<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
ProCyte
Corporation
NOTICE OF 1996 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF PROCYTE CORPORATION:
Notice is hereby given that the Annual Meeting of the Shareholders (the
"Annual Meeting") of ProCyte Corporation (the "Company") will be held on
Wednesday, May 14, 1996 at 3:00 p.m., Pacific Daylight Time, at the Meydenbauer
Convention Center, 11100 N.E. 6th Street, Bellevue, Washington, for the
following purposes:
1. To approve an amendment to the Company's Restated Articles of
Incorporation to provide for a classified Board of Directors;
2. To elect members to the Board of Directors;
3. To transact such other business as may properly come before the
meeting and all adjournments and postponements thereof.
Holders of the common stock of the Company at the close of business on
March 8, 1996 are entitled to notice of and to vote upon all matters at the
Annual Meeting.
You are cordially invited to attend the Annual Meeting so that we may have
the opportunity to meet with you and discuss the affairs of the Company.
WHETHER YOU PLAN TO ATTEND THE MEETING OR NOT, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY SO THAT THE COMPANY MAY BE ASSURED OF THE PRESENCE OF A QUORUM AT
THE ANNUAL MEETING. A stamped, addressed envelope is enclosed for your
convenience in returning your proxy.
BY ORDER OF THE BOARD OF DIRECTORS
Joseph Ashley
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Kirkland, Washington
March 29, 1996
<PAGE>
PROCYTE CORPORATION
- -------------------------------------------------------------------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 14, 1996
- -------------------------------------------------------------------------------
This Proxy Statement is furnished by and the accompanying proxy is
solicited on behalf of the Board of Directors of ProCyte Corporation, a
Washington corporation (the "Company"), for use at its Annual Meeting of
Shareholders to be held at the Meydenbauer Convention Center, 11100 N.E. 6th
Street, Bellevue, Washington on Wednesday, May 14, 1996 at 3:00 p.m., Pacific
Daylight Time, and at any adjournment thereof (the "Annual Meeting"). The
Company's Annual Report for the year ended December 31, 1995, Notice of Annual
Meeting, and a proxy accompany this Proxy Statement. The cost of solicitation
of proxies is to be paid by the Company. The approximate date of the mailing of
this Proxy Statement and proxy is March 29, 1996.
RECORD DATE AND VOTING SECURITIES
Shareholders of record at the close of business on March 8, 1996 (the
"Record Date") will be entitled to vote at the meeting. The only voting
securities of the Company are shares of common stock, $.01 par value (the
"Common Stock"). Each share of Common Stock outstanding is entitled to one vote
per share on any matter brought before the meeting. On March 29, 1996, the
Company had outstanding 13,338,965 shares of Common Stock. Under Washington law
and the Company's Articles of Incorporation, if a quorum is present at the
meeting: (i) the amendment to the Company's Restated Articles of Incorporation
to create a classified Board of Directors will be approved if holders of a
majority of the outstanding shares of Common Stock on the Record Date vote in
favor of the amendment and (ii) the 6 nominees for election as directors who
receive the greatest number of votes cast for the election of directors at the
meeting by the shares present in person or represented by proxy at the meeting
and entitled to vote shall be elected directors.
The presence in person or by proxy of holders of record of a majority of
the outstanding shares of Common Stock is required to constitute a quorum for
the transaction of business at the meeting. Abstentions and broker nonvotes
will not be counted for voting on the amendment to the Company's Restated
Articles of Incorporation, but will have the practical effect of a vote against
the amendment since they represent one less vote for approval. In the election
of directors, any action other than a vote for a nominee will have no effect,
assuming the presence of a quorum.
1
<PAGE>
REVOCATION OF PROXIES
Any proxies given pursuant to this solicitation may be revoked by the
person giving it any time before it is voted. Proxies may be revoked by (i)
filing with the Assistant Secretary of the Company, at the time or before the
vote is taken at the Annual Meeting a written notice of revocation bearing a
date later than the proxy; (ii) duly executing a later-dated proxy relating to
the same shares and delivering it to the Assistant Secretary of the Company
before the vote is taken at the Annual Meeting; or (iii) attending the Annual
Meeting and voting in person (although attendance at the Annual Meeting will not
in and of itself constitute a revocation of proxy). Any written notice or
subsequent proxy should be sent so as to be delivered to ProCyte Corporation,
12040 115th Avenue N.E., Suite 210, Kirkland, WA 98034-6900, Attention:
Assistant Secretary, or be hand delivered to the Assistant Secretary of the
Company at or before the time the vote is taken at the Annual Meeting.
PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth information regarding ownership of the
Company's Common Stock on March 29, 1996 by (i) each person known by the Company
to own beneficially more than 5% of the outstanding shares of Common Stock, (ii)
each director, (iii) executive officers named in the Summary Compensation Table
below, and (iv) all directors and executive officers of the Company as a group.
The number of shares beneficially owned by each director or executive officer is
determined under the rules of the Securities and Exchange Commission ("SEC"),
and the information is not necessarily indicative of beneficial ownership for
any other purpose.
<TABLE>
<CAPTION>
Shares Beneficially % of Shares
Name of Beneficial Owner Owned (1) Outstanding
------------------------ --------- -----------
<S> <C> <C>
Joseph Ashley (2) 561,877 4.2%
12040 115th Avenue N.E.
Kirkland, WA 98034-6900
Jules Blake (3) 37,000 *
Gordon W. Duncan (4) 173,334 1.3%
Karen L. Hedine (5) 136,814 1.0%
C. Brian Melonakos (6) 25,000 *
Robert E. Patterson (7) 16,667 *
William M. Sullivan (3) 37,000 *
Thomas E. Tierney (8) 8,334 *
All Directors and executive officers
as a group (9 persons) (9) 1,030,493 7.4%
</TABLE>
- -------------------------------
* Less than 1%
2
<PAGE>
(1) Unless otherwise indicated, each person named in the table exercises
sole voting and investment power with respect to all shares
beneficially owned, subject to applicable community property laws.
(2) Includes 50,000 shares subject to options exercisable within 60 days
of March 29 1996.
(3) Includes 37,000 shares subject to options exercisable within 60 days
of March 29, 1996
(4) Includes 173,334 shares subject to options exercisable within 60 days
of March 29, 1996.
(5) Includes 136,814 shares subject to options exercisable within 60 days
of March 29, 1996.
(6) Includes 25,000 shares subject to options exercisable within 60 days
of March 29, 1996.
(7) Includes 16,667 shares subject to options exercisable within 60 days
of March 29, 1996.
(8) Includes 8,334 shares subject to options exercisable within 60 days of
March 29, 1996.
(9) Includes 526,949 shares subject to options exercisable within 60 days
of March 29, 1996.
3
<PAGE>
PROPOSAL TO AMEND THE COMPANY'S RESTATED
ARTICLES OF INCORPORATION
The Board of Directors has approved, and recommends that the shareholders
adopt, an amendment to the Company's Restated Articles of Incorporation that
would divide the Board of Directors into three classes with staggered terms.
The proposal is as follows:
RESOLVED, that Article VIII of the Restated Articles of Incorporation be
amended in its entirety to read as follows:
"The Board of Directors shall be composed of not less than three nor more
than twelve directors, the specific number to be set by resolution of the Board
of Directors; provided that the Board may be less than three until vacancies are
filled. No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. The Board of Directors shall be
divided into three classes, with the classes to be as equal in number as may be
possible, with any director or directors in excess of the number divisible by
three being assigned to Class 3 and Class 2, as the case may be. At the 1996
Annual Meeting of Shareholders, the following classes shall be elected for the
terms set forth below:
CLASS TERM
----- ----
Class 1 1 year
Class 2 2 years
Class 3 3 years
At each annual meeting of shareholders following the 1996 annual meeting,
the number of directors equal to the number of directors in the class whose term
expires at the time of such meeting shall be elected to serve until the third
ensuing annual meeting of shareholders. Unless a director dies, resigns, or is
removed, he or she shall hold office for the term elected or until his or her
successor is elected and qualified, whichever is later. Directors may be
removed only for cause. Directors need not be shareholders of the corporation
or residents of the State of Washington. Written ballots are not required in
the election of directors."
The Board of Directors recommends that the Restated Articles of
Incorporation be amended to divide the Board of Directors into three classes, as
nearly equal in size as possible. Except during the initial phase-in period,
and for directors elected to fill vacancies, the term of office of the directors
of each class shall expire at the third annual meeting of shareholders after
their election. Any director elected by the board to fill a vacancy will,
pursuant to the Washington Business Corporation Act (the "WBCA"), stand for
election by shareholders at the next meeting of shareholders at which directors
are elected.
