<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] CONFIDENTIAL, FOR USE OF THE
[_] Preliminary Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
APPLIED IMAGING CORP.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
REGISTRANT
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 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: N/A
(2) Form, Schedule or Registration Statement No.: N/A
(3) Filing Party: N/A
(4) Date Filed: N/A
Notes:
<PAGE>
APPLIED IMAGING CORP.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 27, 1997
----------------
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Applied
Imaging Corp., a Delaware corporation (the "Company"), will be held on
Tuesday, May 27, 1997 at 10:00 a.m., local time, at the Santa Clara Marriott
Hotel, 2700 Mission College Blvd., Great America Parkway, Santa Clara,
California, 95052-8181, for the following purposes (as more fully described in
the Proxy Statement accompanying this Notice):
1. To elect three Class I directors of the Company to serve for terms of
three years expiring upon the 2000 Annual Meeting of Stockholders or
until their successors are elected.
2. To approve an amendment of the Company's Amended and Restated 1988
Incentive Stock Option Plan (the "Option Plan") to increase the number
of shares of Common Stock available for issuance thereunder by 350,000
shares and to approve the material terms of the Option Plan, including,
but not limited to, share limitations for purposes of Section 162(m) of
the Internal Revenue Code of 1986, as amended.
3. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the year ended December 31, 1997.
4. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on April 7, 1997, are
entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting. However, to
assure your representation at the meeting, you are urged to mark, sign, date
and return the enclosed Proxy as promptly as possible in the postage-prepaid
envelope enclosed for that purpose. Any stockholder attending the meeting may
vote in person even if he or she has returned a Proxy.
FOR THE BOARD OF DIRECTORS
Abraham I. Coriat
Chairman of the Board
Santa Clara, California
May 5, 1997
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, AND RETURN
IT IN THE ENCLOSED ENVELOPE. YOUR STOCK WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS YOU HAVE GIVEN IN THE PROXY. YOUR PROXY MAY BE REVOKED AT ANY
TIME BEFORE IT IS VOTED BY SIGNING AND RETURNING A LATER-DATED PROXY WITH
RESPECT TO THE SAME SHARES, BY FILING WITH THE SECRETARY OF THE COMPANY A
WRITTEN REVOCATION BEARING A LATER DATE OR BY ATTENDING AND VOTING IN PERSON
AT THE ANNUAL MEETING.
<PAGE>
APPLIED IMAGING CORP.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed Proxy is solicited on behalf of the Board of Directors of
Applied Imaging Corp., a Delaware corporation (the "Company"), for use at the
Annual Meeting of Stockholders to be held on Tuesday, May 27, 1997, at 10:00
a.m., local time, or at any adjournment thereof. The Annual Meeting will be
held at the Santa Clara Marriott Hotel, 2700 Mission College Blvd., Great
America Parkway, Santa Clara, California 95052-8181. The telephone number at
that meeting location is (408) 988-1500.
These proxy solicitation materials and the Annual Report to Stockholders for
the fiscal year ended December 31, 1996, including financial statements were
mailed on or about May 5, 1997, to all stockholders entitled to vote at the
meeting.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Stockholders of record at the close of business on April 7, 1997 (the
"Record Date") are entitled to notice of and to vote at the meeting. The
Company has one series of shares outstanding, designated Common Stock, $0.001
par value per share. At the record date, 6,824,835 shares of the Company's
Common Stock were issued and outstanding and held of record by approximately
169 stockholders. No shares of the Company's Preferred Stock were outstanding.
The closing price of the Company's Common Stock on the Record Date, as
reported by The National Association of Securities Dealers, Inc. Automated
Quotation National Market was $5.375 per share.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Secretary of the
Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share held as of the
record date. Stockholders will not be entitled to cumulate their votes in the
election of directors.
The cost of soliciting proxies will be borne by the Company. The Company
expects to reimburse brokerage firms and other persons representing beneficial
owners of shares for their expenses in forwarding solicitation material to
such beneficial owners. Proxies may also be solicited by certain of the
Company's directors, officers and regular employees, without additional
compensation, personally or by telephone or facsimile.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") appointed for the meeting and
will determine whether or not a quorum is present.
The required quorum for the transaction of business at the Annual Meeting is
a majority of the votes eligible to be cast by holders of shares of Common
Stock issued and outstanding on the record date. Shares that are voted "FOR",
"AGAINST" or "WITHHELD FROM" a matter are treated as being present at the
meeting for purposes of establishing a quorum and are also treated as shares
entitled to vote at the Annual Meeting (the "Votes Cast") with respect to such
matter.
<PAGE>
While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining both (i) the presence or absence
of a quorum for the transaction of business and (ii) the total number of Votes
Cast with respect to a proposal (other than the election of directors). In the
absence of controlling precedent to the contrary, the Company intends to treat
abstentions in this manner. Accordingly, abstentions will have the same effect
as a vote against the proposal.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that, while broker non-votes should be counted for purposes of
determining the presence or absence of a quorum for the transaction of
business, broker non-votes should not be counted for purposes of determining
the number of Votes Cast with respect to the particular proposal on which the
broker has expressly not voted. Accordingly, the Company intends to treat
broker non-votes in this manner. Thus, a broker non-vote will not affect the
outcome of the voting on a proposal.
Any proxy which is returned using the form of proxy enclosed and which is
not marked as to a particular item will be voted for the election of the three
Class I directors, for the amendment and approval of the Option Plan, for the
confirmation of the appointment of the designated independent auditors, and as
the proxy holders deem advisable on other matters that may come before the
meeting, as the case may be with respect to the items not marked.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting of Stockholders must
be received by the Company no later than December 1, 1997 in order that they
may be considered for possible inclusion in the proxy statement and form of
proxy relating to that meeting.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information known to the Company with respect
to the beneficial ownership of its Common Stock as of April 15, 1997, by (i)
each person who is known to the Company to own beneficially more than 5% of
the outstanding shares of Common Stock, (ii) each director and nominee for
election, (iii) each executive officer named in the Summary Compensation Table
under the heading "Executive Officer Compensation" and (iv) all directors,
nominees for election and executive officers as a group. Except as otherwise
noted, the stockholders named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned
by them, subject to applicable community property laws.
<TABLE>
<CAPTION>
SHARES APPROXIMATE
BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED OWNED (1)
- - ---------------- ------------ -----------
<S> <C> <C>
Individuals and Entities Affiliated with
Allen Holding Inc. (2)............................... 1,706,222 23.8%
Allen & Company Incorporated
711 Fifth Avenue
New York, NY 10022
Entities Affiliated with
New Enterprise Associates (3)........................ 781,006 11.3%
2490 Sand Hill Road
Menlo Park, CA 94025
Entities Affiliated with Thompson Clive
Ventures/Midland Bank Trustee........................ 707,327 10.4%
(Jersey) Ltd. (4)
c/o Midland Bank International
Finance Corporation Limited
PO Box 26
28-34 Hill Street.
St. Helier, Jersey, Channel Islands
Robert C. Miller (2).................................. 1,706,222 23.8%
Thomas C. McConnell (3)............................... 781,006 11.3%
Michael S. Elias (4).................................. 707,327 10.4%
Abraham I. Coriat (5)................................. 464,568 6.8%
John F. Blakemore, Jr. (6)............................ 85,262 1.2%
Gilbert J.R. McCabe (7)............................... 64,821 *
Andre Marion (8)...................................... 14,519 *
G. Kirk Raab (9)...................................... 8,750 *
Jack Goldstein, Ph.D.................................. -- --
Leslie G. Grant, Ph.D. (10)........................... 63,750 *
Neil E. Woodruff (11)................................. 47,500 *
Michael Burgett (12).................................. 17,500 *
All executive officers, directors and nominees for
election as a group (12 persons)
(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)................. 3,961,225 54.2%
</TABLE>
- - -------
* Less than 1%.
(1) Applicable percentage ownership is based on 6,824,835 shares of Common
Stock outstanding as of April 15, 1997, together with applicable options
or warrants for such stockholder. Beneficial Ownership is determined in
accordance with the rules of the Securities and Exchange Commission.
(2) Consists of 198,678 shares and warrants to purchase 179,216 shares held
by Allen & Company Incorporated, 39,859 shares and a warrant to purchase
6,257 shares held by Allen Value Limited, 333,715 shares and a warrant to
purchase 52,388 shares held by Allen Value Partners, L.P. and an
3
<PAGE>
aggregate of 776,635 shares, warrants to purchase an aggregate of 118,224
shares and an option to purchase 1,250 shares within 60 days after April
15, 1997 held by certain officers, directors, employees, individuals
related to officers, directors and employees and shareholders of Allen
Holding Inc. or its affiliated entities. Allen Holding Inc. is a holding
company of each of Allen & Company Incorporated, Allen Value Limited and
Allen Value Partners, L.P. and disclaims beneficial ownership of the
shares held by such entities except to the extent of its proportionate
ownership interest therein. Robert C. Miller, a director of the Company
and a holder of 1,759 shares, a warrant to purchase 586 shares and an
option to purchase 1,250 shares within 60 days after April 15, 1997, is an
affiliate of Allen Holding Inc. and the related entities, and disclaims
beneficial ownership of the shares held by such entities except to the
extent of his proportionate ownership interest therein.
