As filed with the Securities and Exchange Commission on April 28, 1998.
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
PROCEPT, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2893483
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
840 Memorial Drive, Cambridge, Massachusetts 02139; (617) 491-1100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
JOHN F. DEE
Chief Executive Officer and President
Procept, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
(617) 491-1100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
with copies to:
LYNNETTE C. FALLON, ESQ.
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
(617) 573-0100
----------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
----------------------
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.|_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
----------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Proposed maximum Proposed
Title of each class of securities Amount to be offering price per maximum aggregate Amount of
to be registered registered share(1) offering price (1) registration fee
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value 65,671,100 shares $0.875 $57,462,213 $16,952
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee and
computed pursuant to Rule 457(c) and based upon the prices on April 21,
1998 as reported on The Nasdaq National Market.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Subject to Completion, Dated April 28, 1998
65,671,100 Shares
PROCEPT, INC.
Common Stock
---------------------
All of the 65,671,100 shares (the "Shares") of common stock, $0.01 par
value per share ("Common Stock") of Procept, Inc. ("Procept" or the "Company")
offered hereby are being offered by certain stockholders of the Company (the
"Selling Stockholders"). Certain of the Selling Stockholders hold options (the
"Unit Purchase Options") to purchase units composed of shares of Common Stock
and warrants to purchase shares of Common Stock. The shares being registered
hereunder are composed of (i) 28,021,800 shares currently held by certain of the
Selling Stockholders, (ii) 28,021,800 shares are issuable to such Selling
Stockholders upon exercise of outstanding warrants to purchase shares of Common
Stock of the Company, (iii) 4,813,750 shares issuable to certain of the Selling
Stockholders upon exercise of Unit Purchase Options and (iv) 4,813,750 shares
issuable such Selling Stockholders upon exercise of warrants to purchase shares
of Common Stock that are issuable upon exercise of the Unit Purchase Options.
The Shares may be offered and sold by the Selling Stockholders from
time to time in open-market or privately-negotiated transactions, or by a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders may
effect such transactions by selling the Shares to or through broker-dealers and
such broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders, the purchasers of the
Shares or both (which compensation to a particular broker-dealer might be in
excess of customary commissions). See "SELLING STOCKHOLDERS" and "PLAN OF
DISTRIBUTION."
The Company will not receive any of the proceeds from the sale of the
Shares, except that the Company could receive an aggregate of up to $18,112,070
upon exercise of options and warrants to purchase certain shares of Common Stock
offered hereby. See "USE OF PROCEEDS." The Company also has agreed to indemnify
the Selling Stockholders against certain liabilities, including certain
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
See "PLAN OF DISTRIBUTION."
Procept Common Stock is quoted on The Nasdaq SmallCap Market ("Nasdaq")
under the symbol PRCTC. On _____________, 1998, the closing per share sale price
of Procept Common Stock, as reported by Nasdaq, was $_____.
INVESTMENT IN PROCEPT COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 1.
----------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
No person is authorized to give any information or to make any
representations other than those contained in this Prospectus and, if given or
made, such information or representations must not be relied upon as having been
authorized by the Company or the Selling Stockholders. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy to any person
in any jurisdiction in which such offer or solicitation would be unlawful or to
any person to whom it is unlawful. Neither the delivery of this Prospectus nor
any offer or sale made hereunder shall, in any circumstances, create any
implication that there has been no change in the affairs of the Company or that
the information contained herein is correct as of any time subsequent to the
date hereof.
---------------------
The date of this Prospectus is _____________, 1998.
<PAGE>
AVAILABLE INFORMATION
Procept is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission") relating to its
business, financial statements and other matters. Reports and proxy and
information statements filed with the Commission, as well as copies of the
Registration Statement of which this Prospectus is a part, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at
the following Regional Offices of the Commission: Midwest Regional Office, 500
West Madison Avenue, Suite 1400, Chicago, Illinois 60661; and Northeast Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal office at 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. In addition, Procept is required to
file electronic versions of such material with the Commission through the
Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system.
The Commission maintains a World Wide Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Procept
Common Stock is quoted on the Nasdaq SmallCap Market. Reports and other
information concerning Procept can also be inspected at the offices of the
National Association of Securities Dealers Inc., Market Listing Section, 1735 K
Street, N.W., Washington, D.C. 20006.
INCORPORATION BY REFERENCE
The following documents filed with the Commission (File No. 0-21134)
pursuant to the Exchange Act are incorporated herein by reference:
(a) Procept's Annual Report on Form 10-K for the year ended December 31,
1997 filed with the Commission on March 31, 1998; and
(b) The description of Procept Common Stock contained in Procept's
Registration Statement on Form 8-A, filed on January 21, 1993, as
amended by Procept's Registration Statement on Form 8-A/A filed with
the Commission on November 8, 1993 and February 7, 1994, including any
amendment or reports filed for the purpose of updating such
description.
Each document filed by Procept subsequent to the date of this
Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
prior to the termination of the offering of the Shares shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of filing
of such document. Any statement contained herein or in a document all or a
portion of which is incorporated or deemed to be incorporated herein by
reference shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein (or in any other
subsequently filed document which also is or is deemed to be incorporated herein
by reference or in any prospectus supplement) modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates by reference documents of Procept that are
not presented herein or delivered herewith. Such documents (not including
exhibits thereto, unless such exhibits are specifically incorporated by
reference in the information incorporated herein by reference) are available
without charge to each person to whom this Prospectus is delivered, upon written
or oral request directed to Procept, Inc., 840 Memorial Drive, Cambridge,
Massachusetts 02139, Attention: John F. Dee (telephone: (617) 491-1100).
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE COMPANY................................................................ 1
RISK FACTORS............................................................... 1
USE OF PROCEEDS........................................................... 10
SELLING STOCKHOLDERS....................................................... 11
PLAN OF DISTRIBUTION....................................................... 14
LEGAL MATTERS.............................................................. 16
EXPERTS.................................................................... 16
</TABLE>
<PAGE>
THE COMPANY
Procept is a biopharmaceutical company currently engaged in the
development of novel drugs for the prevention of HIV and other infectious
diseases. The Company is also seeking the acquisition or in-license of drug
development candidates that would benefit from Procept's expertise in various
therapeutic areas.
The Company was recently pursuing three principal research and
development programs. In order to focus its limited resources on its lead drug
candidate, PRO 2000 Gel, the Company suspended work in 1998 on its other
research programs, which it hopes to out-license, and underwent a significant
downsizing.
The lead product candidate from the Company's AIDS program, PRO 2000
Gel, is a vaginal topical microbicide designed to prevent the sexual
transmission of HIV and other sexually transmitted disease ("STD") pathogens.
The results of recently completed Phase I clinical trials indicated that PRO
2000 Gel is safe and well tolerated by healthy women. In addition, through the
Company's research in immunomodulation, the Company discovered a series of small
molecule compounds, T cell enzyme inhibitors, that have demonstrated significant
immunosuppressive activity in animal models. The Company is currently seeking
out-licensing opportunities for these compounds.
On April 6, 1998, Procept's Board of Directors unanimously approved and
determined to submit to the stockholders of the Company at the annual meeting of
stockholders scheduled to be held May 14, 1998, an amendment to the Company's
Restated Certificate of Incorporation to effect a one-for-ten reverse stock
split of the Company's outstanding Common Stock (the "Reverse Split Amendment").
The Company currently is authorized to issue 30,000,000 shares of Common Stock,
of which 29,984,235 were outstanding on April 28, 1998. If the Reverse Split
Amendment is effected, the number of authorized shares would remain the same,
but the number of shares outstanding would be decreased to approximately
2,998,500. The rights and preferences of the Common Stock would be unaffected by
the reverse split. The par value per share of Common Stock would remain at $0.01
following the reverse stock split; as a consequence, the aggregate capital in
excess of par value attributable to the outstanding Common Stock for statutory
and accounting purposes would be increased. See "RISK FACTORS -- Risk of Nasdaq
Delisting."
A more complete description of the business of Procept and its recent
activities can be found in the documents listed under "DOCUMENTS INCORPORATED BY
REFERENCE." The principal offices of Procept, a Delaware corporation, are
located at 840 Memorial Drive, Cambridge, Massachusetts 02139, and its telephone
number at such offices is (617) 491-1100.
RISK FACTORS
In addition to the other information contained in and incorporated by
reference in this Prospectus, the following factors should be considered
carefully in evaluating an investment in the shares of Procept Common Stock
offered hereby. This Prospectus, including the information incorporated by
reference, contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in such forward-looking statements. Factors that might cause
such a difference include those discussed below. Forward-looking statements are
usually identifiable by the use of the words or phrases "will likely result,"
"are expected to," "will continue," "is anticipated," "estimated," "project" and
similar words or phrases.
Early Stage of Product Development; Uncertainty of Successful Commercialization
Since its inception the Company has generated no revenue from product
sales. The Company's research and development programs are at an early stage.
Although the Company has identified compounds that it believes will have
clinical value, there can be no assurance that such compounds will develop into
commercial products or that additional products will be discovered, developed or
acquired in the future. The Company recently suspended development of all but
one of its research and development programs, PRO 2000 Gel. PRO 2000 Gel will
require significant additional research and development efforts, including
extensive clinical testing and regulatory approval, prior to commercial use.
Although PRO 2000 Gel has advanced to the clinical trial phase, it has not been
scaled-up for commercial production. The Company's potential products are
subject to the risks of failure inherent in the
<PAGE>
development of pharmaceutical products based on new technologies. These risks
include: (a) the possibilities that the Company's therapeutic approach will not
be successful; (b) that any or all of the Company's potential products will be
found to be unsafe, ineffective or toxic or otherwise fail to meet applicable
regulatory standards or receive necessary regulatory clearances; (c) that the
potential products, if safe and effective, will be difficult to develop into
commercially viable products or to manufacture on a large scale or will be
uneconomical to market; (d) that proprietary rights of third parties will
preclude the Company from marketing such products; or (e) that third parties
will market superior or equivalent products. Furthermore, the Company's products
in research or development or to be acquired may prove to have undesirable and
unintended side effects or other characteristics that may prevent or limit their
commercial use. There can be no assurance that the Company will be permitted to
undertake human clinical testing of any potential products or, if permitted,
that such products will be demonstrated to be safe and efficacious. In addition,
there can be no assurance that any of the Company's products will obtain United
States Food and Drug Administration ("FDA") or foreign regulatory approval for
any indication or that an approved compound would be capable of being produced
in commercial quantities at reasonable costs and successfully marketed.
Products, if any, resulting from the Company's research and development programs
are not expected to be commercially available, if at all, for a number of years
at the earliest.
Need for Additional Funds; Risk of Insolvency
The Company's operations to date have consumed substantial amounts of
cash. Substantial additional sources of financing will be required in order for
the Company to continue its planned operations. The Company is currently
dependent upon research and development collaborations, external financings and
interest income to provide working capital to pursue its intended business
activities. There can be no assurance, however, that additional funding will be
available from any of these sources or, if available, will be available on
acceptable or affordable terms. The Company has not been profitable since
inception and has incurred an accumulated deficit of $57,860,985 through
December 31, 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 substantially due to continued
research and development efforts, preclinical and clinical testing and
development of marketing, sales and production capabilities. In the next few
years, the Company's revenues, if any, will likely be limited to amounts
received under research or product development relationships that the Company
may establish. There can be no assurance, however, that the Company will be able
to establish any additional relationships on terms acceptable to the Company, if
at all. If the Company is unable to secure additional financing, or to enter
into corporate collaborations that produce revenue for the Company, the
Company's financial condition will be materially adversely affected. The
Company's future profitability is dependent on its ability to identify and
acquire commercially viable products, to enter into agreements for product
development and commercialization with corporate sponsors, to develop and obtain
patent protection and regulatory approvals for its products and to develop the
capability to manufacture and sell its products. There can be no assurance that
the Company will successfully identify, develop, acquire, commercialize, patent,
manufacture or market its products, obtain required regulatory approvals or ever
achieve profitability.
Uncertainty Regarding Success of Clinical Trials
Before obtaining required regulatory approvals for the commercial sale
of any drug candidates, the Company must independently demonstrate through
preclinical testing and clinical trials that such product is safe and effective
for use in each target indication. The results from preclinical testing and
early clinical trials may not be predictive of results that will be obtained in
pivotal clinical trials, and there can be no assurance that any clinical trials
will demonstrate sufficient safety and effectiveness to obtain required
regulatory approvals or will result in marketable products. A number of
companies in the pharmaceutical industry have suffered significant setbacks in
advanced clinical trials even after promising results in earlier trials.
Generally, only a very small percentage of the number of new pharmaceutical
products initially developed is approved for sale. Even products which are
approved for sale have no assurance of commercial success. The administration of
any drug candidate developed by the Company may produce undesirable side effects
in humans. The occurrence of side effects could interrupt, delay or halt
clinical trials of such drug candidate and could ultimately prevent its approval
by the FDA or foreign regulatory authorities for any and all target indications.
There can be no assurance that clinical trials will demonstrate that any drug
candidate under development is safe or effective. The Company may encounter
2
<PAGE>
unanticipated problems relating to development, manufacturing, distribution and
marketing, some of which may be beyond its financial and technical capacity to
solve. The failure to address such problems adequately could prevent the Company
from ever becoming a viable business or generating profits. No assurance can be
given that the Company will succeed in the development and marketing of any new
drug products, or that any such products will not be rendered obsolete by
products of competitors.
The rate of completion of clinical trials will depend upon, among other
factors, obtaining adequate clinical supplies and the rate of patient
enrollment. Patient enrollment is a function of many factors including the size
of the patient population, the nature of the protocol, the proximity of patients
to clinical sites and the eligibility criteria for the study. Delays in planned
patient enrollment can result in increased costs or delays or both, which could
have a material adverse effect on the Company's business.
Potential Future Dilution
As of April 28, 1998, 34,645,608 shares of Procept Common Stock were
issuable upon exercise of currently outstanding options and warrants to purchase
Common Stock, including (a) currently exercisable outstanding warrants to
purchase an aggregate of 28,021,800 shares of Common Stock held by certain of
the Selling Stockholders and (b) outstanding Unit Purchase Options exercisable
after October 9, 1998 to purchase an aggregate of 4,813,750 shares of Common
Stock and warrants to purchase an aggregate of 4,813,750 shares of Common Stock
held by certain of the Selling Stockholders, including Paramount Capital, Inc.
("Paramount"), the Company's placement agent in its April 1998 private placement
(the "1998 Private Placements") of the shares offered hereby.
In addition, the Selling Stockholders who purchased their shares in the
1998 Private Placement are entitled to certain contractual rights requiring
contingent additional issuances of Common Stock (x) based on the market price of
Procept Common stock on the first anniversary of the final closing date (the
"Final Closing Date") of the 1998 Private Placement (y) to protect them against
future dilutive sales of securities and (z) as a dividend substitute beginning
18 months after the Final Closing Date. The Selling Stockholders also may put
their shares back to the Company at 140% of the original purchase price in the
event of a "liquidation event" as defined in the subscription agreement. These
contractual rights will terminate after the first anniversary of the Final
Closing Date if Procept Common Stock trades at three times the original purchase
price per share. These contractual rights are transferable to the purchasers of
the shares offered hereby only if the Selling Stockholder complies with certain
requirements regarding transfer, including (a) that the transferee execute a
counterpart to the subscription agreement to which each of the Selling
Stockholders is, or will become upon exercise of the Unit Purchase Options, a
party and (b) that no transfer of these contractual rights be made relating to
fewer than 50,000 shares of Common Stock (subject to adjustment). In addition,
these contractual rights are subject to applicable laws including Delaware
General Corporate Law. There can be no assurance that, if challenged, any of
these rights will be enforced.
Concentration of Ownership and Control
The Aries Trust and the Aries Domestic Fund, L.P. (the "Aries Funds")
together are the holders of an aggregate of 13,416,800 shares of Procept Common
Stock and warrants to purchase an aggregate of 13,475,259 shares of Procept
Common Stock (the "Aries Interest"), representing approximately 42% of Procept
Common Stock outstanding on a fully diluted basis. In addition, the Aries Funds
have the right to designate a majority of the members of the Board of Directors.
See "-- Certain Interlocking Relationships; Potential Conflicts of Interest."
Accordingly, the Aries Funds may effectively control matters requiring approval
by Procept stockholders, including electing directors, adopting or amending
certain provisions of the Company's certificate of incorporation or bylaws and
approving or preventing certain mergers or other similar transactions, such as a
sale of substantially all of the Company's assets (including transactions that
could give holders of Procept Common Stock the opportunity to realize a premium
over the then-prevailing price for their shares). The control rights of the
Aries Funds and their affiliate may have the effect of discouraging a third
party from making an acquisition proposal for the Company and thereby inhibit a
change of control of the Company in circumstances that could give the holders of
Procept Common Stock the opportunity to realize a premium over the
then-prevailing market price of such stocks or affect the market price of the
Common Stock, or both. Purchasers of the Shares offered hereby will be minority
equity holders of the Company and will be unable to control the management or
business policies of the Company. Moreover, subject
3
<PAGE>
to contractual restrictions and general fiduciary obligations, the Company is
not prohibited from engaging in transactions with its management and principal
stockholders, or with entities in which such persons are interested.
Risk of Nasdaq Delisting; Reverse Split Amendment
Effective as of March 27, 1998, Procept Common Stock is listed on the
SmallCap Market operated by The Nasdaq Stock Market, Inc. ("Nasdaq"). The
Company currently has an exception from Nasdaq's requirements for continued
listing and must satisfy certain conditions by June 2, 1998 to continue to be
listed on the SmallCap Market. These conditions include effecting a reverse
stock split to raise the Company's stock price above Nasdaq's minimum bid price
requirement. To satisfy this condition, Procept's Board of Directors unanimously
approved and determined to submit to the stockholders of the Company the Reverse
Split Amendment. The Company believes that it can meet this and the other
conditions. There can be no assurance, however, that it will do so. If the
Company fails to meet these conditions, the Company will be delisted from Nasdaq
and no longer will be eligible for quotation on the SmallCap Market. Such a
delisting could adversely affect the ability of the Company to attract new
investors, may result in decreased liquidity of shares of Procept Common Stock
and, consequently, could reduce the price at which such shares trade, the
transactions costs inherent to trading such shares and the value of such shares.
In addition, if Procept Common Stock is delisted from Nasdaq it will be subject
to the penny stock restrictions of Rule 15g-9 under the Exchange Act, which may
materially adversely affect the market liquidity of the Company's securities,
the Company's ability to raise funds in the future, the ability and willingness
of brokers to sell the Company's securities and the ability of purchasers in
this Offering to sell any of the Shares offered hereby.
Risks of Low-Priced Stock; Possible Effect of "Penny Stock" Rules on Liquidity
for the Company's Securities
If Procept Common Stock fails to continue to be listed on a national
securities exchange or listed on a qualified automated quotation system, it may
become subject to Rule 15g-9 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which imposes additional sales practice
requirements on broker-dealers that sell such securities. Rule 15g-9 defines a
"penny stock" to be any equity security that has a market price (as therein
defined) of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions including the securities being
quoted on Nasdaq's SmallCap Market. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser,
have delivered the Commission's required disclosure statement regarding "penny
stock" and have received the purchaser's written consent to the transaction
prior to sale. In addition, Rule 15g-4 requires that a broker-dealer also must
disclose the sales commission payable to it and its registered representative
and current quotations for the security. Finally, Rule 15g-6 requires that a
broker-dealer send its customers who hold penny stock in their accounts monthly
statements disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stock. Consequently, such
rules may affect the ability of broker-dealers to sell the Company's securities
and may affect the ability of purchasers of the Shares offered hereby to sell
any of their Procept Common Stock.
The foregoing required penny stock restrictions will not apply to the
Company's securities if the Company meets certain minimum net tangible assets or
average revenue criteria. There can be no assurance that the Company's
securities will qualify for exemption from the penny stock restrictions. In any
event, even if the Company's securities were exempt from such restrictions, the
Company would remain subject to Section 15(b)(6) of the Exchange Act, which
gives the Commission the authority to restrict any person from participating in
a distribution of penny stock, if the Commission finds that such a restriction
would be in the public interest.
If the Company's securities were subject to the rules on penny stocks,
the market liquidity for the Company's securities would be materially adversely
affected.
4
<PAGE>
Uncertainty Regarding Future Collaborations
The Company has no experience with receipt of government approvals,
marketing pharmaceutical products or clinical testing and manufacturing and, as
a result, intends to depend on collaborators for expertise.
The Company is currently seeking corporate partners to assist in the
development of the Pro 2000 Gel. Although the Company currently plans to
continue to fund each of these programs, there can be no assurance that the
Company will be able to continue such programs without a partner. Furthermore,
there can be no assurance that the Company will be successful in forming or
maintaining any such alliances or that the Company's partners would devote
adequate resources to the Company's product candidates or that any or all of the
contemplated benefits from such alliances will be realized. Certain of the
collaborative, license or other arrangements that the Company may enter into may
place responsibility on the collaborative partners for preclinical testing and
human clinical trials and for the preparation and submission of applications for
regulatory approval for other technologies or products. Should any collaborative
partner fail to develop or commercialize successfully any future proprietary
technologies or future product to which it has rights, the Company may be
materially adversely affected. There can be no assurance that collaborators will
not pursue alternative technologies or products either on their own or in
collaboration with others, including the Company's competitors, as a means for
developing treatments of the diseases sought to be addressed by the respective
company. If the Company instead performs such tasks itself, it will be required
to develop expertise internally or contract with third parties to perform these
tasks. This will place increased demands on its resources, requiring the
addition of new management personnel and the development of additional expertise
by existing management personnel. The failure to acquire such services or to
develop such expertise could materially adversely affect prospects for success.
Volatility of Stock Price
The market price of Procept Common Stock has been highly volatile and
may be so in the future. Factors such as the results of preclinical studies and
clinical trials by the Company or its competitors, other evidence of the safety
or efficacy of the Company's or its competitors' products, announcements of
technological innovations or new therapeutic products by the Company, or its
competitors, governmental regulation, developments in patent or other
proprietary rights of the Company or its competitors, including litigation,
fluctuations in the Company's operating results, and market conditions for
biopharmaceutical stocks in general could have a significant impact on the
future price of Procept Common Stock. As of April 28, 1998 the Company had
29,984,235 shares of Common Stock outstanding. Future sales of Procept Common
Stock by existing stockholders and option holders also could adversely affect
the market price of Procept Common Stock.
Certain Interlocking Relationships; Potential Conflicts of Interest
The Aries Funds have the contractual right to appoint a majority of the
members of the Board of Directors of the Company. The Aries Funds have
designated Michael S. Weiss, who is a Senior Managing Director of Paramount
Capital, Inc. ("Paramount"), as a nominee to the Board of Directors. Mr. Weiss
was nominated to the Board and elected as Chairman. Paramount Capital Asset
Management, Inc. ("PCAM") is the investment manager and general partner of both
Aries Funds. See "-- Concentration of Ownership and Control." Lindsay A.
Rosenwald, M.D., the Chairman and sole stockholder of PCAM, is also the
President and sole stockholder of Paramount. Dr. Rosenwald is also President of
Paramount Capital Investments LLC ("PCI"), a New York-based merchant banking and
venture capital firm specializing in biotechnology companies. In the regular
course of its business, PCI identifies, evaluates and pursues investment
opportunities in biomedical and pharmaceutical products, technologies and
companies. Generally, Delaware corporate law requires that any transactions
between the Company and any of its affiliates be on terms that, when taken as a
whole, are substantially as favorable to the Company as those then reasonably
obtainable from a person who is not an affiliate in an arm's-length transaction.
Nevertheless, neither such affiliates nor PCI is obligated pursuant to any
agreement or understanding with the Company to make any additional products or
technologies available to the Company, nor can there be any assurance, and the
Company does not expect and purchasers of the Shares offered hereby should not
expect, that any biomedical or pharmaceutical product or technology identified
by such affiliates or PCI in the future will be made available to the Company.
In addition, certain of the current officers and directors of the Company or
certain of any officers or directors of the Company hereafter appointed may from
time to time serve as officers or directors
5
<PAGE>
of other biopharmaceutical or biotechnology companies. There can be no assurance
that such other companies will not have interests in conflict with those of the
Company.
The Company has agreed to indemnify Paramount and/or any controlling
person, director and officer of Paramount and hold them harmless against any
losses or expenses incurred in connection with Paramount's services in a recent
private placement of Procept's securities to the Selling Stockholders. In
addition, the Company and Paramount have entered into an advisory agreement
pursuant to which Paramount acts as the Company's exclusive financial advisor,
at a monthly retainer of $4,000 (minimum engagement of 24 months) plus
out-of-pocket expenses and cash and equity success fees in the event Paramount
assists the Company in connection with certain additional financing or strategic
transactions.
Absence of Dividends on Common Stock
Dividends will be payable on Procept Common Stock only when, as and if
declared by the Company's Board of Directors, out of funds legally available
therefor. Dividends on Procept Common Stock may be paid only out of surplus
(within the meaning of the Delaware General Corporation Law) or, if there is not
such surplus, out of the net profits of the Company for the fiscal year in which
the dividend is declared and/or the preceding fiscal year. The Company has no
current expectations that dividends will be paid on its Common Stock in the
foreseeable future.
Certain Anti-Takeover Provisions
Certain provisions of the Company's certificate of incorporation and
by-laws may have the effect of discouraging a third party from making an
acquisition proposal for the Company and thereby inhibit a change in control of
the Company in circumstances that could give the holders of Procept Common Stock
the opportunity to realize a premium over the then-prevailing market price of
such stock. Such provisions may affect the market price of Procept Common Stock.
