<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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 Rule 14a-11(c) or Rule 14a-12
CHROMAVISION MEDICAL SYSTEMS, INC.
(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)(1) 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
[ ] 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> 2
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD WEDNESDAY, JUNE 3, 1998
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
ChromaVision Medical Systems, Inc. (the "Company") will be held at Blue Lantern
Inn, 34343 Street of the Blue Lantern, Dana Point, CA 92629 on Wednesday, June
3, 1998 at 8:30 a.m., local time, for the following purposes:
1. To elect five directors;
2. To approve the Amended and Restated 1996 Equity
Compensation Plan; and
3. To transact such other business as may properly come
before the meeting or any adjournment or adjournments
thereof.
The Board of Directors has established the close of business on April
13, 1998 as the record date for the determination of stockholders entitled to
receive notice of, and to vote at, the meeting or any adjournments thereof. In
order that the meeting can be held and a maximum number of shares can be voted,
whether or not you plan to be present at the meeting in person, please fill in,
date and sign, and promptly return the enclosed Proxy in the return envelope
provided for your use. No postage is required if mailed in the United States.
By order of the Board of Directors,
/s/ Douglas Harrington, M.D.
-----------------------------------------
Douglas Harrington, M.D.
Chief Executive Officer
33171 Paseo Cerveza
San Juan Capistrano, CA 92675
April 28, 1998
<PAGE> 3
CHROMAVISION MEDICAL SYSTEMS, INC.
33171 PASEO CERVEZA
SAN JUAN CAPISTRANO, CA 92675
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
of Proxies by the Board of Directors (the "Board") of ChromaVision Medical
Systems, Inc. (the "Company") for use at the Annual Meeting of Stockholders to
be held on June 3, 1998 (such meeting and any adjournment or adjournments
thereof referred to as the "Annual Meeting") for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders and in this Proxy
Statement. The Company intends to mail this Proxy Statement and related form of
Proxy to stockholders on or about May 1, 1998.
VOTING SECURITIES
Only the holders of shares of common stock, par value $.01 per share
(the "Common Stock"), of the Company of record at the close of business on April
13, 1998 (the "Shares") are entitled to receive notice of, and to vote at, the
Annual Meeting. On that date, there were 17,209,254 Shares outstanding and
entitled to be voted at the Annual Meeting. It is the intention of the persons
named in the Proxy to vote as instructed by the stockholders or, if no
instructions are given, to vote as recommended by the Board. Each stockholder
has one vote per Share on all business of the Annual Meeting.
The five nominees receiving the highest number of affirmative votes of
the Shares present or represented and entitled to be voted will be elected as
directors. The proposal to approve the Company's Amended and Restated 1996
Equity Compensation Plan requires a majority of the votes cast by all
stockholders entitled to vote thereon. Votes withheld from any director and
abstentions will be counted for purposes of determining the presence of a quorum
for the transaction of business at the Annual Meeting. Abstentions are counted
in tabulations of the votes cast on proposals presented to stockholders. The
rules of the New York and American Stock Exchanges permit member organizations
("brokers") to vote shares on behalf of beneficial owners in the absence of
instructions from beneficial owners on certain "routine" matters, including the
election of directors, but do not permit such votes on "non-routine" matters,
including the approval of the Amended and Restated 1996 Equity Compensation
Plan. Situations where brokers are unable to vote on non-routine proposals are
referred to as "broker non-votes." Broker non-votes will be counted for purposes
of determining the presence of a quorum, but will not be counted for purposes of
determining whether a non-routine proposal has been approved.
REVOCABILITY OF PROXY
Execution of the enclosed Proxy will not affect a stockholder's right
to attend the Annual Meeting and vote in person. A stockholder, in exercising
his right to vote in person at the Annual Meeting, effectively revokes all
previously executed Proxies. In addition, the Proxy is revocable at any time
prior to the effective exercise thereof by filing notice of revocation with the
Secretary of the Company or by filing a duly executed Proxy bearing a later
date.
1
<PAGE> 4
PERSONS MAKING THE SOLICITATION
The solicitation of this Proxy is made by the Company. The cost of
soliciting Proxies on behalf of the Company, including the actual expenses
incurred by brokerage houses, nominees and fiduciaries in forwarding Proxy
materials to beneficial owners, will be borne by the Company. In addition to
solicitation by mail, certain officers and other employees of the Company may
solicit Proxies on behalf of the Company in person or by telephone, but will
receive no special compensation for doing so.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholders intending to present proposals at the next Annual Meeting
of Stockholders to be held in 1999 must notify the Company of the proposal no
later than January 1, 1999.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of April 13, 1998, the number of
Shares of the Company's Common Stock, the only class of capital stock
outstanding, beneficially owned by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Shares. The table also shows
the number of Shares owned beneficially by each director, by each named
executive officer, and by all executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
OWNED (1) CLASS
----------------- ----------
<S> <C> <C>
Safeguard Scientifics, Inc.(2)
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087............................................. 4,426,461 25.7%
XL Vision, Inc.
10315 102nd Terrace
Sebastian, FL 32958.......................................... 1,432,114 8.3%
Technology Leaders I(3)
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087.............................................. 689,720 4.0%
Technology Leaders II(4)
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087.............................................. 734,887 4.3%
John S. Scott, Ph.D.(5)......................................... 460,305 2.7%
Douglas S. Harrington, M.D.(6).................................. 387,500 2.2%
Christopher Moller, Ph.D........................................ 3,673 *
Richard C.E. Morgan(6).......................................... 46,975 *
Charles A. Root................................................. 106,670 *
Kenneth S. Garber(6)............................................ 204,487 1.2%
Kevin C. O'Boyle(6)............................................. 50,240 *
Michael G. Schneider(6)......................................... 26,645 *
Executive officers and directors as a group
(11 persons)(7)............................................... 1,286,495 7.2%
</TABLE>
- ---------
* Less than 1% of the outstanding Common Stock
(1) Except as otherwise disclosed, the nature of beneficial ownership is
the sole power to vote and to dispose of the Shares (except for Shares
held jointly with spouse).
2
<PAGE> 5
(2) Safeguard Scientifics (Delaware), Inc., a wholly owned subsidiary of
Safeguard Scientifics, Inc. ("Safeguard"), is the record owner of
3,438,721 of the Shares set forth above. The remaining 987,740 Shares
are held of record by Safeguard Delaware, Inc., a wholly owned
subsidiary of Safeguard. All of such Shares are beneficially owned by
Safeguard and have been pledged by Safeguard as collateral under its
bank line of credit. This number does not include 689,720 Shares
beneficially owned by Technology Leaders I and 734,887 Shares
beneficially owned by Technology Leaders II, venture capital
partnerships in which Safeguard has a beneficial interest. Safeguard
disclaims beneficial ownership of the Shares beneficially owned by each
of Technology Leaders I and Technology Leaders II.
(3) Technology Leaders I consists of Technology Leaders L.P. and Technology
Leaders Offshore C.V. Technology Leaders Management L.P., the sole
general partner of Technology Leaders L.P. and the co-general partner
of Technology Leaders Offshore C.V., exercises, through its executive
committee, sole investment and voting power with respect to the Shares
owned by such entities. Of the 689,720 Shares beneficially owned by
Technology Leaders I, 322,030 Shares are owned by Technology Leaders
L.P. and 367,690 Shares are owned by Technology Leaders Offshore C.V.
Technology Leaders L.P., Technology Leaders Offshore C.V., Technology
Leaders Management L.P., Technology Leaders II L.P., Technology Leaders
II Offshore C.V. and Technology Leaders II Management L.P. are members
of a group for purposes of Sections 13(d) and 13(g) of the Securities
Exchange Act of 1934. Technology Leaders I disclaims beneficial
ownership of the Shares beneficially owned by Technology Leaders II.
(4) Technology Leaders II consists of Technology Leaders II L.P. and
Technology Leaders II Offshore C.V. Technology Leaders II Management
L.P., the sole general partner of Technology Leaders II L.P. and the
co-general partner of Technology Leaders II Offshore C.V., exercises,
through its executive committee, sole investment and voting power with
respect to the Shares owned by such entities. Of the 734,887 Shares
owned by Technology Leaders II, 409,552 Shares are owned by Technology
Leaders II L.P. and 325,335 Shares are owned by Technology Leaders II
Offshore C.V. Technology Leaders L.P., Technology Leaders Offshore
C.V., Technology Leaders Management L.P., Technology Leaders II L.P.,
Technology Leaders II Offshore C.V. and Technology Leaders II
Management L.P. are members of a group for purposes of Sections 13(d)
and 13(g) of the Securities Exchange Act of 1934. Technology Leaders II
disclaims beneficial ownership of the Shares beneficially owned by
Technology Leaders I.
(5) Includes 343,750 Shares that are held by a family partnership.
(6) Includes for Messrs. Harrington, Morgan, Garber, O'Boyle and Schneider,
387,500 Shares, 41,875 Shares, 173,321 Shares, 50,000 Shares, and
26,563 Shares, respectively, that may be acquired pursuant to stock
options that are currently exercisable or that will become exercisable
within 60 days of April 13, 1998.
(7) Includes 679,259 Shares that may be acquired pursuant to stock options
that are currently exercisable or that will become exercisable within
60 days of April 13, 1998.
I. ELECTION OF DIRECTORS
It is intended that the persons named as proxies for this Annual
Meeting will vote in favor of the election of the following nominees as
directors of the Company to hold office until the Annual Meeting of Stockholders
in 1999 and until their successors are elected. All of the nominees are
presently serving as directors of the Company. Proxies may not be voted for more
than five directors. Each of the nominees has consented to serve if elected.
However, if any of the nominees should become unavailable prior to the election,
the holder of the Proxies may vote the Proxies for the election of such other
persons as the Board may recommend, unless the Board reduces the number of
directors to be elected.
THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
ELECTION OF THE NOMINEES SET FORTH IN THIS PROPOSAL. PROXIES RECEIVED BY THE
BOARD WILL BE SO VOTED UNLESS STOCKHOLDERS SPECIFY OTHERWISE ON THEIR PROXY
CARDS. THE FIVE NOMINEES RECEIVING THE HIGHEST NUMBER OF AFFIRMATIVE VOTES OF
THE SHARES PRESENT OR REPRESENTED AND ENTITLED TO BE VOTED SHALL BE ELECTED AS
DIRECTORS.
