SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1998
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-21134
Procept, Inc.
-------------
(Exact name of registrant as specified in its charter)
Delaware 04-2893483
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
840 Memorial Drive, Cambridge, Massachusetts 02139
- -------------------------------------------- -----
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (617) 491-1100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES _X_ NO ___
Number of shares outstanding of each of the issuer's classes of common stock, as
of latest practicable date.
Class Outstanding as of August 7, 1998
----- --------------------------------
Common Stock, $.01 par value 3,001,832
Exhibit Index Appears on Page 19
<PAGE>
PROCEPT, INC.
INDEX
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<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
June 30, 1998 and December 31, 1997
Statements of Operations 4
Three months and six months ended June 30, 1998 and 1997
Statements of Cash Flows 5
Six months ended June 30, 1998 and 1997
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
PART II - OTHER INFORMATION
Item 2. Change in Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PROCEPT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,788,522 $ 535,242
Accounts and other receivables 338,897 81,951
Prepaid expenses and other current assets 15,794 50,111
Investment in Aquila (Note 3) 604,568 --
----------- ----------
Total current assets 6,747,781 667,304
Property and equipment, net 397,289 889,258
Deferred financing charges -- 54,424
Investment in VacTex (Note 3) -- 300,000
Other assets 257,026 257,026
----------- ----------
Total assets $ 7,402,096 $2,168,012
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $333,307 $1,069,952
Accrued compensation 184,303 320,463
Other current liabilities 240,966 142,680
Current portion of capital lease obligations -- 20,231
----------- ----------
Total current liabilities 758,576 1,553,326
Deferred rent 230,973 257,827
Other noncurrent liabilities -- 96,875
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.01 per share; 1,000,000 shares authorized;
Series A 1 and 30,061 shares designated at June 30, 1998 and December 31,
1997, respectively; 0 and 30,060 shares issued and outstanding at June
30, 1998 and December 31, 1997, respectively
(Liquidation preference; $4,208,400 at December 31, 1997) -- 301
Common stock, $.01 par value; 30,000,000 shares authorized
at June 30, 1998 and December 31, 1997; 3,001,832 and 196,204 shares
issued at June 30, 1998 and December 31, 1997,
respectively 30,018 1,962
Additional paid-in capital 66,193,225 62,242,741
Cumulative dividends on preferred stock -- (4,217,388)
Accumulated deficit (60,103,407) (57,755,775)
Unrealized gain on investments 304,568 --
Treasury stock, at cost; 11,857 shares at June 30, 1998
and December 31, 1997 (11,857) (11,857)
----------- ----------
Total shareholders' equity 6,412,547 259,984
----------- ----------
Total liabilities and shareholders' equity $ 7,402,096 $2,168,012
=========== ==========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
3
<PAGE>
PROCEPT, INC.
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Research and development revenue
under collaborative arrangements
with related party -- $129,687 $109,375 $270,312
Revenue from grant -- -- -- 55,811
Interest income $75,840 33,139 80,499 100,921
------- ------ ------ -------
Total revenues 75,840 162,826 189,874 427,044
------ ------- ------- -------
Costs and expenses:
Research and development 522,061 1,998,223 1,335,298 3,878,365
General and administrative 450,838 732,560 973,100 1,425,023
Restructuring charges -- -- 225,000 --
Interest expense 3,884 8,876 4,108 27,601
----- ----- ----- ------
Total costs and expenses 976,783 2,739,659 2,537,506 5,330,989
------- --------- --------- ---------
Net loss $(900,943) $(2,576,833) $(2,347,632) $(4,903,945)
========= =========== =========== ===========
Basic and diluted net loss per common share $(0.32) $(13.08) $(1.40) $(24.98)
====== ======= ====== =======
Weighted average number of common
shares outstanding - basic and diluted 2,813,717 196,943 1,681,807 196,291
========= ======= ========= =======
</TABLE>
The accompanying notes are an integral
part of the financial statements.
4
<PAGE>
PROCEPT, INC.
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,347,632) $(4,903,945)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 369,067 567,297
Non-cash related party revenue -- (75,000)
Gain on sale of equipment (152,589) --
Savings and Retirement Plan stock contribution 43,238 --
Stock options issued for consulting services 7,164 --
Changes in operating assets and liabilities:
Accounts and other receivables 97,340 80,624
Prepaid expense and other current assets 34,317 (43,728)
Other assets -- 79,742
Accounts payable (736,645) (1,015)
Accrued compensation (136,160) (2,069)
Accrued contract research -- (30,495)
Other current liabilities 98,286 7,335
Other noncurrent liabilities (96,875) (50,254)
Deferred rent (26,854) (5,371)
------------ ------------
Net cash used in operating activities (2,847,343) (4,376,879)
------------ ------------
Cash flows from investing activities:
Capital expenditures (319,669) (50,214)
Proceeds from maturity of marketable securities -- 4,006,463
Proceeds from sale of equipment 240,874 --
Net cash (used in) provided by investing activities (78,795) 3,956,249
------------ -----------
Cash flows from financing activities:
Principal payments on capital lease obligations (20,231) (359,539)
Proceeds from issuance of common stock -- 410
Proceeds from private placement of common stock 9,802,500 2,800,000
Proceeds from private placement of note payable -- 200,000
Expenses from private placement of common stock (1,602,851) (131,381)
Proceeds from employee stock purchase plan -- 50,399
----------- -----------
Net cash provided by financing activities 8,179,418 2,559,889
----------- -----------
Net change in cash and cash equivalents 5,253,280 2,139,259
Cash and cash equivalents at beginning of period 535,242 1,962,229
----------- -----------
Cash and cash equivalents at end of period $5,788,522 $4,101,488
=========== ===========
Supplemental disclosures and non-cash transactions:
Interest paid $4,472 $20,556
=========== ===========
Stock options issued for consulting services $25,164 $--
=========== ===========
Savings and Retirement Plan stock contribution $43,238 $--
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
Nature of Business
- ------------------
Procept, Inc. ("Procept" or the "Company") located in Cambridge, MA is a
biopharmaceutical company currently engaged in the development of novel drugs
for the prevention of HIV and other infectious diseases, and the treatment of
autoimmune diseases. The Company is also actively seeking the acquisition or
inlicense of drug development candidates that would benefit from Procept's
expertise in various therapeutic areas.
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, compliance with FDA government regulations
and the ability to obtain financing.
Plan of Operations
- ------------------
Since its inception in 1985, Procept has devoted its principal efforts to drug
discovery and research. Procept has generated no revenue from product sales, has
not been profitable since inception, and has incurred an accumulated deficit of
$60.1 million through June 30, 1998. 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
preclinical and clinical testing, and development of marketing, sales and
production capabilities. Procept's future plans will focus on drug development
rather than research. The Company is seeking strategic partnering opportunities
for its lead compounds to accelerate revenue and minimize the investment
required for marketing, sales, and production capabilities.
The Company expects that its current funds and interest income will be
sufficient to fund Procept's operations through March 2000. Although management
continues to pursue additional funding arrangements and/or strategic partnering,
there can be no assurance that additional funding will be available from any of
these sources or, if available, will be available on acceptable or affordable
terms. If the Company is unable to enter into an additional corporate
collaboration(s) that produce revenue for the Company, or secure additional
financing, the Company's financial condition will be adversely affected.
The accompanying financial statements for the three-month and six-month periods
ended June 30, 1998 and 1997 are unaudited and have been prepared by the Company
in accordance with generally accepted accounting principles. These interim
financial statements, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the results for the interim periods ended June 30, 1998 and 1997. The results
of operations for the interim periods are not necessarily indicative of the
results of operations to be expected for the fiscal year. These interim
financial statements should be read in conjunction with the audited
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
financial statements for the year ended December 31, 1997 which are contained in
the Company's 1997 Annual Report on Form 10-K/A.
2. SHAREHOLDERS' EQUITY
--------------------
On May 18, 1998, Procept's shareholders approved a one-for-ten reverse split of
the Company's Common Stock (the "1998 Reverse Stock Split"), which was effected
on June 1, 1998. Shareholders' equity has been restated to give retroactive
application to the 1998 Reverse Stock Split in prior periods by reclassifying
from Common Stock to Additional Paid-In Capital the par value of the eliminated
shares arising from the 1998 Reverse Stock Split. In addition, all references in
the financial statements to number of shares, per share amounts, and stock
option and warrant data of the Company's Common Stock have been restated.
As part of a unit offering, the Company sold an aggregate of 1,960,500 shares of
Common Stock in January, February, and April of 1998 together with five-year
Class C Warrants to purchase 1,960,500 shares of Common Stock at an exercise
price of $5.00 per share (the "1998 Offering"). The Company completed the 1998
Offering on April 9, 1998 (the "Final Closing Date"). The $5.00 per share
exercise price of the Class C Warrants was determined as part of the terms of
the 1998 Offering in a negotiation between the Company and the placement agent
for the 1998 Offering. The Company did not separately value the Class C Warrants
from the Common Stock issued in the 1998 Offering since the resulting accounting
treatment for both securities is to record their value in Additional Paid-In
Capital within the equity section of the balance sheet. These securities were
sold for gross proceeds of $9.8 million. The purchasers in the 1998 Offering are
entitled to certain contractual rights requiring contingent additional issuances
of Common Stock to the purchasers, (x) based on a formula market price on April
9, 1999, (y) to protect them against future dilutive sales of securities and (z)
as a dividend substitute beginning on October 9, 1999. In the event of (i) a
liquidation, dissolution or winding up of the Company, (ii) the 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, the purchasers are entitled to
receive an amount equal to 140% of such purchaser's investment as a liquidation
"preference." Except in the case of a liquidation, dissolution or winding up,
such payment will be in the form that equity holders will receive, in the
applicable transaction, such as in cash, property or securities of the entity
surviving the acquisition transaction. In the event of a liquidation,
dissolution or winding up, such payment is contingent upon the Company having
available resources to make such payment. These contractual rights will
terminate after April 9, 1999 if the Common Stock trades at $15.00 per share or
more.
In connection with the Final Closing of the 1998 Offering on April 9, 1998 (the
"Final Closing") and certain advisory services, the Company sold to Paramount
Capital, Inc., the Company's placement agent in the 1998 Offering, for $0.001
per option, options to purchase an aggregate of 24.06875 units (each unit
consisting of 20,000 shares of Common Stock and warrants to purchase 20,000
shares of Common Stock at an exercise price of $5.00 per share) at an exercise
price of $110,000 per unit (i.e., $5.50 per share). Also on April 9, 1998, The
Aries Fund and the Aries Domestic Fund, L.P. exchanged an aggregate of 30,060
shares of Series A Convertible Preferred Stock and
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
related warrants for units in the 1998 Offering comprised of 841,680 shares of
Common Stock and five-year Class C Warrants to purchase 841,680 shares of Common
Stock at an exercise price of $5.00 per share. As part of the exchange of Series
A Convertible Preferred Stock and related warrants for units in the 1998
Offering, the cumulative dividends on Preferred Stock of $4.2 million was
reclassified to Additional Paid-In Capital.
3. RESEARCH COLLABORATIONS
-----------------------
In January 1996, Procept entered into a Sponsored Research Agreement with
VacTex, Inc. ("VacTex"). Under the Sponsored Research Agreement, Procept
conducted specified research tasks on behalf of VacTex for which Procept
received a combination of cash and equity in VacTex based on the number of
full-time equivalent employees of Procept engaged in the research, but subject
to maximum cash and stock limits. At December 31, 1997, the Company's investment
in VacTex was accounted for under the cost method since it was a restricted
security, it did not have a readily determinable fair value and Procept owned
less than twenty percent of VacTex.
On April 13, 1998, VacTex was acquired by Aquila Biopharmaceuticals, Inc.
