SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-
11(c) or Section 240.14a-12
NEOPATH, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11
(1) Title of each class of
securities to which
transaction applies:
_________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
_________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
_________________________________________________________________________
(5) Total Fee Paid
_________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date of
its filing.
Amount previously paid:__________________________Filing Party:________
Form, Schedule or
Registration Statement no.:_________________________Date Filed:_______
<PAGE>
[LOGO OF NEOPATH, INC.]
Redmond, Washington
April 15, 1997
Dear Shareholders:
On behalf of the Board of Directors and management, I cordially
invite you to attend the NeoPath, Inc. (the "Company") 1997 Annual
Meeting of Shareholders (the "Annual Meeting") to be held on Thursday,
May 22, 1997 at 8:30 a.m. (Pacific daylight time) at The Hyatt Regency
Bellevue at Bellevue Place, 900 Bellevue Way NE, Bellevue, Washington.
At the Annual Meeting, you will be asked to elect four directors to
the Company's Board of Directors. In addition, you will be asked to
vote upon a proposal to adopt the NeoPath, Inc. 1997 Employee Stock
Purchase Plan (the "ESPP"). Your attention is directed to the
accompanying Notice of Annual Meeting of Shareholders and accompanying
Proxy Statement for further information with respect to matters to be
acted upon at the Annual Meeting.
NEOPATH'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF THE NOMINEES FOR DIRECTOR AND FOR ADOPTION OF THE ESPP.
Whether or not you plan to attend the Annual Meeting, it is
important that your shares be represented. Please sign, date and mail
the enclosed proxy card as soon as possible in the enclosed postage
prepaid envelope to ensure that your vote is counted. If you attend the
meeting, you will, of course, have the right to vote your shares in
person.
Very truly yours,
Alan C. Nelson
President and
Chief Executive Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD
<PAGE>
[LOGO OF NEOPATH, INC.]
8271 - 154th Avenue NE
Redmond, Washington 98052
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 1997
To the Shareholders:
The 1997 Annual Meeting of Shareholders (the "Annual Meeting") of
NeoPath, Inc., a Washington corporation (the "Company"), will be held at
The Hyatt Regency Bellevue at Bellevue Place, 900 Bellevue Way NE,
Bellevue, Washington, on Thursday, May 22, 1997 at 8:30 a.m. (Pacific
daylight time) for the following purposes:
1.To elect three Class 3 directors to the Company's Board of
Directors for terms expiring in 2000 and one Class 1
director to the Company's Board of Directors for a term
expiring in 1998.
2.To consider and vote upon a proposal to adopt the NeoPath,
Inc. 1997 Employee Stock Purchase Plan (the "ESPP"),
providing for the purchase of up to 150,000 shares of Common
Stock by eligible employees.
3.To transact such other business as may properly come before
the Annual Meeting or any adjournments or postponements
thereof.
The record date for the Annual Meeting was March 26, 1997. Only
shareholders of record at the close of business on that date are
entitled to notice of, and to vote at, the Annual Meeting and any
adjournments or postponements thereof.
The affirmative vote of the holders of a plurality of the shares of
Common Stock present, in person or by proxy, at the Annual Meeting is
required for the election of directors. The affirmative vote of the
holders of shares representing a majority of the shares of Common stock
present, in person or by proxy, and entitled to vote thereon at the
Annual Meeting is required to approve the adoption of the ESPP.
By Order of the Board of Directors
Alan C. Nelson
President and
Chief Executive Officer
Redmond, Washington
April 15, 1997
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN
AND DATE THE ENCLOSED PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE
IN THE ENCLOSED STAMPED AND ADDRESSED ENVELOPE IN ORDER THAT THE
PRESENCE OF A QUORUM MAY BE ASSURED. YOUR STOCK WILL BE VOTED IN
ACCORDANCE WITH THE INSTRUCTIONS YOU HAVE GIVEN IN THE PROXY. YOUR
PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY SIGNING AND
RETURNING A LATER-DATED PROXY WITH RESPECT TO THE SAME SHARES, BY FILING
WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION BEARING A LATER
DATE, OR BY ATTENDING AND VOTING IN PERSON AT THE ANNUAL MEETING.
<PAGE>
[LOGO OF NEOPATH, INC.]
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 22, 1997
General
This Proxy Statement is furnished by the Board of Directors of
NeoPath, Inc., a Washington corporation (the "Company"), to the holders
of Common Stock, $.01 par value, of the Company (the "Common Stock"), in
connection with the solicitation of proxies by the Board of Directors
for use at the 1997 Annual Meeting of Shareholders (the "Annual
Meeting"), to be held at 8:30 a.m. (Pacific daylight time) on Thursday,
May 22, 1997, at The Hyatt Regency Bellevue at Bellevue Place, 900
Bellevue Way NE, Bellevue, Washington, and at any adjournments or
postponements thereof.
This Proxy Statement and the enclosed proxy card are first being
mailed to shareholders on or about April 15, 1997.
Revocability of Proxies
A proxy delivered pursuant to this solicitation is revocable at the
option of the person giving the same at any time before it is exercised.
A proxy may be revoked, prior to its exercise, by executing and
delivering a later-dated proxy card with respect to the same shares
prior to the Annual Meeting, by delivering written notice of revocation
to the Secretary of the Company at any time prior to the vote, or
attending and voting at the Annual Meeting. Attendance at the Annual
Meeting, in and of itself, will not constitute a revocation of a proxy.
Unless previously revoked, the shares represented by the enclosed proxy
will be voted in accordance with the shareholder's directions if the
proxy is duly executed and returned prior to the Annual Meeting. If no
directions are specified, the shares will be voted "FOR", (i) the
election of the Directors recommended by the Board of Directors, (ii)
the adoption of the NeoPath, Inc. 1997 Employee Stock Purchase Plan (the
"ESPP") providing for the purchase of up to 150,000 shares of Common
Stock by eligible employees, and (iii) in accordance with the discretion
of the named proxies, on other matters properly brought before the
Annual Meeting.
Record Date; Shares Entitled to Vote; Vote Required
The close of business on March 26, 1997 (the "Record Date") has
been fixed as the record date for determining the holders of shares of
Common Stock who are entitled to notice of and to vote at the Annual
Meeting. As of the Record Date, there were 14,209,863 shares of Common
Stock outstanding and entitled to vote. The holders of record on the
Record Date of shares of Common Stock are entitled to one vote per share
of Common Stock. The presence, in person or by proxy, of the holders of
shares representing a majority of the voting power of the shares of
Common Stock entitled to vote is necessary to constitute a quorum for
the transaction of business at the Annual Meeting.
Under Washinton law and the Company's Articles of Incorporation, if
a quorum is present at the Annual Meeting, (a) the four nominees for
election as directors who receive the greatest number of votes cast for
the election of directors at the Annual Meeting by the shares present in
person or represented by proxy at the Annual Meeting and entitled to
vote shall be elected directors, and (b) the proposal to approve the
ESPP will be approved if the votes cast in favor of the proposal by the
shares present in person or represented by proxy at the Annual Meeting
and entitled to vote exceed the votes cast against the proposal.
Abstention from voting will have no effect on the election of directors
or the approval of the ESPP since they will not represent votes cast at
the Annual Meeting for the purposes of electing directors and approval
of the ESPP. Because brokers have discretion to vote shares of Common
Stock held on behalf of beneficial owners if no instructions for voting
such shares are received as to the matters to be voted upon at the
Annual Meeting, there will be no "broker nonvotes."
Page 1
<PAGE>
Solicitation of Proxies
The accompanying Proxy is being solicited by and on behalf of the
Company's Board of Directors. The expense of preparing, printing, and
mailing this Proxy Statement and the proxies solicited hereby will be
borne by the Company. In addition to the use of the mails, proxies may
be solicited by directors, officers, and other employees of the Company,
without additional remuneration, in person, or by telephone, or facsimile
transmission. The Company will also request brokerage firms, bank
nominees, custodians, and fiduciaries to forward proxy materials to the
beneficial owners of Common Stock as of the Record Date and will provide
reimbursement for the cost of forwarding the proxy materials in
accordance with customary practice. Your cooperation in promptly signing
and returning the enclosed proxy card will help avoid additional expense.
1. ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
The Company's Articles of Incorporation provide that the members of
the Board of Directors be divided into three classes, as nearly equal as
possible. Each class is elected for a three-year term. At each annual
meeting of shareholders, one class of the Board of Directors is elected
for a three-year term and directors in the other classes remain in
office until their respective three-year terms expire. The Company's
Board of Directors presently consists of seven members, with two members
in Classes 1 and 2, and three members in Class 3. At the expiration of
each class' term, continuing directors are to be elected to serve for a
term of three years or until their respective successors have been
elected and qualified. C. Richard Kramlich, whose term expires in 1998,
is leaving the Board of Directors effective May 22, 1997.
Of the four nominees, Walter L. Robb, Cristina H. Kepner and
William L. Scott are the nominees comprising the class to be elected at
the Annual Meeting for three-year terms expiring at the 2000 annual
meeting; the remaining nominee, Alan D. Frazier, is nominated to the
class for a term expiring at the 1998 annual meeting. Unless otherwise
directed, the persons named in the proxy intend to cast all proxies in
favor of Walter L. Robb, Cristina H. Kepner, William L. Scott and Alan
D. Frazier to serve as directors of the Company. It is intended that
votes will be cast pursuant to the accompanying proxy for the election
of these nominees unless contrary instructions are received. If any
nominee should become unavailable for any reason, it is intended that
votes will be cast for a substitute nominee as designated by the
Company's Board of Directors. The Board of Directors has no reason to
believe that any of the nominees named will be unable to serve if
elected.
