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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission file number 0-18044
PROCYTE CORPORATION
(exact name of registrant as specified in its charter)
WASHINGTON 91-1307460
- ---------- ----------
(State of incorporation) (I.R.S. Employer Identification No.)
12040-115th AVENUE N.E., SUITE 210, KIRKLAND, WA 98034-6900
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (206)820-4548
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Securities registered pursuant to Section 12(b) of the Act NONE
Securities registered pursuant to the Section 12(g) of the Act: COMMON STOCK,
PAR VALUE $.01
PER SHARE
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to the filing requirements for the
past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquency filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form10-K { }.
As of March 21, 1996, there were issued and outstanding 13,338,965 shares of
common stock, par value $.01 per share.
The aggregate market value of common stock held by non-affiliates as of March
20, 1996 was $43,014,175, based upon the average of the closing high and low
prices of such stock as reported by the Nasdaq Stock Market.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference in Parts I, II,
III and IV of this Form 10-K report (1) the Proxy Statement for the Registrant's
1996 Annual Meeting of Shareholders scheduled to be held May 14, 1996, and (2)
the Registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1995.
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PROCYTE CORPORATION
1995 FORM10-K
TABLE OF CONTENTS
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PAGE
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PART I
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Item 1: Business
1
Item 2: Properties
10
Item 3: Legal Proceedings 10
Item 4: Submission of Matters to a
Vote of Security Holders 10
PART II
Item 5: Market for the Company's Common Stock and
Related Shareholder Matters 10
Item 6: Selected Financial Data 11
Item 7: Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Item 8: Financial Statements 11
Item 9: Changes in and Disagreements
with Accountants 11
PART III
Item 10: Directors and Executive Officers
of the Company 12
Item 11: Executive Compensation 12
Item 12: Security Ownership of Certain Beneficial Owners 12
Item 13: Certain Relationships and Related Transactions 12
PART IV
Item 14: Exhibits, Financial Statements Schedules,
and Reports on From 8-K 12
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PART I
ITEM 1: BUSINESS
Certain of the information required by this Part is incorporated by
reference to the information under the caption "Management's Discussion and
Analysis of Financial Conditions and Results of Operations" on pages 10-14 of
the Registrant's 1995 Annual Report to Shareholders.
INTRODUCTION
ProCyte's mission is to become a fully integrated healthcare products
and services company through continued pursuit of its threefold strategy which
the Company implemented in 1995 in an effort to build long-term shareholder
value. This strategy includes: (1) continued development of certain of the
Company's proprietary family of copper-based compounds for therapeutic and other
applications; (2) utilization of the Company's manufacturing facility to serve
both the Company's own clinical and commercial needs as well as to address the
contract manufacturing needs of selected industry clients; (3) continued
evaluation and, as appropriate, acquisition, of in-licensing or cross-licensing
of technologies or products which complement the Company's wound care product
focus. In addition, the Company will continue to seek corporate partners or
out-licensing opportunities to develop and/or distribute certain of its
technology or products.
In 1995, the Company, with its corporate partners, had three copper-
based drug candidates in clinical development. The Company commenced and
completed a Phase I safety assessment in humans of PC1358, tradenamed
Tricomin-Registered Trademark- solution. In October 1995, the Company commenced
a Phase II study of this compound to continue to study its safety in human use
and to begin to evaluate the effect of the compound versus placebo in treatment
of early to mid-stage androgenetic alopecia (male pattern baldness).
In 1995, the Company also commenced an expanded Phase I/II safety and
initial effectiveness study in humans of PC1020, administered via retention
enema, for the potential treatment of mild to moderate ulcerative colitis. The
study of this compound, tradenamed Iamin-IB-Registered Trademark- solution,
continued through 1995 and is expected to be completed in 1996.
ProCyte's partner for the development of its Iamin-Registered
Trademark- gel wound healing technology in Japan, Taiwan, China and Korea is
Kissei Pharmaceutical Co., Ltd. In 1995, Kissei commenced a Phase I safety
evaluation of Iamin-Registered Trademark- gel in Japan.
In August 1995, ProCyte submitted a 510(k) pre-market notification to
the United States Food and Drug Administration (FDA) for clearance to market
Iamin-Registered Trademark- gel in the United States as a topical gel for the
care and management of chronic and acute wounds. The FDA granted ProCyte
clearance to market this over-the-counter product in February 1996 for all wound
types with the exception of third degree burns.
ProCyte presently is planning IN VITRO and/or human clinical studies
or has such studies in progress in the U.S. and/or the U.K. for the continued
evaluation of Iamin-Registered Trademark- gel as a potential therapeutic agent.
ProCyte and its collaborators at various government and academic
institutions continued research on the Company's phenanthroline compounds in
1995. This family of copper-containing compounds has been shown in IN VITRO
studies to inhibit a variety of disease-causing viruses by one of several
mechanisms, including cell-cell fusion. Currently, the Company has relegated
further effort in this area of research primarily to a smaller role within the
Company given ProCyte's internal resource commitment to wound care and contract
manufacturing priorities.
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ProCyte Corporation is a Washington corporation organized in 1986.
There can be no assurance that the Company will commence or
successfully complete preclinical or clinical testing or commercial development,
including commercial-scale manufacturing and market launch of any of the product
candidates identified above, or that, if successfully developed, such product
candidates will be approved or cleared for sale by the FDA for sale in the
United States or by comparable regulatory authorities for sale in other
countries. Approval of a product for marketing in one country does not ensure
approval for marketing in other countries. Launch of a product does not ensure
market acceptance. The results of Phase I, Phase II or Phase III studies are
not necessarily indicative of efficacy or safety of a commercial product for
human use.
ProCyte's second strategic goal in 1995 was to expand the utilization
of the Company's manufacturing plant, which was commissioned in 1994, by
providing contract manufacturing services to industry clientele. The Company
currently utilizes the plant for the clinical and planned commercial manufacture
of the Company's own bulk drug candidates and planned wound care products.
Additionally, in 1995, the Company began to offer contract manufacturing
services to clients in the biotechnology, pharmaceutical, fine chemical and food
products industries.
By year end 1995, ProCyte had provided or was still performing
contract manufacturing services on behalf of ten clients, including two
multinational pharmaceutical companies and several biotechnology companies.
Given the risks and uncertain timelines associated with pharmaceutical and
biotechnology products being developed, tested, reviewed or sold by clients of
the manufacturing facility, the Company will be required to strive to maintain
sufficient clientele to counter the effect that regulatory delays, product
failures, product recalls, and other such circumstances may have on its contract
manufacturing capabilities and revenues.
ProCyte expects to continue to provide contract manufacturing services
in the future, and to produce clinical and commercial quantities of certain of
its peptide-copper compounds for its use and those of present or future
partners. The Company expects to utilize approximately 85% of the plant's
current capacity for these endeavors in 1996, though, for the reasons outlined
above, and including such things as unexpected or unsuccessful plant audits or
regulatory inspections, the potential impact of adverse weather conditions on
plant operations, the decision of a client to manufacture its own products or
have them manufactured elsewhere, market acceptance of clients' products, and
competition, there can be no assurance that it will be successful.
The third primary area of business focus being pursued by the Company
builds upon the Company's pioneering research expertise in the complex field of
wound care and healing. In November 1995, the Company acquired the exclusive
worldwide rights, outside of Asia, to a novel polymer technology, known as
HYPAN-Registered Trademark-, and five FDA-cleared wound care products based on
this technology. ProCyte also acquired the rights to a sixth FDA-cleared wound
care product, known as HyFil, for which it shares non-exclusive distribution
rights in North America with B. Braun Medical Supplies, Inc. Additionally,
ProCyte acquired the exclusive worldwide rights for the use of the technology
for future drug delivery applications in the field of wound healing.
At present, Company scientists are actively investigating uses of the
HYPAN-Registered Trademark- technology, while ProCyte's manufacturing team is
seeking to develop cost-effective commercialization processes. While the FDA
has cleared six HYPAN-Registered Trademark--based wound care products for
marketing, these products may or may not be among the first introduced by
ProCyte. ProCyte is charting new territory in the development of polymer
manufacturing processes and anticipates that initial development will take at
least six months to successfully devise pilot scale production methodology for
HYPAN-Registered Trademark--based products. However, given such things as
unexpected difficulties in scaling-up the full scale commercial manufacturing
processes, obtaining suitable
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raw materials, and staffing the production operation, there can be no assurance
that the Company will be able to commercialize the technology in a cost-
effective, timely manner, if at all.
PATENTS AND PROPRIETARY RIGHTS
ProCyte's success depends in part upon its ability to protect its
products and technology under intellectual property laws in the Unites States
and abroad. As of December 31, 1995, the Company had 16 issued United States
patents expiring between 2005 and 2010, and 123 issued foreign patents and
patent registrations. The patents relate to use of the Company's copper-based
technology for a variety of healthcare applications, and to the composition of
certain biologically active, synthesized compounds. The Company's strategy has
been to apply for patent protection for certain compounds and their discovered
uses that are believed to have potential commercial value in countries which
offer significant market potential.
The Company currently holds several registered trademarks for its
product candidates. There can be no assurance as to the breadth or degree of
protection that the Company's existing trademarks or patents, or any additional
trademarks or patents that may be granted in the future, will afford the
Company, or that any additional trademarks or patents will be issued to the
Company. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary technology that is
not covered by the Company's patents or that others will not be issued patents
that may prevent the Company's manufacture, sale or use of the Company's
proposed products or require licensing and the payment of significant fees or
royalties by the Company for the pursuit of its business. Litigation, which
could result in substantial cost to the Company, may be necessary to enforce the
Company's patents or to determine the scope and validity of other parties'
proprietary rights. If the outcome of any such litigation were adverse, the
Company's business could be materially affected. The Company is unable to
predict how courts would resolve any future issues relating to the validity and
scope of the Company's patents or trademarks should they be challenged.
The Company also intends to rely on its unpatented proprietary know-
how, and there can be no assurance that others will not develop or acquire
equivalent proprietary information. To the extent that corporate partners or
consultants apply Company technological information independently developed by
them or by others to Company projects or apply Company technology or know-how to
other projects, disputes may arise as to the ownership of proprietary rights to
such information.
EXISTING CORPORATE LICENSE AGREEMENTS
HYMEDIX INTERNATIONAL, INC.
In November 1995, ProCyte entered into a license agreement with
Hymedix International Inc. ("Hymedix") in which the Company acquired the
exclusive worldwide rights, outside of Asia, to five FDA-cleared wound care
products developed by Hymedix, as well as exclusive rights to the use of the
underlying technology in the territory for future wound care products.
Additionally, the Company acquired, on a non-exclusive basis, the rights to a
sixth FDA-cleared wound care product in the same territory. The Company shares
marketing rights to the sixth product with B. Braun Medical, Inc. The Company
also acquired exclusive worldwide rights to the drug delivery application of
Hymedix's polymer-based technology for wound healing applications.
Under the terms of the agreement with Hymedix, the Company is
obligated to pay certain upfront, milestone and royalty payments. The Company's
upfront payment included 200,000 shares of the Company's common stock,
releasable over a two-year period in four equal assignments of 50,000 shares
each, unless Hymedix has materially breached the license agreement or the
Company has terminated the license agreement. The stock is subject to SEC Rule
144 restrictions and has piggyback registration rights for a
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limited period of time. The Company may terminate the agreement at any time
upon sixty days' written notice.
KISSEI PHARMACEUTICAL CO., LTD.
In November 1993, the Company entered into a license agreement with
Kissei Pharmaceutical Co., Ltd. ("Kissei"). Under the terms of the agreement,
the Company granted to Kissei an exclusive license to make, have made, use and
sell the Company's Iamin-Registered Trademark- compound in Japan, China, Taiwan,
and Korea for topical wound healing applications, including chronic human dermal
wounds such as diabetic ulcers, venous stasis ulcers, pressure sores, surgical
wounds and burns.
Pursuant to the terms of the agreement with Kissei, the Company will
manufacture Kissei's requirements for the Iamin-Registered Trademark- compound
for Kissei's product development and for Kissei's clinical trials for the first
approved use of the Iamin-Registered Trademark- compound in Japan. In addition,
Kissei is responsible for making certain research and development, milestone and
royalty payments to the Company subject to the terms of the agreement. As of
third quarter 1995, Kissei had satisfied all of its research and development
payment requirements which it was obligated under the agreement to pay to the
Company. In January 1996, Kissei paid the Company a $1.0 million milestone
payment owing under the agreement. Kissei may terminate the agreement at any
time upon sixty days' written notice.
As part of its license agreement with the Company, Kissei also entered
into a stock purchase agreement with the Company wherein it purchased 155,461
shares of ProCyte common stock at a price of $25.73 per share.
KAKEN PHARMACEUTICAL CO., LTD.
In December 1992, the Company entered into an agreement with Kaken
Pharmaceutical Co., Ltd. ("Kaken") for development, manufacturing and marketing
of the company's peptide-copper compounds for hair growth and hair loss
prevention applications in Asia. Under the terms of the agreement, Kaken was
responsible for making certain research and development, milestone and royalty
payments to the Company. As of second quarter 1995, Kaken had satisfied all of
its research and development payment requirements which it was obligated to pay
to the Company.
On January 31, 1996, the Company's license agreement with Kaken was
terminated. The termination came about in large part due to the position taken
by the Japanese regulatory agency with regard to its regulation of hair growth
compounds. The agency has presently determined that it will not consider
androgenetic alopecia a disease and, therefore, will not approve as "drugs" any
compounds to be used in the treatment of male pattern baldness. As a result of
the license termination, ProCyte regained all rights to the use of its
technology for hair growth and hair loss prevention applications. No monies
paid by Kaken to the Company during the period of the agreement were refundable
to Kaken. Kaken filed a patent on the technology which was assigned to the
Company at conclusion of the partnership for a nominal fee.
ProCyte intends to seek to establish corporate alliances with others
who are capable of pursuing alternative registrations of the Company's hair
technology in Asia and elsewhere. There can be no assurance that the Company
will be successful in attracting or retaining corporate alliances on terms
favorable to the Company, whether for the Company's hair technology or
otherwise, or that the interests and motivations of any corporate partner or
licensee would be or remain consistent with those of the Company, or that such
partners or licensees would successfully perform the technology transfer,
clinical development, regulatory compliance, manufacturing, marketing or other
obligations. Suspension or termination of agreements with the Company's current
or future partners or licensees could have a material adverse effect on the
development of the Company's proposed products and could adversely effect the
Company's financial position.
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COMPETITION
Competition in the Company's planned area of initial product launch,
wound care, is particularly intense, involving a number of well-established,
major pharmaceutical and healthcare companies, such as Bristol Myers Squibb,
Kendall Healthcare Company, and Johnson and Johnson. A significant number of
smaller companies as well are developing or marketing competitive wound care
products, some of which may have an entirely different approach than products
being developed by the Company.
Wound care is an evolving field as far as technology, regulations, and
products are concerned. The Company believes that its most substantial
competition with respect to its planned wound care product line will come from
established pharmaceutical and healthcare companies, which are significantly
larger than the Company and have substantially greater financial resources,
marketing and sales staffs, and experience in obtaining regulatory approvals, as
well as in manufacturing and marketing wound care products, and where they have
considerable years of experience, and established reputations, promoting to
healthcare providers.
Competition in the Company's other areas of interest, as well as wound
care, is based on scientific and technological advances, the availability of
patent protection, access to adequate capital, the requirement for and ability
to obtain government approval for new products or testing, timing and scope of
regulatory approvals, product pricing, manufacturing and marketing capability.
There can be no assurance that the Company's competitors will not succeed in
bringing to market technologies and/or products that may make the proposed
products being developed by the Company obsolete or noncompetitive. Some of the
Company's competitors may achieve product commercialization earlier than the
Company, which may adversely affect market introductions and sales of the
Company's proposed products. Competition for highly qualified scientific,
technical, and managerial personnel, consultants and advisors on whose services
the Company depends is also intense.
The contract manufacturing service business also is highly
competitive. Competitors include major chemical and pharmaceutical companies,
as well as specialized biotechnology firms, smaller contract chemical
manufacturers and some universities. Many of these companies or institutions
have greater financial, technical and marketing resources than the Company.
The chemical, commodity-products and pharmaceutical industries have
undergone and are expected to continue to undergo significant technological and
strategic change, and the Company expects the competition to intensify as
technical advances or business alliances are made by others in fields of
interest to the Company. The Company believes that its success in competing
with others will depend on such things as its ability to retain scientific
expertise and capable, experienced management, and identifying and pursuing
scientifically feasible, medically relevant, and commercially viable
opportunities.
EMPLOYEES
At December 31, 1995, the Company had 44 full-time employees, of whom
eight hold Ph.D. degrees. The Company restructured its operations in late 1994
and again in 1995 in order to preserve capital needed to staff a future sales
staff and expand manufacturing operations. At year end, 18 employees were
engaged in research and development, ten in manufacturing, eight in regulatory
and clinical affairs, one in marketing, and seven in accounting, finance and
administration. The Company expects to add sales and marketing staff in 1995
and to recruit additional plant operations and related personnel for the
manufacturing facility. The Company will need to compete with companies that
have established product lines, sales and marketing organizations and bonus and
commission schedules in recruiting for its planned sales staff. With regard to
recruitment of manufacturing personnel, the Company will need to search for
candidates on a nationwide basis, and attract and retain staff from profitable
plants with established clients. There can be no assurance
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that the Company will be able to compete against other companies in recruiting
such personnel. The Company believes that its relations with its employees are
good.
GOVERNMENT REGULATION
The manufacture and marketing of ProCyte's products, whether
internally developed and licensed-in, and its research and development
activities in general, are subject to extensive regulation in the United States
by the federal government, principally by the FDA, and in other countries by
similar health and regulatory authorities. The Federal Food, Drug and Cosmetic
Act and the regulations promulgated thereunder, and other federal and state
statutes govern, among other things, the testing, manufacture, safety, labeling,
storage, recordkeeping, advertising and promotion of pharmaceutical products and
medical devices. Product development and approval or clearance within the
regulatory framework requires a number of years and involves the expenditure of
substantial resources.
In order to obtain FDA approval to market a new drug in the United
States for use in humans, it is necessary to proceed through several stages of
product testing, including research and development, preclinical trials, the
filing of an investigational new drug application ("IND"), with the FDA to
obtain authorization to conduct human clinical trials, extensive clinical
testing under the Code of Federal Regulations guidelines, which are subject to
the agency's change and/or interpretation at any time, and ultimately, if the
pivotal trials are successful, submission to and FDA approval of a new drug
application ("NDA") or 510(k) pre-market notification clearance. The Company's
product candidates may be regulated by any of a number of divisions of the FDA.
Before human testing of product candidate may commence, the FDA, and
like agencies in other countries, generally require certain preclinical testing,
such as toxicology studies in animals, to begin to establish product safety.
Results of such studies are submitted as part of the IND application.
Preclinical testing is not necessarily indicative of the safety or effectiveness
of a product candidate for human use.
Human clinical trials of an investigational therapeutic compound in
the United States typically involve a three-phase process. Following the IND
submission period, Phase I trials may be conducted with a small group of healthy
volunteers or, in some instances, patients, to determine the early safety
profile and the pattern of drug absorption, distribution and metabolism. Phase
II trials are conducted with groups of patients afflicted with a specific
disease or specific element of a disease to determine preliminary effectiveness,
optimal dosage and treatment regimens and expanded evidence of safety. Phase
III comparative trials are conducted with a larger number of patients at
multiple test sites to gather information about safety and effectiveness that is
needed to evaluate the overall benefit-risk relationship of the compound and to
provide an adequate basis for proposed product labeling.
The results of clinical trials are submitted to the FDA, and to
similar agencies in other countries, in the form of an of NDA or like
submission, for approval to commence commercial distribution of the product.
The regulatory agencies may take one to two years or more to act on an NDA or
like submission, if they elect to act at all. The final decision rests with the
regulatory agency as to whether or not approval will be granted. The regulatory
agencies, at their discretion, may request further testing, additional data, or
may deny approval if the agency determines that regulatory approval criteria are
not sufficiently satisfied. As such, there can be no assurance that any
approvals of the Company's proposed candidates would be granted on a timely
basis, if at all, following completion of clinical testing.
In the United States, products that do not seek to make effectiveness
claims based on human clinical evaluation, may be subject to review and
regulation under the FDA's 510(k) medical device guidelines. Such products,
which include wound care dressings, ointments and gels, must show safety and
substantial equivalency with predicate products already cleared to be marketed
by the FDA. There can be no assurance
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that such product pre-market notification applications submitted to the FDA for
clearance will receive clearance to be marketed under these guidelines, or that
the labeling claims sought will be approved, or that, if cleared, such products
will be commercially successful.
In addition to obtaining FDA approval or clearance to market a
product, the prospective manufacturer's quality control and manufacturing
procedures must conform to current good manufacturing practices ("cGMPs")
guidelines, when appropriate. In complying with standards set forth in these
regulations, which are subject to change at any time without notice to the
Company, manufacturers must continue to expend time, monies and effort in
production and quality control. Manufacturing establishments, such as ProCyte's
manufacturing plant, are also subject to regulations from and inspections by
other foreign, federal, state or local agencies, such as the Drug Enforcement
Agency, the city water and waste treatment agencies, and state and federal
safety and health regulations. There can be no assurance that the Company's
manufacturing facility or its operations for the manufacture of its own product
candidates or the bulk products manufactured and processes followed by the
Company on behalf of its clients will be able to meet all appropriate guidelines
or to pass inspections by any government agency. If the Company's manufacturing
operations should fail to pass an inspection, for any reason, the possible
resultant outcome on the plant's continuing operations, and the financial impact
on the Company's overall reputation and operations could be severely adversely
affected.
The Company also is or may become subject to various other foreign,
U.S., state and local laws, regulations and policies relating to, among other
things, safe working conditions, good laboratory practices, animal welfare, and
the use and disposal of hazardous or potentially hazardous substances used in
connection with research, development and/or manufacturing.
FACTORS AFFECTING STOCK PRICE
The market prices for healthcare, commodity products, pharmaceutical
and biotechnology companies are subject to volatility, and the market has from
time to time experienced significant fluctuations that are unrelated to the
operations of the Company.
ProCyte's market price has fluctuated over a wide range since the
Company's initial public offering in 1989. Announcements concerning the Company
or its competitors, including changes in research and development program
direction, results of clinical trials, addition or deletion of corporate
partnerships, technology licenses, clearance or approval to market products,
government regulations, healthcare reform, litigation concerning business
operations or intellectual property, or public concern as to safety of products,
as well as changes in general market conditions, may have a significant effect
on the market price of ProCyte's common stock.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
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Name Age Position
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Joseph Ashley(1) 68 Chairman of the Board,
President, Chief Executive
Officer
Jules Blake, Ph.D. (1)(2) 71 Director
Gordon W. Duncan , Ph.D. 63 Vice President, Research
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Director, Secretary
David Fulle 38 Vice President,
Manufacturing Operations,
Principal Accounting Officer
Karen L. Hedine 42 Vice President
Business Development &
Administration; Assistant
Secretary
C. Brian Melonakos 45 Vice President, Marketing
Robert E. Patterson (1)(2) 53 Director
William M. Sullivan (1)(2) 61 Director
Thomas E. Tierney 68 Director
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(1) Member of the Audit Committee
(2) Member of the Compensation Committee
JOSEPH ASHLEY, age 68, Chairman of the Board, January 1991 to present;
President, Chief Executive Officer, a Director of the Company and Treasurer,
January 1987-present. President and Chief Operating Officer of Genetic Systems
Corporation, a biotechnology company from 1984-1986. In various management
capacities with Beckman Instruments, Division of SmithKline Beckman Corporation,
a diversified healthcare and life sciences company, 1954-1984, including Group
Vice President of Diagnostics, 1981-84. Mr. Ashley received a Certificate of
Executive Management from the University of California at Los Angeles Graduate
School of Business and a B.A. in Mechanical Engineering from City College, New
York.
