SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<Table>
[ ] 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 Under Rule 14a-12
</Table>
TRIPATH IMAGING, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
TRIPATH IMAGING, INC.
780 Plantation Drive
Burlington, North Carolina 27215
(336) 222-9707
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 23, 2002
Notice is hereby given that the 2002 Annual Meeting of Stockholders of
TriPath Imaging, Inc. will be held on Thursday, May 23, 2002, at 10:00 a.m. at
the Country Suites, 3211 Wilson Drive, Burlington, North Carolina, to consider
and act upon the following matters:
1. To elect two members of our Board of Directors to serve for three-year
terms as Class II Directors.
2. To approve an amendment to our Restated Certificate of Incorporation to
increase the number of authorized shares of our common stock by
49,000,000 shares from 49,000,000 to 98,000,000 shares.
3. To approve an amendment to our Amended and Restated 1996 Equity Incentive
Plan to increase the number of shares of our common stock available for
issuance under the plan by 1,725,000 shares.
4. To transact such other business as may properly come before the meeting
or any adjournments thereof.
Only stockholders of record at the close of business on April 12, 2002
will be entitled to vote at the meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING.
THEREFORE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE YOUR
PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU ATTEND THE MEETING AND WISH TO VOTE IN
PERSON, YOUR PROXY WILL NOT BE USED.
By order of the Board of Directors,
Steven N. Farber
Secretary
April 30, 2002
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
GENERAL INFORMATION......................................... 1
SHARE OWNERSHIP............................................. 3
PROPOSAL 1 ELECTION OF DIRECTORS........................ 6
PROPOSAL 2 APPROVAL OF AMENDMENT TO OUR RESTATED
CERTIFICATE OF INCORPORATION................. 10
PROPOSAL 3 APPROVAL OF AMENDMENT TO OUR EQUITY INCENTIVE
PLAN......................................... 12
EXECUTIVE COMPENSATION...................................... 16
Compensation Committee Report on Executive
Compensation......................................... 16
Elements of Executive Compensation.................... 16
SUMMARY COMPENSATION TABLE.................................. 18
OPTION GRANTS IN LAST FISCAL YEAR........................... 19
Comparative Stock Performance Graph................... 21
COMPENSATION COMMITTEE INTERLOCKS, INSIDER PARTICIPATION AND
CERTAIN TRANSACTIONS...................................... 22
REPORT OF THE AUDIT COMMITTEE............................... 22
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 23
INFORMATION CONCERNING AUDITORS............................. 23
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING........... 23
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER PROPOSALS AND
NOMINATIONS............................................... 23
OTHER MATTERS............................................... 24
APPENDIX A -- TRIPATH IMAGING, INC. AUDIT COMMITTEE
CHARTER....................................... A-1
APPENDIX B -- TRIPATH IMAGING, INC. -- AMENDED AND RESTATED
1996 EQUITY INCENTIVE PLAN.................... B-1
</Table>
-i-
TRIPATH IMAGING, INC.
780 Plantation Drive
Burlington, North Carolina 27215
(336) 222-9707
---------------------
PROXY STATEMENT
---------------------
GENERAL INFORMATION
Our Board of Directors is soliciting your proxy for use at our 2002
Annual Meeting of Stockholders to be held on Thursday, May 23, 2002, at 10:00
a.m. at the Country Suites, 3211 Wilson Drive, Burlington, North Carolina, and
at any adjournments of the meeting. This Proxy Statement and the enclosed proxy
card are first being mailed or given on or about April 30, 2002 to all of our
stockholders entitled to notice of and to vote at the meeting.
WHO CAN VOTE. You may vote your shares of our common stock at the
meeting if you were a stockholder of record at the close of business on April
12, 2002, the record date. On that date, we had 37,454,684 shares of common
stock issued and outstanding. You are entitled to one vote for each share of
common stock that you held on the record date.
HOW TO VOTE YOUR SHARES. You may vote your shares either by proxy or by
attending the annual meeting and voting in person. If you choose to vote by
proxy, please complete, date, sign and return the proxy card in the enclosed
postage-prepaid envelope. The proxies named in the proxy card will vote your
shares in accordance with your voting instructions given on the proxy card. If
you sign the proxy card but do not give specific instructions with respect to
one or more of the proposals contained in this proxy statement, the proxies will
vote your shares in favor of each of the proposals as recommended by our Board
of Directors. Even if you plan to attend the meeting, please complete and mail
your proxy card to ensure that your shares are represented at the meeting. If
you attend the meeting, you can still revoke your proxy by voting in person.
PROPOSALS TO BE CONSIDERED AT THE ANNUAL MEETING. The principal business
expected to be transacted at the meeting, as more fully described below, will be
the election of two directors, an amendment to our Restated Certificate of
Incorporation to increase the number of shares of common stock we are authorized
to issue and an amendment to our Amended and Restated 1996 Equity Incentive Plan
(the "Equity Incentive Plan") to increase the number of shares of common stock
we may issue under the plan.
QUORUM. A quorum of stockholders is required in order to transact
business at the meeting. A majority in interest of the issued and outstanding
shares of common stock, represented at the meeting in person or by proxy,
constitutes a quorum for the transaction of business.
NUMBER OF VOTES REQUIRED. The number of votes required to approve each
of the three proposals that are scheduled to be presented at the meeting is as
follows:
<Table>
<Caption>
PROPOSAL REQUIRED VOTE
-------- -------------
- Election of two nominees as Affirmative vote representing a
directors. plurality of the votes cast for or
against the nominee.
- Amendment to our charter to increase Affirmative vote representing a
the authorized number of shares of majority of the outstanding shares of
common stock. our common stock.
- Amendment to our Equity Incentive Affirmative vote representing a
Plan to increase the number of majority of the shares of our common
shares available for issuance under stock present or represented at the
the plan. meeting and entitled to vote.
</Table>
ABSTENTIONS AND BROKER NON-VOTES. A broker non-vote on a proposal
results from a proxy submitted by a broker that does not indicate a vote for one
or more proposals because the broker does not have discretionary voting
authority and the customer did not send the broker instructions on how to vote
on the proposal. If the broker does not have instructions with respect to a
matter, and is barred by law or by Nasdaq regulations from exercising its
discretionary voting authority in the particular matter, then the shares will
not be voted on the matter. Abstentions and broker non-votes will be counted for
purposes of determining the presence of a quorum but will not be counted as
votes cast in the election of directors. In voting on the proposal to amend our
charter, abstentions and broker non-votes will count as votes against the
proposal. In voting on the proposal to amend the Equity Incentive Plan,
abstentions will count as votes against the amendment and broker non-votes will
not be counted.
DISCRETIONARY VOTING BY PROXIES ON OTHER MATTERS. The meeting is called
for the purposes set forth in the notice. Aside from the three proposals
discussed in this proxy statement, we do not know of any other proposals that
may be presented at the annual meeting. If another matter is properly presented
for consideration at the meeting, the persons named in the accompanying proxy
card will exercise their discretion in voting on the matter. It is the intention
of the persons named in the proxy to vote in accordance with their best judgment
on any such matter.
HOW YOU MAY REVOKE YOUR PROXY. You may revoke the authority granted by
your executed proxy at any time before we exercise it by submitting a written
notice of revocation or a duly executed proxy bearing a later date to our
Assistant Secretary or by voting in person at the meeting. If your shares are
held in a brokerage or bank account, you must make arrangements with your broker
or bank to vote your shares in person or to revoke your proxy.
EXPENSES OF SOLICITATION. We will bear all costs of soliciting proxies.
We have retained Georgeson Shareholder to assist with the solicitation of
proxies for a fee of approximately $6,000. We will, upon request, reimburse
brokers, custodians and fiduciaries for out-of-pocket expenses incurred in
forwarding proxy solicitation materials to the beneficial owners of our common
stock held in their names. In addition to solicitations by mail, our directors,
officers and employees may solicit proxies from stockholders in person or by
other means of communication, including telephone, facsimile and e-mail, without
additional remuneration.
2
SHARE OWNERSHIP
The following table and footnotes set forth certain information regarding
the beneficial ownership of our common stock as of April 1, 2002 by:
- each person known by us to own beneficially 5% or more of our common
stock;
- each Named Executive Officer (as defined in "Executive Compensation"
below);
- each of our directors; and
- all of our current directors and executive officers as a group.
The number of shares beneficially owned by each person listed below
includes any shares over which the person has sole or shared voting or
investment power as well as shares which the person has the right to acquire
upon the exercise of any options or other rights exercisable within the 60-day
period following April 1, 2002. Unless otherwise noted, each person has sole
investment and voting power over the shares listed in the table. The percentage
ownership of each person listed in the table was calculated using the total
number of shares outstanding on April 1, 2002, plus any shares that person could
acquire upon the exercise of any options or other rights exercisable within the
60-day period following April 1, 2002.
