<PAGE>
As filed with the Securities and Exchange Commission on December 23, 1999.
Registration No. 333-78055
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
Amendment NO. 1
to
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
----------------------
PROCEPT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2893483
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
840 MEMORIAL DRIVE, CAMBRIDGE, MASSACHUSETTS 02139; (617) 491-1100
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
----------------------
JOHN F. DEE
Chief Executive Officer and President
Procept, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
(617) 491-1100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copies to:
LYNNETTE C. FALLON, ESQ.
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
(617) 573-0100
----------------------
Approximate date of commencement of proposed sale to
the public: From time to time after the effective date of
this Registration Statement.
----------------------
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.|_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
----------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------------------
Title of each class Proposed maximum Proposed maximum
of securities Amount to be offering price aggregate offering Amount of
to be registered registered per share (1) price (1) registration fee
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value 8,884,644 shares $1.890625 $16,797,530 $4,435(2)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee
and computed pursuant to Rule 457(c) and based upon the prices on
December 21, 1999 as reported on the Nasdaq SmallCap Market.
(2) Of this amount, $2,343 was paid on May 7, 1999.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE>
Subject to Completion, dated December 23, 1999
PROCEPT, INC.
---------------------
8,884,644 SHARES OF COMMON STOCK TO BE
SOLD BY THE SELLING STOCKHOLDERS
<TABLE>
<CAPTION>
PROCEPT: THE OFFERING BY THE SELLING STOCKHOLDERS:
- -------- -----------------------------------------
<S> <C>
- - We are a biopharmaceutical company engaged - 2,144,844 shares of Procept common stock are
in the development and commercialization being offered on exercise of warrants and unit
of novel drugs with a focus on infectious purchase options assumed by Procept in connection
diseases and oncology. with the acquisition of Pacific Pharmaceuticals, Inc.
This Prospectus relates to the resale of the shares
- - Procept, Inc. of Procept common stock issuable on exercise of those
840 Memorial Drive warrants and unit purchase options.
(617) 491-1100
- 2,438,246 shares of Procept common stock are
- - Nasdaq Small Cap Symbol: PRCT being offered on exercise of Class C Warrants and
unit purchase options issued in 1998 as a result of
anti-dilution provisions triggered by the Pacific
acquisition. This Prospectus relates to the resale
of the shares of Procept common stock issuable on
exercise of those warrants and unit purchase
options.
- We previously issued 4,301,554 shares of Procept
common stock in private transactions, primarily
associated with the Pacific acquisition. This
Prospectus relates to the resale of those shares.
- The shares may be offered and sold by the selling
stockholders from time to time in open-market or
privately negotiated transactions which may involve
underwriters or brokers.
- There is an existing trading market for these
shares. The reported last sales price on December 21,
1999 was $1.813 per share.
- We will not receive any of the proceeds from the
sale of shares covered by this Prospectus although
we will receive payment of the exercise price of the
warrants and unit purchase options.
</TABLE>
---------------
PROCEPT'S BUSINESS INVOLVES SIGNIFICANT RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
---------------
Neither the SEC nor any state securities commission has determined
whether this Prospectus is truthful or complete. Nor have they made, nor will
they make, any determination as to whether anyone should buy these securities.
Any representation to the contrary is a criminal offense.
The date of this Prospectus is ________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Procept, Inc................................................................................................3
Where You Can Find More Information.........................................................................4
Risk Factors................................................................................................5
Use of Proceeds............................................................................................11
Selling Stockholders.......................................................................................12
Plan of Distribution.......................................................................................22
Legal Matters..............................................................................................23
Experts....................................................................................................23
Material Changes...........................................................................................23
</TABLE>
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<PAGE>
PROCEPT, INC.
Procept, Inc., together with our subsidiaries, is a
biopharmaceutical company currently engaged in the development and
commercialization of novel drugs based on biotechnological research. On March
17, 1999, Procept consummated its merger with Pacific Pharmaceuticals, Inc.,
in which Pacific became a subsidiary of Procept. The combined company has a
product portfolio with a focus in anti-infectives and oncology, including
three compounds in human clinical trials that may be candidates for
accelerated regulatory approval. On November 8, 1999, we announced a major
strategic change in our business with the signing of an agreement and plan of
merger to acquire Heaven's Door Corporation, an Internet company. Heaven's
Door's website provides consumers access to substantial information concerning
the pre-arrangement and handling of funeral-related services. If the merger
with Heaven's Door is consummated, we will focus on growing the internet
businees, while maximizing the value of the biotechnology assets.
A more complete description of the business of Procept and its recent
activities can be found in the documents listed under "WHERE YOU CAN FIND MORE
INFORMATION." The principal offices of Procept, a Delaware corporation, are
located at 840 Memorial Drive, Cambridge, Massachusetts 02139, and its telephone
number at such offices is (617) 491-1100.
This Prospectus relates to the resale by our stockholders of the
following shares of Procept common stock, referred to as the Registered
Shares:
- an aggregate of 4,301,554 shares held by the selling
stockholders named herein and
- an aggregate of 4,583,090 shares issuable upon exercise of
warrants and other convertible securities held by the selling
stockholders named herein.
3
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available on the SEC's
Website at http://www.sec.gov.
The SEC allows us to incorporate by reference information from other
documents that we file with them, which means that we can disclose important
information by referring to those documents. The information incorporated by
reference is considered to be part of this Prospectus, and information that we
file later with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 prior to the sale of all the shares covered
by this Prospectus:
- Annual Report on Form 10-K for the fiscal year ended December
31, 1998, filed with the SEC on March 31, 1999;
- Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, filed with the SEC on May 24, 1999;
- Quarterly Report on Form 10-Q/A for the quarter ended March
31, 1999, filed with the SEC on June 7, 1999;
- Quarterly Report on Form 10-Q for the quarter ended June
30, 1999, filed with the SEC on August 16, 1999;
- Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, filed with the SEC on November 12, 1999;
- Pacific Pharmaceuticals, Inc. Quarterly Report on Form 10-Q
for the quarter ended December 31, 1998, filed with the
SEC on February 12, 1999;
- Current Report on Form 8-K filed with the SEC on March 30,
1999; and
- The description of the Procept common stock contained in our
Registration Statement on Form 8-A, filed with the SEC on
January 21, 1993, as amended by Procept's Registration
Statement on Form 8-A/A filed with the Commission on November
8, 1993 and February 7, 1994, including any amendment or
reports filed for the purpose of updating the description of
our common stock.
You may request a copy of these filings, at no cost, by writing or
telephoning using the following contact information:
Procept, Inc.
840 Memorial Drive
Cambridge, MA 02139
Attn: Michael Fitzgerald
(617) 491-1100
You should rely only on the information incorporated by reference or
provided in this Prospectus or any supplement. We have not authorized anyone
else to provide you with different information. The selling stockholders will
not make an offer of these shares in any state where the offer is not permitted.
You should not assume that the information in this Prospectus or any supplement
is accurate as of any date other than the date on the front of those documents.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK WILL BE SUBJECT TO A HIGH
DEGREE OF FINANCIAL RISK. IN DECIDING WHETHER TO INVEST, PROSPECTIVE INVESTORS
SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS AS WELL AS THE OTHER
INFORMATION IN THIS DOCUMENT. THE LIST OF RISKS SET OUT BELOW MAY NOT BE
EXHAUSTIVE.
IT IS ESPECIALLY IMPORTANT TO KEEP THESE RISK FACTORS IN MIND WHEN
READING FORWARD-LOOKING STATEMENTS. THESE ARE STATEMENTS THAT RELATE TO
FUTURE PERIODS AND INCLUDE STATEMENTS ABOUT OUR CANDIDATE DRUG DISCOVERY
EFFORTS, PRODUCT DEVELOPMENT AND RECEIPT OF REGULATORY APPROVALS. GENERALLY,
THE WORDS "ANTICIPATES," "EXPECTS," "INTENDS," "SEEKS," "PLANS" AND SIMILAR
EXPRESSIONS IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, AND OUR ACTUAL RESULTS COULD
DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS.
WE PLAN TO MERGE WITH HEAVEN'S DOOR CORPORATION AND, IF THAT MERGER
TAKES PLACE, OUR BUSINESS WILL CHANGE SUBSTANTIALLY. WE HAVE SIGNED AN
AGREEMENT TO MERGE WITH HEAVEN'S DOOR CORPORATION, WHICH IS AN INTERNET
COMPANY, AND EXPECT TO COMPLETE THE MERGER IN THE FIRST QUARTER OF 2000. IF
THE MERGER WITH HEAVEN'S DOOR IS CONSUMMATED, OUR BUSINESS WILL CHANGE
SUBSTANTIALLY, AS WILL THE RISKS ASSOCIATED WITH AN INVESTMENT IN OUR
COMPANY. FOR MORE INFORMATION ON OUR CONTEMPLATED MERGER WITH HEAVEN'S DOOR,
PLEASE REFER TO OUR REGISTRATION STATEMENT ON FORM S-4, WHICH WAS DECLARED
EFFECTIVE ON DECEMBER 22, 1999. WE ALSO REFER YOU TO OUR QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 THAT WAS FILED ON NOVEMBER
12, 1999 AND OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1999 WHICH WE INTEND TO FILE ON OR ABOUT MARCH 31, 2000 FOR MORE INFORMATION
ON THE POTENTIAL MERGER.
WE MAY NEVER BECOME PROFITABLE
We are not able to predict when, or if, we will become profitable, nor
are we able to predict whether any profitability will be sustained if it is
achieved. We have never made a profit in any fiscal period and, as of
September 30, 1999, had an accumulated deficit of approximately $77.2
million. We had a net loss in 1996 of $11.2 million, a net loss in 1997 of
$9.1 million before dividends on preferred stock of $4.2 million and a net
loss in 1998 of $3.3 million. In addition, we expect to incur operating
losses over the next several years. To date, our only sources of revenue have
been up-front payments and research and development funding from our
corporate partners. For the foreseeable future, we expect that our level of
revenues and operating results will depend upon our ability to enter into new
collaborations. We have not received any revenues from the discovery,
development or sale of a commercial product and we may not realize any
revenues in the future.
WE WILL NOT RECEIVE ANY REVENUE FROM PRODUCT SALES OR SIGNIFICANT PAYMENTS FROM
PARTNERS IF WE FAIL TO DISCOVER DRUGS OR DEVELOP PRODUCTS
We may fail to develop products. To date, we are developing candidate
drugs and are engaged in clinical trials, but we have not completed clinical
trials, or obtained regulatory approval for or marketed any product. Our
product development efforts may fail for many reasons, including:
- the candidate drug or potential product fails in preclinical
studies;
- a potential product is not shown to be safe and effective in
clinical studies;
- required regulatory approvals are not obtained;
- a potential product cannot be produced in commercial
quantities at an acceptable cost; or
- a product does not gain market acceptance.
WE MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM PARTNERS DUE TO A FAILURE TO ENTER
INTO PARTNERSHIPS OR UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS
Our revenue stream and our strategy depend, in part, on our entering
into partnerships with third parties. We may not be able to establish any
corporate partnerships, and we cannot guarantee that these partnerships will be
established on commercially acceptable terms. Our future corporate partnerships
may not ultimately be successful. Even if partnerships are entered into, our
partners could terminate agreements or these agreements could expire before any
meaningful developmental milestones are reached. The termination or expiration
of any or all of these agreements could have a material adverse effect on our
business.
5
<PAGE>
Much of the revenue that we may receive under these partnerships depends
upon our partners' successful development and commercial introduction of new
products derived from our chemical diversity libraries or pharmaceutical
screens. Our partners may develop alternative technologies or products outside
of their partnerships with us, and these technologies or products may be used to
develop treatments for the diseases targeted by our partnerships. This could
have a material adverse effect on our business.
IF WE FAIL TO OBTAIN LICENSES FOR NEW PRODUCTS, OUR BUSINESS STRATEGY MAY FAIL
Our business strategy includes obtaining exclusive licenses to certain
compounds with pharmaceutical activity in order to further develop and
commercialize such compounds. While we believe that we will be able to execute
on this business strategy, we cannot guarantee that we will obtain the license
on commercially acceptable terms or at all.
WE FACE UNCERTAINTY IN RAISING ADDITIONAL FUNDS NECESSARY TO FUND OUR OPERATIONS
We may be required to repeatedly raise additional capital to fund our
operations. Capital may be raised through public or private equity financings,
partnerships, debt financings, bank borrowings, or other sources. Additional
funding may not be available on favorable terms or at all. Our capital
requirements will depend upon numerous factors, including the following:
- the establishment of partnerships;
- the development of competing technologies or products;
- changing market conditions;
- the cost of protecting our intellectual property rights;
- the purchase of capital equipment;
- the progress of our drug discovery and development programs;
- the progress of any collaborations and receipt of any
option/license, milestone and royalty payments resulting from
those collaborations; and
- in-licensing and acquisition opportunities.
If adequate funds are not otherwise available, we may be required to
curtail operations significantly. To obtain additional funding, we may need to
enter into arrangements that require us to relinquish rights to certain
technologies, candidate drugs, products and/or potential markets. To the extent
that additional capital is raised through the sale of equity, or securities
convertible into equity, you may experience dilution of your proportionate
ownership in Procept.
