<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):
<PAGE> 2
(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> 3
[COMPANY LOGO]
33171 PASEO CERVEZA
SAN JUAN CAPISTRANO, CA 92675-4824
PHONE: (949) 443-3355
TOLL-FREE: (888) 443-3310
FAX: (949) 443-3366
INTERNET: WWW.CHROMAVISION.COM
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
You are invited to attend the ChromaVision Medical Systems, Inc. 2000 Annual
Meeting of Stockholders.
DATE: Wednesday, June 7, 2000
TIME: 8:30 a.m. Pacific time
PLACE: Hyatt Regency, Irvine
17900 Jamboree Road
Irvine, CA 92614
(949) 975-1234
DIRECTIONS: Included on the last page
No admission tickets are required. Only stockholders who owned stock at the
close of business on April 20, 2000, can vote at this meeting or any
adjournments that may take place.
At the meeting, we will
- - elect seven directors,
- - request approval of an amendment to the 1996 Equity Compensation Plan, and
- - attend to any other business properly presented at the meeting.
We also will report on our 1999 business results and other matters of interest
to our stockholders. You will have an opportunity at the meeting to ask
questions, make comments, and meet our management team.
OUR BOARD OF DIRECTORS IS A VITAL RESOURCE. WE CONSIDER YOUR VOTE IMPORTANT, NO
MATTER HOW MANY SHARES YOU HOLD, AND WE ENCOURAGE YOU TO VOTE AS SOON AS
POSSIBLE.
<PAGE> 4
The proxy statement, accompanying proxy card, and 1999 annual report are being
mailed to stockholders beginning approximately May 8, 2000, in connection with
the solicitation of proxies by the board of directors.
Please contact Allison Wlodyka in Investor Relations at (888) 443-3310 with any
questions or concerns.
Sincerely,
/s/ Douglas S. Harrington
Douglas S. Harrington, M.D.
Chief Executive Officer and President
April 28, 2000
<PAGE> 5
- -------------------------------------------------------------------------------
QUESTIONS AND ANSWERS
- -------------------------------------------------------------------------------
Q: WHO IS ENTITLED TO VOTE?
A: Stockholders of record as of the close of business on April 20, 2000 may
vote at the annual meeting.
Q: HOW MANY SHARES CAN VOTE?
A: On April 20, 2000, there were 19,503,948 shares issued and outstanding.
Every stockholder may cast one vote for each share owned.
Q: WHAT MAY I VOTE ON?
A: You may vote on the following items:
- the election of seven directors who have been nominated to serve on
our board of directors,
- approval of the amendment to our 1996 Equity Compensation Plan, and
- any other business that is properly presented at the meeting.
Q: HOW DOES THE BOARD RECOMMEND I VOTE ON EACH PROPOSAL?
A: The board recommends a vote FOR each board nominee and FOR the amendment
to the 1996 Equity Compensation Plan.
Q: HOW DO I VOTE?
A: Sign and date each proxy card you receive, mark the boxes indicating how
you wish to vote, and return the proxy card in the prepaid envelope
provided.
If you sign your proxy card but do not mark any boxes showing how you wish
to vote, Douglas Harrington and Kevin O'Boyle will vote your shares as
recommended by the board of directors.
Q: WHAT IF I HOLD MY CHROMAVISION SHARES IN A BROKERAGE ACCOUNT?
A: If you hold your ChromaVision shares through a broker, bank or other
nominee, you will receive a voting instruction form directly from the
nominee describing how to vote your shares. This form will, in most cases,
offer you three ways to vote:
1. by telephone,
2. via the Internet, or
3. by returning the form to your broker.
Your vote by telephone or Internet will help us save money. Remember, if
you vote by telephone or Internet, do not return your voting instruction
form.
Q: WHAT IF I WANT TO CHANGE MY VOTE?
A: You may change your vote at any time before the meeting in any of the
following three ways:
1. notify our corporate secretary, Kevin O'Boyle, in writing,
2. vote in person at the meeting, or
3. submit a proxy card with a later date.
If you hold your shares through a broker, bank or other nominee and wish
to vote at the meeting, you must obtain a legal proxy from that nominee
authorizing you to vote at the meeting. We will be unable to accept a vote
from you at the meeting without that form. If you hold your shares
directly and wish to vote at the meeting, no additional forms will be
required.
Q: HOW WILL DIRECTORS BE ELECTED?
A: The seven nominees who receive the highest number of affirmative votes at
a meeting at which a quorum is present will be elected as directors.
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QUESTIONS AND ANSWERS
- -------------------------------------------------------------------------------
Q: WHAT VOTE IS REQUIRED TO ADOPT THE AMENDMENT TO THE 1996 EQUITY
COMPENSATION PLAN?
A: To approve the amendment to the plan, a quorum must be present and voting
on the amendment, and a majority of the votes cast must be in favor of the
amendment.
Q: WHO WILL COUNT THE VOTES?
A: A representative of ChromaVision will count the votes and act as the
inspector of election.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: Your shares may be registered differently or may be in more than one
account. We encourage you to have all accounts registered in the exact
same name and address (whenever possible). You may obtain information
about how to do this by contacting our transfer agent:
ChaseMellon Shareholder Services
P.O. Box 3315
S. Hackensack, NJ 07606-1915
Toll-free telephone (800) 851-9677
If you provide ChaseMellon with photocopies of the proxy cards that you
receive or with the account numbers that appear on each proxy card, it
will be easier to accomplish this.
You also can find information on transferring shares and other useful
stockholder information on their web site at www.chasemellon.com.
Q: WHAT IS A QUORUM?
A: A quorum is a majority of the outstanding shares. The shares may be
represented at the meeting either in person or by proxy. To hold the
meeting, there must be a quorum present.
Q: WHAT IS THE EFFECT IF I ABSTAIN OR FAIL TO GIVE INSTRUCTIONS TO MY BROKER?
A: If you submit a properly executed proxy, your shares will be counted as
part of the quorum even if you abstain from voting or withhold your vote
for a particular director.
Broker non-votes also are counted as part of the quorum. A broker non-vote
occurs when banks, brokers or other nominees holding shares on behalf of a
stockholder do not receive voting instructions from the stockholder by a
specified date before the meeting. In this event, banks, brokers and other
nominees may vote those shares on matters deemed routine. The election of
directors is considered a routine matter. The amendment to the 1996 Equity
Compensation Plan is considered a non-routine matter. Therefore, brokers,
banks or other nominees will not be able to vote on the amendment to the
1996 Equity Compensation Plan without instructions from the stockholder.
This will result in a "broker non-vote" on that matter equal to the number
of shares for which the brokers do not receive specific voting
instructions.
Abstentions are counted in tabulations of the votes cast on proposals
presented to stockholders and have the effect of negative votes. A
"withheld" vote is treated the same as an abstention. Broker non-votes are
not counted for purposes of determining whether a proposal has been
approved.
Q: WHO CAN ATTEND THE MEETING?
A: All stockholders are encouraged to attend the meeting. Admission tickets
are not required.
Q: ARE THERE ANY EXPENSES ASSOCIATED WITH COLLECTING THE STOCKHOLDER VOTES?
A: We will reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding
proxy and other materials to our stockholders.