Information About the Director Nominees
Walter L. Robb, Ph.D., (age 68), has been a Director of the Company
since July 1993 and was elected Chairman of the Board in June 1994. From
1986 to 1993, when he retired, Dr. Robb was Senior Vice President and
Director of Corporate Research and Development of General Electric
Corporation. From 1973 to 1986, he was Senior Vice President and General
Manager of GE Medical Systems, a division of General Electric
Corporation. Dr. Robb is the sole owner of Vantage Management, Inc., a
private consulting firm. Dr. Robb serves as a director of Celgene Corp.,
Cree Research, Inc. and Marquette Medical Systems, Inc.
Cristina H. Kepner, (age 50), has been a Director of the Company
since April 1994. Ms. Kepner has been a Director, Executive Vice
President, and Corporate Finance Director of Invemed Associates, Inc.,
an investment banking firm, since February 1978. Invemed Associates,
Inc. served as underwriter for the Company's initial public offering in
February 1995 and for the Company's second public offering in January
1996. Ms. Kepner is also a director of Quipp, Inc.
William L. Scott, (age 53), was named the Company's Vice President
and Chief Financial Officer in March 1997. Mr. Scott was Vice President
and General Manager of Boston Scientific Corporation's Northwest
Technology Center, Inc. from January 1996 through December 1996. Prior
to Boston Scientific's acquisition of Heart Technology, Inc., Mr. Scott
was Heart Technology's Vice Present, Finance and Administration and
Chief Financial Officer from January 1992 through December 1995. Mr.
Scott served as Vice President and Chief Financial Officer at various
other companies, including Pentzer Corporation from 1990 through 1991,
Flow International from 1989 through 1990, and Physio Control
Corporation from 1975 through 1982.
Page 2
<PAGE>
Alan D. Frazier, (age 45), has been a Director of the Company since
October 1991. He is the managing partner of Frazier & Company, a
private equity capital provider to emerging health care companies.
Prior to founding Frazier & Company in 1991, he held executive
management positions with Immunex Corporation, Receptech Corporation and
Immunology Ventures, a joint venture between Immunex and Sterling
Winthrop Pharmaceuticals. Mr. Frazier is a director of IVI Publishing,
Inc., InControl, Inc. and Integrated Medical Resources, Inc.
Information About Directors Whose Terms of Office Continue After the
Annual Meeting
Term expires 1998:
Alan C. Nelson, Ph.D., (age 47), the Company's founder, President
and Chief Executive Officer, has been a Director since May 1989. He was
the Company's Chairman of the Board from March 1991 until June 1994, when
he became President and Chief Executive Officer. From September 1986 to
September 1992, he was an associate professor at the Center for
Bioengineering and an adjunct professor in the Departments of Pathology,
Radiology, and Electrical Engineering at the University of Washington,
where he directed that university's Center for Imaging Systems
Optimization from 1990 to 1991. Since 1991, Dr. Nelson has held an
affiliate professorship with the Center for Bioengineering at the
University of Washington.
Terms expire 1999:
David A. Thompson, (age 55), has been a Director of the Company
since June 1995. Mr. Thompson retired in June 1995 from Abbott
Laboratories ("Abbott"), a manufacturer and distributor of pharmaceutical
and nutritional products, where he served in various capacities since
1964. From August 1983 to July 1990, he was Abbott's Vice President,
Diagnostic Operations and President, Diagnostics Division; from July 1990
to June 1994, he was Abbott's Senior Vice President, Diagnostic
Operations and President, Diagnostics Division; and from June 1994 until
his retirement, he was Abbott's Senior Vice President, Strategic
Improvement Processes. Mr. Thompson is currently Chief Executive Officer
of Diagnostic Marketing Strategies, a private consulting firm. Mr.
Thompson is also a director of HYCOR Biomedical, Inc. and NABI.
Gail R. Wilensky, Ph.D., (age 53), has served as a John M. Olin
Senior Fellow of Project Hope since January 1993, serving as a formal
and informal advisor to government and the private sector. Dr. Wilensky
is also currently the chairperson for The Physician Payment Review
Commission where she advises the United States Congress regarding
physician payments in Medicare and Medicaid. During 1992 and 1993, Dr.
Wilensky was Deputy Assistant to the President for Policy Development
advising the President, Vice President and other senior administration
officials on issues related to health care and welfare reform. Dr.
Wilensky is also a director of Advanced Tissue Sciences, Inc., Capstone
Pharmacy Services, Inc., Coram Healthcare Corporation, Quest Diagnostics
Incorporated, St. Jude Medical, Inc., Shared Medical Systems
Corporation, Syncor International Corporation and United Healthcare
Corporation.
Compensation of Directors
From January through April 1996, the Company reimbursed directors
for their expenses incurred in attending board meetings, but did not pay
any other cash compensation to directors for serving in such capacity.
From May through September 1996, nonemployee directors received $2,000
per board meeting attended and $1,000 per committee meeting attended,
plus out-of-pocket expenses. Beginning in October 1996, nonemployee
directors receive $1,000 per board meeting attended and $600 per
committee meeting attended, plus out-of-pocket expenses. In addition,
beginning in October 1996, nonemployee directors receive an annual
retainer fee of $10,000, which is paid in $2,500 installments at the end
of each calendar quarter.
On June 25, 1996, the Company's shareholders approved the NeoPath,
Inc. Stock Option Plan for Nonemployee Directors, as amended and restated
on April 26, 1996 (the "Nonemployee Directors Plan") which specified that
a director is 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. Options granted under the
Nonemployee Directors Plan vest in three equal annual installments,
beginning one year after the date of grant, and the exercise price is
equal to the fair market value of
Page 3
<PAGE>
the Company's Common Stock on the date of grant. On June 26, 1996, all
nonemployee directors received grants to purchase 10,000 shares of Common
Stock in accordance with the provision of the Nonemployee Directors Plan.
On February 27, 1997, the Board of Directors amended and restated
the Nonemployee Directors Plan such that the number of shares purchasable
under options granted annually to continuing and newly appointed
directors during their term in office is reduced from 10,000 to 7,000
shares of the Company's Common Stock. Such options vest and become
exercisable in full on the day immediately prior to the annual meeting
next following the date of grant (disregarding the annual meeting being
held immediately after the date of grant).
Information on Committees of the Board of Directors
The Company's Board of Directors has standing Compensation, Audit
and Nominating Committees. Each of these committees is responsible to
the full Board of Directors, and its activities are therefore subject to
approval of the Board of Directors. The members of each Committee and
the functions performed thereby are described below:
Compensation Committee. During 1996, the Compensation Committee
was comprised of Mr. Frazier, who was a member throughout the year, Mr.
Thompson, who became a member effective February 15, 1996, and Dr.
Wilensky, who became a member effective June 25, 1996. Mr. Kramlich and
Ms. Kepner were members of the Compensation Committee through February
15, 1996. The Compensation Committee establishes salaries, incentives
and other forms of compensation for directors and officers of the
Company, administers the NeoPath, Inc. 1989 Stock Option Plan, as
amended and restated on December 10, 1996 (the "1989 Stock Option Plan")
and recommends policies relating to the Company's benefit plans. The
Compensation Committee met four times in 1996.
Audit Committee. During 1996, the Audit Committee was comprised of
Messrs. Frazier and Kramlich. The Audit Committee oversees the
engagement of the Company's independent auditors and, together with the
Company's independent auditors, reviews the Company's accounting
practices, internal accounting controls and financial results. The
Audit Committee met five times in 1996.
Nominating Committee. During 1996, the Nominating Committee was
comprised of Dr. Robb and Ms. Kepner. The Nominating Committee makes
recommendations to the Board of Directors concerning prospective
candidates to fill vacancies on the Board of Directors. The Nominating
Committee met one time in 1996. The Nominating Committee will consider
the names and qualifications of candidates for the Board of Directors
submitted by shareholders in accordance with the procedures referred to
in "Proposals of Shareholders" in this Proxy Statement.
During 1996 there were five meetings of the Board of Directors, one
of which was held telephonically. Each director attended at least 75%
of all board meetings and meetings of Committees on which they served,
except Ralph M. Richart and Wayne C. Wager, both of whom were absent for
more than 25% of the Board of Directors Meetings held in January through
June 1996, the period for which they served as directors during the
year.
Page 4
<PAGE>
Executive Officers
The executive officers of the Company, and their ages as of March
15, 1997, are as follows:
Name Age Position
Alan C. Nelson 47 President and Chief Executive Officer
and Director
Melvyn D. Schatz 49 Vice President and Chief Operating
Officer
Shih-Jong James Lee 41 Vice President, Research and
Development and Chief Scientist
William L. Scott 53 Vice President and Chief Financial
Officer
Larry A. Nelson 51 Vice President, Imaging Technology
David H. Robison 47 Vice President, Operations
Volker R. Kettering 47 Vice President, Sales
Kumar K. Shahani 42 Vice President, Marketing and
Business Assessment
Patricia A. Milbank 45 Former Vice President, Regulatory
Affairs and Quality Assurance
For information regarding Alan C. Nelson see "-Information About
Directors Whose Terms of Office Continue After the Annual Meeting."
Melvyn D. Schatz, Vice President and Chief Operating Officer, joined
NeoPath in September 1996. Mr. Schatz was employed at Abbott
Laboratories where, from February 1983 to September 1996, he held
numerous positions, including Business Unit Manager, Vice President of
Asia Pacific Area and President of Dainabot Company Ltd. (an Abbott joint
venture), and most recently, Sector General Manager and Divisional Vice
President.