For example, the Company's certificate of incorporation authorizes the issuance
of "blank check" preferred stock with such designations, rights and preferences
as may be determined from time to time by the Company's Board of Directors. Such
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. The
future issuance of such preferred stock may adversely affect the voting and
dividend rights, rights under liquidation and other rights of the holders of
Procept's other equity securities. In addition to the impact of a future
issuance of preferred stock, Section 203 of the Delaware General Corporation Law
contains certain provisions that may delay or prevent an attempt by a third
party to acquire control of the Company. Furthermore, the Company has
contractual obligations to certain of its security holders that may prevent
potential takeovers. See "-- Concentration of Ownership and Control."
Competition and Technological Change
Competitors of the Company in the United States and abroad are numerous
and include, among others, major pharmaceutical and chemical companies,
specialized biotechnology firms and universities and other research
institutions. Biotechnology and pharmaceutical companies are subject to intense
competition and rapid and significant technological change. Competition may
increase as a result of potential advances in the commercial application of
biotechnology and greater availability of capital for investment in these
fields. Acquisitions of competing companies and potential competitors by large
pharmaceutical companies or others could enhance financial, marketing and other
resources available to such competitors. As a result of academic and government
institutions becoming increasingly aware of the commercial value of their
research findings, such institutions are more likely to enter into exclusive
licensing agreements with commercial enterprises, including competitors of the
Company, to market commercial products. There can be no assurance that the
Company's competitors will not succeed in developing technologies and products
that are more effective than any that are being developed by the Company or that
would render the Company's technology and products obsolete and noncompetitive.
Many of these competitors have substantially greater financial and technical
resources and production and marketing capabilities than the Company. In
addition, some of the Company's competitors have greater experience than the
Company in conducting preclinical testing and human clinical trials and
obtaining FDA and other regulatory approvals. Accordingly, the Company's
competitors may succeed in obtaining FDA or other regulatory approvals for
products
6
<PAGE>
more rapidly than the Company. There can be no assurance that the Company's
products will be able to compete successfully with competitors' existing
products or products under development or that they will obtain regulatory
approval in the United States or elsewhere. If the Company commences significant
commercial sales of its products, it also will be competing with respect to
manufacturing efficiency and marketing capabilities, areas in which it has
limited or no experience.
Uncertainty of Patents and Proprietary Rights
The Company's success will depend in part on its ability to obtain
United States and foreign patent protection for its products, preserve its trade
secrets and operate without infringing on the proprietary rights of third
parties. Because of the length of time and expense associated with bringing new
drugs through development and regulatory approval to the marketplace, the health
care industry has traditionally placed considerable importance on obtaining
patent and trade secret protection for significant new technologies, products
and processes. There can be no assurance that any patents will issue from any of
the patent applications owned by, or licensed to, the Company. Further, there
can be no assurance that any rights the Company may have under issued patents
will provide the Company with significant protection against competitive
products or otherwise be commercially valuable. Legal standards relating to the
validity of patents covering pharmaceutical and biotechnological inventions and
the scope of claims made under such patents are still developing. There can be
no assurance that any existing or future patents issued to, or licensed by, the
Company will not subsequently be challenged, infringed upon, invalidated or
circumvented by others. If the Company's product candidates are found to
infringe upon the patents or otherwise impermissibly utilize the intellectual
property of others, the Company's development, manufacture and sale of such
product candidates could be severely restricted or prohibited. In such event,
the Company may be required to obtain licenses from third parties or otherwise
obtain licenses to utilize patents or proprietary rights of others. There can be
no assurance that the Company will be able to obtain such licenses on acceptable
terms, or at all.
Dependence on Confidentiality Agreements
The Company also relies on unpatented proprietary technology, and there
can be no assurance that others may not independently develop the same or
similar technology or otherwise obtain access to the Company's unpatented
technology. To protect its trade secrets and other proprietary information, the
Company requires employees, consultants, advisors and collaborators to enter
into confidentiality agreements. There can be no assurance that these agreements
will provide meaningful protection for the Company's trade secrets, know-how or
other proprietary information in the event of any unauthorized use,
misappropriation or disclosure of such trade secrets, know-how or other
proprietary information. If the Company is unable to maintain the proprietary
nature of its technologies, the Company could be adversely affected.
Impact of Government Regulation; Product Clearance and Approval
The FDA and comparable agencies in foreign countries impose substantial
requirements upon the introduction of therapeutic pharmaceutical products
through lengthy and detailed laboratory and clinical testing procedures,
sampling activities and other costly and time-consuming procedures. Satisfaction
of these requirements, which includes demonstrating to the satisfaction of the
FDA and foreign regulatory agencies that the product is both safe and effective,
typically takes several years or more and can vary substantially based upon the
type, complexity and novelty of the product. There can be no assurance that such
testing will show any product to be safe or efficacious. The Company cannot yet
accurately predict when it might first submit new drug applications for products
for FDA or other regulatory review. Government regulation also affects the
manufacturing and marketing of pharmaceutical products.
The effect of government regulation may be to delay marketing of the
Company's products for a considerable or indefinite period of time, to impose
costly procedural requirements upon the Company's activities and to furnish a
competitive advantage to larger companies or companies more experienced in
regulatory affairs. There can be no assurance that FDA or other regulatory
approvals for any products developed by the Company will be granted on a timely
basis, if at all, or, if granted, that such approval will cover all the clinical
indications for which the Company is seeking approval or will not contain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use. Any delay in obtaining or
any failure to obtain
7
<PAGE>
such approvals would adversely affect the Company's ability to generate revenue.
Even if initial regulatory approvals for the Company's product candidates are
obtained, the Company, its products and its manufacturing facilities would be
subject to continual review and periodic inspection. Moreover, additional
government regulation from future legislation or administrative action may be
established which could prevent or delay regulatory approval of the Company's
products or further regulate the prices at which the Company's proposed products
may be sold. The regulatory standards for manufacturing are applied stringently
by the FDA. Discovery of previously unknown problems with a product,
manufacturer or facility may result in restrictions on such product,
manufacturer or facility, including warning letters, fines, suspensions of
regulatory approvals, product recalls, operating restrictions, delays in
obtaining new product approvals, withdrawal of the product from the market and
criminal prosecutions. Other violations of FDA requirements can result in
similar penalties.
Uncertainty of Health Care Reform Measures and Third Party Reimbursement
The business and financial condition of pharmaceutical and
biotechnology companies will continue to be affected by the efforts of
third-party payers, such as government health administration authorities,
private health insurers and other organizations, to contain or reduce the cost
of health care. In the United States and in certain foreign jurisdictions there
have been, and the Company expects that there will continue to be, a number of
legislative and regulatory proposals aimed at changing the health care system.
While the Company cannot predict whether any such legislative or regulatory
proposals will be adopted or the effect that such proposals may have on its
business, the consideration or approval of such proposals could have a material
adverse effect on the value of its securities, including the Shares registered
hereby, or its ability to raise capital or to obtain additional collaborative
partners, and the adoption of such proposals could have a material adverse
effect on the Company's business, financial condition and results of operations.
In both domestic and foreign markets, successful commercial sales of
potential products of the Company will depend in part on the availability of
reimbursement from governmental and health administrative authorities, private
health insurers or other third-party payers. Third-party payers are increasingly
challenging the price and cost-effectiveness of medical products and services.
Significant uncertainty exists as to the reimbursement status of newly approved
health care products. Future legislation and regulations affecting the pricing
of pharmaceuticals could further limit reimbursement for medical products and
services. There can be no assurance that any of the Company's potential products
will be considered cost-effective or that adequate third-party reimbursement
will be available to enable the Company to maintain price levels sufficient to
realize an appropriate return on its investments. In addition, the trend toward
managed health care in the United States and the concurrent growth of managed
care organizations, such as health maintenance organizations, that could control
or significantly influence the purchase of health care services and products, as
well as legislative proposals to reduce government insurance programs, could
result in pricing pressure for any products that might be developed by the
Company. If adequate reimbursement is not provided by government and other
third-party payers of the Company's potential products, there would be a
material adverse effect on the Company's business, financial condition and
results of operations.
Management Transition; Need for Additional Personnel; Dependence on Qualified
Personnel
Financial constraints have dictated that the Company terminate a
significant number of employees during the last year. The loss of such
individuals has decreased the scope of the Company's activities and may,
therefore, have reduced the prospects for commercially successful product
development. In February 1998, Procept's Board of Directors appointed John F.
Dee as the Company's President and Chief Executive Officer. Until the Company
recruits additional administrative personnel, Mr. Dee, in addition to serving as
Procept's Principal Executive Officer, also will serve as its Principal
Financial Officer and Principal Accounting Officer. If Mr. Dee were not able to
continue in these capacities, the Company could be adversely affected.
The Company is highly dependent upon the efforts of Mr. Dee and its
remaining scientific team. The loss of the services of one or more of these
individuals might impede the achievement of the Company's development
objectives. Because of the specialized scientific nature of the Company's
business, the Company is highly dependent upon its ability to attract and retain
qualified scientific and technical personnel. There is intense competition among
major pharmaceutical and chemical companies, specialized biotechnology firms and
universities and other research institutions for qualified personnel in the
areas of the Company's activities, and there can be no assurance that the
8
<PAGE>
Company will be able to continue to attract and retain the qualified personnel
necessary for the development of its business. Loss of the services of, or
failure to recruit, key scientific and technical personnel would be
significantly detrimental to the Company's product development programs.
Limited Manufacturing, Marketing and Sales Capability and Experience
The Company has not yet invested in the development of manufacturing,
marketing or sales capabilities. The Company lacks the facilities and personnel
to manufacture products in accordance with Quality System ("QS," formerly
current good manufacturing practice, or "GMP") requirements as prescribed by the
FDA or to produce an adequate supply of compounds to meet future requirements
for clinical trials. If the Company is unable to develop or contract for
manufacturing capabilities on acceptable terms, the Company's ability to conduct
human clinical testing with PRO 2000 and preclinical and clinical testing with
respect to additional product candidates, if any, will be adversely affected,
resulting in delays in the submission of products for regulatory approvals and
in the initiation of new development programs, which in turn could materially
impair the Company's competitive position and the possibility of achieving
profitability. The Company also will need to hire additional personnel skilled
in marketing and sales as it develops products with commercial potential or
enter into arrangements with third parties for sales and marketing. There can be
no assurance that the Company will be able to acquire, or establish third-party
relationships to provide, any or all of these capabilities.
Product Liability; Availability of Insurance; Risk of Product Recalls
The Company's business exposes it to potential liability risks that are
inherent in the testing, manufacturing and marketing of medical products. The
use of the Company's products in clinical trials may expose the Company to
product liability claims and possible adverse publicity. These risks will expand
with respect to the Company's products, if any, that receive regulatory approval
for commercial sale. The Company currently has limited product liability
coverage for the clinical research use of its products, which management
believes is customary for a Company with products at this stage of clinical
development. The Company does not have product liability insurance for the
commercial sale of its products but intends to obtain such coverage if and when
its products are commercialized. However, such coverage is becoming increasingly
expensive and there can be no assurance that the coverage is adequate or that
the Company will be able to maintain its existing insurance coverage or obtain
additional insurance coverage at acceptable costs, if at all, or that a product
liability claim would not adversely affect the business or financial condition
of the Company. Furthermore, there can be no assurance that any collaborators or
licensees of the Company will agree to indemnify the Company or be sufficiently
insured or have a net worth sufficient to satisfy any such product liability
claims. In addition, a product of the Company may be subject to recall for
unforeseen reasons. Such a recall could have a material adverse effect on the
Company.
Limited Availability of Net Operating Loss Carry Forwards
For Federal income tax purposes, net operating loss and tax credit
carryforwards as of December 31, 1997 are approximately $57.3 million and $1.6
million, respectively. These carryforwards will expire beginning in 2000. The
Tax Reform Act of 1986 provided for a limitation on the annual use of net
operating loss and tax credit carryforwards following certain ownership changes.
The Company believes that certain recent issuances of its securities, including
those pursuant to which the Selling Stockholders acquired the Shares offered
hereby, are likely to restrict severely the Company's ability to utilize its net
operating losses and tax credits in any particular year. Additionally, because
the U.S. tax laws limit the time during which net operating loss and tax credit
carryforwards may be applied against future taxable income and tax liabilities,
respectively, the Company may never be fully able to use its net operating loss
and tax credits for federal income tax purposes.
Hazardous Materials; Environmental Matters
The Company's research and development and manufacturing processes
involve the controlled storage, use and disposal of hazardous materials,
biological hazardous materials and radioactive compounds. The Company is subject
to federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products.
Although the Company believes that its safety procedures
9
<PAGE>
for handling and disposing of such materials comply with the standards
prescribed by such laws and regulations, the risk of accidental contamination or
injury from these materials cannot be completely eliminated. In the event of
such an accident, the Company may be held liable for any damages that result,
and any such liability could exceed the resources of the Company. There can be
no assurance that the Company will not be required to incur significant costs to
comply with environmental laws and regulations in the future, nor that the
operations, business or assets of the Company will not be materially adversely
affected by current or future environmental laws or regulations.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares
offered hereby. The Company could, however, receive an aggregate of up to
$18,112,070 upon exercise of outstanding options and warrants, including (i) an
aggregate of up to $13,310,355 upon the exercise of outstanding warrants to
purchase shares of Common Stock of the Company held by certain of the Selling
Stockholders, (ii) an aggregate of up to $2,515,184 upon exercise of outstanding
Unit Purchase Options held by certain of the Selling Stockholders and (iii) an
aggregate of $2,286,531 issuable upon exercise of warrants to purchase shares of
Common stock that are issuable upon exercise of the Unit Purchase Options.
10
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders are the holders of units (the "Units") each
consisting of (a) 200,000 shares of Procept Common Stock and (b) warrants (the
"Warrants") to purchase, at $0.50 per share, at any time prior to April 9, 2003
200,000 shares of Procept Common Stock. The Units were issued by the Company in
a private placement of such securities completed in April 1998 (the "1998
Private Placement"). One half of the Shares being offered by each Selling
Stockholder hereunder has been issued or is issuable to the Selling Stockholder
upon exercise of the Warrants. Certain Selling Stockholders also hold options
(the "Unit Purchase Options") to purchase an aggregate of 24.06875 Units.
The following table sets forth the name of and the number of shares of
Procept Common Stock beneficially owned by each Selling Stockholder as of April
28, 1998, the number of the shares to be offered by each Selling Stockholder
pursuant to this Prospectus and the number and percentage of shares to be
beneficially owned by each Selling Stockholder after the offering if all of the
shares offered hereby by such Selling Stockholder are sold as described herein.
The percentage figures are based on 29,984,235 shares of Procept Common Stock
outstanding on April 28, 1998.
Except as described elsewhere in this Prospectus, none of the Selling
Stockholders have held any position or office with, been employed by, or
otherwise had a material relationship with, the Company or any of its
predecessors or affiliates. See "RISK FACTORS -- Concentration of Ownership and
Control"; "-- Certain Interlocking Relationships; Potential Conflicts of
Interest."
<TABLE>
<CAPTION>
Beneficial Ownership
After this Offering
-------------------
Name of Number of Shares Number of Shares Number
Selling Stockholder Beneficially Owned Offered Hereby of Shares Percent
- ------------------- ------------------ -------------- --------- -------
<S> <C> <C> <C> <C>
Ross D. Ain 80,000 80,000 0 0%
Alae Partners 400,000 400,000 0 0%
Philip J. Angelastro 100,000 100,000 0 0%
The Alfred J. Anzalone
Family Limited Partnership 200,000 200,000 0 0%
Mauricio Arias 100,000 100,000 0 0%
Aries Domestic Fund, L.P. (1) 9,209,298 9,191,760 17,538 *
The Aries Trust (2) 17,682,761 17,641,840 40,921 *
Mario Aristizabal 100,000 100,000 0 0%
Morris A. Arntson, Jr. 100,000 100,000 0 0%
Martin G. Ballweg 200,000 200,000 0 0%
Raul Baz 100,000 100,000 0 0%
Beagle Limited 800,000 800,000 0 0%
Eckardt C. Beck, Defined Pension 100,000 100,000 0 0%
Plan U/A 1/1/95
Lawrence Bernstein 60,000 60,000 0 0%
Richard Berry, MD & Beverly Berry 100,000 100,000 0 0%
Bios Equity Fund L.P. 600,000 600,000 0 0%
Barry Birbrower, P.C. Profit
Sharing Trust 100,000 100,000 0 0%
Robert S. Bogatin Trust UDT 3/15/91 100,000 100,000 0 0%
James W. Brady 40,000 40,000 0 0%
Ronald W. Braziel 400,000 400,000 0 0%
Elliott Broidy 200,000 200,000 0 0%
Thomas L. Cassidy IRA Rollover 200,000 200,000 0 0%
Jack R. Cline, Jr. 100,000 100,000 0 0%
Robert J. Conrads 200,000 200,000 0 0%
Continental Consulting Corporation 100,000 100,000 0 0%
Couderay Partners 400,000 400,000 0 0%
Archibald Cox, Jr. 800,000 800,000 0 0%
Tommy L. Davis 600,000 600,000 0 0%
Praful Desai, MD 100,000 100,000 0 0%
J. William Doyle 300,000 300,000 0 0%
James L. Dritz 100,000 100,000 0 0%
Edward Dworetzky 200,000 200,000 0 0%
Norma Dworetzky 200,000 200,000 0 0%
Roxanne H. Frank Revocable
Trust 400,000 400,000 0 0%
Ben & Sharyn Friedman 100,000 100,000 0 0%
Furman Selz, LLC 500,000 500,000 0 0%
Gallans & Brooks Associates,
Inc. Pension Fund 100,000 100,000 0 0%
A. Mark Gambee, MD and Karen
D. Todd, MD JTWROS 200,000 200,000 0 0%
Shelley Garfinkel 200,000 200,000 0 0%
Anthony J. Gerace 160,000 160,000 0 0%
Joseph Giamanco 400,000 400,000 0 0%
11
<PAGE>
Beneficial Ownership
After this Offering
-------------------
Name of Number of Shares Number of Shares Number
Selling Stockholder Beneficially Owned Offered Hereby of Shares Percent
- ------------------- ------------------ -------------- --------- -------
Howard Gittis 400,000 400,000 0 0%
Stuart Goldberg and Rhoda
Goldberg JTWROS 100,000 100,000 0 0%
Gilbert Goldstein, Paul Shapiro 400,000 400,000 0 0%
Trustees, UIT Howard Gittis,
dated 12/23/88
John M. Goodman 100,000 100,000 0 0%
Michael J. Gordon 50,000 50,000 0 0%
HJK, LLC 400,000 400,000 0 0%
Alan and Paula Halperin 200,000 200,000 0 0%
Irving B. Harris Revocable
Trust 400,000 400,000 0 0%
Hawk Management and
Financial Services, Inc. 400,000 400,000 0 0%
Edward F. Heil 200,000 200,000 0 0%
Paul R. Herman 100,000 100,000 0 0%
Fred Holubow 80,000 80,000 0 0%
Harry Huang & Adrienne
Masters 100,000 100,000 0 0%
IMS Global Investments X, Ltd. 800,000 800,000 0 0%
Jackson Hole Investments 200,000 200,000 0 0%
Acquisition LP
Michael Joyce 400,000 400,000 0 0%
Charles Jurgensmeyer 200,000 200,000 0 0%
Jerome Kahn Jr. Revocable
Trust 180,000 180,000 0 0%
Donald B. and Sylvia A. Kaiserman 100,000 100,000 0 0%
Patrick M. Kane 120,000 120,000 0 0%
Ellen I. Kaplan Revocable Trust 200,000 200,000 0 0%
Ery W. Kehaya 200,000 200,000 0 0%
Donald R. Kendall, Jr. 200,000 200,000 0 0%
Lawrence & Shirley Kessel 100,000 100,000 0 0%
Keys Foundation 1,400,000 1,400,000 0 0%
George & Mary Ellen Kimble 100,000 100,000 0 0%
Harold Ksiazek and Jeanette Ksiazek 100,000 100,000 0 0%
John LaRocque 1,200,000 1,200,000 0 0%
Roger S. Lash 200,000 200,000 0 0%
Brad Levine DMD 200,000 200,000 0 0%
Hyman A. Lezell Revocable Trust 100,000 100,000 0 0%
Donald W. Linscott 100,000 100,000 0 0%
Donna Lipman and Lawrence
Lipman, Tenants in Common 100,000 100,000 0 0%
Stephen A. Lisenby and
Patricia J. Lisenby 300,000 300,000 0 0%
John Loeb, Jr. 100,000 100,000 0 0%
Harris R.L. Lydon, Jr. 100,000 100,000 0 0%
Richard A. & Gay C. Lydecker 20,000 20,000 0 0%
Geo. Manos & Associates, Inc. 100,000 100,000 0 0%
Mike McCullick 100,000 100,000 0 0%
Milfam II 100,000 100,000 0 0%
Mike & Terry Miller 400,000 400,000 0 0%
Albert Milstein 100,000 100,000 0 0%
Donald Minerva 200,000 200,000 0 0%
William Kymmerly Murphy & 100,000 100,000 0 0%
12
<PAGE>
Beneficial Ownership
After this Offering
-------------------
Name of Number of Shares Number of Shares Number
Selling Stockholder Beneficially Owned Offered Hereby of Shares Percent
- ------------------- ------------------ -------------- --------- -------
Linda Carolyn Murphy Revocable Trust
Arthur J. Nagle 100,000 100,000 0 0%
Joseph A. Natiello 200,000 200,000 0 0%
Kevin P. Newman 100,000 100,000 0 0%
John S. Osterweis, Trustee for 100,000 100,000 0 0%
The Osterweis Revocable Trust
U/A dated 1/13/93
Paul D. & Rebecca L. Ostrovsky 50,000 50,000 0 0%
Steven N. Ostrovsky 150,000 150,000 0 0%
Palmetto Partners, LTD. 800,000 800,000 0 0%
James J. Pelts 40,000 40,000 0 0%
Pequot Scout Fund, LP 1,000,000 1,000,000 0 0%
Pharm-Eco Laboratories, Inc. 200,000 200,000 0 0%
Pictet Bank & Trust Nassau Ltd. 200,000 200,000 0 0%
Porlana Capital Corp. PTE Ltd. 400,000 400,000 0 0%
Tis Prager 200,000 200,000 0 0%
James K. Ramaker 200,000 200,000 0 0%
Louis Reaback 100,000 100,000 0 0%
Raymond Reaback 100,000 100,000 0 0%
Michael Resnick 80,000 80,000 0 0%
David Rosenbaum and Margot
Kahn JTWROS 20,000 20,000 0 0%
David W. Ruttenberg 100,000 100,000 0 0%
Maria-Eugenia A. de Salas-Porras 100,000 100,000 0 0%
Roy and Marlena Schaefer, JTWROS 100,000 100,000 0 0%
Sandra Schawelson 100,000 100,000 0 0%
J.F. Shea Co., Inc. 1,200,000 1,200,000 0 0%
Thomas C. Siirola 100,000 100,000 0 0%
William S. Silver 100,000 100,000 0 0%
Melvin Spencer 100,000 100,000 0 0%
Andrew Strassman 100,000 100,000 0 0%
Joseph Strassman and
Barbara Strassman 200,000 200,000 0 0%
Richard Strassman 100,000 100,000 0 0%
Myron M. Teitelbaum, M.D. 200,000 200,000 0 0%
Tokenhouse Trading Company Limited 400,000 400,000 0 0%
Rodrigo Villamizar 100,000 100,000 0 0%
13
<PAGE>
Beneficial Ownership
After this Offering
-------------------
Name of Number of Shares Number of Shares Number
Selling Stockholder Beneficially Owned Offered Hereby of Shares Percent
- ------------------- ------------------ -------------- --------- -------
Donald E. and Virginia V.
Vinson Trust 100,000 100,000 0 0%
Juris Vitols 200,000 200,000 0 0%
Melvyn I. Weiss 200,000 200,00 0 0%
Westbury Nursery Products Ltd. 400,000 400,000 0 0%
Bruno Widmer 200,000 200,000 0 0%
Lincoln Wood Investment 600,000 600,000 0 0%
Wolfson Equities 400,000 400,000 0 0%
Gabriel Zambrano 80,000 80,000 0 0%
---------- ---------- ------ -
Totals 65,729,559 65,671,100 58,459 *
========== ========== ====== =
</TABLE>
* Indicates less than 1%
(1) Shares of Procept Common Stock beneficially owned includes (i) 1,650,000
shares and 1,650,000 shares issuable upon exercise of Warrants acquired in
the 1998 Private Placement and (ii) 2,945,880 shares and 2,945,880 shares
issuable upon exercise of Warrants acquired in exchange for (A) 10,521
shares of Series A Convertible Preferred Stock, $0.01 par value per share,
and (B) warrants exercisable for 1,149,096 shares of Common Stock, in
connection with the 1998 Private Placement.
(2) Shares of Procept Common Stock beneficially owned includes (i) 3,350,000
shares and 3,350,000 shares issuable upon exercise of Warrants acquired in
the 1998 Private Placement and (ii) 5,470,920 shares and 5,470,920 shares
issuable upon exercise of Warrants acquired in exchange for (A) 19,559
shares of Series A Convertible Preferred Stock, $0.01 par value per share,
and (B) warrants exercisable for 2,134,036 shares of Common Stock, in
connection with the 1998 Private Placement.
