As filed with the Securities and Exchange Commission on
November 8, 1996
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
NEOPATH, INC.
(Exact name of Registrant as specified in its charter)
Washington 91-1436093
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
8271 - 154th Avenue N.E.
Redmond, Washington 98052
(Address of Principal Executive Offices) (Zip Code)
NEOPATH, INC.
STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
1989 STOCK OPTION PLAN
(Full titles of the plans)
DR. ALAN C. NELSON
NeoPath, Inc.
President and Chief Executive Officer
8271 - 154th Avenue N.E.
Redmond, Washington 98052
(206) 869-7284
(Name, address and telephone number of agent for service)
______________________
Copy to:
MICHAEL E. STANSBURY
Perkins Coie
1201 Third Avenue, 40th Floor
Seattle, Washington 98101-3099
-------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Maximum
Proposed Maximum Aggregate
Title of Securities Amount to Be Offering Price Offering Amount of
to Be Registered Registered(1) Per Share(2) Price(2) Registration Fee
- ----------------------- ------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share: Not Applicable Not Applicable Not Applicable
Stock Option Plan for
Nonemployee Directors 300,000 $16.1875 $16.1875 $ 1,472
1989 Stock Option Plan 1,000,000 $16.1875 $16.1875 $ 4,905
------------- --------------- -------------- ----------------
Total 1,300,000 $16.1875 $16.1875 $ 6,377
</TABLE>
(1) Together with an indeterminate number of additional shares which
may be necessary to adjust the number of shares reserved for issuance
pursuant to the Stock Option Plan for Nonemployee Directors and the
1989 Stock Option Plan as the result of any future stock split, stock
dividend or similar adjustment of the outstanding Common Stock of the
Company.
<PAGE>
(2) Estimated pursuant to Rule 457(c) solely for the purpose of
calculating the amount of the registration fee. The price per share
is estimated to be $16.1875 based on the average of the high ($16.75)
and low ($15.625) sales prices for the Common Stock in the over-
the-counter market on November 4, 1996 as reported by the Nasdaq
National Market.
Page -ii-
<PAGE>
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents are hereby incorporated by reference in
this Registration Statement:
(a) The Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995 filed with the Securities and Exchange
Commission (the "Commission"), which contains audited financial
statements for the most recent year for which such statements have
been filed;
(b) The Registrant's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996;
(c) All other reports filed by the Registrant pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), since the end of the fiscal year covered
by the Annual Report referred to in (a) above; and
(d) The description of the Registrant's Common Stock
contained in the Registration Statement on Form 8-A filed with the
Commission on November 30, 1995, under Section 12 of the Exchange Act,
including any amendments or reports filed for the purpose of updating
such description.
All documents filed by the Registrant pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act, after the date hereof and
before the filing of a post-effective amendment which indicates that
all securities offered hereby have been sold or which deregisters all
securities covered hereby then remaining unsold, shall also be deemed
to be incorporated by reference into this Registration Statement and
to be a part hereof commencing on the respective dates on which such
documents are filed.
Item 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board
of directors to grant, indemnification to directors and officers on
terms sufficiently broad to permit indemnification under certain
circumstances for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"). Section 10 of the
Registrant's Bylaws provides for indemnification of the Registrant's
directors, officers, employees and agents to the maximum extent
permitted by Washington law. Certain of the directors of the
Registrant, who are affiliated with principal shareholders of the
Registrant, also may be indemnified by such shareholders against
liability they may incur in their capacity as a director of the
Registrant, including pursuant to a liability insurance policy for
such purpose.
Section 23B.08.320 of the Washington Business Corporation Act
authorizes a corporation to limit a director's liability to the
corporation or its shareholders for monetary damages for acts or
omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal
distributions, or any transaction from which the director personally
received a benefit in money, property or services to which the
director is not legally entitled. Article 8 of the Registrant's
Articles of Incorporation contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a
director's liability to the Registrant and its shareholders.
The Registrant has entered into an indemnification agreement with
each of its executive officers and directors in which the Registrant
agrees to hold harmless and indemnify the officer or director to the
fullest extent permitted by Washington law. The Registrant agrees to
indemnify the officer or director against any and all losses, claims,
damages, liabilities or expenses incurred in connection with any
actual, pending or threatened action, suit, claim or proceeding,
whether civil, criminal, administrative or investigative and whether
formal or informal, in which the officer or director is, was or
becomes involved by reason of the fact that the officer or director is
or was a director, officer, employee, trustee or agent of the
registrant or any related registrant, partnership or enterprise,
including service with respect to an employee benefit plan, whether
the basis of such proceeding is alleged action (or inaction) by the
officer or director in an official capacity. No indemnity pursuant to
the indemnification agreements shall be provided by the Registrant on
account of any suit in which a final, unappealable judgment is
rendered against the officer or director for an accounting of profits
made from the
Page II-1
<PAGE>
purchase or sale by the officer or director of
securities of the Registrant in violation of the provisions of
Section 16(b) of the Exchange Act, and amendments thereto, or for
damages that have been paid directly to the officer or director by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Registrant.
The Registrant also maintains an insurance policy ensuring its
directors and executive officers against liability for certain acts
and omissions while acting in their official capacities.
Item 8. EXHIBITS
Exhibit
Number Description
- --------- -------------------------------------------
5.1 Opinion of Perkins Coie regarding legality
of the Common Stock being registered
23.1 Consent of Ernst & Young LLP, Independent
Auditors (see page II-5)
23.2 Consent of Coopers & Lybrand L.L.P. (see
page II-6)
23.3 Consent of Perkins Coie (included in its
Opinion filed as Exhibit 5.1)
24.1 Power of Attorney (see Signature Page)
99.1 Stock Option Plan for Nonemployee Directors
99.2 1989 Stock Option Plan
Item 9. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration Statement (or
the most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the information
set forth in this Registration Statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) above do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
Page II-2
<PAGE>
B. The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of
the Registrant's annual report pursuant to Section 13(a) or 15(d) of
the Exchange Act (and, where applicable, each filing of an employee
benefits plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in this Registration
Statement shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
Page II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-8
and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Redmond, State of Washington, on the 8 day of November, 1996.
NEOPATH, INC.
By /S/ Alan C. Nelson
------------------------
Alan C. Nelson, President and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below authorizes and appoints
Alan C. Nelson and Robert C. Bateman, or either of them, his attorneys-
in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to this Registration Statement, and
to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-fact, or
their substitute or substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the
following persons on the 8 day of November, 1996 in the capacities
indicated.