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QUESTIONS AND ANSWERS
- -------------------------------------------------------------------------------
We do not anticipate hiring an agency to solicit votes at this time.
Officers and other employees of ChromaVision may solicit proxies in person
or by telephone but will receive no special compensation for doing so.
Q: WHAT IS A STOCKHOLDER PROPOSAL?
A: A stockholder proposal is your recommendation or requirement that
ChromaVision or our board of directors take action on a matter that you
intend to present at a meeting of stockholders. However, under applicable
rules we have the ability to exclude certain matters proposed, including
those that deal with matters relating to our ordinary business operations.
Q: CAN ANYONE SUBMIT A STOCKHOLDER PROPOSAL?
A: To be eligible to submit a proposal, you must have continuously held at
least $2,000 in market value, or 1% of our common stock, for at least one
year by the date you submit your proposal. You also must continue to hold
those securities through the date of the meeting.
Q: IF I WISH TO SUBMIT A STOCKHOLDER PROPOSAL FOR THE ANNUAL MEETING IN 2001,
WHAT ACTION MUST I TAKE?
A: If you wish us to consider including a stockholder proposal in the proxy
statement for the annual meeting in 2001, you must submit the proposal, in
writing, so that our corporate secretary receives it no later than
December 29, 2000. The proposal must meet the requirements established by
the SEC. Send your proposal to:
Kevin C. O'Boyle
Senior Vice President, Operations
CFO and Secretary
ChromaVision Medical Systems, Inc.
33171 Paseo Cerveza
San Juan Capistrano, CA 92675-4824
If you wish to present a proposal at the annual meeting in 2001 that has
not been included in the proxy statement, the management proxies will be
allowed to use their discretionary voting authority unless notice of your
proposal has been received by our corporate secretary at least 45 days
before the date this year's proxy statement is mailed to stockholders. We
expect to mail the proxy statement on May 8, which would mean that notice
of your proposal would have to be received by March 24, 2001.
Q: WHO ARE CHROMAVISION'S LARGEST STOCKHOLDERS?
A: Our largest stockholders and the percentage of shares held by each are as
follows:
<TABLE>
<S> <C>
Safeguard Scientifics, Inc. 29.0%
XL Vision, Inc. 7.3%
Capital Guardian Trust Co. 5.4%
</TABLE>
Directors and executive officers beneficially own a total of approximately
9.1% of ChromaVision common stock.
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- --------------------------------------------------------------------------------
ELECTION OF DIRECTORS
ITEM 1 ON PROXY CARD
- --------------------------------------------------------------------------------
Directors are elected annually and serve a one-year term. There are seven
nominees for election this year. Each nominee is currently serving as a director
and has consented to serve until the next annual meeting if elected. You will
find detailed information on each nominee below. If any director is unable to
stand for re-election after distribution of this proxy statement, the board may
reduce its size or designate a substitute. If the Board designates a substitute,
proxies voting on the original director candidate will be cast for the
substituted candidate.
THE BOARD RECOMMENDS A VOTE FOR EACH NOMINEE. THE SEVEN NOMINEES WHO RECEIVE THE
HIGHEST NUMBER OF AFFIRMATIVE VOTES WILL BE ELECTED AS DIRECTORS.
================================================================================
JOHN S. SCOTT, PH.D. Director since 1996
Age 49
Dr. Scott is chairman of the board and chief executive officer of XL Vision,
Inc., a unique incubator whose business processes combine technology innovation
and business incubation to create highly-differentiated companies with
significant commercial value. Dr. Scott has been chairman of ChromaVision's
board since March 1996. Prior to founding XL Vision, Inc., from 1991 until July
1993, Dr. Scott was 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. Dr. Scott is a director of eMerge
Interactive, Inc.
================================================================================
DOUGLAS S. HARRINGTON, M.D. Director since 1996
Age 47
Dr. Harrington has been ChromaVision's chief executive officer since December
1996 and president since December 1998. Prior to joining ChromaVision, Dr.
Harrington served as chairman and president of Strategic Business Solutions,
Inc., a privately held company specializing in the 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 board of directors, advisory boards, or
scientific advisory boards of several other related health care and medical
device companies. Dr. Harrington also is associate professor of clinical and
anatomic pathology at the University of Nebraska Medical Center and has authored
over 80 peer-reviewed publications. He received his Bachelor of Arts degree with
distinction and a medical degree from the University of Colorado. Professional
affiliation memberships include the American Medical Association, the American
Society of Clinical Pathology, the College of American Pathologists and the
International Academy of Pathology. Dr. Harrington is a director of Merge
Technologies, Inc.
================================================================================
RICHARD C. E. MORGAN Director since 1996
Age 55
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Mr. Morgan is the chief executive officer of incuVest LLC, a newly formed
company that creates, develops, and operates a global network of innovative
technology companies. Mr. Morgan is also managing partner of Amphion Capital
Management LLC, a private equity and venture capital firm and the successor to
Wolfensohn Partners, L.P. Mr. Morgan served as managing general partner of
Wolfensohn Partners, L.P. from 1986 to 1998. Mr. Morgan is also chairman of
Axcess, Inc., a public company that manufactures and distributes RFID (radio
frequency identification) security systems, and chairman of Quidel Corp., a
manufacturer and distributor of rapid diagnostic tests. From 1990 to 1996, Mr.
Morgan was the chairman of MediSense, Inc., a manufacturer and distributor of
blood glucose biosensors. Mr. Morgan is also a director of Celgene Corp. and
Indigo N.V.
================================================================================
MARY LAKE POLAN, M.D., PH.D. Director since 1998
Age 56
Dr. Polan is professor and chairman of the Gynecology and Obstetrics Department
at Stanford University. From 1985 to 1990, she served as associate professor at
Yale University School of Medicine. Dr. Polan also has held professorial
positions at Hunan Medical College in the People's Republic of China and Pahlavi
University in Shiraz, Iran. Dr. Polan has served on committees of the Institute
of Medicine, the National Institutes of Health, and the United States Department
of Health and Human Services. Dr. Polan is a director of American Home Products
Corp. and Quidel Corp. and has held many board positions at numerous other
medical corporations. Dr. Polan is currently chair of the Scientific Advisory
Board on Women's Health and Hygiene at the Proctor & Gamble Company.
================================================================================
CHARLES A. ROOT Director since 1996
Age 67
Mr. Root served as executive vice president of Safeguard Scientifics, Inc., a
leading Internet company focused on the infrastructure market, from 1986 until
his retirement in 1998. Mr. Root serves on the boards of three privately held
companies and a charitable foundation.
================================================================================
THOMAS R. TESTMAN Director since 1998
Age 63
Mr. Testman is a business consultant. Mr. Testman retired from his position as
managing partner with Ernst & Young, an international auditing, accounting and
consulting services firm in October 1992 after 30 years of continuous service.
During his tenure, he held the position of national director of management
consulting services, was western regional director of health care services, and
engaged in management consulting during various periods. During 1998, Mr.
Testman served as interim chief executive officer for Techniclone Corporation, a
cancer drug developer, and in 1997 he served as interim chief executive officer
for Covenant Care, Inc., a skilled nursing care company. He also formerly served
as a director of Nichols Institute, a publicly held laboratory company that was
sold to Corning, Inc. in 1994. Mr. Testman is a director of Minimed, Inc. and
serves as a director of five privately held health care companies.