PLAN OF DISTRIBUTION
A total of 65,671,100 shares of Procept Common Stock are being directly
offered for sale by the Selling Stockholders to the public. The Company has
filed with the Commission a Registration Statement on Form S-3, of which this
Prospectus forms a part, with respect to the resale of the Shares from time to
time in open market or privately negotiated transactions and has agreed to
prepare and file such amendments and supplements to the Registration Statement
as required by the Securities Act and as may be necessary to keep the
Registration Statement effective until the earlier of (i) the date such shares
can be sold pursuant to Section 144(k) of the Securities Act or (ii) the date on
which the Selling Stockholders no longer hold any of the Shares. During any time
when a
14
<PAGE>
supplement or amendment is so required, after notice from the Company, the
Selling Stockholders are required to cease sales until this Prospectus has been
supplemented or amended.
The Company has been advised that the Selling Stockholders may sell the
Shares from time to time in open-market or privately-negotiated transactions, or
by a combination of such methods of sale, at fixed prices that may be changed,
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Other than as described below,
the Selling Stockholders will act independently of the Company in making
decisions with respect to the timing, pricing, manner and size of each sale. The
Selling Stockholders may effect such transactions by selling the Shares to or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Stockholders or
the purchasers of the Shares or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). Such broker-dealers,
upon their resale of such securities, may be deemed Selling Stockholders in this
Offering. The Selling Stockholders have advised the Company, that, as of the
date of this Prospectus, they have not made any arrangements relating to the
distribution of the Shares.
Upon the Company's being notified by the Selling Stockholders that any
material arrangement has been entered into with a broker-dealer for the sale of
Procept Common Stock through a secondary distribution, or a purchase by a
broker-dealer, a Prospectus supplement will be filed, if required, pursuant to
Rule 424 under the 1933 Act, disclosing facts material to the transaction.
The Selling Stockholders may, upon request of the Company, be
prohibited from selling any of the Shares offered hereby during (a) a period,
not to exceed two 30-day periods within any one 12-month period, required in
connection with a primary underwritten offering of Procept's securities and (b)
any period, not to exceed one 45-day period per circumstance or development,
during which the presence of material undisclosed information could make the
information disclosed in this Prospectus misleading, as determined by the
Company in good faith.
The Selling Stockholders and any broker-dealer who acts in connection
with the sale of Shares hereunder may be deemed to be "underwriters" as that
term is defined in the Securities Act, and any commissions or discounts received
by them and profit on the resale of Shares may be deemed to constitute
underwriting discounts or commissions under the Securities Act.
Pursuant to the terms of the subscription agreements between Procept
and each of the Selling Stockholders, 75% of each Selling Stockholder's Shares,
including shares issuable upon exercise of the Warrants, shall be subject to
lock-up for the first three months after the effective date of the registration
statement of which this Prospectus forms a part (the "Effective Date").
Thereafter, 50% of such securities will be subject to such a "lock-up" until six
months after the Effective Date and the remaining 25% of such securities will be
"locked-up" until nine months after the Effective Date. 25% of such securities
will not be subject to any contractual "lock-up."
The Company has agreed to pay for certain costs and expenses incurred
by it in connection with the issuance, offer, sale and delivery of the Shares,
including, but not limited to, all registration and filing fees (including all
expenses incident to filing with the National Association of Securities Dealers,
Inc.), any blue sky fees and expenses, all necessary printing and duplicating
expenses and all fees and disbursements of counsel and accountants for the
Company (including the expenses of any audit of financial statements). The
Company has agreed, subject to certain limitations, to bear the expenses of
counsel to the Selling Stockholders if separate counsel is retained. The Company
also has agreed to indemnify the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act. The Company will
not pay brokerage commissions or taxes associated with sales by the Selling
Stockholders or any accounting and other non-legal expenses incurred by Selling
Stockholders.
The Company will inform the Selling Stockholders that the
antimanipulation provision of Regulation M promulgated under the Exchange Act
may apply to the sales of their Shares offered hereby. The Company will advise
the Selling Stockholders of the requirement for delivery of this Prospectus in
connection with any sale of the Shares offered hereby.
15
<PAGE>
Certain Selling Stockholders may from time to time purchase shares of
Procept Common Stock in the open market. These Selling Stockholders will be
notified that they should not commence any distribution of the Shares offered
hereby unless they have terminated their purchasing and bidding for Procept
Common Stock in the open market as provided in applicable securities
regulations, including, with limitation, Regulation M.
LEGAL MATTERS
The validity of the shares of Procept Common Stock offered hereby have
been passed upon for the Company by Palmer & Dodge LLP, Boston, Massachusetts.
EXPERTS
The financial statements as of December 31, 1997 and 1996 and for each
of the three years in the period ended December 31, 1997 included in Procept's
Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated
by reference in this Prospectus, have been incorporated herein in reliance on
the report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses to be borne by the registrant in connection with the
offering of the Shares are estimated as follows:
<TABLE>
<S> <C>
SEC Registration Fee................................. $16,952
Nasdaq listing fee................................... $17,500
NASD fees and expenses............................... $ 6,000
Blue Sky fees and expenses........................... $12,000
Printing expenses.................................... $ 1,500
Accounting fees and expenses......................... $ 5,000
Legal fees and expenses.............................. $15,000
Transfer Agent and Registrar fees.................... $ 3,500
Miscellaneous expenses............................... $ 2,548
Total........................................... $80,000
=======
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law grants the Company
the power to indemnify each person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgements, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, provided, however, no
indemnification shall be made in connection with any proceeding brought by or in
the right of the Company where the person involved is adjudged to be liable to
the Company except to the extent approved by a court. ARTICLE EIGHTH of the
Company's Restated Certificate of Incorporation as currently in effect provides
that the Company shall, to the fullest extent permitted by the Delaware General
Corporation Law, as amended from time to time, indemnify each person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that he is or was, or
has agreed to become, a director or officer of the Company, or is or was
serving, or has agreed to serve, at the request of the Company, as a director,
officer or trustee of, or in a similar capacity with, another corporation,
partnership, joint venture, trust or other enterprise. The indemnification
provided for in ARTICLE EIGHTH is expressly not exclusive of any other rights to
which those seeking indemnification may be entitled under any law, agreement or
vote of stockholders or disinterested directors or otherwise, and shall inure to
the benefit of the heirs, executors and administrators of such persons. ARTICLE
EIGHTH permits the Board of Directors to authorize the grant of indemnification
rights to other employees and agents of the Company and such rights may be
equivalent to, or greater or less than, those set forth in ARTICLE EIGHTH.
Article V, Section 1 of the Company's By-Laws provides that the Company
shall have the power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Company, or is or
was serving at the request of the Company, as a director, officer or trustee of,
or in a similar capacity with, another corporation, partnership, joint venture,
trust or other enterprise, against any liability asserted against and incurred
by such person in any such capacity.
II-1
<PAGE>
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
ARTICLE NINTH of the Company's Restated Certificate of Incorporation eliminates
a director's personal liability for monetary damages to the Company and its
stockholders for breaches of fiduciary duty as a director, except in
circumstances involving a breach of a director's duty of loyalty to the Company
or its stockholders, acts or omissions not in good faith, intentional
misconduct, knowing violations of the law, self-dealing or the unlawful payment
of dividends or repurchase of stock.
Item 16. Exhibits
See Exhibit Index immediately following signature page.
Item 17. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 of 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective
II-2
<PAGE>
amendment need not be filed to include financial statements and information
required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such
financial statements and information are contained in periodic reports filed
with or furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Form F-3.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Act of 1934) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions referred to in Item 15 hereof, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cambridge, the Commonwealth of Massachusetts, on
April 28, 1998.
PROCEPT, INC.
By: /s/ Michael S. Weiss
--------------------------
Michael S. Weiss
Chairman of the Board
POWER OF ATTORNEY
We, the undersigned officers and directors of Procept, Inc., hereby
severally constitute and appoint each of Michael S. Weiss and John F. Dee, our
true and lawful attorneys, with full power to them in any and all capacities, to
sign any amendments to this Registration Statement on Form S-3 (including pre-
and post-effective amendments), and any related Rule 462(b) registration
statement or amendment thereto, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on April 28, 1998.
Signature Title
/s/ Michael S. Weiss Chairman of the Board and a Director
- -----------------------------------
Michael S. Weiss
/s/ John F. Dee President and Chief Executive Officer
- ------------------------------------ (Principal Executive Officer and
John F. Dee Principal Financial and Accounting
Officer)
/s/ Zola P. Horovitz Director
- ------------------------------------
Zola P. Horovitz
/s/ Max Link Director
- ------------------------------------
Max Link
/s/ Mark C. Rogers Director
- ------------------------------------
Mark C. Rogers
/s/ Elliott H. Vernon Director
- ------------------------------------
Elliott H. Vernon
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
4.1 Restated Certificate of Incorporation of Procept. Filed as Exhibit 3.1
to Procept's Form 10-Q for the quarter ended June 30, 1997, Commission
File No. 0-21134, and incorporated herein by reference.
4.2 Certificate of Designation of Series A Convertible Preferred Stock.
Filed as Exhibit 3.2 to Procept's Form 10-Q for the quarter ended June
30, 1997, Commission File No. 0-21134, and incorporated herein by
reference.
4.3 Certificate of Amendment of the Restated Certificate of Incorporation
of Procept, filed with the Secretary of State of Delaware on October 7,
1997, to be effective as of October 14, 1997. Filed as Exhibit 3.1 to
Procept's Form 10-Q for the quarter ended September 31, 1997,
Commission File No. 0-21134, and incorporated herein by reference.
4.4 Bylaws of Procept. Filed as Exhibit 3.2 to Procept's Registration
Statement on Form S-1, Commission File No. 33-57188, and incorporated
by reference.
4.5 Specimen Stock Certificate for Common Stock, $.01 par value. Filed as
Exhibit 4.1 to Procept's Registration Statement on Form S-1, Commission
File No. 33-57188, and incorporated herein by reference.
4.6 Warrant Agreement to Purchase Class D Convertible Preferred Stock dated
August 1, 1991, issued to Comdisco, Inc. Filed as Exhibit 4.2 to
Procept's Registration Statement on Form S-1, Commission File No.
33-57188, and incorporated herein by reference.
4.7 Warrant Agreement to Purchase Class D Convertible Preferred Stock dated
September 11, 1992, issued to Comdisco, Inc. Filed as Exhibit 4.3 to
Procept's Registration Statement on Form S-1, Commission File No.
33-57188, and incorporated herein by reference.
4.8 Warrant to Purchase Common Stock dated January 5, 1993, issued to
Tucker Anthony Incorporated. Filed as Exhibit 4.6 to Procept's
Registration Statement on Form S-1, Commission File No. 33-57188, and
incorporated herein by reference.
4.9 Warrant to Purchase Common Stock dated as of February 17, 1994, issued
to D. Blech & Company, Incorporated. Filed as Exhibit 4.6 to Procept's
Form 10-K for the year ended December 31, 1994, Commission File No.
0-21134, and incorporated herein by reference.
4.10 Warrant Agreement dated February 17, 1994 between the Company and D.
Blech & Company, Incorporated. Filed as Exhibit 4.7 to Procept's Form
10-K for the year ended December 31, 1994, Commission File No. 0-21134,
and incorporated herein by reference.
4.11 Warrant to Purchase Common Stock dated as of April 1, 1994, issued to
Hambrecht & Quist Guaranty Finance, L.P. Filed as Exhibit 4 to
Procept's Form 10-Q for the quarter ended March 31, 1994, Commission
File No. 0-21134, and incorporated herein by reference.
4.12 Warrant to Purchase Common stock dated as of September 11, 1995, issued
to Oppenheimer & Co., Inc. Filed as Exhibit 4.10 to Procept's
Registration Statement on Form S-1, Commission File No. 33-96798, and
incorporated herein by reference.
<PAGE>
4.13 Form of Warrant Agreement between the Company and Commonwealth
Associates. Filed as Exhibit 4.11 to Procept's Registration Statement
on Form S-1, Commission File No. 33-96798, and incorporated herein by
reference.
4.14 Form of Warrant to Purchase Common Stock dated as of May 17, 1996, and
Schedule of Holders. Filed as Exhibit 4.11 to Procept's Form 10-K for
the year ended December 31, 1996, Commission File No. 0- 21134, and
incorporated herein by reference.
4.15 Warrant to Purchase Common Stock dated as of January 6, 1997, issued to
Furman Selz LLC. Filed as Exhibit 4.13 to Procept's Form 10-K for the
year ended December 31, 1996, Commission File No. 0- 21134, and
incorporated herein by reference.
4.16 Unit Purchase Warrant Agreement dated May 17, 1996, issued to David
Blech. Filed as Exhibit 4.1 to Procept's Form 10-Q for the quarter
ended June 30, 1997, Commission File No. 0-21134, and incorporated
herein by reference.
4.17 Form of Subscription Agreement between Procept and Subscribers of
Procept Common Stock listed on Schedule of Subscribers. Filed herewith.
4.18 Form of Warrant to Purchase Common Stock dated April 9, 1998, including
Schedule of Holders. Filed herewith.
4.19* Form of Unit Purchase Option, including Schedule of Holders.
Filed herewith.
5.1 Opinion of Palmer & Dodge LLP. Filed herewith.
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants to
Procept. Filed herewith.
23.2 Consent of Palmer & Dodge LLP (contained in Exhibit 5.1).
24.1 Power of Attorney (included on the signature page of this Registration
Statement).
99.1 Placement Agency Agreement between the Company and Paramount Capital,
Inc. dated as of October 26, 1997. Filed as Exhibit 10.40 to Procept's
Form 10-K for the year ended December 31, 1997, Commission File No.
0-21134, and incorporated herein by reference.
99.2 Side Letter No. 1 to the Placement Agency Agreement between the Company
and Paramount Capital, Inc. dated as of January 13, 1998. Filed
herewith.
* Schedule of Holders to be filed by amendment.
Exhibit 4.17
Schedule of Subscribers
- --------------------------------------------------------------------------------
Robert J. Conrads
- --------------------------------------------------------------------------------
Michael J. Gordon
- --------------------------------------------------------------------------------
J.F. Shea Co., Inc. as Nominee 1997-69
- --------------------------------------------------------------------------------
Jackson Hole Investments Acquisition LP
- --------------------------------------------------------------------------------
Keys Foundation, Curacao, Netherlands, Antilles
- --------------------------------------------------------------------------------
Arthur J. Nagle
- --------------------------------------------------------------------------------
Kevin P. Newman
- --------------------------------------------------------------------------------
Palmetto Partners, Ltd.
- --------------------------------------------------------------------------------
Tis Prager
- --------------------------------------------------------------------------------
David W. Ruttenberg
- --------------------------------------------------------------------------------
Myron M. Teitelbaum, M.D.
- --------------------------------------------------------------------------------
Melvyn I. Weiss
- --------------------------------------------------------------------------------
Bruno Widmer
- --------------------------------------------------------------------------------
Ross D. Ain
- --------------------------------------------------------------------------------
Beagle Limited
- --------------------------------------------------------------------------------
James W. Brady
- --------------------------------------------------------------------------------
Elliott Broidy
- --------------------------------------------------------------------------------
Archibald Cox, Jr.
- --------------------------------------------------------------------------------
Eckardt C. Beck, Defined Pension Plan U/A
1/1/95
- --------------------------------------------------------------------------------
Ellen I. Kaplan Revocable Trust
- --------------------------------------------------------------------------------
Howard Gittis
- --------------------------------------------------------------------------------
Gilbert Goldstein, Paul Shapiro Trustees, UIT
Howard Gittis, dated 12/23/88
- --------------------------------------------------------------------------------
John M. Goodman
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
HJK, LLC
- --------------------------------------------------------------------------------
IMS Global Investments X, Ltd.
- --------------------------------------------------------------------------------
John S. Osterweis, Trustee for The Osterweis
Revocable Trust U/A dated 1/13/93
- --------------------------------------------------------------------------------
Charles Jurgensmeyer
- --------------------------------------------------------------------------------
Donald R. Kendall, Jr.
- --------------------------------------------------------------------------------
Lawrence & Shirley Kessel
- --------------------------------------------------------------------------------
John LaRocque
- --------------------------------------------------------------------------------
Lincoln Wood Investment
- --------------------------------------------------------------------------------
John Loeb, Jr.
- --------------------------------------------------------------------------------
Richard A. & Gay C. Lydecker
- --------------------------------------------------------------------------------
Paul D. & Rebecca L. Ostrovsky
- --------------------------------------------------------------------------------
Steven N. Ostrovsky
- --------------------------------------------------------------------------------
Pequot Scout Fund, LP
- --------------------------------------------------------------------------------
Louis Reaback
- --------------------------------------------------------------------------------
Raymond Reaback
- --------------------------------------------------------------------------------
William Kymmerly Murphy & Linda Carolyn
Murphy Revocable Trust
- --------------------------------------------------------------------------------
Wolfson Equities
- --------------------------------------------------------------------------------
The Alfred J. Anzalone Family Limited
Partnership
- --------------------------------------------------------------------------------
Alae Partners
- --------------------------------------------------------------------------------
Morris A. Arntson, Jr.
- --------------------------------------------------------------------------------
Raul Baz
- --------------------------------------------------------------------------------
Lawrence Bernstein
- --------------------------------------------------------------------------------
Barry Birbrower, P.C. Profit Sharing Trust
- --------------------------------------------------------------------------------
Bios Equity Fund L.P.
- --------------------------------------------------------------------------------
Thomas L. Cassidy IRA Rollover
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Couderay Partners
- --------------------------------------------------------------------------------
Edward Dworetzky
- --------------------------------------------------------------------------------
Norma Dworetzky
- --------------------------------------------------------------------------------
Roxanne H. Frank Revocable Trust
- --------------------------------------------------------------------------------
Ben & Sharyn Friedman
- --------------------------------------------------------------------------------
Gallans & Brooks Associates, Inc. Pension Fund
- --------------------------------------------------------------------------------
Shelley Garfinkel
- --------------------------------------------------------------------------------
Joseph Giamanco
- --------------------------------------------------------------------------------
Alan and Paula Halperin
- --------------------------------------------------------------------------------
Irving B. Harris Revocable Trust
- --------------------------------------------------------------------------------
Paul R. Herman
- --------------------------------------------------------------------------------
Fred Holubow
- --------------------------------------------------------------------------------
Porlana Capital Corp. PTE Ltd.
- --------------------------------------------------------------------------------
Harry Huang & Adrienne Masters
- --------------------------------------------------------------------------------
Jerome Kahn Jr. Revocable Trust
- --------------------------------------------------------------------------------
Roger S. Lash
- --------------------------------------------------------------------------------
Donna Lipman and Lawrence Lipman, Tenants in
Common
- --------------------------------------------------------------------------------
Roy and Marlena Schaefer, JTWROS
- --------------------------------------------------------------------------------
Harris R.L. Lydon, Jr.
- --------------------------------------------------------------------------------
Geo. Manos & Associates, Inc.
- --------------------------------------------------------------------------------
Mike McCullick
- --------------------------------------------------------------------------------
Mileam II
- --------------------------------------------------------------------------------
James J. Pelts
- --------------------------------------------------------------------------------
Pictet Bank & Trust Naussau Ltd.
- --------------------------------------------------------------------------------
Furman Selz, LLC
- --------------------------------------------------------------------------------
James K. Ramaker
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Michael Resnick
- --------------------------------------------------------------------------------
David Rosenbaum and Margot Kahn JTWROS
- --------------------------------------------------------------------------------
Melvin Spencer
- --------------------------------------------------------------------------------
Joseph Strassman and Barbara Strassman
- --------------------------------------------------------------------------------
Juris Vitols
- --------------------------------------------------------------------------------
Westbury Nursery Products Ltd.
- --------------------------------------------------------------------------------
Gabriel Zambrano
- --------------------------------------------------------------------------------
Mauricio Arias
- --------------------------------------------------------------------------------
Philip J. Angelastro
- --------------------------------------------------------------------------------
Mario Aristizabal
- --------------------------------------------------------------------------------
Robert S. Bogatin Trust UDT 3/15/91
- --------------------------------------------------------------------------------
Jack R. Cline, Jr.
- --------------------------------------------------------------------------------
James L. Dritz
- --------------------------------------------------------------------------------
Anthony J. Gerace
- --------------------------------------------------------------------------------
Stuart Goldberg and Rhoda Goldberg JTWROS
- --------------------------------------------------------------------------------
Patrick M. Kane
- --------------------------------------------------------------------------------
Albert Milstein
- --------------------------------------------------------------------------------
Joseph A. Natiello
- --------------------------------------------------------------------------------
Maria-Eugenia A. de Salas-Porras
- --------------------------------------------------------------------------------
Sandra Schawelson
- --------------------------------------------------------------------------------
Andrew Strassman
- --------------------------------------------------------------------------------
Richard Strassman
- --------------------------------------------------------------------------------
Tokenhouse Trading Company Limited
- --------------------------------------------------------------------------------
Rodrigo Villamizar
- --------------------------------------------------------------------------------
Donald E. and Virginia V. Vinson Trust
- --------------------------------------------------------------------------------
Martin G. Ballweg
- --------------------------------------------------------------------------------
Richard Berry, MD & Beverly Berry
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Ronald W. Braziel
- --------------------------------------------------------------------------------
Tommy L. Davis
- --------------------------------------------------------------------------------
Praful Desai, MD
- --------------------------------------------------------------------------------
J. William Doyle
- --------------------------------------------------------------------------------
A. Mark Gambee, MD and Karen D. Todd, MD
JTWROS
- --------------------------------------------------------------------------------
Hawk Management and Financial Services, Inc.
- --------------------------------------------------------------------------------
Edward F. Heil
- --------------------------------------------------------------------------------
Michael Joyce
- --------------------------------------------------------------------------------
Donald B. and Sylvia A. Kaiserman
- --------------------------------------------------------------------------------
George & Mary Ellen Kimble
- --------------------------------------------------------------------------------
Harold Ksiazek and Jeanette Ksiazek
- --------------------------------------------------------------------------------
Brad Levine DMD
- --------------------------------------------------------------------------------
Hyman A. Lezell Revocable Trust
- --------------------------------------------------------------------------------
Donald W. Linscott
- --------------------------------------------------------------------------------
Stephen A. Lisenby and Patricia J. Lisenby
- --------------------------------------------------------------------------------
Mike & Terry Miller
- --------------------------------------------------------------------------------
Donald Minerva
- --------------------------------------------------------------------------------
Thomas C. Siirola
- --------------------------------------------------------------------------------
William S. Silver
- --------------------------------------------------------------------------------
Aries Domestic Fund, L.P.
- --------------------------------------------------------------------------------
The Aries Trust
- --------------------------------------------------------------------------------
Continental Consulting Corporation
- --------------------------------------------------------------------------------
Ery W. Kehaya
- --------------------------------------------------------------------------------
Pharm-Eco Laboratories, Inc.
- --------------------------------------------------------------------------------
<PAGE>
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of the date
set forth on the signature page hereof between Procept, Inc. a Delaware
Corporation (the "Company") and the undersigned (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Company has retained Paramount Capital, Inc. (the
"Placement Agent") as Placement Agent, on a "best efforts" basis, in a private
placement offering (the "Offering") of Units (the "Units") of the Company;
WHEREAS, the Company desires to issue a minimum of ten (10)
Units (the "Minimum Offering") and a maximum of sixty (60) Units (the "Maximum
Offering"), with an option in favor of the Placement Agent to offer up to an
additional sixty (60) Units to cover over-allotments, each Unit consisting of
(A) a number (the "Offering Quantity") of shares of common stock (rounded to the
nearest whole share, with one-half (.5) of one share being rounded upward) of
the Company, par value $.01 per share (the "Common Stock"), determined by
dividing one hundred thousand dollars ($100,000) by the lesser of (a) $0.50 and
(b) seventy-five percent (75%) of the Trading Price (as defined below) of the
Common Stock immediately preceding (i) the Initial Closing Date (as defined
below), (ii) any Interim Closing Date (as defined below), or (iii) the Final
Closing Date (as defined below) of this Offering, whichever is lowest (the
lesser of (a) and (b) being the "Offering Price") and (B) warrants (the "Class C
Warrants") to purchase at any time prior to the fifth anniversary of the Final
Closing Date, a number of shares of Common Stock, per share equal to the product
of (x) the Offering Quantity multiplied by (y) 1.0, (the Common Stock to be
issued pursuant to this Agreement and the Placement Agency Agreement (as defined
below), including the Common Stock issuable upon exercise of the Placement
Options and the Advisory Options, the Common Stock issuable as a Reset Issuance,
Semi-Annual Issuance, Dilution Issuance or Qualified Offering Issuance (each as
defined in Article VI below) and, together with the Class C Warrants and the
Common Stock issuable upon exercise of the Class C Warrants being collectively
referred to herein as the "Subscription Common" or the "Securities");
WHEREAS, the Subscriber desires to purchase that number of
Units set forth on the signature page hereof on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and the
mutual representations and covenants hereinafter set forth, the parties hereto
do hereby agree as follows:
1
<PAGE>
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth,
the Subscriber hereby subscribes for and shall purchase from the Company such
number of Units or fractions thereof and the Company shall sell such Units to
the Subscriber as is set forth upon the signature page hereof at a price equal
to one hundred thousand dollars ($100,000) per Unit (the "Initial Offering
Price"). The purchase price is payable by personal or business check, wire
transfer of immediately available funds or money order made payable to "Fleet
National Bank, Escrow Agent, F/B/O Procept, Inc." contemporaneously with the
execution and delivery of this Agreement by the Subscriber. The certificates
representing the Securities underlying the Units will be delivered by the
Company at each closing of the Offering (each, a "Closing") to which such
certificates relate as set forth in Article III hereof. The Subscriber
understands, however, that this purchase of Units is contingent upon the Company
making sales of a minimum of twenty-five (25) Units prior to the termination
date of the Offering.
