<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-21134
PROCEPT, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 04-2893483
-------- ----------
<S> <C>
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
840 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139
-------------------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
Registrant's telephone number, including area code: (617) 491-1100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES_X_ NO___
Number of shares outstanding of each of the issuer's classes of common stock, as
of latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AS OF JULY 28,1999
----- ------------------------------
<S> <C>
Common Stock, $.01 par value 14,053,095
</TABLE>
Exhibit Index Appears on Page 20
<PAGE>
PROCEPT, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets 3
June 30, 1999 and December 31, 1998
Statements of Operations 4
Three months and six months ended June 30, 1999 and 1998
Statements of Cash Flows 5
Six months ended June 30, 1999 and 1998
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
EXHIBIT INDEX 20
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROCEPT, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,670,145 $ 2,885,165
Marketable securities 1,000,000 2,003,755
Investment in Aquila 324,138 568,988
Prepaid expenses and other current assets 309,054 182,925
------------ ------------
Total current assets 6,303,337 5,640,833
------------ ------------
Property and equipment, net 99,605 180,452
Deferred charges -- 176,025
Deposits 7,150 190,615
------------ ------------
Total assets $ 6,410,092 $ 6,187,925
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 502,144 $ 268,815
Notes payable to related party 200,000 --
Accrued compensation 319,911 54,511
Accrued acquisition costs 366,759 --
Other current liabilities 259,790 282,479
Current portion of capital lease obligations 4,599 --
------------ ------------
Total current liabilities 1,653,203 605,805
------------ ------------
Deferred rent 137,121 185,615
Capital lease obligations 16,859 --
------------ ------------
Total liabilities 1,807,183 791,420
------------ ------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, par value $.01 per share; 1,000,000 shares authorized:
Series A, 0 and 1 share(s) designated at June 30, 1999
and December 31, 1998; 0 shares issued and outstanding at
June 30, 1999 and December 31, 1998 -- --
Common stock, $.01 par value; 30,000,000 shares authorized;
14,043,095 and 3,001,832 shares issued at June 30, 1999 and
December 31, 1998, respectively 140,432 30,018
Additional paid-in capital 81,079,510 70,458,992
Deferred compensation (75,733) (88,716)
Accumulated deficit (76,542,511) (65,264,520)
Accumulated other comprehensive income 13,068 272,588
Treasury stock, at cost; 1,186 shares at June 30, 1999 and
December 31, 1998, respectively (11,857) (11,857)
------------ ------------
Total shareholders' equity 4,602,909 5,396,505
------------ ------------
Total liabilities and shareholders' equity $ 6,410,092 $ 6,187,925
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
PROCEPT, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Research and development revenue
under collaborative agreements
from related party $ -- $ -- $ -- $ 109,375
Interest income 73,527 75,840 155,380 80,499
------------ ------------ ------------ ------------
Total revenues $ 73,527 $ 75,840 155,380 189,874
------------ ------------ ------------ ------------
Costs and expenses:
Research and development 364,737 522,061 584,230 1,335,298
General and administrative 487,907 450,838 977,988 973,100
Charge for purchased in-process
research and development -- -- 9,405,671 --
Restructuring -- -- -- 225,000
Other (income) expense, net 7,419 3,884 (35,973) 4,108
------------ ------------ ------------ ------------
Total costs and expenses 860,063 976,783 10,931,916 2,537,506
------------ ------------ ------------ ------------
Net loss $ (786,536) $ (900,943) $(10,776,536) $ (2,347,632)
------------ ------------ ------------ ------------
Less: Incremental charge associated
with the conversion of the
minority interest in a
subsidiary, net 501,455 -- 501,455 --
------------ ------------ ------------ ------------
Net loss available to common
shareholders $ (1,287,991) $ (900,943) $(11,277,991) $ (2,347,632)
============ ============ ============ ============
Basic and diluted net loss per
common share $ (0.12) $ (0.32) $ (1.54) $ (1.40)
============ ============ ============ ============
Weighted average number of
common shares outstanding
-- basic and diluted 10,946,591 2,813,717 7,333,035 1,681,807
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
PROCEPT, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(10,776,536) $ (2,347,632)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 76,279 369,067
Gain on sale of equipment (24,550) (152,589)
Charge for purchased in-process research and development 9,405,671 --
Compensatory stock and stock option expense 95,923 7,164
Savings and Retirement Plan stock contribution -- 43,238
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable -- 97,340
Prepaid expense and other current assets (98,058) 34,317
Deposits 183,465 --
Accounts payable (212,205) (736,645)
Accrued compensation (25,028) (136,160)
Deferred rent (48,494) (26,854)
Other current liabilities (660,537) 98,286
Other non-current liabilities -- (96,875)
------------ ------------
Net cash used in operating activities (2,084,070) (2,847,343)
------------ ------------
Cash flows from investing activities:
Capital expenditures -- (319,669)
Proceeds from sale of equipment 29,119 240,874
Proceeds from maturity of marketable securities 989,086 --
Cash acquired in the acquisition of Pacific Pharmaceuticals 2,750,097 --
------------ ------------
Net cash (used in) provided by investing activities 3,768,302 (78,795)
------------ ------------
Cash flows from financing activities:
Payment of note payable (85,000) --
Principal payments on capital lease (1,752) (20,231)
Proceeds for the exercise of common stock warrant 187,500 --
Proceeds from private placement of common stock -- 9,802,500
Expenses from private placement of common stock -- (1,602,851)
------------ ------------
Net cash (used in) provided by financing activities 100,748 8,179,418
------------ ------------
Net change in cash and cash equivalents 1,784,980 5,253,280
Cash and cash equivalents at beginning of period 2,885,165 535,242
------------ ------------
Cash and cash equivalents at end of period $ 4,670,145 $ 5,788,522
============ ============
Supplement disclosures and non-cash transactions:
Cash paid for interest $ 970 $ 4,472
============ ============
Stock options issued for consulting services $ -- $ 25,164
============ ============
Savings and Retirement Plan stock contribution $ -- $ 43,238
============ ============
Common stock issued to acquire Pacific Pharmaceuticals $ 3,766,913 $ --
============ ============
Common stock issued to acquire minority interest in subsidiary $ 4,160,363 $ --
============ ============
Common stock options issued to acquire Pacific Pharmaceuticals $ 965,835 $ --
============ ============
Common stock issued to pay off loans $ 441,870 $ --
============ ============
Common stock issued for services $ 35,000 $ --
============ ============
Common stock issued in settlement of legal action $ 135,002 $ --
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
NATURE OF BUSINESS
Procept, Inc. ("Procept" or the "Company"), located in Cambridge, MA, is a
biopharmaceutical company currently engaged in the development and
commercialization of novel drugs with a product portfolio focused on infectious
diseases and oncology. As discussed more fully in Note 7, on March 17, 1999,
Procept consummated its merger with Pacific Pharmaceuticals, Inc. ("Pacific") in
which Pacific became a subsidiary of Procept. The combined company has three
compounds in human clinical trials, two of which have substantial government
funding and support. Procept is continuing its search to acquire or in-license
additional drug development candidates to broaden its drug development pipeline
and position itself as a successful biopharmaceutical development company.
The Company is subject to risks common to companies in the biotechnology
industry including, but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, compliance with FDA government regulations
and the ability to obtain financing.
PLAN OF OPERATIONS
Since its inception in 1985, Procept has devoted its principal efforts to drug
discovery and research. The Company is now devoting its principal efforts to
drug development, human clinical trials, partnership commercialization, and
in-licensing efforts.
Procept has generated no revenue from product sales, has not been profitable
since inception, and has incurred an accumulated deficit of $76.5 million
through June 30, 1999. Losses have resulted principally from costs incurred in
research and development activities related to the Company's efforts to develop
drug candidates and from the associated administrative costs. The Company
expects to incur significant additional operating losses over the next several
years and expects cumulative losses to increase substantially due to preclinical
and clinical testing, and development of marketing, sales and production
capabilities. Procept's future plans will focus on drug development rather than
research. The Company is seeking strategic partnering opportunities for its lead
compounds to accelerate revenue and minimize the investment required for
marketing, sales and production capabilities.
The Company expects that its current funds and interest income will be
sufficient to fund Procept's operations through June 2000. Although management
continues to pursue additional funding arrangements and/or strategic partnering,
there can be no assurance that additional funding will be available from any of
these sources or, if available, will be available on acceptable or affordable
terms. If the Company is unable to enter into an additional corporate
collaboration(s) that produce revenue for the Company, or secure additional
financing, the Company's financial condition will be adversely affected.
The accompanying financial statements for the three- and six-month periods ended
June 30, 1999 and 1998 are unaudited and have been prepared by the Company in
accordance with generally accepted accounting principles. These interim
financial statements, in the opinion of management, reflect all adjustments
(consisting only of normal
6
<PAGE>
NOTES TO FINANCIAL STATEMENTS
recurring accruals) necessary for a fair presentation of the results for the
interim periods ended June 30, 1999 and 1998. The results of operations for the
interim periods are not necessarily indicative of the results of operations to
be expected for the fiscal year. These interim financial statements should be
read in conjunction with the audited financial statements for the year ended
December 31, 1998 which are contained in the Company's 1998 Annual Report on
Form 10-K.
2. SHAREHOLDERS' EQUITY
On December 31, 1998, the Company had a total of 3,001,832 shares of common
stock outstanding. During the six months ending June 30, 1999, the Company
issued 11,041,263 new shares of common stock. These issuances resulted from the
acquisition of Pacific Pharmaceuticals, Inc. ("Pacific") and contractual
obligations associated with the 1998 subscription agreements entered into in
connection with the Company's 1998 private placement (the "1998 Subscription
Agreements") in which the Company raised $8.3 million, net. The following
section summarizes the recent issuances of the Company's common stock.
On March 15, 1999, the Company issued 36,785 shares of its common stock to
Commonwealth Associates in connection with the settlement of the litigation
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998. On the same date, the Company issued 2,724 shares of its
common stock to The Harvard School of Dental Medicine as partial satisfaction of
certain contractual obligations of Pacific.
On March 17, 1999, Pacific was merged with, and became a wholly owned subsidiary
of, the Company. In connection with the merger, each share of Pacific common
stock (including preferred stock on an as converted basis) was converted into
approximately 0.11 shares of Procept common stock or a total of 2,755,000
Procept shares; an additional 414,584 Procept shares were issued to holders of
Pacific's preferred stock, for a total of 3,169,584 shares (of which 1,558,587
shares issued in the merger to holders of Pacific preferred stock were
accompanied by certain contractual rights similar to those held by purchasers in
Procept's 1998 private placement). The Company also issued 88,374 shares of its
common stock in exchange for the cancellation of certain indebtedness of
Pacific.
The issuance of common stock in connection with the Pacific merger was a
dilutive issuance under the terms of the 1998 Subscription Agreements. As a
result, on March 17, 1999 pursuant to anti-dilution provisions of the 1998
Subscription Agreements, the Company issued 1,005,058 shares of its common stock
to purchasers in the 1998 private placement and certain other stockholders with
identical contractual rights. In addition, the exercise price of the Company's
Class C Warrants issued in the 1998 private placement was reduced from $5.00 to
$3.67 as a result of the dilutive issuance.
On April 9, 1999, pursuant to the contractual reset provision contained in the
1998 Subscription Agreements, the Company issued 3,885,851 shares of its common
stock to the purchasers in the 1998 private placement and certain other
stockholders with identical contractual rights.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
On May 18, 1999, the Company issued 51,087 shares of its common stock in
connection with the exercise of a common stock warrant.
On June 22, 1999, the Company issued 16,500 shares of its common stock as
bonuses to certain employees. In addition, on June 22, 1999, the Company issued
11,725 of its common stock as partial satisfaction of certain financial
obligations.
On June 30, 1999, the Company issued 2,773,575 shares of its common stock and
924,525 Class D Warrants to purchase common stock to convert the minority
interest in its majority owned subsidiary BG Development Corp. ("BGDC"),
thereby eliminating a $6.5 million obligation while obtaining 100% ownership
in BGDC. The 2,773,575 common shares issued in the conversion were valued at
$2.11 per share. The shares have contractual rights identical to those held
by purchasers in Procept's 1998 private placement. The Class D Warrants
exercisable for an aggregate of 924,525 shares of the Company's common stock
at $2.11 per share expire June 30, 2004. The total value of the shares plus
the warrants (utilizing the Black-Scholes valuation method), minus the book
value of the minority interest in BGDC resulted in an incremental charge
against earnings of $501,000 during the period. This issuance was a dilutive
event under the terms of the Class C Warrant Agreement. Accordingly the
exercise price of each Class C Warrant was reduced from $3.67 to $3.28.
3. RESEARCH COLLABORATIONS
In January 1996, Procept entered into a Sponsored Research Agreement with
VacTex, Inc. ("VacTex"). Under the Sponsored Research Agreement, Procept
conducted specified research tasks on behalf of VacTex for which Procept
received a combination of cash and equity in VacTex based on the number of
full-time equivalent employees of Procept engaged in the research, but subject
to maximum cash and stock limits. At December 31, 1997, the Company's investment
in VacTex was accounted for under the cost method since it was a restricted
security, it did not have a readily determinable fair value and Procept owned
less than twenty percent of VacTex.
On April 13, 1998, Aquila Biopharmaceuticals, Inc. ("Aquila") acquired VacTex.
The Company's investment in VacTex of 300,000 shares of common stock was
converted to 113,674 shares of Aquila common stock and $128,501 principal amount
of 7% debentures. On July 15, 1999, the Company redeemed the Aquila 7%
debentures. The Company received $139,758 representing the principal and accrued
interest due at the time of redemption. As a result, the Company is accounting
for its investment in Aquila under Statement of Financial Accounting Standards
("SFAS") 115, "Accounting for Certain Investments in Debt and Equity Securities"
as an available for sale security and marked it to market by recognizing an
accumulated unrealized net gain of $13,068 as part of Shareholders' Equity,
based on Aquila's common stock closing price on June 30, 1999.
4. RESTRUCTURING
In January 1998, the Company terminated work on all research programs and
underwent a significant downsizing, reducing its staff to 10 people. Due to the
restructuring and focus on the clinical development of PRO 2000 Gel, the Company
has sold and plans to continue to sell most of its research equipment. For the
six months ended June 30,
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1999, the Company received approximately $29,000 from the sale of equipment and
has recorded a gain of approximately $25,000 in other expenses.
5. BASIC AND DILUTED NET (LOSS) PER COMMON SHARE
In the quarter ended December 31, 1997, the Company adopted SFAS 128, "Earnings
Per Share," which modifies the way in which earnings per share ("EPS") is
calculated and disclosed. Basic EPS excludes dilution and is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding for the period. Diluted EPS is based upon the
weighted average number of common shares outstanding during the period plus the
additional weighted average common equivalent shares during the period. Common
equivalent shares are not included in the per share calculations where the
effect of their inclusion would be anti-dilutive. Common equivalent shares
result from the assumed exercises of outstanding stock options and warrants, the
proceeds of which are then assumed to have been used to repurchase outstanding
stock options using the treasury stock method. For the three- and six-month
periods ended June 30, 1999, there were no dilutive securities.
6. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income." This statement requires changes in comprehensive income
to be shown in a financial statement that is displayed with the same prominence
as other financial statements. The Company has adopted SFAS 130 in the
accompanying financial statements and will provide such information annually in
its Statement of Shareholders' Equity and in a footnote disclosure for interim
periods. Accumulated other comprehensive income is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------- ----------- --------------- --------
<S> <C> <C> <C> <C>
Net loss $(786,536) $(900,943) $(10,776,536) $(2,347,632)
Change in unrealized gain
on investments (51,543) 304,568 (259,520) 304,568
Comprehensive loss $(838,079) $(596,375) $(11,036,056) $(2,043,064)
========== ========== ============= ============
Unrealized gain on investments:
Balance at December 31, 1998 $ 272,588
Change during the six months ended June 30, 1999 (259,520)
--------------
Balance at June 30, 1999 $ 13,068
=============
</TABLE>
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
7. ACQUISITION OF PACIFIC PHARMACEUTICALS, INC.
On December 10, 1998, Procept entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement") to acquire Pacific Pharmaceuticals, Inc.
("Pacific"), a Delaware corporation engaged in the development of cancer
therapies, based in San Diego, California, through a merger of a wholly owned
subsidiary of Procept with and into Pacific. The acquisition of Pacific
Pharmaceuticals closed on March 17, 1999.
The acquisition of Pacific was accounted for under the purchase accounting
method. The aggregate purchase price of $3.8 million, plus estimated acquisition
costs of $1.5 million, assumed liabilities (including a $200,000 note payable to
a significant shareholder of the Company) of $5.7 million and $1.0 million for
the value of the stock options and warrants being issued to the Pacific
shareholders were allocated to the acquired tangible and intangible assets based
on their estimated respective fair values. Approximately $9.4 million of the
purchase price has been allocated to in-process research and development and
expensed in the quarter ended March 31, 1999. The charge for in-process research
and development represents the value assigned to Pacific's programs that are
still in the development stage and for which there is no alternative future use.
The value assigned to these programs has been developed by determining the fair
value of these programs, as provided by an independent valuation of the Pacific
business.
The valuation methodology was based on estimated discounted cash flows. Recent
Securities and Exchange Commission ("SEC") guidelines on valuation methodologies
for in-process research and development are still evolving. The amount written
off may be subject to adjustment as the SEC continues to focus on accounting for
acquired in-process research and development.
Pursuant to the Merger Agreement, each share of Pacific common stock (including
preferred stock on an as converted basis into common stock) converted into
approximately 0.11 shares of Procept common stock or a total of 2,755,000
Procept shares and an additional 414,584 Procept shares were issued to holders
of Pacific's preferred stock for a total of 3,169,584 Procept shares (of which
1,558,587 shares of Procept common stock issued in the merger to holders of
Pacific preferred stock were accompanied by certain contractual rights identical
to contractual rights held by purchasers in Procept's 1998 private placements).
In addition, Procept exchanged all Pacific's outstanding warrant, unit purchase
option and stock option obligations into approximately 1,773,078 like
instruments of Procept. Procept also assumed an approximately $6.5 million, net
obligation (payable in cash or common stock of Procept, at the sole option of
the Company) of Pacific's subsidiary, BG Development Corp. ("BGDC"). On June 30,
1999, the Company issued 2,773,575 shares of its common stock and 924,525 Class
D Warrants to convert the obligations to the minority shareholders of BGDC. The
shares have contractual rights identical to those held by purchasers in
Procept's 1998 private placement. The Class D Warrants are exercisable for an
aggregate of 924,525 shares of the Company's common stock at $2.11 per share
and expire on June 30, 2004. As a result of the merger with Pacific, Procept
also issued approximately 1,005,058 shares of its common stock to purchasers in
Procept's 1998 private placement and certain other stockholders pursuant to
certain contractual anti-dilution rights.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
PRO FORMA RESULTS OF OPERATION
The following unaudited pro forma results of operations for the six months ended
June 30, 1999 and 1998 give effect to the Company's acquisition of Pacific as if
the transaction had occurred at the beginning of each period. The pro forma
results of operation exclude the charge for in-process research and development
of $9.4 million that was recorded with the acquisition in 1999, and do not
purport to reflect what the Company's results of operations actually would have
been if the acquisition had occurred as of the beginning of the periods, or what
such results will be for any future period. The financial data are based upon
financial assumptions that the Company believes are reasonable and should be
read in conjunction with the consolidated financial statements and accompanying
notes thereto included elsewhere in this report.
<TABLE>
<CAPTION>
Pro Forma Results for the
Six Months Ended June 30,
----------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues $193,258 $289,814
Net loss $(2,180,182) $(4,361,513)
Basic and diluted net loss
per common share $(0.29) $(1.98)
</TABLE>
8. NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS 137 amends SFAS 133, Accounting
for Derivative Instruments and Hedging Activities, which was issued in June 1998
and was to be effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. SFAS 137 defers the effective date of SFAS 133 to June 15, 2000.