(3) Consists of 709,214 shares and warrants to purchase 58,777 shares held by
New Enterprise V, Limited Partnership, 11,765 shares held by The
Silverado Fund I, Limited Partnership and an option to purchase 1,250
shares within 60 days after April 15, 1997 held by Thomas C. McConnell.
Mr. McConnell, a director of the Company, is a general partner of New
Enterprise Associates V, Limited Partnership and The Silverado Fund I,
Limited Partnership, and disclaims beneficial ownership of the shares
held by such entities except to the extent of his proportionate ownership
interest therein.
(4) Consists of 209,348 shares held by Thompson Clive Investments plc, 5,500
shares held by Thompson Clive & Partners Ltd., 488,479 shares held by
Midland Bank Trustee (Jersey) Limited (the "Thompson Clive entities") and
2,750 shares and an option to purchase 1,250 shares within 60 days after
April 15, 1997 held by Michael S. Elias. Midland Bank Trustee (Jersey)
Limited acts as the nominee for Thompson Clive Ventures and Thompson
Clive Ventures LP. Therefore, Thompson Clive Ventures and Thompson Clive
Ventures LP are deemed the beneficial owners of the shares held by
Midland Bank Trustee (Jersey) Limited. Mr. Elias disclaims beneficial
ownership of the shares held by the Thompson Clive entities except to the
extent of his proportional ownership interest therein.
(5) Consists of 414,732 shares held as community property by Abraham I.
Coriat and Shira Shamssian and an aggregate of 49,836 shares held by Mr.
Coriat and Ms. Shamssian as Custodian for each of Salomon Israel Coriat
and Yael Israel Coriat.
(6) Includes an option to purchase 5,000 shares within 60 days after April
15, 1997.
(7) Includes an option to purchase 1,250 shares within 60 days after April
15, 1997 and 53,571 shares held by SEFTA Trustees Ltd. for family trusts.
Mr. McCabe, a director of the Company, disclaims beneficial ownership of
the shares held by SEFTA Trustees Ltd. except to the extent of his
proportionate ownership interest therein.
(8) Includes an option to purchase 6,250 shares within 60 days after April
15, 1997 and a warrant to purchase 1,567 shares.
(9) Consists of an option to purchase shares within 60 days after April 15,
1997.
(10) Includes an option to purchase 18,750 shares within 60 days after April
15, 1997.
(11) Includes an option to purchase 5,000 shares within 60 days after April
15, 1997.
(12) Consists of an option to purchase shares within 60 days after April 15,
1997.
COMPLIANCE WITH SECTION 16(a) FILING REQUIREMENTS
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers and beneficial
owners of more than 10% of the Company's Common Stock to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership
and reports of changes in ownership of Common Stock and other equity
securities of the Company. Based solely on its review of the copies of such
reports received by it, or written representations from reporting persons, the
Company believes that during the fiscal year ended December 31, 1996, its
officers, directors and holders of more than 10% of the Company's Common Stock
complied with all Section 16(a) filing requirements except for the transaction
for Andre Marion in November 1996 which was reported late on a Form 4.
4
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
Pursuant to the Company's Restated Certificate of Incorporation, the
Company's Board of Directors currently consists of eight persons, divided into
three classes serving staggered terms of three years. Currently, there are
three directors in Class I, three directors in Class II, and two directors in
Class III. Three Class I directors are to be elected at the Annual Meeting.
The Class II and Class III directors will be elected at the Company's 1998 and
1999 Annual Meetings of Stockholders, respectively. Each of the three Class I
directors elected at the Annual Meeting will hold office until the 2000 Annual
Meeting of Stockholders, or until his successor has been duly elected and
qualified.
In the event that any of such persons becomes unavailable or declines to
serve as a director at the time of the Annual Meeting, the proxy holders will
vote the proxies in their discretion for any nominee who is designated by the
current Board of Directors to fill the vacancy. It is not expected that any of
the nominees will be unavailable to serve.
The names of the three Class I nominees for election to the Board of
Directors at the Annual Meeting, their ages as of the Record Date, and certain
information about them are set forth below. The names of the current Class II
and Class III directors with unexpired terms, their ages as of the Record
Date, and certain information about them are also stated below.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
---- --- -------------------- --------
<S> <C> <C> <C>
NOMINEES FOR CLASS I
DIRECTORS
Jack Goldstein, Ph.D. .. 49 President and Chief Executive Officer
Gilbert J.R. McCabe (2). 51 Independent advisor to investment companies 1992
Thomas C. McConnell (2). 42 General Partner of New Enterprise Associates 1990
CONTINUING CLASS II
DIRECTORS
John F. Blakemore, Jr.
(1) (2)................. 56 Vice President and CFO of Pro-Log Corporation 1987
Robert C. Miller (1).... 30 Vice President and Director of Allen & 1995
Company Incorporated
G. Kirk Raab (2) ....... 60 Chairman of the Board of Shaman Pharmaceuticals, Inc. 1996
and Connective Therapeutics, Inc.
CONTINUING CLASS III
DIRECTORS
Abraham I. Coriat....... 48 Chairman of the Board of Directors 1986
Andre F. Marion (1)..... 60 Retired as President of Applied Biosystems, Inc. 1995
</TABLE>
- - --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
There are no family relationships among any directors or executive officers
of the Company.
DIRECTORS TO BE ELECTED AT THE ANNUAL MEETING
JACK GOLDSTEIN, PH.D. joined the Company in April 1997 as President and
Chief Executive Officer. Dr. Goldstein has over 23 years of senior management
experience in the diagnostic industry. From 1986 until 1997, Dr. Goldstein
served in various senior executive positions at Johnson & Johnson, including
President of Ortho Diagnostics Systems, Inc., a subsidiary of Johnson &
Johnson from 1993 to 1997. Dr. Goldstein holds an M.S. in Immunology and a
Ph.D. in Microbiology, both from St. John's University.
5
<PAGE>
GILBERT J.R. MCCABE has been a director of the Company since July 1992. Mr.
McCabe has been an independent advisor for the past four years to
international investment partnerships investing in start-up companies in North
America, Europe and Asia. For the previous 20 years he was a Vice President
with Citicorp, where he served in the United States, Asia and Europe working
with international investors. He holds an M.A. in Humanities from Oxford
University.
THOMAS C. MCCONNELL has been a director of the Company since August 1990.
Mr. McConnell has been with New Enterprise Associates, a venture capital
investment firm since 1983 where he has been a General Partner since 1989.
Previously, he was a Product Manager in the Lisa Division of Apple Computer,
Inc. and a consultant with the Boston Consulting Group. He received an A.B. in
Engineering Science from Dartmouth College and an M.B.A. from the Stanford
University Graduate School of Business. Mr. McConnell serves on the Board of
Directors of CardioThoracic Systems, Inc., Conceptus, Inc., Sequana
Therapeutics, Inc., lnnovasive Devices and a number of private companies.
DIRECTORS WHOSE TERMS EXTEND BEYOND THE ANNUAL MEETING
JOHN F. BLAKEMORE, JR. has been a director of the Company since December
1987. Since 1987 he has been an independent investor and consultant. At
present he is also a director, Vice President and CFO of Pro-Log Corp., an
industrial computer company. From 1979 to 1987 he worked for Compumotor Corp.,
a company he co-founded. Prior to that, he held three general management
positions including Vice President of Wells Fargo Investment Co. Mr. Blakemore
holds a B.S. in Mechanical Engineering and an M.B.A. from Stanford University.
ROBERT C. MILLER has been a director of the Company since November 1995. He
is a Vice President and Director of the investment banking firm Allen &
Company Incorporated and has been associated with the firm since June 1986.
Mr. Miller received his B.A. from Williams College and his M.B.A. from the
Leonard N. Stem School of Business, New York University. Mr. Miller is a
director of Envirogen, Inc., Audits & Surveys Worldwide, Inc. and Mediscience
Technology Corp., as well as a director of a number of private companies.
G. KIRK RAAB has been a director of the Company since 1996. Mr. Raab was
President and Chief Operating Officer from 1985 to 1989 and President and
Chief Executive Officer from 1990 to July 1995 of Genentech Inc., a
pharmaceutical company. He was with Abbott Laboratories from 1975 to 1985,
serving as President and Chief Operating Officer from 1981 to 1985. He is
currently Chairman of the Board of Shaman Pharmaceuticals, Inc. and Connective
Therapeutics, Inc., and a director of a number of private companies. He
received his B.A. from Colgate University, where he serves as a Trustee.
ABRAHAM I. CORIAT, founder of the Company, has been with the Company since
1986. He is the Chairman of the Board. From 1981 to 1986, he served as
Business Area Manager and Engineering Manager for International Imaging
Systems in their medical and industrial imaging divisions. Mr. Coriat has 23
years of experience in the imaging and medical industry, including various
senior engineering positions in England, Belgium and Italy. He holds an
Electrical Engineering degree from INSA (Institute National de Sciences
Appliquees), France.