<Table>
<Caption>
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED
--------------------
BENEFICIAL OWNER SHARES PERCENT
- ---------------- ---------- -------
Roche Holding Ltd. affiliated entities(1)................... 12,950,680 34.58%
Grenzacherstrasse 124
Postfach
CH-4070 Basel
Switzerland
Becton, Dickinson and Company............................... 2,500,000 6.67%
1 Becton Drive
Franklin Lakes, NJ 07417
Credit Suisse First Boston(2)............................... 2,170,098 5.79%
11 Madison Avenue
New York, New York 10010
Zesiger Capital Group LLC(3)................................ 2,062,803 5.51%
320 Park Avenue, 30th Floor
New York, NY 10022
Paul R. Sohmer, M.D.(4)..................................... 391,957 1.05%
Stephen P. Hall(5).......................................... 18,748 *
Ray W. Swanson, Jr.(6)...................................... 37,082 *
John G.R. Hurrell(7)........................................ 10,415 *
Thomas Gahm, Ph.D.(8)....................................... 201,051 *
Mary K. Norton(9)........................................... 101,365 *
</Table>
3
<Table>
<Caption>
SHARES OF COMMON
STOCK BENEFICIALLY
OWNED
--------------------
BENEFICIAL OWNER SHARES PERCENT
- ---------------- ---------- -------
Robert E. Curry, Ph.D.(10).................................. 2,176,098 5.81%
Haywood D. Cochrane, Jr.(11)................................ 40,000 *
Thomas A. Bonfiglio, M.D.(12)............................... 32,064 *
David A. Thompson(13)....................................... 60,699 *
Richard A. Charpie, Ph.D.(14)............................... 6,000 *
David H. Robison(15)........................................ 146,612 *
Roger W. Martin(16)......................................... 49,788 *
All current executive officers and directors as a group (9
persons)(17).............................................. 2,784,524 7.43%
</Table>
- ---------------------------
* Indicates less than 1%.
(1) Includes 5,000,000 shares held by Roche International Ltd., a Bermuda
corporation ("Roche") and 2,950,680 shares held by Roche Image Analysis
Systems, Inc., a Delaware corporation ("RIAS"). Roche is a wholly-owned
subsidiary of Canadian Pharmholding Ltd., a Canadian corporation
("Pharmholding"), which is in turn a wholly-owned subsidiary of SAPAC
Corporation Ltd., a corporation organized under the laws of the Province
of New Brunswick, Canada ("SAPAC"). RIAS is a wholly-owned subsidiary of
Roche Holdings, Inc., a Delaware corporation ("Holdings Inc."), which is
in turn a wholly-owned subsidiary of Roche Finance Ltd., a Swiss company
("Finance"). SAPAC and Finance are each wholly-owned subsidiaries of
Roche Holding Ltd., a Swiss company ("Holding Ltd."). Pursuant to an
agreement, Professor Kurt Jenny has the power to vote a majority of the
voting securities of Holding Ltd. Each of Professor Jenny, Holding Ltd.,
Finance, Holdings Inc., SAPAC and Pharmholding expressly disclaim
beneficial ownership of the shares. Also includes 5,000,000 shares that
may be acquired by Roche within 60 days of April 1, 2002 upon the
exercise of warrants. The above information is based on a Schedule 13D
filed by Roche with the U.S. Securities and Exchange Commission ("SEC")
on November 15, 2000.
(2) Consists of 1,887,760 shares held by Sprout Capital VII, L.P. ("Sprout");
217,009 shares held by DLJ First ESC, L.L.C. ("DLJ First"); 43,401 shares
held by DLJ Capital Corporation ("DLJ Capital"); and 21,928 shares held
by the Sprout CEO Fund, L.P. ("Sprout CEO"). DLJ Capital is the managing
general partner of Sprout and Sprout CEO and has voting and investment
control over the shares held by those two entities. DLJ LBO Plans
Management Corporation ("DLJ LBO") is the manager of DLJ First and has
voting and investment control over the shares held by DLJ First. DLJ
Capital and DLJ LBO both are wholly-owned subsidiaries of Credit Suisse
First Boston (USA), Inc.
(3) Zesiger Capital Group LLC disclaims beneficial ownership of these
securities which are held in discretionary accounts it manages. The above
information is based on a Schedule 13G filed by Zesiger Capital Group LLC
with the SEC on February 14, 2002.
(4) Consists entirely of shares that may be acquired within 60 days of April
1, 2002 upon the exercise of options.
4
(5) Consists entirely of shares that may be acquired within 60 days of April
1, 2002 upon the exercise of options.
(6) Includes 27,082 shares that may be acquired within 60 days of April 1,
2002 upon the exercise of options.
(7) Consists entirely of shares that may be acquired within 60 days of April
1, 2002 upon the exercise of options.
(8) Includes 117,381 shares that may be acquired within 60 days of April 1,
2002 upon the exercise of options.
(9) Consists entirely of shares that may be acquired within 60 days of April
1, 2002 upon the exercise of options.
(10) Consists of 2,170,098 of the shares held by Sprout, DLJ First, DLJ
Capital and Sprout CEO as described in note (2). Dr. Curry is a
consultant to DLJ Capital Corporation and acts as attorney-in-fact with
respect to its investment in us and thus may be considered the beneficial
owner of the shares described in note (2). Dr. Curry disclaims beneficial
ownership of such shares except to the extent of his pecuniary interest.
Also includes 6,000 shares that may be acquired within 60 days of April
1, 2002 upon the exercise of options.
(11) Includes 20,000 shares that may be acquired within 60 days of April 1,
2002 upon the exercise of options.
(12) Includes 31,064 shares that may be acquired within 60 days of April 1,
2002 upon the exercise of options.
(13) Includes 56,748 shares that may be acquired within 60 days of April 1,
2002 upon the exercise of options.
(14) Consists entirely of shares that may be acquired within 60 days of April
1, 2002 upon the exercise of options.
(15) Consists entirely of shares that may be acquired within 60 days of April
1, 2002 upon the exercise of options.
(16) Consists entirely of shares that may be acquired within 60 days of April
1, 2002 upon the exercise of options.
(17) See notes (4) through (7) and (10) through (14) above. Includes 564,596
shares that may be acquired within 60 days of April 1, 2002 upon the
exercise of options.
5
PROPOSAL 1
ELECTION OF DIRECTORS
GENERAL
In accordance with our by-laws, our Board of Directors has fixed the
number of directors at seven for the coming year. Our Board of Directors is
divided into three classes, with the members of each class elected for
three-year terms and the term for each class expiring in successive years.
At the meeting, two Class II directors will be elected to hold office for
three years until their respective successors are duly elected and qualified.
Our Board of Directors has nominated Haywood D. Cochrane, Jr. and Robert L.
Sullivan for election for terms expiring in 2005. Mr. Cochrane is currently one
of our directors and has consented to be nominated and to serve if elected. Mr.
Sullivan will be a new director and has also consented to be nominated and to
serve if elected. In the event that either Mr. Cochrane or Mr. Sullivan is
unable to serve as a director, the shares represented by proxy will be voted for
the person, if any, designated by our Board of Directors to replace Mr. Cochrane
or Mr. Sullivan. In the event that a vacancy occurs during either of their three
year terms, such vacancy may be filled by our Board of Directors for the
remainder of the full term.
Following the annual meeting, there will be a vacancy among the Class I
directors, whose term expires in 2004. Under our by-laws, our Board of Directors
may fill this vacancy with a director who would serve until the 2004 Annual
Meeting of Stockholders.
Under our by-laws, directors must be elected by a plurality of votes
cast. Abstentions, votes withheld and broker non-votes will not be treated as
votes cast and, therefore, will not affect the outcome of the election.
The following table contains certain information about the nominee for
election to the Board of Directors and about each other person whose term of
office as a director will continue after the meeting.
<Table>
<Caption>
PRESENT
BUSINESS EXPERIENCE DURING PAST FIVE DIRECTOR TERM
NAME AND AGE YEARS AND OTHER DIRECTORSHIPS SINCE EXPIRES
------------ ----------------------------- ----- -------
NOMINEE FOR DIRECTOR:
CLASS II DIRECTOR
Haywood D. Cochrane, Jr. Mr. Cochrane has served as the Chief Executive Officer 1999 2002
Age: 53 of Meridian Corporate Healthcare ("Meridian"), a
national provider of employer-sponsored healthcare
services to large and mid-sized employers, in Nashville,
Tennessee since February 1997. Prior to joining
Meridian, Mr. Cochrane served as a consultant to
Laboratory Corporation of America Holdings ("LabCorp"),
a national clinical laboratory testing company. From
April 1995 to November 1996, he was Executive Vice
President, Chief Financial Officer and Treasurer of
LabCorp. Mr. Cochrane was an employee of National Health
Laboratories, Inc. ("NHL") from June 1994 to April 1995,
following NHL's acquisition of his former employer
Allied Clinical Laboratories, Inc. ("Allied"). Mr.
Cochrane was President and Chief Executive Officer of
Allied from its formation in 1989 until its acquisition
by NHL in June 1994. Mr. Cochrane is currently a
director at JDN Realty, Inc., Ameripath, Inc. and Sonus
Corp., all publicly traded companies as well as CHD
Meridian. Mr. Cochrane received a B.A. in political
science from the University of North Carolina at Chapel
Hill.
</Table>
6
<Table>
<Caption>
PRESENT
BUSINESS EXPERIENCE DURING PAST FIVE DIRECTOR TERM
NAME AND AGE YEARS AND OTHER DIRECTORSHIPS SINCE EXPIRES
------------ ----------------------------- ----- -------
Robert L. Sullivan Mr. Sullivan is retired from Chiron Diagnostics -- --
Age: 64 Corporation, a manufacturer and marketer of medical
diagnostic equipment and supplies, where from 1985 to
March 1999 he served as Senior Vice
President -- Finance. From 1962 to 1985, Mr. Sullivan
held several operating and financial positions with
Corning Glass Works. Mr. Sullivan is also a director of
Colorado MEDtech, Inc., a medical products company.
