TriPath Imaging, Inc. 780 Plantation Drive Burlington, NC 27215 June 26, 2006

 

Exhibit 10.2
TriPath Imaging, Inc.
780 Plantation Drive
Burlington, NC 27215

June 26, 2006
Dr. Paul R. Sohmer, M.D.
c/o TriPath Imaging, Inc.
780 Plantation Drive
Burlington, NC 27215


Dear Paul:
     In recognition of the fact that your contributions to the past and future growth and successof TriPath Imaging, Inc. (the “Company”), a Delaware corporation, and its affiliates have been andare expected to be substantial, we want to assure the Company of your continued services for thebenefit of the Company, particularly in the face of a change-in-control of the Company.
     This letter agreement (this “Agreement”) therefore sets forth those benefits which the Companywill provide to you and your obligations to the Company in the event your employment within theCompany is terminated in connection with a “Change in Control” (as defined in Section 2(i)) of theCompany under the circumstances described below.
     It is hereby acknowledged that certain terms related to the acceleration of vesting of optionsto purchase 450,000 shares and 400,000 shares of the Company’s Common Stock granted to you on June6, 2000 and January 24, 2001, respectively (the “Prior Option Grants”), are governed by an offerletter dated June 5, 2000 (the “Offer Letter”) between you and the Company. Notwithstanding theterms of the Offer Letter, the provisions of Section 4(iv)(d) and Section 7 hereof shallnonetheless apply to the Prior Option Grants.
1.   TERM.
     This agreement shall expire on August 3, 2008; provided, however, that if aChange in Control should occur while you are still an employee of the Company, then this Agreementshall continue in effect from the date of such Change in Control for so long as you remain anemployee of the Company, but in no event for more than twenty-four (24) months following suchChange in Control (such 24-month period hereinafter called the “Change in Control Period”);provided, further, if your employment is terminated by the Company without Cause(defined below) prior to a Change in Control, this Agreement shall expire 180 days after the datethat your employment is terminated. In addition, this Agreement may be terminated by the Companyat any time prior to a Change in Control upon one year’s written notice to you. The termination orexpiration of the term of this Agreement shall not adversely affect your rights

 


 

Dr. Paul R. Sohmer, M.D.
June 26, 2006
Page 2

under this Agreement that have accrued prior to any such termination or expiration, except tothe extent provided for in Section 7.
2.   CHANGE IN CONTROL.
     (i) For purposes of this Agreement, a “Change in Control” means the consummation and closingof an event or occurrence set forth in either or both of clauses (a) and (b) below (including theconsummation and closing of an event or occurrence that constitutes a Change in Control under oneclause but is specifically exempted from the other clause):
          (a) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3)or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (a “Person”)of beneficial ownership of any capital stock of the Company if, after such acquisition, such Personbeneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or moreof either (A) the then-outstanding shares of common stock of the Company (the “Outstanding CompanyCommon Stock”) or (B) the combined voting power of the then-outstanding securities of the Companyentitled to vote generally in the election of directors (the “Outstanding Company VotingSecurities”); provided, however, that for purposes of this paragraph (a), the followingacquisitions shall not constitute a Change in Control: (I) any acquisition directly from theCompany (excluding an acquisition pursuant to the exercise, conversion of exchange of any securityexercisable for, convertible into or exchangeable for common stock or voting securities of theCompany, unless the Person exercising, converting or exchanging such security acquired suchsecurity directly from the Company or an underwriter or agent of the Company), (II) any acquisitionby the Company, (III) any acquisition by any employee benefit plan (or related trust) sponsored ormaintained by the Company or any corporation controlled by the Company, or (IV) any acquisition byany corporation pursuant to a transaction which complies with subclause (A) of clause (b) of thisSection 2(i); or
          (b) the consummation of a merger, consolidation, reorganization, recapitalization or statutoryshare exchange involving the Company or a sale, lease, exchange or other disposition of all orsubstantially all of the assets of the Company (a “Business Combination”), unless, immediatelyfollowing such Business Combination, (A) all or substantially all of the individuals and entitieswho were the beneficial owners of the Outstanding Company Common Stock and Outstanding CompanyVoting Securities immediately prior to such Business Combination beneficially own, directly orindirectly, more than 50% of the then-outstanding shares of common stock and the combined votingpower of the then outstanding securities entitled to vote generally in the election of directors,respectively, of the resulting or acquiring corporation in such Business Combination (which shallinclude, without limitation, a corporation which as a result of such transaction owns the Companyor substantially all of the Company’s assets either directly or through one or more subsidiaries)(such resulting or acquiring corporation is referred to herein as the “Acquiring Corporation”) insubstantially the same proportions as their ownership, immediately prior to such BusinessCombination, of the Outstanding Company Stock and Outstanding Company Voting Securities,respectively.