ANDRE F. MARION has been a director of the Company since November 1995. Mr.
Marion was a founder of Applied Biosystems, Inc., a supplier of instruments
for biotechnology research, and served as its Chief Operating Officer from
1983 to 1986, its Chief Executive Officer from 1986 to 1993, and its Chairman
of the Board from 1987 to February 1993, when it merged with the Perkin Elmer
Corporation, a manufacturer of analytical instruments. Mr. Marion served as
Vice President of Perkin Elmer and President of its Applied Biosystems
Division until his retirement in February, 1995. Mr. Marion holds a degree in
engineering from the French Ecole Nationale Superieures d'Ingenieurs Arts et
Metiers in both Mechanical and Electronic Engineering. Mr. Marion is an
independent consultant and also a director of Cygnus Corporation and Molecular
Devices Inc.
Michael S. Elias is not standing for re-election.
6
<PAGE>
VOTE REQUIRED
The three nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted for them shall be
elected as Class I directors. Votes withheld from any director are counted for
purposes of determining the presence or absence of a quorum for the
transaction of business, but have no other legal effect under Delaware law.
BOARD MEETINGS, COMMITTEES AND DIRECTOR COMPENSATION
The Board of Directors of the Company held seven meetings during the
calendar year ended December 31, 1996.
The Board of Directors has an Audit Committee and a Compensation Committee.
It does not have a nominating committee or a committee performing the
functions of a nominating committee. From time to time, the Board has created
various ad hoc committees for special purposes. No such committee is currently
functioning.
The Audit Committee consists of directors Blakemore, Elias, Marion, and
Miller. Upon the election of Mr. Elias' successor, Mr. Elias will cease to be
member of the Audit Committee. The Audit Committee reviews the internal
accounting procedures of the Company and consults with and reviews the
services provided by the Company's independent auditors. The Audit Committee
held two meetings in the last calendar year.
The Compensation Committee consists of directors Blakemore, McCabe,
McConnell, and Raab. The Compensation Committee reviews and recommends to the
Board the compensation and benefits of all executive officers of the Company
and establishes and reviews general policies relating to compensation and
benefits of employees of the Company. The Compensation Committee held two
meetings during the last calendar year.
COMPENSATION OF DIRECTORS
Messrs. McCabe, Raab, Blakemore, and Marion receive $800 per meeting
attended, and all Directors receive reimbursement of travel expenses from the
Company for their service as members of the Board of Directors. Under the
Company's 1994 Director Option Plan, (the "Director Plan") each director who
is not also an employee or consultant of the Company (an "Outside Director")
will automatically receive an option to purchase 5,000 shares of Common Stock
upon joining the Board of Directors. Thereafter, each Outside Director who has
served on the Board of Directors for at least six months shall receive an
option to acquire 5,000 shares of Common Stock on the date of each of the
Company's annual meetings of stockholders, provided such Outside Director is
re-elected. Each option granted under the Director Plan will become
exercisable ratably over a four-year period. The term of such options is ten
years from the date of grant, provided that such options shall terminate three
months following the termination of the optionee's status as a director (or
twelve months if the termination is due to death or disability.) The exercise
price of all options granted under the Director Plan is equal to the fair
market value of the Company's Common Stock on the date of grant, as determined
in accordance with the Director Plan. The Director Plan provides for the
automatic grant of non-statutory options to Outside Directors on an annual
basis in order to motivate them to continue to serve as directors. A total of
120,000 shares of the Company's Common Stock is reserved for issuance during
the current 10-year term of the Plan, which expires in February 2004.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
NOMINEES SET FORTH HEREIN.
7
<PAGE>
CERTAIN TRANSACTIONS
In August 1993, the Company issued and sold 1,016,407 shares of Series I
Preferred Stock at a purchase price of $5.25 per share to a total of 33
investors. The 5% stockholders that purchased shares of Series I Preferred
Stock and the number of shares each 5% stockholder purchased are (i) Allen &
Company Incorporated and affiliates, 339,300 shares, (ii) New Enterprise
Associates V, Limited Partnership, 11,905 and (iii) the Thompson Clive Funds,
9,524 shares. In connection with the Series I Preferred Stock Financing, the
Company issued to Allen & Company Incorporated a warrant to purchase 140,000
shares of the Company's Common Stock at a purchase price of $5.25 per share
and the Company paid to Allen & Company Incorporated a placement agent fee in
the amount of $252,504.
In connection with Dr. Grant's relocation from Edinburgh, Scotland to
Sunderland, England, the Company initially agreed to pay the mortgage interest
payments on Dr. Grant's new residence while Dr. Grant sought to sell his prior
residence. Mortgage interest payments made by the Company pursuant to this
arrangement totaled $21,263 and $36,706 in 1992 and 1993, respectively. In
March 1994, this arrangement was replaced as the Company purchased Dr. Grant's
former Edinburgh residence for $262,500 by obtaining a new mortgage on the
residence and discontinued payment of mortgage interest on his new residence.
The Company has incurred and expects to continue to incur reduced interest
costs as a result of this transaction.
In July and September 1995, the Company issued and sold 1,106,217 shares of
Series J Preferred Stock at a purchase price of $4.25 per share and issued
warrants for the purchase of 368,734 shares of the Common Stock at a purchase
price of $5.25 per share to a total of 30 investors pursuant to the terms of
the Series J Preferred Stock and Warrant Purchase Agreement. The 5%
stockholders that purchased shares of Series J Preferred Stock and the number
of shares each 5% stockholder purchased are (i) Allen & Company Incorporated
and affiliates, 524,038 and (ii) New Enterprise Associates V, Limited
Partnership, 176,332. Allen & Company Incorporated and affiliates and New
Enterprise Associates V, Limited Partnership were issued warrants to purchase
174,678 and 58,777 shares of Common Stock, respectively. In addition, pursuant
to the terms of the Series J Preferred Stock and Warrant Purchase Agreement,
the Company issued to Allen & Company Incorporated a warrant to purchase
140,000 shares of Common Stock at a purchase price of $4.25 per share in
exchange for the warrant to purchase 140,000 shares of Common Stock at a
purchase price of $5.25 per share issued to Allen & Company Incorporated
pursuant to the Series I Preferred Stock Financing. Additionally, the Company
paid to Allen & Company Incorporated a placement agent fee in the amount of
$238,307.
In January 1996, the Company paid the sum of $77,666 to a former officer of
the Company in connection with a severance agreement.
In January 1996, the Company granted Dr. Grant an option to purchase 35,000
shares of the Company's Common Stock at an exercise price of $1.80 per share.
One-fourth of the shares subject to the option shall become exercisable at the
end of each full year following January 15, 1996 until all such shares have
become exercisable, based upon Dr. Grant's continued relationship with the
Company.
In March 1996, the Company granted options to certain non-employee members
of the Board of Directors exercisable at $1.80 per share. The following
directors were granted options to acquire the following number of shares of
Common Stock: Mr. Raab, 35,000; Mr. Marion, 20,000; Mr. Blakemore, 20,000; Mr.
McConnell, 5,000; Mr. Elias, 5,000; Mr. McCabe, 5,000; and Mr. Miller, 5,000.
One-fourth of the shares subject to each of these options shall become
exercisable at the end of each full year following March 28, 1996, until all
such shares have become exercisable.
In March 1997, the Company granted Abraham I. Coriat, the Company's Chairman
of the Board, an option to purchase 50,000 shares of the Company's Common
Stock at an exercise price of $5.50 per share. One-fourth of the shares
subject to the option shall become exercisable at the end of each full year
following March 24, 1997 until all such shares have become exercisable, based
upon Mr. Coriat's continued relationship with the Company.
The Company has employment agreements with certain of its officers. See
"Employment Agreements."
8
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth information as of December 31, 1996 regarding
executive officers of the Company.
<TABLE>
<S> <C> <C>
Abraham I. Coriat(1).... 48 Chief Executive Officer and Chairman of the Board of Directors
Michael W. Burgett,
Ph.D. .................. 51 President, Genetic Diagnostics Division
Leslie G. Grant, Ph.D. . 43 President and Chief Operating Officer, Cytogenetics Division
Neil E. Woodruff........ 50 Chief Financial Officer and Secretary
</TABLE>
- - --------
(1) On April 17, 1997, Jack Goldstein, Ph.D., became the Company's President
and Chief Executive Officer. His biographical information is listed,
infra., at Proposal No. 1. Mr. Coriat remained the Company's Chairman of
the Board of Directors.
ABRAHAM I. CORIAT, biographical information, infra., at Proposal No. 1.
MICHAEL W. BURGETT, PH.D. joined the Company as President of the Genetic
Diagnostics Division in February 1996. Dr. Burgett has 23 years of experience
in the medical diagnostics industry, including 14 years in senior management
positions. From 1987 to 1996, Dr. Burgett held various general management,
operations and product development positions with Ortho Diagnostic System
Inc., a Johnson & Johnson company, most recently acting as Vice President and
General Manager of their blood bank business. Prior to that, Dr. Burgett held
various research and development and program management positions with
SmithKline Beckman, Inc., International Diagnostics Technology, Inc., and
BioRad Laboratories, Inc. Dr. Burgett holds a B.A. and an M.A. in Biology from
San Francisco State University and a Ph.D. in Chemistry from the University of
Texas at Austin.
