SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
PROCYTE CORPORATION
-------------------
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than Registrant
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange
act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
ProCyte Corporation
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, JUNE 10, 1998
TO THE SHAREHOLDERS OF PROCYTE CORPORATION:
You are cordially invited to attend the Annual Meeting of the
Shareholders (the "Annual Meeting") of ProCyte Corporation, a Washington
corporation (the "Company"), to be held on Wednesday, June 10, 1998 at 10:00
a.m., Pacific Daylight Time, at the Hyatt Regency Bellevue, 900 Bellevue Way
Northeast, Bellevue, Washington, for the following purposes:
1. To elect seven directors of the Company, all of whom shall
serve until the 1999 Annual Meeting of the Shareholders (and
until the election and qualification of their successors);
2. To approve the 1998 Nonemployee Director Stock Plan providing
for issuances of Company common stock in lieu of the current
quarterly cash retainers paid to nonemployee directors;
3. To transact such other business as may properly come before
the meeting and all adjournments and postponements thereof.
Holders of the common stock of the Company at the close of business on April 2,
1998 are entitled to notice of and to vote upon all matters at the Annual
Meeting.
You are invited to attend the Annual Meeting so that we may have the opportunity
to meet with you and discuss the affairs of the Company. WHETHER YOU PLAN TO
ATTEND THE MEETING OR NOT, PLEASE SIGN AND RETURN THE ENCLOSED PROXY SO THAT THE
COMPANY MAY BE ASSURED OF THE PRESENCE OF A QUORUM AT THE ANNUAL MEETING. A
stamped, addressed envelope is enclosed for your convenience in returning your
proxy.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jack Clifford
- -----------------
John F. Clifford
President and Chief Executive Officer
Redmond, Washington
April 30, 1998
<PAGE>
PROCYTE CORPORATION
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 10, 1998
This Proxy Statement is furnished by and the accompanying proxy is
solicited on behalf of the Board of Directors of ProCyte Corporation, a
Washington corporation (the "Company" or "ProCyte"), for use at its Annual
Meeting of Shareholders to be held at the Hyatt Regency Bellevue, 900 Bellevue
Way Northeast, Bellevue, Washington on Wednesday, June 10, 1998 at 10:00 a.m.,
Pacific Daylight Time, and at any adjournment thereof (the "Annual Meeting").
The Company's Annual Report for the year ended December 31, 1997, Notice of
Annual Meeting, and a proxy accompany this Proxy Statement. The approximate date
of the mailing of this Proxy Statement and form of proxy is April 30, 1998.
Record Date and Voting Securities
Shareholders of record at the close of business on April 2, 1998 (the
"Record Date") will be entitled to vote at the Annual Meeting. The only voting
securities of the Company are shares of common stock, $.01 par value per share
(the "Common Stock"). Each share of Common Stock outstanding is entitled to one
vote per share on any matter brought before the meeting. On April 2, 1998, the
Company had outstanding 13,364,958 shares of Common Stock. Under Washington law
and the Company's Articles of Incorporation and Bylaws, if a quorum is present
at the meeting: (i) the seven nominees for election as directors who receive the
greatest number of votes cast for the election of directors at the meeting will
be elected directors; and (ii) the proposal to approve the 1998 Nonemployee
Director Stock Plan providing for issuances of Company Common Stock in lieu of
the current quarterly cash retainers paid to nonemployee directors will be
approved if the number of votes cast for such proposal exceeds the number of
votes cast against such proposal.
The presence in person or by proxy of holders of record of a majority
of the outstanding shares of Common Stock is required to constitute a quorum for
the transaction of business at the meeting. In an uncontested election of
directors, any action other than a vote for a nominee will have no effect,
assuming the presence of a quorum. Abstentions and broker nonvotes will have no
effect on the proposal to approve the 1998 Nonemployee Director Stock Plan as
they will not represent votes cast for the purposes of voting on this proposal.
Revocation of Proxies
Any proxy given pursuant to this solicitation may be revoked by the
person giving it any time before it is voted. Proxies may be revoked by (i)
filing with the President of the Company at the time or before the vote is taken
at the Annual Meeting a written notice of revocation bearing a date later than
the proxy; (ii) duly executing a later-dated proxy relating to the same shares
and delivering it to the President of the Company before the vote is taken at
the Annual Meeting; or (iii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice or subsequent proxy should be sent
so as to be delivered to ProCyte Corporation, 8511 154th Ave NE, Redmond, WA
98052, Attention: President, or should be hand delivered to the President of the
Company at or before the time the vote is taken at the Annual Meeting.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding ownership of the
Company's Common Stock on April 2, 1998 by (i) each director, (ii) the executive
officers named in the Summary Compensation Table below, (iii) all directors and
executive officers of the Company as a group; and (iv) each person known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock. The number of shares beneficially owned by each director or executive
officer is determined under the rules of the Securities and Exchange Commission
("SEC"), and the information is not necessarily indicative of beneficial
ownership for any other purpose.
