<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:
<TABLE>
<S> <C>
[ ] 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
</TABLE>
AUTOCYTE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
AUTOCYTE, INC.
112 Orange Drive
Elon College, North Carolina 27244
(336) 584-0250
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 28, 1998
Notice is hereby given that the 1998 Annual Meeting of Stockholders of
AutoCyte, Inc. (the "Company"), a Delaware corporation, will be held on
Thursday, May 28, 1998, at 10:00 a.m. at the Courtyard by Marriott, 3141 Wilson
Drive, Burlington, North Carolina, to consider and act upon the following
matters:
1. To elect one (1) member of the Board of Directors;
2. To ratify the selection by the Board of Directors of Ernst & Young LLP
as the Company's independent auditors for the current fiscal year.
3. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on April 16, 1998
will be entitled to vote at the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING.
THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE YOUR
PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN
PERSON, YOUR PROXY WILL NOT BE USED.
By order of the Board of Directors,
Steven N. Farber
Secretary
April 29, 1998
<PAGE> 3
AUTOCYTE, INC.
112 Orange Drive
Elon College, North Carolina 27244
(336) 584-0250
----------
PROXY STATEMENT
----------
GENERAL INFORMATION
This Proxy Statement, with the enclosed proxy card, is being furnished
on behalf of the Board of Directors of AutoCyte, Inc. ("AutoCyte" or the
"Company") for use at the Company's 1998 Annual Meeting of Stockholders to be
held on Thursday, May 28, 1998, at 10:00 a.m. at the Courtyard by Marriott, 3141
Wilson Drive, Burlington, North Carolina and at any adjournments thereof (the
"Meeting").
When the proxy card of a stockholder is duly executed and returned, the
shares represented thereby will be voted in accordance with the voting
instructions given on the proxy by the stockholder. If no such voting
instructions are given on a proxy card with respect to one or more proposals,
the shares represented by that proxy card will be voted, with respect to the
election of director, for the nominee named herein, and with respect to other
proposals as may properly come before the Meeting, in accordance with the
recommendations of the Board. Stockholders may revoke their proxies at any time
prior to any vote at the Meeting by written notice of revocation to the
Secretary of the Company at or before the Meeting, by submission of a duly
executed proxy card bearing a later date or by voting in person by ballot at the
Meeting.
This Proxy Statement and the enclosed proxy card are first being mailed
or otherwise furnished to all stockholders of the Company entitled to notice of
and to vote at the Meeting on or about April 29, 1998.
VOTING SECURITIES AND VOTES REQUIRED
Holders of the Company's common stock, $0.01 par value per share
("Common Stock"), of record on the books of the Company at the close of business
on April 16, 1998 (the "Record Date") are entitled to notice of and to vote at
the Meeting. On the Record Date, there were 12,670,065 shares of Common Stock
issued and outstanding, each of which entitles the holder to one vote on each
matter submitted to a vote at the Meeting.
The presence, in person or by proxy, of the holders of a majority of
the Company's Common Stock entitled to vote at the Meeting is necessary to
constitute a quorum at the Meeting. Pursuant to the Delaware General Corporation
Law, the Company's Restated Certificate of Incorporation and its Amended and
Restated By-laws (the "By-laws"), directors are elected by a plurality of the
votes properly cast at the Meeting. Abstentions, votes withheld and broker
non-votes will not be treated as votes cast for this purpose and will not affect
the outcome of the election. A "broker non-vote" occurs when a registered broker
holding a customer's shares in the name of the broker has not received voting
instructions on a matter from the customer and is barred by applicable rules
from exercising discretionary authority to vote on the matter and so indicates
on the proxy.
<PAGE> 4
SHARE OWNERSHIP
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of April 1, 1998 by (i)
each person known by the Company to own beneficially 5% or more of the Common
Stock, (ii) each Named Executive Officer (as defined in "Executive Compensation"
below), (iii) each director of the Company and (iv) all directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
Shares of Common Stock
Beneficially Owned(1)
-------------------------
Beneficial Owner Shares Percent
- ---------------- ------ -------
<S> <C> <C>
Roche Image Analysis Systems, Inc................ 3,049,680 24.1%
1080 U.S. Highway 202
Somerville, NJ 08876-3771
Sprout Capital VII, L.P. and certain
related entities (2)............................ 2,170,098 17.1%
3000 Sand Hill Road
Bldg 3, Suite 170
Menlo Park, CA 94025-7114
Ampersand Specialty Materials
and Chemicals III Limited
Partnership and certain related
entities (3)................................... 2,156,411 17.0%
Allemanni, LLC .................................. 1,991,763 15.7%
2307 York Road
Burlington, NC 27215
J.P. Morgan & Co. Incorporated (4)............... 681,900 5.4%
60 Wall Street
New York, NY 10260
James B. Powell, M.D.(5) ........................ 2,141,763 16.9%
Richard Charpie, Ph.D.(6)........................ 2,156,411 17.0%
Robert E. Curry, Ph.D.(7)........................ 2,170,098 17.1%
Thomas P. Mac Mahon ............................. 48,819 *
Susan E. Whitehead (8)........................... 12,918 *
Ernst A. Knesel (9).............................. 192,847 1.5%
Thomas Gahm, Ph.D. (10).......................... 77,536 *
James W. Geyer, Ph.D.(11)........................ 50,761 *
William O. Green (12) ........................... 39,877 *
All current executive officers and
directors as a group (11 persons) (13) ......... 6,891,030 54.4%
</TABLE>
- ------------------------
* Indicates less than 1%.