1.2 The Subscriber recognizes that the purchase of Units
involves a high degree of risk including, but not limited to, the following: (i)
the Company remains a development stage business with limited operating history
and requires substantial funds in addition to the proceeds of the Offering; (ii)
an investment in the Company is highly speculative, and only investors who can
afford the loss of their entire investment should consider investing in the
Company and the Units; (iii) the Subscriber may not be able to liquidate his
investment; (iv) transferability of the Securities is extremely limited; (v) in
the event of a disposition of the Securities, the Subscriber could sustain the
loss of his entire investment and (vi) the Company has not paid any dividends
since inception and does not anticipate the payment of dividends in the
foreseeable future. Such risks are more fully set forth in the Term Sheet (as
defined below) furnished by the Company to the Subscriber.
1.3 The Subscriber represents that the Subscriber is an
"accredited investor" as such term is defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Act"), as
indicated by the Subscriber's responses to the questions contained in Article
VIII hereof, and that the Subscriber is able to bear the economic risk of an
investment in the Units.
1.4 The Subscriber hereby acknowledges and represents that (i)
the Subscriber has prior investment experience, including investment in
securities that are non-listed, unregistered and are not traded on the Nasdaq
National or SmallCap Market, nor on the National Association of Securities
Dealers, Inc.'s (the "NASD") automated quotation system, or the Subscriber has
employed, at its own expense, and relied upon the services of an investment
advisor, attorney and/or accountant to read all of the documents furnished or
made available by the Company to the Subscriber and to evaluate the investment,
tax and legal merits and the consequences and risks of such a transaction on the
Subscriber's behalf and that such person has such knowledge and experience in
financial and business matters is capable of evaluating the merits and risks of
the prospective investment and satisfies the conditions set out in Rule 501(h)
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under the Act; (ii) the Subscriber recognizes the highly speculative nature of
this investment; and (iii) the Subscriber is able to bear the economic risk
which the Subscriber hereby assumes.
1.5 The Subscriber hereby acknowledges receipt and careful
review of (a) the Confidential Term Sheet dated November 14, 1997 as
supplemented and amended, and the attachments and exhibits thereto, all of which
constitute an integral part thereof (the "Term Sheet") and (b) this Agreement
and all attachments to it, and hereby represents that the Subscriber has been
furnished by the Company during the course of this transaction with all
information regarding the Company which the Subscriber has requested or desired
to know, has been afforded the opportunity to ask questions of, and to receive
answers from, duly authorized officers or other representatives of the Company
concerning the terms and conditions of the Offering and the affairs of the
Company and has received any additional information which the Subscriber has
requested.
1.6 (a) The Subscriber has relied solely upon the information
provided by the Company in the Term Sheet and in this Agreement in making the
decision to invest in the Units. To the extent necessary, the Subscriber has
retained, at the sole expense of the Subscriber, and relied upon appropriate
professional advice regarding the investment, tax and legal merits and
consequences of this Agreement and its purchase of the Units hereunder. The
Subscriber acknowledges and agrees that (i) the Company has prepared the Term
Sheet and that no other person, including, without limitation, the Placement
Agent, has supplied any information for inclusion in the Term Sheet other than
information furnished in writing to the Company by the Placement Agent
specifically for inclusion in the Term Sheet relating to the Placement Agent,
(ii) the Placement Agent has no responsibility for the accuracy or completeness
of the Term Sheet and (iii) the Subscriber has not relied upon the independent
investigation or verification, if any, which may have been undertaken by the
Placement Agent.
(b) The Subscriber represents that (i) the Subscriber was
contacted regarding the sale of the Units by the Placement Agent (or an
authorized agent or representative thereof) with whom the Subscriber had a prior
substantial pre-existing relationship and (ii) no Units were offered or sold to
it by means of any form of general solicitation or general advertising, and in
connection therewith the Subscriber did not (A) receive or review any
advertisement, article, notice or other communication published in a newspaper
or magazine or similar media or broadcast over television or radio whether
closed circuit, or generally available; or (B) attend any seminar meeting or
industry investor conference whose attendees were invited by any general
solicitation or general advertising.
1.7 The Subscriber hereby represents that the Subscriber
either by reason of the Subscriber's business or financial experience, or the
business or financial experience of the Subscriber's professional advisors (who
are unaffiliated with and who are not compensated by the Company or any
affiliate or selling agent of the Company, including the Placement Agent,
directly or indirectly), has the capacity to protect the Subscriber's own
interests in connection with the transaction contemplated hereby.
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1.8 The Subscriber hereby acknowledges that the Offering has
not been reviewed by the United States Securities and Exchange Commission (the
"SEC" or the "Commission") or any state regulatory authority, since the Offering
is intended to be exempt from the registration requirements of Section 5 of the
Act pursuant to Regulation D promulgated under the Act. The Subscriber shall not
sell or otherwise transfer the Securities unless they are registered under the
Act or unless an exemption from such registration is available.
1.9 The Subscriber understands that the Securities comprising
the Units have not been registered under the Act by reason of a claimed
exemption under the provisions of the Act which depends, in part, upon the
Subscriber's investment intention. In this connection, the Subscriber hereby
represents that the Subscriber is purchasing the Securities comprising the Units
for the Subscriber's own account for investment and not with a view toward the
resale or distribution to others. The Subscriber, if an entity, was not formed
for the purpose of purchasing the Securities.
1.10 The Subscriber understands that there is no public market
for the Units or the Securities underlying the Units (other than the Common
Stock) and that no market may develop for any such securities. The Subscriber
understands that even if a public market develops for such securities, and
although there currently is a public market for the Common Stock, reliance upon
Rule 144 under the Act, as amended, for resales requires, among other
conditions, a one-year holding period prior to the resale (in limited amounts)
of securities acquired in a non-public offering without having to satisfy the
registration requirements under the Act. The Subscriber understands and hereby
acknowledges that the Company is under no obligation to register any of the
Units or any of the Securities comprising the Units under the Act or any state
securities or "blue sky" laws other than as set forth in Article V. The
Subscriber shall hold the Company and its directors, officers, employees,
controlling persons and agents (including the Placement Agent and its officers,
directors, employees, counsel, controlling persons and agents) and their
respective heirs, representatives, successors and assigns harmless from, and
shall indemnify them against, all liabilities, costs and expenses incurred by
them as a result of (i) any misrepresentation made by the Subscriber contained
in this Agreement (including the Confidential Investor Questionnaire contained
in Article VIII herein), (ii) any sale or distribution by the Subscriber in
violation of the Act or any applicable state securities or "blue sky" laws or
(iii) any untrue statement of a material fact made by the Subscriber and
contained herein or omission to state herein a material fact necessary in order
to make the statements contained herein, in light of the circumstances under
which they were made, not misleading.
1.11 The Subscriber consents to the placement of a legend on
any certificate or other document evidencing the Securities that such Securities
have not been registered under the Act or any state securities or "blue sky"
laws and setting forth or referring to the restrictions on transferability
and sale thereof contained in this Agreement. The Subscriber is aware
that the Company will make a notation in its appropriate records with respect to
the restrictions on the transferability of such Securities.
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1.12 The Subscriber understands that the Company will review
this Agreement and is hereby given authority by the Subscriber to call
Subscriber's bank or place of employment or otherwise review the financial
standing of the Subscriber; and it is further agreed that the Company (with the
consent of the Placement Agent) and the Placement Agent, at its sole discretion,
reserves the unrestricted right, without further documentation or agreement on
the part of the Subscriber, to reject or limit any subscription, to accept
subscriptions for fractional Units and to close the Offering to the Subscriber
at any time.
1.13 The Subscriber hereby represents that the address of the
Subscriber furnished by Subscriber on the signature page hereof is the
Subscriber's principal residence if Subscriber is an individual or its principal
business address if it is a corporation or other entity.
1.14 The Subscriber represents that the Subscriber has full
power and authority (corporate, statutory and otherwise) to execute and deliver
this Agreement and to purchase the Units and the Securities. This Agreement
constitutes the legal, valid and binding obligation of the Subscriber,
enforceable against the Subscriber in accordance with its terms.
1.15 If the Subscriber is a corporation, partnership, limited
liability company, trust, employee benefit plan, individual retirement account,
Keogh Plan, or other entity, then (a) it is authorized and qualified to become
an investor in the Company and the person signing this Agreement on behalf of
such entity has been duly authorized by such entity to do so, and (b) it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.
1.16 The Subscriber acknowledges that if he or she is a
registered representative of an NASD member firm, he or she must give such firm
the notice required by the NASD's Rules of Fair Practice, receipt of which must
be acknowledged by such firm in Section 8.4 below.
1.17 The Subscriber acknowledges that at such time, if ever,
as the Securities are registered, sales of the Securities will be subject to
state securities laws, including those of the State of New Jersey which require
any securities sold in New Jersey to be sold through a registered broker-dealer
or in reliance upon an exemption from registration.
1.18 Subject to the proviso below, from the date hereof and
continuing for a period of nine (9) months (the "Lock-Up Period") from the
effective date of the Registration Statement (as defined in Section 5.2 hereof)
(the "Effective Date"), the Subscriber shall not, without the prior written
consent of the Placement Agent, offer, pledge, sell, contract to sell, grant any
option for the sale of, or otherwise dispose of, directly or indirectly, 75% of
the Registrable Securities (as defined in Section 5.1) purchased or acquired by
the Subscriber; provided, however, that, following each three month period after
the Effective Date, an amount of Registrable Securities equal to 25% of the
number of Registrable Securities purchased or acquired by the Subscriber shall
become exempt from the lock-up provisions contained in this sentence. For the
sake of clarity, 25% of the Registrable Securities will not be subject to any
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lock-up. In addition, during the period from the date that the Subscriber was
first contacted with respect to the potential purchase of Securities through the
last date upon which Subscriber holds any Securities or Registrable Securities,
the Subscriber shall not, directly or indirectly through related parties,
affiliates or otherwise sell "short" or "short against the box" (as those terms
are generally understood) or otherwise engage in any "hedging" transaction with
respect to any equity security of the Company; provided, however, that it shall
not be a violation of this Section 1.18, if the Subscriber places a sell order
for Registrable Securities underlying the Class C Warrants prior to the exercise
thereof or at the time the exercise is requested, relies on the Company to
deliver such Registrable Securities in accordance with Section 5.4(h) and
completes the sale of such Registrable Securities before the Company delivers
the Registrable Securities to the Subscriber.
1.19 The Subscriber represents and warrants that it has not
engaged, consented to nor authorized any broker, finder or intermediary to act
on its behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. The Subscriber
shall indemnify and hold harmless the Company from and against all fees,
commissions or other payments owing to any such person or firm acting on behalf
of such Subscriber hereunder.
1.20 The Subscriber acknowledges that (a) the Company has
engaged, consented to and authorized the Placement Agent in connection with the
transactions contemplated by this Agreement, (b) the Company shall pay the
Placement Agent a commission and reimburse the Placement Agent's expenses in
accordance with the Placement Agency Agreement, and the Company shall indemnify
and hold harmless the Subscriber from and against all fees, commissions or other
payments owing by the Company to the Placement Agent or any other person or firm
acting on behalf of the Company hereunder and (c) registered representatives of
the Placement Agent and/or its designees (including, without limitation,
registered representatives of the Placement Agent and/or its designees who
participate in the Offering and sale of the securities sold in the Offering)
will be paid a portion of the commissions paid to the Placement Agent including
a portion of the Placement Options (as defined in Section 5.1(c) below).
1.21 The Subscriber, whose name appears on the signature line
below, shall be the beneficial owner of the Securities for which such Subscriber
subscribes.
II. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit A, the Company hereby represents, warrants and covenants to the
Subscriber that:
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power and lawful authority
to conduct its business as described in the Term Sheet. The Company is duly
qualified to do business as a foreign corporation and
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is in good standing in Massachusetts and in each jurisdiction in which the
nature of the business conducted, or as proposed to be conducted in the Term
Sheet, by it or the properties owned, leased or operated by it, makes such
qualification or licensing necessary and where the failure to be so qualified or
licensed would have a material adverse effect upon the business, prospects and
financial condition of the Company. The Company is duly qualified to do business
as a foreign corporation and is in good standing in each jurisdiction in which
the laws require the Company to be so qualified and/or authorized to do
business.
2.2 Capitalization and Voting Rights. The authorized, issued
and outstanding capital stock of the Company is as set forth in the Term Sheet
under the heading "Equity Capitalization"; all issued and outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable.
The Securities comprising the Units have been duly and validly authorized and,
when issued and paid for pursuant to this Agreement, will be validly issued,
fully paid and nonassessable. Except as set forth in the Term Sheet, there are
no outstanding options, warrants, agreements, convertible securities, preemptive
rights or other rights to subscribe for or to purchase any shares of capital
stock of the Company. Except as set forth in the Term Sheet, in this Agreement
and as otherwise required by law, there are no restrictions upon the voting or
transfer of the Securities pursuant to the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), By-laws or other
governing documents or any agreement or other instruments to which the Company
is a party or by which the Company is bound.
2.3 Authorization; Enforceability. The Company has all
corporate right, power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the Subscription
Common and Class C Warrants contemplated hereby and the Common Stock underlying
such Class C Warrants and the performance of the Company's obligations hereunder
has been taken. This Agreement has been duly executed and delivered by the
Company and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and rules of law governing specific performance, injunctive relief or other
equitable remedies, and to limitations of public policy. Upon the issuance and
delivery of the Subscription Common and Class C Warrants, as contemplated by
this Agreement, such securities will be duly and validly authorized and issued,
fully paid and nonassessable. Upon the issuance and delivery of the Common Stock
underlying the Class C Warrants, and upon compliance by the Subscriber with the
terms hereof, the Common Stock will be duly authorized, validly issued, fully
paid and nonassessable. The issuance and sale of the Securities contemplated
hereby will not give rise to any preemptive rights or rights of first refusal on
behalf of any person.
2.4 No Conflict; Governmental Consents.
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(a) The execution and delivery by the Company of this
Agreement and the consummation of the transactions contemplated hereby will not
result in the violation of any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or governmental authority to or by
which the Company is bound, or of any provision of the Certificate of
Incorporation or By-laws of the Company, and will not conflict with, or result
in a breach or violation of, any of the terms or provisions of, or constitute
(with due notice or lapse of time or both) a default under, any lease, loan
agreement, mortgage, security agreement, trust indenture or other agreement or
instrument to which the Company is a party or by which it is bound or to which
any of its properties or assets is subject, nor result in the creation or
imposition of any lien upon any of the properties or assets of the Company.
(b) No consent, approval, authorization or other order of any
governmental authority or other third-party is required to be obtained by the
Company in connection with the authorization, execution and delivery of this
Agreement or with the authorization, issuance and sale of the Units or the
Securities comprising the Units, except such filings as may be required to be
made with the Commission, the NASD and the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") and with any state or foreign blue
sky or securities regulatory authority.
2.5 Licenses. Except as set forth in the Term Sheet, the
Company has all licenses, permits and other governmental authorizations
currently required for the conduct of its business or ownership of properties
and is in all material respects complying therewith.
2.6 Litigation. Except as set forth in the Term Sheet, the
Company knows of no pending or threatened legal or governmental proceedings
against the Company which could materially adversely affect the business,
property, financial condition, operations or prospects of the Company.
2.7 Accuracy of Reports. All material reports required to be
filed by the Company within the three years prior to the date of this Agreement
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), have
been duly filed with the SEC, complied at the time of filing in all material
respects with the requirements of their respective forms and, except to the
extent updated or superseded by the Term Sheet or any subsequently filed report,
to the best of the Company's knowledge, were complete and correct in all
material respects as of the dates at which the information was furnished, and
contained (as of such dates) no untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
2.8 Term Sheet; Disclosure. No information set forth in the
Term Sheet contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
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2.9 Investment Company. The Company is not an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended, and the rules and regulations of the Commission thereunder.
2.10 Listing. The Company shall promptly file an Application
for Listing of Additional Shares with the Nasdaq National Market (the "Nasdaq")
and hereby represents and warrants to the Placement Agent and the Subscriber
that it will take any other necessary action in accordance with the rules of the
Nasdaq to enable the (a) Subscription Common (including the Common Stock
issuable upon exercise of the Class C Warrants) and (b) the Class C Warrants to
trade on the Nasdaq.
2.11 Reservation of Shares; Transfer Taxes, Etc. The Company
shall at all times reserve and keep available, out of its authorized and
unissued shares of Common Stock, solely for the purpose of effecting any
exercises of Class C Warrants, and any Reset Issuance (as defined below),
Semi-Annual Issuance (as defined below), Qualified Offering Issuance (as defined
below) and Dilution Issuance (as defined below and, together with Reset
Issuances, Qualified Offering Issuances and Semi-Annual Issuances, referred to
herein as "Article VI Issuances"), such number of shares of its Common Stock
free of preemptive rights as shall be sufficient to effect such exercises and
Article VI Issuances from time to time required or reasonably anticipated. The
Company shall use its best efforts from time to time, in accordance with the
laws of the State of Delaware to increase the authorized number of shares of
Common Stock if at any time the number of shares of authorized, unissued and
unreserved Common Stock shall not be sufficient to permit any required or
reasonably anticipated exercises of Class C Warrants or Article VI Issuances. In
the event, and to the extent, that the company does not have sufficient
authorized but unissued shares of Common Stock to effect any exercise of Class C
Warrants or any Article VI Issuance (collectively a "Common Issuance Event"),
the Company shall pay the Subscriber cash in an amount per share of Common Stock
that would have been issued to such Subscriber pursuant to such Common Issuance
Event but for the lack of sufficient authorized but unissued Common Stock equal
to the greater of (i) 1.40 times the Dilution Value (as defined below) (or, in
the case of shares of Common Stock issuable upon exercise of the Class C
Warrants, 1.40 times the exercise price) and (ii) the Market Price, in either
case determined as of the date of the event giving rise to such Common Issuance
Event.
The Company shall pay any and all issue or other taxes that may be
payable in respect of any Article VI Issuance.
III. TERMS OF SUBSCRIPTION
3.1 The Company shall issue a minimum of ten (10) Units and a
maximum of sixty (60) Units. The Placement Agent, at its sole option, may offer
and sell up to an additional sixty (60) Units to cover over-allotments. The
offering period (the "Offering Period") shall begin on November 14, 1997. Upon
receipt of the Minimum Offering amount, the Placement Agent may conduct a
closing (the date of which being the "Initial Closing Date") and
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may conduct subsequent Closings on an interim basis until the Maximum Offering
and any over-allotment amount has been reached or the Termination Date (as
defined below) has been reached (the "Final Closing Date"). The Offering Period
shall terminate at 11:59 p.m. New York City time on March 13, 1998, subject to
an extension, at the sole option of the Placement Agent, for an additional sixty
(60) days (the "Termination Date"). The Units will be offered on a "best
efforts" basis. The purchase price is payable by personal or business check,
wire transfer of immediately available funds or money order made payable to
"Fleet National Bank, Escrow Agent, F/B/O Procept, Inc."
3.2 Placement of the Units will be made by the Placement
Agent, who will receive certain compensation as described in the Term Sheet and
the Placement Agency Agreement.
3.3 Pending the sale of the Units, all funds paid hereunder
shall be deposited by the Company in escrow with Fleet National Bank, having a
branch at 345 Park Avenue, New York, New York 10022. If the Company shall not
have obtained subscriptions (including this subscription) for purchases of the
minimum ten (10) Units on or before the Termination Date, then this subscription
shall be void and all funds paid hereunder by the Subscriber shall be promptly
returned to the Subscriber, with interest, subject to paragraph 3.5 hereof.
3.4 The Subscriber hereby authorizes and directs the Company
to deliver the Securities to be issued to the Subscriber pursuant to this
Agreement directly to the Subscriber's account maintained by the Placement
Agent, if any, or, if no such account exists, to the residential or business
address indicated on the signature page hereto.
3.5 The Subscriber hereby authorizes and directs the Company
to return any funds for unaccepted subscriptions to the same account from which
the funds were drawn, including any customer account maintained with the
Placement Agent.
IV. CONDITIONS TO OBLIGATIONS OF THE SUBSCRIBER
4.1 The Subscriber's obligation to purchase the Units at any
Closing is subject to the fulfillment on or prior to each Closing of the
following conditions, which conditions may be waived at the option of the
Subscriber to the extent permitted by law:
(a) Representations and Warranties Correct. The
representations and warranties made by the Company in Article II hereof shall be
true and correct in all material respects when made, and shall be true and
correct in all material respects on each Closing with the same force and effect
as if they had been made on and as of such Closing.
(b) Covenants. All covenants, agreements and
conditions contained in this Agreement to be performed by the Company on or
prior to such purchase shall have been performed or complied with in all
material respects.
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(c) No Legal Order Pending. There shall not then be
in effect any legal or other order enjoining or restraining the transactions
contemplated by this Agreement.
(d) No Law Prohibiting or Restricting Such Sale.
There shall not be in effect any law, rule or regulation prohibiting or
restricting such sale or requiring any consent or approval of any person which
shall not have been obtained to issue the Securities (except as otherwise
provided in this Agreement).
(e) Minimum Subscriptions. The Company shall have
received binding subscriptions for at least twenty-five (25) Units.
(f) Legal Opinion. On each Closing, if requested by
the Placement Agent, at each Closing, counsel to the Company shall have
delivered to the Placement Agent, for the benefit of the Placement Agent and the
Subscriber, a legal opinion concerning legal matters relating to this Agreement
and the Term Sheet as the Placement Agent may require.
(g) Comfort Letter. On each Closing, if requested by
the Placement Agent, the Company's auditors, Coopers & Lybrand, LLP, shall have
delivered to the Placement Agent for the benefit of the Placement Agent and the
Subscriber, a comfort letter to such effect as the Placement Agent may require.
V. REGISTRATION RIGHTS
5.1 As used in this Agreement, the following terms shall have
the following meanings:
(a) "Affiliate" shall mean, with respect to any
Person (as defined below), any other Person controlling, controlled by, or under
direct or indirect common control with, such Person (for the purposes of this
definition "control," when used with respect to any specified Person, shall mean
the power to direct the management and policies of such person, directly or
indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing).
(b) "Business Day" shall mean a day Monday through
Friday on which banks are generally open for business in New York.
(c) "Holders" shall mean the Subscriber and any
person holding Registrable Securities (including the Registrable Securities
underlying the placement options (the "Placement Options") and the advisory
options (the "Advisory Options") to be granted to the Placement Agent and/or its
designees pursuant to the Placement Agency Agreement between the Company and the
Placement Agent dated October 26, 1997 (the "Placement Agency Agreement")), or
any person to whom the rights under Article V have been transferred in
accordance with Section 5.9 hereof.
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(d) "Person" shall mean any person, individual,
corporation, limited liability company, partnership, trust or other
nongovernmental entity or any governmental agency, court, authority or other
body (whether foreign, federal, state, local or otherwise).
(e) The terms "register," "registered" and
"registration" refer to the registration effected by preparing and filing a
registration statement in compliance with the Act, and the declaration or
ordering of the effectiveness of such registration statement.
(f) "Registrable Securities" shall mean (i) the
Subscription Common (including the Subscription Common underlying the Placement
Options and Advisory Options), (ii) the shares of Common Stock issuable upon the
exercise of the Class C Warrants (including the shares of Common Stock issuable
upon exercise of the Class C Warrants underlying the Placement Options and the
Advisory Options), (iii) the Class C Warrants (including the Class C Warrants
issuable upon exercise of the Placement and Advisory Options), (iv) a number of
shares of Common Stock issuable upon issuances pursuant to Article VI with
respect any Reset Issuance (as defined below) and the first two (2) Semi-Annual
Issuances (as defined below) and (v) any shares of Common Stock issued as (or
issuable upon the conversion of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to or in replacement of
the Securities; provided, however, that securities shall only be treated as
Registrable Securities if and only for so long as they (A) have not been
disposed of pursuant to a registration statement declared effective by the
Commission, (B) have not been sold in a transaction exempt from the registration
and prospectus delivery requirements of the Act so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale or (C) are held by a Holder or a permitted transferee
pursuant to Section 5.9.
(g) "Registration Expenses" shall mean all expenses
incurred by the Company in complying with Section 5.2 hereof, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and expenses of counsel for the Company, blue sky fees and
expenses and the expense of any special audits incident to, or required by, any
such registration (but excluding the fees of legal counsel for any Holder).
(h) "Registration Statement" shall have the meaning
ascribed to such term in Section 5.2.
(i) "Registration Period" shall have the meaning
ascribed to such term in Section 5.4.
(j) "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of Registrable
Securities and all fees and expenses of legal counsel for any Holder.
5.2 No later than thirty (30) days after the Final Closing
Date (the "Filing Date"), the Company shall file a "shelf" registration
statement on the appropriate form (the
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"Registration Statement") with the Commission and use its best efforts to effect
the registration, qualifications or compliances (including, without limitation,
the execution of any required undertaking to file post-effective amendments,
appropriate qualifications or exemptions under applicable blue sky or other
state securities laws and appropriate compliance with applicable securities
laws, requirements or regulations) of the Registrable Securities prior to the
date which is 75 days after the Final Closing Date. Notwithstanding the
foregoing, the Company shall not be obligated to enter into any underwriting
agreement for the sale of any of the Registrable Securities.
5.3 All Registration Expenses incurred in connection with any
registration, qualification, exemption or compliance pursuant to Section 5.2
shall be borne by the Company. All Selling Expenses relating to the sale of
securities registered by or on behalf of Holders shall be borne by such Holders
pro rata on the basis of the number of securities so registered; provided that
if a Holder uses its own legal counsel in addition to one counsel for all of the
Holders of securities registered on behalf of the Holders, such Holder shall
bear the cost of such counsel.
