SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended
June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
Commission File Number: 0-25210
NEOPATH, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1436093
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8271 - 154th Avenue NE, Redmond, Washingtonn 98052
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (425) 869-7284
Indicate by check mark whether the registrant (1)
has filed all reports required to be
filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during
the preceding 12 months (or for such
shorter period that the registrant was
required to file such reports), and
(2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares
outstanding of each of the issuer's
classes of common stock, as of the
latest practicable date.
Class Outstanding at July 25, 1997
(Common stock, $.01 par value) 14,344,072
<PAGE>
NEOPATH, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION Page
Item 1. Financial Statements 1
Balance Sheets - June 30, 1997 (unaudited) and
December 31, 1996
Statements of Operations (unaudited) - for the
three months and six months ended June 30, 1997 and
1996
Statements of Cash Flows (unaudited) - for the six
months ended June 30, 1997 and 1996
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
NEOPATH, INC.
BALANCE SHEETS
June 30, December 31,
1997 1996
------------ -------------
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 6,488,219 $ 7,871,401
Securities available-for-sale 36,650,323 50,616,477
Accounts receivable, net 1,522,144 840,256
Inventories 8,806,045 5,641,914
Other current assets 431,895 197,726
------------ -----------
Total current assets 53,898,626 65,167,774
Fee-per-use systems, net 6,773,628 5,994,137
Property and equipment, net 5,564,904 4,813,745
Intangible assets 3,759,917 -
Deposits and other assets 158,445 155,899
------------ ------------
Total assets $ 70,155,520 $ 76,131,555
============ ============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 2,193,580 $ 1,496,630
Salaries and wages payable 2,075,976 2,208,454
Other accrued liabilities 1,721,451 565,939
Note payable 500,000 -
Current portion of obligations
under capital leases 76,502 75,861
--------- ---------
Total current liabilities 6,567,509 4,346,884
Obligations under capital
leases, less current portion 142,126 182,535
Shareholders' equity:
Common stock 140,840,584 136,255,746
Deferred compensation - (74,246)
Accumulated deficit (77,394,699) (64,579,364)
------------ ------------
Total shareholders' equity 63,445,885 71,602,136
Total liabilities and
shareholders' equity $ 70,155,520 $ 76,131,555
============ ============
See accompanying notes.
Page 1
<PAGE>
<TABLE>
<CAPTION>
NEOPATH, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
---------------------------- ------------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,240,505 $ 253,008 $ 4,475,057 $ 626,627
Cost of revenues 967,928 228,868 2,045,440 565,708
---------- ----------- ----------- -----------
Gross margin 1,272,577 24,140 2,429,617 60,919
Operating expenses:
Research and development 3,922,646 2,591,642 8,309,502 5,283,876
Selling, general and administrative 4,708,514 2,805,228 8,404,185 4,843,404
---------- --------- ---------- -----------
8,631,160 5,396,870 16,713,687 10,127,280
Loss from operations (7,358,583) (5,372,730) (14,284,070) (10,066,361)
Interest income 673,609 836,261 1,419,275 1,944,314
Interest expense (8,125) (11,080) (14,610) (27,576)
------------- ------------ ------------ -----------
Net loss $ (6,693,099) $ (4,547,549) $(12,879,405) $ (8,149,623)
============= ============ ============ ===========
Net loss per share $ (0.47) $ (0.35) $ (0.92) $ (0.65)
========== ============ ============ ============
Shares used in computation of
net loss per share 14,277,067 13,063,029 14,024,351 12,592,560
========== ========== ========== ==========
See accompanying notes.
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
NEOPATH, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
-----------------------------
1997 1996
------------ -----------
<S> <C> <C>
Operating activities
Net loss $(12,879,405) $ (8,149,623)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,623,844 685,323
Deferred compensation 74,246 66,517
Accrued interest on securities available-for-sale 756,975 220,550
Net change in operating accounts:
Accounts receivable (681,888) (358,515)
Inventories and fee-per-use systems (5,358,568) (5,314,999)
Accounts payable and accrued liabilities 1,482,984 1,354,316
Deferred revenue - 500,000
Other (234,169) (315,525)
------------ ------------
Net cash used in operating activities (15,215,981) (11,311,956)
Investing activities
Purchases of securities available-for-sale (5,349,511) (74,248,408)
Maturities of securities available-for-sale 18,622,760 21,076,766
Purchase of Pathfinder System (2,542,917) -
Additions to property and equipment (590,057) (2,041,992)
Other (2,546) 70,242
---------- ------------
Net cash provided by (used in) investing activities 10,137,729 (55,143,392)
Financing activities
Issuance of common stock, net - 61,740,351
Exercise of stock options/warrants 3,734,838 1,532,321
Principal payments on obligations under capital leases (39,768) (112,244)
----------- -----------
Net cash provided by financing activities 3,695,070 63,160,428
Net decrease in cash and cash
equivalents (1,383,182) (3,294,920)
Cash and cash equivalents:
Beginning of period 7,871,401 4,150,923
----------- -----------
End of period $ 6,488,219 $ 856,003
=========== ===========
Noncash transactions and supplemental disclosures
Cash paid for interest 14,610 27,576
Inventories transferred to fee-per-use systems, net 1,342,619 2,953,149
Inventories transferred to property and equipment 1,101,818 -
See accompanying notes.
</TABLE>
Page 3
<PAGE>
NEOPATH, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been
prepared by NeoPath, Inc. (the "Company") in accordance
with generally accepted accounting principles for interim
financial information and according to the rules and
regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) considered necessary for a fair presentation have
been included. The balance sheet at December 31, 1996 has been
derived from the audited financial statements at that date, but
does not include all of the information and footnotes required
by generally accepted accounting principles for complete
financial statements. The results of operations for the
three-month and six-month periods ended June 30, 1997,
are not necessarily indicative of results to be expected for the entire
year ending December 31, 1997 or for any other fiscal period.
For further information, refer to the financial statements
and footnotes thereto incorporated by reference in the
Company's Form 10-K for the year ended December 31, 1996.
Note 2 - Revenue Recognition
The Company recognizes fee-per-use revenues based on the
number of customer slides processed, subject to agreed-upon
minimum processing levels, beginning in the month an AutoPap
System is initially placed in commercial use at the customer
site and is accepted by the customer. Sales of AutoPap Systems
are recognized as revenues at date of shipment.
Note 3 - Recently Issued Accounting Standard
In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings per Share," which is
required to be adopted on December 31, 1997. The new
Statement requires that companies change the method currently
used to compute earnings per share and restate all prior
periods, if necessary. Under the new requirements for
calculating primary earnings per share, the dilutive effect of
stock options will be excluded. Because the Company's stock
options are not dilutive (due to net losses), the impact of
Statement No. 128 on the Company's calculation of net loss per
share is not expected to be material.
Note 4 - Inventories
Inventories consist of the following:
June 30,1997 December 31, 1996
Raw materials $ 2,739,483 $ 2,725,725
Work-in-process 2,461,469 166,437
Finished goods 3,605,093 2,749,752
----------- -----------
$ 8,806,045 $ 5,641,914
=========== ===========
Page 4
<PAGE>
Note 5 - Purchase of Pathfinder System
In June 1997, the Company acquired the Pathfinder(r) System
product line from CompuCyte Corporation ("CompuCyte") for an
initial purchase price of $4.1 million in cash and Company
stock. The initial purchase price included cash of $2.5
million, a $500,000 short-term note payable, 48,564 shares of
Company common stock, and approximately $200,000 in accrued
transaction-related expenses. In addition, 48,563 shares of
Company common stock were issued contingent upon certain
specific technology decisions to be made within one year of
closing. In accordance with accounting rules, the value of the
contingent shares is excluded from the initial purchase
price allocation, and the 48,563 contingent shares are
excluded from the calculation of weighted average shares
outstanding. Including the value of contingent shares at
the closing date, which value the Company expects to recognize
as an intangible asset if the contingency is removed, the total
purchase price approximates $5.1 million.
As a result of the acquisition, the Company recorded
approximately $250,000 in inventory, $120,000 in property and
equipment, and recognized $3.8 million in acquired
intangible assets, which are expected to be amortized over
five years.
Note 6 - Litigation
On July 15, 1996, Neuromedical Systems, Inc. filed a
lawsuit against NeoPath, Inc. in the United States District
Court for the Southern District of New York. The complaint
alleges patent infringement, unfair competition, false
advertising, and related claims. On September 5, 1996, the
Company filed its answer and counter claims. The Company
believes it has a strong position in this action and is
defending itself vigorously.
On March 31, 1997, the Company filed a patent
infringement lawsuit against Neuromedical Systems, Inc. in the
United States District Court for the Western District of Washington.
The complaint alleges patent infringement and seeks preliminary
and permanent injunctions against Neuromedical Systems, Inc.
Page 5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
NeoPath, Inc. (the "Company" or "NeoPath") develops and
markets products that automate the interpretation of medical
images. The Company's initial products include two automated
screening systems that integrate proprietary high-speed image
processing computers, video imaging technology and
sophisticated visual intelligence software to capture and
analyze thousands of microscopic images from a Papanicolaou
("Pap") smear slide, as well as the Pathfinder System recently
acquired from CompuCyte Corporation ("CompuCyte"). In September
1995, the United States Food and Drug Administration (the "FDA")
cleared for commercial use the Company's first product, the
AutoPap 300 QC Automatic Pap Screener System (the "AutoPap
QC"). In early 1996, the Health Care Financing Administration
officially allowed clinical laboratories to use the AutoPap QC
in the quality control review of Pap smear slides that have
been initially screened by cytologists as normal. The
decision allows AutoPap QC Systems to be used in meeting the
federally mandated rescreening requirement.
NeoPath is seeking FDA approval for the AutoPap Automatic
Pap Screener System (the "AutoPap Screener" and, in combination
with the AutoPap QC, the "AutoPap System"). The Company is in
the process of reviewing the results of the clinical studies
that support an amendment to the Company's Pre-Market Approval
("PMA") supplement for the use of the AutoPap System as a
primary screener of Pap smear slides. The Company plans to
submit the amended PMA supplement to the FDA in 1997.
During the first quarter of 1997, the Ministry of Health and
Welfare in Japan approved the AutoPap System for sale as a Pap
smear screening system.
The Company is compensated on either a sale or fee-
per-use basis (subject to certain license agreements and minimum
payments). Under its fee-per-use program, the Company retains
ownership of AutoPap Systems placed at customer sites and
assesses customers a charge for each Pap smear slide analyzed.
The fee-per-use program entails a significant capital commitment
since the Company retains ownership of the AutoPap Systems. The
cost of each AutoPap System is reclassified from inventories to
depreciable equipment upon shipment to a fee-per-use customer
site. Such equipment, reflected on the balance sheet under
"fee-per-use systems, net," is depreciated on a straight-line
basis over a four-year period, commencing upon commercial
operation. The Company's product placements have primarily
consisted of fee-per-use contracts in the United States and
sale contracts internationally. The Company anticipates that
future product placements will continue to consist of a mixture
of fee-per-use and sale contracts.
Acquisition of Pathfinder System
In June 1997, the Company acquired the Pathfinder(r) System
product line from CompuCyte for an initial purchase price of
$4.1 million in cash and Company stock. The Pathfinder System
is used to provide improved productivity and quality assurance
in the clinical cytology laboratory by computerizing the
cytotechnologists' microscopes, thereby helping to eliminate
screening errors and facilitating critical cell identification in
applications such as Pap smear screening for the early
detection of cervical cancer. NeoPath intends to sell the
Pathfinder System as a stand-alone product and to evaluate a
potential integration of the technology into the AutoPap System.
The initial purchase price included cash of $2.5 million,
a $500,000 short-term note payable, 48,564 shares of
Company common stock, and approximately $200,000 in accrued
transaction-related expenses. In addition, 48,563 shares of
Company common stock were issued contingent upon certain
specific technology decisions to be made within one year of
closing. In accordance with accounting rules, the value of
the contingent shares is excluded from the initial purchase price
allocation, and the 48,563 contingent shares are excluded
from the calculation of weighted average shares outstanding.
Including the value of contingent shares at the closing date,
which value the Company expects to recognize as an intangible
asset if the contingency is removed, the total purchase
price approximates $5.1 million.
As a result of the acquisition, the Company recorded
approximately $250,000 in inventory, $120,000 in property and
equipment, and recognized $3.8 million in acquired
intangible assets, which are expected to be amortized over
five years.
Page 6
<PAGE>
Results of Operations
NeoPath's revenues for the second quarter were
$2.2 million, representing a significant increase over second
quarter 1996 revenues of $253,000. Revenues were level with the first
quarter of 1997; however, domestic fee-per-use revenues
increased more than 20 percent over the first quarter of 1997,
and have grown at a compounded quarterly rate of growth of more
than 30 percent from the quarter ended September 30, 1996. More
than 50 percent of second quarter revenues resulted from AutoPap System
sales and other revenues associated with international product
placements.
During the second quarter of 1997, the Company signed a
distribution agreement with a Korean firm and shipped its first
AutoPap System to Korea; in addition, NeoPath obtained CE
mark approval and shipped its first commercial AutoPap
System to Europe at a customer site in Italy. Second quarter
revenues included amounts from Nikon Corporation, NeoPath's
distributor in Japan, for AutoPap Systems previously shipped. In
June 1997, the Company announced that it had signed a national
agreement with SmithKline Beecham Clinical Laboratories to place
AutoPap QC Systems at ten additional sites in the United
States. NeoPath began shipping AutoPap QC Systems under this
agreement by the end of the second quarter. Revenues from fee-
per-use agreements generally begin to generate revenues in the
quarter following placement.
The Company recognized revenues of $4.5 million in the six
months ended June 30, 1997, compared to $627,000 in the
comparable period in 1996. NeoPath began recognizing product
revenues in early 1996.
Gross margin increased to 57 percent in the quarter ended
June 30, 1997, compared to a gross margin of 52 percent in the
first quarter of 1997 and a 38 percent gross margin for all of
1996. The primary components of cost of revenues for fee-per-
use systems include depreciation, allocated service and support
costs, and, with regard to AutoPap Systems sold, the
related manufacturing cost and estimated one-year warranty
expense. Quarterly gross margin is expected to continue to
fluctuate depending on the mix of fee-per-use revenues, System
sales, and other revenues, which include revenues to be
recognized under the agreement with Nikon Corporation for
Systems previously shipped. The continued development of the
manufacturing, service and support functions is also expected to
contribute to fluctuations in gross margin.
Research and development expenses were $3.9 million in the
quarter ended June 30, 1997, compared to $2.6 million in the
comparable quarter of 1996 and $4.4 million in the first
quarter of 1997. In addition to continued
expenditures for product improvements and new product
development, the Company continued to incur incremental third-
party expenses for clinical studies that support using the
AutoPap System as a Pap smear primary screener, although
expenditures relating to clinical studies were at a lower rate
than in the first quarter of the year. Research and
development expenses are expected to increase over time due to
expenditures for product development and additional FDA
submissions for future enhancements to the AutoPap System.
Selling, general and administrative expenses for the second
quarter of 1997 increased $1.9 million to $4.7 million from the
second quarter of 1996, and increased $1.0 million from the
first quarter of 1997. These increases are primarily a result
of the Company's continued investment in significant new
marketing and sales initiatives. The increase from the prior
year also reflects higher staffing and overall infrastructure
expenses.