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3.   TERMINATION FOLLOWING CHANGE IN CONTROL.
     If a Change in Control shall have occurred while you are still an employee of the Company, orafter events and within the time period as stated in Section 3(vi), you shall be entitled to thepayments and benefits provided in Section 4 hereof upon the subsequent termination of youremployment within twenty-four (24) months of such Change in Control, by you or by the Companyunless such termination is (a) by the Company for “Cause” (as defined below), or (b) by you otherthan for “Good Reason” (as defined below), in any of which events you shall not be entitled toreceive benefits under this Agreement.
     (i) “Disability”. If, as a result of your incapacity due to physical or mentalillness, you shall have been deemed “disabled” by (A) the institution appointed by the Company toadminister the Company’s long-term disability plan (or successor plan) for your benefit or, (B) inthe absence of such an institution or in the event that you are not covered by a long-termdisability plan of the Company, the Company acting in good faith.
     (ii) “Cause”. For the purpose of this Agreement, the Company shall have “Cause” toterminate your employment upon:
          (a) The willful and continued failure by you substantially to perform your duties with theCompany (other than any such failure resulting from your incapacity due to physical or mentalillness or any failure resulting from your terminating your employment with the Company for “GoodReason” (as defined below));
          (b) Willful gross misconduct or dishonesty, including fraud or embezzlement related to theperformance of your duties with the Company or that which would be reasonably likely to cause, asdetermined in good faith by the Board of Directors of the Company: (A) a material adverse affect onthe business or reputation of the Company, or (B) expose the Company to a material risk of civil orcriminal legal damages, liabilities or penalties; or
          (c) Conviction (or a plea of guilty or no contest) of a felony or a crime involving moralturpitude.
     (iii) “Good Reason”. You may terminate your employment for Good Reason. For purposesof this Agreement, “Good Reason” shall mean without your express written consent:
          (a) The material diminution of your duties with the Company from those in effect immediatelyprior to the Change in Control;
          (b) A continuing requirement that you perform duties that are materially inconsistent with andwhich would have a material adverse impact on your title, position, authority, duties orresponsibilities in effect immediately prior to the Change in Control;
          (c) A reduction by the Company in your base salary as in effect immediately prior to theChange in Control;
          (d) A reduction in the level of your bonus opportunities or the degree of probability of yourattainment of such opportunities as in effect immediately prior to the Change

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June 26, 2006
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in Control, unless there is a corresponding increase in your base salary or your equitycompensation opportunities; provided, however, that this clause shall not prohibitthe Board or the Company’s Compensation Committee from changing the general business criteria orspecific performance goals used to establish or determine bonus opportunities in a mannerconsistent with this clause;
          (e) A material reduction in your health, disability, life insurance, or retirement benefits asin effect immediately prior to the Change in Control determined in the aggregate; provided,however, that any changes in insurance companies, co-payments, deductibles, premiums, orcoverages shall not constitute a material reduction if such changes are generally applicable to allfull-time employees of the Company;
          (f) Any requirement by the Company that the location at which you perform your principalduties for the Company be changed to a new location that is more than 100 miles from the locationat which you perform your principal duties for the Company immediately prior to the Change inControl; or
          (g) Any failure by the Company to comply with and satisfy Section 14(i) of this Agreement.
     (iv) Notice of Termination. Any termination by the Company pursuant to subparagraphs(i) or (ii) above or by you pursuant to subparagraph (iii) above shall be communicated by writtenNotice of Termination to the other party hereto. For purposes of this Agreement, a “Notice ofTermination” shall mean a notice which shall indicate the specific termination provision in thisAgreement relied upon and shall set forth in reasonable detail the facts and circumstances claimedto provide a basis of your termination under the provision so indicated. If you are terminatingyour employment pursuant to subparagraph (iii) above, the Notice of Termination shall be deliveredto the Company within thirty (30) days following the date on which the facts and circumstancesexisted that gave rise to your right to terminate your employment for Good Reason and at least ten(10) business days prior to your proposed Date of Termination. Such notice shall indicate thespecific provision or provisions in this Agreement upon which you have relied to make suchdetermination and shall set forth in reasonable detail the facts and circumstances claimed toprovide a basis for such determination. If the facts and circumstances that give rise to yourright to terminate for Good Reason present a curable condition, the Company shall have ten (10)business days after receipt of the Notice of Termination to cure such condition.
     (v) Date of Termination. “Date of Termination” shall mean:
          (a) If this Agreement is terminated for Disability, thirty days after Notice of Termination isgiven (provided that you shall not have returned to the performance of your duties on a full-timebasis during such thirty-day period);
          (b) If your employment is terminated pursuant to subparagraph (iii) above, the date specifiedin the Notice of Termination, which shall be no less than ten (10) business days after the date onwhich the Notice of Termination is delivered; and

