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As filed with the Securities and Exchange Commission on July 2, 1999
Registration No. 333-72261
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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NEOPATH, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1436093
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8271 -- 154TH AVENUE NE
REDMOND, WASHINGTON 98052
(425) 869-7284
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
RONALD R. BROMFIELD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NEOPATH, INC.
8271 -- 154TH AVENUE NE
REDMOND, WASHINGTON 98052
(425) 869-7284
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
MICHAEL E. STANSBURY
PERKINS COIE LLP
1201 THIRD AVENUE, 40TH FLOOR
SEATTLE, WASHINGTON 98101-3099
(206) 583-8888
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Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]____________
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If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]_____________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
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THE REGISTRANT HEREBY UNDERTAKES TO AMEND THIS REGISTRATION STATEMENT
ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. The
selling shareholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and is not soliciting an
offer to buy these securities in any state where the offer of sale is not
permitted.
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SUBJECT TO COMPLETION, DATED JULY 2, 1999
2,900,000 SHARES
NEOPATH, INC.
COMMON STOCK
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Certain shareholders of NeoPath may offer for sale up to 2,900,000 shares of
common stock at various times at market prices prevailing at the time of sale or
at privately negotiated prices.
NeoPath will not receive any proceeds from the sale of the shares by the selling
shareholders.
The common stock trades on the Nasdaq National Market under the symbol "NPTH."
On June 25, 1999, the last reported sales price of the common stock on Nasdaq
was $3.75 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 3.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
ABOUT NEOPATH........................................................................................ 1
Recent events............................................................................... 1
RISK FACTORS......................................................................................... 3
Our merger with AutoCyte may not be completed............................................... 3
The exchange ratio for AutoCyte common stock to be received in the merger is fixed and
will not be adjusted in the event of any change in stock price..................... 3
The price of AutoCyte common stock may be affected by factors different from those
affecting the price of our common stock............................................ 3
The information in this prospectus is forward-looking, and our actual results may be
different from our predictions..................................................... 4
We have incurred substantial losses since we began doing business, and we expect that we
will continue to incur losses...................................................... 4
We may be unable to obtain the additional capital we need to fund our operations............ 4
Our future financing arrangements may dilute the interests of our shareholders or may
require us to relinquish important rights.......................................... 5
Our products may not achieve market acceptance.............................................. 5
Our sales are concentrated among a relatively small number of customers, and as
consolidation continues in the laboratory industry, the number of potential
customers will decrease............................................................ 5
If third-party health care payers restrict reimbursement for use of AutoPap products,
the market for our products may become extremely limited........................... 6
We may be unable to maintain regulatory clearance for our products.......................... 6
We have limited marketing, sales and service experience..................................... 7
We face risks inherent in international transactions........................................ 7
Because we have a sole or limited source of supply for many of our product components,
disruptions with these suppliers could seriously impede our operations............. 7
The government heavily regulates manufacturing of medical diagnostic devices, and we may
be unable to attain or maintain required compliance................................ 8
Direct competitors may develop and market technologies that compete with the AutoPap
System............................................................................. 8
Our products may not be initially compatible with other technologies adopted by our
potential customers................................................................ 9
We face risks associated with acquisitions and mergers...................................... 9
Our success depends on a single product line, which may never be a commercial success....... 10
We may face product liability claims........................................................ 10
Our patents, trade secrets and confidentiality agreements may not adequately protect our
proprietary technology, rights and know-how........................................ 10
We have faced, and may continue to face, third-party claims of infringement................. 10
The loss of our key personnel, particularly highly skilled scientific and management
personnel, could cause our business prospects to decline........................... 11
Our stock price has been highly volatile, and we expect this volatility to continue,
which could result in lower stock prices for extended periods...................... 11
Our quarterly results may fluctuate in future periods, and these fluctuations may cause
our stock price to decline......................................................... 12
The year 2000 problem may cause disruption of our operations because we cannot control
compliance by our suppliers and subcontractors, and because we have no
contingency plans.................................................................. 13
FORWARD-LOOKING INFORMATION.......................................................................... 13
HOW TO OBTAIN MORE INFORMATION....................................................................... 14
SELLING SHAREHOLDERS................................................................................. 15
PLAN OF DISTRIBUTION................................................................................. 16
VALIDITY OF COMMON STOCK............................................................................. 17
EXPERTS.............................................................................................. 17
</TABLE>
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ABOUT NEOPATH
NeoPath develops and markets visual intelligence technology to increase
accuracy in medical testing. NeoPath's initial products include two automated
screening systems that integrate proprietary high-speed morphology computers,
video imaging technology and sophisticated image interpretation software to
capture and analyze thousands of microscopic images from a Pap smear slide for
the early detection of cervical cancer.
The FDA approved our AutoPap(R) 300 QC Automatic Pap Screener System in
1995. The AutoPap QC is a rescreening device used for quality control and
rescreening of previously screened Pap smear slides. Clinical studies have shown
that the AutoPap QC detects a significantly higher proportion of undetected
abnormal slides than procedures typically employed by clinical laboratories to
meet federal rescreening requirements.
The FDA approved our AutoPap(R) Primary Screening System in May 1998.
The AutoPap Primary Screener uses the same hardware components as the AutoPap
QC, but uses enhanced software to perform the initial screening of Pap smear
slides and to classify up to 25% of such slides as requiring no further review.
Clinical studies have shown that the AutoPap Primary Screener provides superior
sensitivity and specificity when compared to existing laboratory practice.
Currently it is the only instrument approved by the FDA that allows Pap smear
slides to bypass human review. We believe that this feature of the AutoPap
Primary Screener provides customers with an economic incentive to adopt the
technology.
The AutoPap System refers to the AutoPap Primary Screener and the
AutoPap QC together.
RECENT EVENTS.
Agreement to merge with AutoCyte
On June 4, 1999, NeoPath and AutoCyte agreed to a merger in which a
wholly owned subsidiary of AutoCyte will merge with NeoPath, and NeoPath will
become a wholly owned subsidiary of AutoCyte.
On the effective date of the merger, each issued and outstanding share
of NeoPath common stock will automatically convert into the right to receive
0.7903 shares of AutoCyte common stock. AutoCyte will pay cash in lieu of
issuing fractional shares of AutoCyte common stock. Outstanding employee and
director options and certain warrants to purchase shares of NeoPath common stock
will be converted to AutoCyte options and warrants at the same exchange ratio.
