SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, For Use of the
Commission Only
[ ] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PROCEPT, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PROCEPT, INC.
840 Memorial Drive, Cambridge, Massachusetts 02139
(617) 491-1100
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The annual meeting of the stockholders of Procept, Inc., a Delaware
corporation ("Procept"), will be held at the offices of Procept, 840 Memorial
Drive, Cambridge, Massachusetts, at 10:00 a.m. on Thursday, May 14, 1998, for
the following purposes:
1. To elect six directors of Procept.
2. To approve an amendment of Procept's Restated Certificate of
Incorporation to consummate a one for ten reverse split (a
stock combination) of the outstanding shares of Common Stock
(the "Reverse Split Amendment").
3. To vote, conditioned on approval of the Reverse Split
Amendment, on a proposed amendment to Procept's 1989 Stock
Plan that would (i) increase the number of shares of Common
Stock covered by the plan to 1,500,000 shares (after giving
effect to the Reverse Split Amendment) and (ii) extend the
expiration date of the Stock Plan to July 1, 2007.
4. To vote, conditioned on approval of the Reverse Split
Amendment, on a proposed amendment to Procept's 1994 Employee
Stock Purchase Plan that would increase the number of shares
of Common Stock covered by the plan to 200,000 shares (after
giving effect to the Reverse Split Amendment).
5. To vote, conditioned on approval of the Reverse Split
Amendment, on a proposed amendment to Procept's 1994 Director
Stock Option Plan that would increase the number of shares of
Common Stock covered by the plan to 500,000 shares (after
giving effect to the Reverse Split Amendment).
6. To transact such other business as may properly come before
the meeting.
Only stockholders of record at the close of business on April 23, 1998
will be entitled to vote at the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING.
THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE YOUR
PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN
PERSON, YOUR PROXY WILL NOT BE USED.
By order of the Board of Directors,
Lynnette C. Fallon
Secretary
April 30, 1998
<PAGE>
PROCEPT, INC.
840 Memorial Drive, Cambridge, Massachusetts 02139
(617) 491-1100
---------------
Proxy Statement
---------------
GENERAL INFORMATION
The enclosed proxy is solicited on behalf of the Board of Directors of
Procept, Inc. ("Procept") for use at the annual meeting of stockholders to be
held at the offices of Procept, 840 Memorial Drive, Cambridge, Massachusetts, at
10:00 a.m. on Thursday, May 14, 1998, and at any adjournments thereof.
The authority granted by an executed proxy may be revoked, at any time
before its exercise, by filing with the Secretary of Procept a written
revocation or a duly executed proxy bearing a later date or by voting in person
at the meeting. Shares represented by valid proxies will be voted in accordance
with the specifications in the proxies. If no specifications are made, the
proxies will be voted to elect the directors nominated by the Board of
Directors.
On April 23, 1998, Procept had outstanding [29,984,235] shares of
common stock, $.01 par value (the "Common Stock"), which is its only outstanding
class of voting stock. Only stockholders of record at the close of business on
April 23, 1998 will be entitled to vote at the meeting. The holders of Common
Stock are entitled to one vote for each share registered in their names on the
record date with respect to all matters to be acted upon at the meeting. The
presence at the meeting, in person or by proxy, of a majority in interest of the
Common Stock issued and outstanding and entitled to vote at the meeting shall
constitute a quorum for the transaction of business. Abstentions and broker
non-votes will be considered present for purposes of determining the presence of
a quorum.
The approximate date on which this proxy statement and accompanying
proxy are first being sent or given to stockholders is April 30, 1998.
April 30, 1998
<PAGE>
SHARE OWNERSHIP
The following table and footnotes set forth certain information
regarding the beneficial ownership of Procept's Common Stock as of April 15,
1998 by (i) persons known by Procept to be beneficial owners of more than 5% of
the Common Stock, (ii) the Chief Executive Officer and all other executive
officers whose 1997 salary and bonus exceeded $100,000 (the "Named Executive
Officers"), (iii) each director and nominee for election as a director of
Procept, and (iv) all Named Executive Officers and directors of Procept as a
group:
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned (1)
----------------------
Beneficial Owner Shares Percent
---------------- ------ -------
<S> <C> <C>
The Aries Trust...................................................... 26,833,600(2) [61.8]%
Aries Domestic Fund, L.P.
Paramount Capital Asset Management, Inc.
Dr. Lindsay A. Rosenwald
c/o Paramount Capital Asset Management, Inc.
787 Seventh Avenue
New York, New York 10019
John F. Dee.......................................................... 0 *
Stanley C. Erck...................................................... 195,426(3) *
James C. Jenson, Ph.D................................................ 686(4) *
Michael J. Higgins................................................... 22,079(5) *
Michael S. Weiss..................................................... 0(6) *
Zola P. Horovitz, Ph.D............................................... 5,716(7) *
Max Link, Ph.D....................................................... 5,716(8) *
Mark C. Rogers, M.D.................................................. 1,429(9) *
Elliott H. Vernon.................................................... 1,429(10) *
All Named Executive Officers and directors as
a group (9 persons)............................................. 231,094(11) *
</TABLE>
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* Indicates less than 1%
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<PAGE>
(1) Unless otherwise indicated in these footnotes, each stockholder has sole
voting and investment power with respect to the shares of Common Stock
shown as beneficially owned by such stockholder, subject to community
property laws where applicable. Shares of Common Stock issuable upon the
exercise of options or warrants currently exercisable or exercisable
within 60 days of April 15, 1998 are treated as outstanding solely for
the purpose of calculating the amount and percentage of shares
beneficially owned by the holder of such options or warrants.
(2) Consists of the following shares and shares that may be acquired within
60 days of April 15, 1998 upon the exercise of warrants: 8,820,920 shares
and a warrant to purchase 8,820,920 shares held by The Aries Trust (the
"Trust"); 4,595,880 shares and a warrant to purchase 4,595,880 shares
held by the Aries Domestic Fund, L.P. (the "Partnership and together with
the Trust, the "Aries Funds"). The Aries Funds acquired a controlling
interest in the Company in June 1997. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS". Paramount Capital Asset Management, Inc. ("PCAM"),
Dr. Lindsay A. Rosenwald, the Aries Trust (the "Trust") and The Aries
Domestic Fund, L.P. (the "Partnership," and collectively with PCAM, Dr.
Rosenwald and the Trust, the "Aries Purchasers") filed a Statement on
Schedule 13D with the Securities and Exchange Commission reflecting the
Aries Purchaser's acquisition of certain securities on June 30, 1997 (the
"Original Schedule 13D"). The Aries Purchasers filed an amendment to the
Original Schedule 13D on September 3, 1997 to report the conversion of
their holdings of Procept Common Stock to Series A Convertible Preferred
Stock. On April [__], 1998, the Aries Purchasers filed a second amendment
to the Original 13D to report (i) the exchange of their holdings of
Procept Series A Convertible Preferred Stock and warrants to purchase
Common Stock for an aggregate of 8,416,800 shares of Common Stock and
warrants to purchase an additional 8,416,800 shares of Common Stock and
(ii) the acquisition of (A) 3,350,000 shares of Common Stock and warrants
to purchase 3,350,000 shares of Common Stock by the Trust and (B)
1,650,000 shares of Common Stock and warrants to purchase 1,650,000
shares of Common Stock by the Partnership, in each case on April 9, 1998.