("Aquila"). The Company's investment in VacTex of 300,000 shares of common stock
was converted to 113,674 shares of Aquila common stock and $128,501 principal
amount of 7% debentures. As a result, the Company is accounting for its
investment in Aquila under Statement of Financial Accounting Standards ("SFAS")
115, "Accounting for Certain Investments in Debt and Equity Securities" as an
available for sale security and marked it to market by recording an unrealized
gain of $0.3 million as part of Shareholders' Equity, based on Aquila's common
stock closing price on June 30, 1998.
4. RESTRUCTURING
-------------
In order to focus its limited resources on PRO 2000, in January 1998 the Company
terminated work on all other research programs, except preclinical support for
its intracellular T-cell enzyme ("DHODH") program, and underwent a significant
downsizing, reducing its staff to 13 people. The amount of termination benefits
accrued and charged to restructuring costs in the statement of operations for
the six-month period ended June 30, 1998 was $0.2 million. Also, in the fourth
quarter of 1997, the Company accrued $0.3 million in restructuring costs. For
the six months ended June 30, 1998, the amount of termination benefits paid and
charged against the 1998 and 1997 liability was $0.3 million.
5. BASIC AND DILUTED NET (LOSS) PER COMMON SHARE
---------------------------------------------
In the quarter ended December 31, 1997, the Company adopted SFAS 128, "Earnings
Per Share," which modifies the way in which earnings per share ("EPS") is
calculated and disclosed. Basic EPS excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS is based upon the
weighted average number of common shares outstanding during the period plus the
additional weighted average common equivalent shares during the period. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
dilutive. Common equivalent shares result from the assumed exercises of
outstanding stock options and warrants, the proceeds of which are then assumed
to have been used to repurchase outstanding stock options using the treasury
stock method. For the three and six month periods ended June 30, 1998, there
were no anti-dilutive securities.
6. COMPREHENSIVE INCOME
--------------------
Effective January 1, 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income." This statement requires changes in comprehensive income
to be shown in a financial statement that is displayed with the same prominence
as other financial statements. The Company has adopted SFAS 130 in the
accompanying financial statements and will provide such information annually in
its Statement of Shareholders' Equity and in a footnote disclosure for interim
periods. Accumulated other comprehensive income is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $(900,943) $(2,576,833) $(2,347,632) $(4,903,945)
Change in unrealized gain
on investments 304,568 -- 304,568 --
--------- --------------- ------------- ---------------
Comprehensive loss $(596,375) $(2,576,833) $(2,043,064) $(4,903,945)
========== ============ ============ ============
</TABLE>
<TABLE>
Unrealized gain on investments:
<S> <C> <C>
Balance at December 31, 1997 --
Change during the three months ended March 31, 1998 --
Change during the three months ended June 30, 1998 $304,568
-------
Balance at June 30, 1998 $304,568
========
</TABLE>
7. NEW ACCOUNTING STANDARDS
------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement specifies new guidelines for determining a company's operating
segments and related requirements for disclosure. SFAS 131 will become effective
for fiscal periods beginning after December 15, 1997. The Company does not
believe that the adoption will have a material effect.
In February 1998, the Financial Accounting Standards Board issued SFAS 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," which
is effective for periods beginning after December 15, 1997, but excludes interim
periods during 1998. The statement standardizes employers' disclosure
requirements about pension and other postretirement benefit plans by requiring
additional information on changes in the benefit obligations and fair values of
the plan assets and eliminating certain disclosures that are no longer useful.
It does not change the
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
measurement or recognition of those plans. The Company does not believe that the
adoption will have a material effect.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Earlier application is permitted. The statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
The Company does not believe that the adoption will have a material effect.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5
requires all costs of start-up activities (as defined by SOP 98-5) to be
expensed as incurred. The Company has not assessed the impact of SOP 98-5 on its
financial disclosures.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations:
Overview
- --------
Procept, Inc. ("Procept" or the "Company") located in Cambridge, MA is a
biopharmaceutical company currently engaged in the development of novel drugs
for the prevention of HIV and other infectious diseases, and the treatment of
autoimmune diseases. The Company is also actively seeking the acquisition or
inlicense of drug development candidates that would benefit from Procept's
expertise in various therapeutic areas.
PRO 2000 Gel
The lead candidate from the Company's AIDS program, PRO 2000 Gel, is a vaginal,
topical microbicide providing protection against HIV infection and other
sexually transmitted diseases ("STDs"). Preclinical in vitro studies by several
independent laboratories have shown that PRO 2000 can block infection of a wide
range of HIV-1 and HIV-2 isolates. It is also a more effective and less
irritating anti-HIV agent than nonoxynol-9, the most commonly used spermicide,
and is active against other STDs, including herpes simplex type 2 and Chlamydia
trachomatis. In in vivo studies, PRO 2000 Gel was recently shown to provide
complete protection against vaginal herpes simplex virus type 2 (HSV-2)
infection in mice. In addition, the contraceptive potential of PRO 2000 Gel has
been confirmed in a fertilization study in rabbits. The results show that both
2% and 4% PRO 2000 Gel blocked fertilization in rabbits. In human trials,
Procept has completed two Phase I clinical trials to assess the safety and
tolerance of PRO 2000 Gel. The trials were done at the Institute of Tropical
Medicine in Antwerp, Belgium, and at St. Mary's Hospital in London, England with
funding from the British Medical Research Council ("MRC"). Seventy healthy
female volunteers completed the two trails. The results show that PRO 2000 Gel
was safe and well tolerated, and that participants found the product
aesthetically acceptable. During 1998, the Company plans to file an
Investigational New Drug ("IND") application with the FDA and initiate further
clinical trials. Discussions with both the U.S. National Institutes of Health
("NIH") and the British MRC are progressing.
DHODH
Procept is also conducting in vivo immunosuppressive research and is currently
seeking to partner or outlicense the program. This program focuses on an
intracellular enzyme ("DHODH") that is known to be critical for the activation
of the immune response, thus making it a possible target for intervention in
transplantation and autoimmune disease. Procept has made significant progress
and achieved a number of important milestones in this program in the past year,
including the cloning and expression of the human recombinant enzyme and the
identification of lead compounds with potent enzyme inhibitory properties.
Initial studies indicate that several lead compounds also possess oral activity
in animal models of immunosuppression. Procept has also made significant
progress in identifying the three-dimensional structure of the DHODH enzyme with
inhibitors bound. During 1998, Procept plans to initiate further animal studies
to confirm the oral activity of the lead compounds.
11
<PAGE>
New Technology Search
In addition to focusing on PRO 2000's development, Procept will proactively seek
opportunities to acquire additional novel technologies that address key
healthcare needs. The Company is most interested in acquiring technologies that
have reached the early stages of human clinical trials. Procept's scientific
expertise will help quickly evaluate and bring these technologies in-house,
advance the clinical development, and then bring the technology to market by
partnering with a larger corporation, thereby focusing its resources on
development rather than research programs.
Results of Operations
- ---------------------
Since its inception in 1985, Procept has devoted its principal efforts to drug
discovery and research. Procept has generated no revenues from product sales,
has not been profitable since inception, and has incurred an accumulated deficit
of $60.1 million through June 30, 1998. The Company is dependent upon research
and development collaborations, equity financing and interest on invested funds
to provide the working capital required to pursue its intended business
activities. 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 required to support
these efforts. The Company expects to incur significant additional operating
losses over the next several years due to its ongoing development efforts and
expanded preclinical and clinical testings. The Company's potential for future
profitability is dependent on its ability to effectively develop its current
pharmaceutical compounds and in-license and develop new pharmaceutical products,
as well as obtain regulatory approvals and adequate financing for such products.
Future profitability will require that the Company establish agreements for
product development, commercialization and sales of its products with corporate
sponsors.
Three Months Ended June 30, 1998 and 1997
The Company's total revenues decreased to $0.1 million in the second quarter of
1998 from $0.2 million during the same period of 1997, principally as a result
of the expiration of the Sponsored Research Agreement with VacTex, Inc. (the
"VacTex Agreement"). In the second quarter of 1998, revenues consisted of
$76,000 in interest earned on invested funds. In 1997, second quarter revenues
consisted of $0.1 million earned under the VacTex Agreement and $33,000 in
interest earned on invested funds.
The Company's total operating expenses decreased to $1.0 million in the second
quarter of 1998 from $2.7 million during the same period in 1997. Research and
development expenses decreased 74% to $0.5 million in the second quarter of 1998
from $2.0 million in the second quarter of 1997. This expense decrease was due
primarily to a decrease in personnel in the Company's research and development
organization and their related research costs. In order to focus its limited
resources on PRO 2000, in January 1998 the Company terminated work on all other
research programs, except preclinical support for its intracellular T-cell
enzyme ("DHODH") program, and underwent a significant downsizing, reducing its
staff to 13 people. General and administrative expenses decreased 38% to $0.5
million in the second quarter of 1998 from $0.7 million in the second quarter of
1997, reflecting a decrease in
12
<PAGE>
administrative personnel and continued costs control measures. Interest expense
decreased to $4,000 in the second quarter of 1998 from $9,000 in the second
quarter of 1997 as a result of the scheduled completion of the Company's lease
financing arrangements.
Six Months Ended June 30, 1998 and 1997
The Company's total revenues decreased to $0.2 million in the first half of 1998
from $0.4 million during the same period of 1997. In the first half of 1998,
revenues consisted of $0.1 million earned under the VacTex Agreement and $0.1
million in interest earned on invested funds. In 1997, first half revenues
consisted of $0.3 million earned under the VacTex Agreement, $0.1 million under
a grant from the National Cooperative Drug Discovery Group and $0.1 million in
interest earned on invested funds.
The Company's total operating expenses decreased to $2.5 million in the first
six months of 1998 from $5.3 million during the same period in 1997. Research
and development expenses decreased 66% to $1.3 million in the first six months
of 1998 from $3.9 million in the same period of 1997, due primarily to a
decrease in personnel in the Company's research and development organization and
their related research costs. In order to focus its limited resources on PRO
2000, in January 1998 the Company terminated work on all other research
programs, except preclinical support for its intracellular T-cell enzyme
("DHODH") program, and underwent a significant downsizing, reducing its staff to
13 people. The amount of termination benefits accrued and charged to
restructuring costs in the statement of operations for the six-month period
ended June 30, 1998 was $0.2 million. Also, in the fourth quarter of 1997, the
Company accrued $0.3 million in restructuring costs. The amount of termination
benefits paid and charged against the 1998 and 1997 liability for the six months
ended June 30, 1998 was $0.3 million.
General and administrative expenses decreased 32% to $1.0 million in the first
half of 1998 from $1.4 million in the first half of 1997, reflecting a decrease
in administrative personnel and continued cost control measures. Interest
expense decreased in the first half of 1998 as a result of the scheduled
completion of the Company's lease financing arrangements.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1998, the Company's aggregate cash and cash equivalents were $5.8
million, a net increase of $5.3 million since December 31, 1997. The increase in
cash is primarily attributable to initial, interim and final closings of the
Company's private placement in January, February and April of 1998, which
resulted in net proceeds of $8.2 million, offset by $2.8 million used in
operations principally to fund research and development activities and $0.3
million invested in property and equipment. Included in cash is $0.2 million
from the sale of equipment. Due to downsizing and focus on the development of
PRO 2000, the Company plans to continue to sell most of its research and
development equipment.
13
<PAGE>
The Company expects that its current funds and interest income will be
sufficient to fund Procept's operations through March 2000. Although management
continues to pursue additional funding arrangements, no assurance can be given
that such financing will be available to the Company. If the Company is unable
to enter into an additional corporate collaboration(s) that produce revenue for
the Company, or secure additional financing, the Company's financial condition
will be adversely affected. If additional funds are raised by issuing equity
securities, further dilution to existing shareholders will result and future
investors may be granted rights superior to those of existing shareholders.