Interest income for the second quarter of 1997 decreased
to $674,000, compared to $836,000 for the comparable quarter
in 1996. The decrease in interest income is due primarily to
decreased cash equivalents and securities available-for-sale
resulting from NeoPath's negative operating cash flow.
Page 7
<PAGE>
Liquidity and Capital Resources
The Company's cash, cash equivalents and securities
available-for-sale totaled $43.1 million as of June 30, 1997,
which represents a decrease of $15.3 million from December 31,
1996. The decrease is a result of cash used in the Company's
operations for the six months ended June 30, 1997 and the $2.5
million in cash paid to CompuCyte for the Pathfinder System,
offset by the receipt of $3.7 million from the exercise of stock
warrants and options.
During the six months ended June 30, 1997, excluding the
Pathfinder System acquisition, the Company used $15.2
million to fund operating activities, including $2.4 million
for inventories subsequently classified as either fee-per-use
systems or transferred to property and equipment, and used
$590,000 to purchase other property and equipment. During the
comparable six-month period in 1996, the Company used $11.3
million to fund its operating activities, including $3.0 million
for inventories subsequently classified as fee-per-use systems,
and the Company purchased $2.0 million of property and equipment.
The investment in fee-per-use systems is expected to increase as
the Company continues to place AutoPap Systems into commercial
service under fee-per-use service contracts.
The Company expects negative cash flow from operations to
continue at least through the majority of 1998 as it
manufactures AutoPap Systems to support fee-per-use product
placements, continues to expand its marketing, sales, and
customer service and support capabilities, continues its research
and development activities, and conducts and analyzes data
from clinical studies. The Company currently estimates that its
existing capital resources and interest income will enable it to
sustain operations for approximately the next 18 months.
There can be no assurance, however, that the Company will not
be required to seek additional capital at an earlier date. The
Company's future capital requirements will depend on many
factors, including the extent and rate of adoption of use of
the AutoPap QC and, if the requisite regulatory approvals
are obtained, the AutoPap Screener; the increase in the
Company's fee-per-use program; the mix of fee-per-use and sale
placements; the extent and rate of development of the
Company's marketing, sales, and customer service and support
capabilities; and the status of competing products. The
Company may, from time to time, seek additional funding
through public or private financing, including equity
financing. There can be no assurance that adequate funding will
be available as needed or on terms acceptable to the Company.
If additional funds are raised by issuing equity securities,
existing shareholders will experience dilution. Insufficient
funds may require the Company to delay, scale back or
eliminate some or all of its manufacturing, research and
development or clinical programs.
Factors Affecting Future Results and Forward-Looking Statements
The preceding Management's Discussion and Analysis
of Financial Condition and Results of Operations contains
"forward-looking statements" which reflect the Company's
current views with respect to future events and financial
performance. These forward-looking statements are subject
to certain risks and uncertainties that could cause actual
results to differ materially from historical results or those
anticipated. The words "plan," "expect," "anticipate," and
similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these
forward-looking statements. The Company undertakes no obligation
to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or
otherwise. Factors that could cause actual results to differ
materially from historical results or those anticipated include,
without limitation, the following: the Company's limited
operating history and history of losses; market acceptance of
the Company's products; the acceptance of the Company's fee-
per-use or sale programs; product and manufacturing regulatory
approvals; the Company's limited marketing, sales, customer
service and support capabilities; uncertainties relating to
international transactions; the Company's sole or limited source
of supply of certain components; the status of competing
products; dependence on reimbursement; dependence on single product
line; product liability; dependence on patents and property rights;
the risk of third-party claims of infringement; and dependence on key
personnel. For a more detailed discussion of these
factors, see "Factors Affecting Future Results and Forward-
Looking Statements" of the Company's Form 10-K for the fiscal
year ended December 31, 1996.
Page 8
<PAGE>
Part II OTHER INFORMATION
Item 1. Legal Proceedings
On July 15, 1996, Neuromedical Systems, Inc. filed a
lawsuit against NeoPath, Inc. in the United States District
Court for the Southern District of New York. The complaint
alleges patent infringement, unfair competition, false
advertising, and related claims. On September 5, 1996, the
Company filed its answer and counter claims. The Company
believes it has a strong position in this action and is
defending itself vigorously.
On March 31, 1997, the Company filed a patent
infringement lawsuit against Neuromedical Systems, Inc. in the
United States District Court for the Western District
of Washington. The complaint alleges patent
infringement and seeks preliminary and permanent
injunctions against Neuromedical Systems, Inc.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on
May 22, 1997 (the "Annual Meeting"), the following individuals
were elected to the Board of Directors:
For Withheld Authority
Class 3 Directors
Walter L. Robb 9,974,278 42,683
Cristina H. Kepner 9,975,278 41,683
William L. Scott 9,975,278 41,683
Class 1 Director
Alan D. Frazier 9,975,278 41,683
The following proposal was approved at the Company's Annual Meeting:
For Against Abstained
Adoption of the NeoPath, Inc. 1997 Employee
Stock Purchase Plan providing for the
purchase of up to 150,000 shares of Common
Stock by eligible employees 9,650,957 49,668 14,503
Total shares represented but unvoted on the above proposal: 301,833
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report.
Exhibit No. Description
10.1* Purchase and Sale Agreement between CompuCyte Corporation
and NeoPath, Inc., Dated as of June 23, 1997
10.2 NeoPath, Inc. Registration Rights Agreement,Dated as of
June 23, 1997
27 Financial Data Schedule
------------------------------------------------------
* Confidential treatment requested
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended June 30, 1997.
Page 9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NeoPath, Inc.
Date: August 12, 1997 By: /s/ ALAN C. NELSON
-------------------
Alan C. Nelson
President and Chief Executive Officer
By: /s/ WILLIAM L. SCOTT
--------------------
William L. Scott
Vice President and Chief Financial Officer
By: /s/ ROBERT C. BATEMAN
---------------------
Robert C. Bateman
Corporate Controller and Treasurer
Page 10
<PAGE>
NEOPATH, INC.
INDEX TO EXHIBITS
Exhibit No. Description
10.1* Purchase and Sale Agreement between CompuCyte Corporation
and NeoPath, Inc., Dated as of June 23, 1997
10.2 NeoPath, Inc. Registration Rights Agreement, Dated as of
June 23, 1997
27 Financial Data Schedule
- ---------------------------------------------------------------------
* Confidential treatment requested
Page 11
<PAGE>
PURCHASE AND SALE AGREEMENT
between
CompuCyte Corporation
and
NeoPath, Inc.
Dated as of June 23, 1997
<PAGE>
CONTENTS
Section 1. Transactions Subject to Agreement 1
1.1 Purchase and Sale of Assets 1
1.2 Assumption 1
1.3 Purchase Price 2
1.4 Taxes 2
1.5 Buyer's Election to Deliver Contingent
Stock or Waiver and Restrictive Covenant 3
1.6 Contingent Stock 3
Section 2. Seller's Representations and Warranties 3
2.1 Organization, Good Standing, Etc. 4
2.2 Authority 4
2.3 Binding Effect 4
2.4 No Litigation 5
2.5 Compliance with Governmental
Requirements 5
2.6 No Bulk Sales Law 5
2.7 Title to the Assets 5
2.8 Assumed Commitments 6
2.9 Pathfinder Systems 6
2.10 Tools 6
2.11 Pathfinder Documentation 7
2.12 Pathfinder Software 7
2.13 Pathfinder Rights 7
Page i
<PAGE>
2.14 Sufficiency of Assets 8
2.15 Ability to Bear Risk 9
2.16 SEC Documents 9
2.17 Access to Information 9
2.18 Acquisition Entirely for Own Account 9
2.19 Residency 10
2.20 Restricted Securities 10
2.21 No Brokerage Fees 10
2.22 Accuracy of Statements 10
Section 3. Buyer's Representations and Warranties 11
3.1 Organization, Good Standing, Etc. 11
3.2 Authority 11
3.3 Binding Effect 12
3.4 No Litigation 12
3.5 Compliance With Governmental
Requirements 12
3.6 Shares and Capitalization 12
3.7 SEC Documents 13
3.8 No Material Adverse Change 13
3.9 No Other Liabilities or Contingencies 13
3.10 Financial Statements 14
3.11 No Brokerage Fees 14
3.12 Accuracy of Statements 14
Page ii
<PAGE>
Section 4. Pre-Closing Covenants 14
4.1 Buyer's Due Diligence 14
4.2 Conduct of Pathfinder Business 15
4.3 Seller's Employees in the Pathfinder
Business 16
4.4 No Solicitation of Competing Proposals 17
4.5 Authorization by Seller's Board of
Directors 17
4.6 Authorization by Buyer's Board of
Directors 17
4.7 License to [*] Patent 17
Section 5. Conditions of Closing 18
5.1 Conditions Precedent to Seller's
Obligations 18
5.2 Conditions Precedent to Buyer's
Obligations 18
5.3 Waiver 19
Section 6. Closing 19
6.1 Place and Time of Closing 19
6.2 Delivery by Seller to Buyer 20
6.3 Delivery by Seller to Escrow Agent 20
6.4 Delivery by Buyer to Seller 20
6.5 Delivery by Buyer to the Escrow Agent 21
6.6 Stock Certificates 21
6.7 Closing Costs 22
6.8 Survival 22
Section 7. Post-Closing Covenants 22
7.1 General 22
[*] Confidential treatment requested
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7.2 Delivery of Tools, Inventory and
Pathfinder Documentation 22
7.3 Support for Transfer of Pathfinder
Business 22
7.4 Terminable Commitments and Unassumed
Commitments 24
7.5 Support of Pathfinder Rights 24
7.6 Noncompetition 25
7.7 Restriction on Disposition of Shares 25
7.8 Third Party Software 25
Section 8. Protection of Confidential Information 26
8.1 General 26
8.2 Pathfinder Trade Secrets 26
8.3 Limitation 27
Section 9. Infringement of Third Party Rights 27
9.1 Obligation to Defend, Indemnify and Hold
Harmless 27
9.2 Notice and Cooperation 27
9.3 When Use, Etc., Is Enjoined, Prevented
or Materially Restricted 28
9.4 Limitations Based On Modifications,
Etc., By Buyer 28
Section 10.Termination 29
10.1 By Buyer 29
10.2 By Seller 29
10.3 Written Agreement 29
10.4 Effect of Termination 29
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Section 11.Limitations of Seller's Liability 30
11.1 Dollar Limitation 30
11.2 Time Limitation 30
11.3 Exception 30
Section 12.Miscellaneous 30
12.1 Public Statement 30
12.2 Expenses 31
12.3 Notices 31
12.4 Nonwaiver 32
12.5 Assignment 32
12.6 No Third Party Beneficiaries 33
12.7 Counterparts 33
12.8 Amendment 33
12.9 Severability 33
12.10 Attorneys Fees 34
12.11 Applicable Law 34
12.12 Entire Agreement 35
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LIST OF EXHIBITS
Exhibit Description Reference
No.
A Definitions
B Schedule of Exceptions Section 2, 4.7,
Exhibit A
C List of Assumed Commitments 1.2, 2.8, 4.2, Exhibit A
D List of Terminable Commitments 1.2, 2.7, 7.4, Exhibit A
E List of Unassumed Commitments 1.2, 2.7, 7.4, Exhibit A
F Assignment and Assumption 1.1, 1.2, 2.1-2.5, 2.7,
Agreement 3.1-3.5, 4.1, 6.2, 6.4,
Exhibit A
G Bill of Sale 1.1, 2.1-2.5, 2.7, 3.1-
3.5, 4.1, 6.2, Exhibit A
H Registration Rights Agreement 2.1-2.5, 3.1-3.5, 4.1,
6.2, Exhibit A
I Pathfinder Software Exhibit A, 2.12, 7.8
J Description of Pathfinder System 1.2, 2.9, 2.14, 4.2,
4.4, 9.1, 9.3, Exhibit A
K Inventory 1.3.4, 4.2, 7.2,
Exhibit A
L Tools 1.3.4, 2.10, 4.2, 7.2,
7.8, Exhibit A
M Pathfinder Documentation 1.3.4, 2.11, 4.1, 7.2,
Exhibit A
N Escrow Agreement 1.3.3, 1.5, 1.6, 2.1-
2.5, 2.7, 3.1-3.5, 4.1,
Exhibit A
O Waiver and Restrictive Covenant 1.5, 6.3, 6.5, Exhibit A
P Copyright Assignment 1.1, 2.1-2.5, 2.7, 3.1-
3.5, 4.1, 6.2, Exhibit A
Q Copyright Applications, 2.13, Exhibit A
Assignments, Etc.
R Patent Assignment 1.1, 2.1-2.5, 2.7, 3.1-
3.5, 4.1, 6.2, Exhibit A
S Patent Applications, Assignments, 2.13, Exhibit A
Etc.
T Trademark Assignments 1.1, 2.1-2.5, 2.7, 3.1-
3.5, 4.1, 6.2, Exhibit A
U Trademark Applications, 2.13, Exhibit A
Assignments, Etc.
V Confidentiality/Inventions 2.12, 2.13
Agreement
W Legal Opinion of Graham & James 6.2
X Legal Opinion of Testa, Hurwitz & 6.2
Thibeault
Y Legal Opinion of Perkins Coie 6.4
Z Description of AutoPap System 9.4, Exhibit A
AA Buyer Liabilities or 3.9
Contingencies
BB NeoPath Travel and Entertainment 7.3, Exhibit A
Operating Procedure
CC Seller's Closing Certificate 6.2, Exhibit A
DD Buyer's Closing Certificate 6.4, Exhibit A
EE Public Statement 12.1
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PURCHASE AND SALE AGREEMENT
This Agreement, dated as of June 23, 1997, is made and
entered into between: CompuCyte Corporation, a Massachusetts
corporation ("Seller"); and NeoPath, Inc., a Washington
corporation ("Buyer"). The definitions of certain terms used
in this Agreement are set forth in the attached Exhibit A.
The Parties agree as follows:
Section 1. Transactions Subject to Agreement
1.1 Purchase and Sale of Assets
At Closing, Seller shall sell, assign, transfer and
deliver to Buyer, and Buyer shall purchase, acquire and accept
from Seller, the Assets pursuant to the Transfer Documents,
all subject to and in accordance with the terms, conditions
and provisions of this Agreement.
1.2 Assumption
At Closing, Buyer shall assume all of the obligations to
be performed by Seller after Closing under the Assumed
Commitments as provided for in and pursuant to the Assignment
and Assumption Agreement. Buyer shall not assume or otherwise
be liable for any other obligation or liability of Seller
pursuant to this Agreement or any of the transactions
contemplated by this Agreement. Without limitation of the
foregoing, Buyer shall not assume or otherwise be liable for:
(a) any obligation to be performed by Seller prior
to Closing under any of the Assumed Commitments;
(b) any obligation to be performed prior to or
after Closing under any of the Terminable Commitments or
Unassumed Commitments;
(c) any obligation or liability arising out of any
termination of any of the Terminable Commitments; or
(d) except for the Assumed Commitments, any
obligation or liability with respect to any Pathfinder
System sold, distributed or transferred by Seller to any
Third Party.