5.4 In the case of the registration, qualification, exemption
or compliance effected by the Company pursuant to this Agreement, the Company
shall, upon reasonable request, inform each Holder as to the status of such
registration, qualification, exemption and compliance. At its expense the
Company shall:
(a) use its best efforts to keep such registration,
and any qualification, exemption or compliance under state securities laws which
the Company determines to obtain, continuously effective until the Holders have
completed the distribution described in the registration statement relating
thereto. The period of time during which the Company is required hereunder to
keep the Registration Statement effective is referred to herein as "the
Registration Period." Notwithstanding the foregoing, at the Company's election,
the Company may cease to keep such registration, qualification, exemption or
compliance effective with respect to any Registrable Securities, and the
registration rights of a Holder shall expire, at such time as the Holder (who is
not an affiliate of the Company) may sell under Rule 144 under the Act (or other
exemption from registration acceptable to the Company) in a three-month period
all Registrable Securities then held by such Holder, but this sentence shall not
relieve the Company of any obligation to comply with this Article V as to any
Subscription Common thereafter issued; and
(b) advise the Holders:
(i) when the Registration Statement or any
amendment thereto has been filed with the Commission and when the Registration
Statement or any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for
amendments or supplements to the Registration Statement or the prospectus
included therein or for additional information;
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(iii) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for such purpose;
(iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities included therein for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and
(v) of the happening of any event that
requires the making of any changes in the Registration Statement or the
prospectus so that, as of such date, the statements therein are not misleading
and do not omit to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of the prospectus, in the
light of the circumstances under which they were made) not misleading;
(c) make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of any Registration
Statement at the earliest possible time;
(d) furnish to each Holder, without charge, at least
one copy of such Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, and, if the Holder so
requests in writing, all exhibits (including those incorporated by reference) in
the form filed with the Commission;
(e) during the Registration Period, deliver to each
Holder, without charge, as many copies of the prospectus included in such
Registration Statement and any amendment or supplement thereto as such Holder
may reasonably request; and the Company consents to the use, consistent with the
provisions hereof, of the prospectus and any amendment or supplement thereto by
each of the selling Holders of Registrable Securities in connection with the
offering and sale of the Registrable Securities covered by the prospectus and
any amendment or supplement thereto. In addition, upon the reasonable request of
the Holder and subject in all cases to confidentiality protections reasonably
acceptable to the Company, the Company will meet with a Holder or a
representative thereof at the Company's headquarters to discuss all information
relevant for disclosure in the Registration Statement covering the Registrable
Securities, and will otherwise cooperate with any Holder conducting an
investigation for the purpose of reducing or eliminating such Holder's exposure
to liability under the Act, including the reasonable production of information
at the Company's headquarters;
(f) during the Registration Period, deliver to each
Holder, without charge, (i) as soon as practicable (but in the case of the
annual report of the Company to its stockholders, within 120 days after the end
of each fiscal year of the Company) one copy of: (A) its annual report to its
stockholders, if any (which annual report shall contain financial statements
audited in accordance with generally accepted accounting principles in the
United States of America by a firm of certified public accountants of recognized
standing); (B) if not included in substance in its annual report to
stockholders, its annual report on Form 10-K (or similar form);
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(C) each of its quarterly reports to its stockholders, if any, and, if not
included in substance in its quarterly reports to stockholders, its quarterly
report on Form 10-Q (or similar form), and (D) a copy of the full Registration
Statement (the foregoing, in each case, excluding exhibits); and (ii) upon
reasonable request, all exhibits excluded by the parenthetical to the
immediately preceding clause (D), and all other information that is generally
available to the public;
(g) prior to any public offering of Registrable
Securities pursuant to any Registration Statement, register or qualify or obtain
an exemption for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holders reasonably request in writing, provided that
the Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction, and do any and all other acts or things reasonably necessary or
advisable to enable the offer and sale in such jurisdictions of the Registrable
Securities covered by such Registration Statement;
(h) cooperate with the Holders to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold pursuant to any Registration Statement free of any
restrictive legends to the extent not required at such time and in such
denominations and registered in such names as Holders may request at least three
(3) business days prior to sales of Registrable Securities pursuant to such
Registration Statement;
(i) upon the occurrence of any event contemplated by
Section 5.4(b)(v) above, the Company shall promptly prepare a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus, or file any other required document so that, as thereafter delivered
to purchasers of the Registrable Securities included therein, the prospectus
will not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and
(j) use its best efforts to comply with all
applicable rules and regulations of the Commission, and will make generally
available to the Holders not later than 45 days (or 90 days if the fiscal
quarter is the fourth fiscal quarter) after the end of its fiscal quarter in
which the first anniversary date of the effective date of the Registration
Statement occurs, an earnings statement satisfying the provisions of Section
11(a) of the Act.
5.5 The Holders shall have no right to take any action to
restrain, enjoin or otherwise delay any registration pursuant to Section 5.2
hereof as a result of any controversy that may arise with respect to the
interpretation or implementation of this Agreement.
5.6 (a) To the extent permitted by law, the Company shall
indemnify each Holder, each underwriter of the Registrable Securities and each
person controlling such Holder within the meaning of Section 15 of the Act, with
respect to which any registration, qualification or compliance has been effected
pursuant to this Agreement, against all claims, losses, damages
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and liabilities (or action in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened (subject to
Section 5.6(c) below), arising out of or based on (i) any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus or offering circular, or any amendment or supplement
thereof, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in light of the circumstances in which they were made, or (ii) any
violation or alleged violation by the Company of the Act, the Exchange Act, or
any rule or regulation promulgated under the Act, or the Exchange Act, and shall
reimburse each Holder, each underwriter of the Registrable Securities and each
person controlling such Holder, for legal and other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action as incurred; provided that the Company shall not be liable
in any such case to the extent that any untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder and stated
to be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the Company shall not be liable
in any such case where the claim, loss, damage or liability arises out of or is
related to the failure of the Holder to comply with the covenants and agreements
contained in this Agreement respecting sales of Registrable Securities, and
except that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement or alleged untrue statement
or omission or alleged omission made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission at
the time the registration statement becomes effective or in the amended
prospectus filed with the Commission pursuant to Rule 424(b) of the Act or in
the prospectus subject to completion and term sheet under Rule 434 of the Act,
which together meet the requirements of Section 10(a) of the Act (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
such Holder, any such underwriter or any such controlling person, if a copy of
the Final Prospectus furnished by the Company to the Holder for delivery was not
furnished to the person or entity asserting the loss, liability, claim or damage
at or prior to the time such furnishing is required by the Act and the Final
Prospectus would have cured the defect giving rise to such loss, liability,
claim or damage.
(b) Each Holder will severally, if Registrable
Securities held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers, each underwriter of the Registrable
Securities and each person who controls the Company within the meaning of
Section 15 of the Act, against all claims, losses, damages and liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Section 5.6(c)
below), arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement thereof,
incident to any such registration, qualification or compliance or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not
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misleading, in light of the circumstances in which they were made, and will
reimburse the Company, such directors and officers, each underwriter of the
Registrable Securities and each person controlling the Company for reasonable
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action as
incurred, in each case to the extent, but only to the extent, that such untrue
statement or omission or allegation thereof is made in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
the Holder and stated to be specifically for use in preparation of such
registration statement, prospectus or offering circular; provided that the
indemnity shall not apply to the extent that such claim, loss, damage or
liability results from the fact that a current copy of the prospectus or
offering circular was not made available to the Holder and such current copy of
the prospectus or offering circular would have cured the defect giving rise to
such loss, claim, damage or liability. Notwithstanding the foregoing, in no
event shall a Holder be liable for any such claims, losses, damages or
liabilities in excess of the proceeds received by such Holder in the offering,
except in the event of fraud by such Holder.
(c) Each party entitled to indemnification under this
Section 5.6 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such Indemnified Party's expense, and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement, unless
such failure is materially prejudicial to the Indemnifying Party in defending
such claim or litigation. An Indemnifying Party shall not be liable for any
settlement of an action or claim effected without its written consent (which
consent will not be unreasonably withheld).
(d) If the indemnification provided for in this
Section 5.6 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
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5.7 (a) Upon receipt of any notice from the Company of
the happening of any event requiring the preparation of a supplement or
amendment to a prospectus relating to Registrable Securities so that, as
thereafter delivered to the Holders, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, each
Holder shall forthwith discontinue disposition of Registrable Securities
pursuant to the registration statement contemplated by Section 5.2 until its
receipt of copies of the supplemented or amended prospectus from the Company
and, if so directed by the Company, each Holder shall deliver to the Company all
copies, other than permanent file copies then in such Holder's possession, of
the prospectus covering such Registrable Securities current at the time of
receipt of such notice.
(b) Each Holder shall suspend, upon request of the
Company, any disposition of Registrable Securities pursuant to the Registration
Statement and prospectus contemplated by Section 5.2 during (i) any period not
to exceed two 30-day periods within any one 12-month period the Company requires
in connection with a primary underwritten offering of equity securities and (ii)
any period, not to exceed one 45-day period per circumstance or development,
when the Company determines in good faith that offers and sales pursuant thereto
should not be made by reason of the presence of material undisclosed
circumstances or developments with respect to which the disclosure that would be
required in such a prospectus is premature, would have an adverse effect on the
Company or is otherwise inadvisable.
(c) As a condition to the inclusion of its
Registrable Securities, each Holder shall furnish to the Company such
information regarding such Holder, the Securities of the Company owned
beneficially or of record by such holder and the distribution proposed by such
Holder as the Company may request in writing or as shall be required in
connection with any registration, qualification or compliance referred to in
this Article V.
(d) Each Holder hereby covenants with the Company (i)
not to make any sale of the Registrable Securities without effectively causing
the prospectus delivery requirements under the Act to be satisfied, and (ii) if
such Registrable Securities are to be sold by any method or in any transaction
other than on a national securities exchange, the Nasdaq National Market, Nasdaq
SmallCap Market or in the over-the-counter market, in privately negotiated
transactions, or in a combination of such methods, to notify the Company at
least five (5) business days prior to the date on which the Holder first offers
to sell any such Registrable Securities.
(e) Each Holder acknowledges and agrees that the
Registrable Securities sold pursuant to the Registration Statement described in
this Section are not transferable on the books of the Company unless the stock
certificate submitted to the transfer agent evidencing such Registrable
Securities is accompanied by a certificate reasonably satisfactory to the
Company to the effect that (i) the Registrable Securities have been sold in
accordance with such Registration Statement and (ii) the requirement of
delivering a current prospectus has been satisfied.
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(f) Each Holder shall not take any action with
respect to any distribution deemed to be made pursuant to such registration
statement, which would constitute a violation of Regulation M under the Exchange
Act or any other applicable rule, regulation or law.
(g) At the end of the period during which the Company
is obligated to keep the Registration Statement current and effective as
described above, the Holders of Registrable Securities included in the
Registration Statement shall discontinue sales of shares pursuant to such
Registration Statement upon receipt of notice from the Company of its intention
to remove from registration the shares covered by such Registration Statement
which remain unsold, and such Holders shall notify the Company of the number of
shares registered which remain unsold immediately upon receipt of such notice
from the Company.
5.8 With a view to making available to the Holders the
benefits of certain rules and regulations of the Commission which at any time
permit the sale of the Registrable Securities to the public without
registration, the Company shall use its reasonable best efforts:
(a) to make and keep public information available, as
those terms are understood and defined in Rule 144 under the Act, at all times;
(b) to file with the Commission in a timely manner
all reports and other documents required of the Company under the Exchange Act;
and
(c) so long as a Holder owns any unregistered
Registrable Securities, to furnish to such Holder upon any reasonable request a
written statement by the Company as to its compliance with Rule 144 under the
Act, and of the Exchange Act, a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company as
such Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Holder to sell any such securities without
registration.
5.9 The rights to cause the Company to register Registrable
Securities granted to the Holders by the Company under Section 5.1 may be
assigned in full by a Holder in connection with a transfer by such Holder of its
Registrable Securities, provided that (i) such transfer shall otherwise be
effected in accordance with applicable securities laws and Section 6.9; (ii)
such Holder gives prior written notice to the Company; and (iii) such transferee
agrees to comply with the terms and provisions of this Agreement, and such
transfer is otherwise in compliance with this Agreement. Except as specifically
permitted by this Section 5.9, the rights of a Holder with respect to
Registrable Securities as set out herein shall not be transferable to any other
Person, and any attempted transfer shall cause all rights of such Holder therein
to be forfeited.
5.10 With the written consent of the Company and the Holders
holding at least a majority of the Registrable Securities that are then
outstanding, any provision of this Article
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V may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely) or amended. Upon the effectuation of each such waiver or
amendment, the Company shall promptly give written notice thereof to the
Holders, if any, who have not previously received notice thereof or consented
thereto in writing.
VI. ADDITIONAL CONTRACTUAL RIGHTS
6.1 Definitions. As used in this Agreement, the following
terms shall have the following meanings, unless the context otherwise requires:
(a) "Article VI Rights" shall mean the rights to
receive all Reset Issuances, Semi-Annual Issuances, Dilution Issuances and
Qualified Offering Issuances and the right to exercise the Liquidation Put and
the Exchange Right, as provided herein.
(b) "Change of Shares" shall mean any event that
necessitates an adjustment to the Dilution Value (as defined below) pursuant to
Section 6.7 below.
(c) The "Closing Bid Price" of any security, for any
trading day (as defined below), shall be the reported per share closing bid
price, regular way, of such security on the relevant Stock Market (as defined
below) on such trading day or, if there were no transactions on such trading
day, the average of the reported closing bid and asked prices, regular way, of
such security on the relevant Stock Market on such trading day.
(d) "Dilution Event" shall mean any event that
necessitates an adjustment to the Dilution Value (as defined below) pursuant to
Section 6.6 below.
(e) The "Dilution Value" initially shall be the
lesser of (i) $0.50 and (ii) seventy-five percent (75%) of the Trading Price (as
defined below) immediately preceding (A) the Initial Closing Date, (B) any
interim closing date or (C) the Final Closing Date, whichever is lowest. The
Dilution Value is subject to adjustment pursuant to Sections 6.2, 6.6, 6.7 and
6.15.
(f) "Fair Market Value" of any asset (including any
security) means the fair market value thereof as mutually determined by the
Company and the Placement Agent. If the Company and the Placement Agent 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 of the Company and the Placement Agent
(or, if such selection cannot be agreed upon promptly, or in any event within
ten days, then such valuation shall be made by a nationally recognized
independent investment banking firm selected by the American Arbitration
Association in New York City in accordance with its rules), the costs of which
valuation shall be paid for by the Company.
(g) The "Issuance Base Amount" for the Subscriber, at
any time, means
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the sum of (i) the product of the Offering Quantity multiplied by the number of
Units the Subscriber has subscribed for, (ii) the number of shares of any Reset
Issuances (as defined below) made to such Subscriber occurring before such time,
(iii) the number of shares of any Semi-Annual Issuances (as defined below) made
to such Subscriber occurring before such time, (iv) the number of shares of any
Dilution Issuances (as defined below) made to such Subscriber occurring before
such time and (v) the number of shares of any Qualified Offering Issuances (as
defined below) made to such subscriber ocucring before such time (with
appropriate adjustments for any Change of Shares and subject to reduction
pursuant to Section 6.10). For any transferee Rights Holder, the Issuance Base
Amount, at any time, shall be the number of shares of Common Stock related to
such Article VI Rights as were transferred to such Rights Holder plus the number
of shares of any Reset Issuance, SemiAnnual Issuance, Dilution Issuance and
Qualified Offering Issuance made to such Rights Holder occurring subsequent to
such transfer but before such time. The Issuance Base Amount shall include
Dilution Issuances which would have been required but for the operation of
Paragraph 6.6(b)(i).
(h) "Liquidation Event" shall mean any (i)
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, (ii) sale or other disposition of all or substantially all of the
assets of the Company or (iii) any consolidation, merger, combination,
reorganization or other transaction in which the Company is not the surviving
entity or shares of Common Stock constituting more than fifty percent (50%) of
the voting power of the Company are exchanged for or changed into stock or
securities of another entity, cash and/or any other property (clause (iii) of
this Subsection being referred to as a "Merger Transaction"). Notwithstanding
the above, any consolidation, merger, combination, reorganization or other
transaction in which the Company is not the surviving entity but the
stockholders of the Company immediately prior to such transaction own in excess
of 50% of the voting power of the corporation surviving such transaction and own
such interest in substantially the same proportions as prior to such
transaction, shall not be considered a Liquidation Event or a Merger
Transaction, provided that the surviving corporation has made appropriate
provisions acceptable to the Placement Agent to ensure that the Article VI
Rights survive any such transaction.
(i) "Market Price" per share of Common Stock shall
mean the average Closing Bid Price (adjusted, where appropriate, for any Change
of Shares) for twenty (20) consecutive trading days, ending with the trading day
immediately prior to the date as of which the Market Price is being determined;
provided, however, that if the prices referred to in the definition of Closing
Bid Price cannot be determined on any trading day, "Market Price" shall mean the
Fair Market Value.
(j) The "Post-Dilution Common Quantity" means the
quotient of the Pre-Dilution Common Value (as defined below) divided by the
Dilution Value immediately following the relevant Dilution Event, Reset Event or
Qualified Offering Adjustment Event (as defined below).
(k) The "Pre-Dilution Common Value" means the product
of the
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Issuance Base Amount multiplied by the Dilution Value immediately preceding the
relevant Dilution Event, Reset Event or Qualified Offering Adjustment Event (as
defined below).
(l) "Rights Holder" shall mean the Subscriber or any
Person who succeeds to such Subscriber's Article VI Rights pursuant to Section
6.9.
(m) The "Stock Market" shall mean, with respect to
any security, the principal national securities exchange on which such security
is listed or admitted to trading or, if such security is not listed or admitted
to trading on any national securities exchange, shall mean The Nasdaq National
Market System or The Nasdaq SmallCap Market (collectively, "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.
(n) A "trading day" shall mean a day on which the
Stock Market is open for the transaction of business.
(o) "Trading Price" shall mean the lower of (i) the
average Closing Bid Price of the Common Stock for the thirty (30) consecutive
trading days immediately preceding the date as of which the Trading Price is
being determined (with appropriate adjustments for any Change of Shares) and
(ii) the average Closing Bid Price of the Common Stock for five (5) consecutive
trading days immediately preceding the date as of which the Trading Price is
being determined (with appropriate adjustments for any Change of Shares).
(p) The "Transfer Agent"shall mean American Stock
Transfer & Trust Company or the duly appointed successor thereto serving as the
transfer agent for the Common Stock.
6.2 Reset. (a) The Dilution Value in effect immediately prior
to the date that is 12 months after the Final Closing Date (the "Reset Date")
shall be adjusted and reset effective as of the Reset Date if the Market Price
of the Common Stock as of the Reset Date (the "12-Month Trading Price") is less
than 140% of the then applicable Dilution Value (a "Reset Event"). Upon the
occurrence of a Reset Event, the Dilution Value 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 Dilution Value.
(b) Within fifteen (15) days of the Reset Date, the
Company shall prepare a certificate signed by the Chief Executive Officer or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth the Dilution Value as of the
Reset Date, showing in reasonable detail the facts upon which such Dilution
Value is based, and such certificate shall forthwith be filed with the Transfer
Agent. A notice stating that the Dilution Value has been adjusted pursuant to
this paragraph, or that no
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adjustment is necessary, and setting forth the Dilution Value in effect as of
the Reset Date shall be mailed as promptly as practicable after the Reset Date
by the Company to all Rights Holders at their last addresses as they shall
appear in the Transfer Agent's record books.
6.3 Reset Issuance. If there is any change in the Dilution
Value as a result of Subsection 6.2(a), then, on such date, the Company shall
issue to the Rights Holder a number of shares of Common Stock (the "Reset
Issuance") equal to the difference between the Post-Dilution Common Quantity
minus the Issuance Base Amount.
6.4 Semi-Annual Issuances. On each six month anniversary of
the Reset Date (or the next succeeding business day), the Company shall issue
(each a "Semi-Annual Issuance") to the Rights Holder a number of shares of
Common Stock equal to 5% of the Issuance Base Amount on the applicable six month
anniversary date.
6.5 Dilution Issuances. Upon the occurrence of any Dilution
Event, the Company shall issue (each a "Dilution Issuance") to the Rights Holder
a number of shares of Common Stock equal to the difference of the Post-Dilution
Common Quantity minus the Issuance Base Amount.
6.6 Anti-Dilution Adjustments.
(a) Except as otherwise provided in Subsection
6.6(c), in the event the Company shall, at any time or from time to time after
the date hereof, sell or issue any shares of Common Stock for a consideration
per share less than either (i) the Dilution Value in effect on the date of such
sale or issuance or (ii) the Market Price of the Common Stock as of the date of
the sale or issuance (any such sale or issuance a "Dilutive Issuance"), then,
and thereafter upon each further Dilutive Issuance, the Dilution Value in effect
immediately prior to such Dilutive Issuance shall be changed to a price (rounded
to the nearest cent) determined by multiplying the Dilution Value in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
Dilutive Issuance and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Paragraph 6.6(b)(v) below) for
the issuance of such additional shares would purchase at the greater of (x) the
Dilution Value in effect on the date of such issuance or (y) the Market Price of
the Common Stock as of such date, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after the Dilutive
Issuance. Such adjustment shall be made successively whenever such an issuance
is made.
(b) For purposes of Subsection 6.6(a), the following
Paragraphs (i) to (v) shall also be applicable:
(i) No adjustment of the Dilution Value
shall be made unless such adjustment would require a decrease of at least $.01;
provided that any adjustments which by reason of this Paragraph 6.6(b)(i) are
not required to be made shall be carried forward and
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shall be made at the time of and together with the next subsequent adjustment
which, together with adjustments so carried forward, shall require a decrease of
at least $.01 in the Dilution Value then in effect hereunder.
(ii) In case of (A) the sale or other
issuance by the Company (including as a component of a unit) of any rights or
warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or any securities convertible into or exchangeable for Common Stock
(such securities convertible, exercisable or exchangeable into Common Stock
being herein called "Convertible Securities"), or (B) the issuance by the
Company, without the receipt by the Company of any consideration therefor, of
any rights or warrants to subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether or not such rights,
warrants or options, or the right to convert or exchange such Convertible
Securities, are immediately exercisable, and the consideration per share for
which Common Stock is issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the minimum aggregate consideration, as set forth in
the instrument relating thereto, without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such amount, payable
to the Company upon the exercise of such rights, warrants or options, plus the
consideration received by the Company for the issuance or sale of such rights,
warrants or options, plus, in the case of such Convertible Securities, the
minimum aggregate amount, as set forth in the instrument relating thereto,
without regard to any antidilution or similar provisions contained therein for a
subsequent adjustment of such amount, of additional consideration, if any, other
than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number, as set forth in the instrument
relating thereto, without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of shares of
Common Stock issuable upon the exercise of such rights, warrants or options or
upon the conversion or exchange of such Convertible Securities issuable upon the
exercise of such rights, warrants or options) is less than either the Dilution
Value or the Market Price of the Common Stock as of the date of the issuance or
sale of such rights, warrants or options, then such total maximum number of
shares of Common Stock issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities (as of
the date of the issuance or sale of such rights, warrants or options) shall be
deemed to be "Common Stock" for purposes of Subsection 6.6(a) and shall be
deemed to have been sold for an amount equal to such consideration per share and
shall cause an adjustment to be made in accordance with Subsection 6.6(a).
(iii) In case of the sale or other issuance
by the Company of any Convertible Securities, whether or not the right of
conversion or exchange thereunder is immediately exercisable, and the price per
share for which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount, as set forth in the instrument
relating thereto, without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such
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amount, of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number, as set forth in the instrument relating thereto without regard
to any antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is less than either the
Dilution Value or the Market Price of the Common Stock as of the date of the
sale or other issuance of such Convertible Securities, then such total maximum
number of shares of Common Stock issuable upon the conversion or exchange of
such Convertible Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be "Common Stock" for purposes of Subsection
6.6(a) and shall be deemed to have been sold for an amount equal to such
consideration per share and shall cause an adjustment to be made in accordance
with Subsection 6.6(a).
(iv) In case the Company shall modify the
rights of conversion, exchange or exercise of any of the securities referred to
in Paragraphs (ii) or (iii) of this Subsection 6.6(b) or any other securities of
the Company convertible, exchangeable or exercisable for shares of Common Stock,
for any reason other than an event that would require adjustment to prevent
dilution, so that the consideration per share received by the Company after such
modification is less than either the Dilution Value or the Market Price of the
Common Stock as of the date prior to such modification, then such securities, to
the extent not theretofore exercised, converted or exchanged, shall be deemed to
have expired or terminated immediately prior to the date of such modification
and the Company shall be deemed for purposes of calculating any adjustments
pursuant to this Section 6.6 to have issued such new securities upon such new
terms on the date of modification. Such adjustment shall become effective as of
the date upon which such modification shall take effect. On the expiration or
cancellation of any such right, warrant or option or the termination or
cancellation of any such right to convert or exchange any such Convertible
Securities, the Dilution Value then in effect hereunder shall forthwith be
readjusted to such Dilution Value as would have obtained (A) had the adjustments
made upon the issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities and (B) had
adjustments been made on the basis of the Dilution Value as adjusted under
clause (A) of this sentence for all transactions (which would have affected such
adjusted Dilution Value) made after the issuance or sale of such rights,
warrants, options or Convertible Securities.