JULES BLAKE, PH.D., age 71, was elected a Director of the Company in
1991. He served as Vice President of Corporate Scientific Affairs (1987-1989)
and Vice President of Research and Development (1973-1987) for Colgate-
Palmolive, a consumer products company. Director, Martek Biosciences
Corporation, a biotechnology company, 1990-present; Member of the Board of
Overseers of Forsyth Dental Center, 1994-present. Trustee of the Medical
College of Pennsylvania Hahnemann University; and a member of the Science
Advisory Board of International Specialty Products, a specialty chemical
company, 1992-present. Dr. Blake has served as the Chairman of the Compensation
Committee, 1991-present, and is a member of the Audit Committee. Dr. Blake
received his Ph.D. in Organic Chemistry and his M.S. and B.S. in Chemistry from
the University of Pennsylvania.
GORDON W. DUNCAN, PH.D., age 63, Vice President, Research, January
1991 - present; was elected a Director of the Company in 1991. He has served as
Secretary of the Company, May, 1991 - present. Prior to joining ProCyte in
April 1991, as Vice President, Research, Dr. Duncan was Vice President, Research
Administration for The Upjohn Company, a pharmaceutical company, where he held
various scientific and management positions for twenty years. Director of PATH,
a not-for-profit international healthcare organization, 1991-present. Dr.
Duncan is presently employed as a part-time employee by the Company. Dr. Duncan
received his Ph.D. and M.S. in Reproductive Physiology from Iowa State
University and his B.S. in Animal Science from Cornell University.
DAVID FULLE, age 38, joined ProCyte in 1989 as Controller, and held
responsibility for the Company's corporate accounting, finance and management
information systems, as well as facilities, from that time until
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December 1995 when he was promoted to Vice President, Manufacturing Operations,
responsible for the Company's overall manufacturing operations. Prior to
ProCyte, Mr. Fulle was the Assistant Controller/MIS Coordinator for Zimmer
Corporation, a manufacturing company (1984-1989). Mr. Fulle holds a B.S. in
Health Administration from Indiana University.
KAREN L. HEDINE, age 42, has been Vice President, Business Development
and Administration of the Company since October 1989, having served as a
management consultant to the Company, 1987-1989. She is responsible for general
corporate operations, including corporate governance, government liaison,
business development, legal, investor/public relations, and human resources.
From 1986-1988, she was Vice President, Administration and Human Resources of
Ecova Corporation, a hazardous waste remediation company. From 1984-1986, Ms.
Hedine was Director of Human Resources for Genetic Systems. She is past
chairperson, vice president and a member of the Board of the Washington State
Biotechnology and Biomedical Association. Ms. Hedine received an M.A. in
Personnel Administration from Indiana University and a B.A. in English from the
University of Washington.
C. BRIAN MELONAKOS, age 45, joined ProCyte in October 1993 as Vice
President, Marketing. He previously held executive positions at Pilkington
Barnes Hind ("PBH"), 1987-1993, and Collagen Corporation, 1982-1987. At PBH,
Mr. Melonakos served as Vice President of Marketing and as the Canadian
Division's Chief Operating Officer and General Manager. He earned an M.B.A. in
Marketing and Finance from the University of Michigan and a B.A. in Economics
from Brigham Young University.
ROBERT E. PATTERSON, J.D., age 53, was elected a director of the
Company in 1994. He serves as a Managing Director of Thompson Clive, Inc., a
U.K.-based venture capital firm, (1983 - present), and is a partner in the legal
services firm of Graham & James (1972 - present). Mr. Patterson currently
serves on the board of several private businesses, including QuestGen
Corporation, a biotechnology company. He is a member of the Compensation
Committee and has served as chairman of the Audit Committee of the Board, 1995-
present. Mr. Patterson completed the Executive Program at the Stanford Graduate
School of Business in 1986; he obtained his law degree from Stanford Law School
and holds a B.A. in Physics from the University of California at Los Angeles.
WILLIAM M. SULLIVAN, J.D., age 61, was elected a Director of the
Company in 1991. He served as Chairman, President and CEO of Burroughs Wellcome
Co., a pharmaceutical and consumer products company, 1981-1986. Mr. Sullivan
served in various management and corporate legal positions, 1974-1980. He is
Chairman of the Board of Sparta Pharmaceuticals, Inc., a publicly-traded
development stage pharmaceutical company, 1991-present. He served as President
and CEO of Sparta from 1991 to March 1996. Chairman of the Board, The Immune
Response Corporation, a biotechnology company, 1987-1994; Director 1994-present;
a Director of BioVentures, Inc., a diagnostic company, 1989-present; and a
Director of Research Corporation Technologies, a technology transfer company,
1995-present. Mr. Sullivan is a member of the Audit and Compensation
Committees. Mr. Sullivan holds a J.D. from Harvard Law School and an A.B. from
the University of Notre Dame.
THOMAS E. TIERNEY, age 68, was elected a director of the Company in
1996. From 1951-1988, he served in various sales, marketing and general
management positions including Vice President and General Manager, Hospital
Products Business, Group Vice President, Healthcare Business and Executive Vice
President of Kendall Company and Group Executive, Worldwide Healthcare, until
his retirement in 1988. Member of the Board of Directors of Uromed, a
development-stage healthcare company. Mr. Tierney is a member of the
Compensation and Audit committees of ProCyte's Board of Directors. Mr. Tierney
received a B.A. in General Sciences from Colgate University in 1951 and attended
the Harvard Business School Advanced Management Program.
9
<PAGE>
ITEM 2. PROPERTIES
The Company presently leases approximately 28,000 square feet of
laboratory and office space at it corporate offices in Kirkland, Washington. On
October 1, 1993, the Company also executed a 79-month operating lease, effective
January 1, 1994, for approximately 16,000 square feet of manufacturing and
expansion space in Redmond, Washington. The Company is presently using this
space for its commercial-scale bulk substance manufacturing for its own clinical
and commercial needs, as well as for toll manufacturing operations for clients
in the pharmaceutical, biotechnology, fine chemical and food products
industries. The Company expects to build out some of the available expansion
space in the plant in 1996 to accommodate commercial-scale manufacturing and
method development of the technology the Company acquired from Hymedix. Delays
in obtaining building permits, cost overruns in the facility expansion and
construction delays could adversely effect the Company's commercialization
efforts, and significantly delay product launch plans.
ITEM 3. LEGAL PROCEEDINGS
On March 5, 1996, the Company announced that a tentative settlement
had been reached in the shareholder lawsuit filed in October 1994 against the
Company and certain of its officers and directors. The Company continues to
believe that there was no wrongdoing on the part of the Company and/or any of
its officers and directors, but reached the tentative settlement agreement in an
effort to focus management's attention and corporate financial resources on the
important business of building long-term shareholder value in the Company.
The tentative settlement, which is subject to court approval, is for
$7.75 million, of which at least $2.5 million will be paid in cash, with the
remainder payable, at the Company's discretion, in cash or shares of ProCyte
common stock. The amount, if any, of the stock portion would be dependent upon
the market price of ProCyte common stock during the six-month period following
final court approval of the settlement. The tentative settlement is conditioned
upon the Company receiving an appropriate contribution to the settlement from
its insurance carriers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No matters were submitted to the shareholders for vote during fourth
quarter 1995
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS
The Company's common stock trades on the Nasdaq Stock Market under the
symbol "PRCY." At the close of business on March 8, 1996, there were 513
shareholders of record.
ProCyte has not paid any cash dividends on its common stock and does not
intend to pay cash dividends in the foreseeable future.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated by reference to the
information contained under the caption, "Financial Highlights," located on the
inside front cover page of the Registrant's 1995 Annual Report to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is incorporated by reference to the
information under the caption, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" located on pages 10-14, of the
Registrant's 1995 Annual Report to Shareholders.
Item 8. FINANCIAL STATEMENTS
See Item 14 for an Index to Financial Statement sand Financial Statement
Schedules. Such Financial Statements are incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
11
<PAGE>
PART III
See "Directors and Executive Officers of the Registrant" under Item I
- - Part I above. The remaining information called for by Items 10, 11, 12 and 13
is included in the Company's Proxy Statement relating to the Company's annual
meeting of shareholders, and is incorporated herein by reference. The
information appears in the Proxy Statement under the captions "Elections of
Directors," "Executive Compensation," and "Principal Shareholders and Management
Ownership." Such Proxy Statement will be filed with the Securities and Exchange
Commission within 120 days of the Company's last fiscal year end, December 31,
1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
a. (1) and (2) Index to Financial Statements and Financial Statement
Schedules
(1) FINANCIAL STATEMENTS
The following financial statements and Independent Auditors' Report
are incorporated by reference to pages 15-28 of the Registrant's 1995
Annual Report to Shareholders.
Balance Sheets as of December 31, 1995, and 1994..
Statements of Operations for the years ended December 31, 1995, 1994,
and 1993, and the period January 1, 1985 (Predecessor inception) to
December 31, 1995.
Statements of Cash Flows for the years ended December 31, 1995, 1994,
and 1993, and the period January 1, 1985 (Predecessor inception) to
December 31, 1995.
Statements of Stockholders' Equity for the years ended December 31,
1995, 1994, and 1993, and the period January 1, 1985 (Predecessor
inception) to December 31, 1995.
Notes to Financial Statements
Independent Auditors' Report
(2) FINANCIAL STATEMENT SCHEDULES
Financial Statement Schedules have been omitted because of the absence
of conditions under which they are required or because the required
information is included in the Financial Statements or notes thereto.
With the exception of the pages listed in the above Index to Financial
Statements and Financial Statements Schedules and the portion of
suchreport referred to in Items 5, 6 and 7 of the Annual Report on
Form 10-K, the 1995 Annual Report to Shareholders is not deemed filed
as part of this report.
12
<PAGE>
(3) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Note
- ---------------------------------------------------------------------------
<S> <C>
3.1 Restated Articles of Incorporation of the Registrant . . . . . .(A)
3.2 Restated Bylaws of the Registrant. . . . . . . . . . . . . . . .(A)
10.1* 1987 Stock Benefit Plan of ProCyte Corporation . . . . . . . . .(A)
10.2* ProCyte Corporation 1989 Restated Stock Option Plan. . . . . . .(B)
10.3* ProCyte Corporation 1991 Stock Option Plan for
Nonemployee Directors. . . . . . . . . . . . . . . . . . . . . .(B)
10.4 Kirkland Limited Partnership IV Lease dated as of
January 15, 1990 . . . . . . . . . . . . . . . . . . . . . . . .(C)
10.5 Teachers Insurance & Annuity Association Lease dated
as of October 1, 1993. . . . . . . . . . . . . . . . . . . . . .(D)
10.6 License Agreement dated as of November 15, 1995 between
ProCyte Corporation and Hymedix International, Inc, containing
an exhibit within, of the Stock Acquisition Agreement dated
as of November 15, 1995 between ProCyte Corporationand Hymedix
International, Inc.(1)(E)
10.8 License Agreement dated as of November 30, 1993 between ProCyte
Corporation and Kissei Pharmaceutical Co., Ltd. (1). . . . . . .(D)
10.9 ProCyte Corporation Common Stock Purchase Agreement dated as of
November 30, 1993 by and between ProCyte Corporation and Kissei
Pharmaceutical Co., Ltd. . . . . . . . . . . . . . . . . . . . .(D)
10.10* Change of Control Agreement for Mr. Joseph Ashley. . . . . . . .(F)
10.11* Change of Control Agreement for Ms. Karen L. Hedine. . . . . . .(F)
10.12* Change of Control Agreement for Mr. C. Brian Melonakos . . . . .(F)
10.13* Change of Control Agreement for Mr. David Fulle. . . . . . . . .(F)
10.14* Form of Indemnity Agreement dated February 23, 1995 between the
Registrant and each of Mr. Ashley, Dr. Blake, Dr. Duncan,
Ms. Hedine, Mr. Melonakos, Mr. Patterson & Mr. Sullivan. . . . .(F)
10.15* Form of Indemnity Agreement dated January 20, 1996 between the
Registrant and each of Mr. Fulle and Mr. Tierney . . . . . . . .(F)
10.16* Severance Agreement for Mr. Joseph Ashley. . . . . . . . . . . .(F)
10.17* Severance Agreement for Ms. Karen Hedine . . . . . . . . . . . .(F)
10.18* Severance Agreement for Mr. Brian Melonakos. . . . . . . . . . .(F)
10.19* Severance Agreement for Mr. David Fulle. . . . . . . . . . . . .(F)
10.20 Memorandum of Understanding for Settlement of In Re ProCyte
Securities Litigation. . . . . . . . . . . . . . . . . . . . . .(E)
13.1 1995 Annual Report to Shareholders . . . . . . . . . . . . . . .(E)
23.1 Consent of Deloitte & Touche LLP . . . . . . . . . . . . . . . .(E)
27.1 Financial Data Schedule. . . . . . . . . . . . . . . . . . . . .(E)
- ---------------------------------------------------------------------------
</TABLE>
* Management contract or compensatory plan or arrangement
(A) Incorporated by reference to the Registrant's Registration Statement
of Form S-1 (No. 33-31353).
(B) Incorporated by reference to the Registrant's Registration Statement
of Form S-1 (No. 33-46364).
(C) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 30, 1990 (No 0-18044).
(D) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 30, 1993
(E) Filed herewith
(F) Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended December 30, 1994
(1) Confidential treatment has been granted or requested with respect to
portions of this exhibit.
b. REPORTS ON FORM 8-K
None
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PROCYTE CORPORATION
(REGISTRANT)
Date: March 20, 1996 By /s/ Joseph Ashley
-------------------
Joseph Ashley,
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Joseph Ashley Chairman of the Board March 20, 1996
- ------------------
Joseph Ashley President and Chief Executive
Officer
(Principal Executive Officer
and Principal Financial Officer)
/s/ Jules Blake Director March 20, 1996
- ------------------------
Jules Blake
/s/ Gordon W. Duncan Director March 20, 1996
- ------------------------
Gordon W. Duncan
/s/ Robert E. Patterson Director March 20, 1996
- ------------------------
Robert E. Patterson
/s/ William M. Sullivan Director March 20, 1996
- ------------------------
William M. Sullivan
/s/ Thomas E. Tierney Director March 20, 1996
- ------------------------
Thomas E. Tierney
/s/ David H. Fulle Vice President, March 20, 1996
- ------------------------ Manufacturing Operations
David H. Fulle (Principal Accounting Officer)
14
<PAGE>
EXHIBIT 10.6
AGREEMENT
BETWEEN HYMEDIX INTERNATIONAL, INC.
AND
PROCYTE CORPORATION
This AGREEMENT (this "Agreement"), dated as of November 15, 1995, is entered
into by and between PROCYTE CORPORATION, a Washington corporation ("ProCyte"),
and HYMEDIX INTERNATIONAL, INC., a Delaware corporation ("Hymedix").
RECITALS
A. Hymedix has useful polymer technology and experience in developing and
gaining regulatory approval of products for managing wounds based on its polymer
technology.
B. ProCyte has experience in developing, clinically testing, and GMP
manufacturing certain healthcare products.
C. ProCyte desires to support certain research and development at Hymedix
related to its polymer technology for wound care applications and desires to
acquire from Hymedix an exclusive license to make, have made, use and sell
products for the wound care field using Hymedix's technology, upon the terms and
conditions set forth herein.
D. Contemporaneously with this Agreement, ProCyte is entering into agreements
with certain key employees and a consultant of Hymedix and is receiving a
guarantee from Hymedix, Inc., a Delaware corporation and parent corporation of
Hymedix.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and covenants contained herein,
the parties agree as follows:
SECTION 1. DEFINITIONS
As used herein:
1.1 "Affiliate" shall mean, with respect to a party, any other business entity
which directly or indirectly controls, is controlled by, or is under common
control with, the party. The direct or indirect ownership of at least fifty
percent (50%) of the voting securities of a business entity, or of an interest
in the assets, profits or earnings of a business entity, shall be deemed to
constitute control of the business entity. The current Affiliate of Hymedix is
its parent corporation Hymedix, Inc., a Delaware corporation. ProCyte currently
has no Affiliates.
1.2 "Brady" shall mean Brady Medical Products Co., a Wisconsin corporation.
1.3 "Braun" shall mean B. Braun Medical, Inc.
1.4 "Drug Approval" shall mean approval in the United States by the FDA of a
new drug application or product license application and comparable approvals in
other countries to market a Product as a drug.
1.5 "Drug Delivery Application" shall mean the [CONFIDENTIAL TREATMENT
REQUESTED], foreign counterparts thereof and any patents issuing thereon,
divisions, extensions, reexaminations, reissues, substitutions, renewals,
continuations or continuations in part thereof.
1.6 "[CONFIDENTIAL TREATMENT REQUESTED]" shall mean the [CONFIDENTIAL TREATMENT
REQUESTED] that Hymedix acquired in bulk form from [CONFIDENTIAL TREATMENT
REQUESTED] and from which Hymedix has been making various forms of its hydrogels
known as HYPAN-Registered Trademark-. The specifications for [CONFIDENTIAL
TREATMENT REQUESTED] are attached hereto as Exhibit 1.6.
15
<PAGE>
1.7 "Establishment of the Extrusion Process" shall have the meaning set forth
in Exhibit 1.7 attached hereto.
1.8 "Europa Agreement" shall mean the Distribution, Know-how Transfer,
Licensing and Manufacturing and Supply Agreement dated August 21, 1995 between
Europa Magnetics Corporation Limited, incorporated under the laws of England
("Europa"), and Hymedix, as supplemented and amended by a Supplemental Agreement
dated November 15, 1995.
1.9 "Europe" shall mean the countries set forth in Exhibit 1.9 attached hereto.
1.10 "Excluded Territory" shall mean the countries set forth in Exhibit 1.10
attached hereto so long as the Europa Agreement is in effect.
1.11 "FDA" shall mean the U.S. Food and Drug Administration or any successor
entity thereto.
1.12 "Field" shall mean wound care, including, but not limited to, the
treatment, management or care of any acute or chronic wound by dressings, by the
delivery of drugs or other agents to the wounds or by other methods or products,
whether such wound is caused, for example, by diabetic, venous stasis or
decubitus ulcers, by injury, by surgery, by burns or by other events or means.
1.13 "Joint [CONFIDENTIAL TREATMENT REQUESTED] Patents" shall mean all patents
and patent applications throughout the world, including any patents issuing
thereon, and any divisions, extensions, reexaminations, reissues, substitutions,
renewals, continuations or continuations in part thereof that claim as a new
composition of matter a polymer (including block co-polymer) resulting from a
modification of [CONFIDENTIAL TREATMENT REQUESTED] and that resulted from
inventive work during the Program by one or more employees or consultants for
both parties (or their Affiliates), whether or not relating to the Field, and as
to which the employees or consultants would be inventors under the patent laws
of the United States.
1.14 "Joint Technology" shall mean the Joint [CONFIDENTIAL TREATMENT REQUESTED]
Patents, Other Joint Patents and any trade secrets or know-how that resulted
from the joint efforts of the employees or consultants from both parties (or
their Affiliates) as a result of the Program, whether or not relating to the
Field.
1.15 "Key Hymedix People" shall mean [CONFIDENTIAL TREATMENT REQUESTED].
1.16 "Licensed Technology" shall mean the Patent Rights, Joint [CONFIDENTIAL
TREATMENT REQUESTED] Patents, Other Joint Patents and all copyrights, trade
secrets and know-how owned or controlled (including licensed) by Hymedix or an
Affiliate of Hymedix as of the date hereof or hereafter relating to polymers,
hydrogels or drug delivery, including, but not limited to, Joint Technology,
HYPAN structural hydrogels, HYPAN transient network hydrogels, HYPAN (including,
but not limited to, the various designations set forth in Exhibit 1.16 attached
hereto), Ionic HYPAN SA, Taupan, Tpan, Emulsion carriers, HySorb, HySkin, Hydro-
M, HyTide, HyFlex, HyFil, HyQ, HyPack, HyCream, any other related products and
any improvements thereto. Trade secrets and know-how include, but are not
limited to, data, materials, scientific and technical information, formulations,
methods of manufacture, mechanisms of action, sources, clinical uses and
results, regulatory filings, testing protocols, packaging, suppliers of raw
materials and packaging, etc.
1.17 "Major Country" shall mean the United States, France, Germany or the
United Kingdom.
1.18 "Major Market" shall mean the countries in Europe and the countries of
Canada, Japan (to the extent not in the Excluded Territory) and the United
States.
1.19 "Minor Market" shall mean all other countries of the Territory except
the countries of the Major Market.
1.20 "Net Sales" shall mean the gross amount invoiced for Product sold by
ProCyte, its Affiliates and sublicensees, less
(a) trade discounts, credits, rebates, allowances and adjustments for
rejections, recalls or returns;
(b) retroactive price reductions;
(c) sales, excise, value-added and similar taxes or duties imposed on the sale
and shown on the invoice or otherwise capable of documentation;
16
<PAGE>
(d) transportation, insurance and other handling expenses;
(e) cost of samples and free Product; and
(f) management fees described in and complying with 42 C.F.R. Section
1001.952(j) (or any successor) that are paid during the relevant time period
to group purchasing organizations and that specifically relate to the Product.
If amounts are invoiced in other than U.S. dollars, Net Sales shall be converted
to U.S. dollars at the rates of exchange in effect on the last business day of
the calendar quarter in which the invoice was issued (as reported in THE WALL
STREET JOURNAL, Western Edition), or in accordance with any other reasonable
method mutually agreed upon. The sale or transfer of Product between ProCyte,
its Affiliates or sublicensees, whether for internal use or for resale or other
disposition, shall not be included in the computation of Net Sales.
If a Product (a "Combination Product") contains or is sold in combination with
any pharmaceutical agent, device or other product ("Other Items"), Net Sales,
for purposes of calculating royalties on a Combination Product, shall be
calculated by multiplying the Net Sales of the Combination Product by the
fraction A/B, where A is the gross selling price of the Product sold separately
(i.e., without the Other Items) and B is the gross selling price of the
Combination Product. In the event the Product is not sold separately, Net Sales
shall be calculated by multiplying Net Sales of the Combination Product by the
fraction (B-X)/B, where X is the gross selling price of the Other Items sold
separately. In the event that no such separate sales are made, Net Sales shall
be calculated by multiplying Net Sales of the Combination Product by the
fraction C/(C + D), where C is the direct and indirect cost of making the
components of the Product (not including the Other Items) and D is the direct
and indirect cost of making the Other Items of the Combination Product, such
cost being determined in accordance with generally accepted accounting
principles.
1.21 "Other Joint Patents" shall mean all patents and patent applications
throughout the world, including any patents issuing thereon, and any divisions,
extensions, reexaminations, reissues, substitutions, renewals, continuations or
continuations in part thereof that are not Joint [CONFIDENTIAL TREATMENT
REQUESTED] Patents and that resulted from inventive work during the Program by
one or more employees or consultants for both parties (or their Affiliates),
whether or not relating to the Field, and as to which the employees or
consultants would be inventors under the patent laws of the United States.
