<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
APPLIED IMAGING CORPORATION
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--Enter Company Name Here--
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_]Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
APPLIED IMAGING CORP.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 24, 1999
----------------
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 24, 1999 at 10:00 a.m., local time, at the Santa Clara Marriott Hotel,
2700 Mission College Blvd., Great America Parkway, Santa Clara, California,
95052-8181, for the following purposes (as more fully described in the Proxy
Statement accompanying this Notice):
1. To elect two Class III directors of the Company to serve for terms of
three years expiring upon the 2002 Annual Meeting of Stockholders or
until their successors are elected.
2. To ratify the appointment of PricewaterhouseCoopers LLP as independent
auditors of the Company for the year ended December 31, 1999.
3. 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 25, 1999, 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, 1999
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 24, 1999 at 10:00
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, 1998, including financial
statements were mailed on or about April 26, 1999, 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 25, 1999 (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, 11,529,537 shares of the Company's
Common Stock were issued and outstanding and held of record by approximately
176 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 $0.94 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 two
Class III directors, 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 2000 Annual Meeting of Stockholders must
be received by the Company no later than December 1, 1999 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 25, 1999,
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)........................... 2,752,514 23.5%
2490 Sand Hill Road,
Menlo Park, CA 94025
Individuals and Entities Affiliated with Special
Situation Fund III (3).............................. 1,448,966 12.6%
153 East 53rd Street, Suite 51
New York, NY 10022
Attn: Austin W. Marxe
Ashford Capital Management, Inc.(4).................. 1,440,333 12.5%
10th Market Street
Wilmington DE 19890
Individuals and Entities Affiliated with Allen
Holding Inc.(5)..................................... 593,673 5.0%
711 Fifth Avenue
New York, NY 10022
Thomas C. McConnell (2).............................. 2,752,514 23.5%
Robert C. Miller (5)................................. 593,673 5.0%
Jack Goldstein, Ph.D (6)............................. 104,999 *
John F. Blakemore, Jr. (7)........................... 96,824 *
Leslie G. Grant, Ph.D. (8)........................... 80,750 *
Gilbert J.R. McCabe (9).............................. 68,883 *
Andr Marion (10)..................................... 26,581 *
G. Kirk Raab (11).................................... 30,937 *
Carl W. Hull (12).................................... 24,250 *
Michal A. Zoccoli (13)............................... 14,687 *
All executive officers and directors as a group
(10 persons) (2)(5)(6)(7)(8)(9)(10)(11)(12)(13)..... 3,794,098 31.1%
</TABLE>
- --------
* Less than 1%.
(1) Applicable percentage ownership is based on 11,529,537 shares of Common
Stock outstanding as of March 25, 1999, 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 held by New Enterprise V, Limited Partnership
and 1,837,605 shares and warrants to purchase 169,550 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 3,460
shares held by NEA President's Fund, and an option to purchase 5,000
shares within 60 days after March 25, 1999 held by Thomas C. McConnell.
Mr. McConnell, a director of the Company, is a general partner of New
3
<PAGE>
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) Consists of 934,200 shares held by Special Situations Fund III, Limited
Partnership, 200,000 shares held by Special Situation Fund Private Equity
L.P. and 314,766 shares help by Special Situation Fund Cayman Fund L.P.
Based on a Schedule 13G filed on February 12, 1999.
(4) Based on a Schedule 13G filed on February 22, 1999.
(5) Consists of 348,467 shares 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 5,000 shares within 60 days after March 25,
1999, 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.
(6) Includes an option to purchase 99,999 shares within 60 days after March
25, 1999.
(7) Includes an option to purchase 16,562 shares within 60 days after March
25, 1999.
(8) Includes an option to purchase 38,750 shares within 60 days after March
25, 1999
(9) Consists of 10,000 shares, an option to purchase 5,312 shares within 60
days after March 25, 1999 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.
(10) Includes an option to purchase 20,312 shares within 60 days after March
25, 1999 and a warrant to purchase 1,567 shares.
(11) Consists of an option to purchase 30,937 shares within 60 days after
March 25, 1999.
(12) Includes an option to purchase 21,250 shares within 60 days after March
25, 1999.
(13) Includes an option to purchase 12,187 shares within 60 days after March
25, 1999.
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, 1998, 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 eight persons, divided into
three classes serving staggered terms of three years. Currently, there are
three directors in Class I, three directors in Class II, and two directors in
Class III. Two Class III directors are to be elected at the Annual Meeting.
