<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)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] 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 18, 1998
----------------
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 Monday,
May 18, 1998 at 11:00 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 II directors of the Company to serve for terms of
three years expiring upon the 2001 Annual Meeting of Stockholders or
until their successors are elected.
2. To approve the terms of an equity financing of up to $6,000,000 pursuant
to which the Company will issue Common Stock that will result in the
issuance of voting stock of the Company in an amount potentially in
excess of 20%, but in no event more than 30%, of the currently
outstanding shares of Common Stock of the Company (without taking into
account the effect of any warrants that may be issued).
3. To approve the adoption of the Company's 1998 Incentive Stock Option
(the "1998 Option Plan") and to approve the material terms of the 1998
Option Plan, including, but not limited to, share limitations for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as
amended.
4. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the year ended December 31, 1998.
5. 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 March 23, 1998, 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
Jack Goldstein
President and Chief Executive
Officer
Santa Clara, California
April 22, 1998
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 Monday, May 18, 1998 at 11:00
a.m., local time, or at any adjournment thereof (the "Annual Meeting"). 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, 1997, including financial
statements were mailed on or about April 22, 1998, to all stockholders
entitled to vote at the meeting.
RECORD DATE AND PRINCIPAL SHARE OWNERSHIP
Stockholders of record at the close of business on March 23, 1998 (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, 7,670,703 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 $3.00 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 II directors, for approval of the adoption of the 1998 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 1999 Annual Meeting of Stockholders must
be received by the Company no later than December 1, 1998 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 March 23, 1998, 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 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 New
Enterprise Associates (2)............................ 1,854,537 24.2%
2490 Sand Hill Road,
Menlo Park, CA 94025
Individuals and Entities Affiliated with Special
Situation Fund III (3)............................... 806,900 10.5%
153 East 53rd Street, Suite 51
New York, NY 10022
Individuals and Entities Affiliated with Allen Holding
Inc.(4).............................................. 592,408 7.7%
711 Fifth Avenue
New York, NY 10022
Thomas C. McConnell (2)............................... 1,854,537 24.2%
Austin W. Marxe (3)................................... 806,900 10.5%
Robert C. Miller (4).................................. 592,408 7.7%
John F. Blakemore, Jr. (5)............................ 90,262 1.2%
Leslie G. Grant, Ph.D. (6)............................ 69,500 *
Gilbert J.R. McCabe (7)............................... 66,071 *
Michael Burgett, Ph.D. (8)............................ 35,000 *
Andre Marion (9)...................................... 18,769 *
G. Kirk Raab (10)..................................... 17,500 *
Jack Goldstein, Ph.D(11).............................. 5,000 *
Carl W. Hull(12)...................................... 3,000 *
All executive officers and directors as a group
(10 persons) (2)(4)(5)(6)(7)(8)(9)(10)(11)(12)....... 2,752,047 35.9%
</TABLE>
- --------
* Less than 1%.
(1) Applicable percentage ownership is based on 7,670,703 shares of Common
Stock outstanding as of March 23, 1998, 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 709,214 shares and warrants to purchase 58,777 shares held by
New Enterprise V, Limited Partnership and 857,605 shares and warrants to
purchase 194,776 shares held by New Enterprise Associates VII, L.P.,
11,765 shares held by The Silverado Fund I, Limited Partnership, 15,920
shares and warrants to purchase 3,980 shares held by NEA President's
Fund, and an option to purchase 2,500 shares within 60 days after March
23, 1998 held by Thomas C. McConnell. Mr. McConnell, a director of the
Company, is a general partner of New Enterprise Associates V, Limited
Partnership, New Enterprise Associates VII, L.P. and NEA President's
Fund, and disclaims beneficial ownership of the shares held by such
entities except to the extent of his proportionate ownership interest
therein.
3
<PAGE>
(3) Consists of 605,800 shares held by Special Situations Fund III, Limited
Partnership and 201,100 shares held by AWM Investment Company, Inc. and
Austin W. Marxe.
(4) Consists of 349,702 shares of Common Stock and warrants to purchase
237,861 shares held by Allen & Company Incorporated, Allen Value
Partners, L. P., Allen Value Limited and Allen Philton, L.P. 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 2,500 shares within 60
days after March 23, 1998, 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.
(5) Includes an option to purchase 10,000 shares within 60 days after March
23, 1998.
(6) Includes an option to purchase 27,500 shares within 60 days after March
23, 1998.
(7) Consists of 10,000 shares, an option to purchase 2,500 shares within 60
days after March 23, 1998 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) Consists of an option to purchase 35,000 shares within 60 days after
March 23, 1998.
(9) Includes an option to purchase 12,500 shares within 60 days after March
23, 1998 and a warrant to purchase 1,567 shares.
(10) Consists of an option to purchase 17,500 shares within 60 days after
March 23, 1998.