(v) In case of the sale of any shares of
Common Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith. In the event
that any securities shall be issued in connection with any other securities of
the Company, together comprising one integral transaction in which no specific
consideration is allocated among the
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securities, then each of such securities shall be deemed to have been issued for
such consideration as the Board of Directors of the Company determines in good
faith; provided, however that if the Placement Agent disagrees with such
determination, the Company shall retain, at its own expense, an independent
investment banking firm acceptable to the Placement Agent for the purpose of
obtaining an appraisal.
(c) Notwithstanding any other provision hereof, no
adjustment to the Dilution Value will be made:
(i) upon the exercise of any of the options
outstanding on the date hereof under the Company's existing stock option plans;
or
(ii) upon the issuance or exercise of
options which may hereafter be granted with the approval of the Board of
Directors, or exercised, under any employee benefit plan of the Company to
officers, directors, consultants or employees, but only with respect to such
options as are exercisable at prices no lower than the Closing Bid Price (or, if
the prices referenced in the definition of Closing Bid Price cannot be
determined, the Fair Market Value) of the Common Stock as of the date of grant
thereof; or
(iii) upon issuance or exercise of the
Placement Options or the Advisory Options, upon the conversion the New Warrants
(as defined in Exhibits B and C to the Securities Purchase Agreement dated as of
June 30, 1997), upon the issuance or exercise of the Subscription Common or the
Class C Warrants to be issued (i) on or prior to the Final Closing Date or (ii)
pursuant to the exercise of the Placement and Advisory Options, or upon the
issuance, conversion or the exercise of any Series A Preferred Stock or New
Warrants or Class C Warrants approved in writing by the Placement Agent; or
(iv) upon the issuance or sale of Common
Stock or Convertible Securities pursuant to the exercise of any rights, options
or warrants to receive, subscribe for or purchase, or any options for the
purchase of, Common Stock or Convertible Securities, whether or not such rights,
warrants or options were outstanding on the Final Closing Date or were
thereafter issued or sold, provided that an adjustment was either made or not
required to be made in accordance with Subsection 6.6(a) in connection with the
issuance or sale of such securities or any modification of the terms thereof; or
(v) upon the issuance or sale of Common
Stock upon conversion or exchange of any Convertible Securities, provided that
any adjustments required to be made upon the issuance or sale of such
Convertible Securities or any modification of the terms thereof were so made,
and whether or not such Convertible Securities were outstanding on the Final
Closing Date or were thereafter issued or sold; or
(vi) upon the issuance of stock that may
hereafter be purchased or sold with the approval of the Board of Directors,
under the 1993 Employee Stock Purchase
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Plan of the Company to officers, directors, consultants or employees, but only
with respect to such shares as are purchased and/or sold in accordance with the
current plan and at the prices no lower than eighty-five percent (85%) of the
Closing Bid Price (or, if the prices referenced in the definition of Closing Bid
Price cannot be determined, 85% of the Fair Market Value) of the Common Stock as
of the date of purchase and/or sale thereof;
Paragraph 6.6(b)(iv) shall nevertheless apply to any
modification of the rights of conversion, exchange or exercise of any of the
securities referred to in this Subsection 6.6(c), except that Paragraph
6.6(b)(iv) shall not apply to any modification of the rights of conversion,
exchange or exercise of the securities excepted by Paragraph (iii) of this
Subsection 6.6(c) that are required by the original terms of those respective
instruments.
(d) As used in this Section 6.6, the term "Common
Stock" shall mean and include the Company's Common Stock authorized on the date
of the first original issue of the Units and shall also include any capital
stock of any class of the Company thereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends and in the distribution of assets upon the
voluntary liquidation, dissolution or winding up of the Company.
(e) The Company from time to time may decrease the
Dilution Value by any amount for any period of time if the period is at least 20
days and if the decrease is irrevocable during the period. Whenever the Dilution
Value is so decreased, the Company shall mail to the Rights Holders a notice of
the decrease at least 15 days before the date the decreased Dilution Value takes
effect, and such notice shall state the decreased Dilution Value and the period
it will be in effect.
The Company may make such decreases in the Dilution
Value, in addition to those required or allowed by this Article VI, as shall be
determined by it, as evidenced by a resolution of the Board of Directors, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
6.7 Change of Shares Adjustments. In the event the Company
shall, at any time or from time to time after the date hereof (i) issue any
shares of Common Stock as a stock dividend to the holders of Common Stock or
(ii) subdivide or combine the outstanding shares of Common Stock into a greater
or lesser number of shares (any such issuance, subdivision or combination being
herein called a "Change of Shares"), then the Dilution Value shall be changed to
a price (rounded to the nearest cent) determined by multiplying the Dilution
Value in effect immediately prior to such Change of Shares by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the Change of Shares and the denominator of which shall be
the number of shares of Common Stock outstanding immediately following the
Change of Shares.
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6.8 Liquidation Put. (a) The Rights Holder may require the
Company to repurchase with cash any number (not to exceed such Rights Holder's
Issuance Base Amount) of shares of Common Stock then owned by such Rights Holder
for 140% of the aggregate Dilution Value of such shares; provided, however, in
the event of a Merger Transaction, any repurchase pursuant to this Section 6.8
may be paid in cash, property (valued as provided in Subsection 6.8 (d)) and/or
securities (valued as provided in Subsection 6.8 (d)) of the entity surviving
such Merger Transaction. Notwithstanding the foregoing, the Company shall have
no obligation to repurchase Common Stock owned by the Rights Holders, if and to
the extent that the Company is not permitted to do so under the terms of the
Series A Preferred Stock.
(b) The Rights Holder covenants not to exercise the
Liquidation Put unless a Liquidation Event has occurred.
(c) The Rights Holder's Article VI Rights shall be
terminated to the pro rata extent of any exercise of such Rights Holder's
Liquidation Put.
(d) Any securities or other property to be delivered
to the Rights Holder pursuant to this Section 6.8 shall be valued as follows:
(i) Securities not subject to an investment
letter or other similar restriction on free marketability:
(A) If actively traded on the Stock Market,
the value shall be deemed to be the
Market Price of such securities as of
the third day prior to the date of
valuation.
(B) If not actively traded on the Stock
Market, the value shall be the Fair
Market Value of such securities.
(ii) For securities for which there is an
active public market but which are subject to an investment letter or other
restrictions on free marketability, the value shall be the Fair Market Value
thereof, determined by discounting appropriately the Market Price thereof.
(iii) For all other securities, the value
shall be the Fair Market Value thereof.
6.9 Transfer of Rights Under This Article VI. The Rights
Holder's Article VI Rights are not transferable unless the transferee will be
both the record and beneficial owner of the related Common Stock and executes
and delivers to the Company a counterpart to this Agreement agreeing to be bound
by the obligations of the Subscriber hereunder. Any such transferee must provide
his or her name and address, which name and address must be that of the
beneficial owner, to the Company. Any transfer of Common Stock and related
Article VI Rights
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<PAGE>
must be performed in accordance with applicable securities laws and regulations,
and the transferor must provide the Company with an opinion of counsel,
satisfactory to the Company, to that effect. Furthermore, no transfer of Article
VI Rights may be made relating to fewer shares of Common Stock than the quotient
of $25,000 divided by the Dilution Value. ANY PURPORTED TRANSFER OF ARTICLE VI
RIGHTS NOT IN COMPLIANCE WITH THIS SECTION 6.9 SHALL BE NULL AND VOID AND THE
RIGHTS HOLDER SHALL FORFEIT ALL ARTICLE VI RIGHTS RELATED TO SUCH TRANSFERRED
COMMON STOCK. Upon, and to the extent of, any transfer of Common Stock without
the related Article VI Rights, such related Article VI Rights shall terminate.
6.10 Adjustments to Issuance Base Amount. Upon the termination
of any of the Rights Holder's Article VI Rights, such Rights Holder's Issuance
Base Amount shall be proportionally reduced.
6.11 Notices.
(a) After each adjustment of the Dilution Value
pursuant to Sections 6.2, 6.6, 6.7 and 6.15 the Company will promptly prepare a
certificate signed by the Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (i) the Dilution Value as so adjusted and (ii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly file such certificate with the Transfer Agent and cause a brief summary
thereof to be sent by ordinary first class mail to each Rights Holder at his or
her last address as it shall appear on the Transfer Agent's record books. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of such adjustment. The affidavit of an officer of the
Transfer Agent or the Secretary or an Assistant Secretary of the Company that
such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts therein stated. The Transfer Agent may rely on the
information in the certificate as true and correct and has no duty nor
obligation independently to verify the amounts or calculations therein set
forth.
(b) After any adjustment in the Issuance Base Amount
resulting from (i) any Reset Issuances, Semi-Annual Issuances, Dilution
Issuances or Qualified Offering Issuance (ii) any Change in Shares or (iii) any
termination of Article VI Rights, the Company will promptly prepare a
certificate signed by the Chief Executive Officer or President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
of the Company setting forth: (x) the Issuance Base Amount immediately preceding
and succeeding such adjustment and (y) a brief statement of the facts accounting
for such adjustment. The Company will promptly file such certificate with the
Transfer Agent and cause a brief summary thereof to be sent by ordinary first
class mail to each Rights Holder at his or her last address as it shall appear
on the Transfer Agent's record books. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity of such
adjustment. The affidavit of an officer of the Transfer Agent or the Secretary
or an Assistant Secretary of the Company that such notice has been mailed shall,
in the absence of fraud, be prima facie evidence of the facts therein
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<PAGE>
stated. The Transfer Agent may rely on the information in the certificate as
true and correct and has no duty nor obligation independently to verify the
amounts or calculations therein set forth.
6.12 Treasury Stock. Any Reset Issuance, Semi-Annual Issuance
and Dilution Issuance shall be made with duly authorized, fully-paid and
non-assessable shares of Common Stock, in accordance with Delaware Law, and
shall be drawn from the treasury stock of the Company to the extent available.
The Company shall promptly furnish to the Placement Agent, upon request, an
opinion of counsel reasonably satisfactory to the Placement Agent that the
requirements of this Section 6.12 have been met as to any issuance referred to
herein. The Company shall not otherwise sell, issue, cancel or otherwise impair
any of its treasury stock without the Placement Agent's prior written consent.
6.13 Mandatory Termination of Article VI Rights. At any time
on or after the Reset Date, the Company may cause the Rights Holder's Article VI
Rights to be terminated if the Market Price of the Common Stock shall have
exceeded 300% of the then applicable Dilution Value as of the third business day
prior to the date of notice of termination. No greater than 60 nor fewer than 20
days prior to the date of any such mandatory termination, notice by first class
mail, postage prepaid, shall be given to the Rights Holders, addressed to such
Rights Holders at their last addresses as they shall appear in the Transfer
Agent's record books. Each such notice shall specify the date fixed for
termination. Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Company on the date deposited in the
mail, whether or not the Rights Holder receives such notice; and failure
properly to give such notice by mail, or any defect in such notice, to any
Rights Holders shall not affect the validity of the proceedings for the
termination of any other Rights Holders' Article VI Rights.
6.14 With the written consent of the Company and the Rights
Holders holding at least a majority of the issued and outstanding Common Stock
subject to Article VI Rights, any provision of this Article VI may be waived
(either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely) or
amended. Upon the effectuation of each such waiver or amendment, the Company
shall promptly give written notice thereof to the Rights Holders, if any, who
have not previously received notice thereof or consented thereto in writing.
6.15 Optional Exchange/Reset. (a) Upon the receipt of
requisite approvals, if any, from the stockholders of the Company, the shares of
Common Stock acquired hereunder may be exchanged (the "Exchange Right"), at the
option of each Rights Holder, upon the completion of a Qualified Offering (as
defined below) into Qualified Offering Securities (as defined below). Upon
exchange of their shares of Common Stock, up to the Issuance Base Amount, the
exchanging Rights Holders shall receive an amount of Qualified Offering
Securities equal to the quotient of (i) the Issuance Base Amount being exchanged
multiplied by the Dilution Value at the time of the Qualified Offering, divided
by (ii) the Qualified Offering Securities Price (as defined below) multiplied by
.75 (the "Exchange Price"); provided, however, that in the event that the
Exchange Price divided by the Underlying Common Stock Amount (as defined below)
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is less than the greater of (a) 50% of the Offering Price and (b) 50% of the
average closing bid price of the Common Stock for the twenty trading days
immediately preceding the date of such exchange (the "Floor Price"), then the
Exchange Price shall equal the Floor Price multiplied by the Underlying Common
Stock Amount.
As used herein the following terms shall have the following meanings:
(i) "Underlying Common Stock Amount" shall equal the number of shares of Common
Stock and Common Stock underlying Convertible Securities included as part
of each Qualified Offering Security but shall not include Common Stock
underlying warrants or options to purchase Common Stock or to purchase a
Convertible Security, whether or not such warrant or option contains a
right to exercise such warrant or option by the delivery of shares deemed
purchased thereunder, including, without limitation, by a cashless
exercise.
(ii) "Qualified Offering Security" and "Qualified Offering Securities" shall
mean the security or securities (whether they are Common Stock, Convertible
Securities, units of Common Stock and/or Convertible Securities (as defined
below) and warrants or other similar rights) issued or sold in the
Qualified Offering (including any contractual rights granted to investors
in connection with the Qualified Offering).
(iii)"Qualified Offering" shall mean the sale or series of sales of equity
securities of the Company next occurring after the Final Closing Date of
this Offering, including, without limitation, Common Stock, warrants, units
of Common Stock and warrants, other securities exchangeable, convertible or
exercisable for Common Stock, alone or in units, whether in a public
offering or private placement, raising gross proceeds in excess of
$2,500,000; excluding, however, at the Company's option, a firm commitment
underwritten public offering.
(iv) "Qualified Offering Securities Price" shall mean the selling price to
investors for each Qualified Offering Security.
(v) "Convertible Security" and "Convertible Securities" shall mean any security
convertible into or exchangeable for a share or shares of Common Stock
without the payment of any additional consideration in such conversion or
exchange other than the delivery of such security, but shall not include a
warrant or option to purchase Common Stock or to purchase a Convertible
Security, whether or not such warrant or option contains a right to
exercise such warrant or option by the delivery of shares deemed purchased
thereunder, including, without limitation, by a cashless exercise.
(b) Upon and to the extent of any exchange into Qualified
Offering securities as set forth in Section 6.15(a) above, the Article VI Rights
related to the exchanged Common Stock shall terminate.
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(c) Upon the receipt of requisite approvals, if any, from the
stockholders of the Company, holders who elect not to exchange their Common
Stock upon a Qualified Offering for Qualified Offering Securities, shall have
the Dilution Value with respect to their Article VI Rights adjusted (a
"Qualified Offering Adjustment Event") to equal the Exchange Price and shall
receive an additional number of shares (the "Qualified Offering Issuance") of
Common Stock equal to the difference between (i) the quotient of (a) the
Issuance Base Amount multiplied by the Dilution Value in effect prior to the
date of adjustment divided by (b) the (x) Exchange Price divided by (y) the
Underlying Common Stock Amount, and (ii) the Issuance Base Amount prior to the
date of adjustment; provided, however, that no adjustment shall be made if it
would result in an increase in the Dilution Value. Holders receiving Qualified
Offering Issuance shall have Article VI Rights with respect to such shares.
VII. MISCELLANEOUS
7.1 Any notice or other communication given hereunder shall be
deemed sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefor,
addressed to Procept, Inc., 840 Memorial Drive, Cambridge, Massachusetts 02139,
Attn: Stanley C. Erck, and to the Subscriber at the Subscriber's address indi-
cated on the signature page of this Agreement and to any Rights Holders at his
or her last address as it shall appear in the Transfer Agent's record books.
Notices shall be deemed to have been given or delivered on the date of mailing,
except notices of change of address, which shall be deemed to have been given or
delivered when received.
7.2 Except as provided in Section 5.10 above, this Agreement
shall not be changed, modified or amended except by a writing signed by the
parties to be charged, and this Agreement may not be discharged except by
performance in accordance with its terms or by a writing signed by the party to
be charged.
7.3 Subject to the provisions of Sections 1.6, 5.9, 6.9 and
7.12, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, legal representatives, successors
and assigns. In addition, the Placement Agent is intended to be and shall be
third-party beneficiary of the provisions hereof. This Agreement sets forth the
entire agreement and understanding between the parties as to the subject matter
hereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
7.4 Upon the execution and delivery of this Agreement by the
Subscriber, this Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Units as herein provided, subject, however, to
the right hereby reserved by the Company to enter into the same agreements with
other subscribers and to add and/or delete other persons as subscribers.
7.5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY
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BE EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL
THE TERMS AND PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH, AND
GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. IN THE EVENT THAT A JUDICIAL PROCEEDING IS NECESSARY, THE
EXCLUSIVE FORA FOR RESOLVING DISPUTES ARISING OUT OF, OR RELATING TO, THIS
AGREEMENT ARE EITHER THE SUPREME COURT OF THE STATE OF NEW YORK IN AND FOR THE
COUNTY OF NEW YORK OR THE FEDERAL COURTS FOR SUCH STATE AND COUNTY, AND ALL
RELATED APPELLATE COURTS, THE PARTIES HEREBY IRREVOCABLY CONSENT TO THE
JURISDICTION OF SUCH COURTS AND AGREE TO SAID VENUE.
7.6 In order to discourage frivolous claims, unless a claimant
in any proceeding arising out of this Agreement succeeds in establishing his
claim and recovering a judgment against another party (regardless of whether
such claimant succeeds against one of the other parties to the action), then the
other party shall be entitled to recover from such claimant all of its/their
reasonable legal costs and expenses relating to such proceeding and/or incurred
in preparation therefor.
7.7 The holding of any provision of this Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Agreement, which shall remain in full force and
effect. If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provisions shall be deemed dependent upon any
other covenant or provision unless so expressed herein.
7.8 A waiver by either party of a breach of any provision of
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
7.9 The parties shall execute and deliver all such further
documents, agreements and instruments and shall take such other and further
action as may be necessary or appropriate to carry out the purposes and intent
of this Agreement.
7.10 This Agreement may be executed in two or more
counterparts each of which shall be deemed an original, but all of which shall
together constitute one and the same instrument.
7.11 (a) The Subscriber shall not issue any public
statement with respect to the Subscriber's investment or proposed investment in
the Company or the terms of any agreement or covenant between them and the
Company without the Company's prior written
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consent, except such disclosures as may be required under applicable law or
under any applicable order, rule or regulation.
(b) The Company shall not disclose the names,
addresses or any other information about the Subscriber, except as required by
law; provided, that the Company may use the name (but not the address) of the
Subscriber in the Registration Statement.
7.12 Nothing in this Agreement shall create or be deemed to
create any rights in any person or entity not a party to this Agreement, except
(a) for the holders of Registrable Securities, and (b) for the Placement Agent
pursuant to Section 1.6(a) and where otherwise explicitly noted, including,
without limitation, the provisions of Article V and Section 7.3 and (c) for any
Rights Holders to whom Article VI Rights were transferred pursuant to 6.9.
7.13 The Company acknowledges and agrees that irreparable
damage would occur in the event that any of the provisions of Article V and
Article VI of this Agreement were not performed in accordance with its specific
terms or were otherwise breached and that such damage would not be compensable
in money damages and that it would be extremely difficult or impracticable to
measure the resultant damages. Accordingly, the Subscriber shall be entitled to
an injunction or injunctions with respect to the provisions of this Agreement
and to enforce specifically the terms and provisions hereof, in addition to any
other remedy to which it may be entitled at law or in equity, and the Company
expressly waives any defense that a remedy in damages would be adequate and
expressly waives any requirement in an action for specific performance for the
posting of a bond by the Subscriber bringing such action.
7.14 For Missouri Residents Only: the Units are not registered
under the laws of the state of Missouri and may only be disposed of through a
licensed broker-dealer. It is a felony to sell securities in violation of the
Missouri Securities Act.
34
<PAGE>
VIII. CONFIDENTIAL INVESTOR QUESTIONNAIRE
8.1 The Subscriber represents and warrants that he, she or
it comes within one category marked below, and that for any category marked, he,
she or it has truthfully set forth, where applicable, the factual basis or
reason the Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO
THIS SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to
furnish any additional information which the Company deems necessary in order to
verify the answers set forth below.
Category A _____ The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint net
worth with his or her spouse, presently exceeds $1,000,000.
Explanation. In calculating net worth you may include equity
in personal property and real estate, including your
principal residence, cash, short-term investments, stock and
securities. Equity in personal property and real estate
should be based on the fair market value of such property
less debt secured by such property.
Category B ______ The undersigned is an individual (not a partnership,
corporation, etc.) who had an individual income in excess of
$200,000 in each of the two most recent years, or joint
income with his or her spouse in excess of $300,000 in each
of those years (in each case including foreign income, tax
exempt income and full amount of capital gains and losses
but excluding any income of other family members and any
unrealized capital appreciation) and has a reasonable expec-
tation of reaching the same income level in the current
year.
Category C ______ The undersigned is a director or executive officer of the
Company which is issuing and selling the Units.
Category D ______ The undersigned is a bank; a savings and loan association;
insurance company; registered investment company; registered
business development company; licensed small business
investment company ("SBIC"); or employee benefit plan within
the meaning of Title 1 of ERISA and (a) the investment
decision is made by a plan fiduciary which is either a bank,
savings and loan association, insurance company or
registered investment advisor, or (b) the plan has total
assets in excess of $5,000,000 or is a self directed plan
with investment decisions made solely by persons that are
accredited investors.
----------------------------------------
----------------------------------------
(describe entity)
35
<PAGE>
Category E ______ The undersigned is a private business development company
as defined in section 202(a)(22) of the Investment Advisors
Act of 1940.
----------------------------------------
----------------------------------------
(describe entity)
Category F ______ The undersigned is either a corporation, partnership,
Massachusetts business trust, or non-profit organization
within the meaning of Section 501(c)(3) of the Internal
Revenue Code, in each case not formed for the specific
purpose of acquiring the Units and with total assets in
excess of $5,000,000.
----------------------------------------
----------------------------------------
(describe entity)
Category G ______ The undersigned is a trust with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring
the Units, where the purchase is directed by a
"sophisticated person" as defined in Regulation
506(b)(2)(ii) under the Act.
Category H ______ The undersigned is an entity (other than a trust) all the
equity owners of which are "accredited investors" within one
or more of the above categories. If relying upon this
Category alone, each equity owner must complete a separate
copy of this Agreement.
----------------------------------------
----------------------------------------
(describe entity)
Category I ______ The undersigned is not within any of the categories above
and is therefore not an accredited investor.
The undersigned agrees that the undersigned will notify the Company at any time
on or prior to the Final Closing Date in the event that the representations and
warranties in this Agreement shall cease to be true, accurate and complete.
36
<PAGE>
8.2 SUITABILITY (please answer each question)
(a) For an individual Subscriber, please describe your current employment,
including the company by which you are employed and its principal business:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(b) For an individual Subscriber, please describe any college or graduate
degrees held by you:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(c) For all Subscribers, please list types of prior investments:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(d) For all Subscribers, please state whether you have you participated in other
private placements before:
YES_______ NO_______
(e) If your answer to question (d) above was "YES", please indicate frequency of
such prior participation in private placements of:
<TABLE>
<CAPTION>
Public Private Public or Private
Companies Companies Biotechnology Companies
--------- --------- ------------------------
<S> <C> <C> <C>
Frequently --------- --------- -------------
Occasionally --------- --------- -------------
Never --------- --------- -------------
</TABLE>
(f) For individual Subscribers, do you expect your current level of income to
significantly decrease in the foreseeable future:
YES_______ NO_______
(g) For trust, corporate, partnership and other institutional Subscribers, do
you expect your total assets to significantly decrease in the foreseeable
future:
YES_______ NO_______
37
<PAGE>
(h) For all Subscribers, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:
YES_______ NO_______
(i) For all Subscribers, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?
YES_______ NO_______
(j) For all Subscribers, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?
YES_______ NO_______
8.3 MANNER IN WHICH TITLE IS TO BE HELD. (circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of
Survivorship (both parties
must sign)
(d) Partnership*
(e) Tenants in Common
(f) Company*
(g) Trust*
(h) Other
*If Units are being subscribed for by an entity, the attached
Certificate of Signatory must also be completed.
38
<PAGE>
8.4 NASD AFFILIATION.
Are you affiliated or associated with an NASD member firm (please check one):
Yes _________ No __________
If Yes, please describe:
- -----------------------------------------------------------
- -----------------------------------------------------------
- -----------------------------------------------------------
*If Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
- ---------------------------------
Name of NASD Member Firm
By: ______________________________
Authorized Officer
Date: ____________________________
8.5 The undersigned is informed of the significance to the
Company of the foregoing representations and answers contained in the
Confidential Investor Questionnaire contained in this Section 7 and such answers
have been provided under the assumption that the Company will rely on them.
39
<PAGE>
[Signature Page]
NUMBER OF UNITS X $100,000 = (the "Purchase Price")
------------- ----------------
Signature Signature (if purchasing jointly)
Name Typed or Printed Name Typed or Printed
Entity Name Entity Name
Address Address
City, State and Zip Code City, State and Zip Code
Telephone-Business Telephone--Business
Telephone-Residence Telephone--Residence
Facsimile-Business Facsimile--Business
Facsimile-Residence Facsimile--Residence
Tax ID # or Social Security # Tax ID # or Social Security #
Name in which securities should be issued:
Check the box marked YES if you would like the securities
to be delivered to your account with Paramount Capital, Inc. Yes ___ No ___
(If you check "No", securities will be delivered to you at the address provided
above)
Dated: , 1998
This Subscription Agreement is agreed to and accepted as of
___________________________ , 1998.
PROCEPT, INC.