Shih-Jong James Lee, Ph.D., Vice President, Research and Development
and Chief Scientist, joined NeoPath in March 1989. Dr. Lee served as the
Company's Chief Scientist beginning March 1993 and Vice President, Chief
Scientist in February 1995. In February 1997, Dr. Lee was named Vice
President, Research and Development and Chief Scientist. Dr. Lee was
Principal Engineer for the High Technology Center of the Boeing Company
from 1986 to 1989, and founded its Image Analysis Group. He currently
serves on the Editorial Board of the Pattern Recognition Journal.
For information regarding William L. Scott see "-Information About
the Director Nominees."
Larry A. Nelson, Vice President, Imaging Technology, joined NeoPath
in October 1992. Mr. Nelson was NeoPath's Vice President, Research and
Engineering until February 1997, when he was named Vice President,
Imaging Technology. Mr. Nelson was employed at Honeywell, Inc. as Senior
Fellow from 1990 to 1992, and as Senior Staff Engineer from 1986 to 1990.
David H. Robison, Vice President, Operations, joined NeoPath in May
1996. Prior to joining NeoPath, Mr. Robison was employed by Abbott
Laboratories in various positions from February 1978 through May 1996.
From February 1995 to May 1996, Mr. Robison was Research and Development
Director for Abbott's Diagnostic Division, and from May 1990 to February
1995 he was Director, Customer Satisfaction.
Volker R. Kettering, Vice President, Sales, joined NeoPath in June
1995. Mr. Kettering was employed at Siemens Medical Systems, Inc., an
electronics manufacturer, from June 1973 to June 1995, most recently as
its Vice President of the Western Zone of the Imaging Systems Group from
March 1995 to June 1995 and, from October 1986 to March 1995, as its
District Manager of the Pacific Northwest Region.
Kumar K. Shahani, Vice President, Marketing and Business Assessment,
joined NeoPath in December 1996. From April 1995 to November 1996, Mr.
Shahani was Director of Marketing at Ostex International, a biotechnology
company. Mr. Shahani was Global Market Development Manager at Puritan-
Bennett Corporation, a medical device manufacturer, from January 1989 to
April 1995.
Page 5
<PAGE>
Patricia A. Milbank served as Vice President, Regulatory Affairs and
Quality Assurance of the Company from November 1993 through October 1996.
From 1986 to 1993, Ms. Milbank was Regulatory Affairs Attorney and
Product Liability Litigation Attorney at Syntex (U.S.A.) Inc. Ms.
Milbank is currently employed by NeoPath on a part-time basis as
Director, Legal Affairs.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors
and executive officers, and persons who own more than 10% of the Common
Stock, to file with the Securities and Exchange Commission (the "SEC")
initial reports of beneficial ownership ("Forms 3") and reports of
changes in beneficial ownership of Common Stock and other equity
securities of the Company ("Forms 4"). Officers, directors, and greater
than 10% shareholders of the Company are required by SEC regulations to
furnish to the Company copies of all Section 16(a) reports that they
file. To the best of the Company's knowledge, based solely on a review
of the copies of such reports furnished to the Company and written
representations that no other reports were required, all Section 16(a)
filing requirements applicable to its officers, directors, and greater
than 10% beneficial owners were complied with during 1996, except that
two reports covering distributions of NeoPath Common Stock by affiliates
of C. Richard Kramlich were filed late.
Page 6
<PAGE>
Executive Compensation
Summary of Compensation
The following table sets forth certain information with respect to
compensation paid by the Company for the fiscal year ended December 31,
1996 and for the two prior fiscal years to (i) the Company's Chief
Executive Officer and (ii) the Company's four other most highly
compensated executive officers whose salary and bonus exceeded $100,000
for services performed during the fiscal year ended December 31, 1996
(collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
Annual Compensation ------------
------------------------------------- Securities
Name and Principal Other Annual Underlying
Position Year Salary($) Bonus($)(5) Compensation($) Options(#)
<S> <C> <C> <C> <C> <C>
Alan C. Nelson(1) 1996 $257,022 $102,900(6) -- 100,000
President and Chief 1995 $156,683 $100,750(6) -- 50,000
Executive Officer 1994 $137,500 $ 2,250 $80,000(7) 150,001
Shih-Jong James Lee(2) 1996 $166,985 $ 55,646(8) -- 27,793
Vice President, 1995 $120,231 $ 28,620(9) -- 20,000
Research and 1994 $107,654 $ 11,042 -- --
Development and
Chief Scientist
Volker R. Kettering(3) 1996 $144,750 $ 43,858 -- 15,000
Vice President, 1995 $ 55,385 $ 59,642 -- 35,000
Sales
Larry A. Nelson(1) 1996 $139,365 $ 38,744 -- 41,250
Vice President, 1995 $117,673 $ 21,405 -- --
Imaging Technology 1994 $109,997 $ 1,917 -- --
Patricia A. Milbank(4) 1996 $136,481 -- -- 22,125
Former Vice 1995 $118,508 $ 41,557(10) -- --
President, 1994 $ 96,000 -- -- 31,000
Regulatory Affairs and
Quality Assurance
</TABLE>
____________________
(1) Alan C. Nelson and Larry A. Nelson are not related.
(2) Shih-Jong James Lee was the Company's Chief Scientist from
March 1993 until February 1995 when he was promoted to Vice
President and Chief Scientist. In February 1997, Dr. Lee was named
Vice President, Research and Development and Chief Scientist.
(3) Volker R. Kettering joined the Company as Vice President, Sales
in June 1995.
(4) Patricia A. Milbank served as the Company's Vice President,
Regulatory Affairs and Quality Assurance from November 1993 through
October 1996.
(5) Unless otherwise noted, bonuses were earned by achievement of
specified corporate goals approved by the Compensation Committee of
the Board of Directors. Payment of such bonuses was made within 60
days following the respective year end.
(6) Includes $750 in bonus related to patent application.
(7) Reflects an amount paid to Dr. Nelson to compensate him in part
for tax consequences associated with the exercise of stock options.
(8) Includes $1,500 in bonuses related to patent applications.
(9) Includes $6,750 in bonuses related to patent applications.
(10) Includes a $20,000 bonus granted in connection with the
completion and submission of a pre-market approval application to
the United States Food & Drug Administration.
Page 7
<PAGE>
Grants of Stock Options
The following table sets forth certain information regarding stock
options granted during the fiscal year ended December 31, 1996 to the
Named Executive Officers.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
---------------------------------------------------- Value at
Percent of Assumed Annual
Total Rates of
Number of Options Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise Option Term(2)
Options in Price Expiration -------------------------
Name Granted(#)(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Alan C. Nelson 100,000 12.9% $23.50 5/23/06 $1,477,902 $ 3,745,295
Shih-Jong James Lee 27,793 3.6 23.50 5/23/06 410,753 1,040,930
Volker R. Kettering 15,000 1.9 23.50 5/23/06 221,685 561,794
Larry A. Nelson 41,250 5.3 23.50 5/23/06 609,635 1,544,934
Patricia A. Milbank 22,125 2.9 23.50 5/23/06 326,986 828,646
</TABLE>
__________
(1) One-quarter of the options vest on the first anniversary of the
date of grant, and the remainder vest in equal monthly installments
over the three succeeding years. All such stock options had an
exercise price per share equal to the per share market price of the
Common Stock on the date of grant.
(2) Based on the exercise price per share on the date of grant.
There can be no assurance that the actual value per share realized by
a Named Executive Officer will approximate the potential realizable
values set forth in the table.
Exercise of Stock Options and Year-End Values
The following table sets forth certain information regarding stock
options exercised during the fiscal year ended December 31, 1996 and
options held at December 31, 1996 by the Named Executive Officers.
Aggregated Option Exercises in Last Fiscal Year and Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options
Shares Year-End(#) at Fiscal Year-End($)(2)
Acquired on Value --------------------------- ---------------------------
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
Alan C. Nelson 31,000 $658,425 148,151 131,250 $2,113,586 $ 62,500
Shih-Jong James Lee -- -- 29,805 43,428 391,199 127,889
Volker R. Kettering -- -- 13,125 36,875 22,969 38,281
Larry A. Nelson 4,000 81,200 16,500 41,250 281,325 --
Patricia A. Milbank 10,000 226,438 26,591 39,834 435,127 290,788
</TABLE>
__________
(1) Based on the closing price of the Company's Common Stock on the
date of exercise.
(2) Based on the closing price of the Company's Common Stock on
December 31, 1996 of $18.25 per share as reported by the Nasdaq
National Market.
Page 8
<PAGE>
Compensation Committee Interlocks and Insider Participation
During 1996, the Compensation Committee was comprised of Mr.
Frazier, who was a member throughout the year, Mr. Thompson, who became a
member effective February 15, 1996, and Dr. Wilensky, who became a member
effective June 25, 1996. Mr. Kramlich and Ms. Kepner were members of the
Compensation Committee through February 15, 1996. Mr. Frazier is an
affiliate of Frazier & Company, L.P., Frazier Healthcare Investments,
L.P. and Frazier Securities, L.P. Mr. Kramlich is an affiliate of New
Enterprise Associates V, L.P. Ms. Kepner is an officer and director of
Invemed Associates, Inc., which served as underwriter for the Company's
initial public offering in February 1995 and for the Company's second
public offering in January 1996. Messrs. Frazier, Kramlich, and Ms.
Kepner and affiliates have invested in one or more of the Company's
financings since January 1, 1992.