-1-
<PAGE>
<TABLE>
<CAPTION>
Name of Beneficial Owner Shares Beneficially Owned (1) % of Shares Outstanding
- ---------------------------------------- -------------------------------- -----------------------------
<S> <C> <C>
Jules Blake (2) 49,000 *
John F. Clifford(3) 137,334 1.0%
Kenneth S. Green(4) 35,334 *
Karen Hedine(5) 203,480 1.5%
Robert E. Patterson (6) 25,000 *
William M. Sullivan (7) 49,000 *
Thomas E. Tierney (8) 25,000 *
All Directors and executive officers 524,148 3.9%
as a group (7 persons) (9)
Brinson Partners, Inc. 1,277,388(10) 9.6%
- ------------------------------------------------------------------------------------------------------
* Less than 1%
<FN>
(1) Unless otherwise indicated, each person named in the table exercises sole
voting and investment power with respect to all shares beneficially owned.
(2) Represents 49,000 shares subject to options exercisable within 60 days of April 2, 1998.
(3) Includes 83,334 shares subject to options exercisable within 60 days of April 2, 1998.
(4) Includes 33,334 shares subject to options exercisable within 60 days of April 2, 1998.
(5) Represents 203,480 shares subject to options exercisable within 60 days of April 2, 1998.
(6) Represents 25,000 shares subject to options exercisable within 60 days of April 2, 1998.
(7) Represents 49,000 shares subject to options exercisable within 60 days of April 2, 1998.
(8) Represents 25,000 shares subject to options exercisable within 60 days of April 2, 1998.
(9) Includes 468,148 shares subject to options exercisable within 60 days of April 2, 1998.
(10) Brinson Partners, Inc. ("BPI") has shared voting and dispositive power with respect to these shares with its
affiliates: Brinson Holdings, Inc.; SBC Holding (USA), Inc. ; and Swiss Bank Corporation. BPI is a registered
Investment Advisor, and accounts managed on a discretionary basis by BPI have the right to receive or the
power to direct the receipt of dividends from, or the proceeds from the sale of, the Common Stock. No account
holds more than 5% of the outstanding Common Stock.
</FN>
</TABLE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who beneficially own
more than 10% of the Common Stock, to file reports of ownership and changes in
ownership with the SEC. Officers, directors and greater than 10% shareholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on its review of the copies of such
forms received by it, or written representations from certain reporting persons
that no such forms were required for those persons, the Company believes that
during the 1997 fiscal year all filing requirements applicable to its officers,
directors and greater than 10% shareholders were complied with.
ELECTION OF DIRECTORS
(Item 1 on the Proxy Card)
The seven nominees for election as directors are Jules Blake, Susan Browner,
John F. Clifford, Dr. Matt L. Leavitt, Robert E. Patterson, William M. Sullivan,
and Thomas E. Tierney. All of the nominees except Susan Browner and Dr. Matt L.
Leavitt are members of the present board. Their terms will continue until the
1999 Annual Meeting of the Shareholders, and until the election and
qualification of their respective successors. Certain information concerning the
nominees is set forth below. The Company does not know of any circumstances
which would render any nominee named herein unavailable to serve as a director.
However, if any nominee becomes unable or unwilling to serve as a director, it
is intended that votes will be cast pursuant to the enclosed proxy for such
substitute nominee as may be nominated by the existing directors.
The Board recommends that you vote FOR the election of the nominees as
directors, as set forth in Item 1 on the Proxy Card.
------------
-2-
<PAGE>
Dr. Jules Blake, Ph.D., age 73, was initially elected a Director of the
Company in 1991. He served as vice president of corporate scientific affairs
(1987 to 1989) and as vice president of research and development (1973 to 1987)
for Colgate-Palmolive, a consumer products company. Dr. Blake retired from
Colgate-Palmolive in 1989. He has been a director of Martek Biosciences
Corporation, a biotechnology company, since 1990; a director of GeneLogic, a
biotechnology company, since 1996; and a trustee of the Allegheny University of
the Health Sciences since 1997. He is a member of the Audit, Compensation, and
Nominating Committees. Dr. Blake received his Ph.D. in Organic Chemistry and his
M.S. and B.S. in Chemistry from the University of Pennsylvania.