We expect the merger to be a tax-free reorganization and to be accounted for as
a pooling of interests. Completion of the acquisition is subject to approval by
AutoCyte's and NeoPath's shareholders and to other customary closing conditions.
The parties may terminate the merger agreement in certain circumstances.
Agreement to acquire technology rights
On March 26, 1999, AutoCyte, Inc. announced an agreement to purchase
certain Neuromedical, Inc. technology, including patent rights, for $4.0 million
in cash and 1.4 million shares of AutoCyte common stock. On April 26, 1999,
NeoPath and AutoCyte announced an agreement whereby NeoPath may acquire an
undivided interest in the intellectual property estate of Neuromedical that
AutoCyte had agreed to acquire. Subject to completion of the agreement between
AutoCyte and Neuromedical and other conditions, NeoPath will pay AutoCyte $2.2
million in cash and issue AutoCyte 1.2 million shares of NeoPath common stock at
the later of the transaction closing date or September 1, 1999. On May 18, 1999,
AutoCyte announced that it had completed its acquisition of the Neuromedical
technology.
Private equity transaction
On February 9, 1999, we completed a $14.5 million private equity
transaction in which we issued 2.9 million shares of common stock to investors
at a price of $5.00 per share. On February 9, 1999, the last reported sale price
of the common stock on Nasdaq was $5.125. We have filed this shelf registration
statement on Form S-3 to allow resale of these shares. We have agreed to use our
best efforts to keep this registration statement effective for two years. In
connection with the financing, we issued to Invemed Associates, Inc., an
investment banking firm, five-year warrants to purchase 100,000 shares of common
stock at an exercise price of $5.89 per share. The proceeds of the private
placement have been, and will be, used to fund our operating cash requirements.
Write-off of PathFinder intangible assets
In the quarter ended December 31, 1998, we wrote off $3.1 million of
intangible assets related to our Pathfinder System product line. The write-off
did not involve any cash expenditure. NeoPath acquired the
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Pathfinder System product line from CompuCyte Corporation in June 1997 for a
total purchase price of $4.6 million, including transaction-related expenses. As
a result of the purchase, we recognized $4.3 million in intangible assets that
were to be amortized over five years.
The intangible assets included the following:
<TABLE>
<CAPTION>
June 1997 December 1998
Initial Allocation Write-Off of Remaining
Of Purchase Price Net Book Value
------------------ ----------------------
<S> <C> <C>
Patents $2,000,000 $1,400,000
Trademark 100,000 70,000
Copyright 200,000 140,000
Non-compete agreement 400,000 280,000
Goodwill 1,609,195 1,194,289
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Total $4,309,195 $3,084,289
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</TABLE>
At the time of the acquisition, our financial projections indicated
that PathFinder would generate significant future revenues. We based our initial
PathFinder revenue projections on information available at the time, making
numerous assumptions about likely domestic and international market acceptance
rates, the robustness of the PathFinder technology, and the brief selling
history recorded by CompuCyte. Based on these factors, we also expected
significant undiscounted positive cash flows. However, actual revenues and cash
flows have been significantly below our original expectations. PathFinder
product sales accounted for 3 percent of total revenues in 1998, and we no
longer offer the PathFinder System.
We noted the following indications of impairment from PathFinder, in
the fourth quarter of 1998:
o continued low revenue levels and operating losses from PathFinder,
despite initiatives to train sales personnel on PathFinder
demonstrations and sales commission incentives;
o a product assessment completed in the fourth quarter of 1998 that
demonstrated significant technology changes would be necessary to
make PathFinder commercially viable and acceptable to a broad base
of laboratory customers; and
o sales forecasts prepared in the fourth quarter of 1998 that
predicted continuing product line losses and negative cash flows.
Using our revised PathFinder sales forecast figures, we prepared a cash
flow analysis and determined that future PathFinder undiscounted cash flows
would likely be negative. In accordance with required accounting practices, we
compared the carrying value of the PathFinder intangible assets to expected
future discounted cash flows applicable to the PathFinder product and, as a
result of the analysis, wrote off the entire $3.1 million remaining balance of
intangible assets.
RISK FACTORS
OUR MERGER WITH AUTOCYTE MAY NOT BE COMPLETED.
On June 4, 1999, we agreed to a merger with AutoCyte in which each
share of our common stock will be exchanged for 0.7903 shares of AutoCyte common
stock. The shares of our stock that you purchase in this offering will be a part
of the merger with AutoCyte if it is completed. Important conditions must still
be satisfied by AutoCyte and us before the merger can be completed. We cannot
guarantee that the merger will be completed,
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and therefore you may not receive shares of AutoCyte common stock. If the merger
is not completed, you will continue to hold any shares of NeoPath common stock
you purchase in the offering.
THE EXCHANGE RATIO FOR AUTOCYTE COMMON STOCK TO BE RECEIVED IN THE MERGER IS
FIXED AND WILL NOT BE ADJUSTED IN THE EVENT OF ANY CHANGE IN STOCK
PRICE.
Under the merger agreement, each share of our common stock will be
converted into the right to receive 0.7903 shares of AutoCyte common stock. This
exchange ratio is a fixed number and will not be adjusted in the event of any
increase or decrease in the price of AutoCyte common stock or our common stock.
The prices of AutoCyte common stock and our common stock at the closing of the
merger may vary from their respective prices on the date of this prospectus.
These prices may vary because of changes in the business, operations or
prospects of NeoPath or AutoCyte, market assessments of the likelihood that the
merger will be completed, the timing of the completion of the merger, the
prospects of post-merger operations, general market and economic conditions and
other factors. We urge prospective purchasers to obtain current market
quotations for NeoPath common stock and AutoCyte common stock.
THE PRICE OF AUTOCYTE COMMON STOCK MAY BE AFFECTED BY FACTORS DIFFERENT FROM
THOSE AFFECTING THE PRICE OF OUR COMMON STOCK.
Upon completion of the merger with AutoCyte, our shareholders,
including you if you purchase NeoPath common stock in this offering, will become
AutoCyte shareholders. Alternatively, if the merger is not completed, you will
continue to own shares of NeoPath common stock that you purchase in this
offering. AutoCyte's business differs from our business and AutoCyte's results
of operations, as well as the price of AutoCyte's common stock, may be affected
by factors different from those affecting our results of operations and the
price of our common stock. For a discussion of AutoCyte's businesses and certain
factors to consider in connection with these businesses, see AutoCyte's Annual
Report on Form 10-K for the year ended December 31, 1998, as amended, which has
been filed with the Securities and Exchange Commission, and our Annual Report on
Form 10-K for the year ended December 31, 1998, which is incorporated by
reference in this prospectus. A discussion of additional factors that may affect
our business is set forth below.