3
<PAGE> 6
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS HAS BEEN A
NAME EXPERIENCE DURING LAST FIVE YEARS DIRECTOR SINCE AGE
---- --------------------------------- -------------- ---
<S> <C> <C> <C>
John S. Scott, Ph.D. Chairman of the Board and Chief Executive
Officer of XL Vision, Inc., a developer of
electronic imaging application-specific
solutions(3)..................................... 1996 47
Douglas S. Harrington, M.D. Chief Executive Officer of the Company(4)........ 1996 45
Christopher Moller, Ph.D. Managing Director of TL Ventures III and
Technology Leaders II Management, L.P.,
venture capital partnerships(1)(5)............... 1996 44
Richard C.E. Morgan Managing General Partner of Wolfensohn
Partners L.P., a venture capital firm, and
Chairman and Chief Executive Officer of
LaserTechnics, Inc.(1)(2)(6)..................... 1996 53
Charles A. Root Executive Vice President, Safeguard
Scientifics, Inc., a strategic information
systems company(1)(2)(7)......................... 1996 65
</TABLE>
- ---------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Dr. Scott has been Chairman of the Board of the Company since March
1996. Prior to founding XL Vision, Inc., from 1991 until July 1993, Dr.
Scott was the President of Lenzar Electro-Optics, Inc., a manufacturer
of imaging devices. Dr. Scott has a Ph.D. in both physics (turbulence
and particle acceleration, associated space-borne instrumentation,
plasma physics and electro-optical sensor system development) and
astrophysics. He has designed and developed scanners for a wide range
of media types including intelligence imagery, microfiche, microfilm,
fingerprint cards, aerial photos, voter registration cards and medical
x-rays.
(4) Dr. Harrington has been Chief Executive Officer of the Company since
December 1996. From 1995 until be joined the Company in 1996, Dr.
Harrington served as Chairman and President of Strategic Business
Solutions, Inc., a privately held company specializing in
commercialization of biotechnology, and as a Principal in Douglas S.
Harrington and Associates, a strategic consulting firm. From 1992 to
1995, Dr. Harrington served as President of Nichols Institute, a
publicly traded healthcare laboratory services provider, now part of
Quest Diagnostics, Inc., a publicly traded laboratory services
provider. Prior to 1992, Dr. Harrington held various management
positions within Nichols Institute including Vice President of
Operations and Medical Director. Dr. Harrington currently sits on the
Boards, Advisory Boards, or Scientific Advisory Boards of ten
healthcare and medical device companies, including as a director of
Pacific Biometrics, Inc., a publicly traded company, and is an
Associate Professor of Clinical and Anatomic Pathology at the
University of Nebraska Medical Center. Dr. Harrington has over 18 years
experience in the commercialization of healthcare technology and has
published over 80 peer-reviewed publications.
(5) Dr. Moller is a Managing Director of TL Ventures III and also has
served since 1994 as a Managing Director of Technology Leaders II
Management L.P., and, in various capacities since 1990 with its
predecessors. He is a director of four biotechnology companies. Dr.
Moller serves on the medical advisory board of the Lankenau Research
Institute. He holds a Ph.D. in immunology from the University of
Pennsylvania.
(6) Mr. Morgan has been the Managing General Partner of Wolfensohn
Partners, L.P. since 1986 and is the Chairman and Chief Executive
Officer of LaserTechnics, Inc., a public company which manufactures and
distributes small secure card printing systems and related equipment
and small character coding systems. From 1990 to 1996, Mr. Morgan was
the Chairman of MediSense, Inc., a manufacturer and distributor of
blood glucose biosensors. Mr. Morgan has been a director of Quidel
Corporation, a manufacturer and distributor of rapid diagnostic
devices, for the past five years, and since July 1995,
4
<PAGE> 7
has served as Chairman. Mr. Morgan is also a director and member of the
executive committee of Celgene Corporation, a director of SEQUUS
Pharmaceuticals, Inc., both biopharmaceutical companies, and a director
of Indigo N.V., a manufacturer and distributor of digital color
electronic printing systems.
(7) Since 1986, Mr. Root has served as Executive Vice President of
Safeguard. Mr. Root is Chairman of the Board of Coherent Communications
Systems Corporation, CompuCom Systems, Inc. and Tangram Enterprise
Solutions, Inc.
DIRECTORS' COMPENSATION
Directors are elected annually and hold office until their successors
are elected or until their earlier resignation or removal. Directors are
reimbursed for travel expenses incurred in connection with attendance at
meetings or other Company business, but directors are not compensated for their
services as directors.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board held eight meetings in 1997. The Company's Board has
appointed standing Compensation and Audit Committees. The Compensation Committee
reviews and approves the compensation arrangements for executives of the
Company, including salaries, bonuses and grants of options to purchase shares of
Common Stock under the Company's stock option and equity compensation plans. The
Compensation Committee met four times during 1997. The Audit Committee
recommends the firm to be appointed as independent certified public accountants
to audit the Company's financial statements, discusses the scope and results of
the audit with the independent certified public accountants, reviews with
management and the independent certified public accountants the Company's
interim and year-end operating results, considers the adequacy of the internal
accounting controls and audit procedures of the Company, and reviews the
non-audit services to be performed by the independent certified public
accountants. Issues pertaining to audit matters were dealt with by the entire
Board of Directors in 1997 without utilization of the Audit Committee. All of
the directors attended at least 75% of the total number of Board and Committee
meetings of which they were members during the period in which they served as a
director.
REPORT OF THE BOARD COMPENSATION COMMITTEE
The Compensation Committee of the Board (the "Committee") reviews and
approves management recommendations for compensation levels, including incentive
compensation, for the executives of the Company, and administers the Company's
equity compensation plan. The current members of the Committee are all outside
directors of the Company.
EXECUTIVE COMPENSATION POLICIES
The Company strives to structure executive compensation to support the
Company's goal of maximizing stockholder value. The Company seeks to attract and
retain outstanding executives, and to motivate and reward executives who, by
their industry, loyalty and exceptional service, make contributions of special
importance to the success of the business of the Company.
Compensation levels are established for executives on the basis of
subjective factors, with reference to the experience and achievements of the
individual and the level of responsibility to be assumed in the Company. Grants
of Company stock options are intended to align the interests of executives and
key employees with the long-term interests of the
5
<PAGE> 8
Company's stockholders and to encourage executives and key employees to remain
in the Company's employ.
COMPANY POLICY ON QUALIFYING COMPENSATION
Internal Revenue Code section 162(m), adopted in 1993, provides that
publicly held companies may not deduct in any taxable year compensation in
excess of one million dollars paid to any of the individuals named in the
Summary Compensation Table that is not "performance-based" as defined in section
162(m). In order for incentive compensation to qualify as "performance-based"
compensation under section 162(m), the Committee's discretion to grant awards
must be strictly limited. The Company believes that its 1996 Equity Compensation
Plan, as amended, meets the performance-based exception under section 162(m).
The Committee believes that the benefit to the Company of retaining the ability
to exercise discretion under the Company's bonus plan outweighs the limited risk
of loss of tax deductions under section 162(m). Therefore, the Committee does
not currently intend to seek to qualify its bonus plan under section 162(m).
CEO COMPENSATION
Dr. Harrington's base salary, bonus target, and option grants to date
were initially determined in connection with his employment agreement, described
below. In April 1998, the Committee awarded Dr. Harrington a bonus of $75,000
based on the achievement of the Company's business objectives, including
successful completion of the Company's initial public offering, financial goals,
and progress in management of clinical trial activities.
OTHER EXECUTIVE COMPENSATION
In connection with the relocation of the Company to California in the
beginning of 1997, the Company granted options to certain executives in January
1997 and agreed to pay bonuses to them upon successful completion of the
Company's initial public offering. The Company is in the process of adopting a
formal bonus plan, pursuant to which it will award future bonuses.
By the Compensation Committee:
Christopher Moller, Ph.D. Richard C.E. Morgan Charles A. Root
6
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning compensation
earned during the last two calendar years to the Chief Executive Officer and
each of the Company's executive officers whose salary and bonus exceeded
$100,000 in 1997 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG TERM COMPENSATION
--------------------------------- -------------------------
AWARDS
-------------------------
OTHER SECURITIES
ANNUAL RESTRICTED UNDERLYING ALL OTHER
BONUS COMPENSATION STOCK OPTIONS/ COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($) ($)(2) AWARD(S)($) SARS (#) ($)
- --------------------------- ---- ---------- ------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Douglas S. Harrington, 1997 $138,474 $75,000 -- -- 25,000 $ 40,000
M.D., Chief Executive
Officer(3) 1996 -- -- -- -- 737,500 83,160
Kevin C. O'Boyle, Vice 1997 $130,000 $30,000 $100,584 -- 31,250 --
President and Chief
Financial Officer(4)
Kenneth S. Garber, Vice 1997 $130,000 $30,000 $ 31,918 -- 0 --
President of Marketing and
Sales and Business 1996 110,000 37,500 -- -- 277,313 --
Development(4)
Michael G. Schneider, Vice 1997 $124,704 -- $ 68,460 -- 37,500 --
President, Manufacturing &
Service(4)
</TABLE>
(1) Amounts shown do not include amounts expended by the Company pursuant
to plans (including group, disability, life, and health insurance) that
do not discriminate in scope, terms or operation in favor of executive
officers or directors and that are generally available to all salaried
employees. Perquisites and other personal benefits for fiscal year 1997
did not exceed the lesser of $50,000 or 10% of any Named Officer's
salary and bonus.
(2) The stated amounts for 1997 represent reimbursement of relocation
costs.
(3) Dr. Harrington joined the Company on December 30, 1996. Dr.
Harrington's base salary is $160,000, which began in March 1997. The
bonus reported for Dr. Harrington has been listed for the year earned
although actually paid in the following fiscal year. Prior to December
1996, Dr. Harrington served on the Company's Advisory Board and
received $40,000 in 1997 as payment for consulting services provided to
the Company and reimbursement for expenses related thereto, which
appears under the caption "All Other Compensation."
(4) Mr. Garber joined the Company in March 1996, Mr. O'Boyle joined the
Company in December 1996, and Mr. Schneider joined the Company in June
1996.
