<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ProCyte Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] 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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(4) Date Filed:
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Notes:
<PAGE>
PROCYTE CORPORATION
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, MAY 26, 1999
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, May 26, 1999 at 9:00 a.m., Pacific Daylight
Time, at the Doubletree Hotel, 300 - 112th Avenue SE, Bellevue, Washington, for
the following purposes:
1. To elect six directors of the Company, all of whom shall serve until
the 2000 Annual Meeting of the Shareholders (and until the election
and qualification of their successors);
2. 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 1, 1999 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/ John F. Clifford
John F. Clifford
President and Chief Executive Officer
Redmond, Washington
April 23, 1999
<PAGE>
PROCYTE CORPORATION
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 26, 1999
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 Doubletree Hotel, 300 - 112th Avenue
SE, Bellevue, Washington on Wednesday, May 26, 1999 at 9:00 a.m., Pacific
Daylight Time, and at any adjournment thereof (the "Annual Meeting"). The
Company's Annual Report for the year ended December 31, 1998, Notice of Annual
Meeting, and a proxy accompany this Proxy Statement. The Company's principal
offices are located at 8511 - 154th Avenue NE, Redmond, WA 98052. The
approximate date of the mailing of this Proxy Statement and form of proxy is
April 23, 1998.
Record Date and Voting Securities
Shareholders of record at the close of business on April 1, 1999 (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 1, 1999, the
Company had outstanding 14,547,458 shares of Common Stock. Under Washington law
and the Company's Articles of Incorporation and Bylaws, if a quorum is present
at the meeting the six 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. If any other matters are properly brought before the
Annual Meeting, the enclosed proxy gives discretionary authority to the persons
named therein to vote the shares in their best judgment.
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. Votes cannot be cast for a greater number of
persons than the number of nominees named. An abstention with respect to the
election of directors will not be counted either in favor of or against the
election of the nominees. There can be no broker non-votes in the election of
directors since brokers who hold shares for their clients have discretionary
authority to vote such shares with respect to this matter unless directed
otherwise by their clients.
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.
1
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding ownership of the
Company's Common Stock on April 1, 1999 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.
<TABLE>
<CAPTION>
Name of Beneficial Owner Shares Beneficially Owned/(1)/ % of Shares Outstanding
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
John F. Clifford/(2)/ 507,334 3.49%
Susan Browner/(3)/ 132,970 *
Ken Tapman/(3)/ 132,861 *
Jules Blake/(4)/ 73,813 *
William M. Sullivan/(4)/ 73,813 *
Thomas E. Tierney/(5)/ 54,813 *
Robin L. Carmichael/(6)/ 54,568 *
Robert E. Patterson/(5)/ 49,813 *
Matt L. Leavitt/(7)/ 48,313 *
Jerry P. Scott 14,000 *
All Directors and executive officers as a group
(10 persons)/(8)/ 1,142,298 7.85%
- --------------------------------------------------------------------------------------------------------------------
* Less than 1%
/(1)/ Unless otherwise indicated, each person named in the table exercises sole voting and investment power with respect to all
shares beneficially owned.
/(2)/ Includes 183,334 shares subject to options exercisable within 60 days of April 1, 1999.
/(3)/ Includes 33,333 shares subject to options exercisable within 60 days of April 1, 1999.
/(4)/ Includes 55,000 shares subject to options exercisable within 60 days of April 1, 1999.
/(5)/ Includes 31,000 shares subject to options exercisable within 60 days of April 1, 1999.
/(6)/ Includes 28,668 shares subject to options exercisable within 60 days of April 1, 1999.
/(7)/ Includes 12,000 shares subject to options exercisable within 60 days of April 1, 1999.
/(8)/ Includes 462,668 shares subject to options exercisable within 60 days of April 1, 1999.
</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 1998
fiscal year all filing requirements applicable to its officers, directors and
greater than 10% shareholders were complied with except that certain
transactions were reported on a Form 5 by Ms. Carmichael which should have been
reported earlier on Forms 3 or 4.