4
<PAGE>
THIS PROPOSAL IS INTENDED TO PROVIDE CONTINUITY AND STABILITY TO THE
COMPANY'S MANAGEMENT, BY INCREASING THE AMOUNT OF EFFORT NECESSARY TO GAIN
CONTROL OF THE BOARD OF DIRECTORS. Adoption of this proposal will make it more
difficult to change the composition of the Board of Directors. The present
provision requires that the entire Board of Directors be subject to election
each year, so it would take only one year for the Board of Directors to be
replaced. Following adoption of the proposal, at least two annual meetings, or
a special meeting called for the purpose of removing the directors for cause,
will be required to effect a change in the majority of the Board of Directors.
While the Board of Directors believes that the proposed amendment to the
Restated Articles of Incorporation should be adopted for reasons set forth
above, the Board of Directors is aware that the proposed amendment may have
potential anti-takeover effects. Dividing the Board of Directors into three
classes with staggered terms will make it more difficult for shareholders to
change a majority of current directors. This provision is effective without
regard to whether a change of control has occurred or is occurring and therefore
may also have the effect of deterring or preventing shareholders from replacing
directors for reasons unrelated to the control of the Company.
OTHER PROVISIONS RELEVANT TO THE PROPOSED AMENDMENT TO THE RESTATED ARTICLES OF
INCORPORATION
Because of the potential anti-takeover effect of the proposed amendment to
the Company's Restated Articles of Incorporation, the SEC requires that the
Company disclose certain other provisions of the Company's charter and state law
that may limit or prevent a change of control of the Company.
THE SHAREHOLDER RIGHTS PLAN
In December 1994, the Company adopted a shareholder rights plan (the
"Rights Plan"), declaring a dividend of one preferred share purchase right (the
"Rights") for each outstanding share of the Company's Common Stock. Upon the
earlier of (1) the close of business on the tenth business day after the date
that 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 Company's outstanding Common Stock, or (2) 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 the Company's Common Stock
that could result in the offeror becoming a beneficial owner of 15% or more of
the Company's outstanding Common Stock, each Right will become exercisable
(other than by the 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.
5
<PAGE>
THE COMPANY'S CHARTER
In addition, the Company's Restated Articles of Incorporation currently
provide that shareholders do not have the right to cumulate votes in the
election of directors and that the authorized capital of the Company consists of
30,000,000 shares of Common Stock and 2,000,000 shares of preferred stock, which
the board may issue from time to time in one or more classes or series (with
such designations and preferences, relative voting and other rights as the board
may deem appropriate) without the approval of the Company's shareholders. The
Company's articles and bylaws also contain provisions limiting the right of a
shareholder to raise a proposal at a shareholders' meeting or to nominate a
candidate for the board and providing that special meetings of the shareholders
may be called only by the board, its chairman, the president of the Company or
by holders of 10% or more of the outstanding shares of the Company's Common
Stock.
WASHINGTON STATE LAW
ProCyte was incorporated in the state of Washington in 1986. Washington
law contains certain provisions that may have the effect of delaying or
discouraging a hostile takeover of the Company. Chapter 23B.17 of the WBCA
prohibits, subject to certain exceptions, a merger, sale of assets or
liquidation of a corporation involving an "Interested Shareholder" (defined
generally as a person or affiliated group who beneficially own 20% or more of
the corporation's outstanding voting securities), unless determined to be at a
"fair price" or otherwise approved by a majority of the Company's disinterested
directors or the holders of two-thirds of the votes of each voting group
entitled to vote separately on the transaction, excluding the votes of the
Interested Shareholder.
In addition, Chapter 23B.19 of the WBCA prohibits a corporation, with
certain exceptions, from engaging in certain significant business transactions
with a person or group of persons who beneficially acquire 10% or more of the
corporation's outstanding voting securities for a period of five years after
such acquisition. The prohibited transactions include, among others, a merger
with, disposition of assets to, or issuance or redemption of stock to or from
such person or group of persons to receive any disproportionate benefit as a
shareholder. Finally, the WBCA prohibits a corporation from taking shareholder
action by written consent without a meeting, unless such consent is unanimous.
This provision makes it necessary for a potential acquirer to hold a meeting to
obtain shareholder approval and therefore increases the cost to an acquirer of
gaining control of a Washington corporation.
