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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Commission File Number 0-18044
PROCYTE CORPORATION
(Exact name of the registrant as specified in its charter)
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<CAPTION>
<S> <C>
WASHINGTON 91-1307460
(State of incorporation) (I.R.S. Employer Identification No.)
BUILDING A, 8511 154TH AVENUE N.E., REDMOND, WA 98052
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (425) 869-1239
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes {X} No { }
As of July 31, 1998, there were issued and outstanding 14,468,678 shares of
common stock, par value $.01 per share.
1
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PROCYTE CORPORATION
INDEX
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<CAPTION>
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PART I - FINANCIAL INFORMATION 3
Item 1. FINANCIAL STATEMENTS..................................................................... 3
Balance Sheet - as of June 30, 1998 (unaudited) and December 31, 1997.......................... 3
Statements of Operations - three and six months ended June 30, 1998 and 1997 (unaudited)....... 4
Statements of Cash Flows - six months ended June 30, 1998 and 1997 (unaudited)................. 5
Statement of Stockholders' Equity - six months ended June 30, 1998 and 1997 (unaudited)........ 6
Notes to Financial Statements (unaudited)...................................................... 7
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 18
PART II - OTHER INFORMATION....................................................................... 19
Item 1. Legal Proceedings........................................................................ 19
Item 2. Change in Securities..................................................................... 19
Item 4. Submission of Matters to a Vote of Security Holders...................................... 19
Item 5. Other Information........................................................................ 19
Item 6. Exhibits and Reports on Form 8-K......................................................... 20
SIGNATURES........................................................................................ 20
EXHIBIT INDEX..................................................................................... 21
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEET - AS OF JUNE 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
June 30,1998 Dec. 31, 1997
--------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................... $ 3,430,753 $ 3,003,524
Securities available for sale.................................. 5,493,963 9,863,093
Accounts receivable............................................ 430,574 208,247
Inventories.................................................... 2,208,970 1,927,325
Other.......................................................... 155,902 154,887
--------------------------------------------
TOTAL CURRENT ASSETS............................................. 11,720,162 15,157,076
PROPERTY AND EQUIPMENT, AT COST
Equipment...................................................... 2,538,874 2,484,535
Leasehold improvements......................................... 5,528,758 5,513,850
Less accumulated depreciation and amortization................. (2,732,007) (2,394,562)
--------------------------------------------
PROPERTY AND EQUIPMENT, NET.................................... 5,335,625 5,603,823
INTANGIBLE ASSETS, AT COST
Patents................................................... 290,931 290,930
Less accumulated amortization.................................. (133,269) (125,269)
Goodwill.................................................. 3,150,000
Less accumulated amortization.................................. (35,556)
--------------------------------------------
INTANGIBLE ASSETS, NET......................................... 3,272,106 165,661
OTHER 384,399 384,399
--------------------------------------------
TOTAL ASSETS.................................................... $ 20,712,292 $ 21,310,959
============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................... $ 265,770 $ 203,764
Accrued liabilities............................................ 307,287 470,643
--------------------------------------------
TOTAL CURRENT LIABILITIES....................................... 573,057 674,407
DEFERRED LEASE PAYMENTS 112,197 20,055
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;
14,453,393 and 13,364,958 shares issued and outstanding at
June 30, 1998 and December 31, 1997, respectively............. 144,534 133,650
Additional paid-in capital..................................... 84,290,946 82,801,830
Accumulated deficit............................................ (64,408,442) (62,318,983)
--------------------------------------------
TOTAL STOCKHOLDERS' EQUITY.................................... 20,027,038 20,616,497
--------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $ 20,712,292 $ 21,310,959
============================================
</TABLE>
See notes to financial statements
3
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STATEMENTS OF OPERATIONS - THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
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<CAPTION>
Three months ended June 30, Six months ended June 30,
1998 1997 1998 1997
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Product sales....................... $ 609,126 $ 53,016 $ 845,586 $ 82,570
Contract manufacturing.............. 105,624 190,442 131,987 569,983
----------------------------------------------------------------------------------------
TOTAL REVENUE....................... 714,750 243,458 977,573 652,553
OPERATING EXPENSES
Cost of product sales............... 216,246 19,455 343,789 31,220
Research and development............ 570,907 1,328,492 1,113,188 2,652,290
General and administrative.......... 1,123,229 1,240,787 1,941,088 2,505,894
Litigation settlement (400,000) (400,000)
----------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES............ 1,910,382 2,188,734 3,398,065 4,789,404
----------------------------------------------------------------------------------------
OPERATING LOSS....................... (1,195,632) (1,945,276) (2,420,492) (4,136,851)
OTHER INCOME
Interest income..................... 142,446 243,948 318,699 507,528
Other income........................ 12,334 12,334
----------------------------------------------------------------------------------------
TOTAL OTHER INCOME................. 154,780 243,948 331,033 507,528
----------------------------------------------------------------------------------------
NET LOSS............................. ($1,040,852) ($1,701,328) ($2,089,459) ($3,629,323)
========================================================================================
NET LOSS PER COMMON SHARE............ ($0.07) ($0.13) ($0.15) ($0.27)
Weighted average number of common
shares used in computing net loss
per common share.................... 14,090,581 13,315,104 13,727,770 13,302,650
</TABLE>
See notes to financial statements
4
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STATEMENTS OF CASH FLOWS - SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
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Six months ended June 30,
OPERATING ACTIVITIES 1998 1997
-----------------------------------------
<S> <C> <C>
NET LOSS ($2,089,459) ($3,629,323)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation................................................. 337,443 342,993
Amortization of intangibles.................................. 43,557 7,999
Gain on sale of securities available for sale................ (458)
Restricted stock granted to Hymedix.......................... 129,500
Changes in assets and liabilities:
Increase in inventories (net of assets acquired from
HumaTech)................................................... (151,645) (611,892)
Increase in accounts receivable (net of assets acquired from
HumaTech)................................................... (107,327) (252,061)
Decrease (increase) in other current assets (net of assets
acquired from Huma Tech).................................... 28,985 (229,469)
Increase in accounts payable................................. 62,006 137,589
Increase (decrease) in accrued liabilities................... (163,356) 214,974
Increase (decrease) in deferred lease payments............... 92,142 (10,148)
-----------------------------------------
NET CASH USED IN OPERATING ACTIVITIES....................... (1,947,654) (3,900,296)
-----------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment........................... (69,247) (411,475)
Purchase of securities....................................... (499,922) (31,113,125)
Proceeds from sale or maturity of securities................. 4,869,052 39,488,940
Purchase of HumaTech assets.................................. (1,925,000)
Increase in other assets..................................... (225,000)
-----------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES..................... 2,374,883 7,739,340
-----------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS..................... 427,229 3,839,044
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............. 3,003,524 1,804,875
-----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 3,430,753 $ 5,643,919
=========================================
</TABLE>
See notes to financial statements
5
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STATEMENT OF STOCKHOLDERS' EQUITY - SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
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Additional
Common Stock Paid-in Accumulated
Shares Par Value Capital Deficit Total
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JAN 1, 1997............ 13,277,558 $132,776 $82,576,340 ($55,870,339) $26,838,777
-------------------------------------------------------------------------------------------
Restricted stock granted to
Hymedix at $2.59 per share on
March 31, 1997.................. 25,000 250 64,500 64,750
Restricted stock granted to
Hymedix at $2.59 per share on
June 30, 1997................... 25,000 250 64,500 64,750
Net loss, six month period....... (3,629,323) (3,629,323)
-------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1997........... 13,327,558 $133,276 $82,705,340 ($59,499,662) $23,338,954
===========================================================================================
BALANCE, JAN 1, 1998 13,364,958 $133,650 $82,801,830 ($62,318,983) $20,616,497
-------------------------------------------------------------------------------------------
Shares issued in connection with
the acquisition of the assets
of HumaTech Laboratories at
$1.38 per share on April 27,
1998............................ 1,088,435 $ 10,884 $ 1,489,116 1,500,000
Net loss, six month period....... (2,089,459) (2,089,459)
-------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1998........... 14,453,393 $144,534 $84,290,946 ($64,408,442) $20,027,038
===========================================================================================
</TABLE>
See notes to financial statements
6
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PROCYTE CORPORATION
Notes to Financial Statements (unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited Financial Statements of ProCyte Corporation
("ProCyte" or the "Company") for the three and six-month periods ended June 30,
1998 and 1997 have been prepared by the Company in accordance with generally
accepted accounting principles for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X. Pursuant to such
rules and regulations, the Financial Statements do not include all of the
information and footnotes required by generally accepted accounting principles
for audited financial statements. Accordingly, this financial information
should be read in conjunction with the complete audited Financial Statements,
including the notes thereto, which are included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997. In the opinion of management,
all material adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Interim results are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998.
2. INVESTMENTS
At June 30, 1998, the Company's investments consisted entirely of US
Treasury bills & notes, US Agency securities, and investment-grade commercial
paper. All investments are classified as "available for sale." At June 30,
1998, the amortized cost and estimated market value for investments maturing in
one year or less was $4,481,463, and for those maturing in one through five
years was $1,012,500. There were no gross realized or unrealized gains or
losses on investments at June 30, 1998 or during the six month period then
ended.
3. INVENTORIES
Inventories consist of raw materials, work in process and finished goods,
and are accounted for at the lower of cost or market. As of June 30, 1998,
finished goods inventory was stated at $812,862, raw materials and work-in-
process inventory was stated at $1,776,108 and a reserve for surplus and
obsolete inventory was maintained at $380,000.
4. STOCKHOLDERS' EQUITY
Information relating to stock options granted, exercised, canceled and
currently exercisable is as follows:
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Shares subject to Weighted average
option exercise price
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Balance, January 1, 1997......................... 1,442,193 $3.50
Granted......................................... 164,000 $3.15
Exercised....................................... 0 -
Canceled........................................ (237,498) $2.70
-----------------------------------
Balance, June 30, 1997........................... 1,368,695 $3.60
===================================
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7
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<CAPTION>
Shares subject to Weighted average
option exercise price
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<S> <C> <C>
Balance, January 1, 1998...................... 1,304,374 $2.94
Granted...................................... 636,500 $1.31
Exercised.................................... 0 -
Canceled..................................... (33,334) $2.94
-------------------------------
Balance, June 30, 1998........................ 1,907,540 $2.40
===============================
Currently exercisable......................... 774,048 $3.57
================================
</TABLE>
During the three-month period ended June 30, 1998, the Compensation
Committee of the Board of Directors awarded incentive stock options and non-
qualified stock options to employees and consultants to the Company under the
Company's 1989 Restated Stock Option Plan to purchase 398,500 shares of common
stock. Pursuant to the 1991 Restated Stock Option Plan for Non-employee
Directors, during the three month period ended June 30, 1998 the non-employee
directors were awarded stock options with respect to a total of 36,000 shares of
common stock. All options are subject to vesting schedules.
5. HUMATECH ACQUISITION
On April 27, 1998 the Company purchased substantially all of the assets of
HumaTech Corporation ("HumaTech"), a private company engaged in the distribution
of specialty dermatological products to the professional market. The
acquisition was effected through cash payments of $1.5 million and the
distribution of 1,088,435 shares of ProCyte common stock (valued at $1.5
million at the time of the acquisition) to the selling HumaTech shareholders.
Related acquisition costs amounted to approximately $425,000. The acquisition
has been accounted for using the purchase method of accounting whereby the value
of consideration paid has been allocated to the assets acquired, principally
inventory and accounts receivable. Goodwill of $3.15 million resulted from the
transaction and is being amortized over 15 years. In connection with the
acquisition ProCyte entered into employment agreements with two of the HumaTech
principals which, among other terms, provided for payments contingent on future
sales of HumaTech products.
8
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The following table reflects pro forma consolidated operating results of
the Company and HumaTech assuming the acquisition had been made as of January 1,
1997:
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<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
---- ----
<S> <C> <C>
Pro forma revenue.................... $1,605,000 $1,546,000
Pro forma net loss................... ($2,130,000) ($3,725,000)
Pro forma loss per common share...... ($0.15) ($0.26)
</TABLE>
These pro forma results have been prepared for comparative purposes only
and reflect certain adjustments including amortization of the goodwill. The
pro forma information is not necessarily indicative of either the results of
operations that would have occurred had the acquisition been made on January 1,
1997 or that may occur in the future.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was recently issued and is effective for the Company's year ending
December 31, 1998. Management believes that the impact of its adoption will not
be material to the financial statements, taken as a whole.
9
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion contains forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those projected. The words "believe", "expect", "intend", "anticipate",
variations of such words and similar expressions identify forward-looking
statements, but their absence does not mean that the statement is not forward-
looking. These statements are not guaranties of future performance and are
subject to certain risks, uncertainties and assumptions that are difficult to
predict. Factors that could affect the Company's actual results include, among
other things, the availability of adequate funding, the availability of contract
manufacturing opportunities, relationships with corporate collaborators, the
progress and costs of pre-clinical studies and clinical trials, the recruitment
of suitable patients, the timing of regulatory approvals, the rate of market
acceptance of the Company's products, the availability of third-party
reimbursement for the Company's products, the ability to obtain and defend
patent and related future products and intellectual property rights and to
market the Company's products and the status of competing products. See
"Important Factors Regarding Forward-Looking Statements." Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this report. ProCyte undertakes no obligation to update
publicly any forward-looking statement to reflect new information, events or
circumstances after the date of this report or to reflect the occurrence of
unanticipated events.
Corporate Overview
For the first six months of 1998 ProCyte continued its marketing and
development efforts for an array of wound care products, expanded its product
line and channels of distribution with the acquisition of HumaTech, and
continued the development of complementary skin health and hair care products.
As the Company's product line has expanded, it has continued to focus its
efforts on the specialty tissue repair sectors - marketing to dermatologists,
plastic surgeons and cosmetic surgeons.
During the first quarter, the Company introduced Complex Cu3(TM) Intensive
Repair Creme, a product used to treat patients following chemical peels,
dermabrasion and laser treatments. The Company also began selling its Pillo(TM)
Pro dressings which provide moisture absorption following liposuction
procedures. Each year in the United States alone an estimated 400,000 such
surgeries are performed. In December 1997, ProCyte entered into an exclusive
distribution agreement with the Bard Medical Division ("Bard") of C.R. Bard,
Inc. Subject to certain minimum quarterly purchase requirements, ProCyte granted
Bard the exclusive rights to distribute ProCyte's products for the wound care
markets in the hospital, nursing home and extended care markets in the United
States and Canada. ProCyte's Iamin(R) Hydrating Gel, Iamin(R) Wound Cleanser,
and OsmoCyte(R) Pillow Wound Dressings became the first Company products to be
added to the Bard sales effort. The Company shipped its first orders to Bard in
January 1998.
Sales of the Company's GraftCyte(TM) line of copper-peptide containing
wound care products for use following hair restoration surgery continued to
increase in the first half of 1998. Approximately 400,000 hair restoration
procedures are performed annually in the United States. ProCyte is the first
company to provide a line of products that address the importance of wound
repair in the hair transplant process. The Company's GraftCyte(TM) products are
promoted through specialty distributors.
10
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During the second quarter the Company purchased the assets of HumaTech, a
private company located in Boca Raton, FL, which distributes prescription and
OTC topical drugs and skin care products to dermatologists, plastic surgeons and
cosmetic surgeons. HumaTech sales representatives sell therapeutic skin care,
dermatologic agents and anti-aging products as well as an advanced sun
protection line, TiSilc(TM). Most HumaTech products are private-labeled or
custom-packaged with the doctors name. The Company expects that access to the
HumaTech customer base and integration of its marketing approach will improve
the rate of increase of the Company's product sales. The Company also expects
that there will be opportunities to enhance the sales of HumaTech products by
integrating the two product lines, reformulating certain HumaTech products, and
redesigning the HumaTech packaging and marketing materials.
Operating Losses
The Company is engaged in the development of healthcare products utilizing
copper-peptide containing and polymer-based compounds. Such development has
historically been funded from the Company's equity-derived working capital and
through corporate partnerships. The Company has incurred operating losses since
its inception due to financial and regulatory requirements required to support
research, development and clinical studies of its proprietary technology. At
June 30, 1998, the Company's accumulated deficit was approximately $64.4
million. The Company expects to incur additional operating losses for a number
of years until its product lines have been expanded and have achieved market
acceptance.
Revenue
For the three and six-month periods ended June 30, 1998, ProCyte generated
total operating revenue of approximately $714,750 and $977,573, respectively,
from product sales and from performing contract manufacturing services.