2
<PAGE> 5
(1) The persons and entities named in the table have sole voting and
investment power with respect to the shares beneficially owned by them,
except as noted below. Share numbers include shares of Common Stock
issuable pursuant to outstanding options that may be exercised within
the 60-day period following April 1, 1998.
(2) Consists of the following shares: 1,887,760 shares held by Sprout
Capital VII, L.P. ("Sprout"); 217,009 shares held by DLJ First ESC,
L.L.C. ("DLJ First"); 43,401 shares held by DLJ Capital Corporation
("DLJ Capital"); and 21,928 shares held by the Sprout CEO Fund, L.P.
("Sprout CEO"). DLJ Capital is the managing general partner of Sprout
and Sprout CEO and has voting and investment control over the shares
held by those two entities. DLJ LBO Plans Management Corporation ("DLJ
LBO") is the manager of DLJ First and has voting and investment control
over the shares held by DLJ First. DLJ Capital and DLJ LBO both are
wholly owned subsidiaries of Donaldson, Lufkin & Jenrette, Inc.
(3) Consists of the following shares: 1,724,126 shares held by Ampersand
Specialty Materials and Chemicals III Limited Partnership ("ASMC III");
28,183 shares held by Ampersand Specialty Materials and Chemicals III
Companion Fund Limited Partnership ("ASMC III C.F."); 282,841 shares
held by Laboratory Partners I Limited Partnership ("Lab Partners I");
and 121,261 shares held by Laboratory Partners Companion Fund Limited
Partnership ("Lab Partners C.F."). ASMC-III MCLP LLP is the general
partner of ASMC-III Management Company Limited Partnership, which
itself is the general partner of both ASMC-III and ASMC-III C.F. and
has voting and investment control over the shares held by those two
entities. Ampersand Lab Partners MCLP LLP is the general partner of
both Lab Partners I and Lab Partners C.F. and has voting and investment
control over the shares held by those two entities.
(4) Based on a Schedule 13G filed with the Securities and Exchange
Commission on February 13, 1998. Includes 104,600 shares over which the
entity has no power to vote.
(5) Includes 1,991,763 shares held by record by Allemanni, LLC
("Allemanni"). Dr. Powell is the manager of Allemanni and has voting
and investment control over the shares held by that entity. Dr. Powell
disclaims beneficial ownership of such shares except to the extent of
his pecuniary interest.
(6) Consists solely of shares as described in note (3). Dr. Charpie is a
general partner of ASMC-III MCLP LLP and Ampersand Lab Partners MCLP
LLP and thus may be considered the beneficial owner of the shares
described in note (3). Dr. Charpie disclaims beneficial ownership of
such shares except to the extent of his pecuniary interest.
(7) Consists solely of shares as described in note (2). Dr. Curry is
divisional Vice President of DLJ Capital and acts as attorney-in-fact
with respect to its investment in AutoCyte and thus may be considered
the beneficial owner of the shares described in note (2). Dr. Curry
disclaims beneficial ownership of such shares except to the extent of
his pecuniary interest.
(8) Includes 4,918 shares that may be acquired within 60 days of April 1,
1998 upon the exercise of options.
(9) Includes 97,638 shares held by LE'BET, LLC ("LE'BET"). Mr. Knesel is
the general manager of LE'BET and has voting and investment control
over the shares held by that entity. Mr. Knesel disclaims beneficial
ownership of such shares. Also includes 24,363 shares that may be
acquired within 60 days of April 1, 1998 upon the exercise of options.
(10) Includes 13,440 shares that may be acquired within 60 days of April 1,
1998 upon the exercise of options.
(11) Includes 32,558 shares that may be acquired within 60 days of April 1,
1998 upon the exercise of options.
(12) Includes 11,143 shares that may be acquired within 60 days of April 1,
1998 upon the exercise of options.
(13) See notes (2), (3) and (5) through (12) above. Includes 86,422 shares
that may be acquired within 60 days of April 1, 1998 upon the exercise
of options.