According to the Original Schedule 13D, Dr. Rosenwald and PCAM may be
deemed to have shared voting and investment power over the shares of
Common Stock that may be deemed to be beneficially owned by the Aries
Purchasers. Pursuant to the Securities Purchase Agreement dated June 30,
1997 with the Company, the Aries Purchasers have the right to appoint a
majority of the members of the Board of Directors of the Company. As of
the date of this Proxy Statement, the Aries Purchasers have only
nominated one director to the Board of Directors, Michael S. Weiss.
(3) Consists solely of shares issuable to Mr. Erck upon the exercise of
options currently exercisable or exercisable within 60 days of April 15,
1998.
(4) Includes 6 shares held by Dr. Jenson's sons.
(5) Includes 21,418 shares issuable to Mr. Higgins upon the exercise of
options currently exercisable or exercisable within 60 days of April 15,
1998, and 15 shares held in trust for the benefit of Mr. Higgins'
daughter.
(6) Does not include shares held of record or issuable to the Aries
Purchasers. Mr. Weiss is a Senior Managing Director of Paramount Capital,
Inc., an affiliate of PCAM, which is the investment manager of the Trust
and the general partner of the Partnership. Mr. Weiss disclaims
beneficial ownership of the shares held by the Aries Purchasers.
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<PAGE>
(7) Consists solely of shares issuable to Dr. Horovitz upon the exercise of
options currently exercisable or exercisable within 60 days of April 15,
1998.
(8) Includes 3,573 shares issuable to Dr. Link upon the exercise of options
currently exercisable or exercisable within 60 days of April 15, 1998.
(9) Consists solely of shares issuable to Dr. Rogers upon the exercise of
options currently exercisable or exercisable within 60 days of April 15,
1998.
(10) Consists solely of shares issuable to Mr. Vernon upon the exercise of
options currently exercisable or exercisable within 60 days of April 15,
1998.
(11) See notes (4) through (10).
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Procept's executive officers and directors and persons who own
beneficially more than ten percent of Procept's Common Stock are required under
Section 16(a) of the Securities Exchange Act of 1934 to file reports of
ownership and changes in ownership of Procept securities with the Securities and
Exchange Commission. Copies of these reports must also be furnished to Procept.
Based solely on a review of the copies of reports furnished to Procept and
written representations that no other reports were required, Procept believes
that during 1997 Procept's executive officers, directors and 10% beneficial
owners complied with all applicable Section 16(a) filing requirements.
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<PAGE>
ELECTION OF DIRECTORS
The Board of Directors has fixed the number of directors at six for the
coming year. The six persons named below have been nominated for election as
directors at the annual meeting of stockholders to be held on May 14, 1998, to
serve until the next annual meeting of stockholders and until their successors
are elected and qualified. Each of the six nominees for director has consented
to being named a nominee in this proxy statement and to serve, if elected, as a
director. If any nominee is unable to serve, proxies will be voted for such
other candidates as may be nominated by the Board of Directors.
Pursuant to Procept's by-laws, directors will be elected by a plurality
of the votes properly cast at the meeting. Abstentions and votes withheld will
not be treated as votes cast for this purpose and will not affect the outcome of
the election.
The following table contains certain information about the nominees for
directors.
<TABLE>
<CAPTION>
Business Experience During Past Five Director
Name and Age Years and Other Directorships Since
------------ ----------------------------- -----
<S> <C> <C>
John F. Dee John F. Dee, has served as President, Chief Executive Officer and a 1998
Age: 40 member of the Board of Directors of Procept since joining the
Company in February 1998. From April 1997 to October 1997, Mr.
Dee was Interim Chief Executive Officer of Genta Incorporated. From
1994 to 1997 and 1998 to 1992, Mr. Dee was a Senior Management
Consultant with McKinsey & Company, Inc. and from 1992 to 1994
served as Chief Operating Officer, Chief Financial Officer, and
Director of Walden Laboratories, Inc. (now AVAX Technologies,
Inc.). Mr. Dee holds a M.S. in Chemical Engineering from Stanford
University and a M.B.A. from Harvard University.
Michael S. Weiss Michael S. Weiss has been a director of the Company, and the 1997
Age: 32 Chairman of its Board of Directors, since July 1997. Mr. Weiss is
presently a Senior Managing Director of Paramount Capital, Inc.
Prior to joining Paramount, Mr. Weiss was an attorney with Cravath,
Swaine & Moore. Mr. Weiss is currently Vice-Chairman of the Board
of Directors of Genta Incorporated, a director of Pacific
Pharmaceuticals, Inc., AVAX Technologies, Inc. and Palatin
Technologies, Inc., and is the Secretary of Atlantic Pharmaceuticals,
Inc., each of which is a publicly traded biopharmaceutical company.
Additionally, Mr. Weiss is currently a member of the boards of
directors of several privately held biopharmaceutical companies. Mr.
Weiss received his J.D. from Columbia University School of Law and
a B.S. in Finance from The State University of New York at Albany.
Mr. Weiss devotes only a portion of his time to the business of the
Company.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Business Experience During Past Five Director
Name and Age Years and Other Directorships Since
------------ ----------------------------- -----
<S> <C> <C>
Zola P. Horovitz, Zola P. Horovitz, Ph.D., currently a consultant to pharmaceutical 1992
Ph.D. companies, served as Vice President - Business Development and
Age: 63 Planning at Bristol-Myers Squibb Pharmaceutical Group, from August
1991 to April 1994, and as Vice President - Licensing, from 1989 to
August 1991. Prior to 1989, Dr. Horovitz spent 30 years as a member
of the Squibb Institute for Medical Research, most recently as Vice
President - Research Planning. He is also a director of seven
other biotechnology and pharmaceutical companies: Avigen, Inc.,
BioCryst, Inc., Clinicor, Inc., Diacrin, Inc., Magainin Pharmaceuticals,
Inc., Roberts Pharmaceutical Corporation and Synaptic Pharmaceuticals,
Inc. Dr. Horovitz received his Ph.D. from the University of Pittsburgh.
Max Link, Ph.D. Max Link, Ph.D. has held a number of executive positions with 1995
Age: 57 pharmaceutical and healthcare companies. Most recently, he served as
Chief Executive Officer of Corange Limited, from May 1993 until
June 1994. Prior to joining Corange, Dr. Link served in a number of
positions within Sandoz Pharma Ltd., including Chief Executive
Officer, from 1987 until April 1992, and Chairman, from April 1992
until May 1993. Dr. Link currently serves on the board of directors
of six publicly traded life science companies: Access Pharmaceuticals,
Inc., Alexion Pharmaceuticals, Inc., Cell Therapeutics, Inc., CytRx
Corporation, Human Genome Sciences, Inc. and Protein Design Labs,
Inc. Dr. Link received his Ph.D. in Economics from the University of
St. Gallen in 1970.
</TABLE>
- 6 -
<PAGE>
<TABLE>
<CAPTION>
Business Experience During Past Five Director
Name and Age Years and Other Directorships Since
------------ ----------------------------- -----
<S> <C> <C>
Mark C. Rogers, Mark C. Rogers, M.D. has been a director of the Company since 1997
M.D. December 1997. Dr. Rogers has been Senior Vice President,
Age: 55 Corporate Development and Chief Technology Officer of The Perkin-
Elmer Corporation, a developer, manufacturer and marketer of life
science and analytical instrument systems, since joining Perkin-
Elmer in 1996. From 1992 to 1996, Dr. Rogers was Vice Chancellor for
Health Affairs at Duke University Medical Center and Chief Executive
Officer at Duke Hospital and Health Network. Prior to his employment
at Duke, Dr. Rogers was on the faculty of Johns Hopkins University
for 15 years where he served as a Distinguished Faculty Professor and
Chairman of the Department of Anesthesiology and Critical Care Medicine,
Associate Dean for Clinical Affairs, Director of the Pediatric Intensive
Care Unit and Professor of Pediatrics. Dr. Rogers currently serves on
the board of three publicly traded companies: Discovery Laboratories, Inc.,
a development-stage pharmaceutical company, Galileo Corporation, a
fiberoptics and electro-optics technology company, and HCIA, Inc., a
health care information content company. Dr. Rogers received his
M.D. from Upstate Medical Center, State University of New York, and his
M.B.A. from The Wharton School. He received his B.A. from Columbia
University and held a Fulbright Scholarship.
