SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use by the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Procept, Inc.
----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
----------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<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 Paramount Capital, Inc.
at 787 Seventh Avenue, New York, New York at 1:00 p.m. on Friday, June 11, 1999,
for the following purposes:
1. To elect seven directors of Procept.
2. To approve an amendment to Procept's 1998 Equity Incentive Plan
(the "Equity Plan") increasing the aggregate number of shares of
common stock reserved for issuance under the Equity Plan by
3,300,000 from 1,500,000 to 4,800,000.
3. To transact such other business as may properly come before the
meeting.
Only stockholders of record at the close of business on April 15, 1999 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, 1999
<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" or the "Company") for use at the annual meeting of
stockholders to be held at the offices of Paramount Capital, Inc. at 787 Seventh
Avenue, New York, New York at 1:00 p.m. on Friday, June 11, 1999, 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. Procept will exercise discretionary authority to vote valid proxies
on any matter duly considered at the 1999 annual meeting of which Procept did
not have notice prior to March 15, 1999.
On April 15, 1999, Procept had outstanding 11,278,764 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
15, 1999 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, 1999.
April 30, 1999
<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, 1999 by (i)
persons known by Procept to be beneficial owners of more than 5% of the Common
Stock, (ii) the current Chief Executive Officer and the former Chief Executive
Officer1, (iii) each director and nominee for election as a director of Procept,
and (iv) all current 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> <C>
The Aries Trust...................................................... 8,629,411 (2) 56.02%
Aries Domestic Fund, L.P.
Aries Master Fund
Paramount Capital Investments, LLC
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.......................................................... 307,315 (3) 2.65%
Stanley C. Erck...................................................... 30,000 (4) *
Michael S. Weiss..................................................... 249,543 (5) 2.17%
Zola P. Horovitz, Ph.D............................................... 33,734 (6) *
Max Link, Ph.D....................................................... 30,092 (7) *
Mark C. Rogers, M.D.................................................. 20,734 (8) *
Nigel J. Rulewski, M.D............................................... 10,000 *
Elliott H. Vernon.................................................... 20,734 (9) *
All current executive officers and directors as
a group (7 persons).................................................. 702,129(10) 5.87%
</TABLE>
(1) No other executive officers' 1998 salary and bonus exceeded $100,000.
* Indicates less than 1%
(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, 1999 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) Reported ownership consists of:
-2-
<PAGE>
(A) the following holdings of The Aries Trust: (1) 2,815,491 outstanding
shares of Common Stock, (2) 1,201,760 shares issuable on exercise of
Class C Warrants, (3) 79,384 shares issuable upon exercise of 1998 Unit
Purchase Options, (4) 45,640 shares issuable upon exercise of Class C
Warrants issuable on exercise of 1998 Unit Purchase Options, (5) 61,461
shares issuable upon exercise of 1997 Unit Purchase Options originally
issued by Pacific Pharmaceuticals, Inc. ("Pacific"), (6) 9,061 shares
issuable upon exercise of Class A Warrants issuable on exercise of 1997
Unit Purchase Options originally issued by Pacific, (7) 2,716 shares
issuable upon exercise of 1995 Unit Purchase Options originally issued by
Pacific, (8) 3,395 shares issuable upon exercise of Class A Warrants
issuable on exercise of 1995 Unit Purchase Options originally issued by
Pacific, (9) 126,837 shares issuable upon exercise of Class A Warrants
originally issued by Pacific, and (10) 11,408 shares issuable upon
exercise of Common Stock Warrants exercisable at $8.84 per share
originally issued by Pacific;
(B) the following holdings of the Aries Domestic Fund, L.P.: (1)
1,514,653 outstanding shares of Common Stock, (2) 626,142 shares issuable
on exercise of Class C Warrants, (3) 39,100 shares issuable upon exercise
of 1998 Unit Purchase Options, (4) 22,480 shares issuable upon exercise
of Class C Warrants issuable on exercise of 1998 Unit Purchase Options,
(5) 32,197 shares issuable upon exercise of 1997 Unit Purchase Options
originally issued by Pacific, (6) 4,671 shares issuable upon exercise of
Class A Warrants issuable on exercise of 1997 Unit Purchase Options
originally issued by Pacific, (7) 2,716 shares issuable upon exercise of
1995 Unit Purchase Options originally issued by Pacific, (8) 3,395 shares
issuable upon exercise of Class A Warrants issuable on exercise of 1995
Unit Purchase Options originally issued by Pacific, (9) 78,541 shares
issuable upon exercise of Class A Warrants originally issued by Pacific,
and (10) 4,889 shares issuable upon exercise of Common Stock Warrants
exercisable at $8.84 per share originally issued by Pacific;
(C) the following holding of Aries Master Fund: 10,600 outstanding shares
of Common Stock;
(D) the following holdings of Dr. Lindsay A. Rosenwald: (1) 153,246
outstanding shares of Common Stock, (2) 660,770 shares issuable upon
exercise of 1998 Unit Purchase Options, (3) 379,898 shares issuable upon
exercise of Class C Warrants issuable on exercise of 1998 Unit Purchase
Options, (4) 594,825 shares issuable upon exercise of 1997 Unit Purchase
Options originally issued by Pacific, (5) 86,292 shares issuable upon
exercise of Class A Warrants issuable on exercise of 1997 Unit Purchase
Options originally issued by Pacific, (6) 20,879 shares issuable upon
exercise of 1995 Unit Purchase Options originally issued by Pacific, and
(7) 26,099 shares issuable upon exercise of Class A Warrants issuable on
exercise of 1995 Unit Purchase Options originally issued by Pacific; and
(E) the following holding of Paramount Capital Investments, LLC: 10,865
outstanding shares of Common Stock. See "Certain Relationships and
Related Transactions."