John F. Clifford, age 55, joined the Company in August 1996 as a Director
and as President, Chief Executive Officer, and Treasurer. Before joining
ProCyte, Mr. Clifford was the president of Orthofix, Inc. (1995 to 1996), a
Dallas-area healthcare company in the orthopedic market. Orthofix acquired
American Medical Electronics, a medical device company, of which Mr. Clifford
was president and chief executive officer from 1994 to 1995. From 1989 to 1994,
Mr. Clifford served as division vice president and prior to that as vice
president of sales and marketing for American Cyanamid's Davis and Geck
Division, in the surgical sutures market. Mr. Clifford holds a B.S. in economics
from Villanova University and an MBA in finance from Drexel University
Dr. Matt L. Leavitt, age 38, was initially elected a Director of the
Company in April 1998. Since 1990 he has served as the Chairman and Medical
Director of Leavitt Medical Group, a group of nationwide clinics providing hair
restoration and other cosmetic surgery procedures. Dr. Leavitt has served as
Vice President of the American Board of Hair Restoration since 1997. He also
serves as Chairman of the World Association of Hair Restoration Surgeons and as
an advisor and trustee for the American Academy of Aesthetic & Restorative
Surgery. Dr. Leavitt was appointed to the Audit Committee in April 1998. Dr.
Leavitt is a graduate of the University of Michigan and Michigan State
University College of Osteopathic Medicine and is Board-Certified in
Dermatology.
Robert E. Patterson, J.D., age 55, was initially elected a Director of
the Company in 1994 and was appointed as Secretary in November 1997. Since 1983
he has served as a managing director of Thompson Clive, Inc., a U.K.-based
venture capital firm, and he has been a partner in the legal services firm of
Graham & James since 1972. He is a member of the Audit, Compensation and
Nominating Committees, serving as chairman of the Audit Committee of the Board
since 1995. Mr. Patterson completed the Executive Program at the Stanford
Graduate School of Business in 1986; he obtained his law degree from Stanford
Law School and holds a B.A. in Physics from the University of California at Los
Angeles.
William M. Sullivan, J.D., age 63, was initially elected a Director of the
Company in 1991. He served as chairman, president and chief executive officer of
Burroughs Wellcome Co., a pharmaceutical and consumer products company from 1981
to 1986 and in various other management and corporate legal positions from 1974
to 1980. He served as president and chief executive officer of Sparta
Pharmaceuticals, Inc., a publicly-traded development stage pharmaceutical
company ("Sparta"), from 1991 to March 1996, and served as Sparta's chairman of
the board from 1991 to March 1998; since then Mr. Sullivan has remained on
Sparta's board as a director. He served as chairman of the board of The Immune
Response Corporation, a biotechnology company, from 1987 to 1994 and has served
as a director of that company since 1994; he has also served as a director of
BioVentures, Inc., a diagnostic company, since 1989, and as a director of
Research Corporation Technologies, a technology transfer company, since 1995.
Mr. Sullivan is chairman of the Company's Compensation Committee and is a member
of the Nominating Committee. He holds a J.D. from Harvard Law School and an A.B.
from the University of Notre Dame.
Thomas E. Tierney, age 70, was initially elected a Director of the Company
in 1996 and was elected Chairman of the Board in 1998. From 1951 to 1988, when
he retired, he served in various sales, marketing and general management
positions for the Kendall Company, including vice president and general manager,
Hospital Products Business; group vice president, Healthcare Business; executive
vice president of Kendall Company and Group Executive, Worldwide Healthcare. He
has been a director of Uromed, a development-stage healthcare company, since
1992. Mr. Tierney is chairman of the Nominating Committee of ProCyte's Board of
Directors. Mr. Tierney received a B.A. in General Sciences from Colgate
University in 1951.
On April 27, 1998, ProCyte acquired all of the assets of HumaTech
Corp., a Florida corporation ("HumaTech"), in consideration of $1,500,000 in
cash and shares of ProCyte's Common Stock valued at $1,500,000 (the "Purchase").
As part of the Purchase, ProCyte has agreed to cause Ms. Browner to be elected
-3-
<PAGE>
to ProCyte's Board of Directors no later than the first Board meeting following
the next annual meeting of shareholders of ProCyte held following April 27,
1998, the closing date of the Purchase. For a biographical summary of Ms.
Browner, see "Executive Officers."
Compensation of Directors
In 1997, Directors who were not otherwise employed by the Company were
paid an annual retainer fee, payable on a quarterly basis, of $12,000, plus
$1,500 for each meeting attended in person through December 1997. Each
nonemployee director also received $500 for each telephonic meeting of the Board
of Directors held through December 1997. Subject to shareholder approval, the
Board of Directors has adopted the 1998 Nonemployee Director Stock Plan,
pursuant to which the $12,000 annual retainer fee for nonemployee directors will
be paid in stock rather than cash. See "Proposal to Approve the 1998 Nonemployee
Director Stock Plan." Directors who are employed by the Company are not
otherwise compensated for attendance at meetings of the Board or its committees.
Directors are reimbursed for any expenses attendant to Board membership. Under
the 1991 Stock Option Plan for Nonemployee Directors, nonemployee directors
receive stock option grants to purchase 12,000 shares of Common Stock upon their
initial appointment or election as a director and option grants to purchase
6,000 shares of Common Stock annually thereafter.
