SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidfential, For Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
________________________________________________________________________________
NEOPATH, INC.
(Name of Registrant as Specified in Its Charter)
________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
________________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
________________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
________________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
________________________________________________________________________________
(5) Total fee paid:
________________________________________________________________________________
[ ] Fee paid previously with preliminary materials:
________________________________________________________________________________
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
________________________________________________________________________________
(2) Form, Schedule or Registration Statement no.:
________________________________________________________________________________
(3) Filing Party:
________________________________________________________________________________
(4) Date Filed:
________________________________________________________________________________
<PAGE>
[LOGO OF NEOPATH, INC.]
Redmond, Washington
April 14, 1998
Dear Shareholders:
On behalf of the Board of Directors and management, I cordially
invite you to attend the NeoPath, Inc. (the "Company") 1998 Annual
Meeting of Shareholders (the "Annual Meeting") to be held on Thursday,
May 21, 1998 at 8:30 a.m. (Pacific daylight time) at The Hyatt Regency
Bellevue at Bellevue Place, 900 Bellevue Way NE, Bellevue, Washington.
At the Annual Meeting, you will be asked to elect two directors
to the Company's Board of Directors and to consider and vote upon a
proposal to amend the NeoPath, Inc. 1989 Restated Stock Option Plan
(the "1989 Plan") to increase the number of shares issuable under the
1989 Plan. Your attention is directed to the accompanying Notice of
Annual Meeting of Shareholders and accompanying Proxy Statement for
further information with respect to matters to be acted upon at the
Annual Meeting.
NEOPATH'S BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
ELECTION OF THE NOMINEES FOR DIRECTOR AND FOR THE AMENDMENT TO THE
1989 PLAN.
Whether or not you plan to attend the Annual Meeting, it is
important that your shares be represented. Please sign, date and mail
the enclosed proxy card as soon as possible in the enclosed postage
prepaid envelope to ensure that your vote is counted. If you attend
the meeting, you will, of course, have the right to vote your shares
in person.
Very truly yours,
Alan C. Nelson
President and
Chief Executive Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN
THE ENCLOSED PROXY CARD
<PAGE>
[LOGO OF NEOPATH, INC.]
8271 - 154th Avenue NE
Redmond, Washington 98052
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1998
To the Shareholders:
The 1998 Annual Meeting of Shareholders (the "Annual Meeting") of
NeoPath, Inc., a Washington corporation (the "Company"), will be held
at The Hyatt Regency Bellevue at Bellevue Place, 900 Bellevue Way NE,
Bellevue, Washington, on Thursday, May 21, 1998 at 8:30 a.m. (Pacific
daylight time) for the following purposes:
1. To elect two Class 1 directors to the Company's Board of
Directors for terms expiring in 2001.
2. To consider and vote upon a proposal to amend the NeoPath,
Inc. 1989 Restated Stock Option Plan (the "1989 Plan") to
authorize the issuance of an additional 720,000 shares of
Common Stock upon exercise of options granted under the
1989 Plan.
3. To transact such other business as may properly come
before the Annual Meeting or any adjournments or
postponements thereof.
The record date for the Annual Meeting was March 25, 1998. Only
shareholders of record at the close of business on that date are
entitled to notice of, and to vote at, the Annual Meeting and any
adjournments or postponements thereof.
The affirmative vote of the holders of a plurality of the shares
of Common Stock present, in person or by proxy, at the Annual Meeting
is required for the election of directors. The affirmative vote of
the holders of shares representing a majority of the shares of Common
stock present, in person or by proxy, and entitled to vote thereon at
the Annual Meeting is required to approve the amendment of the 1989
Plan.
By Order of the Board of Directors
Alan C. Nelson
President and
Chief Executive Officer
Redmond, Washington
April 14, 1998
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN
AND DATE THE ENCLOSED PROXY CARD AND RETURN IT AS PROMPTLY AS POSSIBLE
IN THE ENCLOSED STAMPED AND ADDRESSED ENVELOPE IN ORDER THAT THE
PRESENCE OF A QUORUM MAY BE ASSURED. YOUR STOCK WILL BE VOTED IN
ACCORDANCE WITH THE INSTRUCTIONS YOU HAVE GIVEN IN THE PROXY. YOUR
PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY SIGNING AND
RETURNING A LATER-DATED PROXY WITH RESPECT TO THE SAME SHARES, BY
FILING WITH THE SECRETARY OF THE COMPANY A WRITTEN REVOCATION BEARING
A LATER DATE, OR BY ATTENDING AND VOTING IN PERSON AT THE ANNUAL
MEETING.
<PAGE>
[LOGO OF NEOPATH, INC.]
8271 - 154th Avenue NE
Redmond, Washington 98052
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 21, 1998
General
This Proxy Statement is furnished by the Board of Directors of
NeoPath, Inc., a Washington corporation (the "Company"), to the
holders of Common Stock, $.01 par value, of the Company (the "Common
Stock"), in connection with the solicitation of proxies by the Board
of Directors for use at the 1998 Annual Meeting of Shareholders (the
"Annual Meeting"), to be held at 8:30 a.m. (Pacific daylight time) on
Thursday, May 21, 1998, at The Hyatt Regency Bellevue at Bellevue
Place, 900 Bellevue Way NE, Bellevue, Washington, and at any
adjournments or postponements thereof.
This Proxy Statement and the enclosed proxy card are first being
mailed to shareholders on or about April 14, 1998.
Revocability of Proxies
A proxy delivered pursuant to this solicitation is revocable at
the option of the person giving the same at any time before it is
exercised. A proxy may be revoked, prior to its exercise, by
executing and delivering a later-dated proxy card with respect to the
same shares prior to the Annual Meeting, by delivering written notice
of revocation to the Secretary of the Company at any time prior to the
vote, or attending and voting at the Annual Meeting. Attendance at
the Annual Meeting, in and of itself, will not constitute a revocation
of a proxy. Unless previously revoked, the shares represented by the
enclosed proxy will be voted in accordance with the shareholder's
directions if the proxy is duly executed and returned prior to the
Annual Meeting. If no directions are specified, the shares will be
voted "FOR," (i) the election of the Directors recommended by the
Board of Directors, (ii) the approval to amend the NeoPath, Inc. 1989
Restated Stock Option Plan (the "1989 Plan") to authorize the issuance
of an additional 720,000 shares of Common Stock issuable under the
1989 Plan, and (iii) in accordance with the discretion of the named
proxies, on other matters properly brought before the Annual Meeting.
Record Date; Shares Entitled to Vote; Vote Required
The close of business on March 25, 1998 (the "Record Date") has
been fixed as the record date for determining the holders of shares of
Common Stock who are entitled to notice of and to vote at the Annual
Meeting. As of the Record Date, there were 14,469,192 shares of
Common Stock outstanding and entitled to vote. The holders of record
on the Record Date of shares of Common Stock are entitled to one vote
per share of Common Stock. The presence, in person or by proxy, of
the holders of shares representing a majority of the voting power of
the shares of Common Stock entitled to vote is necessary to constitute
a quorum for the transaction of business at the Annual Meeting.
Under Washinton law and the Company's Articles of Incorporation,
if a quorum is present at the Annual Meeting, (a) the two nominees for
election as directors who receive the greatest number of votes cast
for the election of directors at the Annual Meeting by the shares
present in person or represented by proxy at the Annual Meeting and
entitled to vote shall be elected directors, and (b) the proposal to
amend the 1989 Plan will be approved if the votes cast in favor of the
proposal by the shares present in person or represented by proxy at
the Annual Meeting and entitled to vote exceed the votes cast against
the proposal. Abstention from voting will have no effect on the
election of directors or the approval to amend the 1989 Plan since
they will not represent votes cast at the Annual Meeting for the
purposes of electing directors and approval to amend the 1989 Plan.
Because brokers have discretion to vote shares of Common Stock held on
behalf of beneficial owners if no instructions for voting such shares
are received as to the matters to be voted upon at the Annual Meeting,
there will be no "broker nonvotes."
Page 1
<PAGE>
Solicitation of Proxies
The accompanying Proxy is being solicited by and on behalf of the
Company's Board of Directors. The expense of preparing, printing, and
mailing this Proxy Statement and the proxies solicited hereby will be
borne by the Company. In addition to the use of the mails, proxies may
be solicited by directors, officers, and other employees of the
Company, without additional remuneration, in person, or by telephone,
or facsimile transmission. The Company will also request brokerage
firms, bank nominees, custodians, and fiduciaries to forward proxy
materials to the beneficial owners of Common Stock as of the Record
Date and will provide reimbursement for the cost of forwarding the
proxy materials in accordance with customary practice. Your
cooperation in promptly signing and returning the enclosed proxy card
will help avoid additional expense.
1. ELECTION OF DIRECTORS AND MANAGEMENT INFORMATION
The Company's Articles of Incorporation provide that the members
of the Board of Directors be divided into three classes, as nearly
equal as possible. Each class is elected for a three-year term. At
each annual meeting of shareholders, one class of the Board of
Directors is elected for a three-year term and directors in the other
classes remain in office until their respective three-year terms
expire. The Company's Board of Directors presently consists of seven
members, with two members in Classes 1 and 2, and three members in
Class 3. At the expiration of each class' term, continuing directors
are to be elected to serve for a term of three years or until their
respective successors have been elected and qualified. Alan D.
Frazier, whose term expires in 1998, is leaving the Board of Directors
effective May 21, 1998.
The two nominees, Alan C. Nelson, Ph.D., and Thomas A. Bonfiglio,
M.D. comprise the class to be elected at the Annual Meeting for three-
year terms expiring at the 2001 annual meeting. Unless otherwise
directed, the persons named in the proxy intend to cast all proxies in
favor of Alan C. Nelson and Thomas A. Bonfiglio to serve as directors
of the Company. It is intended that votes will be cast pursuant to
the accompanying proxy for the election of these nominees unless
contrary instructions are received. If any nominee should become
unavailable for any reason, it is intended that votes will be cast for
a substitute nominee as designated by the Company's Board of
Directors. The Board of Directors has no reason to believe that
either of the nominees named will be unable to serve if elected.