Earlier application is permitted. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
While management has not determined the impact of the new standard, it is not
expected to be material to the Company.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5
requires all costs of start-up activities (as defined by SOP 98-5) to be
expensed as incurred. This statement has no impact on the Company.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
OVERVIEW
Procept, Inc. ("Procept" or the "Company") is currently engaged in the
development and commercialization of novel drugs with a product portfolio
focused on infectious diseases and oncology. This includes three compounds in
human clinical trials that may be candidates for accelerated regulatory
approval. On March 17, 1999, Procept consummated its merger with Pacific
Pharmaceuticals, Inc. ("Pacific") in which Pacific became a subsidiary of
Procept. Procept is also continuing its search to acquire or in-license new drug
development candidates to broaden its drug development pipeline and position
itself as a successful biopharmaceutical development company.
PRO 2000 GEL is a vaginal, topical microbicide designed to provide protection
against human immunodeficiency virus ("HIV") infection and other sexually
transmitted diseases ("STDs"). PRO 2000 Gel was recently shown to protect female
monkeys from infection by an AIDS-causing virus. In earlier studies, PRO 2000
Gel protected mice from genital herpes simplex virus type 2 ("HSV-2") infection.
Laboratory studies have also shown that the product is active against CHLAMYDIA
TRACHOMATIS and NEISSERIA GONORRHEA, two other important STD pathogens. Two
Phase I clinical trials, completed in 1997, showed that daily intravaginal doses
of 4% PRO 2000 Gel are safe and well tolerated in healthy, sexually abstinent
women. A larger safety study to evaluate the safety and acceptability of PRO
2000 Gel in healthy, sexually active women and in HIV-infected women is
scheduled to begin shortly in the United States and South Africa, with support
from the National Institute of Allergy and Infectious Diseases ("NIAID"), a unit
of the National Institutes of Health ("NIH").
In 1998, the National Cancer Institute ("NCI") of the NIH and Pacific, Procept's
subsidiary, signed a Cooperative Research and Development Agreement ("CRADA") to
further the Phase I and Phase II development of the proprietary chemosensitizing
agent O(6)-BENZYLGUANINE ("BG"). Pacific's collaborators believe that BG may be
capable of destroying the resistance of cancer cells to a class of
chemotherapeutic agents known as O(6)-alkylating agents, currently used to treat
various cancers such as brain, melanoma and lymphoma. BG may also enable the use
of these agents in other cancers previously thought to be unresponsive, such as
colon, lung, and breast, which may expand their utility and effectiveness to
provide treatment to a broad patient base. Multiple Phase I human clinical
trials are nearing completion in different cancer types including brain and
colon cancer. Upon completion, the Company and the NCI intend to initiate
several Phase II efficacy studies in several cancer indications.
Procept's photodynamic therapy compound, BORONATED PROTOPORPHYRIN ("BOPP"), is
currently completing a Phase I study in brain cancer patients at the Royal
Melbourne Hospital, Australia under a United States Investigational New Drug
Application filed with the Food and Drug Administration in March 1998. One of
the world's experts in photodynamic therapy ("PDT") for the treatment of brain
cancer, Dr. Andrew Kaye, is overseeing the clinical trials. PDT may be suitable
for use in a variety of disorders including cancers and pre-cancerous conditions
such as Barrett's esophagus and cervical dysplasia. Light is used to activate a
photosensitizing drug selective to tumor cells, resulting
12
<PAGE>
in tumor cell death. The Company believes that BOPP's apparent degree of
selectivity to tumor cells and cell killing capabilities are a potential
competitive advantage against other PDT compounds.
RESULTS OF OPERATIONS
Since its inception in 1985, Procept has devoted its principal efforts to drug
discovery and research. Procept has generated no revenues from product sales,
has not been profitable since inception, and has incurred an accumulated deficit
of $76.5 million through June 30, 1999. The Company is dependent upon research
and development collaborations, equity financing and interest on invested funds
to provide the working capital required to pursue its intended business
activities. Losses have resulted principally from costs incurred in research and
development activities related to the Company's efforts to develop drug
candidates and from the associated administrative costs required to support
these efforts. The Company expects to incur significant additional operating
losses over the next several years due to its ongoing development efforts and
expanded preclinical and clinical testings. The Company's potential for future
profitability is dependent on its ability to effectively develop its current
pharmaceutical compounds and in-license and develop new pharmaceutical products,
as well as obtain regulatory approvals and adequate financing for such products.
Future profitability will require that the Company establish agreements for
product development, commercialization and sales of its products with corporate
sponsors.
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
The Company's total revenue declined to $73,000 in the second quarter of 1999
from $76,000 for the comparable period of 1998. The $2,000 (2.6%) decrease
resulted primarily from lower interest income earned on invested cash balances.
The Company's cash balances available for investment decreased to $5.7 million
as of June 30, 1999 from $5.8 million as of June 30, 1998.
The Company's total operating expenses decreased $117,000 (12.0%) to $860,000 in
the second quarter of 1999 from $977,000 for the comparable period of 1998.
Research and development expenses decreased to $365,000 in the second quarter of
1999 from $522,000 for the same period of 1998. The $157,000 (30.0%) decrease
was due to lower research expenditures resulting from discontinued research
programs that offset additional development costs associated with the Company's
three ongoing programs in clinical trials. General and administrative expenses
increased to $488,000 in the second quarter of 1999 from $451,000 in the
comparable period of 1998. The $37,000 (8.2%) increase resulted from additional
professional services expenditures relating to corporate development activities
during the quarter. Interest expense increased to $8,000 in the second quarter
of 1999 from $4,000 in the second quarter of 1998. The $4,000 (100.0%) increase
resulted from additional interest expense incurred relating to the Notes Payable
assumed by the Company as part of the acquisition of Pacific. On June 30, 1999
the Company converted the minority interest in its majority owned subsidiary, BG
Development Corporation ("BGDC"). The Company issued 2,773,575 common shares and
924,525 Class D Warrants to convert the minority interest. The conversion of the
minority interest resulted in an incremental charge of $501,000 during the
quarter ended June 30, 1999.
13
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
The Company's total revenues decreased to $155,000 in the first half of 1999
from $190,000 during the comparable period of 1998. The $35,000 (18.4%) decrease
resulted primarily from the expiration of the Sponsored Research Agreement with
VacTex, Inc. Interest income increased to 155,000 in the first half of 1999 from
$80,000 for the comparable period of 1998. The $75,000 (93.8%) increase in
interest income resulted from additional cash balances available for investment
during the first half of 1999.
The Company's total operating expenses increased to $10,932,000 in the first
half of 1999 from $2,537,000 for the comparable period in 1998. The $8,395,000
(330.9%) increase primarily resulted from an in-process research and development
charge of $9,406,000 associated with the acquisition of Pacific. Without this
charge, total operating expenses decreased $1,011,000 (39.9%) to $1,526,000 in
the first half of 1999 from $2,537,000 for the comparable period of 1998.
Research and development expenses decreased to $584,000 in the first half of
1999 from $1,335,000 in the comparable period of 1998. The $751,000 (56.3%)
decrease was due primarily to a decrease in personnel in the Company's research
and development organization and their related costs. In January of 1998 the
Company terminated work on all research programs and underwent a significant
downsizing, reducing its staff to 10 people. General and administrative expenses
increased to $978,000 in the first half of 1999 from $973,000 in the same
period of 1998. The $5,000 (0.5%) increase resulted primarily from increased
corporate development activity. Other income of $36,000 recorded during the
first half of 1999 resulted primarily from a gain on sale of research and
development equipment and supplies. Due to the restructuring and focus on the
development of PRO 2000 Gel, the Company has sold or plans to continue to sell
most of its research and development equipment. On June 30, 1999 the Company
converted the minority interest in its majority owned subsidiary, BGDC. The
Company issued 2,773,575 common shares and 924,525 Class D Warrants to convert
the minority interest. The purchase of the minority interest resulted in an
incremental charge of $501,000 during the first half of 1999.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company's aggregate cash, cash equivalents and marketable
securities were $6.0 million, a net increase of $0.5 million since December 31,
1998. The increase in cash is primarily attributable to the acquisition of
Pacific which resulted in a cash infusion of $2.8 million, offset by $2.1
million cash used in operations and $0.2 million of unrealized losses on
securities available for sale. Included in cash is $29,000 from the sale of
research and development equipment. Due to Procept's focus on the clinical
development, the Company plans to continue to sell most of its research
equipment.
On March 17, 1999, Procept completed the acquisition of Pacific, a public
research and development company engaged in the development of cancer therapies.
Each of Pacific's shares of common stock (including preferred stock on an as
converted basis into common stock) converted into approximately 0.11 shares of
Procept common stock or a total of 2,755,000 Procept shares. An additional
414,584 shares of Procept common stock were issued in the merger to the holders
of Pacific's preferred stock as a result of certain contractual rights identical
to contractual rights held by purchasers in Procept's 1998 private placement. In
addition, Procept agreed to exchange all of Pacific's outstanding warrant, unit
purchase option and stock option obligations into like instruments of Procept.
Procept
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<PAGE>
also assumed an approximately $6.5 million, net obligation (payable in cash or
common stock of Procept, at the option of the Company) of Pacific's subsidiary,
BGDC. On June 30, 1999, the Company issued 2,773,575 common shares and 924,525
Class D Warrants to convert the minority interest in BGDC. The shares have
contractual rights identical to those held by purchasers in Procept's 1998
private placement. The Class D Warrants are exercisable for an aggregate of
924,525 shares of the Company's common stock at $2.11 per share and expire on
June 30, 2004. The conversion eliminated the net obligation of BGDC.
The Company expects that its current funds and interest income will be
sufficient to fund Procept's operations through June 2000. Although management
continues to pursue additional funding arrangements, no assurance can be given
that such financing will be available to the Company. If the Company is unable
to enter into an additional corporate collaboration(s) that produce revenue for
the Company, or secure additional financing, the Company's financial condition
will be adversely affected. If additional funds are raised by issuing equity
securities, further dilution to existing shareholders will result and future
investors may be granted rights superior to those of existing shareholders.
The Company's expectations regarding its rate of spending and the sufficiency of
its cash resources over future periods are forward-looking statements. The rate
of spending and sufficiency of such resources will be affected by numerous
factors including the rate of planned and unplanned expenditures by the Company
and the execution of new collaboration agreements for the Company's research and
development programs. Other important factors that may affect achieving the
Company's strategic goals and other forward-looking statements are set forth in
Exhibit 99.1 of the Company's 1998 Annual Report on Form 10-K.
The Company's working capital and other cash needs will depend heavily on the
success of the Company's clinical trials and the rate of acquisition of new
products and technologies. Success in early-stage clinical trials or acquisition
of new products and technologies would lead to an increase in working capital
requirements. The Company's actual cash requirements may vary materially from
those now planned because of the results of research and development, clinical
trials, product testing, relationships with strategic partners, acquisition of
new products and technologies, changes in the focus and direction of the
Company's research and development programs, competitive and technological
advances, the process of obtaining United States Food and Drug Administration or
other regulatory approvals and other factors.
NEW ACCOUNTING STANDARDS
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS 137 amends SFAS 133, Accounting
for Derivative Instruments and Hedging Activities, which was issued in June 1998
and was to be effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. SFAS 137 defers the effective date of SFAS 133 to June 15, 2000.
Earlier application is permitted. SFAS 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
While management has not determined the impact of the new standard, it is not
expected to be material to the Company.
15
<PAGE>
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Accounting for the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5
requires all costs of start-up activities (as defined by SOP 98-5) to be
expensed as incurred. This statement has no impact on the Company.
YEAR 2000
The Company has completed its assessment of the potential impact of the year
2000 on its information technology and non-information technology systems. The
year 2000 problem is the result of computer programs being written using two
digits (rather than four) to define the applicable year. Any of the Company's
programs or systems that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in a
miscalculation or system failures. Based on the Company's assessment, there is
no year 2000 impact on Procept's information technology systems. Operating
systems and applications used by the Company are year 2000 compliant. At this
time, the Company is not aware of any year 2000 issues relating to its third
party vendors. The Company has replaced several non-information technology
systems and believes that it is now year 2000 compliant. The cost of year 2000
compliant non-technology information systems was approximately $8,000. The
Company's most critical uncertainty relates to its third parties' information
technology systems not being year 2000 compliant. This may result in inaccurate
information from banks, government agencies, contracted research organizations,
vendors, etc. The Company believes it has in place an adequate internal control
structure to handle these issues if they were to occur.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release 48 ("FRR 48"), "Disclosure of Accounting Policies for
Derivative Financial Instruments and Derivative Commodity Instruments, and
Disclosure of Quantitative and Qualitative Information About Market Risk
Inherent in Derivative Financial Instruments, Other Financial Instruments and
Derivative Commodity Instruments." FRR 48 requires disclosure of qualitative and
quantitative information about market risk inherent in derivative financial
instruments, other financial instruments, and derivative commodity instruments
beyond those already required under generally accepted accounting principals.
The Company is not a party to any of the instruments discussed in FRR 48 and
considers its market risk to be minimal.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On February 22, 1999, Christopher R. Richied ("Richied") filed a Complaint with
the United States District Court for the Southern District of New York naming
Pacific Pharmaceuticals, Inc. ("Pacific") and Binary Therapeutics Inc.,
("Binary"), both subsidiaries of the Company, as defendants (the "Complaint").
The Complaint alleges that Pacific and Binary breached obligations to Richied
under certain consulting agreements. In the Complaint, Richied seeks
approximately $40,000 in cash and an indeterminate amount based upon the value
of certain equity components of the consulting agreement. The Company's answer
to the Complaint was filed on August 9, 1999. Based on facts alleged in the
Complaint, the Company does not believe this action will have a material adverse
effect on the Company's business, even in the event of a decision by the court
in the plaintiff's favor or other conclusion of the litigation in a manner
adverse to Pacific and Binary.
ITEM 2. CHANGE IN SECURITIES.
On June 22, 1999, the Company issued 11,765 shares of the Company's Common Stock
to Oscar Gruss & Son Incorporated as partial payment of the fee due for
investment banking services rendered to the Company in connection with the
acquisition of Pacific Pharmaceuticals, Inc.
On June 30, 1999, pursuant to Subscription Agreements, the Company issued an
aggregate of 2,773,575 shares of Common Stock and Class D Warrants, exercisable
for an aggregate of 924,525 shares of the Company's Common Stock at $2.11 per
share and expiring June 30, 2004, to the holders of all of the outstanding
capital stock of BG Development Corp. ("BGDC") not held by the Company. The
Company's securities were issued in exchange for an aggregate of 1,467,500
outstanding shares of BGDC Series A Convertible Preferred Stock and, as a result
of the exchange, BGDC became a wholly-owned subsidiary of the Company.
On July 13, 1999, the Company issued a warrant to Wound Healing of Oklahoma,
exercisable for 11,500 shares of the Company's Common Stock at $2.11 per share,
expiring June 30, 2004, in exchange for the agreement by Wound Healing of
Oklahoma to terminate the obligations of Pacific Pharmaceuticals under the
License Agreement dated May 8, 1996.
All of the above issuances were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended.
17
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its annual meeting of stockholders on Friday, June 11, 1999.
The following tabulates the results of the proposals submitted to a vote of the
stockholders.
<TABLE>
<CAPTION>
Votes Cast Abstentions and
Votes Cast For Against Or Withheld Broker Non-votes
-------------- ------------------- ----------------
<S> <C> <C> <C> <C>
1) Election of Directors
John F. Dee 7,277,284 15,583 0
Zola P. Horovitz, Ph.D. 7,276,620 16,247 0
Max Link, Ph.D. 7,276,620 16,247 0
Mark C. Rogers, M.D. 7,276,620 16,247 0
Nigel J. Rulewski 7,277,284 15,583 0
Elliott H. Vernon 7,277,284 15,583 0
Michael S. Weiss 7,276,620 16,247 0
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 18,416,378 139,915 2,589
</TABLE>
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
4.1 Warrant Certificate for 11,500 shares of Common Stock
dated July 13, 1999 issued to Wound Healing of
Oklahoma. Filed herewith.
4.2 Form of Class D Warrant Certificate, including
Schedule of Holders. Filed herewith.
10.1 1998 Equity Incentive Plan, as amended through June
11, 1999. Filed herewith.
10.2 Subscription Agreement, dated as of June 30, 1999,
including Schedule of Purchasers. Filed herewith.
10.3 Executive Employment Agreement between the Company and
John F. Dee dated as of February 4, 1998. Filed
herewith.
27.1 Financial Data Schedule. Filed herewith.
(B) REPORTS ON FORM 8-K.
None.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PROCEPT, INC.
(Registrant)
Date: August 12, 1999 by: /s/ JOHN F. DEE
---------------
John F. Dee
President and Chief Executive Officer
/s/ MICHAEL E. FITZGERALD
-------------------------------------
Michael E. Fitzgerald
Vice President, Finance
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
4.1 Warrant Certificate for 11,500 shares of Common Stock
dated July 13, 1999 issued to Wound Healing of Oklahoma.
Filed herewith.
4.2 Form of Class D Warrant Certificate, including Schedule of
Holders. Filed herewith.
10.1 1998 Equity Incentive Plan, as amended through June 11,
1999. Filed herewith.
10.2 Subscription Agreement, dated as of June 30, 1999,
including Schedule of Purchasers. Filed herewith.
10.3 Executive Employment Agreement between the Company and
John F. Dee dated as of February 4, 1998. Filed herewith.
27.1 Financial Data Schedule. Filed herewith.
20
<PAGE>
Exhibit 4.1
VOID AFTER JUNE 30, 2004
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
PROCEPT, INC.
This certifies that FOR VALUE RECEIVED Wound Healing of
Oklahoma or registered assigns (the "Registered Holder") is entitled to
purchase, subject to the terms and conditions set forth in this Warrant
Certificate, 11,500 fully paid and nonassessable shares of Common Stock, par
value $.01 per share, of Procept, Inc., a Delaware corporation (the "Company"),
at any time between June 30, 1999, and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the attached hereto duly executed, at the corporate
offices of the Company, accompanied by payment of $2.11 per share, as adjusted
as set forth herein (the "Purchase Price") in lawful money of the United States
of America in cash or by official bank or certified check made payable to the
Company (this "Warrant").
In the event of certain contingencies provided for below, the Purchase
Price or the number of shares of Common Stock subject to purchase upon the
exercise of this Warrant are subject to modification or adjustment.
This Warrant is exercisable at the option of the Registered Holder, but
no fractional shares of Common Stock will be issued. In the case of the exercise
of this Warrant for fewer than the number of Shares which this Warrant entitles
such Registered Holder to buy, the Company shall cancel this Warrant Certificate
upon the surrender hereof and shall execute and deliver a new Warrant
Certificate or Warrant Certificates of like tenor for the balance of such
Warrants.
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
1.1 "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which on the date of original issuance of this Warrant consisted of
30,000,000 authorized shares of Common Stock, par value $.01 per share.
1.2 "Exercise Date" shall mean the date on which the Company shall
have received both (i) the Warrant Certificate representing this Warrant, with
the subscription form thereon duly executed by the Registered Holder thereof or
his attorney duly authorized in writing, and (ii) payment in cash, or by
official bank or certified check made payable to the Company, of an amount in
lawful money of the United States of America equal to the applicable Purchase
Price.
<PAGE>
1.3 "Expiration Date" shall mean 5:00 P.M. (New York time) on June
30, 2004, or such earlier date as the Warrants shall be redeemed. If such date
shall in the State of New York be a holiday or a day on which banks are
authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
1.4 "Fair Market Value" means, with respect to any security or other
asset, the fair market value set by, or determined in a manner established by,
the Board of Directors of the Company.