Committees and Meetings of the Board
Board of Directors Meetings. During 1997, there were six meetings of the
Board of Directors. Each director attended at least 75% of the aggregate number
of meetings of the full Board and each committee on which such Board member
served.
Compensation Committee. The Company has a Compensation Committee, which has
the responsibility for recommending compensation of corporate officers;
reviewing annually the operation of all compensation, employment and benefit
practices and salary administration procedures; acting as Plan Administrator for
all of the Company's employee stock plans; and recommending directors' fees.
During 1997, the Compensation Committee consisted of three nonemployee
directors: Mr. Thomas Tierney (chairman), Mr. Robert E. Patterson, and Mr.
William Sullivan. During 1997, there were six meetings of the Compensation
Committee. In March 1998, the Board appointed the following nonemployee
directors to the Compensation Committee: Mr. William Sullivan (chairman), Dr.
Jules Blake, and Mr. Robert Patterson.
Audit Committee. The Audit Committee of the Board of Directors has and may
exercise the following powers: to make recommendations to the Board of Directors
regarding the selection of the Company's independent auditors; to review the
scope, direction, timetable and schedule of audits conducted by the Company's
independent auditors; to review the results of such audits; to review the
Company's system of internal financial controls; and such additional powers as
may be conferred upon the Audit Committee from time to time by the Board of
Directors. During 1997, the committee consisted of three nonemployee directors:
Mr. Robert E. Patterson (chairman), Dr. Jules Blake, and Mr. William Sullivan.
The committee held four meetings during fiscal year 1997. In March 1998, the
Board appointed the following nonemployee directors to the Audit Committee: Mr.
Robert Patterson (chairman) and Dr. Jules Blake. In April 1998, the Board
appointed Dr. Matt Leavitt to the Audit Committee.
Nominating Committee. The Nominating Committee of the Board of Directors is
responsible for identifying, qualifying and nominating members of the Company's
Board of Directors. The Nominating Committee is chaired by Mr. Thomas Tierney,
with members Dr. Jules Blake, Mr. Robert Patterson, and Mr. William Sullivan,
all of whom were members of the committee in 1997 as well. The committee held
one meeting in 1997. The Nominating Committee will consider shareholders'
recommendations for director nominees which are submitted in accordance with the
procedures described in the Company's Bylaws.
-4-
<PAGE>
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of December
31, 1997, are as follows:
<TABLE>
<CAPTION>
Name Age Position Officer Since
- ---- --- -------- -------------
<S> <C> <C> <C>
John F. Clifford 55 President and Chief Executive Officer 1996
Kenneth S. Green 55 Vice President of Sales 1997
Robin L. Carmichael 41 Vice President of Marketing 1998
Susan Browner 45 President - HumaTech Division of ProCyte 1998
Kenneth Tapman 54 Vice President of Operations 1998
</TABLE>
For a biographical summary of Mr. Clifford, see "Election of Directors --
Nominees."
Kenneth S. Green joined ProCyte as Vice President of Sales in January 1997.
Prior to joining the Company, Mr. Green was the vice president of marketing and
sales for Glenwood Inc., a wound care products company, from August to December
1996. From 1984 to 1996 he served as vice president of sales for Acme United
Corporation, a wound care products company. Mr. Green holds a BA in liberal arts
from California State University at Los Angeles.
Robin L. Carmichael was appointed Vice President of Marketing in February
1998. Ms. Carmichael joined the Company in its clinical affairs department in
1993 and later moved into its marketing department as a Product Manager before
becoming Director of Marketing in 1997. Between 1991 and 1993, Ms. Carmichael
held a sales and marketing position with the Ohmeda division of BOC Healthcare.
Ms. Carmichael's career also includes sales management and marketing experience
at Baxter Healthcare from 1982 to 1988, and at MediSense, a medical biosensor
technology company from 1989 to 1991. Ms. Carmichael holds a BS in nursing from
Seattle University and attended the UCLA Anderson Graduate School of Executive
Management.
Upon consummation of the Purchase, the following two individuals became
executive officers of ProCyte. See "Employment Agreements, Termination of
Employment and Change of Control Arrangements."
Susan Browner was co-founder and President of HumaTech Corp. since its
inception in 1992 and became President of ProCyte's HumaTech Division as of
April 27, 1998, pursuant to the terms of a two-year employment and
noncompetition agreement with ProCyte. Immediately before founding HumaTech in
1992, she spent five years managing a computer imaging and archeological
research facility for Gulf Oil. Ms. Browner received her B.S. in elementary
education from Oglethorpe University. She attended the State University of New
York to study Education in their graduate program and later received her
certification in Computer Sciences from Montgomery College in Maryland. Ms.
Browner is married to Mr. Tapman.