Information About the Director Nominees
Alan C. Nelson, Ph.D., (age 48), the Company's founder, President
and Chief Executive Officer, has been a Director since May 1989. He
was the Company's Chairman of the Board from March 1991 until June
1994, when he became President and Chief Executive Officer. From
September 1986 to September 1992, he was an associate professor at the
Center for Bioengineering and an adjunct professor in the Departments
of Pathology, Radiology, and Electrical Engineering at the University
of Washington, where he directed that university's Center for Imaging
Systems Optimization from 1990 to 1991. Since 1991, Dr. Nelson has
held an affiliate professorship with the Center for Bioengineering at
the University of Washington.
Thomas A. Bonfiglio, M.D., (age 55) serves as Senior Attending
Pathologist and Director of Cytology at The Genesee Hospital in
Rochester, New York. Dr. Bonfiglio is also a Clinical Professor at
the University of Rochester's Department of Pathology and Laboratory
Medicine, where he has maintained various academic positions since
1971. Since 1969, Dr. Bonfiglio has held pathology positions at
various hospitals, most recently as Pathologist in Chief at Strong
Memorial Hospital from 1989 to 1997. He is a past president of the
American Society of Clinical Pathologists and the American Society of
Cytopathology and has authored numerous medical publications.
Information About Directors Whose Terms of Office Continue After the
Annual Meeting
Terms expire 1999:
David A. Thompson, (age 56), has been a Director of the
Company since June 1995. Mr. Thompson retired in June 1995
from Abbott Laboratories ("Abbott"), a manufacturer and
distributor of pharmaceutical and nutritional products, where
Page 2
<PAGE>
he served in various capacities since 1964. From August 1983 to July
1990, he was Abbott's Vice President, Diagnostic Operations and
President, Diagnostics Division; from July 1990 to June 1994, he was
Abbott's Senior Vice President, Diagnostic Operations and President,
Diagnostics Division; and from June 1994 until his retirement, he was
Abbott's Senior Vice President, Strategic Improvement Processes. Mr.
Thompson is currently Chief Executive Officer of Diagnostic Marketing
Strategies, a private consulting firm. Mr. Thompson is also a director
of HYCOR Biomedical, Inc., NABI, and LifeCell Corporation.
Gail R. Wilensky, Ph.D., (age 54), has been a Director of the
Company since June 1996. Dr. Wilensky has served as a John M. Olin
Senior Fellow of Project HOPE since January 1993, serving as a formal
and informal advisor to government and the private sector. Dr.
Wilensky is also currently the chairperson for the Medicare Payment
Advisory Commission where she advises the United States Congress
regarding Medicare and Medicaid. During 1992 and 1993, Dr. Wilensky
was Deputy Assistant to the President for Policy Development advising
the President, Vice President and other senior administration
officials on issues related to health care and welfare reform. Dr.
Wilensky is also a director of Advanced Tissue Sciences, Inc.,
Pharmerica, Inc., Quest Diagnostics Incorporated, St. Jude Medical,
Inc., Shared Medical Systems Corporation, Syncor International
Corporation and United HealthCare Corporation.
Terms expire 2000:
Walter L. Robb, Ph.D., (age 69), has been a Director of the
Company since July 1993 and was elected Chairman of the Board in June
1994. From 1986 to 1993, when he retired, Dr. Robb was Senior Vice
President and Director of Corporate Research and Development of General
Electric Corporation. From 1973 to 1986, he was Senior Vice President
and General Manager of GE Medical Systems, a division of General
Electric Corporation. Dr. Robb is the sole owner of Vantage
Management, Inc., a private consulting firm. Dr. Robb serves as a
director of Celgene Corp., Cree Research, Inc., Marquette Medical
Systems, Inc. and Mechanical Technology, Inc.
Cristina H. Kepner, (age 51), has been a Director of the Company
since April 1994. Ms. Kepner has been a Director, Executive Vice
President, and Corporate Finance Director of Invemed Associates, Inc.,
an investment banking firm, since February 1978. Invemed Associates,
Inc. served as underwriter for the Company's initial public offering
in February 1995 and for the Company's second public offering in
January 1996. Ms. Kepner is also a director of Quipp, Inc.
William L. Scott, (age 54), the Company's Vice President and
Chief Financial Officer since March 1997, has been a Director of the
Company since May 1997. Mr. Scott was Vice President and General
Manager of Boston Scientific Corporation's Northwest Technology
Center, Inc. from January 1996 through December 1996. Prior to Boston
Scientific's acquisition of Heart Technology, Inc., Mr. Scott was
Heart Technology's Vice Present, Finance and Administration and Chief
Financial Officer from January 1992 through December 1995. Mr. Scott
served as Vice President and Chief Financial Officer at various other
companies, including Pentzer Corporation from 1990 through 1991, Flow
International from 1989 through 1990, and Physio-Control Corporation
from 1975 through 1982.
Compensation of Directors
Nonemployee directors receive $1,000 per board meeting attended
and $600 per committee meeting attended, plus out-of-pocket expenses.
In addition, nonemployee directors receive an annual retainer fee of
$10,000, which is paid in $2,500 installments at the end of each
calendar quarter.
On June 25, 1996, the Company's shareholders approved the NeoPath,
Inc. Stock Option Plan for Nonemployee Directors, as amended and
restated on April 26, 1996 (the "Nonemployee Directors Plan") which
specified that a director is granted an option to purchase 10,000
shares of Common Stock annually during his or her term of office on the
first business day following each annual meeting of shareholders.
Options granted under this Nonemployee Directors Plan vest in three
equal annual installments, beginning one year after the date of grant,
and the exercise price is equal to the fair market value of the
Company's Common Stock on the date of grant.
Page 3
<PAGE>
On February 27, 1997, the Board of Directors amended and restated
the Nonemployee Directors Plan such that the number of shares
purchasable under options granted annually to continuing and newly
appointed directors during their term in office was reduced from 10,000
to 7,000 shares of the Company's Common Stock. Under the Amended and
Restated Nonemployee Directors Plan, such options are granted to
nonemployee directors on the last business day prior to each annual
meeting of shareholders (excluding any director whose term expires on
the date of the annual meeting prior to which an option is to be
granted and who has not been nominated for re-election at such annual
meeting). Such options vest and become exercisable in full on the day
immediately prior to the annual meeting next following the date of
grant (disregarding the annual meeting being held immediately after the
date of grant). On May 21, 1997, all nonemployee directors received
grants to purchase 7,000 shares of Common Stock in accordance with the
provision of the Amended and Restated Nonemployee Directors Plan.
Information on Committees of the Board of Directors
The Company's Board of Directors has standing Compensation, Audit
and Nominating Committees. Each of these committees is responsible to
the full Board of Directors, and its activities are therefore subject
to approval of the Board of Directors. The members of each Committee
and the functions performed thereby are described below:
Compensation Committee. During 1997, the Compensation Committee
was comprised of Mr. Thompson, Mr. Frazier, and Dr. Wilensky. The
Compensation Committee establishes salaries, incentives and other
forms of compensation for directors and officers of the Company,
administers the 1989 Plan, and recommends policies relating to the
Company's benefit plans. The Compensation Committee met five times in
1997.
Audit Committee. During 1997, the Audit Committee was comprised
of Mr. Frazier, who was a member throughout the year, and Ms. Kepner,
who became a member effective May 22, 1997. C. Richard Kramlich, who
left the Board of Directors effective May 22, 1997, was a member of
the Audit Committee in 1997 prior to his departure. The Audit
Committee oversees the engagement of the Company's independent
auditors and, together with the Company's independent auditors,
reviews the Company's accounting practices, internal accounting
controls and financial results. The Audit Committee met three times
in 1997.
Nominating Committee. During 1997, the Nominating Committee was
comprised of Dr. Robb and Ms. Kepner. The Nominating Committee makes
recommendations to the Board of Directors concerning prospective
candidates to fill vacancies on the Board of Directors. The
Nominating Committee met one time in 1997. The Nominating Committee
will consider the names and qualifications of candidates for the Board
of Directors submitted by shareholders in accordance with the
procedures referred to in "Proposals of Shareholders" in this Proxy
Statement.
During 1997 there were five meetings of the Board of Directors,
one of which was held telephonically. Each director attended at least
75 percent of all board meetings and meetings of committees on which
they served except Dr. Wilensky, who attended 60 percent of the board
meetings and Compensation Committee meetings.
Page 4
<PAGE>
Executive Officers
The executive officers of the Company, and their ages as of March
15, 1998, are as follows:
Name Age Position
____ ___ ________
Alan C. Nelson 48 President and Chief Executive Officer and
Director
William L. Scott 54 Vice President and Chief Financial
Officer and Director
Shih-Jong James Lee 42 Vice President and Chief Technical
Officer
David H. Robison 48 Vice President, Operations
Larry A. Nelson 52 Vice President, Intellectual Property and
New Business Development
Kumar K. Shahani 43 Vice President, Marketing and Business
Assessment
Robert C. Bateman 35 Corporate Controller and Treasurer
Volker R. Kettering 48 Former Vice President, Sales
For information regarding Alan C. Nelson see "--Information About
the Director Nominees."
For information regarding William L. Scott see "--Information
About Directors Whose Terms of Office Continue After Annual Meeting."
Shih-Jong James Lee, Ph.D., Vice President and Chief Technical
Officer, joined NeoPath in March 1989. Dr. Lee served as the Company's
Chief Scientist beginning March 1993 and Vice President, Chief
Scientist in February 1995. In 1997, Dr. Lee was named Vice President
and Chief Technical Officer. Dr. Lee was Principal Engineer for the
High Technology Center of the Boeing Company from 1986 to 1989, and
founded its Image Analysis Group. He currently serves on the Editorial
Board of the Pattern Recognition Journal.