THE INFORMATION IN THIS PROSPECTUS IS FORWARD-LOOKING, AND OUR ACTUAL RESULTS
MAY BE DIFFERENT FROM OUR PREDICTIONS.
This prospectus and the documents we incorporate by reference contain
forward-looking statements that involve risks and uncertainties. The statements
in this prospectus that are not purely historical are forward-looking
statements. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," estimates," and similar expressions identify
forward-looking statements. But the absence of these words does not mean the
statement is not forward-looking. We cannot guarantee these statements, which
are subject to risks, uncertainties and assumptions that are difficult to
predict. Our actual results may differ materially from those we forecast in
forward-looking statements due to a variety of factors, including those set
forth in the following risk factors, elsewhere in this prospectus and in the
documents we have incorporated by reference. We will not update any
forward-looking statements due to new information, future events or otherwise.
Before investing in the common stock, you should consider carefully the
following factors, as well as the information contained in the rest of this
prospectus and in the documents we incorporate by reference.
WE HAVE INCURRED SUBSTANTIAL LOSSES SINCE WE BEGAN DOING BUSINESS, AND WE EXPECT
THAT WE WILL CONTINUE TO INCUR LOSSES.
As of March 31, 1999, our accumulated deficit was $118.9 million. We
first began recognizing product revenue in 1996. For 1996, 1997, 1998 and the
first three months of 1999, we incurred cumulative losses of $72.5 million on
revenues of $28.0 million. Our net losses have increased each year since we
began recognizing revenue.
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We expect continued losses in 1999 as we market the AutoPap Primary Screener
primarily under a fee-per-use strategy in the United States, continue product
development initiatives and perform additional clinical studies. We cannot
guarantee that our business will ever become profitable.
WE MAY BE UNABLE TO OBTAIN THE ADDITIONAL CAPITAL WE NEED TO FUND OUR
OPERATIONS.
We expect negative cash flow from operations to continue at least
through 1999. At March 31, 1999, NeoPath had approximately $14.9 million in
cash; however, we may require additional funds to produce AutoPap Systems for
our fee-per-use program and cover continuing losses. We may be unable to obtain
adequate funds, whether obtained through financial markets or from
collaborative or other arrangements with corporate partners or other sources,
when we need them, or we may be unable to find adequate funding on favorable
terms, if at all. We intend to seek additional funding through private debt
financing to provide additional resources to support AutoPap Primary Screener
production, but we may be unable to do so. To date, we have had discussions
with various potential lenders. A lender's collateral would be based primarily
on AutoPap Systems placed on multi-year fee-per-use contracts. SmithKline
Beecham Clinical Laboratories is our largest customer; therefore, the February
1999 announcement that Quest Diagnostics Incorporated agreed to purchase
SmithKline may delay our ability to obtain debt financing.
We estimate that our existing cash and cash equivalents will meet our
capital requirements through 1999. In the year 2000, we believe our cash
requirement will depend primarily on the placement rate and pricing of
fee-per-use AutoPap Primary Screeners. Fee-per-use placements require us to
invest in initial manufacturing costs to achieve long-term return through
monthly customer payments. We cannot guarantee that the assumptions underlying
our estimates will prove to be accurate.
Our future capital requirements will depend on numerous factors,
including:
o sales of AutoPap Primary Screeners and fee-per-use revenues;
o research and development programs for the development of enhanced
products;
o additional clinical trials;
o relationships with existing and future corporate collaborators, if any;
o competing technological and market developments;
o the time and costs involved in obtaining regulatory approvals;
o the costs involved in filing, prosecuting, defending and enforcing
patent claims; and
o the time and costs of manufacturing scale-up and commercialization
activities.
OUR FUTURE FINANCING ARRANGEMENTS MAY DILUTE THE INTERESTS OF OUR SHAREHOLDERS
OR MAY REQUIRE US TO RELINQUISH IMPORTANT RIGHTS.
If we raise additional funds by issuing equity securities, existing
shareholders will suffer dilution of their interest in NeoPath. In addition, if
we obtain additional funds through arrangements with collaborative partners, we
may have to relinquish rights to certain of our technologies or potential
products that we would otherwise seek to develop or commercialize ourselves.
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OUR PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE.
Our products may never be commercially successful. NeoPath's growth
depends on market acceptance of the AutoPap Primary Screener by clinical
laboratories, healthcare providers, third-party healthcare payers and patients.
Our success also depends on customers' acceptance of our fee-per-use and sale
programs. Even if our products gain market acceptance, the availability of
reimbursement from third-party healthcare payers such as government and private
insurance plans may limit our revenues.
OUR SALES ARE CONCENTRATED AMONG A RELATIVELY SMALL NUMBER OF CUSTOMERS, AND AS
CONSOLIDATION CONTINUES IN THE LABORATORY INDUSTRY, THE NUMBER OF
POTENTIAL CUSTOMERS WILL DECREASE.
A significant proportion of our sales is concentrated among a
relatively small number of customers, and this likely will be true for the
foreseeable future. For the year ended December 31, 1998, 18% of our revenues
were from SmithKline Beecham Clinical Laboratories in the United States, and 10%
of our revenues were from Chang's Instrument Company Limited in Taiwan. For the
quarter ended March 31, 1999, 53% of our revenues were from SmithKline, and we
had no revenues from Chang's. The loss of SmithKline would be materially
detrimental to our business.
Moreover, due to consolidation in the clinical laboratory industry, we
expect that the number of potential domestic customers for our products will
decrease. These factors increase our dependence on sales to the largest clinical
laboratories and the bargaining power of those potential customers. Our market
research indicates that over 35% of all U.S. Pap smears are screened by the
three largest laboratories, including SmithKline, Quest Diagnostics Incorporated
and Laboratory Corporation of America. Each of these companies operates multiple
laboratory facilities nationwide.
In February 1999, SmithKline and Quest announced that Quest had agreed
to purchase SmithKline. The combined entity would be the largest clinical
laboratory company in the world. NeoPath's national agreement with SmithKline is
binding on successor organizations, and we believe that the AutoPap Primary
Screeners installed under the SmithKline agreement will continue to generate
revenues in accordance with the underlying agreement. However, additional
AutoPap Primary Screener orders have been delayed as the two laboratories work
through their combined business issues. Future negotiations with SmithKline and
Quest could result in changes to the overall pricing and placement rate under
the existing SmithKline agreement.