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1.3 Purchase Price
1.3.1 At Closing, Buyer shall pay to Seller Two
Million Five Hundred Thousand Dollars ($2,500,000).
1.3.2 Within four (4) business days of Closing,
Buyer shall issue and deliver to Seller a number of
unregistered shares of Buyer's common stock equal to One
Million Dollars ($1,000,000) divided by the Share Price, with
any fractional shares rounded up to the next whole share
1.3.3 Within four (4) business days of Closing,
Buyer shall issue and deliver to the Escrow Agent a number of
unregistered shares of Buyer's common stock equal to One
Million Dollars ($1,000,000) divided by the Share Price, with
any fractional shares rounded down to the next whole share.
The Contingent Stock shall be held, voted, delivered and
otherwise dealt with by the Escrow Agent in accordance with
paragraph 1.5 of this Purchase Agreement and the Escrow
Agreement.
1.3.4 Upon completion of (i) the delivery of the
Tools, Inventory and original Pathfinder Documentation to
Buyer pursuant to paragraph 7.2 of the Purchase Agreement,
(ii) full disclosure of the Pathfinder Know-How and other
Assets to Buyer pursuant to paragraph 7.3 of the Purchase
Agreement, and (iii) the transfer of the Pathfinder Business
to Buyer pursuant to paragraph 7.3 of the Purchase Agreement,
then Buyer shall pay to Seller an amount equal to Five Hundred
Thousand Dollars ($500,000) plus interest at the rate of
interest paid on a six-month United States Treasury Bill
issued on the Closing Date, as reported by the Wall Street
Journal, calculated on a daily basis from the Closing Date
until the date of payment. Such payment shall be made by wire
transfer to an account designated by Seller, cashier's check,
certified bank check or other means of payment acceptable to
Seller.
1.4 Taxes
1.4.1 Any property, ad valorem or similar taxes
paid or payable with respect to any of the Assets shall be
prorated as of the Closing Date. Seller shall pay, or
reimburse Buyer for, any such taxes paid or payable for the
period ending with the Closing Date. Buyer shall pay, or
reimburse Seller for, any such taxes paid or payable for the
period after the Closing Date.
1.4.2 Buyer shall be responsible for payment of
any and all sales, use or similar taxes payable with respect
to any of the transactions consummated pursuant to this
Agreement as required by applicable law. Seller shall be
responsible for payment of any and all taxes payable with
respect to its net or gross income, revenues or receipts.
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1.4.3 Seller shall pay, or reimburse Buyer for,
any filing fees, recording fees, transfer taxes or similar
amounts payable to any Governmental Authority to effect or
perfect the sale, assignment or transfer of any of the Assets
to Buyer.
1.5 Buyer's Election to Deliver Contingent Stock or
Waiver and Restrictive Covenant
Within one (1) year after the Closing Date, Buyer shall
give Seller and Escrow Agent written notice electing to
deliver to Seller either the Contingent Stock or the Waiver
and Restrictive Covenant pursuant to the Escrow Agreement. If
Buyer fails to give such notice within one (1) year after the
Closing Date, then Buyer shall be deemed to have elected to
deliver to Seller the Contingent Stock. If Buyer elects to
deliver to Seller the Contingent Stock, then the Escrow Agent
shall deliver to Seller the original stock certificate for the
Contingent Stock and to Buyer the original Waiver and
Restrictive Covenant as provided for in the Escrow Agreement,
whereupon the Waiver and Restrictive Covenant shall be
canceled and have no further force or effect. If Buyer elects
to deliver to Seller the Waiver and Restrictive Covenant, then
the Escrow Agent shall deliver to Seller the original Waiver
and Restrictive Covenant and to Buyer the original stock
certificate for the Contingent Stock as provided for in the
Escrow Agreement, whereupon the Contingent Stock shall be
canceled and have no further force or effect.
1.6 Contingent Stock
During the term of the Escrow Agreement, the Contingent
Stock shall be held as security for the performance and
satisfaction of Seller's obligations and liabilities under
this Agreement (including, without limitation, Seller's
obligations under Section 9 of this Agreement and any
liability arising out of any breach of Seller's
representations or warranties under Section 2 of this
Agreement). The Contingent Stock shall be reduced, and the
amount of any such reduction returned to Buyer, as provided
for in the Escrow Agreement in connection with any failure by
Seller to fully perform and satisfy any of its obligations or
liabilities under this Agreement.
Section 2. Seller's Representations and Warranties
Seller represents and warrants to Buyer the following as
of the date of the Purchase Agreement and the Closing Date,
subject to any applicable exceptions set forth in the Schedule
of Exceptions:
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2.1 Organization, Good Standing, Etc.
Seller is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts. Seller is duly qualified and licensed to do
business in each jurisdiction where the failure to do so would
have a material adverse effect on the Pathfinder Business or
Seller's business generally. Seller has the corporate power
and authority to own and operate its properties and conduct
its business as now conducted. Seller has the corporate power
and authority to execute, deliver and perform all of its
obligations under this Agreement, the Transfer Documents, the
Escrow Agreement and the Registration Rights Agreement.
2.2 Authority
The execution, delivery and performance by Seller of this
Agreement, the Transfer Documents, the Escrow Agreement and
the Registration Rights Agreement:
(a) have been, or prior to Closing shall be, duly
and validly authorized by all requisite corporate action;
(b) do not require any consent, approval, waiver,
license, right, or other authorization of, notice to,
registration with, or taking of any other action by or
with respect to, any Third Party (including, without
limitation, any Governmental Authority or any holder of
any indebtedness, mortgage, deed of trust, indenture,
security interest, pledge, lien, encumbrance, lease,
license, agreement, contract, commitment or other
obligation of Seller) or, if any such action is required,
it shall be taken prior to Closing;
(c) do not violate any applicable Governmental
Requirement; and
(d) do not constitute, result in or give cause for
any breach, default, acceleration or termination (with or
without the giving of notice or passage of time) under
any indebtedness, mortgage, deed of trust, indenture,
security interest, pledge, lien, encumbrance, lease,
license, assessment, levy, agreement, contract,
commitment or other obligation of Seller or to which any
of Seller's property is subject.
2.3 Binding Effect
This Agreement constitutes (and, upon Closing, the
Transfer Documents, the Escrow Agreement and the Registration
Rights Agreement shall each constitute) a legal, valid and
binding obligation of Seller and is enforceable against Seller
in accordance with its terms, subject to:
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(a) bankruptcy, receivership, insolvency,
reorganization, moratorium, fraudulent conveyance or
similar laws now or hereafter in effect affecting the
enforcement of contract rights generally; and
(b) the effect and application of the rules
relating to specific performance and other equitable
relief within the discretion of any enforcing court.
2.4 No Litigation
There is no claim, suit, action, arbitration,
investigation or proceeding pending or, to the best of
Seller's knowledge, threatened against or otherwise involving
Seller or any of the Assets which could have a material
adverse effect on any of the Assets, the Pathfinder Business,
any of the transactions contemplated by this Agreement, the
Transfer Documents, the Escrow Agreement or the Registration
Rights Agreement or the performance of any of Seller's
obligations under this Agreement, the Transfer Documents, the
Escrow Agreement or the Registration Rights Agreement.
2.5 Compliance with Governmental Requirements
Seller has complied with all applicable Governmental
Requirements, where failure to do so could have a material
adverse effect on any of the Assets, the Pathfinder Business,
any of the transactions contemplated by this Agreement, the
Transfer Documents, the Escrow Agreement or the Registration
Rights Agreement, or the performance of any of Seller's
obligations under this Agreement, the Transfer Documents, the
Escrow Agreement or the Registration Rights Agreement.
2.6 No Bulk Sales Law
The sale, assignment and transfer of the Assets by Seller
to Buyer pursuant to this Agreement is not subject to any bulk
sales law.
2.7 Title to the Assets
Seller is the sole and exclusive owner of all right, title and
interest in the Assets free and clear of any and all
indebtedness (except for trade payables incurred by Seller in
the ordinary course of Pathfinder Business, which obligations
shall remain the responsibility of Seller after Closing),
mortgages, deeds of trust, indentures, security interests,
pledges, liens, encumbrances, leases, licenses, assessments,
levies and claims of any Third Party. Seller has not
previously sold, assigned or transferred to any Third Party,
or otherwise encumbered, any right, title or interest in any
of the Assets. Seller's execution and delivery of the
Transfer Documents at Closing shall assign, convey and
transfer to Buyer good and marketable title to all of the
Assets free
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and clear of any and all indebtedness, mortgages, deeds
of trust, indentures, security interests, pledges, liens,
encumbrances, leases, licenses, assessments, levies and claims
of any Third Party.
2.8 Assumed Commitments
The Assumed Commitments are valid, in full force and
effect, and enforceable in accordance with their terms. None
of the Assumed Commitments is in breach or default by Seller
or, to the best of Seller's knowledge, any Third Party.
Seller has fully performed, satisfied and discharged all of
the obligations to be performed, satisfied or discharged by
Seller under the Assumed Commitments prior to the date of the
Purchase Agreement and the Closing Date. The Assumed
Commitments, Terminable Commitments and Unassumed Commitments
constitute all of the contracts, agreements, orders and
commitments between Seller and any Third Party with respect to
the Pathfinder Business.
2.9 Pathfinder Systems
The features, functions, performance and other
characteristics of the Pathfinder System are accurately
described in the attached Exhibit J. The export control
classification number (the "ECCN") for the Pathfinder System
under the U.S. Export Administration Regulations is "EAR99."
The Inventory is new and free from defects. All finished
Pathfinder Systems included in the Inventory conform to the
descriptions, specifications and other statements set forth in
the attached Exhibit J. All other equipment, parts,
components, supplies, and work-in-progress included in the
Inventory are unused, free from defects and suitable for
incorporation into Pathfinder Systems or consumption in the
Pathfinder Business. The Pathfinder System does not infringe
or misappropriate any patent, copyright, maskwork, trademark,
trade secret or other proprietary right of any Third Party.
The conduct of the Pathfinder Business has not infringed or
misappropriated any patent, copyright, trademark, trade secret
or other proprietary right of any Third Party. The Pathfinder
System does not constitute a "device" as defined in 21 U.S.C.
sec. 321(h) and 21 C.F.R. Part 814. Seller does not know of any
determination, events or circumstances that would change any
of the conclusions or statements set forth in the memorandum
to Bill Scott from Ron Goldfuss dated May 9, 1997 regarding
Pathfinder FDA status or any of the documentation referenced
in such memorandum.
2.10 Tools
The Tools are free from defects other than ordinary wear
and tear, in good operating condition and state of repair, and
suitable for use in the Pathfinder Business. The Tools do not
infringe or misappropriate any patent, copyright, maskwork,
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trademark, trade secret or other proprietary right of any
Third Party. The Tools include, without limitation, all of
the items listed in the attached Exhibit L.
2.11 Pathfinder Documentation
The Pathfinder Documentation does not infringe or
misappropriate any patent, copyright, trademark, trade secret
or other proprietary right of any Third Party.
2.12 Pathfinder Software
The Pathfinder Software was designed, engineered,
developed, authored and otherwise created solely by
individuals in the course of their work for Seller, as either:
(a) employees of Seller who have signed a
confidentiality/inventions agreement substantially in the
form attached as Exhibit V; or
(b) independent contractors of Seller who have
signed a confidentiality/inventions agreement
substantially in the form attached as Exhibit V.
No other Third Party participated in or contributed to the
design, engineering, development, authoring or other creation
of the Pathfinder Software. The Pathfinder Software includes,
without limitation, the programs, codes and other software
listed in the attached Exhibit I.
2.13 Pathfinder Rights
The Pathfinder Rights are valid, enforceable and in full
force and effect. The Pathfinder Rights include, without
limitation, the patents, copyrights and trademarks identified
in the attached Exhibits Q, S and U. Seller has not entered
into or incurred any contract, agreement, commitment or other
obligation restricting or limiting Seller's or Buyer's use,
sale, assignment, transfer, licensing or exploitation of any
Pathfinder Rights. Seller has taken all reasonably
appropriate steps to create, effect, perfect, evidence,
enforce, defend and protect the Pathfinder Rights. Without
limitation of the foregoing:
(a) Exhibits Q, S and U accurately describe every
issued patent, registered trademark, registered copyright
and every pending or prepared patent, trademark or
copyright application relating to the Pathfinder System
owned or licensed by Seller;
(b) to the best of Seller's knowledge, no Third
Party has infringed, misappropriated, violated, contested
or challenged any of the Pathfinder Rights
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or threatened to infringe, misappropriate, violate,
contest or challenge any of the Pathfinder Rights;
(c) Seller has not misused or abused any of the
Pathfinder Rights;
(d) each of Seller's employees who have
participated in the Pathfinder Business or had access to
any of the Pathfinder Trade Secrets has signed a
confidentiality/inventions agreement substantially in the
form attached as Exhibit V;
(e) each of Seller's contractors who have
participated in the Pathfinder Business or had access to
any of the Pathfinder Trade Secrets has signed a
confidentiality/inventions agreement substantially in the
form attached as Exhibit V;
(f) Seller has restricted access to the Pathfinder
Trade Secrets to its employees and contractors who have a
need for such access in connection with their
participation in the Pathfinder Business; and
(g) except as set forth in this Agreement, Seller
has no obligation to disclose any Pathfinder Trade Secret
to any Third Party.
2.14 Sufficiency of Assets
The Assets constitute all of the material assets utilized
by Seller in the conduct of the Pathfinder Business, with the
exception of CompuCyte personnel, and office, manufacturing or
storage space. The Assets are sufficient for Buyer to
produce, complete and operate Pathfinder Systems that comply
with the descriptions, specifications and other statements set
forth in the attached Exhibit J (provided that the Seller does
not warrant that the Inventory transferred to Buyer pursuant
to the Agreement contains all of the component parts required
to produce complete Pathfinder Systems) and otherwise conduct
the Pathfinder Business after Closing in substantially the
same manner in which Seller conducted the Pathfinder Business
prior to Closing. Except as otherwise provided by this
Agreement and the Transfer of Documents, no consent, approval,
waiver, license, right or other action, or authorization of,
notice to, registration with or taking of any other action by
or with respect to any Third Party is required for Buyer to
conduct the Pathfinder Business after Closing in the same
manner in which Seller conducted the Pathfinder Business prior
to Closing.
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2.15 Ability to Bear Risk
Seller is in a financial position to hold the Shares for
an indefinite period of time and is able to bear the economic
risk and withstand a complete loss of its investment in the
Shares. Seller has obtained, to the extent that it deems
necessary, its own professional advice with respect to the
risks inherent in acquiring the Shares, the condition of and
the suitability of its investment in the Shares in light of
its financial condition and investment needs. Seller and,
either alone or with the assistance of its professional
advisor, is a sophisticated investor, is able to fend for
itself in the transactions contemplated by this Agreement
relating to the Shares and has such knowledge and experience
in financial and business matters that it is capable of
evaluating the merits and risks of the prospective investment
in the Shares.
2.16 SEC Documents
Seller acknowledges that it has received a copy of each
of the SEC Documents and has had the opportunity to review
such SEC Documents to its satisfaction. Seller acknowledges
that the Shares involve a high degree of risk and that it has
examined the section in the Annual Report on Form 10-K
entitled "Factors Affecting Future Results and Forward-Looking
Statements."