Comparable revenues were $243,458 and $652,553 for the three and six-month
periods ended June 30, 1997. Sales of HumaTech products amounting to $353,190
were included in ProCyte's operating revenue during the six month period ended
June 30, 1998; no such sales were included in the comparable 1997 amounts.
Operating revenue excluding HumaTech sales decreased due to a decline in
contract manufacturing revenue from $569,983 during the six months ended June
30, 1997 to $131,987 during the comparable period in 1998. This decline resulted
from the completion of a contract manufacturing project in 1997 that did not
carry over into 1998, and from product regulatory delays faced by one of the
Company's largest contract manufacturing customers that have indefinitely
delayed this customer's need for the Company's services.
Revenue from product sales were approximately $609,126 and $845,586 during
the three and six month periods ended June 30, 1998, respectively, up from
$53,016 and $82,570 during the three and six months ended June 30, 1997. The
increase was primarily a result of revenue from HumaTech products, from new
products launched in the 3rd and 4th quarters in 1997 (especially products from
the GraftCyte(TM) line), and from the initial shipments of various wound care
products to Bard.
Interest income was approximately $142,446 and $318,699 for the three and
six-month periods ended June 30, 1998, compared to $243,948 and $507,528 for the
comparable periods in 1997. The decrease in interest income was primarily a
result of reduced funds available for investment.
11
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Expenses
Research and development expenses were approximately $570,907 and
$1,113,188 for the three and six-month periods ended June 30, 1998, primarily
reflecting the continuation of the Company's expenditures for development of
wound care, skin and hair health product candidates. This compares to research
and development expenses of $1,328,492 and $2,652,290 for the comparable three
and six-month periods in 1997. This decrease resulted from reduced staffing
levels and from the completion of various research projects and studies. The
Company anticipates that expenditures for product development will remain at or
near current levels.
General and administrative expenses were approximately $1,123,229 and
$1,941,088 for the three and six-month periods ended June 30, 1998, compared to
$1,240,787 and $2,505,894 for the same periods in 1997. This decrease in
general and administrative expenses was obtained despite the additional expenses
of the HumaTech operation and was primarily related to reduced staffing levels
and to the consolidation of the Company's facilities in the 3rd quarter of 1997.
The Company anticipates that expenditures will remain at or near current levels
although it is exploring areas where duplicative functions can be eliminated.
The Company expects to consolidate the HumaTech operations into its existing
facilities in Redmond, WA during the second half of 1998. In May 1997 the
Company received a negotiated final payment of $400,000 related to the
settlement of a lawsuit against the Company.
Liquidity and Capital Resources
The Company has relied primarily on equity financings, contract
manufacturing revenue, interest income, product sales and corporate partnerships
to fund its operations and capital expenditures. At June 30, 1998, the Company
had approximately $8.9 million in cash, cash equivalents and securities
available for sale, as compared to $12.9 million at December 31, 1997. The
principal components of the $4 million decrease are approximately $1.9 million
used for the HumaTech acquisition and $1.9 million used to fund ongoing
operations. The Company expects that its operating cash needs will continue at
similar levels in future periods.
The increase of $222,327 in trade accounts receivable during the six month
period ending June 30, 1998 reflects the HumaTech acquisition and the increase
in sales of ProCyte products. For the six month period ending June 30, 1998,
inventory rose by $281,645, primarily as a result of the HumaTech acquisition.
The Company believes that its existing cash, cash equivalents,
securities available for sale, and interest thereon, will be sufficient to meet
its capital requirements at least through 1999. However, there can be no
assurance that the underlying assumed levels of revenue and expense will prove
accurate. Although the Company believes that its existing and potential
products appear promising, it is unknown whether any of such products will prove
commercially viable. In any event, substantial additional funds will be needed
to commercialize existing products and to continue development of potential
products. The Company will depend upon equity financings, contract
manufacturing fees, interest income, product revenues and funding from corporate
partnerships to meet its future capital needs. There can be no assurance that
such funds will be available as needed or on terms that are acceptable to the
Company. If the Company is unable to obtain sufficient funds to satisfy its
cash requirements, the Company will be required to delay, reduce or eliminate
some or all of its research and development activities, clinical trials, and
manufacturing and administrative programs, or dispose of
12
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assets or technology. See "Important Factors Regarding Forward-Looking
Statements."
IMPORTANT FACTORS REGARDING FORWARD-LOOKING STATEMENTS
History of Operating Losses; Accumulated Deficit; Fluctuations in Future
Earnings
The Company launched its first product in 1996, launched additional wound
care products in 1997 and the first half of 1998 and expects further product
launches in skin health and hair care products in 1998. To date, however, the
Company has generated only minimal revenues from product sales and there can be
no assurance that the Company will be able to generate sufficient product sales
to achieve a profitable level of operations. As of June 30, 1998, the Company's
accumulated deficit was approximately $64.4 million. The Company expects to
incur additional operating losses at least through 1999. The Company's revenues
have principally been from interest income, research fees, license fees and fees
for performance of contract manufacturing services. The Company's ability to
achieve a consistent, profitable level of operations is dependent in large part
successfully manufacturing its products, entering into agreements with corporate
partners for distribution and commercialization of the Company's products and
out-licensing of the Company's products and technology, of which there can be no
assurance. In addition, payments under corporate partnerships and licensing
arrangements, if any, will be subject to significant fluctuations in both timing
and amounts. The time required to reach sustained profitability is highly
uncertain, and there can be no assurance that the Company will be able to
achieve profitability on a sustained basis, if at all. Moreover, if
profitability is achieved, the level of profitability cannot be predicted and it
may vary significantly from quarter to quarter.
Need for Additional Capital
The Company expects negative cash flow from operations to continue for the
foreseeable future. The Company may require substantial additional funds to
expand or enhance sales and its marketing activities and to continue product
development. The Company's future capital requirements will depend on numerous
factors, including its efforts, and the efforts of its collaborative partners,
to commercialize its products; continued progress in the Company's research and
development programs; the results of research and development activities;
relationships with existing and future corporate collaborators, if any;
competing technological and market developments; the costs involved in filing,
prosecuting and enforcing patent claims; the time and costs of commercialization
activities; and other factors. At June 30, 1998 the Company had cash, cash
equivalents and securities available for sale of $8.9 million. The Company
estimates that at its planned rate of spending, its existing cash, cash
equivalents and securities available for sale and the interest income thereon
will be sufficient to meet its capital requirements at least through 1999.
There can be no assurance that the underlying assumed levels of revenue and
expense will prove accurate. Whether or not these assumptions prove to be
accurate, the Company will need to raise substantial capital to fund operations.
The Company may be required to seek additional funding through public or private
financing, including equity financing, and through collaborative arrangements.
Adequate funds for these purposes, whether obtained through financial markets or
from collaborative or other arrangements with corporate partners or other
sources, may not be available when needed or may not be available on terms
favorable to the Company, if at all. If additional funds are raised by issuing
equity securities, dilution to existing shareholders will result. In addition,
in the event that additional funds are obtained through arrangements with
collaborative partners, such arrangements may require the Company to relinquish
rights to certain of its technologies or potential products that it would
otherwise seek to develop or commercialize itself. If funding is insufficient
at any time in the future, the Company may be required to delay, scale back or
eliminate
13
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some or all of its marketing and research and development programs or to license
third parties to commercialize products or technologies that the Company would
otherwise seek to develop itself. Furthermore, the terms of any such license
agreements might be less favorable than if the Company were negotiating from a
stronger position. Moreover, if funding is insufficient at any time in the
future, and the Company's existing funds are depleted, the Company may be
required to cease operations.
Uncertainties Related to Contract Manufacturing Operations
Since inception, a substantial portion of the Company's revenues have been
derived from its contract manufacturing operations as the Company has sought to
more fully utilize its existing facility's capacity while its own products were
under development. For the foreseeable future, ProCyte expects to continue to
have excess manufacturing capacity as it works to complete development, and
begin commercialization, of its potential products. Accordingly, the Company
will continue to seek contract manufacturing opportunities. Contract
manufacturing revenues will be adversely affected to the extent the Company's
customers decide to manufacture their products themselves or choose to have them
manufactured elsewhere. In addition, the Company's contract manufacturing
revenues may be adversely affected to the extent its customers experience
regulatory delays, product recalls, or competitive pressures in the marketplace.
The Company expects that revenues from contract manufacturing will significantly
decline in 1998 as a result of the loss of two of its most significant contract
manufacturing customers, one of whom faces an indefinite delay in receiving FDA
clearance. There can be no assurance that contract revenues in the future will
be significant.
Uncertainties Related to Stage of Development
From the Company's inception in 1986 until it launched its first
commercial product in June 1996, substantially all of its resources were
dedicated to the research and development of wound healing and tissue repair
applications of its topically administered copper-peptide compounds. Although
the Company launched additional wound care product lines in 1997 and the first
half of 1998 and expects further product launches in skin health and hair care
in 1998, to date Company has generated only minimal revenues from product sales.
The Company's revenues have principally been from fees for performance of
contract manufacturing services, interest income, research fees and license
fees. There can be no assurance that the Company's current products or its
potential products, if successfully developed, will be successfully
commercialized and accepted for use by physicians, healthcare providers and
consumers. The failure of the Company to successfully develop its potential
products or its failure to successfully commercialize its existing or potential
products will have a material adverse effect on the Company's business,
financial condition and results of operations.
Uncertainties Related to Clinical Trials and Product Development
The Company is dependent upon the successful development of its
potential products. Development of the Company's potential products is highly
uncertain, and unanticipated developments, clinical and regulatory delays,
adverse or unexpected side effects or inadequate therapeutic efficacy could slow
or prevent the successful completion of the Company's product and technology
development. There can be no assurance that the Company will obtain regulatory
approval, that an approved product can be produced in commercial quantities at
reasonable costs or gain acceptance for use by physicians, healthcare providers
and consumers or that any potential products will be successfully marketed at
prices that would permit the Company to operate profitably, the failure of any
of which would have a material adverse effect on the Company's business,
financial condition and results of operations.
14
<PAGE>
Dependence on and Management of Existing and Future Corporate Alliances
The successful commercialization of the Company's existing and future
products will depend upon ProCyte's ability to enter into and effectively manage
numerous corporate partnerships. ProCyte currently promotes certain of its
products through specialty distributors. Other products and technology are
licensed for incorporation into products sold by others. In November 1997, the
Company entered into an exclusive worldwide supply and marketing agreement with
Osmotics Corporation ("Osmotics"), pursuant to which the Company granted
Osmotics the right to introduce the Company's copper-peptide-containing products
to the prestige skin care market. In December 1997, the Company entered into an
exclusive distribution agreement with the Bard Medical Division ("Bard") of C.R.
Bard, Inc. Pursuant to this agreement, Bard will be the exclusive supplier of
the Company's wound care products to the hospital, nursing home and extended
care markets in the United States and Canada. Subsequent to the Bard agreement,
ProCyte entered into exclusive distribution agreements for the registration and
distribution of certain of its wound care products in certain foreign countries.
ProCyte plans to seek similar distribution partnerships in additional countries.
There can be no assurance that any of the Company's collaborators will perform
their obligations under their agreements with the Company or that the Company's
products or the products of others that incorporate the Company's products or
technology, will be successfully commercialized, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
There can be no assurance that the Company will be successful in
establishing corporate alliances in the future, or that it will be successful in
maintaining existing or any future corporate alliances. Moreover, there can be
no assurance that the interests and motivations of any corporate partner,
distributor or licensee would be or remain consistent with those of the Company,
or that such partners, distributors or licensees would successfully perform the
necessary technology transfer, clinical development, regulatory compliance,
manufacturing, marketing or other obligations. Failure of any of the foregoing
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Uncertainty of Patent Position and Proprietary Rights
The patent positions of biotechnology, medical device and healthcare
products companies are often uncertain and involve complex legal and factual
questions, and the breadth of claims allowed in such patents cannot be
predicted. In addition, there is a substantial backlog of patents at the US
Patent and Trademark Office that may delay the review and the potential issuance
of patents. The Company's success will depend to a significant degree on its
ability to obtain patents and licenses to patent rights, to maintain trade
secrets and to operate without infringing on the proprietary rights of others,
both in the United States and in other countries. The failure of the Company or
its licensors to obtain and maintain patent protection for the Company's
technology could have a material adverse effect on the Company.
ProCyte's success depends in part upon its ability to protect its products
and technology under intellectual property laws in the United States and abroad.
As of June 30, 1998, the Company had 18 issued United States patents expiring
between 2005 and 2014, and 132 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
15
<PAGE>
significant market potential. There can be no assurance that patent applications
relating to the technology used by the Company will result in patents being
issued. There can be no assurance that any patent issued to the Company will not
be subjected to further proceedings limiting the scope of the rights under the
patent or that such patent will provide a competitive advantage or will afford
protection against competitors with similar technology, or will not be
successfully challenged, invalidated or circumvented by competitors.
The Company's processes and potential products may conflict with patents
that have been or may be granted to competitors and others. As the
biotechnology, medical device and healthcare industries expand and more patents
are issued, the risk increases that the Company's processes and potential
products may give rise to claims that they infringe the patents of others. Such
other persons could bring legal actions against the Company claiming damages and
seeking to enjoin clinical testing, manufacturing and marketing of the affected
product or use of the affected process. Litigation may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company or to determine the enforceability, scope and validity of proprietary
rights of others. If the Company becomes involved in such litigation, it could
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. In addition to any
potential liability for significant damages, the Company could be required to
obtain a license to continue to manufacture or market the affected product or
use the affected process. Costs associated with any licensing arrangement may
be substantial and could include ongoing royalties. There can be no assurance
that any license required under any such patent would be made available to the
Company on acceptable terms, if at all. If such licenses could not be obtained
on acceptable terms, the Company could be prevented from manufacturing and
marketing existing or potential products. Accordingly, an adverse determination
in such litigation could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies upon unpatented proprietary technology. There can
be no assurance that the Company can meaningfully protect its rights in such
unpatented technology, that any obligation to maintain the confidentiality of
such proprietary technology will not be breached by employees, consultants,
collaborators or others, or that others will not independently develop or
acquire substantially equivalent technology. 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. Any failure to protect unpatented
proprietary technology or any breach of obligations designed to protect such
technology or development of equivalent technology may have a material adverse
effect on the Company's business, financial condition and results of operations.
Uncertainty of Government Regulatory Requirements
The manufacture and marketing of ProCyte's products 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, record-keeping, advertising and promotion of cosmetic
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.
16
<PAGE>
In order to obtain FDA clearance to market a new device in the United
States for use in humans, it is necessary to proceed through several stages of
product testing, including research and development, clinical trials, and the
filing of a product 510(k) medical device application with the FDA to obtain
authorization to market a product. The Company's products and product
candidates may be regulated by any of a number of divisions of the FDA. The
process of obtaining and maintaining regulatory approvals for the manufacturing
or marketing of the Company's existing and potential products is costly and
time-consuming and is subject to unanticipated delays. Accordingly, delays,
rejections or unexpected costs may be encountered based on changes in the policy
or regulations of the FDA or foreign governmental authorities during the period
of product development and regulatory review, which changes may result in
limitations or restrictions on the Company's ability to utilize its technology
or develop product candidates. Regulatory requirements ultimately imposed could
also adversely affect the ability of the Company to clinically test, manufacture
or market products. Even if regulatory approval of a potential product is
obtained, such approval may entail limitations on the indicated uses for which
such product may be marketed, which may restrict the patient population for
which any product may be prescribed. In addition, a marketed product is subject
to continual FDA review. Later discovery of previously unknown problems or
failure to comply with the applicable regulatory requirements may result in
restrictions on marketing a product or withdrawal of the product from the
market, as well as possible criminal or civil sanctions.
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 cosmetic or 510(k) medical device guidelines.
Similar guidelines exist for such products in other countries. 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 that such product applications submitted
to the FDA or similar agencies in other countries will receive clearance to be
marketed, or that the labeling claims sought will be approved, or that, if
cleared, such products will be commercially successful.
In addition to obtaining approval or clearance from the FDA or foreign
regulatory bodies to market a product, the prospective manufacturer's quality
control and manufacturing procedures must conform to current good manufacturing
practices ("cGMPs") guidelines, or ISO 9000 standards, when appropriate. In
complying with these regulations, which are subject to change at any time
without notice to the Company, ProCyte must continue to expend time, effort and
financial resources in production and quality control. In addition, ProCyte's
manufacturing plant is subject to the regulations of and inspections by other
foreign, federal, state or local agencies, such as local and regional water and
waste treatment agencies, and state and federal safety and health agencies.