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================================================================================
JON R. WAMPLER Director since 2000
Age 48
Mr. Wampler served as president and chief executive officer of PacifiCare of
California and vice president, western region of PacifiCare Health Systems, Inc.
from 1995 until his retirement in 1997. From 1990 to 1995 he was president and
chief executive officer of PacifiCare of Texas and vice president, southwest
region of PacifiCare Health Systems, Inc. PacifiCare Health Systems, Inc. is a
publicly traded managed health care services company. Prior to joining
PacifiCare, Mr. Wampler served as executive director of Humana HealthCare Plans
of Colorado. Mr. Wampler obtained a Bachelor of Arts degree in History and
Political Science at Indiana University. He is currently involved with a number
of community service organizations and is very actively involved with the
University of California, Irvine as Chairman of the College of Medicine
Committee Health Science Partners and School of Humanities Dean's Council. He
has been a guest lecturer at the University of the Pacific, University of
Southern California and the University of California, Irvine. Mr. Wampler has
also spoken at numerous state and national forums on healthcare as an expert in
managed care.
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- --------------------------------------------------------------------------------
BOARD OF DIRECTORS -- ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
BOARD MEETINGS: The board of directors held eight meetings in 1999. Each
director attended at least 75% of the total number of meetings of the board and
committees of which he or she was a member, with the exception of Mr. Morgan who
attended 73% and Mr. Root who attended 63% of the meetings.
BOARD COMPENSATION: Directors employed by ChromaVision or a wholly owned
subsidiary receive no additional compensation, other than their normal salary,
for serving on the board or its committees. Non-employee directors receive
reimbursement of out-of-pocket expenses incurred in connection with attendance
at meetings or other company business. Each non-employee director is eligible to
receive stock option grants at the discretion of the compensation committee.
Directors' options generally have a ten-year term and are 20% vested on the
grant date, with the remaining 80% vesting in 12 equal increments on the same
day of each third month thereafter. The exercise price is equal to the fair
market value of a share of ChromaVision common stock on the grant date. No
grants were made to directors during 1999.
- --------------------------------------------------------------------------------
BOARD COMMITTEE MEMBERSHIP ROSTER
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
------------------------------------------------
AUDIT COMPENSATION
- ----------------------------------------------------------------------------------
<S> <C> <C>
MEETINGS HELD IN 1999 3 2
- ----------------------------------------------------------------------------------
Richard C.E. Morgan [Check Mark]* [Check Mark]
- ----------------------------------------------------------------------------------
Mary Lake Polan, M.D., Ph.D. [Check Mark]
- ----------------------------------------------------------------------------------
Thomas R. Testman [Check Mark] [Check Mark]*
- ----------------------------------------------------------------------------------
</TABLE>
* CHAIRMAN
AUDIT COMMITTEE
- - recommends the hiring and retention of our independent certified public
accountants
- - discusses the scope and results of our audit with the independent
certified public accountants
- - reviews with management and the independent certified public accountants
the interim and year-end operating results
- - considers the adequacy of our internal accounting controls and audit
procedures
- - reviews the non-audit services to be performed by the independent
certified public accountants
COMPENSATION COMMITTEE
- - determines compensation levels for our officers, including salaries,
bonuses and other incentive compensation
- - administers our equity compensation plan
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- --------------------------------------------------------------------------------
ADOPTION OF AMENDMENT TO
THE 1996 EQUITY COMPENSATION PLAN
ITEM 2 ON PROXY CARD
- --------------------------------------------------------------------------------
BACKGROUND
Our 1996 Equity Compensation Plan was initially adopted in 1996. Since less than
81,000 shares remained available for issuance under that plan, in February 2000,
our board adopted, subject to stockholder approval, an amendment to the plan (i)
authorizing the issuance of an additional 700,000 shares under the plan and (ii)
increasing the maximum number of shares that may be subject to grants made to
any individual under the plan during any calendar year to 500,000. Prior to
adopting this amendment, no more than 875,000 shares could be issued during the
term of the plan to any individual.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE 1996 PLAN.
Approval of this amendment requires a majority of the votes cast at a meeting at
which a quorum representing a majority of all outstanding voting stock is
present, either in person or by proxy, and voting on the amendment. If the
stockholders do not approve the amendment, then the number of shares that may be
issued under the 1996 Plan will not exceed 2,500,000 shares and the maximum
number of shares that may be subject to grants made to any individual under the
plan will not exceed 875,000.
PURPOSE OF THE 1996 PLAN
The 1996 Plan provides participants with an opportunity to receive grants of
stock options, stock appreciation rights, and restricted stock. We have
historically granted incentive stock options and non-qualified stock options
with an exercise price that generally has been equal to the fair market value on
the grant date. We most likely will continue to do so in the future. However, to
remain competitive and to be able to continue attracting and retaining
outstanding employees, directors and advisors, our 1996 Plan provides the
flexibility for other types of grants.
We believe the 1996 Plan will encourage the participants to contribute to our
growth, thus benefiting our stockholders, and will align the economic interests
of the participants with those of our stockholders. 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.
SHARES SUBJECT TO THE 1996 PLAN
The 1996 Plan, as amended, authorizes the issuance of up to 3,200,000 shares of
common stock, subject to adjustment in certain circumstances as discussed below.
The maximum number of shares that may be subject to grants made to any
individual under the plan during any calendar year is 500,000. If options or
stock appreciation rights granted under the plan terminate, expire or are
canceled, forfeited, exchanged or surrendered without being exercised, or if a
restricted stock award is forfeited, the shares subject to the grant will again
be available for purposes of the 1996 Plan.
There are no current plans to authorize any specific grants under the 1996 Plan
from the additional 700,000 shares that were authorized. After giving effect to
the increase in the number of authorized shares in the plan, at April 20, 2000,
of the 3,200,000 shares authorized for issuance, 173,006 shares have been issued
upon exercise of options, 2,298,381 shares are subject to options outstanding
under the plan, and 728,613 shares remain available for future issuance. The
closing price of a share of ChromaVision common stock on April 20, 2000, was
$11.375 per share.
ADMINISTRATION OF THE 1996 PLAN
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The 1996 Plan is administered by the compensation committee, which is currently
composed of Messrs. Testman and Morgan and Dr. Polan.
The committee has the authority to administer and interpret the 1996 Plan.
Specifically, the committee is authorized to
- - determine the individuals to whom grants will be made,
- - determine the type, size and terms of the grants,
- - 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,
- - amend the terms of any outstanding awards, including accelerating vesting,
waiving forfeiture provisions, or extending a participant's right with
respect to grants as a result of termination of employment or service or
otherwise,
- - establish from time to time any policy or program to encourage or require
participants to achieve or maintain equity ownership,
- - make factual determinations and adopt or amend appropriate rules,
regulations, agreements and instruments for implementing the 1996 Plan,
and
- - deal with any other matters arising under the plan.
ELIGIBILITY FOR PARTICIPATION AND GRANTS
Those eligible to receive grants are employees (including officers and members
of the board), non-employee directors, advisory board members, and certain
advisors of ChromaVision or any subsidiary. There are approximately 75
employees, 6 non-employee directors, 10 advisory board members, and 10 advisors
currently eligible to receive grants.