The Company's expectations regarding its rate of spending and the sufficiency of
its cash resources over future periods are forward-looking statements. The rate
of spending and sufficiency of such resources will be affected by numerous
factors including the rate of planned and unplanned expenditures by the Company
and the execution of new collaboration agreements for the Company's research and
development programs. Other important factors that may affect achieving the
Company's strategic goals and other forward-looking statements are set forth in
Exhibit 99.1 of the Company's 1997 Annual Report on Form 10-K/A.
The Company's working capital and other cash needs will depend heavily on the
success of the Company's clinical trials and the rate of acquisition of new
products and technologies. Success in early-stage clinical trials or acquisition
of new products and technologies would lead to an increase in working capital
requirements. The Company's actual cash requirements may vary materially from
those now planned because of the results of research and development, clinical
trials, product testing, relationships with strategic partners, acquisition of
new products and technologies, changes in the focus and direction of the
Company's research and development programs, competitive and technological
advances, the process of obtaining United States Food and Drug Administration or
other regulatory approvals and other factors.
New Accounting Standards
- ------------------------
In June 1997, the Financial Accounting Standards Board issued SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement specifies new guidelines for determining a company's operating
segments and related requirements for disclosure. SFAS 131 will become effective
for fiscal periods beginning after December 15, 1997. The Company does not
believe that the adoption will have a material effect.
In February 1998, the Financial Accounting Standards Board issued SFAS 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," which
is effective for periods beginning after December 15, 1997, but excludes interim
periods during 1998. The statement standardizes employers' disclosure
requirements about pension and other postretirement benefit plans by requiring
additional information on changes in the benefit obligations and fair values of
the plan assets and eliminating certain disclosures that are no longer useful.
It does not change the measurement or recognition of those plans. The Company
does not believe that the adoption will have a material effect.
14
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Earlier application is permitted. The statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measures those instruments at fair value.
The Company does not believe that the adoption will have a material effect.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5
requires all costs of start-up activities (as defined by SOP 98-5) to be
expensed as incurred. The Company has not assessed the impact of SOP 98-5 on its
financial disclosures.
Year 2000
- ---------
The Company is currently working to resolve the potential impact of the year
2000 on its information technology and non-information technology systems. The
year 2000 problem is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Any of the Company's
programs or systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in a
miscalculation or system failures. Based on the Company's assessment, there is
no year 2000 impact on Procept's information technology systems. Operating
systems and applications used by the Company are year 2000 compliant. At this
time, the Company is not aware of any year 2000 issues relating to its third
party vendors. The Company is in the process of replacing several
non-information technology systems and expects to be compliant by the end of
1998. The cost of year 2000 compliant non-technology information systems is not
expected to exceed $10,000. The Company's most critical uncertainty relates to
its vendors' information technology systems not being year 2000 compliant. This
may result in erroneous billings to Procept. The Company believes it has in
place an adequate internal control structure to handle this issue if it were to
occur.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
15
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
The Company previously reported the information required by this item in the
corresponding item in its Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1998.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of stockholders on Monday, May 18, 1998. The
following tabulates the results of the proposals submitted to a vote of the
stockholders (vote totals do not reflect the 1-for-10 reverse split of the
Company's Common Stock effected on June 1, 1998);
<TABLE>
<CAPTION>
Votes Cast Abstentions and
Votes Cast For Against or Withheld Broker Non-Votes
-------------- ------------------- ----------------
<S> <C> <C> <C>
1) Election of Directors
John F. Dee 18,427,644 131,238 0
Zola P. Horovitz, Ph.D. 18,428,260 130,622 0
Max Link, Ph.D. 18,428,260 130,622 0
Mark C. Rogers, M.D. 18,426,260 130,622 0
Elliott H. Vernon 18,428,260 130,622 0
Michael S. Weiss 18,428,260 130,622 0
2) Proposal to approve an amendment of the
Company's Restated Certificate of
Incorporation to effect a one-for-ten
reverse stock split 18,416,378 139,915 2,589
3) Proposal, conditioned on approval of
Vote 2, to amend the 1989 Stock Plan
(i) to increase the number of shares
covered by the plan to 1,500,000
shares (after giving effect to the
proposed reverse stock split) and (ii)
to extend the expiration date of the
plan to July 1, 2007 18,242,946 313,392 2,544
4) Proposal, conditioned on approval of
Vote 2, to amend the 1994 Employee
Stock Purchase Plan to increase the
number of shares covered by the plan to
200,000 shares (after giving effect to
the proposed reverse stock split). 18,415,385 144,972 3,085
5) Proposal, conditioned on approval of
Vote 2, to amend the 1994 Director
Stock Option Plan to increase the
number of shares covered by the plan to
500,000 shares (after giving effect
to the proposed reverse stock split). 18,415,365 145,820 2,515
</TABLE>
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
---------
4.1 Warrant Agreement dated as of January 27, 1998 by and
among the Company, American Stock Transfer & Trust
Company and Paramount Capital, Inc. Filed herewith.
4.2 Form of Unit Purchase Option, including Schedule of
Holders. Filed herewith.
10.1 1989 Stock Plan, as amended. Filed herewith.
10.2 The 1994 Employee Stock Purchase Plan, as amended.
Filed herewith.
27.1 Financial Data Schedule. Filed herewith
(b) Reports on Form 8-K.
--------------------
On April 14, 1998, the Company filed a Current Report on Form
8-K dated April 9, 1998 (the "April Form 8-K") relating to the
final closing of the 1998 Offering. The report was filed under
Item 5 and included pro forma financial information at
February 28, 1998, adjusted to reflect the 1998 Offering and
the exchange of VacTex common stock for common stock and
debentures of Aquila described in Note 3 to the Financial
Statements. On June 23, 1998, the Company filed an amendment
and restatement of the April Form 8-K both to include in the
pro forma financial information, pro forma adjustments and pro
forma results and to update the information to March 31, 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROCEPT, INC.
(Registrant)
Date: August 13, 1998 by: /s/ John F. Dee
-------------------------------------
John F. Dee
President and Chief Executive Officer
(Principal Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4.1 Warrant Agreement dated as of January 27, 1998 by
and among the Company, American Stock Transfer &
Trust Company and Paramount Capital, Inc. Filed
herewith.
4.2 Form of Unit Purchase Option, including Schedule of Holders.
Filed herewith.
10.1 1989 Stock Plan, as amended. Filed herewith.
10.2 The 1994 Employee Stock Purchase Plan, as amended. Filed herewith.
27.1 Financial Data Schedule. Filed herewith
</TABLE>
19
WARRANT AGREEMENT
-----------------
AGREEMENT, dated as of this 27th day of January, 1998, by and among
PROCEPT, INC., a Delaware corporation ("Company"), AMERICAN STOCK TRANSFER &
TRUST COMPANY, as warrant agent ("Warrant Agent"), and PARAMOUNT CAPITAL, INC.,
a New York corporation ("Paramount").
W I T N E S E T H
-----------------
WHEREAS, the Company has commenced a private placement (the "Private
Placement") of a minimum (the "Minimum Offering") of ten (10) Units (as defined
below) and a maximum (the "Maximum Offering") of sixty (60) Units, with an
option in favor of Paramount, to offer up to an additional sixty (60) Units to
cover over-allotments, each "Unit" consisting of (a) a number of shares of
Common Stock 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) 75% of the average closing bid price of the Common Stock on
the Nasdaq National Market or the Nasdaq SmallCap Market, as applicable, for the
thirty (30) consecutive trading days or five (5) consecutive trading days
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 "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 of the
Company equal to the aggregate number of shares of Common Stock included in a
Unit on the Final Closing Date (as defined herein), pursuant to a placement
agency agreement dated as of October 26, 1997, as amended by a Side Letter No. 1
dated January 13, 1998 (the "Placement Agency Agreement"), between the Company
and Paramount;
WHEREAS, each Class C Warrant entitles the Registered Holder (as defined
below) thereof to purchase a number of shares of Common Stock initially equal to
the aggregate number of shares of Common Stock included in a Unit on the Final
Closing Date;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Class C
Warrants, the issuance of certificates representing the Class C Warrants, the
exercise of the Class C Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Class C Warrants and the certificates representing the Class C Warrants
and the respective rights and obligations thereunder of the Company, the holders
of certificates representing the Class C Warrants and the Warrant Agent, the
parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean stock of the Company of any class, whether
now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which at the Initial Closing Date will consist of 30,000,000
authorized shares of Common Stock, par value $.01 per share.
<PAGE>
(b) The "Closing Bid Price," for each trading day, shall mean the per share
price at which the Common Stock was last exchanged on the Stock Market (as
defined below) during such trading day or, if there were no transactions on such
trading day, shall mean the average of the reported per share closing bid and
asked prices of the Common Stock on the Stock Market on such trading day.
(c) "Corporate Office" shall mean the office of the Warrant Agent (or its
successor) at which, at any particular time, its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, 46th
Floor, New York, New York, 10005
(d) "Exercise Date" shall mean, as to any Class C Warrant, the date on
which the Warrant Agent shall have received both (i) the Warrant Certificate
representing such Class C Warrant, with the subscription form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (ii) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price.
(e) "Fair Market Value" means, with respect to any security or other asset,
the fair market value set by, or determined in a manner established by, the
Board of Directors of the Company and reasonably acceptable to Paramount,
provided that in the event the Company and Paramount are unable to reach
agreement on such fair market value within 30 days of the date Paramount is
first advised of such fair market value, "Fair Market Value" shall mean the fair
market value of such security or other asset set forth in a written opinion of
an independent appraiser mutually acceptable to Paramount and the Company and
retained by the Company, at the expense of the Company, to determine such fair
market value.
(f) "Final Closing Date" shall mean the final closing date of the Private
Placement.
(g) "Initial Closing Date" shall mean, as to each Class C Warrant, the date
of the initial closing of the Private Placement.
(h) "Initial Warrant Exercise Date" shall mean, as to each Class C Warrant,
the Final Closing Date.
(i) "Interim Closing Date" shall mean, as to each Class C Warrant, any
closing date of the Private Placement other than the Initial Closing Date and
the Final Closing Date.
(j) "Market Price" shall mean the average Closing Bid Price, for twenty
(20) consecutive trading days, ending with the trading day prior to the date as
of which the Market Price is being determined, (with appropriate adjustments for
subdivisions or combinations of shares effected during such period) provided
that if the prices referred to in the definition of Closing Bid Price cannot be
determined for such period, "Market Price" shall mean Fair Market Value (as
defined above).
(k) "Purchase Price" shall mean the purchase price per share of common
stock to be paid upon exercise of each Class C Warrant in accordance with the
terms hereof, which price shall be the lesser of (a) $0.50 and (b) 75% of the
Trading Price as of the day immediately preceding any Offering closing date,
whichever is lowest, subject to adjustment from time to time pursuant to the
provisions of Section 9, and subject to the Company's right to reduce the
Purchase Price upon notice to all warrantholders (which may be given, without
limitation, prior to the Final Closing Date).
2
<PAGE>
(l) "Redemption Price" shall mean the price at which the Company may, at
its option in accordance with the terms hereof, redeem the Class C Warrants,
which price shall be $0.01 per share of Common Stock subject to such Class C
Warrants.
(m) "Registered Holder" shall mean, as to any Class C Warrant and as of any
particular date, the person in whose name the certificate representing the Class
C Warrant shall be registered on that date on the books maintained by the
Warrant Agent pursuant to Section 6.
(n) "Series A Preferred Stock" means the Series A Preferred Stock described
in the Certificate of Incorporation of the Company, as in effect on the date
hereof.