IF THIRD-PARTY HEALTH CARE PAYERS RESTRICT REIMBURSEMENT FOR USE OF AUTOPAP
PRODUCTS, THE MARKET FOR OUR PRODUCTS MAY BECOME EXTREMELY LIMITED.
Third-party healthcare payers in the United States are increasingly
sensitive to containing healthcare costs and heavily scrutinize new technology
as a primary factor in increased healthcare costs. Third-party payers may
influence the pricing or perceived attractiveness of our products and services
by regulating the maximum amount of reimbursement they provide or by not
providing any reimbursement. Medical community or third-party healthcare payers
may delay acceptance of an automated Pap smear screening or rescreening system
that replaces or supplements current laboratory Pap smear review practices.
Virtually all of our revenues are dependent on customers who rely on
third party reimbursement. Restrictions on reimbursement may limit the price we
can charge for AutoPap System screening or reduce the demand for AutoPap System
screening. If these payers do not reimburse for the AutoPap System screening, or
provide reimbursement significantly below the amount laboratories charge
patients to perform AutoPap System screening, our product will be less
attractive to our customers and potential customers and potential market and
revenues will be significantly reduced. AutoPap System screening may never
become widely reimbursed, and AutoPap reimbursement may not be sufficient to
permit us to generate substantial revenue. Future healthcare legislation or
other changes in the administration or interpretation of government healthcare
or third-party
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reimbursement programs may also adversely affect our business. Third-party
reimbursement also may not be available for the AutoPap System under foreign
reimbursement systems.
WE MAY BE UNABLE TO MAINTAIN REGULATORY CLEARANCE FOR OUR PRODUCTS.
The U.S. government extensively regulates the manufacture and sale of
medical diagnostic devices for commercial use. Government agencies in certain
other countries impose similar requirements. The AutoPap Primary Screener and
AutoPap QC have been cleared for commercialization in the United States and in
Japan, Canada, Australia, New Zealand, The Netherlands, Italy, Hong Kong, Korea,
and Taiwan.
Governmental regulatory agencies in the United States or elsewhere may
not approve future commercial enhancements to the AutoPap System on a timely
basis, if at all. Even if these agencies clear the enhanced products for sale,
they may not confer the clinical indications we request, or the approval may
contain significant limitations, such as warnings, precautions or
contraindications, requests for postmarket studies, or additional regulatory
requirements. Our regulatory applications may be delayed or rejected based on
changes in regulatory policies or regulations. Although the FDA has inspected
our manufacturing operations for compliance with FDA quality systems
regulations, we remain subject to ongoing FDA quality systems regulation and
inspection.
WE HAVE LIMITED MARKETING, SALES AND SERVICE EXPERIENCE.
We market, sell, service, and support the AutoPap System through a
direct sales force in North America and through independent foreign
distributors. We have limited marketing, sales and service experience, and may
find it difficult to recruit and retain skilled sales, marketing, service or
support personnel or foreign distributors. Our marketing and sales efforts may
not be successful. We provide competitive compensation and benefits, including
stock options, and a professional, challenging environment to retain key
personnel.
WE FACE RISKS INHERENT IN INTERNATIONAL TRANSACTIONS.
We rely primarily on third-party distributors to place AutoPap Systems
internationally. International transactions pose a number of risks. For NeoPath,
the most significant risks are:
o regulatory delays or disapprovals with respect to enhancements to
the AutoPap Primary Screener,
o expenses and delays due to compliance with government controls,
o export license requirements,
o uncertain sales and collections due to political instability,
o reduced revenues due to price controls,
o reduced sales due to trade restrictions,
o changes in tariffs, and
o difficulties with foreign distributors.
BECAUSE WE HAVE A SOLE OR LIMITED SOURCE OF SUPPLY FOR MANY OF OUR PRODUCT
COMPONENTS, DISRUPTIONS WITH THESE SUPPLIERS COULD SERIOUSLY IMPEDE
OUR OPERATIONS.
We purchase all components for the AutoPap System from outside vendors.
A major component of the AutoPap System, the slide tray motion system, is
supplied by a sole-source vendor, Applied Precision, Inc. In
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addition, AutoPap System optics are purchased sole-source from Nikon
Corporation, and video cameras are purchased sole-source from Sony Electronics,
Inc. Certain other components are currently purchased from single-source
vendors. Components provided by additional or replacement suppliers would
require some modification to be used in the AutoPap System. We would be unable
to quickly establish additional or replacement sources of supply for many
AutoPap System components. In addition, we may need to obtain regulatory
approval to substitute certain components. We cannot be sure of obtaining the
necessary approvals. If one of our vendors becomes unable to supply acceptable
components in a timely manner and in the quantity required we may need to delay
or halt our manufacturing process. Any delay or cessation of manufacturing could
adversely affect our business.
THE GOVERNMENT HEAVILY REGULATES MANUFACTURING OF MEDICAL DIAGNOSTIC DEVICE, AND
WE MAY BE UNABLE TO ATTAIN OR MAINTAIN REQUIRED COMPLIANCE.
Manufacturers of medical diagnostic devices face strict federal
regulations regarding the quality of manufacturing. For example, the FDA
periodically inspects the manufacturing facilities of diagnostic device
manufacturers to determine compliance with regulations. Our current and future
manufacturing and design operations must comply with these and all other
applicable regulations, including regulations imposed by other governments. If
we fail to comply with quality systems regulations we could face civil or
criminal penalties or enforcement proceedings. These proceedings may require us
to recall a product or to stop placing our products in service or selling our
products. Similar results could occur if we violate foreign regulations. We may
not be able to attain or maintain compliance with quality systems requirements.
Any failure to comply with the applicable manufacturing regulations would have a
material adverse effect on our business.
DIRECT COMPETITORS MAY DEVELOP AND MARKET TECHNOLOGIES THAT COMPETE WITH THE
AUTOPAP SYSTEM.
Competition in the medical device industry is intense. Our competitors
may develop new technologies and products that prove to be more effective than
the AutoPap System in important ways. Furthermore, other companies may purchase
or develop technologies that compete with the AutoPap System or render it
obsolete. These competitors may manufacture, market and sell their products or
services more successfully than us, which could adversely affect our business.