Invemed Associates, Inc. received $2,656,500 and $1,358,287 in
underwriting compensation relating to the Company's initial public
offering and second public offering, respectively.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is responsible
for establishing the compensation for the Company's executive officers
and making recommendations concerning such compensation to the Board of
Directors. In addition, the Compensation Committee is responsible for
administering the 1989 Stock Option Plan. The Compensation Committee is
composed of nonemployee directors. During 1996, the Compensation
Committee was comprised of Mr. Frazier, who was a member throughout the
year, Mr. Thompson, who became a member effective February 15, 1996, and
Dr. Wilensky, who became a member effective June 25, 1996. Mr. Kramlich
and Ms. Kepner were members of the Compensation Committee through
February 15, 1996.
In May 1996 the Compensation Committee engaged a compensation
consulting firm to review the Company's compensation program for
officers. The purpose of the study was to ensure that the Company's
compensation program is competitive and that it supports NeoPath's
strategies and objectives. The study was completed in September 1996
and will serve as a guideline for determining the type and amount of
officer compensation.
The underlying objectives of the Company's compensation strategy
are to attract and retain the best possible executive talent, to
motivate those executives to achieve optimum operating performance for
the Company, to link executive and shareholder interests through equity-
based plans and to provide a compensation package that recognizes
individual contributions as well as overall business results. The
Compensation Committee believes that the overall compensation philosophy
should be to allow for total executive compensation in the upper
quartiles of the competitive survey data described below for exeptional
performance in achieving corporate goals, and that compensation in the
lower quartiles should be used, as appropriate, for less-than-expected
achievement of goals. There are three components to the Company's
executive compensation program: base salary, incentive (bonus)
payments, and long-term incentives in the form of stock options.
Base Salary. Base salary for each executive officer is based
primarily on competitive survey data for comparable positions at medical
products, biotechnology and high technology companies, supplemented by
an assessment of each officer's sustained performance, advancement
potential, experience, responsibility, and scope and complexity of
management position. The companies in this survey include some but not
all of the companies in the Hambrecht & Quist Healthcare Section
Excluding Biotech Index included in the Stock Performance Graph.
Page 9
<PAGE>
Annual Incentives. The Compensation Committee believes that
executives' performance is most appropriately measured based on progress
toward achieving operating goals that are formulated to promote
advancement of key aspects of the Company's business. In January 1997,
the Compensation Committee evaluated the performance of the Company's
executive management with respect to a series of goals that were set in
early 1996. The goals included meeting defined production levels, the
filing of a pre-market approval application with the United States Food
& Drug Administration, establishing and maintaining a superior customer
service and support capability, and achieving defined targets for
revenues and customer contracts. Bonuses were paid to officers based on
the level of achievement of 1996 goals. The Compensation Committee
intends to continue to base future annual incentives for officers on the
achievement of defined goals and milestones, with the range of potential
awards based primarily on competitive survey data.
Long-Term Incentives. The long-term performance-based compensation
of executive officers takes the form of option awards under the 1989
Stock Option Plan. The Compensation Committee believes that the equity-
based compensation ensures that the Company's executive officers have a
continuing stake in the long-term success of the Company. Since the
Company's initial public offering, all options granted by the Company
have been granted with an exercise price equal to or in excess of the
market price of the Company's Common Stock. Accordingly, stock options
will have value only if the Company's stock price increases. Vesting is
used to encourage employees to continue in the employ of the Company.
1996 Compensation for the Chief Executive Officer
In determining Dr. Nelson's salary for 1996, the Committee
considered competitive compensation data for chief executive officers of
similar companies within the medical device, biotechnology and high
technology industries, taking into account Dr. Nelson's experience and
knowledge. Based primarily on competitive survey data, the Compensation
Committee determined that it was appropriate to raise Dr. Nelson's salary
in October 1996 to an annual rate of $300,000 per year. As further
described under "-Long-Term Incentives," long-term performance-based
compensation of executive officers takes the form of stock option grants.
During 1996, Dr. Nelson was awarded a grant to purchase 100,000 shares of
the Company's Common Stock, with the exercise price of the options equal
to the market price of NeoPath's Common Stock on the date of grant. The
grant was based on the Committee's subjective assessment of option grants
made to chief executive officers of similar companies within similar
industries. Based on the Company's achievement of specified goals,
including those listed under "-Annual Incentives," the Compensation
Committee determined that it was appropriate to grant Dr. Nelson a bonus
of $102,000 relating to 1996 performance.
Section 162(m) Limitations on Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended,
makes certain nonperformance-based compensation in excess of $1 million
paid to executives of public companies nondeductible by such companies.
Certain performance-based compensation that has been approved by
shareholders is not subject to the deduction limit. The 1989 Stock
Option Plan is structured to qualify options granted under the plan as
performance-based compensation under Section 162(m). At this time, no
executive officer of the Company has received, nor is it anticipated
that any executive officer will receive, any such compensation in excess
of this limit during 1996. Therefore, no action was required to comply
with the limit. The Compensation Committee will continue to monitor the
situation and will take appropriate action if it is warranted in the
future.
Compensation Committee
David A. Thompson
Alan D. Frazier
Gail R. Wilensky
Page 10
<PAGE>
Stock Performance Graph
The following graph compares the cumulative total shareholder
return on the Company's Common Stock with the cumulative total return of
the Nasdaq National Market and the Hambrecht & Quist Healthcare Section
Excluding Biotech Index for the period beginning on January 26, 1995,
the Company's first day of trading after its initial public offering,
and ending on December 31, 1996.
Comparison of Cumulative Total Return Among
NeoPath, Inc.
Nasdaq National Market and
Hambrecht & Quist Healthcare Section Excluding Biotech Index
(Period Ended December 31, 1996)
Nasdaq Hambecht &
Measurement Period National Quist
(Quarterly from January 26,1995) NeoPath, Inc. Market Index
- ------------------------------------------------------------------------
Measurement Pt -1995 $100.00 $100.00 $100.00
Mar-31-1995 $122.92 $108.11 $109.81
Jun-30-1995 $137.50 $123.66 $112.80
Sep-30-1995 $220.83 $138.56 $141.11
Dec-31-1995 $193.75 $140.27 $156.52
Mar-31-1996 $193.75 $146.80 $167.44
Jun-30-1996 $210.42 $158.79 $157.38
Sep-30-1996 $160.42 $164.44 $172.71
Dec-31-1996 $152.08 $172.53 $173.78
Assumes $100 invested in the Company's Common Stock, the Nasdaq
National Market and the Hambrect & Quist Healthcare Section
Excluding Biotech Index, with all dividends reinvested. Stock
performance shown in the above chart for the Common Stock is
historical and not necessarily indicative of future price
performance.
Employment Contracts and Termination of Employment and Change-in-Control
Agreements
In December 1996, the Compensation Committee approved a Senior
Management Employment Agreement (the "Agreement") for officers (including
the Named Executive Officers) and key management personnel that provides
for continued employment terms equivalent to those immediately prior to a
change in control for the two years following a change in control. A one-
time cash payment equal to two times the executive's annual salary and
bonus is immediately triggered if, following a change in control,
employment is terminated by (i) the employee for "good reason" or (ii)
the employer for any reason other than death, disability or for "cause."
The Agreement was approved by the Company's Board of Directors in
February 1997. The Committee believes that the Agreement enables NeoPath
management to focus their efforts on the long-term achievement of Company
goals.
The 1989 Stock Option Plan provides optionees with the right to
exercise all stock options, whether or not the vesting requirements have
been met, immediately prior to defined changes in the Company's
ownership.
Page 11
<PAGE>
Certain Relationships and Related Transactions
Ms. Kepner is an officer and director of Invemed Associates, Inc.,
which served as underwriter for the Company's initial public offering in
February 1995 and for the Company's second public offering in January
1996.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of February 28, 1997, except as
otherwise noted, certain information with respect to the beneficial
ownership of the Common Stock by (i) each person known by the Company to
beneficially own more than 5% of the Common Stock, (ii) each director of
the Company, (iii) the Named Executive Officers, and (iv) all directors
and executive officers of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners of the Common
Stock listed below, based on information furnished by such owners, have
sole voting and investment power with respect to such shares.
Shares Percent
Beneficially of
Name and Address Owned Class
------------ -------
Alan C. Nelson(1) 427,999 3.1%
Shih-Jong James Lee(2) 59,193 *
Volker R. Kettering(3) 15,312 *
Larry A. Nelson(4) 35,805 *
Patricia A. Milbank(5) 34,875 *
Alan D. Frazier(6) 157,822 1.1%
Cristina H. Kepner(7) 314,725 2.3%
C. Richard Kramlich(8) 151,345 1.1%
Walter L. Robb(9) 144,104 1.1%
David A. Thompson(10) 10,166 *
Gail R. Wilensky 0 *
Trustees of General Electric Pension Trust(11) 1,526,463 10.8%
3033 Summer Street
Stamford, CT 06904-7900
The TCW Group, Inc.(12) 953,600 6.9%
865 South Figueroa Street
Los Angeles, CA 90017
Robert Day(12) 953,600 6.9%
200 Park Avenue, Suite 2200
New York, NY 10166
T. Rowe Price Associates, Inc.(13) 767,117 5.6%
100 E. Pratt Street
Baltimore, MD 21202
All Directors and Named Executive Officers as
a group(11 persons)(14) 1,351,346 9.5%
________________________
* Less than 1%
(1) Represents 289,682 outstanding shares, 136,317 shares issuable
upon exercise of options that are exercisable within 60 days and
2,000 shares held by Dr. Nelson's wife for the benefit of her nephew.
Dr. Nelson disclaims beneficial ownership of the 2,000 shares held by
his wife for the benefit of her nephew.