Elliott H. Vernon Elliott H. Vernon has been a director of the Company since December 1997
Age: 54 1997. Mr. Vernon has been the Chairman of the Board, President and
Chief Executive Officer of Healthcare Imaging Services, Inc., a
publicly held operator of fixed-site magnetic resonance imaging centers
in the northeast, since its inception in 1991. For the past ten years,
Mr. Vernon has also been the managing partner of MR General Associates,
a New Jersey general partnership which is the general partner of DMR
Associates, L.P., a Delaware limited partnership. Mr. Vernon was also
one of the founders of Transworld Nurses, Inc., the predecessor of
Transworld HealthCare, Inc., a publicly held regional supplier of a
broad range of alternate site healthcare services and products.
Mr. Vernon is also a principal of Healthcare Financial Corp., LLC, a
healthcare financial consulting company engaged primarily in FDA matters.
From January 1990 to December 1994, Mr. Vernon was a director, Executive
Vice President and General Counsel of Aegis Holdings Corporation, an
international provider of financial services through its investment
management and capital markets consulting subsidiaries. Mr. Vernon is
currently a director of Pacific Pharmaceuticals, Inc., a publicly held
medical products company.
</TABLE>
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<PAGE>
The Board of Directors held eight meetings during 1997. Each of the
directors then in office attended at least 75% of the aggregate of all meetings
of the Board and all meetings of the committees of the Board on which such
director then served.
Procept has standing Audit and Compensation Committees of the Board of
Directors but does not have a Nominating Committee. The Audit Committee, which
during 1997 consisted of Nancy S. Amer (before her resignation from the Board of
Directors on January 20, 1997), Dr. Horovitz and Dr. Link held two meetings in
1997. The primary function of the Audit Committee is to assist the Board of
Directors in the discharge of its duties and responsibilities by providing the
Board with an independent review of the financial health of Procept and of the
reliability of Procept's financial controls and financial reporting systems. The
Audit Committee reviews the general scope of Procept's annual audit, the fee
charged by Procept's independent accountants and other matters relating to
internal control systems. For information about the Compensation Committee, see
the "Compensation Committee Report on Executive Compensation" below.
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<PAGE>
EXECUTIVE COMPENSATION
The Compensation Committee Report set forth below describes Procept's
compensation policies applicable to executive officers and the bases for Mr.
Erck's compensation as Chief Executive Officer in 1997. The following graph
shows a comparison of the cumulative total shareholder returns on the Common
Stock over the period from February 10, 1994 (the first trading day of Procept's
Common Stock) to December 31, 1997, as compared with that of the S&P 500
Composite Index and the Hambrecht & Quist Biotechnology Index. The graph assumes
$100 invested on February 10, 1994 in Procept Common Stock, the S&P 500 Index
and the Hambrecht & Quist Biotechnology Index, with all dividends, if any, being
reinvested.
Comparison of 34 Month Cumulative Total Return* Among Procept, Inc.,
the S&P 500 Index, and the Hambrecht & Quist Biotechnology Index
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
==========================================================================================================================
2/10/94 1994 1995 1996 1997
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Procept, Inc. $100 $30 $37 $13 $2
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S&P 500 Index $100 $98 $135 $166 $221
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Hambrecht & Quist Biotechnology Index $100 $91 $155 $143 $145
==========================================================================================================================
</TABLE>
* $100 INVESTED ON 2/10/94 IN STOCK OR ON 1/31/94 IN INDEX - INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.
- 9 -
<PAGE>
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee")
currently consists of Dr. Zola P. Horovitz, Dr. Max Link, and Michael S. Weiss.
During 1997, the Committee consisted of James H. Cavanaugh (before the
expiration of his term as a member of the Board of Directors at the annual
meeting of stockholders on June 16, 1997), Dr. Horovitz and Dr. Link. The
Committee's responsibilities include: (i) reviewing the performance of the Chief
Executive Officer and the other executive officers of the Company and making
determinations as to their cash and equity-based compensation and benefits, and
(ii) administration of employee stock option grants and stock awards under
Procept's 1989 Stock Plan (the "Option Plan"). The Committee met five times
during 1997.
The Company's executive compensation policy is designed to attract,
retain and reward executive officers who contribute to the long term success of
Procept by maintaining a competitive salary structure as compared with other
biotechnology companies and by aligning individual compensation with the
achievement of business objectives and individual performance.
The Committee reviews the entire executive compensation package which
consists of: base salary, annual cash or stock bonuses based on performance, and
stock option grants under the Option Plan.
Executive Officer Compensation
Based on significant corporate events, in March 1997 the Committee
increased Michael Higgins' and Dr. James Jenson's salaries to $120,000 and
187,000, respectively, and voted each of them a bonus opportunity of up to 25%
of their salary based on goals established by the Chief Executive Officer, the
achievement of which would be determined by the Committee. Mr. Erck, the Chief
Executive Officer during 1997, continued to receive the base salary approved for
the 1995 fiscal year, in light of the Company's performance.
Stock Options
In general, stock options are granted to Procept's executive officers
at the time of their hire and at such other times as the Committee may deem
appropriate, such as a promotion and upon nearing full vesting of prior options.
In reviewing option grants, the Committee uses the same industry survey data as
used in its analysis of base salaries and bonuses. The Committee bases its stock
option award decisions upon a comparison with the equity ownership of officers
holding similar positions in other biotechnology companies.
The stock option grants made by the Committee are designed to align the
interest of management with those of the shareholders. In order to maintain the
incentive aspects of these grants, the Committee has determined that a
significant percentage of any officer's stock options should be unvested option
shares. Consistent with this determination, the Committee uses a four-year
vesting period for all option shares and periodically reviews individual officer
stock option holdings.
The Committee approved option grants to the Chief Executive Officer and
the other executive officers in 1997 as follows: (1) option grants in January
1997 to Mr Higgins and Dr. Jenson as part of a broad option grant program to
acknowledge and reward their efforts in 1996; (ii) option grants effective as of
September 30, 1997 to Mr. Erck and Mr. Higgins as part of a company-wide,
time-based vesting option grant program; and (iii) option grants to Mr. Erck and
Mr. Higgins as part of a company-wide, milestone-based option program.
- 10 -
<PAGE>
As of the date of this proxy statement, all three of the Company's
executive officers during 1997 have terminated employment with the Company. All
options granted to such executive officers as employees of the company expired,
in the case of Mr. Jenson, or will expire 90 days after such officer's
termination of employment.
Deduction Limit for Executive Compensation
With respect to qualifying compensation paid to executive officers
under Section 162(m) of the Internal Revenue Code, Procept does not expect to
have compensation exceeding the one-million-dollar limitation for the
foreseeable future. Outstanding stock options granted under the Option Plan will
not be subject to the limitation under applicable regulations, and Procept plans
to maintain the exclusion for any additional options that may be granted to
employees covered by Section 162(m).
By the Compensation Committee,
Zola P. Horovitz, Ph.D.
