SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): February 9, 1999
NEOPATH, INC.
(Exact name of registrant as specified in charter)
Washington 000-25210 91-1436093
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
ALAN C. NELSON
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEOPATH, INC.
8271 - 154th Avenue NE
Redmond, Washington 98052
(Address of principal executive offices) (Zip Code)
(425) 869-7284
(Registrant's telephone number, including area code)
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Item 5. Private Placement of Common Stock
On February 9, 1999, NeoPath, Inc., a Washington corporation
(the "Company"), sold 2,900,000 shares of its common stock (the
"Shares") to certain of its shareholders (the "Purchasers") for
an aggregate purchase price of $14,500,000. No underwriters were
involved in the offering, and no commissions or discounts were
paid. The Company sold the Shares in reliance on the exemption
set forth in Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act") and Regulation D Rule 506
thereunder, pursuant to a Common Stock Purchase Agreement between
the Company and the Purchasers, dated as of February 8, 1999.
The Purchasers are "accredited investors" as defined in Rule 501
of Regulation D.
The Company agreed pursuant to an Investor Rights Agreement,
dated as of February 8, 1999, to file, at its expense, a shelf
registration statement with respect to the Shares within 10 days
following the closing and to use its best efforts to cause the
shelf registration statement to be declared effective within
90 days after the closing. The Company must keep the shelf
registration statement effective until the earliest of (a) two
years following the closing, (b) the date on which all of the
Shares have been sold pursuant to the shelf registration
statement or (c) the date on which all of the Shares may be sold
in a single transaction in reliance on Rule 144 of the Securities
Act. If the shelf registration statement is not declared
effective within 120 days following the closing, the purchase
price of the common stock will be decreased by two percent (2%)
per share, and the Company will refund this to the Purchasers.
The Company filed a shelf registration statement on Form S-3 on
February 12, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this report
to be signed on its behalf by the undersigned, hereunto duly
authorized.
NEOPATH, INC.
By: /s/ ALAN C. NELSON
__________________
Alan C. Nelson
Chairman, President and
Chief Executive Officer
Dated: February 25, 1999
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Exhibit Index
Exhibit No. Description
___________ ___________________________________________________
4.1 Common Stock Purchase Agreement, dated as of
February 8, 1999 between NeoPath, Inc. and the
Purchasers
4.2 Investor Rights Agreement, dated as of
February 8, 1999, between NeoPath, Inc. and the
Purchasers
99.1 Press release (excluding financial statements),
dated February 10, 1999, announcing the sale of
the Shares
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NEOPATH, INC.
Common Stock Purchase Agreement
Dated
as of
February 8, 1999
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CONTENTS
1. Purchase and Sale of Stock 1
1.1 Purchase and Sale 1
1.2 Purchase Price 1
2. Closing 1
2.1 Closing Date 1
2.2 Delivery of Stock 1
3. Representations and Warranties of the Company 2
3.1 Organization and Qualification 2
3.2 Capitalization 2
3.3 Authorization, Due Execution and Validity 2
3.4 Valid Issuance of Stock 3
3.5 Governmental Consents 3
3.6 Litigation 3
3.7 Compliance With Other Instruments 3
3.8 SEC Reports; Financial Statements 4
3.9 Compliance With Laws 4
3.10 Private Offering 4
3.11 Changes 5
3.12 Certain Fees 5
3.13 Material Contracts 5
3.14 Title to Properties and Assets, Liens, etc. 6
3.15 Patents and Trademarks 6
3.16 Labor Matters 7
4. Representations and Warranties of the Investors 7
4.1 Authorization 7
4.2 Exemption from Registration 7
4.3 Purchase Entirely for Own Account 8
4.4 Investment Experience 8
4.5 Access to Information 8
4.6 Restricted Securities 8
4.7 Residency 9
4.8 Legends 9
5. Conditions of Investors' Obligations at the Closing Date 9
5.1 Representations and Warranties 9
5.2 Performance 9
5.3 Exemption 10
5.4 Compliance Certificate 10
5.5 Proceedings and Documents 10
5.6 Opinion of Company Counsel 10
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5.7 No Injunctions or Restraints 10
5.8 Tender of Consideration - Investor Rights
Agreement 10
6. Conditions of the Company's Obligations at the
Closing Date 10
6.1 Representations and Warranties 10
6.2 Performance 11
6.3 Exemption 11
6.4 No Injunctions or Restraints 11
7. Covenants 11
7.1 Publicity 11
7.2 Use of Proceeds 11
7.3 Nasdaq Listing 11
8. Miscellaneous 11
8.1 Expenses 11
8.2 Entire Agreement; Governing Law 12
8.3 Notice 12
8.4 Amendments and Waivers 12
8.5 Counterparts 12
8.6 Successors and Assigns 12
8.7 Severability 12
8.8 Survival of Representations and Warranties 13
Exhibit A - Schedule of Investors
Exhibit B - Schedule of Exceptions
Exhibit C - Form of Investor Rights Agreement
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COMMON STOCK PURCHASE AGREEMENT
COMMON STOCK PURCHASE AGREEMENT, dated as of February 8,
1999, by and among NEOPATH, INC., a Washington corporation
(the "Company"), and the investors listed on Exhibit A hereto
(the "Investors").
Recital
The Investors desire to purchase from the Company, and
the Company desires to sell to the Investors, shares of the
Company's common stock, par value $.01 per share (the "Common
Stock") upon the terms and subject to the conditions set forth
herein.
Agreement
NOW, THEREFORE, in consideration of the premises and
mutual covenants contained herein, the parties hereto agree as
follows:
1. Purchase and Sale of Stock
1.1 Purchase and Sale
Upon the terms and subject to the conditions of this
Agreement, the Company shall sell and issue to each Investor,
and each Investor shall purchase from the Company, severally
and not jointly, the number of shares of Common Stock set
forth opposite such Investor's name on Exhibit A hereto (the
"Shares").
1.2 Purchase Price
The purchase price for the Shares to be purchased by the
Investors shall be $5.00 per Share. Notwithstanding the
foregoing, if the Registration Statement that the Company is
required to file pursuant to the Investor Rights Agreement
attached hereto as Exhibit C has not been declared effective
by the Securities and Exchange Commission within 120 days
following the Closing Date, then the purchase price shall be
decreased by two (2) percent per share and such decrease shall
be paid by the Company to the Investors in cash within 10 days
following the expiration of such 120-day period.
2. Closing
2.1 Closing Date
The closing of the sale and purchase of the Shares shall
be held at 7:00 a.m., Seattle time, on February 9, 1999, or
such other time as may be agreed to by the parties hereto (the
"Closing Date").
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2.2 Delivery of Stock
At the Closing, subject to the terms and conditions
hereof, the Company shall deliver to each Investor a
certificate representing the Shares to be purchased by such
Investor from the Company, which shall be dated the Closing
Date and duly registered in the name of such Investor, against
payment of the aggregate purchase price therefor by wire
transfer.
