Delaware	3845	59-2058100
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

 

 

 

Jenkens & Gilchrist, LLP Attn: Jeffrey P. Berg, Esq. Kenneth M.H. Hoff, Esq. 12100 Wilshire Boulevard, 15th Floor Los Angeles, California 90025-5244 Phone: (310) 820-8800

Perkins Coie LLP Attn: Faith M. Wilson, Esq. 1201 Third Avenue, Suite 4800 Seattle, Washington 98101-3099 Phone: (206) 359-3237

 

 

 

 

    

 

 

 

 

Very truly yours,
/s/ John F. Clifford	/s/ Jeffrey F. O'Donnell
John F. Clifford	Jeffrey F. O'Donnell
President and Chief Executive Officer	President and Chief Executive Officer
ProCyte Corporation	PhotoMedex, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	iii

 

ANNEX A	Agreement and Plan of Merger
ANNEX B	Opinion of ProCyte's Financial Advisor
ANNEX C	Opinion of PhotoMedex's Financial Advisor
ANNEX D	Dissenters' Rights Under Chapter 23B.13 of the Washington Business Corporation Law
ANNEX E	Form of Stockholder Agreement
ANNEX F	Form of Affiliate Agreement
ANNEX G	Form of Employment Agreement with John F. Clifford
ANNEX H	Form of Employment Agreement with Robin L. Carmichael

	iv

 

 

Q:   Why am I receiving this joint proxy statement/prospectus?

 

 

 

Q:   What do I need to do now?

 

 

Q:   Why is my vote important?

 

 

Q:   How can I vote my shares in person at my meeting?

 

	I-1

 

Q:   What if I either abstain from voting or fail to instruct my broker how to vote or respond without voting instructions?

 

 

 

 

 

Q:   Can I change my vote?

 

 

·	delivering to the Secretary of PhotoMedex or to the Secretary of ProCyte, as appropriate, or to MacKenzie Partners, Inc., or MacKenzie Partners, the joint proxy solicitor of PhotoMedex and ProCyte, a new proxy bearing a later date (which automatically revokes the earlier proxy);

 

·	delivering a signed notice of revocation to the Secretary of PhotoMedex or to the Secretary of ProCyte, as appropriate, or to MacKenzie Partners, the joint proxy solicitor of PhotoMedex and ProCyte; or

 

·	attending your special meeting and voting in person. However, your attendance alone will not revoke your proxy.

	I-2

 

Q:   When do you expect to complete the merger?

 

 

Q:   When and where are the special meetings?

 

Q:   Which stockholders are entitled to vote?

 

Q:   What will ProCyte shareholders receive in the merger?

 

 

 

Q:   What will happen if the merger is not completed?

 

	I-3

 

 

 

 

 

 

 

 

	I-4

 

 

 

 

 

 

 

 

 

	I-5

 

 

 

 

 

 

 

 

 

·	Section 203 of the Delaware General Corporation Law prohibits a business combination between a corporation and an interested stockholder within three years of the stockholder becoming an interested stockholder, except in limited circumstances;

 

·	the bylaws of PhotoMedex provide that a special meeting may be convened at any time by the chairman of the board, the president of PhotoMedex or by resolution adopted by holders of at least 2/3 of the voting power of all outstanding shares of voting stock;

 

·

PhotoMedex's bylaws may be repealed, altered or amended or new bylaws adopted by (i) the affirmative vote of not less than two-thirds of the outstanding shares of stock entitled to vote upon the election of directors or (ii) the board of directors; provided, however, that any bylaws made by the directors may be amended, altered or repealed by the stockholders; and

 

	I-6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

·	deliver to ProCyte before the vote is taken at the ProCyte special meeting written notice of such shareholder's intent to demand payment for such shareholder's ProCyte common stock if the merger becomes effective;

	I-7

 

 

 

 

 

	I-8

 

·	the approval of the issuance of the shares of PhotoMedex common stock pursuant to the merger agreement by the stockholders of PhotoMedex;

 

·	the absence of any law, temporary restraining order, injunction or other order issued by a court that has the effect of making the merger illegal or otherwise prohibiting the merger;