(3) Includes 307,315 shares issuable to Mr. Dee upon the exercise of options
currently exercisable or exercisable within 60 days of April 15, 1999.
(4) Mr. Erck was the Chief Executive Officer of the Company until February
1998. Consists solely of shares issuable to Mr. Erck upon the exercise of
options currently exercisable or exercisable within 60 days of April 15,
1999.
(5) Includes 231,650 shares issuable to Mr. Weiss upon the exercise of
options currently exercisable or exercisable within 60 days of April 15,
1999; does not include options held by Hawkins Group, LLC to purchase
units consisting of an aggregate of (A) 152,074 shares of Common Stock
and (B) Class C Warrants to purchase 87,432 shares of Common Stock. Mr.
Weiss is a managing member of the Hawkins Group, LLC and disclaims
beneficial ownership of its shares.
(6) Consists solely of shares issuable to Dr. Horovitz upon the exercise of
options currently exercisable or exercisable within 60 days of April 15,
1999.
(7) Includes 29,877 shares issuable to Dr. Link upon the exercise of options
currently exercisable or exercisable within 60 days of April 15, 1999.
-3-
<PAGE>
(8) Consists solely of shares issuable to Dr. Rogers upon the exercise of
options currently exercisable or exercisable within 60 days of April 15,
1999.
(9) Consists solely of shares issuable to Mr. Vernon upon the exercise of
options currently exercisable or exercisable within 60 days of April 15,
1999.
(10) Includes 673,921 shares of common stock subject to options that are
presently exercisable or will become exercisable within sixty (60) days
of April 15, 1999. See footnotes (3), (5), (6), (7), (8) and (9). Does
not include footnote (4) as Mr. Erck is no longer an executive officer of
Procept.
-4-
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors has fixed the number of directors at seven for the
coming year. The seven persons named below have been nominated for election as
directors at the annual meeting of stockholders to be held on June 11, 1999, to
serve until the next annual meeting of stockholders and until their successors
are elected and qualified. Each of the seven 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: 41 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
1988 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 Chairman 1997
Age: 33 of its Board of Directors, since July 1997. Mr. Weiss is presently
President and Chief Executive Officer of eOncology.com. Prior to
joining eOncology.com, from 1993 to 1999, Mr. Weiss was 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 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.
-5-
<PAGE>
Business Experience During Past Five Director
Name and Age Years and Other Directorships Since
------------ ------------------------------------ ---------
<S> <C> <C>
Zola P. Horovitz, Ph.D. Zola P. Horovitz, Ph.D. has been a director of the Company since 1992. 1992
Age: 64 Dr. Horovitz, currently a consultant to pharmaceutical companies,
served as Vice President - Business Development and 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 publicly traded
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 been a director of the Company since 1995. Dr. 1995
Age: 58 Link has held a number of executive positions with 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.
-6-
<PAGE>
Business Experience During Past Five Director
Name and Age Years and Other Directorships Since
------------ ------------------------------------ ---------
<S> <C> <C>
Mark C. Rogers, M.D. Mark C. Rogers, M.D. has been a director of the Company since December 1997
Age: 56 1997. Dr. Rogers is presently the President of Paramount Capital,
Inc. From 1996 until 1998, Dr. Rogers was Senior Vice President,
Corporate Development and Chief Technology Officer of The Perkin-Elmer
Corporation, a developer, manufacturer and marketer of life science and
analytical instrument systems. 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.
Nigel J. Rulewski, M.D. Nigel J. Rulewski, M.D. has been Chief Medical Officer of Procept since 1999
Age: 45 December 1998 and a director since January 1999. Prior to joining
Procept, Dr. Rulewski has served as Vice President, Clinical Affairs
and Chief Medical Officer for Astra USA from 1989 to 1998. He has
also served in clinical leadership positions at Serono Laboratories (USA),
Fison Corporation (USA), and Kali-Duphar Laboratories (USA). Dr. Rulewski
received a M.B. and a B.S. from St. Bartholomew's Hospital at the
University of London. He is also a Diplomat of the Royal College of
Obstetricians and Gynecologists, as well as a Diplomat of Child Health
of the Royal College of Physicians.
-7-
<PAGE>
Business Experience During Past Five Director
Name and Age Years and Other Directorships Since
------------ ------------------------------------ ---------
<S> <C> <C>
Elliott H. Vernon Elliott H. Vernon has been a director of the Company since December 1997
Age: 56 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.
</TABLE>
The Board of Directors held seven meetings during 1998. 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, except Dr. Rogers, who attended 71% of the aggregate of
all of such meetings.
Procept has standing Audit and Compensation Committees of the Board of
Directors but does not have a Nominating Committee. The Audit Committee, which
during 1998 consisted of Dr. Horowitz and Dr. Link until April 1998 and Dr.
Vernon and Dr. Link thereafter, held one meeting in 1998. 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.
-8-
<PAGE>
EXECUTIVE COMPENSATION
The Compensation Committee Report set forth below describes Procept's
compensation policies applicable to executive officers and the bases for Mr.