Grants may consist of incentive stock options, non-qualified stock options,
restricted stock awards, or stock appreciation rights. All grants are subject to
the terms and conditions of the 1996 Plan.
Grants will continue to vest and remain exercisable as long as a participant
remains in our service and for a period of time after termination subject to an
overall limitation of 10 years. In determining whether a participant will be
considered to have terminated service for purposes of exercising options and
stock appreciation rights and satisfying conditions with respect to restricted
stock awarded, a participant will not be considered to have terminated service
until the participant ceases to serve as an employee, advisor, member of any
advisory board, or member of the board. The committee may waive or modify these
termination provisions.
STOCK OPTIONS
GRANT OF STOCK OPTIONS. The committee may grant options qualifying as incentive
stock options to employees. The committee may grant non-qualified stock options
to any participant. Grants to employees may be made in any combination of
incentive stock options and non-qualified stock options.
OPTION PRICE. The option exercise price is determined by the committee at the
time of grant. To qualify as an incentive stock option, the exercise price may
not be less than the fair market value of the common stock at the time of grant.
Also, to the extent that the value (determined as of the grant date) of the
stock subject to any incentive stock options held by a participant that become
exercisable for the first time during any calendar year exceeds $100,000, the
option will not qualify as an incentive option. If a participant owns stock
having more than 10% of the voting power of ChromaVision, the exercise price of
an incentive stock option may not be less than 110% of the fair market value of
the common stock on the date of grant.
TERM AND EXERCISABILITY OF STOCK OPTIONS. The committee determines the term of
stock options granted under the 1996 Plan, although the term may not exceed ten
years. If a participant owns stock having more than 10% of the voting power of
ChromaVision, the term of an incentive stock option may not exceed five
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<PAGE> 14
years. The committee determines how stock options will become exercisable and
may accelerate vesting at any time for any reason.
MANNER OF EXERCISE OF STOCK OPTIONS. To exercise a stock option, a participant
must deliver a written exercise notice specifying the number of shares to be
purchased together with payment of the option exercise price. The exercise price
may be paid in any of the following ways:
- - in cash,
- - by delivering shares of ChromaVision common stock already owned by the
participant having a fair market value equal to the exercise price,
- - in a combination of cash and shares, or
- - any other method of payment the committee may approve, including a
"cashless exercise" of a stock option effected by delivering a notice of
exercise to ChromaVision and a securities broker, with instructions to the
broker to deliver to ChromaVision out of the sale proceeds the amount
necessary to pay the exercise price.
Shares of common stock tendered in payment of the exercise price must have been
held by the participant long enough to avoid adverse accounting consequences to
ChromaVision.
Upon receipt of a participant's exercise notice, the committee may elect to cash
out all or part of an option by paying the participant an amount, in cash or
common stock, equal to the excess of the fair market value over the exercise
price.
For a non-qualified stock option, we are also required to withhold applicable
taxes. If approved by the committee, the income tax withholding obligation may
be satisfied by withholding shares of an equivalent market value.
TERMINATION OF STOCK OPTIONS AS A RESULT OF TERMINATION OF EMPLOYMENT,
DISABILITY OR DEATH. Generally, vested stock options will remain exercisable for
a period of time following termination of service as follows:
- - one year following termination of service if an individual dies or is
disabled or
- - three months following termination of service for any other reason.
The committee, either at or after grant, may provide for different termination
provisions. Options which are not exercisable at termination of service are
terminated as of that date.
If service is terminated for cause, all stock options held by a participant at
the date of termination of service will terminate unless the committee otherwise
determines. The committee also may, upon refund of the exercise price, require
the participant to forfeit all shares underlying any exercised portion of an
option for which ChromaVision has not yet delivered share certificates.
TRANSFERABILITY OF STOCK OPTIONS. Generally, only a participant may exercise
rights under a stock option during his or her lifetime, and those rights may not
be transferred except by will or by the laws of descent and distribution. When a
participant dies, the personal representative or other person entitled to
succeed to his or her rights may exercise those rights upon furnishing
satisfactory proof of that person's right to receive the stock option. The
committee may nevertheless choose to provide with respect to non-qualified stock
options that a participant may transfer those stock options to family members or
other persons or entities.
RESTRICTED STOCK GRANTS
The committee may provide a participant with an opportunity to acquire shares of
ChromaVision common stock contingent upon his or her continued service or the
satisfaction of other criteria. Restricted stock differs from a stock option in
that a participant must make an immediate decision whether to make an investment
in the stock. The committee determines the amount to be paid for the stock or
may decide to grant the stock for no consideration. The committee may specify
that the restrictions will lapse over a period of time or according to any other
factors or
10
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criteria. If a participant's service terminates during the period of any
restrictions, the restricted stock grant will terminate with respect to all
shares as to which the restrictions on transfer have not lapsed unless the
committee provides for an exception to this requirement. Until the restrictions
on transfer have lapsed, a participant may not in any way dispose of the shares
of common stock to which the restriction applies. All restrictions lapse upon
the expiration of the applicable restriction period. Unless the committee
determines otherwise, however, during the restriction period the participant has
the right to vote restricted shares and receive any dividends or other
distributions paid on them, subject to any restrictions specified by the
committee.
STOCK APPRECIATION RIGHTS
The committee may provide a participant with the right to receive a benefit
measured by the appreciation in a specified number of shares of ChromaVision
common stock over a period of time. The amount of this benefit is equal to the
difference between the fair market value of the stock on the exercise date and
the base amount of the stock appreciation right (SAR). Generally, the base
amount of a SAR is equal to the per share exercise price of the related stock
option or, if there is no related option, the fair market value of a share of
common stock on the date the SAR is granted. The committee may pay this benefit
in cash, in stock, or any combination of the two.
The committee may grant a SAR either separately or in tandem with all or a
portion of a stock option. SARs may be granted when the stock option is granted
or later while it remains outstanding, although in the case of an incentive
stock option, SARs may be granted only at the time the option is granted. Tandem
SARs may not exceed the number of shares of common stock that the participant
may purchase upon the exercise of the related stock option during the period.
Upon the exercise of a stock option, the SARs relating to the common stock
covered by the 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.
SARs are subject to the same termination provisions on death, disability or
termination of service as stock options. The committee may accelerate the
exercisability of any or all outstanding SARs.
TERMINATION OF THE 1996 PLAN
The board may amend or terminate the 1996 Plan at any time as long the amendment
or termination does not materially impair the rights of a participant without
the participant's consent. Stockholder approval of amendments will be required
if the Internal Revenue Code or the rules of any securities exchange or
over-the-counter market on which our stock is listed or included at the time
requires stockholder approval of a particular amendment. The 1996 Plan will
terminate, in any event, on December 11, 2006.
ADJUSTMENT PROVISIONS
The committee will adjust the number and exercise price of outstanding grants,
as well as the number and kind of shares available for grants and individual
limits for any single participant under the 1996 Plan, to appropriately reflect
any of the following events:
- - a stock dividend, spin-off, recapitalization, stock split, or combination
or exchange of shares;
- - a merger, reorganization or consolidation in which ChromaVision is the
surviving corporation;
- - a reclassification or change in par value;
- - any other extraordinary or unusual event affecting the outstanding common
stock as a class without receipt of consideration by ChromaVision; or
- - a substantial reduction in the value of outstanding shares of common stock
as a result of a spin-off or payment of an extraordinary dividend or
distribution.