The provisions of the WBCA, regarding the prohibition of significant
business transactions and unanimous shareholder consent, apply automatically to
the Company by virtue of its incorporation in Washington. The WBCA does not
permit Washington corporations to "opt out" of these provisions by director or
shareholder vote. The proposal to classify the Company's board, together with
the Rights Plan and certain provisions described above of the Company's charter
documents and the WBCA, may have the effect of delaying, deterring or preventing
a hostile takeover or change of control
6
<PAGE>
of management of the Company. This effect could deprive shareholders of
opportunities to sell their shares at higher-than-market prices. These items
may also, however, tend to ensure continuity of management and policies for the
Company and encourage those seeking control of the Company to negotiate with
management and the board. The Company is currently not aware of any effort to
accumulate its securities or to gain control of the Company, nor is the proposed
amendment to the Restated Articles of Incorporation recommended to block any
such effort.
As discussed below under the heading ELECTION OF DIRECTORS, the Company
intends to implement the staggered Board of Directors provisions immediately
following the effective date of the proposed amendment to the Company's Restated
Articles of Incorporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
ADOPTION OF THE PROPOSAL TO AMEND THE COMPANY'S RESTATED ARTICLES OF
INCORPORATION.
7
<PAGE>
ELECTION OF DIRECTORS
Assuming adoption and effectiveness of the proposed amendment to the
Company's Restated Articles of Incorporation, the Board of Directors will be
divided into three classes, each consisting of two directors. If, for any
reason, the proposed amendment to the Company's Restated Articles of
Incorporation is not adopted or does not become effective, each director elected
at the Annual Meeting will hold office until the next annual meeting of
shareholders, and until a successor shall have been elected and qualified.
The Board of Directors has unanimously approved the nominees named below.
It is intended that votes will be cast pursuant to the enclosed proxy card
without giving any contrary directions for the election as directors of the
nominees set forth below, and executing the proxy card will give the proxies the
authority to vote the shares in election of directors as the proxies shall
determine. If any nominee shall not be a candidate for election as a director
at the Annual Meeting, it is intended that votes will be cast pursuant to the
enclosed proxy for such substitute nominee as may be nominated by the existing
directors. No circumstances are presently known which would render any nominee
named herein unavailable.
NOMINEES FOR ELECTION AS CLASS 1 DIRECTORS. The following are the nominees
of the Board of Directors to serve, following the effectiveness of the amendment
to the Restated Articles of Incorporation, as Class 1 Directors until the Annual
Meeting of Shareholders in 1997:
NAME AGE POSITION AND OFFICE
---- --- -------------------
Gordon W. Duncan, Ph.D. 63 Vice President, Research
Secretary, and Director
William M. Sullivan 61 Director
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. Dr. Duncan serves
as a Director of PATH, a not-for-profit international healthcare organization,
1991-present. 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. Dr. Duncan is presently employed as a part-time employee by the
Company.
8
<PAGE>
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 Sparta's President
and CEO from 1991 to March 1996. Mr. Sullivan was Chairman of the Board, The
Immune Response Corporation, a biotechnology company, 1987-1994; and served as
a Director 1994-present. He serves as a Director of BioVentures, Inc., a
diagnostics company, 1989-present; and a Director of Research Corporation
Technologies, a technology transfer company, 1995-present. Mr. Sullivan holds
a J.D. from Harvard Law School and an A.B. from the University of Notre Dame.
Mr. Sullivan is a member of the Audit and Compensation Committees.
NOMINEES FOR ELECTION AS CLASS 2 DIRECTORS. The following are the nominees
of the Board of Directors to serve, following the effectiveness of the amendment
to the Restated Articles of Incorporation, as Class 2 Directors until the Annual
Meeting of Shareholders in 1998:
NAME AGE POSITION AND OFFICE
---- --- -------------------
Joseph Ashley 68 Chairman of the Board,
Chief Executive Officer,
President, and Treasurer
Jules Blake, Ph.D 71 Director
JOSEPH ASHLEY, age 68, was elected Chairman of the Board, January 1991 to
present; President, Chief Executive Officer, a Director of the Company and
Treasurer, January 1987-present. Mr. Ashley previously served as President and
Chief Operating Officer of Genetic Systems Corporation, a biotechnology company
from 1984-1986. He served 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. He
is a member of the Audit Committee.
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. Dr. Blake is a Director of Martek Biosciences
Corporation, a biotechnology company, 1990-present; member of the Board of
Overseers of Forsyth Dental Center, 1994-present. He is a trustee for the
Medical College of Pennsylvania Hahnemann University, 1992-present, and a member
of the Science Advisory Board for
9
<PAGE>
International Specialty Products, a specialty chemical company, 1992-present.