Dee's compensation as Chief Executive Officer in 1998. 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, 1998, 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 58 Month Cumulative Total Return* Among Procept, Inc.,
the S&P 500 Index, and the Hambrecht & Quist Biotechnology Index
* $100 INVESTED ON 2/10/94 IN STOCK OR ON 1/31/94 IN INDEX--INCLUDING
INVESTMENT OF DIVIDENDS. FISCAL YEAR ENDED DECEMBER 31.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
2/10/94 1994 1995 1996 1997 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Procept, Inc. $100 $30.15 $37.77 $12.50 $1.68 $0.42
------------------------------------------------------------------------------------------------------------
S&P 500 Index $100 $97.99 $134.82 $165.77 $221.08 $284.25
------------------------------------------------------------------------------------------------------------
Hambrecht & Quist
Biotechnology Index $100 $91.04 $154.87 $142.90 $144.64 $220.26
------------------------------------------------------------------------------------------------------------
</TABLE>
-9-
<PAGE>
Compensation Committee Report on Executive Compensation
During 1998, the Compensation Committee of the Board of Directors (the
"Committee") consisted of Dr. Zola P. Horovitz, Dr. Max Link, and Michael S.
Weiss. 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 and acted once by written consent under Procept's 1998 Equity Incentive
Plan (the "Equity Plan"). During 1998, the Committee met once and acted once by
written consent. During most of 1998, Procept had only one executive officer,
John F. Dee, the Chief Executive Officer of the Company. Stanley Erck, the
former Chief Executive Officer, resigned in February 1998. Dr. Nigel Rulewski,
Chief Medical Officer, joined the Company as an executive officer in December
1998. No executive officer other than Mr. Dee received more than $100,000 in
base salary and bonus during 1998.
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 Equity Plan.
Chief Executive Officer Compensation
Stanley Erck served as Chief Executive Officer of the Company until
February 1998. Mr. Erck's employment with the Company terminated on March 13,
1998. Prior to his termination of employment, Mr. Erck received base
compensation for his service in 1998 at the same rate as he had been paid during
the proceeding three fiscal years.
John Dee commenced service as the Chief Executive Officer in February 1998.
As part of Mr. Dee's offer of employment, his base salary for 1998 was fixed at
$200,000. Mr. Dee is also entitled to a performance bonus of up to $200,000,
subject to the achievement of agreed upon milestones, with a minimum bonus of
$25,000 for his first year of employment. As of the date of this proxy
statement, the Compensation Committee has not yet considered whether Mr. Dee
will receive more than the minimum bonus for 1998.
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.
As part of his severance package, Mr. Erck received an option grant
exercisable for 20,000 at $8.75 per share and an option grant for 10,000 shares
exercisable at $10.00 per share. Both options terminate on February 13, 2001.
Mr. Erck's prior options, to the extent not exercised, terminated on June 29,
1998, 90 days after termination of his employment. See "Severance Agreement."
The Committee approved an option grant to Mr. Dee as part of his offer of
employment, which option was initially exercisable for 415,000 shares at $5.00.
The exercise price of Mr. Dee's option was set at the price per
-10-
<PAGE>
share paid by the investors in Procept's 1998 private placement, which price
exceeded the fair market value of the Common Stock on the date of grant. Mr.
Dee's option grant included provisions to adjust the number of shares and the
exercise price which paralleled antidilution and reset rights held by investors
in Procept's 1998 private placement, thereby keeping Mr. Dee's interests in line
with those of the investors.
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
present and former Chief Executive Officers of Procept and for Nigel Rulewski,
who became an executive officer of Procept in December 1998. No executive
officer of Procept other than Mr. Erck and Mr. Dee received 1998 salary and
bonus in excess of $100,000.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
Securities
Name and Underlying All Other
Principal Position Year Salary ($) Bonus ($) Options (#) Compensation ($)
- ------------------ ---- ---------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
John F. Dee 1998 181,667 0 983,412(2) 0
President, Chief Executive Officer(1)
Stanley C. Erck 1998 48,125(4) 0 30,000 0
President, Chief Executive Officer(3) 1997 231,000 0 43,200 0
1996 231,000 0 1,071 0
Nigel J. Rulewski, M.D.(5) 1998 16,669 55,000 (6) 710,901(7) 0
</TABLE>
- -----------------
(1) Mr. Dee joined Procept as President and Chief Executive Officer in February
1998.
(2) This option was granted in January 1999, but was approved in principal in
1998 in connection with Mr. Dee's offer of employment. This option was
initially exercisable for 415,000 shares, but has been adjusted in
accordance with provisions to adjust the number of shares which paralleled
antidilution and reset rights held by investors in Procept's 1998 private
placement, thereby keeping Mr. Dee's interests in line with those of the
investors.
(3) Mr. Erck resigned as President and chief Executive Officer in February 1998
and left Procept effective as of March 13, 1998. He continued as a
consultant with the Company through August 13, 1998 to assist with
transition matters.
(4) Excludes $182,875 paid pursuant to the terms of Mr. Erck's severance
agreement.
(5) Dr. Rulewski joined Procept as Chief Medical Officer in December 1998.
(6) In lieu of a cash bonus, Mr. Rulewski received 10,000 shares of Procept's
Common Stock.
(7) This option initially was exercisable for 300,000 shares, but has been
adjusted in accordance with provisions to adjust the number of shares which
paralleled antidilution and reset rights held by investors in Procept's
1998 private placement, thereby keeping Dr. Rulewski's interests in line
with those of the investors.
-12-
<PAGE>
The following table provides required information concerning the grant of
stock options under the 1998 Equity Incentive Plan to Mr. Dee, Mr. Erck and Dr.
Rulewski during the last fiscal year. In addition, the table shows hypothetical
gains that could be achieved for the respective options if exercised at the end
of the option term. These gains are based on assumed rates of stock price
appreciation of 5% and 10%, compounded annually, from the date the options were
granted to their expiration date. This table does not take into account any
change in the price of the Common Stock to date, nor does Procept make any
representation regarding the rate of its appreciation.