1.5 "Initial Warrant Exercise Date" shall mean [June 30, 1999].
1.6 "Redemption Price" shall mean the price at which the Company
may, at its option in accordance with the terms hereof, redeem the Warrants,
which price shall be $0.01 per share of Common Stock subject to such Warrants.
1.7 "Registered Holder" shall mean as of any particular date, the
person in whose name the certificate representing this Warrant shall be
registered on that date on the books maintained by the Company pursuant to
Section 4.
1.8 The "Stock Market" shall mean the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, shall mean The Nasdaq National Market System or The Nasdaq SmallCap
Market (collectively, "Nasdaq") or, if the Common Stock is not quoted on Nasdaq,
shall mean the OTC Bulletin Board or, if the Common Stock is not quoted on the
OTC Bulletin Board, shall mean the over-the-counter market as furnished by any
NASD member firm selected from time to time by the Company for that purpose.
1.9 "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
1.10 Unless otherwise stated, section references used within this
Warrant Certificate refer to sections of this Warrant Certificate.
2. EXERCISE. This Warrant may be exercised by the Registered Holder
thereof at any time on or after the Initial Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set forth
herein. A Warrant shall be deemed to have been exercised immediately prior to
the close of business on the Exercise Date and the person entitled to receive
the securities deliverable upon such exercise shall be treated for all purposes
as the holder of those securities upon the exercise of the Warrant as of the
close of business on the Exercise Date. Promptly after the receipt of proceeds
form an exercise of this Warrant and in any event within five days thereafter,
the Company, shall cause to be issued and delivered by the Transfer Agent, to
the person or persons entitled to receive the same, a certificate or
certificates for the securities deliverable upon such exercise, (plus a
certificate for any remaining unexercised Warrants of the Registered Holder).
2
<PAGE>
3. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
3.1 The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of this Warrant, such number of shares of Common Stock as shall
then be issuable upon the exercise hereof. The Company covenants that all shares
of Common Stock which shall be issuable upon exercise of this Warrants shall, at
the time of delivery (assuming full payment of the purchase price thereof), be
duly and validly issued, fully paid, nonassessable and free from all issuance
taxes, liens and charges with respect to the issue thereof including, without
limitation, adverse claims whatsoever (with the exception of claims arising
through the acts of the Registered Holders themselves and except as arising from
applicable Federal and state securities laws), that the Company shall have paid
all taxes, if any, in respect of the original issuance thereof and that upon
issuance such shares, to the extent applicable, shall be listed on, or included
in, the applicable Stock Market.
3.2 The Company covenants that if any securities to be reserved for
the purpose of exercise of Warrants hereunder require registration with, or the
approval of, any governmental authority under any federal securities law before
such securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration or approval. The Company will use reasonable efforts
to obtain appropriate approvals or registrations under state "blue sky"
securities laws; provided, that the Company shall not be required to qualify as
a foreign corporation or file a general or limited consent to service of process
in any such jurisdictions or make any changes in its capital structure or any
other aspects of its business or enter into any agreements with blue sky
commissions, including any agreement to escrow shares of its capital stock. With
respect to any such securities, however, Warrants may not be exercised by, or
shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
3.3 The Company shall pay all documentary, stamp or similar taxes
and other similar governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares upon exercise of
the Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of this
Warrant, then no such delivery shall be made unless the person requesting the
same has paid to the Company the amount of transfer taxes or charges incident
thereto, if any or provided satisfactory evidence that no amount is due.
3.4 The Company is hereby irrevocably authorized to requisition the
Company's Transfer Agent from time to time for certificates representing shares
of Common Stock issuable upon exercise of this Warrants, and the Company will
authorize the Transfer Agent to comply with all such proper requisitions.
4. EXCHANGE AND REGISTRATION OF TRANSFER.
4.1 Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class (provided the Company
3
<PAGE>
shall not exchange Warrant Certificates for new Warrant Certificates in
denominations of fewer than five thousand (5,000) underlying shares or the
shares remaining for purchase hereunder, if less) or may be transferred in whole
or in part. Warrant Certificates to be exchanged shall be surrendered to the
Company at its Corporate Office, and upon satisfaction of the terms and
provisions hereof, the Company shall execute, issue and deliver in exchange
therefor, the Warrant Certificate or Certificates that the Registered Holder
making the exchange shall be entitled to receive.
4.2 The Company shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and any transfers thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Warrants.
4.3 With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form
attached hereto shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company, duly executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.
4.4 Prior to due presentment for registration of transfer thereof,
the Company may deem and treat the Registered Holder of this Warrant Certificate
as the absolute owner hereof and of each Warrant represented hereby
(notwithstanding any notations of ownership or writing thereon made by anyone
other than a duly authorized officer of the Company) for all purposes and shall
not be affected by any notice to the contrary.
5. LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of this Warrant Certificate and (in case of loss, theft or
destruction) of indemnity reasonably satisfactory to it and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and (in the absence of notice to the Company that the Warrant Certificate has
been acquired by a bona fide purchaser) and deliver to the Registered Holder in
lieu thereof a new Warrant Certificate of like tenor representing an equal
aggregate number of Warrants. Applicants for a substitute Warrant Certificate
shall comply with such other reasonable regulations and pay such other
reasonable charges as the Company may prescribe.
6. REDEMPTION.
6.1 At any time after June 30, 2000, on no fewer than sixty (60)
days' prior written notice to Registered Holders of the Warrants being redeemed,
the Company may, at its option, redeem the Warrants at the Redemption Price,
provided the Market Price of the Common Stock as of the third business day prior
to the date of notice of redemption (which shall be the date of mailing of such
notice) exceeds 250% of the Purchase Price per share of Common Stock subject
4
<PAGE>
to a Warrant. All outstanding Warrants must be redeemed if any are redeemed. The
date fixed for redemption of the Warrants is referred to herein as the
"Redemption Date."
6.2 If the conditions set forth in Subsection 6.1 are met, and the
Company desires to exercise its right to redeem the Warrants, it shall request
the Company to mail a notice of redemption to each of the Registered Holders of
the Warrants to be redeemed, first class, postage prepaid, not later than the
sixtieth day before the date fixed for redemption, at their last address as
shall appear on the records maintained pursuant to Subsection 4.2. Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice.
6.3 The notice of redemption shall specify (i) the redemption price,
(ii) the Redemption Date, (iii) the place where the Warrant Certificates shall
be delivered and the redemption price paid, (iv) that the right to exercise the
Warrant shall terminate at 5:00 P.M. (New York time) on the business day
immediately preceding the Redemption Date. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a Registered Holder (A) to whom
notice was not mailed or (B) whose notice was defective. An affidavit of the
Secretary or an Assistant Secretary of the Company that notice of redemption has
been mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
6.4 Any right to exercise a Warrant shall terminate at 5:00 P.M.
(New York time) on the business day immediately preceding the Redemption Date.
On and after the Redemption Date, Holders of the Warrants shall have no further
rights except to receive, upon surrender of the Warrant, the Redemption Price.
6.5 From and after the Redemption Date, the Company shall, at the
place specified in the notice of redemption, upon presentation and surrender to
the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the redemption price of such Warrants. From and after the Redemption
Date and upon the deposit or setting aside by the Company of a sum sufficient to
redeem all the Warrants called for redemption, such Warrants shall expire and
become void and all rights hereunder and under the Warrant Certificates, except
the right to receive payment of the redemption price, shall cease.
7. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR
WARRANTS. Upon each adjustment of the Purchase Price pursuant to this Section 7,
the total number of shares of Common Stock purchasable upon the exercise of each
Warrant shall be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
5
<PAGE>
7.1 In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another entity (other
than a consolidation or merger in which the Company is the continuing entity
and which does not result in any reclassification, capital reorganization or
other change of outstanding shares of Common Stock other than the number
thereof) the Company shall cause effective provision to be made so that each
holder of a Warrant then outstanding shall have the right thereafter, by
exercising such Warrant, upon the terms and conditions specified in the
Warrants and in lieu of the shares of Common Stock immediately theretofore
purchasable upon exercise of the Warrants, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable
upon such reclassification, capital reorganization or other change,
consolidation or merger by a holder of the number of shares of Common Stock
that might have been purchased upon exercise of such Warrant immediately
prior to such reclassification, capital reorganization or other change,
consolidation or merger. The aggregate Purchase Price of this Warrant shall
remain the same as the aggregate Purchase Price prior to such event. Any such
provision shall include provision for adjustments that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 7. The Company shall not effect any such consolidation, merger or
sale unless prior to, or simultaneously with, the consummation thereof the
successor (if other than the Company) resulting from such consolidation or
merger or other appropriate entity shall assume, by written instrument
executed and delivered to the Company, the obligation to deliver to the
holder of each Warrant such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations under this Agreement. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations and other changes of outstanding shares of Common Stock and
to successive consolidations or mergers.
7.2 Irrespective of any adjustments or changes in the number or type
of securities purchasable upon exercise of this Warrant, the Warrant
Certificates theretofore and thereafter issued shall, unless the Company shall
elect to issue new Warrant Certificates, continue to express the same Purchase
Price per share, number and type of securities purchasable hereunder and
Redemption Price therefor as when the same were originally issued.
7.3 After each adjustment pursuant to this Section 7, the Company
will promptly prepare a certificate signed by the Chairman or President, and by
the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, of the Company setting forth: (i) the Purchase Price as so adjusted,
(ii) the number and type of securities, cash or other property purchasable upon
exercise of this Warrant after such adjustment and the adjustment in Redemption
Price resulting therefrom, and (iii) a brief statement of the facts accounting
for such adjustment. The Company will promptly send such certificate by ordinary
first class mail to each Registered Holder of Warrants at his or her last
address as it shall appear on the registry books of the Company. No failure to
mail such notice nor any defect therein or in the mailing thereof shall affect
the validity of such adjustment. The affidavit of an officer of the Company or
the Secretary or an Assistant Secretary of the Company that such notice has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. The Company may rely
6
<PAGE>
on the information in the certificate as true and correct and has no duty or
obligation to independently verify the amounts or calculations set forth
therein.
7.4 As used in this Section 7, the term "Common Stock" shall mean
and include the Company's Common Stock authorized on the date of the original
issue hereof and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation, as amended, as Common
Stock on the date of the original issue of this Warrant or (i), in the case of
any reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Subsection 7.1, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
7.5 Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 7, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of the
Company, except as otherwise contemplated hereby.
8. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. If the number of
shares of Common Stock purchasable upon the exercise of each Warrant is adjusted
pursuant to Section 7, the Company nevertheless shall not be required to issue
fractions of shares, upon exercise of the Warrants or otherwise, nor to
distribute certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Registered Holder an amount in cash equal to such fraction multiplied by
the Fair Market Value of one (1) share of Common Stock as of the date of
exercise.
9. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
7
<PAGE>
10. AGREEMENT OF WARRANT HOLDERS. Every holder of this Warrant, by his
acceptance hereof, consents and agrees with the Company that:
(a) The Warrants are transferable only on the registry books of the
Company by the Registered Holder thereof in person or by his or her attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Company, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Company, in
its sole discretion, together with payment of any applicable transfer taxes; and
(b) The Company may deem and treat the person in whose name the
Warrant Certificate is registered as the holder and as the absolute, true and
lawful owner of the Warrants represented thereby for all purposes, and the
Company shall not be affected by any notice or knowledge to the contrary, except
as otherwise expressly provided in Section 4.
11. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall purchase or
acquire any Warrant or Warrants, the Warrant Certificate or Warrant Certificates
evidencing the same, by redemption or otherwise, shall thereupon be delivered to
the Company and canceled by it and retired. The Company shall also cancel the
Warrant Certificate or Warrant Certificates following exercise of any or all of
the Warrants represented thereby or delivered to it for transfer, split up,
combination or exchange.
12. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed by means of first class registered or certified mail,
postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Company; and if to the Company, at 840 Memorial Drive,
Cambridge, Massachusetts, 02139, or at such other address as may have been
furnished to the Registered Holders in writing by the Company.
13. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Delaware, without reference to
principles of conflict of laws.
14. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Company and its respective successors and assigns, and the
holders from time to time of the Warrants represented by this Warrant
Certificate. Nothing in this Agreement is intended nor shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
8
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by a duly authorized
officer.
PROCEPT, INC.
Dated: 7/13/99 By: /s/John Dee
------------------------ --------------------------
9
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise _________ Warrants represented by this Warrant Certificate, and to
purchase the securities issuable upon the exercise of such Warrants, and
requests that certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
[please print or type name and address]
and be delivered to
- -----------------------------------------
- -----------------------------------------
- -----------------------------------------
- -----------------------------------------
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
10
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED,
-----------------------------------------------
hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
[please print or type name and address]
of the Warrants represented by this Warrant
- --------------------------------
Certificate, and hereby irrevocably constitutes and appoints
------------------
- -------------------------------------------------------------------------------
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: --------------------------------- X
---------------------------------
Signature Guaranteed
------------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
11
<PAGE>
Exhibit 4.2
EXHIBIT A
No. Class D Warrants
------ ------
VOID AFTER JUNE 30, 2004
CLASS D WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
PROCEPT, INC.
This certifies that FOR VALUE RECEIVED
- -------------------------------------------------------------------------------
or registered assigns (the "Registered Holder") is
- ---------------------------- the owner of the number of Class D Warrants ("Class
D Warrants") specified above. Each Class D Warrant represented hereby initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Warrant Certificate, one fully paid and nonassessable share of
Common Stock, par value $.01 per share ("Common Stock"), of Procept, Inc., a
Delaware corporation (the "Company"), at any time between June 30, 1999, and the
Expiration Date (as hereinafter defined), upon the presentation and surrender of
this Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate offices of the Company, accompanied by payment of
$2.11 per share, as adjusted as set forth herein (the "Purchase Price") in
lawful money of the United States of America in cash or by official bank or
certified check made payable to the Company.
In the event of certain contingencies provided for below, the Purchase
Price or the number of shares of Common Stock subject to purchase upon the
exercise of each Class D Warrant represented hereby are subject to modification
or adjustment.
Each Class D Warrant represented hereby is exercisable at the
option of the Registered Holder, but no fractional shares of Common Stock will
be issued. In the case of the exercise of fewer than every Class D Warrant
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor for the balance of such Class D Warrants.
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
1.1 "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings and assets of the Company without limit as to amount or
percentage, which on the date of original issuance of this Warrant consisted of
30,000,000 authorized shares of Common Stock, par value $.01 per share.
<PAGE>
1.2 The "Closing Bid Price," for each trading day, shall mean the
per share price at which the Common Stock was last exchanged on the Stock Market
(as defined below) during such trading day or, if there were no transactions on
such trading day, shall mean the average of the reported per share closing bid
and asked prices of the Common Stock on the Stock Market on such trading day.
1.3 "Exercise Date" shall mean, as to any Class D Warrant, the date
on which the Company shall have received both (i) the Warrant Certificate
representing such Class D Warrant, with the subscription form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, and (ii) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price.
1.4 "Expiration Date" shall mean 5:00 P.M. (New York time) on June
30, 2004, or such earlier date as the Class D Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close. Upon notice to all Registered
Holders of the Class D Warrants, the Company shall have the right to extend the
Expiration Date.
1.5 "Fair Market Value" means, with respect to any security or other
asset, the fair market value set by, or determined in a manner established by,
the Board of Directors of the Company.
1.6 "Initial Warrant Exercise Date" shall mean, as to each Class D
Warrant, June 30, 1999.
1.7 "Market Price" shall mean the average Closing Bid Price, for
twenty (20) consecutive trading days, ending with the trading day prior to the
date as of which the Market Price is being determined, (with appropriate
adjustments for subdivisions or combinations of shares effected during such
period) provided that if the prices referred to in the definition of Closing Bid
Price cannot be determined for such period, "Market Price" shall mean Fair
Market Value (as defined above).
1.8 "Redemption Price" shall mean the price at which the Company
may, at its option in accordance with the terms hereof, redeem the Class D
Warrants, which price shall be $0.01 per share of Common Stock subject to such
Class D Warrants.
1.9 "Registered Holder" shall mean, as to any Class D Warrant and as
of any particular date, the person in whose name the certificate representing
the Class D Warrant shall be registered on that date on the books maintained by
the Company pursuant to Section 6.
1.10 The "Stock Market" shall mean the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or
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<PAGE>
admitted to trading on any national securities exchange, shall mean The Nasdaq
National Market System or The Nasdaq SmallCap Market (collectively, "Nasdaq")
or, if the Common Stock is not quoted on Nasdaq, shall mean the OTC Bulletin
Board or, if the Common Stock is not quoted on the OTC Bulletin Board, shall
mean the over-the-counter market as furnished by any NASD member firm selected
from time to time by the Company for that purpose.
1.11 A "trading day" shall mean a day on which the Stock Market is
open for the transaction of business.
1.12 "Transfer Agent" shall mean American Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as such.
1.13 Unless otherwise stated, section references used within this
Warrant Certificate refer to sections of this Warrant Certificate.
2. EXERCISE. Each Class D Warrant may be exercised by the Registered
Holder thereof at any time on or after the Initial Exercise Date, but not after
the Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein. A Class D Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder of those securities upon the exercise of
the Class D Warrant as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date the Company shall deposit the proceeds
received from the exercise of a Class D Warrant. Promptly after the receipt of
such proceeds and in any event within five days thereafter, the Company, shall
cause to be issued and delivered by the Transfer Agent, to the person or persons
entitled to receive the same, a certificate or certificates for the securities
deliverable upon such exercise, (plus a certificate for any remaining
unexercised Class D Warrants of the Registered Holder).
3. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
3.1 The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Class D Warrants, such number of shares of Common Stock as
shall then be issuable upon the exercise of all outstanding Class D Warrants.
The Company covenants that all shares of Common Stock which shall be issuable
upon exercise of the Class D Warrants shall, at the time of delivery (assuming
full payment of the purchase price thereof), be duly and validly issued, fully
paid, nonassessable and free from all issuance taxes, liens and charges with
respect to the issue thereof including, without limitation, adverse claims
whatsoever (with the exception of claims arising through the acts of the
Registered Holders themselves and except as arising from applicable Federal and
state securities laws), that the Company shall have paid all taxes, if any, in
respect of the original issuance thereof and that upon issuance such shares, to
the extent applicable, shall be listed on, or included in, the applicable Stock
Market.
3.2 The Company covenants that if any securities to be reserved for
the purpose of exercise of Class D Warrants hereunder require registration with,
or the approval of, any
3
<PAGE>
governmental authority under any federal securities law before such securities
may be validly issued or delivered upon such exercise, then the Company will in
good faith and as expeditiously as reasonably possible, endeavor to secure such
registration or approval. The Company will use reasonable efforts to obtain
appropriate approvals or registrations under state "blue sky" securities laws;
provided, that the Company shall not be required to qualify as a foreign
corporation or file a general or limited consent to service of process in any
such jurisdictions or make any changes in its capital structure or any other
aspects of its business or enter into any agreements with blue sky commissions,
including any agreement to escrow shares of its capital stock. With respect to
any such securities, however, Class D Warrants may not be exercised by, or
shares of Common Stock issued to, any Registered Holder in any state in which
such exercise would be unlawful.
3.3 The Company shall pay all documentary, stamp or similar taxes
and other similar governmental charges that may be imposed with respect to the
issuance of Class D Warrants, or the issuance or delivery of any shares upon
exercise of the Class D Warrants; provided, however, that if the shares of
Common Stock are to be delivered in a name other than the name of the Registered
Holder of the Warrant Certificate representing any Class D Warrant being
exercised, then no such delivery shall be made unless the person requesting the
same has paid to the Company the amount of transfer taxes or charges incident
thereto, if any or provided satisfactory evidence that no amount is due.