(o) The "Stock Market" shall mean the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, shall mean The Nasdaq National Market System or The Nasdaq SmallCap
Market (collectively, "Nasdaq") or, if the Common Stock is not quoted on Nasdaq,
shall mean the OTC Bulletin Board or, if the Common Stock 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.
(p) "Trading Price" shall mean the lower of (i) the average Closing Bid
Price (with appropriate adjustments for subdivisions or combinations of shares
effected during such period) for thirty (30) consecutive trading days,
immediately preceding any Offering closing date, ending with the trading day
prior to the date as of which the Trading Price is being determined, and (ii)
the average Closing Bid Price (with appropriate adjustments for subdivisions or
combinations of shares effected during such period) for five (5) consecutive
trading days, immediately preceding any Offering closing date, ending with the
trading day prior to the date as of which the Trading Price is being determined.
(q) A "trading day" shall mean a day on which the Stock Market is open for
the transaction of business.
(r) "Transfer Agent" shall mean American Stock Transfer & Trust Company, as
the Company's transfer agent, or its authorized successor, as such.
(s) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on the
day prior to the fifth anniversary of the Final Closing Date or the Redemption
Date as defined in Section 8, whichever is earlier; provided that if such date
shall in the State of New York be a holiday or a day on which banks are
authorized or required to close, then 5:00 P.M. (New York time) on the next
following day which in the State of New York is neither a holiday nor a day on
which banks are authorized or required to close. Upon notice to all Registered
Holders, the Company shall have the right to extend the Warrant Expiration Date.
(t) Unless otherwise stated, section references used within this Warrant
Agreement refer to sections of this Warrant Agreement.
3
<PAGE>
SECTION 2. Warrants and Issuance of Warrant Certificates.
----------------------------------------------
(a) A Class C Warrant initially shall entitle the Registered Holder of the
Warrant Certificate representing such Class C Warrant to purchase a number of
shares of Common Stock equal to the aggregate number of shares of Common Stock
included in a Unit on the Final Closing Date, upon the exercise thereof, in
accordance with the terms hereof, subject to modification and adjustment as
provided in Section 9.
(b) The Class C Warrants included in the offering of Units will immediately
be detachable and separately transferable from the shares of Common Stock
constituting part of such Units.
(c) Within five (5) days after the Final Closing Date, Warrant Certificates
representing the number of Class C Warrants sold pursuant to the Private
Placement shall be executed by the Company and delivered to the Warrant Agent.
Within five (5) days of receipt of the Warrant Certificates by the Warrant
Agent, the Warrant Agent shall send the Warrant Certificates to the Registered
Holders. The Company shall issue a written order, signed by its Chairman of the
Board, President or any Vice President and by its Secretary or an Assistant
Secretary, to the Warrant Agent directing that the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent in accordance with the
preceding sentence.
(d) From time to time, until the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of 38,416,800 shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Class C
Warrants in accordance with this Agreement.
(e) From time to time, until the Warrant Expiration Date, the Warrant Agent
shall countersign and deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement; provided that no Warrant Certificates
shall be issued except (i) those initially issued hereunder, (ii) those issued
on or after the Initial Warrant Exercise Date, upon the exercise of fewer than
all Class C Warrants represented by any Warrant Certificate, to evidence any
unexercised Class C Warrants held by the exercising Registered Holder, (iii)
those issued upon any transfer or exchange pursuant to Section 6; (iv) those
issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued upon exercise of the
Placement and Advisory Warrants (as defined in the Placement Agency Agreement)
and (vi) at the option of the Company, in such form as may be approved by its
Board of Directors, to reflect any adjustment to, or change in: the Purchase
Price; the number of shares of Common Stock purchasable upon exercise of the
Class C Warrants; or the Warrant Expiration Date.
SECTION 3. Form and Execution of Warrant Certificates.
-------------------------------------------
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Class C Warrants may be listed, or to conform
to usage or to the requirements of Section 2. The Warrant Certificates shall be
dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange
4
<PAGE>
or in lieu of mutilated, lost, stolen, or destroyed Warrant Certificates) and
issued in registered form. Warrant Certificates shall be numbered serially with
the letters CW on Class C Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President or any Vice President and by its Secretary or
an Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon. Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned. In case
any officer of the Company who shall have signed any of the Warrant Certificates
shall cease to be an officer of the Company or to hold the particular office
referenced in the Warrant Certificate before the date of issuance of the Warrant
Certificates or before countersignature by the Warrant Agent and issuance and
delivery thereof, such Warrant Certificates may nevertheless be countersigned by
the Warrant Agent, issued and delivered with the same force and effect as though
the person who signed such Warrant Certificates had not ceased to be an officer
of the Company or to hold such office. After countersignature by the Warrant
Agent, Warrant Certificates shall be delivered by the Warrant Agent to the
Registered Holder without further action by the Company, except as otherwise
provided by Subsection 4(a).
SECTION 4. Exercise.
---------
(a) Each Class C Warrant may be exercised by the Registered Holder thereof
at any time on or after the Initial Exercise Date, but not after the Warrant
Expiration Date, upon the terms and subject to the conditions set forth herein
and in the applicable Warrant Certificate. A Class C Warrant shall be deemed to
have been exercised immediately prior to the close of business on the Exercise
Date and the person entitled to receive the securities deliverable upon such
exercise shall be treated for all purposes as the holder of those securities
upon the exercise of the Class C Warrant as of the close of business on the
Exercise Date. As soon as practicable on or after the Exercise Date the Warrant
Agent shall deposit the proceeds received from the exercise of a Class C Warrant
and shall notify the Company in writing of the exercise of the Class C Warrants.
Promptly following, and in any event within five days after, the date of such
notice from the Warrant Agent, the Warrant Agent, on behalf of the Company,
shall cause to be issued and delivered by the Transfer Agent, to the person or
persons entitled to receive the same, a certificate or certificates for the
securities deliverable upon such exercise, (plus a certificate for any remaining
unexercised Class C Warrants of the Registered Holder). In the case of payment
made in the form of a check drawn on an account of Paramount or such other
investment banks and brokerage houses as the Company shall approve in writing to
the Warrant Agent, certificates shall immediately be issued without prior notice
to the Company nor any delay, provided prompt notice shall be given to the
Company following such exercise. Upon the exercise of any Class C Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Class C Warrant (the "Warrant Proceeds") to the Company
or as the Company may direct in writing, subject to the provisions of
Subsections 4(b) and 4(c).
(b) On the Exercise Date in respect of the exercise of any Class C Warrant,
the Warrant Agent shall, simultaneously with the distribution of the Warrant
Proceeds to the Company, on behalf of the Company, pay from the Warrant
Proceeds, a fee of five percent (5%) (the "Paramount Fee") of the Purchase Price
to Paramount for Class C Warrant exercises solicited by Paramount or its
representatives (of which a portion may be reallowed by Paramount to the dealer
who solicited the exercise, which may also be Paramount). In the event the
Paramount Fee is not received within seven (7) days of the date on which the
Company receives Warrant Proceeds, then the Paramount Fee shall
5
<PAGE>
begin accruing interest at an annual rate three hundred (300) basis points above
prime payable by the Company to Paramount at the time Paramount receives the
Paramount Fee. Within five (5) days after exercise the Warrant Agent shall send
Paramount a copy of the reverse side of each Class C Warrant exercised. In
addition, Paramount and the Company may at any time during business hours,
examine the records of the Warrant Agent, including its ledger of original
Warrant Certificates returned to the Warrant Agent upon exercise of Class C
Warrants. Paramount is intended by the parties hereto to be, and is, a
third-party beneficiary of this Agreement. The provisions of this paragraph may
not be modified, amended or deleted without the prior written consent of
Paramount. In addition to the foregoing, any costs incurred by Paramount shall
be promptly reimbursed by the Company.
(c) In order to enforce the provisions of Subsection 4(b) above, in the
event there is any dispute or question as to the amount or payment of the
Paramount Fee, the Warrant Agent is hereby expressly authorized to withhold
payment to the Company of the Warrant Proceeds unless and until the Company
establishes an escrow account for the purpose of depositing the entire amount of
the unpaid Paramount Fee claimed by Paramount, which amount will be deducted
from the net Warrant Proceeds to be paid to the Company. The funds placed in the
escrow account may not be released to the Company without a written agreement
from Paramount that the required Paramount Fee has been received by Paramount.
Paramount shall promptly notify the Warrant Agent by facsimile and certified
mail in the event of any such dispute or when the Paramount Fee has been paid.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
------------------------------------------------------
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Class C Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Class C Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Class C Warrants shall, at the time of delivery (assuming
full payment of the purchase price thereof), be duly and validly issued, fully
paid, nonassessable and free from all issuance taxes, liens and charges with
respect to the issue thereof including, without limitation, adverse claims
whatsoever (with the exception of claims arising through the acts of the
Registered Holders themselves and except as arising from applicable Federal and
state securities laws), that the Company shall have paid all taxes, if any, in
respect of the original issuance thereof and that upon issuance such shares, to
the extent applicable, shall be listed on, or included in, the applicable Stock
Market.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Class C Warrants hereunder require registration with, or
the approval of, any governmental authority under any federal securities law
before such securities may be validly issued or delivered upon such exercise,
then the Company will in good faith and as expeditiously as reasonably possible,
endeavor to secure such registration or approval. The Company will use
reasonable efforts to obtain appropriate approvals or registrations under state
"blue sky" securities laws; provided, that the Company shall not be required to
qualify as a foreign corporation or file a general or limited consent to service
of process in any such jurisdictions or make any changes in its capital
structure or any other aspects of its business or enter into any agreements with
blue sky commissions, including any agreement to escrow shares of its capital
stock. With respect to any such securities, however, Class C Warrants may not be
exercised by, or shares of Common Stock issued to, any Registered Holder in any
state in which such exercise would be unlawful.
6
<PAGE>
(c) The Company shall pay all documentary, stamp or similar taxes and other
similar governmental charges that may be imposed with respect to the issuance of
Class C Warrants, or the issuance or delivery of any shares upon exercise of the
Class C Warrants; provided, however, that if the shares of Common Stock are to
be delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Class C Warrant being exercised, then no
such delivery shall be made unless the person requesting the same has paid to
the Warrant Agent the amount of transfer taxes or charges incident thereto, if
any or provided satisfactory evidence that no amount is due.
(d) The Warrant Agent is hereby irrevocably authorized to requisition the
Company's Transfer Agent from time to time for certificates representing shares
of Common Stock issuable upon exercise of the Class C Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
The Company will file with the Warrant Agent a statement setting forth the name
and address of the Transfer Agent of the Company for shares of Common Stock
issuable upon exercise of the Class C Warrants.
SECTION 6. Exchange and Registration of Transfer.
--------------------------------------
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Class C Warrants of the same class
(provided the Warrant Agent shall not exchange Warrant Certificates for new
Warrant Certificates in denominations of fewer than fifty thousand (50,000)
underlying shares) or may be transferred in whole or in part. Warrant
Certificates to be exchanged shall be surrendered to the Warrant Agent at its
Corporate Office, and upon satisfaction of the terms and provisions hereof, the
Company shall execute, and the Warrant Agent shall countersign, issue and
deliver in exchange therefor, the Warrant Certificate or Certificates that the
Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and any transfers thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Class C Warrants.
(c) With respect to all Warrant Certificates presented for registration or
transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent on holders for any
exchange or registration of transfer of Warrant Certificates of such Registered
Holders. In addition, the Company may require payment by such Registered Holder
of a sum sufficient to cover any tax or governmental or other charge that may be
imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise, or for exchange in
case of mutilated Warrant Certificates, shall be promptly canceled by the
Warrant Agent and thereafter retained by the Warrant Agent in a manner
consistent with its customary practices until termination of this
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Warrant Agreement or resignation as Warrant Agent, or, with the prior written
consent of Paramount, disposed of or destroyed at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Class C Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon 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 Class C Warrants, which are being offered in Units with shares
of Common Stock pursuant to the Placement Agency Agreement, will immediately be
detachable and separately transferable from the Common Stock comprising the
Units.