2
<PAGE>
ELECTION OF DIRECTORS
The six nominees for election as directors are Dr. Jules Blake, Susan
Browner, John F. Clifford, Dr. Matt L. Leavitt, Glenn A. Oclassen and Robert E.
Patterson. All of the nominees except Mr. Oclassen are members of the present
Board. Their terms will continue until the 2000 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 that 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.
Messrs Sullivan and Tierney, members of the current Board since 1991 and
1996, respectively, have chosen not to stand for reelection. The Company hereby
expresses its gratitude for their service. Upon the election of the six
nominees, the size of the Board will be reduced from seven to six directors thus
eliminating the vacancy.
The Board recommends that you vote FOR the election of the nominees as
directors, as set forth in Item 1 on the Proxy Card.
____________
Dr. Jules Blake, Ph.D., age 74, 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. 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.
Susan Browner, age 46, 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 under a contract with a subsidiary of the Goodyear Tire and
Rubber Co. 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.
John F. Clifford, age 56, 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. From 1964 to 1989 Mr. Clifford held
various sales and marketing positions in Johnson & Johnson companies. Mr.
Clifford holds a B.S. in economics from Villanova University and an MBA in
finance from Drexel University.
Dr. Matt L. Leavitt, age 39, 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.
3
<PAGE>
Glenn A. Oclassen, age 56, is founder and Chairman of the Board of NextDerm
Inc., a new company focused on development and marketing of topical therapeutics
for cosmetic skin defects which ProCyte has agreed to acquire. Mr. Oclassen
founded Oclassen Pharmaceuticals, Inc. in 1985, was President and CEO from 1985
until 1991, and became Chairman of the Board of Directors in January 1991. He
served in this role until the company was acquired by Watson Pharmaceuticals in
February 1997. Mr. Oclassen founded the Neutrogena Dermatologics division of
Neutrogena Corp. in 1977 and served as President until 1982. He was employed by
Allergan Pharmaceuticals from 1971 until 1977. Mr. Oclassen is a Special
Limited Partner in Montreux Equity Partners, a venture capital partnership
investing in healthcare and information services companies. He received a B.S.
in Zoology from San Diego State University. Mr. Oclassen is a member of the
Cutaneous Therapy Society and the North American Clinical Dermatology Society.
Robert E. Patterson, age 56, was initially elected a Director of the
Company in 1994. 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. Mr. Patterson is a director
of MARC Analysis Research Corp. and a director and the secretary of eMEDIATe
Solutions, Inc. 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. During the
Fall of 1998 he served as the Inaugural Fellow of the Tuck Center for Private
Equity at Dartmouth College.
Compensation of Directors
For their services during the first quarter of 1998, Directors who were not
otherwise employed by the Company were paid in cash a pro-rata portion of a
$12,000 annual retainer fee, plus $1,500 for each meeting attended in person.
Each nonemployee director also received $500 for each telephonic meeting of the
Board of Directors in which they participated. Subsequent to the approval of
the 1998 Nonemployee Director Stock Plan at the 1998 annual meeting of the
shareholders, the quarterly installments of the $12,000 annual retainer fee for
nonemployee Directors have been paid in stock rather than cash. Also beginning
with the second quarter of 1998, the Chairman of the Board of Directors has been
paid an additional cash payment of $3,000 per quarter, $1,500 per meeting and
$500 per telephonic meeting for his service as Chairman. 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 expense
attendant to Board membership. Under the 1991 Stock Option Plan for Nonemployee
Directors or under the provisions of a similar formula grant program
administered under the 1996 Stock Option Plan, nonemployee directors receive
stock option grants to purchase 12,000 shares of Common Stock upon their initial
appointment or election as a director and stock option grants to purchase 6,000
shares of Common Stock annually thereafter. These options are awarded as of the
date of the annual meeting and vest as of the date of the following annual
meeting.
Committees and Meetings of the Board
Board of Directors Meetings. During 1998, there were seven 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, except for Mr. Patterson who attended 10 of 14 such meetings.