David H. Robison, Vice President, Operations, joined NeoPath in
May 1996. Prior to joining NeoPath, Mr. Robison was employed by Abbott
Laboratories in various positions from February 1978 through May 1996.
From February 1995 to May 1996, Mr. Robison was Research and
Development Director for Abbott's Diagnostic Division, and from May
1990 to February 1995 he was Director, Customer Satisfaction.
Larry A. Nelson, Vice President, Intellectual Property and New
Business Development, joined NeoPath in October 1992. Mr. Nelson was
NeoPath's Vice President, Research and Engineering until 1997, when he
was named Vice President, Intellectual Property and New Business
Development. Mr. Nelson was employed at Honeywell, Inc. as Senior
Fellow from 1990 to 1992, and as Senior Staff Engineer from 1986 to
1990.
Kumar K. Shahani, Vice President, Marketing and Business
Assessment, joined NeoPath in December 1996. From April 1995 to
November 1996, Mr. Shahani was Director of Marketing at Ostex
International, a biotechnology company. Mr. Shahani was Global Market
Development Manager at Puritan-Bennett Corporation, a medical device
manufacturer, from January 1989 to April 1995.
Robert C. Bateman, Corporate Controller and Treasurer, joined
NeoPath in March 1996. Mr. Bateman joined the Company as its Corporate
Controller and was also named Corporate Secretary in May 1996. In May
1997, Mr. Bateman was named Treasurer and Assistant Corporate
Secretary. From May 1987 to March 1996, Mr. Bateman was employed by
Ernst & Young LLP and served in various capacities, most recently as
Senior Manager. Mr. Bateman currently serves as chairman of the High
Technology Industries Committee of the Washington Society of Certified
Public Accountants.
Volker R. Kettering served as Vice President, Sales from June 1995
through January 1998. Mr. Kettering was employed at Siemens Medical
Systems, Inc., an electronics manufacturer, from June 1973 to June
1995, most recently as its Vice President of the Western Zone of the
Imaging Systems Group from March 1995 to June 1995 and, from October
1986 to March 1995, as its District Manager of the Pacific Northwest
Region.
Page 5
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's
directors and executive officers, and persons who own more than 10% of
the Common Stock, to file with the Securities and Exchange Commission
(the "SEC") initial reports of beneficial ownership ("Form 3") and
reports of changes in beneficial ownership of Common Stock and other
equity securities of the Company ("Form 4"). Officers, directors, and
greater than 10% shareholders of the Company are required by SEC
regulations to furnish to the Company copies of all Section 16(a)
reports that they file. To the best of the Company's knowledge, based
solely on a review of the copies of such reports furnished to the
Company and written representations that no other reports were
required, all Section 16(a) filing requirements applicable to its
officers, directors, and greater than 10% beneficial owners were
complied with during 1997.
Page 6
<PAGE>
Executive Compensation
Summary of Compensation
The following table sets forth certain information with respect to
compensation paid by the Company for the fiscal year ended December 31,
1997 and for the two prior fiscal years to (i) the Company's Chief
Executive Officer and (ii) the Company's four other most highly
compensated executive officers whose salary and bonus exceeded $100,000
for services performed during the fiscal year ended December 31, 1997
(collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
_________________________________________ __________
Securities
Name and Other Annual Underlying
Principal Position Year Salary($) Bonus($)(4) Compensation($)(5) Options(#)
__________________ ____ _________ ___________ __________________ __________
<S> <C> <C> <C> <C> <C>
Alan C. Nelson(1) 1997 $ 300,014 $ -- $ 1,400 62,160
President and Chief 1996 $ 257,022 $ 102,150 $ 750 100,000
Executive Officer 1995 $ 156,683 $ 100,000 $ 750 50,000
Shih-Jong James Lee 1997 $ 182,000 $ -- $ 8,836 26,000
Vice President and 1996 $ 166,985 $ 54,146 $ 1,500 27,793
Chief Technical 1995 $ 120,231 $ 21,870 $ 6,750 20,000
Officer
David H. Robison(2) 1997 $ 155,616 $ -- $ -- 17,680
Vice President, 1996 $ 87,692 $ 28,652 $ -- 50,000
Operations
Larry A. Nelson(1) 1997 $ 145,616 $ -- $ 1,400 16,570
Vice President, 1996 $ 139,365 $ 38,744 $ -- 41,250
Intellectual 1995 $ 117,673 $ 21,405 $ -- --
Property and New
Business Development
Volker R. Kettering(3) 1997 $ 145,950 $ -- $ -- 16,060
Former Vice 1996 $ 144,750 $ 43,858 $ -- 15,000
President, Sales 1995 $ 55,385 $ 59,642 $ -- 35,000
</TABLE>
____________________
(1) Alan C. Nelson and Larry A. Nelson are not related.
(2) David H. Robison joined the Company as Vice President, Operations
in May 1996.
(3) Volker R. Kettering, the Company's former Vice President, Sales, joined
the Company in June 1995. Mr. Kettering left the Company in January 1998.
(4) Unless otherwise noted, bonuses were earned by achievement of
specified corporate goals approved by the Compensation Committee of the
Board of Directors. Payment of such bonuses was made within 60 days
following the respective year end.
(5) Represents compensation paid in connection with the filing of patent
applications.
Page 7
<PAGE>
Grants of Stock Options
The following table sets forth certain information regarding stock
options granted during the fiscal year ended December 31, 1997 to the
Named Executive Officers.
Option Grants in Last Fiscal Year
Individual Grants
___________________________________________________________________
<TABLE>
<CAPTION>
Potential Realizable
Value at
Assumed Annual
Percent of Rates of
Number of Total Options Stock Price
Securities Granted to Appreciation for
Underlying Employees Exercise Option Term(2)
Options in Price Expiration __________________
Name Granted(#)(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
_______ _____________ ___________ ________ _________ ______ ______
<S> <C> <C> <C> <C> <C> <C>
Alan C. Nelson 62,160 7.7% $18.00 5/22/07 $ 703,658 $ 1,783,207
Shih-Jong James Lee 26,000 3.2 18.00 5/22/07 294,323 745,871
David H. Robison 17,680 2.2 18.00 5/22/07 200,139 507,193
Larry A. Nelson 16,570 2.1 18.00 5/22/07 187,574 475,350
Volker R. Kettering 16,060 2.0 18.00 5/22/07 181,801 460,719
</TABLE>
__________
(1) One-quarter of the options vest on each anniversary of the
date of grant. All such stock options had an exercise price per
share equal to the per share market price of the Common Stock on
the date of grant.
(2) Based on the exercise price per share on the date of grant. There
can be no assurance that the actual value per share realized
by a Named Executive Officer will approximate the potential
realizable values set forth in the table.
Exercise of Stock Options and Year-End Values
The following table sets forth certain information regarding stock
options exercised during the fiscal year ended December 31, 1997 and
options held at December 31, 1997 by the Named Executive Officers.
Aggregated Option Exercises in Last Fiscal Year
and Year-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexcercised Options In-the-Money Options
Shares at Fiscal Year-End(#) at Fiscal Year-End($)(2)
Acquired on Value __________________________ __________________________
Name Exercise(#) Realized($)(1) Exercisable Unexercisable Exercisable Unexercisable
_________ _______ ______________ ___________ _____________ ___________ _____________
<S> <C> <C> <C> <C> <C> <C>
Alan C. Nelson 36,000 $ 439,680 164,233 141,328 $ 990,051 $ --
Shih-Jong James Lee 21,045 322,325 28,811 49,377 43,011 8,850
David H. Robison -- -- 19,790 47,890 -- --
Larry A. Nelson 16,500 281,325 16,328 41,492 -- --
Volker R. Kettering -- -- 27,812 38,248 -- --
</TABLE>
__________
(1) Based on the closing price of the Company's Common Stock on
the date of exercise.
(2) Based on the closing price of the Company's Common Stock on
December 31, 1997 of $13.00 per share as reported by The Nasdaq
Stock Market.
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Compensation Committee Interlocks and Insider Participation
During 1997, the Compensation Committee was comprised of Messrs.
Frazier and Thompson and Dr. Wilensky. Mr. Frazier is an affiliate of
Frazier & Company, L.P., and Frazier Healthcare Investments, L.P. Mr.
Frazier's affiliates invested in certain of the Company's private
financings since January 1, 1992.
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors is
responsible for establishing the compensation for the Company's
executive officers and making recommendations concerning such
compensation to the Board of Directors. In addition, the Compensation
Committee is responsible for administering the 1989 Plan. The
Compensation Committee is composed of nonemployee directors. During
1997, the Compensation Committee was comprised of Messrs. Frazier and
Thompson and Dr. Wilensky.
In 1996, the Compensation Committee engaged a compensation
consulting firm to review the Company's compensation program for
officers. The purpose of the study was to ensure that the Company's
compensation program is competitive and that it supports NeoPath's
strategies and objectives. The study continues to serve as a
guideline for determining the type and amount of officer compensation.
The Committee intends to provide overall compensation to each
executive at the 50th percentile of competitive survey data; this is
accomplished through targeting executive salaries at five percent
below the 50th percentile and targeting annual incentives at five
percent above the 50th percentile of surveyed competitive data.
The underlying objectives of the Company's compensation strategy
are to attract and retain the best possible executive talent, to
motivate those executives to achieve optimum operating performance for
the Company, to link executive and shareholder interests through
equity-based plans, and to provide a compensation package that
recognizes individual contributions as well as overall business
results. The Compensation Committee believes that the overall
compensation philosophy should be to allow for total executive
compensation in the upper quartiles of the competitive survey data
described below for exceptional performance in achieving corporate
goals, and that compensation in the lower quartiles should be used, as
appropriate, for less-than-expected achievement of goals. There are
three components to the Company's executive compensation program:
base salary, incentive (bonus) payments, and long-term incentives in
the form of stock options.