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Dr. Paul R. Sohmer, M.D.
June 26, 2006
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          (c) If your employment is terminated for any other reason, the date on which a Notice ofTermination is given (or, if a Notice of Termination is not given, the date of such termination).
     (vi) Termination in Anticipation of a Change in Control. If your employment isterminated by the Company without Cause within 180 days prior to a Change in Control and suchtermination (i) was at the request of a third party who had indicated an intention or had takensteps reasonably calculated to effect a Change in Control and who subsequently effectuates a Changein Control or (ii) otherwise occurred as a condition to, or in anticipation of, a Change in Controlwhich actually occurs, then for all purposes of this Agreement, the date of a Change in Control forpurposes of this Agreement shall mean the date immediately prior to the date of such termination ofyour employment and shall entitle you to the benefits provided under Section 4 of this Agreement asthough it were a termination without Cause after a Change in Control.
4.   COMPENSATION UPON DEATH, DURING DISABILITY OR UPON TERMINATION IN CONNECTION WITH A CHANGEIN CONTROL.
     (i) If, after a Change in Control, your employment is terminated by reason of your death, yourlegal representatives shall receive an amount equal to the payments described in Section 4(iv)(a)below. Additionally, your eligible dependents may elect to continue their health care benefitsunder COBRA, as described in and in accordance with Section (4)(iv)(b) below. Notwithstandinganything herein to the contrary, all payments made pursuant to Section 4(iv)(a) and any cashpayments made pursuant to Section 4(iv)(b), if any, shall be paid in accordance with the Company’sregular payroll practices applicable to you for a period of twelve (12) months following yourdeath, with the remaining balance paid in a lump sum at the end of the twelfth month following yourdeath, less applicable tax withholding, beginning with the next regular pay date applicable to youfollowing your death.
     (ii) If, after a Change in Control, you shall fail to perform your duties hereunder as aresult of incapacity due to Disability, you shall (I) continue to receive your full base salary atthe rate then in effect until your Date of Termination (and, if the Company maintains a long-termdisability plan, you shall be eligible for coverage thereunder in accordance with the terms thereofand subject to the satisfaction of all applicable conditions, including without limitation thetimely filing of a notice of claim) and (II) continue to be eligible to receive the health carebenefits under COBRA and other insurance benefits, as described in and in accordance with Section4(iv)(b) below.
     (iii) If, after a Change in Control, your employment shall be terminated for Cause, theCompany shall pay you for your full base salary through the Date of Termination at the rate ineffect at the time Notice of Termination is given and the Company shall have no further obligationsto you under this Agreement.
     (iv) If, after a Change in Control, the Company shall terminate your employment, other thanpursuant to Section 3(iii) hereof, or you shall terminate your employment for Good Reason, then,subject to Section 7:

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          (a) The Company shall pay you: (I) thirty-six (36) months (the “Severance Period”) of salarycontinuation at your base rate in effect at the time of your termination in accordance with theCompany’s regular payroll practices plus (II) an amount equal to the greater of 3 times (x) thebonus (if any) you received for the last fiscal year prior to your Date of Termination, or (y) theaverage of the bonuses you received over the past three fiscal years, plus (III) an amount equal to100% of your target bonus for the fiscal year in which the Date of Termination occurs, pro ratedfor the number of days worked by you during such fiscal year, including the Date of Termination(the “Severance Payments”). All payments described in this subparagraph (a) shall be paid in cashby the Company to you in accordance with the Company’s regular payroll practices, less applicabletax withholding, beginning with the first regular pay date after the date that is six months afteryour Date of Termination. The first payment shall be equal to the total amount that you would havereceived during the first six months after your Date of Termination if payments had been madeduring the six-month period after your Date of Termination assuming payments would have beenpro-rata over thirty-six (36) months. Thereafter, payments shall be made pro-rata over theremaining thirty-month Severance Period.
          (b) You shall have the opportunity to continue your group health care benefits, and those ofyour eligible dependents, in accordance with COBRA, as applicable. During the thirty-six (36)calendar months following the month in which you terminate employment with the Company, the Companyshall make any necessary payments or adjustments such that you shall have the opportunity tocontinue these group health care benefits at the applicable employee premium rate in effect at thetime of your termination of employment. In the event that the Company’s insurance company isunable or unwilling to provide the group health care benefits, or if you become entitled toSeverance Payments as a result of a termination in anticipation of a Change in Control as describedin Section 3(vi) hereof and you do not elect COBRA coverage at the time of your termination, thenthe Company shall provide you with monthly cash payments equal to the cost of providing suchcoverage to its employees generally. In addition, for the thirty-six (36) calendar monthsfollowing the month in which you terminate employment (except if such termination is as a result ofyour death), the Company shall provide you with group term life insurance and accidental death anddismemberment coverage substantially similar to the coverage in effect immediately prior to yourtermination of employment; provided, however, if the Company’s insurance company isunable or unwilling to provide the coverage, or if you become entitled to Severance Payments as aresult of a termination in anticipation of a Change in Control as described in Section 3(vi)hereof, then the Company shall provide you with monthly cash payments equal to the cost ofproviding such coverage to its employees generally. You shall be responsible for such co-paymentsand other deductions and premiums to the same extent that you were responsible prior to yourtermination of employment. Notwithstanding the foregoing, (I) the group health care benefits,including the Company’s subsidy, may be terminated sooner to the extent permitted by COBRA if youor your dependents obtain other group health plan coverage, and (II) the Company shall not provideany such life insurance or accidental death and dismemberment insurance benefits to you to theextent that an equivalent benefit is received by you from another employer during such period, andyou shall report any such benefit actually received by you to the Company;