PROCEPT HAS OBLIGATIONS TO ISSUE SHARES OF COMMON STOCK IN THE FUTURE WHICH WILL
DILUTE THE OUTSTANDING SHARES
As of November 15, 12,386,903 shares of Procept common stock were
issuable upon exercise of options and warrants to purchase Procept common stock
that either are currently outstanding or Procept has an obligation to issue,
including the 4,583,090 Warrant Shares registered hereunder. The exercise prices
of such options and warrants range from $0.70 to $490 per share.
6
<PAGE>
LIQUIDATION RIGHTS OF CERTAIN STOCKHOLDERS COULD REDUCE PROCEEDS TO OTHER
STOCKHOLDERS
Under existing contractual provisions, in the event of (i) a
liquidation, dissolution or winding up of Procept, (ii) the sale or other
disposition of all or substantially all of Procept's assets, or (iii) any
consolidation, merger, combination, reorganization or other transaction in which
Procept is not the surviving entity, Procept stockholders holding 12,086,433
shares of common stock are entitled to receive an aggregate of $35,703,322 as a
liquidation "preference" prior to any payment to the other stockholders. Except
in the case of a liquidation, dissolution or winding up, such payment will be in
the form that equity holders will receive in the acquisition transaction. In the
event of a liquidation, dissolution or winding up, such payment is contingent
upon Procept's having available resources to make such payment. These
contractual rights will terminate upon the sale into the public market of shares
of common stock by the holders of these contractual rights.
CONCENTRATION OF CONTROL OF OUR STOCK COULD LEAD TO FAILURE TO MAXIMIZE STOCK
PRICE AND CONFLICTS OF INTEREST
The Aries Trust, the Aries Domestic Fund, L.P., the Aries Domestic
Fund II, L.P., the Aries Master Fund, Paramount Capital Investments LLC and
Dr. Lindsay Rosenwald, referred to as the Paramount Purchasers, together are
the holders of (i) an aggregate of 6,990,098 shares of Procept common stock,
and (ii) warrants and options exercisable for 5,091,692 shares of Procept
common stock. Assuming the exercise of all the warrants and options held by
the Paramount Purchasers and no warrant or option exercises by other holders,
the ownership position of the Paramount Purchasers would represent
approximately 60% of Procept common stock. Paramount Capital Asset
Management, Inc. is the investment manager and general partner of The Aries
Trust, the Aries Domestic Fund, L.P. the Aries Domestic Fund II, L.P., and
the Aries Master Fund. Lindsay A. Rosenwald, M.D., the Chairman and sole
stockholder of Paramount Capital Asset Management, is also President of
Paramount Capital Investments, LLC. In addition, The Aries Trust and the
Aries Domestic Fund, L.P. have the right to designate a majority of the
members of the Board of Directors. Accordingly, these entities may
effectively control matters requiring approval by our stockholders, including
electing directors, adopting or amending certain provisions of our
certificate of incorporation or by-laws and approving or preventing certain
mergers or other similar transactions, such as a sale of substantially all of
our assets (including transactions that could give holders of Procept common
stock the opportunity to realize a premium over the then- prevailing price
for their shares).
Furthermore, the control rights of the Paramount Purchasers may
effectively discourage a third party from making an acquisition proposal and
thereby inhibiting a change of control in circumstances that could give the
holders of Procept common stock the opportunity to realize a premium over the
then-prevailing market price of such stocks or affect the market price of the
common stock, or both. Our stockholders other than the Paramount
Purchasers will be minority equity holders and will be unable to control
our management or business policies. Moreover, subject to contractual
restrictions
7
<PAGE>
and general fiduciary obligations, We are not prohibited from engaging in
future transactions with the Paramount Purchasers.
Paramount Capital Investments, LLC is a New York-based merchant
banking and venture capital firm specializing in biotechnology companies. In
the regular course of its business, Paramount Capital Investments, LLC
identifies, evaluates and pursues investment opportunities in biomedical and
pharmaceutical products, technologies and companies. None of Paramount
Capital Investments, LLC or its affiliates are obligated pursuant to any
agreement or understanding with us to make any additional products or
technologies available to us, nor can there be any assurance, and we do not
expect and purchasers of the Registered Shares should not expect, that any
biomedical or pharmaceutical product or technology identified by Paramount
Capital Investments, LLC or such affiliates in the future will be made
available to us. In addition, certain of our current officers and directors
or certain of our officers or directors hereafter appointed may from time to
time serve as officers or directors of other biopharmaceutical or
biotechnology companies. We cannot be certain that these other companies will
not have interests in conflict with ours.
OUR BUSINESS MAY FAIL DUE TO INTENSE COMPETITION IN OUR INDUSTRY
Our business may fail because we face intense competition from major
pharmaceutical companies and specialized biotechnology companies providing
chemical diversity libraries, pharmaceutical screening systems, combinatorial
chemistry technologies and other expertise. In addition, in pursuing our
internal drug discovery program, we compete against pharmaceutical and
biotechnology companies developing drugs against infectious diseases, and our
partners face similar competition in the respective markets for which they are
developing drugs. Many of these competitors have greater financial and human
resources and more experience in research and development than we have.
Competitors that identify lead structures, develop candidate drugs, complete
clinical trials, obtain regulatory approvals, and begin commercial sales of
their products before us will enjoy a significant competitive advantage. We
anticipate that we will face increased competition in the future as new
companies enter the market and alternative technologies become available.
WE DEPEND ON PATENTS AND PROPRIETARY RIGHTS THAT MAY FAIL TO PROTECT OUR
BUSINESS
Our success will depend, in large part, on our ability to obtain and
maintain patent or other proprietary protection for our technologies, products,
and processes, and our ability to operate without infringing the proprietary
rights of other parties. We may not be able to obtain patent protection for the
composition of matter of discovered compounds, processes developed by our
employees, or uses of compounds discovered through our technology. Legal
standards relating to the validity of patents covering pharmaceutical and
biotechnological inventions and the scope of claims made under these patents are
still developing. There is no consistent policy regarding the breadth of claims
allowed in biotechnology patents. The patent position of a biotechnology firm is
highly uncertain and involves complex legal and factual questions.
We may not receive any issued patents based on currently pending or any
future applications. Any issued patents may not contain claims sufficiently
broad to protect against competitors with similar technology. In addition, our
patents, our partners' patents, and those patents for which we have license
rights may be challenged, narrowed, invalidated or circumvented. Furthermore,
rights granted under patents may not provide us with any competitive advantage.
We may have to initiate litigation to enforce our patent and license
rights. If our competitors file patent applications that claim technology also
claimed by us, we may have to participate in interference or opposition
proceedings to determine the priority of invention. An adverse outcome could
subject us to significant liabilities to third parties and require us to cease
using the technology or to license the disputed
8
<PAGE>
rights from third parties. We may not be able to obtain any required licenses on
commercially acceptable terms or at all.
The cost to us of any litigation or proceeding relating to patent
rights, even if resolved in our favor, could be substantial. Some of our
competitors may be able to sustain the costs of complex patent litigation more
effectively than we can because of their substantially greater resources.
Uncertainties resulting from the initiation and continuation of any pending
patent or related litigation could have a material adverse effect on our ability
to compete in the marketplace.
We also rely on certain proprietary trade secrets and know-how that are
not patentable. We have taken measures to protect our unpatented trade secrets
and know-how, including the use of confidentiality agreements with our
employees, consultants, and certain contractors. It is possible that the
agreements may be breached, that we would have inadequate remedies for any
breach, or that our trade secrets will otherwise become known or be
independently developed or discovered by competitors.
UNCERTAIN PHARMACEUTICAL PRICING ENVIRONMENT MAY IMPACT OUR BUSINESS
Our ultimate ability to commercialize any products that we or our
partners develop depends on the extent to which reimbursements to patients for
the cost of such products and related treatments will be available from
government health administration authorities, private health insurance
providers, and other organizations. It is uncertain whether third party payers
will reimburse patients for newly approved health care products or will do so at
a level that will enable us to obtain a satisfactory price for our products.
Healthcare reform is an area of increasing attention and is a priority of many
government officials. Any such reform measures, if adopted, could adversely
affect the pricing of therapeutic or diagnostic products in the US or elsewhere
and the amount of reimbursement available from governmental agencies or third
party insurers. We cannot predict the effect of these measures upon our
business.
QUALIFIED MANAGERIAL AND SCIENTIFIC PERSONNEL ARE SCARCE IN OUR INDUSTRY
We are highly dependent on the principal members of our scientific and
management staff. Our success will depend in part on our ability to identify,
attract and retain qualified managerial and scientific personnel. There is
intense competition for qualified personnel. We may not be able to continue to
attract and retain personnel with the advanced technical qualifications or
managerial expertise necessary for the development of our business. If we fail
to attract and retain key personnel, it could have a material adverse effect on
our business, financial condition and results of operations.
OUR COMMON STOCK MAY HAVE A VOLATILE PUBLIC TRADING PRICE AND LOW TRADING VOLUME
The market price of our common stock has been highly volatile and
the market for our common stock has experienced significant price and volume
fluctuations, some of which are unrelated to the operating performance of
Procept. Many factors may have a significant adverse effect on the market price
of the common stock, including:
- announcements of technological innovations or new commercial
products by us or our competitors;
- developments concerning proprietary rights, including patent
and litigation matters;
- publicity regarding actual or potential results with respect
to products or compounds under development by us or our
partners;
- unexpected terminations of partnerships;
- regulatory developments in the US and other countries;
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<PAGE>
- general market conditions; and
- quarterly fluctuations in our revenues and other financial
results.
YEAR 2000 ISSUES COULD CAUSE INTERRUPTION OR FAILURE OF OUR COMPUTER SYSTEMS
We use a significant number of computer systems and software programs
in our operations, including applications used in support of research and
development activities, accounting, and various administrative functions.
Although we believe that our internal systems and software applications contain
source code that is able to interpret appropriately the dates following December
31, 1999, our failure to make or obtain necessary modifications to our systems
and software could result in systems interruptions or failures that could have a
material adverse effect on our business. We do not anticipate that we will incur
material expenses to make our systems Year 2000 compliant. Unanticipated costs
necessary to avoid potential systems interruptions could exceed our present
expectations and consequently have a material adverse effect on our business. In
addition, if our key supply and service providers fail to make their respective
computer software programs and operating systems Year 2000 compliant, it could
have a material adverse effect on our business.
THE POSSIBLE APPLICABILITY OF "PENNY STOCK" RULES WILL ADVERSELY IMPACT
LIQUIDITY FOR PROCEPT'S SECURITIES
If our common stock fails to continue to be listed on a national
securities exchange or listed on a qualified automated quotation system, it may
become subject to Rule 15g-9 under the Securities Exchange Act of 1934, as
amended, which imposes additional sales practice
requirements on broker-dealers that sell such securities. Rule 15g-9 defines a
"penny stock" to be any equity security that has a market price (as therein
defined) of less than $5.00 per share or with an exercise price of less than
$5.00 per share, subject to certain exceptions including the securities being
quoted on Nasdaq's SmallCap Market. For transactions covered by this rule, a
broker-dealer must make a special suitability determination for the purchaser,
have delivered the Commission's required disclosure statement regarding "penny
stock" and have received the purchaser's written consent to the transaction
prior to sale. In addition, Rule 15g-4 requires that a broker-dealer also must
disclose the sales commission payable to it and its registered representative
and current quotations for the security. Finally, Rule 15g-6 requires that a
broker-dealer send its customers who hold penny stock in their accounts monthly
statements disclosing recent price information for the penny stock held in the
account and information on the limited market in penny stock. Consequently, such
rules may affect the ability of broker-dealers to sell Procept's securities and
may affect the ability of purchasers of the Registered Shares to sell any of
their Procept common stock.
The foregoing required penny stock restrictions will not apply to
our securities if we meet certain minimum net tangible assets or
average revenue criteria. We can not be certain that our securities
will qualify for exemption from the penny stock restrictions. In any event, even
if our securities were exempt from such restrictions, we would remain
subject to Section 15(b)(6) of the Exchange Act, which gives the Commission the
authority to restrict any person from participating in a distribution of penny
stock, if the Commission finds that such a restriction would be in the public
interest.
10
<PAGE>
If our securities were subject to the rules on penny stocks, the
market liquidity for our securities would be materially adversely
affected.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the Registered
Shares. We could, however, receive an aggregate of up to $13,353,570 upon
exercise of outstanding unit purchase options and warrants that must be
exercised before 4,583,090 of the Registered Shares could be sold hereunder.
11
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders are the holders of:
- an aggregate of 4,301,554 shares of Procept common stock,
referred to as the Outstanding Shares, issued by Procept in
various private placements, including Procept's 1998 private
placement; and
- currently exercisable warrants and options issued by
Procept in private placements or assumed by Procept in
connection with its acquisition of Pacific to purchase,
at prices ranging from $2.11 to $9.20 per share, an
aggregate of 4,583,090 shares of Procept common stock,
which expire on various dates from October 8, 2001
to September 7, 2007.