Signature Title
/s/Alan C. Nelson
--------------------------- President and Chief Executive
Alan C. Nelson Officer (Principal Executive
Officer)
/s/Robert C. Bateman
---------------------------- Secretary and Controller
Robert C. Bateman (Principal Financial and
Accounting Officer)
/s/Walter L. Robb
---------------------------- Chairman of the Board
Walter L. Robb
/s/Alan D. Frazier
------------------------ Director
Alan D. Frazier
/s/Cristina H. Kepner
-------------------------- Director
Cristina H. Kepner
/s/C. Richard Kramlich
---------------------------- Director
C. Richard Kramlich
/s/David A. Thompson
--------------------------- Director
David A. Thompson
/s/Gail R. Wilensky
----------------------------- Director
Gail R. Wilensky
Page II-4
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement on Form S-8 pertaining to the NeoPath, Inc. Stock Option
Plan for Nonemployee Directors and the NeoPath, Inc. 1989 Stock Option
Plan of our report dated February 2, 1996, with respect to the
financial statements of NeoPath, Inc. included in its Annual Report
(Form 10-K) for the year ended December 31, 1995, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Seattle, Washington
November 6, 1996
Page II-5
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement of NeoPath, Inc. on Form S-8 of our report dated March 21,
1994 on the statements of operations and cash flows of NeoPath, Inc.
(a development stage company) for the year ended December 31, 1993,
and the accompanying statements of shareholders' equity (deficit) for
each of the periods from January 26, 1989 (date of inception) through
December 31, 1993.
COOPERS & LYBRAND L.L.P.
Seattle, Washington
November 6, 1996
Page II-6
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- --------- -------------------------------------------
5.1 Opinion of Perkins Coie regarding legality
of the Common Stock being registered
23.1 Consent of Ernst & Young LLP, Independent
Auditors (see Page II-5)
23.2 Consent of Coopers & Lybrand L.L.P. (see
Page II-6)
23.3 Consent of Perkins Coie (included in
Exhibit 5.1)
24.1 Power of Attorney (see Signature Page)
99.1 Stock Option Plan for Nonemployee Directors
99.2 1989 Stock Option Plan
Page II-7
EXHIBIT 5.1
<PAGE>
[PERKINS COIE LETTERHEAD]
November 8, 1996
NeoPath, Inc.
8271 - 154th Ave. N.E.
Redmond, WA 98052
Re: Registration Statement on Form S-8
Ladies and Gentlemen:
We have acted as counsel to you in connection with the
preparation of a Registration Statement on Form S-8 (the
"Registration Statement") pursuant to the Securities Act of
1933, as amended (the "Act"), which you are filing with the
Securities and Exchange Commission with respect to an
aggregate of 1,300,000 shares of Common Stock, $.01 par value
per share (the "Shares"), 300,000 of which Shares may be
issued pursuant to the NeoPath, Inc. Stock Option Plan for
Nonemployee Directors and 1,000,000 of which Shares may be
issued pursuant to the NeoPath, Inc. 1989 Stock Option Plan
(collectively, the "Plans"). We have examined the
Registration Statement and such other documents and records of
NeoPath, Inc. as we have deemed relevant and necessary for the
purposes of this opinion. By giving this opinion, we are
assuming the authenticity of all instruments presented to us
as originals, the conformity with or originals of all
instruments presented to us as copies and the genuineness of
all signatures.
Based upon and subject to the foregoing, we are of the
opinion that the Shares that may be issued upon the exercise
of stock options granted or to be granted pursuant to the
Plans, upon the due execution by NeoPath, Inc. and the
registration by its registrar of the Shares and the issuance
thereof by NeoPath, Inc. in accordance with the terms of the
Plans, and the receipt of consideration therefor in accordance
with the terms of the Plans, will be validly issued, fully
paid and nonassessable.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement. In giving such
consent, we do not admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
PERKINS COIE
EXHIBIT 99.1
<PAGE>
NEOPATH, INC.
STOCK OPTION PLAN FOR NONEMPLOYEE DIRECTORS
As Restated on April 25, 1996
SECTION 1 PURPOSES
The purpose of the Neopath, Inc. Stock Option Plan for
Nonemployee Directors (this "Plan") is to attract and retain
the services of experienced and knowledgeable nonemployee
directors for Neopath, Inc. (the "Company") and to provide
added incentive to such directors by providing an
opportunity for stock ownership in the Company.
SECTION 2 ADMINISTRATION
The administrator of this Plan (the "Plan Administrator")
shall be the Board of Directors of the Company (the
"Board"). Subject to the terms of this Plan, the Plan
Administrator shall have the power to construe the
provisions of this Plan, to determine all questions arising
thereunder and to adopt and amend such rules and regulations
for the administration of this Plan as it may deem
desirable. No member of the Plan Administrator shall
participate in any vote by the Plan Administrator on any
matter materially affecting the rights of any such member
under this Plan.
SECTION 3 SHARES SUBJECT TO THE PLAN
Subject to adjustment in accordance with Section 6 hereof,
the total number of shares of the Company's common stock
(the "Common Stock") for which options may be granted under
this Plan is 400,000 as such Common Stock was constituted on
the effective date of this Plan (the "Shares"). The Shares
shall be shares currently authorized but unissued or
subsequently acquired by the Company and shall include
shares representing the unexercised portion of any option
granted under this Plan which expires or terminates without
being exercised in full.
SECTION 4 ELIGIBILITY
Each member of the Board elected or appointed who is not
otherwise an employee of the Company or any parent or
subsidiary corporation (an "Eligible Director") shall be
eligible to participate in this Plan. Each Eligible
Director will be granted an option to purchase 10,000 shares
of Common Stock annually during his or her term of office on
the first business day following each Annual Meeting of
Shareholders (as described in the Company's Bylaws, the
"Annual Meeting"). Notwithstanding the foregoing, if an
Eligible Director is first elected or appointed by the Board
on a date other than the date of an Annual Meeting, such
Eligible Director shall receive a pro rata portion of such
annual grant on the date of such initial election or
appointment determined by reference to the number of
calendar quarters by which the Eligible Director's initial
election or appointment, precedes the quarter in which the
next Annual Meeting is scheduled to occur, as follows:
nothing in the same quarter as the Annual Meeting, an option
to purchase 2,500 shares of Common Stock in the first
quarter preceding the Annual Meeting, an option to purchase
5,000 shares of Common Stock in the second quarter preceding
the Annual Meeting and an option to purchase 7,500 shares of
Common Stock in the third quarter proceeding the Annual
Meeting. All grants made prior to shareholder approval of
this Section 4 shall be subject to such approval.