LESLIE G. GRANT, PH.D. has been President and Chief Operating Officer of the
Company's Cytogenetics Division since February 1992. He joined the Company in
October 1991 as Managing Director of Applied Imaging International Ltd. From
1980 to 1991, Dr. Grant held various general management and senior engineering
positions with GEC-Marconi. Dr. Grant has 20 years experience in the
instrumentation and medical industry, including 11 years in senior management
positions. Dr. Grant holds a B.S. in Mathematics and a Ph.D. in Mathematics
and Electronic Engineering from the University of Hull, United Kingdom.
NEIL E. WOODRUFF has served as Chief Financial Officer of the Company since
April 1990 and Secretary since 1993. Mr. Woodruff has 25 years experience in
finance and the high technology industry. From 1983 to 1990, Mr. Woodruff held
various financial and general management positions with General Signal Corp.
Prior to that, Mr. Woodruff held various finance posts with Epitaxy, Inc.,
National Semiconductor and General Instrument Corp. Mr. Woodruff holds a B.S.
in Finance from the University of Santa Clara.
EMPLOYMENT AGREEMENTS
ABRAHAM I. CORIAT. In April 1997, the Company entered into an agreement with
Abraham I. Coriat, the Company's Chairman of the Board, pursuant to which the
Company and Mr. Coriat agreed that in the event of either his termination
without cause at any time on or prior to March 31, 1999, or his voluntary
resignation as an employee of the Company at any time between January 1, 1998
and March 31, 1999, he will be entitled to enter into a two year consulting
agreement with the Company at a rate equal to his annual compensation. During
this two year consulting period, Mr. Coriat will be prohibited from directly
or indirectly encouraging any of the Company's employees to leave their
employment with the Company.
JACK GOLDSTEIN, PH.D. In April 1997, the Company entered into an agreement
with Jack Goldstein, Ph.D., pursuant to which Dr. Goldstein would serve as the
President and Chief Executive Officer of the Company at an annual salary of
$255,000. In the event of the Company's termination of Dr. Goldstein's
employment, he will continue to serve as a consultant to the Company for one
year, and be paid at the same rate as his annual salary. Dr. Goldstein will
also be eligible for a cash bonus equal to up to 30% of his annual salary upon
the achievement of objectives set by the Board of Directors. The Company has
granted Dr. Goldstein options under the Option Plan to purchase 280,000 shares
of Common Stock at an exercise price equal to the fair market value of the
shares on the date of the option grant, which options will vest over four
years. The Company has agreed to pay Dr. Goldstein's reasonable relocation
expenses.
9
<PAGE>
MICHAEL W. BURGETT, PH.D. Under the terms of a letter dated January 20,
1996, setting forth the terms of Michael Burgett's employment with the
Company, the Company has agreed to provide Dr. Burgett, in addition to an
annual salary and bonus, medical insurance, vacation time and an option to
purchase 70,000 shares of the Company's Common Stock at an exercise price of
$1.80 per share, with (i) reimbursements for relocation expenses incurred by
Dr. Burgett in connection with his move from New Jersey to California up to a
maximum of $70,000, (ii) a severance payment equal to six times Dr. Burgett's
then existing monthly salary in the event his employment is terminated by the
Company and (iii) upon a change in control of the Company, accelerated vesting
of Dr. Burgett's option. One-fourth of the shares subject to the option become
exercisable at the end of each full year following March 28, 1996, until all
such shares have become exercisable, based upon Dr. Burgett's continued
relationship with the Company.
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table. The following table sets forth information for
the years ended December 31, 1994, 1995 and 1996 regarding the compensation of
the Company's Chief Executive Officer and each of the Company's three other
most highly compensated executive officers whose total annual salary and bonus
for such fiscal years were in excess of $100,000 (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------
------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING COMPENSATION
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS ($)
------------------ ---- -------- ------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Abraham I. Coriat....... 1994 $140,000 $37,500(1) $7,950(2)
Chief Executive Officer 1995 147,000 37,500(3) -- -- 8,373(4)
and Chairman of 1996 160,000 50,000(5) -- -- 8,768(15)
the Board
Leslie G. Grant,
Ph.D. .................. 1994 92,256 17,298(1) 13,172(6) 17,079(7)
President, and Chief 1995 102,570 39,450(3) -- 16,197(8)
Operating Officer 1996 109,340 35,000(5) 81,000(9) 35,000 9,732(10)
Cytogenics Division
Neil E. Woodruff........ 1994 92,524 10,000(1) 13,200(9) -- 4,133(11)
Chief Financial Officer 1995 98,000 15,000(3) -- 10,000 4,465(12)
and Secretary 1996 110,000 35,000(5) 4,483(16)
Michael W. Burgett...... 1996 136,625(13) 35,000(5) 49,750(14) 70,000 3,459(17)
President, Genetic
Diagnostics Division
</TABLE>
- - --------
(1) Consists of bonuses earned during the year ended December 31, 1994, and
paid in the year ended December 31, 1995.
(2) Consists of $4,000 contributed to the Company's retirement plan and
$3,950 in insurance premiums paid by the Company.
(3) Consists of bonuses earned during the year ended December 31, 1995, and
paid in the year ending December 31, 1996.
(4) Consists of $4,932 contributed to the Company's retirement plan and
$3,981 in insurance premiums paid by the Company.
(5) Consists of bonuses earned during the year ended December 31, 1996, and
paid in the year ending December 31, 1997.
(6) Consists of a mortgage reimbursement paid by the Company.
(7) Consists of $9,687 contributed to a private pension scheme, $5,784 paid
by the Company for operating expenses of a car leased by the Company and
used by Dr. Grant and $1,608 in insurance premiums paid by the Company.
10
<PAGE>
(8) Consists of $9,941 contributed to a private pension scheme, $4,500 paid
by the Company for operating expenses of a car leased by the Company and
used by Dr. Grant and $1,756 in insurance premiums paid by the Company.
(9) Consists of bonus payments for the purpose of exercising stock options.
(10) Consists of $7,645 for operating expenses of a car and $2,087 in
insurance premiums paid by the Company.
(11) Consists of $2,658 contributed to the Company's retirement plan and
$1,475 in insurance premiums paid by the Company.
(12) Consists of $2,926 contributed to the Company's retirement plan and
$1,539 in insurance premiums paid by the Company.
(13) Michael W. Burgett joined the Company in February 1996.
(14) Represents reimbursement for moving and relocation expenses.
(15) Consists of $5,925 contributed to the Company's retirement plan and
$2,843 in insurance premiums paid by the Company.
(16) Consists of $3,750 contributed to the Company's retirement plan and $733
in insurance premiums paid by the Company.
(17) Consists of $2,325 contributed to the Company's retirement Plan and
$1,134 in insurance premiums paid by the Company.
Option Grants in Last Fiscal Year. The following table sets forth each grant
of stock options made during the fiscal year ended December 31, 1996 to each
of the Named Executive Officers:
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
NUMBER OF POTENTIAL REALIZABLE
SECURITIES PERCENT OF VALUE AT ASSUMED
UNDERLYING TOTAL OPTIONS ANNUAL RATES OF
OPTIONS GRANTED DURING EXERCISE STOCK PRICE
GRANTED FISCAL PRICE EXPIRATION APPRECIATION FOR
NAME (#)(1) 1996 (%)(2) ($/SH)(3) DATE OPTION TERM(4)
---- ---------- -------------- --------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Burgett...... 70,000 23.9 $1.80 3/28/06 $79,241 $200,812
Abraham I. Coriat....... -- -- -- -- -- --
Leslie G. Grant, Ph.D. . 35,000 12.0 $1.80 1/15/06 $39,620 $100,406
Neil E. Woodruff........ -- -- -- -- -- --
</TABLE>
- - --------
(1) Options were granted under the Option Plan and generally vest over four
years from the date of commencement of employment.
(2) Based on an aggregate of 292,500 options granted by the Company in the
year ended December 31, 1996 to employees of and consultants to the
Company, including the Named Executive Officers.
(3) The exercise price per share of each option was equal to the fair market
value of the Common Stock on the date of grant as determined by the Board
of Directors.
(4) The potential realizable value is calculated based on the term of the
option at its time of grant (ten years). It is calculated assuming that
the fair market value of the Company's Common Stock on the date of grant
appreciates at the indicated annual rate compounded annually for the
entire term of the option and that the option is exercised and sold on the
last day of its term for the appreciated stock price. The assumed rates of
appreciation are specified in SEC rules and do not represent the Company's
estimate or projection of future stock prices. Actual gains, if any,
resulting from stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and the option
holders' continued employment through the vesting period. There can be no
assurance that the amounts reflected in this table will be achieved.