SECTION 7. Loss or Mutilation. Upon receipt by the Warrant Agent of
evidence satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of any Warrant Certificate and (in case of loss, theft or
destruction) of indemnity reasonably satisfactory to it and the Company, and (in
the case of mutilation) upon surrender and cancellation thereof, the Company
shall execute and the Warrant Agent shall (in the absence of notice to the
Company and/or Warrant Agent that the Warrant Certificate has been acquired by a
bona fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal aggregate
number of Class C Warrants. Applicants for a substitute Warrant Certificate
shall comply with such other reasonable regulations and pay such other
reasonable charges as the Warrant Agent may prescribe.
SECTION 8. Redemption.
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(a) At any time after the first anniversary of the Final Closing Date, on
no fewer than sixty (60) days' prior written notice to Registered Holders of the
Class C Warrants being redeemed, the Company may, at its option, redeem the
Class C Warrants at the Redemption Price, provided the Market Price of the
Common Stock as of the third business day prior to the date of notice of
redemption (which shall be the date of mailing of such notice) exceeds 250% of
the Purchase Price per share of Common Stock subject to a Class C Warrant. All
outstanding Class C Warrants must be redeemed if any are redeemed. The date
fixed for redemption of the Class C Warrants is referred to herein as the
"Redemption Date."
(b) If the conditions set forth in Subsection 8(a) are met, and the Company
desires to exercise its right to redeem the Class C Warrants, it shall request
the Warrant Agent to mail a notice of redemption to each of the Registered
Holders of the Class C Warrants to be redeemed, first class, postage prepaid,
not later than the sixtieth day before the date fixed for redemption, at their
last address as shall appear on the records maintained pursuant to Subsection
6(b). Any notice mailed in the manner provided herein shall be conclusively
presumed to have been duly given whether or not the Registered Holder receives
such notice.
(c) The notice of redemption shall specify (i) the redemption price, (ii)
the Redemption Date, (iii) the place where the Warrant Certificates shall be
delivered and the redemption price paid, (iv) that Paramount will assist each
Registered Holder of a Class C Warrant and be entitled to a commission and
reimbursement of costs in connection with the exercise thereof and (v) that the
right to exercise the Class C Warrant shall terminate at 5:00 P.M. (New York
time) on the business day immediately preceding the Redemption Date. No failure
to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such redemption except as to a
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Registered Holder (A) to whom notice was not mailed or (B) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Class C Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Holders of the Class C Warrants shall have no
further rights except to receive, upon surrender of the Class C Warrant, the
Redemption Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the notice of redemption, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Class C Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the redemption price of such Class C Warrants. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Class C Warrants called for redemption, such Class
C Warrants shall expire and become void and all rights hereunder and under the
Warrant Certificates, except the right to receive payment of the redemption
price, shall cease.
SECTION 9. Adjustment of Purchase Price and Number of Shares of Common
Stock or Class C Warrants. Upon each adjustment of the Purchase Price pursuant
to this Section 9, the total number of shares of Common Stock purchasable upon
the exercise of each Class C Warrant shall (subject to the provisions contained
in Subsection 9(c)) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(a) Except as otherwise provided herein, in the event the Company shall, at
any time or from time to time after the date hereof, (i) sell or issue any
shares of Common Stock for a consideration per share less than either (a) the
Purchase Price in effect on the date of such sale or issuance or (b) the Market
Price of the Common Stock as of the date of the sale or issuance, (ii) issue any
shares of Common Stock as a stock dividend to the holders of Common Stock, or
(iii) subdivide or combine the outstanding shares of Common Stock into a greater
or fewer number of shares (any such sale, issuance, subdivision or combination
being herein called a "Change of Shares"), then, and thereafter upon each
further Change of Shares, the Purchase Price in effect immediately prior to such
Change of Shares shall be changed to a price (rounded to the nearest cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by the quotient of (x) the sum of (A) the number of shares of Common Stock
outstanding immediately prior to the sale or issuance of such additional shares
or such subdivision or combination plus (B) the number of shares of Common Stock
that the aggregate consideration received (determined as provided in Paragraph
9(g)(vi)) for the issuance of such additional shares would purchase at the
greater of (1) the Purchase Price in effect on the date of such issuance or (2)
the Market Price as of such date, divided by (y) the number of shares of Common
Stock outstanding immediately after the sale or issuance of such additional
shares or such subdivision or combination. Such adjustment shall be made
successively whenever any such issuance is made.
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(b) In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock, or in case of any consolidation or merger
of the Company with or into another entity (other than a consolidation or merger
in which the Company is the continuing entity and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock other than the number thereof), or in case of any sale or
conveyance to another entity of the property of the Company as, or substantially
as, an entirety (other than a sale/leaseback, mortgage or other financing
transaction), the Company shall cause effective provision to be made so that
each holder of a Class C Warrant then outstanding shall have the right
thereafter, by exercising such Class C Warrant, upon the terms and conditions
specified in the Class C Warrants and in lieu of the shares of Common Stock
immediately theretofore purchasable upon exercise of the Class C Warrants, to
purchase the kind and number of shares of stock or other securities or property
(including cash) receivable upon such reclassification, capital reorganization
or other change, consolidation, merger, sale or conveyance by a holder of the
number of shares of Common Stock that might have been purchased upon exercise of
such Class C Warrant immediately prior to such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
9. The Company shall not effect any such consolidation, merger or sale unless
prior to, or simultaneously with, the consummation thereof the successor (if
other than the Company) resulting from such consolidation or merger or the
entity purchasing assets or other appropriate entity shall assume, by written
instrument executed and delivered to the Warrant Agent, the obligation to
deliver to the holder of each Class C Warrant such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(c) If, at any time or from time to time, the Company shall issue or
distribute to the holders of shares of Common Stock evidence of its
indebtedness, any other securities of the Company or any cash, property or other
assets (excluding an issuance or distribution governed by one of the preceding
Subsections of this Section 9 and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor in the full
amount thereof (any such non-excluded event being herein called a "Special
Dividend")), then in each case the Registered Holders of the Class C Warrants
shall be entitled to a proportionate share of any such Special Dividend as
though they were the holders of the number of shares of Common Stock of the
Company for which their Class C Warrants are exercisable as of the record date
fixed for the determination of the holders of Common Stock of the Company
entitled to receive such Special Dividend.
(d) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Class C Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Class C Warrant as hereinabove provided, so that each Class C Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Class C Warrant held of record prior to such
adjustment of the number of Class C Warrants shall become that number of Class C
Warrants (calculated to the nearest tenth) determined by multiplying the number
one by a fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment. Upon each adjustment
of the number of Class C Warrants pursuant to this Section 9, the Company shall,
as promptly as practicable, cause to be distributed to each Registered Holder of
Warrant Certificates on the date of such adjustment Warrant
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Certificates evidencing, subject to Section 10, the number of additional Class C
Warrants to which such Holder shall be entitled as a result of such adjustment
or, at the option of the Company, cause to be distributed to such Holder in
substitution and replacement for the Warrant Certificates held by him prior to
the date of adjustment (and upon surrender thereof, if required by the Company)
new Warrant Certificates evidencing the number of Class C Warrants to which such
Holder shall be entitled after such adjustment.
(e) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Class C
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Subsection 2(e), continue to express the same Purchase Price per
share, number of shares purchasable thereunder and Redemption Price therefor as
when the same were originally issued.
(f) After each adjustment of the Purchase Price pursuant to this Section 9,
the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Class C Warrant after such adjustment, and, if the Company shall have
elected to adjust the number of Class C Warrants pursuant to Subsection 9(d),
the number of Class C Warrants to which the registered holder of each Class C
Warrant shall then be entitled, and the adjustment in Redemption Price resulting
therefrom, and (iii) a brief statement of the facts accounting for such
adjustment. The Company will promptly file such certificate with the Warrant
Agent and cause a brief summary thereof to be sent by ordinary first class mail
to Paramount and to each Registered Holder of Class C Warrants at his or her
last address as it shall appear on the registry books of the Warrant Agent. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of such adjustment. The affidavit of an officer of the
Warrant 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 stated therein. The Warrant Agent may rely on the
information in the certificate as true and correct and has no duty or obligation
to independently verify the amounts or calculations set forth therein.
(g) For purposes of Subsection 9(a), the following provisions (i) to (vi)
shall also be applicable:
(i) the number of shares of Common Stock deemed outstanding at any
given time shall include all shares of capital stock convertible into, or
exchangeable for, Common Stock (on an as converted basis) as well as all shares
of Common Stock issuable upon the exercise of (x) any convertible debt, (y)
warrants outstanding on the date hereof and (z) options outstanding on the date
hereof.
(ii) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $.01 in such price;
provided that any adjustments which by reason of this Paragraph (ii) are not
required to be made shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment which, together with
adjustments so carried forward, shall require an increase or decrease of at
least $.01 in the Purchase Price then in effect hereunder.
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(iii) In case of (A) the sale 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 Purchase Price or the Market Price of the
Common Stock as of the date of the issuance or sale of such rights, warrants or
options, then such total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of 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 9(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 9(a).
(iv) 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 (A) 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 amount, of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (B) 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
Purchase Price or the Market Price of the Common Stock as of the date of the
sale of such Convertible Securities, then such total maximum number of shares of
Common Stock issuable upon the conversion or exchange of such Convertible
Securities (as of the date of the sale of such Convertible Securities) shall be
deemed to be "Common Stock" for purposes of Subsection 9(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 9(a).
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(v) In case the Company shall modify the rights of conversion, exchange
or exercise of any of the securities referred to in Paragraphs (iii) or (iv) of
this Subsection 9(g) 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 Purchase Price or the Market Price as of the date prior to such
modification, then such securities, to the extent not theretofore exercised,
converted or exchanged, shall be deemed to have expired or terminated
immediately prior to the date of such modification and the Company shall be
deemed, for purposes of calculating any adjustments pursuant to this Section 9,
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 Purchase Price
then in effect hereunder shall forthwith be readjusted to such Purchase Price 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 Purchase Price as adjusted under clause (A) of this sentence for all
transactions (which would have affected such adjusted Purchase Price) made after
the issuance or sale of such rights, warrants, options or Convertible
Securities.
(vi) 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 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 holders of more than of ten
percent (10%) of the then outstanding Class C Warrants disagree with such
determination, the Company shall retain an independent investment banking firm
for the purpose of obtaining an appraisal.
(h) Notwithstanding any other provision hereof, no adjustment to the
Purchase Price of the Class C Warrants or to the number of shares of Common
Stock purchasable upon the exercise of each Class C Warrant 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
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(iii) upon issuance or exercise of the Placement Options, or the
Advisory Options, (as defined in the Placement Agency Agreement between the
Company and Paramount Capital, Inc. dated as of October 26, 1997 (the "Placement
Agency Agreement")) (collectively, the "Paramount Options"), upon the conversion
of the Series A Preferred Stock, upon the exercise of the New Warrants (as
defined in the Securities Purchase Agreement dated as of June 30, 1997 (the
"Securities Purchase Agreement"), upon the exchange of the Series A Preferred
Stock and the New Warrants for Common Stock and Class C Warrants pursuant to the
Letter Agreement dated January 13, 1998, or upon the issuance, conversion or
exercise of the Common Stock or the Class C Warrants included in the Units of
the Company issued (i) on or prior to the Final Closing Date, or (ii) pursuant
to the exercise of the Paramount Options; 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 date of the original sale of the Class C Warrants or
were thereafter issued or sold, provided that an adjustment was either made or
not required to be made in accordance with Subsections 9(a) and 9(c) 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 date of the original sale of the
Class C Warrants or were thereafter issued or sold; or
(vi) upon the issuance of stock which may hereafter be purchased or
sold with the approval of the Board of Directors, under the 1993 Employee Stock
Purchase Plan of the 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 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 9(g)(v) shall nevertheless apply to any modification of the rights of
conversion, exchange or exercise of any of the securities referred to in
Paragraphs (i), (ii) and (iii) of this Subsection 9(h), except for modifications
required by the original terms of such securities.