SECTION 5 TERMS AND CONDITIONS OF OPTIONS
Each option granted to an Eligible Director under this Plan
and the issuance of Shares thereunder shall be subject to
the following terms:
5.1 Option Agreement
Each option shall be evidenced by an option agreement (an
"Agreement") duly executed on behalf of the Company. Each
Agreement shall comply with and be subject to the terms and
conditions of this Plan. Any Agreement may contain such
other terms, provisions and conditions not inconsistent with
this Plan as may be determined by the Plan Administrator.
<PAGE>
5.2 Option Exercise Price
The option exercise price for an option shall be the closing
price, or if there is no closing price, the mean between the
high and the low sale price of shares of Common Stock on the
NASDAQ Stock Market on the day the option is granted or, if
no Common Stock was traded on such date, on the next
succeeding day on which Common Stock is so traded.
5.3 Vesting and Exercisability
Subject to shareholder approval of the Plan, each
option granted to an Eligible Director shall vest and become
exercisable in accordance with the following schedule:
Period of Eligible Director's
Continuous
Service as a Director with the Portion of Total
Company Option
From the Date the Option is Granted Which is Exercisable
- ----------------------------- ---------------------
Less than twelve months 0%
Twelve months 33-1/3%
Twenty-four months 66-2/3%
Thirty-six months 100%
5.4 Time and Manner of Exercise of Option
Each option may be exercised in whole or in part at any time
and from time to time, subject to shareholder approval of
this Plan; provided, however, that no fewer than 20% of the
Shares purchasable under the option (or the remaining Shares
then purchasable under the option, if less than 20%) may be
purchased upon any exercise of any option hereunder and that
only whole Shares will be issued pursuant to the exercise of
any option.
Any option may be exercised by giving written notice, signed
by the person exercising the option, to the Company stating
the number of Shares with respect to which the option is
being exercised, accompanied by payment in full for such
Shares, which payment may be in whole or in part (a) in cash
or by check, (b) in shares of Common Stock already owned for
at least six months by the person exercising the option,
valued at fair market value at the time of such exercise, or
(c) by delivery of a properly executed exercise notice,
together with irrevocable instructions to a broker, to
properly deliver to the Company the amount of sale or loan
proceeds to pay the exercise price, all in accordance with
the regulations of the Federal Reserve Board.
5.5 Term of Options
Each option shall expire ten years from the date of the
granting thereof, but shall be subject to earlier
termination as follows:
(a) In the event that an Optionee ceases to be a
director of the Company for any reason other than the death
of the Optionee, the options granted to such Optionee may be
exercised by him or her only within three months after the
date such Optionee ceases to be a director of the Company.
(b) In the event of the death of an Optionee, whether
during the Optionee's service as a director or during the
three-month period referred to in Section 5.5(a), the
options granted to such Optionee shall be exercisable, and
such options shall expire unless exercised within twelve
months after the date of the Optionee's death, by the legal
representatives or the estate of such Optionee, by any
person or persons whom the Optionee shall have designated in
writing on forms prescribed by and filed with the Company
or, if no such designation has been made, by the person or
persons to whom the Optionee's rights have passed by will or
the laws of descent and distribution.
<PAGE>
5.6 Transferability
During an Optionee's lifetime, an option may be exercised
only by the Optionee. Options granted under this Plan and
the rights and privileges conferred thereby shall not be
subject to execution, attachment or similar process and may
not be transferred, assigned, pledged or hypothecated in any
manner (whether by operation of law or otherwise) other than
by will or by the applicable laws of descent and
distribution except that, to the extent permitted by
applicable law and Rule 16b-3 promulgated under
Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Plan Administrator may
permit an Optionee to designate in writing during the
Optionee's lifetime a beneficiary to receive and exercise
options in the event of the Optionee's death (as provided in
Section 5.5(b)). Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under this
Plan or of any right or privilege conferred thereby,
contrary to the provisions of this Plan, or the sale or levy
or any attachment or similar process upon the rights and
privileges conferred hereby, shall be null and void.
5.7 Holding Period
If an individual subject to Section 16 of the Exchange Act
sells shares of Common Stock obtained upon the exercise of a
stock option within six months after the date the option was
granted, such sale may result in short-swing profit recovery
under Section 16(b) of the Exchange Act.
5.8 Participant's or Successor's Rights as
Shareholder
Neither an Optionee nor the Optionee's successor in interest
shall have any rights as a shareholder of the Company with
respect to any Shares subject to an option granted to such
person until such person becomes a holder of record of such
Shares.
5.9 Limitation as to Directorship
Neither this Plan, nor the granting of an option, nor any
other action taken pursuant to this Plan shall constitute or
be evidence of any agreement or understanding, express or
implied, that an Optionee has a right to continue as a
director for any period of time or at any particular rate of
compensation.
5.10 Regulatory Approval and Compliance
The Company shall not be required to issue any certificate
or certificates for Shares upon the exercise of an option
granted under this Plan, or record as a holder of record of
Shares the name of the individual exercising an option under
this Plan, without obtaining to the complete satisfaction of
the Plan Administrator the approval of all regulatory bodies
deemed necessary by the Plan Administrator, and without
complying, to the Plan Administrator's complete
satisfaction, with all rules and regulations under federal,
state or local law deemed applicable by the Plan
Administrator.
SECTION 6 ADJUSTMENTS UPON CHANGES IN
CAPITALIZATION
6.1 Recapitalization
The aggregate number and class of shares for which options
may be granted under this Plan, the number and class of
shares covered by each outstanding option and the exercise
price per share thereof (but not the total price), and each
such option, shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of
Common Stock of the Company resulting from a split or
consolidation of shares or any like capital adjustment, or
the payment of any stock dividend.
