforded by such change.
9. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance, the
Director shall be covered by such policy or policies, in accordance with its or
their terms, to the maximum extent to the coverage available for any Company
director or officer.
10. Amendments, Etc. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall constitute a
waiver of any other provisions hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
11. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of the Indemnitee, who shall execute all such papers and do all such
things as may be necessary or desirable to secure such rights.
12. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise received payment (under
any insurance policy, the Company's Amended and Restated Certificate of
Incorporation, or the Company's By-laws or otherwise) of the amounts otherwise
indemnifiable hereunder.
13. Binding Effect, Etc. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
or assets of the Company, spouses, heirs, and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
the Director continues to serve as an officer or director of the Company or of
any other enterprise at the Company's request.
14. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
15. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of The Commonwealth of Massachusetts
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of law.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Indemnification
Agreement as of the date first above written.
PROCEPT, INC.
By
----------------------------------
Name:
Title:
---------------------------------------
[Director Name]
- 7 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from balance
sheet at September 30, 1997 and the statement of operations for the three months
and nine months ended September 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 2,419,333 2,419,333
<SECURITIES> 0 0
<RECEIVABLES> 81,250 81,250
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,614,217 2,614,217
<PP&E> 5,755,123 5,755,123
<DEPRECIATION> 4,616,392 4,616,392
<TOTAL-ASSETS> 4,315,369 4,315,369
<CURRENT-LIABILITIES> 1,569,350 1,569,350
<BONDS> 0 0
0 0
301 301
<COMMON> 19,620 19,620
<OTHER-SE> 2,358,723 2,358,723
<TOTAL-LIABILITY-AND-EQUITY> 4,315,369 4,315,369
<SALES> 0 0
<TOTAL-REVENUES> 142,243 569,287
<CGS> 0 0
<TOTAL-COSTS> 2,110,828 7,441,817
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,940 38,541
<INCOME-PRETAX> (1,968,585) (6,872,530)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,968,585) (6,872,530)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,968,585) (6,872,530)
<EPS-PRIMARY> (.80) (3.23)
<EPS-DILUTED> (.80) (3.23)
</TABLE>