There can be no assurance that the Company's manufacturing facility or its
manufacturing operations will meet or continue to meet all appropriate
guidelines or to pass inspections by any government agency.
The Company also is or may become subject to various other federal, state,
local and foreign 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.
Failure to obtain regulatory approvals for its product candidates or to
either attain or maintain compliance with cGMP or other manufacturing
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.
17
<PAGE>
Intense Competition
Competition in the wound care, skin health and hair care markets is
intense. The Company's competitors include well-established pharmaceutical,
cosmetic and healthcare companies such as Bristol Myers Squibb's ConvaTec
division, Kendall Healthcare Company, Johnson and Johnson, and Allergan. These
competitors have substantially more financial and other resources, larger
research and development staffs, and more experience and capabilities in
researching, developing and testing products in clinical trials, in obtaining
FDA and other regulatory approvals, and in manufacturing, marketing and
distribution than the Company. In addition, a number of smaller companies are
developing or marketing competitive products, some of which may have an entirely
different approach than products being marketed or developed by the Company.
The Company's competitors may succeed in developing and commercializing products
or obtaining patent protection or other regulatory approvals for products more
rapidly than the Company. If the Company is successful in commercializing its
products, it will be required to be competitive with respect to manufacturing
efficiency and marketing capabilities, areas in which it has very limited
experience. The Company's competitors may develop new technologies and products
that are available for sale prior to the Company's potential products or that
are more effective than the Company's existing or potential products. In
addition, competitive products may be manufactured and marketed more
successfully than the Company's potential products. Such developments could
render the Company's existing or potential products less competitive or
obsolete, and could have a material adverse effect on the Company's business,
financial condition and results of operations.
The contract manufacturing service business is also 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.
Potential Volatility of Stock Price
The market prices for securities of healthcare, medical dressings,
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
fluctuations in operating results, research and development program direction,
results of clinical trials, addition or termination of corporate alliances,
technology licenses, clearance or approval to market products, announcements of
technological innovations or new products by the Company or its competitors,
changes in government regulations, healthcare reform, developments in patent or
other proprietary rights of the Company or its competitors, litigation
concerning business operations or intellectual property, or public concern as to
safety of products, as well as changes in general market conditions and mergers
and acquisitions, may have a significant effect on the market price of ProCyte's
common stock.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company issued 1,088,435 shares of its Common Stock in connection with
the acquisition of HumaTech Laboratories, a Florida corporation, on April 27,
1998. The form of the transaction was a purchase of substantially all of
HumaTech's assets in exchange for a combination of cash and shares of the
Company's Common Stock. No underwriters were used and the recipients of the
Company's Common Stock were the former shareholders of HumaTech.
The shares issued to the former HumaTech shareholders were not registered
under the Securities Act of 1933, as amended, pursuant to the exemption set
forth in Section 4(2) thereof. All recipients of shares of the Company's Common
Stock made certain representations to the Company as to investment intent,
possessed a sufficient level of financial sophistication and received or had
access to information about the Company. The shares issued in the transaction
are subject to restrictions on transfer absent registration under the Securities
Act, and no offers to sell the securities were made by any form of general
solicitation or general advertisement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the shareholders of the Company was held on June 10,
1998. Two matters were submitted to the shareholders for a vote. As of April 2,
1998, the record date, there were 13,364,958 shares eligible to vote at the
meeting, of which 87.89% or 11,747,107 were present at the meeting, constituting
a quorum. The first matter was the election of directors. The seven nominees for
election as directors were elected to serve until the 1999 annual meeting of the
shareholders, and until the election and qualification of their respective
successors. The vote for each director follows:
<TABLE>
<CAPTION>
DIRECTOR FOR WITHHELD
<S> <C> <C>
Jules Blake 11,473,327 273,780
Susan Browner 11,516,577 230,530
John Clifford 11,456,427 290,680
Matt Leavitt 11,468,777 278,330
Robert Patterson 11,475,127 271,980
William Sullivan 11,454,727 292,380
Thomas Tierney 11,453,427 293,680
</TABLE>
The second matter was the adoption of the 1998 non-employee director
stock plan which was approved by a vote of 11,112,466 shares voting for, 460,424
shares voting against and 174,217 shares abstaining.
ITEM 5. OTHER INFORMATION
In accordance with the Company's Bylaws, a shareholder proposing to
transact business at the Company's annual meeting must provide written notice of
such proposal, in the manner provided by the
19
<PAGE>
Company's Bylaws, not fewer than 60 nor more than 90 days prior to the date of
such annual meeting (or, if the Company provides less than 60 days notice of
such meeting, no later than the tenth day after the date of the Company's
notice). In addition, if the Company receives notice of a shareholder proposal
after March 15, 1999, the persons named as proxies in the proxy statement will
have discretionary authority to vote on such shareholder proposal.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 ProCyte Corporation 1998 Nonemployee Director Stock Plan
10.2 Change of Control Agreement for Ms. Robin Carmichael
10.3 Change of Control Agreement for Ms. Susan Browner
10.4 Change of Control Agreement for Mr. Ken Tapman
10.5 Form of Indemnity Agreement between Procyte Corporation and each of
various of its Officers and Directors
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed one report of Form 8-K during the second quarter
ended June 30, 1998. The report was filed on April 27, 1998 and reported on the
April 1998 acquisition of HumaTech Corporation.
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: August 12, 1998 By: /s/ John F. Clifford
-----------------------------------------
John F. Clifford, President and CEO
Date: August 12, 1998 By: /s/ Jerry Scott
-----------------------------------------
Jerry P. Scott, Vice President and CFO
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Title
-------------- -----
<S> <C>
10.1 ProCyte Corporation 1998 Nonemployee Director Stock Plan
10.2 Change of Control Agreement for Ms. Robin Carmichael
10.3 Change of Control Agreement for Ms. Susan Browner
10.4 Change of Control Agreement for Mr. Ken Tapman
10.5 Form of Indemnity Agreement between ProCyte Corporation and each of various of
its Officers and Directors
27 Financial Data Schedule
</TABLE>
21
<PAGE>
EXHIBIT 10.1
PROCYTE CORPORATION
1998 NONEMPLOYEE DIRECTOR STOCK PLAN
SECTION 1. PURPOSES
The purposes of the ProCyte Corporation 1998 Nonemployee Director Stock
Plan (the "Plan") are to attract and retain the services of experienced and
knowledgeable nonemployee directors of ProCyte Corporation (the "Corporation")
and to provide an incentive for such directors to increase their proprietary
interests in the Corporation's long-term success and progress.
SECTION 2. DEFINITIONS
When used herein, the following terms shall have the respective meanings
set forth below:
(a) "Board" or "Board of Directors" means the Board of Directors of the
----- ------------------
Corporation.
(b) "Common Stock" means the common stock, $0.01 par value, of the
------------
Corporation.
(c) "Corporation" means ProCyte Corporation, a Washington corporation, or
-----------
any successor corporation as provided in Section 13.
(d) "Employee" means any employee of the Corporation or of any Subsidiary.
--------
Directors who are not otherwise employed by the Corporation or any Subsidiary
shall not be considered employees for purposes of the Plan.
(e) "Excess Quarterly Retainer" has the meaning set forth in Section 7(a).
-------------------------
(f) "Market Price" means the closing sales price on the National
------------
Association of Securities Dealers Automated Quotation System or the principal
exchange on which shares of such Common Stock are then traded for a specified
day.
(g) "Nonemployee Director" or "Participant" means any person who is elected
-------------------- -----------
or appointed to the Board of Directors and who is not an Employee.
(h) "Plan" means the Corporation's 1998 Nonemployee Director Stock Plan as
----
set forth herein, as it may be amended from time to time.
<PAGE>
(i) "Plan Administrator" means the Board or a committee whose members meet
------------------
the requirements of Section 4(a), appointed from time to time by the Board to
administer the Plan.
(j) "Quarterly Retainer" means the quarterly retainer payable to all
------------------
Nonemployee Directors (exclusive of any per-meeting fees, fees for serving as
chairman of the Board or a committee, or expense reimbursements). The Quarterly
Retainer shall be prorated based on the number of calendar months (including
partial calendar months) a director has served as a Nonemployee Director during
the fiscal quarter for which the Quarterly Retainer is payable.
(k) "Stock Payment" means the fixed portion of the Quarterly Retainer to be
-------------
paid to Nonemployee Directors in shares of Common Stock rather than cash for
services rendered as a director of the Corporation as provided in Section 6 and
that portion of the Quarterly Retainer to be paid to Nonemployee Directors in
shares of Common Stock resulting from the election specified in Section 7.
(l) "Subsidiary" means any corporation that is a "subsidiary corporation"
----------
of the Corporation, as that term is defined in Section 424(f) of the Internal
Revenue Code of 1986, as amended.
SECTION 3. SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with Section 9 hereof, the maximum
aggregate number of shares of Common Stock that may be issued under the Plan is
200,000 shares. The shares shall be shares presently authorized but unissued or
subsequently acquired by the Corporation.
SECTION 4. ADMINISTRATION OF THE PLAN
(a) The Plan shall be administered by the Board or by a committee appointed
by the Board consisting of one or more persons who are not eligible to
participate in the Plan (the "Plan Administrator"). Members of such committee
need not be members of the Board. The Corporation shall pay all costs of
administration of the Plan.
(b) Subject to the express provisions of the Plan, the Plan Administrator
has and may exercise such powers and authority as may be necessary or
appropriate for the Plan Administrator to carry out its functions under the
Plan. Without limiting the generality of the foregoing, the Plan Administrator
shall have full power and authority to (i) determine all questions of fact that
may arise under the Plan; (ii) interpret the Plan and make all other
determinations necessary or advisable for the administration
-2-
<PAGE>
of the Plan; and (iii) prescribe, amend and rescind rules and regulations
relating to the Plan, including, without limitation, any rules the Plan
Administrator determines are necessary or appropriate to ensure that the
Corporation and the Plan will be able to comply with all applicable provisions
of any federal, state or local law, including securities laws. All
interpretations, determinations and actions by the Plan Administrator shall be
final, conclusive and binding upon all parties. Any action of the Plan
Administrator with respect to the administration of the Plan shall be taken
pursuant to a majority vote at a meeting of the Plan Administrator (at which
members may participate by telephone) or by the unanimous written consent of its
members.
SECTION 5. ELIGIBILITY TO PARTICIPATE IN THE PLAN
All Nonemployee Directors shall participate in the Plan, subject to the
conditions and limitations of the Plan, so long as they remain eligible to
participate in the Plan as set forth below.
SECTION 6. DETERMINATION OF QUARTERLY RETAINERS AND STOCK PAYMENTS
(a) The Board, in its sole discretion, shall determine the Quarterly
Retainer for all Nonemployee Directors.
(b) Each Nonemployee Director in office immediately following the 1998
Annual Meeting of Shareholders and thereafter at any time during a calendar year
shall receive a Stock Payment as all or as a portion of the Quarterly Retainer
payable to such director. Stock Payments shall be made with respect to
Quarterly Retainers payable on or after July 1, 1998. The number of shares of
Common Stock to be issued to each Participant as a Stock Payment shall be
determined by dividing the average Market Price of the Common Stock for the last
20 business days of a fiscal quarter into the first $3,000 of any Quarterly
Retainer payable to such Participant for that fiscal quarter; provided, however,
that no fractional shares shall be issued, and in lieu thereof the number of
shares in the Stock Payment shall be rounded to the nearest whole number of
shares. Certificates evidencing the shares of Common Stock constituting Stock
Payments shall be registered in the respective names of, or as directed by, the
Participants and shall be issued to each Participant. The Stock Payment shall
be made as soon as possible following a fiscal quarter end.
(c) Subject to Section 7, any portion of a Quarterly Retainer in excess of
$3,000 shall be paid to Nonemployee Directors in cash at such times and in such
manner as may be determined by the Board.
-3-
<PAGE>
(d) Notwithstanding the foregoing, for future fiscal quarters, the Plan
Administrator may increase or decrease the portion of a Quarterly Retainer that
shall be paid in shares of Common Stock pursuant to Sections 6(b) and 6(c).
7. ELECTION TO INCREASE AMOUNT OF STOCK PAYMENT
(a) In lieu of receiving the cash portion of any Quarterly Retainer (the
"Excess Quarterly Retainer"), a Participant may make a written election to
reduce up to 100% of all Excess Quarterly Retainers to be paid during a calendar
year by a specified percentage or dollar amount and have such amount applied
toward the purchase of additional shares of Common Stock.
(b) The election shall be made on a form provided by the Plan Administrator
and must be returned to the Plan Administrator on a date the Plan Administrator
shall establish, but in any case no later than the first day of the calendar
year to which the election relates or within 60 days after the effective date of
the Plan with respect to the Excess Quarterly Retainers or within 60 days after
the Participant first becomes a Nonemployee Director. The election form shall
state the amount by which the Participant desires to reduce the cash portion of
his or her Quarterly Retainers for the calendar year, which shall be applied
toward the purchase of Common Stock in the same manner and on the same dates
that the Stock Payments are made pursuant to Section 6; provided, however, that
no fractional shares may be purchased, and in lieu thereof the number of shares
in the Stock Payment shall be rounded to the nearest whole number of shares. No
Participant shall be allowed to change or revoke any election for the relevant
calendar year, but may change his or her election for any subsequent calendar
year.
8. SHAREHOLDER RIGHTS
Nonemployee Directors shall not be deemed for any purpose to be, or have
rights as, shareholders of the Corporation with respect to any shares of Common
Stock except as and when such shares are issued and then only from the date of
the certificate therefor. No adjustment shall be made for dividends or
distributions or other rights for which the record date precedes the date of
such stock certificate.
9. ADJUSTMENT FOR CHANGES IN CAPITALIZATION
If the outstanding shares of Common Stock of the Corporation are increased,
decreased or exchanged for a different number or kind of shares or other
securities, or if additional shares or new or different shares or other
securities are distributed with respect to such shares of Common Stock or other
securities, through merger, consolidation, sale of all or substantially all of
the property of the Corporation,
-4-
<PAGE>
reorganization or recapitalization, reclassification, stock dividend, stock
split, reverse stock split, combinations of shares, rights offering or other
distribution with respect to such shares of Common Stock or other securities or
other change in the corporate structure or shares of Common Stock, the maximum
number of shares and/or the kind of shares that may be issued under the Plan
shall be appropriately adjusted by the Plan Administrator. Any determination by
the Plan Administrator as to any such adjustment will be final, binding and
conclusive. The maximum number of shares issuable under the Plan as a result of
any such adjustment shall be rounded down to the nearest whole share.
10. CONTINUATION OF DIRECTORS IN SAME STATUS
Nothing in the Plan or in any instrument executed pursuant to the Plan, and
no action taken pursuant to the Plan, shall be construed as creating or
constituting evidence of any agreement or understanding, express or implied,
that a Nonemployee Director will have any right to continue as a director or in
any other capacity for any period of time or at a particular retainer or other
rate of compensation.
11. NONTRANSFERABILITY OF RIGHTS
No Participant shall have the right to assign the right to receive any
Stock Payment or any other right or interest under the Plan, contingent or
otherwise, or to cause or permit any encumbrance, pledge or charge of any nature
to be imposed on any such Stock Payment (prior to the issuance of stock
certificates evidencing such Stock Payment) or any such right or interest.
12. AMENDMENT AND TERMINATION OF PLAN
(a) The Board will have the power, in its discretion, to amend, suspend or
terminate the Plan at any time.
(b) No amendment, suspension or termination of the Plan will, without the
consent of the Participant, alter, terminate, impair or adversely affect any
right or obligation under any Stock Payment previously granted under the Plan to
such Participant, unless such amendment, suspension or termination is required
by applicable law.
13. SUCCESSORS
All obligations of the Corporation under the Plan shall be binding on any
successor to the Corporation, whether the existence of such successor is the
result of a
-5-
<PAGE>
direct or indirect purchase, merger, consolidation or otherwise, of all or
substantially all of the business and/or assets of the Corporation.
14. SEVERABILITY
In the event any provision of the Plan shall be held illegal or invalid for
any reason, the illegality or invalidity shall not affect the remaining parts of
the Plan, and the Plan shall be construed and enforced as if the illegal or
invalid provision had not been included.