7
<PAGE> 10
STOCK OPTIONS
The following tables set forth information with respect to (i)
individual grants of stock options during 1997 to each of the Named Officers,
(ii) options exercised during fiscal year 1997, and (iii) the number of
unexercised options and the value of unexercised in-the-money options at
December 31, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(1)
-------------------------------------------------------- ---------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS/SARS
OPTIONS/ GRANTED TO EXERCISE OR
SARS EMPLOYEES IN BASE PRICE EXPIRATION 5% 10%
NAME GRANTED(#)(2) FISCAL YEAR ($/SH)(3) DATE ($) ($)
---- ------------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Douglas S. Harrington 25,000 5.6% $2.40 1/23/07 $ 37,734 $ 95,625
Kevin C. O'Boyle 31,250 7.0% $2.40 1/23/04 $ 30,533 $ 71,154
Kenneth S. Garber 0 -- -- -- -- --
Michael G. Schneider 37,500 8.4% $2.40 1/23/04 $ 36,639 $ 85,385
</TABLE>
(1) The potential realizable values are based on an assumption that the
stock price of the shares of Common Stock of the Company appreciates at
the annual rate shown (compounded annually) from the date of grant
until the end of the option term. These values do not take into account
amounts required to be paid as income taxes under the Internal Revenue
Code or any applicable state laws or option provisions providing for
termination of an option following termination of employment,
nontransferability or vesting over periods of up to four years. These
amounts are calculated based on the requirements promulgated by the
Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth of the shares of Common Stock of
the Company.
(2) The options granted to Dr. Harrington and to Mr. O'Boyle were 25%
vested on the grant date and vest an additional 25% each year on the
anniversary of the grant. The option granted to Mr. Schneider vests 25%
each year commencing on the first anniversary of the grant. Each option
continues vesting and remains exercisable so long as employment with
the Company or one of its subsidiaries continues. The option exercise
price may be paid in cash or by (i) delivery of previously acquired
shares or (ii) same day sales, i.e. cashless broker's exercises. Upon
any change of control of the Company, each optionee will be entitled to
immediate vesting of all stock options or the payment of the
in-the-money value of all unvested options.
(3) All options have an exercise price at least equal to the fair market
value on the date of grant of the shares subject to each option.
8
<PAGE> 11
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS IN-THE-MONEY OPTIONS/
ACQUIRED ON VALUE AT FISCAL YEAR-END (#) SARS AT FISCAL YEAR-END($)(1)
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas S. Harrington 0 -- 375,000 387,500 $ 2,485,000 $ 2,567,500
Kevin C. O'Boyle 0 -- 42,188 57,812 $ 278,441 $ 381,559
Kenneth S. Garber 0 -- 173,321 103,992 $ 1,421,232 $ 852,734
Michael G. Schneider 0 -- 17,188 51,562 $ 135,942 $ 347,808
</TABLE>
(1) The value of unexercised in-the-money options is calculated based upon
(i) the fair market value per share of the stock at December 31, 1997,
less the option exercise price, multiplied by (ii) the number of shares
subject to an option. On December 31, 1997, the fair market value of a
share of the Company's Common Stock was $9.00. This table is presented
solely for the purpose of complying with the rules of the Securities
and Exchange Commission and does not necessarily reflect the amounts
optionees will actually receive upon the sale of any shares acquired
upon the exercise of the options.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS.
The Company entered into an employment agreement with Dr. Harrington as
of December 30, 1996, which obligated him to serve as Chief Executive Officer
until December 30, 1997. The agreement provided for the payment of an annual
base salary of $160,000, bonuses up to 100% of his base salary upon the
achievement of certain targets and an option to purchase 725,000 shares of
Common Stock. Dr. Harrington's employment continued after December 31, 1997 on
an at-will basis, subject to severance pay upon termination under certain
conditions. Upon any change of control of the Company, Dr. Harrington will be
entitled to immediate vesting of all stock options or the payment of an amount
equal to the difference between the exercise price and the fair market value for
each share of common stock which underlies an option which cannot vest and, if
his employment terminates, one year salary continuation and payment of his
maximum bonus for such year. In addition, upon his termination of employment,
the Company has the option to retain Dr. Harrington as a consultant whereby Dr.
Harrington would be entitled to receive monthly consulting fees equal to his
prior monthly salary upon the provision of up to 20 hours of consulting services
each month.
On February 15, 1996, the Company entered into an at-will employment
agreement with Mr. Garber. Mr. Garber agreed to serve as Vice President of
Marketing and Sales and Business Development in return for an annual salary of
$130,000, the opportunity to earn additional compensation in the form of
commissions upon the achievement of certain performance objectives, and an
option to purchase 277,313 shares of Common Stock. Upon a termination of Mr.
Garber's employment by the Company for any reason other than cause, one-half of
Mr. Garber's non-vested stock options automatically become vested, all
performance-related compensation becomes immediately payable and the Company may
elect to pay Mr. Garber his base salary for up to an 18-month period in return
for Mr. Garber's agreement not to engage in activities in competition with the
Company during such period. Upon any change of control of the Company, Mr.
Garber will be entitled to immediate vesting of all stock options or the payment
of the in-the-money value of all unvested options.
9
<PAGE> 12
On November 27, 1996, the Company entered into an at-will employment
agreement with Mr. O'Boyle. Mr. O'Boyle agreed to serve as Vice President and
Chief Financial Officer in return for the payment of an annual salary of
$130,000, the opportunity to earn additional compensation in the form of
bonuses, and an option to purchase 68,750 shares of Common Stock. Upon a
termination of Mr. O'Boyle's employment by the Company for any reason other than
cause, one-half of Mr. O'Boyle's non-vested stock options automatically become
vested, all performance related compensation becomes immediately payable and the
Company will pay Mr. O'Boyle his base salary for a 12-month period in return for
Mr. O'Boyle's agreement not to engage in activities in competition with the
Company during such period. Upon any change of control of the Company, Mr.
O'Boyle will be entitled to immediate vesting of all stock options or the
payment of the in-the-money value of all unvested options.
STOCK PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on
the Company's Common Stock for the period beginning with the commencement of the
Company's initial public offering on July 1, 1997 through December 31, 1997 with
the cumulative total return on the Nasdaq Index and the cumulative total return
for a peer group index for the same period. The peer group consists of SIC Code
3826 -- Laboratory Analytical Instruments. The comparison assumes that $100 was
invested on July 1, 1997 in the Company's Common Stock, at the initial public
offering price of $5.00 per share, and in each of the comparison indices, and
assumes reinvestment of dividends.
<TABLE>
<CAPTION>
1-Jul-97 Dec-97
<S> <C> <C>
ChromaVision 100 180
Nasdaq 100 99
Peer Group 100 100
</TABLE>
CERTAIN TRANSACTIONS
The Company entered into an Administrative Services Agreement with XL
Vision and Safeguard, as of January 1, 1997. Under this agreement, XL Vision and
Safeguard are obligated to provide the Company with administrative support
services, including management consultation, investor relations, legal services
and tax planning. In consideration for these services, the Company will pay an
annual fee of 0.75% of the Company's gross revenues each year to each of XL
Vision and Safeguard, up to a maximum of $300,000 a year in the aggregate. Fees
will accrue until the Company achieves a positive cash flow from operations. The
agreement extends through January 31, 2002 and continues thereafter unless
terminated by either party. No payments were due under this agreement in 1997.
Pursuant to the terms of the initial stock purchase agreement, the
Company paid Safeguard $50,000 for services in connection with the initial
public offering.
Until June 1997, XL Vision provided certain personnel and
administrative services to the Company. The Company also entered into a Direct
Charge Administrative Services Agreement with XL Vision as of January 1, 1997.
Under this agreement, XL Vision provides administrative services to the Company
on an hourly basis at the request of the Company. The Company pays XL Vision for
these services based upon an hourly fee. The agreement is month-to-month and may
be terminated by either party. During 1997, the fees payable to XL Vision
amounted to $260,000.
10
<PAGE> 13
The Company and XL Vision also have a separate arrangement under which
certain inter-company charges, consisting primarily of reimbursement to XL
Vision for services rendered by certain of its personnel, are paid. The terms of
this arrangement are no less favorable to the Company than could be obtained by
the Company from an unrelated third party. The highest balance payable by the
Company to XL Vision under this arrangement during 1997 was $605,280 and the
balance outstanding at year end was approximately $6,000.
In August 1997, the Company entered into a note with Safeguard that
provides for borrowings by Safeguard from the Company of up to a maximum of $5
million on a revolving basis at Safeguard's effective borrowing rate minus .75%.
This rate is higher than the Company is earning on its money market investments.
The highest principal balance of these borrowings during 1997 was $5,000,000,
which is also the current outstanding principal balance under this note.
II. PROPOSAL TO APPROVE THE COMPANY'S
AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN
THE BOARD BELIEVES THAT THE FOLLOWING PROPOSAL TO APPROVE THE COMPANY'S
AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN IS IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
OF THIS PROPOSAL. PROXIES RECEIVED BY THE BOARD WILL BE SO VOTED UNLESS
STOCKHOLDERS SPECIFY OTHERWISE ON THEIR PROXY CARDS.
BACKGROUND AND PROPOSED AMENDMENT
At the Annual Meeting, the stockholders will be asked to approve the
Company's Amended and Restated 1996 Equity Compensation Plan as adopted by the
Board in February 1998, subject to stockholder approval. The 1996 Equity
Compensation Plan, as amended and restated, is hereinafter referred to as the
"1996 Plan."
The 1996 Plan authorizes the issuance of up to 1,920,000 shares of
Common Stock upon the exercise of options granted or to be granted under the
1996 Plan. This amount represents an increase of 500,000 shares of Common Stock
over the 1,420,000 shares of Common Stock originally authorized for issuance.
As of February 18, 1998, only 25,825 shares remained available for
issuance. The Board believes that the increase in the number of shares available
for grant under the 1996 Plan will be critical to the Company's future success
by enabling the Company to recruit and retain highly qualified key employees,
motivate high levels of performance by its employees, and recognize employee
contributions to the Company's success. The Company has no specific plans to
make any awards of options at this time.
We direct your attention to Appendix A of this Proxy Statement,
incorporated herein by reference, which contains a description of the material
features of the 1996 Plan.
APPROVAL BY STOCKHOLDERS
Approval of the 1996 Plan requires the affirmative vote of a majority
of the votes cast by all stockholders entitled to vote thereon. If not so
approved, then the aggregate number of shares of Common Stock that are subject
to options granted under the 1996 Plan will not exceed 1,420,000 shares of
Common Stock.
11
<PAGE> 14
INDEPENDENT PUBLIC ACCOUNTANTS
Since its inception in 1996, the Company has retained KPMG Peat Marwick
LLP as its independent public accountants, and it intends to retain KPMG Peat
Marwick LLP for the current year ending December 31, 1998. A representative of
KPMG Peat Marwick LLP is expected to be present at the Annual Meeting, will have
an opportunity at the Annual Meeting to make a statement, if desired, and will
be available to respond to appropriate questions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers and persons who own more than ten
percent of a registered class of the Company's equity securities ("10%
Stockholders") to file reports of ownership and changes in ownership of Common
Stock and other equity securities of the Company with the Securities and
Exchange Commission ("SEC"). Officers, directors and 10% Stockholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that they file. Based solely on its review of the copies of such
forms received by it and written representations from certain reporting persons
that no other reports were required for those persons, the Company believes that
during the period from July 1, 1997 to December 31, 1997, all Section 16(a)
filing requirements applicable to its officers, directors and 10% Stockholders
were complied with.