3. Representations and Warranties of the Company
The Company hereby represents and warrants to each
Investor that, except as set forth on a Schedule of Exceptions
attached hereto as Exhibit C:
3.1 Organization and Qualification
The Company is a corporation organized and validly
existing under the laws of the state of Washington and has all
requisite corporate power and authority to own its properties
and carry on its business as currently conducted and as
proposed to be conducted. The Company is duly qualified to
transact business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to so
qualify would have a material adverse effect on its financial
condition, results of operations, business or properties (a
"Material Adverse Effect").
3.2 Capitalization
As of the date of this Agreement, the authorized capital
stock of the Company consists of (a) 10,000,000 shares of
preferred stock, par value $.01 per share, no shares of which
are outstanding and (b) 40,000,000 shares of Common Stock,
14,504,623 shares of which were issued and outstanding as of
December 31, 1998, 278,910 shares of which were subject to
warrants outstanding as of December 31, 1998, 2,928,186 shares
of which were reserved, as of December 31, 1998, for issuance
upon the exercise of stock options granted or to be granted
under the Company's 1989 Restated Stock Option Plan (the "1989
Plan") or the Company's Stock Option Plan for Nonemployee
Directors (the "NED Plan") and 133,325 shares of which were
reserved, as of December 31, 1998, for issuance under the
Company's 1997 Employee Stock Purchase Plan. Except as set
forth in this Section 3.2 and as contemplated by this
Agreement, and except for options granted under the 1989 Plan
or the NED Plan since December 31, 1998, there are no
outstanding options, warrants, conversion privileges,
preemptive rights, or other rights or agreements to purchase
or otherwise acquire or issue any equity securities of the
Company. The Company has no obligation to repurchase or
redeem any outstanding securities.
3.3 Authorization, Due Execution and Validity
The Company has all requisite power and authority to
execute, deliver and perform its obligations under this
Agreement and the Investor Rights Agreement. All corporate
action on the part of the Company, its officers, directors and
shareholders necessary for the
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authorization, execution and delivery of this Agreement and
the Investor Rights Agreement and the transactions
contemplated herein, the performance of all obligations of the
Company hereunder and the authorization, issuance and delivery
of the Shares being sold hereunder, have been taken or will be
taken prior to the Closing. Each of this Agreement and the
Investor Rights Agreement have been duly executed and
delivered by the Company and constitutes a valid and legally
binding obligation of the Company, enforceable in accordance
with its terms, except as (a) such enforceability may be
limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (b) the availability of
equitable remedies may be limited by equitable principles of
general applicability.
3.4 Valid Issuance of Stock
The Shares, when issued, sold and delivered in accordance
with the terms hereof for the consideration expressed herein,
will be duly and validly issued, fully paid and nonassessable
and free of any liens or encumbrances created by the Company,
and will be issued in compliance with all applicable state and
federal securities laws. The outstanding shares of Common
Stock are all duly and validly authorized and issued, fully
paid and nonassessable and were issued in compliance with all
applicable state and federal securities laws.
3.5 Governmental Consents
No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or
filing with, any federal or state governmental authority or
entity on the part of the Company is required in connection
with the consummation of the transactions contemplated by this
Agreement and the Investor Rights Agreement (including,
without limitation, the issuance of the Shares), except for
applicable notice filings as are necessary to secure an
exemption from qualification or registration of the offer and
sale of the Shares under all applicable United States federal
or state securities laws.
3.6 Litigation
There is no action, suit, claim, proceeding or
investigation pending or, to the Company's knowledge,
currently threatened against the Company that relates to or
challenges the legality, validity or enforceability of this
Agreement or the Investor Rights Agreement or the issuance of
the Shares that could either individually or in the aggregate
have a Material Adverse Effect. The Company is not a party to
or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or other governmental
authority or entity that could have, individually and in the
aggregate, a Material Adverse Effect.
3.7 Compliance With Other Instruments
The Company is not in violation of any provision of its
Restated Articles of Incorporation or its Amended and Restated
Bylaws or in violation or default of any provision of any
instrument, judgment, order, writ, decree or contract to which
it is a party or by which
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it is bound, which violation or default would adversely affect
the legality, validity, or enforceability of this Agreement
and the Investor Rights Agreement or have, individually and in
the aggregate, a Material Adverse Effect. The execution,
delivery and performance of this Agreement or the Investor
Rights Agreement and the consummation of the transactions
contemplated hereby will not require any consent under or be
in conflict with or constitute, with or without the passage of
time or the giving of notice or both, either a violation or
default under any such provision, instrument, judgment, order,
writ, decree or contract or an event which results in the
creation of any lien, charge or encumbrance upon any of the
Company's assets.
3.8 SEC Reports; Financial Statements
The Company has furnished the Investors with true and
complete copies of each report, schedule, registration
statement and definitive proxy statement filed by the Company
with the Securities and Exchange Commission (the "SEC") since
December 31, 1997 (the "SEC Documents"), which are all the
documents that the Company has been required to file with the
SEC during such period and each of which has been timely
filed. As of their respective dates, the SEC Documents
complied with the requirements of the Securities Act of 1933,
as amended (the "Securities Act"), or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as applicable,
and the rules and regulations of the SEC thereunder, and none
of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company
included in the SEC Documents were prepared in accordance with
generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited
financial statements, as permitted by Form 10-Q of the SEC)
and fairly present (subject, in the case of unaudited
financial statements, to normal recurring audit adjustments)
the financial position of the Company and its consolidated
subsidiaries at the dates thereof and the results of their
operations and changes in financial position for the periods
then ended.
3.9 Compliance With Laws
The Company has complied, and is in compliance with, all
federal, state, county, local and foreign laws, rules,
regulations, ordinances, decrees and orders applicable to the
operation of its business or to the real property or personal
property that it owns or leases (including, without
limitation, all such laws, rules, ordinances, decrees and
orders relating to federal food and drug administration,
antitrust, consumer protection, currency exchange,
environmental protection, equal opportunity, health,
occupational safety, pension, securities and
trading-with-the-enemy matters), the failure to comply with
which would, individually or in the aggregate, have a Material
Adverse Effect. The Company has not received any notification
of any asserted present or past unremedied failure by the
Company to comply with any of such laws, rules, regulations,
ordinances, decrees or orders.
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3.10 Private Offering
During the six months preceding the date of this
Agreement, neither the Company nor any person acting on its
behalf has, directly or through any agent, sold, offered for
sale, solicited offers to buy or otherwise negotiated in
respect of any security (as defined in the Securities Act)
that is or may be integrated with the sale of the Shares in a
manner that would require the registration of the Shares under
the Securities Act. Neither the Company nor any person acting
on its behalf has offered or sold or will offer or sell any
Shares by means of any general solicitation or general
advertising within the meaning of Rule 502(c) under the
Securities Act. Assuming the accuracy of the Investors'
representations in Section 4 hereof, the offering and sale of
the Shares will satisfy the requirements of Rule 506 under the
Securities Act.