 

·	the approval of the shares of PhotoMedex common stock to be issued pursuant to the merger agreement for trading on The Nasdaq National Market;

 

·

the registration statement relating to the shares of PhotoMedex common stock to be issued pursuant to the merger agreement (of which this joint proxy statement/prospectus is a part) being declared effective by the SEC and the absence of any stop order suspending the effectiveness of the registration statement;

 

·	the accuracy of all representations and warranties as of the date of the merger agreement and the closing date, as qualified in the merger agreement;

 

·	the performance or compliance in all material respects with all agreements and covenants set forth in the merger agreement;

 

·	the receipt of all consents and approvals of third parties as set forth in the merger agreement; and

 

·

the receipt by ProCyte of a legal opinion from Perkins Coie LLP and the receipt by PhotoMedex of a legal opinion from Jenkens & Gilchrist, LLP that the merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.

 

 

 

 

	I-9

·	ProCyte's board of directors fails to reaffirm, withdraws or adversely modifies its recommendation to its shareholders that they approve the merger agreement;

 

·	ProCyte's shareholders do not approve the merger agreement;

 

·	the holders of more than 2% of the outstanding shares of ProCyte common stock perfect available dissenters' rights, and such rights have not been lost or withdrawn;

 

·	ProCyte 's board of directors approves or enters into an acquisition proposal by a third party;

 

·	a third party commences a tender or exchange offer, and ProCyte's board of directors does not recommend that the ProCyte shareholders reject such tender or exchange offer;

 

·	ProCyte materially fails to comply with the provisions under the merger agreement restricting ProCyte from soliciting an alternative merger transaction; or

 

·	ProCyte materially breaches one or more of its representations or warranties or fails to perform in any material respect one or more of its covenants or other agreements contained in the merger agreement, and does not timely cure such breach or failure.

 

 

·	PhotoMedex's board of directors withdraws or adversely modifies its recommendation to its stockholders that they approve the issuance of the shares of PhotoMedex common stock pursuant to the merger agreement;

 

·	PhotoMedex's stockholders do not approve the issuance of the shares of PhotoMedex common stock pursuant to the merger agreement;

 

·	PhotoMedex materially breaches one or more of its representations or warranties or fails to perform in any material respect one or more of its covenants or other agreements contained in the merger agreement, and does not timely cure such breach or failure; or

 

·	ProCyte accepts a superior proposal from a third party.

 

 

	I-10

 

 

 

 

 

 

·

PhotoMedex will maintain the existing rights to indemnification benefiting ProCyte's directors, officers and employees found in ProCyte's articles of incorporation or bylaws, applicable law or other sources for a period of six years after the merger. Tail coverage for ProCyte's directors' and officers' insurance policy will be obtained on terms and in amounts no less favorable than those of ProCyte's policies in effect on the date of the merger agreement, provided the total cost of the coverage will not exceed $275,000; and

 

·	John F. Clifford, the President and Chief Executive Officer and a director of ProCyte, and Robin L. Carmichael, the Vice President of Marketing of ProCyte, will enter into employment agreements with

 

	I-11

 

 

 