FEDERAL INCOME TAX CONSEQUENCES
The current federal income tax treatment of grants under the 1996 Plan is
described below. Local and state tax authorities also
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may tax incentive compensation awarded under the 1996 Plan. Because of the
complexities involved in the application of tax laws to specific circumstances
and the uncertainties as to possible future changes in those laws, we urge
participants to consult their own tax advisors concerning the application of the
general principles discussed below to their own situations and the application
of state and local tax laws.
INCENTIVE STOCK OPTIONS. A participant will not recognize taxable income for the
purpose of the regular income tax upon either the grant or exercise of an
incentive stock option. However, for purposes of the alternative minimum tax
imposed under the Code, in the year in which an incentive stock option is
exercised, the amount by which the fair market value of the shares acquired upon
exercise exceeds the exercise price will be treated as an item of adjustment.
If a participant disposes of the shares acquired under an incentive stock option
after at least two years following the date of grant and at least one year
following the date of exercise, the participant will recognize a long-term
capital gain or loss equal to the difference between the amount realized upon
the disposition and the exercise price. ChromaVision will not be entitled to any
tax deduction by reason of the grant or exercise of the incentive stock option.
If a participant disposes of shares acquired upon exercise of an incentive stock
option before satisfying both holding period requirements (known as a
disqualifying disposition), the gain recognized on disposition will be taxed as
ordinary income to the extent of the difference between the lesser of the sale
price or the fair market value of the shares on the date of exercise and the
exercise price. ChromaVision will be entitled to a federal income tax deduction
in the same amount. The gain, if any, in excess of the amount recognized as
ordinary income on a disqualifying disposition will be long-term or short-term
capital gain, depending upon the length of time the participant held the shares
before the disposition.
If a participant tenders shares of common stock received upon the exercise of an
incentive stock option to pay the exercise price within either the two-year or
one-year holding periods described above, the disqualifying disposition of the
shares used to pay the exercise cost will result in income (or loss) to the
participant and, to the extent of a recognized gain, a tax deduction to
ChromaVision. If, however, the 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 the excess shares will equal the amount of cash paid by
the participant upon the exercise of the current stock option, and the
participant's holding period with respect to the excess shares will begin on the
date the 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 STOCK OPTIONS. There are no federal income tax consequences to a
participant or ChromaVision upon the grant of a non-qualified stock option. Upon
the exercise of a non-qualified stock option, a participant will generally
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares at the time of exercise over the exercise price, and
ChromaVision will be entitled to a corresponding federal income tax deduction.
If a 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.
12
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To the extent that the number of shares received exceeds the number surrendered,
the fair market value of the excess shares on the date of exercise, reduced by
any cash paid by the participant upon the exercise, will be subject to inclusion
in the gross income of the participant. The participant's basis in the 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.
The committee may permit a participant to elect to surrender or deliver shares
otherwise issuable upon exercise, or previously acquired shares, to satisfy the
federal income tax withholding, subject to certain restrictions described 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 the shares over the
participant's basis in the shares.
Upon the sale of the shares acquired by the exercise of a non-qualified stock
option, a participant will have a capital gain or loss (long-term or short-term
depending upon the length of time the shares were held) in an amount equal to
the difference between the amount realized upon the sale and the participant's
adjusted tax basis in the shares (the exercise price plus the amount of ordinary
income recognized by the participant at the time of exercise of the
non-qualified stock options).
RESTRICTED STOCK. A participant normally will not recognize taxable income upon
the award of a restricted stock grant, and ChromaVision will not be entitled to
a deduction, until the 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
the shares, and ChromaVision will be entitled to a federal income tax 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 the shares, determined without regard
to the restrictions. In such event, ChromaVision generally will be entitled to a
corresponding federal income tax deduction in the same year. Any gain or loss
recognized by the participant upon a subsequent disposition of the shares will
be capital gain or loss. If, after making the election, any shares subject to a
restricted stock grant are forfeited, or if the market value declines during the
restriction period, the participant is not entitled to any tax deduction or tax
refund if the participant does not recover any consideration paid by the
participant for the restricted stock.
STOCK APPRECIATION RIGHTS. There are no federal income tax consequences to a
participant or to ChromaVision upon the grant of a SAR. Upon the exercise of a
SAR, a participant will recognize ordinary compensation income in an amount
equal to the cash and the fair market value of the shares of common stock
received upon exercise. ChromaVision generally will be entitled to a
corresponding federal income tax deduction at the time of exercise. Upon the
sale of any shares acquired by the exercise of a SAR, a participant will have a
capital gain or loss (long-term or short-term depending upon the length of time
the shares were held) in an amount equal to the difference between the amount
realized upon the sale and the participant's adjusted tax basis in the shares
(the amount of ordinary income recognized by the participant at the time of
exercise of the SAR).
TAX WITHHOLDING. All grants under the 1996 Plan are subject to applicable tax
withholding requirements. ChromaVision has the right to deduct from all grants
paid in cash, or from other wages paid to a participant, any taxes required by
law to be withheld with respect to the grant. If
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grants are paid in shares of common stock, ChromaVision may require a
participant to pay the amount of the taxes that we are required to withhold or
may deduct the amount of the withholding taxes from other wages paid to the
participant. If approved by the committee, the income tax withholding obligation
with respect to grants paid in common stock may be satisfied by having shares
withheld having a value that does not exceed the amount of tax payable at the
participant's maximum marginal tax rate for federal (including FICA), state and
local tax liabilities. Our obligations under the 1996 Plan are conditional upon
the payment or arrangement for payment of any required withholding.
SECTION 162(m). Under section 162(m) of the Code, ChromaVision may be precluded
from claiming a federal income tax deduction for total compensation in excess of
$1,000,000 paid to the chief executive officer or to any of the other four most
highly compensated employees in any one year. Total compensation may include
amounts received upon the exercise of stock options and SARs granted under the
1996 Plan, and the value of shares subject to restricted stock grants when the
shares are no longer subject to forfeiture (or such other time when income is
recognized). An exception does exist, however, for "performance-based
compensation." Grants of stock options and SARs generally will meet the
requirements of "performance-based compensation." Restricted stock grants
generally will not qualify as "performance-based compensation."