Dr. Blake received his Ph.D. in Organic Chemistry and his M.S. and B.S. in
Chemistry from the University of Pennsylvania. Dr. Blake has served as the
chairman of the Compensation Committee, 1991-present, and is a member of the
Audit Committee.
NOMINEES FOR ELECTION AS CLASS 3 DIRECTORS. The following are the nominees
of the Board of Directors to serve, following the effectiveness of the amendment
to the Restated Articles of Incorporation, as Class 3 Directors until the Annual
Meeting of Shareholders in 1999:
NAME AGE POSITION AND OFFICE
---- --- -------------------
Robert E. Patterson 53 Director
Thomas E. Tierney 68 Director
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. Mr. Patterson holds a J.D. from Stanford Law School and
completed the Executive Program at the Stanford Graduate School of Business. He
obtained a B.A in Physics from the University of California at Los Angeles. He
is a member of the Compensation Committee and serves as chairman of the Audit
Committee of the Board, 1995-present.
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 at The Kendall Company, 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. He is a member of the Board of
Directors of Uromed, a development-stage healthcare company. Mr. Tierney
attended the Harvard Business School Advanced Management Program and received
his B.A. in General Sciences from Colgate University.
INFORMATION ABOUT THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
COMPENSATION OF DIRECTORS. Directors who were not otherwise employed by
the Company, were paid an annual retainer fee, payable on a quarterly basis, of
$12,000, plus $1,500 for each meeting attended in person through December 1995.
The non-employee directors also received $500 each for each telephonic meeting
of the Board of Directors held though December 1995. In 1995, these fees
totaled $19,500, $13,500, $20,500 and
10
<PAGE>
$20,500 for Mssrs. Sullivan, Jones, and Patterson and Dr. Blake, respectively.
In December 1995, Mr. G Bradford Jones resigned his Board position due to
commitments to other earlier-stage companies represented by his venture capital
firm. Directors who are employed by the Company are not otherwise compensated
for attendance at meetings of the Board or its committees. Directors are
reimbursed for any expenses attendant to Board membership.
BOARD OF DIRECTORS MEETINGS. During 1995, there were ten meetings of the
Board of Directors, at each of which all members of the Board were present in
person or via telephone, with the exception of Mr. Jones, who attended seven of
the meetings, and Mr Sullivan, who participated in nine meetings. All reference
to meetings excludes actions taken by written consent.
COMPENSATION COMMITTEE. The Company has a Compensation Committee, which
has the responsibility for recommending compensation of corporate officers;
reviewing annually the operation of all compensation, employment and benefit
practices and salary administration procedures; acting as Plan Administrator for
all of the Company's stock plans; recommending benefit levels in the Company's
proposed retirement program when one is adopted; and recommending directors'
fees. The Compensation Committee consisted of four non-employee directors in
1995: Dr. Jules Blake (Chairman), Mr. William Sullivan, Mr. Robert Patterson and
Mr. G. Bradford Jones. During 1995, there were five meetings of the
Compensation Committee, each of which was attended by all of the named committee
members. All reference to meetings excludes actions taken by written consent.
AUDIT COMMITTEE. The Audit Committee of the Board of Directors has and may
exercise the following powers: to make recommendations to the Board of Directors
regarding the selection of the Company's independent auditors; to review the
scope, direction, timetable and schedule of audits conducted by the Company's
independent auditors; to review the results of such audits; to review the
Company's system of internal financial controls; and such additional powers as
may be conferred upon the Audit Committee from time to time by the Board of
Directors. The committee consisted of three outside directors in 1995, Mr.
Robert E. Patterson (Chairman), Dr. Jules Blake and Mr. William Sullivan, and
one employee director, Mr. Joseph Ashley. The committee held one meeting during
fiscal year 1995, at which all of the committee members were present.
The Company does not have a Nominating Committee.
EXECUTIVE COMPENSATION
The two tables set forth below provide, with respect to Mr. Ashley and the
three other executive officers whose compensation (salary and bonus) in 1995
exceeded $100,000 (the "named executive officers"), information regarding
compensation for each
11
<PAGE>
of the last three years, information regarding option exercises in 1995, and
options outstanding at the end of 1995.