11
<PAGE>
Option Exercises in Last Fiscal Year and Fiscal Year End Option Values. The
following table sets forth the information with respect to stock option
exercises during the year ended December 31, 1996, by the Named Executive
Officers, and the number and value of securities underlying unexercised
options held by the Named Executive Officers at December 31, 1996.
AGGREGATE OPTION EXERCISES IN FISCAL 1996 AND
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES
ACQUIRED ON VALUE UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
EXERCISE REALIZED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME (#) ($)(1) DECEMBER 31, 1996 (#) DECEMBER 31, 1996($)(2)
---- ----------- -------- ------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael W. Burgett...... -- -- -- 70,000 -- 504,000
Leslie G. Grant, Ph.D... 45,000 -- 10,000 -- 72,000 --
-- 35,000 -- 252,000
Neil E. Woodruff........ -- -- 5,000 5,000 36,000 36,000
</TABLE>
- - --------
(1) Based on the fair market value of the Company's Common Stock ($1.80) on
the date of exercise (as determined by the Board of Directors).
(2) Based on a fair market value of $9.00, which was the last reported sale
price of the Company's Common Stock on December 31, 1996.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following is provided to stockholders by the members of the Compensation
Committee of the Board of Directors:
The Compensation Committee of the Board of Directors (the "Committee"),
comprising four outside directors, is responsible for the administration of
the Company's compensation programs. These programs include base salary for
executive officers and both annual and long-term incentive compensation
programs. The Company's compensation programs are designed to provide a
competitive level of total compensation and include incentive and equity
ownership opportunities linked to the Company's performance and stockholder
return.
12
<PAGE>
Compensation Philosophy: The Company's overall executive compensation
philosophy is based on a series of guiding principles derived from the
Company's values, business strategy, and management requirements. These
principles are summarized as follows:
. Provide competitive levels of total compensation which will enable the
Company to attract and retain the best possible executive talent;
. Motivate executives to achieve optimum performance for the Company;
. Align the financial interests of executives and stockholders through
equity-based plans;
. Provide a total compensation program that recognizes individual
contributions as well as overall business results.
Compensation Program: The Committee is responsible for reviewing and
recommending to the Board the compensation and benefits of all officers of the
Company and establishes and reviews general policies relating to compensation
and benefits of employees of the Company. The Committee is also responsible
for the administration of the Option Plan. There are three major components to
the Company's executive compensation: base salary, incentive (bonus) payments
and long-term incentives in the form of stock options.
1. Base Salary. In setting compensation levels for executive officers, the
Committee reviews competitive information relating to compensation levels for
comparable positions at medical product, biotechnology and high technology
companies. In addition, the Committee may, from time to time, hire
compensation and benefit consultants to assist in developing and reviewing
overall salary strategies. Individual executive officer base compensation may
vary based on time in position, assessment of individual performance, salary
relative to internal and external equity and critical nature of the position
relative to the success of the Company.
2. Incentive Bonuses. The incentive bonus program provides a variable
compensation opportunity for the executive officers. A pay out, if any, is
based on a combination of corporate financial performance and individual
officer performance relative to achievement of pre-established specified
strategic objectives (e.g., new product development milestones,
marketing/sales results, productivity enhancements and regulatory applications
and approvals).
3. Long-Term Incentives. The long-term performance-based compensation of
executive officers takes the form of stock option awards under the Option
Plan. The Committee believes that the equity-based compensation ensures that
the Company's executive officers have a continuing stake in the long-term
success of the Company. All options granted by the Company have been granted
with an exercise price equal to or in excess of the fair market value of the
Company's Common Stock on the date of grant. Options granted under the Option
Plan generally become exercisable at the rate of 25% of the shares at the end
of each year following the date of grant such that the option is fully
exercisable four years from the date. The Company has not issued any stock
appreciation rights (SARs), stock purchase rights, long-term performance
awards in stock or stock bonus awards to any Named Officer or any other person
under the Option Plan.
1996 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
In determining Mr. Coriat's salary for 1996, the Committee considered
competitive compensation data for chairmen and chief executive officers of
similar companies within the medical device and biotechnology industry, taking
into account Mr. Coriat's experience and knowledge. Based on the Company's
achievement of specified goals, the Committee determined that it was
appropriate to raise Mr. Coriat's salary to an annual rate of $160,000 and to
grant Mr. Coriat a bonus of $50,000 relating to 1996 performance.
SECTION 162 (M) OF THE INTERNAL REVENUE CODE LIMITATIONS ON EXECUTIVE
COMPENSATION
In 1993, Section 162(m) was added to the United States Internal Revenue Code
of 1986, as amended (the "Code"). Section 162(m) may limit the Company's
ability to deduct for United States federal income tax
13
<PAGE>
purposes compensation in excess of $1,000,000 paid to the Company's Chief
Executive Officer and its four other highest paid executive officers in any
one fiscal year. No executive officer of the Company received any such
compensation in excess of this limit during fiscal 1996. Grants under the
Option Plan will not be subject to the deduction limitation if the
stockholders approve the Option Plan, including the option grant limitations
described below.
Section 162(m) of the Code places limits on the deductibility for United
States federal income tax purposes of compensation paid to certain executive
officers of the Company. In order to preserve the Company's ability to deduct
the compensation income associated with options and stock purchase rights
granted to such persons, the Option Plan provides that no employee may be
granted, in any fiscal year of the Company, options and stock purchase rights
to purchase more than 500,000 shares of Common Stock.
The foregoing Committee Report shall not be deemed to be "soliciting
material" or to be "filed" with the SEC, nor shall such information be
incorporated by reference into any future filing under this Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended, except
to the extent the Company specifically incorporates it by reference into such
filing.
Respectfully submitted,
John F. Blakemore, Jr.
Gilbert J. R. McCabe
Thomas C. McConnell
G. Kirk Raab
14
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock with the cumulative total return of the Nasdaq National
Market, U.S. index ("Nasdaq U.S. Index") and the Hambrecht & Quist Healthcare,
Excluding Biotechnology index ("H&Q Healthcare Index") for the period
beginning on November 8, 1996, the Company's first day of trading after its
initial public offering, and ending on December 31, 1996.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG APPLIED IMAGING CORP.
NASDAQ NATIONAL MARKET, U.S. INDEX AND
THE HAMBRECHT & QUIST HEALTHCARE, EXCLUDING
BIOTECHNOLOGY INDEX
(PERIOD ENDED DECEMBER 31, 1996)
PERFORMANCE GRAPH APPEARS HERE
Measurement Period APPLIED NASDAQ, H&Q
(Fiscal Year Covered) IMAGING CORP. U.S. INDEX HEALTHCARE
- - ------------------- ------------- ---------- ----------
Measurement Pt-11/08/1997 $100 $100 $100
FYE 11/15/1996 $100 $100 $ 99
FYE 11/29/1996 $ 96 $102 $101
FYE 12/13/1996 $ 93 $ 99 $ 99
FYE 12/31/1996 $144 $100 $104
- - --------
* The graph assumes that $100 was invested on November 8, 1996 in the
Company's Common Stock, the Nasdaq U.S. Index and the H&Q Healthcare Index,
and that all dividends were reinvested. No dividends have been declared or
paid on the Company's Common Stock. Stock performance shown in the above
chart for the Common Stock is historical and should not be considered
indicative of future price performance.
15
<PAGE>
PROPOSAL NO. 2
APPROVAL OF THE AMENDMENT OF THE COMPANY'S
AMENDED AND RESTATED 1988 INCENTIVE STOCK
OPTION PLAN
The Company's Board of Directors and stockholders have previously adopted
and approved the Amended and Restated 1988 Incentive Stock Option Plan (the
"Option Plan"). A total of 1,400,000 shares of Common Stock have been reserved
for issuance under the Option Plan, and 535,738 shares were available for
future grant as of the Record Date. In April 1997, the Board of Directors
authorized an amendment to the Option Plan, subject to stockholder approval,
to increase the shares reserved for issuance thereunder by 350,000 shares,
bringing the total number of shares issuable under the Option Plan to
1,750,000.
At the Annual Meeting, the stockholders are being requested to consider and
approve the proposed amendment of the Option Plan, in the form of Appendix A
hereto, to increase the number of shares of Common Stock reserved for issuance
thereunder, and to approve the material terms of the Option Plan, including,
but not limited to, share limitations for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended. A vote for the amendment of the
Option Plan will constitute approval of the proposed increase in the number of
shares authorized for issuance under the Option Plan and of the material terms
of the Option Plan.
The Board of Directors believes that the amendment is necessary to enable
the Company to, among other things, continue its policy of employee stock
ownership as a means to motivate high levels of performance and to recognize
key employee accomplishments. A summary of the Option Plan is set forth below.
SUMMARY OF THE OPTION PLAN
General. The Option Plan was originally adopted by the Board of Directors in
October 1988 and approved by the stockholders in October 1989. The Option Plan
authorizes the Board of Directors (the "Board"), or one or more committees
which the Board may appoint from among its members, to grant options to
purchase Common Stock. Options granted under the Option Plan may be either
"incentive stock options" as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or nonstatutory stock options, as
determined by the Board or a Board Committee.