The following table sets forth as of November 15, 1999:
- the name of each Selling Stockholder (in addition to the named
Selling Stockholders, any person who receives Registered
Shares from a Selling Stockholder as a gift or in connection
with a pledge may sell up to 500 of such shares using this
Prospectus);
- the aggregate number of shares of common stock owned by or
issuable upon exercise of outstanding convertible securities
owned by each Selling Stockholder, which are referred to as
Shares Held; and
- the aggregate number of Outstanding Shares and Warrant Shares
to be offered by each Selling Stockholder pursuant to this
Prospectus.
Common stock ownership information is based solely upon information
furnished to Procept, Procept's internal reports or reports furnished to
Procept by the respective individuals or entities, as the case may be,
pursuant to the rules of the Commission. Except as described elsewhere in
this Prospectus (including the footnotes following the table), none of the
Selling Stockholders have held any position or office with, been employed by,
or otherwise had a material relationship with, Procept or any of its
predecessors or affiliates within the past three years.
12
<PAGE>
<TABLE>
<CAPTION>
NAME OF TOTAL SHARES OUTSTANDING WARRANT REGISTERED
SELLING STOCKHOLDER HELD SHARES SHARES SHARES
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Abeshouse, Mark(3) 2,598 -- 2,340 2,340
Ain, Ross D 26,288 9,450 5,248 14,698
Alae Partners(4) 72,640 -- 10,488 10,488
Angelastro, Philip J 14,222 -- 2,622 2,622
The Alfred J. Anzalone Family Limited Partnership 36,531 -- 5,244 5,244
Arias, Mauricio 20,062 -- 2,622 2,622
Aries Domestic Fund, L.P.(5) 3,217,403 758,647 512,690 1,271,337
Aries Trust(6) 6,391,583 1,658,424 1,063,144 2,721,568
Aristizabal, Mario 20,062 -- 2,622 2,622
Arntson, Morris A. Jr 18,160 -- 2,622 2,622
Ballweg, Martin G 36,321 -- 5,244 5,244
Batkin, Alan R 2,140 2,140 -- 2,140
Baz, Raul 20,062 -- 2,622 2,622
Beagle Limited 160,502 -- 20,976 20,976
Eckardt C. Beck, Defined Pension Plan U/A 1/1/95 18,160 -- 2,622 2,622
Berg, Mark 16,714 16,714 -- 16,714
Bernstein, Lawrence 10,896 -- 1,573 1,573
Richard Berry, MD & Beverly Berry 18,160 -- 2,622 2,622
Bershad, David J 39,320 17,790 -- 17,790
Bios Equity Fund L.P. 45,732 -- 15,732 15,732
Barry Birbrower, P.C. Profit Sharing Trust 20,062 -- 2,622 2,622
Blair, DH(7) 14,428 -- 12,866 12,866
Robert S. Bogatin Trust UDT 3/15/91 18,160 -- 2,622 2,622
Borak, Evan S(8) 8,118 -- 4,072 4,072
Brady, James W 8,026 -- 1,049 1,049
Braziel, Ronald W 72,640 -- 10,488 10,488
Broidy, Elliott 34,177 7,958 5,244 13,202
Cass & Co. - Magnum Capital Growth Fund 19,658 8,895 -- 8,895
Cassedy, Thomas L 8,356 8,356 -- 8,356
Thomas L. Cassidy IRA Rollover 40,126 -- 5,244 5,244
Andrew & Barbara Cichelli JT TEN 3,343 3,343 -- 3,343
Cline, Jack R. Jr 16,125 -- 2,622 2,622
Commonwealth Associates 67,180 67,180 -- 67,180
Conrads, Robert J 36,894 2,546 5,244 7,790
Continental Consulting Corporation 20,062 -- 2,622 2,622
Couderay Partners 60,770 -- 10,488 10,488
Cox, Archibald, Jr 170,308 32,302 20,976 53,278
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Davis, Tommy L 120,377 -- 15,732 15,732
De Adame, Lelia Cordero & Lilia Olivera JT TEN 9,831 4,448 -- 4,448
de Salas-Porras, Maria-Eugenia A 20,062 -- 2,622 2,622
Desai, Praful, MD 20,062 -- 2,622 2,622
Daniel J. Dornan & Particia Ann Dornan JT TEN 9,831 4,448 -- 4,448
Doyle, J. William 31,380 -- 7,866 7,866
Dritz, James L 16,060 -- 2,622 2,622
Dworetzky, Edward 36,321 -- 5,244 5,244
Dworetzky, Norma 36,321 -- 5,244 5,244
Edelman, Joseph(9) 12,750 -- 8,679 8,679
Edmund C. Neuhaus & Olga M. Neuhaus JT TEN 1,671 1,671 -- 1,671
Fabiani, Joseph A(10) 15,140 6,227 1,231 7,457
Fischer, Lauren S(11) 7,194 -- 3,608 3,608
Florin, Marc(12) 16,437 -- 12,435 12,435
Roxanne H. Frank Revocable Trust 72,641 -- 10,488 10,488
Friedman, Ben & Sharyn 16,650 -- 2,622 2,622
Gallans & Brooks Associates, Inc. Pension Fund 18,160 -- 2,622 2,622
A. Mark Gambee, MD and Karen D. Todd, MD JTWORS 40,126 -- 5,244 5,244
Garfinkel, Shelley 22,623 -- 5,244 5,244
Gerace, Anthony J 18,098 -- 4,195 4,195
Giamanco, Joseph 68,557 -- 10,488 10,488
Giant Trading, Inc. 15,728 7,116 -- 7,116
Gittis, Howard 64,501 -- 10,488 10,488
Laura Gold Gallaries Ltd, PFT SHG TR 9,831 4,448 -- 4,448
Stuart Goldberg and Rhoda Goldberg JTWROS 7,660 -- 2,622 2,622
CMH Associates A Partnership 75,353 15,918 10,488 26,406
Goodman, John M 20,062 -- 2,622 2,622
Gordon, Michael J 7,765 414 1,311 1,725
Gordon, Robert P 7,722 7,722 -- 7,722
Halperin, Alan and Paula 40,126 -- 5,244 5,244
Irving B. Harris Revocable Trust 72,641 -- 10,488 10,488
Harvard School of Dental Medicine 4,975 4,975 -- 4,975
Hawk Management and Financial Services, Inc. 80,251 -- 10,488 10,488
Hawkins Group, LLC(13) 257,506 -- 129,156 129,156
Heil, Edward F 40,126 -- 5,244 5,244
Herman, Paul R 12,910 -- 2,622 2,622
HJK, LLC 80,251 -- 10,488 10,488
Holubow, Fred 12,703 -- 2,098 2,098
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Harry Huang & Adrienne Masters 20,062 -- 2,622 2,622
IMS Global Investments X, Ltd. 145,282 -- 20,976 20,976
Jackson Hole Investments Acquisition LP 40,126 -- 5,244 5,244
Jesselson Children, 12/18/80 Trust FBO 196,596 88,949 -- 88,949
Michael G. Jesselson 12/18/80 TR 196,596 88,949 -- 88,949
Joyce, Michael 80,251 -- 10,488 10,488
Jurgensmeyer, Charles 36,321 -- 5,244 5,244
Jerome Kahn, Jr. Revocable Trust 27,758 -- 4,720 4,720
Kaiserman, Donald B. and Sylvia A 18,160 -- 2,622 2,622
Kane, Patrick M 43,734 8,895 3,146 12,041
Ellen I. Kaplan Revocable Trust 40,126 -- 5,244 5,244
Kash, Peter(14) 14,178 -- 13,152 13,152
Katzmann, Scott A(15) 144,674 -- 97,019 97,019
Kehaya, Ery W 15,244 -- 5,244 5,244
Kendall, Donald R., Jr 49,957 4,448 5,244 9,692
John R. Kennedy & John R. Kennedy Pension Fund 8,356 8,356 -- 8,356
Kessel, Lawrence & Shirley 18,160 -- 2,622 2,622
Keys Foundation(16) 567,929 236,250 115,457 351,707
Kimble, George & Mary Ellen 20,062 -- 2,622 2,622
Knox, John 3,211 -- 1,611 1,611
Knox, Robert A(17) 8,356 8,356 -- 8,356
Kratchman, Martin(18) 1,604 -- 1,468 1,468
Ksiazek, Harold and Jeanette 18,160 -- 2,622 2,622
LaRocque, John 91,464 -- 31,464 31,464
Lash, Roger S 36,321 -- 5,244 5,244
Levine, Brad DMD(19) 36,321 -- 5,244 5,244
Levine, Jeff 17,053 -- 8,553 8,553
Hyman A. Lezell Revocable Trust 18,160 -- 2,622 2,622
Lincoln Wood Investment 88,877 -- 15,732 15,732
Linscott, Donald W 20,062 -- 2,622 2,622
Donna Lipman and Lawrence Lipman, Tenants in Common 20,062 -- 2,622 2,622
Lisenby, Stephen A. and Patricia J. 54,480 -- 7,866 7,866
Loeb, John Jr 29,894 4,448 2,622 7,070
Lozito, Donna F(20) 12,750 -- 8,353 8,353
Lydecker, Richard A. & Gay C(21) 10,548 4,725 2,099 6,824
Lydon, Harris R.L. Jr 18,160 -- 2,622 2,622
Managed Risk Trading LP 4,955 2,241 -- 2,241
Geo. Manos & Associates, Inc. 20,062 -- 2,622 2,622
</TABLE>
15
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
McCullick, Mike 18,160 -- 2,622 2,622
McDermott, Stephen(22) 627 -- 559 559
Sean McGould & Erin McGould JT TEN 9,831 4,448 -- 4,448
McInerney, Tim(23) 30,418 -- 21,841 21,841
MDBC Capital Corp. 19,658 8,895 -- 8,895
Messina, Kirkland(24) 1,204 -- 604 604
Milfam I 18,160 -- 2,622 2,622
Albert R. Miller Trustee 9,831 4,448 -- 4,448
Miller, Mike & Terry 80,251 -- 10,488 10,488
Milstein, Albert 18,160 -- 2,622 2,622
Minerva, Donald 40,126 -- 5,244 5,244
Moonlight International LTD 19,658 8,895 -- 8,895
Moskowitz, Reed 4,179 4,179 -- 4,179
Murphy, Charles J., Jr 4,179 4,179 -- 4,179
Murphy, William Kymmerly & Linda Carolyn
Revocable Trust 18,160 -- 2,622 2,622
Nagle, Arthur J(25) 55,020 27,713 10,497 38,210
Natiello, Joseph A 22,623 -- 5,244 5,244
Newman, Kevin P 18,160 -- 2,622 2,622
Oscar Gruss & Son Incorporated 11,765 11,765 -- 11,765
John S. Osterweis Trustee for The Osterweis Revocable
Trust U/A dated 1/13/93(26) 56,923 27,804 10,497 38,301
Ostrovsky, Paul D. & Rebecca L 14,907 2,206 1,311 3,517
Ostrovsky, Steven N 35,597 8,220 3,933 12,153
Paine Webber, Inc. 19,658 8,895 -- 8,895
Palmetto Partners, LTD(27) 455,379 222,427 83,976 306,403
Pelts, James J 7,265 -- 1,049 1,049
Pequot Scout Fund, LP 107,322 -- 26,220 26,220
Pharm-Eco Laboratories, Inc. 40,126 -- 5,244 5,244
Pictet Bank & Trust Nassau Ltd. 29,549 -- 5,244 5,244
Porlana Capital Corp. PTE Ltd. 80,251 -- 10,488 10,488
Prager, Tis(28) 84,285 37,055 16,269 53,324
Ramaker, James K 36,321 -- 5,244 5,244
Reaback, Louis 18,160 -- 2,622 2,622
Reaback, Raymond 18,160 -- 2,622 2,622
Resnick, Michael 14,528 -- 2,098 2,098
Rosenbaum, David and Margot Kahn JTWROS 3,084 -- 524 524
Rosenwald, Lindsay(29) 2,176,703 100,010 1,319,024 1,419,034
Rothblatt, Martin 4,179 4,179 -- 4,179
Rubin, Wayne L(30) 64,856 -- 44,524 44,524
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Abel Quezada Rueda & Mercedes Pesqueira V JT WROS 1,671 1,671 -- 1,671
Ruggeberg, Karl(31) 22,668 -- 13,132 13,132
Ruttenberg, David W(32) 50,841 23,625 10,497 34,122
Sanger Investments II 7,866 3,559 -- 3,559
Roy and Marlena Schaefer, JTWROS 39,722 8,895 2,622 11,517
Schawelson, Sandra 18,160 -- 2,622 2,622
Selz, Bernard 25,070 25,070 -- 25,070
Furman Selz, LLC 100,314 -- 13,110 13,110
J.F. Shea Co., Inc.(33) 635,167 307,483 125,964 433,447
Siirola, Thomas C 20,062 -- 2,622 2,622
Silver, William S 20,062 -- 2,622 2,622
Smith, Richard A 19,658 8,895 -- 8,895
Soloman, Debrah(34) 1,255 -- 1,119 1,119
Solomon, Philip 2,240 2,240 -- 2,240
Speisman, Aaron 9,831 4,448 -- 4,448
Spencer, Melvin 18,160 -- 2,622 2,622
Spencer, William M., III 39,320 17,790 -- 17,790
Joseph Stevens & Co.(35) 68,214 -- 34,214 34,214
Strassman, Andrew 14,747 -- 2,622 2,622
Strassman, Joseph and Barbara 32,251 -- 5,244 5,244
Strassman, Richard(36) 35,145 -- 11,679 11,679
Suan Investments 39,320 17,790 -- 17,790
Tanen, David(37) 753 -- 671 671
Tauber, Herman 8,356 8,356 -- 8,356
Teitelbaum, Myron M. M.D 42,571 6,069 5,244 11,313
Tokenhouse Trading Company Limited 80,251 -- 10,488 10,488
Umbach, Joseph A 5,651 4,249 -- 4,249
Villamizar, Rodrigo 20,062 -- 2,622 2,622
Donald E. and Virginia V. Vinson Trust 53,682 26,375 10,497 36,872
Vitols, Juris 40,126 -- 5,244 5,244
Walner, David 13,105 -- 9,643 9,643
Wayne, Peri 3,108 3,108 -- 3,108
Weiss, Melvyn I 79,446 17,790 5,244 23,034
Weiss, Michael S 230,532 -- 185,142 185,142
Westbury Nursery Products Ltd. 80,251 -- 10,488 10,488
Widmer, Bruno 83,780 33,075 16,269 49,344
Woldow, Andrew 4,876 2,206 -- 2,206
Wolfson Decedent's 1993 Trust 393,192 177,898 -- 177,898
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Wolfson Equities 80,251 -- 10,488 10,488
Youner, Lauren 3,111 -- 2,775 2,775
Zambrano, Gabriel 14,528 -- 2,098 2,098
Zapco Holdings Inc. Deferred Compensation Plan Trust 19,658 8,895 -- 8,895
TOTAL 20,566,936 4,301,554 4,583,090 8,884,644
</TABLE>
17
<PAGE>
(1) Except as indicated in footnotes below, none of the Selling
Stockholders will hold more than one percent of the outstanding
common stock after the completion of the Offering.