(11) There are no shares exercisable within 60 days after March 23, 1998.
(12) There are no shares exercisable within 60 days after March 23, 1998.
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, 1997, its
officers, directors and holders of more than 10% of the Company's Common Stock
compiled with all Section 16(a) filing requirements.
4
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
DIRECTORS AND NOMINEES FOR DIRECTOR
According to the Company's Restated Certificate of Incorporation, the
Company's Board of Directors currently consists of seven persons and one
vacancy, divided into three classes serving staggered terms of three years.
Currently, there are three directors in Class I, three directors in Class II,
and one director and one vacancy in Class III. Three Class II directors are to
be elected at the Annual Meeting. The Class III and Class I directors will be
elected at the Company's 1999 and 2000 Annual Meetings of Stockholders,
respectively. Each of the three Class II directors elected at the Annual
Meeting will hold office until the 2001 Annual Meeting of Stockholders, or
until his successor has been duly elected and qualified.
In the event that any nominee for director 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 II 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 III
and Class I 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
---- --- -------------------- --------
<C> <C> <S> <C>
NOMINEES FOR CLASS II DIRECTORS
John F. Blakemore, Jr. (1) (2). 58 Consultant to the Company 1987
Robert C. Miller (1)........... 32 Vice President and Director of 1995
Allen & Company Incorporated
G. Kirk Raab (2)............... 61 Chairman of the Board of Shaman 1996
Pharmaceuticals, Inc.,
Connetics, Inc. and Oxford
GlycoSciences (UK) Ltd.
CONTINUING CLASS III DIRECTORS
Andre F. Marion (1)............ 61 Director, Cygnus Corporation 1995
and Director, Molecular
Devices Corp.
Vacancy(3).....................
CONTINUING CLASS I DIRECTORS
Jack Goldstein, Ph.D........... 50 President and Chief Executive 1997
Officer
Gilbert J. R. McCabe (2)....... 52 Independent advisor to 1992
investment companies
Thomas C. McConnell (2)........ 43 General Partner of New 1990
Enterprise Associates
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) A vacancy exists on the Board of Directors resulting from the resignation
of Abraham I. Coriat. According to the Company's Bylaws, this vacancy will
be filled by election of the board, and the director so elected will hold
office until the next election of Class III directors, to be held at the
1999 Annual Meeting of Stockholders.
There are no family relationships among any directors or executive officers
of the Company.
5
<PAGE>
DIRECTORS TO BE ELECTED AT 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. Mr.
Blakemore was also a director, Vice President and CFO of Pro-Log Corp., an
industrial computer company. 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 of 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. Stern School of Business, New York University. Mr. Miller is a
director of Envirogen, Inc., Audits & Surveys Worldwide, Inc., and a number of
private companies.
G. KIRK RAAB has been a director of the Company since 1996. Mr. Raab has 39
years of experience as a senior executive in health industries and was
President and Chief Executive Officer from February 1990 to July 1995 of
Genentech Inc., a pharmaceutical company. He is currently Chairman of the
Board of Shaman Pharmaceuticals, Inc., Connetics, Inc. and Oxford
GlycoSicences (UK) Ltd., a director of LXR Biotechnology, Inc., a public
company, and a director of a number of private companies. He received his B.A.
from Colgate University.
DIRECTORS WHOSE TERMS EXTEND BEYOND THE ANNUAL MEETING
JACK GOLDSTEIN, PH.D. joined the Company in April 1997 as President and
Chief Executive Officer. Dr. Goldstein has over 24 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.
GILBERT J.R. MCCABE has been a director of the Company since July 1992. Mr.
McCabe has been an independent advisor for the past five 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 1985 where he has been a General Partner since 1989. 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.,
lnnovasive Devices, and a number of private companies.
ANDRE J. 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 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 SupJrieures d'IngJnieurs Arts et MJtiers in both Mechanical and
Electronic Engineering. Mr. Marion is an independent consultant and also a
director of Cygnus Corporation and Molecular Devices Corp.
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 II 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.
6
<PAGE>
BOARD MEETINGS, COMMITTEES AND DIRECTOR COMPENSATION
The Board of Directors held seven meetings during the calendar year ended
December 31, 1997.
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, Marion, and Miller. 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 four
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 has been reserved for issuance
during the current 10-year term of the Director Plan, which expires in
February 2004, of which 30,000 shares have been issued and 90,000 shares
remain available for future issuance.
During the fiscal year ended December 31, 1997, the Company granted options
to purchase 10,000 shares of the Company's Common Stock to director G. Kirk
Raab out of the Company's 1988 Incentive Stock Option Plan (the "1988 Plan").
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
NOMINEES SET FORTH HEREIN.