Base Salary. Base salary for each executive officer is based
primarily on competitive survey data for comparable positions at
medical products, biotechnology and high technology companies,
supplemented by an assessment of each officer's sustained performance,
advancement potential, experience, responsibility, and scope and
complexity of management position. The companies in this survey
include some but not all of the companies in the Hambrecht & Quist
Healthcare Section Excluding Biotech Index included in the Stock
Performance Graph.
Annual Incentives. The Compensation Committee believes that
executives' performance is most appropriately measured based on
progress toward achieving operating goals that are formulated to
promote advancement of key aspects of the Company's business. The
Board of Directors and Compensation Committee approved NeoPath's
corporate goals for 1997 and approved management's establishment of
specified minimum financial goals for officers to receive bonuses.
The corporate goals included achieving defined financial performance,
filing an amendment to the Pre-Market Approval Supplement to the U.S.
Food and Drug Administration for use of the AutoPap System as a
Primary Pap Smear Screening System, and developing specific product
enhancements. The defined minimum 1997 financial goals were not met;
therefore, no bonuses were paid to officers. The Compensation
Committee intends to continue to base future annual incentives for
officers on the achievement of defined goals and milestones, with the
range of potential awards based primarily on competitive survey data.
Long-Term Incentives. The long-term performance-based
compensation of executive officers takes the form of option
awards under the 1989 Plan. The Compensation Committee
believes that the equity-based compensation ensures that the
Company's executive officers have a continuing stake in
the long-term success of the Company. Since the Company's initial
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public offering, all options granted by the Company have been granted
with an exercise price equal to or in excess of the market price of the
Company's Common Stock. Accordingly, stock options will have value
only if the Company's stock price increases. Vesting is used to
encourage employees to continue in the employ of the Company.
1997 Compensation for the Chief Executive Officer
In determining Dr. Nelson's salary for 1997, the Committee
considered competitive compensation data for chief executive officers
of similar companies within the medical device, biotechnology and high
technology industries, taking into account Dr. Nelson's experience and
knowledge. No change was made to Dr. Nelson's salary in 1997. As
further described under "--Long-Term Incentives," long-term performance-
based compensation of executive officers takes the form of stock option
grants. During 1997, Dr. Nelson was awarded a grant to purchase 62,160
shares of the Company's Common Stock, with the exercise price of the
options equal to the market price of NeoPath's Common Stock on the date
of grant. The grant was based on the Committee's use of a formula-
based model applied to all eligible NeoPath employees. No bonus was
paid to Dr. Nelson.
Section 162(m) Limitations on Executive Compensation
Section 162(m) of the Internal Revenue Code of 1986, as amended,
makes certain nonperformance-based compensation in excess of
$1 million paid to executives of public companies nondeductible by
such companies. Certain performance-based compensation that has been
approved by shareholders is not subject to the deduction limit. The
1989 Plan is structured to qualify options granted under the plan as
performance-based compensation under Section 162(m). At this time, no
executive officer of the Company has received, nor is it anticipated
that any executive officer will receive, any such compensation in
excess of this limit. Therefore, no action was required to comply
with the limit. The Compensation Committee will continue to monitor
the situation and will take appropriate action if it is warranted in
the future.
Compensation Committee
David A. Thompson
Alan D. Frazier
Gail R. Wilensky, Ph.D.
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Stock Performance Graph
The following graph compares the cumulative total shareholder
return on the Company's Common Stock with the cumulative total return
of The Nasdaq Stock Market and the Hambrecht & Quist Healthcare
Section Excluding Biotech Index for the period beginning on January
26, 1995, the Company's first day of trading after its initial public
offering, and ending on December 31, 1997.
Comparison of Cumulative Total Return Among
NeoPath, Inc.,
The Nasdaq Stock Market and
Hambrecht & Quist Healthcare Section Excluding BioTechnology Index
(Period Ended December 31, 1997)
Measurement
Period
(Quarterly
from
January 26, The Nasdaq Hambrecht & Quist
1995) NeoPath, Inc. Stock Market Index
______________________________________________________________________________
Jan-26-95 100.00 100.00 100.00
Mar-31-95 122.92 108.11 110.88
Jun-30-95 137.50 123.66 113.90
Sep-30-95 220.83 138.56 142.48
Dec-31-95 193.75 140.27 158.05
Mar-31-96 193.75 146.80 169.08
Jun-30-96 210.42 158.79 158.91
Sep-30-96 160.42 164.44 174.39
Dec-31-96 152.08 172.53 175.47
Mar-31-97 114.58 163.24 166.68
Jun-30-97 158.33 193.17 199.54
Sep-30-97 162.50 225.84 209.14
Dec-31-97 108.33 211.80 209.11
Assumes $100 invested in the Company's Common Stock, The Nasdaq
Stock Market and the Hambrecht & Quist Healthcare Section
Excluding Biotech Index, with all dividends reinvested. Stock
performance shown in the above chart for the Common Stock is
historical and not necessarily indicative of future price
performance.
Page 11
<PAGE>
Employment Contracts and Termination of Employment and Change-in-
Control Agreements
In December 1996, the Compensation Committee approved a Senior
Management Employment Agreement (the "Agreement") for officers
(including the Named Executive Officers) and key management personnel
that provides for continued employment terms equivalent to those
applicable immediately prior to a change in control for the two years
following a change in control. A one-time cash payment equal to two
times the executive's annual salary and bonus is immediately triggered
if, following a change in control, employment is terminated by (i) the
employee for "good reason" or (ii) the employer for any reason other
than death, disability or for "cause." The Agreement was approved by
the Company's Board of Directors in February 1997. The Committee
believes that the Agreement enables NeoPath management to focus their
efforts on the long-term achievement of Company goals.
The 1989 Plan provides optionees with the right to exercise all
stock options, whether or not the vesting requirements have been met,
immediately prior to defined changes in the Company's ownership.
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of February 27, 1998, except as
otherwise noted, certain information with respect to the beneficial
ownership of the Common Stock by (i) each person known by the Company
to beneficially own more than 5% of the Common Stock, (ii) each
director and nominee for director of the Company, (iii) the Named
Executive Officers, and (iv) all directors and executive officers of
the Company as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below,
based on information furnished by such owners, have sole voting and
investment power with respect to such shares.
Shares Percent
Beneficially of
Name and Address Owned Class
________________ ________ _____
Alan C. Nelson(1) 488,414 3.4%
Shih-Jong James Lee(2) 29,150 *
David H. Robison(3) 24,209 *
Volker R. Kettering(4) 27,812 *
Larry A. Nelson(5) 38,071 *
Thomas A. Bonfiglio -- *
Alan D. Frazier(6) 157,442 1.1%
Cristina H. Kepner(7) 51,819 *
Walter L. Robb(8) 150,427 1.0%
William L. Scott(9) 18,750 *
David A. Thompson(10) 18,665 *
Gail R. Wilensky(11) 3,333 *
Trustees of General Electric
Pension Trust(12) 1,526,463 10.6%
3033 Summer Street
Stamford, CT 06904-7900
Soros Fund Management LLC,
George Soros, Stanley F.
Druckenmiller(13) 1,307,827 9.1%
888 Seventh Avenue,
33rd Floor
New York, NY 10106
Duquesne Capital Management,
LLC(13) 157,500 1.1%
2579 Washington Road,
Suite 322
Pittburgh, PA 15241-2591
The Capital Group Companies,
Inc., Capital Research
and Management Company, and
SMALLCAP World Fund, Inc.(14) 900,000 6.2%
333 South Hope Street
Los Angeles, CA 90071
The TCW Group, Inc.(15) 614,300 4.3%
865 South Figueroa Street
Los Angeles, CA 90017
Robert Day(15) 614,300 4.3%
200 Park Avenue,
Suite 2200
New York, NY 10166
T. Rowe Price Associates,
Inc.(16) 946,278 6.6%
100 E. Pratt Street
Baltimore, MD 21202
All Directors and Named
Executive Officers as a group
(11 persons)(17) 1,036,702 6.9%
______________________
* Less than 1%
Page 13
<PAGE>
(1) Represents 309,682 outstanding shares, 176,732 shares issuable
upon exercise of options that are exercisable within 60 days, and
2,000 shares held by Dr. Nelson's wife for the benefit of her
nephew. Dr. Nelson disclaims beneficial ownership of the 2,000
shares held by his wife for the benefit of her nephew.
(2) Includes 29,150 shares issuable upon exercise of options that are
exercisable within 60 days.
(3) Includes 23,957 shares issuable upon exercise of options that are
exercisable within 60 days.
(4) Consists of shares issuable upon exercise of options that are
exercisable within 60 days.
(5) Includes 19,766 shares issuable upon exercise of options that
are exercisable within 60 days.
(6) Represents 1,898 outstanding shares and 11,333 shares issuable
upon exercise of options that are exercisable within 60 days held
by Mr. Frazier; 14,146 outstanding shares, 7,500 shares issuable
upon exercise of options that are exercisable within 60 days and
109,455 shares issuable upon exercise of warrants held by Frazier &
Company L.P.; and 13,110 outstanding shares held by Frazier
Management LLC. The general partner of Frazier & Company L.P., is
Frazier Management LLC.
(7) Includes 24,068 outstanding shares, 11,333 shares issuable
upon exercise of options that are exercisable within 60 days, and
16,418 shares issuable upon exercise of warrants held by Ms.
Kepner.
(8) Includes 60,427 shares issuable upon exercise of options that are
exercisable within 60 days.
(9) Consists of 18,750 shares issuable upon exercise of options that
are exercisable within 60 days.
(10) Includes 13,665 shares issuable upon exercise of options that
are exercisable within 60 days.
(11) Consists of 3,333 shares issuable upon exercise of options
that are exercisable within 60 days.
(12) Consists of shares outstanding as of December 31, 1997 per
filing on Schedule 13G.