CONTINUING DIRECTORS:
CLASS III DIRECTORS
Thomas A. Bonfiglio, M.D. Dr. Bonfiglio serves as Senior Attending Pathologist and 1999 2003
Age: 59 Head, Division of Pathology at The Rochester General
Hospital in Rochester, New York. Dr. Bonfiglio is also a
Clinical Professor at the University of Rochester's
Department of Pathology and Laboratory Medicine, where
he has maintained various academic positions since 1971.
Since 1969, Dr. Bonfiglio has held pathology positions
at various hospitals, most recently as Pathologist in
Chief at Strong Memorial Hospital from 1989 to 1997. He
is a past president of the American Society of Clinical
Pathologists and the American Society of Cytopathology
and has authored numerous medical publications. He was
previously a director of NeoPath, Inc., until the
acquisition of NeoPath by us on September 30, 1999.
David A. Thompson Mr. Thompson retired in June 1995 from Abbott 1999 2003
Age: 60 Laboratories ("Abbott"), a manufacturer and distributor
of pharmaceutical and nutritional products, where he
served in various capacities since 1964. From August
1983 to July 1990, he was Abbott's Vice President,
Diagnostic Operations and President, Diagnostics
Division. From July 1990 to June 1994, he was Abbott's
Senior Vice President, Diagnostic Operations and
President, Diagnostics Division, and from June 1994
until his retirement, he was Abbott's Senior Vice
President, Strategic Improvement Processes. Mr. Thompson
is currently Chief Executive Officer of Diagnostic
Marketing Strategies, a private consulting firm. Mr.
Thompson is also a director of Third Wave Technologies,
Inc. and St. Jude Medical, Inc. He was previously a
director of NeoPath, Inc., from June 1995 until the
acquisition of NeoPath by us on September 30, 1999.
</Table>
7
<Table>
<Caption>
PRESENT
BUSINESS EXPERIENCE DURING PAST FIVE DIRECTOR TERM
NAME AND AGE YEARS AND OTHER DIRECTORSHIPS SINCE EXPIRES
------------ ----------------------------- ----- -------
CLASS I DIRECTORS
Robert E. Curry, Ph.D. Since July 1, 2001, Dr. Curry has been engaged as a 1996 2004
Age: 55 consultant to DLJ Capital Corporation, a wholly-owned
subsidiary of Credit Suisse First Boston (USA), Inc.
("CSFB"). He joined the Sprout Group ("Sprout"), a
submanager of various venture capital funds within the
CSFB organization, as a general partner in May 1991.
Prior to joining Sprout, Dr. Curry served in various
capacities with Merrill Lynch R&D Management and Merrill
Lynch Venture Capital from 1984, including as President
of both organizations from January 1990 to May 1991.
Previously, Dr. Curry was a Vice President of Becton,
Dickinson and Company, a pharmaceutical company, from
May 1980 to July 1984, and General Manager of Bio-Rad
Laboratories Inc.'s Diagnostics Systems Division from
August 1976 to May 1980. He currently is a director of
Adeza Biomedical, Inc., Instrumentation Metrics, Inc.,
Emerald BioAgriculture, Inc., Prometheus Laboratories,
Inc., Photon Technology International, Inc. and
Pathology Partners, Inc. Dr. Curry received a B.S. from
the University of Illinois, and a M.S. and Ph.D. in
chemistry from Purdue University.
Paul R. Sohmer, M.D. Dr. Sohmer has served as our Chairman of the Board since 2000 2004
Age: 53 November 2000, and as our President and Chief Executive
Officer since June 2000. Prior to joining us, Dr. Sohmer
served as the President and Chief Executive Officer of
Neuromedical Systems, Inc., a supplier of cytology
screening and anatomic pathology diagnostic equipment
and services to laboratories, from 1997 through 1999.
From 1996 until 1997, Dr. Sohmer served as President of
a consulting firm which he founded. From 1993 to 1996,
he served as President and Chief Executive Officer of
Genetrix, Inc., a genetic services company based in
Scottsdale, Arizona. From 1991 through 1993, Dr. Sohmer
was the Corporate Vice-President of Professional
Services and President of the Professional Services
Organization for Nichols Institute, a clinical
laboratory company, where he was responsible for sales,
marketing, information systems, logistics, and clinical
studies. From 1985 until 1991, Dr. Sohmer served as the
President and Chief Executive Officer of Pathology
Institute in Berkeley, California, during which time he
founded and served as Medical Director of the Chiron
Reference Laboratory. Dr. Sohmer received a B.A. degree
from Northwestern University and an M.D. from Chicago
Medical School.
</Table>
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF HAYWOOD D.
COCHRANE, JR. AND ROBERT L. SULLIVAN AS CLASS II DIRECTORS.
COMMITTEES OF THE BOARD
Our Board of Directors has standing Audit and Compensation Committees.
Additionally, our Board of Directors formed a Nominating Committee in February
2002 for the purpose of nominating a suitable candidate to fill the vacancy on
our Board of Directors created by Dr. Charpie's resignation following the 2002
annual meeting.
8
The Audit Committee
Our Audit Committee currently consists of Dr. Richard A. Charpie, David
A. Thompson and Haywood D. Cochrane, Jr. each of whom is independent as defined
by applicable Nasdaq National Market standards governing the qualifications of
audit committee members. Following the 2002 annual meeting, Dr. Charpie will no
longer serve on the Audit Committee due to the expiration of his term as a
director. Mr. Sullivan, if elected as a director, will be appointed to fill the
vacancy on the Audit Committee upon Dr. Charpie's resignation. The Audit
Committee assists our Board of Directors in the discharge of its duties and
responsibilities by selecting and evaluating our independent auditors, providing
our Board of Directors with an independent review of our financial health and
the reliability of our financial contracts and financial reporting systems. Our
Audit Committee reviews the general scope of our annual audit, the fee charged
by our independent auditors and other matters relating to internal control
systems. Our Audit Committee held three meetings in 2001. Our Audit Committee
operates under a written charter adopted by our Board of Directors on April 27,
2000. On April 22, 2002, our Audit Committee adopted an amended charter, a copy
of which is included as Appendix A to this proxy statement. See "Report of the
Audit Committee" in this proxy statement.
Compensation Committee
Our Compensation Committee currently consists of Drs. Curry and
Bonfiglio. The Compensation Committee determines the compensation paid to all of
our executive officers, including our Chief Executive Officer. Our Compensation
Committee's responsibilities include, reviewing the performance of our Chief
Executive Officer and our other executive officers and making determinations as
to their cash and equity-based compensation and benefits, and administering
employee stock option grants and stock awards made under our Equity Incentive
Plan. Our Compensation Committee held three meetings in 2001.
Nominating Committee
In February 2002, our Board of Directors established a Nominating
Committee to identify and screen potential candidates to be nominated to fill
the vacancy on our Board of Directors created by the expiration of Dr. Charpie's
term as a director following the 2002 annual meeting. Dr. Paul R. Sohmer, Dr.
Bonfiglio, and Mr. Thompson were appointed to our Nominating Committee with Dr.
Sohmer appointed as Chair of the committee. Our Nominating Committee has held
one meeting at which it nominated Mr. Sullivan to stand for election as a
director. Our Nominating Committee will not consider nominees recommended by
stockholders.
ATTENDANCE AT MEETINGS
During the year ended December 31, 2001, our Board of Directors held nine
meetings. Each of our directors attended at least 75% of our Board of Directors
meetings and meetings of committees of our Board of Directors of which they were
a member, except that Mr. Thompson attended 67% of the aggregate of such
meetings.
9
DIRECTOR COMPENSATION
All of our non-employee directors who beneficially own (as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended)
less than 3% of our outstanding common stock are paid $10,000 per year for
service as a director, payable quarterly.
In addition, our directors receive compensation for their service on our
Board of Directors pursuant to our 1997 Director Stock Option Plan (the
"Director Plan"), which our Board of Directors and stockholders adopted in June
1997 and amended in June 2000. All of our directors who (1) are not our
employees, (2) do not beneficially own 3% or more of our outstanding stock and
(3) are not otherwise excluded by resolution of our Board of Directors (the
"Eligible Directors"), are currently eligible to participate in our Director
Plan. There are 300,000 shares of common stock reserved for issuance under our
Director Plan. Upon the election or reelection of an Eligible Director, such
director will be automatically granted an option to purchase 30,000 shares of
our common stock. Options become exercisable with respect to 10,000 shares on
each anniversary of the date of grant for a period of three years, provided that
the director is still serving on our Board of Directors at the opening of
business on such date. Each option has a term of ten years. The exercise price
for each option is equal to the last sales price for our common stock on the
business day immediately preceding the date of grant, as reported on the Nasdaq
National Market. The exercise price may be paid in cash, shares of common stock
or a combination of both.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO OUR RESTATED
CERTIFICATE OF INCORPORATION
GENERAL
Our Restated Certificate of Incorporation currently authorizes the
issuance of 49,000,000 shares of common stock and 1,000,000 shares of preferred
stock. On April 22, 2002, our Board of Directors approved an amendment to our
Restated Certificate of Incorporation to increase the number of authorized
shares of our common stock from 49,000,000 shares to 98,000,000 shares, subject
to stockholder approval.