3.11 Changes
Since September 30, 1998 (the date of the balance sheet
contained in the last quarterly report on Form 10-Q filed by
the Company as a part of the SEC documents), there has not
been:
(a) any damage, destruction or loss (whether or not
covered by insurance) which has had or is expected to have a
Material Adverse Effect;
(b) any material change in the accounting methods
or practices followed by the Company;
(c) any material debt obligation or liability
(whether absolute or contingent) incurred by the Company
(whether or not presently outstanding) except (i) current
liabilities incurred, and obligations under agreements entered
into, in the ordinary course of business and (ii) obligations
or liabilities entered into or incurred in connection with the
execution of this Agreement;
(d) any sale, lease, abandonment or other
disposition by the Company of any real property or, other than
in the ordinary course of business, of any equipment or other
operating properties or, other than in the ordinary course of
business, any sale, assignment, transfer, license or other
disposition by the Company of any intellectual property or
other intangible asset; or
(e) any other event or occurrence that has had or
is expected to have a Material Adverse Effect.
3.12 Certain Fees
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection
with the sale of the Shares to the Investors; except that the
Company has agreed to issue to Invemed Associates, Inc.
warrants to purchase 100,000
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shares of Common Stock at an exercise price of equal to 15
percent above the closing price of NeoPath's Common Stock on
the Closing Date.
3.13 Material Contracts
The exhibit lists to the Company's SEC Reports contain a
true and complete list of all Material Contracts (as defined
below) to which the Company is a party or by which it or its
assets may be bound. The Company is, and, to the best of the
Company's knowledge, all other parties to such Material
Contracts (other than the Company) are, in compliance in all
material respects with their obligations thereunder.
"Material Contracts" means the agreements, obligations and
undertakings which are material to the business or operations
of the Company. Without limiting the generality of the
foregoing, any agreement, obligation or undertaking will be
deemed to be a Material Contract if a breach thereof or
default thereunder would have a Material Adverse Effect.
3.14 Title to Properties and Assets, Liens, etc.
Other than as disclosed in the SEC Documents, the Company
has good and marketable title to its properties and assets,
and good title to its leasehold estates, in each case subject
to no mortgage, pledge, lien, lease, encumbrance, or charge,
other than (i) those resulting from taxes which have not yet
become delinquent, (ii) minor liens and encumbrances which do
not materially detract from the value of the property subject
thereto or have a Material Adverse Effect on the Company, and
(iii) those that have otherwise arisen in the ordinary course
of business.
3.15 Patents and Trademarks
To the best of the Company's knowledge, the Company has
sufficient title and ownership of or rights to use such trade
names, copyrights, trade secrets, information, patents,
trademarks, service marks, rights and processes (including all
applications therefor) as are necessary for its business as
now conducted and as proposed to be conducted, without any
conflict with or infringement of the rights of others. Except
as set forth in the exhibit lists to the Company's SEC
documents, there are no material options, licenses, or
agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any material options, licenses
or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade
secrets, licenses, proprietary rights and processes of any
other person or entity. The Company has not received any
communications alleging that the Company has violated or, by
conducting its business as now conducted or proposed, would
violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights
of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature)
or other agreement, or subject to any judgment, decree or
order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote
the interests of the Company or that would conflict with the
Company's
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business as now conducted or proposed to be conducted. To the
best of the Company's knowledge, no person or entity is
infringing or threatening to infringe the patents, trademarks,
service marks, trade names, copyrights or trade secrets or
other proprietary rights of the Company. All employees,
officers and directors, other than those employees who are not
privy to any of the Company's confidential information, are
bound by confidentiality and assignment of intellectual
property and technology agreements and such agreements and
obligations do not confer on any such person any rights of the
intellectual property of the Company.
3.16 Labor Matters
The Company has no collective bargaining agreement with
any of its employees and there is no labor union organizing
activity pending or threatened with respect to the Company.
There are no disputes pending or, to the knowledge of the
Company, threatened between the Company, on the one hand, and
any of its employees, on the other hand, other than employee
grievances arising in the ordinary course of business which
would not, individually or in the aggregate, have a Material
Adverse Effect.
4. Representations and Warranties of the Investors
Each Investor hereby represents and warrants to the
Company, severally and not jointly, that:
4.1 Authorization
All acts and conditions necessary for the authorization,
execution, delivery and consummation by the Investor of this
Agreement and the transactions contemplated hereby have been,
or will prior to the Closing be, taken, performed and
obtained. This Agreement constitutes a valid and legally
binding obligation of the Investor, enforceable in accordance
with its terms, except as (a) such enforceability may be
limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (b) the availability of
equitable remedies may be limited by equitable principles of
general applicability. The Investor has full power and
authority to execute, deliver and perform its obligations
under this Agreement and to own the Shares. The execution,
delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not
conflict with or constitute a violation or default under any
provision of the charter or bylaws of the Investor, or of any
material agreement, indenture or other instrument to which the
Investor is a party, or by which it or its properties or
assets are bound, or of any order, judgment or decree against
or binding upon such Investor.
4.2 Exemption from Registration
Except as provided in the Investor Rights Agreement, the
Investor has been advised that none of the Shares to be
purchased by the Investor hereunder are being registered under
the Securities Act, or applicable state or foreign securities
laws, but are being offered and
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sold pursuant to exemptions from such laws. The Investor
acknowledges that the Company is relying in part upon the
Investor's representations and warranties contained herein for
the purpose of qualifying the offer and sale of the Shares
proposed to be offered and sold hereunder for applicable
exemptions from registration or qualification pursuant to
federal or state securities laws, rules and regulations.
4.3 Purchase Entirely for Own Account
The Shares to be received by the Investor will be
acquired for investment for the Investor's own account, not as
a nominee or agent, and not with a view to the distribution of
any part thereof in a manner contrary to the Securities Act or
any applicable federal or state securities law, and the
Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same in a
manner contrary to the Securities Act or any applicable
federal or state securities law. The Investor does not have
any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such
person or to any third person with respect to any of the
Shares.
4.4 Investment Experience
The Investor qualifies as an "accredited investor" as
defined in Rule 501(a) of Regulation D promulgated by the SEC
that meets the requirements of Rule 501(a)(1), (2), (3), or
(7) of said Regulation D, and acknowledges that an investment
in the Securities involves a high degree of risk. The
Investor is able to fend for itself in the transactions
contemplated by this Agreement, can bear the economic risk of
its investment (including possible complete loss of such
investment) for an indefinite period of time and has such
knowledge and experience in financial or business matters that
it is capable of evaluating the merits and risks of the
investment in the Shares. The Investor has not been organized
for the purpose of acquiring the Shares.
4.5 Access to Information
The Investor has been furnished such information as it
deems necessary to evaluate an investment in the Shares. The
Investor has been given access to sufficient information
regarding the Company, including information regarding the
current financial condition, results of operations, business,
properties and management of the Company and the risks
associated therewith and has utilized such access to its
satisfaction for the purpose of obtaining information or
verifying information. The Investor has either attended or
been given reasonable opportunity to attend a meeting with
representatives of the Company for the purpose of asking
questions of, and receiving answers from, such representatives
concerning the terms and conditions of the offering of the
Shares and to obtain any additional information, to the extent
reasonably available. The foregoing representations in this
Section 4.5 shall not be deemed to limit the Company's
representations contained in Section 3 of this Agreement.