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STOCK OWNERSHIP OF DIRECTORS AND OFFICERS AND
BENEFICIAL OWNERS OF MORE THAN 5%
AS OF APRIL 20, 2000
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
SHARES
BENEFICIALLY
OUTSTANDING OPTIONS OWNED ASSUMING
SHARES BENEFICIALLY EXERCISABLE EXERCISE OF
OWNED WITHIN 60 DAYS OPTIONS PERCENT OF
NAME SHARES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Safeguard Scientifics, Inc. 5,324,665 324,612 5,649,277 29.0%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945
- -----------------------------------------------------------------------------------------------------------------------
XL Vision, Inc. 1,432,114 0 1,432,114 7.3%
10315 102nd Terrace
Sebastian, FL 32958
- -----------------------------------------------------------------------------------------------------------------------
Capital Guardian Trust Co. 1,057,500 0 1,057,500 5.4%
11100 Santa Monica Blvd.
Los Angeles, CA 90025
- -----------------------------------------------------------------------------------------------------------------------
John S. Scott, Ph.D. 445,305 5,000 450,305 2.3%
- -----------------------------------------------------------------------------------------------------------------------
Douglas S. Harrington, M.D. 3,000 785,157 788,157 3.9%
- -----------------------------------------------------------------------------------------------------------------------
Richard C.E. Morgan 74,888 18,962 93,850 *
- -----------------------------------------------------------------------------------------------------------------------
Mary Lake Polan, M.D., Ph.D. 1,200 38,333 39,533 *
- -----------------------------------------------------------------------------------------------------------------------
Charles A. Root 104,768 5,000 109,768 *
- -----------------------------------------------------------------------------------------------------------------------
Thomas R. Testman 0 38,333 38,333 *
- -----------------------------------------------------------------------------------------------------------------------
Jon R. Wampler 0 4,000 4,000 *
- -----------------------------------------------------------------------------------------------------------------------
Patricia Sisson 0 61,750 61,750 *
- -----------------------------------------------------------------------------------------------------------------------
Kevin C. O'Boyle 2,240 134,750 136,990 *
- -----------------------------------------------------------------------------------------------------------------------
Diethart Reichardt 2,000 41,538 43,538 *
- -----------------------------------------------------------------------------------------------------------------------
Michael G. Schneider 25,082 24,063 49,145 *
- -----------------------------------------------------------------------------------------------------------------------
Executive officers and directors as a 662,363 1,213,011 1,875,374 9.1%
group (14 persons)
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1% of ChromaVision's outstanding shares of common stock
NOTES TO STOCK OWNERSHIP TABLE
Each individual has the sole power to vote and to dispose of the shares (other
than shares held jointly with spouse) except as follows:
Safeguard Scientifics Includes 3,438,721 shares held of record by Safeguard
Scientifics (Delaware), Inc., 1,885,944 shares held of
record by Safeguard Delaware, Inc., and options held by
Safeguard 98 Capital L.P. to acquire 324,612 shares that
are currently owned by XL Vision, Inc. Safeguard
Scientifics (Delaware), Inc. and Safeguard Delaware,
Inc. are wholly owned subsidiaries of Safeguard, and
Safeguard Delaware, Inc. is the sole general partner of
Safeguard 98 Capital L.P. All of these shares have been
pledged by Safeguard as collateral under its bank line
of credit. This number does not include 332,084 shares
beneficially owned by Technology Leaders I and 343,719
shares beneficially owned by Technology Leaders II,
private equity funds in which Safeguard has indirect
general partnership and limited partnership interests.
Safeguard disclaims beneficial ownership of the shares
beneficially owned by each of Technology Leaders I and
Technology Leaders II.
XL Vision, Inc. Includes 477,371 shares that are subject to an option to
holders of its 6% convertible subordinated notes.
Capital Guardian
Trust Co. As reflected in Schedule 13G filed with the Securities
and Exchange Commission on February 11, 2000, Capital
Group International, Inc. is the parent holding company
of Capital
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Guardian Trust Company, a bank as defined in Section
3(a)6 of the Securities Exchange Act of 1934, and may be
deemed to beneficially own these Shares. Capital Group
International, Inc. does not have investment or voting
power over any of these Shares. Capital Guardian Trust
Company, as the investment manager of various
institutional accounts, is deemed to be the beneficial
owner of these Shares. Capital Group International, Inc.
and Capital Guardian Trust Company disclaim beneficial
ownership of these Shares.
John S. Scott Includes 343,750 shares held by a family partnership.
Diethart Reichardt Includes 2,000 shares held by a family trust.
Mary Lake Polan Includes 400 shares held in each of three family trusts.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE: The rules of the SEC
require that we disclose late filings of reports of stock ownership by our
directors, executive officers and beneficial owners of more than 10 percent of
our stock. To the best of our knowledge, the only late filings during 1999 were
as follows: two transactions reported late by Charles A. Root, three
transactions reported late by Michael G. Schneider, one transaction reported
late by Patricia Sisson, one transaction reported late by John S. Scott, and two
forms filed late by Safeguard Scientifics, Inc. All of the filings were promptly
made when the deficiency was called to the attention of the person required to
make the filing.
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STOCK PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on
ChromaVision common stock for the period beginning with the commencement of our
initial public offering on July 1, 1997, through December 31, 1999, with the
cumulative total return on the Nasdaq Index and the 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
ChromaVision 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 Dec-98 Dec-99
------------------------------------------
<S> <C> <C> <C> <C>
ChromaVision 100 180 100 305
Nasdaq 100 99 139 253
Peer Group 100 101 127 205
</TABLE>
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REPORT OF THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
COMPENSATION PHILOSOPHY
We strive to structure executive compensation to support our goal of maximizing
stockholder value. We seek to attract, retain, motivate and reward outstanding
executives, who, through their dedication, loyalty and exceptional service, make
contributions of unique importance to the success of our business.
COMPENSATION STRUCTURE
The compensation of our executives consists of
- - base pay,
- - annual cash incentives, and
- - stock options.
BASE PAY
In evaluating and establishing rates of base, bonus and long-term incentive pay,
the compensation committee has periodically sought the assistance of an
independent compensation consultant who has assembled information concerning
compensation levels adopted by companies in the same market for executive
talent.
Compensation levels are established on the basis of competitive market data for
comparable organizations of similar stage and size. In particular, the committee
has compared compensation factors with those offered by other companies of
comparable stage and size in the medical device, high technology and
biotechnology businesses. Base compensation also reflects the individual's level
of responsibility at ChromaVision.
CEO 1999 BASE PAY. Based on the report of an independent compensation
consultant, the committee determined that Dr. Harrington's base salary was
significantly below competitive levels for his peers. Based on that study and
ChromaVision's achieving most of its financial and strategic milestones for
1998, the committee increased Dr. Harrington's base compensation for 1999 by
16%.
OTHER HIGHLY COMPENSATED EXECUTIVES' 1999 BASE PAY. Base pay was determined by
considering the results of the compensation report and on individual
performance.
ANNUAL CASH INCENTIVES
Cash incentives are intended to motivate executives to achieve and exceed
individual objectives and annual performance targets. Cash incentives for
officers are based 50% on the achievement of multiple corporate performance
targets specified in ChromaVision's annual strategic plan, which may include the
achievement of specific milestones, expense control, revenue growth, and total
stockholder return. The other 50% is based on the achievement of objectives
required by each individual's job responsibilities.
CEO 1999 CASH INCENTIVES. Dr. Harrington was awarded a cash incentive in
mid-1999 based on 1998 performance goals equal to 63% of his target incentive
and a cash incentive for 1999 equal to 105% of his target incentive. These
decisions were based on Dr. Harrington's personal performance and ChromaVision's
attainment of established financial performance criteria for each year,
including revenue growth, expense control, and total stockholder return.
OTHER HIGHLY COMPENSATED EXECUTIVES' 1999 CASH INCENTIVES. The committee
approved cash incentives in 1999 for performance in 1998 equal to approximately
45 % of the target amounts and cash incentives for 1999 equal to 79% of the
target amounts. The committee considered the same factors they did in
determining Dr. Harrington's cash incentives for both 1998 and 1999. In
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<PAGE> 23
addition, in 1998, both Ms. Sisson and Mr. Reichardt received cash incentives
upon joining ChromaVision.