Max Link, Ph.D.
Michael S. Weiss
- 11 -
<PAGE>
The following tables set forth certain compensation information for the
Chief Executive Officer of Procept and for each executive officer of Procept
serving at the end of 1997, except as noted, whose 1997 and salary and bonus
exceeded $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
------------ ------
Securities
Name and Underlying All Other
Principal Position Year Salary ($) Bonus ($) Options(#) Compensation
- ------------------ ---- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
John F. Dee -- -- -- --
President, Chief Executive Officer (1)
Stanley C. Erck 1997 231,000 0 432,000 0
President, Chief Executive Officer (2) 1996 231,000 0 10,714 0
1995 231,000 0 5,000 0
Michael J. Higgins 1997 116,250 0 102,072 10,000
Vice President, Finance, Chief 1996 102,000 0 5,036 0
Financial Officer (3) 1995 98,818 5,000 2,173 0
</TABLE>
(1) Mr. Dee joined Procept as President and Chief Executive Officer in
February 1997. His base salary for 1998 is $[__________].
(2) Mr. Erck left Procept effective as of March 13, 1998. He will continue
as a consultant with the Company through August 13, 1998 to assist with
transition matters.
(3) Mr. Higgins left Procept effective as of January 31, 1997. The amount
under All Other Compensation consists of compensation for accrued,
unused vacation time.
- 12 -
<PAGE>
The following table provides required information concerning the grant
of stock options under the 1989 Stock Plan to Messrs. Erck, Jenson and Higgins
during the last fiscal year. In addition, the table shows hypothetical gains
that could be achieved for the respective options if exercised at the end of the
option term. These gains are based on assumed rates of stock price appreciation
of 5% and 10%, compounded annually, from the date the options were granted to
their expiration date. This table does not take into account any change in the
price of the Common Stock to date, nor does Procept make any representation
regarding the rate of its appreciation.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value At
Assumed Annual Rates of
Number of Percent of Stock Price Appreciation For
securities total options Option Term (1)
underlying granted to Exercise or ------------------------------
options employees in base price Expiration 5% 10%
Name granted(#) fiscal year (per share) date -- ---
---- ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Stanley C. Erck 293,760(2) 26.5% $2.188 9/30/07 $404,206 $1,024,338
138,240(3) 12.5% $2.188 9/30/07 $190,221 $482,058
Michael J. Higgins 72(4) 0.0% $7.875 1/20/07 $357 $904
69,360(2) 6.3% $2.188 9/30/07 $95,441 $241,866
32,640(3) 2.9% $2.188 9/30/07 $44,913 $113,819
</TABLE>
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(1) The dollar amounts under these columns include the results at the 5%
and 10% rates set by the Securities and Exchange Commission and,
therefore, are not intended to forecast possible future appreciation,
if any, in the price of the underlying Common Stock. No gain to the
optionees is possible without an increase in price of the Common Stock,
which will benefit all stockholders proportionately.
(2) These options were immediately exercisable with respect to 20% of such
shares on September 30, 1997, become exercisable as to an additional
20% of such shares on each of the next four anniversaries of that date
and have a term of ten years.
(3) These options were immediately exercisable with respect to 4% of such
shares on September 30, 1997 and have a term of ten years. These
options were exercisable with respect to the remaining 96% of such
shares upon the occurrence of certain milestones.
(4) These options become exercisable with respect to 25% of such shares on
each of the first four anniversaries of the date of grant and have a
term of ten years.
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises In Last Fiscal Year And
Fiscal Year-End Option Value
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options at Options at
Shares Fiscal Year-End(#) Fiscal Year-End($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable (1)
---- ----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
Stanley C. Erck 0 -- 90,622/379,133 0/0
Michael J. Higgins 0 -- 20,329/91,854 0/0
</TABLE>
- -----------------
(1) Based on the difference between the option exercise price and the
closing price of the underlying Common Stock on December 31, 1997,
which closing price was $1.00.
Severance Agreement
In June 1997, the Board of Directors voted to approve an Executive
Severance and Indemnification Agreement (the "Severance Agreement") between
Procept and Mr. Erck. Upon a "change in control" of Procept (as that term is
defined in the Severance Agreement), in the event that Procept terminates Mr.
Erck's employment without "cause" (as that term is defined in the Severance
Agreement) or Mr. Erck terminates his employment with "good reason" (as that
term is defined in the Severance Agreement), the Company will pay Mr. Erck an
amount equal to the to the greater of (i) his annual rate of base salary in
effect on the date of termination and (ii) his annual rate of base salary in
effect immediately before the change in control. This amount is payable over the
twelve-month period immediately after termination and is reduced to the extent
Mr. Erck actually receives salary, consulting or similar compensation from
another entity in excess of such payments during such period. Upon such
termination, the Severance Agreement also provides for (i) participation in
Procept's life, disability, accident and health plans for the twelve-month
period immediately after termination, except to the extent such benefits are
provided by a subsequent employer, and (ii) in certain circumstances, certain
legal costs and relocation expenses associated with such termination.
In February 1997, Procept and Mr. Erck entered into a Supplemental
Executive Severance Agreement (the "Supplemental Agreement") in connection with
Mr. Erck's termination as the Chief Executive Officer. The Supplemental
Agreement provides that Mr. Erck (i) forfeit 11,857 shares of Procept Common
Stock in exchange for Procept's cancellation of debt in the aggregate amount of
$102,562 plus accrued interest, (ii) receive options with respect to an
aggregate of 300,000 shares of Procept Common Stock and (iii) provide consulting
services to the Company through August 13, 1998. In addition, Mr. Erck receives
the benefits under the Severance Agreement.
Director Compensation
Members of the Board of Directors of Procept are not compensated for
attending Board meetings or meetings of Board committees on which they serve.
- 14 -
<PAGE>
Directors who also serve as consultants to Procept are eligible, as
such, to receive grants under Procept's 1989 Stock Plan. In addition, certain
directors of Procept are eligible to participate in Procept's 1994 Director
Stock Option Plan (the "Director Plan"). Under the terms of the Director Plan,
any director of Procept who is not (i) an employee of Procept or of any
subsidiary of Procept, (ii) an employee or representative of an institutional
venture capital investor in Procept or (iii) a director subject to any law or
contract that prohibits or restricts such director's ownership of shares of
Common Stock ("Eligible Directors"), is eligible to participate in the Director
Plan. Currently, Dr. Horovitz, Dr. Link, Dr. Rogers and Mr. Vernon are Eligible
Directors.
The Director Plan, as amended by the Board of Directors on January 20,
1997, provides that each Eligible Director as of January 20, 1997 was
automatically granted options to purchase 2,858 shares of Common Stock on such
date. Eligible Directors initially elected to the Board of Directors after
January 20, 1997 will be automatically granted options to purchase 2,858 shares
of Common Stock upon such initial election. Upon re-election to the Board of
Directors, all Eligible Directors will automatically receive additional options
to purchase 2,858 shares of Common Stock, except that no options will be granted
to any Eligible Director upon his or her re-election if such Eligible Director
holds options granted under the Director Plan that are not fully exercisable on
the date of such re-election. Options granted under the Director Plan to
Eligible Directors become exercisable with respect to 1,429 shares on the date
of each of the next two annual meetings of stockholders following the date of
grant, so long as the optionee then remains a director of Procept. All options
have a term of ten years and an exercise price, payable in cash or by check or
in shares of Common Stock, equal to the fair market value of the Common Stock on
the date of grant.
Upon their initial election to the Board of Directors in 1997, Dr.