CURRENT USE OF SHARES
As of April 1, 2002, there were 37,454,684 shares of common stock
outstanding or reserved for issuance (including shares subject to outstanding
options), with no shares held by us in treasury. This total number of shares
includes 4,996,325 shares reserved for issuance or issued under our Equity
Incentive Plan, 1,000,000 shares reserved for issuance or issued under our 2001
Employee Stock Purchase Plan and 300,000 shares reserved for issuance or issued
under our Director Plan. In addition, as described in Proposal 3 below, we are
asking the stockholders to approve an increase of 1,725,000 shares for issuance
under the Equity Incentive Plan. As of the date of this proxy statement, there
were no shares of preferred stock issued or outstanding.
10
PURPOSE OF THE PROPOSED AMENDMENT
Our Board of Directors believes that increasing the number of authorized
shares of our common stock is essential to ensure that we continue to have an
adequate number of shares of common stock available for future use. Our Board of
Directors believes that the proposed increase will make available a sufficient
number of authorized shares of common stock for future issuances including,
financings, corporate mergers and acquisitions, use in employee benefit plans,
stock splits, stock dividends or other corporate purposes. The availability of
additional shares of common stock will provide us with greater flexibility in
taking any of these actions and would allow us to issue shares of our common
stock without the delay or expense of obtaining stockholder approval, except to
the extent required by state law or Nasdaq requirements for particular
transactions. As of the date of this proxy statement, we had no agreements,
commitments or plans with respect to the sale or issuance of additional shares
of common stock, other than with respect to those shares of common stock
reserved for issuance as noted above.
EFFECTS OF THE PROPOSED AMENDMENT
The proposed amendment would increase the number of shares of our common
stock available for issuance, but would have no effect upon the terms of our
common stock or the rights of holders of our common stock. Common stockholders
are not now, and will not be, entitled to preemptive or other rights to
subscribe for additional shares of our common stock. If this proposal is
adopted, additional shares of authorized common stock (as well as all currently
authorized but unissued shares of common stock) would be available for issuance
without further action by the stockholders, subject to Nasdaq stockholder
approval requirements for certain issuances of additional shares of common
stock. While our Board of Directors will authorize the issuance of additional
shares of common stock based on its judgment as to our best interests and that
of our stockholders, future issuances of common stock could have a dilutive
effect on existing stockholders and on earnings per share. In addition, the
issuance of additional shares of common stock, as well as the availability of
preferred stock that the Board may issue on such terms as it selects, could have
the effect of making it more difficult for a third party to acquire a majority
of our outstanding voting stock.
OUR BOARD OF DIRECTORS BELIEVES THAT THE PROPOSED AMENDMENT IS IN THE BEST
INTERESTS OF US AND OUR STOCKHOLDERS AND RECOMMENDS A VOTE FOR THIS PROPOSAL.
11
PROPOSAL 3
APPROVAL OF AMENDMENT TO OUR EQUITY INCENTIVE PLAN
GENERAL
On June 26, 1997, our stockholders adopted and approved the Equity
Incentive Plan and we reserved 2,086,325 shares of common stock for issuance
under the plan. On May 26, 1999 and June 1, 2000, our stockholders approved
additional amendments to the Equity Incentive Plan to increase the number of
shares of common stock available for issuance by 900,000 and 1,585,000 shares,
respectively. On January 15, 2002, our Board of Directors approved an amendment
to the Equity Incentive Plan to increase the number of shares of common stock
available for issuance by 425,000 shares from 4,571,325 shares to 4,996,325
shares. We obtained confirmation from the Nasdaq National Market that the
increase of 425,000 shares was immaterial, and, as such, stockholder approval
was not required in order to amend the Equity Incentive Plan. Currently, the
total number of shares that we may issue under the Equity Incentive Plan is
4,996,325 shares, subject to adjustment for stock splits and similar capital
changes. As of April 1, 2002, 232,155 shares remained available for future
issuances under the Equity Incentive Plan.
PROPOSED AMENDMENT TO THE EQUITY INCENTIVE PLAN
On February 4, 2002, our Board of Directors approved an amendment to the
Equity Incentive Plan, subject to stockholder approval, to increase the number
of shares issuable under the Equity Incentive Plan by an additional 1,300,000
shares from 4,996,325 shares to 6,296,325 shares. Our Board of Directors is
requesting stockholder approval of the proposed 1,300,000 shares increase, as
well as the 425,000 share increase approved by our Board of Directors in January
2002, in order to ensure that all shares of common stock issued pursuant to
awards under the Equity Incentive Plan may be treated as incentive stock options
under the Internal Revenue Code of 1986, as amended. If the stockholders approve
the proposed amendment, the number of shares available for issuance under the
Equity Incentive Plan would be increased by a total of 1,725,000 shares. A copy
of the Equity Incentive Plan as proposed to be amended is included as Appendix B
to this proxy statement.
We need additional shares of common stock for use under the Equity
Incentive Plan to ensure that a sufficient number of shares of common stock are
available for Awards to eligible persons in the future. If this proposed
amendment is not approved by the stockholders, no grants of Awards will be made
under the Equity Incentive Plan once Awards covering the shares of our common
stock currently available under the Equity Incentive Plan are granted. The
proceeds we receive from the exercise of options under the Equity Incentive Plan
are used for general corporate purposes.
SUMMARY OF THE EQUITY INCENTIVE PLAN
The purpose of the Equity Incentive Plan is to attract and retain
employees and consultants and to provide an incentive for these persons to
achieve long-range performance goals. The Equity Incentive Plan permits us to
grant equity awards, referred to as Awards, to our employees and consultants,
including incentive and non-statutory stock options, stock appreciation rights,
performance shares, restricted stock and stock units. To date, we have granted
only incentive stock options, non-statutory stock options and restricted stock
under the Equity Incentive Plan. Any options we grant under the Equity Incentive
Plan upon assuming or substituting outstanding grants of an acquired company
will not reduce the number of
12
shares available under the plan. If the proposed amendment is approved by the
stockholders, a total of 6,296,325 shares of common stock will be reserved for
issuance under the Equity Incentive Plan.
As of April 1, 2002, Awards representing an aggregate of 5,528,004 shares
of common stock had been granted, while Awards representing 763,834 shares of
common stock had been cancelled, leaving 4,764,170 shares represented by Awards
outstanding or exercised. The closing price of our common stock as reported by
the Nasdaq National Market on April 1, 2002 was $5.66.
ADMINISTRATION AND ELIGIBILITY
The Equity Incentive Plan is administered by the Compensation Committee
of our Board of Directors. Subject to certain limitations, our Compensation
Committee may delegate to one or more of our executive officers the power to
make awards to participants who are not our executive officers subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended, or who are "covered employees" for purposes of Section 162(m) of the
Internal Revenue Code. As of April 1, 2002, there were approximately 220
employees eligible to participate in the Equity Incentive Plan.
Awards under the Equity Incentive Plan are granted at the discretion of
our Compensation Committee, which determines the recipients and establishes the
terms and conditions of each Award, including the exercise price, the form of
payment of the exercise price, the number of shares subject to the Award and the
time at which such options become exercisable. Although our Compensation
Committee has discretion in granting Awards, the exercise price of any incentive
stock option, or ISO, may not be less than 100% of the fair market value of our
common stock on the date of the grant. Nonstatutory options also are generally
granted at fair market value. The maximum number of shares subject to Awards
that may be granted to any participant within any fiscal year may not exceed
1,000,000 shares. The term of any ISO granted under the Equity Incentive Plan
may not exceed ten years, and no ISO may be granted under the Equity Incentive
Plan more than ten years from the Equity Incentive Plan's adoption. When a
participant's employment is terminated, vested options are generally cancelled
if not exercised within a specified time. An option holder may not transfer an
ISO granted under the Equity Incentive Plan other than by will or the laws of
descent and distribution. Other Awards are transferable to the extent provided
by our Compensation Committee.
EQUITY AWARDS GRANTED UNDER THE EQUITY INCENTIVE PLAN
The following table presents information with respect to options granted
under the Equity Incentive Plan since its adoption through December 31, 2001 to:
- the officers named in the Summary Compensation Table;
- all executive officers as a group;
- all non-employee directors as a group; and
- all non-executive officer employees as a group.
13
Other than the grants to non-employee directors described in "ELECTION OF
DIRECTORS -- Director Compensation," amounts of future awards under the Equity
Incentive Plan are not determinable because, under the terms of the Equity
Incentive Plan, these grants are made at the discretion of our Compensation
Committee.
<Table>
<Caption>
NAME STOCK OPTION AWARDS
- ---- -------------------
Paul R. Sohmer, M.D. ....................................... 893,000
President and Chief Executive Officer
Stephen P. Hall............................................. 100,000
Senior Vice President, Chief Financial Officer
John G.R. Hurrell, Ph.D. ................................... 100,000
Senior Vice President, TriPath Oncology, Inc.
Ray W. Swanson, Jr. ........................................ 100,000
Senior Vice President of Commercial Operations
Thomas Gahm, Ph.D. ......................................... 235,692
Vice President of Computer Science
Mary K. Norton.............................................. 183,122
Vice President of Regulatory/Government Affairs and Quality
Assurance
David H. Robison(1)......................................... 251,641
Vice President of Operations
Roger W. Martin............................................. 147,500
Vice President of Sales and Marketing(2)
Executive Officer Group (4 persons)......................... 1,193,000
Non-Employee Director Group (5 persons)(3).................. --
Non-Executive Officer Employee Group (304 persons).......... 4,318,151
</Table>
- ---------------------------
(1) Mr. Robison served as Vice President of Operations until December 31,
2001.