(2) Includes 12,048 shares issuable upon exercise of options that
are exercisable within 60 days.
(3) Consists of 15,312 shares issuable upon exercise of options that
are exercisable within 60 days.
(4) Consists of 35,805 outstanding shares.
(5) Includes 31,675 shares issuable upon exercise of options that are
exercisable within 60 days.
Page 12
<PAGE>
(6) Represents 1,898 outstanding shares and 8,000 shares issuable
upon exercise of options that are exercisable within 60 days held by
Mr. Frazier; 12,025 outstanding shares, 7,500 shares issuable upon
exercise of options that are exercisable within 60 days and 115,289
shares issuable upon exercise of warrants held by Frazier & Company
L.P.; and 13,110 outstanding shares held by
Frazier Management LLC. The general partner of Frazier & Company
L.P. is Frazier Management LLC.
(7) Represents 21,568 outstanding shares, 8,000 shares issuable upon
exercise of options that are exercisable within 60 days, and 18,918
shares issuable upon exercise of warrants held by Ms. Kepner; and
144,740 outstanding shares and 121,499 shares issuable upon exercise
of warrants held by Invemed Associates, Inc. Ms. Kepner is an
officer and director of Invemed Associates, Inc. Ms. Kepner
disclaims beneficial ownership of all 266,239 shares beneficially
owned by Invemed Associates, Inc.
(8) Represents 20,511 outstanding shares held by Mr. Kramlich and
8,000 shares issuable upon exercise of options that are exercisable
within 60 days; 1,571 outstanding shares held by Mr. Kramlich's
family trust; 7,094 outstanding shares held by New Enterprise
Associates III, L.P.; 100,001 outstanding shares and 7,500 shares
issuable upon exercise of outstanding options that are exercisable
within 60 days held by New Enterprise Associates V, L.P.; and 6,668
outstanding shares held by The Silverado Fund I, Limited Partnership.
The general partner of New Enterprise Associates III, L.P. is NEA
Partners III, Limited Partnership, the general partners of which are
C. Richard Kramlich, Cornelius C. Bond, Jr., Charles W. Newhall III
and Arthur J. Marks. The general partner of New Enterprise
Associates V, L.P. is NEA Partners V, Limited Partnership, the
general partners of which are Messrs. Kramlich, Newhall and Marks,
Thomas C. McConnell and Nancy L. Dorman. The general partner of The
Silverado Fund I, Limited Partnership is NEA Silverado Partners,
Limited Partnership, the general partners of which are Messrs.
Kramlich, Bonsal, Newhall and Marks. Mr. Kramlich shares voting and
investment power with such other general partners and disclaims
beneficial ownership of shares in which he has no pecuniary interest.
(9) Includes 47,719 shares issuable upon exercise of options that
are exercisable within 60 days.
(10) Includes 5,166 shares issuable upon exercise of options that are
exercisable within 60 days.
(11) Includes 416,667 shares issuable upon exercise of warrants;
total shares as of December 31, 1996 per filing on Schedule 13G.
(12) Represents 953,600 outstanding shares held by The TCW Group,
Inc. and Robert Day, an individual who may be deemed to control The
TCW Group, Inc.; outstanding shares as of December 31, 1996 per
filing on Schedule 13G.
(13) The outstanding shares are as of December 31, 1996 per filing on
Schedule 13G. These securities are owned by various individual and
institutional investors which T. Rowe Price Associates, Inc. (Price
Associates) serves as investment advisor with power to direct
investments and/or sole power to vote the securities. For purposes
of the reporting requirements of the Securities Exchange Act of 1934,
Price Associates is deemed to be a beneficial owner of such
securities; however, Price Associates expressly disclaims that it is,
in fact, the beneficial owner of such securities.
(14) Includes 287,237 shares issuable upon exercise of options that are
exercisable within 60 days and 255,706 shares issuable upon exercise
of warrants.
2. PROPOSED ADOPTION OF NEOPATH, INC. 1997 EMPLOYEE STOCK PURCHASE PLAN
On February 27, 1997, the Company's Board of Directors unanimously
adopted, subject to shareholder approval, the ESPP. The ESPP will
provide a means for eligible employees of the Company and its
subsidiaries to purchase shares of Company Common Stock under favorable
terms through payroll deductions. The Board believes that adoption of
the ESPP will promote the interests of the Company and its shareholders
by assisting the Company in attracting, retaining and stimulating the
performance of employees and by aligning employees' interests through
their purchases of Common Stock with the interests of shareholders.
A copy of the ESPP is attached to this Proxy Statement as Appendix A
and is incorporated herein by reference. The following description of
the ESPP is a summary and does not purport to be a complete description.
See Appendix A for more detailed information.
Page 13
<PAGE>
Descripton of the ESPP
Shares Subject to the ESPP. An aggregate of up to 150,000 shares of
Common Stock is authorized for issuance under the ESPP, subject to
adjustment from time to time for stock dividends and certain other
changes in capitalization as provided in the ESPP.
Administration. The ESPP will be administered by the Compensation
Committee except to the extent administration is delegated to an
executive officer of the Company (the "Plan Administrator"). The Plan
Administrator is authorized to administer and interpret the ESPP and to
make such rules and regulations as it deems necessary to administer the
ESPP, so long as such interpretation, administration or application with
respect to purchases under the ESPP corresponds to the requirements of
Section 423 of the Code.
Eligibility. The ESPP is an employee benefit program that enables
qualified employees to purchase shares of Common Stock at a discount
through payroll deductions without incurring broker commissions. To
participate, an employee must (a) be employed for more than 20 hours each
week and five months in any calendar year and (b) have been employed for
at least six months. An employee is not eligible to continue
participation in the ESPP in the event his or her employment is
voluntarily or involuntarily terminated, or if such employee owns or will
own, as a result of such participation, shares possessing 5% or more of
the total combined voting power or value of all classes of stock of the
Company or any related corporation. Only subsidiaries of the Company
which are designated by the Board of Directors or the Compensation
Committee may participate in the ESPP. As of February 28, 1997,
approximately 156 of the Company's employees would be eligible to
participate in the ESPP, including Named Executive Officers.
Non-employee directors of the Company are not eligible to participate in
the ESPP.
Stock Purchases. The ESPP is divided into offering periods, which
initially will be consecutive six-month periods beginning on July 1 and
January 1 of each year. The Board of Directors or the Compensation
Committee can establish different offering periods, subject to the
limitations set forth in the ESPP. During these offering periods,
participating employees accumulate funds in an account used to buy Common
Stock through payroll deductions at a rate of not less than 1% or more
than 15% of such participant's regular cash compensation during each
payroll period in each purchase period within an offering period. The
length of each purchase period will be as established by the Board of
Directors or the Compensation Committee and may be the same as the
offering period, or may be shorter consecutive periods within the
offering period. The ESPP will initially be implemented with purchase
periods of six months that will be coextensive with the offering periods.
At the end of each purchase period, the market price is determined
and the participating employees' accumulated funds are used to purchase
the appropriate number of shares of Common Stock. No participant may
purchase more than $25,000 fair market value of Common Stock for any
calendar year under the ESPP. The purchase price per share of Common
Stock under the ESPP will be as established by the Board of Directors or
the Compensation Committee, but may not be less than the lower of 85% of
the per share fair market value of the Common Stock on either the first
day of the offering period or the last day of the purchase period. The
ESPP will initially be implemented with a purchase price equal to 85% of
the lesser of the fair market value of the Common Stock on the first day
of the offering period and the last day of the purchase period. The
closing price of a share of Common Stock on February 28, 1997 was $16.375
as reported on the Nasdaq National Market.
Shares purchased under the ESPP may not be transferred or otherwise
disposed of for a period of six months after the purchase date, except
upon termination of employment because of retirement, disability or
death.
Amendment and Termination. The Board of Directors has the power to
amend, suspend or terminate the ESPP, provided that the Board may not
amend the ESPP without shareholder approval if such approval is required
by Section 423 of the Code. The Compensation Committee may also amend
the ESPP so long as such amendment does not require shareholder approval.
Term of the ESPP. The ESPP will continue in effect until May 22,
2007.
Page 14
<PAGE>
Federal Income Tax Consequences
The Company intends that the ESPP qualify as an "employee stock
purchase plan" under Section 423 of the Code. Section 423 allows an
employer to grant options to its employees to purchase company stock at a
stipulated price without having the employees realize taxable income at
the time the option is granted or when exercised. The basis of the stock
received on exercise of an option under the ESPP is the exercise price
paid for the stock. The Code imposes a holding period for favorable tax
treatment upon disposition of Common Stock acquired under the ESPP equal
to the later of two years after the grant date and one year after the
purchase date. When the Common Stock is sold after this holding period,
the employee will realize ordinary income up to the amount of any
discount (up to a maximum of 15%) from the fair market value of Common
Stock as of the grant date. Any further gain is taxed at capital gain
rates. If the stock is sold before the holding period expires, the
employee will realize ordinary income to the extent of the difference
between the price actually paid for the stock and the fair market value
of the stock at the purchase date, regardless of the price at which the
stock is sold. If the sale price is less than the fair market value of
the stock on the purchase date, the employee will realize a capital loss
equal to such difference.
The Company may not take a deduction for the difference between the
fair market value of the Common Stock and the purchase price paid for the
Common Stock by the employee unless the employee disposes of the stock
before the statutory holding periods expire.
The Board of Directors recommends that shareholders vote FOR approval of
the adoption of the NeoPath, Inc. 1997 Employee Stock Purchase Plan.
INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP will be present at the Annual
Meeting and will have an opportunity to make a statement and to respond
to appropriate questions from shareholders.
PROPOSALS OF SHAREHOLDERS
Shareholder proposals to be presented at the Company's 1998 Annual
Meeting of Shareholders and included in the Company's Proxy Statement
relating to such meeting must be received by the Company no later than
December 16, 1997. Such proposals should be directed to the Corporate
Secretary of the Company, 8271 - 154th Avenue NE, Redmond, Washington
98052.
OTHER BUSINESS
It is not intended by the Board of Directors to bring any other
business before the meeting, and so far as is known to the Board, no
matters are to be brought before the meeting except as specified in the
notice of the meeting. However, as to any other business which may
properly come before the meeting, it is intended that proxies, in the
form enclosed, will be voted in respect thereto, in accordance with the
judgment of the persons voting such proxies.
Page 15
<PAGE>
ANNUAL REPORT AND FORM 10-K
A copy of the Company's 1996 Annual Report is enclosed.
Shareholders not receiving a copy of such Annual Report may obtain one,
without charge, upon request to the Company by writing or calling the
Company's investor relations representative, NeoPath, Inc., 8721 - 154th
Avenue NE, Redmond, WA 98052, 1-800-NEOPATH.
A copy of the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, as filed with the Secruities and Exchange
Commission, will be provided without charge to each shareholder of
record who submits a written request addressed to the Company's investor
relations representative, NeoPath, Inc., 8721 - 154th Avenue NE,
Redmond, WA 98052.
By Order of the Board of Directors
Alan C. Nelson
President and
Chief Executive Officer
Redmond, Washington
April 15, 1997
Page 16
<PAGE>
APPENDIX A
NEOPATH, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE
The purposes of the NeoPath, Inc. 1997 Employee Stock Purchase
Plan (the "Plan") are to (a) assist employees of NeoPath, Inc., a
Washington corporation (the "Company"), and of any subsidiary
corporations in acquiring a stock ownership interest in the Company
pursuant to a plan that is intended to qualify as an "employee stock
purchase plan" under Section 423 of the Internal Revenue Code of 1986,
as amended (the "Code"), and (b) help employees provide for their
future security and encourage them to remain in the employ of the
Company and any subsidiary corporations.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as
set forth below.
"Board" means the Board of Directors of the Company.
"Change Notice Date" has the meaning set forth in Section 9.2.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Company's Compensation Committee or another
committee appointed by the Board and given authority by the Board
to administer the Plan.
"Company" means NeoPath, Inc., a Washington corporation.
"Eligible Compensation" means all regular cash compensation,
including overtime, cash bonuses and commissions. Regular cash
compensation does not include severance pay, hiring and relocation
bonuses, pay in lieu of vacations, sick leave or any other special
payments.
"Eligible Employee" means any employee of the Company (or any
Parent Corporation or Subsidiary Corporation designated by the
Plan Administrator (a "Designated Corporation")) who is in the
employ of the Company (or any such Designated Corporation) on one
or more Offering Dates and who meets the following criteria:
(a) the employee does not, immediately after the Option is granted,
own stock (as defined by the Code) possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company
or of a Parent Corporation or Subsidiary Corporation of the Company;
(b) the employee's customary employment is for more than 20 hours per
week;
(c) the employee's customary employment is for more than five months
in any calendar year; and
(d) the employee has been employed for at least six months.
If the Company permits any employee of a Designated Corporation to
participate in the Plan, then all employees of that Designated
Corporation who meet the requirements of this paragraph shall also
be considered Eligible Employees.
A-1
<PAGE>
"Enrollment Period" has the meaning set forth in Section 6.1.
"ESPP Broker" has the meaning set forth in Section 10.2.
"Offering" has the meaning set forth in Section 5.1.
"Offering Date" means the first day of an Offering.
"Offering Period" has the meaning set forth in Section 5.1.
"Option" means an option granted under the Plan to an Eligible
Employee to purchase shares of Stock.
"Parent Corporation" means any corporation, other than the
Company, 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.
"Participant" means any Eligible Employee who has elected to
participate in an Offering in accordance with the procedures set
forth in Section 6.1 and who has not withdrawn from the Offering
or whose participation in the Offering has not terminated.
"Plan" means the NeoPath, Inc. 1997 Employee Stock Purchase Plan.
"Plan Administrator" has the meaning set forth in Section 3.1.
"Purchase Date" means the last day of each Purchase Period.
"Purchase Period" has the meaning set forth in Section 5.2.
"Purchase Price" has the meaning set forth in Section 8.
"Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Subscription" has the meaning set forth in Section 6.1.
"Subscription Date" has the meaning set forth in Section 6.1.
"Subsidiary Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations beginning with the
Company if, at the time of the granting of the Option, each of the
corporations, other than the last corporation in the unbroken
chain, 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.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Committee or by an executive
officer of the Company who is designated by the Board or the Committee
to administer the Plan (the "Plan Administrator"), except for those
items expressly reserved to the Board or the Committee under the Plan.
Any decisions made by the Board, the Committee or the Plan
Administrator shall be applicable equally to all Eligible Employees.
A-2
<PAGE>
3.2 Administration and Interpretation by the Plan
Administrator
Subject to the provisions of the Plan, the Plan Administrator
shall have exclusive authority, in its, his or her discretion, to
determine all matters relating to Options granted under the Plan,
including all terms, conditions, restrictions and limitations of
Options; provided, however, that all Participants granted Options
pursuant to the Plan shall have the same rights and privileges within
the meaning of the Code. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time
adopt, and change, rules and regulations of general application for the
Plan's administration. The Plan Administrator's interpretation of the
Plan and its rules and regulations, and all actions taken and
determinations made by the Plan Administrator pursuant to the Plan,
unless revised by the Board or the Committee, shall be conclusive and
binding on all parties involved or affected. The Plan Administrator
may delegate administrative duties to such of the Company's other
officers or employees as the Plan Administrator so determines.
SECTION 4. STOCK SUBJECT TO PLAN
Subject to adjustment from time to time as provided in Section 19,
a maximum of 150,000 shares of Stock may be sold under the Plan.
Shares sold under the Plan shall be drawn from authorized and unissued
shares or shall be shares acquired by the Company. Any shares of Stock
that have been made subject to an Option that cease to be subject to
the Option (other than by reason of exercise of the Option), including,
without limitation, in connection with the cancellation or termination
of the Option, shall again be available for sale in connection with
future grants of Options under the Plan.
SECTION 5. OFFERING DATES
5.1 Offering Periods
The Plan shall be implemented by a series of offerings (each, an
"Offering"). Except as otherwise set forth below, Offerings shall
commence on July 1 and January 1 of each year and end on the next
December 31 and June 30, respectively, occurring thereafter.
Notwithstanding the foregoing, the Board or the Committee may establish
(a) a different term for one or more Offerings and (b) different
commencing and ending dates for such Offerings; provided, however, that
an Offering Period (the "Offering Period") may not exceed five years;
and provided further that if the Purchase Price may be less than 85% of
the fair market value of the Stock on the Purchase Date, the Offering
Period may not exceed 27 months. Unless the Plan Administrator in its
sole discretion determines otherwise for future Offerings, an employee
who becomes eligible to participate in the Plan after an Offering
Period has commenced shall not be eligible to participate in such
Offering but may participate in any subsequent Offering, provided that
such employee is still an Eligible Employee as of the commencement of
any such subsequent Offering. Unless the Plan Administrator in its
sole discretion determines otherwise for future Offerings, Eligible
Employees may not participate in more than one Offering at a time. In
the event the first or the last day of an Offering Period is not a
regular business day, then the first day of the Offering Period shall
be deemed to be the next regular business day and the last day of the
Offering Period shall be deemed to be the last preceding regular
business day.
5.2 Purchase Periods
Each Offering Period shall consist of one or more consecutive
purchase periods (each, a "Purchase Period"). Except as otherwise set
forth below, Purchase Periods shall commence on July 1 and January 1 of
each year and end on the next December 31 and June 30, respectively,
occurring thereafter. Notwithstanding the foregoing, the Board or the
Committee may establish (a) different terms for one or more Purchase
Periods within an Offering Period and (b) different commencing dates
and Purchase Dates for any such Purchase Period. The last day of each
Purchase Period shall be the Purchase Date for such Purchase Period.
In the event the first or last day of a Purchase Period is not a
regular business day, then the first day of the Purchase Period shall
be deemed to be the next regular business day and the last day of the
Purchase Period shall be deemed to be the last preceding regular
business day.
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SECTION 6. PARTICIPATION IN THE PLAN
6.1 Initial Participation
An Eligible Employee shall become a Participant on the first
Offering Date after satisfying the eligibility requirements and
delivering to the Plan Administrator during the enrollment period
established by the Plan Administrator (the "Enrollment Period") a
subscription (the "Subscription") in the form and manner prescribed by
the Plan Administrator and by the date established by the Plan
Administrator (the "Subscription Date"):
(a) indicating the Eligible Employee's election to participate in
the Plan;
(b) authorizing payroll deductions and stating the amount to be
deducted regularly from the Participant's pay; and
(c) authorizing the purchase of Stock for the Participant in each
Purchase Period.
An Eligible Employee who does not deliver a Subscription to the
Plan Administrator during the Enrollment Period and on or before the
Subscription Date shall not participate in the Plan for that Offering
Period or for any subsequent Offering Period, unless such Eligible
Employee subsequently enrolls in the Plan by delivering a Subscription
to the Plan Administrator during the Enrollment Period and on or before
the Subscription Date for such subsequent Offering Period. The Plan
Administrator may, from time to time, change the Subscription Date as
deemed advisable by the Plan Administrator in its, his or her sole
discretion for the proper administration of the Plan.