6.2 Effect of Liquidation, Reorganization or
Change in Control
6.2.1 Cash, Stock or Other Property for
Stock
Except as provided in subsection 6.2.2, upon a merger (other
than a merger of the Company in which the holders of shares
of Common Stock immediately prior to the merger have the
same proportionate ownership of shares of Common Stock in
the surviving corporation immediately after the merger),
consolidation, acquisition of property or stock, separation,
reorganization (other than a mere reincorporation or the
creation of a holding company) or liquidation of the
Company, as a result of which the shareholders of the
Company receive cash, stock or other property in exchange
for or in connection with
<PAGE>
their shares of Common Stock, each
option shall terminate, but the Optionee shall have the
right immediately prior to any such merger, consolidation,
acquisition of property or stock, reorganization or
liquidation to exercise such option in whole or in part
whether or not the vesting requirements set forth in the
option agreement have been satisfied.
6.2.2 Conversion of Options on Stock for
Stock Exchange
If the shareholders of the Company receive capital stock of
another corporation ("Exchange Stock") in exchange for their
shares of Common Stock in any transaction involving a
merger, consolidation, acquisition of property or stock, or
reorganization, all options shall be converted into options
to purchase shares of Exchange Stock unless the Company and
the corporation issuing the Exchange Stock, in their sole
discretion, determine that any or all such options shall not
be converted into options to purchase shares of Exchange
Stock but instead shall terminate in accordance with the
provisions of subsection 6.2.1. The amount and price of
converted options shall be determined by adjusting the
amount and price of the options granted hereunder in the
same proportion as used for determining the number of shares
of Exchange Stock the holders of shares of the Common Stock
receive in such merger, consolidation, acquisition of
property or stock, or reorganization.
6.3 Fractional Shares
In the event of any adjustment in the number of shares
covered by any option, any fractional shares resulting from
such adjustment shall be disregarded and each such option
shall cover only the number of full shares resulting from
such adjustment.
SECTION 7 EXPENSES
All costs and expenses of the adoption and administration of
this Plan shall be borne by the Company; none of such
expenses shall be charged to any Optionee.
SECTION 8 COMPLIANCE WITH RULE 16b-3
It is the intention of the Company that this Plan comply in
all respects with Rule 16b-3 promulgated under Section 16(b)
of the Exchange Act and that Plan participants remain
disinterested persons ("Disinterested Persons") for purposes
of administering other employee benefit plans of the Company
and having such other plans be exempt from Section 16(b) of
the Exchange Act. Therefore, if any Plan provision is later
found not to be in compliance with Rule 16b-3 or if any Plan
provision would disqualify Plan participants from remaining
Disinterested Persons, that provision shall be deemed null
and void, and in all events this Plan shall be construed in
favor of its meeting the requirements of Rule 16b-3.
SECTION 9 AMENDMENT AND TERMINATION
The Board may amend, terminate or suspend this Plan at any
time, in its sole and absolute discretion; provided,
however, that if required to qualify this Plan under
Rule 16b-3 under Section 16(b) of the Exchange Act, no
amendment may be made more than once every six months that
would change the amount, price, timing or vesting of the
options, other than to comply with changes in the Internal
Revenue Code of 1986, as amended, or the rules and
regulations thereunder; provided further that if required to
qualify this Plan under Rule 16b-3, no amendment that would
(a) materially increase the number of Shares that
may be issued under this Plan,
(b) materially modify the requirements as to eligi
bility for participation in this Plan,
(c) materially increase the benefits accruing to
participants under this Plan, or
(d) otherwise require shareholder approval under
any applicable law or regulation
shall be made without the approval of the Company's
shareholders.
SECTION 10 EFFECTIVE DATE AND DURATION
This Plan shall be effective on February 2, 1995, the fifth
trading day after the effective date of the Company's
registration statement filed by the Company under the
Securities Act of 1933, as amended, in connection with the
Company's initial underwritten public offering. A "trading
day" shall be a day on which Shares of Common Stock are
traded on the Nasdaq Stock Market. This Plan shall continue
in effect until it is terminated by action of the Board or
the Company's shareholders, but such termination shall not
affect the then-outstanding terms of any options.
<PAGE>
Plan originally adopted by the Company's Board of Directors
on October 26, 1994 and approved by the Company's
shareholders on November 17, 1994. Plan was amended and
restated by the Board on April 25, 1996 and approved by the
Company's shareholders on June 25, 1996.
EXHIBIT 99.2
<PAGE>
NEOPATH, INC.
1989 STOCK OPTION PLAN
As Restated on April 25, 1996
Section 1. Purpose
The purpose of the Neopath, Inc. 1989 Stock Option Plan
(this "Plan") is to provide a means whereby selected
employees, directors, officers, agents, consultants,
advisors and independent contractors of Neopath, Inc. (the
"Company"), or of any parent or subsidiary (as defined in
subsection 5.8 and referred to hereinafter as "related
corporations") thereof, may be granted incentive stock
options and/or nonqualified stock options to purchase the
Common Stock (as defined in Section 3) of the Company, in
order to attract and retain the services or advice of such
employees, directors, officers, agents, consultants,
advisors and independent contractors and to provide added
incentive to such persons by encouraging stock ownership in
the Company.
Section 2. Administration
This Plan shall be administered by the Board of Directors of
the Company (the "Board") or, in the event the Board shall
appoint and/or authorize a committee to administer this
Plan, by such committee. The administrator of this Plan
shall hereinafter be referred to as the "Plan
Administrator."
In the event a member of the Plan Administrator may be
eligible, subject to the restrictions set forth in
Section 4, to participate in this Plan, no member of the
Plan Administrator shall vote with respect to the granting
of an option hereunder to himself or herself, as the case
may be, and, if state corporate law does not permit a
committee to grant options to directors, then any option
granted under this Plan to a director for his or her
services as such shall be approved by the full Board.
The members of any committee serving as Plan Administrator
shall be appointed by the Board for such term as the Board
may determine. The Board may from time to time remove
members from, or add members to, the committee. Vacancies
on the committee, however caused, shall be filled by the
Board.
With respect to grants made under this Plan to individuals
who are subject to Section 16 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the Plan
Administrator shall be constituted at all times so as to
meet the requirements of Rule 16b-3 promulgated under
Section 16(b) of the Exchange Act if any of the Company's
equity securities are registered pursuant to Section 12(b)
or 12(g) of the Exchange Act.
2.1 Procedures
The Board shall designate one of the members of the Plan
Administrator as chairman. The Plan Administrator may hold
meetings at such times and places as it shall determine.
The acts of a majority of the members of the Plan
Administrator present at meetings at which a quorum exists,
or acts reduced to or approved in writing by all Plan
Administrator members, shall be valid acts of the Plan
Administrator.