3
<PAGE> 6
ELECTION OF DIRECTOR
In accordance with Section 2 of Article II of the By-laws, the Board of
Directors (the "Board") has fixed the number of directors at five for the coming
year. The Board is divided into three classes, with the members of each class
elected for three year-terms and the term for each class expiring in successive
years. At the Meeting, one Class I director will be elected to hold office for
three years until his respective successor is duly elected and qualified. The
Board has nominated James B. Powell, M.D. for election for a term expiring in
2001. Dr. Powell is currently a director of the Company and has consented to be
nominated and to serve if elected. In the event he shall be unable to serve as a
director, the shares represented by the proxy will be voted for the person, if
any, designated by the Board to replace the nominee. In the event that a vacancy
occurs during the three years, such vacancy may be filled by the Board for the
remainder of the full term.
The following table contains certain information about the nominee for
election to the Board and about each other person whose term of office as a
director will continue after the Meeting.
<TABLE>
<CAPTION>
Present
Business Experience During Past Five Director Term
Name and Age Years and Other Directorships Since Expires
------------ ----------------------------- ----- -------
NOMINEE FOR DIRECTOR:
CLASS I DIRECTOR
<S> <C> <C> <C>
James B. Powell, M.D. Dr. Powell has served as President and Chief 1996 1998
Age: 59 Executive Officer of AutoCyte
since January 1997. Prior to joining
AutoCyte, Dr. Powell served as the President
and Chief Executive Officer of Laboratory
Corporation of America Holdings ("LabCorp")
from May 1995 until January 1997. From June
1982 until May 1995, Dr. Powell served as
President of Biomedical Reference
Laboratories/Roche Biomedical Laboratories,
Inc., the predecessor to both LabCorp and
Roche Image Analysis, Inc., which he
co-founded. He continues to serve on the
board of LabCorp, a publicly traded company.
Dr. Powell received a B.A. degree from
Virginia Military Institute and an M.D. from
Duke University, and is board certified in
anatomical and clinical pathology.
CONTINUING DIRECTORS:
CLASS II DIRECTORS
Richard A. Charpie, Ph.D. Dr. Charpie is Chairman of the Board of 1996 1999
Age: 46 Directors. Dr. Charpie is the
Managing General Partner of Ampersand
Ventures ("Ampersand") and all of its
affiliated partnerships. He founded
Ampersand in 1988 as a spin-off from
PaineWebber Incorporated. Dr. Charpie is
currently a director of several privately
held companies. Dr. Charpie holds an M.S. in
physics and a Ph.D. in applied economics and
finance, both from the Massachusetts
Institute of Technology.
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C> <C> <C>
Robert E. Curry, Ph.D. Dr. Curry is Vice President of DLJ Capital 1996 1999
Age: 51 Corporation, a wholly owned subsidiary of
Donaldson, Lufkin & Jenrette, Inc. He joined
the Sprout Group ("Sprout"), a submanager of
various venture capital funds within the
Donaldson, Lufkin & Jenrette organization,
as a general partner in May 1991. Prior to
joining Sprout, Dr. Curry served in various
capacities with Merrill Lynch R&D Management
and Merrill Lynch Venture Capital from 1984,
including as President of both organizations
from January 1990 to May 1991. Previously,
Dr. Curry was a Vice President of Becton
Dickinson from May 1980 to July 1984, and
General Manager of Bio-Rad Laboratory Inc.'s
Diagnostics Systems Division from August
1976 to May 1980. He currently is a director
of Biocircuits Corporation, Diatide, Inc.,
Nanogen, Inc. and Photon Technology
International, Inc. Dr. Curry received a
B.S. from the University of Illinois, and an
M.S. and Ph.D. in chemistry from Purdue
University.
CLASS III DIRECTORS
Thomas P. Mac Mahon Mr. Mac Mahon succeeded Dr. Powell as 1996 2000
Age: 51 President and Chief Executive Officer of
LabCorp in January 1997 and also serves as
Chairman of the Board of LabCorp. Mr. Mac
Mahon served as Senior Vice President of
Hoffmann-La Roche Inc. from 1993 to January
1997 and President of Roche Diagnostics
Group and a Director and member of the
Executive Committee of Hoffmann-La Roche
Inc. from 1988 to January 1997. A graduate
of St. Peter's College, Mr. Mac Mahon
received an M.B.A. in marketing from
Fairleigh Dickinson University.
Susan E. Whitehead Ms. Whitehead is Acting Chair of the 1997 2000
Age: 44 Whitehead Institute for Biomedical Research,
a trustee of the Massachusetts Institute of
Technology, and Treasurer of the Horizons
Initiative, a Boston-based group focused on
the needs of homeless children and
Chair-Elect of the Planned Parenthood League
of Massachusetts. From 1989 to October 1995,
Ms. Whitehead was an attorney in private
practice in Boston, Massachusetts. From 1982
until 1987, she served as a prosecutor in
New York City. Ms. Whitehead received a J.D.
from Cardozo School of Law, and a B.S. from
Cornell University.