7
<PAGE>
CERTAIN TRANSACTIONS
On January 20, 1998, the Company loaned Jack Goldstein, President and Chief
Executive Officer, $306,157.49 in exchange for a full recourse promissory note
in favor of the Company secured by Mr. Goldstein's home in New Jersey. The
note bears interest at a rate of 6% per annum and is due and payable upon
either the sale of Mr. Goldstein's home in New Jersey or his voluntary or
involuntary termination of employment with the Company.
In May 1997, the Company issued and sold 796,020 shares of Common Stock to
certain partnerships affiliated with New Enterprise Associates, a principal
owner of the Company, at the purchase price of $5.025 per share. Thomas C.
McConnell, a director of the Company, is an affiliate of New Enterprise
Associates. In connection with this transaction, the Company also issued
warrants, which may be exercised within a three-year period ending May 21,
2000 to acquire an aggregate of 173,010 shares of the Company's Common Stock
at a purchase price of $5.78 per share.
On February 2, 1998, the Company's Board of Directors approved an amendment
to reprice options outstanding under the Company's 1988 Plan with exercise
prices over $3.00 per share other than those options held by Directors
McConnell and Miller. On February 2, 1998, holders of such options were
offered the choice of retaining their existing options without amendment or
accepting the amendment of their stock options. The exercise price of the
amended options is $2.44 per share, which equals the fair market value of the
Company's Common Stock on February 2, 1998. Vesting of the amended options
occurs over four years and begins on February 2, 1998. Holders of the options
had until March 30, 1998 to make an irrevocable decision to either retain
their existing options without amendment or accept the amendment to their
options. The amendment of the options is treated for accounting purposes as if
the Company cancelled the existing options and issued, on February 2, 1998,
new options with the lower exercise price and new vesting schedule.
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, 1997 regarding
executive officers of the Company.
<TABLE>
<C> <C> <S>
Jack Goldstein, Ph.D..... 50 President and Chief Executive Officer
Michael W. Burgett,
Ph.D.................... 52 Executive Vice President
Leslie G. Grant, Ph.D.... 45 Executive Vice President
Neil E. Woodruff (1)..... 51 Chief Financial Officer and Secretary
Carl W. Hull............. 40 Vice President of Worldwide Marketing
</TABLE>
- --------
(1) On February 2, 1998, Mr. Woodruff resigned from his position as the
Company's Chief Financial Officer and Secretary.
JACK GOLDSTEIN, PH.D., 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 was appointed Executive
Vice President of the Company in July 1997. 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. 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 was appointed
Executive Vice President of the Company in July 1997. Dr. Grant joined the
Company in October 1991 as Managing Director of Applied Imaging International
Ltd. 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 served as Chief Financial Officer of the Company from April
1990 and Secretary from 1993 until his resignation in February 1998. Mr.
Woodruff has 26 years experience in finance and the high technology industry.
Mr. Woodruff holds a B.S. in Finance from the University of Santa Clara.
CARL W. HULL joined the Company as Vice President of Worldwide Marketing in
August 1997. From March 1996 until June 1997, Mr. Hull served as Vice
President of Marketing & Business Development for Ventana Medical Systems.
From 1982 to 1996, he served in various marketing and sales management
positions at Abbott Laboratories, including Vice President and General Manager
of Abbott Laboratories, Puerto Rico, Marketing Manager for Hematology
Products, District Sales Manager, and Product Manager for several diagnostic
product lines. Mr. Hull received his M.B.A from the University of Chicago and
a B.A. from The John Hopkins University.
EMPLOYMENT AGREEMENTS
JACK GOLDSTEIN, PH.D. In April 1997, the Company entered into an agreement
with Dr. Goldstein, pursuant to which he 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 1988 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 paid Dr. Goldstein's relocation expenses totaling $69,298.
9
<PAGE>
In the event of a change in control of the Company due to a merger or
acquisition of the Company, all of the shares subject to stock options granted
to Dr. Goldstein will become exercisable, but only if the acceleration of
exercisability will not preclude the structuring of a proposed merger or
acquisition as a pooling of interests, if the structure of the proposed merger
is approved by the Company's Board of Directors.
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 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 which totaled
$49,750 in 1996 and $16,860 in 1997, (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.
CARL W. HULL. In August 1997, the Company entered into an agreement with
Carl Hull pursuant to which Mr. Hull would serve as the Vice President of
Worldwide Marketing. Under the terms of this agreement, the Company has agreed
to provide Mr. Hull an annual salary and bonus, medical insurance, vacation
time, and an option to purchase 60,000 shares of the Company's' Common Stock
at an exercise price of $5.50 per share. In addition, the Company has agreed
to (i) reimburse Mr. Hull for relocation expenses incurred in connection with
his move from Arizona to California, which totaled $29,906 (ii) a severance
payment equal to six times Mr. Hull'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 Mr. Hull's option. One-fourth
of the shares subject to the option become exercisable at the end of each full
year following August 4, 1997, until all such shares have become exercisable,
based upon Mr. Hull's continued relation with the Company.