(2) Mr. Martin served as Vice President of Sales and Marketing until July
2001.
(3) Our non-employee directors are not eligible to receive options under the
Equity Incentive Plan. Any options granted to eligible non-employee
directors are granted under our 1997 Director Stock Option Plan.
Of the nominees for election as director, neither Mr. Cochrane nor Mr.
Sullivan has received any options under our Equity Incentive Plan. Mr. Cochrane
has received options to purchase a total of 30,000 shares under our 1997
Director Stock Option Plan for his service as a director. If elected at the 2002
annual meeting, Mr. Sullivan will also receive options to purchase a total of
30,000 shares under our 1997 Director Stock Option Plan.
14
FEDERAL INCOME TAX CONSEQUENCES RELATING TO STOCK OPTIONS
Incentive Stock Options
An optionee does not realize taxable income upon the grant or exercise an
ISO under the Equity Incentive Plan. If the optionee holds the shares issued
upon exercise of an ISO for at least:
- two years from the date of grant; and
- one year from the date of exercise,
then upon sale of the shares, any amount realized in excess of the exercise
price is taxed to the optionee as long-term capital gain and any loss sustained
will be long-term capital loss. In that event, we may not take a deduction for
federal income tax purposes. The exercise of an ISO gives rise to an adjustment
in computing alternative minimum taxable income that may result in alternative
minimum tax liability for the optionee.
If the optionee disposes of shares of common stock acquired upon the
exercise of an ISO before the end of either of the prescribed holding periods,
known as a "disqualifying disposition", then the optionee realizes ordinary
income in the year of disposition to the extent that the fair market value of
the shares on the date of exercise exceeds the exercise price, and we would be
entitled to deduct that amount. Any further gain realized by the optionee would
be taxed as a short-term or long-term capital gain and would not result in any
deduction for us. A disqualifying disposition in the year of exercise will
generally avoid the alternative minimum tax consequences of the exercise of an
ISO.
Nonstatutory Stock Options
An optionee does not realize income at the time a nonstatutory option is
granted. Upon exercise of the option, the optionee realizes ordinary income in
an amount equal to the difference between the exercise price and the fair market
value of the shares on the date of exercise. We would receive a tax deduction
for the same amount. Upon disposition of the shares, any appreciation or
depreciation after the date of exercise is treated as a short-term or long-term
capital gain or loss and will not result in any deduction for us.
An optionee who receives any accelerated vesting or exercise of options
or stock appreciation rights or accelerated lapse of restrictions on restricted
stock in connection with a change in control might be deemed to have received an
"excess parachute payment" under federal tax law. In this case, the optionee may
be subject to an excise tax, and we may be denied a tax deduction.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
15
EXECUTIVE COMPENSATION
The Compensation Committee Report on Executive Compensation and the
tables set forth below provide information about the compensation of our
executive officers.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Our executive compensation policy is designed to increase stockholder
value by attracting, retaining and motivating executive officers to maximize our
performance. Generally, we have set the salaries of our executive officers at
slightly below industry averages and provided for significant variable
compensation through stock options. Stock option grants are key components of
the executive compensation program and are intended to provide executives with
an equity interest in the Company to link a meaningful portion of the
executive's compensation with the performance of our common stock. In addition,
we also offer a cash incentive program. Various other benefits include medical,
life insurance and retirement savings plans generally available to all of our
employees.
ELEMENTS OF EXECUTIVE COMPENSATION
Base Salary
Our policy is to set base salaries of our executives at industry
averages, as determined using compensation surveys for our industry. We review
base salaries of our executives on an annual basis and may adjust them in light
of the executives' prior performance as well as independent compensation data
for our industry. Base salaries for our executive officers for fiscal year 2001
were determined after considering the base salary level of our executive
officers in prior years, and taking into account for each executive officer the
amount of base salary as a component of total compensation.
Cash Incentive Compensation
In 2001, we implemented a cash incentive program for our executive
officers. Due to our performance, however, we did not pay any cash incentives to
any of our executive officers in 2001. We believe that a cash-based incentive
plan is an appropriate means to provide our executive officers with competitive
compensation. Cash bonuses are tied directly to our financial performance and
the contribution of each executive to such performance. In order to determine
such contribution, we review and evaluate the performance of the department or
activity for which each executive has responsibility, the impact of that
department or activity on our business and the skills and experience required
for the job, coupled with a comparison of these elements with similar elements
for other executives both inside and outside the Company.
Stock Options
In general, stock options are granted to our executive officers at the
time of their hire and at such other times as we may deem appropriate. In
reviewing option grants, we use the same industry survey data as used in our
analysis of base salaries. We base our stock option award decisions upon a
comparison with the equity ownership of officers holding similar positions in
other medical technology companies, as well as upon the number of options and
shares currently held by the executive and performance factors.
16
In granting stock options, it is our goal to align the interests of our
management with those of our stockholders. In order to maintain the incentive
aspects of these grants, we have determined that a significant percentage of any
executive officer's stock options should be unvested option shares. Consistent
with this determination, we generally grant options with a four-year vesting
period and periodically review individual officer stock option holdings. We also
issue stock options to lower the overall cash cost of compensation to us.
Benefits
We provide medical, life insurance and retirement savings benefits to our
executive officers on terms generally available to all of our employees.
CHIEF EXECUTIVE OFFICER COMPENSATION
From January 1, 2001 through December 31, 2001, we paid Dr. Paul R.
Sohmer, our President and Chief Executive Officer, a base salary of $382,212. We
did not grant to Dr. Sohmer any options as part of his 2001 compensation.
However, in January 2001, we granted to Dr. Sohmer options to purchase 443,000
shares of common stock which were intended to be part of Dr. Sohmer's overall
2000 compensation, and therefore, were reported in our proxy statement for the
2001 Annual Meeting of Stockholders.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code (the "Code") limits the tax
deductibility by a public company of compensation in excess of one million
dollars paid to any of its five most highly compensated executive officers.
Outstanding stock options granted under our Equity Incentive Plan will not be
subject to the limitation under applicable regulations. Our Compensation
Committee intends to use its best efforts to structure future compensation so
that executive compensation paid by us is fully deductible in accordance with
Section 162(m) of the Code. Our Compensation Committee may, however, in a
particular case, approve compensation that may not be deductible under Section
162(m).
By the Compensation Committee,
THOMAS A. BONFIGLIO, M.D.
ROBERT E. CURRY, PH.D.
17
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation information for the
year ended December 31, 2001 for:
- our Chief Executive Officer;
- our four most highly compensated executive officers whose total
salary exceeded $100,000; and
- one additional individual for whom disclosure would have been
required but for the fact that he was not serving as an executive
officer at December 31, 2001 (together, the "Named Executive
Officers").
<Table>
<Caption>
LONG-TERM ALL OTHER
COMPENSATION COMPENSATION
ANNUAL COMPENSATION AWARDS (2)
----------------------------------------------------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#)(1)
- --------------------------- ---- ------ ----- -------------
Paul R. Sohmer, M.D. ................... 2001 $382,212 -- --(4) --
President and Chief Executive Officer 2000 $183,217(3) $125,000 893,000(4) --
Thomas Gahm, Ph.D. ..................... 2001 $194,352 -- 40,000 $5,250
Vice President of Computer Science 2000 $181,577 -- 9,948 $5,447
1999 $175,657 -- 34,209 $2,006
David H. Robison........................ 2001 $175,373(5) -- 40,000 $5,161
Vice President of Operations 2000 $170,027 -- 44,244 $5,043
1999 $170,240 -- 43,578 --
Mary K. Norton.......................... 2001 $153,846 -- 40,000 $4,615
Vice President of Regulatory/ 2000 $146,269 -- 41,945 $4,388
Government Affairs and Quality 1999 $123,157 37,959 --
Assurance
Ray W. Swanson, Jr. .................... 2001 $134,615 -- 100,000 $60,711(7)
Senior Vice President of Commercial
Operations(6)
Roger W. Martin......................... 2001 $151,264(9) -- 65,000 $74,776(10)
Vice President of Sales and 2000 $141,534 -- 9,063 $1,872
Marketing(8) 1999 $8,238(11) -- 75,000 --
</Table>
- ---------------------------
(1) Refer to the table "Option Grants in the Last Fiscal Year" below for
details concerning the terms of the options granted during 2001.
(2) Represents contributions by us to our 401(k) plan on behalf of the Named
Executive Officers.
(3) Dr. Sohmer joined us in June 2000. This number represents a portion of
Dr. Sohmer's $350,000 annual base salary that we paid to him from June
2000 until the end of 2000.
18
(4) We did not grant to Dr. Sohmer any options as part of his 2001
compensation. However, in January 2001, we granted to Dr. Sohmer options
to purchase 443,000 shares of common stock which were intended to be part
of Dr. Sohmer's overall 2000 compensation, and therefore, were reported
in our proxy statement for the 2001 Annual Meeting of Stockholders.
(5) Mr. Robison served as our Vice President of Operations until December 31,
2001.
(6) Ray W. Swanson, Jr. has served as our Senior Vice President of Commercial
Operations since May, 2001.
(7) Includes $55,461 representing a relocation expense payment we made to Mr.
Swanson.
(8) Mr. Martin served as our Vice President of Sales and Marketing until July
2001.