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4.6 Restricted Securities
The Investor realizes that none of the Shares to be
purchased by the Investor hereunder have been registered under
the Securities Act and that all of such Securities are
characterized under the Securities Act as "restricted
securities" and therefore cannot be sold or transferred unless
subsequently registered under the Securities Act or an
exemption from such registration is available. In this
connection, the Investor represents that it is familiar with
Rule 144 under the Securities Act, as presently in effect, and
understands the resale limitations imposed thereby and by the
Securities Act.
4.7 Residency
The Investor represents that it is a bona fide resident
of or is domiciled in the jurisdiction indicated on Exhibit A
hereto.
4.8 Legends
It is understood that the certificates evidencing the
Shares may bear legends in substantially the following form:
The securities evidenced by this certificate
have not been registered under the Securities
Act of 1933, as amended (the "Act"), or
applicable state securities laws, and no
interest therein may be sold, distributed,
assigned, offered, pledged or otherwise
transferred unless (i) there is an effective
registration statement under the Act and
applicable state securities laws covering any
such transaction involving said securities,
(ii) this corporation receives an opinion of
legal counsel for the holder of these
securities reasonably satisfactory to this
corporation stating that such transaction is
exempt from registration or (iii) this
corporation otherwise satisfies itself that
such transaction is exempt from registration.
5. Conditions of Investors' Obligations at the Closing Date
The obligations of each Investor under Section 1 hereof
are subject to the fulfillment on or before the Closing Date
of each of the following conditions, unless waived in writing
by the Investor:
5.1 Representations and Warranties
The representations and warranties of the Company
contained in Section 3 hereof shall be true in all material
respects on and as of the Closing Date.
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5.2 Performance
The Company shall have performed and complied with all
agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with
by it on or before the Closing Date.
5.3 Exemption
The offer and sale of the Shares to the Investors
pursuant to this Agreement shall be exempt from registration
under the Securities Act.
5.4 Compliance Certificate
The Chief Executive Officer or the Chief Financial
Officer of the Company shall have delivered to the Investors a
certificate stating that the conditions specified in
Sections 5.1 and 5.2 hereof have been fulfilled.
5.5 Proceedings and Documents
All corporate and other proceedings in connection with
the transactions contemplated at the Closing Date and all
documents incident thereto shall be reasonably satisfactory to
the Investors and the Investors' legal counsel.
5.6 Opinion of Company Counsel
Each Investor shall have received from Perkins Coie,
legal counsel for the Company, an opinion, dated as of the
Closing Date, in form and substance reasonably satisfactory to
such Investor.
5.7 No Injunctions or Restraints
There shall be no temporary restraining order,
preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint
or prohibition preventing consummation of the offer, sale and
purchase of the Shares contemplated hereby.
5.8 Tender of Consideration - Investor Rights Agreement
Each Investor shall have tendered full consideration for
all of the Shares being purchased by it hereunder. The
Company and the Investors shall have entered into an Investor
Rights Agreement in the form attached hereto as Exhibit C.
6. Conditions of the Company's Obligations at the Closing Date
The obligations of the Company under Section 1 hereof are
subject to the fulfillment on or before the Closing Date of
each of the following conditions, unless waived in writing by
the Company:
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6.1 Representations and Warranties
The representations and warranties of each Investor
contained in Section 4 hereof shall be true in all material
respects on and as of the Closing Date.
6.2 Performance
Each Investor shall have performed and complied with all
agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with
by it on or before the Closing Date.
6.3 Exemption
The offer and sale of the Shares to the Investors
pursuant to this Agreement shall be exempt from registration
under the Securities Act.
6.4 No Injunctions or Restraints
There shall be no temporary restraining order,
preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint
or prohibition preventing consummation of the offer, sale and
purchase of the Shares contemplated hereby.
7. Covenants
7.1 Publicity
The Company shall not use or make reference to the name
of any Investor or any affiliate of any Investor in any press
release or other public document without such Investor's prior
consent unless the use or reference to the Investor or
affiliate is required by law, in which event the Company will
consult with the Investor prior to such publication.
7.2 Use of Proceeds
The Company shall use the proceeds from the offering and
sale of the Shares for working capital and other general
corporate purposes.
7.3 Nasdaq Listing
The Company shall use its best efforts to cause the
Shares to be listed on the Nasdaq National Market.
11
<PAGE>
8. Miscellaneous
8.1 Expenses
The Company and each Investor shall each bear its own
expenses with respect to the transactions contemplated by this
Agreement, except that the Company shall reimburse each
Investor for all reasonable out-of-pocket legal fees and
disbursements incurred with respect thereto, up to a maximum
amount of $15,000. Such reimbursement shall be paid on the
Closing Date or on such other date as is requested by an
Investor in the event the Closing does not occur.
8.2 Entire Agreement; Governing Law
This Agreement and the other documents delivered at the
Closing constitute the full and entire understanding and
agreement between the parties with respect to the subject
matter hereof and supersede all prior agreements with respect
to the subject matter hereof. This Agreement shall be
governed by and construed under the laws of the state of
Washington as applied to agreements among Washington residents
entered into and to be performed entirely within the state of
Washington.
8.3 Notice
Unless otherwise provided, any notice desired or required
to be given hereunder shall be in writing given by personal
delivery or certified or registered mail, or confirmed
facsimile transmission, in any such case addressed or sent:
(a) if to the Company, to NeoPath, Inc. with a copy to Perkins
Coie, 1201 Third Avenue, 40th Floor, Seattle, WA 98101, Attn:
Michael E. Stansbury, Facsimile: (206) 583-8500; (b) if to an
Investor, to the address or facsimile number listed on
Exhibit A hereto; or (c) to such other address or facsimile
number as any party shall have previously designated by such a
notice. The effective date of any notice or request shall be
three days from the date it is sent by the addresser with
charges prepaid so long as it is in fact received within five
days, or when successful transmission is confirmed if sent by
facsimile, or when personally delivered.
8.4 Amendments and Waivers
Any term of this Agreement may be amended and the
observance of any term may be waived (either generally or in a
particular instance and either retroactively or prospectively)
only with the written consent of the Company and each
Investor.
8.5 Counterparts
This Agreement may be executed and delivered (including
by facsimile transmission) in one or more counterparts, and by
the different parties hereto in separate counterparts, each of
which when executed and delivered shall be deemed to be an
original but all of which taken together shall constitute one
and the same agreement.
12
<PAGE>
8.6 Successors and Assigns
Except as otherwise provided herein, the provisions
hereof shall inure to the benefit, and be binding upon, the
successors and assigns of the parties hereto.
8.7 Severability
If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provisions shall
be excluded from this Agreement and the balance of this
Agreement shall be interpreted as if such provisions were so
excluded and shall be enforceable in accordance with its
terms.