(13) The following information represents ownership information as
of March 5, 1998 per filing on Schedule 13G. Soros Fund Management
LLC ("SFM LLC") may be deemed to be the beneficial owner of 799,000
shares held for the account of Quantum Partners. Mr. Soros may be
deemed the beneficial owner of 1,138,686 shares, consisting of
799,000 shares held for the account of Quantum Partners and
339,686 shares held for the account of the Open Society Institute
("OSI"). Mr. Druckenmiller may be deemed the beneficial owner of
968,141 shares, consisting of 799,000 shares held for the account
of Quantum Partners, 157,500 shares held for the accounts of the
Duquesne LLC Clients, and 11,641 shares held for the account of
Druckenmiller Foundation ("DF"). Duquesne LLC may be deemed the
beneficial owner of the 157,500 shares held for the accounts of the
Duquesne LLC Clients. SFM LLC expressly disclaims beneficial
ownership of any shares held for the accounts of OSI, DF and the
Duquesne LLC clients. Mr. Soros expressly disclaims beneficial
ownership of any shares held for the accounts of DF and the
Duquesne LLC clients. Mr. Druckenmiller expressly disclaims
benefical ownership of any shares held for the account of OSI.
Duquesne LLC expressly disclaims beneficial ownership of any shares
held for the accounts of Quantum Partners, OSI and DF.
(14) Represents ownership information as of December 31, 1997 as
disclosed on Schedule 13G. SMALLCAP World Fund, Inc. is the
beneficial owner of the 900,000 shares. Each of The Capital Group
Companies, Inc. and Capital Research and Management Company may be
deemed to have beneficial ownership of the 900,000 shares, but
specifically disclaim beneficial ownership.
(15) Represents outstanding shares held by The TCW Group, Inc. and
Robert Day, an individual who may be deemed to control The TCW
Group, Inc.; outstanding shares as of December 31, 1997 per filing
on Schedule 13G.
(16) The outstanding shares are as of December 31, 1997 per filing
on Schedule 13G. These securities are owned by various individual
and institutional investors which T. Rowe Price Associates, Inc.
(Price Associates) serves as investment advisor with power to
direct investments and/or sole power to vote the securities. For
purposes of the reporting requirements of the Securities Exchange
Act of 1934, Price Associates is deemed to be a beneficial owner of
such securities; however, Price Associates expressly disclaims
beneficial ownership.
(17) Includes 403,758 shares issuable upon exercise of options that are
exercisable within 60 days and 125,873 shares issuable upon
exercise of warrants.
2. PROPOSED AMENDMENT OF NEOPATH, INC. 1989 RESTATED
STOCK OPTION PLAN
The Company's 1989 Plan provides a means whereby selected
employees, directors, officers, agents, consultants, advisors and
independent contractors of the Company may be granted incentive stock
options ("ISOs") or nonqualified stock options ("NSOs") to purchase
shares of Common Stock. A copy of the 1989 Plan, as proposed to be
amended, is attached to this Proxy Statement as Appendix A. The
following description of the 1989 Plan is a summary and is not intended
to be fully descriptive. See Appendix A for more detailed information.
Approximately 175 persons are eligible for participation in the 1989
Plan. Currently, subject to adjustment required in the event of any
recapitalization of the Company, the aggregate number of shares of
Common Stock that may be issued upon exercise of all options granted
under the 1989 Plan may not exceed 2,750,000. On February 26, 1998,
the Board approved an amendment to the 1989 Plan that, subject to
shareholder approval, would authorize an additional 720,000 shares to
be available for option grants under the 1989 Plan. As of the date of
this proxy statement, approximately 120,000 shares remain available for
future grant under the 1989 Plan (exclusive of the proposed 720,000
share increase).
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The Board of Directors believes that the additional options would,
among other things, promote the interests of the Company and its
shareholders by assisting the Company in attracting, retaining and
stimulating the performance of officers and key employees. The Board
believes that the existing options have contributed substantially to
the successful achievement of these objectives.
The Compensation Committee of the Board of Directors is currently
the administrator of the 1989 Plan (the "Plan Administrator"). Subject
to the terms of the 1989 Plan, the Plan Administrator determines the
terms and conditions of options granted under the 1989 Plan, including
the exercise price. The 1989 Plan provides that the Plan Administrator
must establish an exercise price for ISOs that is not less than the
fair market value per share at the date of grant. Each ISO must expire
within 10 years of the date of grant. However, if ISOs are granted to
persons owning more than 10% of the Company's voting stock, the 1989
Plan provides that the exercise price shall not be less than 110% of
the fair market value per share at the date of grant and that the term
of the ISOs shall not exceed five years. NSOs expire 10 years from the
date of grant. Unless otherwise provided by the Plan Administrator,
one-quarter of the options vest on the first anniversary of the day of
grant (for options granted to new employees, the first vesting period
is from grant date to one year after hire date) and the remainder vest
in equal annual installments at the end of the three succeeding years.
No option may be transferred by the optionee other than by will or
the laws of dissent or distribution. Notwithstanding the foregoing, to
the extent permitted by Section 422 of the Internal Revenue Code, the
Plan Administrator may permit an Optionee to (i) during the Optionee's
lifetime, designate a person who may exercise the option after the
Optionee's death by giving written notice of such designation to the
Company or (ii) transfer the option and the rights and privileges
conferred hereby; provided, however, that any option so assigned or
transferred shall be subject to all the same terms and conditions
contained in the instrument evidencing the award. An optionee whose
relationship with the Company or any related corporation ceases for any
reason (other than termination for cause, death or total disability)
may exercise options in the three-month period following such
cessation, (unless such options terminate or expire sooner by their
terms), or in such longer period determined by the Plan Administrator.
If the optionee is terminated for cause, the options terminate upon the
Company's discovery of such cause. If the optionee dies or becomes
totally disabled, options vested at the date of death or total
disability may be exercised prior to the earlier of the options'
specified expiration date or one year from the date of the optionee's
death or disability.
Unexercised options granted under the 1989 Plan terminate upon the
occurrence of certain events, including mergers (other than a merger of
the Company in which the holders of shares of Common Stock immediately
before the merger have the same proportionate ownership of shares of
Common Stock in the surviving corporation immediately after the
merger). In such event, the optionee has the right immediately before
a merger to exercise the optionee's option in whole or in part whether
or not the vesting requirements have been satisfied.
Federal Income Tax Consequences
The following discussion summarizes the material federal income
tax consequences of participation in the 1989 Plan. The discussion is
general in nature and does not address issues related to the tax
circumstances of any particular optionee. The discussion is based on
federal income tax laws in effect on the date hereof and is, therefore,
subject to possible future changes in law. The discussion does not
address state, local or foreign consequences.
There are no tax consequences to the Company or the optionee upon
the grant of an NSO under the 1989 Plan. Upon exercise of an NSO, the
optionee recognizes ordinary income equal to the difference between the
exercise price of the shares and the fair market value of the shares on
the date of exercise. The Company is entitled to a tax deduction equal
to the income recognized by the optionee, provided that the deduction
is not otherwise disallowed by the Internal Revenue Code.
Upon grant or exercise of an ISO, an optionee does
not recognize income, except that the excess of the fair
market value of the shares at the time of exercise (with
adjustments in certain circumstances) over the option price will
be alternative minimum taxable income for purposes of calculating the
optionee's alternative minimum tax, if any. If an optionee does not
Page 15
<PAGE>
make a "disqualifying disposition" (defined below) of an ISO, the gain,
if any, upon a subsequent sale (i.e., the excess of the proceeds
received over the option price) will be a long-term capital gain for
income tax purposes.
For shares acquired through the exercise of an ISO, a
"disqualifying disposition" is a transfer of the shares (i) within two
years after the grant of the ISO or (ii) within one year after the
transfer of the shares to the optionee pursuant to the ISO's exercise.
If the optionee makes a disqualifying disposition, the optionee
generally will recognize income in the year of the disqualifying
disposition equal to the excess of the amount received for the shares
over the option price. If, however, the optionee sells the shares to an
unrelated party at a price that is below the fair market value of the
shares at the time the ISO was exercised, and the sale is a
disqualifying disposition, the amount of ordinary income will be
limited to the amount realized on the sale over the option price.
While the position of the Internal Revenue Service on this issue is
presently unclear, any ordinary income recognized on a disqualifying
disposition of an option may be subject to payroll taxes and
withholding.
The Company is entitled to a deduction with respect to an ISO only
if a disqualifying disposition occurs. In that event, the deduction
would be equal to the ordinary income, if any, recognized by the
optionee upon disposition of the shares, provided that the deduction is
not otherwise disallowed under the Internal Revenue Code.
New Plan Benefits
Since awards under the 1989 Plan are discretionary, awards
thereunder for the current fiscal year are not presently determinable.
During 1997, options to purchase an aggregate of 138,470 shares at an
average exercise price of $18.00 per share were granted under the 1989
Plan to the Named Executive Officers of the Company as a group, and
options to purchase an aggregate of 668,855 shares at an average
exercise price of $16.12 per share were granted to all other optionees
of the Company as a group (including officers who are not Named
Executive Officers). Options granted during 1997 to the Company's
Named Executive Officers for whom compensation is reported in this
Proxy Statement are set forth under "Executive Compensation--Grants of
Stock Options."
On February 27, 1998, the last reported sales price of the Common
Stock as reported on the Nasdaq National Market was $13.0625 per share.
The Board of Directors recommends a vote FOR the amendment to the
1989 Stock Option Plan.
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INDEPENDENT AUDITORS
Representatives of Ernst & Young LLP, the Company's independent
public accountants, will be present at the Annual Meeting and will
have an opportunity to make a statement and to respond to appropriate
questions from shareholders.
PROPOSALS OF SHAREHOLDERS
Shareholder proposals to be presented at the Company's 1999
Annual Meeting of Shareholders and included in the Company's Proxy
Statement relating to such meeting must be received by the Company no
later than December 15, 1998. Such proposals should be directed to
the Corporate Secretary of the Company, 8271 - 154th Avenue NE,
Redmond, Washington 98052.
OTHER BUSINESS
It is not intended by the Board of Directors to bring any other
business before the meeting, and so far as is known to the Board, no
matters are to be brought before the meeting except as specified in
the notice of the meeting. However, as to any other business which
may properly come before the meeting, it is intended that proxies, in
the form enclosed, will be voted in respect thereto, in accordance
with the judgment of the persons voting such proxies.