EXECUTIVE OFFICER COMPENSATION
Summary Compensation Table. The following table sets forth information for
the years ended December 31, 1995, 1996 and 1997 regarding the compensation of
the Company's Chief Executive Officer and each of the Company's four other
most highly compensated executive officers whose total annual salary and bonus
for such fiscal years were in excess of $100,000 (the "Named Executive
Officers").
10
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ------------
-------------- SECURITIES ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING COMPENSATION
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS ($)
------------------ ---- --------- -------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Jack Goldstein, Ph.D.... 1997 $170,000(3) 60,000(2) 69,298(4) 280,000 736(5)
President and Chief
Executive Officer
Leslie G. Grant, Ph.D... 1995 102,570 39,450(2) 81,000(6) 16,197(7)
Executive Vice 1996 109,340 35,000(2) 35,000 9,732(8)
President 1997 135,016 42,193(1) 46,903(9)
Michael W. Burgett,
Ph.D................... 1996 136,625 35,000(2) 49,750(4) 70,000 3,459(13)
Executive Vice 1997 162,000 16,000(1) 16,860(4) 7,090(14)
President
Neil E. Woodruff........ 1995 98,000 15,000(2) 10,000 4,465(10)
Chief Financial Officer 1996 110,000 35,000(2) 4,483(11)
and Secretary 1997 125,000 5,714(12)
Carl W. Hull............ 1997 56,250(15) 20,000(2) 29,906(4) 60,000 313(16)
Vice President
Worldwide Marketing
</TABLE>
- --------
(1) Consists of bonuses earned and paid in the fiscal year.
(2) Consists of bonuses earned during each fiscal year and paid in the
following year.
(3) Jack Goldstein joined the Company in April 1997; his annualized salary
for 1997 was $255,000.
(4) Represents reimbursements for moving and relocation expenses.
(5) Consists of $736 in insurance premiums paid by the Company.
(6) Consists of bonus payments for the purpose of exercising stock options.
(7) 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.
(8) Consists of $7,645 for operating expenses of a car and $2,087 in
insurance premiums paid by the Company.
(9) Consists of $35,253 contributed to a private pension scheme in 1996 and
1997, $9,063 paid by the Company for operating expenses of a car leased
by the Company and used by Dr. Grant, and $2,587 in insurance premiums
paid by the Company.
(10) Consists of $2,926 contributed to the Company's retirement plan and
$1,539 in insurance premiums paid by the Company.
(11) Consists of $3,750 contributed to the Company's retirement plan and $733
in insurance premiums paid by the Company.
(12) Consists of $4,800 contributed to the Company's retirement plan and $914
in insurance premiums paid by the Company.
(13) Consists of $2,325 contributed to the Company's retirement plan and
$1,134 in insurance premiums paid by the Company.
(14) Consists of $5,910 contributed to the Company's retirement plan and
$1,180 in insurance premiums paid by the Company.
(15) Carl W. Hull joined the Company in August 1997; his annualized salary for
1997 was $135,000.
(16) Consists of $313 in insurance premiums paid by the Company.
11
<PAGE>
Option Grants in Last Fiscal Year. The following table sets forth each grant
of stock options made during the fiscal year ended December 31, 1997 to each
of the Named Executive Officers:
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES PERCENT OF STOCK PRICE
UNDERLYING TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED DURING EXERCISE OPTION TERM(4)
GRANTED FISCAL PRICE EXPIRATION ---------------------
NAME (#)(1) 1997 (%)(2) ($/SH)(3) DATE 5%($) 10%($)
---- ---------- -------------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jack Goldstein.......... 280,000 36.2% $5.63 4/17/07 990,509 2,510,144
50,000 6.5% $2.75 12/15/07 76,292 202,929
Leslie G. Grant......... 10,000 1.3% $2.75 12/15/07 15,258 40,586
Michael W. Burgett...... -- -- -- -- -- --
Carl W. Hull............ 60,000 7.8% $5.50 8/4/07 195,319 506,482
10,000 1.3% $2.75 12/15/07 15,258 40,586
Neil E. Woodruff........ 25,000 3.2% $5.50 4/22/07 86,473 219,140
</TABLE>
- --------
(1) Options were granted under the 1988 Plan and generally vest over four
years from the date of commencement of employment.
(2) Based on an aggregate of 773,400 options granted by the Company in the
year ended December 31, 1997 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 closing price
of the Common Stock at close of market on the working day before 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.
Option Exercises in Last Fiscal Year and Fiscal Year End Option Values. No
stock option exercises occurred during the year ended December 31, 1997 by the
Named Executive Officers.
12
<PAGE>
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.