(9) Includes $46,350 we paid in severance payments and $10,963 we paid in
accrued vacation pay to Mr. Martin from July 2001 until the end of the
year. We paid these amounts to Mr. Martin pursuant to a severance
arrangement made at the time of Mr. Martin's departure.
(10) Includes $69,526 we paid Mr. Martin under the terms of a non-compete
agreement.
(11) Mr. Martin joined us as our Vice President of Sales and Marketing in
December 1999.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information regarding options that
we granted during the fiscal year ended December 31, 2001 to our Named Executive
Officers.
<Table>
<Caption>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(2) FISCAL YEAR PER SHARE DATE 5%(1) 10%(1)
---- ---------- ------------ -------------- ---------- -------- ----------
Paul R. Sohmer, M.D. .. -- -- -- -- -- --
Thomas Gahm, Ph.D. .... 40,000 5.49% $10.9375 01/24/11 $53,123 $343,735
David H. Robison....... 40,000 5.49% $10.9375 01/31/03(3) $0 $0
Mary K. Norton......... 40,000 5.49% $10.9375 01/24/11 $53,123 $343,735
Ray W. Swanson, Jr..... 100,000(4) 13.74% $5.46 04/29/11 $657,808 $1,384,338
Roger W. Martin........ 40,000 5.49% $10.9375 08/31/02(5) $0 $0
25,000 3.43% $10.9375 08/31/02(5) $0 $0
</Table>
- ---------------------------
(1) The dollar amounts shown in these columns are the result of calculations
at the 5% and 10% rates required by the SEC and, therefore, are not
intended to forecast possible future appreciation, if any, in the price of
the underlying common stock. No gain to the optionee is possible without
an increase in price of the underlying common stock, which will benefit
all stockholders proportionately.
19
(2) Unless otherwise noted, we granted these options on January 24, 2001. They
become exercisable as to 1/48th of the shares on the first day of each
month following the date of grant.
(3) These options expire in 2003 due to the option holders' termination of
employment with us in 2002. Under the terms of the option, if we terminate
the option holder as an employee or consultant for any reason other than
for cause, then the option holder has the right to exercise his options
within 12 months from the date of termination.
(4) We granted these options on April 29, 2001. They become exercisable as to
1/48th of the shares on the first day of each month following the date of
grant.
(5) These options expire in 2002 due to the option holders' termination of
employment with us in 2001. Under the terms of the option, if we terminate
the option holder as an employee or consultant for any reason other than
for cause, then the option holder has the right to exercise his options
within 12 months from the date of termination.
20
COMPARATIVE STOCK PERFORMANCE GRAPH
The following graph shows the cumulative stockholder return of our common
stock from September 5, 1997 (the first trading day for our common stock)
through December 31, 2001 as compared with that of the Nasdaq (U.S. Companies)
Index and the Hambrecht & Quist Healthcare Section Excluding Biotech Index. The
total stockholder return is measured by dividing the per share price change of
the respective securities, plus dividends, if any, for each fiscal year shown by
the share price at the end of the particular fiscal year. The graph assumes the
investment of $100 in our common stock and each of the comparison groups on
September 5, 1997 and assumes the reinvestment of dividends. We have never
declared a dividend on our common stock. The stock price performance depicted in
the graph below is not necessarily indicative of future price performance.
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG TRIPATH IMAGING, INC.,
NASDAQ (U.S. COMPANIES) INDEX AND HAMBRECHT &
QUIST HEALTHCARE SECTION-EXCLUDING BIOTECH INDEX
<Table>
<Caption>
(PERFORMANCE CHART)
9/5/1997 12/31/1997 12/31/1998 12/31/1999 12/31/2000 12/31/2001
-------- ---------- ---------- ---------- ---------- ----------
TriPath Imaging, Inc. $ 100.00 $ 71.25 $ 41.88 $ 41.25 $ 87.50 $ 75.30
Nasdaq Stock Market (U.S.) $ 100.00 $ 96.20 $ 135.17 $ 244.19 $ 151.64 $ 120.20
H&Q Healthcare-Excluding
Biotech $ 100.00 $ 101.95 $ 123.87 $ 108.23 $ 169.30 $ 167.01
</Table>
21
COMPENSATION COMMITTEE INTERLOCKS,
INSIDER PARTICIPATION AND CERTAIN TRANSACTIONS
Our Compensation Committee consists of Drs. Bonfiglio and Curry, neither
of whom is an executive officer. Dr. Curry is a consultant to DLJ Capital
Corporation ("DLJ Capital"), a wholly-owned subsidiary of Credit Suisse First
Boston (USA), Inc. DLJ Capital is the managing general partner of Sprout Capital
VII, L.P. and Sprout CEO Fund, L.P., and acts as attorney-in-fact with respect
to DLJ Capital's direct and indirect investments in us. Together, these entities
are one of our principal stockholders.
REPORT OF THE AUDIT COMMITTEE
In the course of its oversight of our financial reporting process, the
Audit Committee of our Board of Directors has:
- reviewed and discussed with our management and Ernst & Young LLP, our
independent auditor, our audited financial statements for the fiscal
year ended December 31, 2001;
- discussed with our auditor the matters required to be discussed by
Statement on Auditing Standards No. 61, Communication with Audit
Committees;
- received the written disclosures and the letter from our auditor
required by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees;
- reviewed with our management and our auditor our critical accounting
policies;
- discussed with our auditor the quality and adequacy of our internal
controls;
- discussed with our auditor any relationships that may impact its
objectivity and independence; and
- considered whether the provision of non-audit services by our auditor
is compatible with maintaining their independence.
Based on the foregoing review and discussions, our Audit Committee
recommended to our Board of Directors that the audited financial statements be
included in our Annual Report on Form 10-K for the year ended December 31, 2001
for filing with the SEC.
Our Audit Committee has also reviewed and recommended revision of the
Audit Committee Charter, the current form of which is attached to this proxy
statement as Appendix A.
By the Audit Committee,
HAYWOOD D. COCHRANE, JR.
RICHARD A. CHARPIE, PH.D.
DAVID A. THOMPSON
22
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our
directors, our executive officers and persons who own beneficially more than 10%
of our common stock file initial reports of ownership and changes in ownership
of our securities with the SEC. Section 16(a) also requires these individuals to
furnish us with copies of all Section 16(a) reports that they file.
To our knowledge, based solely on a review of the copies of reports
furnished to us and written representations that no other reports were required,
we believe that during our 2001 fiscal year, our directors, executive officers,
and 10% beneficial owners complied with all applicable Section 16(a) filing
requirements, except that (1) one report covering one transaction was not filed
as required on behalf of Richard A. Charpie in 2001, but the transaction was
later reported on a Form 5 in February 2002, (2) one report covering one
transaction was not filed as required in 2001 on behalf of Ms. Norton, but the
transaction was later reported on a Form 4 in April 2001, and (3) one report
covering one transaction was not filed as required in 2001 on behalf of Mr.
Robison, but the transaction was later reported on a Form 4 in April 2001.
INFORMATION CONCERNING AUDITORS
The firm of Ernst & Young LLP, independent accountants, has audited our
accounts since our inception and will do so for 2002. Our Board of Directors has
appointed Ernst & Young LLP to serve as our independent auditors for the fiscal
year ending December 31, 2002. Representatives of Ernst & Young LLP are expected
to attend the annual meeting to respond to appropriate questions, and will have
the opportunity to make a statement if they desire.
The fees for services provided by Ernst & Young LLP to us in 2001 were as
follows:
<Table>
Audit Fees $121,745
All Other Services $ 85,940
</Table>
STOCKHOLDER PROPOSALS FOR THE 2003 ANNUAL MEETING
In order to be considered for inclusion in our proxy materials for the
2003 Annual Meeting of Stockholders, we must receive stockholder nominations of
persons for election to our Board of Directors and proposals of business to be
considered by our stockholders no later than December 25, 2002. Proposals should
be sent to the attention of our Assistant Secretary at our offices at 780
Plantation Drive, Burlington, North Carolina 27215.
ADVANCE NOTICE PROVISIONS FOR
STOCKHOLDER PROPOSALS AND NOMINATIONS
Our by-laws provide that in order for a stockholder to bring business
before, or propose director nominations at an annual meeting, the stockholder
must give written notice to our Assistant Secretary not less than 50 days nor
more than 75 days prior to the meeting. The notice must contain specified
information about the proposed business or each nominee and the stockholder
making the proposal or nomination. Assuming that the 2003 Annual Meeting of
Stockholders is to be held on May 23, 2003, notice of stockholder proposals must
be received no earlier than March 9, 2003, and no later than April 5, 2003.
However, if we give our stockholders less than 65 days notice or prior public
disclosure of the date of
23
the annual meeting, the notice given by the stockholder must be received by us
not later than the 15th day following the day on which the notice of such annual
meeting date was mailed or public disclosure made, whichever first occurs.
OTHER MATTERS
Copies of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2001 as filed with the SEC are available to stockholders upon
written request addressed to our Assistant Secretary at our offices at 780
Plantation Drive, Burlington, North Carolina 27215.
24
Appendix A
TRIPATH IMAGING, INC.
AUDIT COMMITTEE CHARTER
PURPOSE
The principal purpose of the Audit Committee is to assist the Board of
Directors in fulfilling its responsibility to oversee management's conduct of
the Company's financial reporting process, including by reviewing the financial
reports and other financial information provided by the Company, the Company's
systems of internal accounting and financial controls, and the annual
independent audit process.