</TABLE>
5
<PAGE> 8
During the year ended December 31, 1997, the Board held seven (7)
meetings. Each of the directors attended at least 75% of the Board meetings and
meetings of committees of the Board of which he or she was a member, except for
Ms. Whitehead who attended 60% of such Board meetings. In addition, from time to
time, the members of the Board of Directors and its committees may act by
unanimous written consent pursuant to Delaware law in lieu of a meeting.
The Company has standing Audit and Compensation Committees of the
Board, but does not have a Nominating Committee.
The Audit Committee consisted of Dr. Charpie, Dr. Curry and Ms.
Whitehead during 1997; Mr. Mac Mahon replaced Ms. Whitehead on the Audit
Committee effective as of April 9, 1998. The Audit Committee assists the Board
in the discharge of its duties and responsibilities by providing the Board with
an independent review of the financial health of the Company and of the
reliability of the Company's financial contracts and financial reporting
systems. The Audit Committee reviews the general scope of the Company's annual
audit, the fee charged by the Company's independent auditors and other matters
relating to internal control systems. The Audit committee held no meetings in
1997.
The Compensation Committee currently consists of Dr Charpie, Dr. Curry
and Mr. Mac Mahon. The Compensation Committee determines the compensation paid
to all executive officers of the Company, including the Chief Executive Officer.
The Compensation Committee's duties include the administration of the Company's
Amended and Restated 1996 Equity Incentive Plan. The Compensation Committee held
one meeting in 1997.
DIRECTOR COMPENSATION
Directors currently receive no compensation for their service on the
Board except pursuant to the 1997 Director Stock Option Plan (the "Director
Plan"), which was adopted by the Board and stockholders of the Company in June
1997. All of the directors who are not employees of the Company (the "Eligible
Directors") are currently eligible to participate in the Director Plan. There
are 100,000 shares of Common Stock reserved for issuance under the Director
Plan. Upon the election or reelection of an Eligible Director, such director
automatically will be granted an option to purchase 10,000 shares of Common
Stock. Options become exercisable with respect to 2,000 shares on each
anniversary of the date of grant for a period of five years, provided that the
optionee is still a director of the Company at the opening of business on such
date. Each option has a term of ten years. The exercise price for each option is
equal to the last sale price for the Common Stock on the business day
immediately preceding the date of grant, as reported on the Nasdaq National
Market. The exercise price may be paid in cash, shares of Common Stock or a
combination of both.
On March 25, 1997, Ms. Whitehead was granted an option to purchase
4,918 shares of Common Stock in connection with becoming a director of the
Company. These options vested immediately and have an exercise price of $0.2033
per share.
6
<PAGE> 9
EXECUTIVE COMPENSATION
The Compensation Committee Report on Executive Compensation and the
tables set forth below provide information about the compensation of executive
officers of the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee")
currently consists of Dr. Richard A. Charpie, Dr. Robert E. Curry and Thomas P.
Mac Mahon. The Committee's responsibilities include: (i) reviewing the
performance of the Chief Executive Officer and the other executive officers of
the company and making determinations as to their cash and equity-based
compensation and benefits and (ii) administration of employee stock option
grants and stock awards under AutoCyte's Amended and Restated 1996 Equity
Incentive Plan (the "Option Plan"). The Committee held one meeting in 1997. All
members were elected to the Committee upon its formation in June 1997. Before
June 1997, the Board of Directors, including Dr. James B. Powell, President and
Chief Executive Officer of the Company, fulfilled the responsibilities later
delegated to the Committee. As noted below, decisions with respect to executive
compensation before June 1997 were decisions of the Board of Directors, except
that Dr. Powell did not participate in any decisions with respect to his
compensation.
The Company's executive compensation policy is designed to increase
shareholder value by attracting, retaining and motivating executive officers to
maximize the Company's performance. Generally, the Company has set the salaries
of its executive officers at slightly below industry averages and provided for
significant variable compensation through stock options. There is no annual cash
incentive plan. Various other benefits include medical and retirement savings
plans generally available to all employees.
The Committee reviews the entire executive compensation package, which
consists of base salary and stock option grants under the Option Plan.
ELEMENTS OF EXECUTIVE COMPENSATION
Base Salary
The Company's policy is to set base salaries of its executives at
slightly below industry average, as determined using compensation surveys for
the industry. Base salaries for executive officers were set upon the formation
of the Company for officers who were employed by the Company's predecessor, or
upon hiring for new officers employed during 1997. Base salaries are reviewed on
an annual basis using compensation surveys for the industry.
Cash Incentive Compensation
The Company does not maintain a cash incentive plan for executive
officers. The Committee believes that the Company's stage of life and cash
requirements make it more prudent to motivate management with non-cash
incentives, consisting of stock option grants.