2.17 Access to Information
Seller has been given access to full and complete
information regarding Buyer, including, in particular, the
current financial condition of Buyer and the risks associated
therewith, and has utilized such access to its satisfaction
for the purpose of obtaining information about and verifying
the information contained in the SEC Documents. Without
limitation of the foregoing, Seller has either met with or
been given a reasonable opportunity to meet with
representatives of Buyer for the purposes of asking questions
of, and receiving answers from, such representatives
concerning the terms and conditions of this Agreement and to
obtain any additional information, to the extent reasonably
available, necessary to verify the information provided in the
SEC Documents or otherwise.
2.18 Acquisition Entirely for Own Account
The Shares are being acquired by the Seller for
investment for its account, not as a nominee or agent, and not
with a view to the distribution of any part thereof; Seller
does not have any present intention of selling, granting any
participation in or otherwise distributing any of the Shares
in a manner contrary to the 1933 Act or any applicable state
securities or Blue Sky law, nor does Seller have any contract,
undertaking, agreement or arrangement with any Third Party to
sell, transfer or grant a participation with respect to any of
the Shares.
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2.19 Residency
For purposes of the application of state securities laws,
Seller is a bona fide resident of, and domiciled in, the
Commonwealth of Massachusetts.
2.20 Restricted Securities
Seller acknowledges that:
(a) the Shares have not been and, except as
otherwise provided for in the Registration Rights
Agreement, shall not be registered under the 1933 Act or
any applicable state securities laws;
(b) the Shares are characterized under the 1933 Act
as "restricted securities;"
(c) the Shares cannot be sold or transferred unless
they are subsequently registered under the Act or an
exemption from such registration is available;
(d) the Shares are being issued under this
Agreement pursuant to exemptions under the 1933 Act and
applicable state securities laws; and
(e) Buyer's reliance upon such exemptions is
predicated in part upon the representations of Seller
contained in this Agreement.
The financial condition of Seller is such that it is not
likely that it shall be necessary to dispose of any of the
Shares in the foreseeable future, except as provided for in
the Registration Rights Agreement. Seller is familiar with
Rule 144 of the SEC and understands the resale limitations
imposed thereby and by the 1933 Act.
2.21 No Brokerage Fees
Seller has not engaged any broker or other Person who
would be entitled to any brokerage fee or commission in
connection with this Agreement or the consummation of any of
the transactions contemplated by this Agreement.
2.22 Accuracy of Statements
No representation, warranty or other statement by Seller
in this Agreement or any certificate, document or other
instrument furnished or to be furnished by Seller pursuant to
this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary to make any
statement by Seller in this Agreement not materially
misleading in light of the circumstances in which such
statement is made.
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Section 3. Buyer's Representations and Warranties
Buyer represents and warrants to Seller the following as
of the date of the Purchase Agreement and the Closing Date:
3.1 Organization, Good Standing, Etc.
Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Washington. Buyer is duly qualified and licensed to do
business in each jurisdiction where the failure to do so would
have a material adverse effect on Buyer's business. Buyer has
the corporate power and authority to own and operate its
properties and conduct its business as now conducted. Buyer
has the corporate power and authority to execute, deliver and
perform all of its obligations under this Agreement, the
Transfer Documents, the Escrow Agreement and the Registration
Rights Agreement.
3.2 Authority
The execution, delivery and performance by Buyer of this
Agreement, the Transfer Documents, the Escrow Agreement and
the Registration Rights Agreement:
(a) have been, or prior to Closing shall be, duly
and validly authorized by all requisite corporate action;
(b) do not require any consent, approval, waiver,
license, right or other action, or other authorization
of, notice to, registration with, or taking of any other
action by or with respect to any Third Party (including,
without limitation, any Governmental Authority or any
holder of any indebtedness, mortgage, deed of trust,
indenture, security interest, pledge, lien, encumbrance,
lease, license, assessment, levy, agreement, contract,
commitment or other obligation of Buyer) or, if any such
action is required, it shall be taken prior to Closing;
(c) do not violate any applicable Governmental
Requirement; and
(d) do not constitute, result in or give cause for
any breach, default, acceleration or termination (with or
without the giving of notice or passage of time) under
any indebtedness, mortgage, deed of trust, indenture,
security interest, pledge, lien, encumbrance, lease,
license, assessment, levy, agreement, contract,
commitment or other obligation of Buyer or to which any
of Buyer's property is subject.
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3.3 Binding Effect
This Agreement constitutes (and, upon Closing, the
Assignment and Assumption Agreement, the Escrow Agreement and
the Registration Rights Agreement shall each constitute) a
legal, valid and binding obligation of Buyer and is
enforceable against Buyer in accordance with its terms,
subject to:
(a) bankruptcy, receivership, insolvency,
reorganization, moratorium, fraudulent conveyance or
similar laws now or hereafter in effect affecting the
enforcement of contract rights generally; and
(b) the effect and application of the rules
relating to specific performance and other equitable
relief within the discretion of any enforcing court.
3.4 No Litigation
There is no claim, suit, action, arbitration,
investigation or proceeding pending or, to the best of Buyer's
knowledge, threatened against or otherwise involving Buyer
which could have a material adverse effect on any of the
transactions contemplated by this Agreement, the Transfer
Documents, the Escrow Agreement or the Registration Rights
Agreement or the performance of any of Buyer's obligations
under this Agreement, the Transfer Documents, the Escrow
Agreement or the Registration Rights Agreement.
3.5 Compliance With Governmental Requirements
Buyer has complied with all applicable Governmental
Requirements, where the failure to do so could have a material
adverse effect on any of the transactions contemplated by this
Agreement, the Transfer Documents, the Escrow Agreement or the
Registration Rights Agreement or the performance of any of
Buyer's obligations under this Agreement, the Transfer
Documents, the Escrow Agreement or the Registration Rights
Agreement.
3.6 Shares and Capitalization
The Shares, when issued and delivered by Buyer in
accordance with this Agreement, shall be duly and validly
issued, fully paid and nonassessable and such issuance
complies with all applicable Governmental Requirements
(including, without limitation, the 1933 Act). The offer,
sale and issuance of the Shares constitute transactions exempt
from the registration requirements of the 1933 Act and the
securities registration requirements of all applicable state
securities laws. The authorized capital stock of Buyer
consists of: (a) 40,000,000 shares of common stock,
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of which 14,269,511 shares (excluding the Shares) were
issued and outstanding as of April 29, 1997; and
(b) 10,000,000 shares of preferred stock, of which no shares
are issued and outstanding, and 25,730,489 shares were
authorized but not issued as of April 29, 1997. There are no
outstanding options, warrants, conversion rights, preemptive
rights or other rights to purchase or acquire from Buyer any
shares of its capital stock, except (i) for rights created by
this Agreement, (ii) pursuant to the Buyer's restated 1989
Stock Option Plan, 1994 Stock Option Plan for Non-Employee
Directors and 1997 Employee Stock Purchase Plan, and
(iii) warrants to purchase 225,834 shares of common stock as
of April 29, 1997. There are no outstanding contracts of the
Buyer to repurchase, redeem or otherwise acquire any equity
securities of the Buyer.
3.7 SEC Documents
Buyer has furnished to Seller copies of the SEC
Documents. None of the SEC Documents, at the time the SEC
Documents were filed with the SEC, contained any untrue
statement of a material fact, or omitted to state any material
fact required to be stated therein or necessary in order to
make statements therein, in light of the circumstances under
which they were made, not misleading. All of the SEC
Documents when filed with the SEC, complied in all material
respects with the applicable requirements of the 1933 Act or
the 1934 Act.
3.8 No Material Adverse Change
Except as disclosed in Buyer's financial statements
contained in its Quarterly Report on Form 10-Q for the three
months ended March 31, 1997 filed with the SEC, since
December 31, 1996, there has not been, occurred or arisen any
material adverse change in the condition, financial or
otherwise, whether or not arising in the ordinary course of
business, or in the earnings, business affairs or business
prospect, of Buyer.
3.9 No Other Liabilities or Contingencies
Buyer does not have any liabilities of any nature,
whether approved, absolute, contingent or otherwise, and
whether due or to become due, probable of assertion or not,
except liabilities that:
(a) are reflected or disclosed in the most recent
financial statements contained in the SEC Documents;
(b) were incurred after March 31, 1997 in the
ordinary course of business;
(c) are set forth in the attached Exhibit AA
hereto; or
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(d) are immaterial to the financial condition of
Buyer.
3.10 Financial Statements
All financial statements contained in the SEC Documents
have been prepared in conformity with GAAP applied on a
consistent basis (except for changes, if any, required by GAAP
and disclosed therein). All unaudited financial statements
contained in the SEC Documents include all adjustments which
management considers necessary for a fair presentation of such
results for the period shown.
3.11 No Brokerage Fees
Buyer has not engaged any broker or other Person who
would be entitled to any brokerage fee or commission in
connection with this Agreement or the consummation of any of
the transactions contemplated by this Agreement.
3.12 Accuracy of Statements
No representation, warranty or other statement by Buyer
in this Agreement or any certificate, document or other
instrument furnished or to be furnished by Buyer pursuant to
this Agreement contains any untrue statement of a material
fact or omits to state a material fact necessary to make any
statement by Buyer in this Agreement not materially misleading
in light of the circumstances in which such statement is made.
Section 4. Pre-Closing Covenants
4.1 Buyer's Due Diligence
During the Interim Period, Seller shall cooperate with
Buyer's review, study, investigation and other due diligence
activities with respect to the Assets and the Pathfinder
Business. Without limiting the generality of the foregoing,
Seller shall:
(a) provide, in writing, complete and accurate
answers to any due diligence questions submitted in
writing by Buyer to Seller;
(b) provide to Buyer or its representatives such
information relating to the Assets and the Pathfinder
Business as Buyer may reasonably request;
(c) make its books and records relating to the
Assets and Pathfinder Business (including, without
limitation, the Pathfinder Documentation) available for
examination and copying by Buyer or its representatives;
(d) make its employees and contractors who have participated
in or are otherwise knowledgeable regarding the Pathfinder
Business available for
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interviews and question by Buyer or its
representatives, upon reasonable advance notice by Buyer;
(e) conduct a physical inventory, and provide Buyer
with a detailed inventory, of the Assets;
(f) make the Assets available for inspection,
testing and examination by Buyer or its representatives,
upon reasonable advance notice by Buyer; and
(g) provide such documentation as Buyer may
reasonably request to verify any of Seller's
representations and warranties set forth in
paragraphs 2.7 through 2.14 inclusive.
Buyer shall use its best efforts to conduct its due diligence
at such times and in such a manner so as not to unreasonably
burden or interfere with the normal conduct of Seller's
business operations. No review, study, investigation or other
due diligence activities by Buyer, any failure to conduct any
such activities, or anything disclosed to or discovered by
Buyer in the course of any such activities, shall constitute a
waiver, release or relinquishment to any extent of any
representation, warranty or other obligation of Seller under
this Agreement or any of the Transfer Documents, except to the
extent set forth in the Schedule of Exceptions.
4.2 Conduct of Pathfinder Business
During the Interim Period, Seller shall conduct the
Pathfinder Business in the same manner in which Seller
conducted the Pathfinder Business prior to the date of this
Agreement. Without limitation of the foregoing, Seller shall:
(a) continue the Research & Development;
(b) continue to manufacture, assemble, produce,
test, maintain, repair, rebuild, recondition, upgrade,
replace, support and integrate Pathfinder Systems;
(c) continue to market, sell, promote, distribute
and deal in Pathfinder Systems;
(d) not accelerate or delay the completion or
delivery of any Pathfinder Systems or any other aspect of
the Pathfinder Business;
(e) replenish the Inventory as reasonably required to avoid
any delays, interruption, interference or other adverse
effects in the Pathfinder Business, the transfer of the
Pathfinder Business to Buyer pursuant to this
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Agreement or the continuation of the Pathfinder
Business by Buyer after Closing;
(f) maintain the Tools in good operating condition
and state of repair;
(g) not sell, assign, transfer or otherwise dispose
of any Tools;
(h) protect the Tools and Inventory from damage,
casualty, theft or loss;
(i) not sell, assign, transfer or otherwise dispose
of any of the Pathfinder Rights;
(j) take any and all actions (including, without
limitation, the preparation and filing of documents with
Governmental Authorities) required to preserve and
protect the Pathfinder Rights;
(k) not grant any mortgage, deed of trust,
indenture, security interest, pledge, lien, encumbrances,
lease, license, agreement, contract, commitment or other
obligation with respect to any of the Assets, except for
sales of Pathfinder Systems in the ordinary course of the
Pathfinder Business;
(l) not enter into or incur any material contract,
agreement, commitment, obligation or liability in
connection with the Pathfinder Business;
(m) use its best efforts to preserve the Assets,
the Pathfinder Business and the goodwill of the
Pathfinder Business;
(n) not cause any breach of or default under any of
the Assumed Commitments; and
(o) promptly notify Buyer of any discovery,
occurrence, event, circumstance, condition, situation or
state of facts that could constitute a breach of any of
Seller's representations, warranties, covenants or
obligations under this Agreement.
4.3 Seller's Employees in the Pathfinder Business
Upon execution of this Agreement, Seller shall provide
Buyer with a complete list of Seller's employees primarily
dedicated to the Pathfinder Business. Buyer may, at its
option, offer employment to any of such employees. Seller
shall cooperate with Buyer's attempts to hire any such
employees (including, without limitation, releasing
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such employees from any non-competition or other
obligations owing to Seller which may impair or interfere with
such employee's employment by Buyer).
4.4 No Solicitation of Competing Proposals
During the Interim Period, Seller shall not accept, make,
solicit, entertain, consider, encourage, negotiate or discuss
with any Third Party any agreement, offer or proposal for:
(a) the acquisition of any of the Assets other than
orders for the purchase of Pathfinder Systems in the
ordinary course of the Pathfinder Business;
(b) the acquisition of any material interest in
Seller by any Third Party (e.g., whether pursuant to a
purchase of assets, purchase of stock, exchange of stock,
merger, consolidation, business combination, corporate
organization or reorganization, or otherwise) that would
result in a change in control of Seller; or
(c) participate in any discussions or negotiations
regarding, furnish any information with respect to,
assist or participate in, or facilitate in any manner any
effort or attempt by any Person to do or seek any
acquisition described in (a) or (b) of this paragraph.
4.5 Authorization by Seller's Board of Directors
Seller shall request all approvals, consents and
authorizations required of Seller's board of directors for the
consummation of the transactions described in Section 1 of the
Purchase Agreement.
4.6 Authorization by Buyer's Board of Directors
Buyer shall request all approvals, consents and
authorizations required of Buyer's board of directors for the
consummation of the transactions described in Section 1 of the
Purchase Agreement.
4.7 License to [*] Patent
Seller is presently negotiating a license with the holder
of the patent referred to in paragraph 5.2(f). If Seller is
required to pay a license fee to the holder of such patent in
order to satisfy the condition set forth in paragraph 5.2(f),
then:
(a) Seller shall pay the first $100,000 of such
license fee;
[*] Confidential treatment requested
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(b) Seller and Buyer will each pay 50% of any
amount of such license fee between $100,000 and $250,000
(e.g., so that the maximum amount payable by Buyer is
$75,000); and
(c) Seller shall pay any amount of such license fee
in excess of $250,000.