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          (c) the exercisability of all outstanding stock options, restricted stock, stock appreciationrights and other equity awards then held by you shall accelerate in full;
          (d) subject to Internal Revenue Code section 409A, the time period for exercising anynon-qualified stock options and stock appreciation rights following a termination of youremployment without Cause, as set forth in the applicable award agreement, shall be extended, fromthree (3) months to the shorter of (I) the later of (a) the 15th day of the third monthfollowing the date at which or (b) December 31 of the calendar year in which, the award wouldotherwise have expired if the award had not been extended, based on the terms of the award at theoriginal grant date or (II) the remaining balance of the term of such award, provided however, thatthis Section 4(iv)(d) shall not apply to any non-qualified stock options and stock appreciationrights where the applicable award agreement already provides that such awards may be exercised fortwelve months following a termination of your employment without Cause; and
     (v) You shall not be required to mitigate the amount of any payment provided for in thisSection 4 by seeking other employment or otherwise, nor shall the amount of any payment providedfor in this Section 4 be reduced by any compensation earned by you as the result of employment byanother employer after the Date of Termination, or otherwise, except to the extent provided inSection 4(iv)(b).
     (vi) The Severance Payments and other benefits described in this Section 4 shall be the onlyseverance payments you are to receive in the event of a termination of your employment following aChange in Control and you agree you shall not be entitled to any additional payments or benefitsnot otherwise described in this Agreement. You hereby acknowledge and agree that you are noteligible to be a “Participant” in the TriPath Imaging, Inc. Employee Retention Plan. Any paymentsor benefits received under this Agreement shall not be taken into account for purposes ofdetermining benefits under any other employee benefit plan of the Company or any affiliate, exceptto the extent required by law, or as otherwise expressly provided by the terms of such other plan.
5.   CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
     (i) In the event it shall be determined that any payment or benefit received or to be receivedby you (whether paid or payable or distributed or distributable or provided pursuant to the termsof this Agreement or otherwise, but determined without regard to any additional payments requiredunder this Section 5) (a “Payment”) would be subject to the excise tax imposed by Section 4999 ofthe Internal Revenue Code (the “Code”) or any interest or penalties are incurred by you withrespect to such excise tax (such excise tax, together with any such interest and penalties, arehereinafter collectively referred to as the “Excise Tax”), then you shall be entitled to receive anadditional payment (a “Gross-Up Payment”) in an amount such that after the payment by you of alltaxes (including any interest or penalties imposed with respect to such taxes), including, withoutlimitation, any income taxes (and any interest and penalties imposed with respect thereto) and theExcise Tax imposed upon the Gross-Up Payment, you retain an amount of the Gross-Up Payment equal tothe Excise Tax imposed upon the Payments.

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Dr. Paul R. Sohmer, M.D.
June 26, 2006
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     (ii) Notwithstanding the foregoing provisions of Section 5(i), if it shall be determined thatyou are entitled to a Gross-Up Payment, but that you, after taking into account the Payments andthe Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000 (taking intoaccount both income taxes and any Excise Tax) as compared to the net after-tax proceeds to youresulting from an elimination of the Gross-Up Payment and a reduction of the Payments, in theaggregate, to an amount (the “Reduced Amount”) such that the receipt of Payments would not giverise to any Excise Tax, then no Gross-Up Payment shall be made to you and the Payments, in theaggregate, shall be reduced to the Reduced Amount.
     (iii) All determinations required to be made under this Section 5, including whether and whena Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to beutilized in arriving at such determination, shall be made by the Company’s independent auditors orsuch other certified public accounting firm as may be designated by the Company (the “AccountingFirm”) which shall provide detailed supporting calculations to both the Company and you withinfifteen (15) business days of the receipt of notice from you that a Payment has been made or willbe required, or such earlier time as is requested by the Company. In the event that the AccountingFirm is serving as accountant or auditor for the individual, entity, or group affecting the Changein Control, the Company shall appoint another nationally recognized accounting firm to make thedeterminations required hereunder. All fees and expenses of the Accounting Firm shall be borne bythe Company.
     (iv) Any Gross-Up Payment shall be paid by the Company to you within ten (10) business days ofthe receipt of the Accounting Firm’s determination. Any determination by the Accounting Firm shallbe binding upon the Company and you As a result of the uncertainty in the application of Section4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it ispossible that Gross-Up Payments which will not have been made by the Company should have been made(“Underpayment”), consistent with the calculations required to be made hereunder. In the eventthat the Company exhausts its remedies pursuant to Section 5(v) and you thereafter are required tomake a payment of any Excise Tax, the Accounting Firm shall determine the amount of theUnderpayment that has occurred and any such Underpayment shall be promptly paid by the Company toor for your benefit.
     (v) You shall notify the Company in writing of any claim by the Internal Revenue Service that,if successful, would require the payment by the Company of the Gross-Up Payment. Such notificationshall be given as soon as practical but no later than ten (10) business days after you are informedin writing of such a claim and shall apprise the Company of the nature of the claim and the date onwhich such claim is requested to be paid. You shall not pay such claim prior to the expiration ofthe thirty (30) day period following the date on which you give such notice to the Company (or suchshorter period ending on the date that any payment of taxes with respect to such claim is due). Ifthe Company notifies you in writing prior to the expiration of such period that it desires tocontest such claim, you shall: (a) give the Company any information reasonably requested by theCompany relating to such claim, (b) take such action in connection with contesting such claim asthe Company shall reasonably request in writing from time to time, including, without limitation,accepting legal representation with respect to such claim by an attorney reasonably selected by theCompany, (c) cooperate with the