Option Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value At
Number of Percent of Assumed Annual Rates of
securities total options Stock Price Appreciation For
underlying granted to Exercise or Option Term ($) (1)
options employees in base price Expiration
Name granted (#) fiscal year ($/share) date 5% 10%
---- ----------- ------------ --------- ---- -- ---
(%)
---
<S> <C> <C> <C> <C> <C> <C>
John F. Dee 983,412(2) 49.1 2.11(3) 1/22/09 1,328,984 3,345,275
Stanley C. Erck 20,000(4) 1.0 8.75 2/13/01 110,507 278,905
10,000(4) 0.5 10.00 2/13/01 42,528 126,952
Nigel J. Rulewski, M.D. 710,901(5) 35.5 2.11(3) 12/01/08 1,829,199 3,801,194
</TABLE>
- -----------------
(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) This option was initially exercisable for 415,000 shares, but has been
adjusted in accordance with provisions to adjust the number of shares which
paralleled antidilution and reset rights held by investors in Procept's
1998 private placement, thereby keeping Mr. Dee's interests in line with
those of the investors. This option was immediately vested with respect to
18.75% of such shares and vests in equal quarterly installments of 6.25% of
such shares on each February 1, May 1, August 1, and November 1 through
February 1, 2002. This option has a term of ten years.
(3) These options initially were exercisable at $5.00 per share, but the
exercise price has been adjusted in accordance with provisions to adjust
the exercise price which paralleled antidilution and reset rights held by
investors in Procept's 1998 private placement.
(4) These options vest in equal monthly installments of 8.33% of such shares
beginning on March 13, 1998 and became fully vested on February 13, 1999;
they have a term of three years.
(5) This option initially was exercisable for 300,000 shares, but has been
adjusted in accordance with provisions to adjust the number of shares which
paralleled antidilution and reset rights held by investors in Procept's
1998 private placement, thereby keeping Dr. Rulewski's interests in line
with those of the investors. This option becomes exercisable with respect
to 25% of such shares on each of December 1, 1999, December 1, 2000,
December 1, 2001 and December 1, 2002. This option has a term of ten years.
-13-
<PAGE>
Aggregated Option Exercises In Last Fiscal Year And
Fiscal Year-End Option Value
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised in-the-Money
Options at Options at
Shares Fiscal Year-End (#) Fiscal Year-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable Unexercisable (1)
---- ------------ ------------ ------------- -----------------
<S> <C> <C> <C> <C>
John F. Dee 0 0 184,389/799,023 71,912/311,619
Stanley C. Erck 0 0 25,000/5000 --/--
Nigel J. Rulewski, M.D. 0 0 0/710,901 --/277,251
</TABLE>
- -----------------
(1) Based on the difference between the option exercise price and the closing
price of the underlying Common Stock on December 31, 1998, which closing
price was $2.50.
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, in the event that
Procept terminated Mr. Erck's employment without "cause" or Mr. Erck terminated
his employment with "good reason" (as those terms are defined in the Severance
Agreement), the Company was obligated to 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. Pursuant to the terms of this
agreement, upon termination of Mr. Erck's employment effective March 13, 1998
the Company paid Mr. Erck a lump sum amount for accrued vacation and continued
to pay Mr. Erck his annual base salary in effect on the date of termination for
a twelve month period ended March 13, 1999.
In February 1998, 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, in addition to the benefits under the Severance Agreement,
that Mr. Erck (i) forfeit 1,186 shares of Procept Common Stock in exchange for
Procept's cancellation of debt due to Procept in the aggregate amount of
$102,562 plus accrued interest, (ii) receive certain office equipment having an
aggregate value of less than $2,250, (iii) receive options with respect to an
aggregate of 30,000 shares of Procept Common Stock and (iv) provide consulting
services to the Company through August 13, 1998.
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.
Procept has entered into consulting agreements with each of the members of
the Board of Directors who are not employed by Procept. Pursuant to such
agreements, each such board member is entitled to receive (i) an annual retainer
fee and (ii) a per diem consulting fee. The annual retainer fee is payable in
quarterly installments in either of the following forms as selected by each such
director: (i) $10,000 cash, or (ii) options to purchase shares of common stock
under the 1998 Equity Incentive Plan having an aggregate exercise price of
$20,000. The consulting
-14-
<PAGE>
fee is payable in either of the following forms as selected by each such
director for each day that such director provides consulting services to
Procept: (i) $1,000 in cash, or (ii) options to purchase shares of common stock
under the 1998 Equity Incentive Plan having an aggregate purchase price of
$1,350.
In lieu of options originally in June 1998, on January 22, 1999, each
director who was not an employee of Procept was granted non-qualified options to
purchase 35,000 shares of common stock under the 1998 Equity Incentive Plan with
an exercise price of $5.00. The options were granted the same antidilution and
pricing reset contractual rights as those granted to investors in the Company's
1998 private placement. Pursuant to such rights the exercise price has been
reduced to $2.11 and, as of April 15, 1999, there are 82,938 shares of common
stock underlying each such grant. The options vested as to 25% on January 22,
1999 and will vest as to 25% on each of January 1, 2000, 2001 and 2002.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1998, Procept's Compensation
Committee consisted of Dr. Horovitz, Dr. Link and Mr. Weiss. None of the members
of the Compensation Committee has been an officer or employee of Procept. During
1998, Mr. Weiss was with Paramount Capital, Inc. whose affiliates are
significant stockholders of the Company. See "Certain Relationships and Related
Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Paramount Capital Asset Management, Inc. ("PCAM") is the investment manager
of The Aries Trust and general partner of the Aries Domestic Fund, L.P.,
significant stockholders of the Company (collectively the "Aries Funds").