Kenneth Tapman was co-founder and Executive Vice President of HumaTech
Corp. since its inception in 1992 and was appointed as Vice President of
Operations for ProCyte as of April 27, 1998, pursuant to the terms of a two-year
employment and noncompetition agreement with ProCyte. Mr. Tapman holds a B.A.
from New York University and a J.D. from Catholic University Law School. From
1980 to 1992 he was in private law practice, specializing in the field of
environmental law. Mr. Tapman is married to Ms. Browner.
-5-
<PAGE>
EXECUTIVE COMPENSATION
The table set forth below provides, with respect to the Company's
current chief executive officer and the other executive officers in office on
December 31, 1997 (the "named executive officers"), information regarding
compensation for each of the last three years ended December 31, 1997, 1996 and
1995.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards
------------------------------------------------------------
Other Annual Shares Underlying
Name and Principal Position Year Salary ($) Bonus($) Compensation ($) (4) Options(#)
- --------------------------- ---- ---------- -------- -------------------- ----------
<S> <C> <C> <C> <C> <C>
John F. Clifford (1) 1997 236,250 65,000 55,530
President and Chief Executive 1996 102,151 50,000 250,000
Officer
Kenneth S. Green (2) 1997 118,125 7,500 100,000
Vice President - Sales
Karen L. Hedine (3) 1997 140,700
Vice President, Business 1996 127,622
Development and 1995 121,622 100,000
Administration
<FN>
(1) Mr. Clifford joined the Company as president and chief executive officer in
August 1996
(2) Mr. Green joined the Company as vice president of sales in January 1997
(3) Ms. Hedine's employment terminated on January 31, 1998
(4) Mr.Clifford received a gross payment in 1997 of $55,530, including the
payment of taxes, for reimbursement by the Company of taxable relocation
expenses incurred in connection with his relocation in 1996 from Texas to
Washington. The net relocation expenses paid to Mr. Clifford were $36,400.
</FN>
</TABLE>
-6-
<PAGE>
The following table sets forth certain information with respect to
individual grants of stock options made during the fiscal year ended December
31, 1997, to each of the named executive officers.
<TABLE>
<CAPTION>
Option Grants in Fiscal 1997
Individual Grants
---------------------------------------------------------------
Number of Potential Realizable Value at
Shares Percent of Total Assumed Annual Rates of Stock
Underlying Options Granted Price Appreciation for
Name Options to Employees Exercise Expiration Option Term (2)
Granted(#)(1) in 1997 Price ($) Date 5% 10%
----------- ------- --------- ---- --- ---
<S> <C> <C> <C> <C> <C> <C>
John F. Clifford 0 0
Kenneth Green 100,000 24% 2.31 1/23/2007 $145,275 $368,155
Karen Hedine 0 0
<FN>
(1) The options granted in 1997 were incentive stock options, have exercise prices equal to the fair market
value on the date of grant, vest over a period of three years and have a
term of ten years. Upon certain corporate events, as described in the
Company's 1989 Restated Stock Option Plan and the Company's 1996 Stock
Option Plan, that result in a change of control, the exercise date of all
outstanding options for all employees, including executive officers, may be
accelerated.
(2) Potential realizable value is based on an assumption that the stock price
of the Common Stock appreciates at the annual rate shown (compounded
annually) from the date of grant until the end of the ten year option.
These numbers are calculated based on the requirements promulgated by the
SEC and do not reflect the Company's estimate of any future stock price
growth. Any such growth would benefit all shareholders.
</FN>
</TABLE>
The following table sets forth certain information with respect to the
number and value of unexercised options held by each of the named executive
officers as of December 31, 1997. No options were exercised in 1997.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1997 and Year-End Option Values
Number of Unexercised Value of Unexercised In-the-money
Options at Year-end (#) Options at Year-end ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
<S> <C> <C>
John F. Clifford 83,334/166,666 0/0
Kenneth Green 0/100,000 0/0
Karen Hedine 203,480/0 0/0
<FN>
(1) Value is based upon $0.938, the market price of the underlying Common Stock
on December 31, 1997, minus the exercise price. At year-end, none of the
options were exercisable at a price below the market price of the underlying
Common Stock.
</FN>
</TABLE>
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<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
During 1997, the Compensation Committee (the "Committee") was comprised of
three nonemployee directors. The Committee considers and makes recommendations
to the Board of Directors concerning general compensation policies and employee
benefit plans, and specifically recommends salary levels and bonus or stock
option awards for executive officers of the Company, including the chief
executive officer. The Committee, as Plan Administrator of the Company's
employee stock option plans, has sole authority to grant options to executive
officers. The Committee's executive salary and bonus recommendations are
reviewed by the Board.
The Company applies a consistent philosophy in its compensation practices
for all employees, including executive management. This philosophy is based on
the premise that the achievements of the Company result from the combined
efforts of all individuals working toward common objectives. The Company strives
to achieve its objectives through teamwork that is focused on meeting the
expectations of its shareholders. In 1997, the Company's executive officers,
including the chief executive officer, received compensation based on the
following objectives and policies the Committee recommended on executive
compensation.