(2) Except as indicated in the footnotes below, all of the Warrant Shares
held by each Selling Stockholder are issuable on exercise of Procept's
Class C Warrants at an exercise price of $3.28 per share.
(3) Mr. Abeshouse's Warrant Shares include: (1) 1,868 shares issuable upon
exercise of 1997 UPOs; (2) 258 shares issuable upon exercise of Class A
Warrants issuable on exercise of 1997 UPOs; (3) 95 shares issuable upon
exercise of 1995 Unit Purchase Options originally issued by Pacific and
assumed by Procept ("1995 UPOs") and (4) 119 shares issuable upon
exercise of Class A Warrants issuable on exercise of 1995 UPOs.
(4) Alae Partners' Warrant Shares include 3,150 shares issuable upon
exercise of Class D Warrants.
(5) Warrant Shares of The Aries Domestic Fund, L.P. (the "Fund") include:
(1) 24,555 shares issuable upon exercise of 1998 UPOs, (2) 8,653
shares issuable upon exercise of Class C Warrants issuable on exercise
of 1998 UPOs, (3) 33,807 shares issuable upon exercise of 1997 UPOs,
(4) 4,671 shares issuable upon exercise of Class A Warrants issuable
on exercise of 1997 UPOs, (5) 2,716 shares issuable upon exercise of
1995 UPOs; (6) 3,395 shares issuable upon exercise of Class A Warrants
issuable on exercise of 1995 UPOs, (7) 4,889 shares issuable upon
exercise of common stock Warrants exercisable at $8.84 per share
originally issued by Pacific and assumed by Procept, and (8) 189,000
shares issuable upon exercise of Class D Warrants. Assuming the sale
of all Registered Shares, and assuming the exercise of all of the
options and warrants held by the Fund, it would beneficially own
1,863,513 shares, representing 12.18% of the outstanding common stock.
18
<PAGE>
(6) Warrant Shares of The Aries Trust (the "Trust") include: (1) 49,853
shares issuable upon exercise of 1998 UPOs, (2) 17,567 shares issuable
upon exercise of Class C Warrants issuable on exercise of 1998 UPOs,
(3) 65,584 shares issuable upon exercise of 1997 UPOs, (4) 9,061 shares
issuable upon exercise of Class A Warrants issuable on exercise of 1997
UPOs, (5) 2,716 shares issuable upon exercise of 1995 UPOs, (6) 3,395
shares issuable upon exercise of Class A Warrants issuable on exercise
of 1995 UPOs, (7) 11,408 shares issuable upon exercise of common
stock Warrants exercisable at $8.84 per share originally issued by
Pacific and assumed by Procept, and (8) 441,000 shares issuable upon
exercise of Class D Warrants. Assuming the sale of all Registered
Shares, and assuming the exercise of all of the options and warrants
held by the Trust, it would beneficially own 3,587,462 shares,
representing 21.60% of the outstanding common stock.
(7) D.H. Blair's Warrant Shares include: (1) 11,304 shares issuable upon
exercise of 1997 UPOs and (2) 1,562 shares issuable upon exercise of
Class A Warrants issuable on exercise of 1997 UPOs.
(8) Mr. Borak's Warrant Shares include: (1) 3,011 shares issuable upon
exercise of 1998 UPOs and (2) 1,061 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs.
(9) Mr. Edelman's Warrant Shares include: (1) 2,652 shares issuable upon
exercise of 1998 UPOs; (2) 935 shares issuable upon exercise of
Class C warrants issuable on exercise of 1998 UPOs; (3) 3,672 shares
issuable upon exercise of 1997 UPOs; (4) 507 shares issuable upon
exercise of Class A Warrants issuable on exercise of 1997 UPOs;
(5) 405 shares issuable upon exercise of 1995 UPOs and (6) 507 shares
issuable upon exercise of Class A Warrants issuable on exercise of
1995 UPOs.
(10) Mr. Fabiani's Warrant Shares include: (1) 1,082 shares issuable upon
exercise of 1997 UPOs and (2) 149 shares issuable upon exercise of
Class A Warrants issuable on exercise of 1997 UPOs.
(11) Ms. Fischer's Warrant Shares include: (1) 2,668 shares issuable upon
exercise of 1998 UPOs and (2) 940 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs.
(12) Mr. Florin's Warrant Shares include: (1) 2,133 shares issuable upon
exercise of 1998 UPOs; (2) 745 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs; (3) 8,414 shares
issuable upon exercise of 1997 UPOs and (4) 1,163 shares issuable
upon exercise of Class A Warrants issuable on exercise of 1997 UPOs.
(13) Warrant Shares of the Hawkins Group, LLC include: (1) 95,503 shares
issuable upon exercise of 1998 UPOs and (2) 33,653 shares issuable upon
exercise of Class C Warrants issuable on exercise of 1998 UPOs.
(14) Mr. Kash's Warrant Shares include: (1) 7,422 shares issuable upon
exercise of 1997 UPOs; (2) 1,025 shares issuable upon exercise of Class
A Warrants issuable on exercise of 1997 UPOs; (3) 2,091 shares issuable
upon exercise of 1995 UPO's and (4) 2,614 shares issuable upon exercise
of Class A Warrants issuable on exercise of 1995 UPO's.
(15) Mr. Katzmann's Warrant Shares include: (1) 31,303 shares issuable upon
exercise of 1998 UPOs; (2) 11,031 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs; (3) 40,420 shares
issuable upon exercise of 1997 UPOs; (4) 5,585 shares issuable upon
exercise of Class A Warrants issuable on exercise of 1997 UPOs; (5)
3,858 shares issuable upon exercise of 1995 UPOs and (6) 4,822 shares
issuable upon exercise of Class A Warrants issuable on exercise of 1995
UPOs.
(16) Warrant Shares of the Keys Foundation include 78,750 shares issuable
upon exercise of Class D Warrants. Assuming the sale of all Registered
Shares, and assuming the exercise of all of the options and warrants
held by the Keys Foundation, it would beneficially own 216,222 shares,
representing 1.45% of the outstanding common stock.
(17) Mr. Knox's Warrant Shares include: (1) 1,191 shares issuable upon
exercise of 1998 UPOs and (2) 420 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs.
(18) Mr. Kratchmann's Warrant Shares include: (1) 983 shares issuable upon
exercise of 1997 UPOs; (2) 136 shares issuable upon exercise of Class A
Warrants issuable on exercise of 1997 UPOs; (3) 155 shares
19
<PAGE>
issuable upon exercise of 1995 UPO's and (4) 194 shares issuable upon
exercise of Class A Warrants issuable on exercise of 1995 UPO's.
(19) Mr. Levine's Warrant Shares include: (1) 6,325 shares issuable upon
exercise of 1998 UPOs and (2) 2,228 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs.
(20) Ms. Lozito's Warrant Shares include: (1) 2,868 shares issuable upon
exercise of 1998 UPOs; (2) 1,010 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs; (3) 3,932 shares
issuable upon exercise of 1997 UPOs and (4) 543 shares issuable upon
exercise of Class A Warrants issuable on exercise of 1997 UPOs.
(21) Mr. and Mrs. Lydecker's Warrant Shares include 1,575 shares issuable
upon exercise of Class D Warrants.
(22) Mr. McDermott's Warrant Shares include: (1) 491 shares issuable upon
exercise of 1997 UPOs and (2) 68 shares issuable upon exercise of Class
C Warrants issuable on exercise of 1997 UPOs.
(23) Mr. McInerney's Warrant Shares include: (1) 5,023 shares issuable upon
exercise of 1998 UPOs; (2) 1,770 shares issuable upon exercise of Class
C Warrants issuable on exercise of 1998 UPOs; (3) 13,221 shares
issuable upon exercise of 1997 UPOs and (4) 1,827 shares issuable upon
exercise of Class A Warrants issuable on exercise of 1997 UPOs.
(24) Mr. Messina's Warrant Shares include: (1) 446 shares issuable upon
exercise of 1998 UPOs and (2) 158 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs.
(25) Mr. Nagle's Warrant Shares include 7,875 shares issuable upon
exercise of Class D Warrants
(26) The Warrant Shares of the John S. Osterweis Revocable Trust include
7,875 shares issuable upon exercise of the Class D Warrants.
(27) The Warrant Shares of Palmetto Partners, LTD includes 63,000 shares
issuable upon exercise of Class D Warrants. Assuming the sale of all
Registered Shares, and assuming the exercise of all of the options and
warrants held by Palmetto Partners, LTD, it would beneficially own
148,977 shares, representing 1% of the outstanding common stock.
(28) Mr. Prager's Warrant Shares include 11,025 shares issuable upon
exercise of Class D Warrants.
(29) Dr. Rosenwald's Warrant Shares include: (1) 414,964 shares issuable
upon exercise of 1998 UPOs; (2) 146,224 shares issuable upon exercise
of Class C Warrants issuable on exercise of 1998 UPOs; (3) 624,566
shares issuable upon exercise of 1997 UPOs; (4) 86,292 shares issuable
upon exercise of Class A Warrants issuable on exercise of 1997 UPOs,
(5) 20,879 shares issuable upon exercise of 1995 UPOs and (6) 26,099
shares issuable upon exercise of Class A Warrants issuable on exercise
of 1995 UPOs. Assuming the sale of all Registered Shares, and assuming
the exercise of all of the options and warrants held by Dr. Resenwald,
he would beneficially own 667,941 shares, representing 4.47% of the
outstanding common stock. Share figures do not include shares being
offered for the account of The Aries Domestic Fund, L.P. and The Aries
Trust (together the "Aries Funds"). Dr. Rosenwald controls the
investment activities of the Aries Funds and may be deemed the
beneficial owner of the shares being offered by such Selling
Stockholders. See "Risk Factors - Concentration of Control of Our Stock
Could Lead to Failure to Maximize Stock Price and Conflicts of
Interest."
(30) Mr. Rubin's Warrant Shares include: (1) 13,168 shares issuable upon
exercise of 1998 UPOs; (2) 4,640 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs; (3) 19,064 shares
issuable upon exercise of 1997 UPOs; (4) 2,634 shares issuable upon
exercise of Class A Warrants issuable on exercise of 1997 UPOs; (5)
2,230 shares issuable upon exercise of 1995 UPOs and (6) 2,787 shares
issuable upon exercise of Class A Warrants issuable on exercise of 1995
UPOs.
(31) Mr. Ruggeberg's Warrant Shares include: (1) 6,845 shares issuable upon
exercise of 1998 UPOs; (2) 2,412 shares issuable upon exercise of Class
C Warrants issuable on exercise of 1998 UPOs; (3) 2,438 shares issuable
upon exercise of 1997 UPOs; (4) 337 shares issuable upon exercise of
Class A Warrants issuable on exercise of 1997 UPOs; (5) 489 shares
issuable upon exercise of 1995 UPOs and (6) 611 shares issuable upon
exercise of Class A Warrants issuable on exercise of 1995 UPOs.