STOCK OPTIONS
The 1996 Equity Compensation Plan is designed to attract, retain and reward
employees who make significant contributions toward achievement of our long-term
financial and operational objectives. To date, only grants of stock options have
been made under the plan. Stock options reward recipients based on increases in
share price, thereby aligning the interests of our executives and employees with
those of our stockholders. Awards vest ratably over a number of years and,
therefore, enhance employee retention. Grants are made periodically based on
subjective assessment of a number of factors, including the achievement of our
financial and strategic objectives, individual contributions, and competitive
market levels for peer positions. Options are also granted to new hires to
attract the highest caliber of employee in a highly competitive recruiting
market.
CEO 1999 STOCK OPTION AWARD. The committee granted a stock option to purchase
50,000 shares to Dr. Harrington during 1999 based on the subjective factors
discussed above.
OTHER HIGHLY COMPENSATED EXECUTIVES' 1999 CASH INCENTIVES. The committee granted
stock options during 1999 to certain new and existing executives and employees.
The number of options granted was based on each person's responsibilities and
the other subjective factors discussed above.
IRS LIMITS ON DEDUCTIBILITY OF COMPENSATION
Internal Revenue Code section 162(m) provides that publicly held companies
cannot 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). For incentive compensation
to qualify as "performance-based" compensation, the committee's discretion to
grant awards must be strictly limited. We believe that the 1996 Equity
Compensation Plan meets the performance-based exception under section 162(m). We
believe that the benefit to ChromaVision of retaining the ability to exercise
discretion under its 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 the bonus plan under section 162(m).
Submitted by the Compensation Committee:
Richard C.E. Morgan
Mary Lake Polan, M.D., Ph.D.
Thomas R. Testman, Chairman
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<PAGE> 24
EXECUTIVE COMPENSATION &
OTHER ARRANGEMENTS
1999 ANNUAL COMPENSATION FOR THE TOP FIVE OFFICERS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
----------------------------------------------- -------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSATION OPTIONS/SARS COMPENSATION ($)(2)
POSITION YEAR SALARY ($) BONUS ($)(1) ($) (#)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas S. Harrington, 1999 $ 190,000 $ 60,000 -- 50,000 $ 4,800
M.D., Chief Executive
Officer and President 1998 160,000 30,000 -- 0 4,800
1997 138,474 75,000 -- 25,000 41,662
- -----------------------------------------------------------------------------------------------------------------------
Kevin C. O'Boyle, Senior 1999 $ 165,000 $ 50,000 -- 80,000 $ 4,800
Vice President,
Operations, and Chief 1998 140,250 20,000 -- 0 5,000
Financial Officer
1997 130,000 60,000 $ 100,584 31,250 3,000
- -----------------------------------------------------------------------------------------------------------------------
Michael G. Schneider, 1999 $ 147,420 $ 20,000 -- 31,250 $ 4,686
Vice President of
Manufacturing & Service 1998 138,600 10,000 -- 0 4,443
1997 124,704 30,000 $ 68,460 37,500 3,741
- -----------------------------------------------------------------------------------------------------------------------
Patricia Sisson, Senior 1999 $ 150,000 $ 30,000 -- 20,000 $ 4,800
Vice President of Sales,
Marketing & Strategic 1998 130,000 40,000 -- 120,000 2,850
Planning
- -----------------------------------------------------------------------------------------------------------------------
Diethart Reichardt, Vice 1999 $ 147,420 $ 20,000 -- 26,000 $ 4,715
President & Managing
Director of ChromaVision 1998 128,500 30,000 -- 148,000 2,400
International, Inc.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO ANNUAL COMPENSATION TABLE:
(1) Cash bonus figures are reported for the year in which they were earned,
regardless of the year in which they were paid.
(2) The 1999 amount represents a matching contribution under a voluntary
savings plan.
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20
<PAGE> 25
1999 STOCK OPTION GRANTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE
INDIVIDUAL GRANTS(1) APPRECIATION
FOR OPTION TERM(2)
- -------------------------------------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS/
SECURITIES SARS
UNDERLYING GRANTED TO
OPTIONS/ EMPLOYEES IN EXERCISE OR
SARS FISCAL YEAR BASE PRICE EXPIRATION 5% 10%
NAME GRANTED (#) ($/SH)(3) DATE ($) ($)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas S. Harrington 50,000(4) 9.10% $ 9.25 6/9/09 $ 290,864 $ 737,106
- -------------------------------------------------------------------------------------------------------------------
Kevin C. O'Boyle 50,000(5) 9.10% $ 8.00 2/17/09 $ 251,558 $ 637,497
30,000(4) 5.46% 9.25 6/9/09 174,518 442,264
- -------------------------------------------------------------------------------------------------------------------
Michael G. Schneider 15,000(5) 2.73% $ 7.625 1/29/09 $ 71,930 $ 182,284
16,250(4) 2.96% 9.25 6/9/09 94,531 239,559
- -------------------------------------------------------------------------------------------------------------------
Patricia Sisson 20,000(4) 3.64% $ 9.25 6/9/09 $ 116,346 $ 294,842
- -------------------------------------------------------------------------------------------------------------------
Diethart Reichardt 26,000(4) 4.73% $ 9.25 6/9/09 $ 151,249 $ 383,295
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Each option grant provides that the option exercise price may be paid in
cash, by delivery of previously acquired shares, subject to certain
conditions, or same-day sales (that is, a cashless exercise through a
broker). Upon a change of control, all options become fully vested. The
compensation committee may modify the terms of outstanding options,
including acceleration of the exercise date.
(2) These values assume that the shares appreciate at the compounded annual
rate shown from the grant date until the end of the option term. These
values are not estimates of our future stock price growth. Executives will
not benefit unless the common stock price increases above the stock option
exercise price.
(3) All options have an exercise price equal to the fair market value of the
shares subject to each option on the grant date.
(4) Options vest 25% each year commencing on the first anniversary of the
grant date.
(5) Options were 25% vested on grant date and vest an additional 25% each year
thereafter.
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<PAGE> 26
1999 STOCK OPTION EXERCISES AND YEAR-END STOCK OPTION VALUES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
SHARES AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(1)
NAME ACQUIRED ON VALUE
EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Douglas S. Harrington 0 -- 756,250 56,250 $ 9,737,813 $ 380,313
- ----------------------------------------------------------------------------------------------------------------------
Kevin C. O'Boyle 0 -- 104,687 75,313 $ 1,275,228 $ 552,272
- ----------------------------------------------------------------------------------------------------------------------
Michael G. Schneider 43,750 $ 465,038 6,875 49,375 $ 68,750 $ 464,375
- ----------------------------------------------------------------------------------------------------------------------
Patricia Sisson 0 -- 30,000 110,000 $ 284,375 $ 973,125
- ----------------------------------------------------------------------------------------------------------------------
Diethart Reichardt 0 -- 23,500 96,500 $ 226,188 $ 834,563
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Value is calculated using the difference between the option exercise price
and the year-end stock price of $15.25, multiplied by the number of shares
subject to an option.