3.4 The Company is hereby irrevocably authorized to requisition the
Company's Transfer Agent from time to time for certificates representing shares
of Common Stock issuable upon exercise of the Class D Warrants, and the Company
will authorize the Transfer Agent to comply with all such proper requisitions.
4. EXCHANGE AND REGISTRATION OF TRANSFER.
4.1 Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Class D Warrants of the
same class (provided the Company shall not exchange Warrant Certificates for new
Warrant Certificates in denominations of fewer than fifty thousand (50,000)
underlying shares) or may be transferred in whole or in part. Warrant
Certificates to be exchanged shall be surrendered to the Company at its
Corporate Office, and upon satisfaction of the terms and provisions hereof, the
Company shall execute, issue and deliver in exchange therefor, the Warrant
Certificate or Certificates that the Registered Holder making the exchange shall
be entitled to receive.
4.2 The Company shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and any transfers thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and deliver to the transferee or
transferees a new Warrant Certificate or Certificates representing an equal
aggregate number of Class D Warrants.
4
<PAGE>
4.3 With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company, duly executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.
4.4 Prior to due presentment for registration of transfer thereof,
the Company may deem and treat the Registered Holder of any Warrant Certificate
as the absolute owner thereof and of each Class D Warrant represented thereby
(notwithstanding any notations of ownership or writing thereon made by anyone
other than a duly authorized officer of the Company) for all purposes and shall
not be affected by any notice to the contrary.
5. LOSS OR MUTILATION. Upon receipt by the Company of evidence
satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of any Warrant Certificate and (in case of loss, theft or
destruction) of indemnity reasonably satisfactory to it and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and (in the absence of notice to the Company that the Warrant Certificate has
been acquired by a bona fide purchaser) and deliver to the Registered Holder in
lieu thereof a new Warrant Certificate of like tenor representing an equal
aggregate number of Class D Warrants. Applicants for a substitute Warrant
Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
6. REDEMPTION.
6.1 At any time after June 30, 2000, on no fewer than sixty (60)
days' prior written notice to Registered Holders of the Class D Warrants being
redeemed, the Company may, at its option, redeem the Class D Warrants at the
Redemption Price, provided the Market Price of the Common Stock as of the third
business day prior to the date of notice of redemption (which shall be the date
of mailing of such notice) exceeds 250% of the Purchase Price per share of
Common Stock subject to a Class D Warrant. All outstanding Class D Warrants must
be redeemed if any are redeemed. The date fixed for redemption of the Class D
Warrants is referred to herein as the "Redemption Date."
6.2 If the conditions set forth in Subsection 6.1 are met, and the
Company desires to exercise its right to redeem the Class D Warrants, it shall
request the Company to mail a notice of redemption to each of the Registered
Holders of the Class D Warrants to be redeemed, first class, postage prepaid,
not later than the sixtieth day before the date fixed for redemption, at their
last address as shall appear on the records maintained pursuant to Subsection
4.2. Any notice mailed in the manner provided herein shall be conclusively
presumed to have been duly given whether or not the Registered Holder receives
such notice.
6.3 The notice of redemption shall specify (i) the redemption price,
(ii) the Redemption Date, (iii) the place where the Warrant Certificates shall
be delivered and the redemption price paid, (iv) that the right to exercise the
Class D Warrant shall terminate at 5:00 P.M. (New York time) on the business day
immediately preceding the Redemption Date. No
5
<PAGE>
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (A) to whom notice was not mailed or (B) whose notice was
defective. An affidavit of the Secretary or an Assistant Secretary of the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
6.4 Any right to exercise a Class D Warrant shall terminate at 5:00
P.M. (New York time) on the business day immediately preceding the Redemption
Date. On and after the Redemption Date, Holders of the Class D Warrants shall
have no further rights except to receive, upon surrender of the Class D Warrant,
the Redemption Price.
6.5 From and after the Redemption Date, the Company shall, at the
place specified in the notice of redemption, upon presentation and surrender to
the Company by or on behalf of the Registered Holder thereof of one or more
Warrant Certificates evidencing Class D Warrants to be redeemed, deliver or
cause to be delivered to or upon the written order of such Registered Holder a
sum in cash equal to the redemption price of such Class D Warrants. From and
after the Redemption Date and upon the deposit or setting aside by the Company
of a sum sufficient to redeem all the Class D Warrants called for redemption,
such Class D Warrants shall expire and become void and all rights hereunder and
under the Warrant Certificates, except the right to receive payment of the
redemption price, shall cease.
7. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK OR
CLASS D WARRANTS. Upon each adjustment of the Purchase Price pursuant to this
Section 7, the total number of shares of Common Stock purchasable upon the
exercise of each Class D Warrant shall (subject to the provisions contained in
Subsection 7.3) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
7.1 Except as otherwise provided herein, in the event the Company
shall, at any time or from time to time after the date hereof, (i) sell or issue
any shares of Common Stock for a consideration per share less than either (a)
the Purchase Price in effect on the date of such sale or issuance or (b) the
Market Price of the Common Stock as of the date of the sale or issuance, (ii)
issue any shares of Common Stock as a stock dividend to the holders of Common
Stock, or (iii) subdivide or combine the outstanding shares of Common Stock into
a greater or fewer number of shares (any such sale, issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Purchase Price in effect immediately prior to
such Change of Shares shall be changed to a price (rounded to the nearest cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by the quotient of (x) the sum of (A) the number of shares of Common Stock
outstanding immediately prior to the sale or issuance of such additional shares
or such subdivision or combination plus (B) the number of shares of Common Stock
that the aggregate consideration received (determined as provided in
Paragraph 7.7(vi)) for the issuance of such additional shares would purchase at
the
6
<PAGE>
greater of (1) the Purchase Price in effect on the date of such issuance or
(2) the Market Price as of such date, divided by (y) the number of shares of
Common Stock outstanding immediately after the sale or issuance of such
additional shares or such subdivision or combination. Such adjustment shall
be made successively whenever any such issuance is made.
7.2 In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another entity (other
than a consolidation or merger in which the Company is the continuing entity
and which does not result in any reclassification, capital reorganization or
other change of outstanding shares of Common Stock other than the number
thereof), or in case of any sale or conveyance to another entity of the
property of the Company as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the Company shall
cause effective provision to be made so that each holder of a Class D Warrant
then outstanding shall have the right thereafter, by exercising such Class D
Warrant, upon the terms and conditions specified in the Class D Warrants and
in lieu of the shares of Common Stock immediately theretofore purchasable
upon exercise of the Class D Warrants, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable
upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Class D
Warrant immediately prior to such reclassification, capital reorganization or
other change, consolidation, merger, sale or conveyance. Any such provision
shall include provision for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 7. The
Company shall not effect any such consolidation, merger or sale unless prior
to, or simultaneously with, the consummation thereof the successor (if other
than the Company) resulting from such consolidation or merger or the entity
purchasing assets or other appropriate entity shall assume, by written
instrument executed and delivered to the Company, the obligation to deliver
to the holder of each Class D Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassifications,
capital reorganizations and other changes of outstanding shares of Common
Stock and to successive consolidations, mergers, sales or conveyances.
7.3 If, at any time or from time to time, the Company shall issue or
distribute to the holders of shares of Common Stock evidence of its
indebtedness, any other securities of the Company or any cash, property or other
assets (excluding an issuance or distribution governed by one of the preceding
Subsections of this Section 7 and also excluding cash dividends or cash
distributions paid out of net profits legally available therefor in the full
amount thereof (any such non-excluded event being herein called a "Special
Dividend")), then in each case the Registered Holders of the Class D Warrants
shall be entitled to a proportionate share of any such Special Dividend as
though they were the holders of the number of shares of Common Stock of the
Company for which their Class D Warrants are exercisable as of the record date
fixed for the determination of the holders of Common Stock of the Company
entitled to receive such Special Dividend.
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7.4 The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Class D Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Class D Warrant as hereinabove provided, so that each Class D Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Class D Warrant held of record prior to such
adjustment of the number of Class D Warrants shall become that number of Class D
Warrants (calculated to the nearest tenth) determined by multiplying the number
one by a fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment. Upon each adjustment
of the number of Class D Warrants pursuant to this Section 7, the Company shall,
as promptly as practicable, cause to be distributed to each Registered Holder of
Warrant Certificates on the date of such adjustment Warrant Certificates
evidencing, subject to Section 8, the number of additional Class D Warrants to
which such Holder shall be entitled as a result of such adjustment or, at the
option of the Company, cause to be distributed to such Holder in substitution
and replacement for the Warrant Certificates held by him prior to the date of
adjustment (and upon surrender thereof, if required by the Company) new Warrant
Certificates evidencing the number of Class D Warrants to which such Holder
shall be entitled after such adjustment.
7.5 Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the Class D
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Subsection 7.4, continue to express the same Purchase Price per
share, number of shares purchasable thereunder and Redemption Price therefor as
when the same were originally issued.
7.6 After each adjustment of the Purchase Price pursuant to this
Section 7, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Class D Warrant after such adjustment, and, if
the Company shall have elected to adjust the number of Class D Warrants pursuant
to Subsection 7.4, the number of Class D Warrants to which the registered holder
of each Class D Warrant shall then be entitled, and the adjustment in Redemption
Price resulting therefrom, and (iii) a brief statement of the facts accounting
for such adjustment. The Company will promptly send such certificate by ordinary
first class mail to each Registered Holder of Class D Warrants at his or her
last address as it shall appear on the registry books of the Company. No failure
to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of such adjustment. The affidavit of an officer of the
Company or the Secretary or an Assistant Secretary of the Company that such
notice has been mailed shall, in the absence of fraud, be prima facie evidence
of the facts stated therein. The Company may rely on the information in the
certificate as true and correct and has no duty or obligation to independently
verify the amounts or calculations set forth therein.
8
<PAGE>
7.7 For purposes of Subsection 7.1, the following provisions (i) to
(vi) shall also be applicable:
(i) the number of shares of Common Stock deemed outstanding
at any given time shall include all shares of capital stock convertible into,
or exchangeable for, Common Stock (on an as converted basis) as well as all
shares of Common Stock issuable upon the exercise of (x) any convertible
debt, (y) warrants outstanding on the date hereof and (z) options outstanding
on the date hereof.
(ii) No adjustment of the Purchase Price shall be made unless
such adjustment would require an increase or decrease of at least $.01 in such
price; provided that any adjustments which by reason of this Paragraph (ii) are
not required to be made shall be carried forward and shall be made at the time
of and together with the next subsequent adjustment which, together with
adjustments so carried forward, shall require an increase or decrease of at
least $.01 in the Purchase Price then in effect hereunder.
(iii) In case of (A) the sale by the Company (including as a
component of a unit) of any rights or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or any securities convertible into
or exchangeable for Common Stock (such securities convertible, exercisable or
exchangeable into Common Stock being herein called "Convertible Securities"), or
(B) the issuance by the Company, without the receipt by the Company of any
consideration therefor, of any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Common Stock or Convertible Securities,
whether or not such rights, warrants or options, or the right to convert or
exchange such Convertible Securities, are immediately exercisable, and the
consideration per share for which Common Stock is issuable upon the exercise of
such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the minimum aggregate
consideration, as set forth in the instrument relating thereto without regard to
any antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, payable to the Company upon the exercise of such
rights, warrants or options, plus the consideration received by the Company for
the issuance or sale of such rights, warrants or options, plus, in the case of
such Convertible Securities, the minimum aggregate amount, as set forth in the
instrument relating thereto without regard to any antidilution or similar
provisions contained therein for a subsequent adjustment of such amount, of
additional consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the total maximum
number, as set forth in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a subsequent adjustment
of such amount, of shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such rights, warrants or
options) is less than either the Purchase Price or the Market Price of the
Common Stock as of the date of the issuance or sale of such rights, warrants or
options, then such total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (as of the date of the issuance or sale
of such rights, warrants or options) shall be deemed to be "Common Stock" for
purposes of
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Subsection 7.1 and shall be deemed to have been sold for an amount equal to such
consideration per share and shall cause an adjustment to be made in accordance
with Subsection 7.1.
(iv) In case of the sale or other issuance by the Company of
any Convertible Securities, whether or not the right of conversion or exchange
thereunder is immediately exercisable, and the price per share for which Common
Stock is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (A) the total amount of consideration received by the
Company for the sale of such Convertible Securities, plus the minimum aggregate
amount, as set forth in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a subsequent adjustment
of such amount, of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (B) the total
maximum number, as set forth in the instrument relating thereto without regard
to any antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is less than either the
Purchase Price or the Market Price of the Common Stock as of the date of the
sale of such Convertible Securities, then such total maximum number of shares of
Common Stock issuable upon the conversion or exchange of such Convertible
Securities (as of the date of the sale of such Convertible Securities) shall be
deemed to be "Common Stock" for purposes of Subsection 7.1 and shall be deemed
to have been sold for an amount equal to such consideration per share and shall
cause an adjustment to be made in accordance with Subsection 7.1.
(v) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in Paragraphs (iii) or
(iv) of this Subsection 7.7 or any other securities of the Company convertible,
exchangeable or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than either the Purchase Price or the Market Price as of the date prior to such
modification, then such securities, to the extent not theretofore exercised,
converted or exchanged, shall be deemed to have expired or terminated
immediately prior to the date of such modification and the Company shall be
deemed, for purposes of calculating any adjustments pursuant to this Section 7,
to have issued such new securities upon such new terms on the date of
modification. Such adjustment shall become effective as of the date upon which
such modification shall take effect. On the expiration or cancellation of any
such right, warrant or option or the termination or cancellation of any such
right to convert or exchange any such Convertible Securities, the Purchase Price
then in effect hereunder shall forthwith be readjusted to such Purchase Price as
would have obtained (A) had the adjustments made upon the issuance or sale of
such rights, warrants, options or Convertible Securities been made upon the
basis of the issuance of only the number of shares of Common Stock theretofore
actually delivered (and the total consideration received therefor) upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities and (B) had adjustments been made on the basis of
the Purchase Price as adjusted under clause (A) of this sentence for all
transactions (which would have affected such adjusted Purchase Price) made after
the issuance or sale of such rights, warrants, options or Convertible
Securities.
10
<PAGE>
(vi) In case of the sale of any shares of Common Stock, any
Convertible Securities, any rights or warrants to subscribe for or purchase, or
any options for the purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefor shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith. In the event that any securities
shall be issued in connection with any other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated among the securities, then each of such securities shall be deemed to
have been issued for such consideration as the Board of Directors of the Company
determines in good faith; provided, however that if holders of more than of ten
percent (10%) of the then outstanding Class D Warrants disagree with such
determination, the Company shall retain an independent investment banking firm
for the purpose of obtaining an appraisal.
7.8 Notwithstanding any other provision hereof, no adjustment to the
Purchase Price of the Class D Warrants or to the number of shares of Common
Stock purchasable upon the exercise of each Class D Warrant will be made:
(i) upon the exercise of any of the options outstanding on the
date hereof under the Company's existing stock option plans; or
(ii) upon the issuance or exercise of options which may
hereafter be granted with the approval of the Board of Directors, or exercised,
under any employee benefit plan of the Corporation to officers, directors,
consultants or employees, but only with respect to such options as are
exercisable at prices no lower than the Market Price of the Common Stock as of
the date of grant thereof; or
(iii) upon issuance or exercise of the Placement Warrants, or
the Advisory Warrants, (as defined in the Placement Agency Agreement between the
Corporation and Paramount Capital, Inc. dated as of October 26, 1997), pursuant
to currently existing rights under Subscription Agreements or other documents to
receive additional shares of Common Stock as a dividend or pursuant to
anti-dilution provisions or upon the exercise of any other of the currently
outstanding warrants of the Company; or
(iv) upon the issuance or sale of Common Stock or Convertible
Securities pursuant to the exercise of any rights, options or warrants to
receive, subscribe for or purchase, or any options for the purchase of, Common
Stock or Convertible Securities, whether or not such rights, warrants or options
were outstanding on the date of the original sale of the Class D Warrants or
were thereafter issued or sold, provided that an adjustment was either made or
not required to be made in accordance with Subsections 7.1 and 7.3 in connection
with the issuance or sale of such securities or any modification of the terms
thereof; or
(v) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, provided that any adjustments
required to be made upon the issuance or sale of such Convertible Securities or
any modification of the terms thereof were
11
<PAGE>
so made, and whether or not such Convertible Securities were outstanding on the
date of the original sale of the Class D Warrants or were thereafter issued or
sold; or
(vi) upon the issuance of stock which may hereafter be
purchased or sold with the approval of the Board of Directors, under the 1993
Employee Stock Purchase Plan of the Company to officers, directors, consultants
or employees, but only with respect to such shares as are purchased and/or sold
in accordance with the current plan and at prices no lower than eighty-five
percent (85%) of the Closing Bid Price (or, if the prices referenced in the
definition of Closing Bid Price cannot be determined, 85% of the Fair Market
Value) of the Common Stock as of the date of purchase and/or sale thereof.
Paragraph 7.7(v) shall nevertheless apply to any modification of the rights of
conversion, exchange or exercise of any of the securities referred to in
Paragraphs (i), (ii) and (iii) of this Subsection 7.8, except for modifications
required by the original terms of such securities.
7.9 As used in this Section 7, the term "Common Stock" shall mean
and include the Company's Common Stock authorized on the date of the original
issue hereof and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Class D Warrants shall include only shares of such
class designated in the Company's Certificate of Incorporation, as amended, as
Common Stock on the date of the original issue hereof or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Subsection 7.2, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Class D Warrants as a result of a subdivision or combination or consisting of a
change in par value, or from par value to no par value, or from no par value to
par value, such shares of Common Stock as so reclassified or changed.
7.10 Any determination as to whether an adjustment in the Purchase
Price in effect hereunder is required pursuant to Section 7, or as to the amount
of any such adjustment, if required, shall be binding upon the holders of the
Class D Warrants and the Company if made in good faith by the Board of Directors
of the Company, except as otherwise contemplated hereby.
7.11 If and whenever the Company shall grant to the holders of Common
Stock, as such, rights or warrants to subscribe for or to purchase, or any
options for the purchase of, Common Stock or securities convertible into or
exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company may at its option elect concurrently therewith to grant to
each Registered Holder as of the record date for such transaction of the Class D
Warrants then outstanding, the rights, warrants or options to which each
Registered Holder would have been entitled if, on the record date used to
determine the stockholders entitled to the rights, warrants or options being
granted by the Company, the Registered Holder were the holder of record of the
number of whole shares of Common Stock then issuable upon exercise of his or
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<PAGE>
her Class D Warrants. If the Company shall so elect under this Subsection 7.11,
then such grant by the Company to the holders of the Class D Warrants shall be
in lieu of any adjustment which otherwise might be called for pursuant to this
Section 7.
8. FRACTIONAL WARRANTS AND FRACTIONAL SHARES. If the number of shares of
Common Stock purchasable upon the exercise of each Class D Warrant is adjusted
pursuant to Section 7, the Company nevertheless shall not be required to issue
fractions of shares, upon exercise of the Class D Warrants or otherwise, nor to
distribute certificates that evidence fractional shares. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Registered Holder an amount in cash equal to such fraction multiplied by
the Fair Market Value of one (1) share of Common Stock as of the date of
exercise.
9. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of Class D Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Class D Warrants for any purpose whatsoever, nor shall anything contained herein
be construed to confer upon the holder of Class D Warrants, as such, any of the
rights of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issue or reclassification of stock, change of par value or
change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Class D
Warrants and been issued shares of Common Stock in accordance with the
provisions hereof.
10. REGISTRATION RIGHTS. The Registered Holder of this Class D Warrant
shall have the registration rights as provided in Section 5 of the Subscription
Agreement (the "Subscription Agreement") dated as of the date hereof between the
Company and such Registered Holder. The Class D Warrants represented hereby
shall not be exercisable by a Registered Holder in any state where such exercise
would be unlawful.