12
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($) OPTIONS(#)
<S> <C> <C> <C> <C>
Joseph Ashley, Chairman of the Board, 1995 $215,655 150,000
Chief Executive Officer and President 1994 $192,500 $17,500
1993 $175,000 $35,000
Gordon W. Duncan, 1995 $121,622 100,000
Vice President, Research 1994 $115,500 $17,500
1993 $95,000
Karen L. Hedine 1995 $121,622 100,000
Vice President, Business 1994 $115,500 $10,000
Development & Administration 1993 $96,667 $25,000
C. Brian Melonakos 1995 $105,595 75,000(2)
Vice President, Marketing 1994 $105,179
1993 $29,500(1) $15,000
</TABLE>
(1) Mr. Melonakos was hired by the Company on September 15, 1993
(2) The Board of Directors issued this option, at fair market value, after
canceling the original option granted to Mr. Melonakos in 1993. The 1995
option is for the same number of shares.
OPTION GRANTS IN 1995
In January 1995, in recognition of and reward for the continuing efforts of
certain of the named executive officers, the Compensation Committee approved
stock option grants to the following named executive officers:
NAME POSITION OPTIONS GRANTED
Joseph Ashley CEO & President 150,000 shares
Gordon Duncan, Ph.D. Vice President, Research 100,000 shares
Karen Hedine Vice President, Business 100,000 shares
Development/Administration
All such options were granted at the fair market value on the date of
grant, and are subject to a three year vesting period and a ten year term.
Additionally, the Compensation Committee approved an extended term of a non-
qualified stock option which was granted in 1988 to Ms. Hedine from seven years
to ten years, in keeping with the term of options granted to other officers.
13
<PAGE>
AGGREGATED OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS MONEY OPTIONS AT
SHARES ACQUIRED AT YEAR-END(#) YEAR-END($)
UNDERLYING EXERCISABLE/ EXERCISABLE/
NAME OPTIONS EXERCISED VALUE REALIZED($) UNEXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Joseph Ashley, --179,919-- $512,769(1) 200,000(2) $0/
CEO & President --0-- --0-- 150,000 $0 (3)
Gordon W. Duncan --0-- --0-- 140,000 $0/
Vice President, Research $0 (3)
Karen L. Hedine --0-- --0-- 103,280 $24,360/
Vice President Business $0 (3)
Development & Administration
C. Brian Melonakos --0-- --0-- --0-- $0/
Vice President, Marketing $0 (3)
</TABLE>
(1) Value is the market price of the underlying Common Stock on the date of
exercise minus the exercise price.
(2) In January 1996, Mr. Ashley voluntarily and without recompense relinquished
and returned to the ProCyte Corporation 1989 Restated Stock Option Plan,
the non-qualified stock option grant of 200,000 shares of ProCyte Common
Stock, granted to him on February 21, 1992. Mr. Ashley took this action to
provide that more options would be available for the Company's use in
granting options to future employees of the Company.
(3) Value is the market price of the underlying Common Stock at year end minus
the exercise price.
CHANGE OF CONTROL AGREEMENTS
In 1995, the Company entered into Change of Control Agreements with the
named executive officers to provide compensation and benefits in the event that
a change of control (as defined therein) of the Company resulted in loss of
their employment. The term of each such agreement is two years from the date of
the agreement, or, if a change of control occurs during the term of the
agreement, the term is automatically extended for two years after such change of
control.
In the event that a named executive officer's employment relationship is
terminated by the Company for other than cause or by the named executive officer
for good reason following a change in control, the officer will receive an
amount as severance pay equal to two times (one times for Mr. Melonakos) the
officer's annual base salary for the fiscal year in which the date of
termination occurs, any compensation due through the date of termination or
previously deferred, any accrued vacation pay which would be payable under the
Company's standard policy, and group insurance benefits for one year after
termination.
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<PAGE>
SEVERANCE AGREEMENTS
In 1995, the Company entered into Severance Agreements with the named
executive officers, which agreements provide that if the employment of any such
officer is terminated other than for cause (as defined therein) or as a result
of voluntary resignation for good reason within two years from the date of the
agreement, the officer will be eligible to receive his or her accrued salary and
benefits and salary continuation and group insurance benefits for a period of
six months at the officer's then current annual base salary for the fiscal year
in which the termination occurs, subject to reduction of the salary continuation
by the amount of any other earnings from other employment or personal services.
In February 1996, Dr. Duncan voluntarily requested to reduce his employment
status from full to part time. In connection with his request, he and the
Company agreed to terminate Dr. Duncan's Change of Control and Severance
Agreements.