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Company in good faith in order to effectively contest such claim, and (d) permit the Companyto participate in any proceedings relating to such claim; provided, however, that the Company shallbear and pay directly all costs and expenses (including additional interest and penalties) incurredin connection with such contest and shall indemnify and hold you harmless, on an after-tax basis,for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed asa result of such representation and payment of costs and expenses. Without limitation of theforegoing provisions of this Section 5(v), the Company shall control all proceedings taken inconnection with such contest and, at its sole option, may pursue or forego any and alladministrative appeals, proceedings, hearings and conferences with the taxing authority in respectof such claim and may, at its sole option, either direct you to pay the tax claimed and sue for arefund or to contest the claim in any permissible manner, and you agree to prosecute such contestto a determination before any administrative tribunal, in a court of initial jurisdiction and inone or more appellate courts, as the Company shall determine; provided, however, that if theCompany directs you to pay such claim and sue for a refund, the Company shall advance the amount ofsuch payment to you, on an interest-free basis, and shall indemnify and hold the you harmless, onan after-tax basis, from any Excise Tax or income tax (including interest or penalties with respectthereto) imposed with respect to such advance or with respect to any imputed income with respect tosuch advance; and further provided that any extension of the statute of limitations relating topayment of taxes for your taxable year with respect to which such contested amount is claimed to bedue is limited solely to such contested amount. Furthermore, the Company’s control of the contestshall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder andyou shall be entitled to settle or contest, as the case may be, any other issue raised by theInternal Revenue Service or other taxing authority.
     (vi) If, after the receipt by you of an amount advanced by the Company pursuant to Section5(v), you become entitled to receive any refund with respect to such a claim, you shall (subject tothe Company’s complying with the requirements of Section 5(v)) promptly pay to the Company theamount of such refund (together with any interest paid or credited thereon after taxes applicablethereto). If, after the receipt by you of an amount advanced by the Company pursuant to Section5(v), a determination is made that you shall not be entitled to any refund with respect to suchclaim and the Company does not notify you in writing of its intent to contest such denial of refundprior to the expiration of thirty (30) days after such determination, then such advance shall beforgiven and shall not be required to be repaid and the amount of such advance shall offset, to theextent thereof, the amount of Gross-Up Payment required to be paid.
     (vii) If, pursuant to regulations issued under Section 280G or 4999 of the Code, the Companyand you are required to make a preliminary determination of the amount of an excess parachutepayment and thereafter a redetermination of the Excise Tax is required under the applicableregulations, the parties shall request the Accounting Firm to make such redetermination. If as aresult of such redetermination an additional Gross-Up Payment is required, the amount thereof shallbe paid by the Company to you within five (5) business days of the receipt of the Accounting Firm’sdetermination. If the redetermination of the Excise Tax results in a reduction of the Excise Tax,you shall take such steps as the Company may reasonably direct in order to obtain a refund of theexcess Excise Tax paid. If the Company