We believe that the AutoPap System must remain competitive in accuracy
and effectiveness, cost, including both charges by us to the laboratory and the
laboratory's labor and overhead costs, convenience, perception among influential
cytopathologists and laboratories, and processing speed and reliability. The
AutoPap System competes with existing manual methods of screening Pap smears and
with semi-automated systems. To effectively compete, we must keep pace with the
rapid product development and technological change in our industry. The AutoPap
System must demonstrate accuracy and cost effectiveness that equals or exceeds
manual review of Pap smears and the technology that may be offered by our
competitors. We cannot guarantee that the AutoPap System will be competitive in
any of these areas.
We are aware of two potential direct competitors:
o AutoCyte, Inc., which is developing a semi-automated system to
prepare and analyze liquid-based Pap smears, a potential
alternative to conventional Pap smears; and
o Morphometrix Technologies Inc., which is developing an automated
system to analyze monolayer Pap smears
Neuromedical Systems, Inc., had obtained regulatory approval for a
semi-automated system that rescreens conventional Pap smears and was developing
a semi-automated primary screener. On March 26, 1999, Neuromedical announced
that it had filed a voluntary chapter 11 petition for bankruptcy.
7
<PAGE> 12
OUR PRODUCTS MAY NOT BE INITIALLY COMPATIBLE WITH OTHER TECHNOLOGIES
ADOPTED BY OUR POTENTIAL CUSTOMERS
We face indirect competition from companies that manufacture
liquid-based or monolayer slide preparation systems and devices that automate
various aspects of cytology. On June 18, 1999, AutoCyte announced that it had
received FDA approval for its PREP System, which is a liquid-based preparation
system. In addition, Cytyc Corporation is approved to market its ThinPrep System
that prepares slides for cervical cancer screening using a liquid-based sampling
and preparation technique as a replacement for the conventional Pap smear
method. Because the AutoPap System is not currently approved to process
AutoCyte's PREP or Cytyc's ThinPrep Pap smear, laboratories that choose to use
PREP or ThinPrep are not currently able to fully adopt the AutoPap System.
WE FACE RISKS ASSOCIATED WITH ACQUISITIONS AND MERGERS.
We may not be successful in integrating the technology rights or
operations from acquisitions and mergers, including NeoPath's pending merger
with AutoCyte. In June 1997, NeoPath acquired the Pathfinder System product
line, for which the resulting intangible assets were written off in the fourth
quarter of 1998. On April 26, 1999, NeoPath and AutoCyte announced an agreement
whereby NeoPath may acquire an undivided interest in the intellectual property
estate of Neuromedical that AutoCyte had agreed to acquire. We have limited
experience with completing and integrating acquisitions. Our business may
include growth by acquisition. Future acquisitions present many risks and
uncertainties generally associated with acquisitions, including:
o diversion of management's attention from other business concerns;
o increased fixed costs, which could cause profits to decrease;
o disruption of our ongoing business and operations, which could,
among other things, impair our reputation and our relationships
with customers and employees and potentially cause the loss of our
own key employees or those of an acquired company;
o integration of an acquired company's personnel and operations with
our personnel and operations;
o maintenance of our standards, controls, procedures and policies;
o negative impact on earnings;
o issuances of equity securities that may dilute your interest in
our company;
o our taking on additional debt;
o our becoming responsible for significant liabilities of companies
we acquire; or
o large one-time write-offs and amortization expenses related to
goodwill and other intangible assets.
We have not yet demonstrated our ability to meet such challenges.
OUR SUCCESS DEPENDS ON A SINGLE PRODUCT LINE, WHICH MAY NEVER BE A COMMERCIAL
SUCCESS.
To date, we have concentrated on development of the AutoPap System. We
have performed only limited research on other applications of our core
technology. Accordingly, our success will depend primarily on the successful
development and marketing of the AutoPap System to generate revenues. The
AutoPap System may never be a commercial success.
8
<PAGE> 13
WE MAY FACE PRODUCT LIABILITY CLAIMS.
The commercial screening of Pap smears has generated significant
malpractice litigation. As a result, we face product liability, errors and
omissions or other claims if our products are alleged to have caused a
false-negative diagnosis. Although we have product liability insurance, it will
become increasingly difficult for us to obtain and maintain reasonable product
liability coverage. Our current product liability coverage is limited to $25
million. Substantial increases in insurance premium costs often make coverage
economically impractical. We may not be able to obtain adequate product
liability insurance at a reasonable cost. Thus, product liability claims may
adversely affect our business.
OUR PATENTS, TRADE SECRETS AND CONFIDENTIALITY AGREEMENTS MAY NOT ADEQUATELY
PROTECT OUR PROPRIETARY TECHNOLOGY, RIGHTS AND KNOW-HOW.
We rely on a combination of patents, trade secrets and confidentiality
agreements to protect our proprietary technology, rights and know-how. We hold 7
foreign patents, 54 U.S. patents (issued or allowed), and have 26 additional
U.S. patents pending. NeoPath's patents expire in 2012 -- 2018. Pending patent
applications may not ultimately issue as patents or, if patents do issue, may
not be sufficiently broad to protect our proprietary rights. Competitors may
challenge or circumvent our patents or pending applications. Our patents may
never provide us with any competitive advantages. We pursue selected
international patents only in key markets. In certain foreign countries,
protection of our patent and other intellectual property may be unavailable or
very limited. Given our focused strategy internationally, we have not
experienced significant inability to obtain sought-after intellectual property.
However, such protection may be unavailable or very limited in future markets
that we have not yet targeted. Our confidentiality agreements with employees and
other parties may not protect the confidentiality of our trade secrets and
proprietary information or provide meaningful protection for our confidential
information. In addition, our competitors could independently develop our trade
secrets or proprietary information.
WE HAVE FACED, AND MAY CONTINUE TO FACE, THIRD-PARTY CLAIMS OF INFRINGEMENT.
On July 15, 1996, 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 and requested monetary damages and injunctive relief. On
September 5, 1996, we filed our 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 us. The parties
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. Virtually all of our domestic
revenues, which represented 81% of total revenues in 1998, are derived from
products that incorporate technology covered by this patent. We believe NeoPath
has a strong position in this action, and we will defend against these claims
vigorously. On March 26, 1999, Neuromedical announced that it had filed a
voluntary chapter 11 petition for bankruptcy. On April 6, 1999, the court
removed the case from its active docket pending further developments in
Neuromedical's bankruptcy proceedings.
On March 31, 1997, NeoPath filed a patent infringement lawsuit against
Neuromedical in the United States District Court for the Western District of
Washington. Our 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 the court
denied in April 1998. In October 1998, Neuromedical filed another motion for
summary judgment that the court denied. By court order on March 30, 1999,
proceedings have been stayed pending resolution of Neuromedical's bankruptcy
proceedings. Furthermore, the court ordered that these cases be removed from the
court's active caseload.