15. GOVERNING LAW
The Plan shall be construed in accordance with, and governed by, the laws
of the state of Washington.
16. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective as of the date it is approved by the
Corporation's shareholders. The Plan shall remain in effect, subject to the
right of the Board to terminate the Plan at any time pursuant to Section 12,
until all shares subject to the Plan have been purchased or acquired according
to the Plan's provisions.
Adopted by the Corporation's Board of Directors in April 1998 and approved
by the Corporation's shareholders on June 10, 1998.
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EXHIBIT 10.2
CHANGE OF CONTROL AGREEMENT
between
ROBIN L. CARMICHAEL
and
PROCYTE CORPORATION
dated as of
APRIL 24, 1998
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CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement"), dated as of April 24,
1998 is between PROCYTE CORPORATION, a Washington corporation (the "Company"),
and ROBIN CARMICHAEL (the "Executive").
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its stockholders to ensure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in Section
1.1 below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive arising from the personal uncertainties
and risks created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with reasonable compensation and benefit arrangements upon a Change of
Control.
In order to accomplish these objectives, the Board has caused the Company
to enter into this Agreement.
1. DEFINITIONS
1.1 CHANGE OF CONTROL
Shall have the definition set forth in Appendix A to this Agreement, which
is hereby incorporated by reference.
1.2 CHANGE OF CONTROL DATE
Shall mean the first date on which a Change of Control occurs.
1.3 EMPLOYMENT PERIOD
Shall mean the two-year period commencing on the Change of Control Date and
ending on the second anniversary of such date.
2. TERM
The term of this Agreement ("Term") shall be for a period of two (2) years
from the date of this Agreement as first entered above, at which time this
Agreement shall terminate without further action by either the Company or the
Executive; provided, however, that if a Change of Control occurs during the
Term, the Term shall automatically extend for the duration of the Employment
Period.
3. EMPLOYMENT
3.1 EMPLOYMENT PERIOD
During the Employment Period, the Company hereby agrees to continue the
Executive in its employ or in the employ of its affiliated companies, and the
Executive hereby agrees to remain in the employ of the Company or its affiliated
companies, in accordance with the terms and provisions of this Agreement;
provided, however, that either the Company or the Executive may terminate the
employment relationship subject to the terms of this Agreement.
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3.2 POSITION AND DUTIES
During the Employment Period, the Executive's position, authority, duties
and responsibilities shall be at least commensurate in all material respects
with the most significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Change of Control Date.
3.3 LOCATION
During the Employment Period, the Executive's services shall be performed
at the Company's headquarters on the Change of Control Date or any office which
is subsequently designated as the headquarters of the Company and is less than
30 miles from such location.
3.4 EMPLOYMENT AT WILL
The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company or its affiliated
companies is "at will" and may be terminated by either the Executive or the
Company or its affiliated companies at any time with or without cause.
Moreover, if prior to the Change of Control Date, the Executive's employment
with the Company or its affiliated companies terminates for any reason, then the
Executive shall have no further rights under this Agreement; provided, however,
that Company may not avoid liability for any termination payments which would
have been required during the Employment Period pursuant to Section 8 below by
terminating the Executive prior to the Employment Period where such termination
is carried out in anticipation of a Change of Control and the principal
motivating purpose is to avoid liability for such termination payments.
4. ATTENTION AND EFFORT
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive will devote all of
her productive time, ability, attention and effort to the business and affairs
of the Company and the discharge of the responsibilities assigned to her
hereunder, and will use her reasonable best efforts to perform faithfully and
efficiently such responsibilities. It shall not be a violation of this
Agreement for the Executive to (a) serve on corporate, civic or charitable
boards or committees, (b) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (c) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities in accordance with this Agreement. It is expressly
understood and agreed that to the extent any such activities have been conducted
by the Executive prior to the Employment Period, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
during the Employment Period shall not thereafter be deemed to interfere with
the performance of the Executive's responsibilities to the Company.
5. COMPENSATION
As long as the Executive remains employed by the Company during the
Employment Period, the Company agrees to pay or cause to be paid to the
Executive, and the Executive agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
5.1 SALARY
The Executive shall receive an annual base salary (the "Annual Base
Salary"), at least equal to the annual salary established by the Board or the
Compensation Committee of the Board (the "Compensation Committee") for the
fiscal year in which the Change of Control Date occurs. The Annual Base Salary
shall be paid in substantially equal installments and at the same intervals as
the salaries of other executives of
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the Company are paid. The Board or the Compensation Committee shall review the
Annual Base Salary at least annually and shall determine in good faith and
consistent with any generally applicable Company policy any increases for future
years.
5.2 BONUS
In addition to Annual Base Salary, the Executive shall be awarded, for each
fiscal year ending during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the average annualized (for any fiscal year
consisting of less than 12 full months) bonus paid or payable, including by
reason of any deferral, to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Change of Control Date occurs. Each such Annual Bonus shall
be paid no later than 90 days after the end of the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall elect to defer the receipt
of such Annual Bonus.
6. BENEFITS
6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION
During the Employment Period, the Executive shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be generally made
available to other executives of the Company and its affiliated companies from
time to time during the Employment Period by action of the Board (or any person
or committee appointed by the Board to determine fringe benefit programs and
other emoluments), including, without limitation, paid vacations; any stock
purchase, savings or retirement plan, practice, policy or program; and all
welfare benefit plans, practices, policies or programs (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
or programs).
6.2 EXPENSES
During the Employment Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by her in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the executives of the Company and its
affiliated companies during the Employment Period.
7. TERMINATION
During the Employment Period, employment of the Executive may be terminated
as follows but, in any case, the nondisclosure provisions set forth in Section
10 hereof shall survive the termination of this Agreement and the termination of
the Executive's employment with the Company:
7.1 BY THE COMPANY OR THE EXECUTIVE
At any time during the Employment Period, the Company may terminate the
employment of the Executive with or without Cause (as defined below), and the
Executive may terminate her employment for Good Reason (as defined below) or for
any reason, upon giving Notice of Termination (as defined below).
7.2 AUTOMATIC TERMINATION
This Agreement and the Executive's employment during the Employment Period
shall terminate automatically upon the death or Total Disability of the
Executive. The term "Total Disability" as used herein shall mean the
Executive's inability (with such accommodation as may be required by law and
which places no undue burden on the Company), as determined by a physician
selected by the Company and
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acceptable to the Executive, to perform the duties set forth in Section 3.2
hereof for a period or periods aggregating 120 calendar days in any 12-month
period as a result of physical or mental illness, loss of legal capacity or any
other cause beyond the Executive's control, unless the Executive is granted a
leave of absence by the Board. The Executive and the Company hereby acknowledge
that the duties specified in Section 3.2 hereof are essential to Executive's
position and that Executive's ability to perform those duties is the essence of
this Agreement.
7.3 NOTICE OF TERMINATION
Any termination by the Company or by the Executive during the Employment
Period shall be communicated by Notice of Termination to the other party given
in accordance with Section 12 hereof. The term "Notice of Termination" shall
mean a written notice which (a) indicates the specific termination provision in
this Agreement relied upon and (b) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated. The
failure by the Executive or the Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
7.4 DATE OF TERMINATION
During the Employment Period, "Date of Termination" means (a) if the
Executive's employment is terminated by reason of death, at the end of the
calendar month in which the Executive's death occurs, (b) if the Executive's
employment is terminated by reason of Total Disability, immediately upon a
determination by the Company of the Executive's Total Disability, and (c) in all
other cases, five days after the date of personal delivery or mailing of the
Notice of Termination. The Executive's employment and performance of services
will continue during such five-day period; provided, however, that the Company
-------- -------
may, upon notice to the Executive and without reducing the Executive's
compensation during such period, excuse the Executive from any or all of her
duties during such period.
8. TERMINATION PAYMENTS
In the event of termination of the Executive's employment during the
Employment Period, all compensation and benefits shall terminate except as
specifically provided in this Section 8.
8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE EXECUTIVE
FOR GOOD REASON
If during the Employment Period the Company terminates the Executive's
employment other than for Cause or the Executive terminates her employment for
Good Reason, the Executive shall be entitled to:
(a) receive payment of the following accrued obligations (the "Accrued
Obligations"):
(i) the Executive's Annual Base Salary through the Date of Termination to
the extent not theretofore paid;
(ii) the product of (x) the Annual Bonus payable with respect to the
fiscal year in which the Date of Termination occurs and (y) a
fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of
which is 365; and
(iii) any compensation previously deferred by the Executive (together with
accrued interest or earnings thereon, if any) and any accrued
vacation pay which would be payable under the Company's standard
policy, in each case to the extent not theretofore paid;
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(a) for one year after the Date of Termination, the Company shall pay the
Executive's premiums for health insurance benefit continuation for
Executive and her family members, if applicable, which the Company provides
to the Executive under the provisions of the federal Comprehensive Omnibus
Budget Reconciliation Act of 1986, as amended ("COBRA") to the extent that
the Company would have paid such premiums had the Executive remained
employed by the Company (such continued payment is hereinafter referred to
as "COBRA Continuation"); and
(b) an amount as severance pay equal to one (1) times the Annual Base Salary
for the fiscal year in which the Date of Termination occurs.
8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON
If during the Employment Period the Executive's employment shall be
terminated by the Company for Cause or by the Executive for other than Good
Reason, this Agreement shall terminate without further obligation on the part of
the Company to the Executive, other than the Company's obligation to pay the
Executive (a) her Annual Base Salary through the Date of Termination, (b) the
amount of any compensation previously deferred by the Executive, and (c) any
accrued vacation pay which would be payable under the Company's standard policy,
in each case to the extent theretofore unpaid.
8.3 EXPIRATION OF TERM
In the case of a termination of the Executive's employment as a result of
the expiration of the Term of this Agreement, this Agreement shall terminate
without further obligation on the part of the Company to the Executive, other
than the Company's obligation to pay the Executive the Accrued Obligations.
8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
If during the Employment Period the Executive's employment is terminated by
reason of the Executive's death or Total Disability, this Agreement shall
terminate automatically without further obligation on the part of the Company to
the Executive or her legal representatives under this Agreement, other than the
Company's obligation to pay the Executive the Accrued Obligations (which shall
be paid to the Executive's estate or beneficiary, as applicable in the case of
the Executive's death), and to provide COBRA Continuation.
8.5 PAYMENT SCHEDULE
All payments of Accrued Obligations, or any portion thereof payable
pursuant to this Section 8, shall be made to the Executive within ten working
days of the Date of Termination. Any payments payable to the Executive pursuant
to Section 8.1(c) shall be made to the Executive, at the Company's option,
either (a) in a lump sum within ten working days of the Date of Termination; or
(b) in two equal payments, the first of which is made within ten working days of
the Date of Termination and the second of which is made within six months of the
Date of Termination.
8.6 CAUSE
For purposes of this Agreement, "Cause" means cause given by the Executive
to the Company and shall include, without limitation, the occurrence of one or
more of the following events:
(a) A clear refusal to carry out any material lawful duties of the Executive or
any directions of the Board or senior management of the Company, all
reasonably consistent with those duties described in Section 3.2 hereof;
(b) Persistent failure to carry out any lawful duties of the Executive
described in Section 3.2 hereof or any directions of the Board or senior
management reasonably consistent with those duties herein set forth to
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be performed by the Executive, provided Executive has been given reasonable
notice and opportunity to correct any such failure;
(c) Violation by the Executive of a state or federal criminal law involving the
commission of a crime against the Company or any other criminal act
involving moral turpitude;
(d) Current abuse by the Executive of alcohol or controlled substances;
deception, fraud, misrepresentation or dishonesty by the Executive; or any
incident materially compromising the Executive's reputation or ability to
represent the Company with investors, customers or the public; or
(e) Any other material violation of any provision of this Agreement by the
Executive, subject to the notice and opportunity to cure requirements of
Section 11.
8.7 GOOD REASON
For purposes of this Agreement, "Good Reason" means
(a) The assignment to the Executive of any duties materially inconsistent with
the Executive's position, authority, duties or responsibilities as
contemplated by Section 3.2 hereof or any other action by the Company which
results in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated and inadvertent
action not taken in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(b) Any failure by the Company to comply with any of the provisions of Section
5 or Section 6 hereof, other than an isolated and inadvertent failure not
taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(c) The Company's requiring the Executive to be based at any office or location
other than that described in Section 3.3 hereof;
(d) Any failure by the Company to comply with and satisfy Section 13 hereof,
provided that the Company's successor has received at least ten days' prior
written notice from the Company or the Executive of the requirements of
Section 13 hereof; or
(e) Any other material violation of any provision of this Agreement by the
Company, subject to the notice and opportunity to cure requirements of
Section 11.
8.8 EXCESS PARACHUTE LIMITATION
If either the Company or the Executive receives confirmation from the
Company's independent tax counsel or its certified public accounting firm, or
such other accounting firm retained as independent certified public accountants
for the Company (the "Tax Advisor"), that any payment by the Company to the
Executive under this Agreement or otherwise would be considered to be an "excess
parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended, or any successor statute then in effect (the "Code"),
then the aggregate payments by the Company pursuant to this Agreement shall be
reduced to the highest amount that may be paid to the Executive by the Company
under this Agreement without having any portion of any amount payable to the
Executive by the Company or a related entity under this Agreement or otherwise
treated as such an "excess parachute payment", and, if permitted by applicable
law and without adverse tax consequence, such reduction shall be made to the
last payment due hereunder. Any payments made by the Company to the Executive
under this Agreement which are later confirmed by the Tax Advisor to be "excess
parachute payments" shall be considered by all parties to have been a loan by
the Company to the Executive, which loan shall be repaid by the Executive
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upon demand together with interest calculated at the lowest interest rate
authorized for such loans under the Code without a requirement that further
interest be imputed.
9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS
In order to induce the Company to enter into this Agreement, the Executive
represents and warrants to the Company as follows:
9.1 HEALTH
The Executive is in good health and knows of no physical or mental
disability which, with any accommodation which may be required by law and which
places no undue burden on the Company, would prevent her from fulfilling her
obligations hereunder. The Executive agrees, if the Company requests, to submit
to reasonable periodic medical examinations by a physician or physicians
designated by, paid for and arranged by the Company. The Executive agrees that
the examination's medical report shall be provided to the Company.
9.2 NO VIOLATION OF OTHER AGREEMENTS
The Executive represents that neither the execution nor the performance of
this Agreement by the Executive will violate or conflict in any way with any
other agreement by which the Executive may be bound.
10. NONDISCLOSURE; RETURN OF MATERIALS
10.1 NONDISCLOSURE
Except as required by her employment with the Company, the Executive will
not, at any time during the term of employment by the Company, or at any time
thereafter, directly, indirectly or otherwise, use, communicate, disclose,
disseminate, lecture upon or publish articles relating to any confidential,
proprietary or trade secret information without the prior written consent of the
Company. The Executive understands that the Company will be relying on this
covenant in continuing the Executive's employment, paying her compensation,
granting her any promotions or raises, or entrusting her with any information
which helps the Company compete with others.
10.2 RETURN OF MATERIALS
All documents, records, notebooks, notes, memoranda, drawings or other
documents made or compiled by the Executive at any time while employed by the
Company, or in her possession, including any and all copies thereof, shall be
the property of the Company and shall be held by the Executive in trust and
solely for the benefit of the Company, and shall be delivered to the Company by
the Executive upon termination of employment or at any other time upon request
by the Company.
11. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than clause (a), (b), (c) or (d) of Section 8.6 hereof,
before such action is taken, the party asserting the breach of this Agreement
shall give the other party at least ten days' prior written notice of the
existence and the nature of such breach before taking further action hereunder
and shall give the party purportedly in breach of this Agreement the opportunity
to correct such breach during the ten-day period.
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12. FORM OF NOTICE
Every notice required by the terms of this Agreement shall be given in
writing by serving the same upon the party to whom it was addressed personally
or by registered or certified mail, return receipt requested, at the address set
forth below or at such other address as may hereafter be designated by notice
given in compliance with the terms hereof:
If to the Executive: Robin L. Carmichael
13113 180th Avenue NE
Redmond Wa 98052
If to the Company: ProCyte Corporation
8511 154th Avenue N.E., Bldg. A
Redmond, Washington 98052-3557
Attn: President
With a copy to: Perkins Coie
Attn: James R. Lisbakken
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
or such other address as shall be provided in accordance with the terms hereof.
Except as set forth in Section 7.4 hereof, if notice is mailed, such notice
shall be effective upon mailing.