8.8 Survival of Representations and Warranties
The representations and warranties contained in Section 3
shall survive the execution and delivery of this Agreement and
the Closing for a period expiring on April 30, 2000. No
Investors shall be entitled to bring any claims based on such
representations and warranties unless such claims are brought
on or before April 30, 2000.
[remainder of page intentionally left blank]
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
NEOPATH, INC.
By /s/ ALAN C. NELSON
__________________
Alan C. Nelson
Chairman, President and
Chief Executive Officer
INVESTORS:
THE KAUFMANN FUND, INC.
By /s/ JOSEPH KLEIN III
____________________
Its Health Care Analyst
CAPITAL RESEARCH AND MANAGEMENT
COMPANY ON BEHALF OF SMALLCAP WORLD
FUND, INC.
By /s/ MICHAEL DOWNER
__________________
Michael J. Downer
Its Secretary
ZESIGER CAPITAL GROUP, LLC, as
attorney-in-fact for each of the
Investors indicated on Exhibit A
hereto
By /s/ ALBERT L. ZESIGER
_____________________
Its Principal
14
<PAGE>
Exhibit A
Schedule of Investors
Name, Address and Facsimile Number Shares
__________________________________ ______
The Kaufmann Fund, Inc. 1,821,000
25 Light Street, Suite 300
Baltimore, MD 21202
FAX (410) 659-7355
Capital Research and Management 500,000
Company on behalf of SmallCap
World Fund, Inc.
333 South Hope Street
Los Angeles, CA 90071
FAX (213) 486-9299
Investors represented by
Zesiger Capital Group, LLC
320 Park Avenue
New York, NY 10022
FAX (212) 508-6329
The Jenifer Altman Foundation 7,000
Alza Corporation Retirement Plan 6,000
Dean Witter Foundation 6,000
The Ferris Hamilton Family Trust 5,000
John J. & Catherine H. Kayola 4,000
Arthur D. Little Employee
Investment Plan 60,000
The Magee/Bernhard LLC 18,000
The Meehan Investment
Partnership I, L.P. 4,000
Margaret M. Legacy 6,000
NFIB Employee Pension Trust 12,000
NFIB Corporate Account 15,000
Norwalk Employees' Pension Plan 12,000
Public Employee Retirement
System of Idaho 120,000
Roanoke College 6,000
The A & JS Family LLC 11,000
City of Stamford Firemen's
Pension Fund 18,000
State of Oregon PERS/ZCG 240,000
Van Loben Sels Foundation 5,000
The A & SW Family LLC 12,000
Wells Family LLC 6,000
<PAGE>
Wolfson Investment Partners LP 6,000
2
<PAGE>
Exhibit B
Schedule of Exceptions
This Schedule of Exceptions, dated February 8, 1999, is
made and given, pursuant to the Common Stock Purchase
Agreement, dated as of February 8, 1999 (the "Agreement") by
and among NeoPath, Inc. (the "Company") and the purchasers of
the Company's Common Stock, to the Investors named on
Exhibit A to the Agreement. Any matter set forth herein as an
exception to one section or paragraph of the Agreement shall
be deemed to constitute an exception to all other applicable
sections and paragraphs of the Agreement. Capitalized terms
used but not otherwise defined herein have the respective
meanings assigned to such terms in the Agreement.
Section 3.11(d) The Company plans to write-off
approximately $3.1 million in intangible assets related to the
Pathfinder System product line. This non-cash expense is
expected to be reflected in the Company's results of
operations for the three months ended December 31, 1998.
Section 3.15 [Excerpt from the Company's Form 10-Q for
the quarterly period ended September 30, 1998]:
On July 15, 1996, Neuromedical Systems, Inc.
("Neuromedical") filed a lawsuit against NeoPath,
Inc. in the United States District Court for the
Southern District of New York. The complaint alleged
patent infringement, unfair competition, false
advertising, and related claims. On September 5,
1996, the Company filed its answer and counter
claims. In May 1998, a judge in the United States
District Court for the Southern District of New York
denied Neuromedical's motion for a preliminary
injunction against NeoPath. The parties have agreed
to dismiss their claims and counterclaims on all but
the patent issues, and Neuromedical accordingly
served an amended complaint on July 27, 1998
asserting only patent infringement claims. This
lawsuit is still in the discovery stage and a trial
date has not been set. The Company continues to
believe it has a strong position in this action and
will defend itself vigorously.
On March 31, 1997, the Company filed a patent
infringement lawsuit against Neuromedical in the
United States District Court for the Western District
of Washington. The complaint alleges patent
infringement and seeks permanent injunctions against
Neuromedical. In March and April 1998 this lawsuit
was amended, and NeoPath filed an additional related
patent lawsuit against Neuromedical. Neuromedical
filed a motion for summary judgment, which was denied
by the court in April 1998. In October 1998,
Neuromedical filed another motion for summary
judgment for which the judge has not yet rendered a
decision. The first lawsuit is currently scheduled
for trial in 1999, and the second lawsuit is
currently in the discovery stage.
<PAGE>
Update: Neuromedical's motion for summary judgment was
denied, and the first Washington trial is currently scheduled
to begin in April 1999.
2
<PAGE>
Exhibit C
Form of Investor Rights Agreement
<PAGE>
NEOPATH, INC.
Investor Rights Agreement
Dated
as of
February 8, 1999
<PAGE>
CONTENTS
________
1. Certain Definitions 1
2. Shelf Registration 2
3. Expenses of Registration 2
4. Obligations of the Company 2
5. Information by Investors 3
6. Indemnification and Contribution 4
7. Delay of Registration 6
8. Assignment of Registration Rights 7
9. Termination of Registration Rights 7
10. Notices 7
11. Amendments and Waivers 8
12. Severability 8
13. Entire Agreement; Governing Law 8
14. Counterparts 8
- -i-
<PAGE>
INVESTOR RIGHTS AGREEMENT
INVESTOR RIGHTS AGREEMENT, dated as of February 8, 1999,
by and among NEOPATH, INC., a Washington corporation (the
"Company"), and the parties listed on Schedule A hereto, as at
any time amended (the "Investors").
Recitals
A. Pursuant to a Common Stock Purchase Agreement, dated
as of February 8 1999 (the "Purchase Agreement"), the Company
has agreed to issue and sell shares of its common stock, par
value $.01 per share (the "Common Stock") (collectively, the
"Initial Investors").
B. The execution of this Agreement by the parties
hereto is a condition to the obligation of each Investor to
purchase the Common Stock.
C. The Company and the Investors desire to enter into
this Agreement to facilitate the purchase and sale of the
Common Stock.
Agreement
1. Certain Definitions
As used in this Agreement, the following terms not
otherwise defined in this Agreement shall have the following
respective meanings:
"Closing Date" shall mean the date of closing of the
issuance and sale of the Shares from the Company to the
Investors as provided in the Purchase Agreement.
"Commission" shall mean the United States Securities and
Exchange Commission.