Section 5. Conditions of Closing
5.1 Conditions Precedent to Seller's Obligations
The obligations of Seller to consummate the transactions
described in Section 1 of this Purchase Agreement are, at the
option of Seller, subject to fulfillment or waiver of the
following conditions at or prior to Closing:
(a) Seller shall have obtained all approvals,
consents and other authorizations required of Seller's
board of directors for the consummation of the
transactions described in Section 1 of the Purchase
Agreement;
(b) Buyer's representations and warranties set
forth in Section 3 of the Purchase Agreement shall be
true and correct;
(c) Buyer's covenants and obligations to be
complied with and performed by Buyer at or before Closing
as set forth in Section 4 of the Purchase Agreement shall
have been fully complied with and performed; and
(d) Buyer shall be ready, willing and able to
complete the Closing as provided for in Section 6 of the
Purchase Agreement.
5.2 Conditions Precedent to Buyer's Obligations
The obligations of Buyer to consummate the transactions
described in Section 1 of this Agreement are, at the option of
Buyer, subject to fulfillment or waiver of the following
conditions at or prior to Closing:
(a) Buyer shall have completed to its satisfaction
Buyer's review, study, investigation and other due
diligence activities with respect to the Assets and the
Pathfinder Business;
(b) there shall have been no material changes in
the Assets or the Pathfinder Business during the Interim
Period;
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(c) Buyer shall have obtained all approvals,
consents and other authorizations required of Buyer's
board of directors for the consummation of the
transactions described in Section 1 of the Purchase
Agreement;
(d) Seller's representations and warranties set
forth in Section 2 of the Purchase Agreement shall be
true and correct at Closing;
(e) Seller's covenants and obligations to be
complied with and performed by Seller at or before
Closing as set forth in Section 4 of the Purchase
Agreement shall have been fully complied with and
performed;
(f) Buyer shall be satisfied, in its sole
discretion, that the Pathfinder System does not infringe
U.S. Patent No. [*] issued [*], [*], to [*]. (e.g., by a
license, release, covenant not to sue or other binding
arrangement with the holder of such patent); and
(g) Seller shall be ready, willing and able to
complete the Closing as provided for in Section 6 of the
Purchase Agreement.
5.3 Waiver
Either Party may by written notice thereof to the other
Party:
(a) extend the time for performance of any of the
obligations of the notified Party;
(b) waive any incorrectness in any representation
or warranty of the notified Party;
(c) waive fulfillment of any of the conditions
precedent to the obligations of the Party giving the
notice; or
(d) waive compliance with or performance of any of
the covenants or obligations of the notified Party.
However, the Closing Date may not be changed by any notice
under this paragraph.
Section 6. Closing
6.1 Place and Time of Closing
The Closing shall take place at 10:00 a.m. Pacific
Daylight Time, at the offices of Perkins Coie, One Bellevue
Center, 18th Floor, 411 - 108th Avenue, N.E., Bellevue,
Washington, on the Closing Date.
[*] Confidential treatment requested
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6.2 Delivery by Seller to Buyer
At Closing, Seller shall deliver to Buyer the following:
(a) the Assignment and Assumption Agreement, Bill
of Sale, Escrow Agreement, Registration Rights Agreement
and Seller's Closing Certificate, each dated as of the
Closing Date and properly executed by Seller;
(b) Copyright Assignments for the assignment of all
Copyright Rights to Buyer, each dated as of the Closing
Date and properly executed by Seller;
(c) Patent Assignments for the assignment of all
Patent Rights to Buyer, each dated as of the Closing Date
and properly executed by Seller;
(d) Trademark Assignments for the assignment of all
Trademark Rights to Buyer, each dated as of the Closing
Date and properly executed by Seller;
(e) a legal opinion of Graham & James substantially
in the form attached as Exhibit W;
(f) a legal opinion of Testa, Hurwitz & Thibeault
substantially in the form attached as Exhibit X; and
(g) such other documents as Buyer may reasonably
request prior to Closing to effect, perfect or evidence
the sale, assignment or transfer of any Assets to Buyer.
6.3 Delivery by Seller to Escrow Agent
At Closing, Seller shall deliver to the Escrow Agent the
Escrow Agreement and Waiver and Restrictive Covenant properly
executed by Seller.
6.4 Delivery by Buyer to Seller
At Closing, Buyer shall deliver to Seller the following:
(a) the Assignment and Assumption Agreement, Escrow
Agreement, the Registration Rights Agreement and Buyer's
Closing Certificate, each dated as of the Closing Date
and properly executed by Buyer;
(b) payment of the Two Million Five Hundred
Thousand Dollars ($2,500,000) described in
paragraph 1.3.1 by wire transfer to an account
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designated by Seller, cashier's check, certified
bank check or any other means of payment acceptable to
Seller;
(c) a legal opinion of Perkins Coie substantially
in the form attached as Exhibit Y; and
(d) such other documents as Seller may reasonably
request prior to Closing to effect the transactions
contemplated by the Agreement.
6.5 Delivery by Buyer to the Escrow Agent
At Closing, Buyer shall deliver to the Escrow Agent:
(a) the Escrow Agreement and Waiver and Restrictive
Covenant properly executed by Buyer; and
(b) such other documents as Buyer may reasonably
request prior to Closing to effect the transactions
contemplated by the Agreement.
6.6 Stock Certificates
Upon Closing, Buyer shall direct its transfer agent to
promptly issue and, within four (4) business days deliver:
(a) to Seller an original stock certificate for the
Closing Stock; and
(b) to the Escrow Agent an original stock
certificate for the Contingent Stock.
The stock certificates shall bear the following legend:
The securities evidenced by this certificate
have not been registered under the Securities
Act of 1933, as amended (the "Act"), or
applicable state securities laws, and no
interest therein may be sold, distributed,
assigned, offered, pledged or otherwise
transferred unless (i) there is an effective
registration statement under the Act and
applicable state securities laws covering any
such transaction involving such securities,
(ii) this corporation receives an opinion of
legal counsel for the holder of the securities
reasonably satisfactory to this corporation
stating that such transaction is exempt from
registration, or (iii) this corporation
otherwise satisfies itself that such
transaction is exempt from registration.
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6.7 Closing Costs
Each Party shall bear its own costs and expenses of the
Closing and completing the transactions contemplated by this
Agreement. Closing shall be deemed to be complete and to have
occurred upon delivery of all the items to be delivered by the
Parties described in paragraphs 6.2, 6.3, 6.4 and 6.5.
6.8 Survival
The Parties respective obligations under Sections 7, 8, 9
and 11 of the Purchase Agreement, their respective
representations and warranties set forth in Sections 2 and 3
of the Purchase Agreement, and such other provisions of this
Agreement as may reasonably be interpreted or construed as
surviving the Closing shall survive the Closing.
Section 7. Post-Closing Covenants
7.1 General
After Closing, each Party shall take such action
(including, without limitation, the execution and delivery of
documents, or the provision of information, testimony or
documents) as the other Party may reasonably request to
effect, perfect or evidence the transactions described in
Section 1 of the Purchase Agreement.
7.2 Delivery of Tools, Inventory and Pathfinder
Documentation
Within fourteen (14) days after the Closing Date, Seller
shall deliver to Buyer FOB at Seller's Facility all of the
Tools, Inventory and original Pathfinder Documentation, except
as required for the performance of Seller's obligations under
paragraph 7.3. Seller shall deliver to Buyer any items
retained by Seller for performance of Seller's obligations
under paragraph 7.3 as soon as they are no longer needed by
Seller for its performance of such obligations. Seller shall
bear all packaging costs. Buyer shall bear all freight,
insurance and other transportation costs to deliver such
Assets in accordance with this paragraph and all risk of loss
prior to acceptance of such Assets by Buyer at Buyer's
Facility.
7.3 Support for Transfer of Pathfinder Business
Seller shall provide such reasonable disclosures,
documentation, technical assistance, training, consultation
and other support as Buyer may reasonably request to fully
disclose all of the Pathfinder Know-How and other Assets to
Buyer and to effectively, efficiently, and expeditiously
transfer the Pathfinder Business to Buyer. The Parties shall
use their best efforts to complete such disclosure and
transfer within
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one hundred twenty days (120) after the Closing Date.
Upon Buyer's request, Seller shall make its personnel
available to provide such support at Buyer's Facility,
provided that Buyer shall reimburse the out-of-pocket travel
expenses reasonably incurred by Seller's personnel to provide
such support at Buyer's Facility in accordance with the
NeoPath Travel Expense Reimbursement Procedure. Without
limitation of the foregoing:
(a) for a period of one hundred twenty (120) days
after the Closing Date, Seller shall make available to
NeoPath the equivalent of one person full-time, composed
of time of Messrs. Pomeroy and Liebau, as reasonably
required to assist in such disclosure and transfer;
provided that they are still employed by Seller and, if
they are no longer employed by Seller, Seller shall
cooperate with Buyer's reasonable efforts to contract for
their services (Buyer acknowledges that, except as may
otherwise be provided by a contract with Seller, Seller
does not control any individual after said individual's
employment with Seller ceases);
(b) if Mr. Weissman or Ms. Arnold do not become
employees of NeoPath pursuant to paragraph 4.3, then
Seller shall make each of them (or whichever of them does
not become an employee of NeoPath) available throughout
such one hundred twenty (120) day period as reasonably
required to assist in such disclosure and transfer
provided that they are still employed by Seller and, if
they are no longer employed by Seller, Seller shall
cooperate with Buyer's reasonable efforts to contract for
their services (Buyer acknowledges that, except as may
otherwise be provided by a contract with Seller, Seller
does not control any individual after said individual's
employment with Seller ceases);
(c) Seller's customer service group shall continue
to support the Pathfinder Business for a period of not to
exceed thirty (30) days after the Closing Date; and
(d) Seller shall provide such hardware and
technical assistance as is necessary to successfully
ensure the duplication and transfer of all system
software, software tools and other software included in
the Assets.
Further, upon Buyer's request, Seller shall complete any
Pathfinder Systems which are in the Inventory and at least
eighty percent (80%) complete as of the Closing Date. Seller
shall use its best efforts to complete and deliver such
Pathfinder Systems within ninety (90) days after the Closing
Date. As full compensation for completion and delivery of
such Pathfinder Systems, Buyer shall promptly pay or reimburse
Seller for one hundred thirty percent (130%) of Seller's
direct out-of-pocket costs for parts and
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components which are acquired by Seller after the Closing Date
(i.e., parts and components not included in the Inventory) and
incorporated into such Pathfinder Systems. Buyer shall not be
obligated to pay or reimburse any of Seller's other costs to
complete and deliver such Pathfinder Systems.
7.4 Terminable Commitments and Unassumed Commitments
As soon as practicable and in no event later than thirty
(30) days after the Closing Date, Seller shall terminate the
Terminable Commitments without incurring any expense, cost,
obligation or liability to Buyer. Seller shall defend,
indemnify and hold harmless Buyer from and against any and all
claims arising out of any Terminable Commitments, Unassumed
Commitments or the termination of any Terminable Commitments.
Without limitation of the foregoing, Seller shall pay or
reimburse any and all costs and expenses (including, but not
limited to, reasonable attorneys' fees incurred in connection
with the defense, settlement or satisfaction of any such claim
and any judgments, awards, penalties, settlements, damages,
liabilities or losses based upon any such claim); provided
that Buyer:
(a) gives Seller written notice of any such claim
promptly after Buyer receives notice of the same;
(b) cooperates with Seller in connection with the
defense, settlement and satisfaction of the claim;
(c) does not settle the claim without the prior
written consent of Seller, which consent shall not be
unreasonably withheld; and
(d) permits Seller to assume the defense of the
claim, employing counsel approved by Buyer, which
approval shall not be unreasonably withheld.
7.5 Support of Pathfinder Rights
Neither Party shall contest or challenge, or assist or
encourage any Third Party to contest or challenge, the
validity of any of the Pathfinder Rights. Each Party shall
promptly notify the other Party of any infringement,
misappropriation or violation of any Pathfinder Rights that
comes to such notifying Party's attention after the Closing
Date. Seller shall take such action (including, without
limitation, the execution and delivery of documents and the
provision of information, testimony or documents) as may
reasonably be requested by Buyer to effect, perfect, evidence,
enforce, defend or protect any of the Pathfinder Rights;
provided that Buyer shall reimburse the out-of-pocket expenses
(including, without limitation, attorneys' fees) reasonably
incurred by Seller in taking any such action.
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7.6 Noncompetition
During the period of five (5) years after the Closing
Date, Seller shall not directly or indirectly:
(a) research, develop, design, engineer,
manufacture, assemble, produce, test, maintain, repair,
rebuild, recondition, upgrade, replace, support,
integrate, market, sell, promote, distribute or otherwise
deal with any Competing Product or any modification,
improvement, enhancement, replacement, part, component,
accessory or add-on to any Competing Product; or
(b) assist any Third Party in any activity
described in (a) above.
7.7 Restriction on Disposition of Shares
Seller shall not sell, assign, transfer or otherwise
dispose of any Shares unless and until:
(a) there is in effect a registration statement
under the 1933 Act covering such proposed disposition and
such disposition is made in accordance with such
registration statement;
(b) Seller shall have (i) notified Buyer of the
proposed disposition and shall have furnished Buyer with
a detailed statement of the circumstances surrounding the
proposed disposition and (ii) delivered to Buyer an
opinion of counsel, reasonably satisfactory to Buyer,
that such disposition does not require registration under
the 1933 Act; or
(c) Buyer shall be satisfied that such proposed
disposition complies in all respects with SEC Rule 144 or
any successor rule providing a safe harbor for such
disposition without registration.
7.8 Third Party Software
Seller has been unable to produce documentation of
Seller's rights to certain software included in the Pathfinder
Software or Tools as described in Section 2 of the Schedule of
Exceptions. If Buyer is unable to confirm Seller's rights to
any of such software (e.g., by contacting the Third-Party
owner of such software), the Buyer may acquire licenses for
such software as reasonably required for Buyer's continuation
of the Pathfinder Business as conducted by Seller. In such
event, Seller shall promptly pay or reimburse any license fees
or other expenses reasonably incurred by Buyer to acquire such
licenses.
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Section 8. Protection of Confidential Information
8.1 General
In the performance of this Agreement, either Party may
disclose to the other Party certain Confidential Information.
In such event, the Recipient shall protect Confidential
Information of the Discloser against any unauthorized use or
disclosure to the same extent that the Recipient protects its
own Confidential Information of a similar nature against
unauthorized use or disclosure; provided that the Confidential
Information of the Discloser is conspicuously marked or
otherwise identified as confidential or proprietary upon
receipt by the Recipient or the Recipient otherwise knows or
has reason to know that the same is Confidential Information
of the Discloser. Without limitation of the foregoing:
(a) the Recipient shall use such Confidential
Information solely for the purposes for which it has been
disclosed by the Discloser;
(b) the Recipient shall disclose such Confidential
Information only to those of its employees, agents and
other representatives who have a need to know the same
for the purposes described in (a) above and who
understand and acknowledge their obligation and
willingness to preserve and hold such Confidential
Information in strict confidence;
(c) the Recipient shall not copy or authorize the
copying of any document containing such Confidential
Information, except as required for the purposes
described in (a) above or otherwise authorized by the
Discloser in writing; and
(d) any copy of any documents containing any such
Confidential Information that is made or authorized by
the Recipient shall contain all copyright,
confidentiality or other proprietary notices contained on
such document as delivered by the Discloser.