Compensation Committee. The Compensation Committee of the Board of
Directors 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 1998, the Compensation Committee consisted of three
nonemployee directors: Mr. Sullivan (chairman), Mr. Patterson, and Dr. Blake.
The committee met five times during 1998.
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
4
<PAGE>
additional powers as may be conferred upon the Audit Committee from time to time
by the Board of Directors. During 1998, the Audit Committee consisted of the
following nonemployee directors: Mr. Patterson (chairman) and Drs. Blake and
Leavitt (the latter appointed in April 1998). The committee met once during
1998.
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 considers shareholders'
recommendations for director nominees submitted in accordance with the
procedures described in the Company's Bylaws. In 1998 the Nominating Committee
was chaired by Mr. Tierney, with members Dr. Blake, Mr. Patterson, and Mr.
Sullivan. The committee met once during 1998.
EXECUTIVE OFFICERS
The executive officers of the Company, and their ages as of April 1, 1999,
are as follows:
<TABLE>
<CAPTION>
Name Age Position Officer Since
- ---- --- -------- -------------
<S> <C> <C> <C>
Susan Browner 46 President - HumaTech Division of ProCyte 1998
Robin L. Carmichael 42 Vice President of Marketing 1998
John F. Clifford 56 President and Chief Executive Officer 1996
Jerry P. Scott 44 Vice President and Chief Financial Officer 1998
Ken Tapman 55 Vice President of Strategic Development 1998
</TABLE>
For biographical summaries of Ms. Browner and Mr. Clifford, see "Election of
Directors".
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 B.S. in nursing
from Seattle University and attended the UCLA Anderson Graduate School of
Executive Management.
Jerry P. Scott was appointed Vice President and Chief Financial Officer in
June 1998. He was appointed Secretary of the Company in September 1998. From
1991 through 1997 Mr. Scott was a Vice President and the Chief Financial Officer
of Catapult, Inc. -- an IBM Company. He was employed as a CPA by Price
Waterhouse in New York City and Seattle from 1981 through 1989. Mr. Scott earned
an M.B.A. from Columbia University and a B.A. from Antioch College.
Ken Tapman was co-founder and Executive Vice President of HumaTech Corp.
since its inception in 1992 and was appointed Vice President of Strategic
Development 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 information regarding compensation for
each of the three years ended December 31, 1998, 1997 and 1996 with respect to
the Company's Chief Executive Officer. No other executive officer of the
Company earned more than $100,000 in the fiscal year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
----------------------------------------------------------------- -------------------
Other Annual Shares Underlying
Name and Principal Position Year Salary ($) Bonus($) Compensation ($) Options(#)
- --------------------------- ---- ---------- -------- ---------------- ----------
<S> <C> <C> <C> <C> <C>
John F. Clifford/(1)/ 1998 238,000 69,018 50,000
President and Chief Executive 1997 236,250 65,000 55,530
Officer 1996 102,151 50,000 250,000
</TABLE>
/(1)/ Mr. Clifford joined the Company as president and chief executive officer
in August 1996. He received gross payments in 1998 and 1997 of $69,018
and $55,530, respectively, for reimbursement by the Company of taxable
relocation expenses incurred in connection with his relocation in 1996
from Texas to Washington.
The following table sets forth certain information with respect to
individual grants of stock options made to the Company's Chief Executive Officer
during the fiscal year ended December 31, 1998.
Option Grants in Fiscal 1998
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------- Potential Realizable Value at
Number of Assumed Annual Rates of Stock
Shares Percent of Total Price Appreciation for
Underlying Options Granted to Option Term/(2)/
Options Employees Exercise Expiration ----------------
Name Granted(#)/(1)/ in 1998 Price ($) Date 5% 10%
- ---- --------------- ------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
John F. Clifford 50,000 6.7% 1.438 2/18/08 41,623 107,400
</TABLE>
/(1)/ The options granted in 1998 were incentive stock options, have exercise
prices equal to the fair market value on the date of grant, vest ratably
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, 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.