Rogers and Mr. Vernon each received an option grant for 2,858 shares under the
Director Plan.
[Pursuant to a Consulting and Confidentiality Agreement dated January
1, 1997, Dr. Horovitz agreed to provide consulting services to Procept for a
one-year period, subject to annual renewal until terminated by either Procept or
Dr. Horovitz. Under the agreement, Procept pays Dr. Horovitz an annual retainer
of $10,000, plus $2,000 for each day consulting services are rendered, and
reimburses his related out-of-pocket expenses.]
[Pursuant to a Consulting and Confidentiality Agreement dated January
1, 1997, Dr. Link agreed to provide consulting services to Procept for a
one-year period, subject to annual renewal until terminated by either Procept or
Dr. Link. Under the agreement, Procept pays Dr. Link an annual retainer of
$10,000 and reimburses his related out-of-pocket expenses.]
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1997, Procept's Compensation
Committee consisted of James H. Cavanaugh (before the expiration of his term as
a member of the Board of Directors at the annual
- 15 -
<PAGE>
meeting of stockholders on June 16, 1997), Dr. Horovitz and Dr. Link. None of
the members of the Compensation Committee has been an officer or employee of
Procept.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On June 30, 1997, The Aries Trust (the "Trust") and the Aries Domestic
Fund L.P. (the "Partnership" and collectively with the Trust, the "Aries Funds")
purchased shares of Common Stock (the "Common Shares") and Class A and Class B
warrants to purchase shares of Common Stock for an aggregate purchase price of
$2,800,000. The Aries Funds also purchased convertible promissory notes for an
aggregate purchase price of $200,000 (the "Notes"). In August and September,
1997, the Aries Funds (i) converted the Common Shares and the Notes into an
aggregate of 30,060 shares of Series A Convertible Preferred Stock, $0.01 par
value (the "Series A Preferred Stock") and (ii) exchanged the Class A and Class
B warrants for new warrants (the "New Warrants") to purchase an aggregate of
3,283,132 shares of Common Stock at an exercise price of $1.09 per share.
Paramount Capital Asset Management, Inc. ("PCAM") is the investment
manager of the Trust and general partner of the Partnership. Lindsay A.
Rosenwald, M.D., the Chairman and sole stockholder of PCAM, is also the
President and sole stockholder of Paramount Capital, Inc. ("Paramount"). Mr.
Weiss, a director and the Chairman of Procept's Board of Directors, is a Senior
Managing Director of Paramount. Paramount and the Aries Funds have the
contractual right to nominate a majority of the members of the Company's Board
of Directors. Additionally, so long as the Aries Funds and their affiliates own
at least 5% of the voting power of the Company, the Company may not (i) make
payments in excess of $50,000, (ii) incur any indebtedness, (iii) incorporate,
acquire, dissolve or dispose of any subsidiaries nor enter into any transactions
with the Company's affiliates without the Aries Funds prior written consent.
During the same period Paramount will have approval rights with respect to (ii)
and (iii) above and with respect to any increase in executive compensation or
bonuses, whether in the form of cash, stock, stock equivalents or otherwise
(except for bonuses guaranteed in an employment contract).
Paramount acted as placement agent in Procept's recently completed
private placement of units (the "Units") made up of Common Stock and warrants to
purchase Common Stock (the "1998 Private Placement"). As part of the 1998
Private Placement, the Company agreed to pay Paramount (i) a 9% commission of
the gross proceeds from the sale of all Units and (ii) a non-accountable expense
allowance equal to 4% of the gross proceeds from the sale of all Units. In
connection with the 1998 Private Placement, the Aries Funds converted their
holdings of Series A Preferred Stock and New Warrants for an aggregate of
8,416,800 shares of Procept Common Stock and warrants to purchase 8,416,800
shares of Procept Common Stock at an exercise price of $0.50 per share. In
addition, the Company will pay Paramount a commission of 5% upon the exercise of
any of the warrants included in the Units.
In connection with Paramount's role as placement agent, at the April 9,
1998 closing of the sale of the Units being offered, the Company sold to
Paramount, for $.001 per option, options (the "Placement Options") to acquire a
number of newly issued Units equal to 10% of the Units issued in the 1998
Private Placement, exercisable for a period of five years commencing October 9,
1998 at an exercise price of $0.55 per Unit.
Procept and Paramount also are parties to an advisory agreement
pursuant to which Paramount acts as the Company's non-exclusive financial
advisor. Such engagement provides that Paramount receive (i) a
- 16 -
<PAGE>
monthly retainer of $4,000 (minimum engagement of 24 months), (ii) out-of-pocket
expenses and (iii) certain cash and equity success fees in the event Paramount
assists the Company in connection with certain financing and strategic
transactions.
PROPOSAL TO APPROVE AN AMENDMENT OF
PROCEPT'S CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
Proposed Reverse Split
The Company's Board of Directors has unanimously approved and
determined to submit to the stockholders of the Company an amendment to the
Company's Restated Certificate of Incorporation (the "Restated Certificate of
Incorporation"), to effect a one for ten reverse stock split of the Company's
outstanding Common Stock (the "Reverse Split Amendment"). The Company is
currently authorized to issue 30,000,000 shares of Common Stock, of which
[29,984,235] shares were outstanding on April 23, 1998. If the Reverse Split
Amendment is effected, the number of authorized shares would remain the same,
but the number of shares outstanding would be decreased to approximately
[2,998,424] shares. The rights and preferences of the Common Stock would be
unaffected by the reverse split. Furthermore, the stockholders' percentage
ownership of the Company and the number of Company stockholders should not
materially change as a result of the Reverse Split Amendment being effected. The
par value per share of Common Stock would remain at $0.01 following the reverse
stock split; as a consequence, the aggregate capital in excess of par value
attributable to the outstanding Common Stock for statutory and accounting
purposes would be increased.
Nasdaq Minimum Bid Price
Rule 4450 of the Nasdaq Marketplace Rules currently provides that
issuers listed on the Nasdaq SmallCap Market maintain a minimum bid price of
$1.00 per share for the listed stock.
The Company's shares of Common Stock have intermittently traded below
$1.00 since January 9, 1998. In a letter dated March 25, 1998, The Nasdaq Stock
Market informed the Company that it must effect a reverse stock split prior to
June 2, 1998 to remedy the failure to meet the minimum bid price, unless the
trading price of the Common Stock increases. Failure to meet the minimum bid
price requirement by June 12, 1998 could result in a delisting of the Common
Stock from the Nasdaq SmallCap Market. The Board of Directors believes that such
a delisting could adversely affect the ability of the Company to attract new
investors, may result in decreased liquidity of the outstanding shares of Common
Stock and, consequently, reduce the price at which such shares trade and the
transactions costs inherent to trading shares. The Company believes that, if the
Reverse Split Amendment is approved, there is a greater likelihood that the
minimum bid price of the Common Stock will be maintained at a level over $1.00
per share. Even though a reverse stock split, by itself, does not impact a
corporation's assets or prospects, reverse stock splits can result in a decrease
in the aggregate market value of a corporation's equity capital. The Board of
Directors, however, believes that this risk is off-set by the prospect that the
reverse stock split will improve the likelihood that the Company will be able to
maintain its Nasdaq SmallCap Market listing and may, by increasing the per share
price, make an investment in the Common Stock more attractive for certain
investors. There can be no assurance, however, that approval of the Reverse
Split Amendment will succeed in raising the bid price of the Company's Common
Stock above $1.00 per share, that such minimum price, if achieved, would be
maintained, or that even if the Nasdaq's minimum bid price requirement were
satisfied, the Company's Common Stock would not be delisted from the Nasdaq
SmallCap Market for other reasons.