Objectives and Policy
The objectives of the Company's executive compensation policy are to:
* Provide compensation that will attract, retain and motivate
experienced executive personnel;
* Align the interests of management and shareholders by making a
substantial portion of executive compensation dependent on the
success of the Company, as measured by long-term appreciation in
the market price of the common stock;
* Balance considerations of individual achievements each year with
the Company's overall performance, both financially and
otherwise.
To further the Company's executive compensation objectives, the policy
provides for a combination of base salary, cash incentive bonus awards and
long-term stock options.
Base Salary
In order to determine its recommendations to the Board of Directors
concerning the salary level for executive officers, the Committee will, as
appropriate, consider published data from annual surveys of executive
compensation at comparable healthcare and pharmaceutical companies. These
comparable healthcare and pharmaceutical companies include some but not all of
the companies included in the Nasdaq Pharmaceutical Index.
Using any available survey data, the Committee makes recommendations on
salary level changes based on its subjective evaluation of the Company
executives' individual level of experience, responsibility and performance. The
Committee also takes into consideration each executive's comparability with
other Company executives. The Committee gives weight to the views of the chief
executive officer with respect to executive salaries other than his own. Base
salaries for certain executives are based on employment agreements with those
executives. See "Employment Agreements, Termination of Employment and Change of
Control Arrangements." The Committee does not target executive officer salary
levels at any specified percentile of corresponding positions at comparable
companies.
During 1997 two officers resigned from the Company from the positions of
Vice President of Administration and Vice President of Manufacturing. Ms.
Hedine, one of those officers, former Vice President of Administration, had a
merit salary increase of 10% in 1997 based upon her performance in 1996. Mr.
Clifford received a salary increase of 5% in 1997. See "Chief Executive Officer
Compensation."
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<PAGE>
Bonus Payments
The Committee may occasionally recommend that the Board of Directors
approve a one-time cash bonus to named executive officers in recognition of a
specific accomplishment. As part of his accomplishment of certain specific
objectives, the Committee approved a $65,000 bonus for Mr. Clifford's
performance in 1997. Such objectives included: product launch of ten new wound
care products; signing and implementing the Company's distribution agreement
with Bard Medical; identifying a new product opportunity for the Company's
copper peptide technology for hair restoration and cosmetic surgery procedures;
realizing important cost savings and expense reductions; and completing facility
consolidation on time and under budget. In addition, the Committee approved a
$7,500 bonus for Mr. Green in recognition of certain accomplishments, including
the reorganization of the Company's sales efforts and the signing of several
distributors for the Company's products.
The Committee approved a recommendation by management to adopt a cash
bonus plan for key employees and executives to provide incentives for meeting
specific Company objectives. The cash bonus plan, which will be implemented in
1998, will be based on the accomplishment of certain objectives set by the
Committee linked to sales, profits, product launches, cost reductions, and
acquisitions of products or companies. Cash bonuses will be awarded as a
percentage of base salary for each key employee and executive. An objective must
be entirely met in order to contribute to the bonus percentage.
Stock Options
The stock option program is currently the Company's long-term incentive
plan for executive officers, managers and all employees. The granting of stock
options is the principal means available to the Committee to align executive and
shareholder long-term interests. A stock option will reward an executive only if
the market price of the Common Stock appreciates over the vesting period.
Options granted to executive officers generally have a ten-year term, vest over
a period of three to five years, and have an exercise price per share equal to
the fair market value on the date of grant. There presently are no fixed
guidelines for annual grant of stock options to executive officers. Stock
options are granted by the Committee to newly hired executives and periodically
thereafter based on each executive's position in the Company, previous stock
option grants and potential contribution to the long-term success of the
Company.
Chief Executive Officer Compensation
The Board of Directors approved a 5% increase in the 1997 base pay for
Mr. Clifford to $236,250, based on the Committee's review and recommendation.
This was consistent with the average salary increase percentage for the Company
as a whole. The Committee also agreed to pay temporary living expenses
associated with Mr.
Clifford's 1996 relocation from Texas to Washington.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation over $1 million paid to the Company's chief executive officer and
four other most highly compensated executive officers, unless that compensation
is considered performance based. The compensation disclosed in this Proxy
Statement does not exceed the $1 million limit, and executive compensation for
1998 is also expected to qualify for deductibility. The Company currently
intends to structure the performance-based portion of its executive officers'
compensation to achieve maximum deductibility under Section 162(m) with minimal
sacrifices in flexibility and corporate objectives.
This report is submitted by the following nonemployee directors, who
constituted the members of the Compensation Committee for fiscal year 1997:
Thomas E. Tierney (Chairman)
Robert E. Patterson
William M. Sullivan
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<PAGE>
COMPARATIVE STOCK PERFORMANCE CHART
The following graph represents the net percentage cumulative total
shareholder return on the Common Stock, compared to the cumulative total return
of the NASDAQ Stock Market Index (U.S.) and the NASDAQ Pharmaceutical Stocks
Index (in which the Company's stock is included) for the period of five fiscal
years commencing December 31, 1992 and ending December 31, 1997.