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
In 1995, all of the non-employee directors comprised the Compensation
Committee (the "Committee"). The Committee considers and makes recommendations
to the Board of Directors concerning general compensation policies and employee
benefit plans, and specifically recommends salary levels and bonus or stock
option awards for executive officers of the Company, including the Chief
Executive Officer. The Committee, as Plan Administrator of the stock option
plans, has sole authority to grant options to executive officers. The
Committee's executive salary and bonus recommendations for 1995 were approved by
the Board without modification.
The Company applies a consistent philosophy in its compensation practices
for all employees, including executive management. This philosophy is based on
the premise that the achievements of the Company result from the combined
efforts of all individuals working toward common objectives. The Company
strives to achieve its objectives through teamwork that is focused on meeting
the expectations of its shareholders. In 1995, the Company's executive
officers, including the President and Chief Executive Officer, Mr. Ashley,
received compensation based on the following objectives and policy on executive
compensation.
OBJECTIVES AND POLICY
The objectives of the Company's executive compensation policy are to:
* Provide compensation that will attract, retain and motivate
experienced executive personnel;
* Align the interests of management and shareholders by making a
substantial portion of executive compensation dependent on the success
of the Company,
15
<PAGE>
as measured by long-term appreciation in the market price of the
common stock;
* Balance considerations of individual achievements each year with the
Company's overall performance, both financially and otherwise.
To further the Company's executive compensation objectives, the policy
provides for a combination of base salary, cash incentive bonus awards and long-
term stock options. The Company has not contributed to a retirement program on
behalf of its executive officers.
BASE SALARY
In order to determine its recommendations to the Board of Directors
concerning the salary level for executive officers, the Committee considers
published data from annual surveys of executive compensation at comparable
healthcare and pharmaceutical companies. Comparable healthcare and
pharmaceutical companies are not necessarily the same as those in the Nasdaq
Pharmaceutical Index. They are a Company-identified sampling of at least twenty
firms, which, like the Company, have less than 100 employees, are at the same
approximate stage of development, and have market valuations roughly the same as
that of the Company.
Using the survey data as a reference point, the Committee makes adjustments
based on its subjective evaluation of the Company executives' individual level
of experience, responsibility and performance. The Committee also takes into
consideration each executive's comparability with other Company executives. The
Committee gives weight to the views of the Chief Executive Officer with respect
to executive salaries other than that of the Chief Executive Officer. In 1995,
the Company's executive compensation ranked in the lower 35th percentile of the
average compensation paid to executives in similar positions as reported for the
surveyed companies.
Despite the difficult setback the Company faced at year end 1994, the
Compensation Committee and the Board of Directors felt that the named executive
officers stood a better chance of rebuilding long-term shareholder value than
would a new management team. The Committee further recognized that recruitment
of a new executive management team, or members thereof, would be difficult given
that the Company historically paid its officers in the lower ranges of the
published salary surveys for like-positioned companies. The effort required to
implement the Company's 1995 corporate strategy required a motivated management
team that would not be tempted to consider offers to work elsewhere for higher
compensation or to opt to retire in 1995.
As such, the Compensation Committee elected to increase the base salaries
for Dr. Duncan, Ms. Hedine and Mr. Melonakos by 5.3%, and for Mr. Ashley by 10%,
effective January 1995. The Compensation Committee feels strongly that it is
important that the Company compensate ProCyte's executive officers more in
keeping with the established competitive ranges for executive positions in like
companies and for what it believes to be the Company's favorable long-term
business outlook.
16
<PAGE>
CASH BONUS
The Committee may occasionally recommend that the Board of Directors
approve a one-time cash bonus to named executive officers in recognition of a
specific accomplishment.
STOCK OPTIONS
The stock option program is currently the Company's long-term incentive
plan for executive officers, managers and all employees. The granting of stock
options is the principal means available to the Committee to align executive and
shareholder long-term interests. A stock option will reward an executive only
if the market price of the Common Stock appreciates over the vesting period.
Options granted to executive officers generally have a ten-year term, vest over
a period of three to five years, and may be exercised at a price per share equal
to or no less than 85% of the market price on the date of grant. There
presently are no fixed guidelines for annual grant of stock options to executive
officers. Stock options are granted by the Committee based on each executive's
position in the Company, previous stock option grants and potential contribution
to the long-term success of the Company.