6.2 Continued Participation
A Participant shall automatically participate in the next Offering
Period until such time as such Participant withdraws from the Plan
pursuant to Section 11.2 or terminates employment as provided in
Section 12. If a Participant withdraws from an Offering pursuant to
Section 11.1, the Participant is not required to file any additional
Subscription for the next subsequent Offering in order to continue
participation in the Plan.
SECTION 7. LIMITATIONS ON RIGHT TO PURCHASE SHARES
7.1 $25,000 Limitation
No Participant shall be entitled to purchase Stock under the Plan
(or any other employee stock purchase plan that is intended to meet the
requirements of Code Section 423 sponsored by the Company, a Parent
Corporation or a Subsidiary Corporation) at a rate that exceeds $25,000
in fair market value, determined as of the Offering Date for each
Offering Period (or such other limit as may be imposed by the Code),
for each calendar year in which a Participant participates in the Plan
(or any other employee stock purchase plan described in this
Section 7.1).
7.2 Pro Rata Allocation
In the event the number of shares of Stock that might be purchased
by all Participants in the Plan exceeds the number of shares of Stock
available in the Plan, the Plan Administrator shall make a pro rata
allocation of the remaining shares of Stock in as uniform a manner as
shall be practicable and as the Plan Administrator shall determine to
be equitable. Fractional shares may be issued under the Plan only to
the extent permitted by the Board or the Committee.
SECTION 8. PURCHASE PRICE
The purchase price (the "Purchase Price") at which Stock may be
acquired in an Offering pursuant to the exercise of all or any portion
of an Option granted under the Plan shall be 85% of the lesser of
(a) the fair market value of the Stock on the Offering Date of such
Offering and (b) the fair market value of the Stock on the Purchase
Date. Notwithstanding the foregoing, the Board or the Committee may
establish a different Purchase Price for any Offering, which shall not
be less than the Purchase Price set forth in the preceding sentence.
The fair market value of the Stock on the Offering Date or on the
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Purchase Date shall be the average of the high and low per share
trading prices for the Stock as reported for such day by the Nasdaq
National Market (or any national stock exchange (an "exchange") on
which the Stock is at the time listed or admitted to trading). If no
sales of the Stock were made on the Nasdaq National Market (or an
exchange) on the transaction date, fair market value shall be the
average of the high and low per share trading prices for the Stock as
reported for the next preceding day on which sales of the Stock were
made on the Nasdaq National Market (or an exchange).
SECTION 9. PAYMENT OF PURCHASE PRICE
9.1 General Rules
Stock that is acquired pursuant to the exercise of all or any
portion of an Option may be paid for only by means of payroll
deductions from the Participant's Eligible Compensation unless the Plan
Administrator in its sole discretion establishes other methods for
payment of the Purchase Price and except as provided in Section 9.12
for leaves of absence. Except as set forth in this Section 9, the
amount of compensation to be withheld from a Participant's Eligible
Compensation during each pay period shall be determined by the
Participant's Subscription.
9.2 Change Notices
During an Offering Period, a Participant may elect to increase or
decrease the amount withheld from his or her compensation by providing
an amended Subscription to the Plan Administrator by a date at least
ten days prior to the end of the pay period for which such election is
to be effective (the "Change Notice Date"); provided, however, that the
Plan Administrator may change the Change Notice Date from time to time.
9.3 Percent Withheld
The amount of payroll withholding with respect to the Plan for any
Participant during any pay period shall be at least 1% of the
Participant's Eligible Compensation for such pay, but shall not exceed
15% of the Participant's Eligible Compensation for such pay period.
Amounts shall be withheld only in whole percentages.
9.4 Payroll Deductions
Payroll deductions shall commence on the first payday following
the Offering Date and shall continue through the last payday of the
Offering Period unless sooner altered or terminated as provided in the
Plan.
9.5 Memorandum Accounts
Individual accounts shall be maintained for each Participant for
memorandum purposes only. All payroll deductions from a Participant's
compensation shall be credited to such account, but shall be deposited
with the general funds of the Company. All payroll deductions received
or held by the Company may be used by the Company for any corporate
purpose.
9.6 No Interest
No interest shall be paid on cash payments or payroll deductions
received or held by the Company.
9.7 Acquisition of Stock
On each Purchase Date of an Offering Period, each Participant
shall automatically acquire, pursuant to the exercise of the
Participant's Option, the number of shares of Stock arrived at by
dividing the total amount of the Participant's accumulated payroll
deductions for the Purchase Period by the Purchase Price; provided,
however, that in no event shall the number of shares of Stock purchased
by the Participant exceed the number of whole shares of Stock so
determined, except to the extent that the Board or the Committee has
determined that fractional shares may be issued under the Plan.
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9.8 Refund of Excess Amounts
Any cash balance remaining in the Participant's account after a
purchase of Stock at the end of a Purchase Period shall be refunded to
the Participant as soon as practical after the Purchase Date. In the
event the cash to be returned to a Participant pursuant to the
preceding sentence is in an amount less than the amount necessary to
purchase a whole share of Stock, and the Board or Committee has not
determined that fractional shares may be issued, the Plan Administrator
may establish procedures whereby such cash is maintained in the
Participant's account and applied to the purchase of Stock in the
subsequent Purchase Period or Offering Period.
9.9 Withholding Obligations
At the time the Option is exercised, in whole or in part, or at
the time some or all of the Stock is disposed of, the Participant shall
make adequate provision for federal and state withholding obligations
of the Company, if any, that arise upon exercise of the Option or upon
disposition of the Stock. The Company may, but shall not be obligated
to, withhold from the Participant's compensation the amount necessary
to meet such withholding obligations.
9.10 Termination of Participation
No Stock shall be purchased on behalf of a Participant on a
Purchase Date if his or her participation in the Offering or the Plan
has terminated prior to such Purchase Date.
9.11 Procedural Matters
The Plan Administrator may, from time to time, establish
(a) limitations on the frequency and/or number of changes in the amount
withheld during the Offering, (b) an exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, (c) payroll
withholding in excess of the amount designated by a Participant in
order to adjust for delays or mistakes in the Company's processing of
properly completed withholding elections, and (d) such other
limitations or procedures as deemed advisable by the Plan Administrator
in its sole discretion that are consistent with the Plan and in
accordance with the requirements of Code Section 423.
9.12 Leaves of Absence
During leaves of absence approved by the Company and meeting the
requirements of the applicable Treasury Regulations, a Participant may
continue participation in the Plan by delivering cash payments to the
Plan Administrator on the Participant's normal paydays equal to the
amount of his or her payroll deduction under the Plan had the
Participant not taken a leave of absence.
SECTION 10. STOCK PURCHASED UNDER THE PLAN
10.1 Restrictions on Transfer of Stock
(a) Shares of Stock purchased under the Plan may be registered in the
name of a nominee or held in such other manner as the Plan
Administrator determines to be appropriate. Each Participant will be
the beneficial owner of the Stock purchased under the Plan and will
have all rights of beneficial ownership in such Stock, except that the
Participant may not transfer or otherwise dispose of such Stock for a
period of six months following the Purchase Date for such Stock.
(b) Cash dividends paid on shares of Stock that are subject to the six-
month restriction set forth in subparagraph (a) above will be paid to
the Participant. Dividends paid in the form of shares of Stock with
respect to Stock that has been purchased under the Plan but which is
subject to the six-month restriction set forth in subparagraph (a)
above shall be credited to the Participant's account and shall be
restricted for the same period as the Stock with respect to which the
stock dividend was paid.
(c) Upon termination of the Participant's employment because of
retirement, disability or death, the six-month restriction set forth in
subparagraph (a) above will be deemed to be satisfied as of the date of
such termination.
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(d) The Company or brokerage firm or other entity selected by the
Company may retain custody of any certificates representing the Stock
purchased under the Plan for a period of time ending no earlier than
the expiration of the six-month restriction set forth in subparagraph
(a) above, or the Company, in its sole discretion, may deliver to
Participants such certificates imprinted with a legend setting forth
the restriction on transfer contemplated by the Plan and may place a
stop transfer order with the Company's transfer agent against the Stock
until it may be transferred in accordance with the Plan.
10.2 ESPP Broker
If the Plan Administrator designates or approves a stock brokerage
or other financial services firm to hold shares purchased under the
Plan for the accounts of Participants (the "ESPP Broker"), the
following procedures shall apply. Promptly following each Purchase
Date, the number of shares of Stock purchased by each Participant shall
be deposited into an account established in the Participant's name with
the ESPP Broker. A Participant shall be free to undertake a
disposition of the shares of Stock in his or her account at any time
(subject to the provisions of Section 10.1), but, in the absence of
such a disposition, the shares of Stock must remain in the
Participant's account at the ESPP Broker until the holding period set
forth in Code Section 423(a) has been satisfied. With respect to
shares of Stock for which the Code Section 423(a) holding periods have
been satisfied, the Participant may move those shares of Stock to
another brokerage account of the Participant's choosing or request that
a stock certificate be issued and delivered to him or her. A
Participant who is not subject to payment of U.S. income taxes may move
his or her shares of Stock to another brokerage account of his or her
choosing or request that a stock certificate be delivered to him or her
at any time, without regard to the Code Section 423(a) holding period.
10.3 Notice of Disposition
By entering the Plan, each Participant agrees to give the Company
prompt notice of any Stock acquired in an Offering that is disposed of
within the later of (a) two years after the Offering Date for such
Offering and (b) one year after the Purchase Date for such Stock,
showing the number of such shares disposed of and the Purchase Date for
such Stock. This notice shall not be required if and so long as the
Company has a designated ESPP Broker.