OTHER MATTERS
The Company is not aware of any other business to be presented at the
Annual Meeting. If any other matters should properly come before the Annual
Meeting, however, the enclosed Proxy confers discretionary authority with
respect thereto.
The Company's Annual Report for 1997, including financial statements
and other information with respect to the Company and its subsidiaries, is being
mailed simultaneously to the stockholders but is not to be regarded as proxy
solicitation material.
Dated: April 28, 1998
12
<PAGE> 15
APPENDIX A
AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN
PURPOSE OF THE 1996 PLAN
The 1996 Plan was created to assist the Company in retaining and
attracting key employees, non-employee directors and independent advisors who
perform services for the Company or its subsidiaries (collectively, the
"Participants") by offering such Participants a proprietary interest in the
Company.
SHARES SUBJECT TO THE 1996 PLAN
Subject to adjustment in certain circumstances as discussed below, the
1996 Plan authorizes the issuance of up to 1,920,000 shares of Common Stock. If
and to the extent options or stock appreciation rights granted under the 1996
Plan terminate, expire or are canceled without being exercised, or if a
restricted stock award is forfeited, the shares subject to such option, stock
appreciation right, or restricted stock award will again be available for
purposes of the 1996 Plan. Of the 1,920,000 authorized shares, as of April 13,
1998, 1,391,675 shares of Common Stock are subject to outstanding options and
28,325 shares of Common Stock remain available for issuance upon the exercise of
options to be granted under the 1996 Plan. The closing price of the Company's
Common Stock on the Nasdaq National Market on April 13, 1998 was $9.875 per
share.
ADMINISTRATION OF THE 1996 PLAN
The 1996 Plan is administered by the Compensation Committee, which is
currently composed of Messrs. Moller, Morgan and Root. The Compensation
Committee currently satisfies the requirement of section 162(m) of the Internal
Revenue Code, which relates to the nondeductibility of compensation in excess of
$1,000,000 paid to certain officers of public companies in any one year but
excludes performance-based compensation, such as the grant of options and stock
appreciation rights and awards of restricted stock, which are approved by a
committee appointed by the Board consisting of not less than two persons who are
"outside directors."
The Compensation Committee is authorized to determine, from time to
time, the persons to whom awards or grants will be made, and the term, exercise
price, settlement terms, forfeiture provisions and other terms and conditions of
each award or grant. The Compensation Committee has the power to establish and
waive, in its discretion, vesting provisions for awards or grants.
ELIGIBILITY FOR PARTICIPATION AND GRANTS
Employees (including employees who are also officers or directors),
non-employee directors and eligible independent advisors of the Company or of
any subsidiary are eligible to receive grants under the 1996 Plan. As of April
13, 1998, there were seven executive officers, one non-employee director and
approximately 35 employees and 10 independent advisors considered eligible to
participate in the 1996 Plan.
Grants under the 1996 Plan may consist of incentive stock options,
non-qualified stock options, restricted stock awards, or stock appreciation
rights (hereinafter collectively referred to as "Grants"). All Grants are
subject to the terms and conditions set forth in the 1996 Plan and to those
other terms and conditions consistent with the 1996 Plan as the Compensation
Committee deems appropriate and as are specified in writing by the Compensation
Committee.
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<PAGE> 16
During the term of the 1996 Plan, no Participant may receive Grants in the
aggregate for more than 875,000 shares of Common Stock.
GRANTING OF OPTIONS
The Compensation Committee may grant options qualifying as incentive
stock options ("ISOs") within the meaning of section 422 of the Internal Revenue
Code to Participants who are employees of the Company and/or other stock options
("NQSOs") to any Participant. Such grants are made in accordance with the terms
and conditions set forth in the 1996 Plan, and grants to employees may be made
in any combination of ISOs or NQSOs (hereinafter referred to collectively as
"Stock Options").
The exercise price of Common Stock subject to Stock Options is
determined by the Compensation Committee at the time of grant, provided,
however, that the exercise price per share for an ISO may not be less than 100%
of the fair market value of the Common Stock at the time of grant. Further, an
ISO granted to a Participant who owns stock having more than 10% of the voting
power of the Company or its subsidiaries must have an exercise price of not less
than 110% of the fair market value of the Common Stock on the date of grant. The
1996 Plan provides that the aggregate fair market value (determined as of the
time an ISO is granted) of the shares with respect to which ISOs are exercisable
for the first time by a Participant during any calendar year, under the 1996
Plan and any other ISO plan of the Company or any parent or subsidiary of the
Company, cannot exceed $100,000.
The term of any Stock Option granted under the 1996 Plan may not exceed
ten years from the date of the Grant. An ISO granted to a Participant who owns
stock having more than 10% of the voting power of the Company or its
subsidiaries shall have an exercise period not greater than five years. Stock
Options will become exercisable in such installments and on such dates as the
Compensation Committee may specify. Unless otherwise determined by the
Compensation Committee at or after grant, any Stock Option held by an individual
who dies while employed by the Company or any subsidiary, or whose employment
with the Company and all subsidiaries is terminated for any reason, prior to the
expiration date of such option, will generally remain exercisable by the former
employee or his personal representative, to the extent such Stock Option was
vested and exercisable on the date of death or termination of employment, for a
period of one year in the event of an individual's death or disability or for a
period of three months following an employee's termination of employment for any
other reason. However, in the event of termination of employment for cause all
Stock Options held by the Participant shall immediately terminate at the date of
termination, and the Participant shall forfeit all shares underlying any
exercised portion of an Option for which the Company has not yet delivered the
share certificates upon refund by the Company of the exercise price paid by the
Participant for such shares.
The exercise price is payable in cash, by delivering shares of Common
Stock already owned by the Participant and having a fair market value on the
date of exercise equal to the exercise price, or with a combination of cash and
shares. Shares of Common Stock previously acquired by a Participant which are
tendered in payment of the exercise price may be subject to certain holding
periods and other requirements as set forth in the 1996 Plan. The Company also
may accept such other method of payment as the Compensation Committee may
approve, including a "cashless exercise" of a Stock Option, which may be
effected by a Participant by delivering a properly executed notice of exercise
of the Stock Option to the Company and a securities broker, with irrevocable
instructions to the securities broker promptly to deliver to the Company the
amount of sale proceeds necessary to pay the exercise price of the Stock Option.
Shares of Common Stock may not be issued or transferred upon exercise of the
Stock Option until the exercise price is paid and the withholding obligation, if
any, is fully satisfied.
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<PAGE> 17
RESTRICTED STOCK GRANTS
The Compensation Committee may award shares of Common Stock under a
Grant (a "Restricted Stock Grant") pursuant to the 1996 Plan to Participants.
Shares of Common Stock issued pursuant to a Restricted Stock Grant may be issued
for consideration or for no consideration. If a Participant's employment or
other service to the Company terminates during the period, if any, designated in
writing by the Compensation Committee at the time of the Restricted Stock Grant
during which the transfer of the shares is restricted (the "Restriction
Period"), the Restricted Stock Grant terminates with respect to all shares
covered by the Restricted Stock Grant as to which the restrictions on transfer
have not lapsed. During the Restriction Period, a Participant may not sell,
assign, transfer, pledge or otherwise dispose of the shares of Common Stock to
which such Restriction Period applies. All restrictions imposed under the
Restricted Stock Grant lapse upon the expiration of the applicable Restriction
Period. In addition, the Compensation Committee may determine as to any or all
Restricted Stock Grants that all restrictions will lapse based on service,
performance and/or such other factors or criteria as the Compensation Committee
may determine, in its sole discretion.
STOCK APPRECIATION RIGHTS
The Compensation Committee may make a Grant of stock appreciation
rights ("SARs") to Participants in tandem with any Stock Option for all or a
portion of the applicable Stock Option, either at the time the Stock Option is
granted or at any time thereafter while the Stock Option remains outstanding. In
the case of an ISO, SARs may be granted only at the time of the grant of the
ISO. The number of SARs granted to a Participant that are exercisable during any
given period of time may not exceed the number of shares of Common Stock that
the Participant may purchase upon the exercise of the related Stock Option
during such period of time. Upon the exercise of a Stock Option, the SARs
relating to the Common Stock covered by such Stock Option terminate. Upon the
exercise of SARs, the related Stock Option terminates to the extent of an equal
number of shares of Common Stock.
Upon a Participant's exercise of some or all of his or her SARs, the
Participant receives in settlement of such SARs an amount equal to the value of
the stock appreciation for the number of SARs exercised, payable in cash, Common
Stock or a combination thereof. The stock appreciation for a SAR is the
difference between the exercise price specified for the related Stock Option and
the fair market value per share of the underlying Common Stock on the date of
exercise of the SAR. The 1996 Plan provides that the exercise price of a SAR is
the exercise price of the related Stock Option or, if the SAR is granted after
the Stock Option, the fair market value of a share of Common Stock as of the
date of the Grant of the SAR.
A SAR is exercisable only during the period when the Stock Option to
which it relates is also exercisable.
TERMINATION OF THE 1996 PLAN; AMENDMENT OF OPTIONS OR THE 1996 PLAN
The Board may amend or terminate the 1996 Plan at any time, provided,
however, that no amendment or termination may be made which would impair the
rights of a Participant without the Participant's consent. Further, the Board
may not amend the 1996 Plan without stockholder approval if such approval is
required pursuant to the Internal Revenue Code or the rules of any national
securities exchange or over-the-counter market on which the Company's stock is
then listed. The 1996 Plan will terminate on December 11, 2006, unless
terminated earlier by the Board.
A termination or amendment of the 1996 Plan that occurs after a Grant
is made will not result in the termination or amendment of the Grant unless the
Participant consents or unless
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<PAGE> 18
the Compensation Committee revokes a Grant, the terms of which are contrary to
applicable law. The termination of the 1996 Plan will not impair the power and
authority of the Compensation Committee with respect to outstanding Grants.