11. AGREEMENT OF WARRANT HOLDERS. Every holder of any Class D Warrant, by
his acceptance thereof, consents and agrees with the Company and every other
holder of any Class D Warrant that:
(a) The Class D Warrants are transferable only on the registry
books of the Company by the Registered Holder thereof in person or by his or her
attorney duly authorized in writing and only if the Warrant Certificates
representing such Class D Warrants are surrendered at the office of the Company,
duly endorsed or accompanied by a proper instrument of transfer satisfactory to
the Company, in its sole discretion, together with payment of any applicable
transfer taxes; and
(b) The Company may deem and treat the person in whose name the
Warrant Certificate is registered as the holder and as the absolute, true and
lawful owner of the Class D Warrants represented thereby for all purposes, and
the Company shall not be affected by any notice or knowledge to the contrary,
except as otherwise expressly provided in Section 4.
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<PAGE>
12. CANCELLATION OF WARRANT CERTIFICATES. If the Company shall purchase or
acquire any Class D Warrant or Class D Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same, by redemption or otherwise, shall
thereupon be delivered to the Company and canceled by it and retired. The
Company shall also cancel the Warrant Certificate or Warrant Certificates
following exercise of any or all of the Class D Warrants represented thereby or
delivered to it for transfer, split up, combination or exchange.
13. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed by means of first class registered or certified mail,
postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Company; and if to the Company, at 840 Memorial Drive,
Cambridge, Massachusetts, 02139, or at such other address as may have been
furnished to the Registered Holders in writing by the Company.
14. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without reference to
principles of conflict of laws.
15. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Company and its respective successors and assigns, and the
holders from time to time of the Warrants represented by this Warrant
Certificate. Nothing in this Agreement is intended nor shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
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IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile, by a duly authorized
officer.
PROCEPT, INC.
Dated: By:
-------------------------- ----------------------------------------
15
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[FORM OF REVERSE OF WARRANT CERTIFICATE]
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Class D Warrants
The undersigned Registered Holder hereby irrevocably elects to
exercise Class D Warrants represented by this Warrant Certificate, and
--------
to purchase the securities issuable upon the exercise of such Class D Warrants,
and requests that certificates for such securities shall be issued in the name
of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
[please print or type name and address]
and be delivered to
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
[please print or type name and address]
and if such number of Class D Warrants shall not be all the Class D Warrants
evidenced by this Warrant Certificate, that a new Warrant Certificate for the
balance of such Class D Warrants be registered in the name of, and delivered to,
the Registered Holder at the address stated below.
16
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Class D Warrants
FOR VALUE RECEIVED, hereby sells,
---------------------------------------------
assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
- ------------------------------------------
[please print or type name and address]
of the Class D Warrants represented by this
- --------------------------------
Warrant Certificate, and hereby irrevocably constitutes and appoints
- ------------------------------------
- -------------------------------------------------------------------------------
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Dated: X
-------------------------
-----------------------------------
Signature Guaranteed
------------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
17
<PAGE>
EXHIBIT 4.2
Schedule of Holders of Class D Warrants
The following individuals and entities are holders of Class D Warrants
with respect to an aggregate of 924,525 shares of Common Stock:
1. Ross D. Ain
2. Palmetto Partners, Ltd.
3. Richard A. Lydecker
4. Arthur Nagle
5. Osterweis Revocable Trust
6. Prager, Dreifuss & Partners
7. The Keys Foundation
8. David W. Ruttenberg
9. J.F. Shea & Co., Inc.
10. Donald E. & Virginia V. Vinson
11. Bruno Widmer
12. Aries Domestic Fund, L.P.
13. The Aries Trust
1
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Exhibit 10.1
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 11, 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.
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<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
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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) 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 Committee shall
determine at the time of grant or thereafter whether SARs are settled in cash,
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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.
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
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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.
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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) upon
written notice to the Participants holding options, provide that all options
must be
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exercised, to the extent exercisable, within a specified number of days of such
notice, at the end of which period the options shall terminate, (iii) provide
for the purchase of the Award for an amount of cash or other property equal to
the excess of the fair market value of the Award, (iv) adjust the terms of the
Award in a manner determined by the Committee to reflect the change in control,
(v) cause the Award to be assumed, or new rights substituted therefor, by
another entity, or (vi) 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 required 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
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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.
(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.
-----------------------------------------
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Exhibit 10.2
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of June 30,
1999 between Procept, Inc. a Delaware corporation (the "Company") and the
undersigned investor (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Subscriber is a holder of shares of Series A
Convertible Preferred Stock of BG Development Corporation (the "BGDC Shares")
and desires to exchange the BGDC Shares for shares of the Company's Common Stock
(the "Common Stock") and Class D Warrants to purchase shares of the Company's
Common Stock on the terms set forth in Exhibit A hereto (the "Class D Warrants")
(collectively, the "Securities") on the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the promises and the
mutual representations and covenants hereinafter set forth, the parties hereto
do hereby agree as follows:
I. SUBSCRIPTION FOR SECURITIES AND REPRESENTATIONS BY SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for the Securities at the rate of 1.89 shares of
Common Stock and Class D Warrants exercisable for 0.63 shares for each BGDC
Share. The parties agree that for the purposes of this agreement, each BGDC
Share is valued at $3.99 and each share of Common Stock is valued at $2.11.
Within seven days after the delivery to Procept of an executed copy of this
Agreement and the Subscriber's certificate for BGDC Shares exchanged hereunder,
Procept will deliver the certificates representing the Securities to the
Subscriber. The number of BGDC Shares being delivered and Securities being
issued is as set forth on the signature page to this Agreement.
1.2 The Subscriber recognizes that the purchase of Securities
involves a high degree of risk including, but not limited to, the following:
(i) the Company remains a development stage business with limited operating
history and requires substantial additional funds; (ii) an investment in the
Company is highly speculative, and only investors who can afford the loss of
their entire investment should consider investing in the Company and the
Securities; (iii) the Subscriber may not be able to liquidate his investment;
(iv) transferability of the Securities is extremely limited; (v) in the event
of a disposition of the Securities, the Subscriber could sustain the loss of
his entire investment and (vi) the Company has not paid any dividends since
inception and does not anticipate the payment of dividends in the foreseeable
future. Such risks are more fully set forth in the Company's Exchange Act
Reports (as defined below) filed with the Securities and Exchange Commission.
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1.3 The Subscriber represents that the Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act of 1933, as amended (the "Act"), and that the Subscriber is
able to bear the economic risk of an investment in the Securities.
1.4 The Subscriber hereby acknowledges and represents that (i) the
Subscriber has prior investment experience, including investment in securities
that are non-listed, unregistered and are not traded on the Nasdaq National or
SmallCap Market, nor on the National Association of Securities Dealers, Inc.'s
(the "NASD") automated quotation system, or the Subscriber has employed, at its
own expense, and relied upon the services of an investment advisor, attorney
and/or accountant to read all of the documents furnished or made available by
the Company to the Subscriber and to evaluate the investment, tax and legal
merits and the consequences and risks of such a transaction on the Subscriber's
behalf and that such person has such knowledge and experience in financial and
business matters is capable of evaluating the merits and risks of the
prospective investment and satisfies the conditions set out in Rule 501(h) under
the Act; (ii) the Subscriber recognizes the highly speculative nature of this
investment; and (iii) the Subscriber is able to bear the economic risk which the
Subscriber hereby assumes.
1.5 The Subscriber hereby acknowledges receipt and careful review of
(a) the Company's Report on Form 10-K for the year ended December 31, 1998 and
the Company's Reports on Form 10-Q filed after such year end (the "Exchange Act
Reports") and (b) this Agreement and all attachments to it, and hereby
represents that the Subscriber has been furnished by the Company during the
course of this transaction with all information regarding the Company which the
Subscriber has requested or desired to know, has been afforded the opportunity
to ask questions of, and to receive answers from, duly authorized officers or
other representatives of the Company concerning the terms and conditions of the
Securities and the affairs of the Company and has received any additional
information which the Subscriber has requested.
1.6 The Subscriber has relied solely upon the information provided by
the Company in the Exchange Act Reports and in this Agreement in making the
decision to invest in the Securities. To the extent necessary, the Subscriber
has retained, at the sole expense of the Subscriber, and relied upon appropriate
professional advice regarding the investment, tax and legal merits and
consequences of this Agreement and its purchase of the Securities hereunder.
(b) The Subscriber represents that no Securities were offered or
sold to it by means of any form of general solicitation or general advertising,
and in connection therewith the Subscriber did not (A) receive or review any
advertisement, article, notice or other communication published in a newspaper
or magazine or similar media or broadcast over television or radio whether
closed circuit, or generally available; or (B) attend any seminar meeting or
industry investor conference whose attendees were invited by any general
solicitation or general advertising.
1.7 The Subscriber hereby represents that the Subscriber either by
reason of the Subscriber's business or financial experience, or the business or
financial experience of the Subscriber's professional advisors (who are
unaffiliated with and who are not compensated by the Company
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or any affiliate or selling agent of the Company, directly or indirectly), has
the capacity to protect the Subscriber's own interests in connection with the
transaction contemplated hereby.
1.8 The Subscriber hereby acknowledges that the Securities have not
been reviewed by the United States Securities and Exchange Commission (the "SEC"
or the "Commission") or any state regulatory authority, since the sale of the
Securities is intended to be exempt from the registration requirements of
Section 5 of the Act. The Subscriber shall not sell or otherwise transfer the
Securities unless they are registered under the Act or unless an exemption from
such registration is available.
1.9 The Subscriber understands that the Securities have not been
registered under the Securities Act of 1933, as amended (the "Act") by reason of
a claimed exemption under the provisions of the Act which depends, in part, upon
the Subscriber's investment intention. In this connection, the Subscriber hereby
represents that the Subscriber is purchasing the Securities for the Subscriber's
own account for investment and not with a view toward the resale or distribution
to others. The Subscriber was not formed for the purpose of purchasing the
Securities.
1.10 The Subscriber understands although there currently is a public
market for the Common Stock, reliance upon Rule 144 under the Act, as amended,
for resales requires, among other conditions, a one-year holding period prior to
the resale (in limited amounts) of securities acquired in a non-public offering
without having to satisfy the registration requirements under the Act. The
Subscriber understands and hereby acknowledges that the Company is under no
obligation to register any of the Securities under the Act or any state
securities or "blue sky" laws other than as set forth in Article V. The
Subscriber shall hold the Company and its directors, officers, employees,
controlling persons and agents and their respective heirs, representatives,
successors and assigns harmless from, and shall indemnify them against, all
liabilities, costs and expenses incurred by them as a result of (i) any
misrepresentation made by the Subscriber contained in this Agreement, (ii) any
sale or distribution by the Subscriber in violation of the Act or any applicable
state securities or "blue sky" laws or (iii) any untrue statement of a material
fact made by the Subscriber and contained herein or omission to state herein a
material fact necessary in order to make the statements contained herein, in
light of the circumstances under which they were made, not misleading.
1.11 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Securities that such Securities
have not been registered under the Act or any state securities or "blue sky"
laws and setting forth or referring to the restrictions on transfer ability and
sale thereof contained in this Agreement. The Subscriber is aware that the
Company will make a notation in its appropriate records with respect to the
restrictions on the transferability of such Securities.
1.12 The Subscriber hereby represents that the address of the
Subscriber furnished by Subscriber on the signature page hereof is the
Subscriber's principal business address.
1.13 The Subscriber represents that the Subscriber has full power and
authority (corporate, statutory and otherwise) to execute and deliver this
Agreement and to purchase the Securities. This Agreement constitutes the legal,
valid and binding obligation of the Subscriber, enforceable
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against the Subscriber in accordance with its terms.
1.14 The Subscriber (a) is authorized and qualified to become an
investor in the Company and the person signing this Agreement on behalf of such
entity has been duly authorized by such entity to do so, and (b) it is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization.
1.15 The Subscriber acknowledges that at such time, if ever, as the
Securities are registered, sales of the Securities will be subject to state
securities laws, including those of the State of New Jersey which require any
securities sold in New Jersey to be sold through a registered broker-dealer or
in reliance upon an exemption from registration.
1.16 The Subscriber represents and warrants that it has not engaged,
consented to nor authorized any broker, finder or intermediary to act on its
behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. The Subscriber
shall indemnify and hold harmless the Company from and against all fees,
commissions or other payments owing to any such person or firm acting on behalf
of such Subscriber hereunder.
1.17 The Subscriber, whose name appears on the signature line below,
shall be the beneficial owner of the Securities for which such Subscriber
subscribes.
II. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
The Company hereby represents, warrants and covenants to the Subscriber
that:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and lawful authority to
conduct its business as described in the Exchange Act Reports. The Company is
duly qualified to do business as a foreign corporation and is in good standing
in Massachusetts and in each jurisdiction in which the nature of the business
conducted, or as proposed to be conducted in the Exchange Act Reports, by it or
the properties owned, leased or operated by it, makes such qualification or
licensing necessary and where the failure to be so qualified or licensed would
have a material adverse effect upon the business, prospects and financial
condition of the Company. The Company is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the
laws require the Company to be so qualified and/or authorized to do business.
2.2 CAPITALIZATION AND VOTING RIGHTS. The authorized capital stock of
the Company is 30,000,000 shares of Common Stock and 1,000,000 shares of
Preferred Stock. As of April 15, 1999, 11,278,764 shares of Common Stock were
issued and outstanding and no shares of Preferred Stock were issued and
outstanding. All issued and outstanding shares of capital stock of the Company
are validly issued, fully paid and nonassessable. The Securities have been duly
and validly authorized and, when issued and paid for pursuant to this Agreement,
will be validly issued, fully paid and nonassessable. Except as set forth in the
Exchange Act Reports and the Proxy Statement for the Company's 1999 Annual
Meeting of Stockholders (the "Proxy
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<PAGE>
Statement"), there are no outstanding options, warrants, agreements, convertible
securities, preemptive rights or other rights to subscribe for or to purchase
any shares of capital stock of the Company. Except as set forth in the Exchange
Act Reports and the Proxy Statement, in this Agreement and as otherwise required
by law, there are no restrictions upon the voting or transfer of the Securities
pursuant to the Company's Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), By-laws or other governing documents or any
agreement or other instruments to which the Company is a party or by which the
Company is bound.
2.3 AUTHORIZATION; ENFORCEABILITY. The Company has all corporate right,
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. All corporate action on the part of the
Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company, the
authorization, sale, issuance and delivery of the Securities contemplated hereby
and the performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies,
and to limitations of public policy. Upon the issuance and delivery of the
Securities as contemplated by this Agreement, such securities will be duly and
validly authorized and issued, fully paid and nonassessable. The issuance and
sale of the Securities contemplated hereby will not give rise to any preemptive
rights or rights of first refusal on behalf of any person.
2.4 NO CONFLICT; GOVERNMENTAL CONSENTS.
(a) The execution and delivery by the Company of this Agreement
and the consummation of the transactions contemplated hereby will not result in
the violation of any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority to or by which the
Company is bound, or of any provision of the Certificate of Incorporation or
By-laws of the Company, and will not conflict with, or result in a breach or
violation of, any of the terms or provisions of, or constitute (with due notice
or lapse of time or both) a default under, any lease, loan agreement, mortgage,
security agreement, trust indenture or other agreement or instrument to which
the Company is a party or by which it is bound or to which any of its properties
or assets is subject, nor result in the creation or imposition of any lien upon
any of the properties or assets of the Company.
(b) No consent, approval, authorization or other order of any
governmental authority or other third-party is required to be obtained by the
Company in connection with the authorization, execution and delivery of this
Agreement or with the authorization, issuance and sale of the Securities or the
Securities comprising the Securities, except such filings as may be required to
be made with the Commission, the NASD and the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") and with any state or foreign blue
sky or securities regulatory authority.
2.5 LICENSES. Except as set forth in the Exchange Act Reports, the
Company has all licenses,
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permits and other governmental authorizations currently required for the conduct
of its business or ownership of properties and is in all material respects
complying therewith.
2.6 LITIGATION. Except as set forth in the Exchange Act Reports, the
Company knows of no pending or threatened legal or governmental proceedings
against the Company which could materially adversely affect the business,
property, financial condition, operations or prospects of the Company.
2.7 ACCURACY OF REPORTS. All material reports required to be filed by
the Company within the three years prior to the date of this Agreement under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), have been duly
filed with the SEC, complied at the time of filing in all material respects with
the requirements of their respective forms and, except to the extent updated or
superseded by the Exchange Act Reports or any subsequently filed report, to the
best of the Company's knowledge, were complete and correct in all material
respects as of the dates at which the information was furnished, and contained
(as of such dates) no untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
2.8 EXCHANGE ACT REPORTS; DISCLOSURE. No information set forth in the
Exchange Act Reports contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading.
2.9 INVESTMENT COMPANY. The Company is not an "investment company"
within the meaning of such term under the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission thereunder.
2.10 LISTING. The Company shall promptly file an Application for
Listing of Additional Shares with the Nasdaq National Market (the "Nasdaq") and
hereby represents and warrants to and the Subscriber that it will take any other
necessary action in accordance with the rules of the Nasdaq to enable the
Securities to trade on the Nasdaq.
2.11 RESERVATION OF SHARES; TRANSFER TAXES, ETC. The Company shall at
all times reserve and keep available, out of its authorized and unissued shares
of Common Stock, solely for the purpose of effecting any Semi-Annual Issuance
(as defined below), Qualified Offering Issuance (as defined below) and Dilution
Issuance (as defined below and, together with Qualified Offering Issuances and
Semi-Annual Issuances, referred to herein as "Article VI Issuances"), such
number of shares of its Common Stock free of preemptive rights as shall be
sufficient to effect such exercises and Article VI Issuances from time to time
required or reasonably anticipated. The Company shall use its best efforts from
time to time, in accordance with the laws of the State of Delaware to increase
the authorized number of shares of Common Stock if at any time the number of
shares of authorized, unissued and unreserved Common Stock shall not be
sufficient to permit any required or reasonably anticipated Article VI
Issuances. In the event, and to the extent, that the company does not have
sufficient authorized but unissued shares of Common Stock to effect any Article
VI Issuance, the Company shall pay the Subscriber cash in an amount
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per share of Common Stock that would have been issued to such Subscriber
pursuant to such Article VI Issuance but for the lack of sufficient authorized
but unissued Common Stock equal to the greater of (i) 1.40 times the Dilution
Value (as defined below) and (ii) the Market Price, in either case determined as
of the date of the event giving rise to such Article VI Issuance.
The Company shall pay any and all issue or other taxes that may be
payable in respect of any Article VI Issuance.
III. [INTENTIONALLY OMITTED]
IV. [INTENTIONALLY OMITTED]
V. REGISTRATION RIGHTS
5.1 As used in this Agreement, the following terms shall have the
following meanings:
(a) "AFFILIATE" shall mean, with respect to any Person (as
defined below), any other Person controlling, controlled by, or under direct or
indirect common control with, such Person (for the purposes of this definition
"control," when used with respect to any specified Person, shall mean the power
to direct the management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" shall have meanings correlative to the
foregoing).
(b) "BUSINESS DAY" shall mean a day Monday through Friday on
which banks are generally open for business in New York.
(c) "HOLDERS" shall mean the Subscriber or any person to whom
the rights under Article V have been transferred in accordance with Section 5.9
hereof.
(d) "PERSON" shall mean any person, individual, corporation,
limited liability company, partnership, trust or other nongovernmental entity or
any governmental agency, court, authority or other body (whether foreign,
federal, state, local or otherwise).
(e) The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer
to the registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.