(32) Mr. Ruttenberg's Warrant Shares include 7,875 shares issuable upon
exercise of Class D Warrants.
(33) The Warrant Shares of J.F. Shea Co., Inc. include 94,500 shares
issuable upon exercise of Class D Warrants. Assuming the sale of all
Registered Shares, and assuming the exercise of all of the options
and warrants held by the J.F. Shea Co., Inc., it would beneficially
own 201,720 shares, representing 1.36% of the outstanding common stock.
(34) Ms. Soloman's Warrant Shares include: (1) 983 shares issuable upon
exercise of 1997 UPOs and (2) 136 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1997 UPOs.
(35) Warrant Shares of Joseph Steven's & Co. include: (1) 25,299 shares
issuable upon exercise of 1998 UPOs and (2) 8,915 shares issuable upon
exercise of Class C Warrants issuable on exercise of 1998 UPOs.
(36) Mr. Strassman's Warrant Shares include: (1) 6,697 shares issuable upon
exercise of 1998 UPOs and (2) 2,360 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs.
(37) Mr. Tanen's Warrant Shares include: (1) 590 shares issuable upon
exercise of 1997 UPOs and (2) 81 shares issuable upon exercise of Class
A Warrants issuable on exercise of 1997 UPOs.
20
<PAGE>
(38) Mr. Walner's Warrant Shares include: (1) 1,942 shares issuable upon
exercise of 1998 UPOs; (2) 684 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs; (3) 6,166 shares
issuable upon exercise of 1997 UPOs and (4) 852 shares issuable
upon exercise of Class A Warrants issuable on exercise of 1997 UPOs.
(39) Mr. Weiss's Warrant Shares include: (1) 19,939 shares issuable upon
exercise of 1998 UPOs; (2) 7,027 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1998 UPOs; (3) 134,566 shares
issuable upon exercise of 1997 UPOs; (4) 18,592 shares issuable upon
exercise of Class A Warrants issuable on exercise of 1997 UPOs; (5)
2,230 shares issuable upon exercise of 1995 UPOs and (6) 2,787 shares
issuable upon exercise of Class A Warrants issuable on exercise of 1995
UPOs.
(40) Assuming the sale of all Registered Shares, and assuming the exercise
of all of the options and warrants held by the Wolfson Decedent's 1993
Trust, it would beneficially own 215,293 shares, representing 1.46% of
the outstanding common stock.
(41) Ms. Youner's Warrant Shares include: (1) 2,438 shares issuable upon
exercise of 1997 UPOs and (2) 337 shares issuable upon exercise of
Class C Warrants issuable on exercise of 1997 UPOs.
21
<PAGE>
PLAN OF DISTRIBUTION
A total of 8,884,644 shares of Procept common stock are being directly
offered for sale by the Selling Stockholders to the public. Procept has filed
with the Commission a Registration Statement on Form S-3, of which this
Prospectus forms a part, with respect to the resale of the Registered Shares
from time to time in open market or privately negotiated transactions and has
agreed to prepare and file such amendments and supplements to the Registration
Statement as required by the Securities Act and as may be necessary to keep the
Registration Statement effective until the earlier of (i) the date such shares
can be sold pursuant to Section 144(k) of the Securities Act or (ii) the date on
which the Selling Stockholders no longer hold any of the Registered Shares.
During any time when a supplement or amendment is so required, after notice from
Procept, the Selling Stockholders are required to cease sales until this
Prospectus has been supplemented or amended.
Procept has been advised that the Selling Stockholders may sell the
Registered Shares from time to time in open-market or privately-negotiated
transactions, or by a combination of such methods of sale, at fixed prices that
may be changed, at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices. Other than as
described below, the Selling Stockholders will act independently of Procept in
making decisions with respect to the timing, pricing, manner and size of each
sale. The Selling Stockholders may effect such transactions by selling the
Registered Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders or the purchasers of the Registered Shares or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions). Such broker-dealers, upon their resale of such
securities, may be deemed Selling Stockholders in this Offering. The Selling
Stockholders have advised Procept, that, as of the date of this Prospectus, they
have not made any arrangements relating to the distribution of the Registered
Shares.
Upon Procept's being notified by the Selling Stockholders that any
material arrangement has been entered into with a broker-dealer for the sale of
Procept common stock through a secondary distribution, or a purchase by a
broker-dealer, a Prospectus supplement will be filed, if required, pursuant to
Rule 424 under the 1933 Act, disclosing facts material to the transaction.
The Selling Stockholders may, upon request of Procept, be prohibited
from selling any of the Registered Shares offered hereby during (a) a period,
not to exceed two 30-day periods within any one 12-month period, required in
connection with a primary underwritten offering of Procept's securities and (b)
any period, not to exceed one 45-day period per circumstance or development,
during which the presence of material undisclosed information could make the
information disclosed in this Prospectus misleading, as determined by Procept in
good faith.
The Selling Stockholders and any broker-dealer who acts in connection
with the sale of Registered Shares hereunder may be deemed to be "underwriters"
as that term is defined in the Securities Act, and any commissions or discounts
received by them and profit on the resale of Registered Shares may be deemed to
constitute underwriting discounts or commissions under the Securities Act.
Procept has agreed to pay for certain costs and expenses incurred by it
in connection with the issuance, offer, sale and delivery of the Registered
Shares, including, but not limited to, all registration and filing fees, any
blue sky fees and expenses, all necessary printing and duplicating expenses and
all fees and disbursements of counsel and accountants for Procept (including the
expenses of any audit of financial statements). Procept has agreed, subject to
certain limitations, to bear the expenses of counsel to the Selling Stockholders
if separate counsel is retained. Procept also has agreed to indemnify the
Selling Stockholders against certain civil liabilities, including liabilities
under the Securities Act. Procept will
22
<PAGE>
not pay brokerage commissions or taxes associated with sales by the Selling
Stockholders or any accounting and other non-legal expenses incurred by Selling
Stockholders.
Procept will inform the Selling Stockholders that the antimanipulation
provision of Regulation M promulgated under the Exchange Act may apply to the
sales of their Registered Shares offered hereby. Procept will advise the Selling
Stockholders of the requirement for delivery of this Prospectus in connection
with any sale of the Registered Shares offered hereby.
Certain Selling Stockholders may from time to time purchase shares of
Procept common stock in the open market. These Selling Stockholders will be
notified that they should not commence any distribution of the Registered Shares
offered hereby unless they have terminated their purchasing and bidding for
Procept common stock in the open market as provided in applicable securities
regulations, including, with limitation, Regulation M.
LEGAL MATTERS
The validity of the shares of Procept common stock offered hereby have
been passed upon for Procept by Palmer & Dodge LLP, Boston, Massachusetts.
Lynnette C. Fallon, a partner at Palmer & Dodge LLP, is the Secretary of
Procept.
EXPERTS
The financial statements of Procept incorporated in this prospectus
by reference to the Annual Report on Form 10-K for the year ended December
31, 1998, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of Binary Therapeutics, Inc. as of and for
the year ended December 31, 1997 and as of and for the nine months ended
September 30, 1998 included in this proxy statement/prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing. The consolidated
financial statements of Pacific Pharmaceuticals, Inc. as of March 31, 1998
and 1997, and for each of the three years in the period ended March 31, 1998
have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report appearing herein (which report expresses an unqualified
opinion and includes an explanatory paragraph referring to the restatement of
1997 financial statements), and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
MATERIAL CHANGES
On March 17, 1999, Procept consummated a merger with Pacific
Pharmaceuticals, Inc. in which Pacific became a wholly owned subsidiary of
Procept. The financial statements of Pacific Pharmaceuticals, Inc. were
previously filed as part of Procept's Registration Statement on Form S-4
(File No. 333-69821), which was declared effective on February 10, 1999, and
are incorporated herein by reference. Immediately prior to its merger with
Procept, Pacific consummated a merger with Binary Therapeutics, Inc. in which
Binary Therapeutics became a subsidiary of Pacific. The financial statements
of Binary Therapeutics are included as part of this registration statement at
pages F-1 through F-18. In addition, we refer you to Procept's Registration
Statement on Form S-4 (File No. 333-92655), which was declared effective on
December 22, 1999, for a description the our potential merger with Heaven's
Door Corporation.
23
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS OF BINARY THERAPEUTICS, INC.
PAGE(S)
<S> <C>
FINANCIAL STATEMENTS OF BINARY THERAPEUTICS, INC.
Independent Auditors' Report.............................. F-2
Balance Sheets as of December 31, 1997 and September 30,
1998.................................................... F-3
Statements of Operations for the year ended December 31,
1997, the Nine Months ended September 30, 1998 and
October 23, 1990 (inception) to September 30, 1998
(unaudited)............................................. F-4
Statement of Stockholders' Equity from October 23, 1990
(inception) to September 30, 1998 (balances prior to
January 1, 1997 are unaudited).......................... F-5
Statements of Cash Flow for the year ended December 31,
1997, the Nine Months ended September 30, 1998 and
October 23, 1990 (inception) to September 30, 1998
(unaudited)............................................. F-7
Notes to Financial Statements............................. F-8
Balance Sheets as of December 31, 1998 (unaudited) and
September 30, 1998...................................... F-14
Statement of Operations for the Three Months Ended
December 31, 1998 and 1997 (unaudited) and from
October 23, 1990 (inception) to December 31, 1998
(unaudited)............................................. F-15
Statement of Cash Flows for the Three Months Ended
December 31, 1998 and 1997 (unaudited) and from
October 23, 1990 (inception) to December 31, 1998
(unaudited)............................................. F-16
Notes to Financial Statements............................. F-17
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of Binary Therapeutics, Inc.:
We have audited the accompanying balance sheets of Binary
Therapeutics, Inc. (a development stage enterprise) as of September 30, 1998 and
December 31, 1997, and the related statements of operations, stockholders'
equity (deficit) and cash flows for the nine months ended September 30, 1998 and
for the year ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Binary Therapeutics, Inc. at September 30,
1998 and December 31, 1997, and the results of its operations and its cash flows
for the nine months ended September 30, 1998 and for the year ended
December 31, 1997 in conformity with generally accepted accounting principles.
The Company is in the development stage as of September 30, 1998. As
discussed in Note 1 to the financial statements, the Company has not yet
completed clinical trials, or verified the market acceptance or demand for its
research efforts.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise engaged in research and development of medical products with a
primary focus on cancer treatment. As discussed in Note 1 to the financial
statements, the continued net loss and accumulated deficit at September 30, 1998
raise substantial doubt about its ability to continue as a going concern.
Management's plans concerning these matters are also described in Note 7. The
financial statements do not include any adjustments that might result from the
outcome of these uncertainties.
DELOITTE & TOUCHE LLP
San Diego, California
December 18, 1998
F-2
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash........................................................ $ 1,715 $ 1,214
Prepaid expenses............................................ -- 333
---------- ----------
Total current assets........................................ 1,715 1,547
Property and equipment, net of accumulated depreciation..... 2,754 3,567
Patent costs, net of accumulated amortization............... 49,885 54,607
---------- ----------
TOTAL ASSETS................................................ $ 54,354 $ 59,721
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable............................................ $ 102,045 $ 125,458
Accrued expenses............................................ 630 30,630
Accrued interest............................................ 457,443 367,330
Notes payable............................................... 3,499,117 2,958,861
---------- ----------
Total current liabilities................................... 4,059,235 3,482,279
Stockholders' Deficit:
Preferred stock, $.001 par value, 5,000,000 shares
authorized................................................ -- --
Common stock, $.001 par value, 20,000,000 shares authorized;
16,854,740 and 14,994,740 shares issued and outstanding
September 30, 1998 and December 31, 1997, respectively.... 16,855 14,995
Capital in excess of par value.............................. 1,192,340 846,200
Deficit accumulated during the development stage............ (5,211,018) (4,280,695)
Subscriptions receivable on sale of common stock............ (3,058) (3,058)
---------- ----------
Total stockholders' deficit................................. (4,004,881) (3,422,558)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT................. $ 54,354 $ 59,721
========== ==========
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED YEAR ENDED OCTOBER 23, 1990
SEPTEMBER 30, DECEMBER 31, (INCEPTION) TO
1998 1997 SEPTEMBER 30, 1998
----------------- ------------ ------------------
<S> <C> <C> <C>
COSTS AND EXPENSES
Product development............................ $ 474,234 $ 1,199,603 $ 3,040,030
General and administrative..................... 24,476 79,898 484,528
Interest and other............................. 431,613 792,007 1,686,460
--------- ----------- -----------
Total costs and expenses....................... 930,323 2,071,508 5,211,018
--------- ----------- -----------
Net loss....................................... $(930,323) $(2,071,508) $(5,211,018)
========= =========== ===========
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK CAPITAL IN DURING THE
---------------------- EXCESS OF DEVELOPMENT
SHARES PAR VALUE PAR VALUE STAGE
---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
Balance at October 23, 1990................................. -- -- --
Original issuance of common stock:
October 1990 at $.001 per share............................. 1,965,000 $ 1,965
---------- -------
* Balance at December 31, 1990.............................. 1,965,000 1,965 --
Issuance of common stock:
September 1991.............................................. 700,000 700
December 1991............................................... 40,000 40
---------- -------
* Balance at December 31, 1991.............................. 2,705,000 2,705 --
Issuance of common stock:
January 1992................................................ 20,000 20
February 1992............................................... 2,024,500 2,025
August 1992................................................. 20,000 20
October 1992................................................ 2,325,000 2,325
---------- -------
* Balance at December 31, 1992.............................. 7,094,500 7,095 --
Issuance of common stock:
January 1993................................................ 1,220,000 1,220
Repurchase of common stock.................................. (20,000) (20)
Net loss.................................................... (351,311)
---------- ------- -----------
* Balance at December 31, 1993.............................. 8,294,500 8,295 (351,311)
Repurchase of common stock.................................. (1,425,000) (1,425)
Receipt of stock subscription...............................