1.22 "Patent Rights" shall mean the patents and patent applications set
forth in Exhibit 1.22 attached hereto (including the Drug Delivery
Application), any foreign counterparts thereof, any other patents or patent
applications owned or controlled (including licensed) by Hymedix or its
Affiliates as of the date hereof or hereafter relating to polymers, hydrogels
or drug delivery in the Territory (but not including Other Joint Patents and
Joint [CONFIDENTIAL TREATMENT REQUESTED] Patents), and any patents issuing
thereon and any divisions, extensions, reexaminations, reissues, substitutions,
renewals, continuations or continuations in part thereof.
1.23 "Pharmaceutical Product" shall mean a Product containing a
pharmaceutical agent that has received Drug Approval in the country of sale and
for which the selling party (ProCyte or its particular Affiliate or
sublicensee) has a worldwide Profit Margin of greater than
[CONFIDENTIAL TREATMENT REQUESTED].
1.24 "Present HyFil Products" shall mean the two current forms (spray can
and 3 oz. tube) of the Hymedix product known as HyFil and such other finished,
packaged forms (e.g., Confidential Treatment Requested) of the current substance
known as HyFil (i.e., meeting the same substance specifications) as Braun may
request Hymedix to make. The specification for the HyFil substance used in
Present HyFil Products is attached hereto as Exhibit 1.24.
1.25 "Product" shall mean any product for the Field that incorporates, is
based on or is made through the use of, any of the Licensed Technology.
1.26 "Profit Margin" for a Product shall mean the percentage calculated by
the following formula: 100% x (A - B)/A, where A is the average net sales price
during the quarter determined by dividing the Net Sales of the Product for the
quarter by the number of units of the Product sold and included
17
<PAGE>
in such Net Sales, and B is the manufacturing cost of a unit of the Product.
For purposes hereof, "manufacturing cost" means the direct, indirect and
overhead costs (including procurement, quality control and quality assurance)
to manufacture a unit of the Product calculated in accordance with generally
accepted accounting principles (accrual basis) for the preceding calendar year
or, if the Product was not manufactured during the preceding year, the Product's
projected manufacturing costs for the current calendar year.
1.27 "Program" shall mean the research and development program to be
conducted by Hymedix pursuant to Section 2.
1.28 "Royalty Step Down Date" shall mean [CONFIDENTIAL TREATMENT REQUESTED].
1.29 "Royalty Period" shall mean, on a country-by-country basis, for each
Product sold (a) in a Major Market, the date of expiration of the last to expire
of any patents containing a Valid Claim that covers the Product in the country
of sale and (b) in a Minor Market, [CONFIDENTIAL TREATMENT REQUESTED].
1.30 "Sixth Product" shall mean the sixth in a succession of six (6)
different Products that (a) are covered by a Valid Claim in a Major Country and
(b) ProCyte or its Affiliate or sublicensee has introduced to the market in the
Major Country after receiving regulatory approval to market in the Major
Country.
1.31 "SKY" shall mean S.K.Y. Polymers, Inc., a Delaware corporation, that is
majority-owned and controlled by Dr. Vladimir Stoy.
1.32 "SKY Agreement" shall mean the License Agreement dated as of
November 1, 1993 by and between Hymedix and SKY, as supplemented and amended by
a Modification to the License Agreement dated November 14, 1994, an Amendment to
Modification to the License Agreement dated November 13, 1995 and a Modification
No. 2 to the License Agreement dated November 15, 1995.
1.33 "Stoy Agreement" shall mean the Consulting Agreement dated as of
November 1, 1993 by and between Hymedix and Dr. Vladimir Stoy.
1.34 "Territory" shall mean the entire world, except the Excluded Territory
shall be excluded to the extent the Licensed Technology for the Field is
licensed to Europa under the Europa Agreement for the Field. The Territory
shall be increased to the extent countries comprising the Excluded Territory are
dropped from the territory covered by the Europa Agreement or to the extent
Europa's license rights under the Europa Agreement to the Intellectual Property
(as defined in the Europa Agreement), which is included in the Licensed
Technology, are reduced.
1.35 "Third Product" shall mean the third in a succession of three (3)
different Products that (a) are covered by a Valid Claim in a Major Country and
(b) ProCyte or its Affiliate or sublicensee has introduced to the market in the
Major Country after receiving regulatory approval to market in the Major
Country.
1.36 "Trademarks" shall mean the trademarks and tradenames of Hymedix and
its Affiliates related to polymers, hydrogels or Products, including, but not
limited to, the HySorb U.S. trademark set forth in Exhibit 1.36A attached hereto
and the trademark and tradenames set forth in Exhibit 1.36B attached hereto.
1.37 "Valid Claim" shall mean a claim of an issued, unexpired patent
included in the Patent Rights or Joint [CONFIDENTIAL TREATMENT REQUESTED]
Patents, but not including Other Joint Patents, which has not been (a) held
invalid or unenforceable by a final decision of a court or governmental agency
of competent jurisdiction, which decision is unappealable or was not appealed
within the time allowed therefor, or (b) admitted in writing to be invalid or
unenforceable by the holder(s) by reissue, disclaimer or otherwise.
SECTION 2. DEVELOPMENT
2.1 PROGRAM
ProCyte shall fund a research and development program related to the Licensed
Technology (the "Program") at Hymedix through December 31, 1997, with the
specific projects and goals identified
18
<PAGE>
and established by ProCyte after discussion with Hymedix. The amount of funding
to be provided by ProCyte shall be [CONFIDENTIAL TREATMENT REQUESTED]. At
ProCyte's request, Hymedix shall cause each of the Key Hymedix People to spend
up to [CONFIDENTIAL TREATMENT REQUESTED] working on the Program, and such other
Hymedix staff shall assist as appropriate. ProCyte may reallocate among the Key
Hymedix People the amount of time they are to spend on the Program [CONFIDENTIAL
TREATMENT REQUESTED] and request that certain of them travel, at ProCyte's
expense, to ProCyte's facility in Kirkland, Washington to provide services in
connection with the Program. It is recognized and agreed that Dr. Vladimir
Stoy, a consultant to Hymedix, occasionally travels and may not be available
every week to provide services in connection with the Program. If any of the
Key Hymedix People are no longer employees or consultants to Hymedix or provide
such services to Hymedix, ProCyte may hire them directly pursuant to consulting
letters being signed contemporaneously with this Agreement and deduct from any
of its payments due under this Agreement the appropriate amounts for reasonable
compensation to such individuals. At ProCyte's option, the term of the Program
may be extended for one-year terms for up to two (2) years upon the same terms
and conditions.
2.2 REPORTS; INFORMATION
Hymedix shall submit to ProCyte a written report no less frequently than every
six (6) months which covers the then current technical status, the results
achieved, the improvements and inventions made, the problems being encountered
and other pertinent information relating to the Program. Hymedix shall keep,
and shall cause its consultants to keep, complete, accurate and authentic
accounts, notes, data and records of the research and development performed
under the Program in accordance with established laboratory practices and in
accordance with the directions of ProCyte for purposes of patent protection,
publication, etc. At the request of ProCyte, upon reasonable notice and during
reasonable business hours, ProCyte may inspect and make copies of such accounts,
notes, data and records subject to Section 9. ProCyte may require that certain
aspects of the Program and resulting Licensed Technology be kept confidential
and not be disclosed to others, except in accordance with applicable patent
laws. Any inventions, discoveries, improvements, results and data of Hymedix
(including its consultants) from the Program shall become Licensed Technology
under this Agreement. From time to time ProCyte may discuss and provide
information (e.g., market information) to Hymedix in connection with the
Program, which information shall be subject to Section 9.
2.3 MEETINGS
At ProCyte's request, ProCyte and Hymedix shall meet at mutually agreed upon
intervals (no less frequently than two times a year) to discuss and review the
progress and results of the Program and other ideas the parties have for
development of Licensed Technology for the Field. The meetings will be attended
by the Key Hymedix People requested by ProCyte and by specific Hymedix
scientists, staff and consultants requested by ProCyte. If ProCyte requests
that the meetings be held at ProCyte's facility or another facility out of state
from the Hymedix facility, ProCyte shall pay transportation and other related
travel expenses for the Hymedix individuals to attend the meetings. Hymedix
may, at its expense and discretion, send certain of its management personnel (up
to two (2) to attend the meetings.
SECTION 3. GRANT OF RIGHTS
3.1 LICENSE
Subject to the terms of this Agreement, Hymedix hereby grants to ProCyte the
sole and exclusive license (a) under the Licensed Technology to make, have made,
use and sell Products in the Territory for the Field and (b) under the Joint
[CONFIDENTIAL TREATMENT REQUESTED] Patents, Other Joint Patents, Joint
Technology and other Licensed Technology resulting from the Program to make,
have made, use and sell Products worldwide for the Field. The foregoing license
shall be exclusive even as to Hymedix and its Affiliates and shall include the
right of ProCyte to sublicense others. ProCyte shall notify Hymedix within ten
(10) days after granting any sublicenses.
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3.2 EFFORTS
ProCyte shall use reasonable and diligent efforts to develop and commercialize
Products utilizing the Licensed Technology.
3.3 HYFIL
ProCyte hereby grants back to Hymedix a nonexclusive sublicense, without the
right to further sublicense, under the current form of the Licensed Technology
to make, have made and sell to Braun the Present HyFil Products, for resale by
Braun in Canada, the United States and Mexico for the treatment, management or
care of wounds in humans, excluding drug delivery. Hymedix shall not make, have
made or sell Present HyFil Products for or to any other party in or for the
Territory. No royalties shall be payable by Hymedix to ProCyte for such
nonexclusive license; however, Hymedix shall be responsible for paying any
royalties or fees due third parties on such use of the Licensed Technology or
such sale of Present HyFil Products. As soon as Hymedix ceases supplying Braun
the Present HyFil Products under its current relationship, the license set forth
in this Section 3.3 shall terminate. The license set forth in this Section 3.3
does not include any Licensed Technology developed after the date hereof
(including Joint Technology) nor any other property rights of ProCyte. Hymedix
shall promptly notify ProCyte when Hymedix's relationship with Braun regarding
Present HyFil Products terminates.
SECTION 4. MILESTONE PAYMENTS
In partial consideration of the obligations, licenses, representations and
warranties of Hymedix hereunder, ProCyte shall deliver to Hymedix two hundred
thousand (200,000) shares of ProCyte's common stock pursuant to a Stock
Acquisition Agreement in the form attached hereto as Exhibit 4 and shall pay to
Hymedix the following amounts at the time indicated as reduced by the amounts
set forth in Sections 2.1, 11 and 13, provided that Hymedix is not then in
material breach of this Agreement:
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Payment Due Amount
---------------------- ------------------------
[CONFIDENTIAL TREATMENT REQUESTED]
ProCyte shall notify Hymedix within five (5) days of the first market
introductions described in Sections 4(c) and 4(d) unless the date of the market
introduction is after the date set forth in clause (ii) of each of such
Sections.
SECTION 5. ROYALTIES
5.1 AMOUNT
In partial consideration of the obligations, licenses, representations and
warranties of Hymedix hereunder and except as set forth in Section 5.2, ProCyte
shall pay (or cause its Affiliates or sublicensees to pay) to Hymedix a royalty
at one of the following rates with respect to the Net Sales by ProCyte and its
Affiliates and sublicensees during the Royalty Period:
(a) with respect to Products sold in a Major Market, the sale of which infringe
(but for this Agreement) a Valid Claim in the country of sale:
(i) [CONFIDENTIAL TREATMENT REQUESTED] of the Net Sales of such Products
that are not Pharmaceutical Products until the Royalty Step Down Date and then
[CONFIDENTIAL TREATMENT REQUESTED] of such Net Sales; or
(ii) [CONFIDENTIAL TREATMENT REQUESTED] of the Net Sales of such Products
that are Pharmaceutical Products until the Royalty Step Down Date and then
[CONFIDENTIAL TREATMENT REQUESTED] of such Net Sales; or
(b) with respect to Products sold in a Minor Market:
(i) [CONFIDENTIAL TREATMENT REQUESTED] of the Net Sales of such Products
that are not Pharmaceutical Products; or
(ii) [CONFIDENTIAL TREATMENT REQUESTED] of Net Sales of such Products that
are Pharmaceutical Products.
No royalties shall be due with respect to any other sales of Products, except as
set forth above in this Section 5.1, and no multiple royalties shall be payable
hereunder to Hymedix because the Product or its manufacture infringes (but for
this Agreement) more than one Valid Claim in the Patent Rights or Joint
[CONFIDENTIAL TREATMENT REQUESTED] Patents.
5.2 CREDITS/OFFSETS; WITHHOLDING
The foregoing royalty set forth in Section 5.1 shall be reduced by
(a) [CONFIDENTIAL TREATMENT REQUESTED] that ProCyte and its Affiliates and
sublicensees owe to a third party with respect to the Net Sales, provided that
the amount of royalties and fees to be applied as a reduction at any time shall
not exceed [CONFIDENTIAL TREATMENT REQUESTED] due pursuant to Section 5.1 prior
to any other credits, offsets or deductions, and (b) the payments made pursuant
to Sections 2.1, 11, 13 and 17 that are not credited, at ProCyte's election,
against the payments due under Section 4. In addition, all the payments made
under Section 4(c) and (d) may be credited against the foregoing royalty
obligation at a rate up to an amount equal to [CONFIDENTIAL TREATMENT REQUESTED]
of the Net Sales of Products that are not Pharmaceutical Products and
[CONFIDENTIAL TREATMENT REQUESTED] of the Net Sales of Products that are
Pharmaceutical Products. Any taxes levied by or for a jurisdiction on any
royalties due Hymedix may be withheld from the royalty payments due hereunder
and used to pay such taxes, confirmation of such payment being promptly provided
to Hymedix.
5.3 PAYMENT
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Royalties shall be paid within sixty (60) days after the end of each fiscal
quarter of ProCyte or its Affiliates or sublicensees. If Net Sales are in a
currency that cannot be converted to U.S. dollars and exported to the United
States, royalties on such Net Sales shall be calculated and paid in the currency
of the country of sale by depositing such royalties in a bank account
established in the name of Hymedix.
5.4 REPORTS
With each royalty payment, Hymedix shall receive a written report describing the
Net Sales for the quarter on which royalties are due, including a breakdown by
Product type and country.
5.5 BOOKS AND RECORDS
ProCyte shall keep accurate books of account and records for the purpose of
documenting the Net Sales on which royalties are due and the computation of all
royalties payable to Hymedix under this Agreement. Such books and records shall
be made available at least once per year at times selected by mutual agreement
of the parties for inspection, at Hymedix's expense, by an independent certified
public accountant selected by Hymedix and reasonably acceptable to ProCyte to
confirm the calculation of royalties due hereunder within the last three (3)
years. All matters reviewed by such accountant shall be subject to the terms of
Section 9. In addition, upon reasonable notice and at least once per year,
ProCyte will allow certain of its working papers for the calculation of
royalties, at its sole discretion, to be made available to up to two (2)
employees of Hymedix for an informal review and discussion of methodology at
ProCyte's offices.
SECTION 6. SUPPLY OF MATERIAL
6.1 [CONFIDENTIAL TREATMENT REQUESTED] AND HYPAN
Within ten (10) days of the date hereof, Hymedix shall deliver to ProCyte,
f.o.b. destination designated by ProCyte, [CONFIDENTIAL TREATMENT REQUESTED] of
[CONFIDENTIAL TREATMENT REQUESTED] at no charge or expense to ProCyte except for
transportation costs from Dayton, New Jersey, which ProCyte shall pay.
Thereafter, and from time to time, Hymedix shall deliver to ProCyte, f.o.b.
destination designated by ProCyte, within thirty (30) days such quantities of
[CONFIDENTIAL TREATMENT REQUESTED], as ordered from time to time at ProCyte's
sole discretion, up to an aggregate of [CONFIDENTIAL TREATMENT REQUESTED], for
which ProCyte shall pay cost plus twenty percent (20%), net thirty (30) days
after each delivery. After ProCyte has qualified another supplier of
[CONFIDENTIAL TREATMENT REQUESTED] pursuant to Section 6.2 and is satisfied with
the supply arrangements with the other supplier, the amount of Hymedix's
[CONFIDENTIAL TREATMENT REQUESTED] to be reserved for ProCyte pursuant to the
preceding sentence may be reduced from [CONFIDENTIAL TREATMENT REQUESTED], but
not earlier than one year after the date of this Agreement. In addition,
Hymedix shall, upon request, make and deliver to ProCyte f.o.b. Dayton, New
Jersey, within sixty (60) days of any orders any of the various grades and types
of HYPAN (with such other specifications as ProCyte may reasonably request) that
ProCyte may order, for which ProCyte shall pay [CONFIDENTIAL TREATMENT
REQUESTED], net thirty (30) days after each delivery. For purposes hereof,
"cost" shall mean (a) for [CONFIDENTIAL TREATMENT REQUESTED] to be delivered
pursuant to the second sentence of this Section 6.1, Hymedix's purchase price
for the [CONFIDENTIAL TREATMENT REQUESTED] [CONFIDENTIAL TREATMENT REQUESTED]
and its out-of-pocket costs for packaging, insurance and transportation to
ProCyte and (b) for HYPAN, Hymedix's direct, indirect and overhead manufacturing
costs and out-of-pocket costs for packaging. If requested, Hymedix shall
provide ProCyte with quotes of the maximum cost for manufacturing the forms of
HYPAN desired by ProCyte.
6.2 ALTERNATIVE SOURCE OF [CONFIDENTIAL TREATMENT REQUESTED]
Hymedix shall assist ProCyte in identifying, testing and qualifying another
party that will supply to ProCyte on a regular and reasonable basis in the
future [CONFIDENTIAL TREATMENT REQUESTED] meeting the same specifications and
having the same characteristics when used to
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make the various forms of polymers and hydrogels as [CONFIDENTIAL TREATMENT
REQUESTED]. ProCyte shall not be obligated to pay the milestone payment
described in Section 4(b) unless ProCyte has so qualified another party.
6.3 BOOKS AND RECORDS
Hymedix shall keep accurate books of accounts and records for the purpose of
documenting and calculating its costs in providing [CONFIDENTIAL TREATMENT
REQUESTED] and HYPAN to ProCyte pursuant to Section 6.1. Such books and records
shall be available for inspection as to any order or series of orders placed by
ProCyte on a day selected by mutual agreement of the parties for inspection, at
ProCyte's expense, by an independent certified public accountant selected by
ProCyte and reasonably acceptable to Hymedix. All matters reviewed by such
accountant shall be subject to the terms of Section 9. In addition, upon
reasonable notice and at its sole discretion, Hymedix may allow its books and
records to be made available to an employee of ProCyte for an informal review
and discussion of methodology at Hymedix offices.
SECTION 7. TECHNOLOGY TRANSFER
Upon execution of this Agreement, Hymedix shall deliver to ProCyte in written
form (a) all manufacturing protocols (including partial protocols) for its
Products, polymers and hydrogels licensed hereunder; (b) copies of all files
related to FDA applications and registrations (including correspondence and the
information described in items 1 through 6 of Exhibit 7 attached hereto); and
(c) Hymedix's market research in the Field. Hymedix shall promptly continue to
convey to ProCyte all other forms of the Licensed Technology. Hymedix shall
permit employees or consultants of ProCyte to examine in Hymedix's offices the
books, records and files of Hymedix relating to the information described in
Exhibit 7 attached hereto, in addition to other materials, and to make copies
thereof. To assist in further transfer, ProCyte may place its employees or
consultants in the laboratories and facilities of Hymedix and its Affiliates to
learn the Licensed Technology and may consult with, and Hymedix shall make
available to ProCyte, each of the Key Hymedix People [CONFIDENTIAL TREATMENT
REQUESTED] regarding the substance and use of the Licensed Technology. ProCyte
shall pay the reasonable travel costs for any Key Hymedix People that it
requests to travel to ProCyte's facility. As new Licensed Technology is
developed, Hymedix shall promptly and fully disclose it to ProCyte.
SECTION 8. REGULATORY
Hymedix shall, in writing and pursuant to ProCyte's instructions, notify the FDA
and other applicable regulatory agencies that ProCyte has been assigned the
registrations of Hymedix and its Affiliates in the Territory for Products for
the Field (all of which are identified in Exhibit 8 attached hereto) and that
ProCyte is the manufacturer and distributor of such Products in the Territory,
except to the extent that Hymedix and Braun need to be identified as a
manufacturer and distributor, respectively, of Present HyFil Products. The form
of notification, assignment or any other papers to be filed or submitted to the
FDA shall be prepared by, and approved by, ProCyte after consultation with
Hymedix. Hymedix shall cooperate and assist in the transfer to ProCyte (and
upon request execute such assignments and other documents) of any other
regulatory filings, approvals applications, registrations, product listings and
any materials containing information related thereto, that may be in
preparation, for any Products for the Field that are being developed for
manufacture, distribution or sale in the Territory.
In the event the FDA or other regulatory agency notifies Hymedix or any of its
Affiliates of a problem or a concern with respect to use of the Licensed
Technology with humans, Hymedix shall promptly notify ProCyte orally and then
with a written summary and, except for the Present HyFil Products manufactured
and sold by Hymedix to Braun, allow ProCyte to prepare and manage the response
to the FDA or other regulatory agency with respect to Products in the Territory
for the Field. In the event Hymedix or any of its Affiliates otherwise become
aware of a matter which may relate to the safety of using the Licensed
Technology with humans, Hymedix shall promptly notify ProCyte. In the event the
FDA or other regulatory agency notifies ProCyte or its Affiliates of a problem
or concern
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with respect to the use of HYPAN with humans, ProCyte shall promptly notify
Hymedix orally and then with a written summary.
Hymedix hereby consents to, and shall cooperate and assist in, referencing any
master files of Hymedix or its Affiliates with the FDA or other regulatory
agencies [CONFIDENTIAL TREATMENT REQUESTED] by ProCyte and its Affiliates and
sublicensees in connection with any of their applications or filings with the
FDA or other regulatory agencies. Hymedix shall promptly notify ProCyte of any
additions or modifications to such master files.
SECTION 9. CONFIDENTIALITY
During the term of this Agreement and for a period of five (5) years thereafter,
each party shall keep confidential and not disclose or use (except as
contemplated by this Agreement) any proprietary or confidential information
received from the other party. The foregoing obligation of nondisclosure and
nonuse shall not apply to any information which (a) is independently developed
by the other party as shown by suitable documentary evidence, (b) is already
known to the recipient at the time of disclosure, (c) is or becomes public
knowledge through no fault of the recipient, (d) is received without an
obligation of confidentiality from a third party having the lawful right to
disclose same, (e) the disclosing party approves in writing may be disclosed, or
(f) is required by law to be disclosed, provided the recipient has used
reasonable efforts to secure confidential treatment of the information and given
prior written notice to the other party. With respect to Licensed Technology
that is proprietary or confidential information and subject to Section 2.2
regarding Licensed Technology resulting from this Program that ProCyte requests
be kept confidential by Hymedix, (i) Hymedix and its Affiliates shall keep
confidential and not disclose the Licensed Technology in accordance with this
Section 9, (ii) a party may disclose such information to its Affiliates,
sublicensees, consultants, outside contractors and clinical investigators, on a
need-to-know basis, on condition that such persons or entities agree to keep the
information confidential upon substantially the same terms as set forth herein,
(iii) a party or its Affiliates or sublicensees may disclose the information to
governmental or other regulatory authorities to the extent that such disclosure
is reasonably necessary to obtain patents or authorizations to conduct clinical
trials, provided the disclosing party shall request confidential treatment
thereof, and (iv) a party or its Affiliates or sublicensees may disclose the
information to the extent necessary to market Products commercially.