SECTION 11. VOLUNTARY WITHDRAWAL
11.1 Withdrawal From an Offering
A Participant may withdraw from an Offering by providing to the
Plan Administrator a notice of withdrawal in the form and manner
required by the Plan Administrator for such purpose. Such withdrawal
must be elected within the time period established for an Offering
Period by the Plan Administrator. If a Participant withdraws after the
Purchase Date for a Purchase Period of an Offering, the withdrawal
shall not affect Stock acquired by the Participant in that Purchase
Period and any earlier Purchase Periods. Unless the Plan Administrator
establishes a different rule, withdrawal from an Offering shall not
result in a withdrawal from the Plan and any succeeding Offering
therein. A Participant is prohibited from again participating in the
same Offering at any time upon withdrawal from such Offering.
11.2 Withdrawal From the Plan
A Participant may withdraw from the Plan by providing to the Plan
Administrator a notice of withdrawal in the form and manner required by
the Plan Administrator for such purpose. Such notice must be provided
to the Plan Administrator within the time period established for an
Offering Period by the Plan Administrator. If a Participant withdraws
after the Purchase Date for a Purchase Period of an Offering, the
withdrawal shall not affect Stock acquired by the Participant in that
Purchase Period and any earlier Purchase Periods. In the event a
Participant voluntarily elects to withdraw from the Plan, the
withdrawing Participant may not resume participation in the Plan during
the same Offering Period, but may participate in any subsequent
Offering under the Plan by again satisfying the definition of
Participant.
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11.3 Return of Payroll Deductions
Upon withdrawal from an Offering pursuant to Section 11.1 or from
the Plan pursuant to Section 11.2, the withdrawing Participant's
accumulated payroll deductions that have not been applied to the
purchase of Stock shall be returned as soon as practical after the
withdrawal, without the payment of any interest, to the Participant,
and the Participant's interest in the Offering shall terminate. Such
accumulated payroll deductions may not be applied to any other Offering
under the Plan.
SECTION 12. TERMINATION OF EMPLOYMENT
Termination of a Participant's employment with the Company for any
reason, including retirement, disability or death, or the failure of a
Participant to remain an Eligible Employee, shall immediately terminate
the Participant's participation in the Plan. The payroll deductions
credited to the Participant's account since the last Purchase Date
shall, as soon as practical, be returned to the Participant or, in the
case of a Participant's death, to the Participant's legal
representative, and all the Participant's rights under the Plan shall
terminate. Interest shall not be paid on sums returned to a
Participant pursuant to this Section 12.
SECTION 13. RESTRICTIONS UPON ASSIGNMENT
An Option granted under the Plan shall not be transferable
otherwise than by will or by the applicable laws of descent and
distribution, and shall be exercisable during the Participant's
lifetime only by the Participant. The Plan Administrator will not
recognize, and shall be under no duty to recognize, any assignment or
purported assignment by a Participant, other than by will or by the
applicable laws of descent and distribution, of the Participant's
interest in the Plan, of his or her Option or of any rights under his
or her Option.
SECTION 14. NO RIGHTS OF SHAREHOLDER UNTIL SHARES ISSUED
With respect to shares of Stock subject to an Option, a
Participant shall not be deemed to be a shareholder of the Company, and
he or she shall not have any of the rights or privileges of a
shareholder. A Participant shall have the rights and privileges of a
shareholder of the Company when, but not until, the shares have been
issued following exercise of the Participant's Option.
SECTION 15. AMENDMENT OF THE PLAN
The Board or the Committee may amend the Plan in such respects as
it shall deem advisable; provided, however, that to the extent required
for compliance with Code Section 423 or any applicable law or
regulation, shareholder approval will be required for any amendment
that will (a) increase the total number of shares as to which Options
may be granted under the Plan, (b) modify the class of employees
eligible to receive Options, or (c) otherwise require shareholder
approval under any applicable law or regulation.
SECTION 16. TERMINATION OF THE PLAN
The Board may suspend or terminate the Plan at any time. Unless
the Plan shall theretofore have been terminated by the Board, the Plan
shall terminate on, and no Options shall be granted after, May 22,
2007, except that such termination shall have no effect on Options
granted prior thereto. No Options shall be granted during any period
of suspension of the Plan.
SECTION 17. NO RIGHTS AS AN EMPLOYEE
Nothing in the Plan shall be construed to give any person
(including any Eligible Employee or Participant) the right to remain in
the employ of the Company or a Parent Corporation or Subsidiary
Corporation or to affect the right of the Company and the Parent
Corporations and Subsidiary Corporations to terminate the employment of
any person (including any Eligible Employee or Participant) at any time
with or without cause.
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SECTION 18. EFFECT UPON OTHER PLANS
The adoption of the Plan shall not affect any other compensation
or incentive plans in effect for the Company or any Parent Corporation
or Subsidiary Corporation. Nothing in the Plan shall be construed to
limit the right of the Company, any Parent Corporation or any
Subsidiary Corporation to (a) establish any other forms of incentives
or compensation for employees of the Company, any Parent Corporation or
any Subsidiary Corporation or (b) grant or assume options otherwise
than under the Plan in connection with any proper corporate purpose,
including, but not by way of limitation, the grant or assumption of
options in connection with the acquisition, by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
SECTION 19. ADJUSTMENTS
19.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock
dividend, stock split, spin-off, combination or exchange of shares,
recapitalization, merger, consolidation, distribution to shareholders
other than a normal cash dividend, or other change in the Company's
corporate or capital structure results in (a) the outstanding shares,
or any securities exchanged therefor or received in their place, being
exchanged for a different number or class of securities of the Company
or of any other corporation or (b) new, different or additional
securities of the Company or of any other corporation being received by
the holders of shares of Stock, then (subject to any required action by
the Company's shareholders) the Board or the Committee, in its sole
discretion, shall make such equitable adjustments as it shall deem
appropriate in the circumstances (i) in the maximum number and kind of
securities subject to the Plan as set forth in Section 4 and (ii) the
number and kind of securities subject to any outstanding Option and the
per share price of such securities. The determination by the Board or
the Committee as to the terms of any of the foregoing adjustments shall
be conclusive and binding.
19.2 Merger, Acquisition or Liquidation of the Company
In the event of the merger or consolidation of the Company into
another corporation, the acquisition by another corporation of all or
substantially all of the Company's assets, or the liquidation or
dissolution of the Company, the Purchase Date with respect to
outstanding Options shall be the business day immediately preceding the
effective date of such merger, consolidation, liquidation or
dissolution unless the Board or the Committee shall, in its sole
discretion, provide for the assumption or substitution of such Options
in a manner complying with Code Section 424(a).
19.3 Limitations
The grant of Options will in no way affect the Company's right to
adjust, reclassify, reorganize or otherwise change its capital or
business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
SECTION 20. REGISTRATION
The Company shall be under no obligation to any Participant to
register for offering or resale under the Securities Act of 1933, as
amended, or register or qualify under state securities laws, any shares
of Stock. The Company may issue certificates for shares with such
legends and subject to such restrictions on transfer and stop-transfer
instructions as counsel for the Company deems necessary or desirable
for compliance by the Company with federal and state securities laws.
SECTION 21. EFFECTIVE DATE
The Plan's effective date is the date on which it is approved by
the Company's shareholders.
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P R O X Y
NEOPATH, INC.
This Proxy is Solicited by the Board of Directors for the
Annual Meeting of Shareholders - May 22, 1997
The undersigned hereby appoint(s) Alan C. Nelson and Robert C.
Bateman and each of them as proxies, with full power of substitution,
to represent and vote as designated all shares of Common Stock of
NeoPath, Inc. held of record by the undersigned March 26, 1997 at the
Annual Meeting of Shareholders of the Company to be held at The Hyatt
Regency Bellevue at Bellevue Place, 900 Bellevue Way NE, Bellevue,
Washington, at 8:30 a.m. (Pacific daylight time) on Thursday, May 22,
1997, with authority to vote upon the matters listed on the other side
of this proxy card and with discretionary authority as to any other
matters that may properly come before the meeting or any adjournment or
postponement thereof.
IMPORTANT - PLEASE DATE AND SIGN ON THE OTHER SIDE.
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
NEOPATH, INC.
MAY 22, 1997
A [x] Please mark your votes as in this example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN ITEM 1,
AND "FOR" ITEM 2.
WITHHOLD
FOR AUTHORITY
all Nominees to vote for all Nominees
(1) ELECTION
OF
DIRECTORS [ ] [ ]
WITHHOLD for the following only: (Write the name of the nominee(s) in
the space below)
_______________________________________________________
NOMINEES: Walter L. Robb
Cristina H. Kepner
William L. Scott
Alan D. Frazier
FOR AGAINST ABSTAIN
(2) ADOPTION OF
EMPLOYEE STOCK
PURCHASE PLAN [ ] [ ] [ ]
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDERS IN THE SPACE PROVIDED. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" ITEM 2.
I plan to attend the Annual Meeting [ ]
PLEASE DATE,SIGN AND RETURN PROMPTLY.
SIGNATURE(S)________________________ DATE____________
NOTE: Please sign exactly as your name appears hereon. Attorneys,
trustees, executors and other fiduciaries acting in a representative
capacity should sign their names and give their titles. An authorized
person should sign on behalf of corporations, partnerships,
associations, etc. and give his or her title. If your shares are held
by two or more persons, each person must sign. Receipt of the notice of
meeting and proxy statement is hereby acknowledged.