(f) "REGISTRABLE SECURITIES" shall mean (i) the Securities (ii)
a number of shares of Common Stock issuable upon issuances pursuant to Article
VI with respect to the first two (2) Semi-Annual Issuances (as defined below)
and (iii) any shares of Common Stock issued as (or issuable upon the conversion
of any warrant, right or other security which is issued as) a dividend or other
distribution with respect to or in replacement of the Securities; provided,
however, that securities shall only be treated as Registrable Securities if and
only for so long as they (A) have not been disposed of pursuant to a
registration statement declared effective by the Commission, (B) have not been
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Act so that all transfer restrictions and restrictive
legends with
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respect thereto are removed upon the consummation of such sale or (C) are held
by a Holder or a permitted transferee pursuant to Section 5.9.
(g) "REGISTRATION EXPENSES" shall mean all expenses incurred by
the Company in complying with Section 5.2 hereof, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and expenses of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to, or required by, any such registration
(but excluding the fees of legal counsel for any Holder).
(h) "REGISTRATION STATEMENT" shall have the meaning ascribed to
such term in Section 5.2.
(i) "REGISTRATION PERIOD" shall have the meaning ascribed to
such term in Section 5.4.
(j) "SELLING EXPENSES" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities and all
fees and expenses of legal counsel for any Holder.
5.2 No later than twenty (20) business days after the date of this
Agreement (the "Filing Date"), the Company shall file a "shelf" registration
statement on the appropriate form (the "Registration Statement") with the
Commission and use its best efforts to effect the registration, qualifications
or compliances (including, without limitation, the execution of any required
undertaking to file post- effective amendments, appropriate qualifications or
exemptions under applicable blue sky or other state securities laws and
appropriate compliance with applicable securities laws, requirements or
regulations) of the Registrable Securities. Notwithstanding the foregoing, the
Company shall not be obligated to enter into any underwriting agreement for the
sale of any of the Registrable Securities.
5.3 All Registration Expenses incurred in connection with any
registration, qualification, exemption or compliance pursuant to Section 5.2
shall be borne by the Company. All Selling Expenses relating to the sale of
securities registered by or on behalf of Holders shall be borne by such Holders
pro rata on the basis of the number of securities so registered; provided that
if a Holder uses its own legal counsel in addition to one counsel for all of the
Holders of securities registered on behalf of the Holders, such Holder shall
bear the cost of such counsel.
5.4 In the case of the registration, qualification, exemption or
compliance effected by the Company pursuant to this Agreement, the Company
shall, upon reasonable request, inform each Holder as to the status of such
registration, qualification, exemption and compliance. At its expense the
Company shall:
(a) use its best efforts to keep such registration, and any
qualification, exemption or compliance under state securities laws which the
Company determines to obtain, continuously effective until the Holders have
completed the distribution described in the registration statement relating
thereto. The period of time during which the Company is required hereunder to
keep the Registration Statement effective is referred to herein as "the
Registration Period." Notwithstanding the foregoing, at the Company's election,
the Company may cease to keep such
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registration, qualification, exemption or compliance effective with respect to
any Registrable Securities, and the registration rights of a Holder shall
expire, at such time as the Holder (who is not an affiliate of the Company) may
sell under Rule 144 under the Act (or other exemption from registration
acceptable to the Company) in a three-month period all Registrable Securities
then held by such Holder; and
(b) advise the Holders:
(i) when the Registration Statement or any amendment
thereto has been filed with the Commission and when the Registration Statement
or any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included therein or
for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for such purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities
included therein for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and
(v) of the happening of any event that requires the making
of any changes in the Registration Statement or the prospectus so that, as of
such date, the statements therein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of the prospectus, in the light of the circumstances under
which they were made) not misleading;
(c) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of any Registration Statement at the
earliest possible time;
(d) furnish to each Holder, without charge, at least one copy
of such Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, and, if the Holder so requests in
writing, all exhibits (including those incorporated by reference) in the form
filed with the Commission;
(e) during the Registration Period, deliver to each Holder,
without charge, as many copies of the prospectus included in such Registration
Statement and any amendment or supplement thereto as such Holder may reasonably
request; and the Company consents to the use, consistent with the provisions
hereof, of the prospectus and any amendment or supplement thereto by each of the
selling Holders of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by the prospectus and any amendment
or supplement thereto. In addition, upon the reasonable request of the Holder
and subject in all cases to confidentiality protections reasonably acceptable to
the Company, the Company will meet with a Holder or a representative thereof at
the Company's headquarters to discuss all information relevant for disclosure in
the Registration Statement covering the Registrable
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<PAGE>
Securities, and will otherwise cooperate with any Holder conducting an
investigation for the purpose of reducing or eliminating such Holder's exposure
to liability under the Act, including the reasonable production of information
at the Company's headquarters;
(f) during the Registration Period, deliver to each Holder,
without charge, (i) as soon as practicable (but in the case of the annual report
of the Company to its stockholders, within 120 days after the end of each fiscal
year of the Company) one copy of: (A) its annual report to its stockholders, if
any (which annual report shall contain financial statements audited in
accordance with generally accepted accounting principles in the United States of
America by a firm of certified public accountants of recognized standing); (B)
if not included in substance in its annual report to stockholders, its annual
report on Form 10-K (or similar form); (C) each of its quarterly reports to its
stockholders, if any, and, if not included in substance in its quarterly reports
to stockholders, its quarterly report on Form 10-Q (or similar form), and (D) a
copy of the full Registration Statement (the foregoing, in each case, excluding
exhibits); and (ii) upon reasonable request, all exhibits excluded by the
parenthetical to the immediately preceding clause (D), and all other information
that is generally available to the public;
(g) prior to any public offering of Registrable Securities
pursuant to any Registration Statement, register or qualify or obtain an
exemption for offer and sale under the securities or blue sky laws of such
jurisdictions as any such Holders reasonably request in writing, provided that
the Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction, and do any and all other acts or things reasonably necessary or
advisable to enable the offer and sale in such jurisdictions of the Registrable
Securities covered by such Registration Statement;
(h) cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold pursuant to any Registration Statement free of any restrictive legends
to the extent not required at such time and in such denominations and registered
in such names as Holders may request at least three (3) business days prior to
sales of Registrable Securities pursuant to such Registration Statement;
(i) upon the occurrence of any event contemplated by
Section 5.4(b)(v) above, the Company shall promptly prepare a post-effective
amendment to the Registration Statement or a supplement to the related
prospectus, or file any other required document so that, as thereafter
delivered to purchasers of the Registrable Securities included therein, the
prospectus will not include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
(j) use its best efforts to comply with all applicable rules
and regulations of the Commission, and will make generally available to the
Holders not later than 45 days (or 90 days if the fiscal quarter is the fourth
fiscal quarter) after the end of its fiscal quarter in which the first
anniversary date of the effective date of the Registration Statement occurs, an
earnings statement satisfying the provisions of Section 11(a) of the Act.
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5.5 The Holders shall have no right to take any action to restrain,
enjoin or otherwise delay any registration pursuant to Section 5.2 hereof as a
result of any controversy that may arise with respect to the interpretation or
implementation of this Agreement.
5.6 (a) To the extent permitted by law, the Company shall indemnify
each Holder, each underwriter of the Registrable Securities and each person
controlling such Holder within the meaning of Section 15 of the Act, with
respect to which any registration, qualification or compliance has been effected
pursuant to this Agreement, against all claims, losses, damages and liabilities
(or action in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened (subject to Section 5.6(c)
below), arising out of or based on (i) any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus or offering circular, or any amendment or supplement thereof,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
light of the circumstances in which they were made, or (ii) any violation or
alleged violation by the Company of the Act, the Exchange Act, or any rule or
regulation promulgated under the Act, or the Exchange Act, and shall reimburse
each Holder, each underwriter of the Registrable Securities and each person
controlling such Holder, for legal and other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as incurred; provided that the Company shall not be liable
in any such case to the extent that any untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder and stated
to be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the Company shall not be liable
in any such case where the claim, loss, damage or liability arises out of or is
related to the failure of the Holder to comply with the covenants and agreements
contained in this Agreement respecting sales of Registrable Securities, and
except that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement or alleged untrue statement
or omission or alleged omission made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission at
the time the registration statement becomes effective or in the amended
prospectus filed with the Commission pursuant to Rule 424(b) of the Act or in
the prospectus subject to completion and Exchange Act Reports under Rule 434 of
the Act, which together meet the requirements of Section 10(a) of the Act (the
"Final Prospectus"), such indemnity agreement shall not inure to the benefit of
any such Holder, any such underwriter or any such controlling person, if a copy
of the Final Prospectus furnished by the Company to the Holder for delivery was
not furnished to the person or entity asserting the loss, liability, claim or
damage at or prior to the time such furnishing is required by the Act and the
Final Prospectus would have cured the defect giving rise to such loss,
liability, claim or damage.
(b) Each Holder will severally, if Registrable Securities held
by such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter of the Registrable Securities and
each person who controls the Company within the meaning of Section 15 of the
Act, against all claims, losses, damages and liabilities (or actions in respect
thereof),
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including any of the foregoing incurred in settlement of any litigation,
commenced or threatened (subject to Section 5.6(c) below), arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus or offering circular, or any
amendment or supplement thereof, incident to any such registration,
qualification or compliance or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in light of the circumstances in which
they were made, and will reimburse the Company, such directors and officers,
each underwriter of the Registrable Securities and each person controlling the
Company for reasonable legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action as incurred, in each case to the extent, but only to the
extent, that such untrue statement or omission or allegation thereof is made in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Holder and stated to be specifically for use in
preparation of such registration statement, prospectus or offering circular;
provided that the indemnity shall not apply to the extent that such claim, loss,
damage or liability results from the fact that a current copy of the prospectus
or offering circular was not made available to the Holder and such current copy
of the prospectus or offering circular would have cured the defect giving rise
to such loss, claim, damage or liability. Notwithstanding the foregoing, in no
event shall a Holder be liable for any such claims, losses, damages or
liabilities in excess of the proceeds received by such Holder in the offering,
except in the event of fraud by such Holder.
(c) Each party entitled to indemnification under this
Section 5.6 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such Indemnified Party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Agreement,
unless such failure is materially prejudicial to the Indemnifying Party in
defending such claim or litigation. An Indemnifying Party shall not be liable
for any settlement of an action or claim effected without its written consent
(which consent will not be unreasonably withheld).
(d) If the indemnification provided for in this Section 5.6 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party thereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue
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statement of a material fact or the omission to state a material fact relates to
information supplied by the Indemnifying Party or by the Indemnified Party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
5.7 Upon receipt of any notice from the Company of the happening of
any event requiring the preparation of a supplement or amendment to a prospectus
relating to Registrable Securities so that, as thereafter delivered to the
Holders, such prospectus will not contain an untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, each Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement contemplated by Section 5.2 until its receipt of copies of the
supplemented or amended prospectus from the Company and, if so directed by the
Company, each Holder shall deliver to the Company all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
(b) Each Holder shall suspend, upon request of the Company, any
disposition of Registrable Securities pursuant to the Registration Statement and
prospectus contemplated by Section 5.2 during (i) any period not to exceed two
30-day periods within any one 12-month period the Company requires in connection
with a primary underwritten offering of equity securities and (ii) any period,
not to exceed one 45-day period per circumstance or development, when the
Company determines in good faith that offers and sales pursuant thereto should
not be made by reason of the presence of material undisclosed circumstances or
developments with respect to which the disclosure that would be required in such
a prospectus is premature, would have an adverse effect on the Company or is
otherwise inadvisable.
(c) As a condition to the inclusion of its Registrable
Securities, each Holder shall furnish to the Company such information regarding
such Holder, the Securities of the Company owned beneficially or of record by
such holder and the distribution proposed by such Holder as the Company may
request in writing or as shall be required in connection with any registration,
qualification or compliance referred to in this Article V.
(d) Each Holder hereby covenants with the Company (i) not to
make any sale of the Registrable Securities without effectively causing the
prospectus delivery requirements under the Act to be satisfied, and (ii) if such
Registrable Securities are to be sold by any method or in any transaction other
than on a national securities exchange, the Nasdaq National Market, Nasdaq
SmallCap Market or in the over-the-counter market, in privately negotiated
transactions, or in a combination of such methods, to notify the Company at
least five (5) business days prior to the date on which the Holder first offers
to sell any such Registrable Securities.
(e) Each Holder acknowledges and agrees that the Registrable
Securities sold pursuant to the Registration Statement described in this Section
are not transferable on the books of the Company unless the stock certificate
submitted to the transfer agent evidencing such Registrable Securities is
accompanied by a certificate reasonably satisfactory to the Company to the
effect that (i) the Registrable Securities have been sold in accordance with
such Registration
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Statement and (ii) the requirement of delivering a current prospectus has been
satisfied.
(f) Each Holder shall not take any action with respect to any
distribution deemed to be made pursuant to such registration statement, which
would constitute a violation of Regulation M under the Exchange Act or any other
applicable rule, regulation or law.
(g) At the end of the period during which the Company is
obligated to keep the Registration Statement current and effective as described
above, the Holders of Registrable Securities included in the Registration
Statement shall discontinue sales of shares pursuant to such Registration
Statement upon receipt of notice from the Company of its intention to remove
from registration the shares covered by such Registration Statement which remain
unsold, and such Holders shall notify the Company of the number of shares
registered which remain unsold immediately upon receipt of such notice from the
Company.
5.8 With a view to making available to the Holders the benefits of
certain rules and regulations of the Commission which at any time permit the
sale of the Registrable Securities to the public without registration, the
Company shall use its reasonable best efforts:
(a) to make and keep public information available, as those
terms are understood and defined in Rule 144 under the Act, at all times;
(b) to file with the Commission in a timely manner all reports
and other documents required of the Company under the Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable
Securities, to furnish to such Holder upon any reasonable request a written
statement by the Company as to its compliance with Rule 144 under the Act, and
of the Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration.
5.9 The rights to cause the Company to register Registrable Securities
granted to the Holders by the Company under Section 5.1 may be assigned in full
by a Holder in connection with a transfer by such Holder of its Registrable
Securities, provided that (i) such transfer shall otherwise be effected in
accordance with applicable securities laws and Section 6.9; (ii) such Holder
gives prior written notice to the Company; and (iii) such transferee agrees to
comply with the terms and provisions of this Agreement, and such transfer is
otherwise in compliance with this Agreement. Except as specifically permitted by
this Section 5.9, the rights of a Holder with respect to Registrable Securities
as set out herein shall not be transferable to any other Person, and any
attempted transfer shall cause all rights of such Holder therein to be
forfeited.
5.10 With the written consent of the Company and the Holders holding at
least a majority of the Registrable Securities that are then outstanding, any
provision of this Article V may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) or amended. Upon the effectuation of each such
waiver or amendment, the Company shall promptly give written notice thereof to
the
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Holders, if any, who have not previously received notice thereof or consented
thereto in writing.
VI. ADDITIONAL CONTRACTUAL RIGHTS
6.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings, unless the context otherwise requires:
(a) "Article VI Rights" shall mean the rights to receive all
Semi-Annual Issuances, Dilution Issuances and Qualified Offering Issuances and
the right to exercise the Liquidation Put and the Exchange Right, as provided
herein and in other contracts providing for similar issuances.
(b) "Change of Shares" shall mean any event that necessitates
an adjustment to the Dilution Value (as defined below) pursuant to Section 6.7
below.
(c) The "Closing Bid Price" of any security, for any trading
day (as defined below), shall be the reported per share closing bid price,
regular way, of such security on the relevant Stock Market (as defined below) on
such trading day or, if there were no transactions on such trading day, the
average of the reported closing bid and asked prices, regular way, of such
security on the relevant Stock Market on such trading day.
(d) "Dilution Event" shall mean any event that necessitates an
adjustment to the Dilution Value (as defined below) pursuant to Section 6.6
below, other than the issuance of Common Stock in connection with the Pacific
Merger.
(e) The "Dilution Value" initially shall be $2.11. The Dilution
Value is subject to adjustment pursuant to Sections 6.6, 6.7 and 6.15.
(f) "Fair Market Value" of any asset (including any security)
means the fair market value thereof as mutually determined by the Company in
good faith.
(g) The "Issuance Base Amount" for the Subscriber, at any time,
means the sum of (i) the number of shares of Common Stock the Subscriber has
subscribed for, (ii) the number of shares of any Semi-Annual Issuances (as
defined below) made to such Subscriber occurring before such time, (iii) the
number of shares of any Dilution Issuances (as defined below) made to such
Subscriber occurring before such time and (iv) the number of shares of any
Qualified Offering Issuances (as defined below) made to such subscriber
occurring before such time (with appropriate adjustments for any Change of
Shares and subject to reduction pursuant to Section 6.10). For any transferee
Rights Holder, the Issuance Base Amount, at any time, shall be the number of
shares of Common Stock related to such Article VI Rights as were transferred to
such Rights Holder plus the number of shares of any Semi- Annual Issuance,
Dilution Issuance and Qualified Offering Issuance made to such Rights Holder
occurring subsequent to such transfer but before such time. The Issuance Base
Amount shall include Dilution Issuances which would have been required but for
the operation of Paragraph 6.6(b)(i).
(h) "Liquidation Event" shall mean any (i) liquidation,
dissolution or winding up of
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the Company, whether voluntary or involuntary, (ii) sale or other disposition of
all or substantially all of the assets of the Company or (iii) any
consolidation, merger, combination, reorganization or other transaction in which
the Company is not the surviving entity or shares of Common Stock constituting
more than fifty percent (50%) of the voting power of the Company are exchanged
for or changed into stock or securities of another entity, cash and/or any other
property (clause (iii) of this Subsection being referred to as a "Merger
Transaction"). Notwithstanding the above, any consolidation, merger,
combination, reorganization or other transaction in which the Company is not the
surviving entity but the stockholders of the Company immediately prior to such
transaction own in excess of 50% of the voting power of the corporation
surviving such transaction and own such interest in substantially the same
proportions as prior to such transaction, shall not be considered a Liquidation
Event or a Merger Transaction, provided that the surviving corporation has made
appropriate provisions to ensure that the Article VI Rights survive any such
transaction.
(i) "Market Price" per share of Common Stock shall mean the
average Closing Bid Price (adjusted, where appropriate, for any Change of
Shares) for twenty (20) consecutive trading days, ending with the trading day
immediately prior to the date as of which the Market Price is being determined;
provided, however, that if the prices referred to in the definition of Closing
Bid Price cannot be determined on any trading day, "Market Price" shall mean the
Fair Market Value.
(j) The "Post-Dilution Common Quantity" means the quotient of
the Pre-Dilution Common Value (as defined below) divided by the Dilution Value
immediately following the relevant Dilution Event, or Qualified Offering
Adjustment Event (as defined below).
(k) The "Pre-Dilution Common Value" means the product of the
Issuance Base Amount multiplied by the Dilution Value immediately preceding the
relevant Dilution Event, or Qualified Offering Adjustment Event (as defined
below).
(l) "Rights Holder" shall mean the Subscriber or any Person who
succeeds to such Subscriber's Article VI Rights pursuant to Section 6.9 and any
and all Persons who now or hereafter are entitled to contractual rights
substantially the same as those set forth in this Article VI.
(m) The "Stock Market" shall mean, with respect to any
security, the principal national securities exchange on which such security is
listed or admitted to trading or, if such security is not listed or admitted to
trading on any national securities exchange, shall mean The Nasdaq National
Market System or The Nasdaq SmallCap Market (collectively, "Nasdaq") or, if such
security is not quoted on Nasdaq, shall mean the OTC Bulletin Board or, if such
security is not quoted on the OTC Bulletin Board, shall mean the
over-the-counter market as furnished by any NASD member firm selected from time
to time by the Company for that purpose.
(n) A "trading day" shall mean a day on which the Stock Market
is open for the transaction of business.
(o) "Trading Price" shall mean the lower of (i) the average
Closing Bid Price of the
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Common Stock for the thirty (30) consecutive trading days immediately preceding
the date as of which the Trading Price is being determined (with appropriate
adjustments for any Change of Shares) and (ii) the average Closing Bid Price of
the Common Stock for five (5) consecutive trading days immediately preceding the
date as of which the Trading Price is being determined (with appropriate
adjustments for any Change of Shares).