This Section 9 shall, after the date hereof, apply to all confidential or
proprietary information that the parties disclosed to each other or their
Affiliates prior to the date hereof. The parties' obligations prior to the date
hereof are governed by a Mutual Confidentiality and Non-disclosure Agreement
dated May 30, 1995.
SECTION 10. RIGHTS IN JOINT PATENTS
10.1 JOINT [CONFIDENTIAL TREATMENT REQUESTED] PATENTS
Subject to the term of this Agreement, ProCyte hereby grants to Hymedix a
royalty-free, exclusive license under its rights in the Joint [CONFIDENTIAL
TREATMENT REQUESTED] Patents to make, have made, use and sell products worldwide
outside of the Field. The foregoing license shall be exclusive even as to
ProCyte and its Affiliates. Hymedix shall notify ProCyte within ten (10) days
after granting any licenses to use the Joint [CONFIDENTIAL TREATMENT REQUESTED]
Patents outside of the Field. It is recognized and agreed that Hymedix's
interest in the Joint [CONFIDENTIAL TREATMENT REQUESTED] Patents has been
licensed exclusively to ProCyte for the Field pursuant to Section 3.1(b).
10.2 OTHER JOINT PATENTS
It is recognized and agreed that Hymedix's interests in the Other Joint Patents
have been licensed exclusively to ProCyte for the Field pursuant to Section
3.1(b) and that the parties have retained, and have not granted license rights
to, their undivided interests in the Other Joint Patents for use outside the
Field.
SECTION 11. PATENT PROSECUTION AND MAINTENANCE
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11.1 REEXAMINATION/REISSUE AND EUROPEAN PROSECUTION
ProCyte shall have the right, at its expense, to pursue in the United States
[CONFIDENTIAL TREATMENT REQUESTED] before the Patent and Trademark Office and
shall have the right, at its expense, to prosecute, issue and maintain the Drug
Delivery Application and, in European countries of its selection, [CONFIDENTIAL
TREATMENT REQUESTED]. All of ProCyte's reasonable expenses in connection
therewith may be deducted from payments due under Sections 4 and/or 5 at
ProCyte's election. Hymedix shall be promptly notified when ProCyte has paid in
excess of [CONFIDENTIAL TREATMENT REQUESTED] of such expenses. ProCyte shall
confer with Hymedix and its consultants (including Dr. Vladimir Stoy) and
counsel regarding such reexamination/reissue, prosecution, issuance and
maintenance and shall provide to Hymedix copies of any official action within
thirty (30) days of receipt and advance copies of, for the opportunity for
Hymedix and its consultants and counsel to discuss and offer proposed changes
to, any proposed filing, submission or other correspondence by ProCyte or patent
counsel with respect thereto. In the event ProCyte elects to abandon such
reexamination/reissue or patent applications, it shall promptly notify Hymedix
(but in any event no later than thirty (30) days in advance of any deadline with
respect to the patent applications) and allow and assist Hymedix, at Hymedix's
election and expense, to pursue such reexamination/reissue or patent
applications.
11.2 PATENT RIGHTS
Except as provided in Section 11.1, Hymedix shall, at its expense, diligently
and in good faith file, prosecute, issue and maintain the Patent Rights in the
Major Markets and Japan. Hymedix shall confer with ProCyte and its counsel
regarding the filing, prosecution, issuance and maintenance of such Patent
Rights and shall provide to ProCyte copies of any official action within thirty
(30) days of receipt and advance copies of, with the opportunity for ProCyte to
discuss and offer proposed changes to, any proposed filing, submission or other
correspondence by Hymedix or its licensors and patent counsel. In the event
Hymedix elects to abandon or not file on any Patent Rights, it shall promptly
notify ProCyte (but in any event no later than thirty (30) days in advance of
any deadline) and allow and assist ProCyte, at ProCyte's election and expense,
to pursue such Patent Rights, in which event ProCyte's costs may be deducted
from payments due under Sections 4 and/or 5, at ProCyte's election, and such
Patent Rights shall be assigned to ProCyte and not be royalty bearing hereunder
(i.e., removed from the definition of Patent Rights and Valid Claim).
11.3 JOINT [CONFIDENTIAL TREATMENT REQUESTED] PATENTS
Hymedix shall have the right, at its expense, to diligently and in good faith
file, prosecute, issue and maintain the Joint [CONFIDENTIAL TREATMENT REQUESTED]
Patents in the Major Markets and Japan. Hymedix shall confer with ProCyte and
its counsel regarding the filing, prosecution, issuance and maintenance of all
Joint [CONFIDENTIAL TREATMENT REQUESTED] Patents and incorporate all requested
changes. Hymedix shall provide to ProCyte copies of any official action within
thirty (30) days of receipt and advance copies of, with the opportunity for
ProCyte to revise, any proposed filing, submission or other correspondence by
Hymedix or its patent counsel. In the event Hymedix elects to abandon or not
file on any Joint [CONFIDENTIAL TREATMENT REQUESTED] Patents, it shall promptly
notify ProCyte (but in any event no later than thirty (30) days in advance of
any deadline) and allow and assist ProCyte, at ProCyte's election and expense,
to pursue such Joint [CONFIDENTIAL TREATMENT REQUESTED] Patents, in which event
ProCyte's costs may be deducted from payments due under Sections 4 and/or 5, at
ProCyte's election, and such Joint [CONFIDENTIAL TREATMENT REQUESTED] Patents
shall be assigned to ProCyte and not be royalty bearing hereunder (i.e., removed
from the definition of Joint [CONFIDENTIAL TREATMENT REQUESTED] Patents and
Valid Claim). In the event of such assignment, Hymedix's license rights under
Section 10.1 shall terminate, and Hymedix shall have no further right or
interest in such Joint [CONFIDENTIAL TREATMENT REQUESTED] Patent.
11.4 OTHER JOINT PATENTS
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ProCyte shall have the right, at its expense, to diligently and in good faith
file, prosecute, issue and maintain the Other Joint Patents in the Major
Countries, Japan and such other countries in the Territory designated by
ProCyte. Hymedix shall promptly reimburse ProCyte for [CONFIDENTIAL TREATMENT
REQUESTED] of ProCyte's expenses with respect to such Other Joint Patents.
ProCyte shall confer with Hymedix and its counsel regarding the filing,
prosecution, issuance and maintenance of all Other Joint Patents and shall
provide to Hymedix copies of any official action within thirty (30) days of
receipt and advance copies of, with the opportunity for Hymedix to discuss and
offer proposed changes to, any proposed filing, submission or other
correspondence by ProCyte or its patent counsel. In the event ProCyte elects to
abandon or not file on any Other Joint Patents, it shall promptly notify Hymedix
(but in any event no later than thirty (30) days in advance of any deadline) and
allow and assist Hymedix, at Hymedix's election and expense, to pursue such
Other Joint Patents.
11.5 COOPERATION
Each party shall cooperate and assist the other party in connection with the
filing, prosecution, issuance, reexamination and maintenance of Patent Rights,
Joint [CONFIDENTIAL TREATMENT REQUESTED] Patents and Other Joint Patents. Where
appropriate, each party shall sign, or cause to have signed, all documents
relating to the patent applications or patents for the Patent Rights, Joint
[CONFIDENTIAL TREATMENT REQUESTED] Patents and Other Joint Patents.
SECTION 12. ENFORCEMENT OF PATENTS
12.1 EXCLUSIVE LICENSE RIGHTS
Upon learning of the infringement of the Patent Rights in the Territory for the
Field or infringement of the Joint [CONFIDENTIAL TREATMENT REQUESTED] Patents or
Other Joint Patents to the extent exclusively licensed to a party hereunder, a
party shall promptly notify the other party in writing of the infringement and
the evidence pertaining to such infringement. The party whose exclusive license
rights hereunder are being infringed shall have three (3) months from the date
of learning of the infringement to abate the infringement or to file suit
against at least one of the infringers, at its sole expense, following
consultation with the other party. The party who has a right to bring an
infringement suit shall not be obligated to bring or maintain more than one such
suit at any time with respect to infringers of the same patent. If counsel
reasonably concludes that the other party is a necessary or indispensable party
to such suit, the party bringing the suit may use the name of, or join, the
other party.
If the party who has the right to bring the infringement suit does not bring the
suit within the time set forth in the preceding paragraph, the other party shall
have the right to take whatever action it deems appropriate in its own name or,
if required by law, in the name of the party whose exclusive license rights are
being infringed.
All monies recovered upon the final judgment or settlement of any infringement
suit shall, after reimbursement of the expenses of the parties bringing any such
suit (including reasonable attorneys' fees), be shared by the parties in a ratio
of [CONFIDENTIAL TREATMENT REQUESTED] where [CONFIDENTIAL TREATMENT REQUESTED]
goes to the party who brought the suit and [CONFIDENTIAL TREATMENT REQUESTED]
goes to the other party.
12.2 OTHER JOINT PATENTS
Upon learning of the infringement of the Other Joint Patents outside of the
Field, a party shall promptly notify the other party in writing of the fact and
supply the other party with all evidence pertaining to such infringement.
ProCyte shall have the first right to abate the infringement or file suit
against at least one of the infringers, at its sole expense, after consultation
with Hymedix. All other procedures, rights and obligations with respect to such
infringement suit or the right of Hymedix to bring an infringement suit in the
event the infringement is not abated or the suit is not filed by ProCyte shall
be governed by Section 12.1 MUTATIS MUTANDIS.
12.3 ASSISTANCE
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Both parties shall fully cooperate with and assist each other in matters
pertaining to infringement suits brought under Section 12.1 or 12.2.
12.4 SETTLEMENT
The party bringing the infringement suit covered by this Section 12 shall not
settle the suit or otherwise consent to an adverse judgment in such suit in a
manner that diminishes the rights or interests of the other party without the
other party's written consent, which consent shall not be unreasonably withheld.
The other party shall have the right to participate, at its expense and with
counsel of its choosing, in an infringement suit brought by the other party to
the extent its rights in any patents or other proprietary rights are being
challenged.
SECTION 13. INFRINGEMENT OF THIRD-PARTY PATENTS
In the event ProCyte or its Affiliates or sublicensees are sued for infringement
of a patent or other proprietary right of a third party (or bring a suit for
declaratory judgment of noninfringement or invalidity) in connection with and
related to the use of the Licensed Technology, any royalties due with respect to
such Product and any milestone payments due pursuant to Section 4 may be
withheld during the pendency of such suit. Any costs and expenses (including
reasonable attorneys' fees) incurred in defending such suit and any settlement
or judgments may be deducted from such withheld royalties or milestone payments
and, if insufficient, from any future royalties or milestone payments. Any
withheld royalties or milestone payments not applied to such costs, expenses,
judgment or settlement shall be promptly paid to Hymedix after such judgment or
settlement.
SECTION 14. WARRANTIES AND REPRESENTATIONS
14.1 BOTH PARTIES
Each party hereby represents and warrants to the other that:
(a) It (i) is a corporation duly organized, validly existing and in good
standing under the laws of the state in which it is incorporated, (ii) has the
corporate power and authority and the legal right to own and operate its
property and assets, to lease the property and assets it operates under lease,
and to carry on its business as it is now being conducted, and (iii) is in
compliance with all requirements of applicable law, except to the extent that
any noncompliance would not have a material adverse effect on its properties,
business, financial or other condition or ability to perform its obligations
under this Agreement.
(b) It (i) has the corporate power and authority and the legal right to enter
into this Agreement and to perform its obligations hereunder and (ii) has taken
all necessary corporate action on its part to authorize the execution and
delivery of this Agreement and the performance of its obligations hereunder.
This Agreement has been duly executed and delivered on its behalf and
constitutes a legal, valid and binding obligation, enforceable against it in
accordance with its terms.
(c) All necessary consents, approvals and authorizations of all governmental
authorities and other persons required to be obtained in connection with its
execution, delivery and performance of this Agreement have been obtained.
(d) Notwithstanding anything to the contrary in this Agreement, its execution,
delivery and performance of this Agreement (i) will not conflict with or violate
any requirement of applicable laws or regulations and (ii) will not conflict
with, violate or breach or constitute a default or require any consent under any
of its contractual obligations.
14.2 HYMEDIX
Hymedix hereby represents and warrants to ProCyte that:
(a) Notwithstanding anything to the contrary in this Agreement, its execution,
delivery and performance of this Agreement will not conflict with, violate,
breach or constitute a default or require any consent under any contractual
obligations of its Affiliates, including Hymedix, Inc.
(b) Hymedix and its Affiliates have not granted, and will not grant during the
term of this Agreement, any rights or licenses in the Licensed Technology in the
Territory for the Field.
(c) Exhibit 1.22 contains a list of all current patents and patent applications
owned or controlled (including licensed) by Hymedix or its Affiliates that
Hymedix believes may have some usefulness in
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the Territory for the Field and that are included in the Licensed Technology.
All such patents and patent applications have been assigned to Hymedix or, with
respect to [CONFIDENTIAL TREATMENT REQUESTED], have been licensed to SKY, which
has sublicensed them to Hymedix pursuant to the SKY Agreement.
(d) Except for Licensed Technology licensed by Hymedix under the SKY Agreement,
all the current Licensed Technology is owned by Hymedix and none of it is
licensed from third parties. The Licensed Technology is free and clear of any
liens, claims, encumbrances or rights of others for use in the Territory for the
Field.
(e) True and correct copies of the Europa Agreement, SKY Agreement and Stoy
Agreement have been delivered to ProCyte, which agreements have not been
modified, changed, waived or materially breached in any respect. True and
correct copies of all other agreements of Hymedix or its Affiliates relating to
any of the Licensed Technology or any products to be made through the use of the
Licensed Technology have been delivered to ProCyte, which agreements have not
been modified, changed or waived in any respect. Except for the SKY Agreement
and Stoy Agreement, Hymedix and its Affiliates have no other agreements or
understandings with SKY or Dr. Vladimir Stoy.
(f) Hymedix or its Affiliates have not received or been notified of any claim
of infringement or misappropriation of any alleged rights asserted by another
party that relate to the Licensed Technology in the Territory for the Field.
(g) The making, using and selling of polymers and hydrogels described in the
patents and patent applications set forth in Exhibit 1.22, the six (6) current
products of Hymedix for wound care set forth in Exhibit 8 or other Products
based on the Licensed Technology will not infringe any rights of others and will
not require a license from, or royalty payment to, another party, other than to
SKY, which Hymedix shall pay.
(h) Hymedix and its Affiliates are not aware of any patents, pending patent
applications or proprietary rights of any third party which could materially
affect the ability of ProCyte to use the Licensed Technology as licensed
hereunder.
(i) SKY or Dr. Vladimir Stoy does not have any patents, pending patent
applications, patentable inventions or trade secrets that have not been licensed
to Hymedix and included in the Licensed Technology in the Territory that could
be useful for the Field.
(j) Except for Dr. Vladimir Stoy, who is an outside consultant to Hymedix, all
of the other [CONFIDENTIAL TREATMENT REQUESTED] Key Hymedix People and the other
employees of Hymedix have signed agreements (the form of which has been provided
to ProCyte) that require them to assign to Hymedix any patentable inventions and
trade secrets that relate to polymers, hydrogels or drug delivery that they may
conceive or make during the term of their employment with Hymedix, whether or
not made in the course of employment.
(k) All consultants and employees of Hymedix and its Affiliates are obligated
to keep confidential and not disclose to others any of the Licensed Technology
or information received from ProCyte upon terms substantially the same as those
set forth in Section 9.
(l) SKY and Dr. Vladimir Stoy are obligated to license or assign to Hymedix any
patentable inventions or trade secrets that they may make or develop, the terms
of any license or assignment to be in accordance with the SKY Agreement and Stoy
Agreement.
(m) Hymedix and its Affiliates are not aware of any party that has infringed or
misappropriated, or is or may soon be infringing, the Licensed Technology in the
Territory for the Field.
(n) All adverse events and other material problems (including comments and
concerns of the FDA and other regulatory agencies) with respect to the use of
any Product with or in humans (or in preclinical testing with animals) have been
disclosed to ProCyte.
(o) Hymedix and its Affiliates are not aware of any inherent properties of the
polymers or hydrogels made through the use of, or covered by, the Licensed
Technology that make any of them unsuitable for use in wound care, drug delivery
or extrusion of thin films or other forms.
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(p) Hymedix has disclosed to ProCyte all material information relating to the
use of the Licensed Technology in the Territory for the Field.
(q) Hymedix has disclosed to ProCyte all specifications, analytical methods,
records and data (including QC instability testing) relating to the
[CONFIDENTIAL TREATMENT REQUESTED].
(r) Hymedix and its Affiliates are not aware of any problem that [CONFIDENTIAL
TREATMENT REQUESTED] Industries, Inc. has had in delivering [CONFIDENTIAL
TREATMENT REQUESTED] to others or any reason why it cannot provide acceptable
[CONFIDENTIAL TREATMENT REQUESTED] to ProCyte that would be equivalent to
[CONFIDENTIAL TREATMENT REQUESTED].
(s) The Marketing and Distribution Agreement dated as of July 30, 1993 between
Brady and Hymedix has been terminated. Neither Brady nor Braun have any rights
or licenses with respect to the Licensed Technology, except Braun's right to
distribute the Present HyFil Products as described in Section 3.3 for the
foreseeable future.
(t) Hymedix has delivered to ProCyte true and complete copies of all
manufacturing protocols (including partial protocols) and specifications for its
polymers and hydrogels licensed hereunder and all of its files related to
applications and registrations (including correspondence) with the FDA and other
regulatory agencies.
(u) Hymedix owns and has validly registered the trademarks "HySorb" and "HYPAN"
and such registrations and Hymedix's rights therein have not been challenged or
disputed.
(v) Hymedix and its Affiliates are not aware of any party that has infringed or
intends to make unauthorized use of any of the Trademarks.
(w) Hymedix and its Affiliates have not received or been notified of any claim
that the use of the Trademarks will infringe or violate any alleged rights of
another party.
(x) The use of the Trademarks will not infringe or violate the rights of
another party and will not require a license from, or royalty payment to,
another party.
(y) Hymedix and its Affiliates are not aware of any trademarks or tradenames
which could materially affect the ability of ProCyte to use the Trademarks as
assigned and licensed hereunder.
14.3 PROCYTE
ProCyte hereby represents and warrants to Hymedix that all consultants and
employees of ProCyte are obligated to keep confidential and not disclose to
others any of the Licensed Technology or information received from Hymedix upon
terms substantially the same as those set forth in Section 9.
SECTION 15. COVENANTS
Hymedix covenants and agrees that:
15.1 Hymedix and its Affiliates shall not knowingly sell or provide, whether
directly or indirectly, any form of [CONFIDENTIAL TREATMENT REQUESTED] or other
form of [CONFIDENTIAL TREATMENT REQUESTED], polymers, HYPAN or Product to anyone
who Hymedix or its Affiliates know or have reason to suspect will use or sell
such material in the Territory for the Field, except for Present HyFil Products
that it may supply to Braun for the foreseeable future pursuant to Section 3.3.
15.2 Hymedix and its Affiliates shall not disclose proprietary Licensed
Technology (whether under an obligation of confidentiality or otherwise) to a
party who they know or reasonably suspect will use such Licensed Technology in
the Territory for the Field.
15.3 Hymedix shall not waive or fail to exercise any of its rights or breach
or fail to perform any of its obligations under the SKY Agreement and Stoy
Agreement. Hymedix shall not amend or modify the terms of the SKY Agreement and
Stoy Agreement that relate to or affect the Licensed Technology in the Territory
for the Field, including royalties, fees, licenses, rights and other terms.
15.4 Hymedix shall not terminate the Stoy Agreement prior to [CONFIDENTIAL
TREATMENT REQUESTED]. Hymedix shall not terminate the SKY Agreement prior to
the last to expire of any patents included in the Technology (as defined in the
SKY Agreement) licensed to Hymedix under the SKY Agreement for the Field and
shall not terminate its monthly license maintenance fee payments pursuant
to Section 5 of the SKY Agreement prior to [CONFIDENTIAL TREATMENT REQUESTED]
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<PAGE>
without the prior written consent of ProCyte. It is recognized that, under the
most recent amendment to the SKY Agreement (i.e., "Modification No. 2 to the
Licensed Agreement"), upon termination of the monthly license maintenance fee
payments Hymedix will not have license rights to any Technology developed, made
or conceived thereafter by SKY, but the license rights for the then-existing
Technology will continue.
15.5 Hymedix shall pay all royalties and fees (including monthly maintenance
fees) due SKY under the SKY Agreement and Stoy Agreement.
15.6 Hymedix shall not increase the rights of Europa in the Excluded
Territory for the Field, or increase the amount of Licensed Technology covered
by the Europa Agreement, without the prior written consent of ProCyte. It is
recognized that ProCyte has licensed, in the Excluded Territory, rights under
this Agreement to Products for drug delivery and certain other Licensed
Technology not covered by the Europa Agreement, including, for example, Joint
Technology. Hymedix shall not provide or license to Europa any Joint Technology
or other Licensed Technology resulting from the Program.
SECTION 16. INDEMNIFICATION
ProCyte shall indemnify and hold harmless Hymedix, its Affiliates, directors,
employees and agents from any liability for damage to or loss of property or
injury to or death of any persons arising out of ProCyte's possession or use of
the Licensed Technology, except to the extent such damage, loss, injury or death
results from the negligence or willful misconduct of Hymedix. Upon receipt by
Hymedix of any claim or suit with respect to which ProCyte is required to
provide indemnification hereunder, Hymedix shall promptly notify ProCyte and
permit ProCyte to handle and control the defense of such claim or suit. ProCyte
shall have the sole right to settle such claim or suit.
Hymedix shall indemnify and hold harmless ProCyte, its Affiliates, directors,
employees and agents from any liability, claim, damage, loss, cost or expense
(including reasonable attorneys' fees) arising from or related to any breach of
this Agreement by Hymedix (including a breach of representation or warranty) or
[CONFIDENTIAL TREATMENT REQUESTED].
SECTION 17. TRADEMARKS
17.1 ASSIGNMENT OF HYSORB TRADEMARK
Hymedix hereby assigns and transfers to ProCyte all right, title and interest in
and to the registered Trademark "HySorb" that is set forth in Exhibit 1.36A, any
other rights of Hymedix or its Affiliates to the "HySorb" name anywhere in the
Territory and any goodwill connected with its use in the United States and the
Territory. Hymedix shall cooperate with ProCyte, and sign such other documents
as may be reasonably requested, to effectuate such assignment and transfer.
Upon termination of this Agreement prior to the end of its term set forth in
Section 18.1, ProCyte shall reassign to Hymedix the Trademark, rights and
goodwill for "HySorb."
17.2 GRANT OF EXCLUSIVE LICENSE
Except for the "HySorb" Trademark, which has been assigned pursuant to
Section 17.1, Hymedix hereby grants to ProCyte a royalty-free, worldwide,
exclusive right and license (with right to sublicense) to use the Trademarks in
the Territory for the Field.
17.3 ENFORCEMENT OF TRADEMARKS
In the event a party becomes aware of any infringement or unauthorized use by
others of the Trademarks, other than the "HySorb" Trademark (the "Other
Trademarks"), in the Territory for the Field, the party shall promptly notify
the other party in writing of the infringement or unauthorized use and Hymedix
shall have the initial right to bring a suit to abate the infringement or
unauthorized use. In the event Hymedix does not bring a suit within thirty (30)
days of learning of the infringement or unauthorized use, ProCyte, at its
discretion and expense, may bring suit in its own name, or, if required by law,
in the name of Hymedix, retaining all proceeds from any judgment or settlement
of such suit.