13. ASSIGNMENT
This Agreement is personal to the Executive and shall not be assignable by
the Executive.
The Company shall assign to and require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean ProCyte Corporation and
any affiliated company or successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by contract, operation of
law, or otherwise; and as long as such affiliated company or successor assumes
and agrees to perform this Agreement, the termination of Executive's employment
by one such entity and the immediate hiring and continuation of the Executive's
employment by the Company or other affiliated company or successor shall not be
deemed to constitute a termination or trigger any obligation under this
Agreement. All the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
14. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or
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circumstance. All rights and remedies shall be cumulative and not exclusive of
any other rights or remedies.
15. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and the Executive, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and the Executive.
16. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the State of Washington, without regard
to any rules governing conflicts of laws.
17. ARBITRATION; ATTORNEYS' FEES
Except in connection with enforcing Section 10 of this Agreement, for which
legal and equitable remedies may be sought in a court of law, any dispute
arising under this Agreement shall be subject to arbitration. The arbitration
proceeding shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association then in effect, conducted by one
arbitrator either mutually agreed upon or selected in accordance with the AAA
Rules. The arbitration shall be conducted in King County, Washington under the
jurisdiction of the Seattle office of the American Arbitration Association. The
arbitrator shall have authority only to interpret and apply the provisions of
this Agreement, and shall have no authority to add to, subtract from, or
otherwise modify the terms of this Agreement. Any demand for arbitration must
be made within sixty (60) days of the event(s) giving rise to the claim that
this Agreement has been breached. The arbitrator's decision shall be final and
binding, and each party agrees to be bound to by arbitrator's award subject only
to an appeal therefrom in accordance with the laws of the State of Washington.
Either party may obtain judgment upon the arbitrator's award in the Superior
Court of King, County, Washington.
If it becomes necessary to pursue or defend any legal proceeding, whether
in arbitration or court, in order to resolve a dispute arising under this
Agreement, the prevailing party in any such proceeding shall be entitled to
recover its reasonable costs and attorneys' fees.
18. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the extent
of the activities prohibited or required by it, then, to the full extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and
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(c) any court or arbitrator having jurisdiction thereover shall have the power
to reform such provision to the extent necessary for such provision to be
enforceable under applicable law.
19. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between the Company and the Executive with respect to the subject
matter hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between the Company and the Executive with respect
to such subject matter are hereby superseded and nullified in their entireties,
except that the Proprietary Information and Invention Agreement between the
Executive and the Company shall continue in full force and effect to the extent
not superseded by Section 10 hereof.
20. WITHHOLDING
The Company may withhold from any amounts payable under this Agreement such
federal, state or local taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
21. COUNTERPARTS
This Agreement may be executed in counterparts, each of which counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective on the date first set forth above.
PROCYTE CORPORATION EXECUTIVE
By /s/ John F. Clifford By /s/ Robin L. Carmichael
--------------------------- -------------------------------
Name John F. Clifford Name /s/ Robin L. Carmichael
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Title Chief Executive Officer Title V.P. Marketing
----------------------- -----------------------------
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APPENDIX A TO
CHANGE OF CONTROL AGREEMENT
For purposes of this Agreement, a "Change of Control" shall mean:
(a) A "Board Change" which, for purposes of this Agreement, shall have
occurred if a majority (excluding vacant seats) of the seats on the Company's
Board are occupied by individuals who were neither (i) nominated by a majority
of the Incumbent Directors nor (ii) appointed by directors so nominated. An
"Incumbent Director" is a member of the Board who has been either (i) nominated
by a majority of the directors of the Company then in office or (ii) appointed
by directors so nominated, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person (as hereinafter defined) other than the
Board; or
(b) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of (i) 20% or more of either (A) the then outstanding shares of Common Stock of
the Company (the "Outstanding Company Common Stock") or (B) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"), in the case of either (A) or (B) of this clause (i), which
acquisition is not approved in advance by a majority of the Incumbent Directors,
or (ii) 33% or more of either (A) the Outstanding Company Common Stock or (B)
the Outstanding Company Voting Securities, in the case of either (A) or (B) of
this clause (ii), which acquisition is approved in advance by a majority of the
Incumbent Directors; provided, however, that the following acquisitions shall
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not constitute a Change of Control: (x) any acquisition by the Company, (y) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (z)
any acquisition by any corporation pursuant to a reorganization, merger or
consolidation, if, following such reorganization, merger or consolidation, the
conditions described in clauses (i), (ii) and (iii) of subsection (c) of this
Appendix A are satisfied; or
(c) Approval by the stockholders of the Company of a reorganization, merger
or consolidation, in each case, unless, immediately following such
reorganization, merger or consolidation, (i) more than 60% of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
reorganization, merger or consolidation and the combined voting power of the
then outstanding voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially owned, directly or
indirectly, by all or substantially all the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company Common Stock and
the Outstanding Company Voting Securities immediately prior to such
reorganization, merger or consolidation in substantially the same proportion as
their ownership immediately prior to such reorganization, merger or
consolidation of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (ii) no Person (excluding the
Company, any employee benefit plan (or related trust) of the Company or such
corporation resulting from such reorganization, merger or consolidation and any
Person beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 33% or more of the Outstanding Company
Common Stock or the Outstanding Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 33% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
12
<PAGE>
reorganization, merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors, and (iii) at least a majority of the members of the
board of directors of the corporation resulting from such reorganization, merger
or consolidation were the Incumbent Directors at the time of the execution of
the initial agreement providing for such reorganization, merger or
consolidation; or
(d) Approval by the stockholders of the Company of (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other disposition
of all or substantially all the assets of the Company, other than to a
corporation with respect to which immediately following such sale or other
disposition, (A) more than 60% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company Common Stock
and the Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding the Company, any employee benefit plan (or related trust) of the
Company or such corporation and any Person beneficially owning, immediately
prior to such sale or other disposition, directly or indirectly, 33% or more of
the Outstanding Company Common Stock or the Outstanding Company Voting
Securities, as the case may be) beneficially owns, directly or indirectly, 33%
or more of, respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board of directors
of such corporation were approved by a majority of the Incumbent Directors at
the time of the execution of the initial agreement or action of the Board
providing for such sale or other disposition of assets of the Company.
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EXHIBIT 10.3
CHANGE OF CONTROL AGREEMENT
between
SUSAN BROWNER
and
PROCYTE CORPORATION
dated as of
APRIL 27, 1998
<PAGE>
CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement"), dated as of April 27,
1998 is between ProCyte Corporation, a Washington corporation (the "Company"),
and Susan Browner (the "Executive").
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its stockholders to ensure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in Section
1.1 below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive arising from the personal uncertainty
and risks created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with reasonable compensation and benefit arrangements upon a Change of
Control.
In order to accomplish these objectives, the Board has caused the Company
to enter into this Agreement.
1. DEFINITIONS
1.1 CHANGE OF CONTROL
Shall have the definition set forth in Appendix A to this Agreement, which
is hereby incorporated by reference.
1.2 CHANGE OF CONTROL DATE
Shall mean the first date on which a Change of Control occurs.
1.3 EMPLOYMENT AGREEMENT
Shall mean the Employment Agreement between Executive and the Company dated
as of the same date as this Agreement.
1.4 EMPLOYMENT PERIOD
Shall mean the two-year period commencing on the Change of Control Date and
ending on the second anniversary of such date.
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2. TERM
The term of this Agreement ("Term") shall be for a period of two years from
the date of this Agreement as first entered above, at which time this Agreement
shall terminate without further action by either the Company or the Executive,
provided, however, that if a Change of Control occurs during the Term, the Term
shall automatically extend for the duration of the Employment Period.
3. EMPLOYMENT
3.1 EMPLOYMENT PERIOD
During the Employment Period, the Company hereby agrees to continue the
Executive in its employ or in the employ of its affiliated companies, and the
Executive hereby agrees to remain in the employ of the Company or its affiliated
companies, in accordance with the terms and provisions of this Agreement;
provided, however, that either the Company or the Executive may terminate the
employment relationship subject to the terms of this Agreement, or subject to
the terms of the Employment Agreement.
3.2 POSITION AND DUTIES
During the Employment Period, the Executive's position, authority, duties
and responsibilities shall be at least commensurate in all material respects
with the most significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Change of Control Date.
3.3 LOCATION
During the Employment Period, the Executive's services shall be performed
at the Company's headquarters on the Change of Control Date or any office which
is subsequently designated as the headquarters of the Company and is less than
30 miles from such location.
3.4 EMPLOYMENT AT WILL
The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and Company,
the employment of the Executive by the Company or its affiliated companies is
"at will" and may be terminated by either the Executive or the Company or its
affiliated companies at any time with or without cause. Moreover, if prior to
the Change of Control Date, the Executive's employment with the Company or its
affiliated companies terminates for any reason, then the Executive shall have no
further rights
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<PAGE>
under this Agreement; provided, however, that Company may not avoid liability
for any termination payments which would have been required during the
Employment Period pursuant to Section 8 below by terminating the Executive prior
to the Employment Period where such termination is carried out in anticipation
of a Change of Control and the principal motivating purpose is to avoid
liability for such termination payment.
3.5 BOARD OF DIRECTORS
The Executive is currently a member of the Board but her continuation as
such shall be subject to the will of the Company's stockholders and the Board,
as provided in the Company's by-laws and certificate of incorporation. Removal
of the Executive from, or nonelection of the Executive to, the Board by the
Company's stockholders or the Board, as provided in the Company's by-laws and
certificate of incorporation, shall in no event be deemed a breach of this
Agreement by the Company.
4. ATTENTION AND EFFORT
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive will devote all of
her productive time, ability, attention and effort to the business and affairs
of the Company and the discharge of the responsibilities assigned to her
hereunder, and will use her reasonable best efforts to perform faithfully and
efficiently such responsibilities. It shall not be a violation of this
Agreement for the Executive to:
A. serve on corporate, civic or charitable boards or committees,
B. deliver lectures, fulfill speaking engagements or teach at educational
institutions, and
C. manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities in accordance with this Agreement.
It is expressly understood and agreed that to the extent any such
activities have been conducted by the executive prior to the Employment Period,
the continued conduct of such activities (or the conduct of activities similar
in nature and scope thereto) during the Employment Period shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
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5. COMPENSATION
As long as the Executive remains employed by the Company during the
Employment Period, the Company agrees to pay or cause to be paid to the
Executive, and the Executive agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
5.1 SALARY
The Executive shall receive an annual base salary (the "Annual Base
Salary"), at least equal to the annual salary established by the Board or the
Compensation Committee of the Board (the "Compensation Committee") for the
fiscal year in which the Change of Control Date occurs. The Annual Base Salary
shall be paid in substantially equal installments and at the same intervals as
the salaries of other executives of the Company are paid. The Board or the
Compensation Committee shall review the Annual Base Salary at least annually and
shall determine in good faith and consistent with any generally applicable
Company policy any increases for future years.
5.2 BONUS
In addition to Annual Base Salary, the Executive shall be awarded, for each
fiscal year ending during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the average annualized (for any fiscal year
consisting of less than 12 full months) bonus paid or payable, including by
reason of any deferral, to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Change of Control Date occurs; provided, however, that amounts
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paid or payable by the Company to Executive as "Earnout Payments" under the
Employment Agreement shall not be considered bonuses for such determination.
Each such Annual Bonus shall be paid no later than 90 days after the end of the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
6. BENEFITS
6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION
During the Employment Period, the Executive shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be generally made
available to other executives of the Company and its affiliated companies from
time to time during the Employment
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<PAGE>
Period by action of the Board (or any person or committee appointed by the Board
to determine fringe benefit programs and other emoluments), including, without
limitation, paid vacations; any stock purchase, savings or retirement plan,
practice, policy or program; and all welfare benefit plans, practices, policies
or programs (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans or programs).
6.2 EXPENSES
During the Employment Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the executives of the Company and its
affiliated companies during the Employment Period.
7. TERMINATION
During the Employment Period and subject to the Employment Agreement, if
applicable, employment of the Executive may be terminated as follows but, in any
case, the nondisclosure provisions set forth in Section 10 hereof shall survive
the termination of this Agreement and the termination of the Executive's
employment with the Company.
7.1 BY THE COMPANY OR THE EXECUTIVE
At any time during the Employment Period, the Company may terminate the
employment of the Executive with or without Cause (as defined below), and the
Executive may terminate her employment for Good Reason (as defined below) or for
any reason, upon giving Notice of Termination (as defined below).
7.2 AUTOMATIC TERMINATION
This Agreement and the Executive's employment during the Employment Period
shall terminate automatically upon the death or Total Disability of the
Executive. The term "Total Disability" as used herein shall mean the
Executive's inability (with such accommodation as may be required by law and
which places no undue burden on the Company), as determined by a physician
selected by the Company and acceptable to the Executive, to perform the duties
set forth in Section 3.2 hereof for a period or periods aggregating 120 calendar
days in any 12 month period as a result of physical or mental illness, loss of
legal capacity or any other cause beyond the Executive's control, unless the
Executive is granted a leave of
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<PAGE>
absence by the Board. The Executive and the Company hereby acknowledge that the
duties specified in Section 3.2 hereof are essential to Executive's position and
that Executive's ability to perform those duties is the essence of this
Agreement.
7.3 NOTICE OF TERMINATION
Any termination by the Company or by the Executive during the Employment
Period shall be communicated by Notice of Termination to the other party given
in accordance with Section 12 hereof. The term "Notice of Termination" shall
mean a written notice which:
A. indicates the specific termination provision in this Agreement relied
upon; and
B. to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
The failure by the Executive or Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
7.4 DATE OF TERMINATION
During the Employment Period, "Date of Termination" means:
A. if the Executive's employment is terminated by reason of death, the
last day of the calendar month in which the Executive's death occurs,
B. if the Executive's employment is terminated by reason of Total
Disability, immediately upon a determination by the Company of the
Executive's Total Disability; and
C. in all other cases, five days after the date of personal delivery or
mailing of the Notice of Termination.
The Executive's employment and performance of services will continue during
such five-day period; provided, however, that the Company may, upon notice to
the Executive and without reducing the Executive's compensation during such
period, excuse the Executive from any or all of her duties during such period.
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<PAGE>
8. TERMINATION PAYMENTS
In the event of termination of Executive's employment during the Employment
Period, subject to the Employment Agreement, if applicable, all compensation and
benefits shall terminate except as specifically provided in this section.
8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE EXECUTIVE FOR
GOOD REASON
If during the Employment Period the Company terminates the Executive's
employment other than for Cause or the Executive terminates her employment for
Good Reason, the Executive shall be entitled to:
A. receive payment of the following accrued obligation (the "Accrued
Obligations"):
1) the Executive's then current annual base salary through the Date
of Termination to the extent not therefore paid;
2) the product of (x) the Annual Bonus payable with respect to the
fiscal year in which the Date of Termination occurs and (y) a
fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the
denominator of which is 3654; and
3) any compensation previously deferred by the Executive (together
with accrued interest or earnings thereon, if any) and any accrued
vacation pay which would be payable under the Company's standard
policy, in each case to the extent not therefore paid;
B. for twelve months after the Date of Termination, the Company shall pay
the Executive's premiums for health insurance benefit continuation for
Executive and her family members, if applicable, which the Company
provides to the Executive under the provisions of the federal
Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended
("COBRA") to the extent that the Company (such continued payment is
hereinafter referred to as "COBRA Continuation"); and
C. an amount as severance pay equal to one (1) times the Annual Base
Salary for the fiscal year in which the Date of Termination occurs;
LESS all amounts payable by the Company to Executive as a result of such
- ----
termination under the Employment Agreement.
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<PAGE>
8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON
If during the Employment Period the Executive's employment shall be
terminated by the Company for Cause or by the Executive for other than Good
Reason, this Agreement shall terminate without further obligation on the part of
the Company to the Executive, other than the Company's obligation to pay the
Executive:
A. her Annual Base Salary through the Date of Termination,
B. the amount of any compensation previously deferred by the Executive,
and
C. any accrued vacation pay which would be payable under the Company's
standard policy, in each case to the extent heretofore unpaid;
LESS all amounts payable by the Company to Executive as a result of such
- ----
termination under the Employment Agreement.
8.3 EXPIRATION OF TERM
In the case of a termination of the Executive's employment as a result of
the expiration of the Term of this Agreement, this Agreement shall terminate
without further obligation on the part of the Company to the Executive, other
than the Company's obligation to pay the Executive the Accrued Obligations.