COMPARISON OF THE CUMULATIVE TOTAL RETURN SINCE 1992 AMONG PROCYTE CORPORATION,
THE NASDAQ STOCK MARKET INDEX (U.S.) AND THE NASDAQ PHARMACEUTICAL STOCKS INDEX
(FISCAL YEAR ENDING DECEMBER 31)
- --------------------------------------------------------------------------------
CHART REFLECTING THE FINANCIAL DATA SHOWN BELOW APPEARS HERE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year 1992 1993 1994 1995 1996 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nasdaq Stock Market Index (U.S.) 100 114.793 112.209 158.684 195.194 239.632
Nasdaq Pharmaceutical Stocks Index 100 89.132 67.084 122.722 123.079 127.082
ProCyte Corporation 100 145.455 29.870 29.221 23.377 9.740
</TABLE>
Note: Stock price performance shown above for ProCyte Corporation is historical
and not necessarily indicative of future price performance.
-10-
<PAGE>
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
Change of Control
In August 1996, the Company entered into a Change of Control Agreement
with Mr. Clifford to provide for the payment of base salary and associated
benefits for two years in the event that a change of control (as defined
therein) of the Company results in his loss of employment. The term of such
agreement is two years from the date of the agreement, or, if a change of
control occurs during such two year period, the term is automatically extended
for two years after such change of control. In 1997 the Company entered into a
similar Change of Control Agreement with Ms. Hedine providing for the payment of
one year of base salary and associated benefits. In April 1998 the Company
entered into similar change of control agreements with Robin Carmichael, Kenneth
Green, Susan Browner and Kenneth Tapman providing for the payment of one year of
base salary and associated benefits.
Under the Company's 1989 Restated Stock Option Plan and 1996 Stock
Option Plan, the vesting of outstanding options is accelerated upon the
occurrence of certain events, including certain mergers and business
combinations and other changes in control of the Company (as such terms are
described in each of the plans).
Severance
In February 1997 the Company entered into severance agreements with Mr.
Clifford, Mr. Green and Ms. Hedine which provide that if the employment of any
such officer is terminated other than for cause (as defined therein) or as a
result of voluntary resignation for good reason (as defined therein) within two
years of the date of the agreement, the officer will be eligible to receive his
or her accrued salary and benefits along with salary continuation and group
insurance benefits for a period of six months in the case of Mr. Green and Ms.
Hedine and twelve months in the case of Mr. Clifford at the officer's then
current annual base salary for the fiscal year in which the termination occurs,
subject to reduction of the salary continuation by the amount of any other
earnings from other employment or personal services. Ms. Hedine's Severance
Agreement was superseded by her Part-time Employment and Separation Agreement
with the Company in October 1997. Under the terms of this agreement, Ms. Hedine
received her full salary and benefits during the period of the agreement
(October 17, 1997 to January 31, 1998) while continuing to work for the Company
on a part-time basis. This agreement also extended to September 16, 1998 the
exercise period for certain stock options previously granted to Ms. Hedine.
Employment and Noncompetition Agreements
Each of Susan Browner and Kenneth Tapman have entered into two year
employment and noncompetition agreements with ProCyte. Pursuant to such
agreements, Ms. Browner will serve in the capacity of President of ProCyte,
HumaTech Division, and Mr. Tapman will serve in the capacity of Vice President
of Operations of ProCyte Corporation. Ms. Browner will receive a base salary of
$100,000, and Mr. Tapman will receive a base salary of $75,000. Each will
receive an annual bonus of $25,000, as well as additional consideration in cash
and ProCyte Common Stock in the form of an earn-out if certain product sales
milestones are met.
If either of Ms. Browner or Mr. Tapman are terminated by ProCyte
without cause (as defined therein) prior to the end of the two-year terms of
their respective employment agreements, ProCyte will pay to Ms. Browner or Mr.
Tapman, as the case may be, her or his annual salary that she or he would have
received if her or his employment had continued until the end of the term of the
agreement.
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<PAGE>
PROPOSAL TO APPROVE THE 1998 NONEMPLOYEE DIRECTOR STOCK PLAN
(Item 2 on the Proxy Card)
Introduction
In April 1998, the Board of Directors of the Company unanimously adopted,
subject to shareholder approval, the 1998 Nonemployee Director Stock Plan (the
"Director Plan"). Under the Director Plan, nonemployee directors will no longer
be paid entirely in cash for services as a director but will receive all or a
portion of their quarterly retainer fees in shares of Common Stock of the
Company.