- 17 -
<PAGE>
Uses for Available Shares of Common Stock
As of April 23, 1998 there were (i) [29,984,235] shares of Common Stock
outstanding; (ii) no shares of Preferred Stock outstanding; (iii)
________________ options granted and not expired, cancelled nor exercised; and
(iv) warrants granted to purchase ____________ shares of Common Stock. As of
April 23, 1998, the Company also had ___________ shares reserved for issuance
upon exercise of options not yet granted under the 1989 Stock Plan, [25,709]
shares reserved for issuance upon exercise of options not yet granted under the
1994 Director Plan and ___________ shares reserved for issuance under its 1994
Employee Stock Purchase Plan, representing an aggregate reserve of _________
shares. The Board desires to increase the reserves under its stock plans, as
discussed in the following proposals. Further, if and when the conversion rates
and anti-dilution adjustments on certain of the outstanding warrants are
triggered by future events as set forth in such instruments, the numbers of
shares of Common Stock issuable upon conversion or exercise of such instruments
may increase.
The Board of Directors believes that it is important to ensure that the
Company will continue to have an adequate number of authorized and unissued
shares of Common Stock to cover its current obligations to issue such shares and
otherwise to be available for future use. If the Reverse Split Amendment is
adopted by the stockholders, the increase in the portion of authorized shares
that would be unissued (the "Increased Available Portion of Shares") would be
available for issuance by the Board of Directors from time to time in the future
to meet its current obligations and for any proper corporate purpose, including
for such corporate purposes as financings, acquisitions, employee benefit plans,
stock splits and stock dividends, as the Board of Directors may deem
appropriate, without the necessity of further amendment to the Restated
Certificate of Incorporation or further stockholder action. The issuance of
additional shares of Common Stock at prices lower than prices paid by current
stockholders for their shares of Common Stock would have a dilative effect on
such existing stockholders.
Exchange of Stock Certificates
If the Reverse Split Amendment is approved by the Company's
stockholders, the Company will instruct its transfer agent to act as its
exchange agent (the "Exchange Agent") in implementing the exchange of
certificates representing outstanding Common Stock.
Commencing on the effective date of the Reverse Split Amendment (the
"Effective Date"), holders of Common Stock will be notified and requested to
surrender their certificates representing shares of Common Stock to the Exchange
Agent in exchange for certificates representing post-reverse split Common Stock.
One share of new Common Stock will be issued in exchange for each ten presently
issued and outstanding shares of Common Stock. Beginning on the Effective Date,
each certificate representing shares of the Company's Common Stock will be
deemed for all corporate purposes to evidence ownership of shares of
post-reverse split Common Stock.
Fractional Shares
No scrip or fractional certificates will be issued in connection with
the Reverse Split Amendment. Stockholders who would otherwise be entitled to
receive fractional shares because they hold a number of shares of Common Stock
not evenly divisible by ten will be entitled, upon surrender to the Exchange
Agent of certificates representing such shares, to receive one additional share
of Common Stock for any fractional share
- 18 -
<PAGE>
to which they would otherwise be entitled. As a result of the Reverse Split
Amendment, stockholders who now own "round lots" may hold "odd lots" and, as a
result, may be subject to increased transaction costs on the sale of their
Common Stock.
Stockholders are encouraged to surrender their certificates to the
Exchange Agent for certificates evidencing whole shares of the Common Stock due
them for fractional interests.
Federal Income Tax Consequences
The Reverse Split Amendment should not result in the recognition of
gain or loss. The holding period of the shares of post-reverse split Common
Stock will include the stockholder's respective holding periods for the shares
of pre-reverse split Common Stock exchanged therefor, provided that the shares
of Common Stock were held as a capital asset. The adjusted basis of the shares
of post-reverse split Common Stock will be the same as the adjusted basis of the
Common Stock exchanged therefor.
Although not free from doubt, the above treatment should also apply
with respect to additional shares received for fractional shares. However, it is
possible that the receipt of additional shares could be wholly or partly
taxable. Holders should consult with their own tax advisors.
No Dissenter's Rights
Under Delaware law, stockholders are not entitled to dissenter's rights
of appraisal with respect to the Reverse Split Amendment.
Vote Required
The Reverse Split Amendment must be approved by the holders of a
majority of the outstanding shares of Common Stock. Accordingly, abstentions and
broker non-votes will have the same effect as a vote against the Reverse Split
Amendment.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL
---
PROPOSAL TO AMEND THE 1989 STOCK PLAN
General
The 1989 Stock Plan (the "Option Plan") was adopted by the Board of
Directors in 1989 and was approved by the stockholders of Procept in June 1994.
Currently, Procept may grant options and award shares under the Option Plan for
a total of 269,588 shares of Common Stock. The purpose of the Option Plan is to
attract and retain key employees and consultants of Procept, to provide
incentives for them to achieve long-range performance goals and to enable them
to participate in the long-term growth of Procept.
The Closing price of Procept's Common Stock on April 23, 1998, as
reported by the Nasdaq National Market was $______ per share.
- 19 -
<PAGE>
Amendment to the Option Plan
The Board of Directors voted on April 6, 1998, subject to the approval
of the stockholders of the Reverse Split amendment and of such Option Plan
amendment, to amend the Option Plan by increasing the aggregate number of shares
that may be subject to grants under the Option Plan from 26,959 shares (after
giving effect to the Reverse Split Amendment) to 1,500,000 shares (after giving
effect to the Reverse Split Amendment) and to extend the expiration date of the
Option Plan to July 1, 2007. The figures presented in this proposal are adjusted
to give effect to the Reverse Split Amendment.
Administration and Eligibility
The Option Plan provides for the grant of stock options (incentive and
nonstatutory), stock awards and authorizations to make direct purchases of
Common Stock from Procept (collectively, "Stock Rights") to employees and
consultants of Procept and its affiliates. As of April 23, 1998, [10] employees
were eligible to participate in the Option Plan. The Compensation Committee may
delegate to one or more officers the power to grant Stock Rights under the
Option Plan to persons other than officers of Procept who are subject to the
reporting requirements of Section 16 of the Exchange Act.
Plan Benefits
Stock Rights are granted at the discretion of the Compensation
Committee, which determines the recipients and establishes the terms and
conditions upon which such Stock Rights will be granted, including the exercise
price, the form of payment of the exercise price, the number of shares subject
to options or other equity rights and the time at which such options become
exercisable. However, the exercise price of any incentive stock option granted
under the Option Plan may not be less than the fair market value of the Common
Stock on the date of grant and the exercise price of any nonstatutory stock
option may not be less than 50% of the fair market value of the Common Stock on
the date of grant.
The amount of Stock Rights to be received under the Option Plan by each
of the executive officers named in the Summary Compensation Table, the current
executive officers of Procept as a group, all current directors who are also
consultants to Procept and all employees, including all current officers of
Procept who are not executive officers, as a group, is not determinable and is
in the discretion of the Compensation Committee. Details on options granted
during the last fiscal year under the Option Plan to certain executive officers
are presented in the tables and text under the heading "EXECUTIVE COMPENSATION."
In general, as of April 23, 1998, options to purchase an aggregate of [95,334]
shares of Common Stock have been granted and not cancelled unexercised under the
Option Plan, of which options to purchase [2,201] shares have been exercised and
options to purchase [29,891] shares were outstanding. In addition, stock awards
for a total of [772] shares of Common Stock have been granted, leaving _______
shares available for future grants of Stock Rights. Of the aggregate number of
options granted, no options have been granted to the current executive officers,
options to purchase an aggregate of [91,014] shares of Common Stock have been
granted to all Named Executive Officers as a group, [1,043] of which have been
exercised, and options to purchase an aggregate of [57,528] shares of Common
Stock have been granted to all other employees, none of which had been
exercised as of April 23, 1998.