8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
If during the Employment Period the Executive's employment is terminated by
reason of the Executive's death or Total Disability, this Agreement shall
terminate automatically without further obligation on the part of the Company to
the Executive or her legal representatives under this Agreement, other than the
Company's obligation to pay the Executive the Accrued Obligations (which shall
be paid to the Executive's estate or beneficiary, as applicable in the case of
the Executive's death), and to provide COBRA Continuation.
8.5 PAYMENT SCHEDULE
All payments of Accrued Obligations, or any portion thereof payable
pursuant to this Section 8, shall be made to the Executive within ten working
days of the Date of Termination. Any severance payments payable to the
Executive pursuant to Section 8.1C shall be made to the Executive, at the
Company's option, either in the lump sum within ten working days of the Date of
Termination; or in two equal payments, the first of which is made within ten
working days of the Date of
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<PAGE>
Termination and the second of which is made within six months of the Date of
Termination.
8.6 CAUSE
For purposes of this Agreement, "Cause" means cause given by the Executive
to the Company and shall include, without limitation, the occurrence of one or
more of the following events:
A. A clear refusal to carry out any material lawful duties of the
Executive or any directions of the Board or senior management of the
Company, all reasonably consistent with those duties described in
Section 3.2 hereof;
B. Persistent failure to carry out any lawful duties of the Executive
described in Section 3.2 hereof or any directions of the Board or
senior management reasonably consistent with those duties herein set
forth to be performed by the Executive, provided Executive has been
given reasonable notice and opportunity to correct any such failure;
C. Violation by the Executive of a state or federal criminal law involving
the commission of a crime against the Company or any other criminal act
involving moral turpitude;
D. Current abuse by the Executive of alcohol or controlled substances;
deception, fraud, misrepresentation or dishonesty by the Executive; or
any incident materially compromising the Executive's reputation or
ability to represent the Company with investors, customers or the
public; or
E. Any other material violation of any provision of this Agreement by the
Executive, subject to the notice and opportunity to cure requirements
of Section 11.
8.6 GOOD REASON
For purposes of this Agreement, "Good Reason" means
A. The assignment to the Executive of any duties materially inconsistent
with the Executive's position, authority, duties or responsibilities as
contemplated by Section 3.2 hereof or any other action by the Company
which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
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<PAGE>
B. Any failure by the Company to comply with any of the provision of
Section 5 or Section 6 hereof, other than an isolated and inadvertent
failure not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
C. The Company's requiring the Executive to be based at any office or
location more than that described in Section 3.3 hereof;
D. Any failure by the Company to comply with and satisfy Section 13
hereof, provided that the Company's successor has received at least ten
days' prior written notice from the Company or the Executive of the
requirements of Section 13 hereof; or
E. Any other material violation of any provision of this Agreement by the
Company, subject to the notice and opportunity to cure requirements of
Section 11.
8.7 EXCESS PARACHUTE LIMITATION
If either the Company or the Executive receives confirmation from the
Company's independent tax counsel or its certified public accounting firm, or
such other accounting firm retained as independent certified public accountants
for the Company (the "Tax Advisor"), that any payment by the Company to the
Executive under this Agreement or otherwise would be considered to be an "excess
parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended, or any successor statute then in effect (the "Code"),
then the aggregate payments by the Company pursuant to this Agreement shall be
reduced to the highest amount that may be paid to the Executive by the Company
under this Agreement without having any portion of any amount payable to the
Executive by the Company or a related entity under this agreement or otherwise
treated as such an "excess parachute payment", and, if permitted by applicable
law and without adverse tax consequence, such reduction shall be made to the
last payment due hereunder. Any payments made by the Company to the Executive
under this Agreement which are later confirmed by the Tax Advisor to be "excess
parachute payments" shall be considered by all parties to have been a loan by
the Company to the Executive, which loan shall be repaid by the Executive upon
demand together with interest calculated at the lowest interest rate authorized
for such loans under the Code without a requirement that further interest be
imputed.
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<PAGE>
9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS
In order to induce the Company to enter into this Agreement, the Executive
represents and warrants to the Company as follows:
9.1 HEALTH
The Executive is in good health and knows of no physical or mental
disability which, with any accommodation which may be required by law and which
places no undue burden on the Company, would prevent him form fulfilling her
obligations hereunder. The Executive agrees, if the Company requests, to submit
to reasonable periodic medical examinations by a physician or physicians
designated by, paid for and arranged by the Company. The Executive agrees that
the examination's medical report shall be provided to the Company.
9.2 NO VIOLATION OF OTHER AGREEMENT
The Executive represents that neither the execution nor the performance of
this Agreement by the Executive will violate or conflict in any way with any
other agreement by which the Executive may be bound.
10. NONDISCLOSURE; RETURN OF MATERIALS
10.1 NONDISCLOSURE
Except as required by her employment with the Company, the Executive will
not, at any time during the term of employment by the Company, or at any time
thereafter, directly, indirectly or otherwise, use, communicate, disclose,
disseminate, lecture upon or publish articles relating to any confidential,
proprietary or trade secret information without the prior written consent of the
Company. The Executive understands that the Company will be relying on this
covenant in continuing the Executive's employment, paying him compensation,
granting him any promotions or raises, or entrusting him with any information
which helps the Company compete with others.
10.2 RETURN OF MATERIALS
All documents, records, notebooks, notes, memoranda, drawings or other
documents made or compiled by the Executive at any time while employed by the
Company, or in her possession, including any and all copies thereof, shall be
the property of the Company and shall be held by the Executive in trust and
solely for the benefit of the Company, and shall be delivered to the Company by
the Executive upon termination of employment or at any other time upon request
by the Company.
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11. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by other party pursuant to any provision of
this Agreement, other than clause A, B, C, or D of Section 8.6 hereof, before
such action is taken, the party asserting the breach of this Agreement shall
give the other party at least ten days' prior written notice of the existence
and the nature of such breach before taking further action hereunder and shall
give the party purportedly in breach of this Agreement the opportunity to
correct such breach during the ten-day period.
12 FORM OF NOTICE
Every notice required by the terms of this Agreement shall be given in
writing by serving the same upon the party to whom it was addressed personally
or by registered or certified mail, return receipt requested, at the address set
forth below or at such other address as may hereafter be designated by notice
given in compliance with the terms hereof:
If to the Executive Susan Browner
If to the Company ProCyte Corporation
8511 154th Avenue NE, Building A
Redmond, WA 98052-3557
Attn: Corporate Secretary
With a copy to Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: James R. Lisbakken
or such other address as shall be provided in accordance with the terms
hereof. Except as set forth in Section 4.4 hereof, if notice is mailed, such
notice shall be effective upon mailing.
13. ASSIGNMENT
This Agreement is personal to the Executive and shall not be assignable by
the Executive.
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The Company shall assign to and require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean ProCyte Corporation and
any affiliated company or successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by contract, operation of
law, or otherwise; and as long as such successor assumes and agrees to perform
this Agreement, the termination of Executive's employment by one such entity and
the immediate hiring and continuation of the Executive's employment by the
succeeding entity shall not be deemed to constitute a termination or trigger any
severance obligation under this Agreement. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective successors and permitted assigns.
14. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or circumstance. All rights and remedies shall be
cumulative and not exclusive of any other rights or remedies.
15. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and the Executive, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and the Executive.
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16. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the State of Washington, without regard
to any rules governing conflicts of laws.
17. ARBITRATION; ATTORNEY'S FEES
Except in connection with enforcing Section 7 of this Agreement, for which
legal and equitable remedies may be sought in a court of law, any dispute
arising under this Agreement shall be subject to arbitration. The arbitration
proceeding shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association then in effect, conducted by one
arbitrator either mutually agreed upon or selected in accordance with the AAA
Rules. The arbitration shall be conducted in King County, Washington under the
jurisdiction of the Seattle office of the American Arbitration Association. The
arbitrator shall have authority only to interpret and apply the provisions of
this Agreement, and shall have no authority to add to, subtract from, or
otherwise modify the terms of this Agreement. Any demand for the arbitration
must be made within sixty (60) days of the event(s) giving rise to the claim
that this Agreement has been breached. The arbitrator's decision shall be final
and binding, and each party agrees to be bound to by arbitrator's award subject
only to an appeal therefrom in accordance with the laws of the State of
Washington. Either party may obtain judgment upon the arbitrator's award in the
Superior Court of King County, Washington.
If it becomes necessary to pursue or defend any legal proceeding, whether
in arbitration or court, in order to resolve a dispute arising under this
Agreement, the prevailing party in any such proceeding shall be entitled to
recover its reasonable costs and attorneys' fees.
18. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the extent
of the activities prohibited or required by it, then, to the full extent
permitted by law:
A. all other provisions hereof shall remain in full force and effect in
such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible,
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B. such invalidity, illegality or unenforceability shall not affect the
validity, legality or enforceability of any other provision hereof, and
C. any court or arbitrator having jurisdiction thereover shall have the
power to reform such provision to the extent necessary for such
provision to be enforceable under applicable law.
19. ENTIRE AGREEMENT
This Agreement on and as of the date hereof and the Employment Agreement
constitutes the entire agreement between the Company and the Executive with
respect to the subject matter hereof and all prior or contemporaneous oral or
written communications, understandings or agreements between the Company and the
Executive with respect to such subject matter are hereby superseded and
nullified in their entireties, except that the Proprietary Information and
Invention Agreement between the Executive and the Company shall continue in full
force and effect to the extent not superseded by Section 10 hereof.
20. WITHHOLDING
The Company may withhold from any amounts payable under this Agreement such
federal, state or local taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
21. COUNTERPARTS
This Agreement may be executed in counterparts, each of which counterpart
shall be deemed an original, but all of which together shall constitute on e and
the same instrument.
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective on the date first set forth above.
PROCYTE CORPORATION SUSAN BROWNER
By: /s/ John F. Clifford By: /s/ Susan Browner
--------------------------- ----------------------------
Name: John F. Clifford Name: /s/ Susan Browner
------------------------- --------------------------
Title: Chief Executive Officer Title: President
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EXHIBIT 10.4
CHANGE OF CONTROL AGREEMENT
between
KEN TAPMAN
and
PROCYTE CORPORATION
dated as of
APRIL 27, 1998
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CHANGE OF CONTROL AGREEMENT
This Change of Control Agreement (this "Agreement"), dated as of April 27,
1998 is between ProCyte Corporation, a Washington corporation (the "Company"),
and Ken Tapman (the "Executive").
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its stockholders to ensure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in Section
1.1 below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive arising from the personal uncertainty
and risks created by a pending or threatened Change of Control, to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with reasonable compensation and benefit arrangements upon a Change of
Control.
In order to accomplish these objectives, the Board has caused the Company
to enter into this Agreement.
1. DEFINITIONS
1.1 CHANGE OF CONTROL
Shall have the definition set forth in Appendix A to this Agreement, which
is hereby incorporated by reference.
1.2 CHANGE OF CONTROL DATE
Shall mean the first date on which a Change of Control occurs.
1.3 EMPLOYMENT AGREEMENT
Shall mean the Employment Agreement between Executive and the Company dated
as of the same date as this Agreement.
1.4 EMPLOYMENT PERIOD
Shall mean the two-year period commencing on the Change of Control Date and
ending on the second anniversary of such date.
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2. TERM
The term of this Agreement ("Term") shall be for a period of two years from
the date of this Agreement as first entered above, at which time this Agreement
shall terminate without further action by either the Company or the Executive,
provided, however, that if a Change of Control occurs during the Term, the Term
shall automatically extend for the duration of the Employment Period.
3. EMPLOYMENT
3.1 EMPLOYMENT PERIOD
During the Employment Period, the Company hereby agrees to continue the
Executive in its employ or in the employ of its affiliated companies, and the
Executive hereby agrees to remain in the employ of the Company or its affiliated
companies, in accordance with the terms and provisions of this Agreement;
provided, however, that either the Company or the Executive may terminate the
employment relationship subject to the terms of this Agreement, or subject to
the terms of the Employment Agreement.
3.2 POSITION AND DUTIES
During the Employment Period, the Executive's position, authority, duties
and responsibilities shall be at least commensurate in all material respects
with the most significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Change of Control Date.
3.3 LOCATION
During the Employment Period, the Executive's services shall be performed
at the Company's headquarters on the Change of Control Date or any office which
is subsequently designated as the headquarters of the Company and is less than
30 miles from such location.
3.4 EMPLOYMENT AT WILL
The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and Company,
the employment of the Executive by the Company or its affiliated companies is
"at will" and may be terminated by either the Executive or the Company or its
affiliated companies at any time with or without cause. Moreover, if prior to
the Change of Control Date, the Executive's employment with the Company or its
affiliated companies terminates for any reason, then the Executive shall have no
further rights
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under this Agreement; provided, however, that Company may not avoid liability
for any termination payments which would have been required during the
Employment Period pursuant to Section 8 below by terminating the Executive prior
to the Employment Period where such termination is carried out in anticipation
of a Change of Control and the principal motivating purpose is to avoid
liability for such termination payment.
4. ATTENTION AND EFFORT
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive will devote all of
his productive time, ability, attention and effort to the business and affairs
of the Company and the discharge of the responsibilities assigned to him
hereunder, and will use his reasonable best efforts to perform faithfully and
efficiently such responsibilities. It shall not be a violation of this
Agreement for the Executive to:
A. serve on corporate, civic or charitable boards or committees,
B. deliver lectures, fulfill speaking engagements or teach at educational
institutions, and
C. manage personal investments, so long as such activities do not
significantly interfere with the performance of the Executive's
responsibilities in accordance with this Agreement.
It is expressly understood and agreed that to the extent any such
activities have been conducted by the executive prior to the Employment Period,
the continued conduct of such activities (or the conduct of activities similar
in nature and scope thereto) during the Employment Period shall not thereafter
be deemed to interfere with the performance of the Executive's responsibilities
to the Company.
5. COMPENSATION
As long as the Executive remains employed by the Company during the
Employment Period, the Company agrees to pay or cause to be paid to the
Executive, and the Executive agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
5.1 SALARY
The Executive shall receive an annual base salary (the "Annual Base
Salary"), at least equal to the annual salary established by the Board or the
Compensation Committee of the Board (the "Compensation Committee") for the
fiscal year in which
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the Change of Control Date occurs. The Annual Base Salary shall be paid in
substantially equal installments and at the same intervals as the salaries of
other executives of the Company are paid. The Board or the Compensation
Committee shall review the Annual Base Salary at least annually and shall
determine in good faith and consistent with any generally applicable Company
policy any increases for future years.
5.2 BONUS
In addition to Annual Base Salary, the Executive shall be awarded, for each
fiscal year ending during the Employment Period, an annual bonus (the "Annual
Bonus") in cash at least equal to the average annualized (for any fiscal year
consisting of less than 12 full months) bonus paid or payable, including by
reason of any deferral, to the Executive by the Company and its affiliated
companies in respect of the three fiscal years immediately preceding the fiscal
year in which the Change of Control Date occurs; provided, however, that amounts
paid or payable by the Company to Executive as "Earnout Payments" under the
Employment Agreement shall not be considered bonuses for such determination.
Each such Annual Bonus shall be paid no later than 90 days after the end of the
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus.
6. BENEFITS
6.1 INCENTIVE, RETIREMENT AND WELFARE BENEFIT PLANS; VACATION
During the Employment Period, the Executive shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be generally made
available to other executives of the Company and its affiliated companies from
time to time during the Employment Period by action of the Board (or any person
or committee appointed by the Board to determine fringe benefit programs and
other emoluments), including, without limitation, paid vacations; any stock
purchase, savings or retirement plan, practice, policy or program; and all
welfare benefit plans, practices, policies or programs (including, without
limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans
or programs).
6.2 EXPENSES
During the Employment Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by him in
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accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the executives of the Company and its
affiliated companies during the Employment Period.
7. TERMINATION
During the Employment Period and subject to the Employment Agreement, if
applicable, employment of the Executive may be terminated as follows but, in any
case, the nondisclosure provisions set forth in Section 10 hereof shall survive
the termination of this Agreement and the termination of the Executive's
employment with the Company.
7.1 BY THE COMPANY OR THE EXECUTIVE
At any time during the Employment Period, the Company may terminate the
employment of the Executive with or without Cause (as defined below), and the
Executive may terminate his employment for Good Reason (as defined below) or for
any reason, upon giving Notice of Termination (as defined below).