In discharging its oversight role, the Committee is granted the power to
investigate any matter brought to its attention with full access to all books,
records, facilities and personnel of the Company and the power to retain outside
counsel, auditors or other experts for this purpose. The outside auditor is
ultimately accountable to the Board and the Committee, as representatives of the
stockholders. The Board and the Committee shall have the ultimate authority and
responsibility to select, evaluate and, where appropriate, replace the outside
auditor. The Committee shall be responsible for overseeing the independence of
the outside auditor.
This Charter shall be reviewed for adequacy on an annual basis by the
Board.
MEMBERSHIP
The Committee shall be comprised of not less than three members of the
Board, and the Committee's composition will meet the requirements of the Nasdaq
Audit Committee Requirements. Accordingly, all of the members will be directors:
- Who have no relationship to the Company that may interfere with the
exercise of their independence from management and the Company; and
- Who are financially literate or who become financially literate
within a reasonable period of time after appointment to the
Committee.
In addition, at least one member of the Committee will have accounting or
related financial management expertise.
KEY RESPONSIBILITIES
The Committee's role is one of oversight, and it is recognized that the
Company's management is responsible for preparing the Company's financial
statements and that the outside auditor is responsible for auditing those
financial statements.
The following functions shall be the common recurring activities of the
Committee in carrying out its oversight role. The functions are set forth as a
guide and may be varied from time to time as appropriate under the
circumstances.
- The Committee shall review with management and the outside auditor
the audited financial statements to be included in the Company's
Annual Report on Form 10-K and the Annual
A-1
Report to Stockholders, and shall review and consider with the
outside auditor the matters required to be discussed by Statement on
Auditing Standards No. 61.
- As a whole, or through the Committee chair, the Committee shall
review with the outside auditor, prior to filing with the SEC, the
Company's interim financial information to be included in the
Company's Quarterly Reports on Form 10-Q and the matters required to
be discussed by SAS No. 61.
- The Committee shall periodically discuss with management and the
outside auditor the quality and adequacy of the Company's internal
controls and internal auditing procedures and discuss with the
outside auditor how the Company's financial systems and controls
compare with best practices of the industry.
- The Committee shall periodically review with management and the
outside auditor the quality, as well as the acceptability, of the
Company's accounting policies and discuss with the outside auditor
how the Company's financial systems and controls compare with best
practices of the industry.
- The Committee shall review with management and the outside auditor
the Company's accounting policies, which may be viewed as critical.
- The Committee shall request from the outside auditor annually a
formal written statement delineating all relationships between the
auditor and the Company consistent with Independence Standards Board
Standard No. 1, discuss with the outside auditor any such disclosed
relationships and their impact on the outside auditor's independence,
and take or recommend that the Board take appropriate action
regarding the independence of the outside auditor.
- The Committee shall be consulted regarding retention of the outside
auditor to perform any significant non-audit services for the Company
and the effect of such retention on the outside auditor's
independence.
- The Committee, subject to any action that may be taken by the Board,
shall have the ultimate authority and responsibility to select (or
nominate for stockholder approval), evaluate and, where appropriate,
replace the outside auditor.
- The Committee shall review with management and the outside auditor
any material financial or other arrangements of the Company which do
not appear on the Company's financial statements and any transactions
or courses of dealing with third parties that are significant in size
or involve terms or other aspects that differ from those that would
likely be negotiated with independent parties and which arrangements
or transactions are relevant to an understanding of the Company's
financial statements.
- Any issue of significant financial misconduct shall be brought to the
attention of the Committee for its consideration.
The Committee shall report to the Board whether, based on the foregoing
reviews and discussions, the Committee recommends that the financial statements
be included in the Company's Annual Report on Form 10-K.
A-2
Appendix B
TRIPATH IMAGING, INC.
AMENDED AND RESTATED
1996 EQUITY INCENTIVE PLAN
1. Purpose.
The purpose of the TriPath Imaging, Inc. 1996 Amended and Restated Equity
Incentive Plan (the "Plan") is to attract and retain key personnel of the
Company and its Affiliates, to provide an incentive for them to achieve
long-range performance goals, and to enable them to participate in the long-
term growth of the Company by granting Awards with respect to the Company's
Common Stock.
2. Administration.
The Plan shall be administered by the Committee, provided that the Board
may in any instance perform any of the functions delegated to the Committee
hereunder. The Committee shall select the Participants to receive Awards and
shall determine the terms and conditions of the Awards. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The Committee's
decisions shall be final and binding. To the extent permitted by applicable law,
the Committee may delegate to one or more executive officers of the Company the
power to make Awards to Participants who are not Reporting Persons or Covered
Employees and all determinations under the Plan with respect thereto, provided
that the Committee shall fix the maximum amount of such Awards for all such
Participants and a maximum for any one Participant.
3. Eligibility.
All employees, directors and consultants of the Company or any Affiliate
capable of contributing significantly to the successful performance of the
Company, other than a person who has irrevocably elected not to be eligible, are
eligible to be Participants in the Plan. Incentive Stock Options may be granted
only to persons eligible to receive such Options under the Code.
4. Stock Available for Awards.
(a) Amount. Subject to adjustment under subsection (b), Awards may be
made under the Plan for up to 6,296,325 shares of Common Stock. If any Award
expires or is terminated unexercised or is forfeited or settled in a manner that
results in fewer shares outstanding than were awarded, the shares subject to
such Award, to the extent of such expiration, termination, forfeiture or
decrease, shall again be available for award under the Plan. Common Stock issued
through the assumption or substitution of outstanding grants from an acquired
company shall not reduce the shares available for Awards under the Plan. Shares
issued under the Plan may consist in whole or in part of authorized but unissued
shares or treasury shares.
(b) Adjustment. In the event that the Committee determines that any
stock dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off,
B-1
combination, exchange of shares or other transaction affects the Common Stock
such that an adjustment is required in order to preserve the benefits intended
to be provided by the Plan, then the Committee (subject in the case of Incentive
Stock Options to any limitation required under the Code) shall equitably adjust
any or all of (i) the number and kind of shares in respect of which Awards may
be made under the Plan, (ii) the number and kind of shares subject to
outstanding Awards, (iii) the exercise price with respect to any of the
foregoing, and (iv) if considered appropriate, the Committee may make provision
for a cash payment with respect to an outstanding Award; provided that in the
case (i) or (ii) above the number of shares subject to any Award shall always be
a whole number.
(c) Limit on Individual Grants. The maximum number of shares of Common
Stock subject to Options and Stock Appreciation Rights that may be granted to
any Participant in the aggregate in any calendar year shall not exceed 1,000,000
shares, subject to adjustment under subsection (b).
5. Stock Options.
(a) Grant of Options. Subject to the provisions of the Plan, the
Committee may grant options ("Options") to purchase shares of Common Stock
complying with the requirements of Section 422 of the Code or any successor
provision and any regulations thereunder ("Incentive Stock Options") and (ii)
not intended to comply with such requirements ("Nonstatutory Stock Options").
The Committee shall determine the number of shares subject to each Option and
the exercise price therefor, which in the case of Incentive Stock Options shall
not be less than 100% of the Fair Market Value of the Common Stock on the date
of grant. No Incentive Stock Option may be granted hereunder more than ten years
after the effective date of the Plan.
(b) Terms and Conditions. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Committee may specify in
the applicable grant or thereafter. The Committee may impose such conditions
with respect to the exercise of Options, including conditions relating to
applicable federal or state securities laws, as it considers necessary or
advisable.
(c) Payment. Payment for shares to be delivered pursuant to any
exercise of an Option may be made in whole or in part in cash or, to the extent
permitted by the Committee at or after the grant of the Option, by delivery of a
note or other commitment satisfactory to the Committee or shares of Common Stock
owned by the optionee, including Restricted Stock, or by retaining shares
otherwise issuable pursuant to the Option, in each case valued at their Fair
Market Value on the date of delivery or retention, or such other lawful
consideration as the Committee may determine.
6. Stock Appreciation Rights.
(a) Grant of SARs. Subject to the provisions of the Plan, the Committee
may grant rights to receive any excess in value of shares of Common Stock over
the exercise price ("Stock Appreciation Rights" or "SARs") in tandem with an
Option (at or after the award of the Option), or alone and unrelated to an
Option. SARs in tandem with an Option shall terminate to the extent that the
related Option is exercised, and the related Option shall terminate to the
extent that the tandem SARs are exercised. The Committee shall determine at the
time of grant or thereafter whether SARs are settled in cash, Common Stock or
other securities of the Company, Awards or other property, and may define the
manner of determining the excess in value of the shares of Common Stock.
B-2
(b) Exercise Price. The Committee shall fix the exercise price of each
SAR or specify the manner in which the price shall be determined. An SAR granted
in tandem with an Option shall have an exercise price not less than the exercise
price of the related Option. An SAR granted alone and unrelated to an Option may
not have an exercise price less than 100% of the Fair Market Value of the Common
Stock on the date of the grant, provided that such an SAR granted to a new
employee or consultant within 90 days of the date of employment may have a lower
exercise price so long as it is not less than 100% of Fair Market Value on the
date of employment.
7. Restricted Stock.
(a) Grant of Restricted Stock. Subject to the provisions of the Plan,
the Committee may grant shares of Common Stock subject to forfeiture
("Restricted Stock") and determine the duration of the period (the "Restricted
Period") during which, and the conditions under which, the shares may be
forfeited to the Company and the other terms and conditions of such Awards.