The purposes of the Director Plan are to align the interests of such
directors with those of the Company's shareholders and reduce the Company's cash
flow obligations. A copy of the Director Plan as proposed is attached to this
Proxy Statement as Appendix A and is incorporated herein by reference. The
following description of the Director Plan is a summary and does not purport to
be fully descriptive. Please see Appendix A for more detailed information.
Description of the Director Plan
Shares Subject to the Plan. An aggregate of up to 200,000 shares of Common
Stock is authorized for issuance under the Director Plan, subject to adjustment
from time to time for changes in capitalization as provided in the Director
Plan. The Common Stock issuable under the Director Plan may be either authorized
but unissued shares or shares subsequently acquired by the Company.
Eligibility. Only members of the Board of Directors who are not employees
of the Company or any subsidiary of the Company (each, an "Eligible Director")
will be eligible to participate in the Director Plan.
Administration. The administrator of the Director Plan is the Board of
Directors or a committee appointed by the Board and consisting of one or more
persons who are not eligible to participate in the Plan (the "Plan
Administrator"). Committee members need not be members of the Board.
Terms and Conditions of Stock Grants. The Director Plan amends the type of
compensation each Eligible Director will receive for services as a director of
the Company. Beginning on or after July 1, 1998, each Eligible Director will no
longer receive the annual retainer fee of $12,000, payable in cash on a
quarterly basis (the "Quarterly Retainers"), but will instead receive automatic
grants of Common Stock. The number of shares of Common Stock each Eligible
Director will receive will be equal to the first $3,000 of any Quarterly
Retainer payable to the director divided by the average fair market value of the
Common Stock for the last 20 business days of a fiscal quarter. If a fractional
number results, the number of shares will be rounded to the nearest whole
number. For purposes of the Director Plan, fair market value means the closing
sales price on the National Association of Securities Dealers Automated
Quotation System or the closing price on the principal exchange on which the
Common Stock is then traded for a specified day. As of April 2, 1998, the fair
market value of the Company's Common Stock was $1.44. For future fiscal
quarters, the Plan Administrator may increase or decrease the amount of the
Quarterly Retainer that an Eligible Director must receive in shares of Common
Stock.
Under the Director Plan, if Quarterly Retainers exceed $3,000, directors
may elect to reduce all or a portion of this excess amount by a specified
percentage or dollar amount and receive shares of Common Stock instead. Eligible
Directors must make this election no later than the first day of a calendar
year, within 60 days of first becoming an Eligible Director or within 60 days of
the effective date of the Director Plan. If an Eligible Director does not make
this election, he or she will continue to receive in cash any director
compensation exceeding the $3,000 Quarterly Retainer.
Amendment and Termination. The Board of Directors may amend, terminate or
suspend the Director Plan at any time.
The Board recommends that you vote FOR the approval of the 1998 Nonemployee
Director Stock Plan.
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<PAGE>
INDEPENDENT AUDITORS
The Board of Directors has selected Deloitte & Touche LLP to serve as
the Company's independent auditors for 1998. Representatives of Deloitte &
Touche LLP are expected to attend the Annual Meeting and will have an
opportunity to make a statement and to respond to appropriate questions from
shareholders.
SUBMISSION OF SHAREHOLDER PROPOSALS
Director nominations, proposals and other business which shareholders
wish to present at the annual meeting in 1999 must be received by the Company no
later than December 30, 1998 for inclusion in the proxy statement for such
meeting. It is recommended that shareholders submitting proposals direct them to
the President of the Company and utilize Certified Mail-Return Receipt
Requested.
SOLICITATION OF PROXIES
The proxy accompanying this Proxy Statement is solicited by the Board
of Directors of the Company. Proxies may be solicited by directors, officers and
regular supervisory and executive employees of the Company, none of whom will
receive any additional compensation for their services. Solicitations of proxies
may be made personally, or by mail, telephone, telegraph, facsimile transmission
or messenger. All of the costs of solicitation of proxies will be paid by the
Company.
OTHER BUSINESS
The Board of Directors has no knowledge of any other business to be
acted upon at the Annual Meeting, nor does the Board intend to bring any other
business before the meeting. However, as to any other business which may
properly come before the Annual Meeting, it is intended that proxies, in the
form enclosed, will be voted in respect thereof, in accordance with the judgment
of the persons voting such proxies.
The Company's Annual Report for fiscal year ended December 31, 1997, as filed
with the SEC, accompanies this Proxy Statement.
-13-
<PAGE>
APPENDIX A
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.
(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.
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<PAGE>
(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 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.
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<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).
Section 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.
Section 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.
Section 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, 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.
Section 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.
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Section 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.
Section 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.
Section 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 direct or indirect purchase, merger, consolidation or otherwise, of
all or substantially all of the business and/or assets of the Corporation.
Section 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.
Section 15. Governing Law
The Plan shall be construed in accordance with, and governed by, the
laws of the state of Washington.
Section 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 subject to
approval by the Corporation's shareholders on June 10, 1998.