2.2 Responsibilities
Except for the terms and conditions explicitly set forth in
this Plan, the Plan Administrator shall have the authority,
in its discretion, to determine all matters relating to the
options to be granted under this Plan, including selection
of the individuals to be granted options, the number of
shares to be subject to each option, the exercise price, and
all other terms and conditions of the options. Grants under
this Plan need not be identical in any respect, even when
made simultaneously. The interpretation and construction by
the Plan Administrator of any terms or provisions of this
Plan or any option issued hereunder, or of any rule or
regulation promulgated in connection herewith, shall be
conclusive and binding on all interested parties, so long as
such interpretation and construction with respect to
incentive stock options correspond to the requirements of
Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), the regulations thereunder and any amendments
thereto.
<PAGE>
2.3 Rule 16b-3 Compliance and Bifurcation of Plan
It is the intention of the Company that, if any of the
Company's equity securities are registered pursuant to
Section 12(b) or 12(g) of the Exchange Act, this Plan shall
comply in all respects with Rule 16b-3 under the Exchange
Act. If any Plan provision is later found not to be in
compliance with such Section, the provision shall be deemed
null and void, and in all events this Plan shall be
construed in favor of its meeting the requirements of
Rule 16b-3. Notwithstanding anything in this Plan to the
contrary, the Board, in its absolute discretion, may
bifurcate this Plan so as to restrict, limit or condition
the application of any provision of this Plan to
participants who are subject to Section 16 of the Exchange
Act without so restricting, limiting or conditioning this
Plan with respect to other participants.
Section 3. Shares Subject to This Plan
The shares subject to this Plan shall be the Company's
Common Stock (the "Common Stock"), currently authorized but
unissued or subsequently acquired by the Company. Subject
to adjustment as provided in Section 7, the aggregate amount
of Common Stock to be delivered upon the exercise of all
options granted under this Plan shall not exceed 2,750,000
shares. If any option granted under this Plan shall expire
or be surrendered, exchanged for another option, canceled or
terminated for any reason without having been exercised in
full, the unpurchased shares subject thereto shall thereupon
again be available for purposes of this Plan, including for
replacement options which may be granted in exchange for
such expired, surrendered, exchanged, canceled or terminated
options.
Section 4. Eligibility
An incentive stock option may be granted only to an
individual who, at the time the option is granted, is an
employee of the Company or a related corporation. A
nonqualified stock option may be granted to any employee,
director, officer, agent, consultant, advisor or independent
contractor of the Company or any related corporation,
whether an individual or an entity. Any party to whom an
option is granted under this Plan shall be referred to
hereinafter as an "Optionee."
Section 5. Terms and Conditions of Options
Options granted under this Plan shall be evidenced by
written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan
Administrator shall deem advisable and which are not
inconsistent with this Plan. Notwithstanding the foregoing,
options shall include or incorporate by reference the
following terms and conditions:
5.1 Number of Shares and Price
The maximum number of shares that may be purchased pursuant
to the exercise of each option and the price per share at
which such option is exercisable (the "exercise price")
shall be as established by the Plan Administrator; provided,
however, that the maximum number of shares with respect to
which an option or options may be granted to any Optionee in
any one fiscal year of the Company shall not exceed
400,000 shares (the "Maximum Annual Optionee Grant"). The
Plan Administrator shall act in good faith to establish an
exercise price which shall be not less than the fair market
value per share of the Common Stock at the time the option
is granted with respect to incentive stock options and also
provided that, with respect to incentive stock options
granted to greater than 10% shareholders, the exercise price
shall be as required by subsection 6.1.
5.2 Term and Maturity
Subject to the restrictions contained in Section 6 with
respect to granting incentive stock options to greater than
10% shareholders, the term of each incentive stock option
shall be as established by the Plan Administrator and, if
not so established, shall be 10 years from the date it is
granted but in no event shall it exceed 10 years. The term
of each nonqualified stock option shall be as established by
the Plan Administrator and, if not so established, shall be
10 years. To ensure that the Company or a related
corporation will achieve the purpose and receive the
benefits contemplated by this Plan, any option granted to
any Optionee hereunder shall, unless the condition of this
sentence is waived or modified in the agreement evidencing
the option or by resolution adopted at any time by the Plan
Administrator, be exercisable according to the following
schedule:
<PAGE>
Period of Optionee's
Continuous Relationship
With the Company or Related Portion of Total Option
Corporation From the Date Which Is Exercisable
the Option Is Granted
- --------------------------- ---------------------------
after 1 year 25%
each month completed an additional 1/36th
thereafter of the remaining 75%
after 4 years 100%
5.3 Exercise
Subject to the vesting schedule described in subsection 5.2,
each option may be exercised in whole or in part at any time
and from time to time; provided, however, that only whole
shares will be issued pursuant to the exercise of any
option. An Option shall be exercised by delivery to the
Company of notice of the number of shares with respect to
which the option is exercised, together with payment of the
exercise price.
5.4 Payment of Exercise Price
Payment of the option exercise price shall be made in full
at the time the notice of exercise of the option is
delivered to the Company and shall be in cash, bank
certified or cashier's check, or personal check (unless at
the time of exercise the Plan Administrator in a particular
case determines not to accept a personal check) for the
shares being purchased.
The Plan Administrator can determine at any time before
exercise that additional forms of payment will be permitted.
To the extent permitted by the Plan Administrator and
applicable laws and regulations (including, but not limited
to, federal tax and securities laws and regulations and
state corporate law), an option may be exercised by:
(a) delivery of shares of Common Stock of the Company
held by an Optionee having a fair market value equal to the
exercise price, such fair market value to be determined in
good faith by the Plan Administrator; provided, however,
that payment in stock held by an Optionee shall not be made
unless the stock shall have been owned by the Optionee for a
period of at least six months;
(b) delivery of a full-recourse promissory note
executed by the Optionee; provided that (i) such note
delivered in connection with an incentive stock option
shall, and such note delivered in connection with a
nonqualified stock option may, in the sole discretion of the
Plan Administrator, bear interest at a rate specified by the
Plan Administrator but in no case less than the rate
required to avoid imputation of interest (taking into
account any exceptions to the imputed interest rules) for
federal income tax purposes, (ii) the Plan Administrator in
its sole discretion shall specify the term and other
provisions of such note at the time an incentive stock
option is granted or at any time prior to exercise of a
nonqualified stock option, (iii) the Plan Administrator may
require that the Optionee pledge to the Company for the
purpose of securing the payment of such note the shares of
Common Stock to be issued to the Optionee upon exercise of
the option and may require that the certificate representing
such shares be held in escrow in order to perfect the
Company's security interest, and (iv) the Plan Administrator
in its sole discretion may at any time restrict or rescind
this right upon notification to the Optionee; or
(c) delivery of a properly executed exercise notice,
together with irrevocable instructions to a broker, all in
accordance with the regulations of the Federal Reserve
Board, to promptly deliver to the Company the amount of sale
or loan proceeds to pay the exercise price and any federal,
state or local withholding tax obligations that may arise in
connection with the exercise.