This report is submitted by the following non-employee directors, who
constitute the current members of the Compensation Committee:
Jules Blake, Ph.D. (Chairman)
Robert E. Patterson
William M. Sullivan
17
<PAGE>
COMPARATIVE STOCK PERFORMANCE CHART
The following graph represents the net percentage cumulative total
shareholder return on the Company's Common Stock, compared to the cumulative
total return of the Nasdaq Stock Market Index (U.S.) and the Nasdaq
Pharmaceutical Stocks Index for the period of five fiscal years commencing
December 31, 1990 and ending December 31, 1995.
COMPARISON OF THE CUMULATIVE TOTAL RETURN SINCE 1990 AMONG PROCYTE
CORPORATION, THE NASDAQ STOCK MARKET INDEX (U.S.) AND THE NASDAQ
PHARMACEUTICAL STOCKS INDEX
(FISCAL YEAR ENDING DECEMBER 31)
[Graph]
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Nasdaq (US) 100 160.564 186.866 214.511 209.686 296.304
Nasdaq Pharm. 100 265.739 221.140 197.106 148.382 271.029
ProCyte Corporation 100 214.286 183.333 266.667 54.762 53.571
</TABLE>
Assuming $100 invested on December 31, 1990 in ProCyte Corporation Common Stock,
the Nasdaq Stock Market Index (U.S.) and the Nasdaq Pharmaceutical Stocks Index
with all dividends reinvested.
Note: Stock price performance shown above for ProCyte Corporation is
historical and not necessarily indicative of future price performance.
18
<PAGE>
PROPOSALS OF SHAREHOLDERS
Director nominations, proposals and other business which shareholders wish
to present at the annual meeting in 1997 must be received by the Company no
later than November 20, 1996.
SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board of
Directors of the Company. Proxies may be solicited by directors, officers and
regular supervisory and executive employees of the Company, none of whom will
receive any additional compensation for their services. Solicitations of
proxies may be made personally, or by mail, telephone, telegraph, facsimile
transmission or messenger. All of the costs of solicitation of proxies will be
paid by the Company.
OTHER BUSINESS
The Board of Directors has no knowledge of any other business to be acted
upon at this meeting, nor does the Board intend to bring any other business
before the meeting. However, as to any other business which may properly come
before the meeting, it is intended that proxies, in the form enclosed, will be
voted in respect thereof, in accordance with the judgment of the persons voting
such proxies.
A copy of the Annual Report for fiscal year 1995, containing information on
operations as filed with the SEC, has been mailed to the shareholders.
BY ORDER OF THE BOARD OF DIRECTORS
OF PROCYTE CORPORATION
Joseph Ashley
Chairman of the Board,
President and Chief Executive Officer
19
<PAGE>
Proxy Card
FRONT OF CARD
Proxy
ProCyte Corporation
12040 115th Avenue NE, Suite 210, Kirkland, WA 98034-8900
This Proxy is solicited on behalf of the Board of Directors. The undersigned
hereby appoints Joseph Ashley and Gordon W. Duncan as proxies, each with the
power to appoint his substitute, and hereby authorizes them to represent and to
vote, as designated below, all the shares of common stock of ProCyte Corporation
held on record by the undersigned on March 8, 1996, at the Annual Meeting of
Shareholders of ProCyte Corporation to be held on May 14, 1996, or any
adjournment thereof.
1. APPROVAL OF AN AMENDMENT TO THE COMPANY'S RESTATED ARTICLES OF
INCORPORATION TO PROVIDE FOR A CLASSIFIED BOARD OF DIRECTORS (Please
check one)
__ FOR __ AGAINST __ ABSTAIN
2. ELECTION OF DIRECTORS (Please check one)
__ FOR all nominees listed below __ WITHHOLD AUTHORITY to vote for
nominees indicated below (INSTRUCTION: To withhold authority to vote
for any individual nominee, strike a line through the nominee's name
in the list below)
Class 1 Class 2 Class 3
------- ------- -------
Gordon W. Duncan, Ph.D. Joseph Ashley Robert E. Patterson
William M. Sullivan Jules Blake, Ph.D. Thomas E. Tierney
__ WITHHOLD AUTHORITY to vote for any nominee
20
<PAGE>
Back of card
3. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this Proxy will be
voted FOR Proposal 1 and FOR all of the listed nominees for director.
Please sign exactly as your name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by the president or other authorized officer. If a
partnership, please sign in the partnership name by an authorized person.
Date:___________________________, 1996
- -------------------------------------------------
Signature
- -------------------------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE