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 Company's stock option plans. 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 Company's
stock option plans. 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
Company's stock option plans generally become exercisable at the rate of 25%
of the shares at the end of each year following the date of vesting
commencement such that, subject to the employee's or independent contractor's
continuous relationship with the Company, the option is fully exercisable four
years from such 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 Executive Officer or any other person under the
Company's stock option plans.
13
<PAGE>
1997 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
In determining the salary of Dr. Goldstein for 1997, the Committee
considered competitive compensation data for the presidents and chief
executive officers of similar companies within the medical device and
biotechnology industry, taking into consideration Dr. Goldstein's experience
and knowledge. Based on the Company's plan for specified goals, the Committee
determined that it was appropriate to offer Dr. Goldstein a salary of $255,000
and to grant Dr. Goldstein a bonus of $60,000 related to his 1997 performance.
SECTION 162 (M) OF THE INTERNAL REVENUE CODE LIMITATIONS ON EXECUTIVE
COMPENSATION
In 1993, Section 162(m) was added to the United Stated 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 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 compensation in excess of this limit
during fiscal 1997. Grants under the 1998 Option Plan will not be subject to
the deduction limitation if the stockholders approve the 1998 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 1998 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, 1997.
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, 1997)
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
H&Q
Measurement Period APPLIED NASDAQ HEALTHCARE
(Fiscal Year Covered) IMAGING CO. U.S. I INDEX
- ------------------- ----------- --------- ----------
<S> <C> <C> <C>
11/08/96 $100 $100 $100
12/31/96 $129 $103 $103
03/31/97 $ 79 $ 97 $ 97
06/30/97 $ 89 $115 $116
09/30/97 $ 64 $135 $122
12/31/97 $ 29 $126 $122
</TABLE>
- --------
* The graph assumes that $100 was invested on November 8, 1996 in the
Company's Common Stock, the Nasdaq National Market, U.S. Index and the
Hambrecht & Quist Healthcare, Excluding Biotechnology 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 TWO
APPROVAL OF TERMS OF EQUITY FINANCING
BACKGROUND OF THE FINANCING
General. The stockholders of the Company are being asked to approve the
issuance and sale of shares of Common Stock in a private placement of up to
$6,000,000 to qualified persons (the "Investors"), on the terms and conditions
outlined below (the "Financing"). The Financing, if approved by the
stockholders, would only occur upon the fulfillment of certain conditions. The
Company has not yet determined the exact price at which the Common Stock will
be issued in the Financing, whether the stock will be issued at a discount to
the trading price of the stock on the date of the Financing, or whether there
will be warrants issued in connection therewith, since these variables will
depend upon various as yet undetermined factors such as the public trading
price of the Company's Common Stock at the time of the Financing, as well as
the demand for the securities being offered in the Financing.
THIS PROXY STATEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OF THE COMPANY. THE SECURITIES REFERRED TO IN THIS
PROXY STATEMENT HAVE NOT BEEN REGISTERED FOR SALE BY THE COMPANY UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR ANY STATE SECURITIES
LAWS AND MAY NOT BE SO OFFERED OR SOLD ABSENT SUCH REGISTRATION UNDER THE 1933
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS THEREOF.
Dilutive Effect. The Financing may have a dilutive effect on current
stockholders in that existing stockholders will see their percentage ownership
of the Company decline. The number of shares of Common Stock issuable upon the
Financing may increase substantially, but in no event exceed 30% of the
currently outstanding shares of Common Stock (without taking into account the
effect of any warrants that may be issued), in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the
trading price of the Common Stock declines between the approval of this
proposal by stockholders and the closing of the Financing by the Company.
The pro forma net tangible book value of the Company as of December 31, 1997
was $8,943,000 or $1.17 per share of Common Stock, based upon 7,667,956 shares
of Common Stock outstanding on that date. Pro forma net tangible book value
per share represents the Company's total tangible assets less total
liabilities divided by the pro forma number of outstanding shares of Common
Stock. For purposes of the table immediately below, dilution per share
represents the difference between the amount per share paid by investors in
the Financing and the pro forma net tangible book value per share after the
Financing. This dilution illustration is based on the price per share of the
Common Stock and does not reflect changes in percentage ownership of the
Common Stock for voting purposes, another form of dilution discussed below.
After giving effect to the sale of an estimated 2,000,000 shares of Common
Stock at an assumed price of $3.00 per share and after deducting estimated
offering expenses of approximately $100,000, the pro forma net tangible book
value of the Company as of December 31, 1997 would have been $14,843,000 or
$1.54 per share. This represents an immediate increase of pro forma net
tangible book value of $0.37 per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $1.46 per share to
Investors, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Initial price per share............................................. $3.00
Pro forma net tangible book value per share before the Financing.... 1.17
Increase attributable to Investors (assuming 2,000,000 shares sold). 0.37
----
Pro forma net tangible book value per share after the Financing..... 1.54
-----
Dilution per share to Investors..................................... $1.46
=====
</TABLE>
16
<PAGE>
The following table summarizes, on a pro forma basis as of December 31,
1997, the potential dilutive effect, for percentage ownership purposes, of the
Financing on existing stockholders, where the Company raises $6,000,000
million at assumed prices of $2.80 per share and $3.20 per share.