The Class I and Class II directors will be elected at the Company's 2000 and
2001 Annual Meetings of Stockholders, respectively. Each of the two Class III
directors elected at the Annual Meeting will hold office until the 2002 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 two Class III 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
---- --- -------------------- --------
<S> <C> <C> <C>
Nominees for Class III
Directors
Andre F. Marion (1)..... 61 Director, Cygnus Corporation and Director, 1995
Molecular Devices Corp
Pablo Valenzuela, Ph.D.. 57 Senior Vice President Biological Research, 1999
Chiron Corporation
Continuing for Class II
Directors
John F. Blakemore, Jr. 59 Consultant 1987
(1) (2)................
Robert C. Miller (1).... 33 Vice President and Director of Allen & 1995
Company Incorporated
G. Kirk Raab (2)........ 63 Chairman of the Board of Shaman 1996
Pharmaceuticals, Inc., Connetics, Inc.
Oxford GlycoSciences (UK) Ltd. and LXR
Biotechnolty Inc.
Continuing Class I
Directors
Jack Goldstein, Ph.D.... 51 President and Chief Executive Officer 1997
Gilbert J. R. McCabe 53 Independent advisor to investment companies 1992
(2)....................
Thomas C. McConnell 44 General Partner of New Enterprise 1990
(2).................... Associates
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
There are no family relationships among any directors or executive officers
of the Company.
5
<PAGE>
Directors to be Elected at the Annual Meeting
Andre F. Marion has been a director of the Company since November 1995. Mr.
Marion was a founder of Applied Biosystems, Inc., a supplier of instruments
for biotechnology research, and served as its Chief 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
Suprieures d'Ingnieurs Arts et Mtiers in both Mechanical and Electronic
Engineering. Mr. Marion is an independent consultant and also a director of
Cygnus Corporation and Molecular Devices Corp.
Pablo Valenzuela Ph.D. joined the Company's Board of Directors in April
1999. Dr. Valenzuela, has over 20 years of experience in the biotechnology
industry, and is currently Senior Vice President, Biological Research and
Development, and co-founder of Chiron Corporation, as well as President and
founder of Bios Chile Dr. Valenzuela holds a Ph.D. from Northwestern
University.
Directors Whose Terms Extend Beyond the Annual Meeting
John F. Blakemore, Jr. has been a director of the Company since December
1987. Since 1987 he has been an independent investor and consultant. 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.
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. Mr.
McConnell serves on the Board of Directors of CardioThoracic Systems, Inc.,
Conceptus, Inc. and a number of private companies. He received an A.B. in
Engineering Science from Dartmouth College and an M.B.A. from the Stanford
University Graduate School of Business.
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 is a director of Envirogen, Inc., Audits & Surveys Worldwide, Inc.,
and a number of private companies. 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.
G. Kirk Raab has been a director of the Company since 1996. Mr. Raab has 40
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. Oxford GlycoSciences
(UK) Ltd. and LXR Biotechnology, Inc., and a director of a number of private
companies. He received his B.A. from Colgate University.
6
<PAGE>
Vote Required
The two 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 III directors. Votes withheld from any director are counted
for purposes of determining the presence or absence of a quorum for the
transaction of business, but have no other legal effect under Delaware law.
Board Meetings, Committees and Director Compensation
The Board of Directors held five regular meetings and four telephonic
meetings during the calendar year ended December 31, 1998.
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 2
meetings during the last calendar year.
Compensation of Directors
Messrs. McCabe, Raab, Blakemore, Marion and Valenzuela receive $800 per
regular meeting attended, and all directors receive reimbursement of travel
expenses from the Company for their service as members of the Board of
Directors. Prior to April 1999, each director who was not also an employee or
consultant of the Company (an "Outside Director") automatically received an
option to purchase 5,000 shares of Common Stock upon joining the Board of
Directors. Thereafter, each Outside Director who served on the Board of
Directors for at least six months received an option to acquire 5,000 shares
of Common Stock on the date of each of the Company's annual meetings of
stockholders. Outside Directors who were standing for re-election would only
receive the additional option for 5,000 shares if they were re-elected. These
options had been granted under the Company's 1994 Director Option Plan (the
"Director Plan").