Lindsay A. Rosenwald, M.D., the Chairman and sole stockholder of PCAM, is also
the President and sole stockholder of Paramount Capital, Inc. ("Paramount").
During 1998, Mr. Weiss, a director and the Chairman of Procept's Board of
Directors, was 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 has 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 1998 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. Such fees totaled $1,274,325.
In addition, the Company will pay Paramount a commission of 5% upon the exercise
of any of the warrants included in the Units.
Pursuant to the placement agency agreement between Procept and Paramount
dated October 26, 1997, in connection with the 1998 Private Placement, 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 (the
"Advisory Agreement") pursuant to which Paramount acts as the Company's
non-exclusive financial advisor. Such engagement provides that Paramount receive
(i) a monthly retainer of $4,000 through June 30, 1999, (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. Under the Advisory Agreement, at the final closing of the 1998
Private
-15-
<PAGE>
Placement, the Company sold to Paramount, for $.001 per option, options to
acquire, on the same terms as under the Placement Options, a number of newly
issued Units equal to 15% of the Units issued in the 1998 Private Placement.
On March 17, 1999 Pacific Pharmaceutical's Inc. ("Pacific") was merged with
and into a wholly-owned subsidiary of Procept. The number of shares of Procept
common stock delivered as the merger consideration was determined through
arms-length negotiation between the parties. Mr. Michael Weiss and Dr. Elliott
Vernon serve on the Board of Directors of Procept and were serving on the Board
of Directors of Pacific at the time of the merger. Both Mr. Weiss and Dr. Vernon
were appointed to these respective board positions pursuant to the contractual
rights of Paramount and its affiliates. In addition, at the time of the merger,
Michael Weiss was an employee of Paramount. Mr. Weiss and Dr. Vernon were not on
the Procept Special Committee of the Board of Directors that authorized the
merger and they abstained from voting when the Pacific Board of Directors voted
to approve the merger. Paramount, certain of whose affiliates were significant
stockholders of Pacific, is entitled to receive a 6% commission in connection
with the merger as well as certain milestone payments payable in shares of
Procept Common Stock valued at $900,000 pursuant to a Financial Advisory
Agreement and an Introduction Agreement, respectively, both by and between
Pacific and Paramount.
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 1998 Procept's
executive officers, directors and 10% beneficial owners complied with all
applicable Section 16(a) filing requirements.
-16-
<PAGE>
PROPOSAL TO AMEND THE 1998 EQUITY INCENTIVE PLAN
General
In November 1998, the Board of Directors approved an amendment and
restatement of the 1989 Stock Option Plan as the 1998 Equity Incentive Plan (the
"Equity Plan"). The purpose of the Equity Plan is to attract and retain key
employees and consultants of the 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 Equity Plan provides for the grant of stock
options (incentive and nonstatutory), stock appreciation rights, performance
shares, restricted stock and stock units ("Awards") to employees and consultants
of the Procept and its affiliates ("Eligible Persons").
Currently, Awards may be made under the Equity Plan for up to a total of
1,500,000 shares of Common Stock, subject to adjustment for stock splits and
similar capital changes. Options may be granted under the Equity Plan through
the assumption or substitution of outstanding grants from an acquired company
without reducing the number of shares available for award under the Equity Plan.
Pursuant to the Agreement and Plan of Merger between Procept, Procept
Acquisition Corp. and Pacific Pharmaceuticals, Inc. ("Pacific") dated December
10, 1998, as amended, Procept assumed Pacific's outstanding option grants
representing 242,181 shares of Procept common stock. The assumption of such
options did not decrease the number of options available for grant under the
Equity Plan.
As of April 15, 1999, 10 employees were eligible to participate in the
Equity Plan and options to purchase an aggregate of 2,659,029 shares of Common
Stock had been granted, excluding the assumed options. Of these options, options
to purchase 144,603 shares had been cancelled, options to purchase 2,204 shares
had been exercised, options to purchase an aggregate of 2,512,222 shares
remained outstanding and an aggregate of 14,334 shares of restricted stock have
been issued under the Equity Plan, leaving 2,271,240 shares available for new
Awards under the Equity Plan, including 3,300,000 shares added by the amendment
for which stockholder approval is sought. No stock appreciation rights,
performance shares, stock units or other stock-based awards have been granted
under the Equity Plan. The closing price of the Company's Common Stock on April
15, 1999, as reported by the Nasdaq SmallCap Market, was $2.00.
Administration and Eligibility
Awards are made by the Compensation Committee which has been designated by
the Board of Directors to administer the Equity Plan. The Compensation Committee
may delegate to one or more officers the power to make awards under the Equity
Plan to persons other than officers of the Company who are subject to the
reporting requirements of Section 16 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Awards under the Equity Plan are granted at the discretion of the
Compensation Committee, which determines the recipients and establishes the
terms and conditions of each award, 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 stock option granted under the Equity Plan may not be
less than the fair market value of the Common Stock on the date of grant.
The Compensation Committee has adopted guidelines for the number of annual
and new hire options awarded to employees of the Company, other than employees
who are subject to Section 16 of the Exchange Act. These guidelines are based on
the salary grade of the employee and provide for the grant of incentive stock
options at fair market value on the date of grant. The Compensation Committee
has delegated to the President the power to make awards under the Equity Plan,
in amounts consistent with the guidelines, to employees that are not subject to
Section 16 of the Exchange Act. The guidelines may be changed by the
Compensation Committee at any time.