9
<PAGE> 14
Our intellectual property acquisition agreement with AutoCyte provides
that the patent infringement litigation between NeoPath and Neuromedical will be
terminated, but our agreement with AutoCyte is subject to several conditions
that are beyond our control. Therefore, we cannot predict the outcome of this
patent litigation. An unfavorable resolution of any of these issues could
materially adversely affect our business.
THE LOSS OF OUR KEY PERSONNEL, PARTICULARLY HIGHLY SKILLED SCIENTIFIC AND
MANAGEMENT PERSONNEL, COULD CAUSE OUR BUSINESS PROSPECTS TO DECLINE.
We depend heavily on the principal members of our management and
scientific staff. The loss of their services might impede achievement of our
strategic objectives or research and development. Our success depends on our
ability to retain key employees and to attract additional qualified employees.
Competition for highly skilled scientific and management personnel is intense,
particularly in the Western Washington region, where such resources are scarce
relative to the needs of a growing high technology business sector. The failure
to recruit such personnel or the loss of existing personnel could adversely
affect our business. We do not carry key person life insurance on our executives
or other key personnel.
OUR STOCK PRICE HAS BEEN HIGHLY VOLATILE, AND WE EXPECT THIS VOLATILITY TO
CONTINUE, WHICH COULD RESULT IN LOWER STOCK PRICES FOR EXTENDED
PERIODS.
The market price of our common stock has been, and may continue to be,
highly volatile. Our stock trades on the Nasdaq National Market. Since the
beginning of 1998, our stock has traded as high as $18.19 and as low as $3.00
per share. The future price of the common stock is likely to be significantly
influenced by the following:
o results of our sales and marketing programs,
o the outcome of clinical trials by us or our competitors,
o concern about the safety or efficacy of our products or our
competitors' products,
o announcements of technological innovations or new products,
o changes in governmental regulation,
o changes in healthcare legislation,
o developments in our patent or other proprietary rights or the rights of
our competitors,
o fluctuations in our operating results, and
o general market and economic conditions.
The market price of our common stock could fall, and our stock price
may remain low for extended periods.
OUR QUARTERLY RESULTS MAY FLUCTUATE IN FUTURE PERIODS, AND THESE FLUCTUATIONS
MAY CAUSE OUR STOCK PRICE TO DECLINE.
We expect our operating results to fluctuate significantly from quarter
to quarter in the future. These fluctuations may cause our results to be below
analysts' and investors' expectations, causing the market price of our common
stock to decline.
For instance, our revenues for the quarter ended March 31, 1999
were $2.0 million, compared to revenues of $3.6 million in the quarter ended
March 31, 1998. Revenues in the quarter ended March 31, 1999 were lower
than in the quarter ended March 31, 1998 due to a 100% decrease in AutoPap
product sales. Revenues in the first quarter of
10
<PAGE> 15
1999 consisted of fee-per-use billings and AutoPap service fees, whereas
revenues in the first quarter of 1998 consisted of $1.1 million in fee-per-use
and AutoPap service fees, $2.4 million in AutoPap product sales, and $0.1
million in Pathfinder product sales. NeoPath's international AutoPap placements
have generally been product sales; the decrease in AutoPap product sales between
the quarters was primarily caused by a decrease in international product
placements in the first quarter of 1999 compared to the first quarter of 1998.
AutoPap product sales may generate significant revenues in future quarters, but
we cannot predict product sale revenues, which may not be realized. Quarterly
net losses have ranged from $8.1 million in the quarter ended December 31, 1998
to $4.8 million in the quarter ended December 31, 1997.
A number of factors have caused and may continue to cause these
fluctuations. For instance, fee-per-use contracts result in lower short-term
revenues than AutoPap product sales. Total revenues will be lower in quarters in
which there are few or no AutoPap product sales compared to quarters with
greater number of AutoPap product sales. Thus the timing and mix of fee-per-use
and sale revenues may cause substantial fluctuations in our total revenues from
quarter to quarter. Though we expect recurring fee-per-use revenues to grow,
AutoPap product sale patterns may continue to cause significant fluctuations in
revenues. Delays in the timing of medical reimbursement approvals may cause
revenues to decline in particular periods. Similarly, if our competitors
introduce new products we may experience unexpected delays in AutoPap
placements. For any of these reasons, our revenues may fall short of our
projections or analysts' expectations in particular periods.
In addition, our quarterly results may fluctuate significantly due to
the timing of our expenditures. We may need to spend relatively large sums in a
particular quarter to pay for clinical studies and regulatory submissions or to
fund research and development projects. In most cases, these expenditures will
not be immediately offset by increased revenues from the products supported by
these expenditures. Our results in quarters in which we make such expenditures
may not compare favorably to our results in other quarters.
THE YEAR 2000 PROBLEM MAY CAUSE DISRUPTION OF OUR OPERATIONS BECAUSE WE CANNOT
CONTROL COMPLIANCE BY OUR SUPPLIERS AND SUBCONTRACTORS, AND BECAUSE
WE HAVE NO CONTINGENCY PLANS.
We need to modify or replace certain portions of our internal systems
and product software and certain hardware so that those systems will properly
recognize dates beyond December 31, 1999. However, we have identified no
significant Year 2000 issues that cannot be resolved through software or
hardware upgrades that are currently available or expected to be available soon.
We are using our existing internal resources to reprogram or replace
noncompliant internal systems and product hardware and software. However, if
such modifications and replacements are not made, or are not completed in a
timely manner, the Year 2000 issue could result in system errors or failures and
could significantly disrupt Neopath's and its customers' operations.
We have asked our significant suppliers and subcontractors about their
Year 2000 compliance status. To date, we are not aware of any external agent
with Year 2000 problems that would materially affect our results of operations,
liquidity, or capital resources. However, we have no means of ensuring that
these agents will be Year 2000 ready. If our suppliers and subcontractors do not
complete their Year 2000 resolution process in a timely fashion we could face
significant business interruptions that could harm our business. We cannot
accurately predict the effect of non-compliance by external agents.
The Company currently has no contingency plans in place in the event it
does not complete all phases of the Year 2000 program, including the possibility
that its external agents are not Year 2000 ready. If we or others do not make
necessary modifications and conversions, or do not complete them on time, the
Year 2000 Issue could disrupt NeoPath's operations and materially affect its
business, financial condition, and results of operations.