(i) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the 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; provided, however, that the shares
issuable upon exercise of the Class C Warrants shall include only shares of such
class designated in the Company's Certificate of Incorporation, as amended, as
Common Stock on the date of the original issue of the Units or (i), in the case
of any reclassification, change, consolidation, merger, sale or conveyance of
the character referred to in Subsection 9(b), the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Class C Warrants as a result of a
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subdivision or combination or consisting of a change in par value, or from par
value to no par value, or from no par value to par value, such shares of Common
Stock as so reclassified or changed.
(j) Any determination as to whether an adjustment in the Purchase Price in
effect hereunder is required pursuant to Section 9, or as to the amount of any
such adjustment, if required, shall be binding upon the holders of the Class C
Warrants and the Company if made in good faith by the Board of Directors of the
Company, except as otherwise contemplated hereby.
(k) If and whenever the Company shall grant to the holders of Common Stock,
as such, rights or warrants to subscribe for or to purchase, or any options for
the purchase of, Common Stock or securities convertible into or exchangeable for
or carrying a right, warrant or option to purchase Common Stock, the Company may
at its option elect concurrently therewith to grant to each Registered Holder as
of the record date for such transaction of the Class C Warrants then
outstanding, the rights, warrants or options to which each Registered Holder
would have been entitled if, on the record date used to determine the
stockholders entitled to the rights, warrants or options being granted by the
Company, the Registered Holder were the holder of record of the number of whole
shares of Common Stock then issuable upon exercise of his or her Class C
Warrants. If the Company shall so elect under this Subsection 9(k), then such
grant by the Company to the holders of the Class C Warrants shall be in lieu of
any adjustment which otherwise might be called for pursuant to this Section 9.
SECTION 10. Fractional Warrants and Fractional Shares. If the number of
shares of Common Stock purchasable upon the exercise of each Class C Warrant is
adjusted pursuant to Section 9, the Company nevertheless shall not be required
to issue fractions of shares, upon exercise of the Class C Warrants or
otherwise, nor to distribute certificates that evidence fractional shares. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Registered Holder an amount in cash equal to such
fraction multiplied by the Fair Market Value of one (1) share of Common Stock as
of the date of exercise.
SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of Class C
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon exercise
of such Class C Warrants for any purpose whatsoever, nor shall anything
contained herein be construed to confer upon the holder of Class C Warrants, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issue or reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Class C
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Class C
Warrants, and any Registered Holder of a Class C Warrant, without consent of the
Warrant Agent or of the holder of any other Class C Warrant, may, in his own
behalf and for his own benefit, enforce against the Company his right to
exercise his Class C Warrants for the purchase of shares of Common Stock in the
manner provided in the Warrant Certificate and this Agreement.
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SECTION 13. Agreement of Warrant Holders. Every holder of any Class C
Warrant, by his acceptance thereof, consents and agrees with the Company, the
Warrant Agent and every other holder of any Class C Warrant that:
(a) The Class C Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his or her
attorney duly authorized in writing and only if the Warrant Certificates
representing such Class C Warrants are surrendered at the office of the Warrant
Agent, duly endorsed or accompanied by a proper instrument of transfer
satisfactory to the Warrant Agent, in its sole discretion, together with payment
of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Class C Warrants represented thereby for
all purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly provided
in Section 6.
SECTION 14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Class C Warrant or Class C Warrants, the Warrant
Certificate or Warrant Certificates evidencing the same, by redemption or
otherwise, shall thereupon be delivered to the Warrant Agent and canceled by it
and retired. The Warrant Agent shall also cancel the Warrant Certificate or
Warrant Certificates following exercise of any or all of the Class C Warrants
represented thereby or delivered to it for transfer, split up, combination or
exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts hereunder
as agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates, or by any other act hereunder, be
deemed to make any representations as to the validity, value or authorization of
the Warrant Certificates or the Class C Warrants represented thereby or of any
securities or other property delivered upon exercise of any Class C Warrant or
whether any stock issued upon exercise of any Class C Warrant is fully paid and
nonassessable.
(a) The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists that may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it in reliance on any Warrant
Certificate or other document or instrument believed by it in good faith to be
genuine and to have been signed or presented by the proper party or parties,
(ii) be responsible for any failure on the part of the Company to comply with
any of its covenants and obligations contained in this Agreement or in any
Warrant Certificate, or (iii) be liable for any act or omission in connection
with this Agreement except for its own negligence or willful misconduct.
(b) The Warrant Agent may at any time consult with counsel satisfactory to
it (who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
16
<PAGE>
(c) Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, or any Vice President and the Secretary, or
any Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
(d) The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses hereunder
as governed by a separate agreement to be entered into between the Warrant Agent
and the Company; the Company further agrees to indemnify the Warrant Agent and
save it harmless against any and all losses, expenses and liabilities, including
judgments, costs and reasonable counsel fees, for anything done or omitted by
the Warrant Agent in the execution of its duties and powers hereunder except
losses, expenses and liabilities arising as a result of the Warrant Agent's
negligence or willful misconduct.
(e) The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a result
of the Warrant Agent's own negligence or willful misconduct), after giving
thirty (30) days' prior written notice to the Company. At least 15 days prior to
the date such resignation is to become effective, the Warrant Agent shall cause
a copy of such notice of resignation to be mailed to the Registered Holders of
each Warrant Certificate at the Company's expense. Upon such resignation, or any
inability of the Warrant Agent to act as such hereunder, the Company shall
appoint a new warrant agent in writing. If the Company shall fail to make such
appointment within a period of fifteen (15) days after it has been notified in
writing of such resignation by the resigning Warrant Agent, then the Registered
Holder of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new warrant agent. Any new warrant agent,
whether appointed by the Company or by such a court, shall be a bank or trust
company having capital and surplus, as shown by its last published report to its
stockholders, of not less than $10,000,000 or a stock transfer company. After
acceptance in writing of such appointment by the new warrant agent is received
by the Company, such new warrant agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named herein as
the Warrant Agent, without any further assurance, conveyance, act or deed; but
if for any reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning Warrant Agent. Not later than the effective date of any such
appointment, the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
(e) Any entity into which the Warrant Agent or any new warrant agent may be
converted or merged or any entity resulting from any consolidation to which the
Warrant Agent or any new warrant agent shall be a party or any entity succeeding
to the trust business of the Warrant Agent shall be a successor warrant agent
under this Agreement without any further act, provided that such entity is
eligible for appointment as successor to the Warrant Agent under the provisions
of the preceding paragraph. Any such successor warrant agent shall promptly
cause notice of its succession as warrant agent to be mailed to the Company and
to the Registered Holder of each Warrant Certificate.
(f) The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Class C Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like effects as though it were
17
<PAGE>
not Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting
in any other capacity for the Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the provisions of
Subsection 4(b), the parties hereto and the Company may by supplemental
agreement make any changes or corrections in this Agreement (a) that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provision or manifest mistake or error herein contained; (b) to
reflect an increase in the number of Class C Warrants which are to be governed
by this Agreement resulting from a subsequent offering of Company securities
which includes Class C Warrants having the same terms and conditions as the
Class C Warrants, originally covered by or subsequently added to this Agreement
under this Section 16; or (c) that they may deem necessary or desirable and that
shall not adversely affect the interests of the holders of Warrant Certificates;
provided, however, that this Agreement shall not otherwise be modified,
supplemented or altered in any respect except with the consent in writing of the
Registered Holders of Warrant Certificates representing more than 50% of the
Class C Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Class C
Warrant, or the Purchase Price therefor, or the acceleration of the Warrant
Expiration Date, shall be made without the consent in writing of the Registered
Holder of the Warrant Certificate representing such Class C Warrant, other than
such changes as are specifically prescribed by this Agreement (including those
contemplated in Subsection 9(d)) as originally executed or are made in
compliance with applicable law.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed by means of first class registered or certified
mail, postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company, at 840 Memorial Drive,
Cambridge, Massachusetts, 02139, or at such other address as may have been
furnished to the Warrant Agent in writing by the Company; if to the Warrant
Agent, at its Corporate Office; and, if to Paramount, at Paramount Capital Inc.,
787 Seventh Avenue, New York, New York 10019, Attention: Michael S. Weiss.
SECTION 18. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company, Paramount, the Warrant Agent and their respective
successors and assigns, and the holders from time to time of Warrant
Certificates. Nothing in this Agreement is intended nor shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the close of
business on the Warrant Expiration Date of all the Class C Warrants or such
earlier date upon which all Class C Warrants have been exercised or redeemed,
except that the Warrant Agent shall account to the Company for cash held by it
and the provisions of Section 15 shall survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
PROCEPT, INC.
By: /s/ Stanley C. Erck
-------------------------------------------------
Authorized Officer, Stanley C. Erck, President
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: /s/ Herbert J. Lemmer,
-----------------------------------------------------
Authorized Officer, Herbert J. Lemmer, Vice President
PARAMOUNT CAPITAL, INC.
By: /s/Lindsay Rosenwald
-----------------------------------------------------
Authorized Officer, Lindsay Rosenwald
19
<PAGE>
EXHIBIT A
[FORM OF FACE OF CLASS C WARRANT CERTIFICATE]
No. _________________ Class C Warrants
VOID AFTER __________________, 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 _______________, 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 [ ],
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
_____________, 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.
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.
<PAGE>
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: _____________________ By: _______________________________________
By: _______________________________________
[seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By: _____________________________
Authorized Officer
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $_______________ PER CERTIFICATE ISSUED
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 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.
<PAGE>
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 4.2
-----------
Schedule of Holders of Unit Purchase Option
The following individuals and entities are holders of Unit Purchase Options
with respect to an aggregate of 24.06875 units.
Aries Domestic Fund, L.P.
The Aries Trust
Evan S. Borak
Joseph Edelman
Lauren S. Fischer
Marc Florin
Hawkins Group, LLC
Joseph Stevens & Co.
Scott A. Katzmann
John Knox
Donna F. Lozito
Jeff Levine
Tim McInerney
Kirkland Messina
Lindsay A. Rosenwald, M.D.
Wayne L. Rubin
Karl Ruggeberg
Richard Strassman
David Walner
Michael S. Weiss
<PAGE>
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
<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:
-2-
<PAGE>
(A) If the Units are listed on a national
securities exchange or listed 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 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.
-3-
<PAGE>
(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:
-4-
<PAGE>
(i) If the Company shall issue or distribute to the holders of
shares of 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
-5-
<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 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.
-6-
<PAGE>
(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 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
-7-
<PAGE>
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.
(j) In case any event shall occur as to which the other provisions
of this Section 3 are not strictly applicable but as to which the failure to
make any adjustment would not fairly protect the purchase rights represented by
this Option in accordance with the essential intent and principles hereof then,
in each such case, the Majority of Holders may appoint a firm of independent
public accountants of recognized national standing reasonably acceptable to the
Company, which shall give their opinion as to the adjustment, if any, on a basis
consistent with the essential intent and principles established herein,
necessary to preserve the purchase rights represented by the Options. Upon
receipt of such opinion, the Company will promptly mail a copy thereof to the
Holder of this Option and shall make the adjustments described therein. The fees
and expenses of such independent public accountants shall be borne by the
Company.
(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.
-8-
<PAGE>
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.
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.
-9-
<PAGE>
(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, 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.
-10-
<PAGE>
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 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.