17.4 QUALITY CONTROL; USE OF -Registered Trademark-
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ProCyte shall use commercially reasonable efforts to ensure that its use of the
Other Trademarks does not materially impair the goodwill or reputation of the
Other Trademarks. Hymedix shall ensure that it and its licensees of the Other
Trademarks outside of the Field adhere to established standards of quality so as
not to impair the goodwill, reputation or value of the Other Trademarks.
ProCyte shall appropriately use the symbol "-Registered Trademark-" in
connection with the HYPAN-Registered Trademark- Trademark.
17.5 REGISTRATIONS BY PROCYTE
At its expense, ProCyte shall have the right, but not the obligation, to
register the Other Trademarks in any countries in the Territory for the Field
and to register the trademark "HySorb" in any countries in the Territory.
Hymedix shall cooperate with and assist ProCyte in the registrations for the
Trademarks where appropriate. ProCyte may deduct from any royalties due under
Section 5 [CONFIDENTIAL TREATMENT REQUESTED] of its costs and expenses in
registering the Other Trademarks.
SECTION 18. TERM AND TERMINATION
18.1 TERM
This Agreement shall remain in full force and effect until the expiration of the
last to expire of any patents included in the Patent Rights or Joint
[CONFIDENTIAL TREATMENT REQUESTED] Patents. Upon expiration of the term of this
Agreement, ProCyte shall have a fully paid-up, royalty-free, perpetual license
to use the Licensed Technology nonexclusively and to use the Trademarks
exclusively in the Territory for the Field.
18.2 TERMINATION
(a) ProCyte shall have the right to terminate this Agreement at any time upon
sixty (60) days' prior written notice to Hymedix. After such notice of
termination, ProCyte shall not have any obligation to make a milestone payment
due under Section 4 that accrues after such notice but before the effective date
of termination (i.e., for purposes of the milestone payments in Section 4, the
date of notice shall be deemed the date of termination). In the event ProCyte
terminates this Agreement in accordance with this Section 18.2(a), ProCyte shall
grant to Hymedix, at its request, a royalty-free, nonexclusive, worldwide
license (with right to sublicense) to use any improvements to the Licensed
Technology made by ProCyte during the term of this Agreement that are only
usable in connection with the Licensed Technology and that are of no further
value to ProCyte; provided, however, that at the time of any sublicensing of
such improvements by Hymedix, Hymedix shall notify ProCyte and shall pay to
ProCyte its costs and expenses in making such improvements. In addition,
ProCyte shall have the right to terminate any portion of its license hereunder
as to any patent included in the Patent Rights or Joint [CONFIDENTIAL TREATMENT
REQUESTED] Patents at any time upon sixty (60) days' prior written notice to
Hymedix. The effective date for termination of this Agreement or any portion of
the license, as provided in this Section 18.2, shall be sixty (60) days after
written notice to Hymedix or such later date as may be specified in the written
notice to Hymedix. Upon termination, neither party shall have any rights or
obligations under this Agreement or with respect to the portion of the
terminated license, as the case may be, except as provided in Section 19.7.
(b) If ProCyte fails to makes any payment due hereunder to Hymedix, Hymedix
shall have the right to terminate this Agreement fifteen (15) days after giving
ProCyte notice of such failure and Hymedix's intent to terminate unless ProCyte
makes such payment within such fifteen (15) day period. If ProCyte commits any
material breach of this Agreement, Hymedix shall have the right to terminate
this Agreement ninety (90) days after giving ProCyte notice of such breach and
Hymedix's intent to terminate unless ProCyte has cured or commenced steps to
diligently cure the breach within such ninety (90) day period. Upon
termination, any sublicensee who is not then in material breach shall have its
sublicense converted to a direct license from Hymedix under the terms and
conditions of this Agreement, as further limited and restricted by the terms of
the original sublicense.
(c) Either party may immediately terminate this Agreement effective upon giving
written notice of termination to the other party in the event that:
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(i) the other party institutes any bankruptcy, insolvency,
liquidation or receivership proceedings or proceedings for
reorganization under bankruptcy or comparable laws concerning its
operations;
(ii) the other party has a petition filed against it for any of the
proceedings provided in (i) above, the effectiveness of which is
not stayed or dismissed within sixty (60) days after the filing
thereof; or
(iii) the other party shall make a general assignment for the benefit
of creditors.
18.3 DISPOSITION OF PRODUCTS
Upon termination of this Agreement or a portion of the license, ProCyte (and its
Affiliates and sublicensees) shall have the right to complete any work in
progress and sell or otherwise dispose of any affected Product within the next
twelve (12) months; provided, however, that royalties and reports shall continue
to be due on any Net Sales of such Product in accordance with this Agreement.
SECTION 19. MISCELLANEOUS
19.1 COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
19.2 MODIFICATION
No amendment or modification hereof shall be valid or binding upon the parties
unless made in writing and signed by authorized representatives of the parties.
19.3 INTEGRATION
This Agreement embodies the entire understanding of the parties and shall
supersede all previous communications, representations or understandings, either
oral or written, between the parties relating to the subject matter hereof.
19.4 SEVERABILITY
In case any one or more of the provisions contained in this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
hereof, but this Agreement shall be construed as if such invalid or illegal or
unenforceable provisions had never been contained herein.
19.5 INDEPENDENT Contractors
Nothing in this Agreement shall constitute or be deemed to constitute a
partnership or agency between the parties hereto.
19.6 HEADINGS
The headings of this Agreement are inserted for convenience only and shall not
be used in the interpretation of this Agreement.
19.7 SURVIVAL
The rights and obligations of the parties under Sections 5.5, 6.3, 9, 16, 17.1
(in the case of early termination), 18.1 (in the case of expiration), 18.2(a)
(in the case of early, voluntary termination) and 18.3 and any accrued
obligations shall survive expiration or termination of this Agreement.
19.8 GOVERNING LAWS
This Agreement shall be governed by and construed in accordance with the laws of
the State of Washington (regardless of its or any other jurisdiction's
choice-of-law principles).
19.9 USE OF NAMES, TRADE NAMES AND TRADEMARKS
Except as provided in Section 17, nothing contained in this Agreement shall be
construed as conferring any right to use in advertising, publicity or other
promotional activities any name, trade
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name, trademark or other designation of either party hereto (including any
contraction, abbreviation or simulation of any of the foregoing) except where,
upon advice of counsel, such use is required to comply with any law or
regulation of a governing body having jurisdiction over a party or over the
making, using or selling of any Product.
19.10 PRESS RELEASES; DISCLOSURE OF AGREEMENT
Attached hereto as Exhibit 19.10 is the form of press release that the parties
shall use in connection with the initial public announcement of this Agreement.
Neither party shall make any other press release, public announcement or
statement regarding this Agreement without first consulting with the other party
and allowing ProCyte to coordinate such activities. The financial and
commercial terms set forth in this Agreement shall be treated as confidential
information under Section 9 and shall not be disclosed without the prior written
consent of the other party. The parties shall seek confidential treatment for
the financial and commercial terms set forth in this Agreement in the event they
are required to file this Agreement with the Securities and Exchange Commission
and shall provide to the other party for prior approval any redacted version of
this Agreement to be submitted to the Securities and Exchange Commission for
filing.
19.11 NOTICES AND COMMUNICATIONS
Any notice or any other communication required or permitted to be given to a
party pursuant hereto shall be sufficiently given if delivered personally or by
telecopy or express courier service (expenses prepaid) to the address set forth
below:
ProCyte: ProCyte Corporation
12040 - 115th Ave. N.E., Suite 210
Kirkland, WA 98034-6900
U.S.A.
Attn: President
FAX: (206) 820-4809
Hymedix: Hymedix International, Inc.
2235 Route 130
Dayton, NJ 08810
U.S.A.
Attn: President
FAX: (908) 274-2426
or to such other address as the party shall designate by written notice given to
the other party.
19.12 WAIVERS
No waivers of any right under this Agreement shall be deemed effective unless
contained in a writing signed by the party charged with such waiver, and no
waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future right or of any other right arising under
this Agreement.
19.13 REVIEW OF AGREEMENT
This Agreement has been submitted to the scrutiny of both parties and their
counsel and shall be given a fair and reasonable interpretation in accordance
with the words hereof, without consideration or weight being given to its being
drafted by or for one of the parties.
19.14 RIGHTS OF BANKRUPTCY
All rights in the Licensed Technology granted under or pursuant to this
Agreement by Hymedix are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the U.S. Bankruptcy Code,
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licenses of rights to "intellectual property" as defined under Section 101 of
the U.S. Bankruptcy Code. ProCyte, as licensee of such rights under this
Agreement, shall retain and may fully exercise all its rights and elections
under the U.S. Bankruptcy Code. In the event of the commencement of a
bankruptcy proceeding by or against Hymedix under the U.S. Bankruptcy Code,
ProCyte shall be entitled to complete access to (or a complete duplicate of, as
appropriate) any such intellectual property and all embodiments of such
intellectual property, and the same, if not already in ProCyte's possession,
shall be promptly delivered to ProCyte (a) upon any such commencement of a
bankruptcy proceeding upon ProCyte's written requests therefor, unless Hymedix
elects to continue to perform all of its obligations under this Agreement or (b)
if not delivered under (a) above, upon the rejection of this Agreement by or on
behalf of Hymedix and upon written request therefor by ProCyte.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
PROCYTE CORPORATION
BY:
-------------------------------
Joseph Ashley, President & CEO
HYMEDIX INTERNATIONAL, INC.
BY:
-------------------------------
William G. Gridley, Jr., President
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EXHIBIT 1.6
SPECIFICATIONS FOR [CONFIDENTIAL TREATMENT REQUESTED]
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<PAGE>
EXHIBIT 1.7
ESTABLISHMENT OF THE EXTRUSION PROCESS
The "Establishment of the Extrusion Process" shall be deemed to have occurred
when:
[CONFIDENTIAL TREATMENT REQUESTED]
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EXHIBIT 1.9
EUROPE
Austria
Belgium
Denmark
Finland
France
Germany
Greece
Holland
Iceland
Ireland
Italy
Luxembourg
Norway
Portugal
Spain
Sweden
Switzerland
Turkey
United Kingdom
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EXHIBIT 1.10
EXCLUDED TERRITORY
Afghanistan
Bahrain
Bangladesh
Bhutan
Brunei
Burma
Republic of China, including Taiwan, Mainland China
Cyprus
Hong Kong
India
Indonesia
Iran
Iraq
Israel
Japan
Jordan
Kampuchea
Korea (North and South)
Kuwait
Laos
Lebanon
Malaysia
Maldives
Marshall Islands
Mongolia
Nepal
Oman
Pakistan
Philippines
Qatar
Saudi Arabia
Singapore
Sri Lanka
Syria
Turkey
Thailand
United Arab Emirates
Vietnam
Yemen (Aden and Sana)
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EXHIBIT 1.16
VARIOUS HYPAN DESIGNATIONS
HN50
HN68
HN80
HN86
HN3517
HN5017
HN6017
QT100
SA100H
SR150H
SR150N
SS201
TC200
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EXHIBIT 1.22
PATENTS AND PATENT APPLICATIONS
[CONFIDENTIAL TREATMENT REQUESTED]
41
<PAGE>
EXHIBIT 1.24
SPECIFICATIONS FOR HYFIL
(ALSO REFERRED TO AS HYDRO-M AND HYGELL)
[CONFIDENTIAL TREATMENT REQUESTED]
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EXHIBIT 1.36A
REGISTERED TRADEMARK ASSIGNED TO PROCYTE
MARK: "HySorb"
OWNER: Hymedix International, Inc.
DATE OF REGISTRATION: April 18, 1995
REGISTRATION NUMBER: US 1,890,410
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EXHIBIT 1.36B
TRADEMARKS AND TRADENAMES LICENSED TO PROCYTE
REGISTERED TRADEMARK LICENSED TO PROCYTE
MARK: "HYPAN"
OWNER: Hymedix International, Inc.
DATE OF REGISTRATION: October 18, 1983
REGISTRATION NUMBER: US 1,254,158
TRADENAMES LICENSED TO PROCYTE
HyBurn
HyCream-TM-
HyFlex
Hydro-M
HyPack
Hy-Q
HydroSkin
HyTide
T-PAN
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EXHIBIT 4
STOCK ACQUISITION AGREEMENT
This STOCK ACQUISITION AGREEMENT (this "Agreement"), dated as of November 15,
1995, is entered into by and between PROCYTE CORPORATION, a Washington
corporation (the "Company"), and HYMEDIX INTERNATIONAL, INC., a Delaware
corporation ("Hymedix").
RECITAL
1. Contemporaneously with this Agreement, the Company and Hymedix are
entering into a License Agreement as of the date hereof (the "License
Agreement").
2. In connection with the License Agreement, Hymedix desires to acquire,
and the Company desires to issue to Hymedix, shares of Common Stock of the
Company, upon the terms and conditions as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and mutual covenants contained
herein, the parties agree as follows:
1. SHARES AND CONSIDERATION; ESCROW
In consideration of the rights of the Company and the obligations,
representations and warranties of Hymedix as set forth in the License Agreement,
the Company hereby agrees to issue and deliver to Hymedix 200,000 shares of
Common Stock of the Company (the "Shares"), subject to the terms of this
Agreement. Promptly upon execution of this Agreement, the Company shall deliver
to Hymedix, or instruct its transfer agent to deliver to Hymedix, one or more
certificates representing the Shares (the "Certificates"). Upon receipt of the
Certificates, Hymedix shall deliver the Certificates and four executed
Assignments Separate from Certificate with respect to the shares represented by
the Certificates (the "Assignments") to the Company, both to be held by the
Company pursuant to the terms of this Agreement for a two-year vesting period.
The Company will accept the Assignments only in the event that the Shares are
forfeited pursuant to Section 5 of this Agreement (such an event, a
"Forfeiture"). Upon the expiration of each six months during the two-year
vesting period, if no Forfeiture has occurred, the Company shall release 50,000
Shares represented by the Certificates and one of the Assignments and deliver
them to Hymedix. Notwithstanding the foregoing, the Company may place stop-
transfer instructions with respect to any unvested portion of the Shares during
the two-year vesting period.
2. REPRESENTATIONS AND WARRANTIES OF HYMEDIX
Hymedix hereby represents and warrants to the Company as of the date of this
Agreement as follows:
2.1 ABILITY TO BEAR RISK
Hymedix is in a financial position to hold the Common Stock and is able to bear
the economic risk and withstand a complete loss of its investment in the Shares.
2.2 HIGH DEGREE OF RISK
HYMEDIX RECOGNIZES THAT THE SHARES AS AN INVESTMENT INVOLVE A HIGH DEGREE OF
RISK. Hymedix is aware that the Company has not been profitable in the past.
Hymedix recognizes that the Company is in the research and development stage and
has not yet developed a marketable product and that there can be no assurance
that the Company will be able to develop a marketable product or that such
product will be accepted in the marketplace. There can be no
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assurance that the Company will be able to obtain its projected goals and the
Company may need significant additional capital to be successful, which capital
may not be readily available when and as needed.
2.3 PROFESSIONAL ADVICE
Hymedix has obtained, to the extent it deems necessary, its own professional
advice with respect to the risks inherent in the investment in the Shares, the
condition of the Company and the suitability of the investment in the Shares in
light of Hymedix's financial condition and investment needs.
2.4 SOPHISTICATION
Hymedix, either alone or with the assistance of its professional advisor, is a
sophisticated investor, is able to fend for itself in the transactions
contemplated by this Agreement, and has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investment in the Shares.
2.5 ACCESS TO INFORMATION
Hymedix has been given access to full and complete information regarding the
Company, including, in particular, the Company's annual report and proxy
statements for the last two fiscal years, its reports on Forms 10-K, 10-Q and 8-
K for the last two fiscal years, its reports on Form 10-Q for the first three
quarters of the current fiscal year and information regarding the current
financial condition of the Company and the risks associated therewith, and has
utilized such access to its satisfaction for the purpose of obtaining
information about the Company; particularly, Hymedix has either attended or been
given reasonable opportunity to attend a meeting with representatives of the
Company for the purpose of asking questions of, and receiving answers from, such
representatives concerning the terms and conditions of the issuance of the
Shares and to obtain any additional information, to the extent reasonably
available, necessary to verify the accuracy of information provided about the
Company.
2.6 PURCHASE ENTIRELY FOR OWN ACCOUNT
The Shares will be acquired for investment for Hymedix's own account, not as a
nominee or agent, and not with a view to the distribution of any part thereof;
Hymedix has no present intention of selling, granting any participation in or
otherwise distributing the same in a manner contrary to the Securities Act of
1933, as amended (the "Act"), or any applicable state securities or Blue Sky
law, or entering into any agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person, with
respect to any of the Shares.
2.7 DUE DILIGENCE
Hymedix has been solely responsible for its own due diligence investigation of
the Company and the Company's business, and its analysis of the merits and risks
of the investment made pursuant to this Agreement, and is not relying on anyone
else's analysis or investigation of the Company, its business or the merits and
risks of the Shares other than professionals employed specifically by Hymedix to
assist Hymedix. In taking any action or performing any role relative to the
arranging of the investment being made pursuant to this Agreement, Hymedix has
acted solely in its own interest and not in that of any other person, and no
other person has acted as an agent or fiduciary for Hymedix.
2.8 RESTRICTED SECURITIES
Hymedix realizes that the issuance of the Shares hereunder has not been
registered under the Act, the Shares are characterized under the Act as
"restricted securities", and, therefore, the Shares cannot be sold or
transferred unless they are subsequently registered under the Act or an
exemption from such registration is available. Hymedix's financial condition is
such that it is not likely that it will
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be necessary to dispose of any of the Shares in the foreseeable future. In this
connection, Hymedix represents that it is familiar with Rule 144 of the
Securities and Exchange Commission (the "SEC"), as presently in effect, and
understands the resale limitations imposed thereby and by the Act.
2.9 EXEMPTION RELIANCE
Hymedix has been advised that the Shares are not being registered under the Act
or the applicable state securities laws, but are being offered and sold pursuant
to exemptions from such laws, and that the Company's reliance upon such
exemptions is predicated in part on Hymedix's representations contained herein.
Hymedix represents that it has not been organized for the specific purpose of
investing in the Shares.
2.10 RESIDENCY
For purposes of the application of state securities laws, Hymedix represents
that it is domiciled in the State of New Jersey.
2.11 LEGENDS
(a) It is understood that the Certificates evidencing the Shares will bear a
legend as follows:
"The securities evidenced by this certificate have not been registered under the
Securities Act of 1933, as amended, of the United States of America (the "Act"),
or the securities laws of any state of the United States of America, and no
interest in such securities may be sold, distributed, assigned, offered, pledged
or otherwise transferred, directly or indirectly, in the United States of
America, its territories or possessions, or to a citizen, national, resident or
entity organized or chartered under the laws of the United States of America,
its territories or possessions, unless (i) there is an effective registration
statement under the Act and applicable state securities laws covering any such
transaction, (ii) this corporation receives an opinion of legal counsel for the
holder of these securities satisfactory to this corporation stating that such
transaction is exempt from registration under the Act and applicable state laws,
or (iii) this corporation otherwise satisfies itself that such transaction is
exempt from registration.
The securities evidenced by this certificate are subject to certain resale
restrictions as set forth in a stock acquisition agreement between the Company
and the registered holder, a copy of which is on file at the principle office of
the Company."
(b) In addition, until the Shares become vested in Hymedix pursuant to the
provisions of Section 5 of this Agreement, the Certificates evidencing the
Shares will bear the following legend:
"The securities represented by this certificate are subject to forfeiture
pursuant to the terms of a Stock Acquisition Agreement dated as of November 15,
1995 between this corporation and Hymedix International, Inc., a copy of which
is available upon request at the principal office of this corporation."
2.12 ACKNOWLEDGMENT
HYMEDIX, BY EXECUTION OF THIS AGREEMENT, ACKNOWLEDGES THAT IT UNDERSTANDS THAT
THE COMPANY IS RELYING UPON THE ACCURACY AND COMPLETENESS OF ITS REPRESENTATIONS
AND WARRANTIES SET FORTH IN THIS SECTION 2 IN DECIDING WHETHER TO ISSUE SHARES
OF COMMON STOCK TO HYMEDIX AND IN COMPLYING WITH THE COMPANY'S OBLIGATIONS UNDER
APPLICABLE SECURITIES LAWS.
3. RESTRICTIONS ON TRANSFER
3.1 COMPLIANCE WITH SECURITIES LAWS
Without in any way limiting the representations set forth above and subject to
the forfeiture provisions set forth in Section 5 of this Agreement, Hymedix
further agrees not to make any disposition of all or any portion of the Shares
unless and until:
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(a) There is then in effect a registration statement under
the Act covering such proposed disposition and such disposition is made in
accordance with such registration statement;
(b)(i) Hymedix shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition 10 days prior to said
disposition and (ii) if reasonably requested by the Company, Hymedix shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Act; or
(c)(i) Hymedix shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition at least 10 days prior to
said disposition and (ii) the Company shall have otherwise been satisfied that
such proposed disposition complies in all respects with SEC Rule 144 or any
successor rule providing a safe harbor for such disposition without
registration.
3.2 TRANSFEREE CONSIDERATIONS
In addition to the foregoing provisions of Section 3.1 above, Hymedix agrees
that:
(a) Hymedix shall notify the Company of any proposed
disposition of all or any portion of the Shares and shall furnish the Company
with a detailed statement of the circumstances surrounding the proposed
disposition at least 10 days prior to said disposition; and
(b) Hymedix shall provide the Company or its agent an
opportunity to arrange the private sale to one or more parties of the Shares
proposed to be transferred and shall cooperate fully with the Company or such
agent in such process; if, prior to the later of (i) 10 days after the date the
notice referred to in paragraph (a) is received by the Company and (ii) the
proposed closing date of the transfer, the Company or its agent identifies a
party or parties who agree or offer in writing to purchase the Shares proposed
to be transferred, Hymedix shall give due consideration to such offer.
4. REGISTRATION RIGHTS
The Registration Rights attached hereto as Exhibit A are hereby incorporated
into and made a part of this Agreement as if set forth herein; provided,
however, that no portion of the Shares that are unvested pursuant to the terms
of Section 5 of this Agreement may be sold pursuant to any registration provided
for in the Registration Rights.
5. FORFEITURE OF SHARES
(a) During the period ending two years from the date of this Agreement,
Hymedix shall forfeit any unvested portion of the Shares and the Company will
accept the Assignment of such Shares if:
(i) Hymedix is in material breach of the License Agreement
or this Agreement (a "Material Breach") and Hymedix has not cured such Material
Breach within
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90 days from the receipt of notice from the Company that such Material Breach
has occurred; or
(ii) The Company has notified Hymedix that it has terminated
the License Agreement.
(b) The Shares shall become vested in Hymedix and shall be released by the
Company to Hymedix pursuant to the terms of this Agreement at the rate of 50,000
Shares (25% of the Shares) for each six month period during the two-year vesting
period.
6. NO REVOCATION OR ASSIGNMENT
Hymedix may not cancel, terminate or revoke this Agreement, and this Agreement
shall be binding upon its successors. Except for a transfer of its Registration
Rights pursuant to Section 8 of the Registration Rights, Hymedix will not
transfer or assign this Agreement or any of its interest herein.