Purpose. The general purpose of the Option Plan is to attract and retain the
best available personnel for positions of substantial responsibility, to
provide additional incentive to employees and consultants and to promote the
success of the Company's business.
Administration. The Option Plan may be administered by the Board or a Board
Committee (together, the "Administrator"). Subject to the other provisions of
the Option Plan, the Administrator has the authority: (i) to determine the
fair market value of the Company's Common Stock; (ii) to select the
consultants and employees to whom Options and stock purchase rights may be
granted under the Option Plan; (iii) to determine the number of shares of
Common Stock to be covered by each option and stock purchase right granted
under the Option Plan; (iv) to approve forms of agreement for use under the
Option Plan; (v) to determine the terms and conditions, not inconsistent with
the terms of the Option Plan, of any option or stock purchase right granted
under the Option Plan, including the exercise price, the time or times when
options or stock purchase rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any option or stock
purchase right or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine; (vi) to reduce the exercise price of any option or stock purchase
right to the then current fair market value if the fair market value of the
Common Stock covered by such option or stock purchase right shall have
declined since the date the option or stock purchase right was granted; (vii)
to institute an option exchange program; (viii) to construe and interpret the
terms of the Option Plan and awards granted pursuant to the Option Plan; (ix)
to prescribe, amend and rescind rules and regulations relating to the Option
Plan, including rules and
16
<PAGE>
regulations relating to sub-plans established for the purpose of qualifying
for preferred tax treatment under
foreign tax laws; (x) to modify or amend each Option or stock purchase right
(subject to Section 15(c) of the Option Plan); (xi) to authorize any person to
execute on behalf of the Company any instrument required to effect the grant
of an Option or stock purchase right previously granted by the Administrator;
(xii) to institute an option exchange program; and (xiii) to make all other
determinations deemed necessary or advisable for administering the Option
Plan.
Eligibility. The Option Plan provides that options and rights may be granted
to the Company's employees and independent contractors. Incentive stock
options may be granted only to employees. Any optionee who owns more than 10%
of the combined voting power of all classes of outstanding stock of the
Company (a "10% Stockholder") is not eligible for the grant of an incentive
stock option unless the exercise price of the option is at least 110% of the
fair market value of the Common Stock on the date of grant.
Performance-Based Compensation Limitations. No employee shall be granted, in
any fiscal year of the Company, options to purchase more than 500,000 shares
of Common Stock. The foregoing limitation, which shall be adjusted
proportionately in connection with any change in the Company's capitalization,
is intended to satisfy the requirements applicable to options intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code. In the event that the Administrator determines that such
limitation is not required to qualify options as performance-based
compensation, the Administrator may modify or eliminate such limitation.
Terms and Conditions of Options. Each option granted under the Option Plan
is evidenced by a written stock option agreement between the optionee and the
Company and is subject to the following terms and conditions:
(a) Exercise Price. The Administrator determines the exercise price of
options to purchase shares of Common Stock at the time the options are
granted. However, excluding options issued to 10% Stockholders, the
exercise price under an incentive stock option must not be less than 100%
of the fair market value of the Common Stock on the date the option is
granted. If the Common Stock is listed on any established stock exchange or
a national market system, the fair market value shall be the closing sale
price for such stock (or the closing bid if no sales were reported) on the
last market trading day prior to the date the option is granted. If the
Common Stock is traded on the over-the-counter market, the fair market
value shall be the mean of the high bid and high ask prices on the last
market trading day prior to the date the option is granted.
(b) Form of Consideration. The means of payment for shares issued upon
exercise of an option is specified in each option agreement and generally
may be made by cash, check, promissory note, other shares of Common Stock
of the Company owned by the optionee, consideration received by the Company
under a formal cashless exercise program adopted by the Company, a
reduction in the amount of any Company liability to the Optionee, or by a
combination thereof.
(c) Exercise of the Option. Each stock option agreement will specify the
term of the option and the date when the option is to become exercisable.
However, in no event shall an option granted under the Option Plan be
exercised more than 10 years after the date of grant. Moreover, in the case
of an incentive stock option granted to a 10% Stockholder, the term of the
option shall be for no more than five years from the date of grant.
Generally, all options granted under the Option Plan vest 25% annually,
starting one year from the vesting commencement date.
(d) Termination of Employment. If an optionee's employment or consulting
relationship terminates for any reason (other than death or permanent
disability), then all options held by such optionee under the Option Plan
expire upon the earlier of (i) such period of time as is set forth in his
or her option agreement (but not to exceed ninety days after the
termination of his or her employment in the event of an incentive stock
option) or (ii) the expiration date of the option. The optionee may
exercise all or part of his or her option at any time before such
expiration to the extent that such option was exercisable at the time of
termination of employment or consulting relationship.
17
<PAGE>
(e) Permanent Disability. If an optionee is unable to continue his or her
employment or consulting relationship with the Company as a result of
permanent and total disability (as defined in the Code), then all options
held by such optionee under the Option Plan shall expire upon the earlier
of (i) 12 months after the date of termination of the optionee's employment
or (ii) the expiration date of the option. The optionee may exercise all or
part of his or her option at any time before such expiration to the extent
that such option was exercisable at the time of termination of employment.
(f) Death. If an optionee dies while employed by the Company, his or her
option shall expire upon the earlier of (i) 12 months after the optionee's
death or (ii) the expiration date of the option. The executors or other
legal representative of the optionee may exercise all or part of the
optionee's option at any time before such expiration to the extent that
such option was exercisable at the time of death.
(g) Termination of Options. Each stock option agreement will specify the
term of the option and the date when all or any installment of the option
is to become exercisable. Notwithstanding the foregoing, however, the term
of any incentive stock option shall not exceed 10 years from the date of
grant. No options may be exercised by any person after the expiration of
its term.
(h) Nontransferability of Options. Unless determined otherwise by the
Administrator, during an optionee's lifetime, his or her option(s) shall be
exercisable only by the optionee and shall not be transferable other than
by will or laws of descent and distribution.
(i) Value Limitation. If the aggregate fair market value of all shares of
Common Stock subject to an optionee's incentive stock option which are
exercisable for the first time during any calendar year exceeds $100,000,
the excess options shall be treated as nonstatutory options.
(j) Other Provisions. The stock option agreement may contain such terms,
provisions and conditions not inconsistent with the Option Plan as may be
determined by the Board or Committee.
Adjustment Upon Changes in Capitalization, Corporate Transactions. In the
event that the stock of the Company is changed by reason of any stock split,
reverse stock split, stock dividend, recapitalization or other change in the
capital structure of the Company, appropriate proportional adjustments shall
be made in the number and class of shares of stock subject to the Option Plan,
the number and class of shares of stock subject to any option or right
outstanding under the Option Plan, and the exercise price of any such
outstanding option or right. Any such adjustment shall be made upon approval
of the Board and, if required, the stockholders of the Company, whose
determination shall be conclusive. Notwithstanding the above, in connection
with any merger, consolidation, acquisition of assets or like occurrence
involving the Company, each outstanding option and right shall be assumed or
an equivalent option or right substituted by a successor corporation. If the
successor corporation does not assume the options or substitute substantially
equivalent options, then the exercisability of all outstanding options and
rights shall be automatically accelerated.
Amendment, Suspensions and Termination of the Option Plan. The Board may
amend, suspend or terminate the Option Plan at any time; provided, however,
that stockholder approval is required for any amendment to the extent
necessary to comply with Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 or Section 422 of the Code, or any similar rule or statute. In any
event, the Option Plan will terminate automatically in 1998.
Federal Tax Information. Options granted under the Option Plan may be either
incentive stock options, as defined in Section 422 of the Code, or
nonstatutory options.
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and one year after exercising the option, any gain or loss will be
treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of
(i) the fair market value of the shares at the date of the
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option exercise or (ii) the sale price of the shares. A different rule for
measuring ordinary income upon such a premature disposition may apply if the
optionee is also an officer, director or 10% stockholder of the Company. The
Company will be entitled to a deduction in the same amount as the ordinary
income recognized by the optionee. Any gain or loss recognized on such a
premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized as long-term or short-term capital gain
or loss, depending on the holding period.
All other options which do not qualify as incentive stock options are
referred to as nonstatutory options. An optionee will not recognize any
taxable income at the time he or she is granted a nonstatutory option.
However, upon its exercise, the optionee will recognize taxable income
generally measured as the excess of the then fair
market value of the shares purchased over the purchase price. Any taxable
income recognized in connection with an option exercise by an optionee who is
also an employee of the Company will be subject to tax withholding by the
Company. Upon resale of such shares by the optionee, any difference between
the sale price and the optionee's purchase price, to the extent not recognized
as taxable income as described above, will be treated as long-term or short-
term capital gain or loss, depending on the holding period.
Stock purchase rights are taxed in substantially the same manner as
nonstatutory options.