Net loss.................................................... (279,030)
---------- ------- -----------
* Balance at December 31, 1994.............................. 6,869,500 6,870 (630,341)
Issuance of common stock:
May 1995.................................................... 3,638,290 3,639
June 1995................................................... 686,950 686
Stock issued pursuant to Unit Purchase Agreements........... 750,000 750 36,750
Net loss.................................................... (526,576)
---------- ------- ---------- -----------
* Balance at December 31, 1995.............................. 11,944,740 11,945 36,750 (1,156,917)
Collection of subscription receivable.......................
Stock issued pursuant to Unit Purchase Agreements........... 250,000 250 12,250
Stock issued in conjunction with Senior Bridge Notes........ 400,000 400 139,600
Net loss.................................................... (1,052,270)
---------- ------- ---------- -----------
* Balance at December 31, 1996.............................. 12,594,740 12,595 188,600 (2,209,187)
Stock issued in conjunction with Senior Bridge Notes........ 2,400,000 2,400 657,600
Net loss.................................................... (2,071,508)
---------- -----------
Balance at December 31, 1997................................ 14,994,740 14,995 846,200 (4,280,695)
---------- ------- ---------- -----------
Issuance of common stock.................................... 60,000 60 11,940
Stock issued in conjunction with Senior Bridge Notes........ 1,800,000 1,800 334,200
Net loss.................................................... (930,323)
-----------
Balance at September 30, 1998............................... 16,854,740 $16,855 $1,192,340 $(5,211,018)
---------- ------- ---------- -----------
</TABLE>
F-5
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
<TABLE>
<CAPTION>
SUBSCRIPTIONS
RECEIVABLE TOTAL
------------- -----------
<S> <C> <C>
Balance at October 23, 1990................................. -- --
Original issuance of common stock:
October 1990 at $.001 per share............................. $(1,875) $ 90
Net loss....................................................
------- -----------
* Balance at December 31, 1990.............................. (1,875) 90
Issuance of common stock:
September 1991.............................................. 700
December 1991............................................... 40
Net loss....................................................
------- -----------
* Balance at December 31, 1991.............................. (1,875) 830
Issuance of common stock:
January 1992................................................ 20
February 1992............................................... (1,680) 345
August 1992................................................. 20
October 1992................................................ 2,325
Net loss....................................................
------- -----------
* Balance at December 31, 1992.............................. (3,555) 3,540
Issuance of common stock:
January 1993................................................ 1,220
Repurchase of common stock.................................. (20)
Net loss.................................................... (351,311)
------- -----------
* Balance at December 31, 1993.............................. (3,555) (346,571)
Repurchase of common stock.................................. (1,425)
Receipt of stock subscription............................... 1,680 1,680
Net loss.................................................... (279,030)
------- -----------
* Balance at December 31, 1994.............................. (1,875) (625,346)
Issuance of common stock:
May 1995.................................................... (839) 2,800
June 1995................................................... (412) 274
Stock issued pursuant to Unit Purchase Agreements........... 37,500
Net loss.................................................... (526,576)
------- -----------
* Balance at December 31, 1995.............................. (3,126) (1,111,348)
Collection of subscription receivable....................... 68 68
Stock issued pursuant to Unit Purchase Agreements........... 12,500
Stock issued in conjunction with Senior Bridge Notes........ 140,000
Net loss.................................................... (1,052,270)
------- -----------
* Balance at December 31, 1996.............................. (3,058) (2,011,050)
Stock issued in conjunction with Senior Bridge Notes........ 660,000
Net loss.................................................... (2,071,508)
------- -----------
Balance at December 31, 1997................................ (3,058) (3,422,558)
------- -----------
Issuance of common stock.................................... 12,000
Stock issued in conjunction with Senior Bridge Notes........ 336,000
Net loss.................................................... (930,323)
------- -----------
Balance at September 30, 1998............................... $(3,058) $(4,004,881)
------- -----------
</TABLE>
* Balances prior to January 1, 1997 are unaudited
See Notes to Financial Statements.
F-6
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED YEAR ENDED OCTOBER 23, 1990
SEPTEMBER 30, DECEMBER 31, (INCEPTION) TO
1998 1997 SEPTEMBER 30, 1998
----------------- ------------ ------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................................... ($930,323) ($2,071,508) ($5,211,018)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization.................. 12,347 16,426 35,959
Issue of common stock for interest expense..... 336,000 660,000 1,186,000
Issue of common stock for royalty expense...... 12,000 -- 12,000
Changes in assets and liabilities:
Prepaid expenses............................. 333 (333) --
Accounts payable............................. (23,413) (42,427) 102,045
Accrued expenses............................. (30,000) (219,930) 630
Accrued interest............................. 90,113 125,447 457,443
--------- ----------- -----------
Net cash used by operating activities.... (532,943) (1,532,325) (3,416,941)
INVESTING ACTIVITIES
Patent costs................................... (6,812) (5,074) (73,615)
Capital expenditures........................... -- -- (5,421)
--------- ----------- -----------
Net cash used in investing activities.... (6,812) (5,074) (79,036)
FINANCING ACTIVITIES
Issuance of notes payable...................... 540,256 1,536,169 3,499,117
Repurchase of common stock..................... -- -- (1,425)
Net cash provided by financing
activities............................. 540,256 1,536,169 3,497,692
--------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................. 501 (1,230) 1,715
Cash at beginning of period.................... 1,214 2,444 --
--------- ----------- -----------
Cash at end of period.......................... $ 1,715 $ 1,214 $ 1,715
--------- ----------- -----------
Cash paid for interest......................... $ 5,499 $ 6,089 $ 18,135
--------- ----------- -----------
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations--The Company was incorporated under the laws of the
State of Delaware on October 23, 1990. For the period of inception to date, the
Company's activities have been directed toward research and development of
medical products with a primary focus on cancer treatment.
Development Stage--The Company has not earned revenues from operations.
Accordingly, the Company's activities have been accounted for as those of a
"Development Stage Enterprise" as set forth in Financial Accounting Standards
Board Statement No. 7.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, during the nine months ended September 30, 1998 and year ended
December 31, 1997, the Company incurred net losses of $930,323 and $2,071,508
respectively. The financial statements do not include any adjustments relating
to the recoverability and classification of recorded asset amounts or the amount
and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis and to obtain additional financing or
refinancing as may be required, and ultimately to attain successful operations.
In June 1996, as described in Note 7, the Company entered into an agreement
under which it granted Pacific Pharmaceuticals, Inc. ("Pacific"), a development
stage biotechnology company, the right to acquire the Company at any time prior
to April 30, 1997. The agreement was amended in February 1997 and the Company
and Pacific agreed to extend the period during which the Company may exercise
its option to acquire the Company from April 30, 1997 until such time as the
Company has completed human clinical trials of Boronated Porphyrin Compound
("BOPP") at an agreed upon dose level (the "Option Period"). The Company is
currently dependent upon Pacific for funding of all of its operations during the
Option Period. There can be no assurance, however, that Pacific will continue to
provide funding to the Company or that funding provided by Pacific will be
adequate to sustain the Company's operations, or that the Company will be
successful in obtaining alternative financing in the event that Pacific
terminates its funding or if such funding is inadequate to sustain operations.
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Research and Development--Research and development costs are expensed as
incurred.
Property and Equipment--Property is recorded at cost and is primarily office
furniture and equipment. Depreciation of property and equipment is provided
using the straight-line method over the
F-8
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
estimated useful lives of the related assets, which are principally five and ten
years. Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Laboratory equipment................................ $ 539 $ 539
Office furniture and equipment...................... 4,882 4,882
Total property and equipment...................... 5,421 5,421
Less: accumulated depreciation.................... (2,667) (1,854)
------- -------
Total............................................... $ 2,754 $ 3,567
======= =======
</TABLE>
Patent Costs--Legal expenses incurred in connection with applications for
patents on research and development projects are capitalized. The costs are
amortized using the straight-line method over five years. Patent costs which
have no further economic value are written off in the period in which such
impairment in value occurs. Patent costs are net of accumulated amortization of
$49,885 and $54,607 at September 30, 1998 and December 31, 1997, respectively.
2. EQUITY
In fiscal year 1995 and fiscal year 1996, the Company completed a private
placement of 2 units at $100,000 per unit to "accredited" investors, (the
"Units"). Each Unit consisted of a Senior Bridge Note with a face value of
$100,000 and 500,000 shares of common stock with par value of $.001 per share.
As a result of this transaction, the Company issued notes payable totaling
$200,000 (see Note 3) and 1,000,000 shares of common stock valued at $0.05 per
share. Notes payable at September 30, 1998 and December 31, 1997 consist of the
following:
In fiscal year 1995, the Company issued Senior Bridge Notes for $200,000
with maturity dates in fiscal year 1996 (see Note 3). In fiscal year 1996, the
Company and the noteholders agreed to an extension of the maturity dates in
exchange for the issuance of 200,000 shares of common stock for each month the
notes remain outstanding. As of December 31, 1997 and September 30, 1998 the
Company issued 2,800,000 and 4,600,000 shares of common stock, respectively,
valued at between $0.35 and $0.17 per share.
In August 1998, the Company issued 60,000 shares of common stock, par value
of $0.001 per share, to the University of California at San Francisco ("UCSF")
in connection with a milestone payment under a license agreement (See
Note 4--License Agreements). The Company valued the common stock at $0.20 per
share and recorded a royalty expense of $12,000 in conjunction with the issuance
of the common stock.
At September 30, 1998 options to purchase 47,500 shares of the Company's
common stock at an exercise price of $.001 per share were outstanding and
exercisable. Also, at September 30, 1998 and December 31, 1997 the Company had
$588,049 and $534,197, respectively, debt and accrued interest convertible into
shares of the Company's common stock at a conversion price of 75% of the market
value of the Company's common stock at the date of conversion (see Note 3). The
convertible debt automatically converts into common stock as described above
upon any of the following events: (i) initial public offering of the Company's
common stock; (ii) completion of a private placement of at
F-9
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. EQUITY (CONTINUED)
least $2 million; (iii) merger, consolidation, recapitalization or sale of
substantially all of the Company's assets.
3. NOTES PAYABLE
Notes Payable at September 30, 1998 and December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Convertible notes payable, no interest, to Pacific
Pharmaceuticals, Inc.............................. $2,671,117 $2,130,861
Notes payable to a stockholder, interest at 10% per
annum, principal and interest due upon demand..... 243,000 243,000
Convertible notes payable to a stockholder, interest
at 24% per annum.................................. 200,000 200,000
Convertible notes payable, interest at 24% per
annum............................................. 100,000 100,000
Senior bridge notes payable, interest at 15% per
annum, principal and interest due upon demand..... 200,000 200,000
Note payable to a bank with interest payable monthly
at the prime rate (bank prime rate at
September 30, 1998 and December 31, 1997 was
8.75 and 8.5%, receptively) loan automatically
renews for 60 days if not paid.................... 85,000 85,000
---------- ----------
$3,499,117 $2,958,861
========== ==========
</TABLE>
$643,000 of the debt outstanding at September 30, 1998 and December 31, 1997 is
payable to stockholders of the Company or their affiliates.
4. COMMITMENTS AND CONTINGENCIES
License Agreements--In July 1992 the Company entered into an exclusive
license agreement with the University of California at San Francisco ("UCSF").
Pursuant to the license agreement, the Company paid an initial license fee of
$15,000 and received an exclusive world-wide license to commercially develop,
manufacture, use and distribute products covered under the license, BOPP. The
license agreement obligates the Company to pay royalties to UCSF equal to 4% of
future sales and/or sublicensing arrangements. The Company made minimum royalty
payments of $10,000 for the year ended December 31, 1997 ("Fiscal 1997") and
$25,000 for the nine months ended September 30, 1998 ("Fiscal Period 1998"). The
license agreement, as amended, requires minimum annual royalty payments of
$25,000 for future years. In addition, the agreement requires the Company to
issue 60,000 shares of its common stock upon the acceptance of the Company's
Investigational New Drug ("IND") application by the FDA and 60,000 shares upon
approval of the Company's New Drug Application. In August 1998, the Company
issued 60,000 shares of common stock as a result of the acceptance of it's IND
application by the FDA. The Company is also obligated to make additional cash
payments upon the achievement of certain FDA approval milestones and all ongoing
patent issue and maintenance costs.