8.2 Pathfinder Trade Secrets
Prior to the Closing, the Pathfinder Trade Secrets shall
be treated as Confidential Information of Seller (e.g., Seller
shall be the Discloser and Buyer shall be the Recipient with
respect to the Pathfinder Trade Secrets). After Closing, the
Pathfinder Trade Secrets shall be treated as Confidential
Information of Buyer (e.g., Buyer shall be the Discloser and
Seller shall be the Recipient with respect to the Pathfinder
Trade Secrets).
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8.3 Limitation
Paragraph 8.1 shall not be interpreted or construed to
restrict or prohibit:
(a) any use, disclosure or copying which is
necessary or appropriate in connection with the
Recipient's performance of its obligations or exercise of
its rights under this Agreement or any other agreement
between the Parties;
(b) any use, disclosure or copying required by
applicable law (e.g., pursuant to applicable securities
laws or legal process), provided that the Recipient uses
reasonable efforts to give the Discloser reasonable
advance notice thereof; or
(c) any use, disclosure or copying made with the
consent of the Discloser.
Section 9. Infringement of Third Party Rights
9.1 Obligation to Defend, Indemnify and Hold Harmless
Subject to Buyer's performance of its obligations under
paragraph 9.2, Seller shall defend, indemnify and hold
harmless Buyer from and against any and all claims that the
Pathfinder System or any of the Assets infringes or
misappropriates, as of the Closing Date, any patent,
copyright, trademark, trade secret or other proprietary right
of any Third Party. Without limitation of the foregoing,
Seller shall pay or reimburse any and all reasonable costs and
expenses (including, but not limited to, any and all
reasonable court costs, experts' fees, witnesses' fees and
attorneys' fees) incurred in connection with the defense,
settlement or satisfaction of such claim (including, but not
limited to, any judgments, awards, penalties, settlements,
damages, liabilities or losses based upon any such claim).
9.2 Notice and Cooperation
As a condition of Seller's obligations under
paragraph 9.1, Buyer shall:
(a) give Seller written notice of the claim
promptly after Buyer receives notice of the same;
(b) cooperate with Seller in connection with the
defense, settlement and satisfaction of the same;
(c) not settle the claim without the prior written
consent of Seller, which consent shall not be
unreasonably withheld;
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(d) permit Seller to assume defense of the claim,
employing counsel approved by Buyer, which approval shall
not be unreasonably withheld; and
(e) upon Seller's request, suspend or discontinue
any manufacturing, production, marketing, sales,
distribution or other activities which allegedly infringe
or misappropriate any patent, copyright, trademark, trade
secret or other proprietary right of any Third Party and
for which Buyer is seeking indemnification under
paragraph 9.1, all to the extent reasonably required to
ameliorate Seller's liability hereunder.
9.3 When Use, Etc., Is Enjoined, Prevented or
Materially Restricted
If the use of any of the Assets (e.g., in connection with
the Research & Development or the manufacturing, assembly,
production, testing, maintenance, repair, rebuilding,
reconditioning, upgrading, replacement, support, integration,
marketing, sale, promotion, distribution or dealing in
Pathfinder Systems) is enjoined, prevented or materially
restricted on account of any claim of infringement or
misappropriation of any patent, copyright, trademark, trade
secret or other property right of any Third Party, then Seller
shall:
(a) procure for Buyer the right to continue to use
the same as contemplated by this Agreement;
(b) if (a) is not commercially reasonable, modify
the item subject to the claim so that it is not subject
to the claim and still complies with the applicable
warranties and other requirements of this Agreement;
(c) if (a) and (b) are not commercially reasonable,
replace the item subject to the claim with a
substantially equivalent item that is not subject to the
claim; or
(d) if (a), (b) and (c) are not commercially
reasonable, make a payment to Buyer, after good faith
negotiation between Buyer and Seller, which reasonably
compensates Buyer for the injunction, prevention or
restriction, subject to the limitations set forth in
paragraph 11.1.
9.4 Limitations Based On Modifications, Etc., By Buyer
Seller's obligations under paragraphs 9.1 and 9.3 shall
not apply if and to the extent the claimed infringement,
misappropriation or violation results solely from any
alteration, improvement or other modification made by Buyer or
any integration or combination of the item subject to the
claim with an AutoPap System or any other product that is not
currently part of the Pathfinder System.
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Section 10. Termination
10.1 By Buyer
If any of the conditions set forth in paragraph 5.2 of
the Purchase Agreement are not fulfilled or waived on or
before the Closing Date, other than solely on account of a
default in the performance of Buyer's obligations under
paragraph 4.6 of the Purchase Agreement, then Buyer may
terminate this Agreement by giving Seller written notice of
termination.
10.2 By Seller
If any of the conditions set forth in paragraph 5.1 of
the Purchase Agreement are not fulfilled or waived on or
before the Closing Date, other than solely on account of a
default in the performance of Seller's obligations under
paragraphs 4.1, 4.2, 4.3, 4.4 or 4.5 of the Purchase
Agreement, then Seller may terminate this Agreement by giving
Buyer written notice of termination.
10.3 Written Agreement
The Parties may terminate this Agreement by a written
agreement of termination signed by both Parties.
10.4 Effect of Termination
In the event of any termination of this Agreement
pursuant to paragraph 10.1, 10.2 or 10.3, the following shall
apply:
(a) Buyer shall return to Seller any and all
Confidential Materials delivered or made available by
Seller to Buyer under this Agreement or the
Confidentiality Agreement, together with any and all
copies thereof made by Buyer;
(b) Seller shall return to Buyer any and all
Confidential Materials delivered or made available by
Buyer to Seller under this Agreement or the
Confidentiality Agreement, together with any and all
copies thereof made by Seller;
(c) the Parties respective rights and obligations
under Sections 8 and 11 shall survive; and
(d) except as provided in (a), (b) and (c) above,
this Agreement shall have no further force or effect.
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Section 11. Limitations of Seller's Liability
11.1 Dollar Limitation
Seller's total liability with respect to any claims of
Buyer for any breach or default of this Agreement by Seller
(including, without limitation, any of breach of Seller's
representations and warranties under Section 2 and any default
of Seller's obligations under paragraphs 9.1 and 9.2) shall
not, in the aggregate, exceed the sum of Five Million Dollars
($5,000,000), less the sum of:
(a) the Share Price multiplied by the number of any
shares of Contingent Stock returned to Buyer in
accordance with the provisions of the Escrow Agreement;
and
(b) any amounts paid by Seller in the defense,
settlement or satisfaction of any claim pursuant to
paragraphs 9.1 and 9.2.
11.2 Time Limitation
Further, except as otherwise provided in paragraph 11.3,
Seller shall not have any liability under this Agreement
whatsoever with respect to any claim of Buyer for any breach
or default under this Agreement by Seller, unless Buyer gives
Seller written notice of the claim:
(a) if the claim arises out of any breach or
default by Seller of any Assumed Commitment, then at any
time prior to the expiration of all statutes of
limitation applicable to the claim;
(b) with respect to any claim not described in (a)
above, at any time prior to the expiration of two and one-
half (2 1/2) years after the Closing Date.
11.3 Exception
The limitations set forth in paragraph 11.2 shall not
apply to any claims for any breach or default by Seller under
paragraph 2.7 other than any claims based upon any
infringement, misappropriation or violation of any patent,
copyright, trade name, trademark, trade secret or similar
proprietary right of any Third Party.
Section 12. Miscellaneous
12.1 Public Statement
Upon execution of this Agreement, the Parties shall issue a
joint press release substantially in the form attached as
Exhibit EE. Upon Closing, the Parties shall issue
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a joint press release regarding the Closing in form and
content approved by both Parties, which approval shall not be
unreasonably withheld by either Party. Upon any termination
of this Agreement pursuant to Section 10 of this Purchase
Agreement, the Parties shall issue a joint press release
regarding such termination in form and content approved by
both Parties, which approval shall not be unreasonably
withheld by either Party. Neither Party shall issue any other
press release or other public announcement regarding this
Agreement or the Closing without the prior approval of the
other Party, which approval shall not be unreasonably
withheld; provided, however, that either Party may make any
such announcement without the prior approval of the other
Party if:
(a) the Party issuing the announcement has used
reasonable efforts to obtain the other Party's approval;
and
(b) in the opinion of legal counsel for the Party
issuing the announcement, such announcement is required
or advisable to comply with any Governmental Requirement.
12.2 Expenses
Except as otherwise specifically provided for in this
Agreement, each Party shall bear all of the expenses that it
incurs in connection with the preparation, execution and
performance of this Agreement and the consummation of the
transactions contemplated by this Agreement.
12.3 Notices
Any notice under this Purchase Agreement shall be made in
writing and may be given or served by:
(a) delivering the same in person or by prepaid
messenger service to the Person to be notified;
(b) depositing the same in the mail, postage
prepaid, registered or certified with return receipt
requested, and addressed to the Person to be notified at
the address specified below; or
(c) telex, facsimile, telegraph, telecopy, or other
written telecommunication medium.
If notice is deposited in the United States mail pursuant to
clause (b) of this paragraph it shall be deemed to have been
given upon the fifth day after the date that it is so
deposited. Notice given in any other manner shall be deemed
to have been given only
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if and when received at the address of the Person to be
notified. For the purpose of notice, the addresses and
facsimile numbers of the Parties are as follows:
If to Buyer: NeoPath, Inc.
8271-154th Ave. N.E.
Redmond, Washington 98052
Attention:
Alan C. Nelson
Facsimile:
(425) 556-2950
If to Seller: CompuCyte Corporation
12 Emily Street
Cambridge, Massachusetts 02139-
4517
Attention: President
Facsimile: (617) 492-1301
Either Party may from time to time change its address for
notices under this Agreement by giving the other Party notice
of such change in accordance with this paragraph.
12.4 Nonwaiver
No waiver of any term, condition, provision, right or
remedy under this Agreement shall be effective unless set
forth in writing signed by the Party against which the waiver
is to be enforced. The failure of either Party to insist upon
or enforce strict performance by the other Party of any term,
condition or provision of this Agreement or to exercise any
right or remedy under this Agreement shall not be construed as
a waiver or relinquishment to any extent of such Party's right
to assert or rely upon any such term, condition, provision,
right or remedy in that or any other instance; rather, the
same shall be and remain in full force and effect.
12.5 Assignment
Neither Party shall assign (voluntarily, by operation of
law, or otherwise) this Agreement or any right, interest or
benefit under this Agreement without the prior written consent
of the other Party. However, either Party may assign all of
its rights, interests and benefits under this Agreement,
without the prior written consent of the other Party, to any
successor of the assigning Party's entire business (e.g., by
way of a merger, consolidation or other corporate
reorganization or any sale or transfer of all or substantially
all of the assets of the assigning Party); provided, however,
that the successor assumes or is otherwise bound by all of the
assigning Party's obligations under this Agreement. No
assignment, with or without the consent of the other Party,
shall relieve either Party from any of its obligations under
this Agreement. Subject to
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the foregoing, this Agreement shall be fully binding
upon, inure to the benefit of and be enforceable by each of
the Parties and their respective successors and assigns.
12.6 No Third Party Beneficiaries
This Agreement is for the benefit of, and shall be
enforceable by, the Parties only. This Agreement is not
intended to confer any right or benefit on any Third Party.
No action may be commenced or prosecuted against a Party by
any Third Party claiming as a third party beneficiary of this
Agreement or any of the transactions contemplated by this
Agreement.
12.7 Counterparts
This Agreement may be executed in any number of
counterparts and all counterparts shall be deemed to
constitute a single agreement. The execution and delivery of
one counterpart by any Party shall have the same force and
effect as if that Party had signed all other counterparts.
The signatures to this Agreement may be executed on separate
pages and when attached to this Agreement shall constitute one
complete document.
12.8 Amendment
No change, modification or amendment of any provisions of
this Agreement shall be valid unless set forth in a written
amendment to this Agreement signed by both Parties.
12.9 Severability
This Agreement shall be enforced to the fullest extent
permitted by applicable law. If for any reason any provision
of this Agreement is held to be invalid or unenforceable to
any extent, then:
(a) such provision shall be interpreted, construed
or reformed to the extent reasonably required to render
the same valid, enforceable and consistent with the
original intent underlying such provision;
(b) such provision shall be void to the extent it
is held to be invalid or unenforceable;
(c) such provision shall remain in effect to the
extent that it is not invalid or unenforceable; and
(d) such invalidity or unenforceability shall not
affect any other provision of this Agreement or any other
agreement between the parties.
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If the invalidity or unenforceability is due to the
unreasonableness of the scope or duration of the provision,
then the provision shall remain effective for such scope and
duration as may be determined to be reasonable.
12.10 Attorneys Fees
In any action, suit or other proceeding to enforce any
right or remedy under this Agreement or to interpret any
provision of this Agreement, the prevailing Party shall be
entitled to recover its costs and expenses (including, without
limitation, reasonable attorneys' fees) reasonably incurred in
connection with such proceeding, or any appeal thereof.
12.11 Applicable Law
THIS AGREEMENT SHALL BE INTERPRETED, CONSTRUED AND
ENFORCED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS OF THE
STATE OF WASHINGTON, U.S.A., WITHOUT REFERENCE TO ITS RULES OR
PROVISIONS RELATING TO CHOICE OF LAW, EXCEPT TO THE EXTENT
PREEMPTED BY THE LAWS OF THE UNITED STATES OF AMERICA WHICH
SHALL THEN APPLY.
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12.12 Entire Agreement
This Agreement sets forth the entire agreement, and
supersedes any and all prior agreements (including, without
limitation, the Confidentiality Agreement and the letter
agreement dated March 28, 1997), between the Parties with
respect to the transactions contemplated by this Agreement.
There are no other representations, warranties, arrangements,
understandings or other agreements, written or oral, between
the Parties with respect to any of the transactions
contemplated by this Agreement.
IN WITNESS WHEREOF, the Parties have entered into and
signed this Agreement as of the date first set forth above.
Seller: Buyer:
CompuCyte Corporation NeoPath, Inc.
By: /s/ SHELDON L. BLOCH By: /s/ ALAN C. NELSON
--------------------- --------------------
Title: President & CEO Title: President & CEO
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Exhibit A
DEFINITIONS
Whenever used in this Agreement, the following terms
shall have the following specified meanings:
"1933 Act" means the Securities Act of 1933, as amended
prior to the date of this Agreement.
"1934 Act" means the Securities Exchange Act of 1934, as
amended prior to the date of this Agreement.
"Agreement" means the Purchase Agreement and all of its
exhibits.
"Assets" means the Assumed Commitments, Inventory,
Pathfinder Documentation, Pathfinder Rights, Pathfinder
Software and Tools.
"Assignment and Assumption Agreement" means the
Assignment and Assumption Agreement attached as Exhibit F.
"Assumed Commitments" means the contracts, agreements,
orders and commitments listed in the attached Exhibit C.
"AutoPap System" means NeoPath's system for the automated
interpretation of cervical papanicolaou (Pap) smear slides as
more particularly described in the attached Exhibit Z.