-11-
<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
-12-
<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.
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to
be issued this [ ] day of [ ] [ ].
BORROWER:
----------------------
Name:
Address:
----------------------
Exhibit 10.1
------------
PROCEPT, INC.
1989 Stock Plan
---------------
As amended through April 16, 1996 and
As further amended by the Board of Directors on
March 17, 1997 and approved by the Stockholders
on June 16, 1997
As further amended by the Board of Directors
on April 6, 1998 and approved by the
Stockholder on May 18, 1998.
1. Purpose. This 1989 Stock Plan (the "Plan") is intended to provide
incentives: (a) to the officers and other employees of Procept, Inc. (the
"Company"), its parent (if any) and any present or future subsidiaries of the
Company (collectively, "Related Corporations") by providing them with
opportunities to purchase stock in the Company pursuant to options granted
hereunder which qualify as "incentive stock options" under Section 422(b) of the
Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or "ISOs"); (b) to
officers, employees and consultants of the Company and Related Corporations by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which do not qualify as ISOs ("Non-Qualified Option"
or "Non-Qualified Options"); (c) to officers, employees and consultants of the
Company and Related Corporations by providing them with awards of stock in the
Company ("Awards"); and (d) to officers, employees and consultants of the
Company and Related Corporations by providing them with opportunities to make
direct purchases of Stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options". Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights". As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation", respectively, as those terms are defined in Section 424 of the
Code.
2. Administration of the Plan.
---------------------------
A. Board or Committee Administration. The Plan shall be administered by
the Board of Directors of the Company (the "Board"). The Board may appoint a
Stock Plan Committee (the "Committee") of three or more of its members to
administer this Plan. The members of such Committee shall be "disinterested"
within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended. Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no Committee has been appointed. Subject to ratification
of the grant or authorization of each Stock Right by the Board (if so required
by applicable state law), and subject to the terms of the Plan, the Committee
shall have the authority to (i) determine the employees of the Company and
Related Corporations (from among the class of employees eligible under paragraph
3 to receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under paragraph 3 to receive
Non-Qualified Options and Awards and to make Purchases) to whom Non-Qualified
Options, Awards and authorizations to make Purchases may be granted; (ii)
determine the time or times at which Options or Awards may be granted or
Purchases made; (iii) determine the option price of shares subject to each
Option, which price shall not be less than the minimum price specified in
paragraph 6, and the purchase price of shares subject to each Purchase; (iv)
determine whether each Option granted shall be an ISO or a Non-Qualified Option;
(v) determine (subject to paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise period; (vi) determine
whether restrictions such as repurchase options are to be imposed on shares
subject to Options, Awards and Purchases and the nature of such restrictions, if
any, and (vii) interpret the Plan and prescribe
1
<PAGE>
and rescind rules and regulations relating to it. If the Committee determines to
issue a Non-Qualified Option, it shall take whatever actions it deems necessary,
under Section 422 of the Code and the regulations promulgated thereunder, to
ensure that such Option is not treated as an ISO. The interpretation and
construction by the Committee of any provisions of the Plan or of any Stock
Right granted under it shall be final unless otherwise determined by the Board.
The Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem best. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as it may determine.
Acts by a majority of the Committee, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid acts of the
Committee. From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies however caused,
or remove all members of the Committee and thereafter directly administer the
Plan.
3. Eligible Employees and Others. ISOs may be granted to any employee of
the Company or any Related Corporation. Those officers of the Company who are
not employees may not be granted ISOs under the Plan. Non-Qualified Options,
Awards and authorizations to make Purchases may be granted to any employee or
officer (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant an ISO, a Non-Qualified
Option, an Award or an authorization to make a Purchase. Granting of any Stock
Right to any individual or entity shall neither entitle that individual or
entity to, nor disqualify such individual or entity from, participating in any
other grant of Stock Rights.
4. Stock. The stock subject to Options, Awards and Purchases shall be
authorized but unissued shares of Common Stock of the Company, par value $.01
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 1,500,000 (after giving effect to the June 1, 1998
ten-for-one reverse split). The aggregate number of shares which may be issued
pursuant to the Plan is subject to further adjustment as provided in paragraph
13. Any such shares may be issued as ISOs, Non-Qualified Options or Awards, or
to persons or entities making Purchases, so long as the number of shares so
issued does not exceed such number, as adjusted. If any Option granted under the
Plan shall expire or terminate for any reason without having been exercised in
full or shall cease for any reason to be exercisable in whole or in part, or if
the Company shall reacquire any unvested shares issued pursuant to Options,
Awards or Purchases, the unpurchased shares subject to such Options and any
unvested shares so reacquired by the Company shall again be available for grants
of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan at
any time on or after April 18, 1989 and prior to July 1, 2007. The date of grant
of a Stock Right under the Plan will be the date specified by the Committee at
the time it grants the Stock Rights; provided, however, that such date shall not
be prior to the date on which the Committee acts to approve the grant. The
Committee shall have the right, with the consent of the optionee, to convert an
ISO granted under the Plan to a Non-Qualified Option pursuant to paragraph 16.
2
<PAGE>
6. Minimum Option Price; ISO Limitations.
--------------------------------------
A. Price for Non-Qualified Options. The exercise price per share
specified in the agreement relating to each Non-Qualified Option granted under
the Plan shall in no event be less than the lesser of (i) the book value per
share of Common Stock as of the end of the fiscal year of the Company
immediately preceding the date of such grant, or (ii) fifty percent (50%) of the
fair market value per share of Common Stock on the date of such grant.
B. Price of ISOs. The exercise price per share specified in the
agreement relating to each ISO granted under the Plan shall not be less than the
fair market value per share of Common Stock on the date of such grant. In the
case of an ISO to be granted to an employee owning stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or any Related Corporation, the price per share specified in the
agreement relating to such ISO shall not be less than one hundred ten percent
(110%) of the fair market value per share of Common Stock on the date of grant.
C. $100,000 Annual Limitation on ISOs. Each eligible employee may be
granted ISOs only to the extent that, in the aggregate under this Plan and all
incentive stock option plans of the Company and any Related Corporation, such
ISOs do not become exercisable for the first time by such employee during any
calendar year in a manner which would entitle the employee to purchase more than
$100,000 in fair market value (determined at the time the ISOs were granted) of
Common Stock in that year. Any options granted to an employee in excess of such
amount will be granted as Non-Qualified Options.
D. Determination of Fair Market Value. If, at the time an Option is
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date such
Option is granted and shall mean (i) the average (on that date) of the high and
low prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the NASDAQ SmallCap Market System, if the Common
Stock is not then traded on a national securities exchange; or (iii) the closing
bid price (or average of bid prices) last quoted (on that date) by an
established quotation service for over-the-counter securities, if the Common
Stock is not reported on the NASDAQ SmallCap Market System. However, if the
Common Stock is not publicly traded at the time an Option is granted under the
Plan, "fair market value" shall be deemed to be the fair value of the Common
Stock as determined by the Committee after taking into consideration all factors
which it deems appropriate, including, without limitation, recent sale and offer
prices of the Common Stock in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.
3
<PAGE>
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. Full Vesting of Installments. Once an installment becomes exercisable
it shall remain exercisable until expiration or termination of the Option,
unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable.
D. Acceleration of Vesting. The Committee shall have the right to
accelerate the date of exercise or vesting of any installment of any Option;
provided that the Committee shall not, without the consent of an optionee,
accelerate the exercise date of any installment of any Option granted to any
employee as an ISO (and not previously converted into a Non-Qualified Option
pursuant to paragraph 16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in paragraph
6(C).
9. Termination of Employment. If an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of such
optionee's ISOs shall become exercisable or vested, and such optionee's ISOs
shall terminate after the passage of ninety (90) days from the date of
termination of such optionee's employment, but in no event later than on their
specified expiration dates, except to the extent that such ISOs (or unexercised
installments thereof) have been converted into Non-Qualified Options pursuant to
paragraph 16. Employment shall be considered as continuing uninterrupted during
any bona fide leave of absence (such as those attributable to illness, military
obligations or governmental service) provided that the period of such leave does
not exceed 90 days or, if reemployment is guaranteed by statute. A bona fide
leave of absence with the written approval of the Committee shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Company or any Related Corporation
to continue the employment of the optionee after the approved period of absence.
ISOs granted under the Plan shall not be affected by any change of employment
within or among the Company and Related Corporations, so long as the optionee
continues to be an employee of the Company or any Related Corporation. Nothing
in the Plan shall be deemed to give any grantee of any Stock Right the right to
be retained in employment or other service by the Company or any Related
Corporation for any period of time.
10. Death; Disability.
------------------
A. Death. If an ISO optionee ceases to be employed by the Company and
all Related Corporations by reason of such optionee's death, any ISO of such
optionee may be exercised, to the extent of the number of shares with respect to
which such optionee could have exercised it on the date of such optionee's
death, by such optionee's estate, personal representative or beneficiary who has
acquired the ISO by will or by the laws of descent and distribution, at any time
prior to the earlier of the specified expiration date of the ISO or 180 days
from the date of such optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of such optionee's disability, such
optionee shall have the right to
4
<PAGE>
exercise any ISO held by such optionee on the date of termination of employment,
to the extent of the number of shares with respect to which such optionee could
have exercised it on that date, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
termination of such optionee's employment. For the purposes of the Plan, the
term "disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Code or successor statute.
11. Assignability. No Option shall be assignable or transferable by the
optionee except by will or by the laws of descent and distribution, and during
the lifetime of the optionee each Option shall be exercisable only by such
optionee.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common Stock
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. Consolidation or Mergers. If the Company is to be consolidated with
or acquired by another entity in a merger, sale of all or substantially all of
the Company's assets or otherwise (an "Acquisition"), the Committee or the board
of directors of any entity assuming the obligations of the Company hereunder
(the "Successor Board"), shall, as to outstanding Options, either (i) make
appropriate provision for the continuation of such Options by substituting on an
equitable basis for the shares then subject to such Options the consideration
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition; or (ii) upon written notice to the optionees, provide that
all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the Options shall terminate; or (iii) terminate all Options in exchange for a
cash payment equal to the excess of the fair market value of the shares subject
to such Options (to the extent then exercisable) over the exercise price
thereof.
C. Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding
5
<PAGE>
shares of Common Stock, an optionee upon exercising an Option shall be entitled
to receive for the purchase price paid upon such exercise the securities such
optionee would have received if such optionee had exercised such optionee's
Option prior to such recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs A, B or C with respect to ISOs shall be made only
after the Committee, after consulting with counsel for the Company, determines
whether such adjustments would constitute a "modification" of such ISOs (as that
term is defined in Section 424 of the Code) or would cause any adverse tax
consequences for the holders of such ISOs. If the Committee determines that such
adjustments made with respect to ISOs would constitute a modification of such
ISOs, it may refrain from making such adjustments.
E. Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, each Option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.
F. Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued under the
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. Adjustments. Upon the happening of any of the foregoing events
described in subparagraphs A, B or C above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise of a
Stock Right made hereunder receives shares or securities or cash in connection
with a corporate transaction described in subparagraphs A, B or C above as a
result of owning such restricted Common Stock, such shares or securities or cash
shall be subject to all of the conditions and restrictions applicable to the
restricted Common Stock with respect to which such shares or securities or cash
were issued, unless otherwise determined by the Committee or the Successor
Board.