7. INDEMNIFICATION
Notwithstanding the provisions of the Registration Rights regarding
indemnification for Violations in connection with registration of the Shares,
Hymedix shall indemnify, hold harmless and defend the Company and its
affiliates, agents and attorneys with respect to any and all loss, damage,
expense, claim, action or liability any of them may incur as a result of the
breach or untruth of any of the representations and warranties set forth in this
Agreement. If the Company or anyone acting on its behalf discovers any breach
or untruth of any such representations and warranties, the Company may, at its
option, forthwith rescind the issuance of the Shares to Hymedix.
8. SEVERABILITY
If one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement, and the
balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
9. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
10. ENTIRE AGREEMENT
This Agreement constitutes the full and entire understanding and agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements with respect to the subject matter hereof.
11. GOVERNING LAW
Hymedix agrees that this Agreement shall be enforced, governed, and construed in
all respects in accordance with the laws of the State of Washington, as applied
to contracts executed and fully performed in the State of Washington.
HYMEDIX HAS BEEN ADVISED, PRIOR TO THE ISSUANCE OF THE SHARES, THAT NEITHER THE
ISSUANCE OF THE SHARES NOR ANY OFFERING MATERIALS HAVE BEEN REVIEWED BY ANY
ADMINISTRATOR UNDER THE ACT, THE WASHINGTON STATE SECURITIES ACT, AS AMENDED,
THE NEW JERSEY UNIFORM SECURITIES LAW (1967), AS AMENDED, OR ANY OTHER
APPLICABLE SECURITIES ACT (THE "ACTS") AND THAT THE SECURITIES HAVE NOT BEEN
REGISTERED UNDER ANY OF THE ACTS AND THEREFORE CANNOT BE RESOLD UNLESS THEY ARE
REGISTERED UNDER THE ACTS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.
PROCYTE CORPORATION
By:
----------------------------
Its: President & CEO
HYMEDIX INTERNATIONAL, INC.
By:
----------------------------
Its:
------------------------
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EXHIBIT A
REGISTRATION RIGHTS
1. DEFINITIONS.
For purposes of this Agreement, the following terms not otherwise defined shall
have the following respective meanings:
(a) The term "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document;
(b) The term "Registrable Securities" means (i) the Shares held by
Holders (as defined below), and (ii) any Common Stock of the Company issued as
(or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, the Shares held by Holders, excluding
in all cases, however, any Common Stock sold by a person in a transaction in
which its rights under this Agreement are not assigned and any Common Stock that
is, at the time of registration, transferable by the holder thereof in a single
brokerage transaction under the provisions of Rule 144 promulgated under the
Act, or any successor to such Rule; and
(c) The term "Holder" means any person owning or having the right to
acquire Registrable Securities who is a party to this Agreement as of the date
hereof and any assignee thereof in accordance with Section 8 hereof.
2. COMPANY REGISTRATION.
For the one year period beginning on the second anniversary of this Agreement
and ending on the third anniversary of this Agreement, if (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any shares of Common Stock under the Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, or a
registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within 20 days after mailing of such notice
by the Company, the Company shall, subject to the provisions of Section 5
hereof, use its best efforts to cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered. In
the event that the Company decides for any reason not to complete the
registration of shares of Common Stock other than the Registrable Securities,
the Company shall have no obligation under this Section 2 to continue with the
registration of the Registrable Securities. Any request pursuant to this
Section 2 to register Registrable Securities as part of an underwritten public
offering of Common Stock shall specify that such Registrable Securities are to
be included in the underwriting on the same terms and conditions as the shares
of Common Stock otherwise being sold through underwriters under such
registration.
3. FURNISH INFORMATION.
It shall be a condition precedent to the obligations of the Company to take any
action pursuant to this Agreement that the selling Holders shall furnish to the
Company such information regarding themselves, the Registrable Securities held
by them and the intended method of disposition of such securities as shall be
reasonably required to effect the registration of their Registrable Securities
and to execute such documents in connection with such registration as the
Company may reasonably request.
4. EXPENSES OF REGISTRATION.
In connection with any registration pursuant to this Agreement, the Company
shall be responsible for the payment of all expenses of the registration, with
the exception of underwriting commissions and discounts which shall be paid by
the Company, the Holders and any other selling securityholders in
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proportion to the aggregate value of the securities offered for sale by each of
them. The expenses to be paid by the Company shall include, without limitation,
all SEC, blue sky, stock exchange and NASD registration and filing fees,
printing and duplicating expenses, fees and disbursements of its counsel and
accountants, blue sky legal fees and disbursements, transfer agents' and
registrars' fees and expenses, fees and expenses of any experts used in
connection with the registration, and any fees and expenses of underwriters
customarily paid by issuers or sellers of securities, but excluding any
underwriting commissions and discounts.
5. UNDERWRITING REQUIREMENTS.
The Company shall not be required under Section 2 hereof to include any of the
Holders' securities in an underwritten offering of the Company's securities
unless such Holders accept the terms of the underwriting as agreed upon between
the Company and the underwriters selected by it. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities that the underwriters
reasonably believe compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters believe
will not jeopardize the success of the offering. The securities of selling
shareholders to be included in the registration in the event of such a reduction
shall be apportioned pro rata among the selling Holders according to the total
amount of securities requested to be sold in such registration by such Holders
and then pro rata among any other selling shareholders (if any) according to the
total amount of securities otherwise entitled to be included therein owned by
each such other selling shareholder, or in such other proportions as shall
mutually be agreed to by such selling shareholders.
6. DELAY OF REGISTRATION
No Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any registration of the Company as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement.
7. INDEMNIFICATION.
In the event any Registrable Securities are included in a registration statement
under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers, agents, employees and
directors of each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"): (i) any
statement or alleged statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein, or any amendments or supplements thereto, untrue in light of the
circumstances under which they were made, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Act, the 1934 Act or any state securities law. The
Company shall reimburse each such Holder, partner, officer, agent, employee or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
indemnity agreement contained in this Section 7(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company, which consent shall
not be unreasonably withheld, nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information
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furnished expressly for use in connection with such registration by, or on
behalf of, any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its officers, directors, agents
or employees, each person, if any, who controls the Company within the meaning
of the Act, any underwriter and any other Holder selling securities in such
registration statement or any of its partners, officers, directors, agents or
employees or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
officer, director, agent, employee, controlling person, or underwriter, or other
such Holder or its partner, officer, director, agent, employee or controlling
person may become subject, under the Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by, or on behalf of, such
Holder expressly for use in connection with such registration. Each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such partner, officer, director, agent, employee, controlling person,
underwriter or other such Holder, partner, officer, director, agent, employee or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; PROVIDED, HOWEVER, that the indemnity
agreement contained in this Section 7(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the indemnifying Holder, which
consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action (including any governmental
action), such indemnified party shall, if a claim in respect thereof is to be
made against any indemnifying party under this Section 7, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if, in the reasonable opinion of counsel for the
indemnifying party, representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable period of time of the
commencement of any such action shall relieve such indemnifying party of any
liability to the indemnified party under this Section 7 to the extent
prejudicial to its ability to defend such action, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 7.
8. TRANSFER OF REGISTRATION RIGHTS.
The rights of a Holder under this Agreement may be assigned or transferred in
connection with any transfer of Shares by the Holder, provided that (a) the
transferee, upon completion of the transfer, holds at least 50,000 of the
Registrable Securities, (b) the Company is given prior notice of such transfer
of rights, and (c) such transferee agrees in writing to be bound by this
Agreement.
9. "MARKET STAND-OFF" AGREEMENT.
For five years from the date of this Agreement, each Holder hereby agrees that
such Holder shall not, to the extent requested by the Company and an underwriter
of Common Stock (or other securities) of the Company, sell or otherwise transfer
or dispose of any Registrable Securities for 180 days following the effective
date of a registration statement of the Company filed under the Act in
connection with an offering of the Company's Common Stock; PROVIDED, HOWEVER,
that all officers and directors of the Company and all other persons with
registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
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In order to enforce the foregoing covenant, the Company may impose stop-transfer
instructions with respect to the Registrable Securities of the Holders (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
10. AMENDMENTS AND WAIVERS.
Any term of this Agreement may be amended and the observance of any term may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only with the written consent of the Company and the holders of
at least 60% of the aggregate of the shares of Common Stock that are Registrable
Securities.
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EXHIBIT 7
TECHNOLOGY TRANSFER INFORMATION
[CONFIDENTIAL TREATMENT REQUESTED]
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EXHIBIT 8
HYMEDIX 510(k) REGISTRATIONS FOR THE FIELD
1. Hydro-M Wound Gel (also known as HyFil Wound Gel or Hygel)
2. HyTide Saline Wound Gel
3. HyFlex Cushioned Film Dressing
4. HySorb Absorbent HydroGel Foam Dressing
5. HyPack Wound Filler
6. HydroSkin Wound Plug
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EXHIBIT 19.10
PRESS RELEASE
FOR IMMEDIATE RELEASE
November 16, 1995
8:30 a.m. EST
PROCYTE CONTACT
Karen L. Hedine, Vice President
(206)820-4548
HYMEDIX CONTACT
William Gridley, President
(908)274-2288
PROCYTE ACQUIRES FIVE FDA-CLEARED WOUND CARE PRODUCTS
PROPRIETARY POLYMER TECHNOLOGY FORMS BASIS
FOR EARLY PRODUCT LAUNCHES IN FAST-GROWING SECTOR
(Kirkland, Washington) -- PR Newswire -- ProCyte Corporation (Nasdaq/NMS:
PRCY) today said it has acquired from HYMEDIX International, Inc. (Bulletin
Board: HYMX) the worldwide rights outside of Asia to five wound care products
that have received market clearance from the U.S. Food and Drug Administration,
broadening the company's planned entry into the $300 million market for moist
wound dressings.
The products include proprietary transparent thin film wound dressings,
aquagel sheet dressings, exudate absorbers and wound moisturizers, all based on
a multi-block copolymer structure that is especially well-suited for wound care
applications, including chronic and acute wounds, burns and surgical wounds,
according to ProCyte.
The company said that the newly licensed products compliment its
internally-developed Iamin-Registered Trademark- gel wound dressing, for which
FDA clearance to market is pending under the 510(k) pre-market notification
guidelines.
ProCyte said it expects the first of its wound care products to be
available to long-term care, hospital and home healthcare professionals by mid-
1996, following equipment scale-up and design and validation of improved
manufacturing processes at its Redmond, WA commercial manufacturing plant.
The facility was commissioned last year and will require certain equipment
additions for the initial product launch.
Although specific terms were not disclosed, ProCyte said the agreement with
HYMEDIX calls for an upfront cash and common stock payment to HYMEDIX, plus
future milestone payments of additional cash and royalties.
"Our intent was to quickly establish an innovative and medically-responsive
wound care portfolio with a broad range of essentially market-ready products,"
said Joseph Ashley, ProCyte's president and chief executive officer. "This
unique polymer technology gives us the initial
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marketing capability for a serious wound care products business with near-term
revenue potential. We can then leverage this with new product developments out
of our own labs."
ProCyte has considerable research and development experience in the field
of wound care, and has helped to pioneer the clinical assessment and treatment
of wounds.
The U.S. market for moist wound dressings, which include the polymer-based
products ProCyte acquired, is expected to reach $500 million in industry-wide
sales by 1999. Industry sources say the market growth for moist wound dressings
and all other wound care products and systems is being driven by an increasing
incidence of wounds associated with advanced age, during which surgeries and
chronic wounds tend to occur more frequently.
The centerpiece for ProCyte's newly-acquired products is a versatile
polymer technology, called HYPAN-Registered Trademark-. HYPAN-Registered
Trademark- polymers may be manufactured by a patented method to provide a
uniquely variable number of structural aquagels, useful in the construction of
synthetic moist wound dressings and related products.
ProCyte also has the worldwide rights outside of Asia for all future wound
care applications of the HYPAN-Registered Trademark- technology for synthetic
moist wound dressings and related products.
As part of its agreement with HYMEDIX, ProCyte also gained exclusive
worldwide rights for the drug delivery applications of the HYPAN-Registered
Trademark- technology for wound care. ProCyte plans to continue its research
and development efforts in wound treatment and healing, and to study the drug
delivery aspects of the technology for enhanced delivery of antibiotics,
anti-infectives and other compounds to wounds.
HYPAN-Registered Trademark- polymers are synthetic materials that ProCyte
believes can be manufactured in a cost-effective manner. HYPAN-Registered
Trademark- polymers are also believed to provide maximum performance at low
concentrations, to have excellent biocompatibility profiles and to be both
stable and sterilizable. The remarkable structural flexibility of these
aquagels is expected to make them ideally suited to broad-based applications in
wound management and treatment, particularly since they address the breadth of
chronic and acute wounds.
HYMEDIX is a development-stage company based in New Jersey. The company is
actively commercializing its polymer-based BIONIQ-TM- line of personal care
moisturizing creams, which have recently been introduced through direct response
television. HYMEDIX currently has research and development contracts in place
for other medical products and drug delivery applications of its
HYPAN-Registered Trademark- polymers outside the field of wound care.
ProCyte is a development stage pharmaceutical company. It has been
actively pursuing a threefold corporate strategy, including development of its
own proprietary copper-based compounds, providing contract manufacturing, and
seeking to acquire late-stage products or technology. ProCyte has three
copper-based compounds in clinical development, including drug candidates for
treatment of inflammatory bowel disease and hair growth.
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EXHIBIT 10.20
MEMORANDUM OF UNDERSTANDING
FOR SETTLEMENT OF
IN RE PROCYTE SECURITIES LITIGATION
CAUSE NO. C94-1557WD
Defendants, ProCyte Corporation, Karen Hedine and Joseph Ashley (hereinafter
referred to as "ProCyte"), and the named plaintiffs acting as class
representatives, in the above-captioned action, by and through their counsel of
record, hereby agree to the following terms for the complete settlement of IN RE
PROCYTE SECURITIES Litigation. The parties will prepare and sign a Stipulation
of Settlement and any other necessary and related documents which encompass the
following general terms:
1. A class of all persons who purchased ProCyte common stock from
February 9, 1993 through October 17, 1994, including in public offerings, shall
be certified (the "Class").
2. ProCyte shall pay to the Class the amount of $7.75 million. At least
$2.5 million of that sum shall be in cash. The balance shall be payable in
stock or cash at ProCyte's discretion. The stock shall be issued and
distributed to the settlement fund within ten days of final approval of the
settlement by Judge Dwyer. The amount of stock necessary to fund the non-cash
portion of the settlement shall be priced at market on the date of final
approval of the settlement by Judge Dwyer. Upon pricing at market, that price
shall be guaranteed by the Company for 180 days from the date of distribution.
In the event that the stock price declines during that 180 days, so that the
price at which any stock was sold during such 180 days, when added with the cash
and the value of any stock held on the 180th day, falls below $7.75 million,
ProCyte will add within 30 days cash or stock to make up that difference.
3. The settlement documents shall include a plan whereby the sale of
settlement stock will not adversely affect the price of ProCyte stock in
general.
4. The parties agree that the settlement of this action is expressly
conditioned upon defendants' director and officer insurers' consent to this
settlement and is further expressly conditioned upon a minimum of $3 million
being paid by the insurers. Defendants shall have three weeks to procure the
insurers' consent to the settlement and to procure their commitment to pay no
less than $3 million towards the settlement. Defendants will use their best
efforts to promptly obtain payment from the insurers. Upon receipt of payment
from the insurers in an amount not less than $3 million, the Company shall cause
the sum of $2.5 million to be placed in an interest bearing account for the
benefit of the class.
5. ProCyte shall draft a press release announcing the tentative settlement.
The announcement shall state that ProCyte denies any liability but has
compromised this suit to permit management's attention and Company resources to
be devoted solely to the important business of building long-term shareholder
value in the Company. Plaintiffs shall issue no public statement about the
settlement. All parties' public comments shall be consistent with the Company's
denial of any wrongdoing and/or with the Company's press release. The proposed
settlement shall remain confidential until the press release is issued.
6. All matters in the above-captioned action are stayed pending further
order of the Court.
7. The parties will agree on a detailed settlement documents to reflect the
above general terms as soon as practicable. The parties shall cooperate in
drafting and executing the necessary settlement documents. In the event of any
disputes as to the terms of the parties' agreement, the parties shall be bound
by the Honorable Thomas S. Zilly's resolution of the disagreement or dispute
with regard to any such terms.
59
<PAGE>
IT IS SO AGREED this _____ day of ______________, 1996.
HAGENS & BERMAN PERKINS COIE
By By
----------------------------------- ----------------------------------
Steve W. Berman Ronald L. Berenstain
Attorneys for the Class Michael Himes
Attorneys for Defendants
60
<PAGE>
EXHIBIT 13.1
ITEM 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
STATEMENTS OF OPERATIONS DATA 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $4,320,056 $4,472,983 $1,939,517 $240,769 $621,841
Costs and expenses 16,714,991 16,626,701 9,612,531 5,671,142 4,552,939
----------------------------------------------------------------------
Net loss $(12,394,935) $(12,153,718) $(7,673,014) $(5,430,373) $(3,931,098)
----------------------------------------------------------------------
----------------------------------------------------------------------
Net loss per common share $(0.95) $(0.97) $(0.80) $(0.79) $(0.66)
----------------------------------------------------------------------
----------------------------------------------------------------------
Weighted average # of
common shares used in
computing net loss per 13,100,818 12,593,131 9,575,218 6,871,263 5,968,896
common share
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
BALANCE SHEET DATA: 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents & $36,077,520 $43,014,137 $22,653,578 $8,038,789 $5,405,585
short-term investments
Working capital 30,438,486 41,746,596 21,170,301 7,383,177 5,170,573
Total assets 45,093,558 50,013,086 26,265,524 10,076,855 7,697,927
Total liabilities 9,209,004 1,863,311 1,797,292 935,430 436,636
Accumulated deficit (46,513,220) (34,118,285) (21,964,567) (14,291,553) (8,861,180)
Stockholder's equity 35,884,554 48,149,775 24,468,232 9,141,425 7,261,291
</TABLE>
61
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
ProCyte's goal is to build long-term shareholder value by focusing on three
distinct business opportunities. The first opportunity deals with
commercialization of the Company's proprietary copper-based compounds; applying
the Company's technology and know-how to specific fields of disease treatment
and/or management.
ProCyte's strategic approach in commercialization of its copper-based compounds
focuses initially on GHK:Cu (2:1), tradenamed Iamin-Registered Trademark- gel.
The Company's belief in the clinically tested safety profile of this compound,
evaluated in over 800 patients, and preclinical evidence regarding the
biological actions of the compound, led to the Company's decision to file a
510(k) pre-market notification with the U.S. Food and Drug Administration
("FDA") in August 1995 seeking clearance to market Iamin-Registered Trademark-
gel as a wound care product. Unlike the FDA's guidelines for approval of a
compound as a therapeutic agent, the 510(k) guidelines require primarily that a
new product's safety be established and that the product be comparable to
predicate wound care products that have received FDA clearance.
In February 1996, the Company announced that it obtained FDA-clearance to market
Iamin-Registered Trademark- Gel wound dressing. Commercial use of this
over-the-counter product is expected to provide the Company with additional
human experience with the compound in a range of wound types, including diabetic
ulcers, pressure sores, stasis ulcers, surgical incisions, first and second
degree burns and skin abrasions.
In 1995, Kissei Pharmaceutical Co., Ltd., ProCyte's partner in Japan, China,
Taiwan and Korea for the development of Iamin-Registered Trademark- gel,
commenced a Phase I study of the compound as a therapeutic agent. ProCyte plans
to continue to explore the commercialization of Iamin-Registered Trademark- gel
as a therapeutic agent in Europe and the United States, and presently has
studies of its own planned or in progress in support of this goal.
During 1995, ProCyte initiated early-stage clinical trials of two other drug
candidates based on its copper-based technology. Iamin-IB-Registered Trademark-
solution (GHK:Cu administered via retention enema) is presently the focus of an
evaluator-blinded, multi-center, placebo-controlled, dose-ranging Phase I/II
study, to determine the safety and effect of the compound in the treatment of
mild to moderate ulcerative colitis, a form of inflammatory
62
<PAGE>
bowel disease. Existing therapies for treatment of this presently incurable
disease, including 5-ASAs and corticosteroids, tend to focus on reducing the
inflammation in the bowel. ProCyte's approach seeks to address the repair of
damaged tissue, and is expected to require further clinical study and research
to determine its potential benefit.
A Phase I safety evaluation study of yet another proprietary peptide-copper
compound, PC1358, tradenamed Tricomin-Registered Trademark- solution, was begun
in early 1995 and completed in July. ProCyte initiated a Phase II continuing
safety and initial effectiveness study in October 1995, to study the effect of
two doses of PC1358 versus placebo in the treatment of early to mid-stage
androgenetic alopecia, commonly known as male pattern baldness. The Phase II
study is a single-center, evaluator-blinded, placebo-controlled, dose-ranging
study, which is expected to be completed in 1996. The study's primary endpoint
is conversion of resting, or telogen stage, follicles to actively growing,
anagen stage follicles.
ProCyte announced in early 1996 that its partnership with Kaken Pharmaceutical
Co. Ltd., for development of the Company's hair technology in Asia was
terminated, due in large part to the stance taken by the Japanese regulatory
agency in its present decision not to classify hair growth compounds as drugs.
By regaining the Asian rights to its technology, ProCyte now has the worldwide
rights to the hair growth applications of its technology. The Company intends to
seek suitable corporate partners for the technology and also is evaluating
alternative registrations of the technology worldwide while continuing, for the
present, to pursue therapeutic evaluation of PC1358.
In 1995, ProCyte and collaborators involved in studying the antiviral
applications of the Company's compounds, presented key scientific findings in
technical publications and at international scientific symposia. The Company
plans to seek collaborations, including but not limited to government grants,
corporate sponsorship, and other research funding for this early-stage
application of its technology. Until such time that additional outside funding
is sourced, the Company has minimized internal resources committed to this
early-stage research program.
The Company's second business opportunity involves providing contract
manufacturing services to select clients in the biotechnology, pharmaceutical,
fine chemical and food products industries. ProCyte commissioned its
state-of-the-art manufacturing plant in 1994. The plant was initially built to
serve ProCyte's internal needs in the cost-effective manufacture of bulk drug
substances for the Company's and its corporate partners' clinical and commercial
use. Early in 1995, the Company decided to utilize the excess capacity and
unique features of the plant by offering process development, organic synthesis,
and lyophilization - or freeze drying - services to others.
By year end 1995, ProCyte had provided or was still performing contract
manufacturing services on behalf of ten clients, including two multinational
pharmaceutical companies, and several biotechnology companies. Given the risks
and uncertain timelines associated with pharmaceutical and biotechnology
products being developed, tested, reviewed or sold by clients of the
manufacturing facility, the Company will be required to strive to maintain
sufficient clientele to counter the effect that regulatory delays, product
failures, product recalls, and other such circumstances may have on its contract
manufacturing capabilities and revenue expectations.
63
<PAGE>
ProCyte expects to continue to provide contract manufacturing services in 1996
and future years, and to produce clinical and commercial quantities of certain
of its peptide-copper compounds for its use and those of present or future
partners. The Company expects to utilize approximately 85% of the plant's
current capacity for these endeavors in 1996, though, for the reasons outlined
above, and including such things as unexpected or unsuccessful plant audits or
regulatory inspections, competition, market acceptance of clients' products, or
the decision of a client to manufacture its own products or manufacture
elsewhere, there can be no assurance that it will be successful.
The third primary area of opportunity being pursued by the Company builds upon
ProCyte's pioneering research expertise in the complex field of wound care and
healing. In November 1995, the Company acquired the exclusive worldwide rights,
outside of Asia, to a novel polymer technology, known as HYPAN-Registered
Trademark-, and five FDA-cleared wound care products based on this technology.