<TABLE>
<CAPTION>
ASSUMED PRICE PER COMMON SHARE
IN FINANCING
----------------------------------
$2.80 $3.20
---------------- ----------------
SHARES % SHARES %
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Pro Forma shares at December 31, 1997....... 7,667,956 78.16% 7,667,956 80.35%
Shares issued to Investors.................. 2,142,857 21.84% 1,875,000 19.65%
--------- ------ --------- ------
Total....................................... 9,810,813 100.00% 9,542,956 100.00%
========= ====== ========= ======
</TABLE>
The computations in the above tables assume (i) the price for the Common
Stock paid by the Investors to potentially be below the current trading price
of the Common Stock immediately prior to the Financing, and (ii) the exclusion
of any shares of Common Stock subject to warrants that could be issued as
partial consideration in the Financing. No assurance can be given regarding
the market price at the time of the Financing. The tables are for illustrative
purposes only.
Affiliates or Insiders. The Company may accept affiliates or insiders of the
Company as investors in the Financing. The effects of the Financing on Company
affiliates and insiders may be different from the effects on other
stockholders in that participation may increase an insider's or affiliate's
percentage ownership in the Company.
Exemption from Registration. The Financing will be exempt from the
registration requirements of the 1933 Act, and the Company expects to rely
upon the Regulation D "safe harbor" provisions, or other exemptions,
promulgated under the 1933 Act.
Exploration of Various Financing Options by the Company. During 1997 and
1998, Company management and the Board explored a number of different
financing options before electing to seek stockholder approval for the
Financing. The options explored by the Company included (i) issuing common
stock, potentially at a discount or with warrant coverage, (ii) issuing
convertible preferred stock under a variety of possible terms and conditions,
(iii) obtaining funds from various venture capital entities, and (iv)
obtaining funds through debt financing. After due investigation of the options
available to the Company and due deliberation, the Board determined the
general terms and conditions of the Financing, including the amount of money
to be raised and the maximum percentage of shares that would be offered.
However, the Company has not yet determined the price at which the Common
Stock will be issued in the Financing or whether there will be warrants issued
in connection therewith, since these variables will depend upon the price at
which the Company's Common Stock is trading at the time of the Financing, the
demand for the securities offered in the Financing and other potential
factors.
STOCKHOLDER APPROVAL
The 20% Rule. The Financing may result in the issuance of Common Stock of
the Company of an amount potentially in excess of 20%, but not to exceed 30%,
of the currently outstanding shares of Common Stock of the Company (without
giving effect to any warrants that may be issued). Issuance of warrants in the
Financing may cause the total number of shares issued in the Financing to
exceed 30% of the currently outstanding shares of Common Stock after giving
effect to the exercise of such warrants.
The proposed issuance by the Company of the Common Stock in the Financing is
subject to stockholder approval pursuant to the Rules of the National
Association of Securities Dealers, Inc. ("NASD"). The NASD rules require
companies to obtain stockholder approval before issuing common stock (or
shares convertible into common stock) in a transaction other than a public
offering at a price less than the market value of the common stock, when the
amount of the common stock to be issued (or issuable upon conversion) is or
will be greater than 20% of the common stock or voting power of the company
outstanding prior to such issuance.
17
<PAGE>
Based on the recent prices of the Company's Common Stock, it is anticipated
that the number of shares of Common Stock issuable in the Financing may be
equal to or greater than 20% of the Common Stock or voting power of the
Company outstanding immediately prior to the Financing. Therefore, the Board
of Directors has determined that the approval of the Company's stockholders is
a condition to the Financing as currently contemplated and to the issuance of
the Common Stock.
USE OF PROCEEDS
The Company intends to use the proceeds of the Financing for general
corporate purposes.
ADVANTAGES AND DISADVANTAGES OF THE PROPOSED EQUITY FINANCING
Disadvantages. Before voting, each stockholder should consider the following
disadvantages of the Financing: (i) short sales by the holders of the Common
Stock issued in the Financing may depress the per share price of the Common
Stock of the Company, (ii) existing stockholders' percentage ownership of the
Company will decrease, and (iii) there may be increased costs imposed on the
Company if the Company is required to undertake the registration of the
securities being issued in the Financing and to cause such registration
statement to become effective.
Advantage. Before voting, each stockholder should also consider the
following advantage of the Financing: the Financing will provide financial
resources to the Company to enable the Company to execute its current business
plan.