ADJUSTMENT PROVISIONS; REORGANIZATION OF THE COMPANY
If there is any change in the number or kind of shares of Company Stock
outstanding (i) by reason of a stock dividend, spin off, recapitalization, stock
split, or combination or exchange of shares, (ii) by reason of a merger,
reorganization or consolidation in which the Company is the surviving
corporation, (iii) by reason of a reclassification or change in par value, or
(iv) by reason of any other extraordinary or unusual event affecting the
outstanding Company Stock as a class without the Company's receipt of
consideration, or if the value of outstanding shares of Company Stock is
substantially reduced as a result of a spin off or the Company's payment of an
extraordinary dividend or distribution, then unless such event or change results
in the termination of all outstanding awards under the 1996 Plan, the Committee
shall preserve the value of the outstanding awards by adjusting the maximum
number and class of shares issuable under the 1996 Plan to reflect the effect of
such event or change in the Company's capital structure, and by making
appropriate adjustments to the number and class of shares subject to an
outstanding award and/or the option price of each outstanding Option and Stock
Appreciation Right, except that any fractional shares resulting from such
adjustments shall be eliminated by rounding any portion of a share equal to 0.5
or greater up and any portion of a share equal to less than 0.5 down, in each
case to the nearest whole number.
FEDERAL INCOME TAX CONSEQUENCES
Set forth below is a general description of the federal income tax
consequences relating to Stock Options, Stock Appreciation Rights, and
Restricted Stock Grants under the 1996 Plan.
INCENTIVE STOCK OPTIONS
If the requirements regarding ISOs set forth in the 1996 Plan are met,
ISOs granted under the 1996 Plan will be afforded favorable federal income tax
treatment under the Internal Revenue Code. The Participant will not recognize
taxable income and the Company will not be entitled to a deduction upon the
grant of an ISO. Moreover, the Participant will not recognize taxable income
(except alternative minimum taxable income, if applicable) and the Company will
not be entitled to a deduction upon the exercise by the Participant of an ISO,
provided the Participant was an employee of the Company or any of its subsidiary
corporations, as defined in section 424(f) of the Internal Revenue Code, during
the entire period from the date of grant of the ISO until three months before
the date of exercise (increased to 12 months if employment ceased due to death
or total and permanent disability, or if the employee dies within a limited
period of time following termination of employment).
If the employment requirements described above are not met, the tax
consequences relating to NQSOs (discussed below) will apply.
If the Participant disposes of the shares acquired under an ISO after
at least two years following the date of grant of the ISO and at least one year
following the date of transfer of the shares to the Participant following
exercise of the ISO, the Participant will recognize a capital gain or loss equal
to the difference between the amount realized upon the disposition and the
exercise price. If the shares were held more than 12 months but not more than 18
months, any net capital gain will be taxed at a maximum rate of 28% (15% if the
individual is in the 15% bracket). If the shares were held more than 18 months,
any net capital gain is treated as long-term capital gain and will be taxed at
the rate of 20% (10% if the individual is in the 15%
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<PAGE> 19
bracket). Any net capital loss can only be used to offset up to $3,000 per year
($1,500 per year in the case of a married individual filing separately) of
ordinary income.
If the Participant makes a disqualifying disposition of the shares
(that is, disposes of the shares within two years after the date of grant of the
ISO or within one year after the transfer of the shares to the Participant), but
all other requirements of section 422 of the Internal Revenue Code are met, the
Participant will generally recognize ordinary income upon disposition of the
shares in an amount equal to the lesser of (i) the fair market value of the
shares on the date of exercise minus the exercise price, or (ii) the amount
realized on disposition minus the exercise price. Disqualifying dispositions of
shares may also, depending upon the sales price, result in either long-term or
short-term capital gain or loss under the Internal Revenue Code rules which
govern other stock dispositions.
If the requirements of section 422 of the Internal Revenue Code are not
met, the Company will be allowed a federal income tax deduction to the extent of
the ordinary income includible in the Participant's gross income in accordance
with the provisions of section 83 of the Internal Revenue Code (and section 3402
of the Internal Revenue Code, to the extent applicable) and the regulations
thereunder.
The use of shares of Common Stock received upon the exercise of an ISO
to pay the exercise price in connection with the exercise of other ISOs within
either the two-year or one-year holding periods described above will constitute
a disqualifying disposition of the shares so used which will result in income
(or loss) to the Participant and, to the extent of a recognized gain, a
deduction to the Company. If, however, these holding period requirements are met
and the number of shares received on the exercise does not exceed the number of
shares surrendered, the Participant will recognize no gain or loss with respect
to the surrendered shares, and will have the same basis and holding period with
respect to the newly acquired shares as with respect to the surrendered shares.
To the extent that the number of shares received exceeds the number surrendered,
the Participant's basis in such excess shares will equal the amount of cash paid
by the Participant upon the original exercise of the Stock Option, and the
Participant's holding period with respect to such excess shares will begin on
the date such shares are transferred to the Participant. The tax treatment
described above for shares newly received upon exercise is not affected by using
shares to pay the exercise price.
NON-QUALIFIED OPTIONS
All other Stock Options granted under the 1996 Plan are NQSOs and will
not qualify for any special tax benefits to the Participant. Under present
Treasury Regulations, the Company's Stock Options are not deemed to have a
readily ascertainable value. Accordingly, a Participant will not recognize any
taxable income at the time he or she is granted an NQSO and the Company will not
be entitled to a deduction upon the grant of an NQSO.
Generally, a Participant will recognize ordinary income at the time of
exercise of an NQSO, in an amount equal to the excess of the fair market value
of the shares at the time of such exercise over the exercise price.
The Company will be entitled to a deduction to the extent of the
ordinary income recognized by a Participant in accordance with the rules of
section 83 of the Internal Revenue Code and the regulations thereunder.
A Participant exercising an NQSO is subject to federal income tax on
the income recognized as a result of the exercise of an NQSO and federal income
tax must be withheld. The Compensation Committee, in its discretion, may permit
the Participant to elect to surrender or deliver shares otherwise issuable upon
exercise, or previously acquired shares, in
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<PAGE> 20
order to satisfy the federal income tax withholding, subject to certain
restrictions set forth in the 1996 Plan. Such an election will result in a
disposition of the shares which are surrendered or delivered, and an amount will
be included in the Participant's income equal to the excess of the fair market
value of such shares over the Participant's basis in such shares.
If the Participant pays the exercise price in cash, the basis of the
shares received by a Participant upon the exercise of an NQSO is the exercise
price paid plus the amount recognized by the Participant as income attributable
to such shares upon such exercise. If the exercise price is paid in cash, the
Participant's holding period for such shares will begin on the day after the
date on which the Participant realized income with respect to the transfer of
such Stock Option shares, i.e., generally the day after the exercise date. If
the shares are held more than 12 months but not more than 18 months, any net
capital gain realized by the Participant upon a subsequent disposition of any
such shares will be taxed at a maximum rate of 28% (15% if the individual is in
the 15% bracket). If the shares are held more than 18 months, any net capital
gain realized by the Participant upon a subsequent disposition of any such
shares will be taxed at the rate of 20% (10% if the individual is in the 15%
bracket). Any loss realized on a subsequent disposition, however, will be
treated as a capital loss and thus can only be used to offset up to $3,000 per
year ($1,500 in the case of a married individual filing separately) of ordinary
income.
If the Participant surrenders shares to pay the exercise price, and the
number of shares received on the exercise does not exceed the number of shares
surrendered, the Participant will recognize no gain or loss with respect to the
surrendered shares, and will have the same basis and holding period with respect
to the newly acquired shares as with respect to the surrendered shares. To the
extent that the number of shares received exceeds the number surrendered, the
fair market value of such excess shares on the date of exercise, reduced by any
cash paid by the Participant upon such exercise, will be includible in the gross
income of the Participant. The Participant's basis in such excess shares will
equal the sum of the cash paid by the Participant upon the exercise of the Stock
Option plus any amount included in the Participant's gross income as a result of
the exercise of the Stock Option, and the Participant's holding period with
respect to such excess shares will begin on the day following the date of
exercise.
RESTRICTED STOCK
A Participant normally will not recognize taxable income upon the award
of a Restricted Stock Grant, and the Company will not be entitled to a
deduction, until such stock is transferable by the Participant or no longer
subject to a substantial risk of forfeiture for federal tax purposes, whichever
occurs earlier. When the Common Stock is either transferable or is no longer
subject to a substantial risk of forfeiture, the Participant will recognize
ordinary compensation income in an amount equal to the fair market value of the
Common Stock at that time less any consideration paid by the Participant for
such shares and the Company will be entitled to a deduction in the same amount.
A Participant may, however, elect to recognize ordinary compensation income in
the year the Restricted Stock Grant is awarded in an amount equal to the fair
market value of the Common Stock at that time less any consideration paid by the
Participant for such shares, determined without regard to the restrictions. In
this event, the Company will be entitled to a deduction in the same year,
provided the Company complies with the applicable withholding requirements for
federal tax purposes. Any gain or loss recognized by the Participant upon
subsequent disposition of the Common Stock will be capital gain or loss. If,
after making the election, any Common Stock subject to a Restricted Stock Grant
is forfeited, or if the market value declines during the Restriction Period, the
Participant is not entitled to any tax deduction or tax refund.
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STOCK APPRECIATION RIGHTS
The Participant will not recognize any income upon the grant of a SAR.
Upon the exercise of a SAR, the Participant will recognize ordinary compensation
income in the amount of both the cash and the fair market value of the shares of
Common Stock received upon such exercise, and the Company is entitled to a
corresponding deduction, provided the Company complies with the applicable
withholding requirements for federal tax purposes. In the event that the
Participant receives shares of Common Stock upon the exercise of a SAR, the
shares so acquired will have a tax basis equal to their fair market value on the
date of transfer, and the holding period of the shares will commence on that
date for purposes of determining whether a subsequent disposition of the shares
will result in long-term or short-term capital gain or loss.
TAX WITHHOLDING
No later than the date that an amount becomes includible in a
Participant's gross income for federal tax purposes in connection with a Grant
under the 1996 Plan, a Participant who is an employee is required to pay the
Company, or make arrangements satisfactory to the Compensation Committee for the
payment of, any federal, state or local taxes required to be withheld. The
Compensation Committee, in its discretion, may permit a Participant to satisfy
the Company's income withholding obligation by having shares of Common Stock
withheld up to an amount that does not exceed the Participant's maximum marginal
tax rate for federal, state and local tax liabilities. To the extent permitted
by law, the Company may deduct any required withholding from any payment of any
kind otherwise due to the Participant. The obligations of the Company under the
1996 Plan are conditional upon the payment or arrangement for such payment of
any required withholding.
OTHER TAX CONSIDERATIONS
The 1996 Plan is not qualified under section 401(a) of the Internal
Revenue Code and is not subject to the provisions of the Employee Retirement
Income Security Act of 1984, as amended. The comments set forth in the above
paragraphs are only a summary of certain of the federal income tax consequences
relating to the 1996 Plan. No consideration has been given to the effects of
state, local or other tax laws on the Participant or the Company.