7
<PAGE> 10
Stock Options
In general, stock options are granted to AutoCyte's executive officers
at the time of their hire and at such other times as the Committee may deem
appropriate. In reviewing option grants, the Committee uses the same industry
survey data as used in its analysis of base salaries. The Committee bases its
stock option award decisions upon a comparison with the equity ownership of
officers holding similar positions in other medical technology companies, as
well as upon the number of options and shares currently held by the executive
and performance factors.
The stock option grants made by the Committee are designed to align the
interests of management with those of the shareholders. In order to maintain the
incentive aspects of these grants, the Committee has determined that a
significant percentage of any officer's stock options should be unvested option
shares. Consistent with this determination, the Committee uses a four-year
vesting period for all option shares and periodically reviews individual officer
stock option holdings. Stock options also are issued to lower the overall cash
cost of compensation.
The Board of Directors approved option grants to several executive
officers who joined the Company as it built its management team. These include:
(i) options with respect to 14,756 shares of Common Stock granted to William O.
Green upon his hiring as Controller in January 1997 and an additional 34,431
shares of Common Stock upon his promotion to Chief Financial Officer in April
1997; (ii) options with respect to 135,268 shares of Common Stock granted to
Eric W. Linsley upon his hiring as Vice President of Operations and Business
Development in May 1997; and (iii) options with respect to 98,376 shares of
Common Stock granted to Stephen C. McPhail upon his hiring as Vice President of
Sales and Marketing in May 1997.
Benefits
The Company provides medical, life insurance and retirement savings
benefits to executive officers on terms generally available to all employees.
CHIEF EXECUTIVE OFFICER COMPENSATION
In fiscal year 1997, the Company's President and Chief Executive
Officer, Dr. James B. Powell, was paid a base salary of $145,279. Dr. Powell
began employment with the Company on January 7, 1997. Dr. Powell's salary
reflects his significant ownership interest in the Company. Because the Company
does not have a bonus plan, no bonus was paid for 1997. Dr. Powell received no
grants of stock options in 1997.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION
With respect to qualifying compensation paid to executive officers
under Section 162(m) of the Internal Revenue Code, AutoCyte does not expect to
have compensation exceeding the one-million-dollar limitation for the
foreseeable future. Outstanding stock options granted under the Option Plan will
not be subject to the limitation under applicable regulations, and AutoCyte
plans to maintain the exclusion for any additional options that may be granted
to employees covered by Section 162(m).
By the AutoCyte, Inc. Compensation Committee,
Richard A. Charpie, Ph.D.
Robert E. Curry, Ph.D.
Thomas P. Mac Mahon
8
<PAGE> 11
The following table sets forth certain compensation information for the
Chief Executive Officer of the Company and the four other most highly
compensated executive officers of the Company whose total salary for the year
ended December 31, 1997 exceeded $100,000 (together, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION ALL OTHER
COMPENSATION AWARDS COMPENSATION
--------------------- ------------- ------------
Securities
Underlying
Name and Principal Position Year Salary (1) Options (#)
- --------------------------- ---- ---------- -----------
<S> <C> <C> <C> <C>
James B. Powell, M.D. 1997 $145,279 -- $ 2,542(2)
President and Chief Executive 1996 -- -- --
Office(4)
Ernest A. Knesel 1997 $184,032 -- $ 4,750(2)
Executive Vice President(5) 1996 $193,931 245,941 $22,771(3)
Thomas Gahm, Ph.D. 1997 $164,287 -- $ 4,750(2)
Vice President of Computer 1996 $159,509 135,268 $ 6,775(3)
Science
James W. Geyer, Ph.D. 1997 $131,522 -- $ 4,750(2)
Vice President of 1996 $124,672 98,376 $ 4,186(3)
Laboratory Sciences
William O. Green 1997 $101,301 49,187 $ 1,119(2)
Vice President, Finance and 1996 -- --
Chief Financial Officer
</TABLE>
- --------------------------
(1) The amounts shown for 1996 represent amounts paid by Roche Image
Analysis Systems, Inc. ("RIAS"), the Company's predecessor, for
services performed from January 1, 1996 to November 21, 1996, and
amounts paid by the Company for services performed from November 22,
1996 to December 31, 1996.
(2) Represents contributions by the Company to its 401(k) plan on behalf of
the Named Executive Officers.
(3) Represents payments made by RIAS in connection with the formation of
the Company for accrued vacation time with RIAS.
(4) Dr. Powell joined the Company as President and Chief Executive Officer
in January 1997.
(5) Mr. Knesel served as interim President from November 22, 1996 until
January 1997. During that period, no executive officer held the title
of Chief Executive Officer.