14. Means of Exercising Stock Rights. A Stock Right (or any part or
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor
either (a) in United States dollars in cash or by check, or (b) at the
discretion of the Committee, through delivery of shares of Common Stock having a
fair market value equal as of the date of the exercise to the cash exercise
price of the Stock Right, or (c) at the discretion of the Committee, by delivery
of the grantee's personal recourse note being interest payable not less than
annually at no less than 100% of the lowest applicable Federal rate, as defined
in Section 1274(d) of the Code, or (d) at the discretion of the Committee, by
any combination of (a), (b) and (c) above. If the Committee exercises its
discretion to permit payment of the exercise price of an ISO by means of the
methods set forth in clauses (b), (c), or (d) of the preceding
6
<PAGE>
sentence, such discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not have the rights of
a shareholder with respect to the shares covered by such holder's Stock Right
until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on April
18, 1989, subject (with respect to the validation of ISOs granted under the
Plan) to approval of the Plan by the stockholders of the Company at the next
Meeting of Stockholders or, in lieu thereof, by written consent. If the approval
of stockholders is not obtained by April 18, 1990, any grants of ISOs under the
Plan made prior to that date will be rescinded. The Plan shall expire on July 1,
2007 (except as to Options outstanding on that date). Subject to the provisions
of paragraph 5 above, Stock Rights may be granted under the Plan prior to the
date of stockholder approval of the Plan. The Board may terminate or amend the
Plan in any respect at any time, except that, without the approval of the
stockholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions: (a) the total number of
shares that may be issued under the Plan may not be increased (except by
adjustment pursuant to paragraph 13); (b) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (c) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); and (d) the expiration date of the Plan may not be extended. Except as
otherwise provided in this paragraph 15, in no event may action of the Board or
stockholders alter or impair the rights of a grantee, without such grantee's
consent, under any Stock Right previously granted to such grantee.
16. Conversion of ISOs into Non-Qualified Options; Termination of ISOs. The
Committee, at the written request of any optionee, may in its discretion take
such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such Options. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee in its discretion may determine, provided that such
conditions shall not be inconsistent with this Plan. Nothing in the Plan shall
be deemed to give any optionee the right to have such optionee's ISOs converted
into Non-Qualified Options, and no such conversion shall occur until and unless
the Committee takes appropriate action. The Committee, with the consent of the
optionee, may also terminate any portion of any ISO that has not been exercised
at the time of such termination.
17. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
18. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock, for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section
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<PAGE>
3402(a) of the Code, may require the optionee, Award recipient or purchaser to
pay additional withholding taxes in respect of the amount that is considered
compensation includable in such person's gross income. The Committee in its
discretion may condition (i) the exercise of an Option, (ii) the grant of an
Award, (iii) the making of a Purchase of Common Stock for less than its fair
market value, or (iv) the vesting of restricted Common Stock acquired by
exercising a Stock Right, on the grantee's payment of such additional
withholding taxes.
20. Notice to Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. Governing Law; Construction. The validity and construction of the Plan
and instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized. In construing this Plan, the singular
shall include the plural.
8
Exhibit 10.2
------------
PROCEPT, INC.
1994 Employee Stock Purchase Plan
---------------------------------
As amended by the Board of Directors on March 17, 1997 and approved by the
Stockholders on June 16, 1997 and as further amended by the Board of Directors
on April 6, 1998 and approved by the Stockholders on May 18, 1998.
1. Purpose.
--------
The purpose of this 1994 Employee Stock Purchase Plan (the "Plan") is to
provide employees of Procept, Inc. (the "Company"), and its subsidiaries, who
wish to become shareholders of the Company an opportunity to purchase Common
Stock of the Company (the "Shares"). The Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Eligible Employees.
-------------------
Subject to the provisions of Sections 7, 8 and 9 below, any individual who
is a full-time employee (as defined below) of the Company, or any of its
subsidiaries (as defined in Section 424(f) of the Code) the employees of which
are designated by the Board of Directors as eligible to participate in the Plan,
is eligible to participate in any Offering of Shares (as defined in Section 3
below) made by the Company hereunder. Full-time employees shall include all
employees whose customary employment is:
(a) 20 hours or more per week and
(b) more than five months
in the calendar year during which said Offering Date occurs or in the calendar
year immediately preceding such year.
3. Offering Dates.
---------------
From time to time, the Company, by action of the Board of Directors, will
grant rights to purchase Shares to employees eligible to participate in the Plan
pursuant to one or more offerings (each of which is an "Offering" on a date or
series of dates, each of which is an "Offering Date") designated for this
purpose by the Board of Directors.
4. Prices.
-------
The price per share for each grant of rights hereunder shall be the lesser
of:
(a) eighty-five percent (85%) of the fair market value of a Share on the
Offering Date on which such right was granted; or
(b) eighty-five percent (85%) of the fair market value of a Share on the
date such right is exercised.
At its discretion, the Board of Directors may determine a higher price for
a grant of rights under the Plan.
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<PAGE>
5. Exercise of Rights and Method of Payment.
-----------------------------------------
(a) Rights granted under the Plan will be exercisable periodically on
specified dates as determined by the Board of Directors.
(b) The method of payment for Shares purchased upon exercise of rights
granted hereunder shall be through regular payroll deductions or by lump sum
cash payment or both, as determined by the Board of Directors. No interest shall
be paid upon payroll deductions unless specifically provided for by the Board of
Directors.
(c) Any payments received by the Company from a participating employee and
not utilized for the purchase of Shares upon exercise of a right granted
hereunder shall be promptly returned to such employee by the Company after
termination of the right to which the payment relates.
6. Term of Rights.
---------------
The total period from an Offering Date to the last date on which rights
granted on that Offering Date are exercisable (the "Offering Period") shall in
no event be longer than twenty-seven (27) months. The Board of Directors when it
authorizes an Offering may designate one or more exercise periods during the
Offering Period. Rights granted on an Offering Date shall be exercisable in full
on the Offering Date or in such proportion on the last day of each exercise
period as the Board of Directors determines.
7. Shares Subject to the Plan.
---------------------------
No more than Two Hundred Thousand (200,000) Shares (after giving effect to
the June 1, 1998 ten-for-one reverse split) may be sold pursuant to rights
granted under the Plan. Appropriate adjustments in the above figure, in the
number of Shares covered by outstanding rights granted hereunder, in the
exercise price of the rights and in the maximum number of Shares which an
employee may purchase (pursuant to Section 9 below) shall be made to give effect
to any mergers, consolidations, reorganizations, recapitalizations, stock
splits, stock dividends or other relevant changes in the capitalization of the
Company occurring after the effective date of the Plan, provided that no
fractional Shares shall be subject to a right and each right shall be adjusted
downward to the nearest full Share. Any agreement of merger or consolidation
will include provisions for protection of the then existing rights of
participating employees under the Plan. Either authorized and unissued Shares or
issued Shares heretofore or hereafter reacquired by the Company may be made
subject to rights under the Plan. If for any reason any right under the Plan
terminates in whole or in part, Shares subject to such terminated right may
again be subjected to a right under the Plan.
8. Limitations on Grants.
----------------------
(a) No employee shall be granted a right hereunder if such employee,
immediately after the right is granted, would own stock or rights to purchase
stock possessing five percent (5%) or more of the total combined voting power or
value of all classes of stock of the Company, or of any subsidiary, computed in
accordance with Section 423(b)(3) of the Code.
(b) No employee shall be granted a right which permits his right to
purchase shares under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds twenty-five thousand dollars
($25,000) (or such other maximum as may be prescribed from time to time by the
Code) of the fair market value of such Shares (determined at the time such right
is granted) for
2
<PAGE>
each calendar year in which such right is outstanding at any time in accordance
with the provisions of Section 423(b)(8) of the Code.
(c) No right granted to any participating employee under an Offering, when
aggregated with rights granted under any other Offering still exercisable by the
participating employee, shall cover more Shares than may be purchased at an
exercise price equal to fifteen percent (15%) of the employee's annual rate of
compensation on the date the employee elects to participate in the Offering or
such lesser percentage as the Board of Directors may determine.
9. Limit on Participation.
-----------------------
Participation in an Offering shall be limited to eligible employees who
elect to participate in such Offering in the manner, and within the time
limitations, established by the Board of Directors when it authorizes the
Offering.
10. Cancellation of Election to Participate.
----------------------------------------
An employee who has elected to participate in an Offering may cancel such
election as to all (but not part) of the unexercised rights granted under such
Offering by giving written notice of such cancellation to the Company before the
expiration of any exercise period. Any amounts paid by the employee for the
Shares or withheld for the purchase of Shares from the employee's compensation
through payroll deductions shall be paid to the employee, without interest,
unless otherwise determined by the Board of Directors, upon such cancellation.
11. Termination of Employment.
--------------------------
Upon the termination of employment for any reason, including the death of
the employee, before the date on which any rights granted under the Plan are
exercisable, all such rights shall immediately terminate and amounts paid by the
employee for the Shares or withheld for the purchase of Shares from the
employee's compensation through payroll deductions shall be paid to the employee
or to the employee's estate, without interest, unless otherwise determined by
the Board of Directors.
12. Employees' Rights as Shareholders.
----------------------------------
No participating employee shall have any rights as a shareholder in the
Shares covered by a right granted hereunder until such right has been exercised,
full payment has been made for the corresponding Shares and the Share
certificate is actually issued.
13. Rights Not Transferable.
------------------------
Rights under the Plan are not assignable or transferable by a participating
employee and are exercisable only by the employee.
14. Amendments to or Discontinuation of the Plan.
---------------------------------------------
The Board of Directors of the Company shall have the right to amend, modify
or terminate the Plan at any time without notice; provided, however, that the
then existing rights of all participating employees shall not be adversely
affected thereby, and provided further that, subject to the provisions of
Section 7 above, no such amendment to the Plan shall, without the approval of
the shareholders of the Company, increase the total number of Shares which may
be offered under the Plan.
3
<PAGE>
15. Effective Date and Approvals.
-----------------------------
This Plan became effective on March 2, 1994, the date it was adopted by the
Board of Directors, provided that it is approved by the shareholders of the
Company within twelve (12) months before or after the date of adoption.
The Company's obligation to offer, sell and deliver its Shares under the
Plan is subject to (i) the approval of any governmental authority required in
connection with the authorized issuance or sale of such Shares, (ii)
satisfaction of the listing requirements of any national securities exchange on
which the Shares are then listed and (iii) compliance, in the opinion of the
Company's counsel with, all applicable federal and state securities and other
laws.
16. Term of Plan.
-------------
No rights shall be granted under the Plan after March 2, 2004.
17. Administration of the Plan.
---------------------------
The Board of Directors or any committee or person(s) to whom it delegates
its authority (the "Administrator") shall administer, interpret and apply all
provisions of the Plan as it deems necessary to meet special circumstances not
anticipated or covered expressly by the Plan. Nothing contained in this Section
shall be deemed to authorize the Administrator to alter or administer the
provisions of the Plan in a manner inconsistent with the provisions of Section
423 of the Code.
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet at June 30, 1998 and the statement of operations for the three months and
six months ended June 30, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-1-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 5,788,522 5,788,522
<SECURITIES> 0 0
<RECEIVABLES> 338,897 338,897
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,747,781 6,747,781
<PP&E> 3,698,321 3,698,321
<DEPRECIATION> 3,301,032 3,301,032
<TOTAL-ASSETS> 7,402,096 7,402,096
<CURRENT-LIABILITIES> 758,576 758,576
<BONDS> 0 0
0 0
0 0
<COMMON> 30,018 30,018
<OTHER-SE> 6,382,529 6,382,529
<TOTAL-LIABILITY-AND-EQUITY> 7,402,096 7,402,096
<SALES> 0 0
<TOTAL-REVENUES> 75,840 189,874
<CGS> 0 0
<TOTAL-COSTS> 972,899 2,533,398
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 3,884 4,108
<INCOME-PRETAX> (900,943) (2,347,632)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (900,943) (2,347,632)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (900,943) (2,347,632)
<EPS-PRIMARY> (0.32) (1.40)
<EPS-DILUTED> (0.32) (1.40)
</TABLE>