7.2 AUTOMATIC TERMINATION
This Agreement and the Executive's employment during the Employment Period
shall terminate automatically upon the death or Total Disability of the
Executive. The term "Total Disability" as used herein shall mean the
Executive's inability (with such accommodation as may be required by law and
which places no undue burden on the Company), as determined by a physician
selected by the Company and acceptable to the Executive, to perform the duties
set forth in Section 3.2 hereof for a period or periods aggregating 120 calendar
days in any 12 month period as a result of physical or mental illness, loss of
legal capacity or any other cause beyond the Executive's control, unless the
Executive is granted a leave of absence by the Board. The Executive and the
Company hereby acknowledge that the duties specified in Section 3.2 hereof are
essential to Executive's position and that Executive's ability to perform those
duties is the essence of this Agreement.
7.3 NOTICE OF TERMINATION
Any termination by the Company or by the Executive during the Employment
Period shall be communicated by Notice of Termination to the other party given
in accordance with Section 12 hereof. The term "Notice of Termination" shall
mean a written notice which:
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A. indicates the specific termination provision in this Agreement relied
upon; and
B. to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
The failure by the Executive or Company to set forth in the Notice of
Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company
hereunder or preclude the Executive or the Company from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights hereunder.
7.4 DATE OF TERMINATION
During the Employment Period, "Date of Termination" means:
A. if the Executive's employment is terminated by reason of death, the
last day of the calendar month in which the Executive's death occurs,
B. if the Executive's employment is terminated by reason of Total
Disability, immediately upon a determination by the Company of the
Executive's Total Disability; and
C. in all other cases, five days after the date of personal delivery or
mailing of the Notice of Termination.
The Executive's employment and performance of services will continue during
such five-day period; provided, however, that the Company may, upon notice to
the Executive and without reducing the Executive's compensation during such
period, excuse the Executive from any or all of his duties during such period.
8. TERMINATION PAYMENTS
In the event of termination of Executive's employment during the Employment
Period, subject to the Employment Agreement, if applicable, all compensation and
benefits shall terminate except as specifically provided in this section.
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8.1 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE OR BY THE EXECUTIVE FOR
GOOD REASON
If during the Employment Period the Company terminates the Executive's
employment other than for Cause or the Executive terminates his employment for
Good Reason, the Executive shall be entitled to:
A. receive payment of the following accrued obligation (the "Accrued
Obligations"):
1) the Executive's then current annual base salary through the Date
of Termination to the extent not therefore paid;
2) the product of (x) the Annual Bonus payable with respect to the
fiscal year in which the Date of Termination occurs and (y) a
fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the
denominator of which is 3654; and
3) any compensation previously deferred by the Executive (together
with accrued interest or earnings thereon, if any) and any accrued
vacation pay which would be payable under the Company's standard
policy, in each case to the extent not therefore paid;
B. for twelve months after the Date of Termination, the Company shall pay
the Executive's premiums for health insurance benefit continuation for
Executive and his family members, if applicable, which the Company
provides to the Executive under the provisions of the federal
Comprehensive Omnibus Budget Reconciliation Act of 1986, as amended
("COBRA") to the extent that the Company (such continued payment is
hereinafter referred to as "COBRA Continuation"); and
C. an amount as severance pay equal to one (1) times the Annual Base
Salary for the fiscal year in which the Date of Termination occurs;
LESS all amounts payable by the Company to Executive as a result of such
termination under the Employment Agreement.
8.2 TERMINATION FOR CAUSE OR OTHER THAN FOR GOOD REASON
If during the Employment Period the Executive's employment shall be
terminated by the Company for Cause or by the Executive for other than Good
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Reason, this Agreement shall terminate without further obligation on the part of
the Company to the Executive, other than the Company's obligation to pay the
Executive:
A. his Annual Base Salary through the Date of Termination,
B. the amount of any compensation previously deferred by the Executive,
and
C. any accrued vacation pay which would be payable under the Company's
standard policy, in each case to the extent heretofore unpaid;
LESS all amounts payable by the Company to Executive as a result of such
termination under the Employment Agreement.
8.3 EXPIRATION OF TERM
In the case of a termination of the Executive's employment as a result of
the expiration of the Term of this Agreement, this Agreement shall terminate
without further obligation on the part of the Company to the Executive, other
than the Company's obligation to pay the Executive the Accrued Obligations.
8.4 TERMINATION BECAUSE OF DEATH OR TOTAL DISABILITY
If during the Employment Period the Executive's employment is terminated by
reason of the Executive's death or Total Disability, this Agreement shall
terminate automatically without further obligation on the part of the Company to
the Executive or his legal representatives under this Agreement, other than the
Company's obligation to pay the Executive the Accrued Obligations (which shall
be paid to the Executive's estate or beneficiary, as applicable in the case of
the Executive's death), and to provide COBRA Continuation.
8.5 PAYMENT SCHEDULE
All payments of Accrued Obligations, or any portion thereof payable
pursuant to this Section 8, shall be made to the Executive within ten working
days of the Date of Termination. Any severance payments payable to the
Executive pursuant to Section 8.1C shall be made to the Executive, at the
Company's option, either in the lump sum within ten working days of the Date of
Termination; or in two equal payments, the first of which is made within ten
working days of the Date of Termination and the second of which is made within
six months of the Date of Termination.
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8.6 CAUSE
For purposes of this Agreement, "Cause" means cause given by the Executive
to the Company and shall include, without limitation, the occurrence of one or
more of the following events:
A. A clear refusal to carry out any material lawful duties of the
Executive or any directions of the Board or senior management of the
Company, all reasonably consistent with those duties described in
Section 3.2 hereof;
B. Persistent failure to carry out any lawful duties of the Executive
described in Section 3.2 hereof or any directions of the Board or
senior management reasonably consistent with those duties herein set
forth to be performed by the Executive, provided Executive has been
given reasonable notice and opportunity to correct any such failure;
C. Violation by the Executive of a state or federal criminal law involving
the commission of a crime against the Company or any other criminal act
involving moral turpitude;
D. Current abuse by the Executive of alcohol or controlled substances;
deception, fraud, misrepresentation or dishonesty by the Executive; or
any incident materially compromising the Executive's reputation or
ability to represent the Company with investors, customers or the
public; or
E. Any other material violation of any provision of this Agreement by the
Executive, subject to the notice and opportunity to cure requirements
of Section 11.
8.6 GOOD REASON
For purposes of this Agreement, "Good Reason" means
A. The assignment to the Executive of any duties materially inconsistent
with the Executive's position, authority, duties or responsibilities as
contemplated by Section 3.2 hereof or any other action by the Company
which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive;
B. Any failure by the Company to comply with any of the provision of
Section 5 or Section 6 hereof, other than an isolated and inadvertent
failure not
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taken in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
C. The Company's requiring the Executive to be based at any office or
location more than that described in Section 3.3 hereof;
D. Any failure by the Company to comply with and satisfy Section 13
hereof, provided that the Company's successor has received at least ten
days' prior written notice from the Company or the Executive of the
requirements of Section 13 hereof; or
E. Any other material violation of any provision of this Agreement by the
Company, subject to the notice and opportunity to cure requirements of
Section 11.
8.7 EXCESS PARACHUTE LIMITATION
If either the Company or the Executive receives confirmation from the
Company's independent tax counsel or its certified public accounting firm, or
such other accounting firm retained as independent certified public accountants
for the Company (the "Tax Advisor"), that any payment by the Company to the
Executive under this Agreement or otherwise would be considered to be an "excess
parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended, or any successor statute then in effect (the "Code"),
then the aggregate payments by the Company pursuant to this Agreement shall be
reduced to the highest amount that may be paid to the Executive by the Company
under this Agreement without having any portion of any amount payable to the
Executive by the Company or a related entity under this agreement or otherwise
treated as such an "excess parachute payment", and, if permitted by applicable
law and without adverse tax consequence, such reduction shall be made to the
last payment due hereunder. Any payments made by the Company to the Executive
under this Agreement which are later confirmed by the Tax Advisor to be "excess
parachute payments" shall be considered by all parties to have been a loan by
the Company to the Executive, which loan shall be repaid by the Executive upon
demand together with interest calculated at the lowest interest rate authorized
for such loans under the Code without a requirement that further interest be
imputed.
9. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS
In order to induce the Company to enter into this Agreement, the Executive
represents and warrants to the Company as follows:
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9.1 HEALTH
The Executive is in good health and knows of no physical or mental
disability which, with any accommodation which may be required by law and which
places no undue burden on the Company, would prevent him form fulfilling his
obligations hereunder. The Executive agrees, if the Company requests, to submit
to reasonable periodic medical examinations by a physician or physicians
designated by, paid for and arranged by the Company. The Executive agrees that
the examination's medical report shall be provided to the Company.
9.2 NO VIOLATION OF OTHER AGREEMENT
The Executive represents that neither the execution nor the performance of
this Agreement by the Executive will violate or conflict in any way with any
other agreement by which the Executive may be bound.
10. NONDISCLOSURE; RETURN OF MATERIALS
10.1 NONDISCLOSURE
Except as required by his employment with the Company, the Executive will
not, at any time during the term of employment by the Company, or at any time
thereafter, directly, indirectly or otherwise, use, communicate, disclose,
disseminate, lecture upon or publish articles relating to any confidential,
proprietary or trade secret information without the prior written consent of the
Company. The Executive understands that the Company will be relying on this
covenant in continuing the Executive's employment, paying him compensation,
granting him any promotions or raises, or entrusting him with any information
which helps the Company compete with others.
10.2 RETURN OF MATERIALS
All documents, records, notebooks, notes, memoranda, drawings or other
documents made or compiled by the Executive at any time while employed by the
Company, or in his possession, including any and all copies thereof, shall be
the property of the Company and shall be held by the Executive in trust and
solely for the benefit of the Company, and shall be delivered to the Company by
the Executive upon termination of employment or at any other time upon request
by the Company.
11. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by other party pursuant to any provision of
this
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Agreement, other than clause A, B, C, or D of Section 8.6 hereof, before such
action is taken, the party asserting the breach of this Agreement shall give the
other party at least ten days' prior written notice of the existence and the
nature of such breach before taking further action hereunder and shall give the
party purportedly in breach of this Agreement the opportunity to correct such
breach during the ten-day period.
12. FORM OF NOTICE
Every notice required by the terms of this Agreement shall be given in
writing by serving the same upon the party to whom it was addressed personally
or by registered or certified mail, return receipt requested, at the address set
forth below or at such other address as may hereafter be designated by notice
given in compliance with the terms hereof:
If to the Executive Ken Tapman
If to the Company ProCyte Corporation
8511 154th Avenue NE, Building A
Redmond, WA 98052-3557
Attn: Corporate Secretary
With a copy to Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: James R. Lisbakken
or such other address as shall be provided in accordance with the terms
hereof. Except as set forth in Section 4.4 hereof, if notice is mailed, such
notice shall be effective upon mailing.
13. ASSIGNMENT
This Agreement is personal to the Executive and shall not be assignable by
the Executive.
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The Company shall assign to and require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean ProCyte Corporation and
any affiliated company or successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by contract, operation of
law, or otherwise; and as long as such successor assumes and agrees to perform
this Agreement, the termination of Executive's employment by one such entity and
the immediate hiring and continuation of the Executive's employment by the
succeeding entity shall not be deemed to constitute a termination or trigger any
severance obligation under this Agreement. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective successors and permitted assigns.
14. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or circumstance. All rights and remedies shall be
cumulative and not exclusive of any other rights or remedies.
15. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and the Executive, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and the Executive.
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16. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the State of Washington, without regard
to any rules governing conflicts of laws.
17. ARBITRATION; ATTORNEY'S FEES
Except in connection with enforcing Section 7 of this Agreement, for which
legal and equitable remedies may be sought in a court of law, any dispute
arising under this Agreement shall be subject to arbitration. The arbitration
proceeding shall be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association then in effect, conducted by one
arbitrator either mutually agreed upon or selected in accordance with the AAA
Rules. The arbitration shall be conducted in King County, Washington under the
jurisdiction of the Seattle office of the American Arbitration Association. The
arbitrator shall have authority only to interpret and apply the provisions of
this Agreement, and shall have no authority to add to, subtract from, or
otherwise modify the terms of this Agreement. Any demand for the arbitration
must be made within sixty (60) days of the event(s) giving rise to the claim
that this Agreement has been breached. The arbitrator's decision shall be final
and binding, and each party agrees to be bound to by arbitrator's award subject
only to an appeal therefrom in accordance with the laws of the State of
Washington. Either party may obtain judgment upon the arbitrator's award in the
Superior Court of King County, Washington.
If it becomes necessary to pursue or defend any legal proceeding, whether
in arbitration or court, in order to resolve a dispute arising under this
Agreement, the prevailing party in any such proceeding shall be entitled to
recover its reasonable costs and attorneys' fees.
18. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, including, without
limitation, the duration of such provision, its geographical scope or the extent
of the activities prohibited or required by it, then, to the full extent
permitted by law:
A. all other provisions hereof shall remain in full force and effect in
such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible,
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B. such invalidity, illegality or unenforceability shall not affect the
validity, legality or enforceability of any other provision hereof, and
C. any court or arbitrator having jurisdiction thereover shall have the
power to reform such provision to the extent necessary for such
provision to be enforceable under applicable law.
19. ENTIRE AGREEMENT
This Agreement on and as of the date hereof and the Employment Agreement
constitutes the entire agreement between the Company and the Executive with
respect to the subject matter hereof and all prior or contemporaneous oral or
written communications, understandings or agreements between the Company and the
Executive with respect to such subject matter are hereby superseded and
nullified in their entireties, except that the Proprietary Information and
Invention Agreement between the Executive and the Company shall continue in full
force and effect to the extent not superseded by Section 10 hereof.
20. WITHHOLDING
The Company may withhold from any amounts payable under this Agreement such
federal, state or local taxes as shall be required to be withheld pursuant to
any applicable law or regulation.
21. COUNTERPARTS
This Agreement may be executed in counterparts, each of which counterpart
shall be deemed an original, but all of which together shall constitute on e and
the same instrument.
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective on the date first set forth above.
PROCYTE CORPORATION KEN TAPMAN
By: /s/ John F. Clifford By: /s/ Ken Tapman
-------------------------- --------------------------
Name: John F. Clifford Name: /s/ Ken Tapman
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Title: Chief Executive Officer Title:
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EXHIBIT 10.5
INDEMNITY AGREEMENT
between
TYPE IN EXECUTIVE NAME
and
PROCYTE CORPORATION
dated as of
TYPE IN DATE
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INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement") is made by and between PROCYTE
CORPORATION, a Washington Corporation (the "Company), and TYPE IN INDEMNITEE
------------------
NAME, a Type in Title of the Company (the "Indemnitee"), as of Type in Date.
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RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors and officers of corporations unless
they are protected by comprehensive liability insurance or indemnification, due
to increased exposure to litigation costs and risks resulting from their service
to such corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors or officers;
B. The statutes and judicial decisions regarding the duties of directors
and officers are often difficult to apply, ambiguous, or conflicting, and
therefore fail to provide such directors and officers with adequate, reliable
knowledge of legal risks to which they are exposed or information regarding the
proper course of action to take;
C. Plaintiffs often seek damages in such large amounts and the costs of
litigation may be so enormous (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is beyond the personal resources of
directors and officers;
D. The Company believes that it is unfair for its directors and officers
to assume the risk of huge judgments and other expenses which may occur in cases
in which the director or officer received no personal profit and in cases where
the director or officer was not culpable;
E. The Company recognizes that the issues in controversy in litigation
against a director or officer of a corporation such as the Company are often
related to the knowledge, motives, and intent of such director or officer, that
he or she is usually the only witness with knowledge of the essential facts and
exculpating circumstances regarding such matters and that the long period of
time which usually elapses before the trial or other disposition of such
litigation often extends beyond the time the director or officer can reasonably
recall such matters and may extend beyond the normal time for retirement of such
director or officer with the result that he or she, after retirement (or in the
event of death, his or her spouse, heirs, executors or administrators), may be
faced with limited ability and undue hardship in maintaining an adequate
defense, which may discourage such director or officer from serving in that
position;
F. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
talented and experienced individuals to serve as directors and officers of the
Company and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company to contractually
indemnify its directors and officers, and to assume for itself maximum liability
for expenses and damages in connection with claims against such directors and
officers in connection with their service to the Company, and has further
concluded that the failure to provide such contractual indemnification could
result in great harm to the Company and the Company's shareholders;
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G. The shareholders of the Company have adopted Bylaws (the "Bylaws")
providing for indemnification of the officers, directors, agents and employees
of the Company as contemplated by the Washington Business Corporation Act (the
"Statute");
H. Section 23B.08.510 and .570 of the Statute, under which the Company is
organized ("Section 510/570"), empowers the Company to indemnify persons who
serve, at the request of the Company, as the directors, officers, employees or
agents of the Company or of other corporations or enterprises;
I. The Bylaws specifically provide that the rights provided thereby are
not exclusive, and Section 510/570 contemplates that contracts may be entered
into between the Company and the members of the Board and its officers,
employees and agents with respect to indemnification of such persons;
J. Recent developments with respect to the terms and availability of
directors' and officers' liability insurance and with respect to the
application, amendment and enforcement of statutory and bylaw indemnification
provisions generally have raised questions concerning the adequacy and
reliability of the protection afforded to directors, officers, employees and
agents thereby;
K. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company; and
L. The Indemnitee is willing to serve, or to continue to serve, the
Company, provided that he or she is furnished the indemnity provided for herein.