A-7
<PAGE> 22
PROXY
CHROMAVISION MEDICAL SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
I hereby constitute and appoint Douglas S. Harrington, M.D. and Kevin C.
O'Boyle, and each of them, my true and lawful agents and proxies with full power
of substitution in each, to vote all shares held of record by me as specified on
the reverse side and, in their discretion, on all other matters which may
properly come before the 1998 Annual Meeting of Stockholders of ChromaVision
Medical Systems, Inc. to be held on June 3, 1998, and at any adjournments
thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES TO THE BOARD OF DIRECTORS, FOR THE ADOPTION OF THE
AMENDED AND RESTATED 1996 EQUITY COMPENSATION PLAN, AND AS THE PROXIES MAY
DETERMINE, IN THEIR DISCRETION, WITH REGARD TO ANY OTHER MATTER PROPERLY BROUGHT
BEFORE THE MEETING.
PLEASE MARK, SIGN AND DATE THE PROXY CARD ON THE REVERSE SIDE AND RETURN
PROMPTLY USING THE ENCLOSED ENVELOPE.
FOLD AND DETACH HERE
<PAGE> 23
PLEASE MARK
YOUR VOTES AS
INDICATED IN
THIS EXAMPLE [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
1. ELECTION OF DIRECTORS FOR [ ] WITHHELD FOR ALL [ ]
Nominees: John S. Scott, Ph.D.
Douglas S. Harrington, M.D.
Christopher Moller, Ph.D.
Richard C. E. Morgan
Charles A. Root
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL WHILE
VOTING FOR THE REMAINDER, STRIKE A LINE THROUGH THE
NOMINIEE'S NAME IN THE LIST.
2. AMENDED AND RESTATED 1996 EQUITY FOR [ ] AGAINST [ ] ABSTAIN [ ]
COMPENSATION PLAN
Signature(s)__________________________________________________ Date ____________
THIS PROXY MUST BE SIGNED EXACTLY AS NAME APPEARS HEREIN. Joint tenants must
both sign. When signing as attorney, executor, administrator, trustee or
guardian, or for a corporation or partnership, please give full title.
FOLD AND DETACH HERE
<PAGE> 1
CHROMAVISION MEDICAL SYSTEMS, INC.
1996 EQUITY COMPENSATION PLAN
SECTION 1. PURPOSE; DEFINITIONS
The purpose of the ChromaVision Medical Systems, Inc. 1996 Equity
Compensation Plan (the "Plan") is to provide employees (including employees who
are also officers or directors), non-employee directors, advisory board members
and Eligible Independent Contractors (as hereinafter defined) of ChromaVision
Medical Systems, Inc. (the "Company") with the opportunity to receive grants of
incentive stock options, nonqualified stock options, stock appreciation rights
and restricted stock awards. The Company believes that the Plan will enable the
Company to attract, retain and motivate its employees, non-employee directors,
advisory board members and Eligible Independent Contractors, will encourage Plan
participants to contribute materially to the growth of the Company for the
benefit of the Company's stockholders, and will align the economic interests of
the Plan participants with those of the stockholders.
For the purposes of the Plan, the following terms shall be defined as
set forth below:
a. "Board" means the Board of Directors of the Company.
b. "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
c. "Committee" means the Committee designated by the Board to
administer the Plan.
d. "Company" means ChromaVision Medical Systems, Inc., its subsidiaries
or any successor organization.
e. "Disability" means permanent and total disability within the meaning
of Section 22(e)(3) of the Code.
f. "Eligible Independent Contractor" means an independent consultant or
advisor hired by the Company to provide bona fide services for the Company that
are not in connection with the offer or sale of securities in a capital-raising
transaction.
g. "Employed by the Company" shall mean employment as an employee,
Eligible Independent Contractor, member of any advisory board, or member of the
Board, so that for purposes of exercising Stock Options and Stock Appreciation
Rights and satisfying conditions with respect to Restricted Stock Grants, a
Participant shall not be considered to have terminated employment until the
Participant ceases to be an employee, Eligible Independent Contractor, member of
any advisory board, or member of the Board; provided, however, that the
Committee may determine otherwise as may be specified in an individual
Participant's Grant Letter.
<PAGE> 2
h. "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
i. "Fair Market Value" means the fair market value of the Stock as
determined by the Committee in good faith based on the best available facts and
circumstances at the time; provided, however, that where there is a public
market for the Stock and the Stock is registered under the Exchange Act, Fair
Market Value shall mean the per share or aggregate value of the Stock as of any
given date, determined as follows: (i) if the principal trading market for the
Stock is a national securities exchange or the Nasdaq National Market, the last
reported sale price thereof on the relevant date or, if there were no trades on
that date, the latest preceding date upon which a sale was reported, or (ii) if
the Stock is not principally traded on such exchange or market, the mean between
the last reported "bid" and "asked" prices of Stock on the relevant date, as
reported on Nasdaq or, if not so reported, as reported by the National Daily
Quotation Bureau, Inc. or as reported in a customary financial reporting
service, as applicable and as the Committee determines.
j. "Grant" means any Stock Option, Stock Appreciation Right or
Restricted Stock award granted pursuant to the Plan.
k. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
l. "Insider" means a Participant who is subject to Section 16 of the
Exchange Act.
m. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
n. "Participant" means an employee, non-employee director or Eligible
Independent Contractor to whom an award is granted pursuant to the Plan.
o. "Plan" means the ChromaVision Medical Systems, Inc. 1996 Equity
Compensation Plan, as hereinafter amended from time to time.
p. "Restricted Stock" means an award of shares of Stock that is subject
to restrictions pursuant to Section 7 below.
q. "Securities Act" shall mean the Securities Act of 1933, as amended.
r. "Securities Broker" means the registered securities broker
acceptable to the Company who agrees to effect the cashless exercise of an
Option pursuant to Section 5(d) hereof.
s. "Stock" means the Common Stock of the Company, $.01 par value per
share.
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<PAGE> 3
t. "Stock Appreciation Right" means the right, pursuant to an award
granted under Section 6 below, to surrender to the Company all (or a portion) of
a Stock Option in exchange for an amount in cash and/or shares of Stock equal in
value to the excess of (i) the Fair Market Value, as of the date such right is
exercised and the related Stock Option (or such portion thereof) is surrendered,
of the shares of Stock covered by such Stock Option (or such portion thereof),
over (ii) the aggregate exercise price of such Stock Appreciation Right (or such
portion thereof).
u. "Stock Option" or "Option" means any option to purchase shares of
Stock (including Restricted Stock, if the Committee so determines) granted
pursuant to Section 5 below.
v. "Termination for Cause" shall mean, except to the extent specified
otherwise by the Committee, a finding by the Committee that the Participant has
breached his or her employment or service contract, non-competition or other
obligation with the Company, or has been engaged in disloyalty to the Company,
including, without limitation, fraud, embezzlement, theft, commission of a
felony or proven dishonesty in the course of his or her employment or service,
or has disclosed trade secrets or confidential information of the Company to
persons not entitled to receive such information.
SECTION 2. ADMINISTRATION
The Plan shall be administered by a Committee which shall consist of
two or more non-employee directors appointed by the Board. In the absence of the
designation of a Committee to administer the Plan, the Plan shall be
administered by the full Board.
The Committee shall have the authority to:
(a) select the Participants to whom Grants may from time to time be
made hereunder;
(b) determine the type, size and terms of the Grants to be made to each
such Participant;
(c) determine the time when the Grants will be made and the duration of
any applicable exercise or restriction period, including the criteria for
exercisability and the acceleration of exercisability;
(d) amend the terms of any outstanding award (with the consent of the
Participant) to reflect terms not otherwise inconsistent with the Plan,
including, but not limited to, amendments concerning vesting acceleration or
forfeiture waiver regarding any award or the extension of a Participant's right
with respect to Grants under the Plan as a result of termination of employment
or service or otherwise, based on such factors as the Committee shall determine,
in its sole discretion, or substitution of new Stock Options for previously
granted Stock Options, including previously granted Stock Options having high
option prices;
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<PAGE> 4
(e) establish from time to time any policy or program to encourage or
require Participants to achieve or maintain equity ownership in the Company
through the use of the Plan upon such terms and conditions as the Committee may
determine in its sole discretion, and thereafter to amend, modify or terminate
such policy or program as the Committee may from time to time deem appropriate;
and
(f) deal with any other matters arising under the Plan.
The Committee shall have full power and authority to administer and
interpret the Plan and any Grant made under the Plan, to make factual
determinations and to adopt, alter and repeal such administrative rules,
guidelines, practices, agreements and instruments for implementing the Plan and
for the conduct of its business as it deems necessary or advisable, in its sole
discretion. All decisions made by the Committee pursuant to the provisions of
the Plan shall be final and binding on all persons having any interest in the
Plan or in any Grants made hereunder. All power of the Committee shall be
executed in its sole discretion, in the best interest of the Company, not as a
fiduciary, and in keeping with the objectives of the Plan.
No member of the Board or the Committee shall be liable for any action
or determination made in good faith with respect to the Plan or any Grant made
under it. Nothing herein shall be deemed to expand the personal liability of a
member of the Board or Committee beyond that which may arise under any
applicable standards set forth in the Company's Articles of Incorporation,
by-laws and Delaware law, nor shall anything herein limit any rights to
indemnification or advancement of expenses to which any member of the Board or
the Committee may be entitled under any applicable law, the Company's Articles
of Incorporation or by-laws, agreement, vote of the stockholders or directors,
or otherwise.
SECTION 3. STOCK SUBJECT TO THE PLAN
(a) The aggregate number of shares of Stock that may be issued or
transferred under the Plan is 1,920,000 subject to adjustment pursuant to
Section 3(b) below. Such shares may be authorized but unissued shares or
reacquired shares of Stock, including shares purchased by the Company on the
open market for purposes of the Plan. In the event the number of shares of Stock
issued under the Plan and the number of shares of Stock subject to outstanding
awards equals the maximum number of shares of Stock authorized under the Plan,
no further awards shall be made unless the Plan is amended to increase the
number of shares of Stock issuable and transferable hereunder or additional
shares of Stock become available for further awards under the Plan. If and to
the extent that Options or Stock Appreciation Rights granted under the Plan
terminate, expire or are canceled, forfeited, exchanged or surrendered without
having been exercised, or if any shares of Restricted Stock are forfeited, the
shares subject to such Grants shall again be available for subsequent awards
under the Plan.