"Shelf Period" shall mean the period commencing on the
date of effectiveness of the registration statement filed in
accordance with Section 2 hereof and ending on the date two
years from the Closing Date.
"The terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a
registration statement with the Commission in compliance with
the Securities Act of 1933, as amended (the "Securities Act"),
and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean the Shares; provided,
however, that Shares shall cease to be treated as Registrable
Securities at such time as they (i) have been sold pursuant to
an effective registration statement under the Securities Act
or (ii) have otherwise been sold or transferred to or through
a broker, dealer or underwriter in a public distribution or a
public securities transaction.
<PAGE>
"Registration Expenses" shall mean all expenses, except
as stated in the definition of Selling Expenses, incurred by
the Company in complying with this Agreement, including,
without limitation, all registration, qualification and filing
fees, printing expenses, escrow fees, fees and disbursements
of counsel for the Company and of one special counsel to the
Investors per registration statement, and blue sky fees and
expenses.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the
sale of the Registrable Securities by the Investors.
"Shares" shall mean the shares of Common Stock to be
issued and sold by the Company to the Investors in accordance
with the Purchase Agreement.
2. Shelf Registration
On or before the date ten days after the Closing Date,
the Company shall file a registration statement with the
Commission with respect to the registration of all the
Registrable Securities held by the Investors and shall use its
best efforts to have such registration statement declared
effective within 90 days of the Closing Date or as soon as
practicable thereafter. After the effective date of such
registration statement, the Company shall use its best efforts
to maintain the registration effective for the period that
ends upon the earliest of (i) the expiration of the Shelf
Period, (ii) the time at which all Shares (excluding any
Shares that cease to be Registrable Securities) have been sold
or distributed pursuant to such registration statement or
(iii) the date after which all Shares (excluding any Shares
that cease to be Registrable Securities) may be sold in a
single transaction without registration in reliance on
Rule 144 under the Securities Act. Without intending in any
manner to diminish the obligations of the Company under
Section 4(b), if at any time during the Shelf Period the
Company notifies the Investors that there exists or may exist
material nonpublic information which must be disclosed in
order for the registration statement not to be false or
misleading, then the Company may require that no sales may be
made under the registration statement until such time as
disclosure is made or the Company determines that disclosure
is not necessary; provided, however, that the aggregate period
of time during which sales may not be made as a result of the
Company's exercise of the foregoing right shall not exceed
120 days during the Shelf Period. The Company shall use its
best efforts to cause any required disclosure to be made as
soon as practicable.
3. Expenses of Registration
All Registration Expenses shall be borne by the Company.
All Selling Expenses relating to Registrable Securities
registered on behalf of each Investor shall be borne by such
Investor on the basis of the number of shares of Common Stock
registered and sold.
4. Obligations of the Company
When required under Section 2 hereof to effect the
registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
- -2-
<PAGE>
(a) Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use
best efforts to cause such registration statement to become
and remain effective at the times and for the periods provided
in this Agreement.
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the
prospectus used in connection with such registration statement
as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Investors such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to
facilitate the disposition of all securities covered by such
registration statement.
(d) Use reasonable efforts to register and qualify the
securities covered by such registration statement under such
state securities or blue sky laws as shall be reasonably
requested by the Investors, provided that the Company shall
not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent
to service of process in any such states.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter(s) of such offering. Each Investor participating
in such registration shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Investor of Registrable Securities
covered by such registration statement, during the time when a
prospectus relating thereto covered by such registration
statement is required to be delivered under the Securities
Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in
the light of the circumstances then existing and, at the
request of any selling Investor, promptly furnish to all the
selling Investors a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the selling
Investors, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact
required to be stated therein necessary to make the statements
therein not misleading in the light of the circumstances under
which they were made.
5. Information by Investors
Each Investor shall furnish to the Company such
information regarding itself, the Registrable Securities it
holds and the distribution proposed by it as the Company may
reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance
referred to in this Agreement.
- -3-
<PAGE>
6. Indemnification and Contribution
(a) Indemnification by the Company. Upon the
registration of Registrable Securities, the Company shall
indemnify and hold harmless the Investors and each
underwriter, selling agent or other securities professional,
if any, that facilitates the disposition of such Shares, and
each of their respective officers and directors and each
person who controls the Investors, underwriter, selling agent
or other securities professional within the meaning of Section
15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against
any losses, claims, damages or liabilities, joint or several,
to which the Investors or such other persons may become
subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any
registration statement under which the Registrable Securities
are to be registered under the Securities Act, or any
prospectus contained therein or furnished by the Company to
the Investors or other such person, or any amendment or
supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, and the Company hereby
agrees to reimburse the Investors or other person for any
legal or other expenses reasonably incurred by them in
connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that
the Company shall not be liable to the Investors or other
person in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or
prospectus, or amendment or supplement, in reliance upon and
in conformity with written information furnished to the
Company by the Investors or such other person expressly for
use therein.
(b) Indemnification by the Investors. Each Investor
agrees, as a consequence of the inclusion of the Investor in
such registration, and each underwriter, selling agent or
other securities professional, if any, which facilitates the
disposition of such Registrable Securities shall agree, as a
consequence of facilitating such disposition of Registrable
Securities, severally and not jointly, to (i) indemnify and
hold harmless the Company, its directors, officers who sign
any registration statement with respect to the Registrable
Securities and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which the Company or such other
persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement
of a material fact contained in such registration statement or
prospectus, or any amendment or supplement, or arise out of or
are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity
with written information furnished to the Company by the
Investor, underwriter, selling agent or other securities
professional expressly for use therein,
- -4-
<PAGE>
and (ii) reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such
expenses are incurred.
(c) Notices of Claims, Etc. Promptly after receipt by
an indemnified party under subsection (a) or (b) above of
notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made
against an indemnifying party under this Section 6, notify
such indemnifying party in writing of the commencement
thereof; no indemnification provided for in subsection (a) or
(b) above with respect to such claim shall be available to any
party who shall fail to give notice as provided in this
subsection (c) if the party to whom notice was not given was
unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice,
but the omission so to notify the indemnifying party shall not
relieve it from any liability which it may have to any
indemnified party otherwise than under this Section 6. In
case any such action shall be brought against any indemnified
party and it shall notify an indemnifying party of the
commencement thereof, such indemnifying party shall be
entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel
to the indemnifying party), and, after notice from the
indemnifying party to such indemnified party of its election
so to assume the defense thereof, such indemnifying party
shall not be liable to such indemnified party under this
Section 6 for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof
other than reasonable costs of investigation, unless
representation of such indemnifying party and such indemnified
party by the same counsel would be inappropriate due to actual
or potential conflicting interests between such parties. No
indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any
pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or
potential party to such action or claim) unless such
settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does
not include a statement as to, or an admission of, fault,
culpability or a failure to act, by or on behalf of any
indemnified party.