9
<PAGE> 12
The following table sets forth certain information regarding options
granted during the fiscal year ended December 31, 1997 by the Company to the
Named Executive Officers. No options were granted during the last fiscal year to
Dr. Powell, Mr. Knesel, Dr. Gahm or Dr. Geyer.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of
Securities Total Options Exercise Stock Price Appreciation for
Underlying Granted to or Base Option Term($)(1)
Options Employees in Price Expiration -------------------------------
Name Granted (#) Fiscal Year ($/share) Date 0% 5%(2) 10%(2)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William O. Green.......... 34,431(3) 9.8% $0.2033 4/30/07 $337,310 $553,845 $886,052
14,756(4) 4.2% $0.2033 1/31/07 $144,560 $237,360 $399,733
</TABLE>
- ----------------------
(1) The values in these columns are based on the applicable rate of
appreciation applied to the offering price of the Common Stock in the
Company's initial public offering of $10.00 per share.
(2) The dollar amounts shown in these columns are the result of
calculations at the 5% and 10% rates required by the Securities and
Exchange Commission and, therefore, are not intended to forecast
possible future appreciation, if any, in the price of the underlying
Common Stock. No gain to the optionee is possible without an increase
in price of the underlying Common Stock, which will benefit all
stockholders proportionately.
(3) These options were granted on April 30, 1997 and were immediately
exercisable with respect to 2,152 shares and become exercisable as to
1/45th of the remaining shares on the first day of each month following
the date of grant; they would become exercisable in full upon a change
in control of the Company.
(4) These options were granted on January 31, 1997 and become exercisable
as to 1/48th of the shares on the first day of each month following the
date of grant; they would become exercisable in full upon a change in
control of the Company.
10
<PAGE> 13
The following table sets forth certain information concerning
exercisable and unexercisable stock options held by the Named Executive Officers
as of December 31, 1997. Dr. Powell held no options to purchase shares of Common
Stock as of December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-The-Money Options
Options at at
Fiscal Year- Fiscal Year-
End (#) End ($)(2)
Shares ------------ -------------------
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($)(1) Unexercisable Unexercisable
---- ------------ ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Ernest A. Knesel ........... 3,000 $22,265 58,368/184,123 404,006/1,274,444
Thomas Gahm, Ph.D. ......... 2,000 $14,593 30,816/101,452 213,299/702,220
James W. Geyer, Ph.D........ 1,500 $11,508 23,088/73,788 159,808/510,738
William O. Green............ 1,625 $12,670 8,205/39,357 56,793/272,417
</TABLE>
- ---------------------
(1) Based on the difference between the last sale price of the Common Stock
on the date of exercise, as reported on the Nasdaq National Market, and
the exercise price.
(2) Based on the difference between the last sale price of the Common Stock
on December 31, 1997 as reported on the Nasdaq National Market of
$7.125, and the option exercise price.
COMPENSATION COMMITTEE INTERLOCKS, INSIDER PARTICIPATION
AND CERTAIN TRANSACTIONS
From its inception in June 1997 through December 31, 1997 the
Compensation Committee consisted of Dr. Charpie, Dr. Curry and Mr. Mac Mahon.
Before June 1997, the Board of Directors, including Dr. James B. Powell,
President and Chief Executive Officer of the Company, fulfilled the
responsibilities later delegated to the Compensation Committee. None of the
members of the Compensation Committee is an officer of the Company.
Dr. Charpie is a general partner of (i) ASMC-III MCLP LLP, which is the
general partner of the general partner of both Ampersand Specialty Materials and
Chemicals III Limited Partnership and Ampersand Specialty Materials and
Chemicals III Companion Fund Limited Partnership, and (ii) Ampersand Lab
Partners MCLP LLP, which is the general partner of both Laboratory Partners I
Limited Partnership and Laboratory Partners Companion Fund Limited Partnership,
which, together, are a principal stockholder of the Company.
11
<PAGE> 14
Dr. Curry is divisional Vice President of DLJ Capital Corporation ("DLJ
Capital"), the managing general partner of Sprout Capital VII, L.P. and Sprout
CEO Fund, L.P., and acts as attorney-in-fact with respect to DLJ Capital's
direct and indirect investments in AutoCyte. Together, these entities are a
principal stockholder of the Company.
Mr. Mac Mahon succeeded Dr. Powell as President and Chief Executive
Officer of LabCorp, a publicly held company of which Dr. Powell currently is a
director. Mr. Mac Mahon also serves as LabCorp's Chairman of the Board.
LabCorp Arrangements
The Company has entered into certain ongoing arrangements with LabCorp
for selling its products to LabCorp. In 1997, LabCorp purchased approximately
$33,354 worth of products from the Company. The Company currently expects that
LabCorp's purchases of its products in 1998 will exceed 5% of the Company's
consolidated gross revenue for 1997.