The foregoing is only a summary of the effect of federal income taxation
upon the optionee and the Company with respect to the grant and exercise of
options under the Option Plan, does not purport to be complete, and does not
discuss the tax consequences of the optionee's death or the income tax laws of
any municipality, state or foreign country in which an optionee may reside.
VOTE REQUIRED
The approval of the amendment of the Option Plan requires the affirmative
vote of a majority of the shares of the Company's Common Stock present and
voting at the Annual Meeting.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING "FOR" THE
AMENDMENT AND APPROVAL OF THE AMENDED AND RESTATED 1988 INCENTIVE STOCK OPTION
PLAN SET FORTH HEREIN.
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG"),
independent auditors, to audit the consolidated financial statements of the
Company for the fiscal year ending December 31, 1997, and recommends that
stockholders vote "FOR" ratification of such appointment. In the event of a
negative vote on such ratification, the Board of Directors will reconsider its
selection.
KPMG has audited the Company's financial statements annually since 1986.
Representatives of KPMG are expected to be present at the meeting with the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
THE FISCAL YEAR ENDING DECEMBER 31, 1997.
OTHER MATTERS
The Company knows of no other matters to be submitted at the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of Proxy to vote the shares they represent
as the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Santa Clara, California
May 5, 1997
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APPENDIX A
AMENDED AND RESTATED 1988 INCENTIVE STOCK OPTION PLAN
<PAGE>
APPLIED IMAGING CORP.
AMENDED AND RESTATED 1988 INCENTIVE STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Plan are:
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees and Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall be
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the legal requirements relating to the
administration of stock option plans under state corporate and securities
laws and the Code.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a Committee appointed by the Board in accordance
with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Applied Imaging Corp., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by the
Company or a Parent or Subsidiary to render services and who is compensated
for such services. The term "Consultant" shall also include Directors who
are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(i) "Continuous Status as an Employee or Consultant" means that the
employment or consulting relationship with the Company or any Parent or
Subsidiary is not interrupted or terminated. Continuous Status as an
Employee or Consultant shall not be considered interrupted in the case of:
(i) any leave of absence approved by the Company, including sick leave,
military leave, or any other personal leave; provided, however, that for
purposes of Incentive Stock Options, no such leave may exceed ninety (90)
days, unless reemployment upon the expiration of such leave is guaranteed
by contract (including certain Company policies) or statute; provided,
further, that on the ninety-first (91st) day of any such leave (where
reemployment is not guaranteed by contract or statute) the Optionee's
Incentive Stock Option shall cease to be treated as an Incentive Stock
Option and will be treated for tax purposes as a Nonstatutory Stock Option;
or (ii) transfers between locations of the Company or between the Company,
its Parent, its Subsidiaries or its successor.
(j) "Director" means a member of the Board.
(k) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall
be sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
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(n) "Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock
Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market
Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading
day prior to the day of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the
Administrator.
(o) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(p) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(q) "Notice of Grant" means a written notice evidencing certain terms and
conditions of an individual Option or Stock Purchase Right grant. The
Notice of Grant is part of the Option Agreement.
(r) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(u) "Option Exchange Program" means a program whereby outstanding options
are surrendered in exchange for options with a lower exercise price.
(v) "Optioned Stock" means the Common Stock subject to an Option or Stock
Purchase Right.
(w) "Optionee" means an Employee or Consultant who holds an outstanding
Option or Stock Purchase Right.
(x) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "Plan" means this Amended and Restated Incentive Stock Option Plan.
(z) "Restricted Stock" means shares of Common Stock acquired pursuant to
a grant of Stock Purchase Rights under Section 11 below.
(aa) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted
Stock Purchase Agreement is subject to the terms and conditions of the Plan
and the Notice of Grant.
(bb) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect
to the Plan.
(cc) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 13 of the Plan.
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(dd) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ee) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of the
Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 1,750,000 Shares. The Shares may be authorized, but
unissued, or reacquired Common Stock. If an Option or Stock Purchase Right
expires or becomes unexercisable without having been exercised in full, or is
surrendered pursuant to an Option Exchange Program, the unpurchased Shares
which were subject thereto shall become available for future grant or sale
under the Plan (unless the Plan has terminated). Should the Company reacquire
Shares which were issued pursuant to the exercise of an Option or Stock
Purchase Right, such Shares shall become available for future grant under the
Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3, the
Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors
nor Officers.
(ii) Administration With Respect to Directors and Officers Subject to
Section 16(b). With respect to Option or Stock Purchase Right grants
made to Officers or Directors subject to Section 16(b) of the Exchange
Act, the Plan shall be administered by (A) the Board, if the Board may
administer the Plan in compliance with the rules governing a plan
intended to qualify as a discretionary plan under Rule 16b-3, or (B) a
committee designated by the Board to administer the Plan, which
committee shall be constituted to comply with the rules governing a
plan intended to qualify as a discretionary plan under Rule 16b-3. Once
appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the
Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and substitute new
members, fill vacancies (however caused), and remove all members of the
Committee and thereafter directly administer the Plan, all to the
extent permitted by the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3.
(iii) Administration With Respect to Other Persons. With respect to
Option or Stock Purchase Right grants made to Employees and Consultants
who are neither Directors nor Officers of the Company, the Plan shall
be administered by (A) the Board or (B) a committee designated by the
Board, which committee shall be constituted to satisfy Applicable Laws.
Once appointed, such Committee shall serve in its designated capacity
until otherwise directed by the Board. The Board may increase the size
of the Committee and appoint additional members, remove members (with
or without cause) and substitute new members, fill vacancies (however
caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by Applicable
Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
and in the case of a Committee, subject to the specific duties delegated by
the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof, are granted hereunder;
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(iv) to determine the number of shares of Common Stock to be covered
by each Option and Stock Purchase Right granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the
time or times when Options or Stock Purchase Rights may be exercised
(which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option or Stock Purchase
Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall
have declined since the date the Option or Stock Purchase Right was
granted;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating
to the Plan;
(x) to modify or amend each Option or Stock Purchase Right (subject
to Section 15(c) of the Plan);
(xi) to authorize any person to execute on behalf of the Company any
instrument required to effect the grant of an Option or Stock Purchase
Right previously granted by the Administrator;
(xii) to institute an Option Exchange Program;
(xiii) to determine the terms and restrictions applicable to Options
and Stock Purchase Rights and any Restricted Stock; and
(xiv) to make all other determinations deemed necessary or advisable
for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. If otherwise eligible, an Employee or Consultant who has
been granted an Option or Stock Purchase Right may be granted additional
Options or Stock Purchase Rights.
6. Limitations.
(a) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair
Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by the Optionee during any calendar year
(under all plans of the Company and any Parent or Subsidiary) exceeds
$100,000, such Options shall be treated as Nonstatutory Stock Options. For
purposes of this Section 6(a), Incentive Stock Options shall be taken into
account in the order in which they were granted. The Fair Market Value of
the Shares shall be determined as of the time the Option with respect to
such Shares is granted. If an Option is granted hereunder that is part
Incentive Stock Option and part Nonstatutory Stock Option due to becoming
first exercisable in any calendar year in excess of $100,000, the Incentive
Stock Option portion of such Option shall become exercisable first in such
calendar year, and the Nonstatutory Stock Option portion shall commence
becoming exercisable once the $100,000 limit has been reached.
(b) Neither the Plan nor any Option or Stock Purchase Right shall confer
upon an Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor
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shall they interfere in any way with the Optionee's right or the Company's
right to terminate such employment or consulting relationship at any time,
with or without cause.
(c) The following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the Company,
Options to purchase more than 500,000 Shares.
(ii) The foregoing limitation shall be adjusted proportionately in
connection with any change in the Company's capitalization as described
in Section 13(a).
(iii) If an Option is canceled (other than in connection with a
transaction described in Section 13), the canceled Option will be
counted against the limit set forth in Section 6(c)(i). For this
purpose, if the exercise price of an Option is reduced, the transaction
will be treated as a cancellation of the Option and the grant of a new
Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
effective upon the earlier to occur of its adoption by the Board or its
approval by the stockholders of the Company as described in Section 19 of the
Plan. It shall continue in effect for a term of ten (10) years unless
terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Notice of
Grant; provided, however, that in the case of an Incentive Stock Option, the
term shall be ten (10) years from the date of grant or such shorter term as
may be provided in the Notice of Grant. Moreover, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or
Subsidiary, the term of the Incentive Stock Option shall be five (5) years
from the date of grant or such shorter term as may be provided in the Notice
of Grant.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the Incentive Stock
Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of
grant.
(B) granted to any other Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the
date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator.