11
<PAGE> 16
FORWARD-LOOKING INFORMATION
This prospectus includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Act
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about themselves so long as they identify
these statement as forward-looking and provide meaningful cautionary statements
identifying important factors that could cause actual results to differ from the
projected results. All statements other than statements of historical fact we
make in this Prospectus or in any document incorporated by reference are
forward-looking. In particular, the statements herein regarding industry
prospects and our future results of operations or financial position are
forward-looking statements. Forward-looking statements reflect our current
expectations and are inherently uncertain. Our actual results may differ
significantly from our expectations. The section entitled "Risk Factors"
describes some, but not all, of the factors that could cause these differences.
HOW TO OBTAIN MORE INFORMATION
We file reports, proxy statements and other information with the
Securities and Exchange Commission. You may read any document we file at the
SEC's public reference rooms in Washington, D.C., Chicago, Illinois and New
York, New York. Please call the SEC toll free at 1-800-SEC-0330 for information
about its public reference rooms. You may also read our filings at the SEC's web
site at http://www.sec.gov.
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act. This prospectus does not contain all of the information in
the registration statement. We have omitted certain parts of the registration
statement, as permitted by the rules and regulations of the SEC. You may inspect
and copy the registration statement, including exhibits, at the SEC's public
reference facilities or web site. Our statements in this prospectus about the
contents of any contract or other document are not necessarily complete. You
should refer to the copy of each contract or other document we have filed as an
exhibit to the registration statement for complete information.
The SEC allows us to "incorporate by reference" into this prospectus
the information we file with it. This means that we can disclose important
information to you by referring you to those documents. This information we
incorporate by reference is considered a part of this prospectus, and later
information we file with the SEC will automatically update and supersede this
information. We incorporate by reference the documents listed below and any
future filings we make with the SEC under Sections 13(a), 13(c), 14 and 15(d) of
the Securities Exchange Act of 1934 until this offering is completed:
1. NeoPath's Annual Report on Form 10-K for the year ended December
31, 1998;
2. NeoPath's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999;
3. NeoPath's Report on Form 8-K filed June 23, 1999;
4. The description of the common stock in NeoPath's Registration
Statement on Form 8-A effective as of November 30, 1994, including
any amendment or report filed to update the description; and
5. All other documents filed by NeoPath pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this
prospectus and prior to the termination of this offering.
You may obtain copies of these documents, without exhibits, free of
charge by contacting NeoPath's corporate secretary at our principal offices,
which are located at 8271 -- 154th Avenue NE, Redmond, Washington 98052,
telephone number (425) 869-7284. You may visit our website at www.neopath.com.
12
<PAGE> 17
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. The selling shareholders
are not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of the document.
13
<PAGE> 18
SELLING SHAREHOLDERS
The following table presents information regarding the selling
shareholders and the number of shares they may offer by this prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
SHARES THAT MAY BE SOLD AFTER OFFERING
------------------------ ---------------------------------
PERCENTAGE
SHARES OF
BENEFICIALLY COMMON PERCENTAGE OF
OWNED PRIOR STOCK COMMON STOCK
NAME OF SHAREHOLDER TO OFFERING AMOUNT OUTSTANDING AMOUNT OUTSTANDING
------------ --------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
The Kaufmann Fund, Inc. 2,071,000 1,821,000 10.5% 250,000 1.4%
Capital Research and Management 1,121,400 500,000 2.9% 621,400 3.6%
Company on behalf of SmallCap World
Fund, Inc.
The Jenifer Altman Foundation 21,000 7,000 * 14,000 *
Alza Corporation Retirement Plan 21,000 6,000 * 15,000 *
Dean Witter Foundation 21,000 6,000 * 15,000 *
The Ferris Hamilton Family Trust 15,000 5,000 * 10,000 *
John J. & Catherine H. Kayola 4,000 4,000 * -- *
Arthur D. Little Employee
Investment Plan 160,000 60,000 * 100,000 *
The Magee/Bernhard LLC 43,000 18,000 * 25,000 *
The Meehan Investment
Partnership I, L.P. 16,000 4,000 * 12,000 *
Margaret M. Legacy 21,000 6,000 * 15,000 *
NFIB Employee Pension Trust 32,000 12,000 * 20,000 *
NFIB Corporate Account 28,000 15,000 * 13,000 *
Norwalk Employees' Pension Plan 72,000 12,000 * 60,000 *
Public Employee Retirement
System of Idaho 270,000 120,000 * 150,000 *
Roanoke College 26,000 6,000 * 20,000 *
The A & JS Family LLC 27,000 11,000 * 16,000 *
City of Stamford Firemen's
Pension Fund 53,000 18,000 * 35,000 *
State of Oregon PERS/ZCG 840,000 240,000 1.4% 600,000 3.5%
</TABLE>
14
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C>
Van Loben Sels Foundation 21,000 5,000 * 16,000 *
The A & SW Family LLC 27,700 12,000 * 15,700 *
Wells Family LLC 31,000 6,000 * 25,000 *
Wolfson Investment Partners LP 26,000 6,000 * 20,000 *
--------- --------- ----- --------- -----
4,968,100 2,900,000 16.7% 2,068,100 11.9%
</TABLE>
- ----------------------
* Less than 1%
15
<PAGE> 20
None of the selling shareholders has had any material relationship with
NeoPath or its affiliates within the past three years. The selling shareholders
purchased all of the shares from NeoPath in a private transaction on February 9,
1999. All of the shares were "restricted securities" under the Securities Act
prior to this registration.
The selling shareholders have represented to us that they purchased the
shares for their own account for investment only and not with a view towards
selling or distributing them, except pursuant to sales registered under the
Securities Act or exemptions. NeoPath agreed with the selling shareholders to
file the registration statement to register the resale of the shares. NeoPath
agreed to prepare and file all necessary amendments and supplements to the
registration statement to keep it effective until the earlier of (1) February 9,
2001 and (2) the date on which the selling shareholders have sold all the
shares.
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the selling shareholders and
their successors (including donees and pledgees, who may sell shares they
receive from the selling shareholders after the date of this prospectus). The
selling shareholders or their successors may sell all of the shares from time to
time in transactions in the over-the-counter market through Nasdaq, or on one or
more other securities markets and exchanges, in privately negotiated
transactions or through writing options on the shares. They may sell the shares
at fixed prices that may change, at market prices prevailing at the time of
sale, at prices relating to prevailing market prices or at negotiated prices.