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determines that any suit or proceeding is necessary or advisable in order to obtain suchrefund, the provisions of Section 5(v) hereof relating to the contesting of a claim shall apply tothe claim for such refund, including, without limitation, the provisions concerning legalrepresentation, cooperation by you, participation by the Company in the proceedings andindemnification by the Company. Upon receipt of any such refund, you shall promptly pay the amountof such refund to the Company. If the amount of the income taxes otherwise payable by you inrespect of the year in which you make such payment to the Company is reduced as a result of suchpayment, you shall, no later than the filing of your income tax return in respect of such year, paythe amount of such tax benefit to the Company. In the event there is a subsequent redeterminationof your income taxes resulting in a reduction of such tax benefit, the Company shall, promptlyafter receipt of notice of such reduction, pay to you the amount of such reduction. If the Companyobjects to the calculation or recalculation of the tax benefit, as described in the preceding twosentences, the Accounting Firm shall make the final determination of the appropriate amount. Youshall not be obligated to pay to the Company the amount of any further tax benefits that may berealized by you as a result of paying to the Company the amount of the initial tax benefit.
     (viii) Nothing in this Section 5 is intended to violate the Sarbanes-Oxley Act and to theextent that any advance or repayment obligation hereunder would do so, such obligation shall bemodified so as to make the advance a nonrefundable payment to you and the repayment obligation nulland void.
6.   CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
     You, by your execution hereof, (i) hereby irrevocably submit to the exclusive jurisdiction ofthe state courts of the State of North Carolina (or any other state in which the Company or anysuccessor maintains its headquarters) for the purpose of any claim or action arising out of orbased upon this Agreement or relating to the subject matter hereof, (ii) hereby waive, to theextent not prohibited by applicable law, and agree not to assert by way of motion, as a defense orotherwise, in any such claim or action, any claim that you are not subject personally to thejurisdiction of the above-named courts, that your property is exempt or immune from attachment orexecution, that any such proceeding brought in the above-named court is improper, or that thisAgreement or the subject matter hereof may not be enforced in or by such courts, and (iii) herebyagree not to commence any claim or action arising out of or based upon this Agreement or relatingto the subject matter hereof other than before the above-named courts nor to make any motion ortake any other action seeking or intending to cause the transfer or removal of any such claim oraction to any court other than the above-named courts whether on the grounds of inconvenient forumor otherwise. You hereby consent to service of process in any such proceeding in any mannerpermitted by North Carolina law (or the law of such other state in which the Company or anysuccessor maintains its headquarters), and agree that service of process by registered or certifiedmail, return receipt requested, at your address specified on the first page hereof is reasonablycalculated to give actual notice. You hereby irrevocably waive any right to a trial by jury in anyaction, suit, or other proceeding arising under or relating to any provisions of this Agreement.

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7.   OBLIGATIONS DURING THE CHANGE OF CONTROL PERIOD AND FOLLOWING TERMINATION.
     You and the Company have previously entered into a Non-Competition Agreement (the“Non-Competition Agreement”) and an Employee Non-Disclosure and Inventions Agreement dated June 2,2000 (the “NDA”; the Non-Competition Agreement and the NDA collectively referred to as the “PriorAgreements”) both attached hereto on Schedule A, which impose upon you certain obligationsincluding, but not limited to, non-competition with the Company, non-solicitation of employees andcustomers and confidentiality of Company information. Such Prior Agreements shall remain in fullforce and effect upon the execution of this Agreement except that they shall be superceded by thisAgreement during the Change in Control Period. If the Change in Control Period expires and youremain employed by the Company thereafter, this Agreement shall have terminated and the PriorAgreements and their terms shall continue to govern your obligations during and followingtermination of your employment. Notwithstanding anything herein to the contrary, your right toreceive any payments or benefits under this Agreement shall be conditioned upon and subject to yourcompliance with your obligations as described in this Section 7, which obligations shall survivethe termination or expiration of this Agreement according to their respective terms. You herebyagree that any breach of the provisions of this Section 7 by you will entitle the Company toterminate this Agreement and to cease all payments and benefits hereunder. Any payments you mayreceive pursuant to the Prior Agreements shall offset on a dollar-for-dollar basis any obligationsof the Company or any affiliate to make payments to you under this Agreement.
     (i) Confidentiality.
          (a) Proprietary Information. In the course of your service to the Company and its affiliates,you will have access to confidential intellectual property, confidential specifications, know-how,inventions, testing methods, strategic or technical data, marketing research data, product researchand development data, manufacturing techniques, financial performance, confidential customer lists,costs, sources of supply and trade secrets, names and addresses of the people and organizationswith whom the Company and its affiliates have business relationships and such relationships, andspecial needs of customers of the Company and its affiliates, as well as other confidentialbusiness information, all of which are confidential and may be proprietary and are owned or used bythe Company or its affiliates. Such information shall hereinafter be called “ProprietaryInformation” and shall include any and all items enumerated in the preceding sentence and comingwithin the scope of the business of the Company or its affiliates as to which you may have access,whether conceived or developed by others or by you alone or with others during the period of yourservice to the Company or its affiliates, whether or not conceived or developed during regularworking hours. The term “Proprietary Information” also shall be deemed to include comparableinformation that the Company or any of its affiliates have received belonging to others or whichwas received by the Company or any of its affiliates with any understanding that it would not bedisclosed. Proprietary Information may be contained in various media, including withoutlimitation, patent applications, computer programs in object and/or source code, flow charts andother program documentation, manuals, plans drawings, designs, technical and scientificspecifications, laboratory notebooks, supplier and customer lists, internal financial and businessdata and other documents and records of the Company and its affiliates. Proprietary Informationshall not include any information which (I) is in the public domain prior to the execution of theNDA and