(b) Waiting Period and Exercise Dates. At the time an Option is granted,
the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before
the Option may be exercised. In so doing, the Administrator may specify
that an Option may not be exercised until the completion of a service
period.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
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(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than
six months on the date of surrender, and (B) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised;
(v) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay
the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option granted
hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and
set forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the
Shares with respect to which the Option is exercised. Full payment may
consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares
issued upon exercise of an Option shall be issued in the name of the
Optionee or, if requested by the Optionee, in the name of the Optionee and
his or her spouse. Until the stock certificate evidencing such Shares is
issued (as evidenced by the appropriate entry on the books of the Company
or of a duly authorized transfer agent of the Company), no right to vote or
receive dividends or any other rights as a stockholder shall exist with
respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such stock certificate
promptly after the Option is exercised. No adjustment will be made for a
dividend or other right for which the record date is prior to the date the
stock certificate is issued, except as provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
termination of an Optionee's Continuous Status as an Employee or
Consultant, other than upon the Optionee's death or Disability, the
Optionee may exercise his or her Option, but only within such period of
time as is specified in the Notice of Grant, and only to the extent that
the Optionee was entitled to exercise it at the date of termination (but in
no event later than the expiration of the term of such Option as set forth
in the Notice of Grant). In the absence of a specified time in the Notice
of Grant, the Option shall remain exercisable for 90 days following the
Optionee's termination of Continuous Status as an Employee or Consultant.
In the case of an Incentive Stock Option, such period of time shall not
exceed ninety (90) days from the date of termination. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified by the Administrator, the
Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
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(c) Disability of Optionee. In the event that an Optionee's Continuous
Status as an Employee or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option at any
time within twelve (12) months from the date of such termination, but only
to the extent that the Optionee was entitled to exercise it at the date of
such termination (but in no event later than the expiration of the term of
such Option as set forth in the Notice of Grant). If, at the date of
termination, the Optionee is not entitled to exercise his or her entire
Option, the Shares covered by the unexercisable portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise
his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised at any time within twelve (12) months following the
date of death (but in no event later than the expiration of the term of
such Option as set forth in the Notice of Grant), by the Optionee's estate
or by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent that the Optionee was entitled to
exercise the Option at the date of death. If, at the time of death, the
Optionee was not entitled to exercise his or her entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert
to the Plan. If, after death, the Optionee's estate or a person who
acquired the right to exercise the Option by bequest or inheritance does
not exercise the Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Rule 16b-3. Options granted to individuals subject to Section 16 of
the Exchange Act ("Insiders") must comply with the applicable provisions of
Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption from
Section 16 of the Exchange Act with respect to Plan transactions.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either alone,
in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it
shall advise the offeree in writing, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price
to be paid, and the time within which the offeree must accept such offer,
which shall in no event exceed six (6) months from the date upon which the
Administrator made the determination to grant the Stock Purchase Right. The
offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise, the
Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at a rate
determined by the Administrator.
(c) Rule 16b-3. Stock Purchase Rights granted to Insiders, and Shares
purchased by Insiders in connection with Stock Purchase Rights, shall be
subject to any restrictions applicable thereto in compliance with Rule 16b-
3. An Insider may only purchase Shares pursuant to the grant of a Stock
Purchase Right, and may only sell Shares purchased pursuant to the grant of
a Stock Purchase Right, during such time or times as are permitted by Rule
16b-3.
(d) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
In addition, the provisions of Restricted Stock Purchase Agreements need
not be the same with respect to each purchaser.
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(e) Rights as a Stockholder. Once the Stock Purchase Right is exercised,
the purchaser shall have the rights equivalent to those of a stockholder,
and shall be a stockholder when his or her purchase is entered upon the
records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is
prior to the date the Stock Purchase Right is exercised, except as provided
in Section 13 of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. An Option or
Stock Purchase Right may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset
Sale or Change of Control.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, and the number of
shares of Common Stock which have been authorized for issuance under the
Plan but as to which no Options or Stock Purchase Rights have yet been
granted or which have been returned to the Plan upon cancellation or
expiration of an Option or Stock Purchase Right, as well as the price per
share of Common Stock covered by each such outstanding Option or Stock
Purchase Right, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made
by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Administrator shall notify each Optionee
as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an
Optionee to have the right to exercise his or her Option until ten (10)
days prior to such transaction as to all of the Optioned Stock covered
thereby, including Shares as to which the Option would not otherwise be
exercisable. In addition, the Administrator may provide that any Company
repurchase option applicable to any Shares purchased upon exercise of an
Option shall lapse as to all such Shares, provided the proposed dissolution
or liquidation takes place at the time and in the manner contemplated. To
the extent it has not been previously exercised, an Option will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company with or
into another corporation, or the sale of substantially all of the assets of
the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for
the Option or Stock Purchase Right, the Optionee shall fully vest in and
have the right to exercise the Option or Stock Purchase Right as to all of
the Optioned Stock, including Shares as to which it would not otherwise be
vested or exercisable. If an Option or Stock Purchase Right becomes fully
vested and exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Administrator shall notify the Optionee
that the Option or Stock Purchase Right shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period.
For the purposes of this paragraph, the Option or Stock Purchase Right
shall be considered assumed if, following the merger or sale of assets, the
option or right confers the right to purchase or receive, for each Share of
Optioned Stock subject to the Option or Stock
A-8
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Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property)
received in the merger or sale of assets by holders of Common Stock for
each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by
the holders of a majority of the outstanding Shares); provided, however,
that if such consideration received in the merger or sale of assets is not
solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or
Stock Purchase Right, for each Share of Optioned Stock subject to the
Option or Stock Purchase Right, to be solely common stock of the successor
corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other
later date as is determined by the Administrator. Notice of the determination
shall be provided to each Optionee within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend or terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder approval
of any Plan amendment to the extent necessary and desirable to comply with
Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the
requirements of any exchange or quotation system on which the Common Stock
is listed or quoted). Such stockholder approval, if required, shall be
obtained in such a manner and to such a degree as is required by the
applicable law, rule or regulation.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the
Optionee and the Company.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise
of an Option or Stock Purchase Right unless the exercise of such Option or
Stock Purchase Right and the issuance and delivery of such Shares shall
comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Exchange Act, the rules and
regulations promulgated thereunder, Applicable Laws, and the requirements
of any stock exchange or quotation system upon which the Shares may then be
listed or quoted, and shall be further subject to the approval of counsel
for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at
the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation
is required.
17. Liability of Company.
(a) Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained.
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<PAGE>
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered by an
Option or Stock Purchase Right exceeds, as of the date of grant, the number
of Shares which may be issued under the Plan without additional stockholder
approval, such Option or Stock Purchase Right shall be void with respect to
such excess Optioned Stock, unless stockholder approval of an amendment
sufficiently increasing the number of Shares subject to the Plan is timely
obtained in accordance with Section 15(b) of the Plan.
18. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the manner and to the degree required under applicable federal and
state law.
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<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF APPLIED IMAGING CORP.
1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned stockholder of Applied Imaging Corp., a Delaware corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders and
Proxy Statement each dated April 30, 1997, and hereby appoints Abraham I. Coriat
and Neil E. Woodruff or either of them, proxies and attorneys-in-fact, with full
power to each of substitution, on behalf and in the name of the undersigned to
represent the undersigned at the 1997 Annual Meeting of Stockholders of Applied
Imaging Corp. to be held on May 27, 1997 at 10:00 a.m., local time, at The Santa
Clara Marriott Hotel, 2700 Mission College Boulevard, Great America Parkway,
Santa Clara, California 95052-8181, and at any postponement or adjournment
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote if then and there personally present, on the matters set forth
below:
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SEE REVERSE SIDE
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<PAGE>
Please mark your
votes as in this
[X] example.
FOR W/H
1. Election of Class I Directors [_] [_]
NOMINEES: Jack Goldstein, Ph.D.
Gilbert J.R. McCabe
Thomas C. McConnell
FOR AGAINST ABSTAIN
2. Proposal to approve the amendment to the Amended and [_] [_] [_]
Restated 1988 Incentive Stock Option Plan (the
"Option Plan") to increase the number of shares of
Common Stock reserved for issuance thereunder by
350,000 shares to a new total of 1,750,000 shares and
to approve the material terms of the Option Plan,
including, but not limited to, share limitations for
purposes of Section 162(m)of the Internal Revenue
Service Code of 1986, as amended.
3. Proposal to ratify the appointment of KPMG Peat [_] [_] [_]
Marwick LLP as independent auditors of the Company
for the fiscal year ending December 31, 1997.
THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED AS FOLLOWS: (1) FOR THE ELECTION OF THE THREE NOMINATED CLASS I
DIRECTORS; (2) FOR APPROVAL OF THE AMENDMENT TO THE COMPANY'S AMENDED AND
RESTATED 1988 INCENTIVE STOCK OPTION PLAN; (3) FOR RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS AND AS THE PROXY
HOLDERS DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME BEFORE THE MEETING.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS HEREON. IF THE STOCK IS REGISTERED IN
THE NAMES OF TWO OR MORE PERSONS, EACH SHOULD SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS AND ATTORNEYS-IN-FACT SHOULD ADD THEIR TITLES. IF SIGNER IS
A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A DULY AUTHORIZED
OFFICER SIGN, STATING TITLE. IF SIGNER IS A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON.
PLEASE SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN ENVELOPE
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
SIGNATURE(S)_________________________________________ DATE__________________
SIGNATURE(S)_________________________________________ DATE__________________
NOTE: (This Proxy should be marked, signed by the stockholder(s) exactly as his
or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