The following table sets forth certain information with respect to the
number and value of unexercised options held by the Chief Executive Officer as
of December 31, 1998.
Aggregated Option Exercises in 1998 and Year-End Option Values
<TABLE>
<CAPTION>
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 166,667 / 133,333 0/0
</TABLE>
/(1)/ Value is based upon the market price of the underlying Common Stock on
December 31, 1998, ($0.438) less the exercise price. At year-end, none of
the options were exercisable at a price below the market price of the
underlying Common Stock.
6
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
During 1998, 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 1998, 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.
Mr. Clifford was awarded a 5% increase in base salary for 1998. All of the
officers agreed to forgo increases in their base salaries for 1999.
7
<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.
In 1997 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 is 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. Aside from those guaranteed in employment
agreements or at the time of employment, none of the officers were awarded
bonuses for their 1998 performance.
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 Company's policy with regard to compensation of the chief executive
officer is intended to provide compensation that will attract, retain and
motivate an experienced executive, align the interests of management and
shareholders by making a substantial portion of the chief executive officer's
compensation dependent on the financial success of the Company, and to reward
accomplishment of specific goals identified by the Board of Directors. To
achieve these objectives the compensation of the chief executive officer for
1999 is structured to include a combination of a base salary of $248,000 plus
incentive awards and long-term stock options.
Policy with Respect to the $1 Million Deduction Limit
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
1999 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 1998:
William M. Sullivan (Chairman)
Robert E. Patterson
Dr. Jules Blake
8
<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 Common Stock was included) for the period of five
fiscal years commencing December 31, 1993 and ending December 31, 1998. Since
March 25, 1999 the Company's Common Stock has been traded on the NASD OTC
bulletin board.
COMPARISON OF THE CUMULATIVE TOTAL RETURN SINCE 1993 AMONG PROCYTE
CORPORATION, THE NASDAQ STOCK MARKET INDEX (U.S.) AND THE NASDAQ
PHARMACEUTICAL STOCKS INDEX
(YEAR ENDING DECEMBER 31)
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Year 1993 1994 1995 1996 1997 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NASDAQ Stock Market Index (U.S.) 100 97.752 138.256 170.015 208.580 293.209
NASDAQ Pharmaceutical Stocks Index 100 75.262 138.040 138.469 142.976 183.019
ProCyte Corporation 100 20.533 20.083 16.063 6.697 3.127
</TABLE>
Note: Assumes $100 was invested on December 31, 1993 in each of the Common
Stock, the NASDAQ Stock Market Index and the NASDAQ Pharmaceutical Stocks Index
and that all dividends were reinvested. Stock price performance shown above for
ProCyte Corporation is historical and not necessarily indicative of future price
performance.
9
<PAGE>
EMPLOYMENT AGREEMENTS, TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARANGEMENTS
Change of Control
In February 1997 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 resulted in his loss of employment. The original term
of such agreement was two years from the date of the agreement, or, if a change
of control occurred during such two-year period, the term was to be
automatically extended for two years after such change of control. The
agreement has subsequently been extended through February 2001.
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 a severance agreement with Mr.
Clifford which provided that if his employment as an officer was 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, he would be eligible to receive his accrued salary and benefits
along with salary continuation and group insurance benefits for a period of
twelve months at his then current annual base salary for the fiscal year in
which the termination occurred, subject to reduction of the salary continuation
by the amount of any other earnings from other employment or personal services.
The term of the severance agreement was subsequently extended through February
2001.
CERTAIN TRANSACTIONS
Mr. Oclassen is a stockholder and the Chairman of the the board of
directors of NextDerm, Inc. which the Company intends to acquire, subject to the
negotiation of a definitive purchase agreement (anticipated by April 30, 1999).
ProCyte has offered to acquire all of the stock of NextDerm for $250,000 in cash
and shares of the Company's Common Stock valued on the date that the terms were
established at approximately $250,000. As part of the purchase the Company is
causing Mr. Oclassen to be nominated for election to its Board of Directors.