Shares of Restricted Stock may be issued for no cash consideration, such minimum
consideration as may be required by applicable law or such other consideration
as the Committee may determine.
(b) Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered, except as permitted by the
Committee, during the Restricted Period. Notwithstanding the foregoing, in the
Committee's discretion, Awards in the form of Restricted Stock may be made
transferable to a limited liability corporation controlled solely by the
Participant. Shares of Restricted Stock shall be evidenced in such manner as the
Committee may determine. Any certificates issued in respect of shares of
Restricted Stock shall be registered in the name of the Participant and unless
otherwise determined by the Committee, deposited by the Participant, together
with a stock power endorsed in blank, with the Company. At the expiration of the
Restricted Period, the Company shall deliver such certificates to the
Participant or if the Participant has died, to the Participant's Designated
Beneficiary.
8. General Provisions Applicable to Awards.
(a) Reporting Person Limitations. Notwithstanding any other provision
of the Plan, Awards made to a Reporting Person shall not be transferable by such
person other than by will or the laws of descent and distribution and are
exercisable during such person's lifetime only by such person or by such
person's guardian or legal representative. Awards, unless Incentive Stock
Options, may also be made transferable pursuant to a domestic relations order as
defined in the Code or Title I of the Employee Retirement Income Security Act or
the rules thereunder.
(b) Documentation. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or to comply with applicable tax and regulatory
laws and accounting principles.
(c) Committee Discretion. Each type of Award may be made alone, in
addition to or in relation to any other Award. The terms of each type of Award
need not be identical, and the Committee need not treat Participants uniformly.
Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of grant or at any time thereafter.
B-3
(d) Dividends and Cash Awards. In the discretion of the Committee, any
Award under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest and (ii) cash
payments in lieu of or in addition to an Award.
(e) Termination of Employment. The Committee shall determine the effect
on an Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
(f) Change in Control. In order to preserve a Participant's rights
under an Award in the event of a "change in control" (as defined by the
Committee) of the Company, the Committee in its discretion may, at the time an
Award is made or at any time thereafter, take one or more of the following
actions: (i) provide for the acceleration of any time period relating to the
exercise or payment of the Award, (ii) provide for payment to the Participant of
cash or other property with a Fair Market Value equal to the amount that would
have been received upon the exercise or payment of the Award had the Award been
exercised or paid upon the change in control, (iii) adjust the terms of the
Award in a manner determined by the Committee to reflect the change in control,
(iv) cause the Award to be assumed, or new rights substituted therefor, by
another entity, or (v) make such other provision as the Committee may consider
equitable to Participants and in the best interests of the Company.
(g) Loans. The Committee may authorize the making of loans or cash
payments to Participants in connection with the grant or exercise of any Award
under the Plan, which loans may be secured by any security, including Common
Stock, underlying or related to such Award (provided that the loan shall not
exceed the Fair Market Value of the security subject to such Award), and which
may be forgiven upon such terms and conditions as the Committee may establish at
the time of such loan or at any time thereafter.
(h) Withholding Taxes. The Participant shall pay to the Company, or
make provision satisfactory to the Committee for payment of, any taxes required
by law to be withheld in respect of Awards under the Plan no later than the date
of the event creating the tax liability. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
(i) Foreign Nationals. Awards may be made to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or to comply with
applicable laws.
(j) Amendment of Award. The Committee may amend, modify or terminate
any outstanding Award, including substituting therefor another Award of the same
or a different type, changing the date of exercise or realization and converting
an Incentive Stock Option to a Nonstatutory Stock Option, provided that no award
may be modified, repriced, replaced or regranted through cancellation without
shareholder approval (except in connection with a change in the Company's
capitalization), if the effect of such modification or cancellation would be to
reduce the exercise price for the shares underlying such award, and, provided,
further, that any such action shall require the Participant's consent unless:
(i) in the case of a termination of, or a reduction in the number of
shares issuable under, an Option, any time period relating to the
exercise of such Option or the eliminated portion, as the case may be, is
waived or accelerated before such termination or reduction (and in such
case the
B-4
Committee may provide for the Participant to receive cash or other
property equal to the net value that would have been received upon
exercise of the terminated Option or the eliminated portion, as the case
may be); or
(ii) in any other case, the Committee determines that the action, taking
into account any related action, would not materially and adversely
affect the Participant.
9. Certain Definitions.
"Affiliate" means any business entity in which the Company owns directly
or indirectly 50% or more of the total voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right or Restricted Stock
granted under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor law.
"Committee" means one or more committees each comprised of not less than
two members of the Board appointed by the Board to administer the Plan or a
specified portion thereof. If the Committee is authorized to grant Options to a
Reporting Person or a Covered Employee, each member shall be a "Non-Employee
Director" or the equivalent within the meaning of Rule 16b-3 under the Exchange
Act or an "outside director" or the equivalent within the meaning of Section
162(m) of the Code, respectively. In the event no such Committee is appointed,
then "Committee" means the Board.
"Common Stock" means the Common Stock, $0.01 par value, of the Company.
"Company" means TriPath Imaging, Inc., a Delaware corporation.
"Covered Employee" means a person whose income is subject to Section
162(m) of the Code.
"Designated Beneficiary" means the beneficiary designated by a
Participant, in a manner determined by the Committee, to receive amounts due or
exercise rights of the Participant in the event of the Participant's death. In
the absence of an effective designation by a Participant, "Designated
Beneficiary" means the Participant's estate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor law.
"Fair Market Value" means, with respect to the Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Participant" means a person selected by the Committee to receive an
Award under the Plan.
"Reporting Person" means a person subject to Section 16 of the Exchange
Act.
B-5
10. Miscellaneous.
(a) No Right To Employment. No person shall have any claim or right to
be granted an Award. Neither the Plan nor any Award hereunder shall be deemed to
give any employee the right to continued employment or to limit the right of the
Company to discharge any employee at any time.
(b) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
under the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(c) Effective Date. This Amended and Restated 1996 Equity Incentive
Plan became effective on June 26, 1997.
(d) Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, subject to such stockholder approval as
the Board determines to be necessary or advisable to comply with any tax or
regulatory requirement.
(e) Governing Law. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of Delaware.
******************
This Plan was approved by the Board of Directors on November 22, 1996.
This Plan was amended by the Board of Directors on May 19, 1997.
This Plan, as amended, was approved by the stockholders on June 26, 1997.
This Plan was amended and restated by the Board of Directors on June 24, 1997.
This Plan, as amended and restated, was approved by the stockholders on June 26,
1997.
This Plan was amended by the Board of Directors on February 2, 1999.
This Plan, as amended, was approved by the stockholders on May 26, 1999.
This Plan, as amended, was approved by the stockholders on June 1, 2000.
This Plan was amended by the Board of Directors on January 15, 2002.
This Plan was amended by the Board of Directors on February 4, 2002.
This Plan was amended by the Board of Directors on April 22, 2002.
This Plan, as amended, was approved by the stockholders on , 2002.
B-6
TRIPATH IMAGING, INC.
780 PLANTATION DRIVE
BURLINGTON, NORTH CAROLINA 27215
(336) 222-9707
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
MAY 23, 2002
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of TriPath Imaging, Inc. ("TriPath Imaging")
hereby appoints Paul R. Sohmer, M.D., Stephen P. Hall and James T. Barrett, and
each of them acting singly, the attorneys and proxies of the undersigned, with
full power of substitution, to vote on behalf of the undersigned all of the
shares of capital stock of TriPath Imaging that the undersigned is entitled to
vote at the Annual Meeting of Stockholders of TriPath Imaging to be held
Thursday, May 23, 2002, and at all adjournments thereof, hereby revoking any
proxy heretofore given with respect to such shares.
MARK HERE FOR ADDRESS CHANGE AND NOTE ON REVERSE [ ]
PLEASE SIGN AND MAIL YOUR PROXY TODAY
(Continued and to be signed on reverse side.)
[SEE REVERSE SIDE]
[X] Please mark your votes as in this example.
1. Proposal to elect two members of TriPath Imaging's Board of Directors to
serve for three-year terms as Class II Directors.
[ ] FOR all nominees [ ] WITHHOLD for all nominees [ ] FOR all nominees,
except:
Nominees:
Haywood D. Cochrane, Jr.
Robert L. Sullivan
2. Proposal to approve an amendment to TriPath Imaging's Restated Certificate of
Incorporation to increase the number of shares of TriPath Imaging common
stock that TriPath Imaging may issue by 49,000,000 shares from 49,000,000 to
98,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve an amendment to TriPath Imaging's Amended and Restated
1996 Equity Incentive Plan to increase the aggregate number of shares of
TriPath Imaging common stock available for issuance pursuant to awards under
the plan by 1,725,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ALL PROPOSALS. IN THEIR DISCRETION, THE PROXIES ARE ALSO AUTHORIZED TO
VOTE UPON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Signature:
--------------------------------
Date:
-------------------------------------
Signature:
--------------------------------
Date:
-------------------------------------
NOTE: Please sign exactly as name appears on
stock certificate. When shares are held by
joint tenants, both should sign. When
signing as attorney, executor,
administrator, trustee, or guardian, please
give full title as such. If a corporation,
please sign in full corporate name by
President or other authorized officer. If a
partnership, please sign in partnership name
by authorized person.