The stockholders will not know the exact number of shares to be issued in
the Financing nor the exact terms of the Financing at the time of the vote on
this proposal. Stockholders are requested in this Proposal Two to approve the
issuance of shares in the Financing of up to $6,000,000 pursuant to which the
Company will issue Common Stock that could result in the issuance of more than
20% of the Company's outstanding voting securities, but in no event more than
30% of such outstanding securities (excluding the effect of the exercise of
any warrants that may be issued in the Financing). The affirmative vote of the
holders of a majority of the shares present in person or represented by proxy
and entitled to vote at the meeting will be required to approve such issuance.
VOTE REQUIRED
Affirmative votes constituting a majority of the Votes Cast will be required
to approve and ratify the terms of the Financing.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
APPROVAL OF THE TERMS OF THE EQUITY FINANCING.
18
<PAGE>
PROPOSAL NO. 3
APPROVAL OF THE COMPANY'S
1998 INCENTIVE STOCK OPTION PLAN
The Company's Board of Directors has adopted and approved the 1998 Incentive
Stock Option Plan (the "1998 Option Plan") subject to stockholder approval. A
total of 950,000 shares of Common Stock have been reserved for issuance under
the 1998 Option Plan.
At the Annual Meeting, the stockholders are being requested to consider and
approve the proposed 1998 Option Plan, to approve the number of shares of
Common Stock reserved for issuance thereunder, and in so doing, to approve the
material terms of the 1998 Option Plan, including, but not limited to, the
share limitations for purposes of Section 162(m) of the Code. A vote for the
approval of the 1998 Option Plan will constitute approval of the proposed
number of shares authorized for issuance under the 1998 Option Plan.
The 1988 Plan has an expiration date of October 31, 1998. Shares of Common
Stock under the 1988 Plan will cease to be granted in accordance with the
terms and conditions of the 1998 Option Plan.
The Board of Directors believes that the 1998 Option Plan 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 1998 Option Plan is
set forth below.
SUMMARY OF THE 1998 OPTION PLAN
General. The 1998 Option Plan was adopted by the Board of Directors in
February 1998 subject to stockholders approval at the Annual Meeting. The 1998
Option Plan authorizes the Board of Directors, 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 1998 Option Plan may be either
"incentive stock options" as defined in Section 422 of the Code, or
nonstatutory stock options, as determined by the Board or a Board Committee.
Purpose. The general purpose of the 1998 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 1998 Option Plan may be administered by the Board or a
Board Committee (together, the "Administrator"). Subject to the other
provisions of the 1998 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 1998 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 1998 Option Plan; (iv) to approve forms of agreement for use
under the 1998 Option Plan; (v) to determine the terms and conditions, not
inconsistent with the terms of the 1998 Option Plan, of any option or stock
purchase right granted under the 1998 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 1998 Option Plan
and awards granted pursuant thereto; (ix) to prescribe, amend and rescind
rules and regulations relating to the 1998 Option Plan, including rules and
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 1998
Option Plan); (xi) to authorize any person to execute on
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behalf of the Company any instrument required to effect the grant of an Option
or stock purchase right previously granted by the Administrator; and (xii) to
make all other determinations deemed necessary or advisable for administering
the 1998 Option Plan.
Eligibility. The 1998 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.
Terms and Conditions of Options. Each option granted under the 1998 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 1998 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 1998 Option Plan vest 25%
annually, starting one year from the date of grant.
(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 1998 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.
(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 1998 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
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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 1998 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 1998 Option
Plan, the number and class of shares of stock subject to any option or right
outstanding under the 1998 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 1998 Option Plan. The Board
may amend, suspend or terminate the 1998 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 1998 Option Plan will terminate automatically in the year 2008.
Federal Tax Information. Options granted under the 1998 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 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,
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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 1998 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 1998 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 A VOTE "FOR" THE
APPROVAL OF THE 1998 OPTION PLAN SET FORTH HEREIN.
PROPOSAL NO. 4
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG"),
independent certified public accountants, to audit the consolidated financial
statements of the Company for the fiscal year ending December 31, 1998, 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 COMPANY'S BOARD OF DIRECTORS 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, 1998.
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
April 22, 1998
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APPLIED IMAGING CORP.
1998 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors 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 requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or
quotation system on which the Common Stock is listed or quoted and the
applicable laws of any foreign country or jurisdiction where Options or
Stock Purchase Rights are, or will be, granted under the Plan.
(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 of Directors 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 to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any
leave of absence approved by the Company or (ii) transfers between
locations of the Company or between the Company, its Parent, any
Subsidiary, or any successor. For purposes of Incentive Stock Options, no
such leave may exceed ninety days, unless reemployment upon expiration of
such leave is guaranteed by statute or contract. If reemployment upon
expiration of a leave of absence approved by the Company is not so
guaranteed, on the 181st day of such leave any Incentive Stock Option held
by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Nonstatutory Stock Option. Neither
service as a Director nor payment of a director's fee by the Company shall
be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) "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
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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; or
(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.