For a biographical summary of Mr. Oclassen see "Election of Directors".
Both Ms. Browner, President of ProCyte's HumaTech Division, and Mr. Tapman,
Vice President of Strategic Development, were stockholders and officers of
HumaTech Corporation which sold substantially all of its assets to the Company
on April 27, 1998 in consideration of $1,500,000 in cash and shares of the
Company's Common Stock valued at $1,500,000. In connection with that
transaction both Ms. Browner and Mr. Tapman entered into two-year employment and
noncompetition agreements with ProCyte. Ms. Browner receives a base salary of
$100,000, and Mr. Tapman receives a base salary of $75,000. Each receives an
annual bonus of $25,000, as well as additional consideration in cash or ProCyte
Common Stock if certain product sales milestones are met.
If either 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, the 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.
On December 16, 1998 the Company loaned $103,503.50 to Mr. Clifford, Chief
Executive Officer, to enable him to purchase 225,000 shares of the Company's
Common Stock. The loan was evidenced by a promissory note bearing interest at
the rate of 4.28% and due in full on June 30, 2002. At April 1, 1999 the amount
outstanding, including accrued interest, was $105,284.00
10
<PAGE>
INDEPENDENT AUDITORS
Deloitte & Touche LLP served as the Company's independent auditors for
1998. The Board of Directors expects to continue to utilize Deloitte & Touche
LLP as the Company's independent auditors for 1999. 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 2000 must be received by the Company no
later than December 30, 1999 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.
In addition, the Company's Bylaws include advance notice provisions that
require shareholders desiring to bring nominations or other business before
annual shareholders meeting to do so in accordance with the terms of the advance
notice provisions. These advance notice provisions require that, among other
things, shareholders give timely written notice to the Secretary of the Company
regarding such nominations or other business. To be timely, a notice must be
delivered to the Secretary at the principal executive offices of the Company not
more than 90, but not less than 60 days prior to the date of the annual meeting
as determined under the Company's Bylaws.
Accordingly, a shareholder who intends to present a proposal at the 2000
Annual Meeting of Shareholders without inclusion of the proposal in the
Company's proxy materials must provide written notice of the nominations or
other business they wish to propose to the Secretary no earlier than February
26, 2000 and no later than March 22, 2000, assuming that the 2000 Annual Meeting
is held on May 26, 2000. The Company reserves the right to reject, rule out of
order, or take other appropriate action with respect to any proposal that does
not comply with these and other applicable requirements.
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 that 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.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998, as filed with the SEC, has been provided with this
Proxy Statement to shareholders of record and the related beneficial
shareholders. Additional copies will be furnished without charge upon request
to: ProCyte Corporation, 8511 - 154th Ave. NE, Redmond, WA 98052.
11
<PAGE>
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PROXY PROXY
ProCyte Corporation
8511 154th Ave NE, Bldg A, Redmond, WA 98052
This Proxy is solicited on behalf of the Board of Directors. The undersigned
hereby appoints John F. Clifford and Jerry P. Scott as proxies each with the
power to appoint his substitute, and hereby authorizes them to represent and to
vote, as designated below, all the shares of common stock of ProCyte
Corporation held on record by the undersigned on April 1, 1999, at the Annual
Meeting of Shareholders of ProCyte Corporation to be held on May 26, 1999, or
any adjournment thereof.
1. ELECTION OF DIRECTORS (Please check one)
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY to vote for
nominees indicated below
(INSTRUCTION: To withhold authority to vote for any individual nominee strike a
line through the nominee's name in the list below)
Jules Blake Susan Browner John F. Clifford Matt L. Leavitt
Glenn A. Oclassen Robert E. Patterson
2. In their discretion the proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued on reverse side)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this Proxy will be
voted FOR all of the listed nominees for director.
Please sign exactly as your name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by the president or other authorized officer. If a
partnership, please sign in the partnership name by an authorized person.
Date: _______________ , 1999
----------------------------
Signature
----------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
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