	I-12

		(In thousands, except per share data)
		Year ended December 31,															Nine months ended September 30, (unaudited)
		1999			2000			2001			2002			2003			2003			2004
STATEMENT OF OPERATIONS DATA:
Revenues		$	99		$	969		$	4,730		$	3,274		$	14,319		$	10,615		$	12,803
Costs and expenses
Costs of revenues			4			543			4,952			4,425			10,488			7,564			7,627
Selling, general and administrative			4,342			10,365			10,519			6,191			9,451			6,985			7,511
Research and development			2,061			3,015			3,329			1,757			1,776			1,295			1,325
Depreciation and amortization			1,017			721			-			-			-			-			-
Asset impairment charge			-			-			1,958			-			-			-			-
Loss from continuing operations before interest and other income, net and income taxes			(7,325	)		(13,675	)		(16,028	)		(9,099	)		(7,397	)		(5,229	)		(3,660	)
Interest income			-			580			238			42			50			50			33
Interest expense			(1,849	)		(13	)		(25	)		(16	)		(96	)		(94	)		(99	)
Other income (expense), net			111			362			77			1			-			-			-
Loss from continuing operations before income taxes			(9,063	)		(12,746	)		(15,738	)		(9,072	)		(7,443	)		(5,273	)		(3,726	)
Income taxes			5			-			-			-			-			-			-
Loss from continuing operations			(9,068	)		(12,746	)		(15,738	)		(9,072	)		(7,443	)		(5,273	)		(3,726	)
Discontinued operations
Loss from discontinued operations(including loss on disposal of $277 realized in 2001)			(852	)		(646	)		-			-			-			-			-
Net loss			($9,920	)		($13,392	)		($15,738	)		($9,072	)		($7,443	)		($5,273	)		($3,726	)
Basic and diluted net loss per share
Continuing operations			($0.81	)		($0.81	)		($0.80	)		($0.34	)		($0.21	)		($0.15	)		($0.10	)
Discontinued operations			(0.08	)		(0.04	)		-			-			-			-			-
Basic and diluted net loss per share			($0.89	)		($0.85	)		($0.80	)		($0.34	)		($0.21	)		($0.15	)		($0.10	)
Shares used in computing basic and diluted net loss per share (1)			11,208			15,755			19,771			26,566			35,134			34,258			38,429
BALANCE SHEET DATA (AT PERIOD END):
Cash and short-term investments		$	4,536		$	9,561		$	4,067		$	4,008		$	6,633		$	6,633		$	5,212
Working capital			1,529			9,273			5,546			6,578			8,678			8,656			8,022
Total assets			9,706			19,871			15,585			21,513			22,753			22,753			23,413
Long-term debt (net of current portion) .			44			20			_			900			480			406			1,436
Stockholders' equity		$	5,274		$	17,768		$	12,710		$	13,309		$	15,978		$	15,978		$	15,803

___________

(1)	Common stock equivalents and convertible issues are antidilutive and, therefore, are not included in the weighted shares outstanding during the years in which PhotoMedex incurred net losses.

 

	I-13

 

 

		(In thousands, except per share data)
		Year ended December 31,															Nine months ended September 30, (unaudited)
		1999			2000			2001			2002			2003			2003			2004
STATEMENT OF OPERATIONS DATA:

Net sales		$	4,695		$	6,615		$	9,712		$	12,737		$	11,538		$	8,701		$	10,140
Gross profit			3,319			5,116			6,128			8,031			8,337			6,224			7,366
Percentage of sales			70.7	%		77.3	%		63.1	%		63.1	%		72.2	%		71.5	%		72.6	%
Selling, general and administrative expenses		$	5,239		$	6,206		$	6,249		$	6,435		$	7,444		$	5,862		$	6,653
Product development expenses			1,744			1,275			745			126			191			106			99
Non-recurring charges (income) (1)			1,900			-			194			-			637			-			319
Operating income (loss)			(5,564	)		(2,365	)		(1,060	)		1,470			65			256			295
Net income (loss) (2)			(5,315	)		(2,143	)		(907	)		1,669			7,341			397			222
Basic earnings (loss) per share			(0.35	)		(0.14	)		(0.06	)		0.11			0.47			0.03			0.01
Diluted earnings (loss) per share			(0.35	)		(0.14	)		(0.06	)		0.10			0.46			0.02			0.01
Shares used in calculation of basic earnings (loss) per share			14,999			15,481			15,610			15,710			15,767			15,761			15,799
Shares used in calculation of diluted earnings (loss) per share			14,999			15,481			15,610			16,179			15,997			15,973			16,000
BALANCE SHEET DATA (AT PERIOD END):
Cash, cash equivalents and short-term investments		$	3,883		$	2,773		$	3,003		$	4,556		$	3,796		$	4,556		$	5,321
Current assets			5,454			6,451			6,506			7,931			8,363			8,479			10,724
Total assets			13,447			12,185			12,811			14,089			20,003			14,365			20,972
Current liabilities			416			1,179			1,147			963			692			991			1,416
Long-term liabilities			142			145			1,596			1,308			93			1,109			75
Shareholders' equity		$	12,889		$	10,861		$	10,068		$	11,818		$	19,218		$	12,265		$	19,481