ANNUAL REPORT AND FORM 10-K
A copy of the Company's 1997 Annual Report is enclosed.
Shareholders not receiving a copy of such Annual Report may obtain
one, without charge, upon request to the Company by writing or calling
the Company's investor relations representative, NeoPath, Inc., 8721 -
154th Avenue NE, Redmond, WA 98052, 1-800-NEOPATH.
A copy of the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, as filed with the Secruities and Exchange
Commission, will be provided without charge to each shareholder of
record who submits a written request addressed to the Company's
investor relations representative, NeoPath, Inc., 8721 - 154th Avenue
NE, Redmond, WA 98052.
By Order of the Board of Directors
Alan C. Nelson
President and
Chief Executive Officer
Redmond, Washington
April 14, 1998
Page 17
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APPENDIX A
NEOPATH, INC.
1989 STOCK OPTION PLAN
As Amended and Restated on February 26, 1998
Section 1. Purpose
The purpose of the NeoPath, Inc. 1989 Stock Option Plan (this
"Plan") is to provide a means whereby selected employees, directors,
officers, agents, consultants, advisors and independent contractors of
NeoPath, Inc. (the "Company"), or of any parent or subsidiary (as
defined in subsection 5.8 and referred to hereinafter as "related
corporations") thereof, may be granted incentive stock options and/or
nonqualified stock options to purchase the Common Stock (as defined in
Section 3) of the Company, in order to attract and retain the services
or advice of such employees, directors, officers, agents, consultants,
advisors and independent contractors and to provide added incentive to
such persons by encouraging stock ownership in the Company.
Section 2. Administration
This Plan shall be administered by the Board of Directors of the
Company (the "Board") or a committee or committees (which term includes
subcommittees) appointed by, and consisting of two or more members of,
the Board. The administrator of this Plan shall hereinafter be
referred to as the "Plan Administrator." So long as the Company's
common stock (the "Common Stock") is registered under Section 12(b) or
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Board shall consider, in selecting the Plan Administrator
and the membership of any committee acting as Plan Administrator of
this Plan with respect to any persons subject or likely to become
subject to Section 16 under the Exchange Act, the provisions regarding
(a) "outside directors," as contemplated by Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), and (b)
"nonemployee directors," as contemplated by Rule 16b-3 under the
Exchange Act. The Board may delegate the responsibility for
administering this Plan with respect to designated classes of eligible
participants to different committees, subject to such limitations as
the Board deems appropriate.
The members of any committee serving as Plan Administrator shall
be appointed by the Board for such term as the Board may determine.
The Board may from time to time remove members from, or add members to,
the committee. Vacancies on the committee, however caused, shall be
filled by the Board.
2.1 Procedures
The Board shall designate one of the members of the Plan
Administrator as chairman. The Plan Administrator may hold meetings at
such times and places as it shall determine. The acts of a majority of
the members of the Plan Administrator present at meetings at which a
quorum exists, or acts reduced to or approved in writing by all Plan
Administrator members, shall be valid acts of the Plan Administrator.
2.2 Responsibilities
Except for the terms and conditions explicitly set forth in this
Plan, the Plan Administrator shall have the authority, in its
discretion, to determine all matters relating to the options to be
granted under this Plan, including selection of the individuals to be
granted options, the number of shares to be subject to each option, the
exercise price, and all other terms and conditions of the options.
Grants under this Plan need not be identical in any respect, even when
made simultaneously. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any option
issued hereunder, or of any rule or regulation promulgated in
connection herewith, shall be conclusive and binding on all interested
parties, so long as such interpretation and construction with respect
to incentive stock options correspond to the requirements of Section
422 of the Code, the regulations thereunder and any amendments
thereto.
A-1
<PAGE>
2.3 Rule 16b-3 Compliance and Bifurcation of Plan
Notwithstanding anything in this Plan to the contrary, the Board,
in its absolute discretion, may bifurcate this Plan so as to restrict,
limit or condition the application of any provision of this Plan to
participants who are subject to Section 16 of the Exchange Act without
so restricting, limiting or conditioning this Plan with respect to
other participants.
Section 3. Shares Subject to This Plan
The shares subject to this Plan shall be the Common Stock,
currently authorized but unissued or subsequently acquired by the
Company. Subject to adjustment as provided in Section 7, the aggregate
amount of Common Stock to be delivered upon the exercise of all options
granted under this Plan shall not exceed 3,470,000 shares. If any
option granted under this Plan shall expire or be surrendered,
exchanged for another option, canceled or terminated for any reason
without having been exercised in full, the unpurchased shares subject
thereto shall thereupon again be available for purposes of this Plan,
including for replacement options which may be granted in exchange for
such expired, surrendered, exchanged, canceled or terminated options.
Section 4. Eligibility
An incentive stock option may be granted only to an individual
who, at the time the option is granted, is an employee of the Company
or a related corporation. A nonqualified stock option may be granted
to any employee, director, officer, agent, consultant, advisor or
independent contractor of the Company or any related corporation,
whether an individual or an entity. Any party to whom an option is
granted under this Plan shall be referred to hereinafter as an
"Optionee."
Section 5. Terms and Conditions of Options
Options granted under this Plan shall be evidenced by written
agreements which shall contain such terms, conditions, limitations and
restrictions as the Plan Administrator shall deem advisable and which
are not inconsistent with this Plan. Notwithstanding the foregoing,
options shall include or incorporate by reference the following terms
and conditions:
5.1 Number of Shares and Price
The maximum number of shares that may be purchased pursuant to the
exercise of each option and the price per share at which such option is
exercisable (the "exercise price") shall be as established by the Plan
Administrator; provided, however, that the maximum number of shares
with respect to which an option or options may be granted to any
Optionee in any one fiscal year of the Company shall not exceed
400,000 shares (the "Maximum Annual Optionee Grant"). The Plan
Administrator shall act in good faith to establish an exercise price
which shall be not less than the fair market value per share of the
Common Stock at the time the option is granted with respect to
incentive stock options and also provided that, with respect to
incentive stock options granted to greater than 10% shareholders, the
exercise price shall be as required by subsection 6.1.
5.2 Term and Maturity
Subject to the restrictions contained in Section 6 with respect to
granting incentive stock options to greater than 10% shareholders, the
term of each incentive stock option shall be as established by the Plan
Administrator and, if not so established, shall be 10 years from the
date it is granted but in no event shall it exceed 10 years. The term
of each nonqualified stock option shall be as established by the Plan
Administrator and, if not so established, shall be 10 years. To ensure
that the Company or a related corporation will achieve the purpose and
receive the benefits contemplated by this Plan, any option granted to
any Optionee hereunder shall, unless the condition of this sentence is
waived or modified in the agreement evidencing the option or by
resolution adopted at any time by the Plan Administrator, be
exercisable according to the following schedule:
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For options granted prior to December 10, 1996:
Period of Optionee's
Continuous Relationship
With the Company or Related
Corporation From the Date Portion of Total Option Which Is
the Option Is Granted Exercisable
___________________________ ________________________________
after 1 year 25%
each month completed an additional 1/36th
thereafter of the remaining 75%
after 4 years 100%
For options granted after December 9, 1996:
Period of Optionee's
Continuous Relationship
With the Company or Related
Corporation From the Date Portion of Total Option Which Is
the Option Is Granted Exercisable
____________________________ ________________________________
after 1 year* 25%
each year completed thereafter an additional 25%
after 4 years 100%
________________
*For options granted to new employees, the period shall be from grant
date to 1 year after date of employment
5.3 Exercise
Subject to the vesting schedule described in subsection 5.2, each
option may be exercised in whole or in part at any time and from time
to time; provided, however, that only whole shares will be issued
pursuant to the exercise of any option. An Option shall be exercised
by delivery to the Company of notice of the number of shares with
respect to which the option is exercised, together with payment of the
exercise price.
5.4 Payment of Exercise Price
Payment of the option exercise price shall be made in full at the
time the notice of exercise of the option is delivered to the Company
and shall be in cash, bank certified or cashier's check, or personal
check (unless at the time of exercise the Plan Administrator in a
particular case determines not to accept a personal check) for the
shares being purchased.
The Plan Administrator can determine at any time before exercise
that additional forms of payment will be permitted. To the extent
permitted by applicable laws and regulations (including, but not
limited to, federal tax and securities laws and regulations and state
corporate law), and unless the Plan Administrator in its sole
discretion determines otherwise, an option may be exercised by a
combination of cash and/or check and one or both of the following
additional forms:
(a) tendering (either actually or by attestation) shares of
Common Stock of the Company held by an Optionee having a fair market
value equal to the exercise price, such fair market value to be
determined in good faith by the Plan Administrator; provided, however,
that payment in stock held by an Optionee shall not be made unless the
stock shall have been owned by the Optionee for a period of at least
six months (or any shorter period necessary to avoid a charge to the
Company's earnings for financial accounting purposes); or
(b) delivery of a properly executed exercise notice, together
with irrevocable instructions to a broker, all in accordance with the
regulations of the Federal Reserve Board, to promptly deliver to the
Company the amount of sale or loan proceeds to pay the exercise price
and any federal, state or local withholding tax obligations that may
arise in connection with the exercise.
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In addition, the exercise price for shares purchased under an
option may be paid, either singly or in combination with one or more of
the alternative forms of payment authorized by this Section 5.4, by
(y) delivery of a full-recourse promissory note executed by the
Optionee; provided that (i) such note delivered in connection with an
incentive stock option shall, and such note delivered in connection
with a nonqualified stock option may, in the sole discretion of the
Plan Administrator, bear interest at a rate specified by the Plan
Administrator but in no case less than the rate required to avoid
imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes, (ii) the Plan
Administrator in its sole discretion shall specify the term and other
provisions of such note at the time an incentive stock option is
granted or at any time prior to exercise of a nonqualified stock
option, (iii) the Plan Administrator may require that the Optionee
pledge to the Company for the purpose of securing the payment of such
note the shares of Common Stock to be issued to the Optionee upon
exercise of the option and may require that the certificate
representing such shares be held in escrow in order to perfect the
Company's security interest, and (iv) the Plan Administrator in its
sole discretion may at any time restrict or rescind this right upon
notification to the Optionee; or (z) such other consideration as the
Plan Administrator may permit.