(d) Contribution. If the indemnification provided for
in this Section 6 is unavailable to or insufficient to hold
harmless an indemnified party under subsection (a) or (b)
above in respect of any losses, claims, damages or liabilities
(or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative
fault of the indemnifying party and the indemnified party in
connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable
considerations. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to,
among other
- -5-
<PAGE>
things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a
material fact relates to information supplied by such
indemnifying party or by such indemnified party, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 6(d) were
determined by pro rata allocation (even if the Investors or
any underwriters, selling agents or other securities
professionals or all of them were treated as one entity for
such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to
in this Section 6(d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages
or liabilities (or actions in respect thereof) referred to
above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or
claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligations
of the Investors and any underwriters, selling agents or other
securities professionals in this Section 6(d) to contribute
shall be several in proportion to the number of shares of
Common Stock registered, underwritten, or sold as the case may
be, by them and not joint.
(e) Notwithstanding any other provision of this
Section 6, in no event will (i) any Investor be required to
undertake liability to any person under this Section 6 for any
amounts in excess of the dollar amount of the proceeds to be
received by the Investor from the sale of the Investor's
Registrable Securities (after deducting any fees, discounts
and commissions applicable thereto) pursuant to any
registration statement under which such Registrable Securities
are to be registered under the Securities Act and (ii) any
underwriter, selling agent or other securities professional be
required to undertake liability to any person hereunder for
any amounts in excess of the discount, commission or other
compensation payable to such underwriter, selling agent or
other securities professional with respect to the Registrable
Securities underwritten or sold by it.
(f) The obligations of the Company under this Section 6
shall be in addition to any liability which the Company may
otherwise have to the Investor, underwriter, selling agent or
other securities professional within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, and
the obligations of the Investor or other such person under
this Section 6 shall be in addition to any liability which the
Investor or other person may otherwise have to the Company,
its directors, officers who sign any registration statement
with respect to the Registrable Securities and each person, if
any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange
Act. The remedies provided in this Section 6 are not
exclusive and shall not limit any rights or remedies which may
otherwise be available to an indemnified party at law or in
equity.
- -6-
<PAGE>
7. Delay of Registration
No Investor shall have any right to obtain or seek an
injunction restraining or otherwise delaying any registration
as the result of any controversy that might arise with respect
to the interpretation or implementation of this Agreement.
8. Assignment of Registration Rights
The rights to cause the Company to register Registrable
Securities pursuant to this Agreement may be assigned by an
Investor to a transferee or assignee of such securities who
shall, upon such transfer or assignment, be deemed an
"Investor" under this Agreement; provided, however, that the
Company is, within a reasonable period of time after such
transfer, furnished with written notice of the name and
address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned
and such transferee or assignee assumes the transferor's or
assignor's obligations under this Agreement; provided,
further, that such assignment shall be effective only if
immediately following such transfer the further disposition of
such securities by the transferee or assignee is restricted
under the Securities Act and that such transferee or assignee
is either (a) a partner or retired partner of any Investor
that is a partnership, (b) a member of the immediate family or
a trust for the benefit of any Investor that is an individual,
(c) an entity controlling, controlled by or under common
control with any Investor that is not an individual, or a
limited partner, general partner or other affiliate of an
Investor, (d) a constituent member of any Investor that is a
limited liability company or (e) a transferee of at least
500,000 shares of Common Stock (as adjusted for stock splits,
stock dividends, stock consolidations and the like).
9. Termination of Registration Rights
The registration rights granted pursuant to this
Agreement shall terminate as to all Investors on the second
anniversary of the Closing Date. In addition, such rights
shall terminate as to any Investor when all Registrable
Securities of such Investor have been sold or distributed or
when all Registrable Securities of such Investor may be sold
in a single transaction without registration in reliance on
Rule 144 under the Securities Act.
10. Notices
Unless otherwise provided, any notice desired or required
to be given hereunder shall be in writing given by personal
delivery or certified or registered mail, or confirmed
facsimile transmission, in any such case addressed or sent:
(a) if to the Company, with a copy to Perkins Coie, 1201 Third
Avenue, 40th Floor, Seattle, WA 98101, Attn: Michael E
Stansbury, Facsimile: (206) 583-8500; (b) if to an Investor,
to the address or facsimile number listed on Exhibit A hereto;
or (c) to such other address or facsimile number as any party
shall have previously designated by such a notice. The
effective date of any notice or request shall be three days
from the date it is sent by the addresser with charges prepaid
so
- -7-
<PAGE>
long as it is in fact received within five days, or when
successful transmission is confirmed if sent by facsimile, or
when personally delivered.
11. Amendments and Waivers
Any term of this Agreement may be amended and the
observance of any term may be waived (either generally or in a
particular instance and either retroactively or prospectively)
only with the written consent of the Company and the holders
of 75% of the Registrable Securities outstanding; provided any
adverse effect on any Investor affects all Investors equally.
12. Severability
If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be
excluded from this Agreement, and the balance of this
Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its
terms.
13. Entire Agreement; Governing Law
This Agreement constitutes the full and entire
understanding and agreement between the parties with respect
to the subject matter hereof and supersedes all prior
agreements with respect to the subject matter hereof. This
Agreement shall be governed by and construed under the laws of
the State of Washington as applied to agreements among
Washington residents entered into and to be performed entirely
within the State of Washington.
14. Counterparts
This Agreement may be executed and delivered (including
by facsimile transmission) in one or more counterparts, and by
the different parties hereto in separate counterparts, each of
which when executed and delivered shall be deemed to be an
original but all of which taken together shall constitute one
and the same agreement.
[remainder of page intentionally left blank]
- -8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
NEOPATH, INC.
By /s/ ALAN C. NELSON
__________________
Alan C. Nelson
Chairman, President and
Chief Executive Officer
INVESTORS:
THE KAUFMANN FUND, INC.
By /s/ JOSEPH KLEIN III
____________________
Its Health Care Analyst
CAPITAL RESEARCH AND MANAGEMENT
COMPANY ON BEHALF OF SMALLCAP WORLD
FUND, INC.
By /s/ MICHAEL DOWNER
__________________
Michael J. Downer
Secretary
ZESIGER CAPITAL GROUP, LLC, as
attorney-in-fact for each of the
Investors indicated on Exhibit A
hereto
By /s/ ALBERT L. ZESIGER
_____________________
Its Principal
- -9-
<PAGE>
Exhibit A
Schedule of Investors
Name, Address and Facsimile Number Shares
__________________________________ ______
The Kaufmann Fund, Inc. 1,821,000
25 Light Street, Suite 300
Baltimore, MD 21202
FAX (410) 659-7355
Capital Research and 500,000
Management Company on behalf
of SmallCap World Fund, Inc.