By: _______________________________________
Name:
Title:
40
<PAGE>
CERTIFICATE OF SIGNATORY
(To be completed if Units are
being subscribed for by an entity)
I,_________________________________, am the____________________________
of
_____________________________________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Subscription Agreement and to purchase
and hold the Units, and certify further that the Subscription Agreement has been
duly and validly executed on behalf of the Entity and constitutes a legal and
binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this________day of
_________________, 1998.
---------------------------------------
(Signature)
41
Exhibit 4.18
Schedule of Holders of Form of Warrant
- --------------------------------------------------------------------------------
Robert J. Conrads
- --------------------------------------------------------------------------------
Michael J. Gordon
- --------------------------------------------------------------------------------
J.F. Shea Co., Inc. as Nominee 1997-69
- --------------------------------------------------------------------------------
Jackson Hole Investments Acquisition LP
- --------------------------------------------------------------------------------
Keys Foundation, Curacao, Netherlands, Antilles
- --------------------------------------------------------------------------------
Arthur J. Nagle
- --------------------------------------------------------------------------------
Kevin P. Newman
- --------------------------------------------------------------------------------
Palmetto Partners, Ltd.
- --------------------------------------------------------------------------------
Tis Prager
- --------------------------------------------------------------------------------
David W. Ruttenberg
- --------------------------------------------------------------------------------
Myron M. Teitelbaum, M.D.
- --------------------------------------------------------------------------------
Melvyn I. Weiss
- --------------------------------------------------------------------------------
Bruno Widmer
- --------------------------------------------------------------------------------
Ross D. Ain
- --------------------------------------------------------------------------------
Beagle Limited
- --------------------------------------------------------------------------------
James W. Brady
- --------------------------------------------------------------------------------
Elliott Broidy
- --------------------------------------------------------------------------------
Archibald Cox, Jr.
- --------------------------------------------------------------------------------
Eckardt C. Beck, Defined Pension Plan U/A
1/1/95
- --------------------------------------------------------------------------------
Ellen I. Kaplan Revocable Trust
- --------------------------------------------------------------------------------
Howard Gittis
- --------------------------------------------------------------------------------
Gilbert Goldstein, Paul Shapiro Trustees, UIT
Howard Gittis, dated 12/23/88
- --------------------------------------------------------------------------------
John M. Goodman
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
HJK, LLC
- --------------------------------------------------------------------------------
IMS Global Investments X, Ltd.
- --------------------------------------------------------------------------------
John S. Osterweis, Trustee for The Osterweis
Revocable Trust U/A dated 1/13/93
- --------------------------------------------------------------------------------
Charles Jurgensmeyer
- --------------------------------------------------------------------------------
Donald R. Kendall, Jr.
- --------------------------------------------------------------------------------
Lawrence & Shirley Kessel
- --------------------------------------------------------------------------------
John LaRocque
- --------------------------------------------------------------------------------
Lincoln Wood Investment
- --------------------------------------------------------------------------------
John Loeb, Jr.
- --------------------------------------------------------------------------------
Richard A. & Gay C. Lydecker
- --------------------------------------------------------------------------------
Paul D. & Rebecca L. Ostrovsky
- --------------------------------------------------------------------------------
Steven N. Ostrovsky
- --------------------------------------------------------------------------------
Pequot Scout Fund, LP
- --------------------------------------------------------------------------------
Louis Reaback
- --------------------------------------------------------------------------------
Raymond Reaback
- --------------------------------------------------------------------------------
William Kymmerly Murphy & Linda Carolyn
Murphy Revocable Trust
- --------------------------------------------------------------------------------
Wolfson Equities
- --------------------------------------------------------------------------------
The Alfred J. Anzalone Family Limited
Partnership
- --------------------------------------------------------------------------------
Alae Partners
- --------------------------------------------------------------------------------
Morris A. Arntson, Jr.
- --------------------------------------------------------------------------------
Raul Baz
- --------------------------------------------------------------------------------
Lawrence Bernstein
- --------------------------------------------------------------------------------
Barry Birbrower, P.C. Profit Sharing Trust
- --------------------------------------------------------------------------------
Bios Equity Fund L.P.
- --------------------------------------------------------------------------------
Thomas L. Cassidy IRA Rollover
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Couderay Partners
- --------------------------------------------------------------------------------
Edward Dworetzky
- --------------------------------------------------------------------------------
Norma Dworetzky
- --------------------------------------------------------------------------------
Roxanne H. Frank Revocable Trust
- --------------------------------------------------------------------------------
Ben & Sharyn Friedman
- --------------------------------------------------------------------------------
Gallans & Brooks Associates, Inc. Pension Fund
- --------------------------------------------------------------------------------
Shelley Garfinkel
- --------------------------------------------------------------------------------
Joseph Giamanco
- --------------------------------------------------------------------------------
Alan and Paula Halperin
- --------------------------------------------------------------------------------
Irving B. Harris Revocable Trust
- --------------------------------------------------------------------------------
Paul R. Herman
- --------------------------------------------------------------------------------
Fred Holubow
- --------------------------------------------------------------------------------
Porlana Capital Corp. PTE Ltd.
- --------------------------------------------------------------------------------
Harry Huang & Adrienne Masters
- --------------------------------------------------------------------------------
Jerome Kahn Jr. Revocable Trust
- --------------------------------------------------------------------------------
Roger S. Lash
- --------------------------------------------------------------------------------
Donna Lipman and Lawrence Lipman, Tenants in
Common
- --------------------------------------------------------------------------------
Roy and Marlena Schaefer, JTWROS
- --------------------------------------------------------------------------------
Harris R.L. Lydon, Jr.
- --------------------------------------------------------------------------------
Geo. Manos & Associates, Inc.
- --------------------------------------------------------------------------------
Mike McCullick
- --------------------------------------------------------------------------------
Mileam II
- --------------------------------------------------------------------------------
James J. Pelts
- --------------------------------------------------------------------------------
Pictet Bank & Trust Naussau Ltd.
- --------------------------------------------------------------------------------
Furman Selz, LLC
- --------------------------------------------------------------------------------
James K. Ramaker
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Michael Resnick
- --------------------------------------------------------------------------------
David Rosenbaum and Margot Kahn JTWROS
- --------------------------------------------------------------------------------
Melvin Spencer
- --------------------------------------------------------------------------------
Joseph Strassman and Barbara Strassman
- --------------------------------------------------------------------------------
Juris Vitols
- --------------------------------------------------------------------------------
Westbury Nursery Products Ltd.
- --------------------------------------------------------------------------------
Gabriel Zambrano
- --------------------------------------------------------------------------------
Mauricio Arias
- --------------------------------------------------------------------------------
Philip J. Angelastro
- --------------------------------------------------------------------------------
Mario Aristizabal
- --------------------------------------------------------------------------------
Robert S. Bogatin Trust UDT 3/15/91
- --------------------------------------------------------------------------------
Jack R. Cline, Jr.
- --------------------------------------------------------------------------------
James L. Dritz
- --------------------------------------------------------------------------------
Anthony J. Gerace
- --------------------------------------------------------------------------------
Stuart Goldberg and Rhoda Goldberg JTWROS
- --------------------------------------------------------------------------------
Patrick M. Kane
- --------------------------------------------------------------------------------
Albert Milstein
- --------------------------------------------------------------------------------
Joseph A. Natiello
- --------------------------------------------------------------------------------
Maria-Eugenia A. de Salas-Porras
- --------------------------------------------------------------------------------
Sandra Schawelson
- --------------------------------------------------------------------------------
Andrew Strassman
- --------------------------------------------------------------------------------
Richard Strassman
- --------------------------------------------------------------------------------
Tokenhouse Trading Company Limited
- --------------------------------------------------------------------------------
Rodrigo Villamizar
- --------------------------------------------------------------------------------
Donald E. and Virginia V. Vinson Trust
- --------------------------------------------------------------------------------
Martin G. Ballweg
- --------------------------------------------------------------------------------
Richard Berry, MD & Beverly Berry
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Ronald W. Braziel
- --------------------------------------------------------------------------------
Tommy L. Davis
- --------------------------------------------------------------------------------
Praful Desai, MD
- --------------------------------------------------------------------------------
J. William Doyle
- --------------------------------------------------------------------------------
A. Mark Gambee, MD and Karen D. Todd, MD
JTWROS
- --------------------------------------------------------------------------------
Hawk Management and Financial Services, Inc.
- --------------------------------------------------------------------------------
Edward F. Heil
- --------------------------------------------------------------------------------
Michael Joyce
- --------------------------------------------------------------------------------
Donald B. and Sylvia A. Kaiserman
- --------------------------------------------------------------------------------
George & Mary Ellen Kimble
- --------------------------------------------------------------------------------
Harold Ksiazek and Jeanette Ksiazek
- --------------------------------------------------------------------------------
Brad Levine DMD
- --------------------------------------------------------------------------------
Hyman A. Lezell Revocable Trust
- --------------------------------------------------------------------------------
Donald W. Linscott
- --------------------------------------------------------------------------------
Stephen A. Lisenby and Patricia J. Lisenby
- --------------------------------------------------------------------------------
Mike & Terry Miller
- --------------------------------------------------------------------------------
Donald Minerva
- --------------------------------------------------------------------------------
Thomas C. Siirola
- --------------------------------------------------------------------------------
William S. Silver
- --------------------------------------------------------------------------------
Aries Domestic Fund, L.P.
- --------------------------------------------------------------------------------
The Aries Trust
- --------------------------------------------------------------------------------
Continental Consulting Corporation
- --------------------------------------------------------------------------------
Ery W. Kehaya
- --------------------------------------------------------------------------------
Pharm-Eco Laboratories, Inc.
- --------------------------------------------------------------------------------
<PAGE>
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO A REGISTRATION
STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS
CERTIFICATE ARE FURTHER RESTRICTED AS DESCRIBED HEREIN.
No. CW-_____________ __________ Class C Warrants
VOID AFTER APRIL 8, 2003
CLASS C WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
PROCEPT, INC.
This certifies that FOR VALUE RECEIVED
___________________________________________________________________________
________________ _____________________________ or registered assigns (the
"Registered Holder") is the owner of the number of Class C Warrants ("Class C
Warrants") specified above. Each Class C Warrant represented hereby initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Warrant Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, par value $.01
per share ("Common Stock"), of Procept, Inc., a Delaware corporation (the
"Company"), at any time between April 9, 1998, and the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this Warrant
Certificate with the Subscription Form on the reverse hereof duly executed, at
the corporate office of American Stock Transfer & Trust Company, as Warrant
Agent, or its successor (the "Warrant Agent"), accompanied by payment of the
Purchase Price (as defined in the Warrant Agreement) in lawful money of the
United States of America in cash or by official bank or certified check made
payable to the Company.
This Warrant Certificate and each Class C Warrant represented
hereby are issued pursuant to, and are subject in all respects to, the terms and
conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated
January 27, 1998, by and among the Company, the Warrant Agent and Paramount
Capital, Inc.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common Stock
subject to purchase upon the exercise of each Class C Warrant represented hereby
are subject to modification or adjustment.
Each Class C Warrant represented hereby is exercisable at the
option of the Registered Holder, but no fractional shares of Common Stock will
be issued. In the case of the exercise of fewer than every Class C Warrant
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Class C Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York
time) on April 8, 2003, or such earlier date as the Class C Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a day on
which banks are authorized to close, then the Expiration Date shall mean 5:00
P.M. (New York time) the next following day which in the State of New York is
not a holiday or a day on which banks are authorized to close. Upon notice to
all Registered Holders of the Class C Warrants, the Company shall have the right
to extend the Expiration Date.
The Registered Holder of this Class C Warrant shall have the
registration rights as provided in Section 5 of the Subscription Agreement (the
"Subscription Agreement") dated as of the date hereof between the Company and
such Registered Holder. The Class C Warrants represented hereby shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant Agent,
for a new Warrant Certificate or Warrant Certificates of like tenor representing
an equal aggregate number of Class C Warrants, each of such new Warrant
Certificates to represent such number of Class C Warrants as shall be designated
by such Registered Holder at the time of such surrender. Upon due presentment
with any applicable transfer fee per certificate in addition to any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Class C
Warrants will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Warrant Agreement.
Prior to the exercise of any Class C Warrant represented
hereby, the Registered Holder shall not be entitled to any rights of a
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided in the
Warrant Agreement.
Subject to Section 8 of the Warrant Agreement, the Class C
Warrants represented hereby may be redeemed at the option of the Company, at a
redemption price of $.01 per Class C Warrant (subject to adjustment under the
circumstances set forth in Section 8 of the Warrant Agreement) (the "Redemption
Price"). Notice of redemption shall be given not later than the sixtieth day
before the date fixed for redemption, all as provided in the Warrant Agreement.
On and after the date fixed for redemption, the Registered Holder shall have no
rights with respect to the Class C Warrants represented hereby except to receive
the Redemption Price upon surrender of this Warrant Certificate.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered Holder as
the absolute owner hereof and of each Class C Warrant represented hereby
(notwithstanding any notations of ownership or writing hereon made by anyone
other than a duly authorized officer of the Company or the Warrant Agent) for
all purposes and shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase
Price to Paramount Capital, Inc. under certain conditions as specified in the
Warrant Agreement upon the exercise of the Class C Warrants represented hereby.
Any costs incurred by the Placement Agent in connection with the solicitation of
Class C Warrant exercises or the redemption of Class C Warrants shall be
reimbursed by the Company.
1
<PAGE>
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by two of its
officers thereunto duly authorized and a facsimile of its corporate seal to be
imprinted hereon.
PROCEPT, INC.
Dated: April 9, 1998 By:________________________________
By:________________________________
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By:
Authorized Officer
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Class C Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _________ Class C Warrants represented by this Warrant Certificate, and
to purchase the securities issuable upon the exercise of such Class C Warrants,
and requests that certificates for such securities shall be issued in the name
of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING
NUMBER
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
and if such number of Class C Warrants shall not be all the Class C Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class C Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
The undersigned represents that the exercise of the within
Class C Warrant was solicited by a member of the National Association of
Securities Dealers, Inc. If not solicited by an NASD member, please write
"unsolicited" in the space below. Unless otherwise indicated by listing the name
of another NASD member firm, it will be assumed that the exercise was solicited
by Paramount Capital, Inc.
(Name of NASD Member)
Dated: __________________________ X
Address
Taxpayer Identification Number
Signature Guaranteed
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Class C Warrants
FOR VALUE RECEIVED,__________________________________ hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING
NUMBER
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
[please print or type name and address]
________________________________ of the Class C Warrants represented
by this Warrant Certificate, and hereby irrevocably constitutes and appoints
- ------------------------------
- --------------------------------------------------------------
________________ Attorney to transfer this Warrant Certificate on the books of
the Company, with full power of substitution in the premises.
Dated: ____________________ X_________________________
Signature Guaranteed
--------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
Exhibit 4.19
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NEITHER SUCH SECURITIES NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF NOR
THE SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIES LAW. SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT.
PROCEPT, INC.
Unit Purchase Option for the Purchase of Units Consisting of
Shares of Common Stock and Warrants
No. [____] Option Units
FOR VALUE RECEIVED, Procept, Inc., a Delaware corporation
(the "Company"), hereby certifies that [______________________], or its assigns,
is entitled to purchase from the Company, at any time or from time to time
commencing on October 9, 1998 and prior to 5:00 P.M., New York City time, on
October 9, 2003, up to [_____] Units, each Unit consisting of (a) the number of
shares (rounded to the nearest whole share with 0.5 of one share being rounded
upward) (the "Offering Quantity") of Common Stock of the Company, par value $.01
per share, (the "Common Stock") determined by dividing 100,000 by the lesser of
(i) $0.50 and (ii) 75% of the Trading Price (as defined in the Subscription
Agreement as hereinafter defined) as of (x) the initial closing date (the
"Initial Closing Date", (y) any interim closing date (each an "Interim Closing
Date") or (z) the final closing date (the "Final Closing Date") of the Offering
(as defined below) whichever is lowest (the "Offering Price"), and (b) warrants
(the "Class C Warrants") to purchase, at an exercise price per share equal to
the Offering Price, at any time prior to the fifth anniversary of the Final
Closing Date (as defined herein) a number of shares of Common Stock equal to the
Offering Quantity, for an aggregate Unit purchase price of [$______________]
(computed on the basis of $110,000 per Unit). (Hereinafter, (i) said Units are
referred to as the "Units", (ii) said Class C Warrants are referred to as the
"Warrants", (iii) the Common Stock included in the Units and purchasable upon
exercise of the Warrants, is referred to as the "Common Stock", (iv) the shares
of the Common Stock purchasable hereunder or under any other Option (as
hereinafter defined) (or the shares of any capital stock purchasable hereunder
or under any other Option in lieu of Common Stock) are referred to as the
"Common Shares", (v) the shares of Common Stock purchasable upon exercise of the
Warrants hereunder or under any other Option (as hereinafter defined) are
referred to as the "Warrant Shares", (vi) the aggregate purchase price payable
for the Units hereunder is referred to as the "Aggregate Option Price", (vii)
the price payable (initially $110,000 per Unit, subject to adjustment) for each
of the Units, hereunder is referred to as the "Per Unit Price", (viii) this
Option, all similar Options issued on the date hereof and all warrants hereafter
issued in exchange or substitution for this Option or such similar Options are
referred to as the "Options" and (ix) the holder of this Option is referred to
as the "Holder" and the holder of this Option and all other Options are referred
to as the "Holders" and Holders of more than fifty percent (50%) of the
outstanding Options are
-1-
<PAGE>
referred to as the "Majority of the Holders." The Aggregate Option Price is not
subject to adjustment. The Per Unit Price is subject to adjustment as
hereinafter provided; in the event of any such adjustment, the number of Common
Shares or Warrant Shares, as the case may be, deliverable upon exercise of this
Option shall be adjusted in accordance with paragraph 3(i) below.
This Option, together with options of like tenor,
constituting in the aggregate Options to purchase 9.6275 Units, was originally
issued pursuant to an agency agreement between the Company and Paramount
Capital, Inc., as placement agent (the "Placement Agent") in connection with a
private placement (the "Offering") of 96.275 Units (the "Offering Units"), each
Offering Unit consisting of Common Stock (the "Offering Common") and Class C
Warrants (the "Offering Warrants") for which the Placement Agent acted as
Placement Agent.
1. Exercise of Option.
(a) This Option may be exercised, in whole at any time or
in part from time to time, commencing on October 9, 1998 and prior to 5:00 P.M.,
New York City time, on October 9, 2003 by the Holder:
(i) by the surrender of this Option (with the subscription
form at the end hereof duly executed) at the address set forth in
Subsection 10(a) hereof, together with proper payment of the
Aggregate Option Price, or the proportionate part thereof if this
Option is exercised in part, with payment for the number of Units
made by certified or official bank check payable to the order of
the Company; or
(ii) by the surrender of this Option (with the cashless
exercise form at the end hereof duly executed) (a "Cashless
Exercise") at the address set forth in Subsec tion 10(a) hereof.
The exchange of the Option shall take place on the date specified
in the Cashless Exercise Form or, if later, the date the Cashless
Exercise Form is surrendered to the Company (the "Exchange Date").
Such presentation and surrender shall be deemed a waiver of the
Holder's obligation to pay the Aggregate Option Price, or the
proportionate part thereof if this Option is exercised in part. In
the event of a Cashless Exercise this Option shall represent the
right to subscribe for and acquire the number of Units (rounded to
the next highest integer) equal to (x) the number of Units
specified by the Holder in its Cashless Exercise Form (the "Total
Number") (such number not to exceed the maximum number of Units
subject to this Option, as may be adjusted from time to time) less
(y) the number of Units equal to the quotient obtained by dividing
(A) the product of the Total Number and the existing Per Unit
Price by (B) the Market Price Per Unit. "Market Price Per Unit"
shall mean first, if there is a trading market as indicated in
Subsection (A) below for the Units, such Market Price Per Unit and
if there is no such trading market in the Units, then Market Price
Per Unit shall equal the sum of the aggregate Market Price of all
shares of Common Stock (on per share basis, the "Market Price Per
Share of Common Stock") and Warrants (on a per warrant basis, the
"Market Price Per Warrant") which comprise a Unit, with the
meanings indicated in Subsections (B) through (G) below:
(A) If the Units are listed on a national
securities exchange or listed
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<PAGE>
or admitted to unlisted trading privileges on such
exchange or listed for trading on the Nasdaq National
Market or the Nasdaq Smallcap Market, the Market Price Per
Unit shall be the last reported sale price (or if no last
sale, the last quoted ask price) of the Units on such
exchange or market for the trading day immediately
preceding the Exchange Date; or
(B) If the Common Stock or Warrants, as the case
may be, are listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange
or listed for trading on the Nasdaq National Market or the
Nasdaq Smallcap Market, the Market Price Per Share of
Common Stock, or Market Price Per Warrant, respectively,
shall be the last reported sale price (or if no last sale,
the last quoted ask price) of the Common Stock or
Warrants, respectively, on such exchange or market for the
trading day immediately preceding the Exchange Date; or
(C) If the Common Stock or Warrants, as the case
may be, are not so listed or admitted to unlisted trading
privileges, the Market Price Per Share of Common Stock, or
Market Price Per Warrant, respectively, shall be the last
reported sale price (or if no last sale, the last quoted
ask price) of the Common Stock or Warrants in the
over-the-counter market as reported by the National
Quotation Bureau or similar organization or in the Pink
Sheets for the trading day immediately preceding the
Exchange Date; or
(D) If the Common Stock is not so listed or
admitted to unlisted trading privileges and the sale price
is (or if no last sale, the last quoted ask price) not so
reported, the Market Price Per Share of Common Stock shall
be the fair market value as determined by agreement
between the Board of Directors of the Company and a
Majority of the Holders; or
(E) If neither clause (B) nor (C) applies to the
Warrants, then the Market Price Per Warrant shall be an
amount equal to the difference between (i) the Market
Price Per Share of Common Stock which may be received upon
the exercise of the Warrants, as determined in paragraphs
(B), (C) and (D) above, and (ii) the per share exercise
price of the Warrants then in effect.
(F) If the Company and the Majority of the
Holders 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 of the
Company and the Majority of the Holders (or, if such
selection cannot be agreed upon promptly, or in any event
within ten days, then such valuation shall be made by a
nationally recognized independent investment banking firm
selected by the American Arbitration Association in New
York City in accordance with its rules), the costs of
which valuation shall be paid for by the Company.
(iii) by the surrender of this Option (with the
subscription (promissory note) form at the end hereof duly
executed) at the address set forth in Subsection 10(a) hereof,
together with the presentation of a promissory note made payable
to the
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<PAGE>
Company, duly executed and in the form at the end hereof.
Such promissory note shall be secured by the securities underlying
this Option, which shall be held in safe-keeping by the Company as
collateral for such indebtedness.
(b) If this Option is exercised in part, the Holder is
entitled to receive a new Option covering the Units, which have not been
exercised and setting forth the proportionate part of the Aggregate Option Price
applicable to such Units. Upon surrender of this Option, the Company will (i)
issue a certificate or certificates in the name of the Holder for the largest
number of whole shares of the Common Stock and Warrants to which the Holder
shall be entitled and, if this Option is exercised in whole, in lieu of any
fractional shares of the Common Stock or Warrants to which the Holder shall be
entitled, pay to the Holder cash in an amount equal to the fair value of such
fractional shares (determined in such reasonable manner as the Board of
Directors of the Company shall determine), and (ii) deliver the other securities
and properties receivable upon the exercise of this Option, or the proportionate
part thereof if this Option is exercised in part, pursuant to the provisions of
this Option; provided, however that if this Option is exercised pursuant to
paragraph 1(a)(iii), the Company will issue but shall not deliver such shares
until such time as the promissory note and all accrued interest thereon shall
have been paid in full, and will hold such shares in safekeeping.
(c) This Option shall be exercisable only for Units
consisting of Warrants and Common Shares at the then applicable Per Unit Price
(including any adjustment pursuant to Section 3 below).
2. Reservation of Warrant Shares and Common Shares;
Listing. The Company agrees that, prior to the expiration of this Option, the
Company will at all times (a) have authorized and in reserve, and will keep
available, solely for issuance and delivery upon the exercise of this Option,
the Units, the Warrants and the Common Shares underlying such Units and other
securities and properties as from time to time shall be receivable upon the
exercise of this Option, free and clear of all restrictions on sale or transfer,
other than under Federal or state securities laws, and free and clear of all
preemptive rights and rights of first refusal and (b) have authorized and in
reserve, and will keep available, solely for issuance or delivery upon exercise
of the Warrants, the shares of Common Stock, the Warrant Shares and the Common
Shares and other securities and properties as from time to time shall be
receivable upon such exercise, free and clear of all restrictions on sale or
transfer, other than under Federal or state securities laws, and free and clear
of all preemptive rights and rights of first refusal; and (c) if the Company is
listed or hereafter lists its Common Stock on any national securities exchange,
the Nasdaq National Market or the Nasdaq Smallcap Market, use its best efforts
to keep the Common Shares authorized for listing on such exchange upon notice of
issuance.