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this Agreement, (II) entered the public domain after the time of its disclosure under the NDAor this Agreement through means other than an unauthorized disclosure resulting from an act oromission by you, (III) was independently developed or discovered by you prior to the time ofdisclosure under the NDA, or (IV) is required to be disclosed to comply with applicable laws orregulations, or with a court or administrative order, provided that the Company is notified priorto such disclosure and has the opportunity to take any actions it deems appropriate to obtainconfidential treatment for such disclosure and, if possible, to minimize the extent of suchdisclosure.
          (b) You shall not during the term of your employment with the Company or any time thereafter,regardless of the reason for termination of your employment (a) disclose, directly or indirectly,any Proprietary Information to any person other than the Company or authorized employees thereof atthe time of such disclosure, or such other persons to whom you have been specifically instructed tomake disclosure by management of the Company and in all such cases only to the extent required inthe course of your service to the Company or (b) use any Proprietary Information, directly orindirectly, for your own benefit or for the benefit of any other person or entity.
          (c) All notes, letters, documents, records, tapes and other media of every kind anddescription relating to the business, present or otherwise, of the Company or its affiliates andany copies, in whole or in part, thereof (collectively, the “Documents”), whether or not preparedby you, shall be the sole and exclusive property of the Company. You shall safeguard all Documentsand shall surrender to the Company at the time your employment terminates, or at such earlier timeor times as management of the Company may specify, all Documents then in your possession orcontrol.
     (ii) Non-Competition; Non-Hire; Non-Solicitation.
          (a) During the Severance Period, you will not engage or participate in, directly orindirectly, as principal, agent, employee, employer, consultant, investor or partner, or assist inthe management of, or own any stock or any other ownership interest in (excluding ownership of notmore than one (1%) percent of the voting stock of any publicly held corporation), any businesswhich is Competitive with the Company (as defined below).
               (1) A business shall be considered “Competitive with the Company” if it is engaged in anybusiness, venture or activity, or is developing any product, in the Restricted Area (as definedbelow) which competes, plans to compete or upon commercialization, would compete, with anybusiness, product, venture or activity being developed, conducted or proposed to be conducted (asevidenced by the Company’s internal written business plans or memoranda) by the Company, or anygroup, division or affiliate of the Company, determined as of the date of the Change in Control.
               (2) The “Restricted Area” shall mean the United States of America, Canada, and any othergeographic area where the Company, or any group, division or affiliate of the Company, isconducting, or has proposed to conduct (as evidenced by the Company’s

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internal written business plans or memoranda), any business, venture or activity, determinedas of the date of the Change in Control.
          (b) During the term of your employment and during the Severance Period, you will not hire anyofficer, director, consultant, executive or employee of the Company or any of its affiliates, norwill you solicit or attempt to solicit any such person to leave his or her engagement with theCompany or such affiliate. During the term of your employment and during the Severance Period, youwill not call upon, solicit, divert or attempt to solicit or divert from the Company or any of itsaffiliates any of their customers or suppliers or potential customers or suppliers of whose namesyou were aware during your employment with the Company.
          (c) During the Severance Period you shall notify the Company of any change of address and ofany subsequent employment (stating the name and address of the employer and the nature of theposition) or any other business activity.
     (iii) Non-Disparagement. During the term of your employment and for five (5) yearsthereafter, you shall not disparage, deprecate, or make any comments or take any other actions,directly or indirectly, that could reflect adversely on the Company, its affiliates or itsofficers, directors, employees or agents or adversely affect their business reputation or goodwill.
     (iv) Release and Waiver of Claims. Upon your termination following a Change inControl, and in consideration of the benefits provided to you under the terms of this Agreement,you hereby agree to execute the Release and Waiver of Claims attached hereto as Exhibit A.
8.   CONFLICT AMONG AGREEMENTS OR BENEFIT PLANS.
     In the event of any conflict between the provisions of this Agreement and the terms of anyother agreement or any benefit plan under which you are entitled to receive payments or benefits,or any agreement, instrument, other document or undertaking between you and the Company, unlessotherwise specifically provided herein, the provisions of this Agreement shall control;provided, however, that the terms of the Offer Letter shall be deemed to expresslynot conflict with the provisions of this Agreement.
9.   DEDUCTION; WITHHOLDING; SET-OFF.
     Notwithstanding any other provision of this Agreement, any payments or benefits hereundershall be subject to the withholding of such amounts, if any, relating to tax and other payrolldeductions as the Company reasonably determines it should withhold pursuant to any applicable lawor regulation. The amounts due and payable under Sections 4 and 5 shall at all times be subject tothe right of set-off of the Company for any amounts or debts incurred and owed by you to theCompany whether during your employment or after the Date of Termination.