Proposed Amendment to the 1998 Equity Incentive Plan
The Board of Directors has voted, subject to approval of the stockholders,
to increase the number of shares of Common Stock that may be subject to Awards
under the Equity Plan by 3,300,000 shares to an aggregate of 4,800,000 shares,
subject to adjustment for stock splits and similar capital changes. This
proposed amendment is
-17-
<PAGE>
intended to ensure that a sufficient number of shares of Common Stock are
available to be issued to Eligible Persons in the future.
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 Equity
Plan.
If no disposition of shares issued to an optionee pursuant to the exercise
of an ISO is made by the optionee both within two years from the date of grant
and 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 long-term capital gain and any loss
sustained will be a long-term capital loss and (b) no deduction is allowed to
the Company 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) the Company is entitled to deduct such amount. Any further gain realized is
taxed as a short-term or long-term capital gain and does not result in any
deduction to the Company. 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)
the Company 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 or long-term capital gain or loss and will not result in any
deduction by the Company.
Vote Required
The affirmative vote by the holders of a majority of the shares present, or
represented by proxy, and entitled to vote at the meeting is required to approve
the amendment to the Equity 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.
-18-
<PAGE>
INFORMATION CONCERNING AUDITORS
The firm of PricewaterhouseCoopers LLP, independent accountants, examined
Procept's financial statements for the year ending December 31, 1998. The Board
of Directors has appointed PricewaterhouseCoopers LLP to serve as Procept's
auditors for its fiscal year ending December 31, 1999. Representatives of
PricewaterhouseCoopers LLP 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
A stockholder who wishes to bring business before or propose director
nominations at the 2000 annual meeting must give written notice to the Secretary
of Procept by March 15, 2000. The notice must contain specified information
about the proposed business or nominee and the stockholder making the proposal
or nomination.
In order for a stockholder proposal to be considered for inclusion in
Procept's proxy materials for the 2000 Annual Meeting of Stockholders, it must
be received by Procept at 840 Memorial Drive, Cambridge, Massachusetts 02139,
Attention: John F. Dee, President, no later than December 31, 1999.
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.
-19-
<PAGE>
(FRONT OF PROXY CARD)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS JUNE 11, 1999
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 June 11, 1999, 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.
<TABLE>
<S> <C> <C> <C>
FOR WITHHELD
All nominees For all nominees
1. Proposal to elect directors [ ] [ ]
FOR, except withheld from the following nominee(s):
</TABLE>
--------------------------------------------------------------------
Nominees: John F. Dee
Zola P. Horovitz, Ph.D.
Max Link, Ph.D.
Mark C. Rogers, M.D.
Nigel Rulewski, M.D.
Elliott H. Vernon
Michael S. Weiss
<TABLE>
<S> <C> <C> <C> <C>
FOR AGAINST ABSTAIN
2. Proposal to approve an [ ] [ ] [ ]
amendment to Procept's 1998 Equity Incentive Plan
(the "Equity Plan") increasing the aggregate number
of shares of common stock reserved for issuance under
the Equity Plan by 3,300,000 from 1,500,000 to 4,800,000.
</TABLE>
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.
<PAGE>
Appendix A
PROCEPT, INC.
1998 EQUITY INCENTIVE PLAN
1989 Stock Option Plan as amended and restated by the Board of Directors on
November 16, 1998 and further amended by Board of Directors on January 22, 1999
and approved by the Stockholders on June ___, 1999.
Section 1. Purpose
The purpose of the Procept, Inc. 1998 Equity Incentive Plan (the "Plan") is
to attract and retain key employees and directors and consultants of the Company
and its Affiliates, to provide an incentive for them to achieve long-range
performance goals, and to enable them to participate in the long-term growth of
the Company by granting Awards with respect to the Company's Common Stock.
Section 2. Definitions
"Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total combined voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right, Performance Share,
Restricted Stock, Stock Unit or Other Stock-Based Award awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor to such Code.
"Committee" means a committee comprised of not less than two members of the
Board appointed by the Board to administer the Plan or a specified portion
thereof. If the Committee is authorized to grant Awards to a Reporting Person or
a Covered Employee, each member shall be a "Non-Employee Director" or the
equivalent within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934 or any successor provision, as applicable to the Company at the time ("Rule
16b-3"), or an "outside director" or the equivalent within the meaning of
Section 162(m) of the Code, respectively. In the event no such Committee is
appointed, then "Committee" means the Board.
"Common Stock" or "Stock" means the Common Stock, $0.01 par value, of the
Company.
"Company" means Procept, Inc.
<PAGE>
"Covered Employee" means a person whose income is subject to Section 162(m)
of the Code.
"Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Committee, to receive amounts due or exercise
rights of the Participant in the event of the Participant's death. In the
absence of an effective designation by a Participant, "Designated Beneficiary"
shall mean the Participant's estate.
"Effective Date" means November 16, 1998.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 that is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 that is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Other Stock-Based Award" means an Award, other than an Option, Stock
Appreciation Right, Performance Share, Restricted Stock or Stock Unit, having a
Common Stock element and awarded to a Participant under Section 11.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Performance Cycle" or "Cycle" means the period of time selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
"Performance Shares" mean shares of Common Stock, which may be earned by
the achievement of performance goals, awarded to a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time during which an Award may be
forfeited to the Company pursuant to the terms and conditions of such Award.
"Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a Participant
under Section 7.
2
<PAGE>
"Stock Unit" means an award of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.