"Bill of Sale" means the Bill of Sale attached as
Exhibit G.
"Buyer's Closing Certificate" means a certificate
substantially in the form attached as Exhibit DD.
"Buyer's Facility" means Buyer's place of business
located at 8271 154th Avenue N.E., Redmond, Washington.
"Closing" means the Closing described in Section 6 of the
Purchase Agreement.
"Closing Date" means June 23, 1997, or such other date as
the Parties may agree upon in writing for the Closing.
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"Closing Stock" means the Shares to be issued and
delivered to Seller upon Closing pursuant to paragraphs 1.3.2
and 6.6 of the Purchase Agreement.
"Competing Product" means the Pathfinder System, the
AutoPap System or any combination of the Pathfinder System and
the AutoPap System; provided, however, that the term
"Competing Product" shall not include Laser Scanning Cytometry
(LSC) analyzers that measure fluorescence to characterize
discrete analytes such as biological cells, with the exception
that the specific application of LSC to cervical cancer
screening shall constitute a Competing Product. This
restriction to cervical cancer screening shall not be deemed
to include any use of the LSC by purchasers of CompuCyte's LSC
product line; nor shall it be deemed to include products for
screening microorganisms, products for screening blood or
products for characterizing diseases to determine their
prognosis or monitor their treatment based on analysis of any
cytology or tissue specimen including specimens from cervical
cancer.
"Confidential Information" means any information that is
proprietary or confidential or that a Party is obligated to
keep confidential (e.g., pursuant to a contractual or other
obligation owing to a Third Party). Confidential Information
may be of a technical, business or other nature (including,
but not limited to, information which relates to a Party's
technology, research, development, products, customers,
employees, contractors, marketing plans, finances, contracts,
legal affairs, or business affairs). However, Confidential
Information does not include any information that:
(a) was known to the Recipient prior to receiving
the same from the Discloser in connection with this
Agreement;
(b) is independently developed by the Recipient;
(c) is acquired by the Recipient from another
source without restriction as to use or disclosure; or
(d) is or becomes part of the public domain through
no fault or action of the Recipient.
"Confidential Material" means any document (whether in
handwritten, printed, coded, magnetic, electronic or other
form or media) which contains, displays or manifests any
Confidential Information.
"Confidentiality Agreement" means the Bilateral
Confidential Disclosure Agreement, dated as of January 14,
1997, between Buyer and Seller.
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"Contingent Stock" means the Shares to be issued and
delivered to the Escrow Agent upon Closing pursuant to
paragraphs 1.3.3 and 6.6 of the Purchase Agreement.
"Copyright Assignment" means an assignment in the form
attached as Exhibit P or another form agreed upon by the
Parties.
"Copyright Rights" means any and all domestic or foreign
copyrights, assignments, copyright licenses and other
copyright rights, whether registered, unregistered, statutory,
common law or otherwise (including, without limitation, any
rights to sue, recover damages or obtain relief for any past
infringement, any moral rights and any rights under any
application, assignment, license, legal opinion or search)
owned or licensed by Seller, and related to the Pathfinder
Documentation, the Pathfinder System, the Research &
Development or any Tools. The Copyright Rights shall include,
without limitation, the copyrights, applications, assignments,
licenses and rights listed in the attached Exhibit Q.
"Discloser" means a Party that discloses Confidential
Information to the other Party.
"Dollars" means United States dollar currency.
"Escrow Agent" means the Escrow Agent named in the Escrow
Agreement.
"Escrow Agreement" means the Escrow Agreement attached as
Exhibit N.
"GAAP" means generally accepted accounting principles.
"Governmental Authority " means any legislative,
administrative, judicial, military, civil or other
governmental authority.
"Governmental Requirement" means any law, rule,
regulation, order, judgment, decree or other requirement of
any Governmental Authority having jurisdiction.
"Interim Period" means the period of time from the date
of the Purchase and Sale Agreement to the Closing.
"Inventory" means Seller's inventory of Pathfinder
Systems or equipment, components, parts and supplies that may
be incorporated into Pathfinder Systems or consumed in the
manufacture, assembly, production, test, maintenance, repair,
rebuilding, reconditioning, upgrading, replacement, support or
integration of Pathfinder Systems (including, without
limitation, any finished Pathfinder Systems
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<PAGE>
and any work-in-progress or any unfinished Pathfinder
Systems). The Inventory shall include, without limitation,
the items listed in the attached Exhibit K.
"NeoPath Travel Expense Reimbursement Procedure" means
Buyer's standard policies, procedures and practices for
reimbursement of travel expenses as set forth in the NeoPath
Travel and Entertainment Operating Procedure attached as
Exhibit BB.
"Party" means Seller, Buyer or any Person that acquires
all of the right, title or interest of Seller or Buyer in this
Agreement in accordance with paragraph 12.5 of the Purchase
Agreement.
"Patent Assignment" means an assignment in the form
attached as Exhibit R or another form agreed upon by the
Parties.
"Patent Rights" means any and all domestic or foreign
patents and other patent rights, whether registered,
unregistered, statutory, common law or otherwise (including,
without limitation, any rights to sue, recover damages or
obtain relief for any past infringement, any shop rights and
any rights under any application, assignment, license, legal
opinion or search) owned or licensed by Seller and related to
the Pathfinder System, the Research & Development or any
Tools. The Patent Rights shall include, without limitation,
the patents, applications, assignments, licenses and rights
listed in the attached Exhibit S.
"Pathfinder Business" means research, development,
design, engineering, manufacturing, assembly, production,
testing, maintenance, repair, rebuilding, reconditioning,
upgrading, replacement, support, integration, marketing,
selling, promotion, distribution and other activities
conducted by or for Seller prior to Closing with respect to
the Pathfinder System.
"Pathfinder Documentation" means any documentation
(whether in handwritten, printed, coded, magnetic, electronic
or other form or media) of the Pathfinder Business.
Pathfinder Documentation includes, without limitation, the
following:
(a) plans, designs, drawings, specifications,
manuals, instructional and technical documentation for
the Pathfinder System or any Tools;
(b) source and object codes for any software
included in the Pathfinder System or any Tools;
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(c) marketing, sales and promotional materials
(e.g., business plans, marketing plans, advertising,
brochures, literature and lists of customers or potential
customers of Pathfinder Systems) for the Pathfinder
System;
(d) plans for and documentation of the Research &
Development.
(e) documentation relating to the Assumed
Commitments and other agreements, correspondence and
other records relating to contractors or suppliers
furnishing equipment, parts, components, supplies,
services or other items for the Pathfinder Business;
(f) registrations, applications, filings,
exceptions, correspondence and other documentation
relating to any Governmental Requirements that are or may
be applicable to the Pathfinder Rights, Pathfinder System
or the Pathfinder Business;
(g) legal opinions, prior art searches and other
documentation relating to the Pathfinder Rights; and
(h) licenses, assignments and other agreements
(including, without limitation any and all
confidentiality, nondisclosure or similar agreements),
and Third Party documentation and release media
(including, without limitation, users manuals, training
manuals, release documentation and other documentation
provided by Third Parties) relating to any Pathfinder
Software, Pathfinder Rights or Tools.
The Pathfinder Documentation includes, without limitation, the
documentation listed in the attached Exhibit M.
"Pathfinder Know-How" means any know-how utilized by
Seller in the Pathfinder Business. Pathfinder Know-How
includes, but is not limited to, the Pathfinder Trade Secrets.
"Pathfinder Rights" means the Copyright Rights, the
Patent Rights, the Pathfinder Trade Secrets, the Trademark
Rights and any other proprietary rights of Seller related to
the Pathfinder System.
"Pathfinder Software" means the programs, codes and other
software that is included in or distributed with the
Pathfinder System. The Pathfinder Software includes, without
limitation, the software listed in the attached Exhibit I.
"Pathfinder System" means the system (including hardware,
software, firmware and other components) described in the
attached Exhibit J.
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"Pathfinder Trade Secret" means any information owned or
licensed by Seller and utilized in the Pathfinder Business
that derives independent commercial value, actual or
potential, from not being generally known or available to the
public. Pathfinder Trade Secrets may be of a technical,
business or other nature (including, without limitation,
technical data, business plans, marketing information,
distribution information, customers lists, Pathfinder System
capabilities, problems with Pathfinder Systems, Pathfinder
System shortcomings, potential modifications of or
advancements to the Pathfinder System, regulatory exposure of
the Pathfinder System, and information regarding the
manufacture, assembly, production, testing, maintenance,
repair, rebuilding, reconditioning, upgrading, replacement,
support or integration of Pathfinder Systems).
"Person" means any individual, corporation, partnership,
trust, association, governmental authority or other entity.
"Purchase Agreement" means the Purchase and Sale
Agreement to which this Exhibit A is attached.
"Recipient" means a Party that receives Confidential
Information from the other Party.
"Registration Rights Agreement" means the Registration
Rights Agreement attached as Exhibit H.
"Research & Development" means all of the research and
development conducted, in progress or planned by or for Seller
with respect to the Pathfinder System.
"Schedule of Exceptions" means the Schedule of Exceptions
attached as Exhibit B.
"SEC" means the Securities and Exchange Commission.
"SEC Documents" means the following documents filed by
Buyer with the SEC: Annual Report on Form 10-K for the year
ended December 31, 1996; Quarterly Report on Form 10-Q for the
three months ended March 31, 1997; and Proxy Statement dated
April 15, 1997.
"Seller's Closing Certificate" means a certificate
substantially in the form attached as Exhibit CC.
"Share Price" means the average of the closing prices for
Buyer's common stock as quoted by NASDAQ and reported by the
Wall Street Journal for the fifteen
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(15) trading days ending on the second trading day
immediately preceding the Closing Date.
"Shares" means unregistered shares of Buyer's common
stock to be issued upon Closing pursuant to paragraph 6.6 of
the Purchase Agreement.
"Terminable Commitments" means the contracts, agreements,
orders and commitments listed in the attached Exhibit D.
"Third Party" means any Person that is not a Party.
"Tools" means the computers, specialized or custom
equipment, software, molds, tools, burn-in equipment,
diagnostic equipment and other items owned or licensed by
Seller, and utilized in (i) the design, engineering,
manufacture, assembly, production, testing, maintenance,
repair, rebuilding, reconditioning, upgrading, replacement,
support or integration of the Pathfinder System or (ii) the
Research & Development. The Tools shall include, without
limitation, the items listed in the attached Exhibit L.
"Trademark Assignment" means an assignment in the form
attached as Exhibit T or another form agreed upon by the
Parties.
"Trademark Rights" means any and all domestic or foreign
trademarks, service marks, design marks, logos, brands,
identifiers, composite marks, letter marks, trade names and
trade dress, whether registered, unregistered, statutory,
common law or otherwise (including, without limitation, any
goodwill, any rights to sue, recover damages or obtain relief
for any past infringement, and any rights under any
application, assignment, license, legal opinion or search)
owned or licensed by Seller, and related to the Pathfinder
System. The Trademark Rights include without limitation, the
items listed in the attached Exhibit U.
"Transfer Documents" means the Assignment and Assumption
Agreement, the Bill of Sale, the Copyright Assignments
delivered or to be delivered by Seller pursuant to
paragraph 6.2(b), the Patent Assignments delivered or to be
delivered by Seller pursuant to paragraph 6.2(c) of the
Purchase Agreement, and the Trademark Assignments delivered or
to be delivered by Seller pursuant to paragraph 6.2(d) of the
Purchase Agreement, and the Purchase Agreement.
"Unassumed Commitments" means the contracts, agreements,
orders and commitments listed in the attached Exhibit E.
"Waiver and Restrictive Covenant" means the Waiver and
Restrictive Covenant attached as Exhibit O.
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EXHIBIT H
Neopath, Inc.
Registration Rights Agreement
Dated
as of
June 23, 1997
<PAGE>
CONTENTS
l. Certain Definitions 1
2. Form S-3 Registration 2
3. Obligations of the Company 3
4. Furnish Information 4
5. Expenses of Registration 4
6. Indemnification 4
7. Reports Under the 1934 Act 7
8. Termination of Registration Rights 7
9. Notices 8
10. Amendments and Waivers 8
11. Severability 8
12. Governing Law 8
13. Counterparts 8
14. Entire Agreement 8
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INDEX OF DEFINED TERMS
1934 Act 3
Act 1
Company 1
Form S-3 1
Losses 3
register 1
registered 1
Registrable Securities 1
registration 1
SEC 2
Shareholder 1
Shares 1
Violation 3
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Neopath, Inc.
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT is entered into as of June 23, 1997, by
and among NEOPATH, INC., a Washington corporation (the "Company"), and COMPUCYTE
CORPORATION (the "Shareholder").
RECITALS
A. The Company is proposing to issue newly authorized shares of its
Common Stock (including the shares to be held in escrow, the "Shares") to the
Shareholder as partial consideration for the purchase of certain assets from the
Shareholder pursuant to Purchase and Sale Agreement dated as of June 23, 1997
between the Company and the Shareholder (the "Purchase Agreement").
B. The execution of this Agreement by the parties hereto is a condition
to the obligation of the Shareholder to sell such assets to the Company.
C. The Company and the Shareholder desire to enter into this Registration
Rights Agreement to facilitate the issuance of the Shares.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
l. Certain Definitions
For purposes of this Agreement:
(a) The term "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration
statement or document;
(b) The term "Registrable Securities" means (i) the Shares and
(ii) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, the Shares or such Common Stock, excluding in all cases,
however, any Registrable Securities that are at the time of registration,
transferable by the holder thereof in a single brokerage transaction under the
provisions and within the volume limitations of Rule 144(e)(1) promulgated under
the Act or any successor to such Rule;
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(c) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission (the "SEC") that similarly permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
2. Form S-3 Registration
The Company shall, subject to the limitations set forth below, use
commercially reasonable efforts to effect as soon as practicable the
registration of all Registrable Securities on Form S-3.
3. Obligations of the Company
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the
Shareholder, keep such registration statement effective for up to 90 days after
the last Registrable Securities are released from escrow as provided for in the
Escrow Agreement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Shareholder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably request
in order to facilitate the disposition of all securities covered by such
registration statement.
(d) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Shareholder, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) Notify the Shareholder, during the time when a prospectus
relating thereto covered by such registration statement is required to be
delivered under the Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
Page 2
<PAGE>
(f) Use its best efforts to list the Registrable Securities with any
securities exchange on which the Common Stock of the Company is then listed.
4. Furnish Information
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Agreement with respect to the Registrable Securities
that the Shareholder shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of such securities as shall be reasonably required to effect the
registration of such Registrable Securities and to execute such documents in
connection with such registration as the Company may reasonably request.
5. Expenses of Registration
In connection with any registration pursuant to this Agreement, the Company
shall be responsible for the payment of all expenses of the registration, with
the exception of underwriting discounts and commissions, which shall be paid by
the Company, the Shareholder and any other selling shareholders in proportion to
the aggregate value of the securities offered for sale by each of them. The
expenses to be paid by the Company shall include, without limitation, all
registration, filing and qualification fees, listing fees and fees of transfer
agent and registrar, printing and accounting fees, the fees and disbursements of
counsel for the Company.