(b) If there is any change in the number or kind of shares of Company
Stock outstanding (i) by reason of a stock dividend, spin off, recapitalization,
stock split, or
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<PAGE> 5
combination or exchange of shares, (ii) by reason of a merger, reorganization or
consolidation in which the Company is the surviving corporation, (iii) by reason
of a reclassification or change in par value, or (iv) by reason of any other
extraordinary or unusual event affecting the outstanding Company Stock as a
class without the Company's receipt of consideration, or if the value of
outstanding shares of Company Stock is substantially reduced as a result of a
spin off or the Company's payment of an extraordinary dividend or distribution,
then unless such event or change results in the termination of all outstanding
awards under the Plan, the Committee shall preserve the value of the outstanding
awards by adjusting the maximum number and class of shares issuable under the
Plan to reflect the effect of such event or change in the Company's capital
structure, and by making appropriate adjustments to the number and class of
shares subject to an outstanding award and/or the option price of each
outstanding Option and Stock Appreciation Right, except that any fractional
shares resulting from such adjustments shall be eliminated by rounding any
portion of a share equal to .5 or greater up, and any portion of a share equal
to less than .5 down, in each case to the nearest whole number.
SECTION 4. ELIGIBILITY; PARTICIPANT LIMITATIONS CONCERNING ISSUANCES
All employees, non-employee directors and Eligible Independent
Contractors are eligible to participate in the Plan. The maximum aggregate
number of shares of Stock that shall be subject to Grants made under the Plan to
any Participant shall not exceed 875,000. The terms and provisions of Grants
made under the Plan may vary between Participants or as to the same Participant
to whom more than one Grant may be awarded.
SECTION 5. STOCK OPTIONS
Stock Options may be granted alone, in addition to, or in tandem with
other awards granted under the Plan. Any Stock Option granted under the Plan
shall be in such form as the Committee may from time to time approve. Stock
Options granted under the Plan may be of two types: (i) Incentive Stock Options
and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant Incentive Stock
Options, Non-Qualified Stock Options or both types of Stock Options (in each
case with or without Stock Appreciation Rights). To the extent that any Stock
Option does not qualify as an Incentive Stock Option, it shall constitute a
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify the Plan under Section 422 of the Code, or,
without the consent of the Participant affected, to disqualify any Incentive
Stock Option under Section 422.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
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<PAGE> 6
(a) OPTION PRICE. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant,
provided, however, that the option price per share for any Incentive Stock
Option shall be not less than 100% of the Fair Market Value of the Stock at the
time of grant.
Any Incentive Stock Option granted to any Participant who, at
the time the Option is granted, owns more than 10% of the voting power of all
classes of stock of the Company or of a Parent or Subsidiary corporation (within
the meaning of Section 424 of the Code), shall have an exercise price no less
than 110% of the Fair Market Value per share on the date of the grant.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten years after
the date the Stock Option is granted. However, any Incentive Stock Option
granted to any Participant who, at the time the Option is granted, owns more
than 10% of the voting power of all classes of stock of the Company or of a
Parent or Subsidiary corporation may not have a term of more than five years. No
Stock Option may be exercised by any person after expiration of the term of the
Stock Option.
(c) EXERCISABILITY. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at or after grant. If the Committee provides, in its discretion, that
any Stock Option is exercisable only in installments, the Committee may waive
such installment exercise provisions at any time at or after grant in whole or
in part, based on such factors as the Committee shall determine, in its sole
discretion.
(d) METHOD OF EXERCISE. Subject to whatever installment exercise
provisions apply under Section 5(c), Stock Options may be exercised, in whole or
in part at any time and from time to time during the Option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the purchase
price, either by cash, check, or such other instrument as the Committee may
accept. As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of unrestricted
Stock already owned by the Participant (including Company Stock acquired in
connection with the exercise of an Option, subject to such restrictions as the
Committee deems appropriate); provided, however, that (i) in the case of an
Incentive Stock Option, the right to make a payment in the form of unrestricted
Stock already owned by the Participant may be authorized only at the time the
Option is granted and (ii) the Company may require that the Stock has been owned
by the Participant for the requisite period of time necessary to avoid a charge
to the Company's earnings for financial reporting purposes and adverse
accounting consequences to the Company with respect to the Option.
If specified by the Committee in the agreement governing a
Stock Option at the time of grant, the Committee may, in its sole discretion,
upon receipt of such Participant's written notice to exercise, elect to cash out
all or part of the portion of the Stock Option to be exercised by paying the
Participant an amount, in cash or
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<PAGE> 7
Stock, equal to the excess of the Fair Market Value of the Stock over the option
price on the effective date of such cash-out.
To the extent permitted under the applicable laws and
regulations, at the request of the Participant and if authorized by the
Committee, in its sole discretion, at or after grant, the Company agrees to
cooperate in a "cashless exercise" of a Stock Option. The cashless exercise
shall be effected by the Participant delivering to the Securities Broker
instructions to sell a sufficient number of shares of Stock to cover the cost
and expenses associated therewith.
No shares of Stock shall be issued until full payment therefor
has been made. A Participant shall not have any right to dividends or other
rights of a stockholder with respect to shares subject to the Option until such
time as Stock is issued in the name of the Participant following exercise of the
Option in accordance with the Plan.
(e) STOCK OPTION AGREEMENT. Each Option granted under this Plan shall
be evidenced by an appropriate Stock Option agreement, which agreement shall
expressly specify whether such Option is an Incentive Stock Option or a
Non-Qualified Stock Option and shall be executed by the Company and the
Participant. The agreement shall contain such terms and provisions, not
inconsistent with the Plan, as shall be determined by the Committee.
(f) REPLACEMENT OPTIONS. The Committee may, in its sole discretion and
at the time of the original option grant, authorize the Participant to
automatically receive replacement Options pursuant to this part of the Plan. Any
such replacement option shall be granted upon such terms and subject to such
conditions and limitations as the Committee may deem appropriate. Any
replacement option shall cover a number of shares determined by the Committee,
but in no event more than the number of shares equal to the number of shares of
the original option exercised. The per share exercise price of any replacement
option shall equal the then current Fair Market Value of a share of Stock, and
shall have a term as determined by the Committee at the time of grant of the
original Option.
The Committee shall have the right, and may reserve the right
in any Option grant, in its sole discretion and at any time, to discontinue the
automatic grant of replacement options if it determines the continuance of such
grants to no longer be in the best interest of the Company.
(g) NON-TRANSFERABILITY OF OPTIONS. Except as provided below, no Stock
Option shall be transferable by the Participant other than by will or by the
laws of descent and distribution, and all Stock Options shall be exercisable,
during the Participant's lifetime, only by the Participant. When a Participant
dies, the representative or other person entitled to succeed to the rights of
the Grantee may exercise such rights, subject to the Company receiving
satisfactory proof of his or her right to receive the Grant under the
Participant's will or under the applicable laws of descent and distribution.
Notwithstanding the foregoing, the Committee may provide, at or after Grant,
that a Participant may transfer Nonqualified Stock Options pursuant
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<PAGE> 8
to a domestic relations order or to family members or other persons or entities
according to such terms as the Committee may determine.
(h) TERMINATION OF EMPLOYMENT; DISABILITY; DEATH
(i) Unless otherwise determined by the Committee at or after
grant, in the event of a Participant's termination of employment
(voluntary or involuntary) for any reason other than as provided below,
any Stock Option held by such Participant may thereafter be exercised
by the Participant, to the extent it was exercisable at the time of
such termination or on such accelerated basis as the Committee may
determine at or after grant, for a period of three months (or such
shorter period as the Committee may specify at grant) from the date of
such termination of employment or until the expiration of the stated
term of such Stock Option, whichever period is shorter.
(ii) Unless otherwise determined by the Committee at or after
grant, if any Participant ceases to be employed by the Company on
account of a Termination for Cause by the Company, any Stock Option
held by such Participant shall terminate as of the date the Participant
ceases to be employed by the Company, and the Participant shall
automatically forfeit all Stock underlying any exercised portion of an
Option for which the Company has not yet delivered the share
certificates, upon refund by the Company of the Exercise Price paid by
the Participant for such Stock.
(iii) Unless otherwise determined by the Committee at or after
grant, if a Participant's employment by the Company terminates by
reason of Disability, any Stock Option held by such Participant may
thereafter be exercised by the Participant, to the extent it was
exercisable at the time of termination, or on such accelerated basis as
the Committee may determine at or after grant, for a period of one year
(or such shorter period as the Committee may specify at grant) from the
date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is shorter.
(iv) Unless otherwise determined by the Committee at or after
grant, if any Participant dies while employed by the Company or within
three months after the date on which the Participant ceases to be
employed by the Company on account of termination of employment
specified in Section 5(h)(i) above (or within such other period of time
as may be specified by the Committee), any Stock Option held by such
Participant may thereafter be exercised, to the extent then exercisable
or on such accelerated basis as the Committee may determine at or after
grant, by the legal representative of the estate or by the legatee of
the Participant under the will of the Participant, for a period of one
year (or such shorter period as the Committee may specify at grant)
from the date of such termination of employment or until the expiration
of the stated term of such Stock Option, whichever period is shorter.
(i) INCENTIVE STOCK OPTION LIMITATION. The aggregate Fair Market
Value (determined as of the time of grant) of the Stock with respect to which
Incentive Stock
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<PAGE> 9
Options are exercisable for the first time by the Participant during any
calendar year under the Plan and/or any other stock option plan of the Company
shall not exceed $100,000. An Incentive Stock Option shall not be granted to any
person who is not an employee of the Company or a parent or subsidiary (within
the meaning of section 424(f) of the Code).
(j) ISSUANCE OF SHARES. Within a reasonable time after exercise of an
Option, the Company shall cause to be delivered to the Participant a certificate
for the Stock purchased pursuant to the exercise of the Option.
SECTION 6. STOCK APPRECIATION RIGHTS
(a) GRANT AND EXERCISE. Stock Appreciation Rights may be granted either
separately or in tandem with all or part of any Stock Option granted under the
Plan. The provisions of Stock Appreciation Rights awarded under the Plan need
not be the same with respect to each Participant. In the case of a Non-Qualified
Stock Option, such rights may be granted either at the grant of such Stock
Option or at any time thereafter while the Option remains outstanding. In the
case of an Incentive Stock Option, such rights may be granted only at the time
of the grant of such Stock Option. The Committee shall establish the base amount
of the Stock Appreciation Rights at the time the Stock Appreciation Right is
granted. Unless the Committee determines otherwise, the base amount of each
Stock Appreciation Right shall be equal to the per share option price of the
related Stock Option or, if there is no related Stock Option, the Fair Market
Value of a share of Stock as of the date of grant of such Stock Appreciation
Right.