5.5 Withholding Tax Requirement
At its discretion, the Company may require an Optionee receiving
shares of Common Stock to reimburse the Company for any taxes required
by any government to be withheld by the Company or otherwise deducted
and paid with respect to an option, and may withhold any distribution
in whole or in part until the Company is so reimbursed. In lieu
thereof, the Company shall have the right to withhold from any cash or
other amounts due or to become due from the Company to the Optionee an
amount equal to such taxes. The Company may also retain and withhold
or the Optionee may elect, unless the Plan Administrator determines
otherwise, to have the Company retain and withhold a number of shares
having a market value not less than the amount of such taxes required
to be withheld by the Company to reimburse the Company for any such
taxes and cancel (in whole or in part) any such shares so withheld.
5.6 Holding Periods
5.6.1 Securities and Exchange Act Section 16
If an individual subject to Section 16 of the Exchange Act sells
shares of Common Stock obtained upon the exercise of a stock option
within six months after the date the option was granted, such sale may
result in short-swing profit liability under Section 16(b) of the
Exchange Act.
5.6.2 Taxation of Stock Options
In order to obtain certain tax benefits afforded to incentive
stock options under Section 422 of the Code, an Optionee must hold the
shares issued upon the exercise of an incentive stock option for two
years after the date of grant of the option and one year from the date
of exercise. An Optionee may be subject to the alternative minimum tax
at the time of exercise of an incentive stock option.
The Plan Administrator may require an Optionee to give the Company
prompt notice of any disposition of shares acquired by the exercise of
an incentive stock option prior to the expiration of such holding
periods.
Tax advice should be obtained by an Optionee when exercising any
option and prior to the disposition of the shares issued upon the
exercise of any option.
5.7 Transferability of Options
Options granted under this Plan and the rights and
privileges conferred hereby may not be transferred, assigned,
pledged or hypothecated in any manner (whether by operation
of law or otherwise) other than by will or by the applicable
laws of descent and distribution and shall not be subject to
execution, attachment or similar process. During an Optionee's
lifetime, any options granted under this Plan are personal to
him or her and are exercisable solely by such Optionee or a permitted
assignee or transferee of such Optionee (as provided below).
Any attempt to transfer, assign, pledge, hypothecate or otherwise
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dispose of any option under this Plan or of any right or privilege
conferred hereby, contrary to the Code or to the provisions of this
Plan, or the sale or levy or any attachment or similar process upon the
rights and privileges conferred hereby shall be null and void.
Notwithstanding the foregoing, to the extent permitted by Section 422
of the Code, the Plan Administrator may permit an Optionee to
(i) during the Optionee's lifetime, designate a person who may exercise
the option after the Optionee's death by giving written notice of such
designation to the Company (such designation may be changed from time
to time by the Optionee by giving written notice to the Company
revoking any earlier designation and making a new designation) or
(ii) transfer the option and the rights and privileges conferred
hereby; provided, however, that any option so assigned or transferred
shall be subject to all the same terms and conditions contained in the
instrument evidencing the award.
5.8 Termination of Relationship
If the Optionee's relationship with the Company or any related
corporation ceases for any reason, then the portion of the Optionee's
option that is not exercisable at the time of such cessation shall
terminate immediately upon such cessation, unless the Plan
Administrator determines otherwise. If the Optionee's relationship
with the Company or any related corporation ceases for any reason other
than termination for cause, death or total disability, and unless by
its terms the option sooner terminates or expires, then the Optionee
may exercise, for a three-month period, that portion of the Optionee's
option which is exercisable at the time of such cessation, but the
Optionee's option shall terminate at the end of such period following
such cessation as to all shares for which it has not theretofore been
exercised, unless such provision is waived in the agreement evidencing
the option, or at any time prior to the expiration of the option, by
the Plan Administrator in its sole discretion. If, however, in the
case of an incentive stock option, the Optionee does not exercise the
Optionee's option within three months after cessation of employment,
the option will no longer qualify as an incentive stock option under
the Code.
If an Optionee is terminated for cause, each option granted
hereunder shall automatically terminate as of the first discovery by
the Company of any reason for termination for cause, and such Optionee
shall thereupon have no right to purchase any shares pursuant to such
option. "Termination for cause" shall mean dismissal for dishonesty,
conviction or confession of a crime (except minor violations), fraud,
misconduct or disclosure of confidential information. If an Optionee's
relationship with the Company or any related corporation is suspended
pending an investigation of whether or not the Optionee shall be
terminated for cause, the Optionee's rights under each option granted
hereunder likewise shall be suspended during the period of
investigation.
If an Optionee's relationship with the Company or any related
corporation ceases because of a total disability, the portion of the
Optionee's option that is exercisable at the time of such cessation
shall not terminate or, in the case of an incentive stock option, cease
to be treated as an incentive stock option until the end of the 12-
month period following such cessation (unless by its terms it sooner
terminates or expires). As used in this Plan, the term "total
disability" refers to a mental or physical impairment of the Optionee
which is expected to result in death or which has lasted or is expected
to last for a continuous period of 12 months or more and which causes
the Optionee to be unable, in the opinion of the Company and two
independent physicians, to perform his or her duties for the Company
and to be engaged in any substantial gainful activity. Total
disability shall be deemed to have occurred on the first day after the
Company and the two independent physicians have furnished their opinion
of total disability to the Plan Administrator.
The Plan Administrator, in its absolute discretion, may determine
all questions of whether particular leaves of absence constitute a
termination of services; provided, however, that with respect to
incentive stock options, such determination shall be subject to any
requirements contained in the Code. The foregoing notwithstanding,
with respect to incentive stock options, employment shall not be deemed
to continue beyond the first 90 days of such leave, unless the
Optionee's reemployment rights are guaranteed by statute or by
contract.
As used herein, the term "related corporation," when referring to
a subsidiary corporation, shall mean any corporation (other than the
Company) in, at the time of the granting of the option, an unbroken
chain of corporations ending with the Company, if stock possessing 50%
or more of the total combined voting power of all classes of stock of
each of the corporations other than the Company is owned by one of the
other corporations in such chain. When referring to a parent
corporation, the term "related corporation" shall mean any corporation
in an unbroken chain of corporations ending with the Company if, at the
time of the granting of the option, each of the corporations other than
the Company owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other corporations
in such chain.
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5.9 Death of Optionee
If an Optionee dies while he or she has a relationship with the
Company or any related corporation or within the three-month period (or
12-month period in the case of totally disabled Optionees) following
cessation of such relationship, any option held by such Optionee to the
extent that the Optionee would have been entitled to exercise such
option, may be exercised within one year after his or her death by the
personal representative of his or her estate or by the person or
persons to whom the Optionee's rights under the option shall pass
(i) by will or by the applicable laws of descent and distribution or
(ii) by a designation or transfer pursuant to Section 5.7.
5.10 No Status as Shareholder
Neither the Optionee nor any party to which the Optionee's rights
and privileges under the option may pass shall be, or have any of the
rights or privileges of, a shareholder of the Company with respect to
any of the shares issuable upon the exercise of any option granted
under this Plan unless and until such option has been exercised.
5.11 Continuation of Relationship
Nothing in this Plan or in any option shall confer upon any
Optionee any right to continue in the employ or other relationship of
the Company or of a related corporation, or to interfere in any way
with the right of the Company or of any such related corporation to
terminate his or her employment or other relationship with the Company
at any time.
5.12 Modification and Amendment of Option
Subject to the requirements of Code Section 422 with respect to
incentive stock options and to the terms and conditions and within the
limitations of this Plan, the Plan Administrator may modify or amend
any outstanding option granted under this Plan. The modification or
amendment of an outstanding option shall not, without the consent of
the Optionee, impair or diminish any of his or her rights or any of the
obligations of the Company under such option. Except as otherwise
provided in this Plan, no outstanding option shall be terminated
without the consent of the Optionee.
5.13 Limitation on Value for Incentive Stock Options
As to all incentive stock options granted under the terms of this
Plan, to the extent that the aggregate fair market value of the shares
(determined at the time the incentive stock option is granted) with
respect to which incentive stock options are exercisable for the first
time by the Optionee during any calendar year (under this Plan and all
other incentive stock option plans of the Company, a related
corporation or a predecessor corporation) exceeds $100,000, such
options shall be treated as nonqualified stock options. The previous
sentence shall not apply if the Internal Revenue Service issues a
public rule, issues a private ruling to the Company, any Optionee or
any legatee, personal representative or distributee of an Optionee or
issues regulations changing or eliminating such annual limit.
Section 6. Greater Than 10% Shareholders
6.1 Exercise Price and Term of Incentive Stock Options
If an incentive stock option is granted under this Plan to any
employee who owns more than 10% of the total combined voting power of
all classes of stock of the Company or any related corporation, the
term of such incentive stock options shall not exceed five years and
the exercise price shall be not less than 110% of the fair market value
of the shares at the time the incentive stock option is granted. This
provision shall control notwithstanding any contrary terms contained in
an option agreement or any other document.
6.2 Attribution Rule
For purposes of subsection 6.1, in determining stock
ownership, an employee shall be deemed to own the shares
owned, directly or indirectly, by or for his or her brothers,
sisters, spouse, ancestors and lineal descendants. Shares owned,
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<PAGE>
directly or indirectly, by or for a corporation, partnership, estate or
trust shall be deemed to be owned proportionately by or for its
shareholders, partners or beneficiaries. If an employee or a person
related to the employee owns an unexercised option or warrant to
purchase shares of the Company, the shares subject to that portion of
the option or warrant which is unexercised shall not be counted in
determining stock ownership. For purposes of this Section 6, shares
owned by an employee shall include all shares actually issued and
outstanding immediately before the grant of the incentive stock option
to the employee.