(n) "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.
(o) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic 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.
(q) "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.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an 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.
(t) "Option Exchange Program" means a program whereby outstanding Options
are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or Stock
Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1998 Stock Plan.
(y) "Restricted Stock" means shares of Common Stock acquired pursuant to
a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "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.
(aa) "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.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 13 of the Plan.
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(ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "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 950,000 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); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by
the Company at their original purchase price, such Shares shall become
available for future grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be administered by
different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator determines
it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m)
of the Code, the Plan shall be administered by a Committee of two or
more "outside directors" within the meaning of Section 162(m) of the
Code.
(iii) Rule 16b-3. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption
under Rule 16b-3.
(iv) Other Administration. Other than as provided above, the Plan
shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy 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;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be covered
by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Option or Stock Purchase Right 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;
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(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 Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating
to the Plan, including rules and 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 Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld.
The Fair Market Value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined.
All elections by an Optionee to have Shares withheld for this purpose
shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) 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;
(xiii) 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 Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the 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.
(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
relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
(ii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described
in Section 13.
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(iii) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be
counted against the limits set forth in subsection (i) above. 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 its adoption by the Board. 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 Option
Agreement. 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 Option Agreement. 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 total combined
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 Option
Agreement.
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 Employee other than an Employee described in
paragraph (A) immediately above, 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. In the case of
a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per
Share exercise price shall be no less than 100% of the Fair Market
Value per Share on the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with a
per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate
transaction.
(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.
(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;
(iii) promissory note;
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(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) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan;
(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. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic 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 Shares are 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 Shares 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 Shares are 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 Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period
of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for three (3) months following the
Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
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.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in
the Option Agreement to the extent the Option is vested on the date of
termination (but in no event later than
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the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the
Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
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. If an Optionee dies while a Service Provider, the
Option may be exercised within such period of time as is specified in the
Option Agreement (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 acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date
of death. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the
Optionee's termination. If, at the time of death, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall immediately revert to the Plan. The Option may
be exercised by the executor or administrator of the Optionee's estate or,
if none, by the person(s) entitled to exercise the Option under the
Optionee's will or the laws of descent or distribution. If the Option is
not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy out
for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
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 or electronically, 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. 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 service 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) 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.
(d) 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. Unless
determined otherwise by the Administrator, 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.
If the Administrator makes an Option or Stock Purchase Right transferable,
such Option or Stock Purchase Right shall contain such additional terms and
conditions as the Administrator deems appropriate.
A-7
<PAGE>
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
Sale.
(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 or Stock Purchase Right 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 or Stock Purchase Right 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
in writing or electronically that the Option or Stock Purchase Right shall
be fully vested and 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 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.
A-8
<PAGE>
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
Applicable Laws.
(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. Termination of the Plan shall not affect the
Administrator's ability to exercise the powers granted to it hereunder with
respect to Options granted under the Plan prior to the date of such
termination.
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 Applicable Laws 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. 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.
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. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan
is adopted. Such stockholder approval shall be obtained in the manner and to
the degree required under Applicable Laws.
A-9
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF APPLIED IMAGING CORP.
1998 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 22, 1998, and hereby appoints Jack Goldstein
and Michael Burgett 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 1998 Annual Meeting of Stockholders of Applied
Imaging Corp. to be held on May 18, 1998 at 11:00 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:
[X]
Please mark your votes as in this example.
1.Election of Class II Directors
Nominees: John F. Blakemore, Jr., Robert C. Miller and G. Kirk Raab
[_] FOR [_] WITHHOLD
2. Proposal to approve the terms of an equity financing of up to $6,000,000
pursuant to which the Company will issue Common Stock that will result in
the issuance of voting stock of the Company in an amount potentially in
excess of 20%, but in no event more than 30%, of the currently outstanding
shares of Common Stock of the Company (without taking into account the
effect of any warrants that may be issued).
[_] FOR [_] AGAINST [_] ABSTAIN
3. Proposal to approve the adoption of the Company's 1998 Incentive Stock
Option Plan (the "1998 Option Plan") and to approve the material terms of
the 1998 Option Plan, including, but not limited to, share limitations for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended.
[_] FOR [_] AGAINST [_] ABSTAIN
SEE REVERSE SIDE
<PAGE>
4. Proposal to ratify the appointment of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending December 31, 1998.
[_] FOR [_] AGAINST [_] ABSTAIN
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 II DIRECTORS; (2) FOR APPROVAL OF THE TERMS OF AN EQUITY
FINANCING OF UP TO $6,000,000; (3) FOR APPROVAL OF THE TERMS OF THE COMPANY'S
1998 OPTION PLAN; (4) 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.