333 South Hope Street
Los Angeles, CA 90071
FAX (213) 486-9299
Investors represented by
Zesiger Capital Group, LLC
320 Park Avenue
New York, NY 10022
FAX (212) 508-6329
The Jenifer Altman Foundation 7,000
Alza Corporation Retirement Plan 6,000
Dean Witter Foundation 6,000
The Ferris Hamilton Family Trust 5,000
John J. & Catherine H. Kayola 4,000
Arthur D. Little Employee
Investment Plan 60,000
The Magee/Bernhard LLC 18,000
The Meehan Investment
Partnership I, L.P. 4,000
Margaret M. Legacy 6,000
NFIB Employee Pension Trust 12,000
NFIB Corporate Account 15,000
Norwalk Employees' Pension Plan 12,000
Public Employee Retirement
System of Idaho 120,000
Roanoke College 6,000
The A & JS Family LLC 11,000
City of Stamford Firemen's
Pension Fund 18,000
State of Oregon PERS/ZCG 240,000
Van Loben Sels Foundation 5,000
The A & SW Family LLC 12,000
Wells Family LLC 6,000
Wolfson Investment Partners LP 6,000
<PAGE>
FOR IMMEDIATE RELEASE
CONTACT: Stacie Byars, Investor Relations, NeoPath, Inc.
www.neopath.com, (425) 556-3050
NEOPATH REPORTS FOURTH QUARTER 1998 RESULTS AND
CLOSES FINANCING TRANSACTION
REDMOND, WASHINGTON, February 10, 1999 -- NeoPath, Inc.
(NASDAQ: NPTH) today reported financial results for the
fourth quarter and year ended December 31, 1998; in
addition, the Company reported the completion of a $14.5
million private equity transaction among current
shareholders.
NeoPath's fourth quarter revenues totaled $2.3 million, 65
percent of which resulted from AutoPap fee-per-use
contracts. Fee-per-use revenues in the fourth quarter of
1998 increased more than 50 percent from the immediately
preceding quarter and from the prior year's fourth quarter.
The remaining quarterly revenues were primarily from the
sale of two AutoPap Primary Screening Systems to domestic
customers under previously offered sales terms. Total
revenues in the quarter decreased from the fourth quarter of
1997 as a result of fewer units placed under sales
contracts. The increase in fee-per-use revenues is
consistent with NeoPath's strategic focus to place AutoPap
Systems primarily under multi-year fee-per-use contracts.
"The fourth quarter of 1998 represents the first reporting
period following the announcement of our national agreement
with SmithKline Beecham Clinical Laboratories," said Dr.
Alan C. Nelson, President and Chief Executive Officer of
NeoPath. "We are pleased to report that as of December 31,
1998 we have delivered more than 70 AutoPap Primary
Screening Systems to SmithKline Beecham. More than half of
these were new systems delivered during the fourth quarter
of 1998 which, combined with the upgrade of previously
placed AutoPap QC Systems and more favorable per-slide
pricing to NeoPath, generated a significant increase in our
core AutoPap fee-per-use revenues as compared to prior
periods."
NeoPath reported revenues of $12.1 million for the year
ended December 31, 1998, which is 12 percent higher than
revenues of $10.8 million reported in 1997. It is
noteworthy that 1998 revenues were primarily from U.S.
customers, whereas half of 1997 revenues were from foreign
customers. The Company continues to actively pursue
increased U.S. market share and expects that future revenues
will be primarily from domestic fee-per-use product
placements, except for potential AutoPap sales under
NeoPath's national pricing agreement with Kaiser Permanente
and international AutoPap sales.
<PAGE>
NeoPath's gross margin was 51 percent in the fourth quarter
of 1998, compared to a gross margin of 38 percent in the
third quarter of 1998. The gross margin percentage
increased in the fourth quarter due to improved average per-
slide pricing on fee-per-use contracts as well as increased
average slides processed per System as customers adopted the
AutoPap Primary Screening System. Primary screening systems
are expected to process a greater number of slides, on
average, than the prior installed base of AutoPap QC
Systems.
Total expenses in the fourth quarter included a $3.1 million
non-cash write-off of intangible assets related to the
Pathfinder System product line. Pathfinder product sales
amounted to only 3 percent of total revenues in 1998, with
no overall contribution to profit. The Company followed
required accounting practices and wrote off the entire
remaining balance of Pathfinder intangible assets. This one-
time expense represented $0.21 of the total net loss per
share in 1998.
Total ongoing operating expenses in the fourth quarter were
$6.2 million, which represents a decrease of $700,000 from
the fourth quarter of 1997. Operating expenses in the
fourth quarter were $1 million lower than the third quarter
of 1998 and $2 million lower than the second quarter of
1998, reflecting the Company's continuing efforts in the
second half of 1998 to reduce costs and carefully focus
corporate spending. Recurring operating expenses for the
twelve months ended December 31, 1998 decreased from the
prior year by $2.8 million to a total of $29.2 million.
The decrease from the prior year was due primarily to
completion of NeoPath's primary screening clinical studies
during 1997 as well as an overall reduction in expense
levels during the second half of 1998.
Excluding the write-off of intangible assets, NeoPath's net
loss per share for the fourth quarter of 1998 was $0.34 per
share compared to a net loss of $0.33 per share in the
fourth quarter of 1997. NeoPath's 1998 net loss per share,
excluding the write-off, was $1.60, compared to a net loss
per share of $1.66 in 1997.
At December 31, 1998, NeoPath reported total cash and short-
term investments of $9.0 million. The Company's operating
cash usage approximated $10 million in the second half of
1998, of which more than 50 percent was used for AutoPap
System production.
Financing Transaction
The Company closed a $14.5 million private equity financing
on February 9, 1999, which consisted of a sale of 2.9
million shares of NeoPath common stock to a small number of
current NeoPath shareholders. NeoPath will register these
newly issued shares on Form S-3.
"Closing this limited equity offering with current
shareholders is the first step in our overall financial
strategy and reflects the confidence of some of our largest
shareholders," said Dr. Nelson. "This equity infusion
provides immediate cash to fund operating needs and directly
supports our continuing efforts to finalize additional
financing in a separate debt facility. We plan to use a
debt facility primarily to support AutoPap manufacturing
costs for our growing placements of fee-per-use systems.
This asset-based debt facility
<PAGE>
will use the strength of our national usage-based agreement
with SmithKline Beecham to secure sufficient financing to
sustain an aggressive fee-per-use product strategy in the
United States."
NeoPath, Inc., headquartered in Redmond, Washington develops
proprietary visual intelligence technology that automates
the interpretation of complex medical images to improve the
accuracy of medical testing. Approved by the FDA for
primary diagnostic Pap smear screening, the AutoPap System
consists of high-speed video microscopes, specialized visual
intelligence software, and ultra-fast morphology computers.
Forward-looking statements in this press release are made
pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-
looking statements are subject to various risks and
uncertainties that could cause actual results to differ
materially from historical results or those anticipated.
These factors include, without limitation, acceptance of the
Company's products, marketing and sales programs in domestic
and international markets; receipt of purchase orders under
long-term national customer agreements; the Company's
limited marketing, sales, customer service and support
capabilities; dependence on timely and adequate levels of
reimbursement from third-party payers; the status of
competing products; product and manufacturing regulatory
approvals; the availability of adequate financial resources
under acceptable terms; and other risks and uncertainties
detailed in the Company's filings with the Securities and
Exchange Commission.
# # #
<PAGE>