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS
As used herein, the following terms shall have the following meanings:
(a) Agent. "Agent" of the Company means any person who is or was a
-----
director, officer, employee or other agent of the Company or a Subsidiary (as
defined below); or is or was serving at the request of, for the convenience of,
or to represent the interests of the Company or a Subsidiary as a director,
officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise; or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the Company or a Subsidiary, or is or was a director,
officer, employee or agent of another enterprise at the request of, for the
convenience of, or to represent the interests of such predecessor corporation.
(b) Expenses. "Expenses" include all direct and indirect costs of any type
--------
or nature whatsoever (including, without limitation, all attorneys' fees and
related disbursements, other out-of-pocket costs and reasonable compensation for
time spent by the Indemnitee for which he or she is not otherwise compensated by
the Company or any third party) actually and reasonably incurred by the
Indemnitee in connection with either the investigation, defense or appeal of a
Proceeding (as defined below) or establishing or enforcing a right to
indemnification under this Agreement, Section 510/570 or otherwise; provided,
--------
however, that expenses shall not include any judgments, fines, ERISA excise
- -------
taxes or penalties or amounts paid in settlement of a Proceeding.
-3-
<PAGE>
(c) Proceeding. "Proceeding" means any threatened, pending, or completed
----------
action, suit or other proceeding, whether civil, criminal, administrative,
investigative or any other type whatsoever.
(d) Subsidiary. "Subsidiary" means any corporation of which more than 50%
----------
of the outstanding voting securities is owned directly or indirectly by the
Company, by the Company and one or more other subsidiaries, or by one or more
other subsidiaries.
2. AGREEMENT TO SERVE
The Indemnitee agrees to serve and/or continue to serve as a director or
officer of the Company, at its will, so long as the Indemnitee is duly appointed
or elected and qualified in accordance with the applicable provisions of the
Bylaws or until such time as the Indemnitee tenders his or her resignation in
writing.
3. MAINTENANCE OF LIABILITY INSURANCE.
(a) The Company hereby covenants and agrees that, so long as the Indemnitee
shall continue to serve as a director or officer of the Company and thereafter
so long as the Indemnitee was an Agent of the Company, the Company, subject to
Section 3(b), shall use its best efforts, consistent with prudent business
practice, to obtain and maintain in full force and effect directors' and
officers' liability insurance ("D&O Insurance") of which the Indemnitee will be
an insured, in reasonable amounts from established and reputable insurers.
(b) Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain D&O Insurance if the Company determines in good faith that
such insurance is not reasonably available, the premium costs for such insurance
are disproportionate to the amount of coverage provided, or the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit.
4. MANDATORY INDEMNIFICATION
Subject to Section 9, if the Indemnitee is a person who was or is a party
or is threatened to be made a party to any Proceeding by reason of the fact that
the Indemnitee is or was an Agent of the Company, or by reason of anything done
or not done by the Indemnitee in any such capacity, the Company shall indemnify
and hold harmless the Indemnitee to the fullest extent permitted by applicable
law, as then in effect, without the requirement of any further approval or
finding by the shareholders, the Board or independent legal counsel, against all
Expenses, liabilities and losses (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) actually
and reasonably incurred by the Indemnitee in connection with the investigation,
defense, settlement or appeal of the Proceeding. The Company shall be obligated
to provide such indemnification even if the Indemnitee should be deceased prior
to, during the pendency of, or after completion of any Proceeding to which such
indemnification applies.
5. PARTIAL INDEMNIFICATION
If the Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of any Expenses,
liabilities or losses of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties, and amounts paid in
settlement) actually and reasonably incurred by the Indemnitee in connection
with the investigation, defense, settlement or
-4-
<PAGE>
appeal of a Proceeding but not entitled, however, to indemnification for all of
the total amount thereof, the Company shall nevertheless indemnify the
Indemnitee for that portion thereof to which the Indemnitee is entitled.
6. MANDATORY ADVANCEMENT OF EXPENSES
Subject to Section 9(f), the Company shall advance all reasonable expenses
incurred by the Indemnitee in connection with the investigation, defense,
settlement or appeal of any Proceeding to which the Indemnitee is a party or is
threatened to be made a party by reason of the fact that the Indemnitee is or
was an Agent of the Company. The Indemnitee hereby undertakes to repay such
amounts advanced only if, and to the extent that, it shall ultimately be
determined pursuant to Section 8 that the Indemnitee is not entitled to be
indemnified by the Company as authorized hereby. The advances to be made
hereunder shall be paid by the Company to the Indemnitee within 20 days
following delivery of a written request therefor by the Indemnitee to the
Company.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
(a) Promptly after receipt by the Indemnitee of notice of the commencement
of, or the threat of commencement of, any Proceeding, the Indemnitee shall, if
the Indemnitee believes that indemnification with respect thereto may be sought
from the Company under this Agreement, notify the Company of the commencement or
threat of commencement thereof.
(b) If, at the time of receipt of a notice of the commencement of a
Proceeding pursuant to Section 7(a), the Company has D&O Insurance in effect,
the Company shall give prompt notice of the commencement of such Proceeding to
the insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable
as a result of such Proceeding in accordance with the terms of such policies.
(c) If the Company shall be obligated to pay the Expenses of any Proceeding
against the Indemnitee, the Company, if appropriate, shall be entitled to assume
the defense of such Proceeding, with counsel approved by the Indemnitee (which
approval shall not be unreasonably withheld), upon the delivery to the
Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by the Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to the Indemnitee under
this Agreement for any fees of counsel subsequently incurred by the Indemnitee
with respect to the same Proceeding, provided that: (i) the Indemnitee shall
have the right to employ his or her counsel in any such Proceeding at the
Indemnitee's expense; and (ii) if (A) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (B) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense, or (C) the
Company shall not, in fact, have employed counsel to assume the defense of such
Proceeding, the fees and Expenses of Indemnitee's counsel shall be at the
expense of the Company.
(d) The Company shall not be entitled to assume the defense of any action,
suit or Proceeding brought by or on behalf of the Company or as to which the
Indemnitee shall have reached the conclusion provided for in Section
7(c)(ii)(B).
-5-
<PAGE>
8. DETERMINATION OF RIGHT TO INDEMNIFICATION
(a) To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any Proceeding referred to in Section 4 or in the
defense of any claim, issue or matter described therein, the Company shall
indemnify the Indemnitee against Expenses actually and reasonably incurred by
him or her in connection with the investigation, defense, or appeal of such
Proceeding.
(b) In the event that Section 8(a) is inapplicable, the Company shall also
indemnify the Indemnitee unless, and only to the extent, that it is determined
by a forum described in Section 8(c) that the Indemnitee has not met the
applicable standard of conduct required to entitle the Indemnitee to such
indemnification. The Indemnitee shall be presumed to be entitled to
indemnification hereunder upon submission of a written claim (and, in any action
brought to enforce a claim for expenses incurred in defending any Proceeding, in
advance of its final disposition) and thereafter the Company shall have the
burden of proof to overcome the presumption that the Indemnitee is not so
entitled.
(c) The Indemnitee shall be entitled to select the forum in which the
validity of the Company's claim under Section 8(b) that the Indemnitee is not
entitled to indemnification will be heard from among the following:
(1) A quorum of the Board consisting of directors who are not at the time
parties to the Proceeding for which indemnification is being sought;
(2) If a quorum cannot be obtained under (1) of this subsection, by a
majority vote of a committee duly designated by the Board, in which
designation directors who are parties may participate, consisting
solely of two or more directors who are not at the time parties to the
Proceeding for which indemnification is being sought;
(3) The shareholders of the Company (provided that shares owned by or
voted under the control of directors who are at the time parties to
the Proceeding may not be voted on the determination); or
(4) Special legal counsel (i) selected by the Board or its committee in
the manner prescribed in (1) or (2) of this subsection or (ii) if a
quorum of the Board cannot be obtained under (1) of this subsection
and a committee cannot be designated under (2) of this subsection,
selected by majority vote of the full Board, in which selection
directors who are parties may participate.
(d) As soon as practicable, and in no event later than 30 days after
written notice of the Indemnitee's choice of forum pursuant to Section 8(c), the
Company shall, at its own expense, submit to the selected forum, in such manner
as the Indemnitee or the Indemnitee's counsel may reasonably request, its claim
that the Indemnitee is not entitled to indemnification; and the Company shall
act in the utmost good faith to ensure the Indemnitee a complete opportunity to
defend against such claim.
(e) If the forum listed in Section 8(c) selected by the Indemnitee
determines that the Indemnitee is entitled to indemnification with respect to a
specific Proceeding, such determination shall be final and binding on the
Company. If the forum listed in Section 8(c) selected by the Indemnitee
determines that the Indemnitee is not entitled to indemnification with respect
to a specific Proceeding, the Indemnitee shall have the right to apply to the
court in which that Proceeding is or was pending or any other court of competent
jurisdiction for the purpose of enforcing the Indemnitee's right to
indemnification pursuant to this Agreement.
-6-
<PAGE>
(f) Notwithstanding any other provision in this Agreement to the contrary,
the Company shall indemnify the Indemnitee against all reasonable Expenses
incurred by the Indemnitee in connection with any hearing or Proceeding under
this Section 8 involving the Indemnitee and against all reasonable Expenses
incurred by the Indemnitee in connection with any other Proceeding between the
Company and the Indemnitee involving the interpretation or enforcement of the
rights of the Indemnitee under this Agreement unless a court of competent
jurisdiction finds that each of the claims and/or defenses of the Indemnitee in
any such Proceeding was frivolous or made in bad faith.
9. EXCEPTIONS
Any other provisions herein to the contrary notwithstanding, the Company
shall not be obligated pursuant to the terms of this Agreement to indemnify the
Indemnitee for Expenses, liabilities or losses of any type whatsoever
(including, but not limited to, judgments, fines, ERISA excise taxes or
penalties, and amounts paid in settlement):
(a) D&O Insurance. Which have been paid directly to the Indemnitee
-------------
pursuant to policy of D&O Insurance purchased and maintained by the Company; or
(b) Certain Remuneration. With respect to remuneration paid to the
--------------------
Indemnitee if it shall be determined by a final judgment or other final
adjudication that such remuneration was in violation of law; or
(c) Certain Statutory Claims. On account of any suit in which judgment is
------------------------
rendered against the Indemnitee for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law; or
(d) Certain Conduct. On account of the Indemnitee's conduct which is
---------------
determined by the forum described in Section 8(c) or by a court pursuant to
Section 8(e) to have been intentional misconduct, a knowing violation of law or
RCW 23B.08.310 or any successor provision of Section 510/570, or a transaction
from which the Indemnitee derived benefit in money, property or services to
which the Indemnitee is not legally entitled, unless and only to the extent that
a court shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such amounts which the court
shall deem proper; or
(e) Court Decision. In the event a determination has not been made by the
--------------
forum described in Section 8(c) or in the event of a determination by such forum
from which the Indemnitee has applied to a court pursuant to Section 8(e), if a
final decision by a court having jurisdiction in the matter shall determine that
such indemnification is not lawful; or
(f) Claims Initiated by Indemnitee. With respect to Proceedings or claims
------------------------------
initiated or brought voluntarily by the Indemnitee and not by way of defense,
except with respect to Proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise as
required under Section 510/570, but such indemnification or advancement of
Expenses may be provided by the Company in specific cases if the Board finds it
to be appropriate; or
-7-
<PAGE>
(g) Lack of Good Faith. With respect to any Proceeding instituted by the
------------------
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
Indemnitee in such Proceeding was not made in good faith or was frivolous; or
(h) Unauthorized Settlements. For any amounts paid in settlement of any
------------------------
action or claim effected without its written consent. The Company shall not
settle any action or claim in any manner which would impose any penalty or
limitation on the Indemnitee without the Indemnitee's written consent. Neither
the Company nor the Indemnitee will unreasonably withhold its, his or her
consent to any proposed settlement.
10. NONEXCLUSIVITY; CONTINUATION OF RIGHTS
The provisions for indemnification and advancement of Expenses set forth in
this Agreement shall not be deemed exclusive of any other rights which the
Indemnitee may have under any provision of law, the Company's Articles of
Incorporation or Bylaws, the vote of the Company's shareholders or disinterested
directors, other agreements, or otherwise, both as to action in the Indemnitee's
official capacity and to action in another capacity while occupying the position
as an Agent of the Company. All agreements and obligations of the Company
contained herein shall continue during the period the Indemnitee is a director,
officer, employee or Agent of the Company and shall continue thereafter so long
as the Indemnitee shall be subject to any possible claim or threatened, pending
or completed action, suit or Proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that the Indemnitee was an Agent of the
Company.
11. INTERPRETATION OF AGREEMENT
It is understood that the parties hereto intend this Agreement to be
interpreted and enforced so as to provide indemnification to the Indemnitee to
the fullest extent now or hereafter permitted by law.
12. SEVERABILITY
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (i) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including, without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby; and (ii) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provisions held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable and to give effect to
Section 11.
13. MODIFICATION AND WAIVER
No supplement, modification or amendment of this Agreement shall be binding
unless executed in writing by both parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provision hereof (whether or not similar) nor shall such waiver constitute
a continuing waiver.
-8-
<PAGE>
14. SUCCESSORS AND ASSIGNS
The terms of this Agreement shall bind, and shall inure to the benefit of,
the successors and assigns of the parties hereto.
15. NOTICES
All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given: (i) if delivered
by hand and receipted for by the party addressee; or (ii) if mailed by certified
or registered mail with postage prepaid, on the third business day after the
mailing date. Address for notice to either party is as shown on the signature
pages of this Agreement, or as subsequently modified by written notice.
16. GOVERNING LAW
This Agreement shall be governed exclusively by and construed according to
the laws of the State of Washington, as applied to contracts between Washington
residents entered into and to be performed entirely within Washington.
17. CONSENT TO JURISDICTION
The Company and the Indemnitee each hereby irrevocably consent to the
jurisdiction of the state and federal courts in the State of Washington for all
purposes in connection with any action or proceeding which arises out of or
relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state or federal courts in the State of
Washington.
The parties hereto have entered into this Agreement effective as of the
date first above written.
<TABLE>
<S> <C>
PROCYTE CORPORATION INDEMNITEE
Address: 8511 154th Avenue, N.E., Bldg. A Address
Redmond, WA 98052-3557 City, State, Zip
By: By:
---------------------------------- -------------------------------
John F. Clifford Type in Executive Name
President and Chief Executive Officer
</TABLE>
[Signed by Ms. Robin Carmichael, Ms. Susan Browner, Mr. Ken Tapman and such
other officer and directors as may be elected subsequent to the filing of this
agreement.]
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,430,753
<SECURITIES> 5,493,963
<RECEIVABLES> 430,574
<ALLOWANCES> (30,000)
<INVENTORY> 2,208,970
<CURRENT-ASSETS> 11,720,162
<PP&E> 8,067,632
<DEPRECIATION> (2,732,007)
<TOTAL-ASSETS> 72,712,292
<CURRENT-LIABILITIES> 573,057
<BONDS> 0
0
0
<COMMON> 84,435,480
<OTHER-SE> (64,408,442)
<TOTAL-LIABILITY-AND-EQUITY> 20,712,292
<SALES> 845,586
<TOTAL-REVENUES> 1,308,606
<CGS> 343,789
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,054,276
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,089,459)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,089,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,089,459)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