The selling shareholders may sell the shares to or through broker-dealers. These
broker-dealers may receive compensation in the form of discounts, concessions or
commissions from the selling shareholders and/or the purchasers.
The selling shareholders have advised us that they have not entered
into any agreements, understandings or arrangements for the sale of the shares
with any underwriters or broker-dealers and that no underwriter or coordinating
broker is now acting in connection with the proposed sale of shares.
NeoPath will not receive any proceeds from the sale of the shares by
the selling shareholders. NeoPath may suspend use of this prospectus under
certain circumstances.
The selling shareholders and broker-dealers who assist in the sale of
the shares may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Any commissions or profit they earn on any resale of the shares
may be underwriting discounts and commissions under the Securities Act. Selling
shareholders who are "underwriters" within the meaning of Section 2(11) of the
Securities Act will be subject to the prospectus delivery requirements of the
Securities Act. We have informed the selling shareholders that the
anti-manipulative provisions of Regulation M of the Exchange Act may restrict
their sales in the market.
NeoPath will pay all expenses, other than selling commissions and fees
and stock transfer taxes, of the registration and sale of the shares. NeoPath
also has agreed to indemnify the selling shareholders and broker-dealers who
assist in the sale of the shares against certain liabilities, including
liabilities under the Securities Act. The selling shareholders may indemnify any
agent, dealer or broker-dealer that assists them in selling the shares against
certain liabilities, including liabilities arising under the Securities Act.
We cannot guarantee that the selling shareholders will sell any or all
of the shares.
16
<PAGE> 21
VALIDITY OF COMMON STOCK
Perkins Coie LLP, Seattle, Washington, will provide NeoPath with an
opinion as to legal matters in connection with the common stock offered by this
prospectus.
EXPERTS
The financial statements of NeoPath, Inc. incorporated by reference in
NeoPath, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1998,
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon incorporated by reference therein and incorporated herein
by reference. Such financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
17
<PAGE> 22
================================================================================
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE YOU ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. YOU SHOULD
NOT RELY ON ANY INFORMATION OR REPRESENTATIONS OTHER THAN THIS PROSPECTUS. THIS
PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE COMMON STOCK. IT IS NOT AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY SECURITIES IF THE OFFER OR SOLICITATION WOULD BE
UNLAWFUL. THE AFFAIRS OF NEOPATH MAY HAVE CHANGED SINCE THE DATE OF THIS
PROSPECTUS. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS
CORRECT AT ANY TIME SUBSEQUENT TO ITS DATE.
--------------------
================================================================================
================================================================================
2,900,000 SHARES
NEOPATH, INC.
COMMON STOCK
--------------
PROSPECTUS
--------------
JULY __, 1999
================================================================================
<PAGE> 23
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts payable, by the registrant in connection with the sale of
common stock being registered. All amounts are estimates except the SEC
registration fee and the Nasdaq National Market additional listing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee .......................... $ 4,233
Nasdaq National Market listing fee ............ 17,500
Legal fees and expenses ....................... 25,000
Accounting fees and expenses .................. 10,000
-------
Total .................................... $56,733
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 10 of the registrant's Bylaws provides for
indemnification of the registrant's directors, officers, employees and agents to
the maximum extent permitted by Washington law.
Section 23B.08.320 of the Washington Business Corporation Act
authorizes a corporation to limit a director's liability to the corporation or
its shareholders for monetary damages for acts or omissions as a director,
except in certain circumstances involving intentional misconduct, knowing
violations of law or illegal corporate loans or distributions, or any
transaction from which the director personally receives a benefit in money,
property or services to which the director is not legally entitled. Article 8 of
the registrant's Articles of Incorporation contains provisions implementing, to
the fullest extent permitted by Washington law, such limitations on a director's
liability to the registrant and its shareholders.
The Registrant also has entered into indemnification agreements under
which it has agreed, among other things, to indemnify its directors and officers
against certain liabilities.
<PAGE> 24
ITEM 16. EXHIBITS
5.1* Opinion of Perkins Coie LLP, counsel to the registrant,
regarding the legality of the Common Stock
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Perkins Coie LLP (contained in Exhibit 5.1)
24.1* Power of Attorney (contained on signature page)
* Filed previously on February 12, 1999 (File No. 333-72261).
ITEM 17. UNDERTAKINGS
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933; and
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
the Registrant's annual report pursuant to Section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing
-2-
<PAGE> 25
provisions, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
D. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
-3-
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Amendment
No. 2 to the Registration Statement to be signed on its behalf by the
undersigned, thereunder duly authorized, in the City of Redmond, State of
Washington, on the 2nd day of July, 1999.
NeoPath, Inc.
By: /s/ ROBERT C. BATEMAN
-----------------------------------------
Robert C. Bateman
Vice President, Finance, Chief Financial
Officer, Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities indicated below on the 2nd day of July, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ RONALD R. BROMFIELD President, Chief Executive Officer, and Director
- ----------------------------------------- (Principal Executive Officer)
Ronald R. Bromfield
* Chairman of the Board
- -----------------------------------------
Alan C. Nelson
/s/ ROBERT C. BATEMAN Vice President, Finance, Chief Financial Officer,
- ----------------------------------------- Treasurer and Secretary (Principal Financial and
Robert C. Bateman Accounting Officer)
* Director
- -----------------------------------------
Thomas A. Bonfiglio
* Director
- -----------------------------------------
Cristina H. Kepner
* Director
- -----------------------------------------
Walter L. Robb
* Director
- -----------------------------------------
William L. Scott
</TABLE>
-4-
<PAGE> 27
<TABLE>
<S> <C>
* Director
- -----------------------------------------
David A. Thompson
* By: /s/ ROBERT C. BATEMAN Attorney-In-Fact
- -----------------------------------------
Robert C. Bateman
</TABLE>
-5-
<PAGE> 28
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<S> <C>
5.1* Opinion of Perkins Coie LLP, counsel to the registrant, regarding
the legality of the Common Stock
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Perkins Coie LLP (contained in Exhibit 5.1)
24.1* Power of Attorney (contained on signature page)
* Filed previously on February 12, 1999 (File No. 333-72261).
</TABLE>
-6-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-3 No. 333-72261) and
related Prospectus of NeoPath, Inc. for the registration of 2,900,000 shares of
its common stock and to the incorporation by reference therein of our report
dated February 9, 1999, with respect to the financial statements of NeoPath,
Inc. incorporated by reference in its Annual Report (Form 10-K) for the year
ended December 31, 1998, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Seattle, Washington
July 1, 1999