_________________

 

 

	I-14

 

 

 

		(In thousands, except share and per share data)
Condensed statement of operations data:		Year ended December 31, 2003 (unaudited)			Nine months ended September 30, 2004 (unaudited)
Revenues		$	25,857		$	22,944
Costs and expenses			33,330			26,536
Loss from operations			(7,473	)		(3,592	)
Interest income (expense), net			(98	)		(2	)
Other income (expense), net			(50	)		-
Net loss		$	(7,325	)	$	(3,594	)
Net loss per common share - Basic and diluted		$	(0.16	)	$	(0.07	)
Shares used in computing basic and diluted net loss per common share			45,608			48,903
Balance sheet data:						September 30, 2004
Current assets					$	24,885
Working capital						15,419
Total assets						52,803
Long-term debt (net of current portion)						1,436
Stockholders' equity					$	41,791

 

	I-15

 

 

·	the basic and diluted net income (loss) per common share and book value per share data for each of PhotoMedex and ProCyte on a historical basis; and

 

·	the historical basic and diluted net loss per common share and book value per share data for the consolidated company and on an equivalent pro forma consolidated basis.

 

 

 

 

 

 

			Historical
			PhotoMedex			ProCyte			Consolidated pro forma
Basic earnings (loss) per share
Nine months ended September 30, 2004			$(0.10)			$0.01			$(0.07)
Year ended December 31, 2003			(0.21)			0.47			(0.16)
Diluted earnings (loss) per share
Nine months ended September 30, 2004			(0.10)			0.01			(0.07)
Year ended December 31, 2003			(0.21)			0.46			(0.16)
Book value per common share at September 30, 2004			0.39			1.23			0.83

 

	I-16

 

 

·	PhotoMedex common stock, as reported on The Nasdaq National Market; and

 

·	ProCyte common stock, as reported on the OTC Bulletin Board.

 

 

		High			Low
Year Ended December 31, 2004:
Fourth Quarter			$1.63			$0.89
Third Quarter			1.07			0.90
Second Quarter			1.24			1.02
First Quarter			1.33			1.03
Year Ended December 31, 2003:
Fourth Quarter			$1.23			$0.99
Third Quarter			1.51			1.00
Second Quarter			1.34			0.96
First Quarter			1.35			1.07
Year Ended December 31, 2002:
Fourth Quarter			$1.47			$1.10
Third Quarter			1.64			1.25
Second Quarter			2.12			1.38
First Quarter			2.00			1.29

		High			Low
Year Ended December 31, 2004:
Fourth Quarter			$2.73			$1.86
Third Quarter			3.26			1.89
Second Quarter			3.99			2.54
First Quarter			2.69			1.63
Year Ended December 31, 2003:
Fourth Quarter			$2.54			$1.66
Third Quarter			2.95			2.15
Second Quarter			2.30			1.39
First Quarter			1.85			1.22
Year Ended December 31, 2002:
Fourth Quarter			$1.92			$1.24
Third Quarter			1.57			0.84
Second Quarter			1.97			1.49
First Quarter			2.37			1.50

 

	I-17

 

		PhotoMedex Common Stock			ProCyte Common Stock
Closing price on December 1, 2004			$2.25			$1.12
Closing price on January 20, 2005			$2.25			$1.46

 

 

 

 

·	general economic and business conditions; the existence or absence of adverse publicity; changes in marketing and technology; changes in political, social and economic conditions;

 

·	competition in and general risks of the medical, skin health and hair care products and services industries;

 

·	success of acquisitions and operating initiatives; changes in business strategy or development plans;

	I-18

 

·	the ability of PhotoMedex to manage successfully its changing relationships with customers, suppliers, value-added resellers and strategic partners;

 

·	changes in governmental or regulatory policies, including adverse interpretations of regulatory guidelines;

 

·	volatility in the stock price of PhotoMedex;

 

·	the need and ability of PhotoMedex to obtain sufficient financing to meet potential capital requirements;

 

·	adverse decisions relating to material litigation or investigations;

 

·	the failure of management's assumptions and estimates used in applying critical accounting policies;

 

·	inadequate design or circumvention of disclosure controls and procedures or internal controls;

 

·	market acceptance of each company's products and services and the ability of PhotoMedex's and ProCyte's customers to accept new product and services offerings; and

 

·	the timing of, and regulatory and other conditions associated with, the completion of the merger and the willingness and ability of PhotoMedex to combine operations and obtain operating synergies following the merger.