The Company has continuing arrangements with LabCorp (i) for leasing a
portion of LabCorp's facility in Elon College, North Carolina and (ii) for
providing cytology services in support of the Company's clinical trials. In
1997, the Company paid LabCorp approximately $111,375 and $6,624 respectively,
under each of these arrangements.
Bridge Financing
On June 27, 1997, the Company entered into a credit agreement with the
Ampersand Funds, the Sprout Funds, Allemanni and certain of its stockholders
(the "Lenders"). The agreement provided the Company with access to funds of up
to $8,000,000 at an interest rate equal to the prime rate established by Fleet
National Bank plus one percent. In consideration of this credit agreement, the
Company issued to the Lenders warrants to purchase in aggregate of 207,291
shares of its Common Stock at an exercise price of $2.00 per share. The credit
agreement terminated upon the closing of the Company's initial public offering,
and the Company exercised its right to accelerate the expiration date of all
outstanding warrants. The Company issued an aggregate of 193,554 shares of
Common Stock upon exercise of the warrants.
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<PAGE> 15
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph shows the cumulative stockholder return of the
Company's Common Stock from September 5, 1997 (the first trading day for the
Company's Common Stock) through December 31, 1997 as compared with that of the
Nasdaq (U.S. Companies) Index and the Hambrecht & Quist Healthcare Section
Excluding Biotech Index. The graph assumes the investment of $100 in the
Company's Common Stock and each of the comparison groups on September 5, 1997
and assumes the reinvestment of dividends. The Company has never declared a
dividend on the Common Stock of the Company. The stock price performance
depicted in the graph below is not necessarily indicative of future price
performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG AUTOCYTE, INC.,
NASDAQ (U.S. COMPANIES) INDEX AND
HAMBRECHT & QUIST HEALTHCARE SECTION EXCLUDING BIOTECH INDEX
[graph[
9/5/97 9/30/97 12/31/97
AutoCyte, Inc. $100.00 $85.00 $71.25
Nasdaq Stock Market (U.S.) $100.00 $102.55 $96.20
H&Q Healthcare-Excluding Biotech $100.00 $104.58 $104.57
13
<PAGE> 16
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
AutoCyte's directors, certain of its executive officers and persons who
own beneficially more than 10% of AutoCyte's Common Stock (collectively
"Reporting Persons") are required under Section 16(a) of the Securities Exchange
Act of 1934 to file initial reports of ownership and changes in ownership of
AutoCyte securities with the Securities and Exchange Commission (the
"Commission"). Reporting Persons also are required by Commission regulations to
furnish AutoCyte with copies of all Section 16(a) reports they file.
To AutoCyte's knowledge, based solely on a review of the copies of
reports furnished to AutoCyte and written representations that no other reports
were required, AutoCyte believes that during its 1997 fiscal year, its
directors, executive officers, and 10% beneficial owners complied with all
applicable Section 16(a) filing requirements except that (i) in November 1997,
each of Messrs. Gahm, Geyer, Green, Knesel, Linsley and McPhail reported on an
amended Form 3 holdings of warrants to purchase 1,234 shares, 498 shares, 389
shares, 1,814 shares, and 370 shares of Common Stock, respectively, that should
have been reported on a Form 3 filed on September 4, 1997, (ii) in February
1998, each of Messrs. Green, Linsley and McPhail reported on an amended Form 4
for September 1997 the acquisition in May 1997 of 42,125 shares, 42,125 shares
15,000 shares of Series A Convertible Preferred Stock, respectively that should
have been reported by October 10, 1997, (iii) in February 1998, each of Drs.
Curry and Powell reported on an amended Form 4 for September 1997 (A) the
acquisition in June 1997 of warrants to purchase 60,390 shares and 68,449 shares
of Common Stock, respectively, and (B) the disposition in August 1997 of
warrants to purchase 1,827 shares and 2,072 shares of Common Stock,
respectively, that should have been reported by October 10, 1997, (iv) in
February 1998, each of Messrs. Gahm, Geyer, Green, Knesel, Linsley and McPhail
reported on an amended Form 4 for September 1997 the acquisition in August 1997
of warrants to purchase 1,234 shares, 498 shares, 389 shares, 1,814 shares and
370 shares of Common Stock, respectively, that should have been reported by
October 10, 1997, (v) in February 1998, Mr. Linsley reported on an amended Form
4 for September 1997 the acquisition in September 1997 of 5,000 shares of Common
Stock that should have been reported by October 10, 1997, (vi) in February 1998,
each of Messrs. Gahm, Geyer, Green, Knesel and McPhail reported on a Form 4 for
January 1998 the exercise in December 1997 of options with respect to 2,000
shares, 1,500 shares, 1,625 shares, 1,500 shares, 3,000 shares and 2,000 shares
of Common Stock, respectively, that should have been reported by January 10,
1998, and (vii) in March 1998, Ms. Whitehead reported on a Form 4 for September
1997 the acquisition of 8,000 shares of Common Stock that should have been
reported by October 10, 1997.