ProCyte also acquired the rights to a sixth FDA-cleared wound care product,
known as HyFil, for which it shares non-exclusive distribution rights in North
America with B. Braun Medical Supplies, Inc. Additionally, ProCyte acquired the
exclusive worldwide rights for the use of the technology for future drug
delivery applications in the field of wound healing.
At present, Company scientists are actively investigating the technology's uses,
while ProCyte's manufacturing team is seeking to develop cost-effective
commercialization processes for the Company's first planned HYPAN-Registered
Trademark--based products, which may or may not include those already cleared by
the FDA. ProCyte may elect to modify the licensed products that have received
FDA clearance, and/or to pursue new products altogether using the technology,
based on feedback obtained from focus groups, clinical assessments, and as a
result of process improvements made in manufacturing. ProCyte is charting new
territory in the development of polymer manufacturing processes and anticipates
that initial development will take at least six months to successfully devise
pilot scale production methodology for the Company's first planned
HYPAN-Registered Trademark--based products, which have never before been
commercially manufactured. Given such potential issues as unexpected
difficulties faced in scaling-up the full scale commercial manufacturing
processes, obtaining suitable raw materials, and staffing the production
operation, there can be no assurance that the Company will be able to
commercialize the technology in a cost-effective, timely manner, if at all.
Year Ended December 31, 1995 Compared with the Year Ended December 31, 1994
In 1995, ProCyte earned $1,536,316 in research and development funding from
Kaken Pharmaceutical Co., Ltd. ("Kaken") and Kissei Pharmaceutical Co. Ltd.
("Kissei"). Kaken's final research and development payment due under its license
agreement with the Company was paid in second quarter 1995, and Kissei's final R
& D fee was paid in third quarter 1995.
In January 1996, ProCyte announced termination of its license agreement with
Kaken for the development in Asia of ProCyte's PC1358 hair compound and analogs.
The termination resulted in part due to the present position that the Japanese
regulatory agency has taken with regard to any compounds being developed as
therapeutic agents for the
64
<PAGE>
treatment of androgenetic alopecia in Japan. The Japanese regulatory agency has
presently determined that it will not regulate such compounds as drugs. No
monies paid by Kaken to ProCyte under the license agreement are refundable.
Kaken filed a patent on the technology which was assigned to ProCyte at
conclusion of the partnership for a nominal fee.
In January 1996, ProCyte received $1.0 million as a milestone payment under
the terms of the Company's license agreement with Kissei for rights in Japan,
China, Taiwan and Korea to the Company's wound healing technology,
Iamin-Registered Trademark- gel. No further milestone payments are expected
or due in 1996. Total operating expenses, excluding the March 5, 1996
announcement of the tentative litigation settlement in the shareholder suit
filed against the Company and certain of its officers and directors in
October 1994, decreased 28% to $11,964,991 in 1995 from $16,626,701 in 1994.
Research and development expenses, and expenses related to earlier-stage,
smaller clinical trials underway in 1995 as compared to a Phase III, 511
patient study in 1994, de-creased by 46% to $7,235,298 in 1995 from
$13,298,942 in 1994. Research and development costs represented 60% of the
Company's total operating costs (excluding the tentative litigation
settlement) in 1995. General and administrative expenses increased 42% to
$4,729,693 in 1995 compared to $3,327,759 in 1994, primarily as a result of
the Company's defense of the October 1994 shareholder suit and legal fees
incurred as a result of the Company's acquisition efforts in 1995.
Investment income in 1995 increased to $2,631,904 from $1,699,829 in 1994. The
increase was primarily attributable to higher interest rates.
The Company's net loss increased to $12,394,935 for 1995 as compared to a net
loss of $12,153,718 for 1994.
Year Ended December 31, 1994 Compared with the Year Ended December 31, 1993
In 1994, ProCyte earned $2,773,154 in research and development funding from
Kaken Pharmaceutical Co., Ltd. ("Kaken") and Kissei Pharmaceutical Co. Ltd.
("Kissei"), compared to research and development funding earned under the Kaken
agreement of $1,320,946 in 1993.
Total operating expenses increased approximately 73% to $16,626,701 in 1994 from
$9,612,531 in 1993. Research and development expenses related primarily to
clinical development of investigational Iamin-Registered Trademark- gel in
diabetic plantar ulcer studies, pharmacology and drug metabolism studies and
research and development of other drug candidates, increased by approximately
75% to $13,298,942 in 1994 from $7,587,952 in 1993. Research and development
costs represented approximately 80% of the Company's total operating costs in
both 1994 and 1993. General and administrative expenses increased approximately
64% to $3,327,759 in 1994 compared to $2,024,579 in 1993, primarily as a result
of staff additions, patent prosecution and continuing business development
activities.
65
<PAGE>
Investment income in 1994 increased to $1,699,829 from $618,571 in 1993. The
increase was primarily due to investment of funds raised in the Company's public
offerings of common stock in February 1994 and February 1993.
The Company's net loss increased to $12,153,718 in 1994, compared to a net loss
of $7,673,014 for 1993.
Liquidity and Capital Resources
The Company has financed its operations since inception through public and
private sales of common stock, investment income, and revenue from strategic
partners. Through December 31, 1995, the Company had raised approximately $81.8
million in net proceeds from sales of common stock. It has earned approximately
$7.0 million in investment income and $9.2 million in research and development-
related revenues and other fees.
At December 31, 1995, the Company had approximately $36.1 million in cash, cash
equivalents and securities available for sale. Through December 31, 1995, the
Company has invested a total of approximately $4.1 million in laboratory and
computer equipment, furniture and leasehold improvements. In addition, the
Company has invested approximately $4.5 million in leasehold improvements and
equipment for its manufacturing plant. The Company anticipates that its
operating expenses will increase in 1996 and subsequent years as the Company
expands its manufacturing plant and purchases equipment to process its planned
wound care products, hires additional personnel, particularly in the fields of
sales and marketing and manufacturing, and advances potential product candidates
in development. Foreseeable incremental costs may include, but are not limited
to, those associated with the Company's planned manufacture of HYPAN-Registered
Trademark- polymer-based products, preclinical and clinical product development
studies, patent filings, legal fees, and administrative activities.
The Company expects to continue to try to negotiate strategic collaborations or
other suitable partnerships for certain applications of its technology, and to
seek product acquisition and/or distribution agreements with other parties whose
products, capabilities or interests complement the Company's goals and abilities
internationally. Certain of these relationships may involve commitments from
ProCyte to fund some or all of certain research and development projects or to
make royalty payments based on products sold during a defined period.
Although strategic partnerships have provided revenue to the Company in the
past, there can be no assurance that similar sources of funds will be available
to the Company in the future. Additionally, though the Company makes every
effort to extensively review products it may seek to acquire, distribute or
in-license, there can be no assurance that products so obtained will be
commercialized successfully, if at all.
Further expenditures will be required for manufacturing, including but not
limited to, adding equipment for the manufacture of the polymer-based wound care
products; building a sales organization and marketing program for the Company's
products in North America and elsewhere; and for office and related space and
equipment to accommodate the activities and personnel associated with bringing
potential products into development or the marketplace. All these activities,
and others that may not have been anticipated at
66
<PAGE>
this time, will require substantial financial resources. There can be no
assurance that the Company will have sufficient resources to fund the cost of
such activities, or that it will be able to obtain any additional financial
resources on acceptable terms or in time to fund any necessary or desirable
expenditures.
At year end 1995, the Company had incurred approximately $1.4 million in legal
expenses as a result of its defense of the shareholder lawsuit filed against the
Company and certain of its officers and directors in October 1994.
The Company announced on March 5, 1996 that it has reached a tentative
settlement in the litigation. The tentative settlement, which is subject to
court approval, is for $7.75 million, of which at least $2.5 million will be
paid in cash, with the remainder payable, at the Company's discretion, in cash
or shares of ProCyte common stock. The amount, if any, of the stock portion
would be dependent upon the market price of ProCyte common stock during the
six-month period following final court approval of the settlement. The tentative
settlement is conditioned upon the Company receiving an appropriate contribution
to the settlement from its insurance carriers. The Company, while continuing to
assert that there was no wrong-doing on the part of the Company or any of its
officers and directors, believes it to be in the shareholders' best interests to
resolve the suit in order to focus management's attention and Company resources
on the Company's operations. There can be no assurance that the Company and the
other parties involved in the settlement discussions will be able to resolve the
outstanding issues satisfactorily, if at all.
The Company anticipates that its existing capital resources should be sufficient
to fund its cash requirements for approximately two years. However, the amounts
and timing of expenditures will depend on such things as the progress and
results of ongoing clinical development programs, the rate at which operating
losses are incurred, the execution ofin-licensing or product distribution
agreements with others, the establishment of out-licensing agreements or
strategic alliances for certain of the Company's products or technology, the FDA
regulatory process and similar processes among similar agencies in other
countries, and other factors, many of which are beyond the Company's control,
such as raw material availability and cost.
The Company expects that its existing capital resources could be sufficient to
fund the Company's operations through commercialization of its first products in
the field of wound care.
67
<PAGE>
Price Range of Common Stock
ProCyte Corporation common stock is quoted on the Nasdaq National Market System
under the symbol PRCY. As of March 8, 1996, there were 513 holders of record of
common stock. The Company has never paid any cash dividends and does not
anticipate paying any cash dividends in the foreseeable future. The Company
intends to retain future earnings and capital for use in its business. The high
and low sale prices for the common stock as reported by the Nasdaq National
Market system for each quarter during 1994, 1995 and 1996-to-date are as
follows:
Common Stock Information
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1994
First Quarter. . . . 15 1/8 10 5/8
Second Quarter . . . 13 3/4 9 1/2
Third Quarter. . . . 12 1/8 8 3/4
Fourth Quarter . . . 9 1/8 2 1/4
1995
First Quarter. . . . 3 9/32 2
Second Quarter . . . 21 3/16 2 1/8
Third Quarter. . . . 3 3/8 2
Fourth Quarter . . . 3 1/16 2 1/8
1996
First Quarter
(through 3/8/96) . . 5 1/4 2 9/16
</TABLE>
68
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
PROCYTE CORPORATION
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 6,019,740 $ 26,243,922
Securities available for sale . . . . . . . . . . . . . . . . . . . . . 30,057,780 16,770,215
Insurance claim receivable . . . . . . . . . . . . . . . . . . . . . . . 3,000,000
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 477,116 460,223
------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 39,554,636 43,474,360
PROPERTY AND EQUIPMENT, at cost
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,328,829 3,328,829
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . 5,097,833 5,097,833
Improvements in progress
Less accumulated depreciation and amortization . . . . . . . . . . . . . (3,244,799) (2,463,354)
------------- --------------
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . 5,181,863 5,963,308
PATENTS, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . 290,930 527,329
Less accumulated amortization. . . . . . . . . . . . . . . . . . . . . . (93,270) (111,310)
------------- --------------
Patents, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 197,660 416,019
DEFERRED OFFERING COSTS. . . . . . . . . . . . . . . . . . . . . . . . .
OTHER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,399 159,399
------------- --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,093,558 $ 50,013,086
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $678,698 $293,466
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 687,452 1,093,954
Payable to stockholders for settlement of litigation . . . . . . . . . . 7,750,000
Deferred income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,344
------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . 9,116,150 1,727,764
EFERRED LEASE PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . 69,172 83,003
DEFERRED STATE SALES TAXES . . . . . . . . . . . . . . . . . . . . . . . 23,682 52,544
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock $.01 par value: 2,000,000 shares
authorized; no shares issued or outstanding
Common stock $.01 par value: 30,000,000 shares
authorized; shares issued and outstanding
13,318,495 - December 31, 1995 and 12,920,296 - 1994 . . . . . . . . 131,311 129,203
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 82,350,862 82,292,913
Deficit accumulated during the development stage . . . . . . . . . . . . (46,513,220) (34,118,285)
Unearned compensation. . . . . . . . . . . . . . . . . . . . . . . . . . (84,399) (154,056)
------------- --------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . 35,884,554 48,149,775
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . $ 45,093,558 $ 50,013,086
------------- --------------
------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
69
<PAGE>
PROCYTE CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 1,
1985
(predecessor
Year ended December 31, inception) to
----------------------------------------------------- December 31,
1995 1994 1993 1995
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
REVENUES
Research and development
revenues under collaborative
agreements................................... $ 1,688,152 $ 2,773,154 $ 1,320,946 $ 7,906,547
License fees................................... 600,000
Interest income................................ 2,631,904 1,699,829 618,571 7,035,801
Other ......................................... 697,764
------------- ------------- ------------- -------------
Total revenues................................. 4,320,056 4,472,983 1,939,517 16,240,112
------------- ------------- ------------- -------------
COSTS AND EXPENSES
Research and
development.................................. 7,235,298 13,298,942 7,587,952 43,140,358
Litigation settlement......................... 4,750,000 4,750,000
General & administrative...................... 4,729,693 3,327,759 2,024,579 14,865,762
------------- ------------- ------------- -------------
Total costs and expenses...................... 16,714,991 16,626,701 9,612,531 62,756,120
------------- ------------- ------------- -------------
NET LOSS....................................... $ (12,394,935) $(12,153,718) $ (7,673,014) $(46,516,008)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET LOSS PER
COMMON SHARE................................. $(0.95) $(0.97) $(0.80) $(6.57)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average number of
common shares used in computing
net loss per common share.................... 13,100,818 12,593,131 9,575,218 7,076,248
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
70
<PAGE>
PROCYTE CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 1,
1985
Years ended December 31 (predecessor
------------------------------------------------ inception) to
December 31,
OPERATING ACTIVITIES 1995 1994 1993 1995
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net Loss ($12,394,935) ($12,153,718) ($7,673,014) $(46,516,008)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation............................................. 781,445 745,984 432,511 3,495,469
Patent expense........................................... 213,358 44,258 64,295 770,929
Amortization of discount on marketable securities... (15,625)
(Gain) loss on sale of securities available for sale..... (324,534) 136,910 (187,624)
Stock grants and Restricted Stock grants................. 32,634 73,721
Compensation expense on stock options.................... 69,657 174,375 155,579 655,739
Changes in assets and liabilities:
(Increase) decrease in other current assets............. (16,892) (298,270) (46,017) (477,119)
(Increase) decrease in insurance receivable............. (3,000,000) (3,000,000)
(Increase) decrease in deferred offering expenses....... 99,112 (49,737)
Increase in other assets............................... (2,341) (7,058) (9,399)
Increase in accounts payable........................... 385,232 101,395 38,568 593,579
Increase (decrease) in accrued liabilities............. (406,502) 428,320 497,589 632,544
Increase (decrease) in litigation payable.............. 7,750,000 7,750,000
Increase (decrease) in deferred income................. (340,344) (447,181) 337,525
Increase (decrease) in deferred lease payments......... (13,831) 1,977 11,857 69,172
Decrease in deferred use tax........................... (28,862) (18,492) (23,677) (71,031)
------------- ------------ ----------- -----------
Net cash used in operating activities....................... (7,293,574) (11,187,671) (6,261,579) (36,235,653)
------------- ------------ ----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of stock - net..................... 27,423 35,660,886 22,844,242 81,294,896
Proceeds from borrowings.................................. 500,000
------------- ------------ ----------- -----------
Net cash provided by financing activities................... 27,423 35,660,886 22,844,242 81,794,896
------------- ------------ ----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment......................... 0 (3,849,667) (1,902,803) (8,581,401)
Refund (payment) Interest-bearing lease deposit............ (150,000)
Purchase of securities available-for-sale.................. (142,491,420) (27,865,785) (208,493,795)
Proceeds from sale or maturity of securities available
for sale.................................................. 129,528,389 10,958,660 178,639,264
Patents:
Expenditures.............................................. 0 (136,011) (84,285) (1,018,117)
Reimbursements............................................ 5,000 9,932 19,214 64,546
------------- ------------ ----------- -----------
Net cash used in investing activities....................... (12,958,031) (20,882,871) (1,967,874) (39,539,503)
------------- ------------ ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS.................. (20,224,182) 3,590,344 14,614,789 6,019,740
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD................................ 26,243,922 22,653,578 8,038,789
------------- ------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 6,019,740 $ 26,243,922 $22,653,578 $ 6,019,740
------------- ------------ ----------- ------------
------------- ------------ ----------- ------------
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING AND INVESTING ACTIVITIES
Conversion of debt to common stock....................... $ 500,000
Issuance of stock for patents............................ $ 27,790
----------
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
71
<PAGE>
ProCyte Corporation
(a development stage company)
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Unearned
------------------------- Paid-in Development Compensa-
Shares Par Value Capital Stage tion Total
----------- ----------- ---------- -------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 22, 1986
(Company inception)
Issuance to Iama, Inc. for certain assets
($.03 per share) - September 22. . . . 835,200 $ 8,352 $ 20,505 $ 28,857
Issuance for cash ($.09 per share)
September 22 . . . . . . . . . . . . . 290,000 2,900 21,800 24,700
Issuance for services ($.09 per share)
December 31. . . . . . . . . . . . . . 17,400 174 1,326 1,500
Net loss . . . . . . . . . . . . . . . . $ (22,476) (22,476)
----------- ----------- ---------- -------------- ------------ -----------
Balance, December 31, 1986 . . . . . . . 1,142,600 11,426 43,631 (22,476) 32,581
Other issuance to officer for cash
($.09 per share) January 29. . . . . . 92,800 928 7,072 8,000
Issuance for services ($.09 per share)
February 19. . . . . . . . . . . . . . 17,400 174 1,326 1,500
Issuance for cash ($.86 per share)
March 19 to May 27 . . . . . . . . . . 1,403,600 14,036 1,191,925 1,205,961
Net loss . . . . . . . . . . . . . . . . (649,333) (649,333)
----------- ----------- ---------- -------------- ------------ -----------
Balance, December 31, 1987 . . . . . . . 2,656,400 26,564 1,243,954 (671,809) 598,709
Issuance for cash ($1.51 per share)
April 29 to June 22. . . . . . . . . . 297,373 2,974 441,791 444,765
Issuance for cash ($1.51 per share)
July 25. . . . . . . . . . . . . . . . 251,140 2,511 373,103 375,614
Issuance for cash ($2.16 per share)
August 2 . . . . . . . . . . . . . . . 742,400 7,424 1,480,734 1,488,158
Exercise of stock options
($.86 per share) October 31. . . . . . 1,160 12 988 1,000
Net loss . . . . . . . . . . . . . . . . (1,451,540) (1,451,540)
----------- ----------- ---------- -------------- ------------ -----------
Balance, December 31, 1988 . . . . . . . 3,948,473 39,485 3,540,570 (2,123,349) 1,456,706
Issuance to Schering Corporation for
cash ($5.76 per share) May 18. . . . . 433,724 4,337 2,493,314 2,497,651
Conversion of debt to common stock
($2.16 per share) May 26 . . . . . . . 232,000 2,320 497,680 500,000
Grants to officers for services
($5.76 per share) July 27. . . . . . . 3,472 35 19,965 20,000
Issuance for cash - Initial public
offering
($8.00 per share) November 16. . . . . 1,300,000 13,000 9,284,318 9,297,318
Compensatory stock option grants Oct. 2. 183,270 $ (183,270)
Amortization of unearned compensation. . 6,490 6,490
Net loss . . . . . . . . . . . . . . . . (617,714) (617,714)
----------- ----------- ---------- -------------- ------------ -----------
Balance, December 31, 1989 (Forward) . . 5,917,669 $ 59,177 $16,019,117 $ (2,741,063) $ (176,780) $ 13,160,451
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
72
<PAGE>
ProCyte Corporation
(a development stage company)
Statements of Stockholders' Equity - Continued
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
--------------------------- Paid-in Development Unearned
Shares Par Value Capital Stage Compensation Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1989 (Forward)..... 5,917,669 $ 59,177 $ 16,019,117 $(2,741,063) $ (176,780) $ 13,160,451
Compensatory stock option grants Jan. 9.. 6,500 (6,500)
Grant to officer for services
($5.63 per share) May 1................ 3,000 30 16,845 16,875
Exercise of stock options
($2.16 per share) May 15 to July 9..... 3,132 31 6,733 6,764
($.86 per share) June 22 to July 24.... 27,276 273 23,185 23,458
Amortization of unearned compensation.... 35,148 35,148
Net loss................................. (2,189,019) (2,189,019)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1990 .............. 5,951,077 59,511 16,072,380 (4,930,082) (148,132) 11,053,677
Grant to officer for services
($5.50 per share) February 4........... 766 7 4,205 4,212
Exercise of stock options
($5.76 per share) Jan. 17 to May 28.... 116 1 667 668
($.86 per share) Feb. 28 to Dec. 12.... 26,444 264 22,477 22,741
($2.16 per share) May 7 to Dec 30...... 16,688 168 35,878 36,046
($7.00 per share) November 5........... 200 2 1,398 1,400
($5.63 per share) December 12.......... 600 6 3,369 3,375
($6.59 per share) December 12.......... 2,000 20 13,160 13,180
Compensatory stock option
grants April 1......................... 131,948 (131,948)
Amortization of unearned compensation.... 57,090 57,090
Net loss................................. (3,931,098) (3,931,098)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1991............... 5,997,891 59,979 16,285,482 (8,861,180) (222,990) 7,261,291
Exercise of stock options
($2.16 per share) Jan. 1 to Nov. 19.... 6,576 66 14,136 14,202
($.86 per share) Jan. 13 to Aug 12.... 15,360 153 13,056 13,209
($5.63 per share) January 20........... 200 2 1,123 1,125
($4.62 per share) Jan. 20 to Nov. 9.... 600 6 2,766 2,772
($6.59 per share) January 26........... 2,000 20 13,160 13,180
($5.76 per share) March 11............. 464 5 2,669 2,674
($2.50 per share) December 9........... 3,000 30 7,470 7,500
($5.00 per share) December 10 to 17.... 700 7 3,493 3,500
($1.51 per share) in exchange for
2292 issued shares December 28...... 12,708 127 (122) 5
Issuance for cash - Public offering
($5.50 per share) May 19............... 1,437,500 14,375 7,080,565 7,094,940
Cancel compensatory stock option
grants March 13........................ (6,960) 6,960
Compensatory stock option
grants February 12..................... 322,000 (322,000)
Amortization of unearned compensation.... 157,400 157,400
Net loss................................. (5,430,373) (5,430,373)
------------ ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1992 (Forward)..... 7,476,999 $ 74,770 $ 23,738,838 $ (14,291,553) $ (380,630) $ 9,141,425
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
73
<PAGE>
ProCyte Corporation
(a development stage company)
Statements of Stockholders' Equity - Continued
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the
-------------------- Paid-in Development Unearned
Shares Par Value Capital Stage Compensation Total
-------- --------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 (Forward).............. 7,476,999 $74,770 $23,738,838 $(14,291,553) $(380,630) $9,141,425
Exercise of stock options
($2.16 per share) January 15 to Dec. 20 ........ 13,584 136 29,205 29,341
($5.00 per share) February 9 to June 24.......... 750 7 3,743 3,750
($1.51 per share) in exchange for
12,966 issued shares March 4................... 64,834 648 (642) 6
($7.00 per share) May 3 to July 30............... 200 2 1,398 1,400
($5.625 per share) June 2 ....................... 600 6 3,369 3,375
($5.125 per share) June 9 to Oct. 17............. 10,200 102 52,173 52,275
($5.76 per share) June 24........................ 100 1 575 576
($0.86 per share) Oct. 1......................... 6,320 63 5,372 5,435
($2.50 per share) Oct. 1......................... 15,000 150 37,350 37,500
($7.25 per share) Oct. 1 to Nov. 2............... 600 6 4,344 4,350
($11.25 per share) Oct. 1 to Dec. 15............. 500 5 5,620 5,625
($5.53 per share) Nov. 5......................... 10,000 100 55,200 55,300
Issuance for cash - Public offering
($9.00 per share) February 9..................... 2,275,000 22,750 18,895,668 18,918,418
Issuance to Kissei Pharmaceutical
for cash ($25.73 per share) Dec. 1............... 155,461 1,555 3,725,336 3,726,891
Cancel compensatory stock option
grants September 10.............................. (39,120) 39,120
Compensatory stock option
grants September 15.............................. 142,500 (142,500)
Amortization of unearned compensation.............. 155,579 155,579
Net loss........................................... (7,673,014) (7,673,014)
---------- ------- ----------- ----------- ---------- ----------
Balance, December 31, 1993......................... 10,030,148 100,301 46,660,929 (21,964,567) (328,431) 24,468,232
Exercise of stock options
($0.86 per share) Oct 10......................... 1,392 14 1,183 1,197
($5.00 per share) January 18 to June 14.......... 800 8 3,992 4,000
($2.16 per share) January 24..................... 1,856 19 3,990 4,009
($7.75 per share) May 10......................... 10,000 100 77,400 77,500
($7.00 per share) July 13........................ 100 1 699 700
($9.44 per share) August 23...................... 1,000 10 9,430 9,440
Issuance for cash - Public offering
($13.25 per share) February 8.................... 2,500,000 25,000 30,900,000 30,925,000
Issuance for cash - Public offering overal-
lotment ($13.25 per share) February 22.......... 375,000 3,750 4,635,290 4,639,040
Amortization of unearned compensation............. 174,375 174,375
Net loss.......................................... (12,153,718) (12,153,718)
---------- ------- ----------- ------------ ----------- -----------
Balance, December 31, 1994........................ 12,920,296 129,203 82,292,913 (34,118,285) (154,056) 48,149,775
Exercise of stock options:
($2.16 per share) January 23..................... 9,000 90 19,350 19,440
($.09 per share) in exchange for
5,681 issued shares February 3................. 179,919 1,799 (1,797) 2
($0.86 per share) February 14.................... 9,280 93 7,888 7,981
Hymedix Restricted Stock
($2.59 per share) December 31..................... 12,600 126 32,508 32,634
Amortization of unearned compensation.............. 69,657 69,657
Net loss........................................... (12,394,935) (12,394,935)
---------- ------- ----------- ------------ ----------- -----------
Balance, December 31, 1995........................ 13,131,095 $131,311 $82,350,862 $(46,513,220) $ (84,399) $35,884,554
---------- ------- ----------- ------------ ----------- -----------
---------- ------- ----------- ------------ ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
74
<PAGE>
Notes to financial statements
1. DESCRIPTION OF BUSINESS AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Nature of Operations
ProCyte Corporation is a development stage healthcare products company engaged
in the discovery, development and commercialization of a new class of
proprietary copper-containing compounds and other wound care technologies.