Effective April 1999, the initial grant to an Outside Director joining the
Board of Directors will be an option for 25,000 shares and subsequent annual
grants will be for 10,000 shares. Options are expected to be granted either
automatically under the Director Plan (up to the original 10,000 share limits)
and/or under the Company's 1998 Stock Option Plan (the "1998 Plan"). It is
expected that when the Director Plan shares are exhausted, that all grants
will then be made under the 1998 Plan. In addition, directors who are also
consultants to the Company will continue to receive option grants as directors
under the 1998 Plan. It is expected that, consistent with past grants to
Outside Directors, each option granted will become exercisable ratably over a
four-year period. The term of such options has been and is expected to be 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 has been and is expected to be equal to the fair
market value of the Company's Common Stock on the date of grant, as determined
in accordance with the applicable option 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
7
<PAGE>
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
60,000 shares have been issued and 60,000 shares remain available for future
issuance.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
NOMINEES SET FORTH HEREIN.
8
<PAGE>
CERTAIN TRANSACTIONS
On June 3, 1998, the Company issued and sold 1,000,000 shares of its common
stock to certain partnerships affiliated with New Enterprise Associates, a
principal owner of the company at the purchase price of $3.00 per share. The
price exceeded the closing price of the Company's common stock as reported on
the NASDAQ National Market System.
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 equaled 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.
On April 20, 1999, the Company's Board of Directors approved a consulting
agreement with Kirk Raab pursuant to which Mr. Raab will devote one day per
month to the Company to consult on matters identified by the Company's
President and Chief Executive Officer. Mr. Raab will receive an option under
the 1998 Plan for 50,000 shares vesting monthly over two years for his
consulting services.
The Company has employment agreements with certain of its officers. See
"Employment Agreements."
9
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth information as of December 31, 1998
regarding executive officers of the Company.
<TABLE>
<C> <C> <S>
Jack Goldstein, Ph.D. .... 51 President and Chief Executive Officer
Michael A. Zoccoli, 48 Vice President Research and Development
Ph.D.....................
Leslie G. Grant, Ph.D..... 46 Executive Vice President
Carl W. Hull.............. 40 Vice President of Sales and Marketing
</TABLE>
Jack Goldstein, Ph.D., biographical information, infra, at Proposal No. 1.
Michael A. Zoccoli, Ph.D. has been Vice President of Research and
Development since July 1998. He joined the Company in October 1997 as Vice
President of Product Development. From 1991 to 1997, Dr. Zoccoli held various
senior management positions with Roche Molecular Systems. Dr. Zoccoli has over
16 years of experience in research and development of immunoassay and PCR
reagent products for the clinical and research markets and is a co-inventor on
three US Patents. Dr. Zoccoli holds a B.A. in Chemistry from the University of
Connecticut and a Ph.D. in Chemistry from Dartmouth College.
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.
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 B.A. from The Johns Hopkins University
and an M.B.A from the University of Chicago.
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 $218,708.
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.
Leslie G. Grant. Under the terms of a letter dated August 12, 1991 (the
"Letter Agreement") setting forth the terms of Leslie G. Grant's employement
with the Company, the Company has agreed to provide Dr. Grant,
10
<PAGE>
an annual salary and bonus, medical insurance, vacation time, relocation
expenses incurred in connection with his move from Scotland to Newcastle and
an option to purchase 45,000 shares of the Company's commons Stock at an
exercise price of $1.80 (all of which are now vested). In February 1996 the
Letter Agreement was amended (the "Amendment"). The Amendment contains a
confidential nondisclosure provision that restricts Dr. Grant's ability to
disclose the Company's proprietary information to third parties and a
noncompetition provision that temporarily restricts Dr. Grant's ability to
indirectly complete with the Company following Dr. Grant's termination from
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 $35,650 (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.
11
<PAGE>
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 $100,000 (the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Awards
Compensation ------------
-------------- Securities All Other
Name and Principal Other Annual Underlying Compensation
Position Year Salary($) 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 1998 $270,058 149,410(4) 430,000 1,188(5)
Executive Officer
Leslie G. Grant, Ph.D... 1996 109,340 35,000(2) 35,000 9,732(6)
Executive Vice 1997 135,016 42,193(2) 46,903(7)
President 1998 142,760 25,000 36,879(8)
Carl W. Hull............ 1997 56,250(13) 20,000(2) 29,906(4) 60,000 313(9)
Vice President Sales 1998 144,720 21,254(2) 5,744(4) 100,000 5,913(10)
and Marketing
Michael A. Zoccoli,
Ph.D................... 1997 20,633(14) 690(11)
Vice President 1998 127,118 85,000 8,192(12)
</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 $ 1,188 and $736 in insurance premiums paid by the Company in
1998 and 1997 respectively.