 

 

	I-19

 

 

 

 

·	retaining and integrating the management and employees of each company;

 

·	consolidating sales, distribution, and research and development operations;

 

·	preserving the important licensing, research and development, manufacturing, supply, distribution, marketing, customer and other relationships of ProCyte;

 

·	developing new products and services that utilize the assets and resources of both companies;

 

·	minimizing the diversion of management's attention from ongoing business concerns;

 

·	coordinating geographically separate operations;

 

·	realizing expected cost savings and synergies from the merger; and

 

·	developing and maintaining uniform standards, controls, procedures, policies and information systems.

 

	I-20

 

·	market assessments of the likelihood that the merger will be completed;

 

·	the timing of the completion of the merger;

 

·	sales of PhotoMedex common stock or ProCyte common stock;

 

·	additions or departures of key personnel of PhotoMedex or ProCyte;

 

·	announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by PhotoMedex;

 

·	conditions or trends in the medical products and services or skin health and hair care products industries;

 

·	announcements of technological innovations, new products or services by PhotoMedex, ProCyte or their competitors;

 

·	changes in market valuations of other medical products and services or skin health and hair care products companies;

 

·	the prospects of post-merger operations;

 

·	regulatory considerations; and

 

·	general market and economic conditions.

 

	I-21

 

·	the effect of the merger on the combined company's financial results is not consistent with the expectations of financial or industry analysts; or

 

·	holders, individually or in the aggregate, of significant numbers of shares of PhotoMedex decide to dispose of their stock following completion of the merger.

 

 

 

·	1,366,119 shares will be issuable upon exercise of options that PhotoMedex has agreed to assume from current optionholders of ProCyte with an exercise price of $2.00 or less; and

 

·	325,000 shares will be issuable upon exercise of options that PhotoMedex has agreed to grant to John F. Clifford and Robin L. Carmichael.

 

 

 

	I-22

 

·

PhotoMedex will maintain the existing rights to indemnification benefiting ProCyte's directors, officers and employees found in ProCyte's articles of incorporation or bylaws, applicable law or other sources for a period of six years after the merger. Tail coverage for ProCyte's directors' and officers' insurance policy will be obtained on terms and in amounts no less favorable than those of ProCyte's policies in effect on the date of the merger agreement, provided the total cost of the coverage will not exceed $275,000; and

 

·

John F. Clifford, the President and Chief Executive Officer and a director of ProCyte, and Robin L. Carmichael, the Vice President of Marketing of ProCyte, will enter into employment agreements with PhotoMedex following the merger in connection with closing of the merger. These agreements, the forms of which are attached to this joint proxy statement/prospectus as Annex G and Annex H, respectively, will include severance arrangements and stock option grants.

 

	I-23

 

 

·	to carry on its business in the ordinary course;

 

·	not to declare dividends or make other distributions to its shareholders;

 

·	not to issue any new securities, except pursuant to existing agreements;

 

·	not to change its accounting methods or practices, except as required by GAAP or the rules of the SEC;

 

·	not to transfer or encumber any of its material properties or assets, except pursuant to existing contracts or in the ordinary course of business, and which would not exceed in the aggregate $100,000 or materially impair the conduct of its business;

 

·	not to incur indebtedness or assume or guarantee obligations of other persons, terminate material contracts, other than in the ordinary course of business, make capital expenditures in excess of $50,000, or make any material loans outside of the ordinary course of business;

 

·	except for existing contractual commitments or corporate policies with respect to bonus, compensation, severance or termination payments, not to increase compensation or benefits payable to its directors,

	I-24