A Stock Appreciation Right or applicable portion thereof
granted with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option, except
that, unless otherwise determined by the Committee, in its sole discretion, at
the time of grant, a Stock Appreciation Right granted with respect to less than
the full number of shares covered by a related Stock Option shall not be reduced
until the number of shares covered by an exercise or termination of the related
Stock Option exceeds the number of shares not covered by the Stock Appreciation
Right.
A Stock Appreciation Right may be exercised by a Participant,
in accordance with Section 6(b), by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the Participant shall be
entitled to receive an amount determined in the manner prescribed in Section
6(b). Stock Options which have been so surrendered, in whole or in part, shall
no longer be exercisable to the extent the related Stock Appreciation Rights
have been exercised.
(b) TERMS AND CONDITIONS. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that the Stock Options to which
they relate, if any,
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<PAGE> 10
shall be exercisable in accordance with the provisions of Section 5 and
this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, a
Participant shall be entitled to receive up to, but not more than, an
amount in cash and/or shares of Stock equal in value to the excess of
the Fair Market Value of one share of Stock (as of the date the Stock
Appreciation Right is exercised and the related Stock Option is
surrendered) over the exercise price of the Stock Appreciation Right,
multiplied by the number of shares of Stock in respect of which the
Stock Appreciation Right shall have been exercised, with the Committee
having the right to determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option would be
transferable under Section 5(g) of the Plan.
(iv) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market
price of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Stock Option.
SECTION 7. RESTRICTED STOCK
(a) ADMINISTRATION. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the employees, non-employee directors or Eligible Independent
Contractors to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be awarded, the price (if any) to be paid
by the recipient of Restricted Stock (subject to Section 7(b)), the time or
times within which such awards may be subject to forfeiture, and all other
conditions of the awards. The Committee may condition the grant of Restricted
Stock upon the attainment of specified performance goals or such other factors
as the Committee may determine, in its sole discretion. The provisions of
Restricted Stock awards need not be the same with respect to each Participant.
(b) AWARDS AND CERTIFICATES. The prospective recipient of a Restricted
Stock award shall not have any rights with respect to such award unless and
until such recipient has executed an agreement evidencing the award and has
delivered a fully executed copy thereof to the Company, and has otherwise
complied with the applicable terms and conditions of such award.
(i) The purchase price for shares of Restricted Stock shall be
established by the Committee and may be zero.
(ii) Awards of Restricted Stock may be accepted within a
period of 60 days (or such shorter period as the Committee may specify
at grant) after the grant date, by executing a Restricted Stock award
agreement and paying whatever price (if any) is required under Section
7(b)(i).
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<PAGE> 11
(iii) Each Participant receiving a Restricted Stock award
shall be issued a certificate in respect of such shares of Restricted
Stock. Such certificate shall be registered in the name of such
Participant, and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such award,
substantially in the following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the ChromaVision Medical
Systems, Inc. 1996 Equity Compensation Plan and an Agreement
entered into between the registered owner and ChromaVision
Medical Systems, Inc. Copies of such Plan and Agreement are on
file at the offices of ChromaVision Medical Systems, Inc."
(iv) The Committee shall require that the certificates
evidencing such Restricted Stock be held in custody by the Company
until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award, the Participant shall have
delivered a stock power, endorsed in blank, relating to the Stock
covered by such award.
(c) RESTRICTIONS AND CONDITIONS. The shares of Restricted Stock awarded
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the Restricted
Stock award agreement, during a period set by the Committee commencing
with the date of such award (the "Restriction Period"), the Participant
shall not be permitted to sell, transfer, pledge, assign or otherwise
encumber shares of Restricted Stock awarded under the Plan. Within
these limits, the Committee, at its sole discretion, may provide for
the lapse of such restrictions in installments and may accelerate or
waive such restrictions in whole or in part, based on service,
performance and/or such other factors or criteria as the Committee may
determine, in its sole discretion.
(ii) Except as provided in this paragraph (ii) and Section
7(c)(i), the Participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a stockholder of the Company,
including the right to vote the shares and the right to receive any
cash dividends. The Committee, in its sole discretion, as determined at
the time of award, may permit or require the payment of cash dividends
to be deferred and, if the Committee so determines, reinvested in
additional Restricted Stock to the extent shares are available under
Section 3.
(iii) Subject to the applicable provisions of the Restricted
Stock award agreement and this Section 7, upon termination of a
Participant's employment with the Company for any reason during the
Restriction Period, all shares still subject to restriction shall be
forfeited by the Participant, subject to any
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payments for such shares as may be provided in the Restricted Stock
award agreement.
(iv) The Committee may, in its sole discretion, waive in whole
or in part any or all remaining restrictions with respect to such
Participant's shares of Restricted Stock, based on such factors as the
Committee may deem appropriate.
(v) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period,
the certificates for such shares shall be delivered to the Participant
promptly.
SECTION 8. WITHHOLDING AND USE OF SHARES TO SATISFY TAX OBLIGATIONS
(a) Required Withholding. All Grants under the Plan shall be subject to
applicable federal (including FICA), state and local withholding requirements.
The Company shall have the right to deduct from all Grants paid in cash, or from
other wages paid to the Participant, any federal, state or local taxes required
by law to be withheld with respect to such Grants. In the case of Grants paid in
Company Stock, the Company may require the Participant or other person receiving
such Stock to pay to the Company the amount of any such taxes that the Company
is required to withhold with respect to such Grants, or the Company may deduct
from other wages paid by the Company the amount of any withholding taxes due
with respect to such Grants.
(b) Election to Withhold Shares. If the Committee so permits, a
Participant may elect to satisfy the Company's income tax withholding obligation
with respect to a Grant paid in Company Stock by having shares withheld up to an
amount that does not exceed the Participant's maximum marginal tax rate for
federal (including FICA), state and local tax liabilities. The election must be
in a form and manner prescribed by the Committee and shall be subject to the
prior approval of the Committee.
SECTION 9. AMENDMENTS AND TERMINATION
The Board may amend or terminate the Plan at any time and from time to
time, but no amendment or termination shall be made which would impair the
rights of a Participant under a Grant theretofore awarded without the
Participant's consent; and provided, further, that the Board shall not amend the
Plan without stockholder approval if such approval is required pursuant to the
Code or the rules of any national securities exchange or over-the-counter market
on which the Company's Stock is then listed or included. Subject to the above
provisions, the Board shall have broad authority to amend the Plan to take into
account changes in applicable tax laws, securities laws and accounting rules, as
well as other developments.
SECTION 10. UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an "unfunded" plan. The Company
shall not be required to establish any special or separate fund or to make any
other segregation
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of assets to assure the payment of any Grants under this Plan. In no event shall
interest be paid or accrued on any Grant, including unpaid installments of
Grants.
SECTION 11. GENERAL PROVISIONS
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option or receiving Stock upon the expiration of any Restriction Period
under the Plan to represent to and agree with the Company in writing that the
Participant is acquiring the shares for investment and not with a view to
distribution thereof and that such Participant will not dispose of such Stock in
any manner that would involve a violation of applicable securities laws. In such
event no Stock shall be issued to such Participant unless and until the Company
is satisfied with such representation. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer under the Securities Act or any state securities law.
All certificates for shares of Stock or other securities
delivered under the Plan shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations
and other requirements of the Securities Act, the Exchange Act, any stock
exchange or over-the-counter market upon which the Stock is then listed or
included, and any applicable federal or state securities law, and the Committee
may cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required, and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any Participant any
right to continued employment with the Company nor shall it interfere in any way
with the right of the Company to terminate its relationship with any of its
employees, directors or independent contractors at any time.
(d) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that (i) the shares of Stock received as a result
of such grant shall be subject to a right of first refusal, pursuant to which
the Participant shall be required to offer to the Company any shares that the
Participant wishes to sell, with the price being the then Fair Market Value of
the Stock, subject to such other terms and conditions as the Committee may
specify at the time of grant; and (ii) the shares of Stock received or to be
received as a result of such grant shall be subject to repurchase by the Company
upon termination of employment, subject to a repurchase price and such other
terms and conditions as the Committee may specify at the time of grant.
(e) The reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient shares of
Stock are available under Section 3 for such reinvestment.
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(d) The Committee shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom any amounts
payable in the event of the Participant's death are to be paid.
(e) The Plan shall be governed by and subject to all applicable laws
and to the approvals by any governmental or regulatory agency as may be
required.
SECTION 12. EFFECTIVE DATE AND TERM OF PLAN
The Plan shall be effective as December 12, 1996, subject to the
consent or approval of the Company's stockholders. No Stock Option, Stock
Appreciation Right or Restricted Stock award shall be granted pursuant to the
Plan on or after December 11, 2006, but awards granted prior to such tenth
anniversary may extend beyond that date; provided, however, that if the Plan is
not approved by the unanimous consent of all stockholders or by a majority of
the votes cast at a duly held meeting at which a quorum representing a majority
of all outstanding voting stock of the Company is, either in person or by proxy,
present and voting on the Plan, within 12 months after said date, the Plan and
all Grants awarded hereunder shall be null and void and no additional Grants
shall be awarded hereunder.
SECTION 13. INTERPRETATION
A determination of the Committee as to any question which may arise
with respect to the interpretation of the provisions of this Plan or any Grants
awarded thereunder shall be final and conclusive, and nothing in this Plan, or
in any regulation hereunder, shall be deemed to give any Participant, his legal
representatives, assigns or any other person any right to participate herein
except to such extent, if any, as the Committee may have determined or approved
pursuant to this Plan. The Committee may consult with legal counsel who may be
counsel to the Company and shall not incur any liability for any action taken in
good faith in reliance upon the advice of such counsel.
SECTION 14. GOVERNING LAW.
With respect to any Incentive Stock Options granted pursuant to the
Plan and the agreements thereunder, the Plan, such agreements and any Incentive
Stock Options granted pursuant thereto shall be governed by the applicable Code
provisions to the maximum extent possible. Otherwise, the laws of the State of
Delaware shall govern the operation of, and the rights of Participants under,
the Plan, the agreements and any Grants awarded thereunder.
SECTION 15. COMPLIANCE WITH SECTION 16b OF THE EXCHANGE ACT.
Unless an Insider could otherwise transfer shares of Stock issued
hereunder without incurring liability under Section 16b of the Exchange Act, at
least six months must elapse from the date of grant of an Option, Stock
Appreciation Right or
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Restricted Stock award to the date of disposition of the Stock issued upon
exercise of such Option or Stock Appreciation Right or grant of such Restricted
Stock award.