EMPLOYMENT CONTRACTS; SEVERANCE AND CHANGE-IN-CONTROL ARRANGEMENTS
Dr. Harrington's arrangement with ChromaVision provides for his employment on an
at-will basis, subject to severance pay upon termination under certain
conditions. Upon a change of control, Dr. Harrington will be entitled to:
- - immediate vesting of all stock options or payment of the in-the-money
value of all unvested options,
- - one year salary continuation, and
- - payment of his maximum bonus for that year.
In addition, upon his termination of employment, ChromaVision would have the
option to retain Dr. Harrington as a consultant, in which case he would receive
monthly consulting fees equal to his prior monthly salary upon providing up to
20 hours of consulting services each month.
Mr. O'Boyle's arrangement with ChromaVision provides for his employment on an
at-will basis. If his employment is terminated for any reason other than cause,
one-half of his unvested stock options will automatically vest, all performance
related compensation will become immediately payable, and ChromaVision will pay
Mr. O'Boyle his base salary for a 12-month period in return for his agreement
not to engage in activities in competition with ChromaVision during that period.
Upon any change of control, 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.
All other agreements with executive officers are at-will employment agreements.
RELATIONSHIPS AND RELATED TRANSACTIONS WITH MANAGEMENT AND OTHERS
We have an administrative services agreement with XL Vision and Safeguard, under
which XL Vision and Safeguard provide us with administrative support services,
including management consultation, investor relations, legal services and tax
planning. In consideration for these services, we will pay an annual fee of
0.75% of our 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 we have
[COMPANY LOGO]
22
<PAGE> 27
achieved a positive cash flow from operations. The agreement extends through
January 31, 2002, and continues thereafter unless terminated by either party. As
of December 31, 1999, approximately $5,000 has been accrued under this
agreement.
In August 1997, we entered into a loan arrangement with Safeguard that provides
for borrowings by Safeguard from us of up to a maximum of $5 million on a
revolving basis at Safeguard's effective borrowing rate minus 0.75%. This rate
is higher than we are earning on our money market investments. Interest is
payable monthly. The highest principal balance of these borrowings during 1999
was $5 million. The principal was paid in full in June 1999.
INDEPENDENT PUBLIC ACCOUNTANTS
KPMG LLP has been our independent public accountants since our inception in
1996. We intend to retain them for 2000. A representative of KPMG LLP is
expected to be present at the annual meeting, will have an opportunity to make a
statement at the meeting if desired, and will be available to respond to
appropriate questions.
[COMPANY LOGO]
23
<PAGE> 28
[COMPANY LOGO]
33171 PASEO CERVEZA
SAN JUAN CAPISTRANO, CA 92675-4824
PHONE: (949) 443-3355
TOLL-FREE: (888) 443-3310
FAX: (949) 443-3366
FOR MORE INFORMATION ABOUT CHROMAVISION, PLEASE VISIT OUR WEBSITE AT
WWW.CHROMAVISION.COM
HYATT REGENCY, IRVINE
17900 Jamboree Road, Irvine, CA 92614
(949) 975-1234
(949) 852-1574 Fax
TRAVELING SOUTH FROM LOS ANGELES, LONG BEACH OR ORANGE COUNTY
Take the 405 Freeway Southbound just past the John Wayne Airport.
Exit at Jamboree Road. Turn left and cross over the 405 Freeway.
The entrance to the hotel is immediately on the right.
TRAVELING NORTH FROM SAN DIEGO COUNTY
Take Interstate 5 Freeway Northbound up to south Orange
County until reaching the 405 junction.
Take the 405 Freeway Northbound. Exit at Jamboree Road.
Turn right, and the entrance to the hotel is immediately on the right.
TRAVELING WEST FROM THE INLAND EMPIRE
Take the 91 Freeway Westbound to the 55 Freeway Southbound.
Continue Southbound to the 405 Freeway Southbound.
Exit at Jamboree Road. Turn left and cross over the 405 Freeway.
The entrance to the hotel is immediately on the right.
<PAGE> 29
P R O X Y
CHROMAVISION MEDICAL SYSTEMS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please sign and date this proxy, and indicate how you wish to vote, on the back
of this card. Please return this card promptly in the enclosed envelope. Your
vote is important.
When you sign and return this proxy card, you
- - appoint Douglas S. Harrington and Kevin C. O'Boyle, and each of them (or
any substitutes they may appoint), as proxies to vote your shares, as you
have instructed, at the annual meeting on June 7, 2000, and at any
adjournments of that meeting,
- - authorize the proxies to vote, in their discretion, upon any other
business properly presented at the meeting, and
- - revoke any previous proxies you may have signed.
IF YOU DO NOT INDICATE HOW YOU WISH TO VOTE, THE PROXIES WILL VOTE FOR ALL
NOMINEES TO THE BOARD OF DIRECTORS, FOR ADOPTION OF THE AMENDMENT TO THE 1996
EQUITY COMPENSATION PLAN, AND AS THEY MAY DETERMINE, IN THEIR DISCRETION, WITH
REGARD TO ANY OTHER MATTER PROPERLY PRESENTED AT THE MEETING.
- FOLD AND DETACH HERE -
<PAGE> 30
Please mark |X|
your votes as
indicated in
this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF ALL NOMINEES FOR
DIRECTOR AND FOR PROPOSAL 2.
1. ELECTION OF DIRECTORS FOR ALL [ ] WITHHELD [ ]
Nominees: FOR ALL
John S. Scott TO WITHHOLD AUTHORITY TO VOTE FOR ANY
Douglas S. Harrington INDIVIDUAL NOMINEE WHILE VOTING FOR THE
Richard C.E. Morgan REMAINDER, STRIKE A LINE THROUGH THE NOMINEE'S
Mary Lake Polan NAME IN THE LIST.
Charles A. Root
Thomas R. Testman
Jon R. Wampler
2. ADOPTION OF THE AMENDMENT TO THE
1996 EQUITY COMPENSATION PLAN
FOR [ ] AGAINST [ ] ABSTAIN [ ]
SIGNATURE(S)_________________________________________ DATE: _____________, 2000
YOU MUST SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY CARD. If shares are
jointly owned, you must both sign. Include your full title if you are signing as
an attorney, executor, administrator, trustee or guardian, or on behalf of a
corporation or partnership.
- FOLD AND DETACH HERE -
[COMPANY LOGO]
33171 PASEO CERVEZA
SAN JUAN CAPISTRANO, CA 92675
PHONE: 949-443-3355
TOLL-FREE: 800-443-3310
FAX: 949-443-3366
FOR MORE INFORMATION ABOUT CHROMAVISION, PLEASE VISIT OUR WEBSITE AT
WWW.CHROMAVISION.COM
<PAGE> 31
APPENDIX A
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
<PAGE> 32
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.
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.
<PAGE> 33
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.
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;
<PAGE> 34
(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;
(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 3,200,000 subject to adjustment pursuant to
Section
<PAGE> 35
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 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
during any calendar year shall not exceed 500,000. 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
<PAGE> 36
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:
(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.
<PAGE> 37
(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 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.
<PAGE> 38
(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 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
<PAGE> 39
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 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
<PAGE> 40
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, 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.
<PAGE> 41
(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).
(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
<PAGE> 42
(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 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
<PAGE> 43
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 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.
<PAGE> 44
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.
<PAGE> 45
(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.
(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 of 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.
<PAGE> 46
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 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.