<PAGE>
5.5 Withholding Tax Requirement
The Company or any related corporation shall have the right
to retain and withhold from any payment of cash or shares of
Common Stock under this Plan the amount of taxes required by
any government to be withheld or otherwise deducted and paid
with respect to such payment. At its discretion, the
Company may require an Optionee receiving shares of Common
Stock to reimburse the Company for any such taxes required
to be withheld by the Company and withhold any distribution
in whole or in part until the Company is so reimbursed. In
lieu thereof, the Company shall have the right to withhold
from any other cash amounts due or to become due from the
Company to the Optionee an amount equal to such taxes. The
Company may also retain and withhold or the Optionee may
elect, subject to approval by the Company at its sole
discretion, to have the Company retain and withhold a number
of shares having a market value not less than the amount of
such taxes required to be withheld by the Company to
reimburse the Company for any such taxes and cancel (in
whole or in part) any such shares so withheld. In order to
qualify such election for exemption under Rule 16b-3
promulgated under Section 16(b) of the Exchange Act, any
individual who is subject to Section 16 under the Exchange
Act must exercise the option during the quarterly 10-day
window period required under Section 16(b) of the Exchange
Act for exercises of stock appreciation rights, and the
election relating to such option exercise must be (i) an
irrevocable election made six months prior to the date the
option exercise becomes taxable; (ii) an election that is
made during a window period; or (iii) an election that is
made prior to a window period, provided the election becomes
effective as of the next window period.
5.6 Holding Periods
5.6.1 Securities and Exchange Act Section 16
If an individual subject to Section 16 of the Exchange Act
sells shares of Common Stock obtained upon the exercise of a
stock option within six months after the date the option was
granted, such sale may result in short-swing profit recovery
under Section 16(b) of the Exchange Act.
5.6.2 Taxation of Stock Options
In order to obtain certain tax benefits afforded to
incentive stock options under Section 422 of the Code, an
Optionee must hold the shares issued upon the exercise of an
incentive stock option for two years after the date of grant
of the option and one year from the date of exercise. An
Optionee may be subject to the alternative minimum tax at
the time of exercise of an incentive stock option.
The Plan Administrator may require an Optionee to give the
Company prompt notice of any disposition of shares acquired
by the exercise of an incentive stock option prior to the
expiration of such holding periods.
Tax advice should be obtained by an Optionee when exercising
any option and prior to the disposition of the shares issued
upon the exercise of any option.
5.7 Transferability of Options
Options granted under this Plan and the rights and
privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution and shall not be
subject to execution, attachment or similar process. During
an Optionee's lifetime, any options granted under this Plan
are personal to him or her and are exercisable solely by
such Optionee. Any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of any option under this
Plan or of any right or privilege conferred hereby, contrary
to the Code or to the provisions of this Plan, or the sale
or levy or any attachment or similar process upon the rights
and privileges conferred hereby shall be null and void.
Notwithstanding the foregoing, to the extent permitted by
Rule 16b-3 under the Exchange Act and other applicable law
and regulation, the Plan Administrator may permit an
Optionee to (i) during the Optionee's lifetime, designate a
person who may exercise the option after the Optionee's
death by giving written notice of such designation to the
Company (such designation may be changed from time to time
by the Optionee by giving written notice to the Company
revoking any earlier designation and making a new
designation) or (ii) with respect to nonqualified stock
options, transfer the option and the rights and privileges
conferred hereby.
5.8 Termination of Relationship
If the Optionee's relationship with the Company or any
related corporation ceases for any reason other than
termination for cause, death or total disability, and unless
by its terms the option sooner terminates or expires, then
the
<PAGE>
Optionee may exercise, for a three-month period, that
portion of the Optionee's option which is exercisable at the
time of such cessation, but the Optionee's option shall
terminate at the end of such period following such cessation
as to all shares for which it has not theretofore been
exercised, unless such provision is waived in the agreement
evidencing the option. If, in the case of an incentive
stock option, an Optionee's relationship with the Company or
any related corporation changes (i.e., from employee to
nonemployee, such as a consultant), such change shall
constitute a termination of an Optionee's employment with
the Company or any related corporation and the Optionee's
incentive stock option shall terminate in accordance with
this subsection 5.8. Upon the expiration of the three-month
period following cessation of employment in the case of an
incentive stock option, or at any time prior to the
expiration of the option in the case of a nonqualified stock
option, the Plan Administrator shall have sole discretion in
a particular circumstance to extend the exercise period
following such cessation to any date up to the termination
or expiration of the option. If, however, in the case of an
incentive stock option, the Optionee does not exercise the
Optionee's option within three months after cessation of
employment, the option will no longer qualify as an
incentive stock option under the Code.
If an Optionee is terminated for cause, each option granted
hereunder shall automatically terminate as of the first
discovery by the Company of any reason for termination for
cause, and such Optionee shall thereupon have no right to
purchase any shares pursuant to such option. "Termination
for cause" shall mean dismissal for dishonesty, conviction
or confession of a crime (except minor violations), fraud,
misconduct or disclosure of confidential information. If an
Optionee's relationship with the Company or any related
corporation is suspended pending an investigation of whether
or not the Optionee shall be terminated for cause, the
Optionee's rights under each option granted hereunder
likewise shall be suspended during the period of
investigation.
If an Optionee's relationship with the Company or any
related corporation ceases because of a total disability,
the Optionee's option shall not terminate or, in the case of
an incentive stock option, cease to be treated as an
incentive stock option until the end of the 12-month period
following such cessation (unless by its terms it sooner
terminates or expires). As used in this Plan, the term
"total disability" refers to a mental or physical impairment
of the Optionee which is expected to result in death or
which has lasted or is expected to last for a continuous
period of 12 months or more and which causes the Optionee to
be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties for the Company and
to be engaged in any substantial gainful activity. Total
disability shall be deemed to have occurred on the first day
after the Company and the two independent physicians have
furnished their opinion of total disability to the Plan
Administrator.