Section 3. Administration
The Plan shall be administered by the Committee, provided that the Board
may in any instance perform any of the functions delegated to the Committee
hereunder. The Committee shall select the Participants to receive Awards and
shall determine the terms and conditions of the Awards. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The Committee's
decisions shall be final and binding. To the extent permitted by applicable law,
the Committee may delegate to one or more executive officers of the Company the
power to make Awards to Participants who are not Reporting Persons and all
determinations under the Plan with respect thereto, provided that the Committee
shall fix the maximum amount of such Awards for all such Participants and a
maximum for any one Participant.
Section 4. Eligibility
All employees and, in the case of Awards other than Incentive Stock
Options, directors and consultants of the Company or any Affiliate, capable of
contributing significantly to the successful performance of the Company, other
than a person who has irrevocably elected not to be eligible, are eligible to be
Participants in the Plan. Incentive Stock Options may be awarded only to persons
eligible to receive such Options under the Code.
Section 5. Stock Available for Awards
(a) Subject to adjustment under subsection (b), Awards may be made under
the Plan for up to 4,800,000 shares of Common Stock. If any Award in respect of
shares of Common Stock expires or is terminated unexercised or is forfeited, the
shares subject to such Award, to the extent of such expiration, termination or
forfeiture, shall again be available for award under the Plan. Common Stock
issued through the assumption or substitution of outstanding grants from an
acquired company shall not reduce the shares available for Awards under the
Plan. Shares issued under the Plan may consist in whole or in part of authorized
but unissued shares or treasury shares.
(b) In the event that the Committee determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Committee (subject, in the case of Incentive
Stock Options, to any limitation required under the Code) shall equitably adjust
any or all of (i) the number and kind of shares in respect of which Awards may
be made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, and (iii) the award, exercise or conversion price with
respect to any of the foregoing, and if
3
<PAGE>
considered appropriate, the Committee may make provision for a cash payment with
respect to an outstanding Award, provided that the number of shares subject to
any Award shall always be a whole number.
Section 6. Stock Options
(a) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options and determine the number
of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The
Committee may impose such conditions with respect to the exercise of Options,
including conditions relating to applicable federal and state securities laws,
as it considers necessary or advisable. The terms and conditions of Incentive
Stock Options shall be subject to and comply with Section 422 of the Code or any
successor provision and any regulations thereunder, and no Incentive Stock
Option may be granted hereunder more than ten years after the Effective Date.
(b) The Committee shall establish the option price at the time each Option
is awarded, which price shall not be less than 100% of the Fair Market Value of
the Common Stock on the date of award with respect to Incentive Stock Options.
Nonstatutory Stock Options may be granted at such prices as the Committee may
determine.
(c) Until the completion of an initial public offering of the Common Stock,
each optionholder shall execute a Stock Purchase and Right of Repurchase
Agreement, substantially in the form of Exhibit 1 hereto, prior to the purchase
of any Stock pursuant to the exercise of Options. Each Option shall be
exercisable at such times and subject to such additional terms and conditions as
the Committee may specify in the applicable Award or thereafter. The Committee
may impose such conditions with respect to the exercise of Options, including
conditions relating to applicable federal or state securities laws, as it
considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of a note or
shares of Common Stock owned by the optionee, including Restricted Stock, or by
retaining shares otherwise issuable pursuant to the Option, in each case valued
at their Fair Market Value on the date of delivery or retention, or such other
lawful consideration as the Committee may determine.
(e) The Committee may provide that, subject to such conditions as it
considers appropriate, upon the delivery or retention of shares to the Company
in payment of an Option, the Participant automatically be awarded an Option for
up to the number of shares so delivered.
Section 7. Stock Appreciation Rights
(a) Subject to the provisions of the Plan, the Committee may award SARs in
tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option. SARs in tandem with an Option shall terminate to the
extent that the related Option is exercised, and the related Option shall
terminate to the extent that the tandem SARs are exercised. The
4
<PAGE>
Committee shall determine at the time of grant or thereafter whether SARs are
settled in cash, Common Stock or other securities of the Company, Awards or
other property, and may define the manner of determining the excess in value of
the shares of Common Stock.
(b) The Committee shall fix the exercise price of each SAR or specify the
manner in which the price shall be determined. SARs granted in tandem with
Options shall have an exercise price not less than the exercise price of the
related Option. SARs granted alone and unrelated to an Option may not have an
exercise price less than 100% of the Fair Market Value of the Common Stock on
the date of grant, provided that such a SAR granted to a new employee or
consultant within 90 days of the date of employment may have a lower exercise
price so long as it is not less than 100% of the Fair Market Value on the date
of employment.
(c) An SAR related to an Option, which SAR can only be exercised upon or
during limited periods following a change in control of the Company, may entitle
the Participant to receive an amount based upon the highest price paid or
offered for Common Stock in any transaction relating to the change in control or
paid during the thirty-day period immediately preceding the occurrence of the
change in control in any transaction reported in the stock market in which the
Common Stock is normally traded.
Section 8. Performance Shares
(a) Subject to the provisions of the Plan, the Committee may award
Performance Shares and determine the number of such shares for each Performance
Cycle and the duration of each Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the duration of Performance
Cycles may differ from each other. The payment value of Performance Shares shall
be equal to the Fair Market Value of the Common Stock on the date the
Performance Shares are earned or, in the discretion of the Committee, on the
date the Committee determines that the Performance Shares have been earned.
(b) The committee shall establish performance goals for each Cycle, for the
purpose of determining the extent to which Performance Shares awarded for such
Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time select. During any Cycle, the
Committee may adjust the performance goals for such Cycle as it deems equitable
in recognition of unusual or non-recurring events affecting the Company, changes
in applicable tax laws or accounting principles, or such other factors as the
Committee may determine.
(c) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares that have been earned
on the basis of performance in relation to the established performance goals.