Section 7. Adjustments Upon Changes in Capitalization
The aggregate number and class of shares for which options may be
granted under this Plan, the Maximum Annual Optionee Grant set forth in
Section 5.1, the number and class of shares covered by each outstanding
option and the exercise price per share thereof (but not the total
price), shall all be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company
resulting from a split-up or consolidation of shares or any like
capital adjustment, or the payment of any stock dividend.
7.1 Effect of Liquidation or Reorganization
7.1.1 Cash, Stock or Other Property for Stock
Except as provided in subsection 7.1.2, upon a merger (other than
a merger of the Company in which the holders of shares of Common Stock
immediately prior to the merger have the same proportionate ownership
of shares of Common Stock in the surviving corporation immediately
after the merger), consolidation, acquisition of property or stock,
separation, reorganization (other than a mere reincorporation or the
creation of a holding company) or liquidation of the Company, as a
result of which the shareholders of the Company receive cash, stock or
other property in exchange for or in connection with their shares of
Common Stock, any option granted hereunder shall terminate, but the
Optionee shall have the right immediately prior to any such merger,
consolidation, acquisition of property or stock, separation,
reorganization or liquidation to exercise such Optionee's option in
whole or in part whether or not the vesting requirements set forth in
the option agreement have been satisfied.
7.1.2 Conversion of Options on Stock for Stock Exchange
If the shareholders of the Company receive capital stock of
another corporation ("Exchange Stock") in exchange for their shares of
Common Stock in any transaction involving a merger (other than a merger
of the Company in which the holders of Common Stock immediately prior
to the merger have the same proportionate ownership of Common Stock in
the surviving corporation immediately after the merger), consolidation,
acquisition of property or stock, separation or reorganization (other
than a mere reincorporation or the creation of a holding company), all
options granted hereunder shall be converted into options to purchase
shares of Exchange Stock unless the Company and the corporation issuing
the Exchange Stock, in their sole discretion, determine that any or all
such options granted hereunder shall not be converted into options to
purchase shares of Exchange Stock but instead shall terminate in
accordance with the provisions of subsection 7.1.1. The amount and
price of converted options shall be determined by adjusting the amount
and price of the options granted hereunder in the same proportion as
used for determining the number of shares of Exchange Stock the holders
of the shares of Common Stock receive in such merger, consolidation,
acquisition of property or stock, separation or reorganization. The
converted options shall be fully vested whether or not the vesting
requirements set forth in the option agreement have been satisfied
provided that such acceleration will not occur if, in the opinion of
the Company's outside accountants, such acceleration would render
unavailable "pooling of interests" accounting treatment for any
reorganization, merger or consolidation of the Company for which
pooling of interests accounting treatment is sought by the Company.
Upon a merger of the Company in which the holders of Common Stock
immediately prior to the merger have the same proportionate ownership
of common stock in the surviving corporation immediately after the
merger, a mere reincorporation or the creation of a holding company,
each option outstanding under this Plan shall be assumed or an
equivalent option shall be substituted by the successor corporation or
a parent or subsidiary of such corporation, and the vesting schedule
set forth in the instrument evidencing the option shall continue to
apply to such assumed or equivalent option.
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<PAGE>
7.2 Fractional Shares
In the event of any adjustment in the number of shares covered by
any option, any fractional shares resulting from such adjustment shall
be disregarded and each such option shall cover only the number of full
shares resulting from such adjustment.
7.3 Determination of Board to Be Final
All Section 7 adjustments shall be made by the Board, and its
determination as to what adjustments shall be made, and the extent
thereof, shall be final, binding and conclusive. Unless an Optionee
agrees otherwise, any change or adjustment to an incentive stock option
shall be made in such a manner so as not to constitute a "modification"
as defined in Code Section 425(h) and so as not to cause his or her
incentive stock option issued hereunder to fail to continue to qualify
as an incentive stock option as defined in Code Section 422(b).
Section 8. Securities Regulation
Shares shall not be issued with respect to an option granted under
this Plan unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange
Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be
listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance, including the availability, if
applicable, of an exemption from registration for the issuance and sale
of any shares hereunder. Inability of the Company to obtain, from any
regulatory body having jurisdiction, the authority deemed by the
Company's counsel to be necessary for the lawful issuance and sale of
any shares hereunder or the unavailability of an exemption from
registration for the issuance and sale of any shares hereunder shall
relieve the Company of any liability in respect of the nonissuance or
sale of such shares as to which such requisite authority shall not have
been obtained.
As a condition to the exercise of an option, the Company may
require the Optionee to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in
the opinion of counsel for the Company, such a representation is
required by any relevant provision of the aforementioned laws. At the
option of the Company, a stop-transfer order against any shares of
stock may be placed on the official stock books and records of the
Company, and a legend indicating that the stock may not be pledged,
sold or otherwise transferred, unless an opinion of counsel is provided
(concurred in by counsel for the Company) stating that such transfer is
not in violation of any applicable law or regulation, may be stamped on
stock certificates in order to assure exemption from registration. The
Plan Administrator may also require such other action or agreement by
the Optionees as may from time to time be necessary to comply with the
federal and state securities laws. THIS PROVISION SHALL NOT OBLIGATE
THE COMPANY TO UNDERTAKE REGISTRATION OF THE OPTIONS OR STOCK
HEREUNDER.
Should any of the Company's capital stock of the same class as the
stock subject to options granted hereunder be listed on a national
securities exchange, all stock issued hereunder if not previously
listed on such exchange shall be authorized by that exchange for
listing thereon prior to the issuance thereof.
Section 9. Amendment and Termination
9.1 Board Action
The Board may at any time suspend, amend or terminate this Plan,
provided that, to the extent required for compliance with Section 422
of the Code or by any applicable law or regulation, the Company's
shareholders must approve any amendment which will:
(a) increase the total number of shares that may be issued under
this Plan;
(b) modify the class of participants eligible for participation
in this Plan; or
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(c) otherwise require shareholder approval under any applicable
law or regulation.
Such shareholder approval must be obtained within 12 months of the
adoption by the Board of such amendment.
Any amendment made to this Plan since its original adoption which
would constitute a "modification" to incentive stock options
outstanding on the date of such amendment, shall not be applicable to
such outstanding incentive stock options, but shall have prospective
effect only, unless the Optionee agrees otherwise.
9.2 Automatic Termination
Unless sooner terminated by the Board, this Plan shall terminate
ten years from the earlier of (a) the date on which this Plan is
adopted by the Board or (b) the date on which this Plan is approved by
the shareholders of the Company. No option may be granted after such
termination or during any suspension of this Plan. The amendment or
termination of this Plan shall not, without the consent of the option
holder, alter or impair any rights or obligations under any option
theretofore granted under this Plan.
Section 10. Effectiveness of This Plan
This Plan shall become effective upon adoption by the Board so
long as it is approved by the Company's shareholders at any time within
12 months of such adoption of this Plan or, if earlier, and to the
extent required for compliance with Rule 16b-3 under the Exchange Act,
at the next annual meeting of shareholders after adoption by the Board.
Original Plan adopted by the Board on May 23, 1989 and approved by
the shareholders on May 30, 1989. Plan was amended on March 15, 1991,
July 15, 1991, and November 18, 1991. Plan amended and restated on
March 27, 1992, on January 22, 1993 and on August 19, 1993; restated by
the Board on October 26, 1994 and approved by the shareholders on
November 17, 1994; amended and restated by the Board on April 25, 1996
and approved by the Company's shareholders on June 25, 1996. Amended
and restated by the Board on December 10, 1996 and on February 26,
1998, and approved by the Company's shareholders on ______________,
1998.
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NEOPATH, INC.
This Proxy is Solicited by the Board of Directors for the
Annual Meeting of Shareholders -- May 21, 1998
The undersigned hereby appoint(s) Alan C. Nelson and William L.
Scott and each of them as proxies, with full power of substitution, to
represent and vote as designated all shares of Common Stock of NeoPath,
Inc. held of record by the undersigned on March 25, 1998 at the Annual
Meeting of Shareholders of the Company to be held at The Hyatt Regency
Bellevue at Bellevue Place, 900 Bellevue Way NE, Bellevue, Washington,
at 8:30 a.m. (Pacific daylight time) on Thursday, May 21, 1998, with
authority to vote upon the matters listed on the other side of this
proxy card and with discretionary authority as to any other matters
that may properly come before the meeting or any adjournment or
postponement thereof.
IMPORTANT -- PLEASE DATE AND SIGN ON THE OTHER SIDE.
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Shareholders
NEOPATH, INC.
May 21, 1998
____________________________________________________________
A [x] Please mark your votes as in this example.
The Board of Directors recommends a vote "FOR all Nominees" in Item 1,
and "FOR" Item 2.
WITHHOLD
FOR AUTHORITY
all Nominees to vote for all Nominees
(1) ELECTION
OF
DIRECTORS [ ] [ ]
WITHHOLD for the following only: (Write the name of the nominee(s) in
the space below)
____________________________________________________________
NOMINEES: Alan C. Nelson
Thomas A. Bonfiglio
FOR AGAINST ABSTAIN
(2) Amendment of 1989 [ ] [ ] [ ]
Restated Stock
Option Plan
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE
SHAREHOLDERS IN THE SPACE PROVIDED. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" ITEM 2.
I plan to attend the Annual Meeting [ ]
PLEASE DATE,SIGN AND RETURN PROMPTLY.
SIGNATURE(S)________________________ DATE____________
NOTE: Please sign exactly as your name appears hereon. Attorneys,
trustees, executors and other fiduciaries acting in a representative
capacity should sign their names and give their titles. An authorized
person should sign on behalf of corporations, partnerships,
associations, etc. and give his or her title. If your shares are held
by two or more persons, each person must sign. Receipt of the notice
of meeting and proxy statement is hereby acknowledged.