F-10
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In July 1992 the Company entered into a research agreement with UCSF to
conduct research related to the synthesis and biomedical applications of
porphyrins. The research agreement was not funded by the Company and was
replaced by another agreement (the "STAR Agreement") which became effective on
January 1, 1997 and is effective for two years. The Company paid $146,700 under
the STAR Agreement in Fiscal 1997 and $114,000 in Fiscal Period 1998. The
Company is obligated to make an additional payment of $38,000 in the remainder
of 1998. The Company retains any inventions or technology developed by UCSF
under the STAR Agreement.
In October 1993 the Company entered into a five year license and research
agreement with the General Hospital Corporation, doing business as Massachusetts
General Hospital ("Mass General") to develop scientific information relating to
photodynamic diagnosis and therapy. The agreement required the Company to fund
research costs in the amount of $375,000 spread over three years commencing in
1996. In Fiscal 1997, the Company negotiated a termination settlement with Mass
General to pay $85,000 of its costs and the return of the license to Mass
General in exchange for the release of any further obligations under the
agreement. The Company paid $55,000 of the settlement in Fiscal 1997 and the
remaining $30,000 in Fiscal Period 1998.
Employment Agreement--In October 1994, the Company entered into a four-year
employment agreement to engage Dr. Joseph Chang as Chief Executive Officer of
the Company. The agreement provides for a guaranteed annual base salary of
$175,000. Pursuant to an amendment to the agreement dated May 10, 1995, the
Company issued 839,605 shares or 7.5% of the Company's common stock to
Mr. Chang at $.001 per share. The Company and Dr. Chang terminated the
employment agreement in April 1997 and effective in May 1997, entered into a
month-to-month consulting agreement for cash compensation of $3,000 per month.
The Company and Dr. Chang terminated the consulting agreement in November 1997.
Consulting Agreements--On May 23, 1995, the Company entered into a three
year consulting agreement with a researcher at UCSF commencing on September 30,
1995. As compensation for services rendered, the Company agreed to pay an
up-front consulting fee of $30,000 and a monthly retainer in the amount of
$4,000. The Company also issued 47,500 stock options to the consultant
exercisable at $0.001 per share (see Note 2). The consulting agreement was
terminated in September 1998.
In March 1996, the Company entered into a one year consulting agreement with
a consultant to provide assistance with the development of the Company's
technologies. As compensation for services rendered, the Company agreed to pay
an up-front consulting fee of $18,000 and a monthly retainer of $6,000. The
company terminated the consulting agreement in September 1997.
Both consultants are stockholders of the Company.
5. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between items which will have expected future tax consequences and which have
been recognized for financial reporting purposes. Valuation allowances of
$1,645,000 and $1,386,000 have been recognized as an offset to the
F-11
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES (CONTINUED)
deferred tax asset as realization of such assets is uncertain. The significant
components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
<S> <C> <C>
Deferred Tax Assets
Net Operating Loss Carryforwards.......... $1,550,000 $1,331,000
Research Credit Carryforwards............. 95,000 55,000
Total Deferred Tax Assets................... 1,645,000 1,386,000
Less: Valuation Allowance................... (1,645,000) (1,386,000)
---------- ----------
Net deferred tax assets..................... $ -- $ --
========== ==========
</TABLE>
At September 30, 1998, the Company had federal and Massachusetts tax net
operating carryforwards of approximately $3,875,000 and $3,328,000 respectively.
The federal tax loss will begin expiring in 2006 unless previously utilized. The
Massachusetts tax loss carryforward will begin expiring in 1999. The Company
also has federal research tax credit carryforwards totaling approximately
$95,000. These credits will expire in 2011.
If the merger which is disclosed in Note 7 takes place, then the company
will incur an ownership change, as defined by Internal Revenue Code
Section 382. Such change of ownership would limit the use of the net operating
loss each year to approximately $300,000. Losses incurred by the company after
the ownership change would not be subject to this annual limitation.
6. RELATED PARTY TRANSACTIONS
As described in Note 3, $643,000 of the notes payable outstanding at
September 30, 1998 and December 31, 1997 are payable to stockholders of the
Company or their affiliates. The Company issued 4,600,000 and 2,800,000 shares
of common stock to entities affiliated with stockholders as compensation to
extend the maturity of Senior Bridge Notes as of September 30, 1998 and
December 31, 1997, respectively (see Note 3). Also, $2,671,117 and $2,130,861 in
convertible notes were payable to Pacific at September 30, 1998 and
December 31, 1997, respectively (see Note 7).
Certain stockholders of the Company, or entities affiliated with
stockholders, are stockholders or entities affiliated with stockholders of
Pacific.
7. MERGER AGREEMENT
In June 1996, the Company entered into an agreement under which it granted
Pacific, a development stage biotechnology company, the right to acquire the
Company at any time prior to April 30, 1997. The agreement was amended in
February 1997 and the Company and Pacific agreed to extend the period during
which the Company may exercise its option to acquire the Company from April 30,
1997 until such time as the Company has completed human clinical trials of BOPP
at an agreed upon dose level. The Company is currently dependent upon Pacific
for funding of all of its operations during the Option Period. If Pacific elects
to exercise its option, Pacific would issue approximately 2,150,000 shares
valued at $430,000. The agreement has been approved by a majority of the
stockholders of the Company. Pacific's Board of Directors voted to approve the
merger. One of
F-12
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. MERGER AGREEMENT (CONTINUED)
Pacific's directors is also a director and shareholder of the Company. There is
no assurance that Pacific will continue to meet any funding obligations under
the agreement or will elect to exercise the option to acquire the Company.
8. SUBSEQUENT EVENTS
In December 1998, Pacific agreed to merge with Procept, Inc. ("Procept"), a
publicly traded biopharmaceutical company, in which Pacific shareholders will
receive approximately .11 shares of Procept common stock for each share of
Pacific common stock. A condition of the merger with Procept is that Pacific is
required to complete the merger with the Company prior to the completion of
Pacific's merger with Procept.
F-13
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 SEPTEMBER 30,1998
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,960 $ 1,715
Prepaid expenses.......................................... -- --
----------- -----------
Total current assets.................................... 1,960 1,715
----------- -----------
Property and equipment, net of accumulated depreciation..... 2,483 2,754
Patent costs, net of accumulated amortization............... 53,307 49,885
----------- -----------
Total assets............................................ $ 57,750 $ 54,354
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 132,959 $ 102,045
Accrued expenses.......................................... 630 630
Accrued interest.......................................... 579,130 457,443
Notes payable............................................. 3,618,329 3,499,117
----------- -----------
Total current liabilities............................... 4,331,048 4,059,235
----------- -----------
Shareholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized
Common stock, $.001 par value; 20,000,000 shares
authorized; 16,854,740 shares issued and outstanding at
December 31, 1998, and September 30, 1998............... 16,855 16,855
Capital in excess of par value............................ 1,192,340 1,192,340
Deficit accumulated during the development stage.......... (5,479,435) (5,211,018)
Subscriptions receivable on sale of common stock.......... (3,058) (3,058)
----------- -----------
Total stockholders' deficit............................. (4,273,298) (4,004,881)
----------- -----------
Total liabilities and stockholders' deficit............. $ 57,750 $ 54,354
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, OCTOBER 23, 1990
--------------------- (INCEPTION) TO DECEMBER 31,
1998 1997 1998
--------- --------- ---------------------------
<S> <C> <C> <C>
Costs and expenses:
Product development........................... $ 69,182 $ 64,480 $ 3,109,212
General and administrative.................... 75,794 12,690 560,322
Interest and other............................ 123,441 187,516 1,809,901
--------- --------- -----------
Total costs and expenses.................. 268,417 264,686 5,479,435
--------- --------- -----------
Net loss........................................ $(268,417) $(264,686) $(5,479,435)
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
BINARY THERAPEUTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 23, 1990
DECEMBER 31, (INCEPTION) TO
--------------------- DECEMBER 31,
1998 1997 1998
--------- --------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................................ $(268,417) $(264,686) $(5,497,435)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization....................... 4,508 3,854 40,467
Issue of common stock for interest expense.......... -- -- 1,186,000
Issue of common stock for royalty expense........... -- -- 12,000
Changes in assets and liabilities:
Prepaid expenses.................................. -- 250 --
Accounts payable.................................. 30,914 (54,068) 132,959
Accrued expenses.................................. -- (153,182) 630
Accrued interest.................................. 121,687 35,920 579,130
--------- --------- -----------
Net cash used by operating activities......... (111,308) (431,912) (3,528,249)
--------- --------- -----------
INVESTING ACTIVITIES
Patent costs.......................................... (7,659) (2,498) (81,274)
Capital expenditures.................................. -- -- (5,421)
--------- --------- -----------
Net cash used in investing activities......... (7,659) (2,498) (86,695)
--------- --------- -----------
FINANCING ACTIVITIES
Issuance of notes payable............................. 119,212 284,860 3,618,329
Repurchase of common stock............................ -- 150,000 (1,425)
--------- --------- -----------
Net cash provided by financing activities..... 119,212 434,860 3,616,904
--------- --------- -----------
Net increase (decrease) in cash and cash
equivalents......................................... 245 450 1,960
Cash at beginning of period........................... 1,715 764 --
--------- --------- -----------
Cash at end of period................................. $ 1,960 $ 1,214 $ 1,960
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
BINARY THERAPEUTICS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
NATURE OF OPERATIONS--The Company was incorporated under the laws of the
State of Delaware on October 23, 1990. For the period of inception to date, the
Company's activities have been directed toward research and development of
medical products with a primary focus on cancer treatment.
DEVELOPMENT STATE--The Company has earned revenues from operations.
Accordingly, the Company's activities have accounted for as those of a
"Development Stage Enterprise" as set forth in Financial Accounting Standards
Board Statement No. 7.
INTERIM FINANCIAL STATEMENTS--The accompanying financial statements for the
three-month periods ended December 31, 1998 and 1997 are unaudited and have been
prepared by the Company in accordance with generally accepted accounting
principles. These interim financial statements, in the opinion of management,
reflect all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of the results for the interim periods ended
December 31, 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 nine months ended
September 30, 1998.
2. NOTES PAYABLE
Notes Payable at December 31, 1998 and September 30, 1998 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1998 1998
------------ -------------
<S> <C> <C>
Convertible notes payable, no interest, to Pacific
Pharmaceuticals, Inc...................................... $2,790,329 $2,671,117
Notes payable to a stockholder, interest at 10% per annum,
principal and interest due upon demand.................... 243,000 243,000
Convertible notes, payable to a stockholder, interest at 24%
per annum................................................. 200,000 200,000
Convertible notes payable, interest at 24% per annum........ 100,000 100,000
Senior bridge notes payable, interest at 15% per annum,
principal and interest due upon demand.................... 200,000 200,000
Note payable to a bank with interest payable monthly at the
prime rate (bank prime rate at December 31, 1998 and
September 30, 1998 was 7.75% and 8.75%, respectively) loan
automatically renews for 60 days if not paid.............. 85,000 85,000
---------- ----------
$3,618,329 $3,499,117
========== ==========
</TABLE>
$643,000 of the debt outstanding at December 30, 1998 and September 30, 1998
is payable to stockholders of the Company and their affiliates.
3. RELATED PARTY TRANSACTIONS
As described in Note 2, $643,000 the notes payable outstanding at
December 31, 1998 and September 30, 1998 are payable to stockholders of the
Company and their affiliates. The Company issued 2,800,000 and 5,200,000 shares
of common stock to entities affiliated with stockholders as compensation to
extend the maturity of Senior Bridge Notes as of December 31, 1998 and 1997,
respectively. Also, $2,790,329 and $2,671,117 in convertible notes were payable
to Pacific at
F-17
<PAGE>
BINARY THERAPEUTICS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
December 31, 1998 and September 30, 1998, respectively. Certain stockholders of
the Company, or entities affiliated with stockholders, are stockholders or
entities with stockholders of Pacific.
4. MERGER AGREEMENT
In June 1996, the Company entered into an agreement under which it granted
Pacific, a development stage biotechnology company, the right to acquire the
Company at any time prior to April 30, 1997. The agreement was amended in
February 1997 and the Company and Pacific agreed to extend the period during
which the Company may exercise its option to acquire the Company from April 30,
1997 until such time as the Company has completed human clinical trials of BOPP
at an agreed upon dose level. The Company is currently dependent upon Pacific
for funding of all of its operations during the Option Period. If Pacific elects
to exercise its option, Pacific would issue approximately 2,150,000 shares
valued at $430,000. The agreement has been approved by a majority of the
stockholders of the Company. Pacific's Board of Directors voted to approve the
merger. One of Pacific's directors is also a director and shareholder of the
Company. There is no assurance that Pacific will continue to meet any funding
obligations under the agreement or will elect to exercise the option to acquire
the Company.
5. SUBSEQUENT EVENTS
In December 1998, Pacific agreed to merge with Procept, Inc. ("Procept"), a
publicly traded biopharmaceutical company, in which Pacific shareholders will
receive approximately .11 shares of Procept common stock for reach share of
Pacific common stock. A condition of the merger with Procept is that Pacific is
required to complete the merger with the Company prior to the completion of
Pacific's merger with Procept.