Options granted under the Plan shall not be affected by any
change of relationship with the Company so long as the
Optionee continues to be an employee, director, officer,
agent, consultant, advisor or independent contractor of the
Company or of a related corporation; however, a change in an
Optionee's status from an employee to a nonemployee (e.g.,
consultant or independent contractor) shall result in the
termination of an outstanding incentive stock option held by
such Optionee. The Plan Administrator, in its absolute
discretion, may determine all questions of whether
particular leaves of absence constitute a termination of
services; provided, however, that with respect to incentive
stock options, such determination shall be subject to any
requirements contained in the Code. The foregoing
notwithstanding, with respect to incentive stock options,
employment shall not be deemed to continue beyond the first
90 days of such leave, unless the Optionee's reemployment
rights are guaranteed by statute or by contract.
As used herein, the term "related corporation," when
referring to a subsidiary corporation, shall mean any
corporation (other than the Company) in, at the time of the
granting of the option, an unbroken chain of corporations
ending with the Company, if stock possessing 50% or more of
the total combined voting power of all classes of stock of
each of the corporations other than the Company is owned by
one of the other corporations in such chain. When referring
to a parent corporation, the term "related corporation"
shall mean any corporation in an unbroken chain of
corporations ending with the Company if, at the time of the
granting of the option, each of the corporations other than
the Company owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the
other corporations in such chain.
5.9 Death of Optionee
If an Optionee dies while he or she has a relationship with
the Company or any related corporation or within the three-
month period (or 12-month period in the case of totally
disabled Optionees) following cessation of such
relationship, any option held by such Optionee to the extent
that the Optionee would have been entitled to exercise such
option, may be exercised within one year after his or her
death by the personal representative of his or her estate or
by the person or persons to whom the Optionee's rights under
the option shall pass (i) by will or by the applicable laws
of descent and distribution or (ii) by a designation or
transfer pursuant to Section 5.7.
<PAGE>
5.10 No Status as Shareholder
Neither the Optionee nor any party to which the Optionee's
rights and privileges under the option may pass shall be, or
have any of the rights or privileges of, a shareholder of
the Company with respect to any of the shares issuable upon
the exercise of any option granted under this Plan unless
and until such option has been exercised.
5.11 Continuation of Relationship
Nothing in this Plan or in any option shall confer upon any
Optionee any right to continue in the employ or other
relationship of the Company or of a related corporation, or
to interfere in any way with the right of the Company or of
any such related corporation to terminate his or her
employment or other relationship with the Company at any
time.
5.12 Modification and Amendment of Option
Subject to the requirements of Code Section 422 with respect
to incentive stock options and to the terms and conditions
and within the limitations of this Plan, the Plan
Administrator may modify or amend any outstanding option
granted under this Plan. The modification or amendment of
an outstanding option shall not, without the consent of the
Optionee, impair or diminish any of his or her rights or any
of the obligations of the Company under such option. Except
as otherwise provided in this Plan, no outstanding option
shall be terminated without the consent of the Optionee.
5.13 Limitation on Value for Incentive Stock Options
As to all incentive stock options granted under the terms of
this Plan, to the extent that the aggregate fair market
value of the shares (determined at the time the incentive
stock option is granted) with respect to which incentive
stock options are exercisable for the first time by the
Optionee during any calendar year (under this Plan and all
other incentive stock option plans of the Company, a related
corporation or a predecessor corporation) exceeds $100,000,
such options shall be treated as nonqualified stock options.
The previous sentence shall not apply if the Internal
Revenue Service issues a public rule, issues a private
ruling to the Company, any Optionee or any legatee, personal
representative or distributee of an Optionee or issues
regulations changing or eliminating such annual limit.
Section 6. Greater Than 10% Shareholders
6.1 Exercise Price and Term of Incentive Stock Options
If an incentive stock option is granted under this Plan to
any employee who owns more than 10% of the total combined
voting power of all classes of stock of the Company or any
related corporation, the term of such incentive stock
options shall not exceed five years and the exercise price
shall be not less than 110% of the fair market value of the
shares at the time the incentive stock option is granted.
This provision shall control notwithstanding any contrary
terms contained in an option agreement or any other
document.
6.2 Attribution Rule
For purposes of subsection 6.1, in determining stock
ownership, an employee shall be deemed to own the shares
owned, directly or indirectly, by or for his or her
brothers, sisters, spouse, ancestors and lineal descendants.
Shares owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to
be owned proportionately by or for its shareholders,
partners or beneficiaries. If an employee or a person
related to the employee owns an unexercised option or
warrant to purchase shares of the Company, the shares
subject to that portion of the option or warrant which is
unexercised shall not be counted in determining stock
ownership. For purposes of this Section 6, shares owned by
an employee shall include all shares actually issued and
outstanding immediately before the grant of the incentive
stock option to the employee.
Section 7. Adjustments Upon Changes in
Capitalization
The aggregate number and class of shares for which options
may be granted under this Plan, the Maximum Annual Optionee
Grant set forth in Section 5.1, the number and class of
shares covered by each outstanding option and the exercise
price per share thereof (but not the total price), and each
such option, shall all be proportionately adjusted for any
increase or decrease in the number of issued shares of
Common Stock of the Company resulting from a split-up or
consolidation of shares or any like capital adjustment, or
the payment of any stock dividend.
<PAGE>
7.1 Effect of Liquidation or Reorganization
7.1.1 Cash, Stock or Other Property for Stock
Except as provided in subsection 7.1.2, upon a merger (other
than a merger of the Company in which the holders of shares
of Common Stock immediately prior to the merger have the
same proportionate ownership of shares of Common Stock in
the surviving corporation immediately after the merger),
consolidation, acquisition of property or stock, separation,
reorganization (other than a mere reincorporation or the
creation of a holding company) or liquidation of the
Company, as a result of which the shareholders of the
Company receive cash, stock or other property in exchange
for or in connection with their shares of Common Stock, any
option granted hereunder shall terminate, but the Optionee
shall have the right immediately prior to any such merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise such Optionee's
option in whole or in part whether or not the vesting
requirements set forth in the option agreement have been
satisfied; provided that such acceleration will not occur
if, in the opinion of the Company's outside accountants,
such acceleration would render unavailable "pooling of
interests" accounting treatment for any reorganization,
merger or consolidation of the Company for which pooling of
interests accounting treatment is sought by the Company.