ProCyte Corporation (the "Company") commenced operations on September 22, 1986
(inception). To date, the Company's research and development programs have
focused principally on wound healing, tissue repair and hair growth applications
with its topically administered peptide-copper compounds. In November 1995, the
Company acquired rights to a polymer technology for use in wound care.
Presently, the Company is working to commercialize its wound care technologies
and also is developing drug candidates for potential treatment of chronic dermal
ulcers, inflammatory bowel disease, and hair loss conditions.
On September 22, 1986, the Company issued 835,200 shares of common stock in
exchange for substantially all of the assets of Iama, Inc., a predecessor
company (the "Predecessor"), some of whose stockholders were founders of the
Company. These assets consisted principally of patents and intellectual property
rights related to the use of peptide-copper compounds. The patents were stated
at $26,570, the Predecessor's historical cost. The Predecessor's operating
results from January 1, 1985 ("Predecessor inception") to September 21, 1986 are
included in net losses since inception in the accompanying financial statements.
To date, the Company's revenues have been principally from research and license
fees and interest income. To date, no revenues have been generated from product
sales. From inception through December 31, 1995, the Company incurred expenses
for research, development, administration, and tentative settlement of
litigation, resulting in an accumulated deficit of approximately $46,500,000.
Further expenditures will be required for development, clinical testing,
regulatory submissions, marketing and manufacturing for ProCyte's product
candidates. There can be no assurance that the Company will be able to
successfully commercialize its products or achieve a profitable level of
operation.
Following the Company's announcement of disappointing results from its Phase III
Iamin-Registered Trademark- gel study in diabetic plantar ulcers, the Company
announced a corporate restructuring on October 21, 1994, in which it reduced
staff by thirty-five percent in order to devote a greater percentage of the
Company's capital resources in support of its three-part corporate strategy to
(1) continue to develop its proprietary copper-based compounds; (2) seek a
suitable technology-rich acquisition or merger candidate to
75
<PAGE>
enhance the Company's ability to provide nearer-term product introductions; and
(3) provide contract manufacturing services to pharmaceutical, biotechnology,
and other industries in order to fully utilize its existing facilities. The
Company has invested a total of approximately $4.5 million for the construction
of its drug substance manufacturing facility, which was completed in March 1994.
The Company currently uses the manufacturing facility to provide services for
industry clients and collaborative partners and manufacture and improve the
processes for its own products and drug candidates, including the manufacture of
clinical trial supplies. At this time, management believes that the cost of the
facility will be recovered through processing current and expected drug
substance requirements for the Company, its collaborative partners and/or from
contract manufacturing services.
A substantial amount of additional funds will be required for the Company to
complete testing required for potential commercialization of its product
candidates, to build manufacturing, sales, and marketing capabilities, and to
fund additional operating losses expected to be incurred in the next few years.
Management's plans for obtaining additional funding may include equity offerings
and strategic alliances or product out-licensing for certain of the Company's
technology applications. If such funding is not obtained, the Company's ability
to continue its research and development at the current level will be limited,
which would require that the Company reduce its research, development and
commercialization expenditures.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
Research and development revenues, consisting of cost reimbursements, are
recognized when the related costs have been incurred.
Research and development revenues under collaborative agreements and
nonrefundable license fees are recognized when earned for the performance of
research activities under contract terms. Other revenues primarily consist of
nonrefundable option fees received from prospective licensees, and are
recognized when earned under the terms of the option agreement.
Research and development
Research and development costs are expensed as incurred. The Company enters into
contracts with outside laboratories for certain research, pharmacokinetic, and
toxicology studies. Payments for such contracts are typically made in
installments at the initiation, completion, and other specified stages of the
studies. The Company recognizes the expenses associated with these contracts
when the related services are performed.
Depreciation and amortization
Equipment is depreciated using accelerated methods over the estimated useful
lives of the related assets, ranging from 5 to 15 years. Leasehold improvements
are amortized over the term of the lease or the asset's useful life, whichever
is shorter.
Long-lived assets
76
<PAGE>
The Company periodically reviews long-lived assets, including intangible assets,
for impairment to determine whether events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable and makes
adjustments accordingly.
Current vulnerability due to certain concentrations - suppliers/sources of
supply
The Company currently only has one supplier for one of its wound care product
raw materials. Management believes that the limitation of suppliers should not
have any significant impact on operations.
Patents and amortization
Patent application costs are amortized on a straight line basis over 17 years
from the date the related patents are issued. Application costs for abandoned
patents are expensed in the period abandoned. At December 31, 1995, capitalized
patent costs included $59,608 related to application costs for pending patents.
Beginning in fourth quarter 1992, the Company changed its accounting policy to
capitalize only those recoverable patent costs which relate to indications for
which licensing agreements have been in place. As a result, in fourth quarters
1992 and 1995 (see note 3), the Company recorded a non-cash writedown of
$378,615 and $200,760, respectively, for previously capitalized patent costs
which do not meet the above criteria.
Net loss per common share
Net loss per common share is based upon the weighted average number of common
shares outstanding. Common stock equivalents include shares issuable upon the
exercise of stock options and assignment of shares granted (see note 3).
However, only the vested portion of the shares granted is considered in the
computation of the net loss per common share as the remaining shares would have
an anti-dilutive effect.
Federal income taxes
Effective January 1, 1993, the Company implemented Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109) and, in
accordance with its provisions, prior year financial statements were not
restated. The adoption of SFAS 109 did not have a material effect on the
accompanying financial statements.
Tax benefits of net operating losses and research and development tax credits
will be recognized in the financial statements if and when they are utilized.
Cash equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. Such investments are primarily in a
United States Treasury money market fund.
Securities available for sale
The Company's investments, consisting of U.S. Treasury notes and bills, are all
classified as "available for sale" and are stated at fair value. Fair value is
based upon quoted market prices. For purposes of computing realized gains and
losses, the specific identification method is used to determine the cost of
investments sold.
77
<PAGE>
In 1994, the Company implemented Statement of Financial Accounting Standards No.
115, Accounting for Certain Investments in Debt and Equity Securities (SFAS
115).
This statement classifies debt and equity securities as either "trading,"
"available for sale," or "held to maturity" as follows: (1) trading securities
are bought and held principally for the purpose of being sold in the near term,
and are reported at market value with unrealized gains and losses included in
earnings; (2) available for sale securities are reported at market value with
changes in unrealized gains and losses recorded directly to stockholders'
equity, net of taxes; and (3) held to maturity securities are reported at
amortized cost if the Company has the intent and ability to hold them to
maturity. The adoption of the statement had no effect on net loss for the year
ended December 31, 1995. Prior year financial statements were not restated.
2. INVESTMENTS
At December 31, 1995, the Company's investments consist primarily of U.S.
Treasury notes and bills and are classified as "available for sale." The
amortized cost and estimated market value for the investments maturing in one
year or less is $18,245,156 and those maturing in one through five years is
$11,812,623. Unrealized gains or losses at December 31, 1995, were
insignificant, and realized gains from sales of investments during 1995 were
$324,534.
3. COLLABORATIVE AGREEMENTS
The Company earned revenue under collaborative agreements as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
R&D Funding:
Kaken Pharmaceutical $690,345 $1,497,180 $962,475
Kissei Pharmaceutical 750,000 1,000,000 250,000
Cost Reimbursements:
Kaken Pharmaceutical 3,027 2,663 108,471
Kissei Pharmaceutical 92,944 273,311
Other: R&D, Manu-
facturing 151,836
----------------------------------------
$1,688,152 $2,773,154 $1,320,964
----------------------------------------
----------------------------------------
</TABLE>
HYMEDIX INTERNATIONAL, INC.
In November 1995, the Company entered into a license agreement with Hymedix
International, Inc. ("Hymedix"). Under the agreement, the Company acquired from
Hymedix an exclusive license to make, have made, use and sell products for the
wound care field using Hymedix's HYPAN-Registered Trademark- polymer technology.
The Company has acquired exclusive worldwide rights, outside of Asia, to five
wound care products that have received market clearance from the United States
Food and Drug Administration. The Company also acquired non-exclusive rights in
the same territory to a sixth wound care
78
<PAGE>
product, and acquired exclusive worldwide rights to the drug delivery
applications of the technology for wound healing.
Under the terms of the agreement, the Company is to make certain research and
development, milestone and royalty payments to Hymedix. Further, under the terms
of a stock acquisition agreement between the parties, the Company issued to
Hymedix 200,000 shares of the Company's common stock releasable in four equal
assignments of 50,000 shares each over a two year period, unless Hymedix has
materially breached the license agreement or the Company has terminated the
license agreement. The stock is subject to SEC Rule 144 restrictions and has
piggyback registration rights for a limited period of time. The Company may
terminate the agreement at any time upon sixty days' written notice.
KISSEI PHARMACEUTICAL CO., LTD.
In November 1993, the Company entered into a strategic alliance with Kissei
Pharmaceutical Co., Ltd. ("Kissei"). Under the terms of the agreement, the
Company granted Kissei an exclusive license to make, have made, use and sell the
Iamin-Registered Trademark- compound in Japan, China, Korea and Taiwan for
topical wound healing applications, including chronic human dermal wounds such
as diabetic, venous stasis or pressure ulcers, surgical wounds and burns.
Pursuant to the terms of its agreement with Kissei, the Company will manufacture
Kissei's requirements for the Iamin-Registered Trademark- compound for product
development and for all clinical trials for the first approved use of the
Iamin-Registered Trademark- compound in Japan. In addition, under terms
specified in the agreement, Kissei is obligated to make certain research and
development, milestone and royalty payments to the Company. Further, Kissei
purchased 155,461 shares of the Company's common stock for an aggregate
consideration of $4,000,000. In 1995, Kissei satisfied all its R&D funding
obligations under the agreement. Kissei may terminate the agreement without
cause upon ninety days' written notice to the Company after the first year.
KAKEN PHARMACEUTICAL CO., LTD.
In December 1992, the Company entered into an agreement with Kaken
Pharmaceutical Co., Ltd. ("Kaken") for developing and marketing hair growth
products in Asia based on the Company's technology. The agreement gave Kaken
exclusive license rights for peptide-copper hair growth and hair loss prevention
products in Asian countries. In 1995 Kaken satisfied all of its R&D funding
obligations under the agreement.
On January 31, 1996, the Company's license agreement with Kaken was terminated.
The Company has regained the exclusive license rights for its peptide-copper
hair growth and hair loss prevention products in Asian countries.
4. FEDERAL INCOME TAXES
The following is a summary of the components of deferred taxes (in millions) at
December 31, 1995 and December 31, 1994:
December 31, December 31,
79
<PAGE>
1995 1994
Deferred tax asset $15.5 $12.8
Valuation allowance (15.5) (12.8)
$0.0 $0.0
At December 31, 1995, the Company had net operating loss and research and
development tax credit carryforwards of approximately $40.7 million and $1.2
million, respectively, scheduled to expire from 2000 to 2009. As a result of
issuing common stock subsequent to inception, the Company's ability to use these
net operating losses and tax credit carryforwards in the future will be subject
to limitations under Internal Revenue Code Section 382. No tax benefits have
been recorded for net operating losses incurred and tax credits generated since
inception.
5. LEASE COMMITMENTS
The Company leases approximately 28,000 square feet of laboratory and
administrative facilities in Kirkland, Washington under a ten year operating
lease which commenced July 1, 1990. Subject to certain payments, the lease is
cancelable by the Company at the end of seven years, and contains a renewal
option for the Company to extend the original term by an additional five years.
The Company also leases approximately 16,000 square feet of manufacturing and
expansion space in Redmond, Washington under a seventy-nine month operating
lease. The Company may extend the original term by an additional ten years in
two five-year increments.
Future minimum lease payments on the total leased space of approximately 44,000
square feet are as follows:
1996....................... 446,844
1997 ...................... 459,786
1998 ...................... 466,368
1999 ...................... 475,590
2000 ...................... 249,880
----------
Total ..................... $2,098,468
----------
----------
Rent expense in 1995, 1994 and 1993 was $536,212, $504,017, and $265,788,
respectively.
6. LEGAL PROCEEDINGS
On March 5, 1996, the Company announced it had reached a tentative settlement in
the stockholder lawsuit filed against the Company and certain of its officers
and directors in October 1994. The tentative settlement, which is subject to
court approval, is for
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<PAGE>
$7,750,000, of which at least $2,500,000 will be paid in cash, with the
remainder payable, at the Company's discretion, in cash or shares of the
Company's common stock. The tentative settlement is conditioned upon the Company
receiving a minimum of $3,000,000 in cash from the Company's Director and
Officer insurance underwriters. At December 31, 1995, the Company had a
$7,500,000 current liability to the stockholders for the settlement and a
$3,000,000 receivable due from the Company's insurance underwriters, resulting
in a $4,750,000 charge.
7. STOCKHOLDERS' EQUITY
Common Stock
On October 2, 1989, the Board of Directors declared a 1.16 for 1 common stock
split to be effected in the form of a dividend to holders of record on that
date. Since this occurred before the Company's stock was publicly traded and the
Company had no retained earnings, this transaction has been accounted for
retroactively as a stock split.
Accordingly, all outstanding common shares and per common share amounts, except
par value, have been restated in these financial statements to give effect to
the split.
On November 16, 1989, the Company sold 1,300,000 shares of common stock in its
initial public offering at $8.00 per share. Prior to the public offering, the
Company had issued shares of its common stock in several private placements.
In 1989 and 1990, the Board of Directors granted common stock bonuses to
officers. Compensation expense was recognized based on estimated fair market
value of the stock on the date of grant.
During 1989, the Company borrowed $500,000 under a note convertible to common
stock of the Company at $2.16 per share, which was the estimated fair market
value at the date of the note as determined by the Board of Directors. This note
was converted and the stock was issued shortly after the borrowing.
In May 1989, the Company issued 433,724 shares of common stock to Schering
Corporation for cash of approximately $2.5 million under a share purchase
agreement.
On May 19, 1992, the Company sold 1,437,500 shares of common stock in a public
offering at $5.50 per share.
On February 9, 1993, the Company sold 2,275,000 shares of common stock in a
public offering at $9.00 per share.
On December 1, 1993, the Company sold 155,461 shares of common stock to Kissei
Pharmaceutical Co., Ltd. at $25.73 per share under a stock purchase agreement.
On February 8 and 22, 1994, the Company sold 2,500,000 and 375,000 shares,
respectively, of common stock in a public offering at $13.25 per share.
In December 1994, the Board of Directors adopted a shareholder rights plan (the
"Rights Plan"), declaring a dividend of one preferred share purchase right (the
"Rights") for each outstanding share of common stock of the Company. Upon the
earlier of the close of
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<PAGE>
business on the tenth business day after the date the Company learns that a
person or group (an "Acquiring Person") has acquired or obtained the right to
acquire beneficial ownership of 15% or more of the outstanding common stock of
the Company, or the date designated by the board following commencement of, or
first public disclosure of an intent to commence, a tender or exchange offer for
outstanding shares of common stock of the Company, that could result in the
offeror becoming beneficial owner of 15% or more of the outstanding shares of
common stock of the Company, each Right will become exercisable (other than by
an Acquiring Person) for shares, or fractions of shares, of preferred stock of
the Company, or may, at the election of the board, be exchanged for shares of
preferred stock. In the event the Company is acquired, each Right will represent
the right to acquire shares of the acquiring or surviving corporation or other
entity. The Rights will expire on December 7, 2004.
On November 15, 1995, the Company issued 200,000 shares of its common stock to
Hymedix International, Inc. pursuant to a stock purchase agreement. These shares
are releasable to Hymedix over a two-year period in four equal assignments of
50,000 shares each, unless Hymedix has materially breached the license agreement
or the Company has terminated the license agreement. The stock is subject to SEC
Rule 144 restrictions and has piggyback registration rights for a limited period
of time. The Company may terminate the agreement at any time upon sixty days'
written notice.
Stock options
The Company has stock option plans for officers, employees and consultants,
which provide for granting of nonqualified and incentive stock options and
grants. Options generally are granted at fair market value, expire between five
and ten years from grant date and vest ratably over three to five years.
During 1991, the Company adopted a stock option plan for nonemployee directors,
that was ratified by the shareholders in 1992. Such plan provides for the grant
of 200,000 nonqualified common stock options, which generally vest over three
years, with other terms substantially equivalent to the Company's other plans.
During 1991, grants for 75,000 shares at fair market value were made from this
plan. During 1994, grants for 79,000 shares at fair market value were made from
this plan.
During 1992, the shareholders ratified an amendment to increase the shares of
common stock available under the 1989 Restated Stock Option Plan for option
grants to officers and employees by 500,000 shares, of which 200,000 shares were
granted by the Board of Directors to an officer.
During 1994, the shareholders ratified amendments to increase the shares of
common stock available under the 1989 Restated Stock Option Plan for option
grants to officers and employees by 652,000 shares, and to increase the number
of shares which could be granted to nonemployee directors under the 1991
Restated Stock Option Plan for Nonemployee Directors.
The Company has granted stock options to key employees with option prices below
fair market value at the date of grant. Unearned compensation has been recorded
for the difference and is charged to operations ratably over the period that
services are to be
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performed. Unamortized unearned compensation is shown as a reduction of
stockholders' equity. In 1993, the Board of Directors granted nonqualified stock
options to purchase 75,000 shares of common stock to an officer of the Company
at 85% of the fair market value on the date of the grant. All options are
subject to vesting schedules.
At December 31, 1995, options to purchase 705,788 shares were exercisable and
there were 177,297 shares available for future grant, including 46,000 shares
related to the 1991 plan for nonemployee directors. Information relating to
stock options granted, exercised and canceled follows:
<TABLE>
<CAPTION>
Shares subject Option
to option price range
-----------------------------
<S> <C> <C>
Balance,
December 31, 1992 1,021,942 $.09-$11.25
Granted 248,750 $9.06-$16.56
Exercised 135,654 $.86-$11.25
Canceled 115,230 $.86-$11.25
---------
Balance,
December 31, 1993 1,019,808 $.09-$16.56
---------
Granted 637,130 $2.53-$13.88
Exercised 15,148 $.86-$9.44
Canceled 229,080 $2.16-$16.56
---------
Balance,
December 31, 1994 1,412,710 $.09-$11.88
---------
Granted 479,500 $2.59-$2.94
Exercised 203,880 $.09-$2.16
Canceled 151,373 $.86-$11.25
---------
Balance,
December 31, 1995 1,536,957 $2.15-$11.88
---------
</TABLE>
8. BENEFIT PLANS
On April 1, 1991, the Company adopted the 1991 ProCyte Corporation Profit
Sharing and Salary Deferral 401(k) Plan. The plan is funded by voluntary
employee pretax salary deferrals, to the extent permitted under law, and
provides for employer matching contributions, at the discretion of the Board of
Directors. No employer contribution has been made since adoption of the 401(k)
plan.
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Independent Auditors' Report
Board of Directors
ProCyte Corporation
Kirkland, Washington
We have audited the accompanying balance sheets of ProCyte Corporation (a
development stage company) as of December 31, 1995 and 1994, and the related
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended December 31, 1995, and the period from inception
to December 31, 1995. 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 the Company as of December 31, 1995 and
1994, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995 and for the period from inception to
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for income taxes in 1993 and investments in 1994.
DELOITTE & TOUCHE LLP
Seattle, Washington
March 7, 1996
84
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors
ProCyte Corporation
Kirkland, Washington
We consent to the incorporation by reference in Registration Statement No. 33-
48809 of ProCyte Corporation on Form S-8 of our report dated March 7, 1996,
incorporated by reference in this Annual Report on Form 10-K of ProCyte
Corporation for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Seattle, Washington
March 25, 1996
85
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,019,740
<SECURITIES> 30,057,780
<RECEIVABLES> 3,000,000<F3>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,554,636
<PP&E> 8,426,662
<DEPRECIATION> 3,244,799
<TOTAL-ASSETS> 45,093,558
<CURRENT-LIABILITIES> 9,116,150<F1>
<BONDS> 0
0
0
<COMMON> 131,311
<OTHER-SE> 35,753,243
<TOTAL-LIABILITY-AND-EQUITY> 45,093,558
<SALES> 0
<TOTAL-REVENUES> 4,320,056
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,714,991
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12,394,935)<F2>
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,394,935)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,394,935)
<EPS-PRIMARY> (0.95)
<EPS-DILUTED> (0.95)
<FN>
<F1>This includes $7,750,000 Payable to Stockholders for Litigation Settlement
<F2>This includes $4,750,000 expense for Litigation Settlement
<F3>Insurance claim receivable for Litigation Settlement.
</FN>
</TABLE>