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<PAGE>
Federal Income Tax Consequences Relating to Stock Options
Incentive Stock Options. An optionee does not realize taxable income
upon the grant or exercise of an incentive stock option ("ISO") under the Option
Plan.
If no disposition of shares issued to an optionee pursuant to the
exercise of an ISO is made by the optionee within two years from the date of
grant nor within one year from the date of exercise, then (a) upon sale of such
shares, any amount realized in excess of the option price (the amount paid for
the shares) is taxed to the optionee as mid-term or long-term capital gain and
any loss sustained will be a mid-term or long-term capital loss and (b) no
deduction is allowed to Procept for Federal income tax purposes. The exercise of
ISOs gives rise to an adjustment in computing alternative minimum taxable income
that may result in alternative minimum tax liability for the optionee.
If shares of Common Stock acquired upon the exercise of an ISO are
disposed of prior to the expiration of either the two-year or the one-year
holding periods described above (a "disqualifying disposition") then (a) the
optionee realizes ordinary income in the year of disposition in an amount equal
to the excess (if any) of the fair market value of the shares at exercise (or,
if less, the amount realized on a sale of such shares) over the option price
thereof and (b) Procept is entitled to deduct such amount. Any further gain
realized is taxed as a short-term, mid-term or long-term capital gain and does
not result in any deduction to Procept. A disqualifying disposition in the year
of exercise will generally avoid the alternative minimum tax consequences of the
exercise of an ISO.
Nonstatutory Stock Options. No income is realized by the optionee at
the time a nonstatutory option is granted. Upon exercise, (a) ordinary income is
realized by the optionee in an amount equal to the difference between the option
price and the fair market value of the shares on the date of exercise and (b)
Procept receives a tax deduction for the same amount. Upon disposition of the
shares, appreciation or depreciation after the date of exercise is treated as a
short-term, mid-term or long-term capital gain or loss and will not result in
any deduction by Procept.
Vote Required
The affirmative vote by the holders of a majority of the shares of
Common Stock present or represented and entitled to vote at the meeting is
required to approve the amendment to the Option Plan. Broker non-votes will not
be counted as present or represented for this purpose. Abstentions will be
counted as present and entitled to vote and, accordingly, will have the effect
of a negative vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
---
PROPOSAL TO AMEND THE 1994 EMPLOYEE STOCK PURCHASE PLAN
General
The 1994 Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board of Directors on March 2, 1994 and was approved by the stockholders
of Procept in June 1994. Currently, a total of 71,428 shares of Common Stock are
reserved for issuance under the Purchase Plan, of which [25,320] shares have
been issued. The purpose of the Purchase Plan is to provide full-time employees
of Procept an opportunity to purchase Common Stock on favorable terms.
Amendment to the Purchase Plan
The Board of Directors voted on April 6, 1998, subject to the approval
of the stockholders of the Reverse Split Amendment and of such Purchase Plan
amendment, to amend the Purchase Plan by increasing the aggregate number of
shares that may be issued under the Purchase Plan from 7,143 (after giving
effect to
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<PAGE>
the Reverse Split Amendment) shares to 200,000 shares (after giving effect to
the Reverse Split Amendment). The figures presented in this proposal are
adjusted to give effect to the Reverse Split Amendment.
Administration and Eligibility
The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). The purchase price per share of Common Stock in an offering is 85% of
the lower of its fair market value on the first day of an offering period, or
the applicable exercise date and may be paid through regular payroll deductions,
lump sum cash payments or a combination of both, as determined by the Board of
Directors. Eligible employees participate voluntarily and may withdraw from any
offering at any time before Common Stock is purchased. Participation terminates
automatically upon termination of employment for any reason. Rights to purchase
Common Stock under the Purchase Plan are granted at the discretion of the Board
of Directors, which, through an administrator, determines the frequency and
duration of individual offerings under the Plan and the date(s) when stock may
be purchased. The Purchase Plan terminates on March 2, 2004.
In accordance with Section 423 of the Code, no employee may subscribe
for shares under the Purchase Plan if, immediately after having subscribed, the
employee would own 5% or more of the voting power or of the value of all classes
of stock of Procept (including stock which may be purchased through
subscriptions under the Purchase Plan or any other plans) nor may an employee
buy more than $25,000 worth of stock (determined by the fair market value of the
Common Stock at the time the offering begins) through the Purchase Plan in any
calendar year. The Purchase Plan provides that no employee may allocate more
than 15%, or such lesser percentage as the Board of Directors may fix, of the
employee's annual rate of compensation to the purchase of stock through the
Plan.
As of April 23, 1998, [10] employees were eligible to participate in
the Purchase Plan and [2,532] shares of Common Stock had been purchased under
the Purchase Plan, leaving [4,617] shares available for future issuance. Of
these shares, the current executive officers have purchased no shares of Common
Stock, the Named Executive Officers as a group have purchased an aggregate of
[145] shares of Common Stock and all other employees have purchased an aggregate
of [2,387] shares of Common Stock.
Federal Income Tax Consequences Relating to the Purchase Plan
Participants do not realize taxable income at the commencement of an
offering or at the time shares are purchased under the Purchase Plan.
If no disposition of shares purchased under the Purchase Plan is made
by the participant within two years from the offering commencement date nor
within one year from the purchase date, then (a) upon sale of such shares, 15%
of the fair market value of the stock at the commencement of the offering period
(or, if less,
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<PAGE>
the amount realized on sale of such shares in excess of the purchase price) is
taxed to the participant as ordinary income with any additional gain taxed as a
long-term capital gain and any loss sustained is treated as a long-term capital
loss and (b) no deduction is allowed to Procept for Federal income tax purposes.
If the participant dies at any time while owning shares purchased under
the Purchase Plan, then (a) 15% of the fair market value of the stock at the
commencement of the offering period (or, if less, the fair market value of such
shares on the date of death in excess of the purchase price) is taxed to the
participant as ordinary income in the year of death and (b) no deduction is
allowed to Procept for Federal income tax purposes.
If shares of Common Stock purchased under the Purchase Plan are
disposed of prior to the expiration of either the two-year or the one-year
holding periods described above, then (a) the participant realizes ordinary
income in the year of disposition in an amount equal to the excess (if any) of
the fair market value of the shares on the date of purchase (or, if less, the
amount realized on sale of such shares) over the purchase price thereof, and (b)
Procept is entitled to deduct such amount. Any further gain realized is taxed as
a short-term, mid-term or long-term capital gain and will not result in any
deduction by Procept.
Vote Required
The affirmative vote by the holders of a majority of the shares of
Common Stock present or represented and entitled to vote at the meeting is
required to approve the amendment to the Purchase Plan. Broker non-votes will
not be counted as present or represented for this purpose. Abstentions will be
counted as present and entitled to vote and, accordingly, will have the effect
of a negative vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
---
PROPOSAL TO AMEND THE 1994 DIRECTOR STOCK OPTION PLAN
General
The 1994 Director Stock Option Plan (the "Director Plan") was adopted
by the Board of Directors on June 21, 1994 and was approved by the stockholders
of Procept in June 1995. The Director Plan was further amended by the Board of
Directors on January 20, 1997 to modify the timing and amount of grants
thereunder, which amendment did not require stockholder approval. The purpose of
the Director Plan is to attract and retain highly qualified, non-employee
directors of Procept and to encourage ownership of stock of Procept by such
directors so as to provide additional incentives to promote the success of
Procept. Currently, automatic grants of nonstatutory stock options may be made
under the Director Plan for a total of 4,256 shares of Common Stock (after
giving effect to the Reverse Split Amendment), subject to adjustment for stock
splits and similar capital changes, to Eligible Directors, as defined below. As
of April 23, 1998, options to purchase an aggregate of 1,715 shares (after
giving effect to the Reverse Split Amendment) have been granted under the
Director Plan.