The payment values of earned Performance Shares shall be distributed to the
Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee shall determine,
at or after the time of award, whether payment values will be settled in whole
or in part in cash or other property, including Common Stock or Awards.
5
<PAGE>
Section 9. Restricted Stock
(a) Subject to the provisions of the Plan, the Committee may award shares
of Restricted Stock and determine the duration of the Restricted Period during
which, and the conditions under which, the shares may be forfeited to the
Company and the other terms and conditions of such Awards. Shares of Restricted
Stock may be issued for no cash consideration or such minimum consideration as
may be required by applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Notwithstanding the foregoing, in the Committee's
discretion, Awards in the form of Restricted Stock may be made transferable to a
limited liability company controlled solely by the Participant. Shares of
Restricted Stock shall be evidenced in such manner as the Committee may
determine. Any certificates issued in respect of shares of Restricted Stock
shall be registered in the name of the Participant and unless otherwise
determined by the Committee, deposited by the Participant, together with a stock
power endorsed in blank, with the Company. At the expiration of the Restricted
Period, the Company shall deliver such certificates to the Participant or if the
Participant has died, to the Participant's Designated Beneficiary.
Section 10. Stock Units
(a) Subject to the provisions of the Plan, the Committee may award Stock
Units subject to such terms, restrictions, conditions, performance criteria,
vesting requirements and payment rules as the Committee shall determine.
(b) Shares of Common Stock awarded in connection with a Stock Unit Award
shall be issued for no cash consideration or such minimum consideration as may
be required by applicable law.
Section 11. Other Stock-Based Awards
(a) Subject to the provisions of the Plan, the Committee may make other
awards of Common Stock and other awards that are valued in whole or in part by
reference to, or are otherwise based on, Common Stock, including without
limitation convertible preferred stock, convertible debentures, exchangeable
securities and Common Stock awards or options. Other Stock-Based Awards may be
granted either alone or in tandem with other Awards granted under the Plan
and/or cash awards made outside of the Plan.
(b) The Committee may establish performance goals, which may be based on
performance goals related to book value, subsidiary performance or such other
criteria as the Committee may determine, Restricted Periods, Performance Cycles,
conversion prices, maturities and security, if any, for any Other Stock-Based
Award. Other Stock-Based Awards may be sold to Participants at the face value
thereof or any discount therefrom or awarded for no consideration or such
minimum consideration as may be required by applicable law.
6
<PAGE>
Section 12. General Provisions Applicable to Awards
(a) Limitations on Grants of Options and SARs. Subject to adjustment under
Section 5(b), the number of shares subject to Options and SARs granted to any
one individual during any fiscal year may not exceed 1,000,000 shares.
(b) Reporting Person Limitations. Notwithstanding any other provision of
the Plan, to the extent required to qualify for the exemption provided by Rule
16b-3, Awards made to a Reporting Person shall not be transferable by such
person other than by will or the laws of descent and distribution or, if then
permitted by Rule 16b-3, pursuant to a qualified domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder, and are exercisable during such person's lifetime only by
such person or by such person's guardian or legal representative.
(c) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable tax and regulatory
laws and accounting principles.
(d) Committee Discretion. Each type of Award may be made alone, in addition
to or in relation to any other type of Award. The terms of each type of Award
need not be identical, and the Committee need not treat Participants uniformly.
Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
(e) Settlement. The Committee shall determine whether Awards are settled in
whole or in part in cash, Common Stock, other securities of the Company, Awards
or other property. The Committee may permit a Participant to defer all or any
portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on amounts
denominated in Common Stock.
(f) Dividends and Cash Awards. In the discretion of the Committee, any
Award under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(g) Termination of Employment. The Committee shall determine the effect on
an Award of the disability, death, retirement or other termination of employment
of a Participant and the extent to which, and the period during which, the
Participant's legal representative, guardian or Designated Beneficiary may
receive payment of an Award or exercise rights thereunder.
(h) Change in Control. In order to preserve a Participant's rights under an
Award in the event of a change in control of the Company, the Committee in its
discretion may, at the time an Award is made or at any time thereafter, take one
or more of the following actions: (i) provide for the acceleration of any time
period relating to the exercise or realization of the Award, (ii) provide for
the purchase of the Award upon the Participant's request for an amount of cash
or
7
<PAGE>
other property that could have been received upon the exercise or realization of
the Award had the Award been currently exercisable or payable, (iii) adjust the
terms of the Award in a manner determined by the Committee to reflect the change
in control, (iv) cause the Award to be assumed, or new rights substituted
therefor, by another entity, or (v) make such other provision as the Committee
may consider equitable and in the best interests of the Company.
(i) Loans. The Committee may authorize the making of loans or cash payments
to Participants in connection with any Award under the Plan, which loans may be
secured by any security, including Common Stock, underlying or related to such
Award (provided that such Loan shall not exceed the Fair Market Value of the
security subject to such Award), and which may be forgiven upon such terms and
conditions as the Committee may establish at the time of such loan or at any
time thereafter.
(j) Withholding Taxes. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(k) Foreign Nationals. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or to comply with applicable
laws.
(l) Amendment of Award. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
Section 13. Miscellaneous
(a) No Right To Employment. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.
(b) No Rights As Stockholder. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
stockholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
8
<PAGE>
(c) Effective Date. Subject to the approval of the stockholders of the
Company, this 1998 Equity Incentive Plan will become effective on November 16,
1998. Prior to such approval, Awards may be made under the Plan expressly
subject to such approval.
(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, subject to any stockholder approval that the
Board determines to be necessary or advisable.
(e) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of Delaware.
-----------------------------------------
9