14
<PAGE> 17
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Ernst & Young LLP as
independent auditors of the Company for the fiscal year ending December 31,
1998. Although shareholder approval of the Board of Directors' selection of
Ernst & Young LLP is not required by law, the Board of Directors believes that
it is advisable to give the shareholders an opportunity to ratify this
selection. If this proposal is not approved at the Meeting, the Board of
Directors will reconsider the selection of Ernst & Young LLP.
The firm of Ernst & Young LLP examined the Company's financial
statements for the year ended December 31, 1997. Representatives of Ernst &
Young LLP are expected to attend the Annual Meeting to respond to appropriate
questions and will have the opportunity to make a statement if they desire.
STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
In order to be considered for inclusion in the Company's proxy
materials for the 1999 Annual Meeting of Stockholders, stockholder nominations
of persons for election to the Board and proposals of business to be considered
by the stockholders must be received by the Company no later than December 21,
1998. Proposals should be sent to the attention of the Assistant Secretary at
the Company's offices at 112 Orange Drive, Elon College, North Carolina, 27244.
ADVANCE NOTICE PROVISIONS FOR
STOCKHOLDER PROPOSALS AND NOMINATIONS
The By-laws provide that in order for a stockholder to bring business
before or propose director nominations at an annual meeting, the stockholder
must give written notice to the Secretary of the Company not less than 50 days
nor more than 75 days prior to the meeting. The notice must contain specified
information about the proposed business or each nominee and the stockholder
making the proposal or nomination. If less than 65 days notice or prior public
disclosure of the date of the annual meeting is given or made to stockholders,
the notice given by the stockholder must be received not later than the 15th day
following the day on which the notice of such annual meeting date was mailed or
public disclosure made, whichever first occurs.
EXPENSES OF SOLICITATION
The cost of soliciting proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company.
Proxies may be solicited by directors, officers or regular employees of the
Company by mail, by telephone, in person or otherwise. No such person will
receive additional compensation for such solicitation. In addition, the Company
will request banks, brokers and other custodians, nominees and fiduciaries to
forward proxy material to the beneficial owners of Common Stock and to obtain
voting instructions from such beneficial owners. The Company will reimburse such
firms for their reasonable expenses in forwarding proxy materials and obtaining
voting instructions.
15
<PAGE> 18
OTHER MATTERS
The Meeting is called for the purposes set forth in the notice. The
Board of Directors does not know of any matter for action by the stockholders at
the Meeting other than the matters described in the notice. However, the
enclosed proxy confers discretionary authority on the persons named therein with
respect to matters which are not known to the directors at the date of printing
hereof and which may properly come before the Meeting. It is the intention of
the persons named in the proxy to vote in accordance with their best judgment on
any such matter.
Copies of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 as filed with the Securities and Exchange Commission are
available to stockholders upon written request addressed to the President at the
Company's offices at 112 Orange Drive, Elon College, North Carolina, 27244.
Whether or not you intend to be present at the Meeting, you are urged
to fill out, sign, date and return the enclosed proxy at your earliest
convenience.
16
<PAGE> 19
APPENDIX A
(FRONT OF PROXY CARD)
AUTOCYTE, INC.
112 ORANGE DRIVE
ELON COLLEGE, NORTH CAROLINA 27244
(336) 574-0250
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
MAY 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of AutoCyte, Inc. (the "Company") hereby
appoints Richard A. Charpie and James B. Powell, M.D., and each of them acting
singly, the attorneys and proxies of the undersigned, with full power of
substitution, to vote on behalf of the undersigned all of the shares of capital
stock of the Company that the undersigned is entitled to vote at the Annual
Meeting of Stockholders of the Company to be held Thursday, May 28, 1998, and at
all adjournments thereof, hereby revoking any proxy heretofore given with
respect to such shares.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL PROPOSALS. IN THEIR DISCRETION, THE PROXIES ARE ALSO AUTHORIZED TO
VOTE UPON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
PLEASE SIGN AND MAIL PROXY TODAY
MARK HERE FOR ADDRESS CHANGE AND NOTE ON REVERSE [ ]
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
[SEE REVERSE SIDE]
(REVERSE OF PROXY CARD)
[ X ] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
FOR WITHHELD
1. Proposal to elect a director [ ] [ ]
Nominee: James B. Powell, M.D.
FOR AGAINST ABSTAIN
2. Proposal to ratify the selection [ ] [ ] [ ]
by the Board of Directors of
Ernst & Young LLP as the
Company's independent public
auditors for the current fiscal
year.
Signature: Date:
--------------------------------- -------------------------
Signature: Date:
--------------------------------- -------------------------
NOTE: Please sign exactly as name appears on stock certificate. When shares
are held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee, or guardian, please give full title
as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