(p) The "Transfer Agent" shall mean American Stock Transfer &
Trust Company or the duly appointed successor thereto serving as the transfer
agent for the Common Stock.
6.2 [INTENTIONALLY OMITTED]
6.3 [INTENTIONALLY OMITTED]
6.4 SEMI-ANNUAL ISSUANCES. On each six month anniversary of April 9,
1999 (or the next succeeding business day), the Company shall issue (each a
"Semi-Annual Issuance") to the Rights Holder a number of shares of Common Stock
equal to 5% of the Issuance Base Amount on the applicable six month anniversary
date.
6.5 DILUTION ISSUANCES. Upon the occurrence of any Dilution Event, the
Company shall issue (each a "Dilution Issuance") to the Rights Holder a number
of shares of Common Stock equal to the difference of the Post-Dilution Common
Quantity minus the Issuance Base Amount.
6.6 ANTI-DILUTION ADJUSTMENTS.
(a) Except as otherwise provided in Subsection 6.6(c), in
the event the Company shall, at any time or from time to time after the date
hereof, sell or issue any shares of Common Stock for a consideration per share
less than either (i) the Dilution Value in effect on the date of such sale or
issuance or (ii) the Market Price of the Common Stock as of the date of the sale
or issuance (any such sale or issuance a "Dilutive Issuance"), then, and
thereafter upon each further Dilutive Issuance, the Dilution Value in effect
immediately prior to such Dilutive Issuance shall be changed to a price (rounded
to the nearest cent) determined by multiplying the Dilution Value in effect
immediately prior thereto by a fraction, the numerator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
Dilutive Issuance and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in Paragraph 6.6(b)(v) below) for
the issuance of such additional shares would purchase at the greater of (x) the
Dilution Value in effect on the date of such issuance or (y) the Market Price of
the Common Stock as of such date, and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after the Dilutive
Issuance. Such adjustment shall be made successively whenever such an issuance
is made.
(b) For purposes of Subsection 6.6(a), the following Paragraphs
(i) to (v) shall also be applicable:
(i) No adjustment of the Dilution Value shall be made
unless such adjustment would require a decrease of at least $.01; provided that
any adjustments which by reason of this Paragraph 6.6(b)(i) are not required to
be made shall be carried forward and shall be made at the
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time of and together with the next subsequent adjustment which, together with
adjustments so carried forward, shall require a decrease of at least $.01 in the
Dilution Value then in effect hereunder.
(ii) In case of (A) the sale or other issuance by the
Company (including as a component of a unit) of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock or
any securities convertible into or exchangeable for Common Stock (such
securities convertible, exercisable or exchangeable into Common Stock being
herein called "Convertible Securities"), or (B) the issuance by the Company,
without the receipt by the Company of any consideration therefor, of any rights
or warrants to subscribe for or purchase, or any options for the purchase of,
Common Stock or Convertible Securities, whether or not such rights, warrants or
options, or the right to convert or exchange such Convertible Securities, are
immediately exercisable, and the consideration per share for which Common Stock
is issuable upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (determined by dividing
(x) the minimum aggregate consideration, as set forth in the instrument relating
thereto, without regard to any antidilution or similar provisions contained
therein for a subsequent adjustment of such amount, payable to the Company upon
the exercise of such rights, warrants or options, plus the consideration
received by the Company for the issuance or sale of such rights, warrants or
options, plus, in the case of such Convertible Securities, the minimum aggregate
amount, as set forth in the instrument relating thereto, without regard to any
antidilution or similar provisions contained therein for a subsequent adjustment
of such amount, of additional consideration, if any, other than such Convertible
Securities, payable upon the conversion or exchange thereof, by (y) the total
maximum number, as set forth in the instrument relating thereto, without regard
to any antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, of shares of Common Stock issuable upon the exercise
of such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities issuable upon the exercise of such rights, warrants or
options) is less than either the Dilution Value or the Market Price of the
Common Stock as of the date of the issuance or sale of such rights, warrants or
options, then such total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities (as of the date of the issuance or sale
of such rights, warrants or options) shall be deemed to be "Common Stock" for
purposes of Subsection 6.6(a) and shall be deemed to have been sold for an
amount equal to such consideration per share and shall cause an adjustment to be
made in accordance with Subsection 6.6(a).
(iii) In case of the sale or other issuance by the Company
of any Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount, as set forth in the instrument
relating thereto, without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of additional
consideration, if any, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number, as set forth in
the instrument
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relating thereto without regard to any antidilution or similar provisions
contained therein for a subsequent adjustment of such amount, of shares of
Common Stock issuable upon the conversion or exchange of such Convertible
Securities) is less than either the Dilution Value or the Market Price of the
Common Stock as of the date of the sale or other issuance of such Convertible
Securities, then such total maximum number of shares of Common Stock issuable
upon the conversion or exchange of such Convertible Securities (as of the date
of the sale of such Convertible Securities) shall be deemed to be "Common Stock"
for purposes of Subsection 6.6(a) and shall be deemed to have been sold for an
amount equal to such consideration per share and shall cause an adjustment to be
made in accordance with Subsection 6.6(a).
(iv) In case the Company shall modify the rights of
conversion, exchange or exercise of any of the securities referred to in
Paragraphs (ii) or (iii) of this Subsection 6.6(b) or any other securities of
the Company convertible, exchangeable or exercisable for shares of Common Stock,
for any reason other than an event that would require adjustment to prevent
dilution, so that the consideration per share received by the Company after such
modification is less than either the Dilution Value or the Market Price of the
Common Stock as of the date prior to such modification, then such securities, to
the extent not theretofore exercised, converted or exchanged, shall be deemed to
have expired or terminated immediately prior to the date of such modification
and the Company shall be deemed for purposes of calculating any adjustments
pursuant to this Section 6.6 to have issued such new securities upon such new
terms on the date of modification. Such adjustment shall become effective as of
the date upon which such modification shall take effect. On the expiration or
cancellation of any such right, warrant or option or the termination or
cancellation of any such right to convert or exchange any such Convertible
Securities, the Dilution Value then in effect hereunder shall forthwith be
readjusted to such Dilution Value as would have obtained (A) had the adjustments
made upon the issuance or sale of such rights, warrants, options or Convertible
Securities been made upon the basis of the issuance of only the number of shares
of Common Stock theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights, warrants or options or upon
the conversion or exchange of such Convertible Securities and (B) had
adjustments been made on the basis of the Dilution Value as adjusted under
clause (A) of this sentence for all transactions (which would have affected such
adjusted Dilution Value) made after the issuance or sale of such rights,
warrants, options or Convertible Securities.
(v) In case of the sale of any shares of Common Stock,
any Convertible Securities, any rights or warrants to subscribe for or purchase,
or any options for the purchase of, Common Stock or Convertible Securities, the
consideration received by the Company therefor shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid or incurred by
the Company or any underwriting discounts or commissions or concessions paid or
allowed by the Company in connection therewith. In the event that any securities
shall be issued in connection with any other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated among the securities, then each of such securities shall be deemed to
have been issued for such consideration as the Board of Directors of the Company
determines in good faith.
(c) Notwithstanding any other provision hereof, no adjustment
to the Dilution Value
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will be made:
(i) upon the exercise of any of the options outstanding on the
date hereof under the Company's existing stock option plans; or
(ii) upon the issuance or exercise of options which may
hereafter be granted with the approval of the Board of Directors, or exercised,
under any employee benefit plan of the Company to officers, directors,
consultants or employees, but only with respect to such options as are
exercisable at prices no lower than the Closing Bid Price (or, if the prices
referenced in the definition of Closing Bid Price cannot be determined, the Fair
Market Value) of the Common Stock as of the date of grant thereof; or
(iii) upon issuance or exercise of (i) any currently outstanding
options and warrants, and (ii) any issuance of Common Stock pursuant to this
Article VI or to other Rights Holders pursuant to similar contractual
obligations; or
(iv) upon the issuance or sale of Common Stock or Convertible
Securities pursuant to the exercise of any rights, options or warrants to
receive, subscribe for or purchase, or any options for the purchase of, Common
Stock or Convertible Securities, whether or not such rights, warrants or options
were outstanding on the date hereof or were thereafter issued or sold, provided
that an adjustment was either made or not required to be made in accordance with
Subsection 6.6(a) in connection with the issuance or sale of such securities or
any modification of the terms thereof; or
(v) upon the issuance or sale of Common Stock upon conversion
or exchange of any Convertible Securities, provided that any adjustments
required to be made upon the issuance or sale of such Convertible Securities or
any modification of the terms thereof were so made, and whether or not such
Convertible Securities were outstanding on the date hereof or were thereafter
issued or sold; or
(vi) upon the issuance of stock that may hereafter be purchased
or sold with the approval of the Board of Directors, under the 1993 Employee
Stock Purchase Plan of the Company to officers, directors, consultants or
employees, but only with respect to such shares as are purchased and/or sold in
accordance with the current plan and at the prices no lower than eighty-five
percent (85%) of the Closing Bid Price (or, if the prices referenced in the
definition of Closing Bid Price cannot be determined, 85% of the Fair Market
Value) of the Common Stock as of the date of purchase and/or sale thereof;
Paragraph 6.6(b)(iv) shall nevertheless apply to any modification
of the rights of conversion, exchange or exercise of any of the securities
referred to in this Subsection 6.6(c), except that Paragraph 6.6(b)(iv) shall
not apply to any modification of the rights of conversion, exchange or exercise
of the securities excepted by Paragraph (iii) of this Subsection 6.6(c) that are
required by the original terms of those respective instruments.
(d) As used in this Section 6.6, the term "Common Stock" shall
mean and include the
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Company's Common Stock authorized on the date of the first original issue of the
Securities and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Company.
(e) The Company from time to time may decrease the Dilution
Value by any amount for any period of time if the period is at least 20 days and
if the decrease is irrevocable during the period. Whenever the Dilution Value is
so decreased, the Company shall mail to the Rights Holders a notice of the
decrease at least 15 days before the date the decreased Dilution Value takes
effect, and such notice shall state the decreased Dilution Value and the period
it will be in effect.
The Company may make such decreases in the Dilution Value,
in addition to those required or allowed by this Article VI, as shall be
determined by it, as evidenced by a resolution of the Board of Directors, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes.
6.7 CHANGE OF SHARES ADJUSTMENTS. In the event the Company shall, at
any time or from time to time after the date hereof (i) issue any shares of
Common Stock as a stock dividend to the holders of Common Stock or (ii)
subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such issuance, subdivision or combination being
herein called a "Change of Shares"), then the Dilution Value shall be changed to
a price (rounded to the nearest cent) determined by multiplying the Dilution
Value in effect immediately prior to such Change of Shares by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to the Change of Shares and the denominator of which shall be
the number of shares of Common Stock outstanding immediately following the
Change of Shares.
6.8 LIQUIDATION PUT. The Rights Holder may require the Company to
repurchase with cash any number (not to exceed such Rights Holder's Issuance
Base Amount) of shares of Common Stock then owned by such Rights Holder for 140%
of the aggregate Dilution Value of such shares; provided, however, in the event
of a Merger Transaction, any repurchase pursuant to this Section 6.8 may be paid
in cash, property (valued as provided in Subsection 6.8 (d)) and/or securities
(valued as provided in Subsection 6.8 (d)) of the entity surviving such Merger
Transaction.
(b) The Rights Holder covenants not to exercise the Liquidation
Put unless a Liquidation Event has occurred.
(c) The Rights Holder's Article VI Rights shall be terminated
to the pro rata extent of any exercise of such Rights Holder's Liquidation Put.
(d) Any securities or other property to be delivered to the
Rights Holder pursuant
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to this Section 6.8 shall be valued as follows:
(i) Securities not subject to an investment letter or other
similar restriction on free marketability:
(A) If actively traded on the Stock Market, the value
shall be deemed to be the Market Price of such
securities as of the third day prior to the date
of valuation.
(B) If not actively traded on the Stock Market, the
value shall be the Fair Market Value of such
securities.
(ii) For securities for which there is an active public market but
which are subject to an investment letter or other restrictions on free
marketability, the value shall be the Fair Market Value thereof, determined by
discounting appropriately the Market Price thereof.
(iii) For all other securities, the value shall be the Fair Market
Value thereof.
6.9 TRANSFER OF RIGHTS UNDER THIS ARTICLE VI. The Rights Holder's
Article VI. Rights are not transferable unless the transferee will be both the
record and beneficial owner of the related Common Stock and executes and
delivers to the Company a counterpart to this Agreement agreeing to be bound by
the obligations of the Subscriber hereunder. Any such transferee must provide
his or her name and address, which name and address must be that of the
beneficial owner, to the Company. Any transfer of Common Stock and related
Article VI Rights must be performed in accordance with applicable securities
laws and regulations, and the transferor must provide the Company with an
opinion of counsel, satisfactory to the Company, to that effect. Furthermore, no
transfer of Article VI Rights may be made relating to fewer shares of Common
Stock than the quotient of $25,000 divided by the Dilution Value. ANY PURPORTED
TRANSFER OF ARTICLE VI RIGHTS NOT IN COMPLIANCE WITH THIS SECTION 6.9 SHALL BE
NULL AND VOID AND THE RIGHTS HOLDER SHALL FORFEIT ALL ARTICLE VI RIGHTS RELATED
TO SUCH TRANSFERRED COMMON STOCK. Upon, and to the extent of, any transfer of
Common Stock without the related Article VI Rights, such related Article VI
Rights shall terminate.
6.10 ADJUSTMENTS TO ISSUANCE BASE AMOUNT. Upon the termination of any
of the Rights Holder's Article VI Rights, such Rights Holder's Issuance Base
Amount shall be proportionally reduced.
6.11 NOTICES.
(i) After each adjustment of the Dilution Value pursuant
to Sections 6.6, 6.7 and 6.15 the Company will promptly prepare a certificate
signed by the Chief Executive Officer or President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the Dilution Value as so adjusted and (ii) a brief statement
of the facts accounting for such adjustment. The Company will promptly file such
certificate with the Transfer Agent and cause a brief summary thereof to be sent
by ordinary first
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class mail to each Rights Holder at his or her last address as it shall appear
on the Transfer Agent's record books. No failure to mail such notice nor any
defect therein or in the mailing thereof shall affect the validity of such
adjustment. The affidavit of an officer of the Transfer Agent or the Secretary
or an Assistant Secretary of the Company that such notice has been mailed shall,
in the absence of fraud, be prima facie evidence of the facts therein stated.
The Transfer Agent may rely on the information in the certificate as true and
correct and has no duty nor obligation independently to verify the amounts or
calculations therein set forth.
(ii) After any adjustment in the Issuance Base Amount
resulting from (i) any Semi-Annual Issuances, Dilution Issuances or Qualified
Offering Issuance (ii) any Change in Shares or (iii) any termination of Article
VI Rights, the Company will promptly prepare a certificate signed by the Chief
Executive Officer or President, and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, of the Company setting forth: (x)
the Issuance Base Amount immediately preceding and succeeding such adjustment
and (y) a brief statement of the facts accounting for such adjustment. The
Company will promptly file such certificate with the Transfer Agent and cause a
brief summary thereof to be sent by ordinary first class mail to each Rights
Holder at his or her last address as it shall appear on the Transfer Agent's
record books. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity of such adjustment. The affidavit of
an officer of the Transfer Agent or the Secretary or an Assistant Secretary of
the Company that such notice has been mailed shall, in the absence of fraud, be
prima facie evidence of the facts therein stated. The Transfer Agent may rely on
the information in the certificate as true and correct and has no duty nor
obligation independently to verify the amounts or calculations therein set
forth.
6.12 TREASURY STOCK. Any Semi-Annual Issuance and Dilution Issuance
shall be made with duly authorized, fully-paid and non-assessable shares of
Common Stock, in accordance with Delaware Law, and shall be drawn from the
treasury stock of the Company to the extent available. The Company shall
promptly furnish to the Placement Agent, upon request, an opinion of counsel
reasonably satisfactory to the Placement Agent that the requirements of this
Section 6.12 have been met as to any issuance referred to herein. The Company
shall not otherwise sell, issue, cancel or otherwise impair any of its treasury
stock without the Placement Agent's prior written consent.
6.13 MANDATORY TERMINATION OF ARTICLE VI RIGHTS. At any time on or
after the date hereof, the Company may cause the Rights Holder's Article VI
Rights to be terminated if the Market Price of the Common Stock shall have
exceeded 300% of the then applicable Dilution Value as of the third business day
prior to the date of notice of termination. No greater than 60 nor fewer than 20
days prior to the date of any such mandatory termination, notice by first class
mail, postage prepaid, shall be given to the Rights Holders, addressed to such
Rights Holders at their last addresses as they shall appear in the Transfer
Agent's record books. Each such notice shall specify the date fixed for
termination. Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Company on the date deposited in the
mail, whether or not the Rights Holder receives such notice; and failure
properly to give such notice by mail, or any defect in such notice, to any
Rights Holders shall not affect the validity of the proceedings for the
termination of any other Rights Holders' Article VI Rights.
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6.14 WAIVER.
With the written consent of the Company and the Rights Holders holding
at least a majority of the issued and outstanding Common Stock subject to
Article VI Rights, any provision of this Article VI may be waived (either
generally or in a particular instance, either retroactively or prospectively and
either for a specified period of time or indefinitely) or amended. Upon the
effectuation of each such waiver or amendment, the Company shall promptly give
written notice thereof to the Rights Holders, if any, who have not previously
received notice thereof or consented thereto in writing.
6.15 OPTIONAL EXCHANGE/RESET. (a) Upon the receipt of requisite
approvals, if any, from the stockholders of the Company, the shares of Common
Stock acquired hereunder may be exchanged (the "Exchange Right"), at the option
of each Rights Holder, upon the completion of a Qualified Offering (as defined
below) into Qualified Offering Securities (as defined below). Upon exchange of
their shares of Common Stock, up to the Issuance Base Amount, the exchanging
Rights Holders shall receive an amount of Qualified Offering Securities equal to
the quotient of (i) the Issuance Base Amount being exchanged multiplied by the
Dilution Value at the time of the Qualified Offering, divided by (ii) the
Qualified Offering Securities Price (as defined below) multiplied by .75 (the
"Exchange Price"); provided, however, that in the event that the Exchange Price
divided by the Underlying Common Stock Amount (as defined below) is less than
the greater of (a) 50% of the Offering Price and (b) 50% of the average closing
bid price of the Common Stock for the twenty trading days immediately preceding
the date of such exchange (the "Floor Price"), then the Exchange Price shall
equal the Floor Price multiplied by the Underlying Common Stock Amount.
As used herein the following terms shall have the following meanings:
(i) "Underlying Common Stock Amount" shall equal the number
of shares of Common Stock and Common Stock underlying Convertible Securities
included as part of each Qualified Offering Security but shall not include
Common Stock underlying warrants or options to purchase Common Stock or to
purchase a Convertible Security, whether or not such warrant or option contains
a right to exercise such warrant or option by the delivery of shares deemed
purchased thereunder, including, without limitation, by a cashless exercise.
(ii) "Qualified Offering Security" and "Qualified Offering
Securities" shall mean the security or securities (whether they are Common
Stock, Convertible Securities, Securities of Common Stock and/or Convertible
Securities (as defined below) and warrants or other similar rights) issued or
sold in the Qualified Offering (including any contractual rights granted to
investors in connection with the Qualified Offering).
(iii) "Qualified Offering" shall mean the sale or series of
sales of equity securities of the Company next occurring after the date hereof
of this Offering, including, without limitation, Common Stock, warrants,
Securities of Common Stock and warrants, other securities exchangeable,
convertible or exercisable for Common Stock, alone or in Securities, whether in
a public offering or private placement, raising gross proceeds in excess of
$2,500,000; excluding, however, at the Company's option, a firm commitment
underwritten public offering.