(6) Consists of $7,645 for operating expenses of a car and $2,087 in
insurance premiums paid by the Company
(7) 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.
(8) Consists of $18,298 contributed to a private pension scheme, $15,919 paid
by the Company for operating expenses of a car leased by the Company and
used by Dr. Grant, and $2,661 in insurance premiums paid by the Company
(9) Consists of $313 in insurance premiums paid by the Company
(10) Consists of $4,941 contributed to the Company's retirement plan and $972
in insurance premiums paid by the Company.
(11) Consists of $540 car allowance and $150 in insurance premiums paid by the
Company.
(12) Consists of $2,972 contributed to the Company's retirement plan, $4,320
car allowance and $900 in insurance premiums paid by the Company.
(13) Carl W. Hull joined the Company in August 1997; his annualized salary for
1997 was $135,000.
(14) Mike Zoccoli joined the Company in October 1997, his annualized salary
for 1997 was $125,000
12
<PAGE>
Option Grants in Last Fiscal Year. The following table sets forth each
grant of stock options made during the fiscal year ended December 31, 1998 to
each of the Named Executive Officers:
Option Grants in Fiscal 1998
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------
Potential
Realizable
Value at Assumed
Number of Annual Rates of
Securities Percent of Stock Price
Underlying Total Options Appreciation for
Options Granted during Exercise Option Term(4)
Granted Fiscal Price Expiration -----------------
Name (#)(1) 1998 (%)(2) ($/Sh)(3) Date 5%($) 10%($)
---- ---------- -------------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Jack Goldstein.......... 280,000(5) 22.4% $2.44 2/02/08 429,309 1,770,592
Jack Goldstein.......... 150,000 12.0% $1.88 2/10/08 176,877 729,490
Leslie G. Grant......... 25,000 2.0% $1.88 2/10/08 29,479 121,582
Carl W. Hull............ 60,000(5) 4.8% $2.44 2/02/08 91,995 379,413
Carl W. Hull............ 40,000 3.2% $1.88 12/10/08 47,167 194,531
Michael A. Zoccoli...... 25,000(5) 2.0% $2.44 2/02/08 38,331 158,089
Michael A. Zoccoli...... 10,000 0.8% $3.19 5/18/08 21,059 84,297
Michael A. Zoccoli...... 10,000 0.8% $2.38 7/27/08 12,900 58,359
Michael A. Zoccoli...... 40,000 3.2% $1.88 12/10/08 47,167 194,531
</TABLE>
- --------
(1) Options were granted under the 1988 and 1998 Plan and generally vest over
four years from the date of commencement of employment.
(2) Based on an aggregate of 1,251,000 options granted by the Company in the
year ended December 31, 1998 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.
(5) These options represent options originally granted prior to fiscal year
1998 but which were repriced in connection with an option exchange program
described in the section of this Proxy Statement entitled "Stock Option
Repricing Report of the Compensation Committee and Table."
Option Exercises in Last Fiscal Year and Fiscal Year End Option Values. No
stock option exercises occurred during the year ended December 31, 1998 by the
Named Executive Officers.
13
<PAGE>
Stock Option Repricing Report of the Compensation Committee and Table
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 to provide for an exercise
price of $2.44 per share, the fair market value of the Company's Common Stock
on February 2, 1998 (the "Exchange Program").
The following table sets forth certain information concerning the Exchange
Program, including (i) the name of each executive officer who participated in
the Exchange Program, (ii) the date of any such exchange, (iii) the number of
securities underlying exchanged options, (iv) the price per share of the
underlying security at the time of the exchange, (v) the original exercise
price or base price of the canceled option at the time of exchange, (vi) the
per share exercise price of the option received in exchange for the existing
option and (vii) the original option term remaining at the date of exchange.
Ten Year Option Repricings
<TABLE>
<CAPTION>
Length of
original
Number of Market price Exercise option term
securities of price at remaining
underlying stock at time time of at date of
option/SARs of repricing New repricing
repriced or repricing or or exercise or
Name Date amended (#) amendment ($) amendment price ($) amendment
---- ------- ----------- ------------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Jack Goldstein.......... 2/02/98 280,000 $2.44 $5.63 $2.44 9.2 years
Carl Hull............... 2/02/98 60,000 $2.44 $5.50 $2.44 9.5 years
Mike Zoccoli............ 2/02/98 25,000 $2.44 $3.44 $2.44 9.79 years
</TABLE>
Stock options are intended to provide incentives to the Company's officers,
employees and consultants. The Compensation Committee believes that such
equity incentives are a significant factor in the Company's ability to
attract, retain and motivate service providers who are critical to the
Company's long-term success. The disparity between the original exercise
prices of the Company's outstanding stock options and the market price for the
Common Stock did not provide, in the judgment of the Compensation Committee, a
meaningful incentive or retention device to those holding stock options and,
therefore, the Compensation Committee determined that offering the Exchange
Program was in the best interest of the Company and its stockholders.