7.1.2 Conversion of Options on Stock for Stock
Exchange
If the shareholders of the Company receive capital stock of
another corporation ("Exchange Stock") in exchange for their
shares of Common Stock in any transaction involving a merger
(other than a merger of the Company in which the holders of
Common Stock immediately prior to the merger have the same
proportionate ownership of Common Stock in the surviving
corporation immediately after the merger), consolidation,
acquisition of property or stock, separation or
reorganization (other than a mere reincorporation or the
creation of a holding company), all options granted
hereunder shall be converted into options to purchase shares
of Exchange Stock unless the Company and the corporation
issuing the Exchange Stock, in their sole discretion,
determine that any or all such options granted hereunder
shall not be converted into options to purchase shares of
Exchange Stock but instead shall terminate in accordance
with the provisions of subsection 7.1.1. The amount and
price of converted options shall be determined by adjusting
the amount and price of the options granted hereunder in the
same proportion as used for determining the number of shares
of Exchange Stock the holders of the shares of Common Stock
receive in such merger, consolidation, acquisition of
property or stock, separation or reorganization. The
converted options shall be fully vested whether or not the
vesting requirements set forth in the option agreement have
been satisfied provided that such acceleration will not
occur if, in the opinion of the Company's outside
accountants, such acceleration would render unavailable
"pooling of interests" accounting treatment for any
reorganization, merger or consolidation of the Company for
which pooling of interests accounting treatment is sought by
the Company.
7.2 Fractional Shares
In the event of any adjustment in the number of shares
covered by any option, any fractional shares resulting from
such adjustment shall be disregarded and each such option
shall cover only the number of full shares resulting from
such adjustment.
7.3 Determination of Board to Be Final
All Section 7 adjustments shall be made by the Board, and
its determination as to what adjustments shall be made, and
the extent thereof, shall be final, binding and conclusive.
Unless an Optionee agrees otherwise, any change or
adjustment to an incentive stock option shall be made in
such a manner so as not to constitute a "modification" as
defined in Code Section 425(h) and so as not to cause his or
her incentive stock option issued hereunder to fail to
continue to qualify as an incentive stock option as defined
in Code Section 422(b).
Section 8. Securities Regulation
Shares shall not be issued with respect to an option granted
under this Plan unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall
comply with all relevant provisions of law, including,
without limitation, any applicable state securities laws,
the Securities Act of 1933, as amended, the Exchange Act,
the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may
then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance,
including the availability, if applicable, of an exemption
from registration for the issuance and sale of any shares
hereunder. Inability of the Company to obtain, from any
regulatory body having jurisdiction, the authority deemed by
the Company's counsel to be
<PAGE>
necessary for the lawful
issuance and sale of any shares hereunder or the
unavailability of an exemption from registration for the
issuance and sale of any shares hereunder shall relieve the
Company of any liability in respect of the nonissuance or
sale of such shares as to which such requisite authority
shall not have been obtained.
As a condition to the exercise of an option, the Company may
require the Optionee to represent and warrant at the time of
any such exercise that the shares are being purchased only
for investment and without any present intention to sell or
distribute such shares if, in the opinion of counsel for the
Company, such a representation is required by any relevant
provision of the aforementioned laws. At the option of the
Company, a stop-transfer order against any shares of stock
may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred, unless an opinion of
counsel is provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of
any applicable law or regulation, may be stamped on stock
certificates in order to assure exemption from registration.
The Plan Administrator may also require such other action or
agreement by the Optionees as may from time to time be
necessary to comply with the federal and state securities
laws. THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO
UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER.
Should any of the Company's capital stock of the same class
as the stock subject to options granted hereunder be listed
on a national securities exchange, all stock issued
hereunder if not previously listed on such exchange shall be
authorized by that exchange for listing thereon prior to the
issuance thereof.
Section 9. Amendment and Termination
9.1 Board Action
The Board may at any time suspend, amend or terminate this
Plan, provided that, to the extent required for compliance
with Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act, Section 422 of the Code or by any applicable
law or regulation, the Company's shareholders must approve
any amendment which will:
(a) increase the number of shares that may be issued
under this Plan;
(b) with respect to nonqualified stock options,
materially modify the requirements as to eligibility for
participation in this Plan or, with respect to incentive
stock options, change the designation of the participants or
class of participants eligible for participation in this
Plan;
(c) materially increase the benefits accruing to the
participants under this Plan; or
(d) otherwise require shareholder approval under any
applicable law or regulation.
Such shareholder approval must be obtained (i) within
12 months of the adoption by the Board of such amendment or
(ii) if earlier, and to the extent required for compliance
with Rule 16b-3 promulgated under Section 16(b) of the
Exchange Act, at the next annual meeting of shareholders
after such adoption by the Board.
Any amendment made to this Plan which would constitute a
"modification" to incentive stock options outstanding on the
date of such amendment, shall not be applicable to such
outstanding incentive stock options, but shall have
prospective effect only, unless the Optionee agrees
otherwise.
9.2 Automatic Termination
Unless sooner terminated by the Board, this Plan shall
terminate ten years from the earlier of (a) the date on
which this Plan is adopted by the Board or (b) the date on
which this Plan is approved by the shareholders of the
Company. No option may be granted after such termination or
during any suspension of this Plan. The amendment or
termination of this Plan shall not, without the consent of
the option holder, alter or impair any rights or obligations
under any option theretofore granted under this Plan.
<PAGE>
Section 10. Effectiveness of This Plan
This Plan shall become effective upon adoption by the Board
so long as it is approved by the Company's shareholders at
any time within 12 months of such adoption of this Plan or,
if earlier, and to the extent required for compliance with
Rule 16b-3 under the Exchange Act, at the next annual
meeting of shareholders after adoption by the Board.
Original Plan adopted by the Board on May 23, 1989 and
approved by the shareholders on May 30, 1989. Plan was
amended on March 15, 1991, July 15, 1991, and November 18,
1991. Plan amended and restated on March 27, 1992, on
January 22, 1993 and on August 19, 1993; restated by the
Board on October 26, 1994 and approved by the shareholders
on November 17, 1994; amended and restated by the Board on
April 25, 1996 and approved by the Company's shareholders on
June 25, 1996.