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<PAGE>
Amendment to the Director Plan
The Board of Directors voted on April 6, 1998, subject to the approval
of the stockholders of the Reverse Split Amendment and of such Director Plan
Amendment, to amend the Director Plan by increasing the aggregate number of
shares that may be issued under the Director Plan from 4,286 shares (after
giving effect to the Reverse Split Amendment) to 500,000 shares (after giving
effect to the Reverse Split Amendment).
Administration and Eligibility
Awards made pursuant to the Director Plan are intended to be "formula
awards" within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934,
as amended. Directors eligible to participate in the Director Plan ("Eligible
Directors") include any director of Procept who is not any one of: (i) an
employee of Procept or of any subsidiary of Procept, (ii) an employee or
representative of an institutional venture capital investor in Procept, and
(iii) a director subject to any law or contract that prohibits or restricts such
director's ownership of shares of Procept's Common Stock. Currently, Dr.
Horovitz, Dr. Link, Dr. Rogers and Mr. Vernon are Eligible Directors.
The Director Plan, as amended by the Board of Directors on January 20,
1997, provides that each Eligible Director as of January 20, 1997 will be
automatically granted options to purchase 2,858 shares of Common Stock on such
date. Eligible Directors initially elected to the Board of Directors after
January 20, 1997 will be automatically granted options to purchase 2,858 shares
of Common Stock upon such initial election. Upon re-election to the Board of
Directors, all Eligible Directors will automatically receive additional options
to purchase 2,858 shares of Common Stock, except that no options will be granted
to any Eligible Director upon his or her re-election if such Eligible Director
holds options granted under the Director Plan that are not fully exercisable on
the date of such re-election. Options granted under the Director Plan to
Eligible Directors become exercisable with respect to 1,429 shares on the date
of each of the next two annual meetings of stockholders following the date of
grant, so long as the optionee then remains a director of Procept. All options
will have a term of ten years and an exercise price, payable in cash or by check
or in shares of Common Stock, equal to the fair market value of the Common Stock
on the date of grant.
Federal Income Tax Consequences
Options granted under the Plan are nonstatutory options. No income is
realized by the director at the time a nonstatutory option is granted. Upon
exercise, (a) ordinary income is realized by the director in an amount equal to
the difference between the option price and the fair market value of the shares
on the date of exercise and (b) Procept receives a tax deduction for the same
amount. Upon disposition of the shares, appreciation or depreciation after the
date of exercise is treated as a short-term, mid-term or long-term capital gain
or loss and will not result in any deduction by Procept.
Vote Required
The affirmative vote by the holders of a majority of the shares of
Common Stock present or represented, and entitled to vote at the meeting is
required to approve the amendment to the Purchase Plan. Broker non-votes will
not be counted as present or represented for this purpose. Abstentions will be
counted as present and entitled to vote and, accordingly, will have the effect
of a negative vote.
- 24 -
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
INFORMATION CONCERNING AUDITORS
The firm of Coopers & Lybrand L.L.P., independent accountants, examined
Procept's financial statements for the year ending December 31, 1997. The Board
of Directors has appointed Coopers & Lybrand L.L.P. to serve as Procept's
auditors for its fiscal year ending December 31, 1998. Representatives of
Coopers & Lybrand L.L.P. are expected to attend the annual meeting to respond to
appropriate questions, and will have the opportunity to make a statement if they
desire.
DEADLINE FOR STOCKHOLDER PROPOSALS
In order for a stockholder proposal to be considered for inclusion in
Procept's proxy materials for the 1998 annual meeting, it must be received by
Procept at 840 Memorial Drive, Cambridge, Massachusetts 02139, Attention: John
F. Dee, President, no later than December 31, 1998.
EXPENSES OF SOLICITATION
Procept will bear the cost of the solicitation of proxies, including
the charges and expenses of brokerage firms and others of forwarding
solicitation material to beneficial owners of stock. In addition to the use of
mails, proxies may be solicited by officers and any regular employees of Procept
in person or by telephone. Procept expects that the costs incurred in the
solicitation of proxies will be nominal.
OTHER MATTERS
The Board of Directors does not know of any business to come before the
meeting other than the matters described in the notice. If other business is
properly presented for consideration at the meeting, the enclosed proxy
authorizes the persons named therein to vote the shares in their discretion. The
Committee approved option grants to the Chief Executive Officer and the other
executive officers in 1997 as follows: (i) option grants in January 1997 to Mr.
Higgins and Dr. Jenson of 72 shares each as part of a broad program to
acknowledge and reward their efforts in 1996; (ii) option grants effective as of
September 30, 1997 to Mr. Erck and Mr. Higgins of 293,760 and 69,360 shares,
respectively, as part of a company-wide, time-based vesting option grant
program; and (iii) option grants effective as of September 30, 1997 to Mr. Erck
and Mr. Higgins of 138,240 and 32,640 shares, respectively, as part of a
company-wide, milestone-based option grant program.
- 25 -
<PAGE>
(FRONT OF PROXY CARD)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS MAY 14, 1998
PROCEPT, INC.
The undersigned stockholder of Procept, Inc. (the "Company") hereby
appoints John F. Dee and Lynnette C. Fallon, and each of them acting singly, the
attorneys and proxies of the undersigned, with full power of substitution, to
vote on behalf of the undersigned all of the shares of capital stock of the
Company that the undersigned is entitled to vote at the Annual Meeting of
Stockholders of the Company to be held May 14, 1998, and at all adjournments
thereof, hereby revoking any proxy heretofore given with respect to such shares.
This proxy when properly executed will be voted in the manner directed
by the undersigned stockholder(s). If no specification is made, this proxy will
be voted for all proposals. In their discretion, the proxies are also authorized
to vote upon such matters as may properly come before the meeting.
PLEASE SIGN AND MAIL PROXY TODAY
Mark Here For Address Change and Note on Reverse [ ]
(Continued and to be signed on reverse side.)
[SEE REVERSE SIDE]
<PAGE>
(REVERSE OF PROXY CARD)
[ X ] Please mark your votes as this example.
FOR WITHHELD
All nominees For all nominees
1. Proposal to elect directors [ ] [ ]
FOR, except withheld from the following nominee(s):
----------------------------------
Nominees: John F. Dee
Zola P. Horovitz, Ph.D.
Max Link, Ph.D.
Mark C. Rogers, M.D.
Elliott H. Vernon
Michael S. Weiss
FOR AGAINST ABSTAIN
2. Proposal to approve an [ ] [ ] [ ]
amendment of the Company's
Restated Certificate of
Incorporation to effect
a one-for-ten reverse
stock split.
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.
4. 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 200,000 share (after giving
effect to the proposed reverse
stock split).
<PAGE>
5. 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 500,000 shares (after giving
effect to the proposed reverse
stock split).
Signature:__________________________________________ Date: ____________________
Signature:__________________________________________ Date: ____________________
NOTE: Please sign exactly as name appears on stock certificate. When shares
are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