Members of the Compensation
Committee
John F. Blakemore, Jr.
Gilbert J. R. McCabe
Thomas C. McConnell
G. Kirk Raab
14
<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 grants prior to December 10, 1998 become
exercisable at the rate of 25% of the shares at the end of each year following
the date of vesting commencement such that. Options granted after December 10,
1998 become exercisable at the rate of 1/48 per month. Options granted as a
bonuses generally vest over two years, 50% after the first year monthly the
following year. Options granted are subject to the
15
<PAGE>
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 to any Named Executive Officer
or any other person under the Company's stock option plans.
1998 Compensation for the Chief Executive Officer
In determining the salary of Dr. Goldstein for 1998, 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 $270,000
and in lieu of a cash bonus, to grant Dr. Goldstein a stock option bonus of
150,000 shares related to his 1998 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
16
<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, 1998.
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, 1998)
[PERFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
APPLIED NASDAQ H&Q
Measurement Period IMAGING U.S. HEALTHCARE
(Fiscal Year Covered) CORP. INDEX INDEX
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt- 8/NOV/96 $100 $100 $100
FYE 31/DEC/96 $129 $103 $103
FYE 3/31/97 $ 79 $ 97 $ 97
FYE 6/30/97 $ 89 $115 $116
FYE 9/30/97 $ 64 $135 $122
FYE 12/31/97 $ 29 $126 $122
FYE 3/31/98 $ 45 $148 $138
FYE 6/30/98 $ 35 $152 $141
FYE 9/30/98 $ 37 $137 $124
FYE 12/31/98 $ 30 $177 $147
</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.
17
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected PricewaterhouseCoopers LLP ("PWC"),
independent certified public accountants, to audit the consolidated financial
statements of the Company for the fiscal year ending December 31, 1999, 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.
Representatives of PWC 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 PRICEWATERHOUSECOOPERS AS THE COMPANY'S
INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
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, 1999
18
<PAGE>
APPLIED IMAGING CORP.
ANNUAL MEETING OF STOCKHOLDERS
Monday, May 24, 1999
10:00 a.m.
SANTA CLARA MARRIOTT HOTEL
2700 Mission College Blvd.
Great America Parkway
Santa Clara, CA 95052-8151
- --------------------------------------------------------------------------------
Applied Imaging Corp.
2380 Walsh Ave., Santa Clara, CA 95051 PROXY
- --------------------------------------------------------------------------------
This proxy is solicited by the Board of Directors for use at the Annual Meeting
on May 24, 1999.
The shares of stock you hold in your account or in a dividend reinvestment
account will be voted as you specify below.
If no choice is specified, the proxy will be voted "FOR" Items 1 and 2.
By signing the proxy, you revoke all prior proxies and appoint Jack Goldstein,
and Carl Hull, and each of them, with full power of substitution, to vote your
shares on the matters shown on the reverse side and any other matters which may
come before the Annual Meeting and all adjournments.
See reverse for voting instructions.
<PAGE>
Please detach here
<TABLE>
<CAPTION>
The Board of Directors Recommends a Vote FOR Items 1 and 2.
<S> <C> <C> <C> <C>
1. Election of directors: 01 Andre F.Marion 02 Pablo Valenzuela, Ph.D. [_] Vote FOR [_] Vote WITHHELD
all nominees from all nominees
</TABLE>
(Instructions: To withhold authority to vote for any indicated
nominee, write the number(s) of the nominee(s) In the box [______________]
provided to the right.)
<TABLE>
<S> <C> <C> <C>
2. Proposal to ratify the appointment of PricewaterhouseCoopers
LLP as the Company's independent Auditors for the fiscal
year ending December 31, 1999. [_] For [_] Against [_] Abstain
</TABLE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL
---
Address Change? Mark Box [_]
Indicate changes below: Date___________________
[___________________________]
Signature(s) in Box
Please sign exactly as your
name(s) appear on Proxy. If
held in joint tenancy, all
persons must sign. Trustees,
administrators, etc.,
should include title and
authority. Corporations
should provide full name of
corporation and title of
authorized officer signing
the proxy.