3. Protection Against Dilution.
(a) The anti-dilution provisions of the Warrant Agreement
shall protect the Holder from dilution of the purchase rights represented by the
Warrants (it being understood for this purpose that the Holder shall be deemed
to own the Warrants commencing on October 9, 1998). In addition, the following
anti-dilution provisions shall protect the Holder from dilution resulting from
the issuance of Common Stock and other securities:
(i) If the Company shall issue or distribute to the
holders of shares of
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<PAGE>
Common Stock evidence of its indebtedness, any other securities
of the Company or any cash, property or other assets (excluding a
subdivision, combination or reclassification, or dividend or
distribution payable in shares of Common Stock, referred to in
Subsection 3(a)(ii), and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor
in the full amount thereof (any such non-excluded event being
herein called a "Common Stock Special Dividend")), the Per Unit
Price shall be adjusted by multiplying the Per Unit Price then in
effect by a fraction, (A) the numerator of which shall be (x) the
then current Market Price Per Share of Common Stock in effect on
the record date of such issuance or distribution less (y) the
fair market value (as determined in good faith by the Company's
Board of Directors) of the evidence of indebtedness, cash,
securities or property, or other assets issued or distributed in
such Common Stock Special Dividend applicable to one share of
Common Stock and (B) the denominator of which shall be the then
current Market Price Per Share of Common Stock in effect on the
record date of such issuance or distribution. An adjustment made
pursuant to this Subsection 3(b)(i) shall become effective
immediately after the record date of any such Common Stock
Special Dividend.
(ii) If the Company shall (A) pay a dividend or make a
distribution on its capital stock in shares of Common Stock, (B)
subdivide its outstanding shares of Common Stock into a greater
number of shares, (C) combine its outstanding shares of Common
Stock into a smaller number of shares or (D) issue by
reclassification of its Common Stock any shares of capital stock
of the Company, the Per Unit Price shall be adjusted by
multiplying the Per Unit Price by a fraction, the numerator of
which shall be the number of Common Shares which this Option was
exercisable for prior to such action and the denominator of which
shall be the number of Common Shares which a Holder would have
owned immediately following such action had such Option been
exercised immediately prior to the record or effective date
therefor. An adjustment made pursuant to this Subsection 3(a)(ii)
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.
(iii) Except as provided in Subsections 3(a)(i) and 3(e),
in case the Company shall issue or sell any Common Stock, any
securities convertible into Common Stock, any rights, options or
warrants to purchase Common Stock or any 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 (A) the total amount, if any, received or
receivable by the Company in consideration of the issuance or sale
of such securities plus the total consideration, if any, payable
to the Company upon exercise or conversion thereof (the "Common
Stock Total Consideration") by (B) the number of additional shares
of Common Stock issued, sold or issuable upon exercise or
conversion of such securities) which is less than either (i) the
then current Market Price Per Share of Common Stock in effect on
the date of such issuance or sale or (ii) the Per Unit Price
divided by the number of shares of Common Stock that each Unit is
then exercisable for, the Per Unit Price shall be adjusted as of
the date of such issuance or sale by multiplying the Per Unit
Price then in effect by a fraction, the numerator of which shall
be (x) the sum of (1) the number of shares of Common Stock
outstanding on the record date of such issuance or sale plus (2)
the Total Consideration divided by (I) the then current Market
Price of the Common Stock or (II) the quotient of the Per Unit
Price divided by the number of shares of Common Stock that each
Unit is then exercisable for, whichever is greater, and the
denominator of which shall be (y) the number of shares of Common
Stock outstanding on the record
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<PAGE>
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.
(iv) In accordance with Section 6 of this Unit Purchase
Option, notwithstanding the anti-dilution provisions set forth in
Subsections 3(a)(i)-(iii), if an event set forth in Subsections
3(a)(i)-(iii) (a "Trigger Event") shall occur, and provided that
the anti-dilution provisions of the Common Stock, as set forth in
Article VI of the Subscription Agreement, shall apply to such
Trigger Event, then any adjustments as a result of the Trigger
Event shall occur as follows: (A) first, the anti-dilution
provisions, as set forth in Article VI shall apply; and (B)
second, the anti-dilution provisions set forth in Subsections
3(a)(i)-(iii) shall apply only to the extent that the application
of such provisions shall result in the Holder receiving additional
shares of capital stock of the Company, having the Per Option Unit
Price reduced or otherwise further improve the economic position
of the Holder.
(b) No adjustment in the Per Unit Price shall be required unless
such adjustment would require an increase or decrease of at least $0.05 per
Unit; provided, however, that any adjustments which by reason of this Section
3(b) are not required to be made shall be carried forward and taken into account
in any subsequent adjustment; provided, further, however, that adjustments shall
be required and made in accordance with the provisions of this Section 3 (other
than this Subsection 3(b)) not later than such time as may be required in order
to preserve the tax-free nature of a distribution to the Holder of this Option.
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 Unit Price, in addition to those required by this Section
3, as it in its discretion shall deem to be advisable in order that any stock
dividend, subdivision of shares or distribution of rights to purchase stock or
securities convertible or exchangeable for stock hereafter made by the Company
to its stockholders shall not be taxable.
(c) Whenever the Per Unit Price is adjusted as provided in this
Section 3 and upon any modification of the rights of a Holder of Options in
accordance with this Section 3, the Company shall promptly prepare 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 Options. The Company may, but shall not be obligated to unless
requested by the Holders of more than fifty percent (50%) of the outstanding
Options, 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 Unit Price and the
number of Warrants, Warrant Shares or Common Shares, as the case may be, 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
Options.
(d) If the Board of Directors of the Company shall declare any
dividend or other distribution with respect to the Common Stock other than a
cash distribution out of earned
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<PAGE>
surplus, the Company shall mail notice thereof to the Holders of the Options not
less than 10 days prior to the record date fixed for determining stockholders
entitled to participate in such dividend or other distribution.
(e) No adjustment in the Per Unit Price shall be required in the
case of the issuance by the Company of Common Stock (i) pursuant to the exercise
of any Option or (ii) pursuant to (A) the exercise of any stock options or
warrants currently outstanding or (B) securities issued after the date hereof
pursuant to any Company benefit plan; provided, however, that with respect to
Subsection 3(e)(ii), the issuance of such securities were approved by the Board
of Directors of the Company (or a committee thereof) and were issued at a price
no less than the Market Price of the securities on the date of issuance.
(f) In case 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 a 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 Option shall have the right thereafter to receive on the exercise of
this Option the kind and amount of securities, cash or other property which the
Holder would have owned or have been entitled to receive immediately after such
reorganization, reclassification, consolidation, merger, statutory exchange,
sale or conveyance had this Option 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 Option to the end that the provisions set forth in this
Section 3 shall thereafter corres pondingly 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 Option. The above
provisions of this Subsection 3(f) shall similarly apply to successive
reorganizations, reclassifica tions, consolidations, mergers, statutory
exchanges, sales or conveyances. The Company shall require the issuer of any
shares of stock or other securities or property thereafter deliverable on the
exercise of this Option to 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 Options 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.
(g) If, as a result of an adjustment made pursuant to this Section
3, the Holder of any Option 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 Option promptly after such adjustment) shall
determine the allocation of the adjusted Per Unit Price between or among shares
or such classes of capital stock or shares of Common Stock and other capital
stock.
(h) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the number of
Units purchasable upon exercise of this
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<PAGE>
Option, to the extent this Option has not then been exercised, shall, upon such
expiration, be readjusted and shall thereafter be such as they would have been
had they been originally adjusted (or had the original adjustment not been
required, as the case may be) on the basis of (i) the fact that Common Stock, if
any, actually issued or sold upon the exercise of such rights, options, warrants
or conversion privileges, and (ii) the fact that such shares of Common Stock, if
any, were issued or sold for the consideration actually received by the Company
upon such exercise plus the consideration, if any, actually received by the
Company for the issuance, sale or grant of all such rights, options, warrants or
conversion privileges whether or not exercised; provided, however, that no such
readjustment shall have the effect of decreasing the number of Units purchasable
upon exercise of this Option by an amount in excess of the amount of the
adjustment initially made in respect of the issuance, sale or grant of such
rights, options, warrants or conversion privileges.
(i) Whenever the Per Unit Price payable upon exercise of each
Option is adjusted pursuant to this Section 3, (i) the number of shares of
Common Stock included in a Unit shall simultaneously be adjusted by multiplying
the number of shares of Common Stock included in a Unit immediately prior to
such adjustment by the Per Unit Price in effect immediately prior to such
adjustment and dividing the product so obtained by the Per Unit Price, as
adjusted and (ii) the number of shares of Common Stock or other securities
issuable upon exercise of the Warrants included in the Units and the exercise
price payable for each of the Warrant Shares (initially $0.50 per Warrant Share,
subject to adjustment) pursuant to the Warrant terms shall be adjusted in
accordance with the terms of the Warrant Agreement applicable to holders of such
Warrants.
(k) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in Section 3(a)(iii)
or any other securities of the Company convertible, exchangeable or exercisable
for shares of Common Stock, for any reason other than an event that would
require adjustment to prevent dilution, so that the consideration per share
received by the Company after such modification is less than either (x) the Per
Unit Price divided by the number of shares of Common Stock that each Unit is
then exercisable for or (y) the Market Price per Share of Common Stock as of the
date prior to such modification, then such securities, to the extent not
theretofore exercised, converted or exchanged, shall be deemed to have expired
or terminated immediately prior to the date of such modification and the Company
shall be deemed, for purposes of calculating any adjustments pursuant to this
Section 3, to have issued such new securities upon such new terms on the date of
modification. Such adjustment shall become effective as of the date upon which
such modification shall take effect.
4. Fully Paid Stock; Taxes. The Company agrees that the
shares of the Common Stock represented by each and every certificate for Common
Shares delivered on the exercise of this Option and the shares of Common Stock
delivered upon the exercise of the Warrants, shall at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights or rights of first refusal, and the Company will take all
such actions as may be necessary to assure that the par value or stated value,
if any, per share of the Common Stock is at all times equal to or less than the
then Per Unit Price. The Company further covenants and agrees that it will pay,
when due and payable, any and all Federal and state stamp, original issue or
similar taxes which may be payable in respect of the issue of any Warrant Share,
Common Share or any certificate thereof to the extent required because of the
issuance by the Company of such security.
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<PAGE>
5. Registration Under Securities Act of 1933.
(a) The Holder shall, with respect to the Common Shares
only, have the right to participate in the registration rights granted to
holders of Registrable Securities pursuant to Section 5 of the subscription
agreements (the "Subscription Agreements") between such holders and the Company
that were entered into at the time of the initial sale of the Units. By
acceptance of this Option, the Holder agrees to comply with the provisions in
Section 5 of the Subscription Agreement to same extent as if it were a party
thereto.
(b) Until all Common Shares and Warrant Shares have been
sold under a Registration Statement or pursuant to Rule 144 under the Act, the
Company shall use its reasonable best efforts to file with the Securities and
Exchange Commission all current reports and the information as may be necessary
to enable the Holder to effect sales of its shares in reliance upon Rule 144
promulgated under the Act.
6. Article VI Rights. Upon exercise of this Option, the
Holder shall be entitled to the contractual rights set forth in Article VI of
the Subscription Agreement to the same extent as if such Units had been
purchased in the Offering, it being understood and agreed that the Holder shall
receive additional shares of Common Stock upon the exercise of this Option which
would have been issued to the Holder pursuant to Article VI of the Subscription
Agreement as if the Holder had held the shares of Common Stock hereunder since
the Final Closing Date.
7. Investment Intent; Limited Transferability.
(a) The Holder represents, by accepting this Option, that
it understands that this Option and any securities obtainable upon exercise of
this Option have not been registered for sale under Federal or state securities
laws and are being offered and sold to the Holder pursuant to one or more
exemptions from the registration requirements of such securities laws. In the
absence of an effective registration of such securities or an exemption
therefrom, any certificates for such securities shall bear the legend set forth
on the first page hereof. The Holder understands that it must bear the economic
risk of its investment in this Option and any securities obtainable upon
exercise of this Option for an indefinite period of time, as this Option and
such securities have not been registered under Federal or state securities laws
and therefore cannot be sold unless subsequently registered under such laws,
unless an exemption from such registration is available.
(b) The Holder, by his acceptance of its Option,
represents to the Company that it is acquiring this Option and will acquire any
securities obtainable upon exercise of this Option for its own account for
investment and not with a view to, or for sale in connection with, any
distribution thereof in violation of the Act. The Holder agrees that this Option
and any such securities will not be sold or otherwise transferred unless (i) a
registration statement with respect to such transfer is effective under the Act
and any applicable state securities laws or (ii) such sale or transfer is made
pursuant to one or more exemptions from the Act.
(c) This Option may not be sold, transferred, assigned or
hypothecated for six
months from the date hereof except (i) to any firm or corporation that succeeds
to all or substantially all of the business of Paramount Capital, Inc., (ii) to
any of the officers,
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<PAGE>
employees, associates or affiliated companies of Paramount Capital, Inc., or of
any such successor firm, (iii) to any NASD member participating in the Offering
or any officer or employee of any such NASD member or (iv) in the case of an
individual, pursuant to such individual's last will and testament or the laws of
descent and distribution, 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 Option 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 an Option or its 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 Options. All Options issued upon the transfer
or assignment of this Option will be dated the same date as this Option, and all
rights of the holder thereof shall be identical to those of the Holder.
8. Loss, etc., of Option. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Option, and of indemnity reasonably satisfactory to the Company, if lost,
stolen or destroyed, and upon surrender and cancellation of this Option, if
mutilated, the Company shall execute and deliver to the Holder a new Option of
like date, tenor and denomination.
9. Option Holder Not Stockholder. This Option 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;
this Option does, however, confer certain rights and require certain notices to
Holders as set forth herein.
10. Communication. No notice or other communication under
this Option 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 Procept, Inc., 840 Memorial Drive,
Boston, MA 02139, Attn: President or such other address
as the Company has designated in writing to the Holder,
or
(b) the Holder at c/o Paramount Capital, Inc., 787 Seventh
Avenue, New York, NY 10019 or other such address as the
Holder has designated in writing to the Company.
11. Headings. The headings of this Option have been
inserted as a matter of convenience and shall not affect the construction
hereof.
12. Applicable Law. This Option shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to the principles of conflicts of law thereof.
13. Amendment, Waiver, etc. Except as expressly provided
herein, neither this Option nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the party
against whom enforcement of any such amendment, waiver, discharge or termination
is sought; provided, however, that any provisions hereof may
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<PAGE>
be amended, waived, discharged or terminated upon the written consent of the
Company and the then current Majority of the Holders of the Options only.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to
be signed by its President and attested by its Secretary this __th day of April,
1998.
Procept, Inc.
By:____________________________
Name:
Title:
ATTEST:
- ---------------------------
Secretary
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<PAGE>
SUBSCRIPTION
The undersigned, __________________________, pursuant to
the provisions of the foregoing Option, hereby agrees to subscribe for and
purchase ________________ Units of Procept, Inc., each Unit consisting of Common
Stock, $.001 par value, and Class C Warrants to purchase ___________ share(s) of
Common Stock, covered by said Option, and makes payment therefor in full at the
price per share provided by said Option. The undersigned hereby confirms the
representations and warranties made by it in the Option.
Dated:_______________ Signature:____________________
Address:______________________
SUBSCRIPTION
(promissory note)
The undersigned, __________________________, pursuant to
the provisions of the foregoing Option, hereby agrees to subscribe for and
purchase ________________ shares of the Common Stock, par value $.001, and Class
C Warrants to purchase ______________ share(s) of Common Stock of Procept, Inc.
covered by said Option, and makes payment therefor in full at the price per
share provided by said Option by delivery of the attached Promissory Note. The
undersigned hereby confirms the representations and warranties made by it in the
Option and in the attached Promissory Note.
Dated:_______________ Signature:______________________
Address:_______________________
CASHLESS EXERCISE
The undersigned _______________________, pursuant to the
provisions of the foregoing Option, hereby elects to exchange its Option for
__________ Units, each Unit consisting of Common Stock, $.001 par value, and
Class C Warrants to purchase __________ share(s) of Common Stock, pursuant to
the cashless exercise provisions of the Option. The undersigned hereby confirms
the representations and warranties made by it in the Option.
Dated:_______________ Signature:____________________
Address:______________________
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<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED ______________________ hereby sells,
assigns and transfers unto ____________________________ the foregoing Option and
all rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Option on the books of
Procept, Inc.
Dated:_______________ Signature:____________________
Address:______________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED ___________________________ hereby
assigns and transfers unto ____________________________ the right to purchase
________ Units of Procept Inc., each Unit consisting of Common Stock, $.001 par
value, and Class C Warrants to purchase ______________ share(s) of Common Stock,
covered by the foregoing Option, and a proportionate part of said Option and the
rights evidenced thereby, and does irrevocably constitute and appoint
____________________, attorney, to transfer that part of said Option on the
books of Procept, Inc.
Dated:_________________ Signature:____________________
Address:______________________
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<PAGE>
[Form]
PROMISSORY NOTE
$[ ] New York, New York
[ ]
[Unitholder] ("Borrower"), for value received, hereby
promises to pay to the order of [Company name] (together with any such
subsequent holder of this Note, the "Holder" or the "Company") the sum of [ ]($
), or such lesser amount as shall then equal the outstanding principal amount
hereof. Such amount shall be due and payable on October 7, 2003 (the "Maturity
Date"), together with interest thereon at a rate per annum equal to the prime
rate as stated by Citibank, N.A. as of the date hereof, (the "Interest Rate"),
and which shall be calculated on the basis of a 360-day year for actual days
elapsed, on the terms and conditions set forth hereinafter. Payment for all
amounts due hereunder shall be made by certified check or wire transfer to the
Holder at c/o [ ] Attn: [President], or other such address as the Holder may
designate by notice to Borrower. If this Promissory Note is prepaid in whole or
in part by the tendering of shares pursuant to Paragraph 2 below, the repayment
date shall be the date on which the Borrower delivers a notice to the Company in
accordance with Paragraph 4 irrevocably stating the Borrower's intention to
repay the Promissory Note by tendering such shares. The Borrower is delivering
this Promissory Note as payment of the exercise price for the purchase of the
shares of Common Stock (the "Stock") underlying the Unit dated [ ] (the "Unit").
The Promissory Note shall be secured by the Stock which the Holder shall hold in
safe-keeping as collateral for the indebtedness represented by this Promissory
Note.
1. Prepayment; Repayment. The Borrower may at any time
prepay in whole or in part the principal sum, plus accrued interest to date of
payment, of this Note, without penalty or premium. All sums paid hereon shall be
applied first to accrued, unpaid interest on this Note and the balance, if any,
to the reduction of the principal hereof. This Note shall not be due and payable
until the Maturity Date. On the Maturity Date, the entire principal amount of,
and all accrued interest on, this Note shall automatically become immediately
due and payable without presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Company.
2. Prepayment or Repayment by Tendering of Shares. Any
prepayment or repayment may be made by instructing the Company to withhold that
number of shares of Common Stock and/or Warrants currently held by the Company
as collateral for this Promissory Note in accordance with Paragraph 1(a)(iii) of
the Unit Purchase Option and having a value, based upon the Market Price
(assuming the Exchange Date referenced therein is the date such instruction is
received by the Company) (as determined in the Unit Purchase Option) of the
Common Stock, equal to the outstanding principal sum plus accrued interest. The
Company will deliver the balance of the securities not withheld pursuant to the
immediately preceding sentence of this Paragraph 2 to the Borrower at the
address set forth in Paragraph 4 below within five (5) days of the date of such
prepayment or repayment, as the case may be.
<PAGE>
3. Events of Default. If any events specified in this
Paragraph 3 shall occur and continue uncured for a period of 90 days following
notice from the lender such event has occurred(herein individually referred to
as an "Event of Default"), the Holder of the Note may, so long as such condition
exists, declare the entire principal and unpaid accrued interest hereon
immediately due and payable, by notice in writing to Borrower:
3.1. Failure to pay the principal and unpaid accrued
interest of the Note when due and payable; or
3.2. The institution by Borrower of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by Borrower to institution
of bankruptcy or insolvency proceedings against Borrower or the filing by
Borrower of a petition or answer or consent seeking reorganization or release
under the federal Bankruptcy Act, or any other applicable federal or state law,
or the consent by Borrower to the filing of any such petition or the appointment
of a receiver, liquidator, assignee, trustee or other similar official for all
or any substantial part of its property, of the taking of any action by Borrower
in furtherance of any such action; or
3.3. If, within sixty (60) days after the commencement
of an action against Borrower (and service of process in connection therewith on
Borrower) seeking any bankruptcy, insolvency, reorganization, liquidation or
similar relief under any present or future statute, law of regulation, such
action shall not have been resolved in favor of Borrower of all orders or
proceedings thereunder affecting the property of Borrower stayed, or if the stay
of any such order or proceeding shall thereafter be set aside, or if, within
sixty (60) days after the appointment without the consent or acquiescence of
Borrower of any trustee or receiver for all or any substantial part of the
property of Borrower, such appointment shall not have been vacated.
4. Notices. Any notice required, desired or permitted to
be given hereunder shall be in writing and shall be delivered personally, sent
certified or registered United States mail, return receipt requested or sent by
overnight courier service addressed to:
If to the Holder:
c/o [company name]
[address]
Attn: President
If to Borrower:
[name and address]
Such notices shall be deemed given (i) if delivered personally, upon delivery,
(ii) if mailed as aforesaid, two (2) business days after deposit in the United
States mail and (iii) if sent by overnight courier service one (1) business day
after deposit with the courier service. Any party may change its address by
notice to the other party given in accordance with this section.
-16-
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to
be issued this [ ] day of [ ] [ ].
BORROWER:
---------------------------
Name:
Address:
---------------------------
-17-
<PAGE>
Exhibit 5.1
PALMER & DODGE LLP
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108-3190
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
April 28, 1998
Procept, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
Ladies & Gentlemen:
We are rendering this opinion in connection with the Registration
Statement on Form S-3 (the "Registration Statement") filed by Procept, Inc. (the
"Company") with the Securities and Exchange Commission under the Securities Act
of 1933, as amended, on or about the date hereof. The Registration Statement
relates to up to 65,671,100 shares of the Company's Common Stock, $0.01 par
value, (the "Common Stock"), comprising (i) 28,021,800 shares of Common Stock
(the "Shares") currently outstanding, (ii) 28,021,800 shares of Common Stock
(the "Warrant Shares") issuable upon exercise of warrants to purchase Common
Stock (the "Warrants") currently outstanding, (iii) 4,813,750 shares of Common
Stock (the "Option Shares") issuable upon exercise of options (the "Options") to
purchase units made up of shares of Common Stock and Warrants and (iv) 4,813,750
shares of Common Stock (the "Option Warrant Shares") issuable upon exercise of
Warrants issuable upon exercise of the Options. We understand that the Shares
are to be offered and sold in the manner described in the Registration
Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement. We are familiar with the proceedings of the Board of
Directors on January 13, 1998 in connection with the authorization, issuance and
sale of the Shares, the Warrants and the Options. We have examined such other
documents as we consider necessary to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares have
been duly authorized and are validly issued, fully paid and non-assessable, and
that upon exercise of the Warrants and the Options in accordance with the terms
thereof, the Warrant Shares, the Options Shares,and the Option Warrant Shares
will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ Palmer & Dodge LLP
PALMER & DODGE LLP
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Procept, Inc. (the "Company") on Form S-3 to register 65,671,100 shares of
common stock of our report dated February 26, 1998, on our audits of the
financial statements of the Company as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997 which report is
included in the Company's 1997 Annual Report on Form 10-K. We also consent to
the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 28, 1998
Exhibit 99.2
SIDE LETTER NO. 1
TO THE
PLACEMENT AGENCY AGREEMENT
As of January 13, 1998
Paramount Capital, Inc.
787 Seventh Avenue
New York, New York 10019
Dear Sirs:
This letter shall constitute Side Letter No. 1 to the
Placement Agency Agreement (the "Placement Agency Agreement") dated October 26,
1997 between Procept, Inc., a Delaware corporation (the "Company") and Paramount
Capital, Inc. (the "Placement Agent").
The parties hereto agree to the following amendments to the
Placement Agency Agreement:
1. The Company and the Placement Agent hereby agree to modify
the terms of the Offering as follows: (i) the ceiling on the Offering Price
shall be $0.50 instead of $2.00, (ii) the Class C warrant coverage shall be
increased from 50% warrant coverage to 100% warrant coverage and (iii) the 50%
discount contained in the Offering Price formula shall be changed to a 25%
discount.
2. The Company and the Placement Agent hereby agree to change
the size of the Offering from a Minimum Offering of 25 Units, for an aggregate
dollar amount of $2,500,000, to a Minimum Offering amount of 10 Units, for an
aggregate dollar amount of $1,000,000. The Maximum Offering of 100 Units, for an
aggregate dollar amount of $10,000,000, is hereby changed to a Maximum Offering
amount of 60 Units, for an aggregate dollar amount of $6,000,000. In addition,
the Company has granted an over-allotment option in favor of the Placement Agent
to offer up to an additional 60 Units ($6,000,000) in lieu of an over-allotment
option in favor of the Placement Agent to offer up to an additional 150 Units
($15,000,000).
3. The Company and the Placement Agent hereby agree to extend
the Final Closing Date of the Offering until March 13, 1998, subject to the
right of the Placement Agent to further extend the Offering for an additional 60
days.
<PAGE>
Capitalized terms used but not defined in this letter shall
have the meanings provided in the Placement Agency Agreement. Except as
expressly provided herein, the terms of the Placement Agency Agreement shall
remain in full force and effect without modification or amendment.
<PAGE>
If the foregoing correctly sets forth the understanding
between us, please so indicate in the space provided below for that purpose,
whereupon this shall constitute a binding agreement between us.
PROCEPT, INC.
By: /s/ John F. Dee
----------------------------------
Name: John F. Dee
Title: President and Chief Executive Officer
Agreed to by:
PARAMOUNT CAPITAL, INC.
By: /s/Lindsay A. Rosenwald
------------------------------------
Name: Lindsay A. Rosenwald, M.D.
Title: Chairman