F-18
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be borne by the registrant in connection with the
offering of the Registered Shares are estimated as follows:
<TABLE>
<S> <C>
SEC Registration Fee................................. $ 4,435
Printing expenses.................................... $ 1,500
Accounting fees and expenses......................... $ 7,500
Legal fees and expenses.............................. $ 15,000
Transfer Agent and Registrar fees $ 3,000
Miscellaneous expenses............................... $ 1,565
Total........................................... $ 33,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law grants Procept the
power to indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director, officer, employee or agent of Procept, or is or
was serving at the request of Procept as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgements, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of Procept,
and with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful, provided, however, no indemnification shall
be made in connection with any proceeding brought by or in the right of Procept
where the person involved is adjudged to be liable to Procept except to the
extent approved by a court. ARTICLE EIGHTH of Procept's Restated Certificate of
Incorporation as currently in effect provides that Procept shall, to the fullest
extent permitted by the Delaware General Corporation Law, as amended from time
to time, indemnify each person who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he is or was, or has agreed to become, a director or
officer of Procept, or is or was serving, or has agreed to serve, at the request
of Procept, as a director, officer or trustee of, or in a similar capacity with,
another corporation, partnership, joint venture, trust or other enterprise. The
indemnification provided for in ARTICLE EIGHTH is expressly not exclusive of any
other rights to which those seeking indemnification may be entitled under any
law, agreement or vote of stockholders or disinterested directors or otherwise,
and shall inure to the benefit of the heirs, executors and administrators of
such persons. ARTICLE EIGHTH permits the Board of Directors to authorize the
grant of indemnification rights to other employees and agents of Procept and
such rights may be equivalent to, or greater or less than, those set forth in
ARTICLE EIGHTH.
Article V, Section 1 of Procept's By-Laws provides that Procept shall
have the power to purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of Procept, or is or was serving
at the request of Procept, as a director, officer or trustee of, or in a similar
capacity with, another corporation, partnership, joint venture, trust or other
enterprise, against any liability asserted against and incurred by such person
in any such capacity.
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law,
ARTICLE NINTH of Procept's Restated Certificate of Incorporation eliminates a
director's personal liability for monetary damages to Procept and its
stockholders for breaches of fiduciary duty as a director, except in
circumstances involving a breach of a director's duty of loyalty to Procept or
its stockholders, acts or
II-1
<PAGE>
omissions not in good faith, intentional misconduct, knowing violations of the
law, self-dealing or the unlawful payment of dividends or repurchase of stock.
ITEM 16. EXHIBITS
See Exhibit Index immediately following signature page.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any Prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high and of
the estimated maximum offering range may be reflected in the form of Prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 of 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the registrant includes in the Prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the Prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or
II-2
<PAGE>
furnished to the Commission by the registrant pursuant to Section 13 or Section
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the Form F-3.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Act of 1934) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referred to in Item 15
hereof, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cambridge, the Commonwealth of Massachusetts, on
December 23, 1999.
PROCEPT, INC.
By: /s/ John F. Dee
--------------------------------------
John F. Dee
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities indicated on December 23, 1999.
SIGNATURE TITLE
- --------- -----
Chairman of the Board and a Director
- -----------------------------
Michael S. Weiss
* President and Chief Executive Officer
- -----------------------------
John F. Dee and a Director (Principal Executive Officer)
* Vice President, Finance and chief Financial Officer
- -----------------------------
Michael E. Fitzgerald (Principal Financial Officer and Principal
Accounting Officer)
Director
- ------------------------------
Glenn Cooper
* Director
- -----------------------------
Zola P. Horovitz
* Director
- -----------------------------
Max Link
* Director
- -----------------------------
Mark C. Rogers
* Director
- -----------------------------
Elliott H. Vernon
* Vice President, Medical Affairs, Chief Medical
- -----------------------------
Nigel Rulewski Officer and a Director
By: /s/ John F. Dee
-------------------------
John F. Dee
Attorney- in-fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
4.1 Restated Certificate of Incorporation of Procept. Filed as Exhibit 3.1
to Procept's Form 10-Q for the quarter ended June 30, 1997, Commission
File No. 0-21134, and incorporated herein by reference.
4.2 Certificate of Amendment of the Restated Certificate of Incorporation
of Procept, filed with the Secretary of State of Delaware on October 7,
1997, to be effective as of October 14, 1997. Filed as Exhibit 3.1 to
Procept's Form 10-Q for the quarter ended September 31, 1997,
Commission File No. 0-21134, and incorporated herein by reference.
4.3 Certificate of Amendment to the Amended and Restated Certificate of
Incorporation, filed with the Secretary of State of Delaware on May 19,
1998, effective as of June 1, 1998. Filed as Exhibit 4.4 to Procept's
Registration Statement on Form S-8, Commission File No. 333-66885, and
incorporated herein by reference.
4.4 Bylaws of Procept. Filed as Exhibit 3.2 to Procept's Registration
Statement on Form S-1, Commission File No. 33-57188, and incorporated
by reference.
4.6 Warrant Agreement to Purchase Class D Convertible Preferred Stock dated
August 1, 1991, issued to Comdisco, Inc. Filed as Exhibit 4.2 to
Procept's Registration Statement on Form S-1, Commission File No.
33-57188, and incorporated herein by reference.
4.7 Warrant Agreement to Purchase Class D Convertible Preferred Stock dated
September 11, 1992, issued to Comdisco, Inc. Filed as Exhibit 4.3 to
Procept's Registration Statement on Form S-1, Commission File No.
33-57188, and incorporated herein by reference.
4.8 Warrant to Purchase Common Stock dated January 5, 1993, issued to
Tucker Anthony Incorporated. Filed as Exhibit 4.6 to Procept's
Registration Statement on Form S-1, Commission File No. 33-57188, and
incorporated herein by reference.
4.9 Warrant to Purchase Common Stock dated as of February 17, 1994, issued
to D. Blech & Company, Incorporated. Filed as Exhibit 4.6 to Procept's
Form 10-K for the year ended December 31, 1994, Commission File No.
0-21134, and incorporated herein by reference.
4.10 Warrant Agreement dated February 17, 1994 between Procept and D. Blech
& Company, Incorporated. Filed as Exhibit 4.7 to Procept's Form 10-K
for the year ended December 31, 1994, Commission File No. 0-21134, and
incorporated herein by reference.
4.11 Warrant to Purchase Common Stock dated as of April 1, 1994, issued to
Hambrecht & Quist Guaranty Finance, L.P. Filed as Exhibit 4 to
Procept's Form 10-Q for the quarter ended March 31, 1994, Commission
File No. 0-21134, and incorporated herein by reference.
4.12 Warrant to Purchase Common stock dated as of September 11, 1995, issued
to Oppenheimer & Co., Inc. Filed as Exhibit 4.10 to Procept's
Registration Statement on Form S-1, Commission File No. 33-96798, and
incorporated herein by reference.
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4.13 Form of Warrant Agreement between Procept and Commonwealth Associates.
Filed as Exhibit 4.11 to Procept's Registration Statement on Form S-1,
Commission File No. 33-96798, and incorporated herein by reference.
4.14 Form of Warrant to Purchase Common Stock dated as of May 17, 1996, and
Schedule of Holders. Filed as Exhibit 4.11 to Procept's Form 10-K for
the year ended December 31, 1996, Commission File No. 0-21134, and
incorporated herein by reference.
4.15 Warrant to Purchase Common Stock dated as of January 6, 1997, issued to
Furman Selz LLC. Filed as Exhibit 4.13 to Procept's Form 10-K for the
year ended December 31, 1996, Commission File No. 0-21134, and
incorporated herein by reference.
4.16 Unit Purchase Warrant Agreement dated May 17, 1996, issued to David
Blech. Filed as Exhibit 4.1 to Procept's Form 10-Q for the quarter
ended June 30, 1997, Commission File No. 0-21134, and incorporated
herein by reference.
4.17 Form of Subscription Agreement between Procept and Subscribers of
Procept Common Stock listed on Schedule of Subscribers. Filed as
Exhibit 4.17 to Procept's Registration Statement on Form S-3
(Commission File No. 333-51245) on April 28, 1998 (the "1998 S-3").
4.18 Form of Class C Warrant to Purchase Common Stock, including Schedule of
Holders. Filed as Exhibit 4.18 to the 1998 S-3.
4.19 Form of 1998 Unit Purchase Option, including Schedule of Holders. Filed
as Exhibit 4.2 to Procept's Form 10-Q for the quarter ended June 30,
1998, Commission File No. 0-21134, and incorporated herein by
reference.
4.20 Form of 1995 Unit Purchase Warrant. Filed as Exhibit 4.1 to Procept's
Form 8-K on March 31, 1999, Commission File No. 0-21134 (the "March
1999 Form 8-K"), and incorporated herein by reference.
4.21 Form of 1997 Unit Purchase Option. Filed as Exhibit 4.2 the March 1999
Form 8-K, and incorporated herein by reference.
4.22 Form of Class A Warrant. Filed as Exhibit 4.3 the March 1999 Form 8-K,
and incorporated herein by reference.
4.23 Form of Class B Warrant. Filed as Exhibit 4.4 the March 1999 Form 8-K,
and incorporated herein by reference.
4.24 Form of Warrant to Purchase Shares of Common Stock issued to Aries
Trust and Aries Domestic Fund, L.P. Filed as Exhibit 4.5 the March 1999
Form 8-K, and incorporated herein by reference.
4.25 Warrant Certificate dated July 13, 1999 issued to Wound Healing of
Oklahoma. Filed as Exhibit 4.1 to Procept's Form 10-Q for the
quarter ended June 30, 1999, Commission File No. 0-21134, and
incorporated herein by reference.
4.26 Form of Class D Warrant Certificate, including Schedule of Holders.
Filed as Exhibit 4.2 to Procept's Form 10-Q for the quarter ended
June 30, 1999, Commission File No. 0-21134, and incorporated herein
by reference.
5.1 Opinion of Palmer & Dodge LLP. Filed herewith.
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants to
Procept. Filed herewith.
23.2 Consent of Palmer & Dodge LLP (contained in Exhibit 5.1).
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23.3 Consent of Deloitte & Touche LLP. Filed herewith.
23.4 Consent of Deloitte & Touche LLP. Filed herewith.
24.1 Power of Attorney. (1)
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(1) Previously filed.
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Exhibit 5.1
PALMER & DODGE LLP
ONE BEACON STREET, BOSTON, MA 02108-3190
TELEPHONE: (617) 573-0100 FACSIMILE: (617) 227-4420
December 22, 1999
Procept, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
Ladies & Gentlemen:
We are rendering this opinion in connection with the Registration
Statement on Form S-3 (the "Registration Statement") filed by Procept, Inc.
(the "Company") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, on or about the date hereof. The
Registration Statement relates to up to 8,884,644 shares of the Company's
Common Stock, $0.01 par value, (the "Common Stock"), comprising (i) 4,301,554
shares of Common Stock (the "Shares") currently outstanding and (ii)
4,583,090 shares of Common Stock (the "Warrant Shares") issuable upon
exercise of warrants to purchase Common Stock (the "Warrants") and other
convertible securities (the "Options"). We understand that the Shares and the
Warrant Shares are to be offered and sold in the manner described in the
Registration Statement.
We have acted as your counsel in connection with the preparation of the
Registration Statement. We are familiar with the proceedings of the Board of
Directors in connection with the authorization, issuance and sale of the
Shares, the Warrants and the Options. We have examined such other documents as
we consider necessary to render this opinion.
Based upon the foregoing, we are of the opinion that the Shares have
been duly authorized and are validly issued, fully paid and non-assessable, and
that upon exercise of the Warrants and the Options in accordance with the terms
thereof, the Warrant Shares will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as a part of the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus filed as part thereof.
Very truly yours,
/s/ Palmer & Dodge LLP
PALMER & DODGE LLP
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Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTS
We hereby consent to the incorporation by reference in this Registration
Statement on Amendment No. 1 to Form S-3 (File No. 333-78055) of our report
dated March 17, 1999 relating to the financial statements, which appear in
Procept's Annual Report on Form 10-K for the year ended December 31, 1998. We
also consent to the reference to us under the heading "Experts" in such
Registration Statement.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
December 22, 1999
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Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Procept, Inc. on Amendment No. 1 to Form S-3 of our report of Pacific
Pharmaceuticals, Inc. for the year ended March 31, 1998 dated July 8, 1998,
appearing in the Form S-4 of Procept, Inc. and to the reference to us under
the heading "Experts" in the prospectus, which is a part of this Registration
Statement.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
December 21, 1999
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Exhibit 23.4
We consent to the use in this Registration Statement of Procept, Inc. on
Amendment No. 1 to Form S-3 of our report on Binary Therapeutics, Inc. dated
December 18, 1998 for the period ended September 30, 1998 appearing in the
prospectus and to the reference to us under the heading "Experts" in the
prospectus, which is a part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
December 21, 1999