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10.   LEGAL FEES.
     If any contest or dispute shall arise between you and the Company regarding or as a result ofany provision of this Agreement, the Company shall reimburse you for all reasonable attorney’s feesand legal expenses incurred by you up to a maximum of $15,000.00 in connection with such contest ordispute, but only if you are successful with respect to substantially all of your material claimspursued or defended in connection with such contest or dispute. Such reimbursement shall be madeas soon as practicable following the final adjudication (not subject to further appeal) by a courtor arbitrator, or by settlement of the dispute to the extent that the Company receives reasonablewritten evidence of such fees and expenses.
11.   LITIGATION AND REGULATORY COOPERATION.
     You agree to cooperate fully with the Company or any related entity in the defense orprosecution of any claims or actions now in existence or which may be brought in the future againstor on behalf of the Company or any related entity that relate to events or occurrences thattranspired during your employment with the Company. Your full cooperation in connection with suchclaims or actions shall include, but not be limited to, being available to meet with counsel toprepare for discovery or trial and to act as a witness on behalf of the Company at mutuallyconvenient times. In scheduling your time to prepare for discovery or trial, the Company shallattempt to minimize interference with any other employment obligations that you may have. You alsoshall cooperate with the Company in connection with any investigation or review of any foreign,federal, state or local regulatory authority as any such investigation or review relates to eventsor occurrences that transpired while you were employed by the Company. The Company shall reimburseyou for any reasonable out-of-pocket expenses incurred in connection with any litigation andregulatory cooperation provided under this Section 11 after your Date of Termination. In the eventthat you are named personally in any legal proceeding relating to your activities on behalf of theCompany, you will be eligible for indemnification to the extent permitted by the Company’s By-lawsand other governance documents, as well as the Company’s liability insurance policies, as in effectat the time you make a claim for indemnification.
12.   NOTICE.
     For the purpose of this Agreement, notices and all other communications provided for in thisAgreement shall be in writing and shall be delivered to each party at each party’s respectiveaddress set forth on the first page of this Agreement, and shall be deemed effectively given ordelivered: (i) upon personal delivery to the party to be notified, (ii) three (3) days afterhaving been sent by registered or certified mail, return receipt requested, postage prepaid, or(iii) one (1) business day after deposit with a nationally recognized overnight courier, specifyingnext day delivery, with written verification of receipt; provided that all notices to the Companyshould be directed to the attention of the Chairman of the Board of the Company, with a copy to theGeneral Counsel of TriPath Imaging, Inc.
13.   ENTIRE AGREEMENT.
     Except for the Offer Letter and the Prior Agreements, this Agreement represents the entireagreement of the parties with respect to the subject matter hereof and, except to the extent

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provided for herein, supersedes any other agreement between the parties with respect to suchsubject matter.
14.   SUCCESSORS; BINDING AGREEMENT.
     (i) The Company shall require any successor (whether direct or indirect, by purchase, merger,consolidation or otherwise) to all or substantially all of the business or assets of the Company toexpressly assume and agree to perform this Agreement in the same manner and to the same extent thatthe Company would be required to perform it if no such succession had taken place. Failure of theCompany to obtain such assumption and agreement prior to the effectiveness of any such successionshall be a breach of this Agreement and shall entitle the Executive to compensation from theCompany or its successor in the same amount and on the same terms as he would be entitled tohereunder if he terminates his employment for Good Reason following a Change in Control, exceptthat for purposes of implementing the foregoing, the date on which any such succession becomeseffective shall be deemed the Date of Termination. As used in this Agreement, “Company” shall meanthe Company as hereinbefore defined and any successor to its business or assets as aforesaid whichassumes and agrees to perform this Agreement by operation of law, or otherwise.
     (ii) This Agreement shall inure to the benefit of and be enforceable by your personal or legalrepresentatives, executors, administrators, successors, heirs, distributees, devisees and legatees.
15.   COUNTERPARTS.
     This Agreement may be executed in one or more counterparts, each of which shall be deemed tobe an original but all of which together will constitute one in the same instrument.
16.   MISCELLANEOUS.
     (i) Nothing contained in this Agreement, nor any action taken hereunder, shall be construed asa contract of employment, or as giving you any right to be retained as an employee of the Company.Your employment will remain at-will and your obligations under this Agreement shall not be affectedby any change in your position, title or function with, or compensation by the Company.
     (ii) No provision of this Agreement may be modified, waived, or discharged unless such waiver,modification, or discharge is agreed to in writing signed by you and such officer as may bespecifically designated by the Board of Directors of the Company.
     (iii) No waiver by either party hereto at any time of any breach by the other party hereto of,or compliance with, any condition or provision of this Agreement to be performed by such otherparty shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or atany time prior to subsequent time.

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     (iv) The validity, interpretation, construction and performance of this Agreement shall begoverned by the laws of the State of North Carolina.
     (v) The invalidity or unenforceability of any provision of this Agreement shall not affect thevalidity or enforceability of any other provision of this Agreement, which shall remain in fullforce and effect.
     (vi) Your rights to payments or benefits under this Agreement shall not be made subject tooption or assignment, either by voluntary or involuntary assignment or by operation of law,including (without limitation) bankruptcy, garnishment, attachment or other creditor’s process, andany action in violation of this Section 16(vi) shall be void.
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     If this Agreement correctly sets forth our agreement on the subject matter hereof, kindly signand return to the Company the enclosed copy of this Agreement which will then constitute ouragreement on this subject.
     
 
  Sincerely,
 
   
 
  TRIPATH IMAGING, INC.
 
   
 
   
 
   
 
  Name: Robert E. Curry
Title: Chairman of the Compensation Committee
 
   
I acknowledge receipt and agreewith the foregoing terms and conditions.
 
   
 
   
 
Name: Paul R. Sohmer, M.D.

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Exhibit A
Release and Waiver of Claims


 

Schedule A
Prior Agreements