6. Indemnification
In the event any Registrable Securities are included in a registration
statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Shareholder, its officers, directors, agents and employees,
any underwriter (as defined in the Act) for the Shareholder and each person, if
any, who controls the Shareholder or underwriter within the meaning of the Act
or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages or liabilities (joint or several) (collectively,
"Losses") to which they or any of them may become subject under the Act, the
1934 Act or other federal or state law, insofar as such Losses arise out of or
are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any statement or alleged statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein, or any amendments
or supplements thereto, untrue or alleged to be untrue in light of the
circumstances under which they were made, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Act, the 1934 Act or any state securities law. The
Company will reimburse the Shareholder, the officers, directors, agents and
employees of the
Page 3
<PAGE>
Shareholder, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
Losses; provided, however, that the indemnity agreement contained in this
Section 6(a) shall not apply to amounts paid in settlement of any such Losses if
such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any such
case for any such Losses to the extent the Losses arise out of or are based upon
a Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by,
or on behalf of, the Shareholder, underwriter or controlling person.
(b) To the extent permitted by law, the Shareholder will indemnify
and hold harmless the Company, its officers, directors, agents and employees,
each person, if any, who controls the Company within the meaning of the Act and
each underwriter, against any Losses to which the Company, such officer,
director, agent, employee, controlling person or underwriter may become subject
under the Act, the 1934 Act or other federal or state law, insofar as such
Losses arise out of or are based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by, or on behalf of, the
Shareholder expressly for use in connection with such registration; and the
Shareholder will reimburse any legal or other expenses reasonably incurred by
the Company, its officers, directors, agents, employees, and underwriters in
connection with investigating or defending any such Losses; provided, however,
that (i) the indemnity agreement contained in this Section 6(b) shall not apply
to amounts paid in settlement of any such Losses if such settlement is effected
without the consent of the Shareholder, which consent shall not be unreasonably
withheld and (ii) the obligations of the Shareholder hereunder shall be limited
to an amount equal to the gross proceeds, before expenses and commissions,
received by the Shareholder from the sale of the Registrable Securities as
contemplated herein.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6, deliver to
the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if, in the opinion of counsel for the indemnifying
party, representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable period of time of the commencement of any
such action shall relieve such indemnifying party of any liability to the
indemnified party under this Section 6 to the extent prejudicial to its ability
to defend such action, but the omission so to deliver written notice to
Page 4
<PAGE>
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 6.
(d) In order to provide for just and equitable contributions to joint
liability under the Act in any case in which either (i) the Shareholder
exercising rights under this Agreement, or any controlling person of the
Shareholder, makes a claim for indemnification pursuant to this Section 6 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 6 provides for indemnification
in such case, or (ii) contribution under the Act may be required on the part of
the Shareholder or any such controlling person in circumstances for which
indemnification is provided under this Section 6; then, in each such case, the
Company and the Shareholder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that the Shareholder is responsible for the
portion represented by the percentage that the public offering price of the
Shareholder's Registrable Securities offered by and sold under the registration
statement bears to the public offering price of all securities offered by and
sold under such registration statement, and the Company and other selling
shareholders are responsible for the remaining portion, provided, however, that,
in any such case (A) the Shareholder will not be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered and sold by the Shareholder pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentations.
(e) The obligations of the Company and the Shareholder under this
Section 6 shall survive the completion of any offering of Registrable Securities
in a registration statement under this Agreement, and otherwise.
7. Reports Under the 1934 Act
With a view to making available to the Shareholder the benefits of SEC
Rule 144 promulgated under the Act and any other rule or regulation of the SEC
that may at any time permit the Shareholder to sell securities of the Company to
the public without registration, the Company agrees to use commercially
reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) Furnish to the Shareholder forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
the 1934
Page 5
<PAGE>
Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing the
Shareholder of any rule or regulation of the SEC that permits the selling of any
such securities without registration.
8. Termination of Registration Rights
The registration rights granted pursuant to this Agreement shall terminate
on the earlier of (i) the date on which the Shareholder is entitled to transfer
all of the Registrable Securities in a single transaction under Rule 144 or (ii)
the second anniversary of this Agreement.
9. Notices
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or upon deposit with the United
States Post Office, postage prepaid, registered or certified with return receipt
requested and addressed to the party to be notified at the address indicated for
such party on the signature page hereof, or at such other address as such party
may designate by ten days' advance written notice to the other parties given in
the foregoing manner.
10. Amendments and Waivers
Any term of this Agreement may be amended and the observance of any term
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the Shareholder.
11. Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
12. Governing Law
This Agreement shall be governed by and construed under the laws of the
State of Washington as applied to agreements among Washington residents entered
into and to be performed entirely within the State of Washington.
13. Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
Page 6
<PAGE>
14. Entire Agreement
This Agreement constitutes the full and entire understanding and agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY:
NEOPATH, INC.
By: /s/ ALAN C. NELSON
-------------------
Alan C. Nelson, President
Address:
8271 154th Avenue NE
Redmond, WA 98052
SHAREHOLDER:
COMPUCYTE CORPORATION
By: /s/ SHELDON L. BLOCH
--------------------
Its: President & CEO
Address:
Page 7
<PAGE>
Neopath, Inc.
Registration Rights Agreement
Dated
as of
June 23, 1997
<PAGE>
CONTENTS
l. Certain Definitions 1
2. Form S-3 Registration 2
3. Obligations of the Company 3
4. Furnish Information 4
5. Expenses of Registration 4
6. Indemnification 4
7. Reports Under the 1934 Act 7
8. Termination of Registration Rights 7
9. Notices 8
10. Amendments and Waivers 8
11. Severability 8
12. Governing Law 8
13. Counterparts 8
14. Entire Agreement 8
Page i
<PAGE>
INDEX OF DEFINED TERMS
1934 Act 3
Act 1
Company 1
Form S-3 1
Losses 3
register 1
registered 1
Registrable Securities 1
registration 1
SEC 2
Shareholder 1
Shares 1
Violation 3
Page ii
<PAGE>
Neopath, Inc.
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT is entered into as of June 23, 1997, by
and among NEOPATH, INC., a Washington corporation (the "Company"), and COMPUCYTE
CORPORATION (the "Shareholder").
RECITALS
A. The Company is proposing to issue newly authorized shares of its
Common Stock (including the shares to be held in escrow, the "Shares") to the
Shareholder as partial consideration for the purchase of certain assets from the
Shareholder pursuant to Purchase and Sale Agreement dated as of June 23, 1997
between the Company and the Shareholder (the "Purchase Agreement").
B. The execution of this Agreement by the parties hereto is a condition
to the obligation of the Shareholder to sell such assets to the Company.
C. The Company and the Shareholder desire to enter into this Registration
Rights Agreement to facilitate the issuance of the Shares.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
l. Certain Definitions
For purposes of this Agreement:
(a) The term "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration
statement or document;
(b) The term "Registrable Securities" means (i) the Shares and
(ii) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of, the Shares or such Common Stock, excluding in all cases,
however, any Registrable Securities that are at the time of registration,
transferable by the holder thereof in a single brokerage transaction under the
provisions and within the volume limitations of Rule 144(e)(1) promulgated under
the Act or any successor to such Rule;
Page 1
<PAGE>
(c) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission (the "SEC") that similarly permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
2. Form S-3 Registration
The Company shall, subject to the limitations set forth below, use
commercially reasonable efforts to effect as soon as practicable the
registration of all Registrable Securities on Form S-3.
3. Obligations of the Company
Whenever required under this Agreement to effect the registration of
any Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the
Shareholder, keep such registration statement effective for up to 90 days after
the last Registrable Securities are released from escrow as provided for in the
Escrow Agreement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Shareholder such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as it may reasonably request
in order to facilitate the disposition of all securities covered by such
registration statement.
(d) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as shall be reasonably requested by the
Shareholder, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) Notify the Shareholder, during the time when a prospectus
relating thereto covered by such registration statement is required to be
delivered under the Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
Page 2
<PAGE>
(f) Use its best efforts to list the Registrable Securities with any
securities exchange on which the Common Stock of the Company is then listed.
4. Furnish Information
It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Agreement with respect to the Registrable
Securities that the Shareholder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of such securities as shall be reasonably required to effect the
registration of such Registrable Securities and to execute such documents in
connection with such registration as the Company may reasonably request.
5. Expenses of Registration
In connection with any registration pursuant to this Agreement, the
Company shall be responsible for the payment of all expenses of the
registration, with the exception of underwriting discounts and commissions,
which shall be paid by the Company, the Shareholder and any other selling
shareholders in proportion to the aggregate value of the securities offered
for sale by each of them. The expenses to be paid by the Company shall
include, without limitation, all registration, filing and qualification fees,
listing fees and fees of transfer agent and registrar, printing and
accounting fees, the fees and disbursements of counsel for the Company.
6. Indemnification
In the event any Registrable Securities are included in a
registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Shareholder, its officers, directors, agents and employees,
any underwriter (as defined in the Act) for the Shareholder and each person, if
any, who controls the Shareholder or underwriter within the meaning of the Act
or the Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages or liabilities (joint or several) (collectively,
"Losses") to which they or any of them may become subject under the Act, the
1934 Act or other federal or state law, insofar as such Losses arise out of or
are based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any statement or alleged statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein, or any amendments
or supplements thereto, untrue or alleged to be untrue in light of the
circumstances under which they were made, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the Act, the 1934 Act, any state securities law or any rule or regulation
promulgated under the Act, the 1934 Act or any state securities law. The
Company will reimburse the Shareholder, the officers, directors, agents and
employees of the
Page 3
<PAGE>
Shareholder, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
Losses; provided, however, that the indemnity agreement contained in this
Section 6(a) shall not apply to amounts paid in settlement of any such Losses if
such settlement is effected without the consent of the Company, which consent
shall not be unreasonably withheld, nor shall the Company be liable in any such
case for any such Losses to the extent the Losses arise out of or are based upon
a Violation that occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by,
or on behalf of, the Shareholder, underwriter or controlling person.
(b) To the extent permitted by law, the Shareholder will indemnify
and hold harmless the Company, its officers, directors, agents and employees,
each person, if any, who controls the Company within the meaning of the Act and
each underwriter, against any Losses to which the Company, such officer,
director, agent, employee, controlling person or underwriter may become subject
under the Act, the 1934 Act or other federal or state law, insofar as such
Losses arise out of or are based upon any Violation, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by, or on behalf of, the
Shareholder expressly for use in connection with such registration; and the
Shareholder will reimburse any legal or other expenses reasonably incurred by
the Company, its officers, directors, agents, employees, and underwriters in
connection with investigating or defending any such Losses; provided, however,
that (i) the indemnity agreement contained in this Section 6(b) shall not apply
to amounts paid in settlement of any such Losses if such settlement is effected
without the consent of the Shareholder, which consent shall not be unreasonably
withheld and (ii) the obligations of the Shareholder hereunder shall be limited
to an amount equal to the gross proceeds, before expenses and commissions,
received by the Shareholder from the sale of the Registrable Securities as
contemplated herein.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6, deliver to
the indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if, in the opinion of counsel for the indemnifying
party, representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable period of time of the commencement of any
such action shall relieve such indemnifying party of any liability to the
indemnified party under this Section 6 to the extent prejudicial to its ability
to defend such action, but the omission so to deliver written notice to
Page 4
<PAGE>
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 6.
(d) In order to provide for just and equitable contributions to joint
liability under the Act in any case in which either (i) the Shareholder
exercising rights under this Agreement, or any controlling person of the
Shareholder, makes a claim for indemnification pursuant to this Section 6 but it
is judicially determined (by the entry of a final judgment or decree by a court
of competent jurisdiction and the expiration of time to appeal or the denial of
the last right of appeal) that such indemnification may not be enforced in such
case notwithstanding the fact that this Section 6 provides for indemnification
in such case, or (ii) contribution under the Act may be required on the part of
the Shareholder or any such controlling person in circumstances for which
indemnification is provided under this Section 6; then, in each such case, the
Company and the Shareholder will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that the Shareholder is responsible for the
portion represented by the percentage that the public offering price of the
Shareholder's Registrable Securities offered by and sold under the registration
statement bears to the public offering price of all securities offered by and
sold under such registration statement, and the Company and other selling
shareholders are responsible for the remaining portion, provided, however, that,
in any such case (A) the Shareholder will not be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered and sold by the Shareholder pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentations.
(e) The obligations of the Company and the Shareholder under this
Section 6 shall survive the completion of any offering of Registrable Securities
in a registration statement under this Agreement, and otherwise.
7. Reports Under the 1934 Act
With a view to making available to the Shareholder the benefits of
SEC Rule 144 promulgated under the Act and any other rule or regulation of the
SEC that may at any time permit the Shareholder to sell securities of the
Company to the public without registration, the Company agrees to use
commercially reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) Furnish to the Shareholder forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
the 1934
Page 5
<PAGE>
Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and
(iii) such other information as may be reasonably requested in availing the
Shareholder of any rule or regulation of the SEC that permits the selling of any
such securities without registration.
8. Termination of Registration Rights
The registration rights granted pursuant to this Agreement shall
terminate on the earlier of (i) the date on which the Shareholder is entitled
to transfer all of the Registrable Securities in a single transaction under
Rule 144 or (ii) the second anniversary of this Agreement.
9. Notices
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or upon deposit with
the United States Post Office, postage prepaid, registered or certified
with return receipt requested and addressed to the party to be notified at
the address indicated for such party on the signature page hereof, or at
such other address as such party may designate by ten days' advance
written notice to the other parties given in the foregoing manner.
10. Amendments and Waivers
Any term of this Agreement may be amended and the observance of any
term may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the
Company and the Shareholder.
11. Severability
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement, and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance
with its terms.
12. Governing Law
This Agreement shall be governed by and construed under the laws of
the State of Washington as applied to agreements among Washington residents
entered into and to be performed entirely within the State of Washington.
13. Counterparts
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
Page 6
<PAGE>
14. Entire Agreement
This Agreement constitutes the full and entire understanding and
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
THE COMPANY:
NEOPATH, INC.
By: /s/ ALAN C. NELSON
------------------
Alan C. Nelson, President
Address:
8271 154th Avenue NE
Redmond, WA 98052
SHAREHOLDER:
COMPUCYTE CORPORATION
By: /s/ SHELDON L. BLOCH
--------------------
Its: President & CEO
Address:
Page 7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q as of June 30, 1997 and for the six months then ended, and is qualified
in its entirety by reference to such financial statements and footnotes.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,488,219
<SECURITIES> 36,650,323
<RECEIVABLES> 1,522,144
<ALLOWANCES> 0
<INVENTORY> 8,806,045
<CURRENT-ASSETS> 53,898,626
<PP&E> 5,564,904
<DEPRECIATION> 0
<TOTAL-ASSETS> 70,155,520
<CURRENT-LIABILITIES> 6,567,509
<BONDS> 0
0
0
<COMMON> 140,840,584
<OTHER-SE> (77,394,699)
<TOTAL-LIABILITY-AND-EQUITY> 70,155,520
<SALES> 0
<TOTAL-REVENUES> 4,475,057
<CGS> 0
<TOTAL-COSTS> 2,045,440
<OTHER-EXPENSES> 16,713,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,610
<INCOME-PRETAX> (12,879,405)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12,879,405)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,879,405)
<EPS-PRIMARY> (.92)
<EPS-DILUTED> 0
</TABLE>