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(iv) "Qualified Offering Securities Price" shall mean the
selling price to investors for each Qualified Offering Security.
(v) "Convertible Security" and "Convertible Securities"
shall mean any security convertible into or exchangeable for a share or shares
of Common Stock without the payment of any additional consideration in such
conversion or exchange other than the delivery of such security, but shall not
include a warrant or option to purchase Common Stock or to purchase a
Convertible Security, whether or not such warrant or option contains a right to
exercise such warrant or option by the delivery of shares deemed purchased
thereunder, including, without limitation, by a cashless exercise.
(b) Upon and to the extent of any exchange into Qualified
Offering securities as set forth in Section 6.15(a) above, the Article VI Rights
related to the exchanged Common Stock shall terminate.
(c) Upon the receipt of requisite approvals, if any, from the
stockholders of the Company, holders who elect not to exchange their Common
Stock upon a Qualified Offering for Qualified Offering Securities, shall have
the Dilution Value with respect to their Article VI Rights adjusted (a
"Qualified Offering Adjustment Event") to equal the Exchange Price and shall
receive an additional number of shares (the "Qualified Offering Issuance") of
Common Stock equal to the difference between (i) the quotient of (a) the
Issuance Base Amount multiplied by the Dilution Value in effect prior to the
date of adjustment divided by (b) the (x) Exchange Price divided by (y) the
Underlying Common Stock Amount, and (ii) the Issuance Base Amount prior to the
date of adjustment; provided, however, that no adjustment shall be made if it
would result in an increase in the Dilution Value. Holders receiving Qualified
Offering Issuance shall have Article VI Rights with respect to such shares.
VII. MISCELLANEOUS
7.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by registered or certified mail, return
receipt requested, or delivered by hand against written receipt therefor,
addressed to Procept, Inc., 840 Memorial Drive, Cambridge, Massachusetts 02139,
Attn: John F. Dee, and to the Subscriber at the Subscriber's address indicated
on the signature page of this Agreement and to any Rights Holders at his or her
last address as it shall appear in the Transfer Agent's record books. Notices
shall be deemed to have been given or delivered on the date of mailing, except
notices of change of address, which shall be deemed to have been given or
delivered when received.
7.2 Except as provided in Section 5.10 above, this Agreement shall not
be changed, modified or amended except by a writing signed by the parties to be
charged, and this Agreement may not be discharged except by performance in
accordance with its terms or by a writing signed by the party to be charged.
7.3 Subject to the provisions of Sections 5.9, 6.9 and 7.12, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and to their respective heirs, legal representatives, successors and assigns.
This Agreement sets forth the entire agreement and
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understanding between the parties as to the subject matter hereof and merges and
supersedes all prior discussions, agreements and understandings of any and every
nature among them.
7.4 Upon the execution and delivery of this Agreement by the
Subscriber, this Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Securities as herein provided, subject, however,
to the right hereby reserved by the Company to enter into the same agreements
with other subscribers and to add and/or delete other persons as subscribers.
7.5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY
ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND
PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
IN THE EVENT THAT A JUDICIAL PROCEEDING IS NECESSARY, THE EXCLUSIVE FOR A FOR
RESOLVING DISPUTES ARISING OUT OF, OR RELATING TO, THIS AGREEMENT ARE EITHER THE
SUPREME COURT OF THE STATE OF NEW YORK IN AND FOR THE COUNTY OF NEW YORK OR THE
FEDERAL COURTS FOR SUCH STATE AND COUNTY, AND ALL RELATED APPELLATE COURTS, THE
PARTIES HEREBY IRREVOCABLY CONSENT TO THE JURISDICTION OF SUCH COURTS AND AGREE
TO SAID VENUE.
7.6 In order to discourage frivolous claims, unless a claimant in any
proceeding arising out of this Agreement succeeds in establishing his claim and
recovering a judgment against another party (regardless of whether such claimant
succeeds against one of the other parties to the action), then the other party
shall be entitled to recover from such claimant all of its/their reasonable
legal costs and expenses relating to such proceeding and/or incurred in
preparation therefor.
7.7 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect. If any
provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part, such provision shall be interpreted so as to remain enforceable to the
maximum extent permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless remain in full
force and effect and enforceable to the extent they are valid, legal and
enforceable, and no provisions shall be deemed dependent upon any other covenant
or provision unless so expressed herein.
7.8 A waiver by either party of a breach of any provision of this
Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
7.9 The parties shall execute and deliver all such further documents,
agreements and instruments and shall take such other and further action as may
be necessary or appropriate to carry out the purposes and intent of this
Agreement.
7.10 This Agreement may be executed in two or more counterparts each of
which shall be
26
<PAGE>
deemed an original, but all of which shall together constitute one and the same
instrument.
7.11 The Subscriber shall not issue any public statement with respect
to the Subscriber's investment or proposed investment in the Company or the
terms of any agreement or covenant between them and the Company without the
Company's prior written consent, except such disclosures as may be required
under applicable law or under any applicable order, rule or regulation.
(b) The Company shall not disclose the name, address or any
other information about the Subscriber, except as required by law; provided,
that the Company may use the name and the address of the Subscriber in the
Registration Statement.
7.12 Nothing in this Agreement shall create or be deemed to create any
rights in any person or entity not a party to this Agreement, except (a) for the
holders of Registrable Securities and (b) for any Rights Holders to whom
Article VI Rights were transferred pursuant to 6.9.
7.13 The Company acknowledges and agrees that irreparable damage would
occur in the event that any of the provisions of Article V and Article VI of
this Agreement were not performed in accordance with its specific terms or were
otherwise breached and that such damage would not be compensable in money
damages and that it would be extremely difficult or impracticable to measure the
resultant damages. Accordingly, the Subscriber shall be entitled to an
injunction or injunctions with respect to the provisions of this Agreement and
to enforce specifically the terms and provisions hereof, in addition to any
other remedy to which it may be entitled at law or in equity, and the Company
expressly waives any defense that a remedy in damages would be adequate and
expressly waives any requirement in an action for specific performance for the
posting of a bond by the Subscriber bringing such action.
27
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the first
date set forth above.
PROCEPT, INC.
By:
Title:
Name of Subscriber:
By:
Title:
Address:
(1) Number of Shares of BGDC Series A Preferred Stock Being Exchanged:
(2) Number of Shares of Procept Common Stock to be Issued:
((1) x 1.89)
(3) Number of Shares of Procept Common Stock Subject to Class D Warrants:
((1) x 0.63)
28
<PAGE>
EXHIBIT 10.2
Schedule of Parties to June 30, 1999 Subscription Agreements
The following individuals and entities are parties to Subscription
Agreements dated as of June 30, 1999 with the Company:
1. Ross D. Ain
2. Palmetto Partners, Ltd.
3. Richard A. Lydecker
4. Arthur Nagle
5. Osterweis Revocable Trust
6. Prager, Dreifuss & Partners
7. The Keys Foundation
8. David W. Ruttenberg
9. J.F. Shea & Co., Inc.
10. Donald E. & Virginia V. Vinson
11. Bruno Widmer
12. Aries Domestic Fund, L.P.
13. The Aries Trust
1
<PAGE>
Exhibit 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
(John F. Dee)
This Executive Employment Agreement ("Agreement"), effective as of
February 4, 1998, by and between John F. Dee (the "Executive") and Procept,
Inc., a Delaware corporation ("Procept").
Procept desires to employ the Executive as President and Chief
Executive Officer of Procept for the period and upon the terms and conditions
hereinafter set forth.
Executive desires to serve in such capacities for such period and upon
such terms.
Accordingly, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF EXECUTIVE.
1.1 EMPLOYMENT. Subject to the terms and conditions of this Agreement,
Procept agrees to employ Executive as President and Chief Executive Officer of
Procept. Executive shall perform such specific duties as are commensurate with
such positions, and as may reasonably be assigned to the Executive from time to
time by the Board of Directors of Procept, for the period commencing on the date
hereof and continuing until terminated as provided in Section 4 hereof.
Executive hereby accepts such employment.
SECTION 2. COMPENSATION.
For all services to be rendered by Executive to Procept during the term
of this Agreement, Procept shall pay to, and provide the Executive with, the
following compensation and benefits:
2.1 BASE SALARY AND BONUS. For the period from the date hereof until
February 4, 1999, Procept shall pay to Executive (i) a base salary of not less
than $200,000 per annum and payable in substantially equal installments in
accordance with Procept practice as in effect from time to time, and (ii)
incentive and compensatory bonuses in an amount up to $200,000 per annum and not
less than $25,000, as may be awarded by Procept's Compensation Committee based
on the achievement of milestones to be agreed upon by Procept and the Executive.
With respect to subsequent periods during the term of this Agreement, Procept
will review Executive's base salary and bonus semi-annually and may make
adjustments to such base salary and determine such bonus based upon, among other
factors: (a) Executive's performance, (b) Procept's performance, (c) changes in
costs of living, (d) changes in Executive's responsibilities, and (e) the
benefit to Procept of Executive's efforts on its behalf; provided that during
the term of this Agreement Executive's base salary shall not be less than
$200,000 per annum and his maximum annual bonus opportunity shall not be less
than $200,000.
2.2 PARTICIPATION IN BENEFIT PLANS. Executive shall be entitled to
participate in all employee benefit plans or programs of Procept. For the
purpose of determining Executive's eligibility for such plans and programs,
Executive's tenure shall be calculated from Executive's
<PAGE>
original date of hire at Procept (or any affiliate. or predecessor of
Procept). In addition to the stock option granted pursuant to Section 2.3
hereof, Procept may, from time to time, grant Executive stock options under
Procept's stock option plans. Procept does not guarantee the adoption or
continuance of any particular employee benefit or stock plan or other program
during the term of this Agreement, and Executive's participation in any such
plan or program shall be subject to the provisions, rules and regulations
applicable thereto. Executive shall be entitled to not less than three weeks
paid vacation each year in accordance with applicable Procept policy. Health
and dental plans shall cover Executive and his dependents as they do for
other Procept executives. Such health and dental plans comply with ERISA and
COBRA to the extent applicable. Under current health insurance policies, such
COBRA rights will commence on termination of the period over which severance
payments are made under Section 4.2. Procept shall provide long term
disability insurance covering the Executive and life insurance coverage
payable to the Executive's named beneficiaries of not less than $200,000.
2.3 INITIAL OPTION GRANT. The Compensation Committee of the Board of
Directors has approved the grant to you of options (the "Initial Options") to
purchase an aggregate of 415,000 shares (after giving effect to the reverse
split of Procept's Common Stock effected June 1, 1998) of the Company's Common
Stock at a price of $5.00 per share (after giving effect to the reverse split of
Procept's Common Stock effected June 1, 1998). Such options shall vest at the
rate of 6.25% on each April 30, July 31, October 31 and January 31, commencing
with April 30, 1998. Upon exercise of the Initial Options, the Executive shall
be entitled to the contractual rights set forth in Article VI of the
Subscription Agreements executed in connection with Procept's 1998 private
placement (the "Article VI Rights") to the same extent as if the shares issued
in exercise of the options had been purchased by the Executive in such 1998
private placement, it being understood and agreed that the Executive shall
receive additional shares of Common Stock upon the exercise of the Initial
Options which would have been issued to the Executive pursuant to the Article VI
Rights as if the Executive had held the shares of Common Stock issued under the
Initial Options since the final closing date of the 1998 private placement, with
a corresponding reduction in the exercise price equal to the Dilution Value as
defined in the Article VI Rights.
2.4 EXPENSES. Procept shall reimburse Executive for all ordinary and
necessary business expenses incurred in the performance of Executive's duties
under this Agreement, provided that Executive accounts properly for such
expenses to Procept in accordance with the general corporate policies of Procept
and in accordance with the requirements of the Internal Revenue Service
regulations relating to substantiation of expenses.
SECTION 3. CONFIDENTIAL INFORMATION AND
NON-COMPETITION AGREEMENTS.
As a condition to Procept's obligations hereunder, the Executive will
execute a confidentiality agreement pertaining to the intellectual property and
confidential information of Procept and Procept's standard form of a
non-competition agreement for executive officers and key employees.
The obligations of Executive under this section and the agreements
referenced in the preceding paragraph shall survive termination of this
Agreement for any reason.
SECTION 4. TERMINATION AND SEVERANCE PAYMENT.
2
<PAGE>
4.1 TERMINATION. The employment of the Executive by Procept may be
terminated as follows:
(a) Executive's employment hereunder shall terminate upon
Executive's death or inability, by reason of physical or mental impairment, to
perform substantially all of Executive's duties as contemplated herein for a
continuous period of 120 days or more;
(b) Executive's employment hereunder may be terminated by
Procept or Executive without Cause (as hereinafter defined);
(c) Executive's employment hereunder may be terminated by
Procept in the event of Executive's breach of any material duty or obligation
hereunder, or intentional or grossly negligent conduct that is materially
injurious to Procept, as reasonably determined by Procept's Board of Directors,
or willful failure to follow the reasonable directions of Procept's Board of
Directors (any such event herein to be referred to as "Cause"); and
(d) Executive's employment hereunder may be terminated by
Executive for good reason, as defined below. For purposes of this Agreement,
"good reason" shall mean the following involuntary circumstances:
(i) the assignment to the Executive of any duties
inconsistent in any material respect with the Executive's position
(including titles and reporting requirements), authority, duties
or responsibilities as contemplated by the job description of the
Executive's position, or any other action by Procept or its
successor, which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose
an isolated, insubstantial and inadvertent action not taken in
bad-faith and which is remedied by Procept promptly after receipt
of notice thereof given by the Executive; or
(ii) the requirement by Procept or its successor that the
Executive be based at any office or location more than 40 miles
away from the office or location where Executive was performing
services immediately prior to such requirement or that the
Executive relocate his personal residence.
For purposes of this Section, any good faith determination of "good
reason" as defined above made by the Executive shall be conclusive.
4.2 SEVERANCE PAYMENT; BENEFITS.
(a) TERMINATION EVENTS RESULTING IN SEVERANCE PAYMENTS. In the
event of the termination of the Executive's employment:
(i) by Procept under Section 4.1(b), or
(ii) by Executive under Section 4.1(d),
then Procept shall make severance payment(s) to Executive equal to (A) twelve
(12) months of the Executive's base salary (the "Base Salary Payment") at the
time of such termination [and (B)
3
<PAGE>
an amount equal to the Executive's incentive bonus that would next be payable to
him and would otherwise be due to Executive if such termination had not occurred
and the amount of such bonus had been fully earned, pro rated on the basis of
the number of days that have elapsed between the beginning of the bonus period
in which such termination occurs and the termination date, together payable in a
lump sum within ten (10) days after the termination date.] The payment specified
in the foregoing sentence shall be reduced to the extent that the Executive
actually receives income from a subsequent employer during the 12 month period
after his termination, and any such income actually received by the Executive
shall be reported to Procept. No severance shall be payable in the event that
Executive's employment is terminated pursuant to Section 4.1(a) or (c), or by
Executive pursuant to Section 4.1(b).
(b) BENEFITS. Executive's coverage under Procept's life, health
and dental insurance plans will remain in effect and Executive will be entitled
to continue to participate in Procept's retirement plans, all at Procept's
expense, during the period following termination that has the duration of the
time period used to determine the Base Salary Payment, unless Executive notifies
Procept in writing that such coverage is no longer necessary. If, because of
limitations required by third parties or imposed by law, Executive cannot be
provided such benefits through Procept's plans, then Procept will provide
Executive with substantially equivalent benefits on an aggregate basis, at its
expense.
4.3 [ACCELERATED VESTING OF OPTIONS UPON A CHANGE OF CONTROL]. If this
Agreement is terminated by Executive pursuant to Section 4.1(d) or if Procept
terminates the Employee without Cause, any options then held by Executive to
purchase shares of the Common Stock of Procept (including, but not limited to,
the Initial Options) which options are then subject to vesting, shall,
notwithstanding any contrary provision in the agreement or plan pursuant to
which such options had been granted, be fully vested and exercisable on the date
immediately preceding the effective date of such termination for the shorter of
five years or the duration of the term of such options as if such termination of
employment had not occurred.]
SECTION 5. MISCELLANEOUS.
5.1 "MARKET STAND-OFF" AGREEMENT. The Executive agrees, if requested
by Procept and an underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by him during the 12 month period
following the effective date of a registration statement filed under the
Securities Act of 1933, as amended. Such agreement shall be in writing in a form
satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of the 12 month period.
5.2 ASSIGNMENT. This Agreement may not be assigned, in whole or in
part, by any party without the prior written consent of the other party, except
that Procept may, without the consent of Executive, assign its rights and
obligations under this Agreement to any corporation, firm or other business
entity with or into which Procept may merge or consolidate, or to which Procept
may sell or transfer all or substantially all of its assets, or of which 50% or
more of the equity investment and of the voting control is owned, directly or
indirectly, by, or is under common ownership with, Procept. After any such
assignment by Procept, Procept shall be
4
<PAGE>
discharged from all further liability hereunder and such assignee shall have all
the rights and obligations of Procept under this Agreement.
5.3 NOTICES. All notices, requests, demands and other communications
to be given pursuant to this Agreement shall be in writing and shall be deemed
to have been duly given if delivered by hand or mailed by registered or
certified mail, return receipt requested, postage prepaid, to the addresses set
forth at the beginning of this Agreement or such other address as a party shall
have designated by notice in writing to the other party, provided that notice of
any change in address must actually have been received to be effective
hereunder.
5.4 INTEGRATION. This Agreement is the entire agreement of the parties
with respect to the subject matter hereof and supersedes any prior agreement or
understanding relating to Executive's employment with or compensation by
Procept. This Agreement may not be amended, supplemented or otherwise modified
except by a writing signed by Executive and Procept.
5.5 BINDING EFFECT. Subject to Section 5.2, this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their successors,
assigns, heirs and personal representatives.
5.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and shall together
constitute one and the same instrument.
5.7 SEVERABILITY. If any provision hereof shall, for any reason, be
held to be invalid or unenforceable in any respect, such invalidity or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid or unenforceable provision had not been
included herein. If any provision hereof shall for any reason be held by a court
to be excessively broad as to duration, geographical scope, activity or subject
matter, it shall be construed by limiting and reducing it to make it enforceable
to the extent compatible with applicable law as then in effect.
5.8 GOVERNING LAW. This Agreement shall be governed by the laws of
the Commonwealth of Massachusetts, without regard to its conflict of law
provisions.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and delivered
this Agreement as of the date first written above.
EXECUTIVE
/s/John F. Dee
--------------------------------
John F. Dee
PROCEPT, INC.
By: /s/Michael Weiss
------------------------------
Michael Weiss, Chairman
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1999 AND THE STATEMENT OF OPERATIONS FOR THE THREE MONTHS AND
SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 4,670,145 4,670,145
<SECURITIES> 1,000,000 1,000,000
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 6,303,337 6,303,337
<PP&E> 1,963,157 1,963,157
<DEPRECIATION> 1,863,552 1,863,552
<TOTAL-ASSETS> 6,410,092 6,410,092
<CURRENT-LIABILITIES> 1,653,203 1,653,203
<BONDS> 0 0
0 0
0 0
<COMMON> 140,432 140,432
<OTHER-SE> 4,462,477 4,462,477
<TOTAL-LIABILITY-AND-EQUITY> 6,410,092 6,410,092
<SALES> 0 0
<TOTAL-REVENUES> 73,527 155,380
<CGS> 0 0
<TOTAL-COSTS> 852,480 10,923,784
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,583 8,132
<INCOME-PRETAX> (786,536) (10,776,536)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (786,536) (10,776,536)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (786,536) (10,776,536)
<EPS-BASIC> (0.12) (1.54)
<EPS-DILUTED> (0.12) (1.54)
</TABLE>
